The REIT Stuff with Jon Cheigh of Cohen and Steers

Greg Dowling (00:05):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:29):

Everywhere we look we see real estate. Whether it's going to work in an office, visiting a doctor, shopping at a mall, staying in a hotel, or even that cell tower that links our smartphones, real estate is everywhere. But from an institutional investment perspective, how much do we really know about the space? Even before COVID there was a lot of disruption going on below the surface. COVID just supercharged those changes. Today we are hosting Jon Cheigh, the CIO and head of global real estate for Cohen & Steers, one of the largest real estate managers in the world. He's going to walk us through trends, valuation, differences between public and private markets, and where the industry goes post-COVID. He's going to give us the REIT stuff.

Greg Dowling (01:14):

Jon, welcome to the FEG Insight Bridge. Would you mind taking just a few moments to introduce yourself and Cohen & Steers?

Jon Cheigh (01:20):

My name is Jon Cheigh. I'm chief investment officer at Cohen & Steers. For those that don't know Cohen & Steers, we are a focused boutique asset manager. Our two big areas of focus are listed real assets, particularly real estate. And our second big area is alternative income, specifically preferred securities.

Greg Dowling (01:39):

We're excited to have you here. So before we take too big of a deep dive into real estate, let's level set a bit. Can you maybe define what a REIT is?

Jon Cheigh (01:48):

Yeah, sure. No, absolutely. I think whenever there's an acronym, it feels like there's a barrier too. What is that? What is a REIT. A REIT, the acronym just stands for real estate investment trust. Congress, in 1960, created this REIT structure and the idea was really to democratize access to institutional quality income-producing real estate, that this shouldn't just be about institutions, and shouldn't just be about super wealthy individuals. And so a REIT is just a real estate owner-operator. It's a company that owns a high-quality real estate portfolio that generates income.

Jon Cheigh (02:25):

They typically trade on an exchange--like the New York Stock Exchange. Part of the deal with Congress 61 years ago was that REITs would pay out, essentially, at least 90% of their actual net income to their shareholders so that shareholders could enjoy the benefits of institutional-quality real estate just like institutions did. So over time, it's an industry that's grown and it's turned out to be a great investment area for individuals and institutions to get access to and exposure to institutional-quality real estate and all the investment attributes that go with it.

Greg Dowling (03:02):

So how big is the REIT universe? How many REITs are there?

Jon Cheigh (03:06):

These days there's about 200 different REITs, and that's just here in the U.S. Globally, that number's closer to 400. When you look just here in the U.S., these 200 or so companies, they own on the order of 2.5 trillion of real estate assets. That's a market cap of about $1.5, $1.6 trillion. So quite large. And of course, you might be thinking, "Well, why are there 200 of these REITs? What makes one different than the other?" These 200 different REITs, they are invested in 13 different kinds of sectors or property types. This is not just office, or malls, or hotels. There's a wide range of different kinds of property types that I think we should talk more about. But also they may just be focused in different geographies. So if there's 200, you might have your California apartment company, you might have your Washington DC office company. So it's a big menu with a wide selection of choices for people like us--active managers--to say, "We love this one, or we hate that one."

Greg Dowling (04:06):

Some investors might be surprised that one of the better-performing areas this year has been REITS. It's been a tremendous year for REITs. What's driven that?

Jon Cheigh (04:16):

To put it into context--and I'll just talk as of the end of August--U.S. REITs were up 29%. Great! Now, U.S. equities overall were up 22%. So we've certainly seen outperformance this year on the U.S. REIT side. I think to put this into context, last year, REITs were relative underperformers, meaning the equity market last year was also up 18%, same as this year, but REITs were down 5% last year. In a lot of recessions actually, REITs can be defensive because they have contractual income, they pay dividends. But last year was unusual because we were socially distancing. We were all in our homes, in our apartments, and things like that.

Jon Cheigh (04:56):

So normally the dividends and cash flows of REITs tend to be defensive in recession, but last year was an unusual recession with unusual impact. So I'd say real estate was hurt more than the average business last year, so it underperformed. And this year, while certainly we're talking here on video, so we're not 100% back to normal, Certainly there has been some catch-up as we've reopened. And you've seen that malls are busier, hotels are starting to get busier, offices are starting to get busier. So I think you're seeing a rebound from social distancing and that's playing out in stocks.

Greg Dowling (05:33):

Not to rain on the parade. It's been a great year, but more recently there's been a little bit of pullback just as rates have increased. So what is the rate sensitivity of REITs?

Jon Cheigh (05:43):

REITs have been around for 61 years, but it's really probably only been last 30 or so years where you could say, "Let's observe how REITs behave at different points in time as it relates to interest rate cycles." I would say that when you look at how REITs respond when interest rates are up, usually in the short-run--so let's just say that first month or two--you do see them pull back, that's kind of the first reflex. But what you find over time is that REITs then tend to rebound and put up actually very positive returns in rising interest rate environments.

Jon Cheigh (06:16):

So that seems very counterintuitive because people might say, "Well, why should REITs actually do well when interest rates are rising?" It all has to do with why the interest rates are rising. If interest rates are rising because we're in a point in time where either hopefully real GDP is growing or inflation or growing... Better growth and some amount of inflation are positives for real estate. And those are much bigger positives than might be the negatives of higher interest rates. So that's why there's a little bit of a short term, but then the kind of longer term fundamental pace of good growth is better for real estate turns out to be the more persistent trend.

Greg Dowling (06:57):

And we'll talk a little bit more about inflation a little bit later, but I wanted to talk about COVID. COVID has had such a major impact on so many industries, but boy, real estate--and especially things like retail and office--it's been amazing. So maybe we'll start with just on the retail side, what's going on there, are we just going to be in an e-commerce world?

Jon Cheigh (07:16):

I think that while COVID has had negatives from a health standpoint, but from an economic and industry standpoint, there's been some positives and negatives for the economy as a whole. There are winners and losers, and I think real estate is just a reflection that there are some winners and losers. On the loser side of the ledger, I would say that retail early on was a loser, if you will. We had been, as a firm, quite negative on retail for really the last four or five years. In some perverse way, there's actually some positives. And again, this is coming from someone that's not that positive on retail going into this. There have been some counterintuitive positives that have emerged from this.

Jon Cheigh (07:57):

So let's just take your local shopping center. Shopping centers tend to be suburban, not urban. And we expect that people like me, maybe people like you, and maybe people like your viewers and listeners may go to more of a hybrid live-work kind of experience. And so that means while it's a bit of a negative for my Manhattan sandwich place, the REIT market doesn't have a lot of exposure, frankly, to urban retail, it has a lot more exposure to the suburban shopping center. And so the bagel store, the sandwich place, the workout place, they're all going to see more retail dollars, frankly, decentralized most metropolitan areas. So for suburban shopping centers, oddly, I think there are some positives.

Jon Cheigh (08:45):

I also think on the mall side... We've always been in this trend where there are going to be some that are going to die over time. I'd say there's been an acceleration of that, but for the so-called "survivors," I think they'll end up stronger. Our government has pumped a lot of fiscal stimulus into the system. So government sends money to people, people go to the store, and essentially that sends money to retailers. So in some odd way, for the retailers that have made it through--which, unfortunately it's not the mom and pop, it's tended to be more the national retailers--their balance sheets are stronger today. The money went from the government to consumers to national retailers. So the balance sheets of retailers is much stronger today than it was two years ago. And that's been a big positive for all shopping, so a little counterintuitive actually.

Greg Dowling (09:36):

It seems like more the lifestyle centers that have done a lot better than the old, Class C type of malls. We're more likely to go to the Starbucks or the outdoor eating area that also has retail around that. So that that's certainly feels like that's changed a little bit and maybe you can comment. But I also wanted to ask you a question too: Is the best way to play retail to invest in logistics and e-commerce or warehouses? Is that a play on retail?

Jon Cheigh (10:02):

I think it's part of it. I think it's going to be a different play. The e-commerce logistics, that's a play on consumption and to the move to e-commerce, which is gonna continue to be the the case. And so I think there's a very strong story for there. That being said, valuation for things in logistics--it's not just the REIT market, this isn't a private market. No, things have run there. It doesn't mean it's a bubble or anything like that, it just means they went from being really cheap to--they're more on the expensive side to other things. Again, four or five years ago we didn't like retail when people thought retail was fine. Now we're at the point where the average person thinks retail is bad, and for us, as an investor looking for value, see value there. Doesn't mean it's as good as logistics, but it's about the valuation relative to what those fundamentals look like.

Jon Cheigh (10:58):

But, Greg, to your point on those lifestyle centers, we're social beings, there's a lot of positives towards working from home and things like that. We know that there's going to be--I've been saying to people like, "If you're ever going to own a restaurant, these are the two years." Besides the labor side, right? Besides the labor side. But as it relates to just the amount of pent up socialization that wants to happen, your neighborhood shopping center is going to be busy as it relates to restaurant. Even in a hybrid work-from-home environment--like when I'm working from home, when you're working from home--you're going to want to get out during the course of that day. You're going to want to get out some. That's business that a suburban shopping center didn't have three years ago, because it might've done 4 hours of business during the week and 12 hours on the weekends. Basically there's just more days in a week that are going to be busy.

Greg Dowling (11:52):

I love that point you made: valuations matter, price matters. Yes, logistics are a growing part of everything, retail especially, but everybody's figured that out. So if you're late to the game, it's expensive. Where everybody hates retail, so if you pick the right retail exposures that might actually be a good thing. I think that's a great, great point. You can't just do these things in isolation.

Greg Dowling (12:17):

I wanted to maybe switch gears a little bit because when I think retail, the other thing I think about is office. I'm doing this from my office and we're maybe about a third in. I was just recently in New York and it's starting to come back. I think everybody's adopting some form of a hybrid work schedule, whether that's three days in the office or two days--or whatever it is for that particular business. Office has really been transformed by COVID. But at the same time, everybody signs long-term leases. So is all of the change priced in to office right now? What's going on with office?

Jon Cheigh (12:56):

We were not that positive on office going into COVID. In contrast to us becoming more positive on retail. I'd say on office, as a whole--because again, this is real estate, it's not like there's one office you could invest in or one shopping center you can invest in. There's tens or hundreds of thousands of opportunities, so you just need to find 5 or 10 that are different than kind of broad brush.

Jon Cheigh (13:17):

I think the broad brushes--we weren't that positive going into COVID. I'd say that as a general rule, you could see work-from-home this trend being anywhere between 5% or 10% negative over time to the demand picture, and it's going to take time. Like you were saying, it doesn't just happen overnight. People don't just rip up their leases, much as they might like to. They don't just rip up their contracts. But they do deal with it over time. So instead of companies growing their office space 10 or 20% at the end of a 5- or 10-year lease, they might keep it the same or they might shrink it 20%. So we think it's probably like a 5% or 10% negative over time. For those that want to go to the extreme to say, "well how is that possible If you work from home? If only 60% of people show up in a given day, why can't you give up 40% of your space?"

Jon Cheigh (14:05):

As you know, no one might show up on a Friday, but even though 60% on average might show up over the course of a week, it might be 90% on Tuesday, 90% on Thursday. So unless you really want to go down that path of trying to smooth out your office utilization over the course of the week, which I don't see happening, you're not really saving 40% of your office space. I think the bigger hit comes if you think some portion of your employees--so 10% of FEG employees all of a sudden become completely remote or 10% of clients [inaudible]. That's when I think it changes. So just like Cohen & Steers, we're not going--100% of our employees can't be fully remote. Are there 5%, 10%, 15% of probably any companies that could go fully remote? I think that's possible, depending upon your business. And so that's where... Maybe a bank's employees, instead of going to New Jersey from New York, some people are in Tampa, some people are in Dallas, some people are in Salt Lake. It's those fully remote that may grow and have a big--5% or 10%. But it's a negative though.

Greg Dowling (15:09):

That's a great point though. We're seeing a lot of change going on. And when we think of office, I think most people in their head visualize "Manhattan office." How much is it different by geography? Also by property type? Is Dallas medical office a lot better than owning Manhattan class A space?

Jon Cheigh (15:28):

They're hugely different. From a geographical standpoint--not exactly a zero sum game, but it is, there's some out-migration and in-migration that's happening. Obviously a place like Phoenix has boomed. Vegas, booming. Austin, booming. And then you have places like New York and Boston. They are not booming. Americans aren't leaving the U.S., they're just finding different places to live and enjoy their lives. And so from the geographical side, there are winners and losers. From a sector standpoint, there are some malls that will go away--that's negative--but there are some logistics facilities off the highway that don't look very interesting or trophy-like to you, but they're doing really well.

Jon Cheigh (16:12):

We see this in our own business where the move towards passive management has grown and grown and grown. But certainly in the last 12 months--I don't know if this is the case outside of real assets--we're definitely seeing people say, "You know what? There's a lot of disruption. This is not just a everything's going up. And if it's not an "everything's going up" kind of world, I need to identify winners and losers." Because a lot of times the losers are big parts of indices because they're the ones that had a big market share of whatever they were doing and they're shrinking. So yeah, New York was the biggest city. It will probably still be the biggest city for a while, but it may underperform for a while. So if you're just exposed to the big cities, you may get hurt by that.

Greg Dowling (16:52):

Absolutely. Speaking of everything going up--maybe the last COVID-related question--I'm blown away by how much hotels have gone up. I guess we're traveling again for leisure, but business travel is still pretty flat on its back. How are hotels price so richly?

Jon Cheigh (17:09):

Let's put this into context. The S&P 500 was up 18% last year and 18% this year, so the overall equity market is up a lot. Okay. I can't do the math, but 18 and 18 seems it's up a lot--35%, 36%, I'm sure there's some compounding in there. So the overall market's up a lot. I would say the hotel real estate companies, depending upon the company they might be down a little bit versus where they were pre-COVID or they might be up a little depending upon their footprint. So I think that for the leisure side of the business, kind of like that restaurant side we were talking about, like huge pent-up demand, huge pent-up demand.

Jon Cheigh (17:46):

I also think that with work-from-home or work-from-anywhere, people are going to have a lot more flexibility. I don't think it's all that flexibility is going to end up in the hotel market. Airbnb, VRBO--there's other places besides your hotel REIT. But I do think that instead of this being people work in New York for 48 weeks a year and then they are in a--pick your company--Marriott hotel for 4 weeks a year, this could look really different. It really could look different. People could be traveling and working 12 weeks out of the year, not 4. Now, maybe all 12, like I said, it could be 6 are in VRBO and 6...

Jon Cheigh (18:26):

So I think the leisure side is going to grow, definitely going to grow. I think the business side... I actually think there'll be pent-up corporate demand. "Hey, I haven't seen my clients in a while, I better go out and see them." But once we get through that, we think you'll probably be down 10% or 15%, potentially more. That's why, again, like we've talked about, there's winners and losers, and we think you need to be targeted. If you're a big convention center hotel in New York, Chicago, or San Francisco, you're kind of on the losing side. If you're a resort hotel, the next five years look brighter than you would've thought they were going to look 2 years ago.

Greg Dowling (19:01):

That's a great point. And we've kind of hit the poster childs of COVID--I think of retail and maybe a little bit of restaurants, but then also office and hotels. When we were talking a little bit pre-call I loved a line that you used: "Hey, this isn't your dad's REIT index or REIT universe anymore, these are pretty small." So maybe talk to us a little bit about like that vis-a-vis some of those other things that maybe you alluded to earlier in the call that are pretty interesting and really growing.

Jon Cheigh (19:31):

That's the big thing. I've been involved in real estate for 25 years or so, and the really cool things you wanted to be involved with back then were big shiny office buildings, hotels, and malls, those were the trophies, the things you wanted to put on your annual report. When you look at the REIT sector now, the biggest sector in the REIT market today are cell towers. They're 16% of the U.S. REIT market. After that are warehouses, 11%, and after that are data centers. While these aren't things that you would proudly put a picture of your data center or cell tower in your headquarters balls, fully 36%--towers, data centers and logistics--36% of the REIT index are things that you would associate with essentially some kind of like e-commerce, cloud, supply chain.

Greg Dowling (20:20):

You know, the crazy thing is, outside of a real estate investor, if you just asked most investors--broad investors, allocators, "Hey, what's the biggest allocation in the REIT index?" I would bet the majority of people would not say cell towers. I think that's a surprise to most people,

Jon Cheigh (20:37):

For sure. Look, it's no different than if you look at the equity index today versus 20 years ago. Ten years ago, or at some point, a bank was the biggest part of U.S. equity index. And then at some point it was GE. At some point it was Exxon Mobile. So in the same way our equity indices, they change. And frankly, the indices always reflect the future, right? They don't reflect the economy of today, they reflect growth prospects. So it's changed a lot. I was just looking at our U.S. real estate portfolio, and 1.5% of our U.S. real estate portfolio is invested in one office [inaudible]. It's not that it's an irrelevant sector. It's pretty small, but retail is only 8% of a benchmark. So there's many things like apartments and healthcare and all these things that are much bigger than retail. Things have certainly changed a lot. The real estate we need in the future, not the real estate we used to be.

Greg Dowling (21:28):

Well, it's even bigger than that, right? I'm thinking like manufactured housing and self-storage. Talk to us about some of the other areas--they may not be bigger allocations--but that have been put into restructures.

Jon Cheigh (21:39):

I said earlier that when you look at U.S. REIT market that there's 13 different sectors and that's great because as active managers, that provides us options. So there's different kinds of residential. There's your regular, multi-family apartment or time there's single-family for rent. There are things like manufactured housing, which doesn't seem like the most interesting business in the world, but it's been a great business. There's things like self-storage. There's things like healthcare. And within healthcare there's medical office buildings, there's senior housing, there's life science and biotech buildings. Each of those is a little bit different driver of what makes them [inaudible] or not. Within retail, there's malls and shopping centers. Of course there's different kinds of office. There's student housing or university housing. There's data centers, industrial. Over time there's actually gaming facilities. [inaudible] Blackstone REIT, the Cosmopolitan, a big casino in Las Vegas. And there's a wide variety of different kinds of investment options for us.

Greg Dowling (22:38):

If it's physical and there's a lot of it, it's probably been securitized or put into a structure. Really amazing how you can invest in all these different areas. I think it's fascinating. But when you talked about valuations earlier, maybe real quick, what are the best ways to value real estate? Everybody knows stocks and maybe will look at price to earnings. What are the right metrics for public real estate?

Jon Cheigh (23:03):

There's really two primary ways that we try to figure out relative value. One is: it's a real estate company, so we're trying to value the real estate. And so we come up with each company, our view of what is its net asset value. Of course there are appraisers, but sometimes, no offense, that could be a little backwards-looking. We are going to express our own view of: "What do we think the sum of the parts real estate portfolio, what's it worth?" So four or five years ago, maybe we thought, "Wow, these malls they're really overvalued." Not that an appraiser would tell us that, but we just thought this is where the road's going, here's our view of where we're gonna end up. So one is: what is it worth versus just the real estate value?

Jon Cheigh (23:41):

The second is more of a point concerned with valuation. So we're doing a discounted cash flow. The distinction here is--the first measure is to just say, "What's the real estate worth?" But these are companies, some of them are really good companies, and they should be worth more than the sum of their parts. And some of them aren't that great. Those that are not that great, maybe they should be worth less than the sum of their parts. That's why it's important in thinking about REITs that it's not just some passive portfolio you're buying. Some of them are great companies that always traded a premium to the underlying real estate. That's because they make smart decisions. They're like great portfolio managers, they add alpha. So we look at them in both measures, and every now and then we find stocks that look great on both measures.

Greg Dowling (24:21):

So when we look at public valuations, how does that compare to private valuations? There's been a lot of public to private. What does that say about the different ecosystems and how they're valued in the markets?

Jon Cheigh (24:34):

That's an interesting point, because when you look at other parts of the equity market, you don't normally compare it to some private market, necessarily. There's a couple of instances where you see that, but I think you do that in the real estate market, because the reality is while the REIT market is a big market, the private market is a bigger market. So if the REIT market trades at too big of a discount to the private market, it's an arbitrage opportunity. Like I said, I've been doing REITs for 20 years, and probably seen a Blackstone or a KKR or someone take private a REIT 30, 40, 50 times in my career. Just in the last 6 months or so, you've seen Blackstone take private a data center company for 30% premium. We actually saw PIMCO take private an office company about a month or so ago for 15%, 20% premium.

Jon Cheigh (25:21):

So I think it certainly depends on the company. If you're a really good company and you're doing well, I don't think they're necessarily going to be taken private. Maybe they don't trade that cheaply in a public market. But there is some downside protection, if you will, because if a company isn't getting it done, they could always get an M&A target or activists. And we see activists in the space, definitely, or just some kind of a friendly M&A. So I definitely think it's a reflection that there's product capital in the private markets and there's a lot of high-quality companies trading at good valuation in the public market. And I don't want to say smart money, but certainly intelligent enough money to seeming to be entering the public space.

Greg Dowling (26:01):

If you think about it from just sort of a purely philosophical standpoint, there should be a premium for liquidity. And it seems like the private market is a lot more expensive than the public market in real estate--and probably in a lot of other areas too, outside of real estate.

Jon Cheigh (26:18):

In theory, there should be an illiquidity premium to be in private. And I think the data says that you do see that in things like private equity and venture capital. I don't study that, but that's the research I've read. You don't see that in real estate, which sometimes surprises people because they think, "Oh, well, I'm tying my money up. Certainly I must get that." But you don't see that. And so, again, I think that's a generalization, I'm sure that there's a private fund and there's a private opportunity where you do earn an illiquidity premium. But if one were to just compare the last 10, 20 years, you went into a private fund versus if you went through a REIT, which one would you have done better on--under most time periods, you would have done better investing in a REIT. These things go in phases. But I said earlier, we're talking to more people about going active versus passive. We're talking to more people who look at their real estate portfolio and are wondering, "Hey, should I be more in REITs than core real estate?" Sometimes there's a new CIO or something that has a different view, and I think that it's healthy to break them of some of those prior assumptions.

Greg Dowling (27:22):

A couple of other questions--and this is kind of on the current environment. We talked a little bit about rates, so we kind of hit that, and we talked a little bit about inflation. There's also a lot of other things going on from a kind of a political and policy standpoint. Does anything like the infrastructure bill or any of the tax increases, does any of that impact real estate?

Jon Cheigh (27:46):

I would say there's not big direct impacts. Like any fiscal package that requires increased corporate taxes, generally REITs aren't going to be affected by that because REITs don't pay corporate income tax. Now, if you go back to, I guess in 2017, when we lowered corporate taxes, that was a positive for the equity market, but it didn't help REITs. To the extent that there's a partial reversal of that, you could see--you've seen estimates, people say, "Oh the S&P 500 earnings, they're worth 5%, 8%, 10%. You won't see similar kinds of research notes. So it's not that it's a positive for REITs, it's just that they avoid a negative of higher taxes. I'd say on the infrastructure side, to the extent the infrastructure is done in a way in which we all hope that enhances GDP in the short term but also enhances productivity of GDP in the long term. Again, better growth is good for real estate, but that's more indirect. There are some provisions on rural broadband access, I think that will be a positive for $50 billion, $60 billion, something like that. That'll be a positive for our REITs because it's just more money going into this idea that you need to connect everybody, or more of us, because it's a necessity in today's economy. And so I think that that'll be a positive, but it's not 20% game-changer, it's a modest positive.

Greg Dowling (29:04):

As the REIT industry has changed and it's not your dad's REIT index, this is not your dad's infrastructure bill. There's a pretty small component that's in roads and bridges, there's a bigger that is more on digital infrastructure and 5G and connecting rural communities. And that translates pretty well for towers. So people probably don't even get that. They're like, "Oh, roads and bridges. And maybe is that good for like other physical real estate?" And I don't know--maybe, maybe not. But it definitely helps towers.

Jon Cheigh (29:38):

For sure. For sure.

Greg Dowling (29:39):

So we've talked U.S. Home country bias. We're in the U.S., we mostly invest in the U.S., but REITs are not just a U.S. construct or idea. Right? So talk to us a little bit about what the REIT universe looks like ex-U.S.

Jon Cheigh (29:55):

I said earlier that the U.S. REIT market is $1.6 trillion in market cap, it has about 200 companies. Outside of the U.S., it's about $1.4 trillion, $1.3 trillion. So it's big outside the U.S., and it's almost the same amount of companies. And this is spread across about 25 different developed markets: Australia, Japan, Singapore, Hong Kong, France, UK, Germany, Canada, most places I would think of. In the same way that we have a menu here in the U.S. of what's good for Austin may be bad for New York, there are things that happen like that. So, in the example of Brexit, is it good for someone bad for someone? Things that are going on in Hong Kong, companies may be affected over time. It's like Singapore. There was some relative winners and losers to these things. So it's a big market with a lot of different options.

Jon Cheigh (30:50):

I would say that the fundamental and investment recovery has been slower outside the U.S. I mean, the reality is the U.S., earlier on we did a better job kind of getting the economy going some of the--we did the most fiscal stimulus. I think in other parts of the globe, as vaccination rates go up, as stimulus bumps up, you're seeing that the U.S. is starting to slow a little bit economically, again, from a really high level, and other places are starting to pick back up. At the margin, we probably favor the international markets a little bit more than U.S. as a bit of a catch-up trade, if you will. There's a lot of opportunities there. Some of the retail and office dynamics like that, I'd say all these things. This is an unusual thing, normally real estate to local business, some of these pandemic trends, they're both obviously--

Jon Cheigh (31:38):

Social distancing was a global thing. E-commerce is a global thing. Work-from-home is a global thing. But the magnitudes are a little bit different. Let's just take the office sector in a place like Singapore is a little bit more of a face time culture, Tokyo as well, a little more-- So work from anywhere is not really going to happen, and being in the office 5 days a week is more likely to happen. And the other thing is where people live, they live in a 3 bedroom, 800 square foot apartment. They don't have a McMansion or anything like that with a dedicated home office or something like that. So there's a greater desire on the part of the company for people to come to the office and there's a greater desire on the part of the individual. While we don't like office as a general rule, I said earlier that you've just got to find the opportunity. We like Singapore office, because we do think it's benefiting from companies moving from Hong Kong to Singapore over time and it benefits from not having some of these negatives.

Greg Dowling (32:32):

That's interesting. I've been to Singapore, I've been to Hong Kong. That's spot on. That's pretty interesting. You said catch-up trade. I guess I don't even know what the difference in performance is. So what is the difference in international REITs versus U.S. REITs right now?

Jon Cheigh (32:46):

I'm going to give you the approximate numbers, but just say since the start of 2020, U.S. rates might be up let's just say 20%. They went down and came back. Again, the S&P might be up 40. So U.S. REIT might be up 20, Europe might be up 8, and Asia might be down 5. So there's pretty decent spread. I think some is warranted, but our job is to figure out the difference between over-discounted versus [inaudible].

Greg Dowling (33:12):

Last question, and it's really kind of pulling on a string. Something you mentioned earlier about you were talking to new CIOs and public versus private. Talk to us a little bit about what you see as you talk to investors, how big is their real estate portfolio and what's the role that REITs play in it?

Jon Cheigh (33:32):

Real estate in general, whether it's public or private, I think investors are looking for this magical combination of income, total return; diversification versus stocks, bonds, and other things; and related to that, kind of inflation-sensitive. Okay. So that's just real estate generally whether you go private or through the REIT market. I mean, the underlying is still there's real estate there, right? I would say that for most institutions or individuals, you could see the range be anywhere from 5% to 15%. Everyone's got different reasons to be long versus the other, but that's probably the general range. In terms of whether they choose to go private or whether they choose to go the REIT side, I think everyone's a little bit different. Obviously, if you need liquidity or want liquidity, you've got to go really on the REIT side. Sometimes people prefer that there's less volatility--at least reported volatility--on the private side.

Jon Cheigh (34:30):

I think at this point, most people know it it's like an apple or an orange to calculate the volatility of something listed per [inaudible]. But, you know, even though people know that it's not terrible, they still like the fact that it doesn't move, or it doesn't move much. And so that's a consideration. People usually do 5% to 15% on the REIT side. You also see people--again, depending on the group or institution. If they only have $20 million, $40 million, $50 million to work as an institution, it's sometimes hard to do that in private because you want to be diversified. And also you don't want to have to worry about, "Did I pick the right manager?" Or anything like that. Whether it's us or someone else.

Jon Cheigh (35:09):

We might own 40 U.S. REIT stocks, and each one of those is a company, and each one of those companies might own 100 to 2000 properties. There is a lot of diversification and each one of those companies, it could be an S&P 500 company, they're very professionally managed, very efficiently run. So for some, they might say, "You know what? I want exposure, REITs have done better than private over a long time. This is an easy way for me to get exposure. I can outperform and I don't have to worry about some of the technical issues with investing." We've certainly seen that.

Greg Dowling (35:46):

That's interesting. Thanks for sharing that. We always talk about stocks and bonds. Real estate is such a big part of the market. We don't spend enough time talking about the trends and understanding it. So we really appreciate your time today. And thanks for giving us the REIT stuff.

Jon Cheigh (36:01):

Thanks, Greg. It's great to be here.

Greg Dowling (36:02):

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