GreatOdinsRaven wrote: ↑
Mon Aug 06, 2018 10:42 am
I was just reading a recent Verdad piece on
“The Long Lasting Value Of Real Estate. https://mailchi.mp/verdadcap/the-lastin ... 199b14d48d
It’s an interesting article that discusses the performance of public REITs relative to private REITS, large-caps, small-caps and SCV.
Near the end the author states that public REITs are trading at a discount to net asset value
Is that a true statement? If so, is the Vanguard REIT index fund trading at a discount too?
From the article:
Our research suggests that together, high dividend yields, liquidity, transparency, and diversification make REITs historically better performers than their private real estate counterparts, offering investors returns comparable with those of small-cap stocks, but with lower volatility over long time horizons. Though REITs have recently underperformed, public real estate’s strong fundamentals and price discount relative to net asset value recommend a robust recovery in the coming years.
What is the date of the piece?
That number premium/ discount moves around quite a bit.
Generally the evidence is that REITs (quoted) do about as well as private LP interests in the long run, I think. Adjusting for sectoral weighting differences.*
The price is more volatile but that's not terribly relevant for the LP investor - you cannot trade the units easily.
Since, with the exception of TIAA RE annuity, individual US investors have little or no access to funds as an LP (none, effectively) it's kind of academic.
Can't remember what Swensen says (in his institutional investment book) about this?
The "private label REITs" that individual investors in the US can invest in should be treated as vials full of something very nasty. Put it down carefully and back out of the room as quickly as you can. We get lots of sad stories here.
As to small cap equities, generally. Shrug. If you think there's a plausible reason why they might continue to beat small cap, or value, then fine. I suspect valuation has something to do with it. The main thing about REITs is that they have at least a theoretically higher correlation with inflation than stocks - so they should convey greater inflation protection (rises in real interest rates arising from tighter Central Bank policy should, however, have the opposite effect, so you are betting the Fed lags on inflation a la the 1970s ie "behind the curve" not "ahead of the curve").
* if we are Blackstone, we buy Equity Office Properties (take private transaction), the largest quoted REIT, and pre wire the sale of assets. The numbers were something like Harry Macklin bought $6bn of Manhattan offices from them with $250m of his own equity, and the rest borrowed from the banks. Despite the late cycle nature of that deal (late 2006 or H1 2007?) Blackstone made an IRR on that deal - perhaps the reason the head of Blackstone RE was subsequently promoted to CEO of the whole shebang.