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

Top 141. Aug 20, 2001 9:13 PM

» bob90245 - Re: Re: Re: Re: Preferred approach?

In response to message posted by Rande:

Rande,

I’m not sure I follow you. Since the appeal of REITs is the dividend, a good chunk of the return will be subject to tax (assuming it’s in a regular account). Therefore, the logical place for REIT’s would be in an IRA.

-- posted by bob90245

Dividends, Not Growth, May Be Wave of Future

Top 142. Aug 21, 2001 12:27 AM

» JenL_2 - Dividends - Not Growth

Jonathan Clements had some good things to say about REITs in his Getting Going column in 8/21 WSJ:

Show me the money.

If the 1990s were about clocking capital gains, I suspect the current decade will belong to yield investors. The reason: Stocks may return just 8% a year and possibly less, so why not skip some of the uncertainty and claim your reward in cash?

"A little more than a year ago, people laughed at dividends," recalls Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School. "In the future, I believe that more attention will be paid to dividends and current earnings and less to growth."

The first three months of 2000 saw a continuation of the late 1990s technology-stock frenzy. But since then, pursuing yield has paid off handsomely. Bonds have posted healthy gains. Real-estate investment trusts have been big winners.

Meanwhile, in the performance battle between growth and value, the edge has lately gone to value stocks, which typically boast not only lower share-price-to-earnings multiples, but also higher yields. Consider the results for the 16 months since the March 2000 market peak. The Wilshire Large Value Index has slipped just 0.7%, while the Wilshire Large Growth Index has been pounded for a 42.2% loss.

Investors, I believe, will continue to flock to higher-yielding investments. As the Federal Reserve slashes short-term interest rates, cash investments are losing their luster, with money-market funds today paying an average of just 3.3%. That's prodding yield-hungry investors to take another look at bonds and higher-yielding stocks.

The collapse of technology and other growth stocks also has spurred a renewed interest in yield. Now, investors are leery of richly valued companies, fearing they may be paying up for growth that won't materialize.

"There are increasing questions about the quality of earnings," Prof. Siegel says. "By and large, companies that are paying dividends have to have earnings. They can't do that with smoke and mirrors."

But maybe the biggest reason to favor higher-yielding investments is the prospect of lower absolute returns. So far, the decade is shaping up as a dud for stock investors, with Standard & Poor's 500-stock index losing 9.1% in 2000 and 7.6% more in this year's first seven months.

Performance will no doubt improve, but maybe not as much as investors hope. In his book "Stocks for the Long Run," Prof. Siegel noted that stocks have historically delivered seven percentage points a year more than inflation.

But in the years ahead, he figures returns may be less generous, and possibly as little as five percentage points a year above inflation. Add that to a 3% inflation rate and stock returns could come in at 8% a year over the next decade, well below the 18.2% a year notched by the S&P 500 in the 1990s.

Meanwhile, high-quality corporate bonds are currently yielding 6%, many preferred stocks are kicking off 8%, some high-yield junk-bond funds are paying more than 12%, and real-estate investment trusts are yielding 7%. Those yields look awfully tempting, especially in an era of less lavish stock returns.

If you are looking for high-yielding stocks, check out REITs such as Capital Automotive REIT, United Dominion Realty Trust and Washington REIT, suggests Kevin Bernzott, an investment adviser in Camarillo, Calif. These stocks yield between 5% and 9%.

"A few years ago, you could have made money buying almost anything in the REIT sector," Mr. Bernzott says. But after the recent big REIT gains, "now you have to be a little more choosy."

While most higher-yielding investments performed well last year, junk-bond funds got slammed, falling an average 8.4%, according to Chicago fund researchers Morningstar Inc. But better days lie ahead, reckons Josh Weiss, director of research at Litman/Gregory Asset Management in Orinda, Calif. He recommends funds such as Northeast Investors Trust and Strong High-Yield Bond Fund.

"If you're getting a 12% yield, even with some defaults, you should get total returns that are at least in the high single digits," Mr. Weiss says. "And I think you could get some capital gains."

If you don't own REITs or junk bonds, this may be a good time to put, say, 5% of your portfolio in each of these sectors. That will give you some extra diversification, and it could enhance returns. Why not invest even more? If things go wrong, you could end up both undiversified and underwater.

Moreover, there is a tax cost involved. Because junk bonds and REITs kick off so much immediately taxable income, they are best held in a retirement account. One exception: If you are a retiree who plans to spend your investment income, you might keep your junk bonds and REITs in your taxable account.

"For a long-term investor, I wouldn't do anything radical," says Clifford Asness, managing principal of New York's AQR Capital Management. "But would I have more in higher-yielding investments? Yeah, I would. That may sound like market timing. But it's less sinful if you only do it once every decade."

Subscribe to WSJ Online @ http://www.wsj.com

......Jen

-- posted by JenL_2

Top 143. Aug 21, 2001 6:22 AM

» Rande - Re: Re: Re: Re: Re: Preferred approach?

In response to message posted by bob90245:

bob,

Was speaking in general to your point about the advantages of the passive approach vs. the active approach. Of course, current taxation is a moot point for any investment in an IRA.

BTW, while the IRA is generally a good place for that portion of the overall allocation that is least tax-efficient, for those in retirement mode REITs can make sense in taxable accounts if the income is going to be utilized for ongoing living expenses anyway.

-- posted by Rande

Top 144. Aug 21, 2001 11:26 AM

» Thruhiker - rhyne

you seem to be the reit expert; thot i would pass along (from another site) an opportunity that may interest you...

I would like to interview individual investors for an article I'm writing on mutual funds and real estate investment trusts (REITs). The article will be published in REITStreet magazine, a publication of Institutional Real Estate, Inc. (See our Web site at www.irei.com)

Whether you know a lot about REITs or nothing at all, if you invest in mutual funds, I'd like to talk to you and get your opinions.

Interviews can be done via phone or e-mail, whichever you are most comfortable with. My contact information is as follows:

Jessica Kearney Heidgerken
j.heidgerken@irei.com
(925) 933-4040 ext.124

Thank you for your time!
Jessica

-- posted by Thruhiker

Top 145. Aug 21, 2001 7:49 PM

» bob90245 - Re: Dividends - Not Growth

In response to message posted by JenL_2:

Thanks for the article Jen!

My only problem so far with REITs (and their mutual funds) are their volatility. Consider the annual performance of the Vanguard REIT Indexutual fund (VGSIX) that Rhyne offered:

2000 26.35
1999 -4.04
1998 -16.32
1997 18.77

Is there another REIT mutual fund that one can recommend with lower volatility?

-- posted by bob90245

Top 146. Aug 22, 2001 12:57 PM

» RhyneN - Re: Re: Re: Preferred approach?

In response to message posted by bob90245:

>>Is there evidence that a REIT index fund will outperform the average REIT mutual fund?<<

One major difference between REITs and other stocks when evaluating the question of whether a good mutual fund manager can beat the index is the number of REIT stocks. Fund managers usually use only equity REITS because mortgage REITs are completely different and to a great extent a play on interest rate changes. I don't know the exact number of equity REITS. The NAREIT Equity Index has 158 companies, which is surely all of them of any significence. A REIT mutual fund manager can easily follow, to some degree, all REIT equity stocks. In reasonably short order he can eliminate some from the universe he follows because he may decide he does not like the management, or the REIT has a higher percentage of debt to equity than he feels comfortable with, or he doesn't like where the properties are located, or other reasons.

There are several REIT indexes, but information on the yields to various dates is not easily available. So I look at two index type mutual funds that I have three year information on (thru 6/30/01). Vanguard REIT Index,which is similar to the RMS, which returned annualized 5.42 a year during that 3 years It has a very low expense ratio which I mentioned in my first reply to you. I believe it is 0.33%. Wells S&P REIT, which follows the S&P REIT Index, returned only annualized 3.83% in the past three years. There are several actively managed funds that beat both of them. Let me use one as an example. Undiscovered Managers REIT mutual fund returned 9.57% in the three year period and beat these two indexes significantly. For the trailing 12 months Vanguard did 22.75%, Wells did 24.8%, and Undiscovered Managers did 23.03%. But for the first six months of 2001, Vanguard did 10.11%, Wells did 10.14%, and Undiscovered Managers did 6.99%. The difference in 2001 has been the run up of a lot of second tier REITs because their yeilds at the beginning of the year were much higher than the first tier REITs that you typically find in the more concentrated REIT mutual funds.

I personally believe that a good REIT manager can consistently beat the overall REIT indices - but not each and every year.

>>Is the expense ratio for the average REIT mutual fund appreciably higher than the index?<<

Yes, no doubt about it, mostly 100 basis points or more higher.

-- posted by RhyneN

The Bear Market Has a Slim Silver Lining

Top 147. Aug 22, 2001 5:57 PM

» JenL_2 - REITs - Bear Market Silver Lining?

These excerpts from 8/22 Getting Technical column in Barron's (REIT Chart added):

By Michael Kahn

For weeks, Getting Technical has been pointing out the less-than-inviting landscape in the stock market -- so much so, in fact, that we have probably sounded like a broken record at times (or a broken CD, for people who are too young to remember Lps).

But so far, events have vindicated our skeptical stance. On Tuesday, the Federal Reserve came through with its seventh interest rate cut of the year -- only to be greeted by a Bronx cheer from the equity markets, which promptly sold off.

Coming on the heels of last week's trading range breakdowns by the Nasdaq Composite index and the Standard & Poor's 500, it may be just a matter of time before other indexes, like the S&P 400 Midcap index, follow suit.....

(clip)

OK, so where is the silver lining?

In the short run, lower interest rates are having a positive effect on housing as the homebuilding sector has been a market leader. Real Estate Investment Trusts (REITs) continue to do well, and the Dow Jones Equity REIT Index scored an upside breakout two weeks ago.

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

(clip)

....The point is, there are opportunities within the current bear market in the indexes in the oil sector, real estate and gold. Notice the theme of natural resources and hard assets? Even forest and paper stocks have done fairly well over the past few months.

Just remember that the bear has not yet gone away.

Michael Kahn is Chief Technical Analyst for BridgeNews http://www.bridge.com and the author of two books on technical analysis, most recently Technical Analysis: Plain and Simple. He is also Director of Marketing for the Market Technicians Association http://www.mta.org and can be seen regularly on such financial news broadcasts as PBS's Nightly Business Report and Yahoo! Finance Vision http://www.vision.yahoo.com

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

.....Jen

-- posted by JenL_2

http://www.smartmoney.com/theeconomy/ind...

Top 148. Aug 24, 2001 12:18 AM

» bob90245 - Re: REITs - Bear Market Silver Lining?

In response to message posted by JenL_2:

<< The point is, there are opportunities within the current bear market in the indexes in the oil sector, real estate and gold. Notice the theme of natural resources and hard assets? >>

Which can mean only one thing. Inflation!!

To wit:

“Indeed, the minutes [of the June FOMC meeting] show that St. Louis Fed President William Poole — a notorious inflation hawk — went so far as to dissent against the bank's quarter-point rate cut (in favor of no action) on June 27, arguing that more rate cuts raised "an undue risk of fostering higher inflation in the future."

-- posted by bob90245

Top 149. Aug 24, 2001 3:58 AM

» RhyneN - The REIT run continues, barely!!!

The Morgan Stanley REIT Index (ticker RMS) extended its string of “up” trading sessions to 17 of the last 18, with only one down day this month.

The Morgan Stanley REIT Index closed last night at 421.62, up 0.08 or 0.02%. It was another new closing high. RMS also set a new all-time high yesterday, 421.91. The low for the day was 420.72.

Of the 110 companies that comprise the widely followed benchmark, 45 finished up, 58 down, and 7 were unchanged. Year-to-date through yesterday’s close, RMS (which is a total return index with dividends included) had posted a 15.2% total return. The average dividend yield on RMS at yesterday’s close was just under 6.6%.

Cohen & Steers Realty Majors, which is a benchmark of large-cap REIT performance (ticker RMP), also finished up, yesterday. RMP’s high yesterday was 367.42, and its low was 356.86. The benchmark closed up 0.59 or 0.16% to 367.36. Neither yesterday’s close nor RMP’s high for the day were new highs. The index’s all-time high is 367.46, set on August 21.

Of the 30 companies that comprise Cohen & Steers Realty Majors, 17 were up; 11 were down; and 2 were unchanged on Thursday. Year-to-date through yesterday’s close, RMP had posted a total return of 13.7%. (Like RMS, RMP is a total return index; dividends included). The average dividend yield on RMP at yesterday’s close was 6.0%.

-- posted by RhyneN