[chilly]

Hi all,

Based on the real estate downturn in the US for the past few years, do you see buying US REITs as an opportunity to cash in on low valuations? Bear in mind this would be for the long term, so the rationale would be the expectation that REIT prices would gradually increase.

As an example: Vanguard REIT ETF:
http://www.google.com/finance?chdnp...4449&chls=IntervalBasedLine&q=NYSE:VNQ&ntsp=0

I'd be interested in hearing your points of view on this.

Cheers!

 

[leslie]

You have started with the presumption that values are now low. I don't agree with that. I would not touch an REIT etf : too many dogs among the possible gems.

I own specific REIT pref shares on businesses whose tenants are health care providers that are unlikely to leave because of clustering effects and high leasehold improvements required.

 

[HaroldCrump]

I own specific REIT pref shares on businesses whose tenants are health care providers that are unlikely to leave because of clustering effects and high leasehold improvements required.

REIT pref. shares make sense since they'll need to stop all normal distributions before they can touch the prefs.
Care you share any of the names/tickers?

Thanks

 

[chilly]

You have started with the presumption that values are now low. I don't agree with that.

I guess that's exactly my question. Is that presumption correct or incorrect? And if it is incorrect, could you explain how one comes to that conclusion? I'm trying to enhance my knowledge in the area.

Thanks!

 

[ssimps]

You have started with the presumption that values are now low. I don't agree with that. I would not touch an REIT etf : too many dogs among the possible gems.

I own specific REIT pref shares on businesses whose tenants are health care providers that are unlikely to leave because of clustering effects and high leasehold improvements required.

I think for 'you' what you are saying is likely true and you are doing very well with your approach ,but for many of us picking the gems from the dogs is not so obvious.

That is the value of indexed ETFs, even REIT ones is it not? It allows someone to get into an area of investment that does not have a high level of knowledge or large amount of time to number crunch without having to cherry pick a few stocks and ending up possibly getting really burned (or maybe get really fortunate I guess).

For the average investor it makes it much more of a gamble to pick a few stocks than buy into an index ETF that may have gems and dogs, but hopefully the gems end up shining though.

If the majority of fund managers can't match or beat an index, what is saying the majority of us on the forum can?

I'm not trying to be rude or take away from all the great advise you do give on this forum here, but if you're going to make a statement like the above, then giving some specific examples of gems and dogs as you see them and why, would really help. This is what would help us really learn.

Otherwise you may be steering people into stock picking (even though I doubt that is your intention) when they/we are not really yet capable of doing it at our stage of knowledge, or given the amount of time we have to review financial statements (a day, a week).

Maybe I'm off base here, so please correct me if if I am. I'm always up for constructive criticism.

Thanks leslie.

 

[Berubeland]

After years and years of dealing with property accountants I can assure that most REITS are definitely over valued.

The most difficult thing to do is to get an accountant to disappear money even if it doesn't really exist.

For instance the tenant doesn't pay rent ($1000) so this becomes an accounts receivable which is considered an asset.

So lets say for instance like in my last building there are accounts receivable of $150,000 for 5 years. This is dead money, it makes the business look profitable but we collected historically over years about 18% of that money and we had to pay the collection agency 30% of that. So if you run the numbers your $150,000 in accounts receivables is worth $16,200.

After 6 years this account is not collectable.

Is this ever adjusted? I doubt it. I tried being in the collections department to get errors corrected and it was practically impossible.

So I'm not an accountant but this would be one way to cook the books in real estate. You have a huge asset of accounts receivable that never gets adjusted to reality value.

 

[ssimps]

After years and years of dealing with property accountants I can assure that most REITS are definitely over valued.

I'd suggest that, at least in many or most Canadian cities, real-estate itself is again over valued, not just Canadian REITs.

Real-estate or REITs in other countries I have no idea / opinion about because I am totally 'ignorant' about them.

It almost seems to me that the way things are going we are setting ourselves up from another crash, not because of hidden / fake paper values being sold and resold and repackaged globally, but because of ultra-low interest rates and greedy banks convincing people that they can take on more debt than they really should or can.

We are so 'proud' of our Canadian banks and how well they have held up relative to other countries, making billions of dollars even during the worst year in a generation or two. All this money they are making is coming from somewhere; from the average Canadian I would guess. Maybe the crash will be more localized and not as global next time around though.

I'm starting to ramble again.

 

[HaroldCrump]

I can't wait for interest rates to rise, hopefully aggressively.
It will control the rampant rise in real estate prices (it is ridicolous what particle wood, cookie-cutter houses are selling for these days) and will hopefully control the rampant inflation as well.
It will put an end to the parasites of society that are fattening their bellies by flipping houses every 10 months and force them to get a real job and do a day of honest hard work.
More reasonable REIT valuation will hopefully be a side effect of all that.

 

[leslie]

"Care you share any of the names?" No. I want people to read my arguments, not my conclusions. If you want to know how I analyze REITs I gave a link a few weeks ago to my analysis of Riocan. You did not say how you reached your presumption of 'cheapness'. Was it simply because the stock price is now lower? Do you understand that that is NEVER a measure of cheapness? Discussion

"Is that presumption correct or incorrect". The point is that it is a PREsumption. Valuations can only be assessed as the conclusion of an analysis. You don't go into the analysis with a fore-gone state of mind.

"How (does) one come to that (cheapness) conclusion?" Getting data on the industry group is next to impossible. It is for this reason, that passive indexers should stick to the broad-large-cap-market ETFs. The subgroups are essentially black boxes.

You have to look at the individual stock components of the index starting with the largest. So if you lack the skills to do company analysis and form you own conclusions, then you should not be using sub-index ETFs. Personally, my valuation of REITs is at complete odds with the market's. I don't 'ignore that metric because that is not how REITs are valued" according to the talking heads. But someone else's analysis may be completely different.

"Picking the gems from the dogs is not so obvious. That is the value of indexed ETFs, even REIT ones is it not?" You misrepresent my position. I wholeheartedly support large-index passive indexing for investors with no interest or skills or time to pick stocks. Discussion

* But indexing is not the only strategy.
* It is not the 'best' strategy.
* I believe active management adds value because
1) I have proven it to myself over a life of investing and
2) I have seen no arguments to prove otherwise that actually argue the point instead of a separate issue and
3) I monitor trust accounts for some friends, and these active accounts have done better than the index over long periods of time (maybe because they cannot be moved, nor must the managers report results publically).
* Not everyone does not enjoy the stock-picking game. Not everyone cannot be bothered to learn to read financials. Not everyone does not understand the basics of macro-economics. Etc.

The point I did make was that this particular sub-index has more dogs than stars (IMO). Why would you want to diversify among dogs? The point of investing is to try to make money.

"You may be steering people into stock picking when they/we are not really yet capable." This thread is about sector picking, not stock picking. Sector picking is more basic than stock picking. Yet it was I that advised against it where the OP had done no analysis beyond a presumption. It is Simps that is advising the OP to invest where no work was done. Seems to me this thread proves the opposite.

 

[chilly]

Good and valuable advice given by all here.

The point is that it is a PREsumption. Valuations can only be assessed as the conclusion of an analysis. You don't go into the analysis with a fore-gone state of mind.

I agree with you. However I don't think it's necessarily wrong to word a question in that way, and it shouldn't compromise the analysis. In this instance, "Are REITs under-valued?" can be answered through analysis. It's akin to formulating a hypothesis and proving or disproving it.

This thread is about sector picking, not stock picking. Sector picking is more basic than stock picking. Yet it was I that advised against it where the OP had done no analysis beyond a presumption. It is Simps that is advising the OP to invest where no work was done. Seems to me this thread proves the opposite.

Just to clarify, I wasn't asking for stock or ETF picks without doing any grunt work myself. If that's the impression that came across, I apologize. I get the sense that my questions weren't well received due to the fact that I hadn't done a complete prior analysis before posting. Fine - but I didn't realize that that was a pre-requisite. Although I have limited time to do so, and less skill and experience than some of you here have, I am capable of making investment decisions. At the same time, I appreciate the ability to use this forum as a sounding board for ideas...

 

[ssimps]

First let me say that based on your reply I feel you have taken points raised here, mine mainly maybe, completely wrong. I guess you are saying we are the ones taking your statements wrong.

Again, as I originally posted, I mean no offence to you and I value the input you do give greatly; however I also feel that, if you wanted to, you could help us learn even more. If you do not want to that is of course your choice and I would not hold it against you. It takes time to really teach something to someone with less knowledge than yourself.

then giving some specific examples of gems and dogs as you see them and why, would really help. This is what would help us really learn.

[my underlying]

This was the main point I was try to make; that stating there a gems and dogs (at any level) is not really helping anyone learn. Is it? You did state that you owned (therefore picked) some specific pref shares in the REIT sector. I presumed you believe this to be the gems.

If you gave some examples of what 'you' consider gems and dogs and 'why you' consider them that (i.e. the process you went through to come to this conclusion at this point in time), this would help us actually learn much more. I care less about the 'ticker symbols' and much more about the why and process part of this. I am not asking to be handed your super portfolio on a silver platter. I am asking if you can help us learn the knowledge you accumulated over 'many years' so we can make better decisions on our own.

Saying 'learn how to read financial statements' like some posters repeatedly state (I am not saying you specifically say this), is like saying 'learn how to read' but with no help actually teaching the persons the alphabet, and upwards.

It is Simps that is advising the OP to invest where no work was done. Seems to me this thread proves the opposite.

I don't see where I suggested any such thing. What I suggested if that a person has little to no knowledge of an investment area and does not have the time or ability to do 'the work' but still wants to invest into that area, then index ETFs would be my suggestion over picking individual stocks, or pref shares as you mentioned.

You mention that index investing is a good way, but not the best way to invest and give reasons why. Again, my point is that for 'you' this may very well be true given the years you have had to learn and what you know. I do not think this is true for every person reading this forum though at this point of time, because it assumes we all know what you do and have the experience you do.

We do not; maybe, with the help of people like you, we will though.

Part of index investing and the idea of passive investing in general is to try not to 'time ' the markets too much, and instead invest regularly over time, with the idea that the cost averaging will work itself out in the end. It is clear that you do not need to follow such a simple approach, but for many of us, it is the best we can do while we take the time that we can spend learning about investing and enhance our understanding.

Again, I am sorry if my post offended you.

To give direct opinion to the OP question, I think Canadian REITs are over valued right now, I have no idea about US or other country REITs. Should that stop you from buying if your plan is to hold long term; that is for you to decide. If I was going to buy into REITs, I would buy a REIT ETF and stagger the purchases over the next 6 - 12 months, because I do not have the time or knowledge at this point to pick individual pref shares in the area.

 

[ssimps]

leslie,

I just saw the link to your main website from the 'What to do now' thread.

http://members.shaw.ca/RetailInvestor/index.html

Your website appears to be exactly what I was asking you for help with, learning the process and thinking needed to make good investment decisions. I THANK YOU for it; it seems to be a breath of fresh air. If anyone should have a link on their signature, it should be you to your site!.

I am going to study it. I am sorry I did not know it existed in its completeness before otherwise I would not have been trying to make the point I was in my last post. You have likely made reference to your site or subsections of it several times, maybe some before I joined a month ago or so, but in my rush to fit things in I can be known to skim.

I'm sure as I have time to read your site, some questions will arise.

Thanks again. Sincerely.

 

[furgy]

Hi all,

Based on the real estate downturn in the US for the past few years, do you see buying US REITs as an opportunity to cash in on low valuations? Bear in mind this would be for the long term, so the rationale would be the expectation that REIT prices would gradually increase.

As an example: Vanguard REIT ETF:
http://www.google.com/finance?chdnp...4449&chls=IntervalBasedLine&q=NYSE:VNQ&ntsp=0

I'd be interested in hearing your points of view on this.

Cheers!

Do you already invest in REITs and if so is there a reason you are looking at US rather than Canadian REITs?

I don't invest in ETFs so I wont comment on them except to say that I keep an eye on a few and my individual REIT picks outperform them as far as didtributions go , some small cap REITs can be a little more volatile and illiquid than ETFs though.

I invest in small cap REITs only , they tend to pay out much better than the large caps , something that to me is worth the extra risk.

A lot of REITs offer a 3% bonus for those who DRIP , coupled with an already attractive distribution , that can add up in a hurry.

I think canadian REITs are pretty fairly priced right now , and as Canadian real estate has held up better than the US (so far), but REIT prices fell along with the market during this latest crash , I think Canadian REITs are a great opportunity.

Most REITs have cut their distributions dramatically and are at all time lows , as the market comes back and unit prices recover ,(most of mine are up 20-30% from just a few months ago when I averaged down) , I expect those distributions to increase , driving up my return on investment , (already at 16%+).

Also remember that there are different sectors in REITs themselves , hotel REITs and REITs supplying some services , will not be able to retain their REIT status come 2011.

Some will still be profitable and continue to pay out well though.

There is also a big disconnect between residential and commercial/industrial property , when most people think real estate markets , they are thinking about residential markets , commercial /industrial real estate can be much harder to asess a proper value on as it trades less frequently in general , but I feel it has held up well in Canada with less volatility than the residential market.

Most of my REITs are in that sector , and most have occupancy rates of 95% or better with long term leases in place.

Also look at REITs tennants and lease terms , long term leases and big name tennants , goverment contracts , etc are good for a REITs stability.

5 months ago was the time to get into REITs , but now is still good in my opinion , with interest rates still low for who knows how long , bonds not yeilding like they used to , housing market volatile , and most income funds up in the air due to the new tax laws , I think people are moving to REITs in a big way for the returns.

The increase in my REIT holdings tend to indicate such , or could it be that they are just moving up with a bull market in general.

I'm betting big time on REITs.