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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 2020 portfolio performance was not good due to COVID/shutdown. The portfolio rebounded in 2021 like most portfolios working towards a “return to normal” whatever it may be. The performance was so strong we made a major decision regarding the holdings.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 Recall that ROTH accounts grow tax free and can be withdrawn tax free in retirement.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. Note that back in 2013, investors still had to pay commissions on stock trades. And for small dollar amounts, the commissions would take a higher percentage of the investment. I am wondering if REITNUT would have added more choices with free trades? 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 apartmentsExtra Space Storage-EXR- Self storage rentalsSimon Property- SPG- High end shopping mallsVentas-VTR-Senior communitiesI 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 It had an initial investment of $2,500 and has had no funds added or withdrawn.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 amountsMay 27, 2022= $7,032.96The 2021 portfolio report on 4/2/21 (4) showed a value of $5,448.29, so the one year performance has been strong at +29.1%. The high water mark was ~$8,220 on 12/31/21, so the 2022 selloff has affected it.Late in 2021 I became concerned that one position, Extra Space Storage (EXR) had performed TOO well and was too large a percentage of the overall portfolio. It had increased ~ 7X since it was purchased and represented ~ 66% of the portfolio. The question was: “What would REITNUT do?” I consulted with two professional money managers that were close associates of REITNUT. The consensus was to sell half of EXR and deploy the cash into Alexandria Real Estate (ARE) which was a favorite of REITNUT. ARE is a pretty unique REIT in the life science building arena. Its preferred, AREPRD, which converted into ARE common was REITNUT’s largest holding. Since half of the EXR holding was sold, it is been up some, down some and is currently below where we sold it. I have not deployed the cash into ARE yet as my personal bias we will be able to buy it cheaper later this year. Yes, this is market timing and may or may not work out.50 year portfolio IRR= 12.2%, up from 10.5% last yearVNQ- Vanguard REIT ETF= 8.2% up from 8.1% last yearSPY-Standard and Poor’s 500 ETF= 13.1% down from 14.4% last yearBIGPX-Blackrock 60% stock/40% bonds ETF= 7.8%, up from 6.2% last yearThe 50 year portfolio outperformed the REIT index (VNQ) by 4.0% which is impressive. It did underperform the SP500 by 0.9% which is better than last year’s underperformance of 4.0%, so we are catching up!The 50 year portfolio handily beat a standard 60/40 portfolio (BIGPX) by 4.4%, so you can argue that it has performed better than a more diversified portfolio.The annual income stream has increased from $83.84 to $164.45 which is a 96% increase. However, this factors in the loss of dividends from the partial sell of EXR. When ARE is added in, the income stream will increase. Cumulatively, the account has been paid $1,322 in dividends which is not bad considering the initial $2,500 investment.Here are the results for the four REITS from 6/6/13 through 5/27/22:REIT Total Dividend Reinvested Return Per Share Dividends IRR IRR IRRAVB 8.4% 4.5% 7.9%EXR 21.5% 15.9% NA because of shares soldSPG -0.2% 4.5% 9.0%VTR 2.1% -4.3% +.1%Here is an important quote from last year’s update: In particular IF and it is a big if, inflation and/or interest rates materially rise, it will force a repricing in all financial assets. Maybe worst case we go back to a 1966-1982 type market, where the Dow hit 1,000 in 1966 and did not rise above it until 1982, 16 years later. And after inflation aka the “real” value of the Dow was close to 333, so you lost 2/3rds of your buying power. Inflation has materially risen, but short term interest rates are still lagging far behind. The Fed has indicated they plan to raise short term rates to the moon, so we will have to see how far they go. Long term rates like the US Treasury 10 year are up substantially. Like I mentioned last year, increased inflation & interest rates would materially affect broad stock and bond prices. So the year to date losses in the 50 year portfolio as well the SP500 etc., are not a surprise. While inflation might have peaked, it has a long ways to go before falling back to the Fed’s 2.0% target. My best guess is that short term rates continue to increase, stock and bond prices continue to fall. Which is why I have not bought the ARE common yet. I am hoping to add it this year at a lower price. We will see. It is unpopular to say, but young people should be hoping for lower stock prices! Lower prices raise the expected long term returns. In our case since we are reinvesting all dividends, it means we will be buying more shares. What’s not to like about it?I remain confident that REITNUT’s four original choices will thrive long term. SPG and VTR were hit hardest by the Covid mess. VTR was the target of an unfriendly proxy fight by well-known REIT investor Jonathan Litt that runs an activist REIT fund. It appears that he has dropped the fight, at least for the short term. Maybe Litt will get a multibillionaire to put in a bid to buy VTR and take it private. Stranger things have happened.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. His book has been revised by Seeking Alpha author, Brad Thomas. (5) Brad made an arrangement with REITNUT’s family to make extensive use of Ralph’s last edition of Investing in REITs. I read Brad’s book and estimate that 75% of it is VERBATIM from Ralph’s book. I am OK with this and the front cover says: “In Tribute to Ralph Block.” Brad covers some new areas that were not around for REITNUT. I think Ralph would approve of it.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 Editionhttps://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.(4) 2021 50 year portfolio updatehttps://boards.fool.com/reitnut-50-year-portfolio-review-cov...(5) Brad Thomas REIT book: https://www.amazon.com/Intelligent-REIT-Investor-Guide-Inves...
REIT Total Dividend Reinvested Return Per Share Dividends IRR IRR IRRAVB 8.4% 4.5% 7.9%EXR 21.5% 15.9% NA because of shares soldSPG -0.2% 4.5% 9.0%VTR 2.1% -4.3% +.1%
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