Banks , REITs and Big Storms

It has been an interesting past couple of days with the wildcard games both coming to exciting, albeit heartbreaking conclusions. If the rest of the playoffs have the same quality of play, this year will be something special to watch. The next 48 should be even more interesting as Hurricane Matthew bears down on the coast just about 50 miles from here. They are calling for winds over 70 mph with much higher gusts possible. Hopefully, we will ride it out in style. This area has buried power, cable, and phone lines so as long as not substations or transformer are taken out, we should be okay. Just in case we have lots of propane and of course a generator to keep the lights on so we can read and to make ice for the drinks.

I read a comment from Green Street Advisors today talking about REIT M&A. They pointed out that we could see an uptick in activity as there is a lot of money around the world that is looking at US real estate as a haven. With many REITs trading at a discount to net asset value, we could see a bit of a surge in REIT takeovers. It is easier to buy a REIT at better prices than you could get by actually buying the buildings right now than building a real estate portfolio one building at a time. Of course, my sick mind thinks that the lack of buyers in foreign home markets is quite likely to create bargains in REITs with property in these areas. I will be running foreign REIT screens sometime this weekend in search of bargain opportunities.

There was a piece on CNBC today about including REITs in an investment portfolio. The “experts” think that’s a good idea and individuals should have 5 to 10% of their portfolio in REITs. That’s just dumb. REITs have outperformed stocks over just about every conceivable time frame. Not only that research from NAREIT economist Brad Case indicates they achieve higher returns with less overall risk. REITs respond to a whole different set of circumstances according to Mr. Case. He said "Equity REITs might be traded on the stock market, but they're entirely driven by a different factor -- the real estate cycle, which tends to last 17 years on average. Many times when the stock market is doing very badly, the real estate markets are doing fine, and REIT investors benefit." I think most investors are way underexposed to real estate and should buy more REITs when they are available at steep discounts to NAV. According to Green Street, many are at a discount right now, but they are not particularly steep. That will change, and when it does, I see nothing wrong with investors being primarily in REITs with the non-community bank portion of their portfolio.

Rating agency Fitch had a report on community banks lately, and they suggest that we will continue to see M&A activity. The report said “Fitch continues to anticipate a higher level merger and acquisition (M&A) activity in the broader community banking sector (assets under $10 billion) than at larger institutions, driven by several key factors. For smaller community banks (assets under $1 billion), a combination of fatigue from regulatory measures and stagnant returns may lead banks to combine with in-market peers. For larger community banks that are approaching $10 billion in assets, Fitch believes deal activity will be driven by the desire to offset the additional regulatory requirements associated with crossing $10 billion with additional scale.”

That’s about it for me this week. I have to get the last few pieces of lawn furniture and the wife’s decor in the garage and make sure the win and book supplies are in order and secure. SUNSCIBERS NOTE: IT IS MY INTENTION TO PUBLISH THE NEWSLETTERS AND READING LISTS ON SCHEDULETHIS WEEKEND AS LONG AS I HAVE POWER AND INTERNET. MY NEW FRIEND MATTHEW MAY HAVE DIFFERENT IDEAS SO IF I AM A DAY OR TWO LATE PLEASE BE PATIENT.

Thanks

Tim

PS If you are looking for me the next few days I will be riding out the

https://www.youtube.com/watch?v=k3LYJd1WjWo

Posted to The Community Bank Investor… on Oct 06, 2016 — 3:10 PM
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