Comments on: REITs: Risks and Returns http://www.canadiancapitalist.com/reits-risks-and-returns/ Helping you invest and prosper Sat, 11 Feb 2012 19:27:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: To REIT, or not to REIT http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-146592 To REIT, or not to REIT Tue, 05 Aug 2008 01:47:31 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-146592 [...] shopping malls and apartment buildings and distribute most of their income to shareholders, have risk-return characteristics different than those of stocks and bonds and thus provide valuable diversification benefits in a portfolio. But, there is a variety of [...] [...] shopping malls and apartment buildings and distribute most of their income to shareholders, have risk-return characteristics different than those of stocks and bonds and thus provide valuable diversification benefits in a portfolio. But, there is a variety of [...]

]]> By: Time to buy REITs? http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-100498 Time to buy REITs? Thu, 10 Jan 2008 01:36:06 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-100498 [...] too long ago, investors couldn’t get enough of Real Estate Investment Trusts (REITs) bidding up the asset class so much that the asset class didn’t yield much of a [...] [...] too long ago, investors couldn’t get enough of Real Estate Investment Trusts (REITs) bidding up the asset class so much that the asset class didn’t yield much of a [...]

]]> By: Fair Value of REITs http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-80460 Fair Value of REITs Wed, 14 Nov 2007 06:53:31 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-80460 [...] an earlier post on REITs, I quoted from David Swenson’s book that the price of publicly traded REITs fluctuates [...] [...] an earlier post on REITs, I quoted from David Swenson’s book that the price of publicly traded REITs fluctuates [...]

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58331 Canadian Capitalist Fri, 27 Jul 2007 00:48:19 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58331 Fair value or intrinsic value is difficult to calculate for stocks but for real estate it is simply the replacement cost of buildings plus the value of the land. Time to read RioCan annual reports to see if we can dig up something. Fair value or intrinsic value is difficult to calculate for stocks but for real estate it is simply the replacement cost of buildings plus the value of the land. Time to read RioCan annual reports to see if we can dig up something.

]]> By: Larry Anderson http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58304 Larry Anderson Thu, 26 Jul 2007 21:51:00 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58304 The most successful investor in history, Warren Buffet, calculates the intrinsic value of any security he buys. Buffet likes to buy securities at a 25 percent to intrinsic value. To be able to calculate the intrinsic value requires the ability to forecast future earnings for a company with confidence and then either discount earnings (Buffet) or cashflow (Morningstar) to arrive at intrinsic value. If you can't forecast future earnings with confidence you can't calculate intrinsic value. If you don't know what something is worth how can you determine if it is a good investment? Warren might ask, "would you buy a new car without figuring out what it was worth before negotiating the purchase?" The most successful investor in history, Warren Buffet, calculates the intrinsic value of any security he buys. Buffet likes to buy securities at a 25 percent to intrinsic value.

To be able to calculate the intrinsic value requires the ability to forecast future earnings for a company with confidence and then either discount earnings (Buffet) or cashflow (Morningstar) to arrive at intrinsic value.

If you can’t forecast future earnings with confidence you can’t calculate intrinsic value.

If you don’t know what something is worth how can you determine if it is a good investment? Warren might ask, “would you buy a new car without figuring out what it was worth before negotiating the purchase?”

]]> By: growthinvalue http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58292 growthinvalue Thu, 26 Jul 2007 19:51:57 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58292 I find one can really get bogged down in semantics when talking about "fair value" . I mean, in an allegedly free market like the one we have, isn't every security fairly valued at all times? You can jump up and down and scream about a stock being undervalued all day long, but at the end of the day, if you don't like what the market is offering, you have two options: sell for less than you think its worth, or wait it out. Being a "value investor" I generally wait it out. More often than not I'm proved right. But that said, I think the underlying principle of your post is a good one -- people tend to value real estate investments in vastly different ways over time. The fact that a REIT is worth 100% more today than it was in 2003 has as much to do with how real estate is perceived as it does with any improvement in the underlying asset's fundamentals. The exact same apartment building with the exact same tenants paying the exact same rent will look different depending on what else is going on in the world. But make no mistake, that pendulum swings back. I find one can really get bogged down in semantics when talking about “fair value” . I mean, in an allegedly free market like the one we have, isn’t every security fairly valued at all times?

You can jump up and down and scream about a stock being undervalued all day long, but at the end of the day, if you don’t like what the market is offering, you have two options: sell for less than you think its worth, or wait it out. Being a “value investor” I generally wait it out. More often than not I’m proved right.

But that said, I think the underlying principle of your post is a good one — people tend to value real estate investments in vastly different ways over time. The fact that a REIT is worth 100% more today than it was in 2003 has as much to do with how real estate is perceived as it does with any improvement in the underlying asset’s fundamentals.

The exact same apartment building with the exact same tenants paying the exact same rent will look different depending on what else is going on in the world.

But make no mistake, that pendulum swings back.

]]> By: Larry Anderson http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58264 Larry Anderson Thu, 26 Jul 2007 17:35:46 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58264 The risks and returns of Canadian REIT's vary widely depending on a number of factors, including but not limited to: the quality of the underlying real estate, the quality and diversification of the tenants, the term of the tenancy and, of course, the quality of the management. Both Standard and Poors and the Dominion Bond Rating Service provide ratings for the best REIT's, like Riocan, H.R. REIT and others. Most manjor Canadian brokerages provide research and analysis. A quality Retail REIT, like Riocan (REI.UN-T), has the benefit of having a large number of high quality national tenants with long term leases and matches their financing terms to lease terms, oftern 10 years or more with options. This is good for stability but locks in lower lease rates during rising markets. Apartment and hotel REITS allow the managers to increase rents more quickly if the market allows but in poor markets the tenants can vacate more quickly and the financial commitment of the tenants is more tenuous. More upside and less stability. In addition, REIT's are currently trading at very high prices with low yields compared to their historical prices and returns. I am a happy long term holder of Riocan and the REIT index, and I will continue to hold what I have, but I will not purchase more at these prices. Why? REIT's respond negatively to rising interest rates and I believe they are fully valued. The risks and returns of Canadian REIT’s vary widely depending on a number of factors, including but not limited to: the quality of the underlying real estate, the quality and diversification of the tenants, the term of the tenancy and, of course, the quality of the management. Both Standard and Poors and the Dominion Bond Rating Service provide ratings for the best REIT’s, like Riocan, H.R. REIT and others. Most manjor Canadian brokerages provide research and analysis.

A quality Retail REIT, like Riocan (REI.UN-T), has the benefit of having a large number of high quality national tenants with long term leases and matches their financing terms to lease terms, oftern 10 years or more with options. This is good for stability but locks in lower lease rates during rising markets.

Apartment and hotel REITS allow the managers to increase rents more quickly if the market allows but in poor markets the tenants can vacate more quickly and the financial commitment of the tenants is more tenuous. More upside and less stability.

In addition, REIT’s are currently trading at very high prices with low yields compared to their historical prices and returns.

I am a happy long term holder of Riocan and the REIT index, and I will continue to hold what I have, but I will not purchase more at these prices. Why? REIT’s respond negatively to rising interest rates and I believe they are fully valued.

]]> By: FinancialJungle.com http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58263 FinancialJungle.com Thu, 26 Jul 2007 17:34:47 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58263 If the distribution is 10% -- all of which ROC -- the ACB will fall below $0 after 10 years assuming no distribution increases. Any subsequent distributions are then taxed as capital gains with no deferral. That's my understanding. If the distribution is 10% — all of which ROC — the ACB will fall below $0 after 10 years assuming no distribution increases.

Any subsequent distributions are then taxed as capital gains with no deferral. That’s my understanding.

]]> By: FourPillars http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58257 FourPillars Thu, 26 Jul 2007 17:07:07 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58257 Congrats on having a 1000 subscribers! I'm still working on my first 100. Does anyone know Swenson's email?? Mike Congrats on having a 1000 subscribers! I’m still working on my first 100.

Does anyone know Swenson’s email??

Mike

]]> By: Phil S http://www.canadiancapitalist.com/reits-risks-and-returns/#comment-58245 Phil S Thu, 26 Jul 2007 16:07:40 +0000 http://www.canadiancapitalist.com/2007/07/25/reits-risks-and-returns#comment-58245 Hi CC. But that's exactly my point. If you hold the REIT units basically forever until you die (ie. never sell it), then for all intents and purposes, you can consider the current distributions to be tax-free for most junior REITs and maybe 50% tax free for some of the slightly older REITs. I always look at things on an after-tax basis and that's one of the reasons why I really like REITs! Especially considering that I hold Warren Buffett's philosophy of having an investment time horizon of "forever". In that case, all of the monthly distributions are tax-free or at least partially tax-free money! And in our environment of ridiculously high personal income tax rates - that's definitely a GOOD thing! =0) Hi CC. But that’s exactly my point. If you hold the REIT units basically forever until you die (ie. never sell it), then for all intents and purposes, you can consider the current distributions to be tax-free for most junior REITs and maybe 50% tax free for some of the slightly older REITs.

I always look at things on an after-tax basis and that’s one of the reasons why I really like REITs! Especially considering that I hold Warren Buffett’s philosophy of having an investment time horizon of “forever”. In that case, all of the monthly distributions are tax-free or at least partially tax-free money! And in our environment of ridiculously high personal income tax rates – that’s definitely a GOOD thing! =0)

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