REITS no longer cheap

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grok87
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REITS no longer cheap

Post by grok87 » Sat May 25, 2019 9:59 am

According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
RIP Mr. Bogle.

Tdubs
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Re: REITS no longer cheap

Post by Tdubs » Sat May 25, 2019 10:12 am

Funny, I was going to post a question about REITs and TREA too. My TIAA 403(b) is closed, but I can buy TREA through a "backdoor," an after-tax retirement annuity.

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AerialWombat
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Re: REITS no longer cheap

Post by AerialWombat » Sat May 25, 2019 10:19 am

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Last edited by AerialWombat on Sun Jun 30, 2019 8:53 am, edited 1 time in total.
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Topic Author
grok87
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Re: REITS no longer cheap

Post by grok87 » Sat May 25, 2019 12:27 pm

Tdubs wrote:
Sat May 25, 2019 10:12 am
Funny, I was going to post a question about REITs and TREA too. My TIAA 403(b) is closed, but I can buy TREA through a "backdoor," an after-tax retirement annuity.
interesting. i wonder if that's why they are raising expense ratios because they are losing 403b business
RIP Mr. Bogle.

HenrySouthernCal
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Re: REITS no longer cheap

Post by HenrySouthernCal » Sat May 25, 2019 3:24 pm

grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
What I got from other source is REIT is still traded at discount to NAV. I got this:
https://www.lazardassetmanagement.com/d ... 201403.pdf

It said REIT price is still 6% discount to NAV on April 30. VNQ price (my REIT valuation indicator) now went up by slightly under 2% from end of April, so it should still be about 4% discount.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat May 25, 2019 4:15 pm

HenrySouthernCal wrote:
Sat May 25, 2019 3:24 pm
grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
What I got from other source is REIT is still traded at discount to NAV. I got this:
https://www.lazardassetmanagement.com/d ... 201403.pdf

It said REIT price is still 6% discount to NAV on April 30. VNQ price (my REIT valuation indicator) now went up by slightly under 2% from end of April, so it should still be about 4% discount.
thanks for that source. very interesting.
wrote: "While REITs have closed some of the valuation discount to
underlying NAV due to the strong price gains of the past few
months, they are still trading at an approximate 6% discount to
NAV. While narrowed, the current discount continues the sector’s
longest continual valuation below NAV since the financial crisis.
Interestingly, the sustained discounted valuations have now brought
the 10-year average down to a 2% discount as compared to the
longer historical 2%–3% average premium. While private real estate
prices may fall prospectively, the evidence from property sales
5
continues to suggest that prices remain strong across most sectors.
The steadily growing economy, still-low levels of new construction,
lower interest rates, and solid demand for US real estate are
supporting pricing levels. "
RIP Mr. Bogle.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat Jun 29, 2019 2:28 pm

THis article in "Pensions & Investments" talks about institutional investors moving into REITs

https://www.pionline.com/print/reits-di ... -investors
"Institutional investors are rediscovering real estate investment trusts as returns and supply-demand dynamics heighten their allure for the first time since the financial crisis.

This year alone, domestic and international asset owners including the $233.9 billion California State Teachers' Retirement System; the €70 billion ($1.13 billion) Bayerische Versorgungskammer, Germany's largest public-sector pension group; and the $897 million Chicago Firemen's Annuity & Benefit Fund added REIT mandates or allocations.

Institutional investors in the U.S. have awarded six REIT mandates so far this year, up from four mandates in all of 2018, said Meredith Despins, Washington-based senior vice president, investment affairs and investor education at Nareit, citing data from Fundmap and Nareit."

Greenstreet still shows REITs trading at a 4.2% premium to the NAV of their real estate holdings. which is basically fair value.

Will be interesting to see if we get back to significant overvaluation of REITs.
RIP Mr. Bogle.

rich126
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Re: REITS no longer cheap

Post by rich126 » Sat Jun 29, 2019 2:35 pm

Not sure if this has any direct effect on reits but some areas of the country seem to be going into another round of construction craziness. Arizona and especially Scottsdale is growing rapidly. Not sure if the jobs are here to support the lofty prices.

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Re: REITS no longer cheap

Post by Sandtrap » Sat Jun 29, 2019 2:40 pm

grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
I'm not sure how much of this is relevant if the REIT (Vanguard VGSLX) allocation is a long term diversifier in a "Bogle index" portfolio. Beyond that, getting in or out is market timing. (Time in the market vs. . . . )
True?

j
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grok87
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Re: REITS no longer cheap

Post by grok87 » Sun Jun 30, 2019 7:58 am

Sandtrap wrote:
Sat Jun 29, 2019 2:40 pm
grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
I'm not sure how much of this is relevant if the REIT (Vanguard VGSLX) allocation is a long term diversifier in a "Bogle index" portfolio. Beyond that, getting in or out is market timing. (Time in the market vs. . . . )
True?

j
Agree. I have a permanent allocation to real estate. But for me the options are reits vs tiaa real estate annuity. If reits start trading at a large premium to nav I may direct new funds into the latter
RIP Mr. Bogle.

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Sandtrap
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Re: REITS no longer cheap

Post by Sandtrap » Sun Jun 30, 2019 8:01 am

grok87 wrote:
Sun Jun 30, 2019 7:58 am
Sandtrap wrote:
Sat Jun 29, 2019 2:40 pm
grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
I'm not sure how much of this is relevant if the REIT (Vanguard VGSLX) allocation is a long term diversifier in a "Bogle index" portfolio. Beyond that, getting in or out is market timing. (Time in the market vs. . . . )
True?

j
Agree. I have a permanent allocation to real estate. But for me the options are reits vs tiaa real estate annuity. If reits start trading at a large premium to nav I may direct new funds into the latter
REITs and Real Estate can be strange at times. It can be horrendiously over-valued to the point of being ridiculous, yet, flattens at best but doesn't fall for a very very long time. In fact, it can continue to rise as well.
Strange beasts these things.
j
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Re: REITS no longer cheap

Post by nedsaid » Sun Jun 30, 2019 10:28 am

grok87 wrote:
Sat Jun 29, 2019 2:28 pm
THis article in "Pensions & Investments" talks about institutional investors moving into REITs

https://www.pionline.com/print/reits-di ... -investors
"Institutional investors are rediscovering real estate investment trusts as returns and supply-demand dynamics heighten their allure for the first time since the financial crisis.

This year alone, domestic and international asset owners including the $233.9 billion California State Teachers' Retirement System; the €70 billion ($1.13 billion) Bayerische Versorgungskammer, Germany's largest public-sector pension group; and the $897 million Chicago Firemen's Annuity & Benefit Fund added REIT mandates or allocations.

Institutional investors in the U.S. have awarded six REIT mandates so far this year, up from four mandates in all of 2018, said Meredith Despins, Washington-based senior vice president, investment affairs and investor education at Nareit, citing data from Fundmap and Nareit."

Greenstreet still shows REITs trading at a 4.2% premium to the NAV of their real estate holdings. which is basically fair value.

Will be interesting to see if we get back to significant overvaluation of REITs.
I took a middle course on REITs, I was concerned about valuations and cut back my stake by 20% about 3 years ago. Larry Swedroe issued warnings that the real returns after inflation for REITs would be about 0.20% a year. I took a lot of criticism, particularly from the people who say that if you wouldn't buy something today that you should sell it. Also took criticism for market timing and for being too concerned about valuations. Others said that my 20% cut in REITs would make little difference long term. I did what I did and so far things have worked out. REITs have actually been performing well and I suspect the Institutional interest mentioned above had a lot to do with it. Haven't bought any more, just keeping what I have with the exception of dividend reinvestment in a Timber REIT.
A fool and his money are good for business.

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Re: REITS no longer cheap

Post by Sandtrap » Sun Jun 30, 2019 10:37 am

nedsaid wrote:
Sun Jun 30, 2019 10:28 am
grok87 wrote:
Sat Jun 29, 2019 2:28 pm
THis article in "Pensions & Investments" talks about institutional investors moving into REITs

https://www.pionline.com/print/reits-di ... -investors
"Institutional investors are rediscovering real estate investment trusts as returns and supply-demand dynamics heighten their allure for the first time since the financial crisis.

This year alone, domestic and international asset owners including the $233.9 billion California State Teachers' Retirement System; the €70 billion ($1.13 billion) Bayerische Versorgungskammer, Germany's largest public-sector pension group; and the $897 million Chicago Firemen's Annuity & Benefit Fund added REIT mandates or allocations.

Institutional investors in the U.S. have awarded six REIT mandates so far this year, up from four mandates in all of 2018, said Meredith Despins, Washington-based senior vice president, investment affairs and investor education at Nareit, citing data from Fundmap and Nareit."

Greenstreet still shows REITs trading at a 4.2% premium to the NAV of their real estate holdings. which is basically fair value.

Will be interesting to see if we get back to significant overvaluation of REITs.
I took a middle course on REITs, I was concerned about valuations and cut back my stake by 20% about 3 years ago. Larry Swedroe issued warnings that the real returns after inflation for REITs would be about 0.20% a year. I took a lot of criticism, particularly from the people who say that if you wouldn't buy something today that you should sell it. Also took criticism for market timing and for being too concerned about valuations. Others said that my 20% cut in REITs would make little difference long term. I did what I did and so far things have worked out. REITs have actually been performing well and I suspect the Institutional interest mentioned above had a lot to do with it. Haven't bought any more, just keeping what I have with the exception of dividend reinvestment in a Timber REIT.
How does this logic make sense?

The REIT industry itself seems to be evolving and reinventing itself exponentially. I hope, in a good way going forward.

Great article and link. Thanks for reposting it.

j :happy
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nedsaid
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Re: REITS no longer cheap

Post by nedsaid » Sun Jun 30, 2019 10:48 am

Sandtrap wrote:
Sun Jun 30, 2019 10:37 am
nedsaid wrote:
Sun Jun 30, 2019 10:28 am
grok87 wrote:
Sat Jun 29, 2019 2:28 pm
THis article in "Pensions & Investments" talks about institutional investors moving into REITs

https://www.pionline.com/print/reits-di ... -investors
"Institutional investors are rediscovering real estate investment trusts as returns and supply-demand dynamics heighten their allure for the first time since the financial crisis.

This year alone, domestic and international asset owners including the $233.9 billion California State Teachers' Retirement System; the €70 billion ($1.13 billion) Bayerische Versorgungskammer, Germany's largest public-sector pension group; and the $897 million Chicago Firemen's Annuity & Benefit Fund added REIT mandates or allocations.

Institutional investors in the U.S. have awarded six REIT mandates so far this year, up from four mandates in all of 2018, said Meredith Despins, Washington-based senior vice president, investment affairs and investor education at Nareit, citing data from Fundmap and Nareit."

Greenstreet still shows REITs trading at a 4.2% premium to the NAV of their real estate holdings. which is basically fair value.

Will be interesting to see if we get back to significant overvaluation of REITs.
I took a middle course on REITs, I was concerned about valuations and cut back my stake by 20% about 3 years ago. Larry Swedroe issued warnings that the real returns after inflation for REITs would be about 0.20% a year. I took a lot of criticism, particularly from the people who say that if you wouldn't buy something today that you should sell it. Also took criticism for market timing and for being too concerned about valuations. Others said that my 20% cut in REITs would make little difference long term. I did what I did and so far things have worked out. REITs have actually been performing well and I suspect the Institutional interest mentioned above had a lot to do with it. Haven't bought any more, just keeping what I have with the exception of dividend reinvestment in a Timber REIT.
How does this logic make sense?

The REIT industry itself seems to be evolving and reinventing itself exponentially. I hope, in a good way going forward.

Great article and link. Thanks for reposting it.

j :happy
My view is that there is a middle ground. REITs were pretty expensive and I cut back 20% and decided not to buy more. I kept what remained because I wanted REITs as an inflation hedge and also because I had seen an article that REITs traded at a discount to the underlying real estate prices. Another part of my thinking was that I could be wrong about the future prospects for REITs. As you said above, the industry is evolving and reinventing itself.

Actually I do believe something can be expensive enough that you don't want more but not so expensive that you want to sell it. Lots of folks face this with their own home if they live in a region that has seen real estate prices zoom. It would seem silly to put your home on the market just because you wouldn't buy it at current prices. I am not one of these "all or nothing" thinkers.
A fool and his money are good for business.

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Re: REITS no longer cheap

Post by am » Sun Jun 30, 2019 11:44 am

Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.

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Re: REITS no longer cheap

Post by JoMoney » Sun Jun 30, 2019 11:56 am

I've been playing with the BlackRock tool for modeling their "expected returns" for various asset classes

If you look at the lower bound projections on their error bars, U.S. Real Estate, Long-Term Treasuries, and Emerging Market Equities were the only major asset classes that showed potential negative returns going out even to 25 years.

Definitely a risky play.
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Re: REITS no longer cheap

Post by abuss368 » Sun Jun 30, 2019 12:23 pm

REITs are evolving and spreading across the globe. Many countries now have REITs or close to having them. A year or so ago real estate was carved out of the financial class in the S&P and given its own home. That says a lot.
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Re: REITS no longer cheap

Post by abuss368 » Sun Jun 30, 2019 1:10 pm

am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by abuss368 » Sun Jun 30, 2019 1:12 pm

JoMoney wrote:
Sun Jun 30, 2019 11:56 am
I've been playing with the BlackRock tool for modeling their "expected returns" for various asset classes

If you look at the lower bound projections on their error bars, U.S. Real Estate, Long-Term Treasuries, and Emerging Market Equities were the only major asset classes that showed potential negative returns going out even to 25 years.

Definitely a risky play.
Image
When I read about REIT folks such as Sam Zell bailing on REITs (never will happen) then I’ll think twice.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by packer16 » Sun Jun 30, 2019 1:28 pm

The cheapness of REITs is more dependent upon interest rates vs. discount to NAV. If you think interest rates will go the way of Japan and the EU, then real estate is cheap. The cap rates are justifiably below the US given lower interest rates.

The Lazard piece of research has an average FFO yield of 180bp in excess of the BBB bond rate. BBB bonds have declined from 4.7% to 3.6% since the beginning of the year which would correspond to a FFO yields of 6.5% (15.4x FFO multiple) to 5.4% (18.5x FFO multiple) or an increase in value of about 20% since the beginning of the year. Real estate appears fairly valued given current interest rates but cheap if rates continue to decline.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sun Jun 30, 2019 3:32 pm

packer16 wrote:
Sun Jun 30, 2019 1:28 pm
The cheapness of REITs is more dependent upon interest rates vs. discount to NAV. If you think interest rates will go the way of Japan and the EU, then real estate is cheap. The cap rates are justifiably below the US given lower interest rates.

The Lazard piece of research has an average FFO yield of 180bp in excess of the BBB bond rate. BBB bonds have declined from 4.7% to 3.6% since the beginning of the year which would correspond to a FFO yields of 6.5% (15.4x FFO multiple) to 5.4% (18.5x FFO multiple) or an increase in value of about 20% since the beginning of the year. Real estate appears fairly valued given current interest rates but cheap if rates continue to decline.

Packer
interesting perspective.
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by VaR » Mon Jul 01, 2019 1:46 am

JoMoney wrote:
Sun Jun 30, 2019 11:56 am
I've been playing with the BlackRock tool for modeling their "expected returns" for various asset classes

If you look at the lower bound projections on their error bars, U.S. Real Estate, Long-Term Treasuries, and Emerging Market Equities were the only major asset classes that showed potential negative returns going out even to 25 years.

Definitely a risky play.
Image
How can Long-Term Treasurys have potential negative 25-year returns?

Does the assertion that REITS are no longer cheap imply that my REIT allocation will hit a rebalancing band soon? By my accounting it still has a ways to go...

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Re: REITS no longer cheap

Post by lazyday » Mon Jul 01, 2019 6:14 am

VaR wrote:
Mon Jul 01, 2019 1:46 am
How can Long-Term Treasurys have potential negative 25-year returns?
Maybe forced buyers, along with long term deflation?

Are any of the bond predictions from places like AQR, Blackrock, GMO, JPM, RA, etc based on good academic research? Or sensible logic?

I do like the equity predictions or commentary from RA, AQR, and GMO. Mostly seems reasonable to me and often based on research.

Early last year I briefly looked into Blackrock’s methodology for predicting equity returns. Their mix included too much future returns = past returns for my taste. I haven’t checked again to see if it changed.

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Re: REITS no longer cheap

Post by grabiner » Mon Jul 01, 2019 8:25 pm

abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
The more important issue is that the house continues to be worth exactly enough for you to live in it regardless of what happens to its value. Your standard of living doesn't change if real estate prices drop and your only real estate is your home; it does change if REIT prices drop and you are using your REIT portfolio for living expenses.
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Re: REITS no longer cheap

Post by grok87 » Wed Jul 03, 2019 6:18 am

grabiner wrote:
Mon Jul 01, 2019 8:25 pm
abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
The more important issue is that the house continues to be worth exactly enough for you to live in it regardless of what happens to its value. Your standard of living doesn't change if real estate prices drop and your only real estate is your home; it does change if REIT prices drop and you are using your REIT portfolio for living expenses.
this is broadly right but of course in the run up to the financial crisis the popular belief was that folks were using their houses like atms (through cash out refis)
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by Sandtrap » Wed Jul 03, 2019 8:20 am

grok87 wrote:
Wed Jul 03, 2019 6:18 am
grabiner wrote:
Mon Jul 01, 2019 8:25 pm
abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
The more important issue is that the house continues to be worth exactly enough for you to live in it regardless of what happens to its value. Your standard of living doesn't change if real estate prices drop and your only real estate is your home; it does change if REIT prices drop and you are using your REIT portfolio for living expenses.
this is broadly right but of course in the run up to the financial crisis the popular belief was that folks were using their houses like atms (through cash out refis)
Folks still use their home equity like ATM's, seniors in retirement with reverse mortgages, low interest HELOC checkbooks, etc.
The banks and financial institutions make it so easy, so attractive.
Like free money.

j
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Re: REITS no longer cheap

Post by abuss368 » Wed Jul 03, 2019 5:47 pm

grok87 wrote:
Wed Jul 03, 2019 6:18 am
grabiner wrote:
Mon Jul 01, 2019 8:25 pm
abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
The more important issue is that the house continues to be worth exactly enough for you to live in it regardless of what happens to its value. Your standard of living doesn't change if real estate prices drop and your only real estate is your home; it does change if REIT prices drop and you are using your REIT portfolio for living expenses.
this is broadly right but of course in the run up to the financial crisis the popular belief was that folks were using their houses like atms (through cash out refis)
House as an ATM. Crazy isn't it?
John C. Bogle: "Simplicity is the master key to financial success."

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat Aug 03, 2019 5:08 am

according to greenstreet, reits are now trading at 105.9% of the NAV of the real estate they own. versus a long term average of 102%.

https://www.greenstreetadvisors.com/insights/avgpremnav
RIP Mr. Bogle.

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welderwannabe
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Re: REITS no longer cheap

Post by welderwannabe » Sat Aug 03, 2019 8:53 am

abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
No, but one can sell it and take the cash and downsize. A very common thing for retirees to do. Therefore, while I wouldn't count it 100% towards my retirement investments, I would certainly factor it in.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: REITS no longer cheap

Post by abuss368 » Sat Aug 03, 2019 9:01 am

welderwannabe wrote:
Sat Aug 03, 2019 8:53 am
abuss368 wrote:
Sun Jun 30, 2019 1:10 pm
am wrote:
Sun Jun 30, 2019 11:44 am
Should long term multi decade investors care? I don’t use them because they’re included in the total market fund and I own a house.
I have heard the House item many times but I never agreed with that strategy. One can not rebalance a house or mortgage.
No, but one can sell it and take the cash and downsize. A very common thing for retirees to do. Therefore, while I wouldn't count it 100% towards my retirement investments, I would certainly factor it in.
If I experience that in the future I would allocate the funds to asset allocation.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by welderwannabe » Sat Aug 03, 2019 9:04 am

abuss368 wrote:
Sat Aug 03, 2019 9:01 am
If I experience that in the future I would allocate the funds to asset allocation.
Regardless, what it means is if you own a home you have a current investment in real estate. You can choose to factor it in to your plans or not.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: REITS no longer cheap

Post by abuss368 » Sat Aug 03, 2019 9:30 am

welderwannabe wrote:
Sat Aug 03, 2019 9:04 am
abuss368 wrote:
Sat Aug 03, 2019 9:01 am
If I experience that in the future I would allocate the funds to asset allocation.
Regardless, what it means is if you own a home you have a current investment in real estate. You can choose to factor it in to your plans or not.
Very true and have never doubted that. Just can’t rebalance it. Still the way to go over renting.

Thanks.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by spdoublebass » Sat Aug 03, 2019 1:01 pm

abuss368 wrote:
Sat Aug 03, 2019 9:30 am
Still the way to go over renting.

For you.
What if your Job made you move every other year? or Every year? should you buy a house each year?

Blanket statements get tricky. Everyone needs to read this forum and decide for themselves. There are great threads on the rent vs buy debate.
I'm trying to think, but nothing happens

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Re: REITS no longer cheap

Post by tibbitts » Sat Aug 03, 2019 1:26 pm

grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
I don't know the reason for the increase - wasn't the expense ratio in the .9% range fairly recently? I don't know how much of that goes for its relationship with Traditional, or if that has increased.

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Re: REITS no longer cheap

Post by grok87 » Sat Aug 03, 2019 3:18 pm

tibbitts wrote:
Sat Aug 03, 2019 1:26 pm
grok87 wrote:
Sat May 25, 2019 9:59 am
According to Greenstreet
https://www.greenstreetadvisors.com/insights/avgpremnav
REITS are now trading at 4% above the NAV of their real estate or at 104%. The long term average is 102%.
I'm not changing my asset allocation but it is something i watch. Mostly i would interpret this as a bullish signal for commercial real estate prices. There is a theory that REITs provide a leading indicator of the market.

I suppose this means i should put more money in the TIAA Real estate fund where i can get in at NAV. But they just raised their expense ratio from 0.79% to 0.83% which concerns me. It's not a big increase but why in the world are they raising expense ratios when everyone else is cutting them!?!

cheers
grok
I don't know the reason for the increase - wasn't the expense ratio in the .9% range fairly recently? I don't know how much of that goes for its relationship with Traditional, or if that has increased.
thanks. i think they are just milking the cow.
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by grok87 » Thu Sep 05, 2019 11:28 am

According to greenstreet, reits are now trading at a premium to nav of 11.9% up from 5.9% the month before
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by dh » Thu Sep 05, 2019 11:34 am

grok87 wrote:
Sat Aug 03, 2019 3:18 pm
thanks. i think they are just milking the cow.
I think you are right, Grok. I have appreciate my past TREA holding. Sadly, my system pulled the plug on any more purchases into TREA. It seems that many states are eliminating it as a potential holding. :(

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Re: REITS no longer cheap

Post by zonto » Thu Sep 05, 2019 11:35 am

US REITs have had a great year. As of yesterday's close, per Morningstar, Vanguard Real Estate Index (VGSLX) is up 30.89% YTD, as compared to 18.57% for Vanguard S&P500 Index (VFINX). Seems they've done well this year due to a generally strong broader market, being somewhat impervious to the trade war, and because of completed and expected interest rate cuts by the Fed.

Similar phenomenon on a smaller scale with foreign real estate this year. Vanguard Global Ex-US Real Estate Index (VGRLX) is up 13.45% YTD, as compared to Vanguard Total International Stock Index (VTIAX) at 9.98%.
“Diversification is about accepting good enough while missing out on great but avoiding terrible.” - Ben Carlson

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Re: REITS no longer cheap

Post by packer16 » Thu Sep 05, 2019 12:37 pm

This rate of return appears to be tracking BBB rates plus 180bp pretty closely (see post above on this methodology). Implied current cap rate of 4.97% (3.17% + 1.8%) of 20.12x vs 15.4x FFO ratio at the beginning of the year or a 30% rise in value.

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Re: REITS no longer cheap

Post by HenrySouthernCal » Fri Sep 06, 2019 12:12 am

grok87 wrote:
Thu Sep 05, 2019 11:28 am
According to greenstreet, reits are now trading at a premium to nav of 11.9% up from 5.9% the month before
The Lazard research published on Aug 17 using data of July 31st, saying REIT is cheap:
https://www.lazardassetmanagement.com/d ... 201403.pdf

The BBB corporate bond yield is now all time now and FFO multiple right at historical average of 16.3x. There is now still a large spread of implied cap rate to BBB yield, well over the 180 historical average base point.

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Re: REITS no longer cheap

Post by grok87 » Fri Sep 06, 2019 6:01 am

dh wrote:
Thu Sep 05, 2019 11:34 am
grok87 wrote:
Sat Aug 03, 2019 3:18 pm
thanks. i think they are just milking the cow.
I think you are right, Grok. I have appreciate my past TREA holding. Sadly, my system pulled the plug on any more purchases into TREA. It seems that many states are eliminating it as a potential holding. :(
Interesting
RIP Mr. Bogle.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Fri Sep 06, 2019 6:02 am

packer16 wrote:
Thu Sep 05, 2019 12:37 pm
This rate of return appears to be tracking BBB rates plus 180bp pretty closely (see post above on this methodology). Implied current cap rate of 4.97% (3.17% + 1.8%) of 20.12x vs 15.4x FFO ratio at the beginning of the year or a 30% rise in value.

Packer
Thanks
I wonder how well that approCh would work over longer time periods, like say 5 years. Doesn’t it miss the income aspect?
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by abuss368 » Fri Sep 06, 2019 6:06 am

Sandtrap wrote:
Wed Jul 03, 2019 8:20 am
Folks still use their home equity like ATM's, seniors in retirement with reverse mortgages, low interest HELOC checkbooks, etc.
The banks and financial institutions make it so easy, so attractive.
Like free money.

j
Very true indeed. Not good and the banks know it. Personally I believe the personal Balance Sheet should be deleveraging (or no debt) and not going in the direction of more leverage.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by columbia » Fri Sep 06, 2019 6:08 am

How much are REITS tied to shopping centers? (Note, I don’t mean malls.). I see a lot of retail businesses in these structures, with seemingly limited future prospects.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Fri Sep 06, 2019 6:11 am

HenrySouthernCal wrote:
Fri Sep 06, 2019 12:12 am
grok87 wrote:
Thu Sep 05, 2019 11:28 am
According to greenstreet, reits are now trading at a premium to nav of 11.9% up from 5.9% the month before
The Lazard research published on Aug 17 using data of July 31st, saying REIT is cheap:
https://www.lazardassetmanagement.com/d ... 201403.pdf

The BBB corporate bond yield is now all time now and FFO multiple right at historical average of 16.3x. There is now still a large spread of implied cap rate to BBB yield, well over the 180 historical average base point.
Thanks. If I read the Lazard report correctly it says reits were trading at a 5%ish discount to nav at the end of JULY.
RIP Mr. Bogle.

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Re: REITS no longer cheap

Post by HenrySouthernCal » Fri Sep 06, 2019 8:36 am

columbia wrote:
Fri Sep 06, 2019 6:08 am
How much are REITS tied to shopping centers? (Note, I don’t mean malls.). I see a lot of retail businesses in these structures, with seemingly limited future prospects.
According to Vanguard real estate index fund, retail sector is only 12.7% of the index:
https://investor.vanguard.com/mutual-fu ... olio/vgslx

This is the sector has dragged down the total return, but strength in industrial,storage and multi-family more than offset retail weakness.

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Re: REITS no longer cheap

Post by Sandtrap » Fri Sep 06, 2019 8:56 am

columbia wrote:
Fri Sep 06, 2019 6:08 am
How much are REITS tied to shopping centers? (Note, I don’t mean malls.). I see a lot of retail businesses in these structures, with seemingly limited future prospects.
This site gives an example of invidividual REIT's.
Per "Boglehead" focus on diversification . . . IE: Vanguard REIT Index (also avoid mortgage focused REIT's).
NAREIT Website
https://www.reit.com/

j
Wiki Bogleheads Wiki: Everything You Need to Know

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Re: REITS no longer cheap

Post by abuss368 » Fri Sep 06, 2019 11:24 am

Sandtrap wrote:
Fri Sep 06, 2019 8:56 am
columbia wrote:
Fri Sep 06, 2019 6:08 am
How much are REITS tied to shopping centers? (Note, I don’t mean malls.). I see a lot of retail businesses in these structures, with seemingly limited future prospects.
This site gives an example of invidividual REIT's.
Per "Boglehead" focus on diversification . . . IE: Vanguard REIT Index (also avoid mortgage focused REIT's).
NAREIT Website
https://www.reit.com/

j
Well said.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by packer16 » Sat Sep 07, 2019 6:39 am

One point about NAVs for REITs is they will lag changes in interest rates that drive real estate cap rates. So for example if there is large decline interest rate (like there has been this year), the public prices of the REITs will reflect the corresponding change in cap rates while the NAV will lag until the market cap rates reflect the lower interest rate. The can lead to an incorrect conclusion that REITs are overvalued but instead is the result of the lag between changes in interest rates and the cap rates of the REITs.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat Sep 07, 2019 8:36 am

packer16 wrote:
Sat Sep 07, 2019 6:39 am
One point about NAVs for REITs is they will lag changes in interest rates that drive real estate cap rates. So for example if there is large decline interest rate (like there has been this year), the public prices of the REITs will reflect the corresponding change in cap rates while the NAV will lag until the market cap rates reflect the lower interest rate. The can lead to an incorrect conclusion that REITs are overvalued but instead is the result of the lag between changes in interest rates and the cap rates of the REITs.

Packer
it's a good point.
the lazard report that HenrySouthernCal linked references the CoStar commercial [real estate] repeat sale indices.
here is a link
https://www.costargroup.com/docs/librar ... 101207a4_2
the latest report (august) has data through the end of july

the "value weighted" yoy change as of end of july is +11.5% (skewed toward larger properties)
the equal weighted yoy change is +4.7%
not sure which would be most meaningful to compare to REITs. I'm going to arbitrarily average the two = +8.1%
my understanding is that this is a "price index" only- i.e. NOT total return.

according to morningstar over that period the vanguard real estate fund (Vgsix) would have returned 12.4%
https://www.morningstar.com/funds/xnas/vgsix/quote
(i used the custom period 8/1/18 to 8/1/19)
morningstar shows the TTM yield as 3.7% so if we knock that off the 12.4% we would get 8.7% as the "price" return ex dividends.

not sure what all that shows. perhaps it supports your point that the NAV is lagging (NAV probably up only say 3%ish over this period based on the TIAA Real estate fund).
https://www.tiaa.org/public/pdf/reports ... ateQPA.pdf
(see page 7, quarterly price return as opposed to income looks like 0.875% or 3.5% annualized)
i.e. if the NAV's were truly marked to market for cap rates on all properties (as opposed to just the ones sold) then the NAV would be up say +8.1% which is comparable to the reit index ex dividends over this period at 8.7%.

anyway i'm continuing to "average" into REiTS. they are arguably less overvalued than say the S&P 500 trading at CAPE of 33-36
http://www.econ.yale.edu/~shiller/data.htm

cheers,
grok
RIP Mr. Bogle.

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