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

Top 91. May 16, 2001 8:23 AM

» Oaktoad - Re: REITs a time to hold, maybe to buy

personally I am just holding my REIT stocks for the dividends. The yields can be quite good, but look for dividend payments of 75% of FFO or less...

These are better for us old guys who might want more income. I use them as part of my bond portfolio as they give a bit more inflation protection, but again high inflation is a very tough environment to invest in ..

I get the sense that many of the folks here are younger, but once you hit 50 starting to increase your positions in bonds could include REITs are part of this stategy.

If the economy picks up based on the interest rate cuts and the tax cut ($100B is not a lot, but a start), then REITs might do better as there will less chance of vacancies...

If you don't want to spend much time following them, then consider the Vanguard REIT index .. you can also open an annuity with Vanguard (the only annuity that I would reccomend to anyone, low fees, no surrender charges) and that way avoid current taxation on the dividends which for many would be a big drawback .. you can also put bond funds in these too. The Vanguard annuity is a very good way to defer income if you are sitting on money that is taxable and don't need it for 5-10 years or more.

If you do decide to buy individual stocks make sure you diversify .. lower yields means lower risks, but there are a few with yields over 8-10% that are pretty secure.

-- posted by Oaktoad

Shuffle in Russell Indexes Could Help Some REITs

Top 92. May 24, 2001 7:37 AM

» JenL_2 - Rus2K Reshuffling & REITS

this from 5/22 WSJ:

By JANET MORRISSEY

A number of smaller real-estate investment trusts and companies stand to see big gains, at least in the short-term, as names within the Russell indexes are reshuffled.

Expect to see a surge in demand for shares in companies being added to the index, especially in June, which should propel their stock prices. A preliminary list of candidates for entry into the Russell universe will be drawn up on June 8, and revised several times before an actual list is finalized on June 29.

Real-estate mogul Carl Berg, who founded Mission West Properties Inc. (MSW), which itself is expected to be added to the Russell 2000, said any real-estate company admitted to the index would likely garner greater investor interest from outside the traditional real-estate community.

As new stocks are brought into the indexes, index investors will need to snap up shares of these companies in order to mirror the index.

The selections are based primarily on their market capitalizations at the end of May. Their weightings within the indexes are based on public float, which excludes insider ownership.

In 2000, stocks added to the Russell 2000 rose 38% on average between May 31 and June 29, and then declined slightly -- 3.2% -- after the names were finalized on June 30, according to a Merrill Lynch report. Those added to the Russell 1000 last year jumped almost 37% on average between May 31 and June 29, and gained another 4.3% on June 30, the report said.

Sam Lieber, chief executive of Alpine Management & Research LLC, said he takes into account the Russell reconstitution when making purchases at this time of year. However, he said he will only purchase shares in companies that he's comfortable with and whose stocks are cheap. In general, he said, he doesn't purchase shares for a quick flip unless he will see returns of at least 10%.

About 500 companies are expected to enter the Russell universe, estimates Merrill Lynch derivative strategist Steve Kim in a report. Of those, 487 will be added to the Russell 2000 while about 13 will join the Russell 1000.

As a cautionary note though, Mr. Kim's team declined to say how accurate they had been in the past at forecasting the correct names that wound up in the index.

Mr. Kim is predicting about 17 new real estate names will be added to the Russell universe this year.

By contrast, only one REIT, Plum Creek Timber Co. (PCL), was added last year, according to Russell spokesman Steve Claiborne. There are currently 114 real estate names in the Russell universe altogether.

Among the real-estate names Mr. Kim expects will be added to the Russell 2000 this year are Mission West(MSW), Excel Legacy Corp.(XLG), Crown American Realty Trust(CWN), Mid-Atlantic Realty Trust(MRR), Kramont Realty Trust(KRT), Acadia Realty Trust(AKR), Corporate Office Properties Trust(OFC), Wellsford Properties Inc.(WRP), U.S. Restaurant Properties Inc.(USV), Winston Hotels Inc.(WXH), Associated Estates Realty Corp.(AEC), Investors Real Estate Trust(IRETS), Meritage Corp.(MTH), Universal Health Realty Income Trust(UHT), Annaly Mortgage Management Inc.(NLY), Anthracite Capital Inc.(AHR), Redwood Trust Inc.(RWT) and Thornburg Mortgage Inc.(TMA)

Mission West, one of the strongest performers in 2000 with a total return of more than 90%, is a Cupertino, Calif., REIT that invests in research and development properties primarily in the San Francisco Bay area.

Excel Legacy, Crown American, Mid-Atlantic Realty and Kramont are retail REITs. Corporate Office is an office REIT while Wellsford is a real estate company that owns office, industrial and one apartment property.

U.S. Restaurant owns properties that are leased to big-name restaurant and gas station franchisees such as Burger King Corp., Texaco Inc. and Shell. Winston Hotels owns limited service hotels while Associated Estates and Investors Real Estate own apartments. Meritage is a home builder while Universal Health Realty is a health care REIT.

The remaining names -- Annaly, Anthracite, Redwood and Thornburg -- are mortgage REITs that have been among the top performers in the REIT world in 2001.

In many cases, the volume of shares purchased by index investors will be significantly higher than the stocks' average daily trading volume. Merrill Lynch real-estate analyst Steve Sakwa estimates index investors would need to buy more than 566,000 shares of Mission West in order to maintain a market weight position in the stock. "This 566,000 shares of buying power is significantly above the company's average daily trading volume of 58,000 shares a day over the last three months," he said. "It represents about 13 trading days."

Several other names will see even more dramatic trading. Mr. Sakwa estimates Excel Legacy's volume will equate to 161 days, Acadia to 163 days, Investors Real Estate to 95 days, Wellsford to 88 days and Universal Health Realty to 45 days.

Last year, it was the larger, so-called blue-chip REITs that became the darlings of Wall Street as investors sought out an anti-tech play. However, 2001 has seen a rebound among the smaller-cap names.

In general, smaller-cap, less-liquid REITs with big dividend yields have been outperforming the blue-chip REITs in 2001, and, for some of those names, the additional bump from being added to the Russell universe could push their already robust returns even higher.

Mortgage REITs, for example, have posted total returns, including dividends, of 43% on average in 2001 while REITs in general are up only 6%, according to the National Association of Real Estate Investment Trusts.

About two real estate names -- Pacific Gulf Properties Inc.(PAG) and Corrections Corp. of America (CXW) -- will be deleted from the Russell universe, according to Merrill Lynch's strategist.

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

Let's make 2 charts of these REITs:

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
REITs YTD Chart

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
More REITs YTD Chart

......Jen

-- posted by JenL_2

REITs - Winners & Loosers for last 12 Mo

Top 93. May 25, 2001 12:24 PM

» JenL_2 - REITS - Winners & Loosers

from CNBC.com:

.....Jen

-- posted by JenL_2

Top 94. Jun 2, 2001 9:32 AM

» Oaktoad - Some REITs to consider

A brokerage house gave out this list as good REITs for the present. All have reasonable yields (5.5%-6.4%) and very good dividend coverage as a percent of FFO.

The broker feels that these stocks may benefit from lower interest rates as well as providing an inflation hedge over time.

Personally, I suggest that if you only have limited funds, buy the Vanguard REIT index funds. If you have enough, buy an assortment giving you both geographical diversity as well as industry diversity (apts, commercial property, malls, strip centers, etc)

The list is amb, avb, eop, slg, asn, bxp, ggp, vno

I know that these don't seem very exciting, but my REIT mini mutual fund is up about 5% this year. Throw in the dividends and for five months it is about 7%...

Given that most predictors are indicating that the days of 15% annual gains are over and that we may be returning the the old 9-10% per year.. REITs offer a decent return.

-- posted by Oaktoad

http://www2.marketwatch.com/news/story.a...

Top 95. Jun 2, 2001 10:04 AM

» JenL_2 - Re: Some REITs to consider

In response to message posted by Oaktoad:

Thanks Paul - Let's compare these stocks with the the iShares Cohen & Steers Realty Majors Fund (ICF):

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
Some REITs to consider, ICF, S&P500, DJIA YTD Chart

But since these charts don't show dividends reinvested the REIT performance is even better.....Jen

-- posted by JenL_2

Top 96. Jun 2, 2001 12:44 PM

» Oaktoad - Re: Not an easy graph to read

I would not compare for a short period of time on REITs, they are a longer term item. For example, EOP shows it being down, yet I bought for arond $25 and it now sells for $29 plus I have been rec'g the dividend. I don't own any of the others, but will probably buy ASN.

The fund seems to be a way to go. As I mentioned, if you don't have enough to buy an assortment then funds are the way to go.

-- posted by Oaktoad

Top 97. Jul 7, 2001 11:01 PM

» JenL_2 - Realty Check

This from 7/9 Barron's:

Realty Check

REITs are sizzling, but property markets are showing signs of weakness

By Barry Vinocur

Their timing couldn't have been worse. On April 11 the analysts who follow real-estate investment trusts for Morgan Stanley downgraded the REIT sector. In a note to their firm's clients, Gregory Whyte and his research team reduced their rating on the stocks from Outperform to Neutral. They also cut their expectation for total return on the Morgan Stanley REIT Index to zero, from their projection at the start of the year of 9%-12%. "While we expect the slump in real estate (and the REITs) to be far milder this cycle, the group will not be immune to economic slowdown," the analysts wrote.

The downgrade came the very day the Morgan Stanley REIT Index began an impressive run-up. Though in the first quarter the widely followed benchmark had outperformed the Standard & Poor's 500 Index (down nearly 12%) and the Nasdaq (down 25.5%) by wide margins, it still had finished in the red by a half-percentage-point. But from April 11 through the end of the second quarter, the Morgan Stanley Index posted a 13.5% total return.

This year's performance follows a surge in REIT prices last year, when the index chalked up a 26.8% total return to end a two-year bear market for the sector. And most Wall Street analysts expect the run, now 15 months long, to continue at least for the rest of the year.

<img src="/files/mysites/Jen/reit_7-3-01.gif" width=239 height=259 align="right"> In a late June note to clients, for example, Lee Schalop and his colleagues at Banc of America Securities reiterated a call they made early this year. The Morgan Stanley REIT Index, they wrote, would finish the year at roughly 450, which would translate into a total return in 2001 of nearly 23%. REITs are still attractively valued, they argued, and real-estate fundamentals remain sound.

The bullish case for REITs is multifaceted. Though their earnings have suffered a modest decline in growth this year, they are, nonetheless, growing, not declining. This has made the companies a hospitable port in a very nasty storm. "REITs have earnings visibility; that's a lot more than you can say for most other sectors," observes David Shulman, who heads REIT research at Lehman Brothers.

There's also speculation that Standard & Poor's in the next 12 months will reverse its policy of excluding REITs from the S&P 500, a benchmark that serves as the basis for index funds. As Barron's Andrew Bary noted (The Trader, June 11), the matter is under consideration by S&P's Index Committee. And it may not be happenstance that the Morgan Stanley Index began its rally at about the time of an April presentation, organized by Banc of America's Schalop, before the committee. REIT fans say inclusion in the index would be a shot in the arm for the stocks and would validate investing in the sector.

REIT prices have also been helped by outlays from equity mutual funds, and reports are circulating in institutional circles that pension funds are gearing up to pour cash into the sector in the year's second half.

But there are some disturbing signs. For one thing, individuals have been less than enthusiastic REIT buyers throughout the stocks' current bull market. Last year, one of the best ever for REITs, inflows into funds dedicated to property stocks were light by historical standards. According to AMG Data Services in Arcata, California, such funds pulled in some $525 million. This year, through June 27, the same funds attracted just shy of $300 million. To be sure, bulls point to the recent blowout offering for a new closed-end fund, Cohen & Steers Advantage Income Realty. Though forecasters said the underwriters would have a tough time raising $200 million, the fund attracted more than $350 million. But the success of the offering had as much to do with its high dividend yield, currently 8.3%, and frequency of payment, monthly instead of quarterly, as any sudden fascination with property investing.

Commercial real estate is showing other disturbing trends, and the stocks are posing some problems, as well.

Morgan Stanley's Whyte, who is sticking by his April downgrade, was among the few Street analysts to spot the trends and take them seriously. "When we went Neutral on the group," he tells us, "we did so primarily because we saw mounting anecdotal evidence of deteriorating real-estate fundamentals -- essentially softening rental patterns, declining occupancies and, very importantly, an erosion in the pricing power of the landlord." He now says the market conditions that led to the call on the stocks have probably worsened.

Deteriorating fundamentals take many forms. Incentives that building owners give leasing agents, for example, are climbing. So are allowances that landlords grant tenants -- in industry parlance, tenant improvements. And for the first time in quite a while, some landlords are offering periods of rent-free occupancy to get current and prospective tenants to sign new leases. By contrast, late last year and even earlier this year, owners reported that tenants were scrambling to sign leases, fearing rents would continue to escalate.

All this contributes to what Morgan Stanley's Whyte suggests is "negative earnings momentum." Last year's strong showing by REITs, he explains, reflected the group's improved earnings outlook. This year, however, earnings momentum is heading in the opposite direction. Whyte notes a contrast between the change in analysts' 2001 and '02 forecasts of funds from operations and total returns this year through June 20. "The asset classes with the largest cuts in estimates, generally, have the highest year-to-date total returns," Whyte observes.

Further, Whyte points to a continued reluctance by managements to provide earnings guidance for next year. "The Street is clearly reading into this fact, much as we are, because generally, consensus estimates are coming down, and it's occurring for both 2001 and 2002 consensus numbers."

What's this? Estimates are coming down even though the Street is generally bullish on the stocks? The word that springs to mind is "disconnect."

The word was in vogue during the sector's bear market of 1998-99, when analysts and investors repeatedly commented on the "disconnect" between the downwardly spiraling REIT prices and real-estate fundamentals, which though not as strong as a few years earlier were nevertheless robust, especially for the later stages of a real-estate cycle. In the view of the Morgan Stanley analysts, the tables have turned. The data, Whyte says, cause concern because they show just how significant the disconnect between stock prices and earnings trends has been.

The run-up in REIT prices has given rise to a number of recent downgrades, but they have been based solely on price considerations, not on deteriorating fundamentals. In late June, for instance, analysts at Goldman Sachs downgraded several REITs solely because they felt the prices had grown too rich.

Another puzzling sign: a decline in the discount at which the stocks change hands relative to net asset value -- the estimated private market value of a company's properties, less debt and preferred stock. Last fall Realty Stock Review's proprietary survey of analysts and money managers found that the 90 or so property stocks the newsletter follows were trading at an average discount to NAV of 13%. In late June, the survey found the discount had dropped to an average of roughly 5%. In late 1997 and early '98 -- just prior to the REIT bear market -- the average stock followed by the newsletter was trading at a 20%-25% premium to NAV.

Mike Kirby, a co-founder and principal of Green Street Advisors, a Newport Beach, California, firm that provides research on property stocks to institutions, says it's a reasonable rule-of-thumb that no real-estate stock deserves a premium north of 15%, and very few would deserve one that lofty. So, in the face of declining earnings growth and a tougher operating environment, it's hard to see how shrinking discounts to NAV are sustainable.

A final ominous note: Some analysts are raising price targets, often without either raising their earnings estimates or making a convincing case for why the company's multiple ought to grow. Says one veteran analyst with a firm that invests in property stocks: "Historically at least, that's not been a good sign."

Barry Vinocur is chief executive of Rainmaker Media Group, which publishes Realty Stock Review and Property magazine. Web site: www.rainmaker-media.com

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

.....Jen

-- posted by JenL_2

Net Lease Real Estate Trusts Are on an Investment Roll

Top 98. Jul 17, 2001 10:52 PM

» JenL_2 - Net-Lease REITs on a Roll

This from 7/17 WSJ:

By JANET MORRISSEY

Hit investors where they live -- and they'll respond.

A small group of specialty real estate investment trusts has scored big gains in 2001 by investing in properties whose businesses cater to people's basic needs -- food, gasoline and convenience stores.

The group, which is part of the net-lease real estate investment trust sector, boasts big-name tenants from high-profile chains in the fast-food restaurant, convenience store, auto parts, retail and gasoline world. Tenants include such names as Burger King, Pizza Hut, Taco Bell, Texaco, Midas Muffler Shops, Jiffy Lube and 7-Eleven.

These REITs jumped onto investors' screens in 2001 as many economy-sensitive stock-pickers considered hamburgers and gasoline as largely recession-proof businesses. Many were equally lured by the group's dividend yield, which exceeded 11% on average.

In the first six months of 2001, the five publicly traded net-lease REITs posted total returns, which include dividends, ranging from 13% to 61%, with the average being 34%, according to the National Association of Real Estate Investment Trusts. Big gains in light of the badly battered broader market. In the same period, the S&P 500 fell 6.5% and the Nasdaq Composite Index lost 12.1%.

However, investors, analysts and market experts part ways when it comes to predicting this group's prospects for the second half of 2001.

If the economy continues its sluggish course or worsens, expect even more investors to migrate to this sector, say some. Also, a recent consolidation trend, which saw two of the group's six players get takeover offers in the past five months, could also boost the sector's stock prices further.

In the other corner are skeptics who believe many of the stocks are now trading at or above their net asset value, and that an economic recovery will cause investors to stampede for the exits as they unload these decidedly defensive stocks. Some also question whether potential acquirers would be willing to pay up to acquire these REITs in light of their stock activity this year.

The companies making up this segment of the net-lease group are Franchise Finance Corp. of America, U.S. Restaurant Properties Inc., Commercial Net Lease Realty Inc., Captec Net Lease Realty Inc. and Realty Income Corp.

Earlier this year, GE Capital unveiled plans to acquire Franchise Finance in a $2.1 billion deal, and more recently, Commercial Net Lease Realty announced plans to buy Captec in a $225 million cash and stock deal. Both deals have been criticized by certain analysts and shareholders, who considered the takeover prices too low.

Steady Cash Flows

Investors view net lease companies as defensive, thanks to their long-term leases that generate stable, predictable cash flows. These companies practice sale leaseback, where they develop or purchase a property and then lease it back to a high-profile company or franchise often on a triple net lease basis. Triple net leases require the lease holder to pay all operating expenses, real estate taxes and insurance in addition to rent, thereby lowering the REIT's risk.

The group's risk is considered low, but so is its funds from operations growth rate. Since the leases are long, there are few opportunities to escalate rents to boost FFO.

In 1998 and 1999, while the investment community was mesmerized by high-flying technology stocks, the net lease sector languished. Financing dried up, growth stalled and their stock prices plummeted.

When the dot-com world collapsed and the economy headed south, investors returned to the sector for refuge. Some were comforted by the company's steady, and real, earnings; Others were lured by their 11%-plus average dividend yields.

The Federal Reserve Board's decision to trim interest rates six times in 2001 also worked in the group's favor. The lower rates cut the companies' borrowing costs, making it easier for them to make acquisitions to grow.

David Dewey, investment analyst for Pension Consulting Alliance, which advises pension funds, said it would be logical to assume triple net lease companies are a safe haven in an economic downturn. However, he said many of the stocks are small and less liquid, making it difficult for large institutional investors to make a play.

A private investor from Boston, Carl DeSantis, is among the shareholders who have been increasing their holdings in this sector. He began snapping up REIT shares about a year ago, he said, and quickly honed into smaller-cap REITs with big dividend yields. "If I bought a $10 stock, it only had to go up $1 to get (a gain of) 10% or 12%," he said.

Since net lease REITs were already beaten down, they offered potentially strong gains, he reasoned. And he considered the group a relatively safe haven in a down economy. "This is hamburgers and bread .. real fundamental stuff," he said.

His bet appeared to pay off. DeSantis estimates his holdings, which include five net lease REITs, have posted returns in excess of 25% over the past 12 months.

Shrinking Dividend Yields

As the stocks have soared, the dividend yields have pulled back to about 9%, according to NAREIT. Mr. DeSantis said he is now re-examining his holdings and may trim back, dumping those whose yields fall below 8%.

John Kramer, president of Kensington Strategic Realty Fund, is cautious on the group. Although the longer-term leases offer some comfort in an economic downturn, the REITs can still run into trouble if tenants fall on hard times. "They are not protected from (tenant) bankruptcy," said Mr. Kramer.

Though fast food restaurants may have a big name and big customer draw, there is little to stop a competitor from setting up shop across the street, which could steal sales away, he said. Mr. Kramer said he looks carefully at a company's management team, lease structure and tenant base before jumping in.

Keith Pauley, managing director of LaSalle Investment Management (Securities), which held as much as a 10% stake in Commercial Net Lease back in 1999, concurred the group is not without risk. Mr. Pauley noted how U.S. Restaurant struggled to find replacement tenants when the operator of 37 Dairy Queen properties and a gasoline wholesaler who operated 27 service stations defaulted on lease payments.

Franchise Finance saw its earnings take a hit when one of its larger tenants, Quincy's Restaurants, stopped paying rent. And Realty Income struggled with bankrupt operators Levitz Furniture and Econo Lube N' Tune.

Also, the stocks are no longer as cheap as they were a year ago. "We've had a junk rally" in 2001, where smaller-cap value stocks have risen, Mr. Pauley said. He questions how much further upside remains. His firm has trimmed its interest in Commercial Net Lease to 3% from its high of 10%.

Sam Lieber, chief executive of Alpine Management & Research LLC, shies away from net lease REITs, as he considers them to be an interest rate, rather than real estate, play. "These are structured financing vehicles, not real estate plays," said Mr. Lieber.

Net lease REITs trade like bonds, said Douglas Poutasse, chief investment officer for AEW Capital Management L.P., which holds shares in Franchise Finance. As interest rates fell, the investment community migrated to the group for its lofty dividend yields, and he predicts the sector will continue to do well as long as interest rates remain low and the economy stays sluggish.

Salomon Smith Barney analyst Jonathan Litt is giving mixed outlooks for stocks within the sector. He recently cut his rating on U.S. Restaurant to his firm's lowest rating, "underperform," based on valuation. He said the REIT is now trading at a premium to its net asset value. However, he maintained outperform ratings on Franchise Finance and Realty Income, predicting the two could see returns in the mid-teens over the next 12 months.

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

.....Jen

-- posted by JenL_2

Top 99. Aug 8, 2001 4:40 PM

» JenL_2 - Fixed Income Portfolio

These posts copied from "Ask Rande":

Author: Tweeter
Date: August 8, 2001 11:49 AM
Subject: Fixed Income Portfolio

Rande,

Am about to receive IRA rollover monies from former employer. Looking for addition to Fixed (or near-Fixed) Income Investments. Currently 47.7% FBDFX, 43.0% VBTIX with 9.3% new money. Obviously the past year has been great for bond funds, but I am wondering if a lump sum addition to these funds is the best idea as we approach the end of the interest rate decrease cycle – (hate to see share price start to deteriorate right after dumping money in). Would other Fixed options make more sense such as VBISX (ST), or Corporates (VWESX, VFICX, VFSTX)? Any other viable alternatives?

Also would like your opinion on REITs, which have been mentioned favorably on several threads here recently. How would they be categorized? What factors impact their payouts and changes in NAV? Are they typically a long-term holding or is there a time not to be there? Do you have any favorites in this area?

Sorry for all the questions in one post – TIA for your input.

Steve Bailey
P.S. Drawdown won't begin for 7 yrs.

Author: Rande
Date: August 8, 2001 1:13 PM
Subject: Re: Fixed Income Portfolio

In response to message posted by Tweeter:

Steve,

I would be inclined to use the Total Bond Market Index and just put the money to work without regard to where interest rates are. Over time, the NAV will rise and fall as the yield goes up and down, but given a long enough time horizon it all evens out in the end. REITS are in an asset class by themselves, but for practical purposes I would look at a mortgage REIT primarily as a fixed-income vehicle. I believe Vanguard has a REIT index fund. I don't personally own any REIT funds, but would limit the investment to no more than 5 or 10% of the total portfolio if I did. There should be a REIT thread somewhere on the site list where you could probably find a more detailed discussion.

Rande Spiegelman

-- posted by JenL_2