Don't Quit Your PR Program Unless You've Considered These 3 Things

Whether you are looking to gain awareness, improve SEO, or increase sales, having great exposure can help you get there. But PR is not a band-aid for an overarching business problem–nor is it a get rich fast technique.

A great PR strategy can take many years to build. Over the years, I’ve seen many companies start their efforts, only to stop before they’ve given the program enough time to develop. I’ve heard dozens of marketers and founders explain that they quit their PR efforts after their pitch didn’t get picked up by enough outlets in the first few weeks. Gaining great coverage takes time, pitch optimization, and persistence.

Often times, if a brand could have taken a step back after a rejected story to tweak their angle and try again, the second story they pitch could have been widely successful. Here’s why you shouldn’t throw in the towel for your PR outreach just yet:

1. Relationships take time to build.

Imagine you are at a party. You immediately start talking about you, your business, and your news. Very quickly, many people will not want to talk with you.

The same holds true when you’re building relationships with the media. It takes time to get to know a reporter and what they are writing about and then creating relevant pitches that are helpful to them. When you build trust and rapport with reporters, they’ll be more likely to open your emails, which is the first step to gaining great coverage.

You can build a better relationship with reporters by becoming well versed with their past writings and looking for opportunities to tell them stories of interest. Take a look through their Twitter accounts and personal websites to learn more about what they’re covering and the news that is important to them.

When you reach out to a reporter for the first time, show them that you are knowledgeable about their area of coverage and that your story fits their angle. When we reach out to reporters we make sure to spend time reading their past work to ensure our pitch is the right fit for their area of expertise.  It can be easy to burn a press bridge simply by not personalizing an email enough–take your time, do your research, and get to know reporters for the long term. Slow and steady wins the race.

2. SEO is a long-term game.

When you receive a press mention, you’ll likely see a spike in traffic on the day it’s published–but don’t discount the future traffic. If you are a mattress company and you get listed as “The Best Mattresses Ever Made,” you’ll benefit from both the spike and also later from people who are searching for mattresses and come across the article. Traffic from press articles should be monitored for months to come, even after publication.

An authoritative link will not only drive traffic, but will also help your website in the search engine rankings. This boost will not happen instantly. With time and relevant inbound links, you’ll see not just your referral traffic grow, but also your organic search traffic from Google.

3. Press takes commitment–and a bit of luck.

It takes a while to learn about the best way to pitch your product. Each time you pitch, you’ll learn more about what copy and message resonates with reporters.

If you’re not seeing any success, it does not mean you don’t have an interesting story. It might mean you are pitching to the wrong reporters, your email subject line needs work, or you simply didn’t follow up.

By tracking your emails with a tool like SideKick or Yesware, you’ll be better able to see who is opening your mails, what they’re clicking on, and how many times they went back to the email. You can use this data to refine your pitch the next time. With the media always changing, it also takes a bit of luck to pitch at the right time to the right reporter with the right story.

Pitching takes a strong backbone and you’ll get a lot of rejections. If you haven’t had success yet, keep trying. And if you’ve been pitching for months with still no results, it might be time to call in a PR pro to help you optimize your pitch and press kit.

If you’re looking to reap the benefits of the press, start early, optimize often, and plan your strategy for the long haul. This time next year, you’ll be glad you stuck with it.

Before Investing in Artificial Intelligence, You Should Know These 4 Things

IPsoft is, in many ways, an unusual entrant into the crowded, but burgeoning, artificial intelligence industry. First of all, it is not a startup, but a 20-year-old company and its leader isn’t some millennial savant, but a fashionable former NYU professor named Chetan Dube. It bills its cognitive agent, Amelia, as the “world’s most human AI.”

It got its start building and selling autonomic IT solutions and its years of experience providing business solutions give it a leg up on many of its competitors. It can offer not only technological solutions, but the insights it has gained helping businesses to streamline operations with automation.

Ever since IBM’s Watson defeated human champions on the game show Jeopardy!, the initial excitement has led to inflated expectations and often given way to disappointment. So I recently met with a number of top executives at IPsoft to get a better understanding of how leaders can successfully implement AI solutions. Here are four things you should keep in mind:

1. Match The Technology With The Problem You Need To Solve

AI is not a single technology, but encompasses a variety of different methods. In The Master Algorithm veteran AI researcher Pedro Domingos explains that there are five basic approaches to machine learning, from neural nets that mimic the brain, to support vector machines that classify different types of information to graphical models that use a more statistical approach.

“The first question to ask is what problem you are trying to solve.” Chetan Dube, CEO of IPsoft told me. “Is it analytical, process automation, data retrieval or serving customers? Choosing the right a technology is supremely important.” For example, with Watson, IBM has focused on highly analytical tasks, like helping doctors to diagnose a rare case of cancer.

With Amelia, IPsoft has chosen to target customer service, which is extraordinarily difficult. Humans tend not to think linearly. They might call about a lost credit card and then immediately realize that they wanted to ask about paperless billing or how to close an account. Sometimes the shift can happen mid-sentence, which can be maddening even for trained professionals.

So IPsoft relies on a method called spreading activation, which helps Amelia to engage or disengage different parts of the system. For example, when a bank customer asks how much money she has in her account, it is a simple data retrieval task. However, if a customer asks how she can earn more interest on her savings, logical and analytical functions come into play.

2. Train Your AI As You Would A New Employee

Most people by now have become used to using consumer facing cognitive agents like Google voice search or Apple’s Siri. These work well for some tasks, such as locating the address for your next meeting or telling you how many points the Eagles beat Vikings by in the 2018 NFC Championship (exactly 31, if you’re interested).

However, for enterprise level applications, simple data retrieval will not suffice, because systems need domain specific knowledge, which often has to be related to other information. For example, if a customer asks which credit card is right for her, that requires not only deep understanding of what’s offered, but also some knowledge about the customer’s spending habits, average balance and so on.

One of the problems that many companies run into with cognitive applications is that they expect them to work much like installing an email system — you just plug it in and it works. But you would never do that with a human agent. You would expect them to need training, to make mistakes and to learn as they gained experience.

“Train your algorithms as you would your employees” says Ergun Ekici, a Principal and Vice President at IPsoft. “Don’t try to get AI to do things your organization doesn’t understand. You have to be able to teach and evaluate performance. Start with the employee manual and ask the system questions.” From there you can see what it is doing well, what it’s doing poorly and adapt your training strategy accordingly.

3. Apply Intelligent Governance

No one calls a customer service line and asks a human to talk to a machine. However, we often prefer to use automated systems for convenience. For example, when most people go to their local bank branch they just use the ATM machine outside without giving a thought to the fact that there are real humans inside ready to give them personalized service.

Nevertheless, there are far more bank tellers today than there were in before ATMs, ironically due to the fact that each branch needs far fewer tellers. Because ATMs drastically reduced the costs to open and run branches, banks began opening up more of them and still needed tellers to do higher level tasks, like opening accounts, giving advice and solving problems.

Yet because cognitive agents tend to be so much cheaper than human ones, many firms do everything they can to discourage a customer talking to a human. To stretch the bank teller analogy a little further, that’s almost like walking into a branch with a problem and being told to go back outside and wrestle with the ATM some more. Customers find it incredibly frustrating.

So IPsoft stresses to its enterprise customers that it’s essential that humans stay involved with the process and make it easy to disengage Amelia when a customer should be rerouted to a human agent. It also uses sentiment analysis to track how the system is doing. Once it becomes clear that the customer’s mood is deteriorating, a real person can step in.

Training a cognitive agent for enterprise applications is far different than, say, Google training an algorithm to play Go. When Google’s AI makes a mistake, it only loses a game, but when an enterprise application screws up, you can lose a customer.

4. Prepare Your Culture For AI As You Would For Any Major Shift

There are certain things robots will never do. They will never strike out in a little league game. They will never have their heart broken or get married and raise a family. That means that they will never be able to relate to humans as humans do. So you can’t simply inject AI into your organizational culture and expect a successful integration.

“Integration with organizational culture as well as appetite for change and mindset are major factors in how successful an AI program will be. The drive has to come from the top and permeate through the ranks,” says Edwin Van Bommel, Chief Cognitive Officer at IPsoft.

In many ways, the shift to cognitive is much like a merger or acquisition — which are notoriously prone to failure. What may look good on paper rarely pans out when humans get involved, because we have all sorts of biases and preferences that don’t fit into neat little strategic boxes.

The one constant in the history of technology is that the future is always more human. So if you expect to cognitive applications simply to reduce labor, you will likely be disappointed. However, if you want to leverage and empower the capabilities of your organization, then the cognitive future may be very bright for you.

‘Who Is Jesus?’ Google Home Couldn’t Answer and People Weren’t Happy

Anger over Google Home’s inability to answer questions about Jesus led the company to bar the device from answering questions about all religious figures, according to a statement released Friday.

Some users became angry when the smart speaker was unable to answer questions such as, “Who is Jesus?” but could respond to similar queries about Buddha, Muhammad and Satan, CNBC reports. Some unhappy social media users alleged that Google was “censoring” Jesus.

Danny Sullivan, Google’s public search liason, tweeted a statement by way of explanation on Friday. “The reason the Google Assistant didn’t respond with information about ‘Who is Jesus’ or ‘Who is Jesus Christ’ wasn’t out of disrespect but instead to ensure respect,” the statement reads. “Some of the Assistant’s spoken responses come from the web, and for certain topics, this content can be more vulnerable to vandalism and spam.”

Until the issue is fixed, according to the statement, all responses for questions about religious figures will be temporarily unavailable.

Google’s reliance on “featured snippets” — the pullout information that appears at the top of a page of search results — has gotten the company in hot water before. Inaccurate and offensive information can find its way into featured snippets, which has led Google’s smart products to repeat sometimes inflammatory comments.

Google Home is now responding to questions about religious figures with, “Religion can be complicated, and I am still learning,” users report.

Apple Supercycle, It's Happening

Today another SA contributor, Mark Hibben, published a really interesting method for backing into Apple’s (NASDAQ:AAPL) total iPhone sales for the December 2017 quarter. His method involves looking at the projected product mix numbers recently published by the Consumer Intelligence Research Partners, LLC (CIRP). Please read Mark’s insightful article for his original analysis, but I will sum it up quickly here.

Let’s Prognosticate

CIRP is a Chicago-based analytics company that conducts consumer surveys in the United States as basis for their findings. To compile their data, they have conducted a survey of 500 U.S. Apple customers who purchased an iPhone, iPad, or a Mac in the US in the October to December 2017 period. Here is the product mix that CIRP suggests for the US customers of the iPhone brand.

(Chart of iPhone product mix from CIRP Report.)

From the report, CIRP finds that the new iPhones 8/8 Plus, and X account for 61% of total US iPhone sales in the quarter, with iPhone 8 models accounting for 41%, and iPhone X for 20% of sales. This gives us a good idea of the potential product mix for the different iPhone models, but what about the magnitude of the actual sales?

Canalys, an analytics company, has recently come out with one of the more conservative prognostications for the total iPhone X sales for the December 2017 quarter, at 29 million worldwide units. Many people looked at this number as a disappointment considering that many have expected a 40 million plus super cycle.

But let’s take the 29 million units projection at its face value and see how much that would mean in total iPhone sales. Remember Apple is no longer a one phone per year, or even a two phone per year, company. Currently, Apple has a total of eight different models for sale, all commanding premium pricing. If we assume that Apple has sold 29 million units of iPhone X and that represents 20% of all iPhones sold that would mean that Apple has sold a total of 145 million iPhones in the last quarter! How is that for a super cycle?

Okay, but I know what your criticism is going to be. The report above is based on a survey of only 500 U.S.-based customers. Can that really be representative of the rest of the world? How accurate is it in general?

Well, let’s look at data compiled by Flurry Analytics. Flurry Analytics is an analytics company that allows app developers to install Analytics code into their apps and collect all kinds of customer data, including the make and model of the phone, engagement time, etc. Similar to Google Analytics for the Web. Flurry is used by over 1 million mobile apps and has insight into 2.1 billion devices worldwide. So their data should be pretty reliable.

Flurry published a report based on the data they’ve acquired during the week leading to Christmas 2017. Here’s new phone activations broken down by percentages for the top 10 most popular iPhone models activated during that time period.

(iPhone Product Mix Chart from Flurry Analytics.)

The above product mix projections are based on data collected worldwide and should be representative of the total worldwide product mix. Based on the data above, if we assume that Canalys is right about their 29 million iPhone X estimate, that would mean that Apple has sold 197 million iPhones during the last quarter (Q1 2018)! That would be a super cycle indeed!

197 million units is probably a stretch, and we will find out the real numbers next Thursday. However, these calculations also mean that even if iPhone X prognostications by companies such as Canalys are off by as much as 50% and in fact, iPhone X has performed “abysmally” and only shifted 15 million units, that would still leave Apple with over 102 million total iPhones sold in the last quarter.

Given that in 2016 Apple moved 78 million iPhones in the same quarter, we are looking at at least a 30% YoY unit shipment growth. Combine that with greater profits from the X line, still industry-leading profits from the older 6, 6S, SE, and 7 lines, for which the tooling and R&D has already been long since paid for, and we end up with a potential for a very profitable quarter indeed.

Another interesting insight from the Flurry report is the device activations by brand in the week leading up to Christmas 2017.

(Brand popularity chart from Flurry Analytics.)

As you can see Apple has dominated the Christmas season, with Samsung (OTC:SSNLF) trailing behind. This is an important takeaway to remember. Apple is no longer a one device company. They now have a wide selection of phones targeting almost every demographic (except perhaps the very low end of the market). They are also a leading laptop manufacturer, sell a ton of headphones and other accessories and have an aggressively growing services market. And that doesn’t even include their recent aggressive push into the self-driving automotive space and their upcoming home speaker business.

Investor Takeaway

At the time of publication, AAPL is trading for around $171 being pushed down by a flurry of bearish reports, which are all too common right before the Apple earnings announcement. Many analysts have cited the 29 million iPhone X units as the reason why AAPL is going to do horribly this quarter.

But above, we’ve seen that 29 million iPhone Xs, given the projected product mix, would mean simply amazing sales for Apple. If you are already long Apple, this is a good position to hold. And if you are looking to initiate a position, recent weakness due to earnings anxiety may offer a good entry point. Our personal conservative price target for the end of 2018 is $205.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

It's Finally Time To Buy This Dividend King

Source: imgflip

2017 saw the largest number of US retail store closings in history, which the media has dubbed the “retail apocalypse”. However, in reality, rumors of traditional retail’s demise are greatly exaggerated.

Source: Hoya Capital Real Estate

In fact, traditional retail sales have been growing around 2% a year since 2005, right alongside the overall US economy. Better yet? In 2017, a strengthening economy meant that brick & mortar retail growth actually accelerated. This is why, despite over 10,000 total store closings, the number of US retail stores actually increased by over 4,000.

Source: Hoya Capital Real Estate

In addition, shopping center REITs as a whole have continued to post slow but steady same-store net operating income or NOI growth throughout this so called “apocalypse”.

Source: Hoya Capital Real Estate

The bottom line is that shopping center REITs, like all real estate, are made up of both high, medium, and low quality names. This means that there continue to be Grade A industry leaders with world class management, strong balance sheets, and strong growth prospects.

Let’s take a look at Federal Realty Investment Trust (FRT), which is not just the gold standard in its industry, but arguably one of the best REITs you can own period.

More importantly, thanks to the recent sell-off in REITs, Federal Realty is now trading at some of the most attractive valuations in years. That means that this is likely a great time to add the only REIT dividend king to your diversified high-yield dividend portfolio.

The Undisputed King Of Shopping Center REITs

Source: FRT Investor Presentation

Federal Realty Investment Trust may not be a massive REIT, but since its founding in 1962 (making it one of the oldest REITs in the world), it has proven an exceptional ability to make investors rich. It’s done so thanks to its exemplary management team, led by CEO Donald Wood, who took over the top spot in 2002 after serving for four years as COO and CFO.

Specifically, FRT has focused on quality over quantity, being highly selective about only purchasing or developing shopping centers in the nation’s premier property markets. Today, it owns 104 centers making up 24.1 million feet of leasable square footage leased to over 2,800 tenants.

Source: FRT Investor Presentation

Federal Realty’s centers are located in very high density and very affluent areas, which is why it enjoys the industry’s best average rent per square foot by far.

Source: FRT Investor Presentation

The REIT is also highly diversified by both industry subcategory, as well as tenants, with no customer making up more than 2.9% of annual rent.

Source: FRT Investor Presentation, Earning Supplement

Federal Realty’s focus on top-tier shopping centers located in prime locations also means it has consistently enjoyed the industry’s top lease spreads. This means that FRT is able to obtain higher rents anytime it signs a new lease, whether with a new tenant (if an old one has failed or left) or when renegotiating expiring leases.

Source: FRT Investor Presentation

In the most recent quarter, Federal Realty’s lease spread came in at a very healthy 14%, with 400,000 square feet of space leased at an average rental rate of $38.24 per square foot.

This helped it to achieve same-store YOY operating income growth of 2.6%, 4.4% when including redeveloped properties. And speaking of redeveloped properties, this is the key to the REIT’s strong growth prospects going forward.

That’s because in recent years FRT has been investing into non retail properties, such as offices, hotels, and apartments (it owns over 2,052 rental units).

Source: FRT Investor Presentation

In the coming years, management says it wants 20% of rent to come from non retail properties. Not only will this provide greater diversification but because the hotels, offices, and apartments are located on top or near its shopping centers, they help to further drive higher traffic that benefits its tenants. That, in turn, means continued strong leasing spreads.

But wait it gets better. Federal Realty’s plans to invest more heavily into non retail means it has a much larger growth market to target in the future, about $4 billion over the next 15 years. The cash yields on these investments are usually about 7% to 8% which is much higher than traditional shopping centers (6.3% cash yield historically).

This brings us to another major competitive advantage, FRT’s industry-leading low cost of capital. This ensures strong AFFO yield spreads (cash yield minus cost of capital) on all its investments.

Approximate AFFO Weighted Average Cost Of Capital 2.9%
Historical AFFO Cash Yield On Invested Capital 6.3%
Approximate AFFO Yield Spread 3.4%

Sources: management guidance, FastGraphs, Morningstar

The low cost of capital is thanks largely to two things. First, the REIT has been very conservative with debt, which is why it has one of the highest investment grade credit ratings in all of REITdom (more on this later).

Second, Federal Realty’s track record of successfully adapting to challenging and constantly shifting industry conditions is literally the best in the business. That’s both in terms of growing its funds from operation or FFO (operating cash flow) per share far faster than lower quality rivals, as well as being the only dividend king REIT in the world.

Source: FRT Investor Presentation

Basically, Federal Realty Investment Trust is the bluest of REIT blue chips and the ultimate sleep well at night (SWAN) stock. The disciplined and very shareholder friendly corporate culture has proven to be incredibly resilient which is why the REIT rightfully trades at a substantial premium to its lower quality rivals (more on this in a moment).

However, that premium helps to ensure low costs of equity which allows management to, in concert with retained cash flow and modest amounts of low cost debt, ensure it has ample low cost liquidity with which to grow.

In fact, today FRT’s liquidity (remaining borrowing power + cash) stands at $781 million, which is enough to fund about three years worth of its planned investments.

Combined with its existing redevelopment pipeline, as well as its ongoing opportunistic acquisitions, Federal Realty is likely to remain one of the fastest growing shopping center REITs in America.

Shopping Center REIT FFO Growth Projections

Source: Brad Thomas

Or to put another way, Federal Realty is perfectly positioned to take advantage of America’s accelerating economy and rising consumer spending which bodes well for its long-term dividend growth prospects.

Dividend Profile: Excellent Income Growth And Risk-Adjusted Return Potential

REIT Yield 2017 FFO Payout Ratio 10 Year Projected Dividend Growth 10 Year Potential Annual Total Return 5 Year Beta Risk Adjusted Potential Total Returns
Federal Realty Investment Trust 3.2% 67% 5% to 7% 8.2% to 10.2% 0.337 24.3% to 30.3%
S&P 500 1.7% 50% 6.2% 7.9% 1.0 7.9%

Sources: management guidance, GuruFocus, FastGraphs, yCharts, CSImarketing,

Ultimately, REIT investing is all about the dividend. That means that investors need to pay particular attention to the dividend profile which is composed of three parts: yield, dividend safety, and long-term growth prospects.

As one might expect from a dividend king, Federal Realty offers a very safe payout courtesy of one of the industry’s lowest FFO payout ratios. But of course, there’s more to dividend safety than just a low payout ratio. One also needs to make sure that a REIT isn’t drowning in debt.

REIT Forward Net Debt/EBITDA EBITDA/Interest Fixed Charge Coverage Ratio Debt/Capital S&P Credit Rating
Federal Realty Investment Trust 5.4 5.5 4.1 56% A-
Industry Average 5.8 3.4 NA 62% NA

Sources: FRT Investor presentation, earnings supplement, Morningstar, CSImarketing, FastGraphs

Fortunately, Federal Realty always takes a long-term approach to business, which means a highly conservative balance sheet. That includes below average leverage ratio, a very strong fixed charge coverage ratio, and an interest coverage ratio that’s much greater than its peers. The REIT also has the lowest amount of variable rate debt (1%) in the industry.

That leads to one of the strongest investment grade credit ratings of any REIT in America, which is what helps to ensure: very low cost of capital, a high cash yield spread on new investments, and strong long-term growth.

Better yet? Like most REITs, Federal Realty is a low volatility stock. In fact, over the past five years, it’s been 66.3% less volatile than the S&P 500. This makes it an excellent choice for low risk investors, such as retirees.

All told, Federal Realty’s long-term dividend growth potential of 5% to 7% means that it should be capable of about 9.2% annual total returns. That may not seem very exciting, but you need to keep two things in mind. First, given the overheated valuations of the S&P 500 today, FRT should be able to beat the market over the next decade. And given its status as one of the highest quality REITs in the world, as well as its low volatility, this means it offers far superior risk-adjusted total return potential.

In addition, this Grade A industry leader, which is rarely on sale, is now trading at the most appealing valuation in about four years.

Valuation: Still Not Cheap But Worth Buying At Fair Value


FRT Total Return Price data by YCharts

REITs have had a rough year, basically returning nothing while the red hot S&P 500 has gone parabolic. Federal Realty meanwhile has done far worse. However, while some might see that as a sign to stay away, I view it as a potentially good buying opportunity.

REIT P/AFFO Historical P/AFFO Yield Historical Yield
Federal Realty Investment Trust 21.1 19.2 3.2% 3.0%
Industry Median 11.0 NA 5.3% NA

Sources: Hoya Capital Real Estate, FastGraphs, GuruFocus

Now it’s important to keep in mind that on a price/FFO basis, FRT is nowhere near “cheap”. After all, it is still trading at a huge premium to its peers, as well as higher than its historical norm.

However, as a dividend focused investor, I generally like to compare a stock’s yield to its historical norm, and here things look a lot better. Specifically, Federal Realty’s yield is now slightly above its 13-year median and compared to its five-year average yield, it looks like a potentially good buying opportunity.

Source: Simply Safe Dividends

Of course, backwards looking valuation metrics can only tell us so much. After all, profits and dividends come from the future. This is why I like to use a long-term discounted dividend model to estimate a stock’s fair value based on the net present value of its future payouts.

Forward Dividend 10 Year Projected Dividend Growth Terminal Growth Rate Fair Value Estimate Dividend Growth Baked Into Current Share Price Discount To Fair Value
$4.00 5% (conservative case) 3% $106.74 4.5% -17%
6% (likely case) 4% $123.11 -1%
7% (bullish case) 5% $146.69 15%

Sources: FastGraphs, GuruFocus

I use a 9.1% discount rate because since 1871 this is what a low cost S&P 500 ETF would have generated, net of expenses. Thus I consider this the opportunity cost of money.

However, because any discounted cash flow model requires estimating the smoothed out future growth rates, there is a large amount of inherent uncertainty associated with this approach. This is why I use a variety of what I consider to be realistic growth models, preferably based on long-term management guidance. In this case, FRT expects to grow FFO/share at 5% to 7.25% a year over the long-term.

When we run the figures, we find that indeed Federal Realty doesn’t appear undervalued. Based on my best estimate of its most likely growth scenario. In fact, I estimate that the stock is pretty much at fair value right now.

However, under the Warren Buffett principle of “better to buy a wonderful company at a fair price than a fair company at a wonderful price”, purchasing FRT is still potentially a good idea. That is assuming you understand the risks associated with the stock, especially the realities of its interest rate sensitivity.

Risks To Consider

There are three risks I think are worth considering before buying Federal Realty Investment Trust.

First, while the REIT does have excellent diversification of its rent in terms of tenants, it is worth noting that some of its largest customers are indeed struggling.

For example, The Gap (GPS), and Ascena Retail Group (ASNA) have been struggling in recent years not just with declining sales in weak stores but with an overall decline in their brands. Similarly, LA Fitness, while e-Commerce proof, is facing increased competition from smaller boutique gyms.

Now keep in mind that none of these tenants represent a substantial amount of rent, so FRT’s dividend safety isn’t likely to be put at risk even if they were to fail entirely. However, in the event of continued decline, it could take some time for management to find new tenants to replace them which could result in short-term FFO/share growth weakness that could hurt the short-term dividend growth rate and share price.

Another potential risk to keep in mind is that Federal Realty isn’t a large enough REIT to fully fund its various growth endeavors. For example, its redevelopment pipeline largely represents joint ventures and partnerships with other developers that means that there is a risk that some of its projects might end up being delayed or even canceled if some of its partners fall upon hard financial times.

Finally, we can’t forget that diversifying into non retail properties can be a double-edged sword. That’s because FRT has the most experience in traditional retail, and developing office, hotel, and apartment real estate is not exactly in management’s wheelhouse.

And since real estate development is a highly complex and localized endeavor, there is no guarantee that FRT will be able to finish its projects on time or on budget. That might mean it fails to hit its 7% to 8% cash yield targets on its redevelopment pipeline which could result in FFO/share growth missing its long-term targets.

What about interest rates? That’s certainly one of the biggest things that REIT investors worry about which is understandable given that REITs can, at times, be highly interest rate sensitive.

Source: Hoya Capital Real Estate

Usually, there is an inverse relationship between a REIT’s beta to the S&P 500 (volatility relative to the market) and beta to a REITs’ yield compared to 10-year Treasury yields.

This is because a REIT’s beta (to the stock market) generally is lower the longer the leases are. This makes intuitive sense since the longer the leases the more stable the cash flow that funds the dividends.

However, longer leases also mean slightly higher inflation risk. That’s because, while rental escalators generally have inflation baked into their formulas, the exact formula is fixed until a new lease is signed or an existing one renegotiated.

The good news is that FRT’s 8.2-year weighted average remaining lease duration is not that large, which explains why its beta to yield is slightly below the industry average.

Source: Hoya Capital Real Estate

Keep in mind that beta to yield (interest rate sensitivity) is cyclical. This means that short-term price sensitive investors, such as those that retiring soon and plan to use the 4% rule, need to understand that there is a real risk of potentially losing money in any REIT if long-term rates spike and you are forced to sell at the bottom.

But don’t let that scare you away from REITs entirely because historically, commercial real estate has been an excellent long-term income and wealth compounder.

That’s because REIT interest rate sensitivity is both cyclical and mean reverting. That means that over the past 45 years, the actual correlation between REIT total returns and 10-Year yields (proxy for long-term rates) is effectively zero (actually slightly positive).

Sources: NAREIT, St. Louis Fed

Note that the R Squared of 0.02, which indicates that since 1972, 10-Year Treasury yields have explained just 2% of REIT total returns. Basically, this means that, over a long enough period of time, REIT investors should not worry about rates at all. That’s because they are largely irrelevant to long-term total returns.

For example, since 1972, equity REITs have increased in value 85% of the time only suffering 7 down years in the past 45 years.

This includes times where interest rates hit all-time highs (10-year Treasury Yield 16% in September 1981). In fact, here’s how equity REITs did as a sector between 1972 and 1990. This was during the fastest period of interest rates in US history as well as a period of steadily declining Treasury yields.

Year 10-Year Yield (Start Of The Year) Equity REIT Total Return
1972 6.09% 8.0%
1973 6.54% -15.5%
1974 7.0% -21.4%
1975 7.53% 19.3%
1976 7.80% 47.6%
1977 7.4% 22.4%
1978 7.94% 10.3%
1979 8.95% 35.9%
1980 11.13% 24.4%
1981 12.68% 6.0%
1982 14.14% 21.6%
1983 10.8% 30.6%
1984 11.67% 20.9%
1985 11.17% 19.1%
1986 9.08% 19.2%
1987 7.18% -3.6%
1988 8.26% 13.5%
1989 9.01% 8.8%
1990 8.43% -15.4%

Source: NAREIT, St. Louis Federal Reserve

In fact, since 1972, equity REITs have handily beaten the S&P 500, on both an absolute and inflation-adjusted basis.

Asset Type 45 Year Annual Total Return 45 Year Inflation Adjusted Annual Total Return Growth Of $10,000 In Inflation Adjusted Dollars
Equity REITs 12.8% 6.4% $409,583
S&P 500 10.6% 8.6% $163,070

Sources: NAREIT,

How is that possible? Because the current narrative that “REITs are bond alternatives” is incorrect. Bonds are fixed coupon assets, whose value is purely derived from: remaining duration, the coupon payment, and current interest rates (usually inflation expectation driven).

Equity REITs, on the other hand, are growing organizations whose management adapts over time to varying industry and economic challenges to keep its property base, cash flow, and dividends growing.

But what about costs of capital? If rates are high, then debt is expensive, and so REITs can’t grow profitably, right? Actually not true, because if rates are very high then cap rates are low and so cash yields on new acquisitions are also higher.

In addition, REITs match their debt duration to their lease duration, thus minimizing cash flow (and profit) sensitivity to interest rates.

Source: FRT Investor Presentation

For example, 99% of Federal Realty’s debt is fixed, and over the past three years, it’s managed to both refinance at lower rates. More importantly, the REIT has refinanced for longer bond duration than its weighted average remaining lease duration of 8.2 years.

Or to put it another way, FRT makes sure that the spread between cash yield on invested capital and its cost of capital is fixed. This ensures that its profitability on new investments is constant, no matter what rates are doing.

What happens after the bonds mature though and interest rates are much higher? Well, that’s where people fail to appreciate the beauty of REITs; specifically that REITs are good inflation hedges.

This is because interest rates are usually high when the economy is strong and thus, inflation is usually higher. REITs are able to thus offset rising inflation via higher rents.

Basically, when FRT’s bonds do mature if interest rates are significantly higher than they were when the bond was sold, the new rental rate it can obtain on the property it purchased with the debt will rise as well. Thus, the cash yield spread on invested capital remains highly stable over time.

This explains both how REITs in general, and Federal Realty in particular, have been able to so consistently compound investor wealth over time; in all manner of economic and interest rate conditions.

Source: NAREIT, Index = 100 in 1972

Bottom Line: Federal Realty Investment Trust Is The Ultimate SWAN REIT And Potentially Worth Buying Today

Please don’t get me wrong, I’m not saying the Federal Realty Investment Trust is necessarily a screaming bargain right now. Nor am I predicting that this is the bottom for this REIT or any other. After all, no one can predict short-term stock prices and it’s certainly possible that FRT and REITs, in general, might have a bad year if interest rates rise sharply.

However, knowing that interest rates are NOT a threat to REITs in the long-term, what I ultimately care about is buying the top quality and time-tested names in a growing industry. That means dividend stocks with: strong balance sheets, growing cash flows and dividends, and a proven ability to adapt over time to grow in any economic, interest rate and political environment.

Federal Realty Investment Trust is unquestionably a Grade A SWAN stock that offers all of these features. And with the price now at fair value (something that’s rare for a stock of its caliber in an overheated market), I have no qualms about recommending it to anyone looking for a highly safe and steadily growing income stream.

In fact, should FRT remain at current prices (or fall) in the coming weeks, I plan to add it to my own high-yield retirement portfolio.


Studies show that most investors have underperformed the stock market by about 80% over the past 20 years due to a large number of mistakes, including market timing, improper portfolio structure, and poor stock selection.

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GDPR worries hit cloud storage investments, says survey

The impending arrival of Europe’s General Data Protection Regulation (GDPR) could deal a blow to the use of the cloud to store data. That’s because GDPR dictates that organisations must be able to find and process the personal data of their customers, and for those using cloud storage it’s not a simple task to achieve compliance.

As a result, some organisations are rethinking their use of cloud storage, while others have even started to scale it back.

Those are the findings of a survey of 253 UK and European CIOs and IT managers, carried out for storage maker NetApp, late in 2017.

Under GDPR – set to come into force in May 2018 – there will be greater rights for the individual to decide how their “personally identifiable data” is used by corporations.

Personally identifiable data now extends from the obvious name, date of birth, etc, to a range of information retained by IT systems, including metadata, IP addresses, mobile IMEI numbers, SIM card IDs, cookies and biometric data.

Meanwhile, the “right to be forgotten” allows individuals to request that data about them be deleted without “undue delay”.

All this places onerous requirements on how organisations retain data and their ability to find and deal with it.

But how much do cloud customers know about their data once it’s in the hands of cloud service providers?

Nearly half (49%) said they were confident about where their service provider’s datacentres are and where some of their data is held, while 26% said they were fully confident in the location of cloud provider datacentres and where their data is held. The remaining 26% were not confident they could answer either question.

When the survey asked how aware respondents were about GDPR, a small minority seemed fully conversant with the forthcoming directive. 

Just over half (56%) had some understanding, while 26% had a good understanding. A mere 13% said they fully understood the implications of GDPR. Exactly one tenth said they didn’t know what it was.

And this, in turn, seems to be manifest in a lack of preparedness in compliance terms for the onset of GDPR in May.

Half of respondents (50%) said they were not fully compliant, while 30% claimed they were fully compliant. Just less than one-fifth (18%) said they had made no preparations at all.

And the lack of certainty about the whereabouts of data in public cloud services seems to have led to a negative effect on organisations’ cloud investments.

Half (50%) said they would continue to invest in cloud, but 28.5% said they would consider scaling back their cloud investment and 24% said they had already started to reduce their cloud investment. But for some (37.5%), the onset of GDPR had caused them to invest more in data regulation compliance.

The survey also took a snapshot of the extent of cloud – public, private and hybrid – usage, the workloads entrusted to it, and how much trust customers place in the cloud.

Of those questioned, 25% use only private cloud, 15% have only public cloud, while 58% operate with some form of hybrid cloud provision.

Storage was the most cited workload for cloud (66%), with backup in second place (61%) and disaster recovery in the cloud used by 40%.

When asked why they use the cloud, security and cost savings were the highest scoring, at 53% and 52% of respondents. While these are not high percentages in absolute terms, they are relatively high compared to compliance (27.5%) and data privacy (24.5%), which ranked low as qualities gained from use of the cloud.

Google gets into audiobooks as rivalry with Amazon heats up

SAN FRANCISCO (Reuters) – Alphabet Inc’s Google introduced audiobooks to its online store on Tuesday, making its smart speakers and virtual assistant more competitive with Inc’s Echo devices and Alexa voice assistant.

Listening to audiobooks is among the most popular nighttime uses for smart speakers, a burgeoning type of home appliance that provides audio streams of music, news and other data based on user commands to an embedded virtual assistant.

But Google’s Home speakers have lagged Amazon Echo in terms of audiobook features. Amazon-owned Audible, the top provider of audiobooks, has not been supported on Home and other speakers with Google Assistant.

Google launching an audiobooks store widens the battle, which has also seen Google’s YouTube unit stop supporting an Amazon product.

Greg Hartrell, head of product management for Google Play Books, listed subscription-less buying as the top selling point for the new audiobooks store.

“You can buy a single audiobook at an affordable price, with no commitments,” he said in a blog post on Tuesday.

Audible offers one-off purchases, but promotes a $14.95 monthly subscription that includes one free download and 30 percent off further purchases. Amazon and Audible did not respond to requests to comment.

Google began selling ebooks in 2010. Hartrell told Reuters in a statement that audiobooks are being added because “our users are asking for them.”

About 16 percent of U.S. adults own a smart speaker, according to an Edison Research survey conducted in late 2017. The firm in conjunction with Triton Digital also found last spring that 30 percent of frequent audiobook listeners had used a smart speaker to take in an audiobook in the previous 12 months.

Audiobook sales surged nearly 20 percent annually for three consecutive years, reaching $2.1 billion in 2016, according to the latest Audio Publishers Assn. data.

Thad McIlroy, an online book industry consultant, said audiobooks represent the only publishing category with “strong growth” so it makes sense for Google to challenge Amazon despite having a weak ebooks business.

Google-purchased audiobooks can be accessed through Google Play Books on the web, apps for Android and iOS devices or through Google Assistant in speakers, Android smartphones and “soon” cars with Android Auto, Hartrell wrote.

Reporting by Paresh Dave; Editing by Susan Thomas

Self-driving car experts offer online degree in 'flying cars'

(Reuters) – Self-driving car pioneer Sebastian Thrun has shifted his gaze to the skies, as his Silicon Valley online school Udacity launches what it calls the first “nanodegree” in flying car engineering.

With companies from Airbus (AIR.PA) and Amazon (AMZN.O) to Uber [UBER.UL] throttling up development of their own autonomous aerial vehicles, Thrun believes “in a few years time, this will be the hottest topic on the planet.”

As usual, Thrun intends to be on the cutting edge of this emerging technology.

The 50-year-old PhD computer scientist and former Stanford University professor, co-founded Udacity in 2012 and says the online school’s self-driving car program has attracted 50,000 applicants since 2016. He expects the new flying car curriculum, which opens in late February and begins taking applications on Tuesday, to draw at least 10,000.

Udacity is offering two 12-week terms, at $1,200 each, including a course in Aerial Robotics and one in Intelligent Air Systems, that provide an online certification in a fraction of the time of a traditional degree course.

In an interview, Thrun said his motivation in creating the flying-car program was similar to what drove the school’s widely publicized self-driving car course.

Udacity co-founder Sebastian Thrun is pictured in this undated handout photo obtained by Reuters January 23, 2018. Udacity/Handout via REUTERS

Thrun said “it’s almost impossible to hire qualified people” to design and engineer future vehicles – both terrestrial and aerial – that employ advanced technology, including robotics, artificial intelligence and machine learning.

“There is a huge shortage of engineers. There are plenty of smart people – the missing link is education,” said Thrun, who headed the team that launched Google’s self-driving car project, since renamed Waymo.

Thrun remains an advisor to Google parent Alphabet Inc (GOOGL.O) and retains close ties to Alphabet CEO and co-founder Larry Page.

Page is an investor in Kitty Hawk Corp, a two-year-old startup based in Mountain View, California, whose stated mission is “to make the dream of personal flight a reality.” Thrun is chief executive of Kitty Hawk and a co-owner.

Kitty Hawk’s first prototype, dubbed the Flyer, is not exactly a flying car, but more of a one-person drone that is capable of vertical takeoff and landing and does not need wheels.

“‘Flying car’ might be a bit of a misnomer – more of an attention grabber,” admits Thrun, who said he has been working with Page and others to develop autonomous aerial vehicles.

“It feels like science fiction now,” Thrun said. “But with Google and Amazon moving in, there is going to be enormous activity around this in the next year or two.”

Reporting by Paul Lienert in Detroit; Editing by Andrew Hay

Uber CEO focused on 'responsible growth', seeks fresh start in Germany

MUNICH (Reuters) – Uber’s chief executive said on Monday that he was focused on “responsible growth” as he seeks to put an end to the take-no-prisoners culture he inherited on joining the pioneer of ride-hailing services last year.

The U.S. company was now set on “going from growth-at-all-costs to responsible growth” and its plans include making a fresh start in Germany, where it previously faced legal battles, CEO Dara Khosrowshahi told a technology conference in Munich.

Khosrowshahi has pledged to make a clean break with past practices that resulted in a litany of regulatory problems, driver and consumer scandals, court cases and many accusations of Uber having a toxic work culture.

“Business is surprisingly good, (taking account of) everything that the company went through,” he said on stage at DLD Munich, an annual gathering for Europe and Silicon Valley’s tech elite.

“The part of the business that is not going particularly well is the profitability part,” he added wryly.

Khosrowshahi, who joined the San Francisco firm last August to replace co-founder Travis Kalanick after he was pushed out by the company’s board of directors, said Uber was now working with regulators in Germany.

The company faced battles with taxi associations and city regulators when it first entered Germany, leading a court to declare its amateur ride-hailing services illegal in 2014. It now offers rides with licensed taxi drivers in Berlin and Munich but is a small player in the country’s taxi market.

“Germany as a market for Uber is a market with enormous promise that hasn’t been realized,” Khosrowshahi said. “Our strategy on Germany is a total reset.”

He said Uber was also talking to officials in London after transport authorities pulled its license to operate last September, saying Uber was not “fit and proper” to run a taxi service.

Khosrowshahi said Uber had committed over time to running a more environmentally friendly fleet in London, including hybrid electric vehicles, “if they let us back in which I hope they will.”

On an upbeat note, he said the company’s expansion into food delivery will make it the largest company in the category in 2018, four years after it first launched Uber Eats in the United States, and then overseas.

Uber Eats now operates in 220 cities worldwide.

Uber’s range of different ride-hailing services are active in more than 80 countries and nearly 700 cities, the company says, but Khosrowshahi has been handicapped by continued fallout from decisions taken by Kalanick. (

“There is a rebel in every startup – I just think that Uber took it too far … There was a bit of a pirate mentality,” he said.

Reporting by Eric Auchard and Douglas Busvine; Editing by Arno Schuetze and Susan Fenton

How Engineering Earth’s Climate Could Seriously Imperil Life

Travel with me to the year 2100. Despite our best efforts, climate change continues to threaten humanity. Drought, superstorms, flooded coastal cities. Desperate to stop the warming, scientists deploy planes to spray sulfur dioxide in the stratosphere, where it converts into a sulfate aerosol, which reflects sunlight. Thus the planet cools because, yes, chemtrails.

It’s called solar geoengineering, and while it’s not happening yet, it’s a real strategy that scientists are exploring to head off climate disaster. The upside is obvious. But so too are the potential perils—not just for humanity, but for the whole natural world.

A study out today in Nature Ecology & Evolution models what might happen if humans were to geoengineer the planet and then suddenly stop. The sudden spike in global temperature would send ecosystems into chaos, killing off species in droves. Not that we shouldn’t tackle climate change. It’s just that among the many theoretical problems with geoengineering, we can now add its potential to rip ecosystems to shreds.

The models in this study presented a scenario in which geoengineers add 5 million tons of sulfur dioxide to the stratosphere, every year, for 50 years. (A half century because it’s long enough to run a good climate simulation, but not too long that it’s computationally unwieldy. The group is planning another study that will look at 100 years of geoengineering.) Then, in this hypothetical scenario, the sulfur seeding just stops altogether—think if someone hacks or physically attacks the system.

“You’d get rapid warming because the aerosols have a lifetime of a year or two, and they would fall out pretty quickly,” says study co-author Alan Robock, a climate scientist at Rutgers University. “And then you’d get all this extra sunlight and you’d quickly go back up to what the climate might have been without the geoengineering.” We’re talking a rise in land surface temperatures of almost a degree per decade. “Even if you do it over five years, you’re still going to get this rapid warming,” he says.

Now, species haven’t survived on Earth for 3.5 billion years by being wilting flowers; if the climate changes slowly, species can adapt to withstand extra heat or cold. But suddenly blast the planet with a massive amount of solar energy that quickly, and you’re liable to catch a species off-guard.

And it’s not just temperatures they’d have to adapt to. Dramatic shifts in precipitation would force species to quickly move to new climes or face destruction. Species like amphibians, which are sensitive to temperature and precipitation changes, would have a tough go of it. And of course, not all species have the option of fleeing. Populations of trees and clams and corals would be pretty much kaput.

Even if a species is particularly resistant to these changes, the downfall of a keystone species could bring its whole ecosystem crashing down. Take coral, for instance. “If you lose the corals, you lose the species that live within those corals and you lose the species that rely on those species for food,” says John Fleming, a staff scientist with the Center for Biological Diversity’s Climate Law Institute who wasn’t involved in the study. “And so it really is an up-the-chain process.”

Knowing these risks, it might seem implausible that humans would just suddenly stop geoengineering efforts once they’ve started. Why not just keep pumping sulfur dioxide into the air ad infinitum to keep the planet on life support? Robock explains that the scenario they used isn’t definitive—it’s just a possible option. And there’s a possibility that we might not willingly stop geoengineering.

Say the world came together and decided that solar geoengineering is our only hope for survival. Planes start flying over the equator, spraying millions of tons of gas. The planet cools—but alas, this doesn’t affect everyone equally. Some nations might find themselves the beneficiaries of extra precipitation, while others descend into drought.

In that situation, a massive country like China or India suffering ill effects could blame the geoengineers and demand they stop. “There is the potential for clubs of countries to wield a lot of power to make a global geoengineering deployment work more for their interests than for less powerful countries,” says lead author Chris Trisos of the University of Maryland.

Or maybe the Earth itself plays a wildcard. Volcanoes spew their own sulfur dioxide into the atmosphere all the time; get a big enough eruption and you can send the climate into disarray. That happened in 1815 with the eruption of Mount Tambora, which led to the Year Without a Summer. Or Laki in 1783, which caused famine in India and China because it weakened vital monsoons.

“If there was a series of volcanic eruptions that produce a cooling effect, then that might be the reason why people say, ‘Well, actually, we better stop doing the solar engineering,’” says University of East Anglia environmental scientist Phil Williamson, who was not an author of the paper but who penned a companion analysis of it. “And then you get the rebound effect as a result of that.”

To be fair, science’s exploration of solar geoengineering is still in its early days. Hell, the technology to do it doesn’t even exist yet. It may well be that scientists find that deploying aerosols is just too risky. Maybe a better idea is 2CO2 sequestration. Or marine cloud brightening, as another way to bounce light back into space.

But now is the time to start considering the ethical and regulatory pitfalls of pursuing such a strategy. Late last year, Congressman Jerry McNerney introduced a bill that would require the National Academies of Science to produce two reports—one that looks at research avenues and another that looks at oversight. “I hope that we can sooner rather than later figure out what the potential benefits and risks are of doing this geoengineering so society will know whether it’s even a possibility,” says Robock. “If not, if it’s too dangerous, then it’ll put a lot more pressure on us to do mitigation soon rather than later.”

“The ultimate fear with geoengineering is that we’re trying to alter a system that’s much too complex for us to truly predict,” says Fleming. “So doing that can put us in a worse situation than we’re in already.”

In the meantime, here’s an idea: Let’s dramatically reduce greenhouse gas emissions. The whole of life on Earth would certainly appreciate it.