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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Grommit who wrote (59268)	3/21/2017 5:36:32 PM
From: E_K_S	Respond to of 78717

Re CIO I own a small position in the stock w/ 4 Buys in early 2016 (avg cost @ $11.50/share). As a small cap they can move the needle on future acquisitions. They only have 18 office complex (37 buildings) 4.4 mln sq ft. located in 7 States. They grow by acquisition and as a result paid high fees using external adviser(s) w/ no vested interest in the long term to grow the business. These small caps all start out w/ external advisers and management teams and when big enough, bring all of that in house. The sooner the better if the FFO can support the overhead. They save a lot on one time acquisition fees if the management fit works out and focus is on long term FFO growth (not Buy & Flip). Cap rates have bee at the high end 7%-8% and management did secure some excellent long term tenant in St Luke's Regional Medical Center (Boise Id), a 10% revenue contributor. CIO did some custom building work to secure a long term lease. The same thing was done w/ United Health Care at one of thier Dallas Tx buildings. They are a 6.3% revenue contributor. The management team picked this building up at a bargain price too w/ Oil service economy was weak and cash sales drove bargain prices. I was attracted to the company w/ their acquisitions that supported the medical/health sector (represent 25.5% of current revenues w/ 4 properties). Two of those properties are only 87% occupied as they recently moved in, so I expect this segment to grow. Here is a link to their Q4 2016 Earnings and slide presentation ------------------------------------------------------------------------ Not many analyst follow the company because it is such a small cap. For me, the value proposition is that it IS a small Cap and selective property Buys that match w/ tenant requirements allows them to add value if/when they located a prime property and can buy at distressed sale prices. That's how they can achieve such good cap rates. You do point out the management compensation deal but I believe it is in stock not cash and must be vested over some period of time. They show this in their balance sheet as stock based compensation. That does not leave much cushion for a dividend raise as they just make their $0.94/share dividend. Even w/ the small cap REITs I want FFO growth rate (2017/2018 8.5%) to exceed the div yield (currently at 7.8). Last year they had double digit FFO growth so it is slowing and/or is lower due to the one time adjustment and/or advisor fees. Advisor fees s/d be coming down especially if they pay that that in stock compensation which vest over a period of time. All of these small cap REITs are speculative but because of their size, can grow too if they secure good deals. My overall position is still small but based on their last few property buys, they have done pretty good. Management interests are now in line w/ shareholders (by bringing in out side advisor), hopefully the next few years growth will result in a double in their market cap. I wanted an investment that was a "Trump" play, that may/could benefit from tax cuts and domestic economic growth. CIO's properties are located in good growth areas and their tenant base is diverse, positioned in health services and high tech sectors. FWIW, I had a small position in the BDN preferred that I sold in 2015. My recent REIT buys have been in the much larger medical REITs; OHI & MPW both have over 40% cushion in their dividend. I have been wrong before and will be wrong in the future so CIO could hit a bump w/ a bad/sour acquisition but if so, management will feel the pain too w/ their newly vested shares. Good review as I always like to hear the other side of the argument. Your simple $10mln of earn outs on their management transition when compared to current FFO provides a good perspective to it's size (ie 83% of this year's FFO). EKS