Episodes

Dan Ferris:                 Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of The Stansberry Daily Digest. Today we talk with the founder of Wide Moat Research, Brad Thomas.

Dan Ferris:                 Brad is a very smart guy. He's had a long career in real estate. He's a great equity analyst in general, and is going to teach us a lot about real estate and value investing and all kinds of good stuff. I love this guy because I hardly need to say anything, and all I need to do is sit back and listen to the man's mind work. Get out your pens and pencils, he's going to give you some ideas. Let's talk with Brad Thomas. Let's do it right now.

Corey McLaughlin:    For the last 25 years, Dan Ferris has predicted nearly every financial and political crisis in America including the collapse of Lehmann Brothers in 2008, and the peak of the Nasdaq in 2021. Now he has a new major announcement about a crisis that could soon threaten the U.S. economy and can soon bankrupt millions of citizens. As he puts it, there is something happening in this country, something much bigger than you may yet realize.

And millions are about to be blindsided unless they take the right steps now. Find out what's coming, and how to protect your portfolio by going to www.americandarkday.com, and sign up for his free report. The last time the U.S. economy looked like this, stocks didn't move for 16 years, and many investors lost 80% of their wealth. Learn the steps you can take right away to protect and potentially grow your holdings many times over at www.americandarkday.com.

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Dan Ferris:                 Brad Thomas, so good of you to be here. Thanks for coming to talk with us.

Brad Thomas:             It's great to see everyone today.

Dan Ferris:                 All right. You and I did get to talk a little bit at the Stansberry Conference just for a few minutes, and you know, we just talked about REITs for a few minutes, and you gave us some good points. But I'm hoping we can get a little deeper into it today. But maybe since you're a new guest to our audience you can tell us, why was I talking to you about REITs? Tell us a little bit about your background, and how you got to where you are now.

Brad Thomas:             Sure. Well, I guess right out of college I decided I wanted to pursue a career in real estate, and my mother was actually in real estate, so maybe that was an inspiration. Some of the other family was in real estate. But I always knew that I could create a lot of wealth in real estate, and so I started out really in the trenches, Dan. Just started to help lease properties. I became a leasing agent, and I did that for a couple of years.

And I found out that it's a nice income, but the ones that were really making the money were the landlords. The ones that actually receive the rent checks. So I decided to pursue a career in real estate development. In building my own buildings and assembling my own portfolio. And so I did that for, started out small. I started picking a lot of small companies, and really, and that's really where I became a research analyst at the point. Because I would research these companies, a lot of them were small companies, to determine if they were going to be tenants in my shopping centers or my freestanding properties.

And so one of the first clients I had was a company called Advance Auto Parts. And Advance Auto Parts at the time was privately held. So I tried to do as much research on the company as I could to determine if they were going to be a sustainable rent payer, or tenant. And so I drove up to Roanoke, Virginia to meet with a management team. And I decided to build my first building in Laurens, South Carolina. Little small town here in South Carolina. But coincidentally, that's where I went to college, in the same town.

And I built the first store. Then I did a second store, and ended up building close to 50 stores for Advance Auto. I went into South Carolina, North Carolina, Georgia, and parts of Alabama. And you know, really decided to build a cookie-cutter type of business where I would just rinse and repeat and build these buildings. Typically in front of a Walmart, or close to a Walmart. And hired the architects and engineers. And then I decided to pursue some other tenants. I wanted to diversify.

And I started to build for Blockbuster Video, and at the time they were a very small, scrappy little video operation. Of course you know the story. Wayne Huizenga ended up putting some money behind Blockbuster and scaled that business nationwide. And then I started to build for other companies. A company called Dollar General and Dollar Tree and Family Dollar and PetSmart and Walmart. McDonald's.

Barnes & Noble. I built the local store, Barnes & Noble, here in my hometown. And actually my books are now in the Barnes and Noble store which, it was kind of full circle. Somewhat surreal, for me to now have my books in a Barnes & Noble that I built.

And so I've watched, I've learned a lot over really the last two or three decades. But the great recession was really the opportunity for me, believe it or not, because I ended up losing a lot of my net worth due to a bad business partnership. And also, as a result of the great recession, which of course, all banks were closed and a lot of banks failed. It really put the development business out of business.

And so I started to become a research analyst. Really doing some of the same thing that I'm doing now for Wide Moat Research. I analyze these companies to determine if they were companies that I would want to rent to, but now invest in. And so that's kind of what happened. It was really, I built up a pretty nice fortune in real estate. Ended up losing most of it. And I started my career in the intellectual property business, which is really what I love. And that's my passion.

Of course, our business extends beyond just real estate. We now cover a lot of companies like REITs, real estate investment trusts, who are by law forced to pay out dividends to investors. We cover a lot of different sectors from business development companies, that's BDCs. Banks. Utilities. Home builders. Asset managers. You know, the private-equity players that you're probably familiar with.

And we cover all the different types of parts of the capital stacks. And not only just equity, but bonds and preferreds. So we really try to create a business model in which the individual investor can build their portfolio off of all of our research that we publish.

Dan Ferris:                 Sounds good. I noticed that I was just grabbing some charts in Bloomberg before we started recording. Because real estate, it's been a difficult subject for a lot of investors over the past few years. And by that, maybe all I mean is that there have been a lot of negative headlines, mostly around commercial real estate. And it has struggled.

I was looking at the sector SPDR. The S&P 500 real estate ETF over, just grabbed a quick chart, last five years. So it's up like, 14%. And the S&P 500 has almost doubled in that period. So you can see the struggles there, that some people may have had.

How do you feel right now? Do you feel right now, after this period of some amount of struggle, and you know, there's also a lot of debt hanging out there that will probably, could affect valuations of certain types of properties. There's a couple questions here. One of them is, what types of real estate properties maybe aren't as troubled as the rest?

And in those troubled ones, as a value investor I'm thinking man, there's got to be some really juicy stuff in there. You know? There's got to be some bargains in there. At some point, if things are that bad for that long, there's got to be bargains, haven't there? So you can start with either one of those. Untroubled sectors in real estate, or bargains in the trouble. Whichever you like. We're going to get to both of them eventually.

Brad Thomas:             Okay. Let's start with the negative sentiment. You talked about you know, debt maturities. We've seen a lot of headlines with commercial real estate. Debt maturities. We've seen a lot of headlines about rising rates and how that's impacting commercial real estate. And certainly we've seen how the office sector is just dead. And you should not invest in the office sector. I think those are the three biggest, I would call a kind of overhangs that we have for the real estate investment trust.

Now, I want to really debunk those three for REITs. No. 1, let's talk the No. 1 was the debt maturities. And yeah, there are some debt maturities out there to be concerned about. Most of those are on the private side. You know, most of the, I was, again, I was a developer for over 20 years. So I would definitely be in that category of I would be scared and concerned and fearful, if I were a young developer like I once was and had some debt maturing. Which we know is going to be repriced at a much higher rate than I took these loans out, you know, especially during or before COVID.

So, I think certainly debt maturities are a problem for some of the private developers. But for most, most of the equity REITs that we cover, and these are companies that I would consider extremely large. They're not – these aren't small caps. They're – some of which are S&P 500 companies, like Realty Income or Simon Property Group or Prologis, all of which by the way have fortress balance sheet. They're all A-rated balance sheets. Which obviously, these rating agencies do a pretty good job at assessing the risk of these companies.

And we know those companies don't have those problems of short-term debt maturities. So they've been able to manage the capital stack very, very well. Again, in terms of the private market, there's still some struggling private developers. And especially in the office sector, where you'll be seeing these valuations really get destroyed in office. So if I was the owner of an office building, you may have seen your net worth in your office buildings drop 50% over the last three to four years. So when that loan matures, the bank is definitely going to be looking hard at your property and wanting to see some equity or potentially hand those keys back to the lender. So those problems do exist, not as much on the equity REIT side.

Now, let's go over to the next category we talked about, was rising rates. Certainly, REITs aren't immune to rate increases. That's absolutely true. But remember, cap rates adjust. Cap rates are the cost of, for those of you who aren't familiar with the cap rate, it's essentially, the formula is your net income of the property divided by the purchase price. That is your cap rate. And so we've seen as interest rates have gone up, we've seen how the real estate market has shifted. Cap rates have come up as well.

So the most important thing to consider with REITs, and really this goes with any business, frankly, is looking at how that company is able to return capital. And what is that weighted average cost of capital. And that's something we do a lot of within our research, is we analyze these companies at a very granular level to determine their weighted average cost of capital. And what is their yield, their Year 1 acquisition cap rate.

In other words, we want to see a spread. We want to see a margin of safety between that acquisition, that cap rate, and that cost of capital. And we're seeing that with a lot of these companies. Again, not most. But it's certainly with the real estate investment trust, the bigger companies that I mentioned. I'll mention Realty Income again, because we're going to talk about valuation in a minute, and Realty Income is certainly in that attractive area. But you take a Realty Income, for example, where they were able to acquire properties at cap rates of around seven, seven and a half.

And their cap, their weighted average cost of capital, which by the way includes their free cash flow after dividends, is something in the range of about 4.5% to 5%. So you're still seeing the difference between that weighted average cost of capital and that cap rate, which is effectively around 200 basis points. Which is certainly a nice spread to, which is basically your profits. That's how a company generates their profits between their cost of capital and their acquisitions.

So again, REITs have been impacted. But we've seen those adjustments in cap rates. And so now we're seeing very favorable earnings. Now, we're just finishing up the third quarter earnings a few weeks ago. And again, a lot of the REITs have generated, they've certainly missed their earnings, they've hit their earnings. And many of them have increased their earnings guidance for year end. Which means they're still able to continue to develop very positive investment spreads and grow their profits.

In REITs, we call that adjustable funds from operations. Not earnings per share, which is your traditional metric we use for C corporations. So again, and again I will want to, I'm painting this as a very broader brush. Because there are some companies that we do get concerned about, and we avoid a lot of those companies that aren't able to generate sustainable investment spreads. And again, that applies to REITs, BECs, or essentially any company with our coverage spectrum. We want to see a track record of sustainable and predictable earnings and dividend growth, I might add. And last but not least, and this is the most important reason I think.

Most investors today invest in REITs because of that dividend. And again, by law, REITs must pay out at least 90% of their taxable income. Most pay out 100% of their taxable income. And so we're seeing these dividends still continue to increase. Now we've learned a lot during COVID. And of course this is what I would refer to as the black swan event that I certainly couldn't have predicted.

But what's interesting, prior to COVID, we actually looked at some of these sectors like office and like malls. And we knew that with malls specifically, we were not extremely bullish in the mall sector leading into COVID, because a lot of these mall REITs had very high dividends. Some paid out like 13, 14, 15% dividend yields. And we knew these companies weren't sustainable. Their payout ratios were very high. We call those sucker yields, when you hit 100% or higher payout ratio for these dividends.

And so we avoided a lot of that going into the pandemic. And thankfully again, we didn't know the pandemic was going to hit. Given the fact that we knew the mall sector was way oversupplied, and the fact that a lot of these mall companies, mall REITs, were not covering their dividend, we were able to avoid that. Same goes for the office sector. The office sector has really not generated a whole lot of growth over time. We look at this sector going way back.

Now, I do like some of the specialty sectors in office. I like medical office buildings. For example, those are very sustainable business models. Everyone has to go to the doctor. So these doctors are going to show up and they're going to pay rent. And we like that particular sector. Another category we like within office, again another specialty category, is life science. That's where all the, that's where cancer's cured. That's where all the innovative technology is there, with all these life science companies. So there's been a lot more growth.

So we are looking very closely at the supply of life science. But I think there's definitely some opportunity there. There's a company called Alexandria, which is one of the largest life science REITs and landlords in the country. And we're very bullish in that sector. Again, looking at all the fundamentals of that company including their balance sheet, which they have a very high-quality, very disciplined balance sheet and management team.

So I touched on rising rates. I touched on some of the property sectors. And I guess the last thing I want to mention is, I think in terms of REITs. Again, a lot of people when they look at REITs, they don't really understand the differences between a REIT and just owning real estate. But I think, again, you're seeing with REITs, for the most part, we've gotten very good quality management teams. Not all companies, and we certainly call those management teams out when they aren't delivering for investors and they're not aligning with investors.

But the great thing we have about REITs is because of that transparency. You know, as a private developer, one of my problems was, I could never get financial statements and frankly tax returns out of my business partner. And it was very difficult. And so with – obviously with public companies like REITs, publicly traded on the various exchanges, the SEC requires that. So obviously, having quarterly reports and annual reports and certainly dividends are a terrific indicator.

We like to see dividend increases. You've probably heard me say this before, but the safest dividend is the one that's just been raised. So when a company raises that dividend and they've got a low payout ratio, that's a pretty good signal that this company is aligned with the individual investor. Because obviously, dividend growth is extremely important to us, in how we analyze companies.

So I hope I've touched on all that. Let me know if I didn't. And I'm happy to touch on some properties actually. You mentioned, Dan, look, in the last 10 years we've seen just an enormous amount. Almost an explosion in the REIT space in terms of the different types of property sectors that we cover, that we never would have imagined the individual investor would be able to access today. So I'm happy to touch on any of those as well.

Corey McLaughlin:    Yeah, I'd be interested to hear some of those as well. And for a second you brought my mind back to pre-COVID which is nice for a change. Because it seems like everything since then has changed. But you're right about the malls. I mean, those were in trouble, a lot of them were in trouble previously. But yeah, I'd be curious to hear some of those other sectors that you're talking about. I mean, already, medical office, life science office, I'm sure people are intrigued by that. But yeah, I'm curious what other ones you might have.

Brad Thomas:             Sure. Well, one that's really interesting, and this one's a lot of volatility due to political ramifications, is the cannabis space. Of course we still have no federal mandate, federal laws, for cannabis REITs, or cannabis in general. But we do have REITs. What's interesting about cannabis, there's only one cannabis REIT that is listed on the New York Stock Exchange. And somehow, just through a really, maybe they got in at the right time I think. It's Innovative Industrial Properties. The ticker symbol is IIPR. They were the first mover advantage. They did the list on the New York Stock Exchange.

But the window closed, and now all the cannabis REITs are either Nasdaq or actually over the counter as well. But there's some Canadian listings as well. But anyway, that sector is actually growing. Again, there's a lot of volatility. There's tremendous growth in cannabis prior to COVID. In 2014 to 2015, you were just seeing an explosion in the number of cannabis facilities across the U.S. And as the number of states have opened up, and continue to open up the legalization of their states, we've seen more growth in that sector. So again, that's an extremely specialized and more volatile sector. But that's one name.

Certainly cell towers. Those companies came about really 2008, 2009. American Tower is one of the largest. You have Crown Castle, and you have SBAC communications. So there's three what I would call pure play tower REITs. And of course, you know the demand in 5G, it's just insatiable. And so we're seeing the continued growth there. Now there's obviously the risk of satellite. And Elon Musk and opening up his technology. But I do believe cell towers, that business model is certainly going to be sustainable. At least in the short- to the midterm.

Data centers, amazing business. AI has certainly been the fuel. You know, I would argue that data centers are mission critical to AI. We, all of us, cover the different AI within our franchises. And certainly these data-center REITs are the driving forces for all of that technology. So data centers have done extremely well. We've done extremely well covering those companies.

Moving over to another sector which is really a lot more boring, is the farming sector. There are two farming REITs. But again, land is a core asset class. And I think it's important for investors to consider some allocation to farmland. I think Mark Twain said it, or maybe somebody else said it, but land. They're not making it anymore. Maybe it was Will Rogers, I think. I think I'll credit that to Will Rogers. But at any rate, land, they're not making it anymore. So certainly, farmland is definitely an asset class that's important.

Another sector, this kind of ties into that land play, is ground leases. So, there's one REIT specifically called Safehold. Ticker symbol's SAFE, S-A-F-E. And that company, all they do is invest in ground. But they have leases, so, obviously ground leases. As a developer, I've built several buildings on underlying ground leases where I didn't own the land. I just owned the building. And that's an interesting business model as well, that really never existed.

One of the sectors that we really were, we were early movers in covering, is the casino sector. And I know Dan, you and I met in Las Vegas at one of the properties there, in Las Vegas. And what's interesting about the gaming or casino sector is, during economic downturns, and primarily recessions, actually these casinos have held up pretty well. We've gone back and looked at some of the studies even during the great recession, where I struggled and started my new career in writing.

But you're seeing a lot of those companies have actually performed fairly well even during economic downturns. And perhaps that's part of the psychology of especially us Americans where maybe when we lose money, we just try to go to the casinos and gamble and make it back, when we lose our job. I hope not. But I think there's certainly some statistics that prove that. And then we go to COVID. Which has really been an interesting test case for us.

So you think about, during COVID I don't think anybody went to Las Vegas, you know. The hotels were vacant. Casinos were vacant. And what's really interesting is, again, these casino REITs are net lease properties. So, essentially you're a landlord to Caesar's Palace. So you don't operate it. But you just collect the rent check from Caesar's or from MGM or another of these casinos.

And so one company in particular, VICI Properties, V-I-C-I is the ticker. They collected 100% of their rent during COVID. So, and of course you look at the share price of the company, and they were just way down. You know, 50%, 60%, just getting beat up like everything real estate related, because everybody was at their home and nobody was going to casinos or malls or shopping centers or what have you. And so the sentiment was really way down. But yet, we knew that the rent checks were going to keep coming in. So eventually the value would catch up with that, and we would get back to normal. And we did.

And so again, they had 100% rent collection during COVID and continued to increase, which means they continued to increase their earnings or their profits. And frankly, their dividends even during COVID. So now the office sector obviously was not that favorable. And now we're still seeing a continuation of what I think is an acceleration of the migration of jobs from these urban markets, these gateway markets. And specifically, I'm referring to New York City and San Francisco. We're still seeing that acceleration and demand towards places like Miami or West Palm Beach.

I think in terms of other sectors – we have fiber, was interesting. Which is kind of an offshoot of towers. In the healthcare sector, we've got a number of subsectors. Skilled nursing, senior housing. I mentioned life science. Medical office buildings. Memory care. It's just a number of ways to invest or play the healthcare card. And you know, obviously what's driving a lot of the healthcare REITs, especially the senior housing, is the aging population, what I referred to and many refer to as the Silver Tsunami.

And then piggybacking on the Silver Tsunami, one sector I really like a lot is manufactured housing. Not mobile home parks, there's definitely a difference. I live in South Carolina. There are a lot of mobile home parks in South Carolina. These are, mobile homes are typically older. They're not built in factories. It's higher quality. They don't have curb and gutter and amenities in the subdivisions. Whereas manufactured housing, typically you're going to find those communities say over in Hilton Head, South Carolina or maybe over down in, all over the state of Florida. And a lot of retiree markets, you're going to have these manufactured housing properties.

And what's interesting about the manufactured housing sector is a lot of these customers, they own their houses. Their manufactured houses. And they lease the land so it's essentially a ground lease-like type setup, whereas the landlord, you're just collecting very stable income off the land, and that's very attractive, because you don't have as much operational expenses as you would for traditional single-family rental. So manufactured housing is a fairly new sector. Been around, around 10 years. And there's three different companies that we cover within manufactured housing.

So anyway, happy to touch on any others. But those are some new property sectors. I wouldn't be surprised to see some others. In fact, I don't want to give it away, but we've got a new company that we're covering for Wide Moat that is kind of a new real estate sector that I think eventually could find its way to the REIT sector.

Dan Ferris:                 Interesting. I know you have paying subscribers so I won't ask what it is. Sounds like real estate's, to a large degree, it's as technology driven as everything else, to me.

Brad Thomas:             You know, it's interesting, Dan. I just published a book earlier this year called REITs for Dummies, which I'd love for you to have a copy of. You don't have one. Direct message me, you and Corey. But within that book, if you ever read a Dummies book, you can actually put together these icons for the book, which help you remember things throughout the book. And one of the things I've decided to do with REITs for Dummies is include a new icon to the series, to the Dummies series, which is called prop tech.

So every time, it's interesting. Because every sector that I wrote about, I would, every REIT, almost every REIT has a prop tech type of business model. For example, in multi-family, these companies like Mid-America Property Communities or Camden Properties. They have all invested in various prop tech businesses, which helps them in various categories such as like leasing. They do now a lot of virtual leasing. A lot of the payments are made online. I mean, just an enormous amount of technology. And that's advanced a lot during COVID, because you know, people wanted to go out and rent houses or look at, pay their bills or communicate with their property managers.

And so we're seeing that continue to accelerate. And really, I like to see any company that makes their businesses more efficient, utilizing technology. Because obviously that's going to earn more money for investors. So I definitely think all of these categories, obviously, it's a given that data centers have prop tech. That's what they're a technology business. But almost every category has some element of prop tech.

Self-storage is another great example. Really, I think the early movers in prop tech were the self-storage companies like Public Storage or Cube Smart or Extra Space. You know, 10 years ago, when you rented a storage building, you probably went to the Yellow Pages, if you're old enough to know what that means, like me. And you remember, you had the yellow pages and you'd just go to the AAA Storage. And that's where you'd find your storage facility close by to your home.

But now it's just all the technology. You've got these apps. These REITs have their 24-hour call centers. And just, a massive amount of technology. They can actually price, you know, they price their businesses based on all the competition in the market. And they utilize all that technology. So just a tremendous amount of ways that these companies can be innovative.

And I'm also seeing a lot of these REITs invest or partner with AI companies. For example, there's one company that has close to I think over 5,000 leases in their portfolio. Well, think of the time required to have five or ten people to analyze each of these leases and put all the data into the computer. Well, now because of AI, these companies are basically able to scan those leases, and everything goes in there. And it's a lot more efficient for these companies as they grow their portfolios, to utilize AI to look for the documents they need or scan those items. So just, you're right. I mean, technology has just been amazing to see, and the continuation of that going forward. I think AI's going to be really interesting to see going forward. And how that applies to the commercial real estate business.

I like to tell people a lot, if you're going to invest in technology, the way we play it is we kind of call it the trifecta approach, which is kind of the three legs to the stool. So first off, we like the cell tower sector. That's an area that has tremendous growth. Double-digit, potentially low double-digit growth or earnings growth potential for those businesses.

Dan Ferris:                 Still. Wow.

Brad Thomas:             Then we go to the data-center sector. Again, needless to say that's AI driven. And there's tremendous demand with data. Again, leaning into that second leg on the stool. And again, the third leg to that stool, closing out that trifecta, is the logistics or warehouses. And these are the companies that you know, store the goods for the last mile over to the consumer. This is companies like Amazon, Home Depot, Best Buy. They all have logistics facilities.

And again, there's a lot of technology, a lot of prop tech investments in those businesses. And that's why you're seeing still a continuation of those very strong growth characteristics. Again, very high single digits or low double digit growth forecasts for many of these companies, warehouse companies. So if you're going to overweight your real estate, your REIT portfolio, I would definitely consider what I call that trifecta approach, and trying to diversify within each of those three, what I think are critical, mission critical property sectors.

Dan Ferris:                 All right. And you think that obviously, you're like the REIT advocate here. But I asked you in Las Vegas, what are some bullet points that could, if you were just trying to convince somebody, sort of an elevator pitch, you should have REITs in your portfolio? I feel like you've done it at length here, you know? Because you've come at it from technology. And you've shown us the various sectors that you like. Health, cell towers, data centers, etc.

Like, what if I've never heard of REITs? I'm absolutely certain, Brad, that somebody's listening to this who's saying, and maybe even a lot of folks are saying REITs? I don't think I own any REITs. What? You know, and you've mentioned they're required to pay out dividends. They're required to pay out a certain amount of their earnings in dividends. But I still feel like the question, why should I own REITS at all? Is still standing out there. Like, I know why I want these specific sectors, right? But I'm sure, and it's not even for me. I'm just certain that somebody's listening to this going, REITs? I haven't thought about this before.

Brad Thomas:             So, great question. So there's a book that I'm sure that everybody's familiar with. At least they should be. It's called The Intelligent Investor. It's written by the legendary Benjamin Graham. I gave this to all of my kids. They all have it. I don't know if they've read it. I tell them they should. I've reread it quite a bit, especially when I went through some very tough times. 2008 through 2009, I read it multiple times. Because Benjamin Graham went through some tough times. So did Warren Buffett.

Dan Ferris:                 His books sell like crazy in crises.

Brad Thomas:             Yeah, absolutely. And throughout this book, there's a common thread in almost every chapter. And Ben Graham talks about, writes about, the margin of safety principle, which you all know is simply, we've got to buy stuff cheap. And we want to buy high quality goods at a cheap price. I want to buy a Porsche for the price of a Buick.

Corey McLaughlin:    There you go.

Brad Thomas:             And by the way, I just did that last week.

Dan Ferris:                 Nice!

Corey McLaughlin:    Nice.

Brad Thomas:             I'll save that for another day. But there's another book I wrote a couple years ago, called The Intelligent REIT Investor. It's available on Amazon. I use this book at a couple schools that I teach out of. And it's more of a textbook. But the reason I titled this book The Intelligent REIT Investor is, I tried to explain, Dan, and to your point. The time to buy, it's great. REITs are a great vehicle. You have the dividends. You have access to real estate and all these property sectors.

But if you really want to make money, and even if it's REITs or anything, you have to use, utilize the margin of safety. And as you mentioned earlier, today, more than ever, you're seeing such a tremendous opportunity because of this negative sentiment that we're seeing. Again, rising rates and debt maturities and office buildings and all those things that are in the news every single day. But again, REITs, and again, the higher quality REITs. The ones we think have durable competitive advantages.

That's why we call our company Wide Moat Research. We want to see these companies, whether REIT or not, have wide moat competitive advantage. Scale advantages. Cost-to-capital advantages. Critical to those businesses. So when we select those high-quality companies, and then we see, we go to the valuation. And we look at multiple valuation triggers. Not only just the traditional price-to-earnings or AFFO metrics.

How do they compare against the peers or the other REITs? But we look at dividend yield. Is that dividend yield safe? I mean, just because a company's paying out a 7% yield, is it sustainable over time? We would like to see alignment with management, with investors. And when all those boxes are checked, and we look at the valuation. We say well, that company's cheap based on this metric and it's cheap based on that metric. Then we'll even go further into net asset value.

And that's really looking at a company in a lot more granular level to determine what is, if you had to liquidate this portfolio today, what is it worth? And so looking at all those factors, and looking at the valuation, that's when we see that margin of safety. So yes. Today, we're seeing a lot of REITs that, they're very attractively priced. I get the question a lot, because a lot of people know me from REITs. How many REITS should you have in your portfolio? And I address that in the REIT for Dummies book. And the answer is that it really depends on your risk profile.

You know as well as I, I can't recommend to any listener, subscriber, customer what they should have in their portfolio. Because I don't know in their portfolio. But what I will say in very general broad terms, I think it makes sense to have around 10% in your portfolio. If you're extremely bullish and you have that risk tolerance, I would say you could tap up a little further to 20% of your portfolio. There are also very attractive preferreds, which are less risky than the equity components.

So maybe balance your REIT portfolio with equities preferreds, maybe some bonds as well. And again, diversify. Diversification is really the best margin of safety you can get. And so being able to diversify into these other property sectors I mentioned. But I would say look, now is, from a valuation perspective, it's a very attractive setup.

I do think with the new president coming in, President Trump, coming in, in the office. I think certain sectors are going to benefit REITs better than other sectors. For example. What is tariffs going to do to the warehouse sector? And that's a sector we're looking at very closely to see what impact that could have on that particular sector. There are other sectors that I think are much more favorable categories. I love – I was a shopping center developer. So I love that business model. The great thing about grocery stores is everyone has to go to the grocery store once a week.

So you see customers come in every single week. And typically, you know, these grocery stores, and I like to see the dominant players. You know, the Publix anchors, the H-E-B anchors, the Kroger anchors. Those are very strong, the market leaders in those individual markets. I like to see them in the portfolio, because they drive that traffic. Which is why you see 100% occupancy or 95% occupancy in these shopping centers with Subway and UPS, and very strong businesses.

I think with Trump in office, I think you're going to see a really, a surge in small business growth. I really believe that, especially as it relates to some of the tax reform and extending the current tax credits now, that Trump had initiated when he had his first term. So we'll extend those tax laws. We'll reduce the rates. I think that's going to drive demand. And also we'll say in terms of growth, I think you're going to see a lot more job creation. I think President Trump's going to be really focused on job creation. And I think that's going to really accelerate demand.

And I really believe we're going to see that his four years, I think, is going to be really good in general terms for REITs and commercial real estate in general. Although there are certain sectors that I mentioned like warehousing especially, focused say in markets like California, that we're watching very, very closely. But look. I think now is a great time. You've got a president who, coming into office, who is very familiar with REITs. He's invested in REITs.

You may not know. I wrote this book called The Trump Factor which I published before he won the 2016 election. So I spent two years of my life analyzing his business. And he does own some REITs, at least the last time I checked his filings, he did own REITs. He actually is a partner with one of the larger REITs and some very large towers in New York City as well as San Francisco. So I think REITs in general are going to be very favorable to set up with the new Trump administration.

Dan Ferris:                 All right. I know that you've had a background in real estate. I think, to me you are sort of the REIT guy. But that's not all you cover in Wide Moat Research, is it? Wide Moat Research is exactly what the name suggests.

Corey McLaughlin:    Yeah, I love how you landed in this area, too, just by researching the companies themselves to be tenants. And then applying that knowledge to stocks. It's kind of like a no-brainer.

Dan Ferris:                 You better be a good analyst then, huh.

Brad Thomas:             Yeah, I agree. And look, I think, I believe I have an advantage over other analysts because of my real estate background. Because I understand how business is created from the ground up. Most every business that we cover, in fact I would argue every business we cover, has a real estate component. We cover Target. Target owns a lot of real estate. In fact, I would argue that if you look at the valuation on Target next time, I know they sold off considerably the last earnings.

But just go on that balance sheet and look at how much real estate Target owns. And then calculate what that's worth. And it's worth a lot of money. And the share price doesn't reflect that, by the way. And you can look at Coca-Cola. They own distribution centers. They lease distribution centers. They own corporate headquarters. They require real estate. Coca-Cola couldn't operate without real estate. We could not conduct this call right here without real estate Today. We're all at either homes or offices, but you have to have a piece of real estate for us to put a roof over our head. So real estate is a core asset class.

But to your point, Dan, what I've done is assemble over the last really 15 years, I've assembled a terrific team of other analysts. It's going to help build and scale our business. 15 years ago, I heard about this guy named Dan Ferris and Porter Stansberry, and the guys over at the Motley Fool. I used to write for the Motley Fool as well. And I thought, "These are some really good analysts." And I told Porter first time I met Porter earlier this year in January, I told him. I said, "Porter, you're a mentor. And I'd love to be a competitor." And I said that very nicely to Porter. Obviously, I'm sitting here today because of that reason.

And so, we've been able to really tap into the network that I've created. And I've hand-picked what I think is the dream team to help really build and scale Wide Moat, because I recognize that I can't cover the whole world. But we can cover a lot of securities with our team. And so I've got analysts for example. And I think he is the best, the absolute best business development analyst. He used to run due diligence for two very large companies. Worked at hedge funds. CFA. I just try to bring in the right talent and to really help round out our business model.

So yeah. I think what we wanted to do is be able to offer a product where the individual investor could utilize our research to build an entire portfolio of what we refer to as SWAN stocks. That stands for sleep well at night. And we think that's the key to the Wide Moat model. You know, I've lost a lot of money in my development career. And some of it was no fault of mine. Some of it was fault of mine. I picked a bad business partner.

The great thing about public stocks today is that I can fire that management team with one button. I don't have to go through lawsuits to get rid of a manager. If I don't like that company, I just sell the shares and I'm out of that company. I don't worry about it anymore. And so principal preservation is really the key. That's our mantra, is protect your principal at all costs. And that's something we really, that comes from me from deep inside. Because having, when you experience these painful losses, you don't want to see that happen again. You certainly will not see it happen to our customers.

So we really do a lot of – our research is predicated on those principles. We think fundamentals is what's going to drive the earnings of the company. So that's where we think our advantage is really laser focusing on these company fundamentals. And valuation again, the intelligent investor, that margin of safety is really critical for us. And buying these companies at the right price when they're on sale is really critical for us and for our company.

Dan Ferris:                 I just want our listeners to know. I know Brad's a value-oriented guy, but I didn't know he was going to wave the Intelligent Investor around. I've been a die-hard value guy for years.

Corey McLaughlin:    Yeah, not only that Dan, I was look at Brad on his website. His recommended reading list. He's got The Most Important Thing on there, by Howard Marks as well. So you guys are book brothers. And me too. I like those books, too. But Dan, value guy for sure.

Brad Thomas:             Howard is on my bucket list. I'd love to meet him. I've got some real close connections to Howard. But I definitely think, he is certainly a second-level thinker, as Mr. Marks would say. So yeah, I do like to read. And those, Marks is certainly an intelligent investor, for sure.

Dan Ferris:                 So what do you like outside of real estate? When I think of certain businesses, I actually, when I think of you, and then I think well, what might he like outside of real estate, I think of a business like Costco or something. You know? It's just pounding out money year after year. It's a fantastic operation. And it's so consistent. One of the things I've emphasized in, especially in our Extreme Value newsletters, the consistency of results. And Costco's a great example because all the margins are razor thin. But they are like clockwork quarter after quarter and year after year.

So that's how it does what it does. And anyway, when you look outside the real estate world, I know you made a good point about everything having a real estate component. Target, Coke, whatever. But when you venture outside of real estate, what looks, what's interesting to you? What businesses are interesting to you?

Brad Thomas:             Sure. Well again, I like to look at trends that are going to allow the companies to generate those sustainable profits. And you mentioned Costco is a terrific example of that. Except for valuation. I'm trying to pull up the share price. But everything's great about Costco but the price.

But again, I'll give you just a couple of examples. Like, homebuilders. I mean, homebuilders, yeah, it's real estate. But it's you know, it's definitely a much more volatile sector. And we've done really well in the homebuilding business. I think that's an area that we really like a lot. Railroads is another sector that I think can be interesting. Shipping sectors. So again, having kind of a more broad assortment of those types of companies.

I like retailers, because again, I've built for these companies. Costco is certainly a great company. Target is interesting. Obviously with that, they've been under some pressure of late. We like to see those companies that, especially in the retail sector, that are going to survive. And interestingly enough, we went into kind of going back to what I talked about the malls. What really triggered our bearish call on malls prior to COVID was the fact that we covered the department stores.

And obviously we saw the potential bankruptcies of Sears. We watched that, actually a REIT called Seritage formed as a result of Sears. Their real estate. That was when Eddie Lampert was I guess you know, running the company. But we looked at those retailers. We look at like, again, going back to the outlet sector which is really a subcategory of malls. It was a company called Tanger Outlets. And what we did is I said you know really, I want to understand, are those companies going to keep paying rent?

So we went into a lot of these retailers that are tenants of Tanger or Simon Properties and evaluated them, just like we would an individual stock. Would we buy that company, you know? And we want to understand all the fundamentals that drive those. So I think breaking all these businesses down has been really, we looked at Kohl's for example is another company we've looked at recently in the retail sector.

I like the insurance space. I think that's a great place to invest. And again, Master Limited Partnerships. Energy sector. We've got an analyst who has an engineering degree. He's a CFA. And he knows his energy sector in and out. So I think energy's definitely a place where we would like to invest capital. So I would say broadly speaking, our coverage is roughly about 500 companies that we would like to at least cover on a regular basis. But again, that's not just the equity piece. There's a lot of those companies that have preferreds that are very attractive as well. Especially in the financial sector, in the banks sector for example is one area like, we are getting ready to launch a small cap product here very soon.

And I think having a small cap, we are very successful with a lot of, picking a lot of these small cap companies before they grew large. And still looking at some of these same competitive advantages we would see with those bigger caps. But we want to see those companies, they lack the coverage. And we feel like we could really help investors accelerate returns with a small cap portfolio. So that's something we're getting ready to launch very soon.

Dan Ferris:                 Looking forward to that, yeah. That sounds great.

Brad Thomas:             Yeah, I'm excited. I think there's a lot of those companies out there. And kind of filtering through those companies and screening those companies. Again, using fundamental analysis is very important. And going back to my start. When I started with – my first company was Advance Auto Parts. And they were not even publicly traded at the time. And that was a very successful bet for us as a tenant, because we were able to help the company grow and become larger, and eventually become listed and all that.

So, and I really loved the auto parts sector. That's another space that we think Advance Auto's beaten down. That's not my favorite now. I think they've got some management issues. But we like O'Reilly Auto Parts. We like all those. I'm actually fairly bullish on the dollar sector. I know there's been a lot of dollars stores built on about every block. But I do think that business model will be around for quite a while. And having built those stores, I understand where they're built, why they are.

And so again, I think there's a lot of different stocks that we cover, and we just try to pick the best of the best again, with those quality metrics are extremely important for us. We're not market timers. We're basically buy and hold investors for the large part. Although, when a company gets reasonably priced, we certainly look to exit those companies so we can reload back in more attractive shares. So, at any rate, that's our business model. It may sound pretty boring, but it's very predictable. And really that's what I think investors really want is predictability, reliability. Repeatability.

Dan Ferris:                 Consistency, yep.

Brad Thomas:             And that's all important for us.

Dan Ferris:                 So Brad, you're my favorite kind of guest, because I'm not the sharpest tool in the shed on my best day. And I can say anything and just sit back and watch you work for five or 10 minutes. And I love it. And I love having you here. But it is time for our final question. Which is the same question for every guest no matter what the topic. Even if it's a nonfinancial topic, identical question. If you said the answer already, by all means feel free to repeat it. And the final question is real simple. If you could leave our listeners with a single thought today, what would you like that to be?

Brad Thomas:             I would say this. My career has really developed as you know, a lot of lessons learned. And when I was younger, I just did not really think about my mistakes and how could I learn from those mistakes. And the older I got, and the more mistakes I had, I just, I don't want to make those same mistakes again. And I think that's really the key, for me, is as I've grown and matured as a writer, an investor, is just always try to sit back and analyze, why did I make this mistake?

If I recommended this company and it hadn't performed well, why is that? And did I miss something? Did Mr. Market miss something? And just trying to assess that. And I've got – I mentioned earlier – I've got five kids. And they grew up and they saw their dad early on as a successful developer who was making a lot of money and went on a lot of nice vacations. And then they saw their father lose all this money. And again, some of it was due to others. And some of it was due to me. And now they saw, they've seen me rebuild it. And I think that's really been important. I'm really proud.

My oldest daughter, who probably witnessed most everything because she was older when she saw us going to these really fancy vacations. And then when she was going off to college, it was really the toughest time for me. And I remember going on these college trips with her. She ended up picking a great school in North Carolina, University of North Carolina. And she followed – I wouldn't say she followed my footsteps because she did it all on her own. But she went to business journalism school. She's been at Bloomberg. She's been at CNBC. And now she's regularly front page at the Wall Street Journal. And she is – I'm very proud of her.

But she's learned a lot from what I've gone through. And again, I would say the biggest takeaway for your audience is always learning from those mistakes. And I try to exercise humility on a regular basis, if not daily. All of my calls aren't 100%. But I try to strive to – I want them all to be 100%. And the way I'm going to do that is I'm going to learn from those mistakes and try to figure out what I did wrong. What did I miss? And I think that's what I would take away. And I think our subscribers and customers really appreciate the fact that I'm trying to take my lessons learned into their life and help them build safer retirement portfolios for them and their family.

Dan Ferris:                 All right. Learn from your mistakes. Good advice. Thanks for that, Brad, and thanks for being here, too.

Brad Thomas:             Enjoyed it. And I look forward to seeing you again. And by the way, if I don't see you at the Christmas party or during the holiday season, I wish you a happy Christmas. Merry Christmas.

Dan Ferris:                 Merry Christmas to you, Brad.

Corey McLaughlin:    You too.

Brad Thomas:             Thank you.

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Dan Ferris:                 Well, the great thing about a guest like Brad is that if you don't have a takeaway by now, I don't know what I can do for you. Because he just knows everything, tells you everything you need to know, and then he wraps it up at the end for us and says also learn from your mistakes. So, I feel like Charlie Munger right now, you know? At the Berkshire Hathaway meetings. He was always saying nothing to add, right? I don't know what I have to add to that. It was great. Brad's great.

Corey McLaughlin:    Nothing to add. It was great. You get, if you want somebody to write the book REITs for Dummies, that's who you want, right? So good on him for doing that. I'll have to get a copy, either from him or I'll just buy one.

Dan Ferris:                 Yeah, are you kidding? Free book. Free investment book. Sign me up.

Corey McLaughlin:    I just love his story, first of all. Why he evaluates stocks the way he does makes total sense. It's very personal. You can tell he cares a lot about it. And from the real estate perspective, I'm always wondering what sectors, well, I have been wondering. As you mentioned during the interview, generally commercial real estate has a lot of negative connotation around it right now, rightfully so.

But what parts of it are going to do better than others? And he listed off plenty. Like a dozen or so major sectors that you could look into more. And just his general ballpark, I was going to ask him this too. But you did the general ballpark figure of how much you should have exposure to REITs, or what he recommends generally was good as well. And how to diversify within the sector. So yeah, he covered everything. I got nothing, I got no more questions. I have no questions.

Dan Ferris:                 Well, from this point, it just makes me want to read his research and see the bottom up process that, value-oriented process, at work in each individual idea. And I think that's what I want to do next with Brad. I just want to read his newsletter. I just want to find out more. But it's great stuff. Great conversation with a really smart guy who's obviously been around the block. He's taken his lumps and come back stronger than ever. I can really certainly identify with that.

Great talk. Great interview. And that's another interview. And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really truly did. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "Transcript" and enjoy.

If you like this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter our handle is @investor_hour.

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