Jon Cheigh believes there are still many attractive opportunities in a global real-estate universe with over 300 securities. “There are anywhere from 70 to 90 very cheap securities that we are very excited about,” says Cheigh, executive vice-president at New York-based Cohen & Steers Capital Management Inc., and lead manager of the $76-million Renaissance Global Real Estate.
Net asset value is one of the key metrics that Cheigh uses. He says securities in markets such as Japan and the United Kingdom are trading at a 15% to 25% discount to their underlying NAV. “Real-estate values in both markets are appreciating. But it’s a lot easier to buy real estate cheaply through the stock market than just buying an office building in London or Tokyo. From a historical perspective, these discounts are very compelling.”
Cheigh lets the top-down view account for about one-third of the decision-making process and spends about two-thirds of his time focusing on individual companies.
“The most important attribute is the quality of the management team. Real estate is a very capital-intensive business. The winners are those that invest at the right time and intelligently, while the losers are those who invest with a lack of discipline,” says Cheigh, who is backed by a global network of 20 analysts and portfolio managers. “And the reason it’s getting later in the game, so to speak, is that this is when below-average teams suddenly believe they have a free licence to make lots of investments at the tail end of the cycle.”
With a focus on buying companies that are trading at discounts, Cheigh looks at their cash-flow growth over one to three years. Among the 80 companies that meet his criteria is Link Real Estate Investment Trust, a Hong Kong-based owner of shopping centres.
“We like the fundamentals. Its earnings have been growing at a double-digit rate for almost the last 10 years, and we expect that to continue,” says Cheigh. He says the firm’s properties depend on retail sales to middle-income families, which are generally stable. “Lastly, Hong Kong has not been a great place to find management teams that use their capital intelligently. Link is a rarity; it’s just sold some malls for an extremely attractive price and decided to buy back some of its stock. It saw an arbitrage opportunity and could sell things at a higher price than what was implied by their stock.”
A native New Yorker, Cheigh joined the financial industry after he graduated with a BA from Williams College in 1995. While completing an MBA at the University of Chicago at night, he joined Deloitte & Touche as an auditor. “Most of my clients were in the real-estate business,” recalls Cheigh. “I wouldn’t say I fell into real estate. I just love investing and real estate is the form it happens to take.”
After three years, Cheigh left Deloitte to work as an acquisitions associate at Chicago-based parking operator Urban Growth Property Trust. “It was a small company and I wore a lot of different hats,” says Cheigh, adding that part of a five-year stint included a merger with InterPark. From 2003 to 2005, he was an analyst for Security Capital Research & Management, which managed U.S. real-estate portfolios.
In 2005, Cheigh joined Cohen & Steers as an analyst and associate portfolio manager. Three years later, he was promoted to portfolio manager and was responsible for U.S.-focused funds. A pioneer in the U.S. REIT industry, Cohen & Steers manages about US$52 billion.
Since May 2012, Cheigh has been lead manager of Renaissance Global Real Estate. It’s modelled after the US$424-million Cohen & Steers Global Realty Shares, which was launched in September 2004.
Introduced in October 2010, Renaissance Global Real Estate returned 20.8% for the 12 months ended Aug. 31, versus 21.5% for the median fund in the Real Estate Equity category. Over three years, it returned an annualized 13.4%, compared to 13.8% for the median.
Cheigh attributes the below-median returns to a focus on cyclical stocks and REITs, which were punished in 2011-12. “There have been occasional periods when we get some things wrong. But this was unusual,” he says. “There was some rebound afterwards but not enough to compensate for that.”
Cheigh is looking forward to better days, and focusing on names such as Belmond Ltd. (NYSE:BEL), which owns 45 luxury hotels and so-called adventure-travel operators in Europe and Asia. “I like their assets and their ability to use those assets to maximize their revenue growth,” he says. Improvements put in place by new management should benefit the company for many years, he adds.
Unfortunately, the stock has been hurt lately because one of its properties is in St. Petersburg, Russia, and earnings are down due to tensions over Ukraine. Undeterred, Cheigh is patient about the stock’s recovery. “I’m extremely bullish and believe there is a 20% discount to NAV.”