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Investing in REITs

Michael Bonn Private Investor - Israel. Investing in REITs. Finding Value for the Investment Company. July 14, 2006 – Tel Aviv.

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Investing in REITs

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  1. Michael Bonn Private Investor - Israel Investing in REITs Finding Value for the Investment Company July 14, 2006 – Tel Aviv

  2. Real estate investment trusts (REITs) are companies that own and most often actively manage income-generating commercial real estate. Some REITs make or invest in loans and other obligations that are secured by real estate collateral. Most REITs are publicly traded. Tax Status: REITs has special status: they are free of federal taxes at the corporate level if they are distributing at least 90% of their taxable income to the shareholders in the form of dividends. So, the drwback is: dividends are original and they are taxed at the highes levels (like original income). Introduction

  3. Will you find excitement in the REIT stock action? Probably, no. The REIT business model is based in great part on the value of tangible and quantifiable assets, namely large-scale commercial real estate. This characteristic is untrue of many other industries. Boredom (what?). Investment Philosophy

  4. Profitability Measure Profitability of REITs is judged according to their cash generating ability - non GAAP - measure called FFO (funds from operation). FFO differs from GAAP net income by excluding depreciation and amortization of real estate assets and gains and losses from most property sales. This is the reason why REITs dividends may be close or even exceed the net income for extending period of time. The right thing to compare payout ratio is look for the ratio of dividend to FFO.

  5. Dividend growth rates for REIT shares have outpaced inflation since 1987. Dividends

  6. Price of REIT securities may be a good hedge against inflation. REITs Price vs. Inflation

  7. Another REITs feature is low correlation with major market indexes, but low risk with good adjusted and absolute returns. Correlation with the Market

  8. Compound Total Annual Return (May 31, 2006)

  9. REITs may be of different types: equity and mortgage. Mortgage: • Residential & Industrial Equity: • Apartment communities and complexes • Office properties • Shopping centers and malls • Storage centers • Industrial parks and warehouses • Lodging facilities, including hotels, motels and resorts • Health care facilities and may be more (if I forgot something). Types of REIT

  10. There are about 200 REITs trading on 3 major US exchanges. REIT shares clearly can benefit most investors, whether value-driven or growth-oriented, individual or institutional. They offer the benefits of ongoing current income, with the potential for long-term appreciation that historically has met or exceeded inflation. They are equities that derive a great part of their value from tangible, hard assets. Be aware I'm biased - 52-55% of my investable assets are in US REITs, and, I can be wrong, I was wrong and I will be wrong in some of my statements. Summary

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