REITs: Spreads as Wide as a '70s Necktie

Like global equities generically, real estate securities are now valued at their most attractive levels in decades. As a result of further selling pressure in November, current yields on U.S. REIT indexes now exceed 9%, which is over a 5% premium to the 10-year Treasury yield.

You have to go back to the mid-1970s to find spreads to Treasuries this wide. At that time, the REIT industry was a tiny fraction of its current size, and REITs hadn’t even matured into a recognized, readily investable asset class. In all likelihood, we will soon be adding a position in the Vanguard REIT Index ETF (VNQ) to our model portfolios.

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Comments

[Gaucho:]

Well you took some statistics and threw them against the wall and came up with a conclusion.

I do not like the stopping of your chart in 1998. It is as if the recient years and yeilds have been realistic. You also do not look at the debt or the area that the reit is in like GGP.

2008 Nov 12 04:16 PM

[ej1234:]

Before you go criticizing anyone, check yourself. The words are "recent, yields, ridiculous, lose, your, and advice."

On Nov 12 04:16 PM Gaucho wrote:

> Well you took some statistics and threw them against the wall and
> came up with a conclusion.
>
> I do not like the stopping of your chart in 1998. It is as if the
> recient years and yeilds have been realistic. You also do not look
> at the debt or the area that the reit is in like GGP. I think your
> thin slice for analyis is rediculous and you should stop posting
> this crap before more people loose money following you advise.

2008 Nov 12 04:43 PM

[Chris B:]

you forgot analysis

2008 Nov 12 05:18 PM

[IanB:]

Gaucho spelled the most important part of his critique properly: "GGP".

2008 Nov 12 06:05 PM

[Mark Collier:]

Lowest != most attractive.

This column is like a written version of CNBC. All bottom calling all the time.

2008 Nov 12 07:51 PM

[puttster:]

Reit stock prices going up is only one way the yields can come down. The other way, in this environment, seems much more likely.

2008 Nov 12 10:07 PM

[Allah:]

Treasuries are insanely expensive, REITs are still expensive

2008 Nov 13 12:55 AM

[Wolfhounds:]

Except for the highest quality REIT's, current dividend yields are meaningless. Read the earnings transcripts and you learn that most are scrambling to raise cash in advance of debt coming due the next two years. That includes selling their better properties which in time will reduce FFO and, therefore, dividends.

2008 Nov 13 09:17 AM

[BerkeleyBob:]

I have been long in a low profile, well managed commercial REIT which appeared to be chugging along for most of this year but fell off a cliff within the past few weeks. Effective dividend at current prices was in the stratosphere, was cut because not sustainable and the CEO was canned. On review of the recent quarterly conference, the fundamentals appear ok with announcement of a slow down in development of distribution and warehouse centers, but also relatively modest needs for future debt. The only explanation I can see is hedge fund and mutual fund redemption. At current price levels, I may add to the position but suspect I will be as underwater as a homeowner in Stockton or Vallejo for about the same length of time. Hard times.

2008 Nov 13 11:17 AM

[Rusty Shack...:]

I'm surprised at how fast the REITs have dropped, even the preferred shares of those who don't seem to have all that much debt. Ouch!

2008 Nov 22 06:34 PM

[Rusty Shack...:]

I'm amazed at how quickly prices have dropped, even for preferred shares in REITS that do not seem to have that much debt. Yikes!

2008 Nov 22 06:37 PM