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| AUTHOR:
glang |
RANK:
Top Quartile  |
DATE:
May 11, 2002 |
PAST
RANK:      |
I have been following Real Estate Stocks for over ten years and thought it would be a good idea to create some Marketocracy funds to show how they perform both short and long term.
The two funds that I have are GLMFR (created 10/27/00) with a current total return since inception of 41%+ and GLMFB (just recently created on 2/8/02) with a current total return since inception (90 days) of 5%+.
GLMFR contains a combination of Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). The difference between the two is that REITs are a special tax vehicle (must like a partnership) that is not taxed at the company level and must dividend at least 90% of their taxable income to their shareholders. REOCs are Corporations and are taxed like any other corporation and have no mandatory dividend distribution requirements.
I created GLMFB to track what is considered to be the twenty or so "best of the best" REITs. The Blue Chip so to speak.
As many of you are aware REITs have had some excellent returns over the past two to three years and on a rolling ten year basis compete on a par with the S&P500 on a total return basis with much lower volatility and risk.
If anyone has any questions on REIT investing I would be happy to participate as best I can in this forum to answer questions and perhaps stir up some debate.
Many asset allocation gurus are currently suggesting some portion of a person's portfolio be invested in Real Estate Stocks with allocations ranging from 5-25% or even more.
I look forward to hearing from interested fellow investors and wish you all success in your REIT/REOC investments.
glang |
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| AUTHOR:
pantom |
RANK:
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DATE:
May 12, 2002 |
| PAST
RANK: |
Hello there.
In real life, I've been in Summit Apartments (SMT) on and off for the past 10 years. Currently have it in an account I'm managing for my mother-in-law, whose interested in the income as she's retired. It's been a bit rocky lately because of the economy. They also had a development going right by Hartsfied in Atlanta when 9/11 occurred, which didn't help.
Anyway, I heard two good things about Vornado today. In Barron's, there was a blurb about it from Merrill Lynch saying that rents in Manhattan office buildings were rising 50%. Just above it was another paragraph concerning Mack-Cali, which has office buildings in NJ, and it was saying that the NJ office market was softening. I find it odd that NJ could be softening while Manhattan is skyrocketing.
Do you own these? Are these things true in your opinion? |
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| AUTHOR:
glang |
RANK:
Top Quartile |
DATE:
May 12, 2002 |
| PAST
RANK: |
No, I do not currently own either SMT or VNO. Both the Multi-Family and CBD Office asset classes have lagged all of the rest of the REITs since 9/11 and ytd 2002.
Multi-Family universally has suffered from a lack of demand, higher vacancy numbers, and lower rental income. Lack of job creation, lower interest rates which have allowed former renters the opportunity to jump to home-ownership, and renters doubling up or returning to live with parents have all added to the problem. SMT is also known for their higher-end prestige apartment communities and has been the first to suffer along with Post Properties and others. They will all try to maintain their dividends during this downturn and for the most part are expecting things to improve in late 2002 and 2003.
Vornado is a well respected owner of CBD office in NYC and Washington DC - both very good markets which probably stand out as the strongest in the USA since 9/11. In my opinion I do not see another 50% growth in rental rates - they may have seen this in the past year or so - but I do not think it will continue into the future. VNO also owns a number of shopping centers (not malls) throughout the NorthEast. Most analysts are quite high on VNO future prospects.
To trade your SMT for VNO would be to go from an 8.4% to a 6% yield. I, personally, would not have all of my eggs in either basket. Perhaps consider diversifying into some of the other asset classes such as Industrial or Regional Malls. Or look into some of the many Real Estate Mutual Funds or Closed End Funds which should give you a yield in the 6-7% range and better diversification.
I encourage you to do your own due diligence and select the alternative that allows you (and your mother-in-law) to sleep best at night.
FWIW, REITs have had a good run the past three years: as measured by the Morgan Stanley REIT Index they were up 26.8% in 2000, 12.8% in 2001, and 6.9% ytd 2002. They currently have an average yield of about 6.5%. I do not expect much additional growth in market pricing during 2002 but the remaining income component should bring the total return for 2002 to between 10% and 12%.
I know I have not answered your question directly, but perhaps have stimulated some thought in your and other readers minds.
Sincerely -
gclang
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| AUTHOR:
jpsmith |
RANK:
Top Quartile |
DATE:
May 13, 2002 |
PAST
RANK:  |
| I am just curious, what are the REOC leaders in your opinion? |
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| AUTHOR:
glang |
RANK:
Top Quartile |
DATE:
May 16, 2002 |
| PAST
RANK: |
jpsmith -
Most of the REOCs that I follow and am aware of fall into one of two categories:
Large landholders who are using the land to develop, farm, harvest, or sell off.
Among the ones I follow here are:
CDX - Cattellus Development - a large land owner of former rail properties in California - a large developer of big projects in San Francisco, Los Angeles, San Diego, etc.
DEL - Deltic Timber Corporation - a timber company
FCE/A - Forest City Development - a developer and owner of shopping centers, office buildings, etc.
JOE - St Joe Company - a developer and land owner in Florida
TRC - Tejon Ranch Company - a timber and agricultural company.
The second type of REOC are some of the larger Hotel Companies who have chosen to not use the REIT form
Two examples are:
HOT - Starwood Hotel Company, and
LQI - La Quinta Hotel Company
These represent two totally different segments of the hotel industry, both were previously REITs, but have chosen to become C-Corps to better manage their balance sheet and growth opportunities.
These REOCs are all investments in real estate, but tend to be much more actively involved in the underlying businesses that the real estate serves and can operate more effectively as REOCs as opposed to REITs.
Hopes this helps -
glang |
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| AUTHOR:
pantom |
RANK:
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DATE:
May 16, 2002 |
| PAST
RANK: |
Thanks for the response. That was excellent.
Re the M-I-L: Not to worry. I took half out and put it in SPH earlier this year, which is an energy MLP with a comparable dividend. This way I have her in two different industries, and both stocks have a good record of increasing dividends over time, although SPH is a bit higher risk because they haven't been around too long.
However, she does have a CD coming due one of these years, and unless interest rates move up sharply over the next couple of years, I'll have to put that somewhere where she could make a return similar to the 6% she's making there. At that time VNO just might be the ticket.
Didn't see anything there about Mack-Cali though. Any thoughts on that? And on office REITs in general? I always thought they were higher risk than a multi-family. Also, the self-storage area, which looks extremely safe. Any ideas on that area? In my virtual portfolio here, I have SSS, just to get you started. |
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| AUTHOR:
glang |
RANK:
Top Quartile |
DATE:
May 17, 2002 |
| PAST
RANK: |
pantom -
CLI is a good regional office REIT. They had spread their wings into the SouthWest US but are now pulling back into their longtime backyard of NE US - with the predominant share of their properties in NewJersey. They have benefited somewhat with displaced NYC renters - and some will stay permanently - they build quality products for quality tenants. They have a good balance sheet - long term (average over five years) leases with matching debt maturities. They build rental increases into their rent structure and watch their expenses. Current dividend yields about 7.4%.
The general negative on office REITs is that they are quite sensitive to economic cycles. Many are currently seeing higher vacancies, lower rental rates, and shorter lease terms. Everytime a space is vacated it costs money in downtime, plus leasing commissions and tenant improvements to lure new occupants. Also there is currently a lot of leased space that is vacant because of business contractions. These tenants are looking for subtenants at less than market rates and are real competition to the landlord's leasing efforts. It takes two to three years to build a good office building - because of this it is hard for the developers to "time" their properties coming on line and often they further disrupt an already bad market by adding a lot of unneeded space at the exact wrong time.
Because office cycles differ by geography and SIC code, many REIT investors prefer to go with the National Firms such as EOP or BXP.
You are right, Storage REITs are an interesting play. The trouble is that there aren't too many of them. Publice Storage (PSA) is probably the biggest and most well known. It yields only about 5% though, but has shown good growth. Storage USA (SUS) was recently bought out by Security Capital (SCZ) which was just this week bought out and taken private by GE Capital.
Some investors looking more for income than growth look at "Triple Net Lease" REITs. There are only a few of these, but they pay a good yield, have long term leases where the tenant pays virtually all costs, and usually have high quality credit tenants. The biggest negative can be some of the credit risks, such as K-Mart currently. Three of the better known "Triple Net" REITs are Realty Income (O) yielding 6.8% (pays monthly), Commercial Net Lease (NNN) yielding 8.3%, and Lexington Properties (LXP) yielding 8.4%. These REITs, as do most REITs, usually are able to increase their dividend on an annual basis.
Hope this helps.
glang |
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| AUTHOR:
jpsmith |
RANK:
Top Quartile |
DATE:
May 19, 2002 |
| PAST
RANK: |
| Thanks, I appreciate your reply. Its great to be able to learn from people who have an expertise in their area of investment and to not have to worry about someone who is bullshitting me just to sound smart. |
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| AUTHOR:
kdressel |
RANK:
Top Quartile |
DATE:
Jun 12, 2002 |
| PAST
RANK: |
Buy hotels, they are cheap now, FCH, LHO, WXH. |
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| AUTHOR:
glang |
RANK:
Top Quartile |
DATE:
Jun 14, 2002 |
| PAST
RANK: |
Hotel REITs and REOCs
True, Hotel REITs are "cheap" now, they are still down over 50% from a year ago (pre 9/11), and they are up ytd 17% as a sector. They have a ways to go, however, to achieve pre 9/11 occupancy and room rates, known in the industry as REVPAR (Revenue per available room or Average Daily Rate (ADR) times occupancy.)
Other REIT, REOCs to watch are HMT, HOT, HPT, MHX, LQI, RFS, and ENNS.
Most of these have reduced (or temporarily eliminated their dividend) because of post 9/11 earnings levels. Look for signs of renewed dividend levels indicating their return to profitability.
glang |
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