Baron Real Estate Fund (BREIX)

Portfolio Management

Jeffrey Kolitch

Fund Manager since 2009

View All Commentary by Jeffrey

Fund Description

Baron Real Estate Fund invests in securities of real estate and real estate related companies of all sizes.


Portfolio Commentary

Institutional Performance

Review and Outlook (for quarter ended 9/30/2014)

The Review and Outlook for period ending September 30, 2014 is not yet available

Top Contributors/Detractors to Performance

Contributors (for quarter ended 9/30/2014)
  • Home Depot, Inc. saw its stock price rise in Q3, driven by impressive Q2 results that were better than expected and a positive outlook for the remainder of the year. Home Depot is the largest home improvement retailer in the U.S. We remain excited about our investment in the company, which we believe will benefit from an increase in home repair and remodel spending as the housing market continues along the path to recovery.

  • Shares of Wyndham Worldwide Corp., a hospitality company involved in hotels and timeshares, increased in Q3 based on the solid performance of its three business segments. The company continues to generate excess cash flow, which it has been returning to investors through share buybacks. It has indicated that it is looking at potential lodging acquisitions, but prices are currently too high to make the acquisitions accretive to shareholders. In lieu of acquisitions, Wyndham has indicated that it will continue to buy back stock.

  • July 30th marked the closing of the acquisition of senior housing provider Emeritus Corp. by Brookdale Sr. Living, an all-stock transaction valued at $2.8 billion or $28.41/share, a 32% premium to Emeritus’ trading price on Feb 20th when the deal was announced. The combined companies are the largest and only nationally branded senior housing provider in the country, with about 1,200 communities in 46 states. Given demographics and increasing consumer acceptance of senior housing, we believe prospects for the combined company are positive.

Detractors (for quarter ended 9/30/2014)
  • Shares of senior housing company Brookdale Senior Living, Inc. fell in Q3. Trends out of Q2 were positive, and preliminary 2015 guidance bracketed consensus. However, occupancy fell just short of expectations. Investors seemed nervous after Brookdale pulled guidance for the rest of 2014, citing lower near-term visibility after the acquisition of Emeritus Corp. and a joint venture deal with health care REIT HCP. Longer term, we believe positive demographics, deeper senior housing penetration, and favorable supply/demand balance will benefit Brookdale.

  • Shares of Las Vegas Sands Corp., which operates casinos in Las Vegas, Singapore and Macau, fell in Q3 as China's corruption crackdown and more stringent visa restrictions dampened growth in Macau. In addition, the junkets which bring in VIP rollers, lend them money, and settle their debts, are proving less willing to extend generous credit terms, as it has become harder to collect debts. Despite these setbacks, we believe that as new supply comes online and infrastructure improves, Las Vegas Sands will continue to grow in this underpenetrated market.

  • Shares of senior housing operator Capital Senior Living Corp. decreased in Q3 due to Q2 results that were below expectations. We continue to believe Capital Senior Living is an attractive investment opportunity. Strong demographics, growth in the company’s operating portfolio, a rebound in the homebuilding market, acquisition opportunities, a quality balance sheet, and an attractive valuation have supported our favorable view of the company.

Quarterly Attribution Analysis

This Fund does not have an Attribution Analysis for this time period.

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The prospective performance of the companies discussed herein is based on our internal analysis and reflect our opinions only. We cannot promise future returns and our opinions are a reflection of our best judgement at the time of publication. Our views are not intended as recommendations or investment advice to any person and are subject to change at any time based on market and other conditions and Baron has no obligation to update them. Investing in the stock market is always risky. Current and future portfolio holdings in the Fund are subject to risk.

Source: FactSet PA.