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Forward Management Bet Big On These REITs Ahead Of Its Merger With Salient

San Francisco-based Forward Management, led by J. Alan Reid, Jr., is a multi-strategy fund, investing primarily in growth and value stocks of small and mid-cap companies. The fund, which has $4.5 billion in assets under management, is now merging with Salient Partners, which acquired the fund in a deal, the terms of which were not disclosed. The merger of both businesses will result in a combined $27-billion diversified asset management firm, led by John Blaisdell as chairman and Chief Executive Officer. Salient Partners intends to complete the integration and optimization process of the businesses over the coming months. In its latest, now to be final, 13Ffiled with the U.S. Securities and Exchange Commission, Forward Management disclosed a public equity portfolio mainly consisting of finance (which includes real estate) stocks, with an aggregate value of $1.67 billion. We have picked the top stocks from that filing to discuss in this article as we wish the Forward Management team all the best in their new arrangement. The final top holdings of the fund are represented by Chatham Lodging Trust (NYSE:CLDT), Franklin Street Properties Corp. (NYSEMKT:FSP), and Stag Industrial Inc (NYSE:STAG).

Alan Reid Forward Management

We track hedge funds to learn about their investment ideas. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012.  On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). Since the official launch of our small-cap strategy in August 2012 it has performed just as predicted, returning over 142% and beating the market by more than 83 percentage points.

J. Alan Reid, Jr.
Forward Management

Coming back to top picks of Forward Management, we’ll first discuss Chatham Lodging Trust (NYSE:CLDT), in which the fund increased its stake by 8% to 1.85 million shares, valued at $54.4 million during the first quarter. Chatham Lodging Trust (NYSE:CLDT) is a lodging real estate investment trust (REIT) that invests in upscale, extended-stay hotels, and has a market cap of $1.05 billion. For the first quarter of 2015, Chatham Lodging Trust (NYSE:CLDT) reported net income of $1.42 million, versus a loss of $1.73 million in the same quarter last year. Among the most notable moves of the company in the first quarter was the acquisition of the 240-suite Residence Inn San Diego Downtown-Gaslamp District hotel. The company paid $90 million for the hotel, located near Petco Park, the home of MLB’s San Diego Padres, and the Westfield Horton shopping complex. In the beginning of this year, Chatham Lodging Trust (NYSE:CLDT) announced an increase to its monthly dividend of 25%, to $0.10 per share, or $1.20 per share on an annualized basis, for a 4.38% yield. Chatham Lodging Trust (NYSE:CLDT)’s stock gained 19.43% during the past calendar year, compared to the industry average of 11.58%. The largest shareholder of the company after Forward Management among the funds and investors we track is Jeffrey Furber’s AEW Capital Management, which held 1.36 million shares as of March 31.

Next up is Franklin Street Properties Corp. (NYSEMKT:FSP), in which Forward Management inched down its stake to 3.60 million shares, worth $46.1 million. The $1.17-billion market cap real estate investment trust is focused on investing in office properties in the United States. Franklin Street Properties Corp. (NYSEMKT:FSP) seems to be in a strong financial position, with its first-quarter 2015 revenue increasing to $12.5 million from $3.6 million in the same period last year. Shares of Franklin Street Properties Corp. (NYSEMKT:FSP) have increased by 7.63% during the past 12 months, compared to the industry average of 11.26%. Franklin Street Properties Corp. (NYSEMKT:FSP) is also a favorite stock of Ken Griffin’s Citadel Investment Group, which upped its stake in the company during the first quarter to 511,071 shares.

The third-largest holding of Forward Management as of March 31 was in Stag Industrial Inc (NYSE:STAG), though the fund reduced its position in the company by over 30% to 1.84 million shares, valued at $43.3 million. Stag Industrial Inc (NYSE:STAG) is also a real estate investment trust (REIT), engaged in the acquisition and management of single-tenant, industrial properties in the United States, and has a market cap of $1.37 billion. Stag Industrial Inc (NYSE:STAG) posted a net loss of $1.4 million for the first quarter. The company’s occupancy rate was 94.4% at the end of the first quarter, a slight decline from 94.9% quarter-over-quarter. Last month, Stag Industrial Inc (NYSE:STAG) announced a 2.2% increase to its monthly common stock dividend, to $0.12 per common share, for a yield of 6.48%. Stag Industrial Inc (NYSE:STAG)’s stock decreased by just over 13% during the past calendar year. Another investor of the company is Cloud Gate Capital, led by Brian Newman and David Heller, which holds 228,043 shares as of the end of the first quarter.

Disclosure: None

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