Toro

REITs: An Update

tl

Your point is well taken. If you have the flexibility and the skill to trade around the position and add value that way, good for you. Due to restrictions at my firm, I can't jump in and out of positions. Also, it is not my initial position. I went massively short REITs last winter, covered in January then re-established a smaller position in February. I was looking to cover in March but the SRS didn't hit $130 as I expected. I have tended to do pretty well being value conscious, but it didn't work out that way.


stc

I calculate FFO by downloading components to calculate the metric from Bloomberg. Maybe I'm doing it wrong, I don't know. But I am more interested in how they compare to stocks, as well as using other metrics such as dividend yield, cash flow, etc. I have also found over the years that FFO can differ from analyst to analyst, just like the term "free cash flow" often does. Goldman put out a piece during the week saying REIT FFO was 16x, which is helluva lot different than mine, and stating that historically, REITs have traded at 10x-11x, so they think valuation is even more stretched than I do. Obviously, use the calculation that works best for you.


John

I'm not sure what the time frame is, other than to say I think the market is in a trading range for a couple of years, maybe with a downward bias. There certainly could be more upside from here as the path of least resistance is up at the moment. I think earnings will come in weaker than expected over the year as analysts are expecting growth of ~5%. I think that is too high given the current environment. I don't believe any economic collapse is coming, but I think the economy will move in fits and starts and grow below trend for some time. On underperformance, REITs have returned double the market since they hit their low in January. Of course, they fell over 40% in 2007, but that was after a monster run the previous five years. A month ago, I thought that REITs would probably trade in line or so with the market as valuations had gone from being idiotic last year to a bit expensive. Now they are getting expensive again. I think investors are going to be sorely disappointed in the IRRs investing in real estate, and expect stocks to outperform REIT over the next ~5 years.

T.

REITs: An Update

stc

The data comes from Bloomberg. I use the components of the IYR and calculate the data using a weighted average. It may not represent the actual IYR. For example, the actual dividend yield for the IYR is lower than what I compile out of Bloomberg. I also similarly compile data for all the REITs in the Russell 3000 and do a similar calculation, which provides slightly but not dramatically different results.

I think the path of least resistance in the near term is up. I had written not too long ago that I did not think REITs would underperform the broad market, and that I was using it as a market hedge as much as anything. However, since the Dow Jones US Real Estate index is up over double the market since it hit its low in January, I am beginning to think it will underperform over the intermediate term.

REITs: No Longer Over-Valued

Georealist

Sorry for not being clearer. The ProShares UltraShort ETFs give you short exposure when you buy the ETF. Thus, if REITs rise, then the value of the SRS falls, which is why I say I'll buy the SRS when it hits $100-$110.

Hope that helps.

T.

The Bear Market is Here

Covered much of my short position, went long the dollar. This is a dead cat bounce. There is much more bad news to come in the financials.