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

Top 21. Sep 6, 1999 3:54 PM

» Oaktoad - Gold???

I never was big on holding a commodity as an investment.

REITs vary as they do have true inflation protection. No inflation protection in gold over the last 20 years.

Real estate gives some income, whether it is the rent that you don't have to pay or the rent that one collects.

As I get older I am less inclined to own property that I have to manage. REITs allow me to get diversification as well as professional mgmt. The income is nice and frankly, I use the REITs as a replacement for bonds, why hold 40% bonds if they are GNMA as our buddy BB suggests. 6.5% current yield and he brags on 7% over the last few years total return. REITs do much better. I don't know why BB and others don't follow REITs much. I know that BB has had callers ask about them and his general answer is "I don't follow them"

For the truly lazy, there is a Vanguard REIT fund that provides a good yield, typical low Vanguard fees, good mgmt, etc.

REITs are perhaps a bit boring compared to the high flyers out there, but still for those approaching retirement (if there is such a thing based on the Barron's article in this weeks issue).

9-10% yields may look very good over the next 5 years, esp. if inflation continues at a moderate pace of 2-3%.

-- posted by Oaktoad

Top 22. Sep 7, 1999 9:09 AM

» KirkL - Deflation and REITs

Paul
I like what you say, but I worry about REITs that invest in commercial property like shopping malls. I wonder if the internet squeezing profit margins will lower the return one can get out of a shopping mall and thus lower the value of commercial realestate such as that? It seems you either have to pick a REIT in a good sector (market time) or buy a REIT index fund and take the averages and thus get stuck with the lemons if the internet leads to deflation in shopping and strip malls.

I'm still looking for a compelling reason to add some to my portfolio so I appreciate the discussion.

-- posted by KirkL

Top 23. Sep 7, 1999 5:03 PM

» Oaktoad - internet and the malls

I don't think that the internet poses as much a threat to malls as people think. Shopping is very much a social experience and I don't think that will change that much.

I think the retailers that use catalogs will get hurt more. I also think that malls will have to be a bit more creative to keep people coming to visit them. The other long term issue is population. Well situated malls will have tremendous power. There may not be any new big malls in the Bay Area for example. The existing ones will have more people to draw from and that could increase their earnings substantially.

Strip malls are perhaps more of a problem, but a retailer that has a web presence will still need a retail site that people can visit as often they will want to see the product and pick it up. If they don't need a retail site they still will need
warehouse space so mini-whse type places should be good investments.

People will still buy lots of stuff and need places to store it (if they continue to be anal, which they no doubt will) so Public storage and shurgard should be good long term bets. Small companies often use them for inventory storage or whatever. People store their boats/rec vehicles there.

Apartments are a good long term bet. People will have to have places to live regardless of the internet. One with good growth potential (lower yield) is Archstone. They have a nice new facility going up in Dublin.

Hotels are some of the more speculative type of REITs, but still, if the economy does well people will travel and they can't stay in their computer.

Commercial office developments will continue to do well as long as the economy continues to do well. Look at all the building in the Bay Area. One guy built a fortune by owning/developing around Sand Hill Road, etc...

I personally don't have the mutual fund. Pick a sector that you feel comfortable with and do a bit of research. There are multiple companies in almost all areas.

Golf and prison REITs seem a bit out there for me, but I have a golfing friend that thinks golf ones are the wave of the future.

With luck we will stop putting so many people in jail so that the prison ones may lose their appeal. The pessimists might want to put money on them.

Have fun.

-- posted by Oaktoad

Top 24. Oct 7, 1999 6:11 AM

» GoodGuy - Looking for FFO

Hi,

After reading extensively thru Oaktoad's earlier discussions I have done some research to understand REITs.

One question is where to find FFO info. When I go thru the information I find EPS which I understand is not the right valuation tool for REITs.

Do I look at cash flow numbers or the net income numbers to come up with FFO. Also what about FFO estimates for future.

Can Paul or anyone throw more light ?

- GG

-- posted by GoodGuy

Top 25. Oct 7, 1999 7:39 PM

» Oaktoad - FFO is shown as earnings by analysts

When you do research on REITs you will find that where they show earnings for this year and next that it is really the FFO they are forecasting.

Pretty easy to check and gives you the info that you need to figure out what percent of FFO they are paying as dividends. Generally the lower the percent the safer the REITs dividend if that is the reason that you are buying..

For more adventurous investors in this area look at PRT and CEI for high dividends that if everything works the way it is supposed to will result in large capital gains over the next year or so... not the 40% per year that you will get every year in internet stocks (yes I am being facetious) but still could be a nice return.

-- posted by Oaktoad

Top 26. Oct 8, 1999 5:43 AM

» GoodGuy - More on REITs

Hi Paul,

Thanks for taking time to reply.

BTW I am not looking at REITs to give me NUTgains. I will be considering them as part of my bond portfolio to compliment the GNMAs. Any comments on this approach ?

Also I did some research on NXL. Here is what I found - It is trading near a two year low. They are one of the largest of the strip center mall REITs. My main concern is the strip center mall business in the face of internet shops.

I will take a look at CEI and PRT but they sound like a speculative play. Are their other REITs - more on the conservative side which may be a good bond compliment - that you can suggest I can begin with ? Are their any good sites for my research ?

Thanks in advance.

-- posted by GoodGuy

Top 27. Oct 8, 1999 10:28 AM

» RhyneN - A few REIT comments

I have about 25 REITS in various forms in my portfolio. I initially invested in REITs because of Bill Spits, the Treasurer of Vanderbilt University. Bill runs that portfolio by using a number of investment portfolio managers. I met him when he helped with a university foundation investment strategy(I was on that foundation board at that time). Bill wrote a book for individual investors showing how to use mutual funds in the same way he used different portfolio managers at Vanderbilt. He believes that most portfolios should have some real estate exposure as a hedge against inflation. He suggests 10 to 20% of a portfolio in real estate. His book suggests 7 different allocations. In his most aggressive allocation he suggests 80% stocks, 10% US treasuries, and 10% real estate. In most conservative, 20% stocks, 60% bonds, 20% real estate.

I will follow up with more on this later. Other duties call right now.

-- posted by RhyneN

Top 28. Oct 8, 1999 10:51 AM

» RhyneN - More REIT comments

I started out by investing in some REIT mutual funds. But after a while, I decided I would be the REIT portfolio manager myself and save the fees. Vanguard has a low fee REIT, but it holds 130+ different stocks. I felt that management would lead to better returns.

There are a lot of sources of information. If you like hard copy and are willing to spend $269 for a year of Realty Stock Review, this seems good and has a supporting web site. (the magazine name in lower case with the usual www and com)

-- posted by RhyneN

Top 29. Oct 8, 1999 11:06 AM

» RhyneN - Even more REIT comments

Yahoo shows Zacks estimates and the numbers are in FFO, not in EPS. Schwab uses First Call and those numbers are, I believe in FFO. Morningstar gives a good analysis (I don't know how much is free since I get as a subscriber)

There is some good discussion on Yahoo and some Yahoo clubs like REITLoversParadise. Ralph Block, an analyst and author of the leading book on REIT investing, posts sometimes to the MOTLEY FOOL Real Estate thread (Using Reitnut handle).

-- posted by RhyneN