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

http://www.nareit.com/nareitindexes/mont...

Top 237. Apr 7, 2004 7:25 PM

» bob90245 - Re: Re: Re: Re: Q: Historical Annual Returns for REIT Index?

In response to message posted by Normxxx:

I got an email back from nareit.com. The annual returns are for members only. But they said the monthly returns are available to the public.

Now all I need to do is convert the monthly returns to annual returns. [insert slightly perturbed smiley]

-- posted by bob90245

Top 238. Apr 7, 2004 7:45 PM

» Normxxx - Re: Re: Re: Re: Re: Q: Historical Annual Returns for REIT Index?

In response to message posted by bob90245:

Are they charging, now? It used to be all free. I haven't used it in a while. Sorry about the problems; so many sites seem not to be what they once were. Not like the 'Golden Years,' when all that counted were 'eyeballs.'

-- posted by Normxxx

Top 239. Apr 13, 2004 9:31 AM

» Normxxx - REIT Stocks, Market Harbingers?

From A Usually Reliable Source. . .

Monday, April 12th, 2004 8:55pm EST

REIT Stocks, Market Harbingers?

Bottom Line: Sharp declines in real estate stocks were warning signs before two of the most severe stock market sell-offs in the past 20 years. If you even casually follow broad market sectors, you have undoubtedly seen something about housing stocks or REITs (Real Estate Investment Trusts) lately. Over the past few days, the Morgan Stanley REIT Index has declined over 15%, any many housing-related stocks have seen similar haircuts, which is being attributed in some manner to the rise in bond yields.

A study by the Center for Economic and Policy Research suggested that if a national housing bubble would collapse, meaning the average home price would lose 15% - 25% of its current value, it would eliminate somewhere around $1.5 trillion in homeowner’s wealth, which could lead to a nearly $80 billion reduction in consumption, which of course would trickle down to the earnings power of many U.S. companies. Instead of getting into a fundamental discussion about the topic, I would rather stick to seeing how this type of activity has played out in the past.

The National Association of Real Estate Investment Trusts (NAREIT) publishes some information about its indexes of real estate-related stocks going back to the early 1970’s. When we take a look at its index of all REITs compared to the performance of traditional equities, something notable stands out when we put the current move into perspective. Since the end of March, the NAREIT index of all REITs has declined over 12%, which is an extremely large drop – in fact, if the index closes out the month at this level or below, it will be the largest one-month decline in 17 years.

What is perhaps a reason for concern is that since 1971, any time the REIT index declined 10% or more from a new all-time high, the S&P 500 was lower one month later every time, for an average loss of 12.7%. However, there were only three instances, so it’s not like we’re going to get statistically significant results.

The first instance preceded the very difficult market of 1973-1974. The second instance preceded the crash of 1987. The third instance preceded the mini-crash of 1998. The table below details each of the instances of when the REIT index peaked, when it dropped by at least 10%, and the subsequent performance in the S&P 500 the given number of months later.

REIT Index Peak	Declined 10% By	% Decline	S&P 500 Performance
REIT Index Peak	Declined 10% By	% Decline	1 Month Later	3 Months Later	6 Months Later	12 Months Later
Nov-72	Apr-73	-11.5%	-1.9%	1.2%	1.2%	-15.6%
Feb-87	Sep-87	-10.3%	-21.8%	-23.2%	-19.6%	-15.5%
Sep-97	Jul-98	-14.9%	-14.6%	-2.0%	14.2%	18.6%

		Average	-12.7%	-8.0%	-1.4%	-4.2%

The average return in the S&P one month later was an abysmally poor -12.7%, with all of them being negative. One year later, the average return was still a negative 4.2%, though the occurrence in 1998 was very positive. The figures above use monthly closes in the REIT index, so they do not take into account any intra-month fluctuations.

If real estate stocks recover later this month, it’s quite possible that we will not see a 10% decline in the REIT index from its all-time high and this study will have been for naught (unless it continues to decline in the coming months). Still, I believe it’s important to keep an historical perspective, and the precedents for a large drop in REITs after hitting new highs are not promising when we look at their impact on other equities.

-- posted by Normxxx

http://www.financialsense.com/Market/gol...

Top 240. Apr 16, 2004 1:33 PM

» Normxxx - Homebuilder/GSE Top Is In

Homebuilder and GSE Stocks - Technical Evidence Suggests Top Is In

By Martin Goldberg | 15 April 2004

The homebuilders have had a bull market of historic proportion. From early 2000 at the time of the bursting of the technology and telecom bubble, homebuilders as measured by the Dow Jones Home Construction Index, have increased in stock price by over 300%. Before that time the index was in a bear market. If you are a bull in this sector, you may be asking yourself, “How could the stock market have mis-priced these stocks before the homebuilder bull market?” Those such as myself who are bearish on the sector would have to ask, “When will the mania end?” Based on technical evidence, those with long positions and sitting on long-term capital gains may want to consider hitting the “sell” button. In tonight’s article I will present evidence that indicates that the bull market for both homebuilders and the related Government Sponsored Enterprises (GSE’s) may end soon.

[Consider] a 5-year weekly chart of the DJ Home Construction plotted on a percentage gain basis. After a bull run that began in mid-2000, the upper [trend] channel line was broken more than 3 years later, in the 4th quarter of 2003. You would be normal to wonder as I do, what excellent new fundamentals gripped the homebuilders that warrant such recent emotional buying not seen in 3 years and a 250% price increase. A logical person would question whether the people most knowledgeable in the industry, insiders, would have bought. Golly, maybe insider buying was propelling the stocks higher in the 4th quarter and after the New Year.

It appears as though there may be more insiders selling than buying. There were 3.16 million shares sold, and only 0.034 million bought. (I suppose the company insiders don’t watch all of the bullish information that is presented on financial cable TV channels.) This is a ratio of 92 to 1, more than two times the insider-selling ratio of the general stock market, which is at about 40 to 1.

If we examine the most recent 6-month timeframe of representative members of the homebuilding sector, we find that this is no longer a picture of health. Of the six representative stock charts, three of them show a clear “double-top” formation – Beazer, Hovnanian, and Ryland Homes. (Hovnanian is tracing a longer-term descending triangle, described below.) NVR Homes is tracing out a clear descending triangle, practically always a bearish technical pattern if broken. It has also shown technical weakness just after the New Year. The two strongest of the illustrated homebuilder stocks – Centex and Toll Brothers are nearing important support/resistance lines, at 50 and 42.5, respectively. Breaking into these support areas in a decisive way will spell more trouble for the sector. Note how all of the homebuilder stocks have recently violated their respective 50-day moving averages for the third time. This is not a good sign.

The Government Sponsored Enterprise (GSE) stocks are showing weakness. Freddie Mac (FRE) is showing more weakness than Fannie May (FNM). Fannie is showing distribution and a potential head and shoulders pattern.

On the basis of long-term momentum indicators, Freddie Mac is showing technical weakness. There is a clear long-term loss of volume momentum as indicated by the 12-month money flow, and the clear long-term distribution. Similarly the 14-month RSI shows a consistent trend of lower highs and lower lows, after having topped back in 1999. While long-term momentum indicators seem to show that the secular trend for FRE has turned from up to down, shorter term chart analyses are needed to provide practical trading entrance and exit points.

Note the sloppy downward sloping channel line. The break of the upper channel line may be an exhaustion move. When (if) the price breaks back into the channel, the stock will be in a weak position, and the exhaustion move will be confirmed.

A decisive break into the channel would occur at about 54. Note the weakness shown by the relative price, 14-day RSI divergence, and the 12-day Rate of Change. Note the June 2003 Cockroach. Not a bullish sign.

Insider information: Freddie Mac is 1% owned by insiders. Insider purchases and sales are not listed. Yahoo! Finance indicates that Fannie May insiders sold 207,000 shares over the last 6 months versus insider purchases at (“N/A”).

Last Word - What Could Go Wrong

My analysis clearly shows technical weakness in the homebuilders and GSE’s. So is there a ton of money to be made on the short side? As anything in technical analysis, no opportunity has a 100% probability. The game is similar to counting cards at the blackjack table. You only can put the odds in your favor. You cannot be right all of the time (that is why there are stop losses). What can prove this analysis wrong? The historic bull market in homebuilders and GSE’s was supported by the Fed’s lose money policy and corresponding bull market in bonds. Similarly, the recent thrashing of the bond market on the threat of higher interest rates from the Fed is presently driving the weakness in the homebuilder stocks. So what can go wrong for homebuilder bears?

1. Interest rates ticking up could spur one last round of panic house buying because of fear that interest rates will not continue at historic low levels. This would be enough for one last “good quarter” for the homebuilders. This may be good enough for a final climax run for the homebuilder stocks.

2. A bond market rally (whatever the cause) and the resulting low interest rates could allow the home buying party to continue.

Just trying to be fair and balanced.

Summary and Conclusion

The homebuilders and government sponsored enterprise (GSE) stocks are showing technical weakness. It appears that the top is in.

-- posted by Normxxx

Top 241. Apr 17, 2004 8:13 PM

» Normxxx - REIT chase could end in trap

REIT chase could end in trap
Yields jump as prices fall, but rates cause worry

By Shawn Langlois, CBS.MarketWatch.com | 12:53 PM ET April 16, 2004

SAN FRANCISCO (CBS.MW) -- A hefty dividend payout in the current environment can be very enticing, but don't get sucked into a real estate investment trust on the basis of tasty yield alone.

When it comes to REITs and their rising dividend yields, the average investor would be well served to heed the old adage: If it looks too good to be true, it probably is.

"Over the last year, increases in REIT prices have been driven more by greater demand than improving fundamentals," said Dan McNeela, analyst at Morningstar. "You never know when that supply and demand is going to start working against you."

With fears of rising interest rates shrouding the sector, stocks in the group have certainly been "working against" REIT investors lately.

The Morgan Stanley REIT Index (RMS: news, chart, profile) took the biggest hit in its near 10-year history to begin the week, closing down 5 percent at 570.9. Early in the session, the gauge touched on 560, a level not seen in over five months. The index had recovered near 578 by midday Friday.

The resulting surge in these stocks' dividend yield might seem irresistible in the current low interest-rate environment.

Like bonds, price and dividend yield move in inverse directions for REITs. For instance, if a $10 stock paying a 5 percent dividend falls to $5 a share, the yield jumps to 10 percent.

At face value, the 10 percent dividend looks very appealing, but if the suspect health of the company triggered the stock drop, future dividends may be cut or eliminated.

Yields offered by many of the higher profile REITs have topped 10, 11 and even 12 percent in the past few weeks.

Don't get too drunk off these intoxicating dividend returns, though; high yields often translate to high risks.

"Yields this high are rarely sustainable and, at some of these levels, you want to make sure the company is producing enough cash flow to maintain that dividend yield over the long term," McNeela said.

REITs, by law, must distribute at least 90 percent of their taxable income to shareholders annually.

NovaStar, EOP in the spotlight

At first glance, NovaStar Financial (NFI), a $1 billion issue that yields a whopping 13 percent, sounds pretty good. But this return comes after shares plunged 31 percent Monday following a disconcerting story in the Wall Street Journal.

While the mortgage REIT has steadily delivered on its dividend for the past few years, that hasn't always been the case. In the late 1990s when the industry took its lumps amid the burgeoning tech bubble, NovaStar didn't declare a dividend for almost three years.

Regardless of this week's haircut, shares of NovaStar last traded at around $39.50 -- double its 52-week low of $19.15 set in April of last year.

Similar concerns hound the sector's largest player, Chicago-based Equity Office Properties (EOP). The stock established a new 52-week low this week, touching $25.40. The yield has stretched to almost 8 percent, but some believe that a dividend cut could be on the way. The stock was trading at $26.10 midday Friday.

Adding to the widespread uncertainty, more than a few Wall Street pundits have soured on the previously white-hot sector.

Wall Street warns

Many industry watchers have taken a cautionary tone in the past few weeks, including Prudential Equity Group analyst James Sullivan.

"We believe that a correction down to the low 500, high 400 range on the Morgan Stanley REIT Index should not be ruled out over the balance of this year," he wrote in a note to clients. "That would provide investors with a better risk-reward ratio than REITs provide currently."

Last week, UBS cut its ratings on several REITs, including Pan Pacific Retail (PNP), Simon Property (SPG), Rouse (RSE) and General Growth (GGP), all to "reduce" from "neutral".

UBS also sliced its ratings on Boston Properties (BXP) and Prentiss Properties (PP) to "neutral" from "buy".

"2004 will be a year where REIT stocks lag the overall market. The big sell-off doesn't mean the worst is over," said Tony Paolone, analyst at J.P. Morgan Securities.

Still, a selection of officers at some of the more prominent REIT companies remained upbeat throughout a conference call hosted by the National Association of Real Estate Investment Trusts on Tuesday.

"Things are generally quite good. The sell-off has been a huge overreaction. These are just some cyclical things we have to manage through," said Weingarten Realty Investors CEO Drew Alexander.

The decline could, indeed, turn out to be an "overreaction," but take care not to overreact to the lure of a fat dividend that appears only to get fatter as the stock price plunges.

Said Morningstar's McNeela: "If you move into these positions because of the high yield, you'll lose the bulk of the reason for investing there if those dividends get cut."

-- posted by Normxxx

Top 242. Apr 17, 2004 9:10 PM

» Normxxx - RADIODUDE

I'm not much of a market timer which is why I was going to hold RWR basically forever. (RadioDude:)

RadioDude: I just noted this comment in one of your past messages. Please, please buy a copy of John Mauldin's Bull's Eye Investing. It should be available by 1 May 2004 (see my thread, normxxx, or the book review thread).

If you stick with "buy and hold," you can expect to see no net change in your investments by the end of the decade if you are lucky. If you are not lucky, you can expect to do much worse.

Neither Kirk nor I are market timers in the sense that we try to follow trends, but neither of us are "buy and holders."

Kirk uses a Dynamic Asset Allocation model which takes profits (when there are any), thus reducing market risk at the top. You'll have to check with him as to how the system works with losses (i.e., at bottoms).

I use something called Dynamic Portfolio theory, which allows me to use objective criteria to determine when to increase/decrease an asset class. For my stock asset class, I use something called Seasonal Timing Strategy, which produces one sell and one buy each year, and keeps me out of the market when it is at its riskiest.

(See http://www.syharding.com/sts.html for details.)

[Used correctly, DPT is a risk controlling strategy. As market risk increases, you need to use strategies such as decreasing investment or hedging to decrease risk back to the risk level you have determined to maintain, and conversely.]

My REIT asset class is separate from stocks, but its risk is determined by such things as yields relative to bonds, average premium or discount to NAV, RE value cycle, etc. I have been poised to lighten up seriously for over the last 6 months. (REITs have been and still are sporting over a 10% - 20% premium over NAV-- unjustafiably so.) I just reduced my holdings by 50%, and may trim some more, depending on how interest rates go. For the record, I do not expect the Fed to raise rates any time soon-- almost probably not before the elections. But REITs may come down further anyway, since they are so overpriced. There is certainly not much upside for the forseeable future. And their yield is no longer worth the risk.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx

Top 243. Apr 18, 2004 9:52 PM

» radiodude - Re: RADIODUDE

In response to message posted by Normxxx:

Hi Norm. Thanks for the note. My history as an investor has tossed me into the Malkiel "random walk" believer, which is why I am a buy and holder who only sells to rebalance the portfolio now and again. I also like the readings of Bogle, Bernstien and Swedroe --- each of which basically say to find the proper stock/bond ratio based on how much risk I want, then buy several of the indexes with as little correlation between them as possible for diversification. I hope to have some hope of being near the "efficient frontier." but I have reservations about being able to know in advance what components that frontier entails.

The book "The Four Pillars of Investing" pretty much outlines my plan.

My History: Several years ago, I got burned really badly by an Edward Jones broker who claimed that his firm had superior knowledge and research of individual stocks, the economy, as well as market direction. Well, in 2001, I bolted from EJones since I lost lots of $$$ and it became obvious they were a bunch of snake-oil salesmen. To make a long story short, I realized that if Ejones couldn't save my valuable 401K rollover with their entensive research which was supposed to be the best in the business according to WSJ, then nobody has a clue about the markets or individual stocks--- I therefore became a random walk believer.

For some people, it was a QQQ trade, but for me it was Ejones crap that caused me to bolt into the random walk theory which states that nobody can really predict anything about markets or individual stocks. To stay on topic for this thread, for me, REITS would also fall into the Random Walk.

Norm, thank you very much for the message, but I guess I can't move from my belief that whatever news is known about REITS must already be "priced into them." I know the "priced into them" theory doesn't hold for a bubble like the QQQ bubble, but is it really possible to know it was a bubble until it's over? My Ejones guys sure didn't protect me from the tech bubble -- they didn't know it was a bubble at the time, nor did I.

So, in summary, I guess we could be in a REIT bubble, but being a random walker, I don't believe anyone can predict such bubble until it's over. So, I go with tons of diversification and I limit exposure to any one area (sector) as much as possible, and rebalance now and again . By doing so, hopefully I am close to the efficient frontier (which is another quantification which obviously can't be known until it's over. )

I do thank you for the message, but it would be difficult for me to move away from the buy-n-hold (but rebalance now and again) strategy outlined in "Four Pillars" given my history of being burned by Ejones who always had me buying and selling stuff based on "research."

-- posted by radiodude

Top 244. Apr 19, 2004 8:13 AM

» Kirk - The Four Pillars of Investing

.
In response to message posted by radiodude:

If anyone wants to buy the book and support Suite101.com (so we can keep forums like these up and running) here is a link that pays us a commission:

The Four Pillars of Investing : Lessons for Building a Winning Portfolio by William J. Bernstein
“A Triumph! It is my candidate for the best investment book of 2002.” John Bogle, founder of the Vanguard Group.

-- posted by Kirk

Top 245. Apr 19, 2004 8:59 AM

» Normxxx - Re: RadioDude

In response to message posted by radiodude:

1. At least you are wise enough to want to stay in the market. The market is not random (or Long Term Capital Management would still be in business). Recent academic studies have borne this out. However, you are right, no one can tell where the market is heading next-- or for how long. If anyone claims to, run fast the other way.

2. Never listen to snake oil salesmen and stock market brokers. Stock market brokers are salesmen-- not analysts (and, even the Wall Street analysts are crooked these days). They only know enough to sound wise (if they knew the facts, they probably would be half as convincing).

3. However, long term market traders are quite successful, using money management techniques (of which you just quoted one, i.e., systematically rebalancing). But there are a lot more techniques than that and, depending on how much effort you are willing to put out, can be far more rewarding. Basically, the philosophy is easy (it's the execution that's hard): cut your losses quickly; and let your profits run.

Do rebalance at least annually, but no more than once a month.

4. Also, the market is based on probabilities. As in life, you try to optimize by choosing the techniques and directions with the highest probability of success, but occassionally you have a run of bad luck. If you have some notion of why things are happening, you will know how and when to take corrective action. Also, you never put all of your eggs in one basket, however tempting. Remember, all things being equal (which they almost never are), risk rises as the probability of reward goes up. Bonds may look least risky, until you figure the probability of interest rates going up (and bonds down) and an inflation rate which is close to or even greater than your bond coupon.

In the stock market, as in life, what you don't know can hurt you-- if not kill you!

5. At the moment, for example, I am accumulating money in money market funds-- meaning, I am losing money to inflation, even at the curent low(?) rate. But, like Warren Buffet, I see no good place to put my money where the reward exceeds the risk, so I'd far rather take a small loss than risk a far greater one. The essence of investing is patience. Never let new money burn a hole in your pocket. Wait for the opportunity, seize it, then wait again until everyone else recognizes it; then get out!

6. Do check out Bull's Eye Investing when it comes out. I don't think you will be disappointed whatever you decide, or you wouldn't be on this board.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx