DoubleLine Colony Real Estate and Income Fund

DoubleLine Colony Real Estate And Income Fund Launch

The slide deck for DoubleLine Colony Real Estate and Income Fund Launch webcast hosted by our Deputy CIO, Jeffrey Sherman.

Q4 hedge fund letters, conference, scoops etc

TAB I – DoubleLine Colony Real Estate and Income Fund

Value Proposition in Real Estate Investment Trusts (REITs)

  • The DoubleLine Colony Real Estate and Income Fund potentially creates value for REIT investors by combining two unique sources of return:
    • By pursuing a “Quality over Value” approach, the Colony Capital Fundamental S. Real Estate Index seeks to deliver superior risk-adjusted returns, relative to other REIT indices, from publicly traded real estate equities
    • DoubleLine’s fixed income strategy strives to shift its exposures to the most attractive sectors of the fixed income market
  • When combined, these strategies offer investors exposure to the publicly traded S. real estate sector along with a potential additional income source

What is “Quality over Value” in the Real Estate Sector?

  • With its legacy as a strategic owner of real estate, Colony Capital created the Index rules to avoid the common pitfalls of real estate investing through risk mitigation. The Index selection process is one of exclusion, where the least attractive REITs are removed based on the following criteria:
    • Tangible Real Estate by excluding financial mortgage REITs
    • Quality by excluding the least-profitable and the highest-yielding REITs
    • Balance sheet risk by excluding the most leveraged REITs
    • Valuation by excluding the most expensive REITs, measured by an enterprise value to operating profits ratio
    • The remaining REITs are then weighted by market capitalization, subject to concentration and diversification limits, to derive the Index’s composition
  • The Colony Capital Fundamental S. Real Estate Index seeks to deliver superior risk-adjusted returns relative to other REIT indices

DoubleLine Colony Real Estate and Income Structure

The structure of the DoubleLine Colony Real Estate and Income Fund allows investors to simultaneously access returns of the publicly-traded real estate equity markets and fixed income markets. By using an index swap, $1 invested in the strategy provides approximately $1 of exposure to each market.

DoubleLine Colony Real Estate and Income Fund

TAB II – Introduction to Publicly-Traded REITs

What are Real Estate Investment Trusts (REITs)?

  • REITs are companies that own portfolios of real estate assets
    • REITs own total assets of approximately $3 trillion between public and private markets
  • Publicly-traded REITs offer investors exposure to the returns of professionally managed real- estate-linked assets in a transparent, liquid format without the frictional costs of directly owning and managing real estate assets
  • The publicly-traded REIT sector owns assets spanning a broad cross-section of the economy:
    • REIT assets range from iconic buildings to more everyday structures like apartment and office buildings
    • REITs also own the assets that underpin the modern economy – data centers, wireless towers, biotech labs, e-commerce distribution assets are a large and growing component of the REIT universe
    • There are approximately 200 listed U.S. REITs with an aggregate market capitalization of approximately $1.1 trillion and assets of approximately $2 trillion
    • The REIT sector is one of the eleven sectors of the S&P500

Why Invest in REITs?

  • Attractive return potential versus traditional equities
    • The Dow Jones U.S. Select REIT Index has outperformed the S&P 500 Index by more than 4 percent per annum over the last 20 years
  • REITs offer a structurally intelligent way to access the real estate market
    • REITs offer diversification, liquidity and professional management in the difficult to access real estate market
  • REITs can provide diversification benefits to traditional asset classes
    • 20-year correlation to stocks is 0.57 and to bonds is 0.181
  • REITs give investors the opportunity for both income and growth
    • Real estate investments provide cash flows from rents while also providing a degree of inflation protection as land value and rents can grow with inflation

The Evolution of REIT Assets

  • Historically, REIT dividends came primarily from the “core” property categories of office, industrial, retail and multi-family residential.
  • Changes in the economy and a wider use of the REIT structure have led to a diversification in the sources of REIT dividends, with emerging categories such as healthcare, data centers and cellular towers representing a greater proportion of industry
  • Today, “core” property categories represent less than half of REIT industry dividends.

DoubleLine Colony Real Estate and Income Fund

Historically, REITs have Provided Attractive Returns

DoubleLine Colony Real Estate and Income Fund

Correlation of REITs with Equities and Fixed Income

  • REITs have shown a variable and generally low correlation to both equites and fixed income
  • Adding REITs to a portfolio offers the opportunity for portfolio diversification

DoubleLine Colony Real Estate and Income Fund

REITs and Interest Rate Regimes

  • Empirically it is difficult to argue that rising rates are a long term impediment to REIT performance
  • REITs have tended to perform positively during rising rates over the long term
  • REITs have tended to outperform equities during periods of declining rates over the long term

DoubleLine Colony Real Estate and Income Fund

See the full slides below.


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