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No. of Recommendations: 72
Old time REITSTERS will certainly recall REITNUT, aka Ralph Block. For anyone new to this board, Ralph wrote the seminal book on REITS: "Investing in REITs." (1) Ralph was one of the original expert contributors to this board.

In 2013, we collaborated on a post "Portfolio for the next 50 years." https://boards.fool.com/portfolio-for-the-next-50-years-3059...

The concept was to create a portfolio for a young person just starting out that was in a low tax bracket by setting up a ROTH IRA account. Recall that ROTH accounts grow tax free and can be withdrawn tax free in retirement. (2) You might review the original post to get the full story. The post was written with an initial investment target of $2,000.

REITNUT chose 4 individual REITS that he thought would do well over the long term. The goal was that the investor would NOT have to make any sell/buy decisions over the next 50 years. Yes, it was a pretty ambitious goal that REITNUT accepted.

The four REITS he chose were:

Avalon Bay- AVB- High end apartments
Extra Space Storage-EXR- Self storage rentals
Simon Property- SPG- High end shopping malls
Ventas-VTR-Senior communities

I personally helped setup five ROTH accounts with these four REITS. Here are the results to date for one of the accounts. It had an initial investment of $2,500 and has had no funds added or withdrawn.(3) So this is a very pure look at how the portfolio has done:

June 6, 2013- $2,500 account value, AVB, EXR.SPG, VTR purchased in ~ equal dollar amounts
April 12, 2019- $4,805.33

50 year portfolio IRR= 11.81%
VNQ- Vanguard REIT ETF= 8.42%
SPY-Standard and Poors 500 ETF= 12.65%
The 50 year portfolio outperformed the REIT index by 3.38% which is equivalent to a grand slam home run in the world series. It did underperform the SP500 by 0.84%, likely due to the FANG stocks being strong in this period.

The annual income has increased from $83.84 to $172.25 which is a 105% increase. The IRR of the income stream is an impressive 13.09%. This verifies one of REITNUTS fundamental teachings: buy high quality, high growth, LOW dividend yield REITS to maximize the total return. REITNUT would often caution against buying lower quality, higher yielding REITS which is often the path that new investors are drawn to. All four of these REITS were considered low yielding when they were chosen. It is important to note that all of the dividends were reinvested back, so the increased share counts compounded with the per share dividend increases.

Here are the results for the four REITS from 6/6/13 through 4/12/19:



REIT Total Dividend Reinvested
Return Per Share Dividends
IRR IRR IRR

AVB 10.6% 6.2% 9.6%
EXR 20.1% 14.0% 18.0%
SPG 5.4% 10.4% 14.5%
VTR 2.3% 2.9% 8.0%



Clearly the star of the group so far is EXR. The laggard of the group is VTR, "Dynamite" Debbie Cafaro is in an out of favor sector for the time being. VTR is still regarded as best in class, so eventually the sector will likely mean revert and have improved performance.

All in all, I think our young investors are sitting pretty with 44 years to go. I so wish REITNUT was here to give his current updates. He used to tell me that that industry was constantly changing. That is why he agreed to do subsequent revisions of the book. He did not want REIT investors reading out of date info, so he devoted an enormous amount of time revising it. All for our benefit. In addition to his book, his numerous posts on this board, his love of golden retrievers, the 50 year portfolio is another contribution to his legacy. I remain eternally thankful.

Thanks,

Yodaorange



(1) Investing in REITS, Fourth Edition
https://www.amazon.com/Investing-REITs-Estate-Investment-Tru...

(2) Current tax law allows ROTH IRA's to be withdrawn tax free. There have been proposals that either the account balances become taxable and/or the withdrawals are. If you think forecasting REIT values in 50 years is hard, try forecasting US tax policy.

(3) The portfolio is not as "pure" as original. VTR spun off Care Capital Properties (CCP) which later merged into Sabra Health (SBRA). SPG spun off Washington Prime Group (WPG.) So the portfolio has small amounts of these stocks, which have NOT been sold. Their value was included in the portfolio total return, but was NOT included in the dividend return calculations.
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Wow, Yoda, it is great to hear from you!

You have been missed.

I hope all is well and we will hear from you more regularly.
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BTW, I as just re-reading a post of yours on ARE-pD, which I gratefully still hold.
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I can't thank you enough for taking the time to make this post.
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thanks yoda , you and ralph share a great deal of information . please stop by more often. areep / cpg were solid picks. most people couldn’t even spell reits 15 years ago now they are a hot item and they should be. I occasionally look back at some of ralph old posts, he was sure on top of things . the last few years i have like net leases like wpc and nnn - been good, thanks again, jim
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Hi Yoda,

A double dose of good fortune on this board. A memorial post to REITnut and a post from you! Thank you for both and let me echo what others have said, please stop by more often if you can.

David
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I haven’t even read this yet but had to rec it and comment on how wonderful it is to see your moniker as well as the Board’s beloved poster, Ralph Block. I learned a lot from both of you over the years and hope for more to learn.

I own VTR, SBRA, EXR, AVB, and that old pfd WPG, it think it’s I.

Lucky Dog
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Yoda:
Thanks for reposting Ralph's comments. He was indeed the most knowledgeable Reit mind this board has ever or will probably ever see again. Anyone who followed him into any of his recommendations has done very well.

I have owned three of his four recommendations for twenty plus years, Avalon Bay, Ventas, and Simon Properties. In the past few years, I doubled my position in Simon as the malls went out of favor. Simon has come roaring back since then as investors had the "sudden" realization that class A malls were a very different breed than the rest.

Although, I don't own Extra Space Storage, it is only because I've owned a very large position in Life Storage for over twenty years (the old Sovran Storage, "Uncle Bob's). However, I do think EXR is a first rate REIT.

I haven't posted anything to this board in the past few years as it seemed the tone of some posters had become oftimes strident and harsh and I just didn't want to deal with it. Although, I have been lurking and reading the discussions very often.

Once again, thanks for reviving Ralph's post. May he be resting in peace and happy to be reading the favorable and laudatory comments posted here by those who admired him so much.

gracepeace
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Yoda,

Like the others, many thanks for posting. I remember Ralph for his "humanity," sharing with us his knowledge, wit, and expertise. I also remember his for dog, Sammy, who died just before Ralph. My own son also owned a Golden named Sammy. Fond memories!

Bill
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Hi Yoda!

Thanks for your thoughtful post, and it's really good to hear from you again. I hope you stay on here in Reitdom.

Like you, I miss Ralph. He was a kind soul and a wealth of REIT knowledge. He was generous in sharing his REIT expertise and work product.

David
Stock Advisor Home Fool
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No. of Recommendations: 11
Yoda

It was a pleasant surprise to see your post on this board after so many years of silence.
I too hope that you are doing well and that you resume contributing to this Board.
Many of your posts were very helpful for me, and I was very disappointed when you stopped posting.
Unfortunately, this board too has had its YAHOOS.

Regards
Martin
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No. of Recommendations: 10
Thanks for the update, Yoda.

I wonder what Ralph would pick today for a 50-year portfolio. PLD instead of SPG? He liked the new edition of PLD after the merger with AMB. Or maybe he would still pick SPG despite all the death-of-retail talk. Myself, I would be tempted to pick a triple-net REIT, (O, NNN or STOR). He didn't often recommend triple-nets, but he did put us onto STOR when that first came along.

I wondered about there being no office REIT in the 50-year portfolio. Then looking back over old emails from him I found a comment in October 2015 that there were almost none he liked. So that explains that. That email had a nice roundup of his favorite REITs for the core of one's REIT portfolio, so I'll quote it here:

"I regard core REIT holdings meeting your criteria as: AVB, EQR, ELS, VTR, HCN, EGP, PLD, ARE, MAC, SPG, AKR, FRT, KIM, REG, ROIC, CUBE, EXR and PSA. I own all of them except EQR, and they all have excellent management and balance sheets. BXP may fit in there, somewhere, but I have been disappointed with them for the last couple of years; they are not the BXP of old, due to management changes.

I can think of no other office REIT I would include, except perhaps for HIW (ARE is really lab space, not so much “office”).

PSA has had the wind at its back, as self-storage is an excellent property type and was undervalued for a long time. I love this sector, although it’s no longer dirt cheap.

I still like DOC for a small position while we wait to see how management performs. A newer one for me, which is a fairly new REIT, is STOR. I think the management team, which has ample experience and expertise, is top notch. I own a lot of STOR despite it being a fairly new REIT.

Hope this helps.

Ralph"

---------------

Reading the original REITnut/Yoda post sent me scurrying to read up on that tax credit

The retirement savings tax credit is up to a maximum of $2,000 credit to match a $2,000 contribution on a joint return. That would only be for a married couple making less than $38k AGI (in 2018), with at least a $2,000 tax liability and $2,000 they could afford to sock away in an IRA. Seems like that would be a pretty small set of people. Smaller percentage matches are available up to a joint $64k AGI. Any type of IRA, 401k, 403b qualifies. Credit is not refundable. https://www.irs.gov/retirement-plans/plan-participant-employ...
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Yes, if only we could know what Ralph would say today. I wish....


I also lean more toward the triple nets than traditional mall, strip centers.
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Jim good to hear from you too!

Jim wrote, "Seems like that would be a pretty small set of people."

Smaller than you can ever imagine. For a few years I helped about 1,000 junior soldiers do their taxes and I found it was very difficult to get the maximum credit.

A single person getting the full 50% tax credit for a $2,000 contribution to a retirement account just can't be done - mathematically impossible. For 2018 the max AGI for which a single tax payer can still get the tax credit for 50% is $19,000. After subtracting the $12,000 standard deduction that leaves taxable income of $7,000 for which the tax due is only $700.

Another problem is that just about every single soldier will have an AGI over $19,000. For junior soldiers some qualified for a 20% or $400 tax credit and pretty much all could qualify for the 10% or $200 tax credit. Still between the tax credit and lower taxes owed a $2,000 contribution could save them $400 to $640 for a contribution to a tax deferred account.

I remember one junior NCO that did get the 50% and $1,000 tax credit because he had been deployed for part of the year and had gotten married upon returning stateside. He asked if they could contribute $2,000 for his wife and get another tax credit. No for a couple of reasons. First she had been a student and second they didn't owe enough tax.

When talking to a company of soldiers about how much tax credit they would probably actually get, one junior soldier said the IRS sounded like Army recruiters in that they made false promises.
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