REITs - Real Estate Investment Trusts - Info &amp; Discussion

Markets Still Move in Fits and Starts

Top 101. Aug 9, 2001 7:11 AM

» JenL_2 - Re: REIT thread

In response to message posted by RhyneN:

Rhyne - Thanks for that info...

There has been a lot of discussion in the past several weeks about using REIT preferreds to get better current yields. There are several good REIT preferreds paying over 9%. There are also a lot of good REIT common stocks paying in the 7% to 8% range, and increasing the dividend each year. One of the best things about REIT common stock is its cash flow as retirement income. For example, to name just three of the best known. I bought Equity Residential in 1998 at a 6.39% yield. Subsequent dividend increases have increased the yeild, based on my original cost, to 8.25%. Similarly with Boston Properties, my yield has increased from 5.08% in 1998 to 7.19% now. With Kimco, my yield in 1997 of 6.27% has increased to 9.46% now. These increases have more than kept up with inflation.

Interesting that the dividends on REITs are increasing as dividends on stocks seem to be decreasing. A lot of us don't have time to go to another discussion board - how about cross-posting the good stuff here. Would be nice to get more REIT discussion going on this thread. You made the right move to buy REITs at the bottom in Dec 99.

Here's some excerpts from a TA article in 8/8 Barron's Online:

By Michael Kahn

After breaking above their declining trend lines last week, most major U.S. market indexes have either reversed or cancelled out those bullish moves.

That has created trading ranges which, given the overall down trend since May, could turn out to be bearish indicators.

As we've been pointing out for some time, the markets don't seem able to sustain moves in either direction. But with sentiment still bordering on excessive optimism, it seems likely that declining trends will reassert themselves.

(clip)

A soft economy also appears to be having less of an impact on these stocks than falling interest rates, as another rate-sensitive group, the real estate investment trusts, illustrates. The Dow Jones Equity REIT Index (DJR), for instance, has been trending higher for months and just this week broke out to the upside from a corrective pullback (see chart 3).

Chart 3
<img src="/files/mysites/jen2/ta38-8-01.gif" width=449 height=310>

Equity Residential Properties Trust hit a new all-time high Tuesday following its breakout Monday (see chart 4). Weekly indicators show a stock that is possibly overbought, so it might not be a great idea to chase the REITs. But the point is that interest rate declines have driven certain sectors of the market higher, even as the broad market has languished.

Chart 4
<img src="/files/mysites/jen2/ta48-8-01.gif" width=449 height=310>

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

Top 102. Aug 9, 2001 7:19 AM

» Thruhiker - reit index fund

the vanguard reit index fund has an r2 of 0.05...this low correlation to the sp500 makes it an excellent diversifier for 5%-10% of your portfolio. appropriate for tax deferred accounts due to large income distributions.

-- posted by Thruhiker

http://www.undiscoveredmanagers.com/REIT...

Top 103. Aug 9, 2001 4:51 PM

» Oaktoad - I like REITs

I am older so use 15% of my portfolio in REITs as a substitute for bonds.. up 10.2% without dividends this year (my Quiken quikie screen)..

I like Ralph Block too. You can find his writing here...

He doesn't post every week, but worth the look. Not only is he a good source on REITs he is one very good writer too. Reminds me of Alan Abelson a bit..

Speaking of Barrons an article last week on an analyst has his opinions on what the returns will be over the next ten years and REITs were right up there.

I have always liked real estate. I read years ago that the wealthy families owed most of their wealth to real estate. Perhaps that changed in the 90's, but I still think that long run properly managed real estate is a good thing to own. REITs give diversity by type and location and don't reguire that I go out and fix things like I have to do with my rentals.

-- posted by Oaktoad

Top 104. Aug 9, 2001 5:00 PM

» Happy - Re: I like REITs

In response to message posted by Oaktoad:
The thing that made real estate such a money maker for me in the past 25 years was leverage. Put 20% down, watch the property go up 10%, and you just made 50% on your money. The unfortunate thing is you can not get this much leverage with REIT's. Of course, in an extended down market, which we haven't seen for 25 years, leverage is a terrible thing. I have been 50% in commericial real estate, and 50% in the sp500 fund for many years.

-- posted by Happy

http://www.suite101.com/discussion.cfm/i...

Top 105. Aug 9, 2001 6:38 PM

» JenL_2 - Re: I like REITs

In response to message posted by Oaktoad:

Paul - You said...

Speaking of Barrons an article last week on an analyst has his opinions on what the returns will be over the next ten years and REITs were right up there.

lcha and I posted the Jeremy Grantham interview in 8/6 Barron's to the "US Stock Market" thread:

here's some excerpts about REITs...

Q: Yet, you see opportunities for investors.
A: We see them in emerging equities, fixed income, and inflation-protected bonds. We see a handsome but risky return in emerging-market debt. I think of REITs [real estate investment trusts] as the biggest no-brainer of the entire cycle. When the market peaked in March 2000, the real-estate industry represented by REITs yielded 9.1%. Our data suggest that the increase in payouts from REITs is within a percent of the increase of the S&P 500. REITs had a growth rate that was 80 basis points less than the S&P, but yielded 9% while the S&P yielded 1.2%. In the last year-and-a-quarter, REITs returned 36% versus negative 21% for the S&P. That's a 57-point swing and you've hardly heard a peep about it. It was one of the great bets of all time and the asset class is still cheap. It should be impossible to have that big a move and still be cheap. It is a testimonial to how ridiculous everything was.

(clip)

A: Earnings will be weak and sometime in the middle of next year, or even earlier, we'll get a whiff that things aren't as strong as we thought. With the market at 40 times earnings, the next leg will be more vicious. That's what I consider the bull case. But the great thing about that bull case, if it happens, is that it will be one last great opportunity to lower your risk and move into asset classes with higher implicit returns, of which there are, happily, plenty.

Q: That's not always the case.
A: Not always the case at all. There are a lot of market bubbles, like Japan's in 1990, where there is nowhere to hide. But here there are plenty of places to hide: real estate, REITs, emerging equity, emerging debt, inflation-protected government bonds, regular bonds, small-cap value around the world. All perfectly reasonably asset classes. There are also hedge funds, and my favorite asset class, timber.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

Top 106. Aug 10, 2001 5:49 PM

» RhyneN - One REIT outlook

Banc of America Securities analysts have reiterated their prediction that the Morgan Stanley REIT Index (ticker RMS) would end this year at 450. The RMS set a high yesterday and today over 405. The BAS outlook assumes an average dividend yield of 7%, average cash-flow growth of 8%-10%, and modest multiple expansion, which would result in an average REIT total return for 2001 would be 23%

The BAS analysts indicated "Because the RMS is a total return index (it includes dividends received), the index is actually down on a price-only basis (despite the new high when dividends are included) by more than 15% since December 31, 1997. As a result, the average stock in the RMS is lower today than it was in 1997 even though cash flow has grown significantly. The current group multiple is about 8.8x, below the average multiple of the past seven years of 10.3x and well below the peak 1997 multiple of 13.0x,"

-- posted by RhyneN

http://www.detnews.com/2001/realestate/0...

Top 107. Aug 10, 2001 5:56 PM

» RhyneN - A less bullish out on REITs

This REIT viewpoint is not as optimistic.

It reports on a PriceWaterhouse Coopers LLP study on the effect of the economic slowdown on vacancies, rents, etc.

-- posted by RhyneN

Top 108. Aug 12, 2001 4:35 AM

» RhyneN - Re: One REIT outlook

In response to message posted by RhyneN:

>>Banc of America Securities analysts have reiterated their prediction that the Morgan Stanley REIT Index (ticker RMS) would end this year at 450. The RMS set a high yesterday and today over 405.<<

When I posted the foregoing, I did not have the exact RMS numbers. The new all-time record set Thursday was 405.39, and Friday the RMS jumped to 409.17. The primary reason for the large jump was Public Storage (PSA), which has a very strong balance sheet and very little debt. It has used retained earnings and preferred stock to expand, and is the largest self-stroage REIT by a substantial margin. PSA had been paying the lowest possible dividend - about 3%. On Thursday PSA announced that it was increasing its dividend by 104%. Its price jumped Friday and helped set the new all time high on the RMS

>>"Because the RMS is a total return index (it includes dividends received), the index is actually down on a price-only basis (despite the new high when dividends are included) by more than 15% since December 31, 1997. As a result, the average stock in the RMS is lower today than it was in 1997 even though cash flow has grown significantly."<<

The foregoing quote from the Banc of American analysts shows why they believe REITs still have some appreciation. The REITs that they cite as their favorites are EOP, BXP, AVB, ASN

-- posted by RhyneN

Top 109. Aug 12, 2001 8:40 AM

» JenL_2 - Re: One REIT outlook

In response to message posted by RhyneN:

<img src="http://chart.bigcharts.com/bc3/intchart/..." width=579 height=335>
RMS, S&P500 3 YR Chart

But this chart doesn't show dividends.....Jen

-- posted by JenL_2