Why I Don't Invest In REITs
Why I Don't Invest In REITs
http://www.etf.com/sections/index-inves ... nopaging=1
The above link is from Larry Swedroe.
"establishing criteria an asset class must meet to be considered distinct:
Low correlation with established asset classes, such as broad market equities and government bonds.
Statistically significant positive alpha with respect to generally accepted factor models.
Inability to be replicated, on a co-movement basis, by a long-only portfolio holding established asset classes.
Improved mean-variance frontier when added to a portfolio holding established asset classes."
"the R-squared ratio was relatively low for REITs (0.51), this was also true for other industries, including energy, utilities and health care."
"while REITs do indeed exhibit relatively low correlation with traditional equity and fixed income..
They found that multifactor regression analyses revealed no statistically reliable alpha generation in REIT returns and that REIT returns are well-explained by traditional risk factors. They also found that a long-only replication of REIT returns with small value equities, and long-term corporate bonds produces a portfolio that co-moves well with returns to REITs and exhibits historical return and risk characteristics generally better than REITs.
Finally, they found REITs do not reliably improve the mean-variance frontier when added to a benchmark portfolio of traditional stocks and bonds. These results, and the associated failure to satisfy their asset class criteria, led Kizer and Grover to conclude that REITs are not a distinct asset class."
IMO, if you want to diversify within stocks, you're probably better off tilting to small and/or value. If you need income, then REITs might be considered, although DIY dividends by selling stocks is an alternative. With DIY dividends, you can control the amount and timing of the dividend. You do have to pay the bid/ask spread, commissions and any market impact costs, although the latter is unlikely. You'll get a tax deferral, because some of your DIY dividend will be considered return of capital.
The last question is tax efficiency. In the US, REITs are considered tax inefficient. I haven't seen much Canadian data. The following link is from PWL:
https://www.pwlcapital.com/pwl/media/pw ... f?ext=.pdf.
For the 10 year period ending December 31/13, the following are the annualized pre/post tax returns of XIC (Canadian stock market index fund) and XRE (Canadian REIT fund): 7.93%/6.82% and 9.61%/ 7.93%.
IMO, REITs are an example of sector investing. I'm not convinced that they are better than other forms of sector investing.
The above link is from Larry Swedroe.
"establishing criteria an asset class must meet to be considered distinct:
Low correlation with established asset classes, such as broad market equities and government bonds.
Statistically significant positive alpha with respect to generally accepted factor models.
Inability to be replicated, on a co-movement basis, by a long-only portfolio holding established asset classes.
Improved mean-variance frontier when added to a portfolio holding established asset classes."
"the R-squared ratio was relatively low for REITs (0.51), this was also true for other industries, including energy, utilities and health care."
"while REITs do indeed exhibit relatively low correlation with traditional equity and fixed income..
They found that multifactor regression analyses revealed no statistically reliable alpha generation in REIT returns and that REIT returns are well-explained by traditional risk factors. They also found that a long-only replication of REIT returns with small value equities, and long-term corporate bonds produces a portfolio that co-moves well with returns to REITs and exhibits historical return and risk characteristics generally better than REITs.
Finally, they found REITs do not reliably improve the mean-variance frontier when added to a benchmark portfolio of traditional stocks and bonds. These results, and the associated failure to satisfy their asset class criteria, led Kizer and Grover to conclude that REITs are not a distinct asset class."
IMO, if you want to diversify within stocks, you're probably better off tilting to small and/or value. If you need income, then REITs might be considered, although DIY dividends by selling stocks is an alternative. With DIY dividends, you can control the amount and timing of the dividend. You do have to pay the bid/ask spread, commissions and any market impact costs, although the latter is unlikely. You'll get a tax deferral, because some of your DIY dividend will be considered return of capital.
The last question is tax efficiency. In the US, REITs are considered tax inefficient. I haven't seen much Canadian data. The following link is from PWL:
https://www.pwlcapital.com/pwl/media/pw ... f?ext=.pdf.
For the 10 year period ending December 31/13, the following are the annualized pre/post tax returns of XIC (Canadian stock market index fund) and XRE (Canadian REIT fund): 7.93%/6.82% and 9.61%/ 7.93%.
IMO, REITs are an example of sector investing. I'm not convinced that they are better than other forms of sector investing.
Re: Why I Don't Invest In REITs
Higher yields? Tax advantages within a taxable account? Should be a good investment inside a TFSA. No need to concern oneself with the tax complexities.
-
- Veteran Contributor
- Posts: 2240
- Joined: 25 Feb 2007 18:59
Re: Why I Don't Invest In REITs
Yes, but they didn't improve the mean variance frontier. I mean, how is a person supposed to sleep now knowing that their REITs are not improving their mean variance frontier? lol
Re: Why I Don't Invest In REITs
Hahaha couldn't agree more, I actually laughed out reading that malarkey. That sort of mumbo jumbo balderdash talk is popular among institutional investors and economics students but has zero to do with investing one's own capital.OptsyEagle wrote: ↑07 Jan 2018 13:39 Yes, but they didn't improve the mean variance frontier. I mean, how is a person supposed to sleep now knowing that their REITs are not improving their mean variance frontier? lol
Somebody ought to lob a tomato or two in Larry's direction.
Show me the incentive and I will show you the outcome
--Charlie Munger
--Charlie Munger
Re: Why I Don't Invest In REITs
I own REITs and I have found that they are often differently correlated to the stock market - recently, admittedly not in a positive way. That being said, some of my REITs have done quite well, particularly residential REITs such as CAR.UN and MRG.UN. I'm even going to keep holding my Riocan and Smart REITs. I fully understand the Amazon threat to these type of investments but my view is with growing populations there is always going to be some interest in actually shopping as an outing type activity. Worst case scenario is that these properties, which are typically prime real estate in large urban areas, will eventually revert to their highest and best use. If that ceases to be shopping, there are bound to be other profitable uses for prime real estate in growing cities. Have to admit, though, that the new minimum wage legislation will probably present a further boost for Amazon but I suspect that has already been priced in.
If life seems jolly rotten, then there's something you've forgotten -- and that's to laugh and smile and dance and sing. - Eric Idle
Re: Why I Don't Invest In REITs
To paraphrase Richard Nixon, now Larry Swedroe will have one less REIT to kick around:
PIRET is my second industrial REIT holding that has been acquired, (the other was the old Summit REIT which was acquired back in 2006).VANCOUVER, Jan. 9, 2018 /CNW/ - Pure Industrial Real Estate Trust (TSX: AAR.UN) ("PIRET" or the "Trust") announced today that it has entered into an arrangement agreement (the "Arrangement Agreement") with an affiliate of Blackstone Property Partners ("Blackstone"), pursuant to which Blackstone will acquire all of the outstanding trust units of PIRET (each, a "Unit") for $8.10 per Unit in an all-cash transaction valued at $3.8 billion including debt (the "Transaction").
The Transaction price of $8.10 per Unit represents a 21% premium to the closing price of PIRET Units on the TSX on January 8, 2018...
Re: Why I Don't Invest In REITs
Alas, I am also 'victim' of this acquisition. This will be a double for me in a fairly short period of time.
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
Re: Why I Don't Invest In REITs
I just bought it on January 3 and sold it today. My proceeds went into WIR.U which operates a similar REIT. With the rise of e-commerce the demand for warehouse space is going up. Blacklstone knows what it is doing.
- Peculiar_Investor
- Administrator
- Posts: 13271
- Joined: 01 Mar 2005 14:52
- Location: Calgary
- Contact:
Re: Why I Don't Invest In REITs
The folks at MSCI offer a differing viewpoint, from GICS - MSCI (with my bold)
That said (or quoted), I find it interesting that MSCI (and others) seem to freely interchange asset class and sector.MSCI wrote:The Global Industry Classification Standard (GICS®) is about to experience a major change since its inception in 1999. As a result of the evolving investment landscape, Real Estate will be added as a new sector effective September 1st, 2016.
With the creation of the new Real Estate Sector we acknowledge its growing importance in today’s global economy. This change will elevate its position from under the Financial Sector, recognizing Real Estate as a distinct asset class and a foundational building block of a modern portfolio.
From Asset Class | Investopedia which is reference in our own wiki article:
I don't invest in REITs currently because of our homeownership and the fact we have a rental property that gives us additional real estate exposure.An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.
finiki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
Re: Why I Don't Invest In REITs
I am of mixed views about REITs being a separate asset class or not. Clearly in some ways they are the same with respect to the financial model. At the same time, REITs have become invested in such wide ranging assets that growth and returns are not at all on the same trajectory, e.g. Industrial REITs today vs retail REITs.
For asset allocation purposes, I lump them in with Equities, but recognize them as a subset, i.e. REITs not exceeding X percent of the portfolio. I don't have much left though in the sector having taken profits in CAR.UN at its recent peak, and now likely losing AAR.UN.
For asset allocation purposes, I lump them in with Equities, but recognize them as a subset, i.e. REITs not exceeding X percent of the portfolio. I don't have much left though in the sector having taken profits in CAR.UN at its recent peak, and now likely losing AAR.UN.
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
Re: Why I Don't Invest In REITs
I am invested in REITs and have had a good run with Pure industrial REIT. (AAR.UN)
It rocketed up 20% today on the news of a sale to Blackstone, a US private equity firm. This is a first for me. Haven't come across this situation before. So I'm not quite sure what will happen next and how to evaluate my options. Any advice? It's continuing to pay dividends until the sale and there's a small chance that another firm could bid the price up but since Blackstone has offered a 20% premium that's unlikely.
It rocketed up 20% today on the news of a sale to Blackstone, a US private equity firm. This is a first for me. Haven't come across this situation before. So I'm not quite sure what will happen next and how to evaluate my options. Any advice? It's continuing to pay dividends until the sale and there's a small chance that another firm could bid the price up but since Blackstone has offered a 20% premium that's unlikely.
"Why do I have to go to school? If I watch YouTube I'll know everything."
- Grandson #2
- Grandson #2
Re: Why I Don't Invest In REITs
Anyone know why WPT Industrial REIT (WIR.U) has such an uneven earnings record? It's just all over the place. I'm not necessarily saying that's bad, but is there an explanation? Recent merger/acquisition?
I too, invest in REITs.
I too, invest in REITs.
Last edited by Hogwild on 09 Jan 2018 18:06, edited 1 time in total.
Re: Why I Don't Invest In REITs
Asset classes are very subjective. One person could simply view equities as one asset class while another one might consider Canadian equities as one distinct asset class.
Re: Why I Don't Invest In REITs
PIRET shareholders will need to vote on the deal and if approved, will close and you will end up with $8.10 cash/share into your brokerage account. My take is that with this being a friendly offer, with Blackstone having a ROFR, and the 20% premium, there is not likely going to be an effective competing bid. I expect the units to trade within 1-2 cents of $8.10 until this closes....trading up as much as 1 cent to capture monthly dividends, and maybe trading down IF there is market sentiment that this deal may not go through.Wallace wrote: ↑09 Jan 2018 17:29 I am invested in REITs and have had a good run with Pure industrial REIT. (AAR.UN)
It rocketed up 20% today on the news of a sale to Blackstone, a US private equity firm. This is a first for me. Haven't come across this situation before. So I'm not quite sure what will happen next and how to evaluate my options. Any advice? It's continuing to pay dividends until the sale and there's a small chance that another firm could bid the price up but since Blackstone has offered a 20% premium that's unlikely.
There is some risk shareholders may vote down the deal in which case trading price will plummet sub-$7 again pretty quickly. I am likely just to ride this to the end UNLESS it trades up to $8.12+ for some reason (unlikely), or if there is suddenly a grand opportunity to invest in something else that I just have to have and the timing is right.
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
Re: Why I Don't Invest In REITs
Thanks Altared.
<edit later>***Fortunately*** it is in my RRIF. So no tax consequences. But I must admit I hadn't really thought of this risk before today. It could have been a big hit.</edit>
<edit later>***Fortunately*** it is in my RRIF. So no tax consequences. But I must admit I hadn't really thought of this risk before today. It could have been a big hit.</edit>
"Why do I have to go to school? If I watch YouTube I'll know everything."
- Grandson #2
- Grandson #2
Re: Why I Don't Invest In REITs
You make a valid point. The 2017 numbers quarter by quarter look strong. Perhaps the acquisition of some of their properties might explain it? There debt to equity is .5 which is a low number for a REIT. A PE of 10 looks good. There distributions are well covered.
Re: Why I Don't Invest In REITs
TheGipper:
Did you actually find a Price/FFO ratio somewhere for WPT? I couldn't find one, and haven't gotten around to calculating the true ratio. Of course, most websites just try to calculate P/E which is way off for REITs.
Did you actually find a Price/FFO ratio somewhere for WPT? I couldn't find one, and haven't gotten around to calculating the true ratio. Of course, most websites just try to calculate P/E which is way off for REITs.
Re: Why I Don't Invest In REITs
No I haven't found that ratio. According to the RBC AD research net earnings per share is $1.59 and distributions are .77 per share.
Re: Why I Don't Invest In REITs
Found this by googling https://www.disnat.com/en/learning/trad ... trust-reit
I am giving this one some thought but have not come to terms with its bumpy 3 year price history. Did Blackstone look at this one but find it too expensive and chased PIRET instead? Would seem to me Blackstone would be more comfortable with US industrial RE than Canadian....and if my WAG reasoning is correct, WIR.U pricing is currently 'high'.
I am giving this one some thought but have not come to terms with its bumpy 3 year price history. Did Blackstone look at this one but find it too expensive and chased PIRET instead? Would seem to me Blackstone would be more comfortable with US industrial RE than Canadian....and if my WAG reasoning is correct, WIR.U pricing is currently 'high'.
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
-
- Contributor
- Posts: 565
- Joined: 10 Jun 2009 15:47
Re: Why I Don't Invest In REITs
I'm looking into WIR.U, and notice that despite being a Canadian stock it is transacted in USD - purchases from brokerages, and I'm assuming monthly payouts as well. I'm curious if anyone knows whether or not this is considered a "Canadian company" with eligible dividends, or a US company with foreign income? I had considered holding this in my TFSA, but the constant FX (I don't have a USD TFSA) and potential tax treatment if it is not considered Canadian would be a PITA.
Re: Why I Don't Invest In REITs
Go to the horse's mouth. http://investors.wptreit.com/GenPage.as ... 1073749103 It appears to be primarily a US company. I'd say this is NOT suitable for TFSAs (15% US withholding tax).
Also http://investors.wptreit.com/Cache/1500 ... id=4387026
Also http://investors.wptreit.com/Cache/1500 ... id=4387026
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom
-
- Contributor
- Posts: 565
- Joined: 10 Jun 2009 15:47
Re: Why I Don't Invest In REITs
Thanks altared, I should have looked closer at their website . RRSP it is.AltaRed wrote: ↑10 Jan 2018 11:28 Go to the horse's mouth. http://investors.wptreit.com/GenPage.as ... 1073749103 It appears to be primarily a US company. I'd say this is NOT suitable for TFSAs (15% US withholding tax).
Also http://investors.wptreit.com/Cache/1500 ... id=4387026
Re: Why I Don't Invest In REITs
EDIT: Whoah, wait. I think these may have been projected numbers. The Disnat site is kind of confusing
on that. Probably better to disregard what I wrote below.
TheGipper/anyone else interested:
The page AltaRed linked shows 2017 FFO as: US$0.98 .
and AFFO as: US$0.91 .
This should help people calculate Price/FFO. Of course, you have to remember to convert from $USD cause share price is in $CAD.
on that. Probably better to disregard what I wrote below.
TheGipper/anyone else interested:
The page AltaRed linked shows 2017 FFO as: US$0.98 .
and AFFO as: US$0.91 .
This should help people calculate Price/FFO. Of course, you have to remember to convert from $USD cause share price is in $CAD.
Re: Why I Don't Invest In REITs
I'm trying to decide what to replace my shares in Pure Industrial Real Estate with, now that the sale to Blackstone has gone through.
One of the options is Summit Industrial Income REIT. 86 distribution warehouses with 77 in Ontario and Quebec. A wide range of tenants. Market cap is $585M. Debt about average. 5.95% yield. It had about an 18% uptick in price this year. Anyone have experience with this Brampton Company?
One of the options is Summit Industrial Income REIT. 86 distribution warehouses with 77 in Ontario and Quebec. A wide range of tenants. Market cap is $585M. Debt about average. 5.95% yield. It had about an 18% uptick in price this year. Anyone have experience with this Brampton Company?
"Why do I have to go to school? If I watch YouTube I'll know everything."
- Grandson #2
- Grandson #2
Re: Why I Don't Invest In REITs
I don't know it but it would have to be internally managed with the principals having a significant stake in it for shareholder alignment. Also, are all industrial REITs priced to perfection? That said, had Pure not been bought out, I would have continued to hold. How is that for a conflicted position?
finiki, the Canadian financial wiki The go-to place to bolster your financial freedom