Your thoughts on REITs

Don West · #1 05-03-2006, 02:40 PM

I was just curious as to the boards thoughts on REITs today and their future outlook. Any recommendtions? RWR?

adios · #2 05-03-2006, 05:45 PM

There are many varities of REITs out there. You may already be aware of this and apologies if you are but there are three classes of REITs if you will, equity, hybrid, and mortgage. In the equity class there are sub classes if you will that invest in all kinds of commericial real estate such as shopping centers, office buildings, apartments, lodging, warehouses, etc. The ones in the hybrid class typically are involved with property and mortgages. In the mortgage REIT class there are a variety of companies with various business models.

REITs tend to be interest rate sensitive IMO. I recommended a variety of MREITs months ago and I'm still holding them. I've traded MREITs for years, they have high yields but are risky. For equity REITs I'd have a good idea of what their assets are and how they're valued. Book value can be misleading. Again FWIW and perhaps stating the obvious good management is vital to a price appreciation.

shark6 · #3 05-04-2006, 08:02 PM

I rarely make changes to my asset allocation.

I recently sold my REIT mutual fund. Real estate is peaking. Sell now. Don't be tempered by their yields.

mwgr5 · #4 05-04-2006, 10:53 PM

A REIT allocation of around 10% has been shown to reduce risk without hurting performance in the past. This is why I would include a REIT fund in my portfolio.

Recent returns have been very good but resist the temptation to chase performance.

Sniper · #5 05-05-2006, 02:18 AM

As Adios mentioned, all REITs are not the same... it may be worth the time to look into specific companies at this point rather than a general REIT index.

Groty · #6 05-05-2006, 12:09 PM

I read an article about Redwood Trust recently that intrigued me. It's a residential mortgage REIT, trades at 5.5x earnings, 1.2x book, and offers a 6.7% dividend yield.

The article praised the management team saying they really understand risk and are committed to maintaining a conservative balance sheet. If you'd bought in the IPO in 1994, you'd be sitting on a CAGR of 19%.

It's a residential mortgage REIT so it's obviously leveraged to the consumer residential housing market (and the name suggests California exposure, but I haven't done any work on the name to understand how much exposure they have to CA).

Unfortunately, it's already run up about 10% in the past couple of weeks and is having another great run today.