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Bruce Miller

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  • Get A Piece Of The Pie With This Triple-Net REIT Paying 7.13% [View article]
    That is an uban myth that I've seen floated more than once.
    Completely false. Congress, with the REIT Act of 1960, intentionally structured REITs as corporations, even though with their pass--through distributions, they tend to look like limited partnerships. But alas, they generate 1099's each year, not K-1s.

    And if it were true, people like me would be in deep doo-doo. I hold 5 REITs in our (wife and my) Roth IRAs that are valued well into 6 figures....and they generate one heck of a lot more than $1,000 in income each year.

    Oct 2, 2012. 06:02 PM | 1 Like Like |Link to Comment
  • Get A Piece Of The Pie With This Triple-Net REIT Paying 7.13% [View article]
    The only thing that makes me uneasy about Schorsch is how he performed with ART in the early 2000s. He essentially ran this REIT into the ground while paying himself well along the way...or so it would seem to an outsider. Here's a brief discussion:

    Now, perhaps ART was a learning experience for a new REIT manager, and he is now much improved...or perhaps this is a replay. Not sure...but I agree with you, buys here need to go into the high risk column.

    Oct 2, 2012. 03:04 PM | 1 Like Like |Link to Comment
  • Master Limited Partnerships: Stop The Insanity [View article]
    Hello again Reel!

    I've tusseled with the concept of step-up not applying to 1245 (or 1250 for Real Estatel) recapture, and I don't believe your explanation is correct. Now, I certainly could be mistaken, and I can't seem to find anything that concretely addresses this in the code. So as you say, until a CPA experienced in this or a tax attorney conversant in the relevant code comes along and offers clarity, we'll have to try to use our own reasoning.

    I don't think IRD is relevant to this. IRD refers to income realized after death but before the income producing asset fully transfered to the heir. The IRD is distributed from the estate to the heir, who includes it in their own income tax return. But if the heir is not yet known (or is in dispute), the IRD is included in the value of the estate and will be taxed to the estate. And If the IRD is distributed but was included in the value of the estate, and there is an estate tax due, the heir will receive a credit on the tax paid on the IRD. IOW, IRD is used for estate tax purposes.

    In laymen's terms, the basis step-up at death does NOT apply to those pretax assets that have been created/allowed by Congress to encourage or reward INDIVIDUAL saving...and there are a bunch of them: IRAs, all forms of retirement plans, deferred annuities, 529 plans, Coverdel ESAs, deferred comp, Net Unrealized Appreciation, HSAs, and so on. A recapture of depreciation, whether on personal or real property, does not fit this. Think of depreciation as a business loan from the Government that must be repaid ONLY if the asset taking the loan is sold for more than its adjusted basis, but is forgiven at death. This is very different than the estate treatment of a retirement (or college, or healthcare) savings plan.

    However, if you can come across anything the definitively shows depreciation carries forward in basis determination to heirs, please post it back. Frankly, I don't think this should be about who's right and who's should be about learning :-)

    Oct 2, 2012. 02:29 PM | 1 Like Like |Link to Comment
  • Popular Dividend Companies And Their Payout Ratios [View article]
    Operational FCF adds back depreciation of assets, and usually amortizations of things like goodwill, patents and the like. Yes, this is a much better measure of the cash the company has available for dividends. Remember, these are "non-cash" expenses. The company did not have to pay anything for these deductible expenses.

    I was quite surprised to see the % of VZ's depreciation relative to net earnings: about 160%, and this is fairly consistent year-on-year. In addition, their annual Cap-Ex runs about their depreciation expense. Clearly, VZ is a capital intense organization...and here I thought REITs and MLPs are capital intense!

    But VZ also seems to have the dividend well covered by their net FCF (Op FCF minus Cap-Ex). Here are the dividend coverage ratios since 2007:

    2007: 58%
    2008: 53%
    2009: 36%
    2010: 32%
    2011: 41%

    I haven't looked at the other telephone service companies....but I'd be surprised to see ratios lower than this.

    And FWIW, REIT performance is measured by Funds From Operations (FFO), which again, is net income + depreciation.

    Oct 1, 2012. 07:26 PM | 1 Like Like |Link to Comment
  • Cedar Realty Trust: Strategically Small In Size And A New Preferred Surprise [View article]
    I hope you're right about the new CEO's effort to change the direction of CDR, because, frankly, this is historically one of the worst performing equity REITs I've ever encountered. This is the only exchange traded equity REIT I think I've ever seen that has never raised its dividend...only cut it, since it first began paying the dividend in 1993. Thats got to be some kind of record.

    For 2011, 100% of their distribution was Return of Capital!!

    But over the same period, the key employees had no problem with generous pay packages.

    Will all of this change with a new CEO and CFO? Well, we'll see.

    Yes, the B preferreds are currently yielding about 7.5%....but investor's take note: this is high risk. With debt at 2.2 X equity, it wouldn't take too much of an economic downturn => increased vacancy rate to push the common dividend to zero and put the preferred dividends at risk of suspension.

    Oct 1, 2012. 05:25 PM | 1 Like Like |Link to Comment
  • Popular Dividend Companies And Their Payout Ratios [View article]
    I think you are on the right track. Measuring a company's ability to grow its distributions over the quarters and years ahead is the centerpoint of any competent income investor. And I agree with you that the TREND in the POR is the right approach, rather than the absolute measure of what it happens to be right now.

    Having said that, I think there are better measures of this than 'earnings'. Remember, 'earnings' is an IRS number. It requires the inclusion of non-cash expenses while excluding certain other expenses...and it can be manipulated. Net cash flow is probably a better measure, as it measures a company's ability to generate the free cash needed to pay the dividend, regardless of the tax treatment of the cash flow.

    Thanks for your contribution!

    Oct 1, 2012. 04:30 PM | Likes Like |Link to Comment
  • The Most Challenging Aspect Of Dividend Investing [View article]
    Aparently, DGI doesn't respond to his comments...but I think Rudester says it best when he says..."In any case, I wouldn't advocate selling the position right away, but only after DD has been performed on the alternatives"

    Stock price appreciation to an income (dividend) investor is interesting and feels good, but by itself, is irrelevant. As DGI says, its the psychology of price appreciation that causes us to do the wrong things.

    A true income investor who requires a stable and perhaps growing income stream, must...and I do mean MUST...but concerned with the stocks/bonds/MLPs/REITS he/she is holding to be able to continue their distributions as expected. Price appreciation will only matter if the security that seems over bought can be replaced by another income-risk (IR) identical security with distributions greater than the one being sold. A failure in doing this kind of DD will most likely result in either a higher IR security replacement or a reduced household income when the replacement security has been purchased with the net proceeds (after tax and transaction costs) of the sale.

    But back to the title of this article....I completely agree. I'm finding that the greatest challange to those retirees who wish to adopt this investment paradigm is to 'let go' of the tenets of total return. I'm convinced that for most, this simply isn't possible....the 'doctrine' of "harvesting capital gains" is simply too deeply imbedded and will block out the logic and reason required for managing an income portfolio purely for its reliable income.

    Sep 30, 2012. 03:02 PM | 1 Like Like |Link to Comment
  • Intelligent REIT Investors Know How To Separate The Best From The Rest [View article]
    P/E for REITs is a misleading and some might say a meaningless number. REITs have large depreciation expenses relative to their net earnings. This means that their net earnings are artificially low due to this large non-cash expense. So P/anything is going to look weak or poor compared to corporate counterparts.

    The standard measure for REIT earnings performance is their Funds From Operations, or FFO. All REITs report this, as do the better investing web sites. The general formula for FFO is:

    Net Income + gain on sale of assets (or - loss on sale of assets) + depreciation expense.

    However, FFO is not defined or required by Generally Accepted Accounting Principals, but is only recommended by NAREIT, the REIT industry trade group, who defines and sets this elective metric (as well as other REIT-unique metrics).

    My general rule is that any stock analysis that doesn't use FFO when measuring REIT profitability, is a site I will permanently ignore, as they clearly don't know what they are doing.

    For an excellent primer on REITs, take a look at "REITs 101" at the NAREIT web site, at

    Sep 28, 2012. 02:21 PM | Likes Like |Link to Comment
  • Intelligent REIT Investors Know How To Separate The Best From The Rest [View article]
    " The argument (made by non-listed REITs) of low volatility is the greatest marketing gimmick on the planet....and perhaps borderline "ponzi" " got that right!!

    And don't forget the second claim used in selling these things....
    "you don't have to worry about market price fluctuations with unlisted REIT shares".

    The great tragedy of this is the number of retirees who bought into this, which for most, has resulted in a not-insignificant loss of their retirement savings.

    Even though you prefer to stick with the exchange traded variety, I still think it would be a good topic and of interest to those who can speculate.

    Sep 28, 2012. 02:01 PM | Likes Like |Link to Comment
  • Don't Be Afraid To Put MLPs In Your IRA [View article]
    The reason for that is because a REIT is not a partnership. Congress saw fit to regulate REITs as Federally created (as opposed to State created) corporations that are not taxed on their net income IF they meet certain statutorial provisions. If the REIT fails any of these tests, then they must either reorganize as a Real Estate Operating Company (REOC) that is a true corporation...or as a Real Estate Limited Partnership (RELP) that is a true limited partnership that would then be subject to UBT in a tax deferred account.

    Sep 27, 2012. 11:35 PM | Likes Like |Link to Comment
  • Intelligent REIT Investors Know How To Separate The Best From The Rest [View article]
    I don't know if there's a copy of today's might have to google around to see if there is. But it was conducted by Michael Stubben, CPA, of MTS Reasearch & Advisors and I believe sponsored by Central Trade and Transfer, who runs the auction for the selling of the unlisted REIT shares that people wish to sell. The service Stubben provides is to analyze the unlisted REIT shares from the perspecftive of 3 risks: Market, Dividend and Balance Sheet. He doesn't get into 'buy' or 'sell' prognostications...... for each of these risks, he rates the REIT as Risky (Red), Moderate (Yellow) or Low (Green) risk. He also feels the prices the unlisted REITs assign to shares on quarterly statements is completely arbitrary, as there are no guidelines on REIT valuations although there is clearly a conflict of interest in the REIT valuing its own shares! His web site is

    He says he's getting a lot of interest from the smaller institutional investors, due primarily to the prices these shares are being sold at today. But like Brad says, the main interest is the debt, as the equity, barring a distinct liquidity date, is uncertain.

    I'm not interested in these things...but for an astute investor with an eye for the fundamentals and some extra money lying around they don't mind putting at risk...there could be some little unlisted REIT nuggets out there :-)

    Hmmmmm....this sounds like it might be a good SA article for Brad....with an article title that goes something like..."How you could make money investing in pure REIT crap" :-0

    Sep 27, 2012. 09:19 PM | Likes Like |Link to Comment
  • Intelligent REIT Investors Know How To Separate The Best From The Rest [View article]
    I'm sorry, but prices are simply too high. With QE-3, money be cheap, so leaverage will continue, which is fine with increasing demand for CR space. But raise those rates or let the economy contract, and I fear today's prices will be tomorrow's memories...and they won't be good memories.

    BTW, at bit OT, but just got off a webinar from Michael Stubben of MTS Research Advisors, on the status of the closed unlisted REITs being sold on auction sites like Central Trade and Transfer, by those poor souls who were talked into buying their shares. Considering the movement over the past couple of years of the exchange traded REITs you've mentioned above, these unlisted REITs can't be looked at in any way other than total least for the shareholders. Did you get the chance to listen? I thought he did a very good analysis.

    Sep 27, 2012. 02:19 PM | 2 Likes Like |Link to Comment
  • Sleep Well At Night With These Durable Health Care REITs [View article]
    Brad hasn't responded, so let me offer this.
    As you say, most REITs distribute more than 100% of their REIT taxable income. (RTI) In fact, with the exception of PSA, I don't think I've ever come across a REIT whose annual distribution doesn't exceeed 100% of RTI (I'm sure there are some, I just haven't seen them). The reason for this has to do with the relatively large depreciation expense on their properites. This is considered a 'non-cash expense' in that they did not have to use their cash flow to pay the expense. But the reason this works with a REIT is because, like your personal residence, the REIT's properties actually increase in value even though they are expensed. This means that distributions exceeding RTI is not NECESSARILY a bad thing. My rule of thumb is that the amount of the distribution in excess of RTI (Return of Capital) should not be much more than 15 to 20% of RTI. Distributions that are mostly ROC usually suggests something is wrong with the REIT.

    But the best measure to use in determining fiscal health is to determine the payout ratio of Funds From Operations, which is the RTI plus depreciation (and certain ammortized expenses). The target I use for this metric is less than 80%

    Sep 25, 2012. 12:55 PM | 3 Likes Like |Link to Comment
  • Don't Be Afraid To Put MLPs In Your IRA [View article]
    Reel Ken
    It seems you're right....I looked through what I assume is the Nuveen CE MLP Corporation (actually, its not a fund) JMF that you referenced, and there is a required 35% of appreciation (depreciation) on unrealized gains (losses) set-aside that is marked-to-market. There is also a "Franchise Tax Expenses" that I believe is the periodic tax estimate (much like a personal quarterly tax estimated payment made by individuals) that is paid and shown as an expense on the semiannual report. These are really two separate tax events that, it would seem, the fund is required to regularly report and bake into the fund's NAV.

    Thanks for making me look this up (which is probably what I should have done in the first place!)


    Sep 25, 2012. 12:21 PM | Likes Like |Link to Comment
  • Don't Be Afraid To Put MLPs In Your IRA [View article]
    A couple of years ago, the SEC/IRS determined that a mutual fund (whether open end, closed end or ETF) could hold MLPs, but to deal with the tax issues, the fund would have to organize itself as a C-Corporation and pay all taxes at the fund level. This streamlines tax reporting for the fund shareholders, as they now receive only a form 1099 each more K-1s. But there is problem with this....each MLP held by the fund has pent-up tax liabilities that will come due and will have to be paid from the fund's assets when the MLPs are ultimately sold. This tax obligation is not reflected in the MLP fund's current NAV.

    Sep 24, 2012. 12:34 PM | Likes Like |Link to Comment