REITS no longer cheap

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat Oct 05, 2019 11:10 am

hard to read but the greenstreet report seems to suggest that the latest data point for reits valuation relative to nav has remained at 11.3% premium
https://www.greenstreetadvisors.com/insights/avgpremnav
RIP Mr. Bogle.

garlandwhizzer
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Re: REITS no longer cheap

Post by garlandwhizzer » Sat Oct 05, 2019 1:53 pm

I agree with grok87 that REITS current valuations are generous which implies reduced expected long term returns. The same however can be said currently to some degree for stocks and especially for bonds which are hovering at their lowest yields, that is to say highest valuations, in history. Treasury 10 year bonds currently yield less than inflation. I believe the spike in REIT prices which has driven them to the 11.3% premium to NAV is largely driven by yield hungry investors who are anticipating FED action to lower short term rates in the near future. Some analysts think the FED is on the road back to zero yields which if a recession occurs appears likely. This would make other income producing securities including longer term bonds and REITS more valuable for those seeking income. Long term however, how much you pay for a property--or a stock or a bond for that matter--has a lot to do with how much profit it is expected to generate in the long run. We live in an age where there is a savings glut heavily concentrated in the investing class that exceeds available great investment opportunities. Hence all assets are generously valued, some more than others.

Garland Whizzer

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grok87
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Re: REITS no longer cheap

Post by grok87 » Sat Oct 05, 2019 7:09 pm

garlandwhizzer wrote:
Sat Oct 05, 2019 1:53 pm
I agree with grok87 that REITS current valuations are generous which implies reduced expected long term returns. The same however can be said currently to some degree for stocks and especially for bonds which are hovering at their lowest yields, that is to say highest valuations, in history. Treasury 10 year bonds currently yield less than inflation. I believe the spike in REIT prices which has driven them to the 11.3% premium to NAV is largely driven by yield hungry investors who are anticipating FED action to lower short term rates in the near future. Some analysts think the FED is on the road back to zero yields which if a recession occurs appears likely. This would make other income producing securities including longer term bonds and REITS more valuable for those seeking income. Long term however, how much you pay for a property--or a stock or a bond for that matter--has a lot to do with how much profit it is expected to generate in the long run. We live in an age where there is a savings glut heavily concentrated in the investing class that exceeds available great investment opportunities. Hence all assets are generously valued, some more than others.

Garland Whizzer
Good post
RIP Mr. Bogle.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Thu Nov 07, 2019 8:46 am

Link in op now shows 12.3% Premium to nav
RIP Mr. Bogle.

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abuss368
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Re: REITS no longer cheap

Post by abuss368 » Thu Nov 07, 2019 8:50 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 have read a few articles on this trend. It appears that more institutional investors are moving in the REIT direction and for good reason. The REIT market overall is growing both domestically and across the globe as a preferred and ideal way to invest in real estate.
John C. Bogle: "Simplicity is the master key to financial success."

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abuss368
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Re: REITS no longer cheap

Post by abuss368 » Thu Nov 07, 2019 8:52 am

grok87 wrote:
Thu Nov 07, 2019 8:46 am
Link in op now shows 12.3% Premium to nav
Interesting. I try to tune out the market noise and keep our desired allocation to REITs (which is approximately 30% of equity between Vanguard US and Vanguard International REIT index funds). Essentially following a David Swensen recommend allocation.

REITs have been on an upswing the for the year. Perhaps investors are looking for the higher yield that REITs offer as interest rates are being cut by the Federal Reserve and lowered by the market.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: REITS no longer cheap

Post by packer16 » Thu Nov 07, 2019 7:36 pm

One aspect that gets lost when looking at REITs as group is they are hybrids of real estate and other leased property and bonds of their lessors. NNN lease REITs are closest to bonds as they have long term leases whose value is based upon the healthiness of the lessors (like bonds). Some of the newer REITs are actually computer hosting and tower leasing firms so REITs have branched out from traditional real estate.

Packer
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grok87
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Re: REITS no longer cheap

Post by grok87 » Thu Nov 07, 2019 7:52 pm

abuss368 wrote:
Thu Nov 07, 2019 8:52 am
grok87 wrote:
Thu Nov 07, 2019 8:46 am
Link in op now shows 12.3% Premium to nav
Interesting. I try to tune out the market noise and keep our desired allocation to REITs (which is approximately 30% of equity between Vanguard US and Vanguard International REIT index funds). Essentially following a David Swensen recommend allocation.

REITs have been on an upswing the for the year. Perhaps investors are looking for the higher yield that REITs offer as interest rates are being cut by the Federal Reserve and lowered by the market.
agree
RIP Mr. Bogle.

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grok87
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Re: REITS no longer cheap

Post by grok87 » Thu Nov 07, 2019 7:52 pm

packer16 wrote:
Thu Nov 07, 2019 7:36 pm
One aspect that gets lost when looking at REITs as group is they are hybrids of real estate and other leased property and bonds of their lessors.
Packer
not really following that...
RIP Mr. Bogle.

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packer16
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Re: REITS no longer cheap

Post by packer16 » Thu Nov 07, 2019 9:36 pm

The bond aspect of real estate is present when there are long term leases (10 year plus) the real estate aspect is when the leases/rentals or shorter term. The value of the long term leased real estate is the maximum of the cash flows from the leases (the bonds) or the value of the real estate to others.

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Re: REITS no longer cheap

Post by abuss368 » Thu Nov 07, 2019 10:24 pm

grok87 wrote:
Thu Nov 07, 2019 7:52 pm
packer16 wrote:
Thu Nov 07, 2019 7:36 pm
One aspect that gets lost when looking at REITs as group is they are hybrids of real estate and other leased property and bonds of their lessors.
Packer
not really following that...
I agree. When reading the excellent book "Investing in REITs" by Ralph Block I came away with an entirely different perspective.
John C. Bogle: "Simplicity is the master key to financial success."

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abuss368
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Re: REITS no longer cheap

Post by abuss368 » Thu Nov 07, 2019 10:25 pm

packer16 wrote:
Thu Nov 07, 2019 9:36 pm
The bond aspect of real estate is present when there are long term leases (10 year plus) the real estate aspect is when the leases/rentals or shorter term. The value of the long term leased real estate is the maximum of the cash flows from the leases (the bonds) or the value of the real estate to others.

Packer
I do not consider any aspect of real estate or REITs to be "bond like". This at times is raised and I feel it is a mistake to confuse the two as the risks will show up during periods of market trauma.
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 » Fri Nov 08, 2019 6:42 am

packer16 wrote:
Thu Nov 07, 2019 9:36 pm
The bond aspect of real estate is present when there are long term leases (10 year plus) the real estate aspect is when the leases/rentals or shorter term. The value of the long term leased real estate is the maximum of the cash flows from the leases (the bonds) or the value of the real estate to others.

Packer
thanks. i get your point now.
not to be pedantic but i think swensen says that direct real estate is a hybrid asset class between EQUITIES and bonds. he argues similar to you that the long term leases are bond like but says the shorter term rentals/leases you mention are stock like (hotel rooms etc.)

the implication is that direct real estate returns should be some sort of average of stock and bond returns.

turning to reits, i think one of the main differences is that they employ leverage. i'm not exactly sure how that changes things theoretically. in practice i think it makes them more volatile and perhaps gives them a higher return.

looking at the past 3 years, what i could easily get for tiaa real estate account QREARX (direct real estate)

QREARX: 5.07% 3 year CAGR
bond index: 3.43%
total stock index: 14.17%
reits: 9.75%
RIP Mr. Bogle.

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packer16
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Re: REITS no longer cheap

Post by packer16 » Fri Nov 08, 2019 1:19 pm

abuss368 wrote:
Thu Nov 07, 2019 10:25 pm
packer16 wrote:
Thu Nov 07, 2019 9:36 pm
The bond aspect of real estate is present when there are long term leases (10 year plus) the real estate aspect is when the leases/rentals or shorter term. The value of the long term leased real estate is the maximum of the cash flows from the leases (the bonds) or the value of the real estate to others.

Packer
I do not consider any aspect of real estate or REITs to be "bond like". This at times is raised and I feel it is a mistake to confuse the two as the risks will show up during periods of market trauma.
When you look at where the cash flows & the priority with which they are paid they are the same cash flows bond holders would get from tenants. So although they are not labeled as "bonds" they are the same cash flows so in my book they are bond-like. Now the bond-like cash flows are from long-term leases that typically have fixed or CPI-based rent increase, so in fact you have TIPS which have an upside option associated with the real estate. As to market trauma, NNN lease firms (O & NNN) recovered their full values with a year or two of 2008 when that shock happened.

Packer
Buy cheap and something good might happen

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