REITs - Real Estate Investment Trusts - Info & Discussion
- Kirk
- Happy
- JenL_2
- Hugs
- Hugs
- Hugs
- JenL_2
- Happy
- RhyneN
- RhyneN
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» Kirk - Norm,
Norm,Probably depends on if the market is flat for a decade (1973-1982 perhaps) or has a great decade like it did in the 1990's.
Real estate seems a great diversification tool, just I know little about it unless it is managing your own properties which is not called "retirement" in my book.
-- posted by Kirk
» Happy - Kirk, of course if one knew in advance what the market was going
Kirk, of course if one knew in advance what the market was going to do over the next decade, and/or what real estate was going to do (inflation driven), one would know what to do.If you own properties large enough to pay a serious amount of money to a management company you will not have too many problems. Except finding a good management company. I am not sure they exist. For get what I said, don't buy residential rentals, only commercial.
-- posted by Happy
» JenL_2 - REITs Rally, but.....
This from 1/17 Barron's:REITs Rally, but Over the Long Haul, Are Expectations for Property Too High?
By Barry Vinocur
After two down years in a row, real-estate investment trusts are off to a good start in 2000. Through late last week, the Morgan Stanley REIT Index was up almost 3% -- and well over 11% since the current rally started in mid-December. Moreover, the sector was outperforming most major indexes by wide margins.
Is this move the real thing, or yet another head-fake in an unusually long bear market for the stocks? More to the point, do the fundamentals of real estate merit a sustained rise in REIT share prices?
Last week, without commenting on the rally, Eric Hemel and his fellow REIT analysts at Merrill Lynch issued positive comments on the group, saying they would emphasize REITs in a U.S. equities portfolio. One big reason: Rates of return in the mid-teens appear to be a reasonable expectation for the sector, even without the upside of a valuation correction.
Larry Raiman, who heads the REIT research team at Donaldson Lufkin & Jenrette, and his colleagues recently told clients that they expect a seesaw year for REITs, with the group finishing 2000 up 13%-14%. In a recent report, they said they expect profit growth to stop declining this year, settling in the 7%-8% range; earnings have fallen in each of the past seven quarters.
The DLJ analysts note that the REIT bear market has almost exactly coincided with the slowdown in profit growth. But looking ahead, they expect that a strong U.S. economy will continue to spur tenant demand and that disciplined capital markets will continue to curb overbuilding.
The DLJ analysts predict that, thanks to rising borrowing costs and what they expect to be tepid enthusiasm for fresh equity offerings, REITs in coming months will have to tap internal sources of capital in the form of property sales and retained earnings.
Mary Hogan and Sheila McGrath, co-heads of Dresdner Kleinwort Benson's REIT research, write that the group's correction is over, the U.S. real-estate market has recovered from its early 'Nineties debacle, and the current valuation of REIT shares simply reflects a moderation in growth prospects.
They note approvingly that REITs average a dividend yield of 8.4% and the shares trade at an average of 7.2 times estimated funds from operations for this year (FFO is the REIT industry's equivalent of earnings). They write: "We believe that REITs can deliver total returns in the 12%-15% range in 2000. While we realize that in this market many investors would consider a 15% return one bad day, we consider this return attractive on a risk-adjusted basis."
For years, the industry's conventional wisdom has been that REITs should deliver long-term total returns of 12%15%.
Within the past three or four months, however, some REIT-watchers have begun arguing that investor expectations are too high. The leading proponent of this rethinking is Green Street Advisors, a Newport Beach, California-based research firm specializing in the analysis of property stocks for institutions. Mike Kirby, a Green Street principal, observes that all of the property acquisitions done by REITs from 1994 to '98 were based on expectations of unleveraged internal rates of return of 11%-13%. Assuming 40% leverage and a 7% cost of debt, this implies a leveraged internal rate of return in the range of 15%, Kirby calculates.
Yet, as he and his colleagues point out in a recent report, the average annual total returns of the National Association of Real Estate Investment Trusts' index of leveraged real-estate companies over the past five- and 10-year periods have been only 8.8% and 9.2%, respectively, through last August.
These returns are particularly disappointing, they write, since they have come during a rising portion of the real-estate cycle.
Kirby states: "Not only have REIT returns not met the expectations of real-estate investors, they are even worse when compared with the broader market. The wind has been in the sails of all public companies over these time periods, yet REITs have produced disappointing results."
One plausible explanation for this poor performance is that REITs are currently underpriced in the public market, Kirby acknowledges, implying that once REITs recover from their bear market, their returns will fall in line. Indeed, the National Association of Real Estate Investment Trusts Equity Index shows a respectable 14% annual average total return over 20 years. "We have advanced the 'REITs are cheap' argument ourselves and consider it a reasonable theory," Kirby says. But he emphasizes that skeptical investors should consider other explanations.
A problem with the 20-year NAREIT data is that they predate the modern REIT era and they're based on a small sample: The equity market capitalization of the REIT industry in 1984 was less than $2 billion. Also, the early NAREIT Index had very little representation from office buildings, industrial properties and regional shopping malls -- huge real-estate sectors.
Kirby points instead to the 20-year average total return using data from the National Council of Real Estate Investment Fiduciaries, a respected tracker of the private property market: only about 9% a year. While the NACREIF data are based on appraisals and, therefore, do not necessarily capture true market pricing, the unimpressive return figure is worthy of note.
If the long-term-return potential of real estate truly is in the single-digits, pricing of properties in the private market may be too high, Kirby figures, and values may fall as investors lower their expectations for cash flows and growth.
Could it be that, as real-estate markets achieve equilibrium for the first time in many years, the costs associated with operating real estate will fall? Kirby and his colleagues say they aren't ready to offer a firm opinion. But the Green Street analysts and an increasingly vocal minority of other industry veterans are suggesting that real-estate owners have historically underestimated the true costs associated with running their properties.
Moreover, they suggest that, contrary to popular perception, real estate really does depreciate. What appreciates, they say, is the land, which constitutes a relatively small portion of a property's value, on the order of 20%.
If that view is correct, Kirby declares, the minority, and unpopular, view that the public market -- REIT investors -- may know more about future real-estate prices than most real-estate professionals may be correct.
In other words, rather than there being a disconnect between public-market pricing and real-estate fundamentals, as has been the belief of dedicated REIT investors for some time, the public market may be right after all.
At best, Kirby concludes, REITs in coming years should deliver low-double-digit returns, perhaps 11.5%, assuming modest leverage (40%-45%), not the 12%15% that is the conventional wisdom.
BARRY VINOCUR is editor-in-chief of Realty Stock Review, published in Shrewsbury, N.J.
subscribe to WSJ & Barron's @ http://www.wsj
.....Jen
-- posted by JenL_2
» Hugs - After the work of digging this thread up, better move it up.
That way, it won't be as hard to find if or when I want to post on it again this week. After finding one that looks rather attractive, I started nibbling on it. Of course, now I'm trying to be patience and take it in as others want out.(Okay, it's a Hotel/REIT with a nice dividend. Growth potential, and a few other things that appeal to me.)
Anybody think people are going to stop (or slow down) traveling and staying in hotels this next year?
Hu
-- posted by Hugs
» Hugs - Put this on the operating table...
And let the doctors of collective investing wisdom do some disecting on it if they'd like. This will be my first stab in this sector, so any criticism is certainly welcome. Don't be bashful.Jameson Inns, Inc. [JAMS]
Current dividend yeild at today's closing price of 7 1/4 is 13.52%. Given the acquistiion last year of Signature Inns, and the quantity of new Hotels coming on-line this year and the first part of next year, there would seem to be a good growth potential in their FFO. Looks to me to be a great buy while it's trading under 7 1/2. (Am presently averaged in around 7 1/8.)
Any comments or opinions from y'all?
Hu
-- posted by Hugs
» Hugs - Re: Jameson
Here is a link that I should have included in the earlier post to assit you in a quick overview of the company:Fourth quarter and year end results
Hu
-- posted by Hugs
» JenL_2 - Are REITs Rousing From Long Slumber?
This from 2/15 WSJ:Are REITs Rousing From Long Slumber?
by Jonathan Clements
If you spot an item in the store tagged "20% off," it's always tempting to take a closer look, which may explain why real-estate investment trusts seem so compelling.
The sector has been knocked down 21.3% in the last two years, while the Standard & Poor's 500-stock index soared 55.6%. Of course, cheap stocks often deserve their bargain price tag, and may get cheaper still.
REITs, however, seem to be stirring from their two-year slump. They were up 3.2% in December. Even in January, when most stocks fell, REITs made a little money, according to Washington's National Association of Real Estate Investment Trusts, which has a Web site packed with useful information:
"Yields on REITs are very high from an historical point of view," says Pittsburgh investment adviser Roger Gibson, who suggests allocating maybe 10% of a stock portfolio to REITs. "We've had two years of back-to-back poor returns. I think there's some catch up due."
At issue here are so-called equity REITs, which make their money by owning properties, as opposed to mortgage REITs, which lend money to property owners. Equity REITs allow you to invest in a diversified collection of apartment buildings, hospitals, shopping centers, hotels, warehouses and office buildings.
What's the attraction? For starters, it sure beats being a landlord. After all, a REIT won't phone you up in the middle of the night and complain that the furnace is broken. And unlike apartment buildings and shopping malls, REITs are easy to buy and sell. You can either trade the exchange-listed shares or dabble in one of the funds that specialize in REITs.
Like mutual funds, REITs aren't taxed themselves, providing they pay out at least 95% of their taxable income. That means fat dividends for shareholders, as REITs pass along the rents and other income they collect. Equity REITs currently yield more than 8%, according to Nareit. Long-run share-price appreciation is likely to be more modest, maybe 4% or 5% a year, as the stocks climb along with commercial real-estate prices.
Put it all together, and you are looking at a double-digit total return. Over the long haul, "the return should be lower than traditional stocks, but higher than bonds," reckons Chris Mayer, a real-estate professor at the University of Pennsylvania's Wharton School.
Shorter-term REIT performance, however, is much harder to predict. Historically, REITs have behaved like stocks. But in the past two years, they have seemed more like bonds, diving as interest rates rose. "They tend to be sensitive to interest rates, because of the yield component," Mr. Gibson says.
The plunge in REIT prices has occurred even as commercial real-estate prices have notched decent gains. "Two years ago, REITs were trading at 15% or 20% above the value of the real estate that they owned," Mr. Mayer notes. "Today, we're trading below, maybe 5% or 10%. Historically, it has been profitable to buy at these levels."
Kevin Bernzott, an investment adviser in Camarillo, Calif., views REITS as a stock-bond hybrid. "If you select quality REITs, they kick off a highly predictable stream of income and eventually you may get some price appreciation," he says. "We plug them into the bond portion of the portfolio. They're almost like a bond with an equity kicker."
For his clients, Mr. Bernzott has bought BRE Properties, United Dominion Realty Trust and Washington Real Estate Investment Trust. All have a history of regularly raising their dividend, which he sees as a sign of a well-run REIT.
Some investment experts don't bother with REITs, arguing that most folks already have plenty of real-estate exposure because they own their homes. Mark Riepe, head of investment research at San Francisco's Charles Schwab Corp., doesn't buy that argument.
"That's like saying I own a small business and therefore I shouldn't invest in stocks," Mr. Riepe says. "With a REIT or REIT fund, you get a much broader, diversified investment. With your house, all you've got is your house."
Because REITs kick off so much income and thus generate big tax bills for shareholders, plan on holding them in a retirement account, unless you intend to spend the dividends.
Intrigued? For most folks, the best bet is to invest through a REIT mutual fund. Steve Savage, editor of the No-Load Fund Analyst newsletter in Orinda, Calif., recommends Brazos/JMIC Real Estate Securities Portfolio, Cohen & Steers Realty Shares and Columbia Real Estate Equity Fund. He also likes Longleaf Partners Realty Fund, which invests in a variety of real-estate securities.
"It's easy to see a double-digit return over the next few years, without too much risk," Mr. Savage says. "The problem is, nobody wants a double-digit return. They want triple-digit returns. If there's trouble elsewhere in the market, you could see more interest in a safe, solid opportunity like REITs. But even without a catalyst, you should get a decent return."
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.....Jen
-- posted by JenL_2
» Happy - Jen, Regarding hotel REIT's, I do remember reading that because
Jen, Regarding hotel REIT's, I do remember reading that because of the prosperity in this country, about 135,000 new hotel rooms were built in the country last year.In a normal year this should be more like 100,000 new rooms per year. This will probably lead to pressure on hotel pricing for the next couple of years. Bay area apartments sound like a winner to me.
-- posted by Happy
» RhyneN - REITs slowly sinking
The Morgan Stanley REIT Index(RMS) seems to be down most days lately. It got down to 265 in the mid-December tax selling frenzy, and then bounced up to about 299 in early January, a nice upward move. But it has drifted downward since then, to 286 today.Some of the strong REITs like SPK have held up well, but there are some bargains now, and if this keeps up I guess there will be a lot more.
-- posted by RhyneN
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