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

Top 61. Feb 23, 2000 8:02 AM

» Hugs - Okay, a few of my thoughts on the matter.

If my thinking is correct, even during "not so hot" economic times, people like entertainment. It seems to me that "traveling" is one of the last things that most people will abandon or refuse to do. (Be it for business or pleasure.)

I opted for a Hotel REIT that not only survived last year, but had potential for growth in spite of the economic forecast. Sure, like any REIT, the stock has been hit. But don't good stocks always get dragged into the mud by the not so good ones? Not only that, but I was after one with a reasonable debt load that wasn't going to be bombarded with higher interest rate payments this year, and seemed to have a stable high dividend payout.

Many factors to consider, of course, but so far I am rather pleased with my pick. It appears I have caught it at a "double bottom" technically speaking. But, I am still waiting for "the breakout." Not that it "moves" like a "nut" stock or anything, but stability and security was also a primary consideration.

-- posted by Hugs

Top 62. Feb 23, 2000 4:49 PM

» JenL_2 - REITs

These posts copied from the "Ask Rande" thread:

Author: Hugs
Date: February 23, 2000 5:57 AM
Subject: REIT's

Elsewhere I have seen it suggested that REIT shares might be closer related to bonds than to stocks, and could (or should, even) be considered as part of the bond allocation in a portfolio.

What do you think Randy? Where do they fit into an asset allocation model?

Author: Rande (Rande Spiegelman)
Date: February 23, 2000 6:12 AM
Subject: Hugs,

Hugs,

That's a tough one. REITS are clearly a separate asset class. On the one hand, real estate tends to be correlated to inflation in a way opposite to bonds -- higher inflation is good for real estate (hard asset), but bad for bonds (financial asset). Location (supply and demand) is certainly a factor as well (e.g., SF Bay Area real estate mania). Of the two primary types of REITS -- mortgage REITS and equity REITS -- I would say that mortgage REITS are most like bonds since the primary objective is current income. I would tend to view equity REITS as a better way to diversify out of financial assets completely. In either case, REITS have had a tough couple of years after doing well for awhile there back in the mid-90s. Some are viewing them as a value buy right now. For those who want to add real estate to the portfolio as a diversification tool without the headaches of individual ownership (management, lack of geographical diversification, etc.), REITS could be a viable way to go. Personally, I wouldn't have more than 10% of the portfolio there as I believe we continue to be in an overall, long-term environmnet favorable to financial assets, despite the temporary headwinds we currently face.

Rande Spiegelman

-- posted by JenL_2

Top 63. Mar 16, 2000 8:09 AM

» Oaktoad - Shiller's new book

that is due out in April..contends that the Dow could be at 10,000 in 2020.. One of the alternative investment areas he recommends is real estate and for many, REITs are a good way to do this.

Owning your home is good, but managing rental real estate is not always that much fun and can be less profitable than you might think. Often Bob Brinker has commented negatively on this and as an owner of two properties I somewhat agree with him.. as the properties are in the Bay Area, I have done quite well tho, but get tired of the management aspects...

REITs are best for a tax deferred or tax exempt (Roth) acccount.. or for those that would like a higher income than bonds pay this might be something to look at.

This thread has been ignored a lot as I think most here are younger and not as interested in more conservative investments, but lets see if we can get a few posts..

I saw that one article mentioned funds for REITs.. Vanguard has one that has low fees and I think would be good.

Also, for those who would like a good read on REITs, I suggest Bayisle.com and find the REITweek column that is there at least twice a month. the guy is a good writer and there is some good info as well.. My guess is that if you find Alan Abelson's writing fun you will find his fun too...

-- posted by Oaktoad

http://www.usatoday.com/money/columns/he...

Top 64. Mar 16, 2000 8:21 AM

» Oaktoad - Irrational exhuberance

this is a review of Shiller's book

By David Henry, USA TODAY

NEW YORK - Feeling queasy about the stock market? Worried that you're depending a bit much on compounding stock returns to pay for retirement or college tuition?

If so, you might throw up after reading a new book by Robert Shiller, a Yale economics professor, and published by Princeton University Press. Irrational Exuberance should be in bookstores in early April, and it is likely to cause a stir as reviews come out in the next few weeks.

Shiller illustrates how the current market is like a naturally occurring Ponzi scheme in which investors become promoters for the game after receiving initial payments with money taken from subsequent investors.

His big push is to attack the conventional wisdom that stocks have and will always be the best investment, even at times like this after prices have rocketed. He argues that what comes next may well be a grinding, decade-long decline from which investors won't recover until about 20 years from now.

In short: Dow 10,000 in 2020. "There's a lot of uncertainty, but that's a good prediction," Shiller said this week. Between now and then, he says it's plausible the market could lose half its value, or roughly the value of all U.S.
homes.

If you're going to need to take money out of the market in 20 years, Shiller would have you try out zero and 1% as assumptions for annual stock returns in your financial planning. He hopes to prod you to start saving more, invest in some inflation-indexed bonds and real estate. He would like universities and foundations to spend less of their endowments. And while the Yale professor doesn't suggest it, parents might tell their kids about the virtues of community
colleges.

Shiller compares the 1990s bull market to those that peaked in 1901, 1929 and 1966. Those years registered the highest spikes in valuations in his records going back to 1881. By his calculations, early this year valuations were one-third again higher than the 1929 record.

Don't fear a crash as much as endless torture. The 1901 peak was followed by a gradual decline in which dividends were basically the only source of return. After 20 years, investors had an average annual real return of negative 0.2%.

The October 1929 crash was followed by an encouraging rebound that first made the crash look like a buy-on-the-dip opportunity. The horrible damage followed in the ensuing two-year slide. Twenty years later the average annual real return was 0.4%. From the market's 1966 peak, the average annual real return 20 years later was 1.9%.

The prospects could be even worse this time around. Dividends that helped offset price declines were much higher at earlier peaks than today's 1.2%.

Shiller is likely to be criticized for the price-to-earnings ratio he uses as his measure of valuation. His earnings number is an average from past 10 years' earnings. Some will say that amounts to driving while looking in the rearview mirror. Wall Street generally prices stocks off of estimates for earnings a year or two in the future. Bulls says that's essential now so as not to miss the benefits of earnings gains from productivity improvements to be realized from new technology.

Shiller says Wall Street is chronically too optimistic, particularly after a run of climbing earnings. Besides, if you use current earnings or earnings a year out,the recent ratio would still be around the levels of 1929.

(You can get his data at www.econ.yale.edu/~shiller/.)---see link---

His title is from Fed Chairman Alan Greenspan's Dec. 5, 1996, speech when the Dow was around 6000. Shiller had argued to Greenspan the market was irrational two days earlier in a hearing of market experts held by the Fed. Shiller says the Dow's climb to 10,000 doesn't prove he was wrong. His time frame for disappointing returns was five to 10 years from then. Many stocks have lagged since, even though tech stocks have taken the major indexes higher.

Surprisingly, Shiller aims to reduce the confidence in stocks that started building on a friend's book, Stocks for the Long Run by Jeremy Siegel of the University of Pennsylvania. Siegel encouraged Shiller to write this book. He says Shiller is good at describing investor psychology that has taken tech stocks ridiculously high. But he adds, "I'm happy with the overall market."

Yet, Siegel, too, recommends buying inflation-indexed bonds and real estate, as well as stocks. Will there be periods of 15, maybe 20 years, of no real gains from stocks? "Certainly," Siegel says.

Eye on the Street appears Thursdays. E-mail David Henry at
dhenry@usatoday.com.

-- posted by Oaktoad

Top 65. Mar 16, 2000 1:56 PM

» Rande - Paul Erdman's talking REITs:

Paul Erdman's talking REITs:

Stocks, bonds and REITs

-- posted by Rande

http://boards.fool.com/Message.asp?id=10...

Top 66. Mar 16, 2000 6:45 PM

» RhyneN - A Ralph Block posting

A review of where REITs are now and how they got there.

-- posted by RhyneN

Top 67. Mar 17, 2000 8:21 AM

» JenL_2 - REITs & Schiller

I emailed Roger asking if he'd like to reply to OakToad's message above. Got this response with permission to post:

Author: Roger Babson
Date: March 16, 2000 02:00PM (email)
Subject: REITs & Schiller

Thanks, Jen, for the invite.

As you know, I strongly share Shiller's conclusions, having recommended at least twice that Suite101 folks visit his site. There is one caveat I would add, however.

REITS, in general, will not fare well, as demographics and massive debt loads will weigh on real estate prices for 15-20 years during the deflationary and debt work-out period ahead.

Still, land and commercial and residential real estate in what Jack Lessinger refers to as "penturbia" will yield the highest returns.

Prices in these areas will fall less in the decade or more ahead and will recover first and rise faster in the next 30-40 years.

The SF Bay Area is particularly unattractive as an investment for the next two decades from the high prices of the past 4-5 years. This area will suffer a breathtaking out-migration of boomers in the next 20 years at the same time there will be a dearth of persons age 25-45 migrating there (as will be the cast virtually everywhere, save for a handful of penturbian enclaves around the country).

Lessinger's site:
http://www.lessinger.com/

Underlying Shiller's premise is that stock prices are discounting 10-20 years of earnings growth and fundamenatals, such as the rate of growth of capital stock and the labor market (population), which, of course, is the primary variables in determining rate of productivity growth.

Unfortunately, capital's share of output for the past decade ("financial capital", specifically) as far outpaced the rate of growth of the capital stock (rate of growth of replenishing savings, physical and human infrastructure), and must eventually give way to a period during which the capital stock is replenished. This process has always resulted in a period of deflation and depression.

Japan is approximately halfway through this process, whereas sometime around 2002-03, Japan should enjoy a modest recovery into 2010-13 during which the U.S. will likewise recover from the first recessionary phase of the depression into a 2008-09 before falling again into the depression trough in the mid-late 2010s).

Thereafter, unfortunately, Japan will enter a 30-year decline into second-rate status behind China.

What we see as the exceptionally good news of wildly rising real estate and stock prices is indeed bad news for long-term (10-20 years)prospects for even normalized returns to stocks (S&P 500). What we must learn without delay is that stocks are investments for "risk" capital and not "savings".

Accordingly, risk capital invested must at some point be "sold" to realize the cumulative returns the market offers and be redeployed into asset vehicles that offer superior "risk-adjusted" return prospects. This concept of "risk-adjusted" returns is forgotten (never learned) toward the end of a secular bull market, just as is the case toward the end of a secular bear market for stocks when either real assets (inflationary bear markets) or bonds and cash (deflationary bear markets) are perceived as the only place one should deploy capital.

In these cases, the aforementioned assets no longer present superior, long-term "risk-adjusted" return prospects compared to stocks.

Likewise, the risk-adjusted prospects for stock returns are similar to 1872-81, 1928-37, and 1966-72, and, therefore, represent extremely low probability of outperforming Treasury bills, notes, and bonds for the next decade or more.

With stocks paying no dividends, the imperative to sell to realize gains is even more urgent with the market being so generous to stock prices.

Alternatively, cash or the liquidity preference today will provide "investors" with opportunities to purchase stocks at much lower prices in the next decade, whereas speculators who fail to sell today will be illiquid and unable to purchase shares at prices that will ensure average or above-average returns for the subsequent two decades.

Good luck. SOS (especially on wild days like today)!

Regards,

Roger

Thanks Roger.....Jen

-- posted by JenL_2

Top 68. Mar 17, 2000 10:36 AM

» Hugs - Well, here's what I'm trying on...

I just "parked" a bunch in a preferred REIT stock paying a fixed, cummulative dividend around 16%. The cash flow is strong, debt is about 50%, trading at about 60% of book (it is 100% commercial property), and FFO continues to grow. The only way I can "lose" any part of the current dividend is if the company just goes outright "belly up," plain and simple. (If they fail to pay the dividend for any period of time, it accumulates and is still due and payable regardless of whether they pay the common stock dividend.) And it's sure doesn't look like they're in any danger of doing that anytime soon from the numbers that I've looked at. On top of that, the preferred is convertible to one common share and cash equivalent to about 30% of the value it's currently trading at. Understand that I don't pay the cash to convert, they give me one share of common plus the cash. Get this... I've accumulated virtually my entire position for nearly the same price as the common stock plus the cash difference. A very small premium, which will pretty much be offset by the first quarterly dividend payment due shortly. This was one sweet looking deal to me, and I've been on it like a bee to honey...

Guess I'll find out what sort of performance it yields down the road a little further... (then it will be real clear whether I've been a bee, or a fly. You all know what flies are attracted to, don't you?)

-- posted by Hugs

Top 69. Mar 17, 2000 2:28 PM

» Hugs - Is the wind shifting?

Several REIT's that I've been watching appear to be on the upswing. From what I understand of a techinical perspective, they seem to have broken a longer trendline downward yesterday and today. At least the few I was more interested in. What I suspect is that once a general "trend" reversal sets in and is talked about more and more, more savy investors are going to not only going to start scrounging around for the straggelers and laggards that may have been overlooked, but may the REIT funds themselves that have been forced to sell some of their holdings may start seeing some money moving back their way looking for some value, and "a piece of the action.." In turn, that might just add to the snowball effect as more attention is given to rising performance... and you know the rest of the story. So many always love to chase performance. I am glad to have already found something here in this sector that I like and have already taken a substantial position in, while it was still "on the lamb." I may still add a little just for the "trading opportunity" that might be coming, because I think it's close.

-- posted by Hugs