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Author: Reitnut Big red star, 1000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77145  
Subject: Re: ROIC vs RPAI Date: 3/24/2013 3:28 PM
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I'm surprised, however, how they both have performed to date. I wouldn't have expected that kind of a disparity between the two. Comments welcome, particularly from Ralph, who has been and still is a big fan of ROIC.

Gracepeace, I have nothing against RPAI - in fact, I don't even follow it closely. But, as you know, a performance track record, particularly one of short term duration (RPAI went public in April of last year), is probably not terribly helpful in making a judgment about a company and its future prospects and investment returns.

There have been mamy times when quality names have underperformed, and vice-versa. One might conclude that Boston Properties (BXP) is a sorry company on the basis of its performance relative to Mack Cali over the past year. See http://finance.yahoo.com/q/bc?s=BXP&t=1y&l=on&z=... But much depends on one's measurement period. Here is a graph of the same two companies over a period of five years: http://finance.yahoo.com/q/bc?s=BXP&t=5y&l=on&z=... There are some short-term issues relating to BXP's stock price valuation, and its new CEO, but I wouldn't want to bet against BXP on a long-term basis. Indeed, I would much prefer it to CLI.

Over the short term, investors' preferences change quickly; in some years the blue chips win, in other years they lose. Simon Properties won't outperform each and every year. I think the trick is to figure out the long-term plusses and minuses of every prospective investment, realizing that, certainly in the short term, one might obtain the bsst returns (or the worst returns) with more speculative stocks.

Is RPAI more speculative than ROIC? I don't know, as I don't follow RPAI closely. But its leverage is above average in the strip center sector (well over 50%, compared with just over 35% for ROIC; debt to ebitda is 6.8x vs. 4.8x for ROIC. They have been reducing debt leverage, but have a ways to go.

The little I know abut RPAI is that its property quality is a bit below average, and same-store NOI growth is likely to be sub-par. That, of cours, doesn't make it a bad investment - but its future prospects cannot necessarily be related to its outstanding stock performance during the year that it's been a public company.

Bottom line, for me, is that I don't know whether or not RPAI can create value the way ROIC has been doing, and thus my guess is that ROIC will be a better long-term investment. What happens over the next 12 months, of course, is anyone's guess.

Ralph
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