arnings season offers unique opportunities. This is a time when management teams host conference calls for Wall Street analysts. Listening to calls or reading the transcripts gives me insight into how well companies are managed.

I believe that most analysts and investors do not pay enough attention to management teams and whether or not they do a good job.

And listening in this earnings season has made me surer than ever that these are the two best REITS for income investors…

Most stock analysis focuses on financial results. Those results are projected into the future to determine the potential value of a company’s shares. Financials provide a snapshot of the company’s performance for the defined period, usually a calendar quarter. The numbers are scrutinized to determine if the business is operating well or if there could be problems.

However, economic and business conditions constantly change. Analyzing financial results to project from the past into the future leaves out how a business will be affected by changes in the economy and the business sector in which it operates.

When I compare companies in a sector, such as real estate investment trusts (REITs) or business development companies (BDCs), I focus on management’s comments and actions taken to keep their businesses on a positive trajectory. Over the long term, superior management will produce superior results. The better management teams typically share much of what they see and do during the quarterly calls. Here are a couple of my favorite companies and some comments from the recent quarterly discussions.

In my opinion, Arbor Realty Trust (ABR) is the best finance REIT. Arbor focuses on financial solutions for the multi-family property sector. Arbor has increased its dividend in twelve out of the last fourteen quarters, growing by 43%. The company also has the lowest payout ratio in the finance REIT group. Here is a representative quote from CEO Ivan Kaufman:

As we’ve discussed many times, we’ve been laser-focused over the last two years and preparing for what we felt would be a very challenging recessionary environment. In fact, unlike others in this space, we’ve been conducting ourselves as if we have been in a recession for over a year now.

On the property REIT side, Apartment Income REIT Corp (AIRC), also known as AIR, has one of the top management teams in the multi-family property sector from my research. AIR owns and operates apartment communities primarily in coastal cities and the Sunbelt. To lead off the second quarter earnings call, CEO Terry Considine laid out a six-subject discussion of how AIR can provide superior results and navigate the challenges in operating commercial properties in this economy. Here are some of his comments from the call:

The most important question is, what happens next? The apartment business will return to the blocking and tackling of Property Operations, where AIR has demonstrated comparative advantage. For example, with peer-leading retention, we do more of our business in higher-priced renewals with less exposure to new lease rates.

The most important opportunity is to acquire properties at distressed prices, distressed by the relative shutdown of transaction markets as sellers trying to hold on for lower rates to arrive. Here AIR has the advantage of access to abundant equity capital and the opportunity to use the AIR Edge to improve property operations of acquired properties as demonstrated and reported in our earnings release.

A typical earnings call lasts about an hour. It is a full-time job, especially during earnings season, to keep up with management commentary from numerous companies. I enjoy the process, and I believe this approach significantly adds value to my newsletter subscribers.

— Tim Plaehn

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Source: Investors Alley