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No. of Recommendations: 51
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. COVID affected all of the holdings in the portfolio in a negative way. Nothing was spared and the facts will be reported be they good, bad or ugly.

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 Recall that ROTH accounts grow tax free and can be withdrawn tax free in retirement.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 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 It had an initial investment of $2,500 and has had no funds added or withdrawn.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 2, 2021= $5,448.29


The current value understates how bad 2020 was. The portfolio report on 4/12/20 (4) showed a value of $3,719.38, which was close to the low for the year. Since then, it has turned positive being up 46% year over year.


50 year portfolio IRR= 10.46%, up from 5.95% last year, but down from 11.81% reported two years ago

VNQ- Vanguard REIT ETF= 8.09% up from 5.44%last year, but down from 8.42% two years ago

SPY-Standard and Poor’s 500 ETF= 14.44% up from 10.82% last year, and UP from 12.65% two years ago

BIGPX-Blackrock 60% stock/40% bonds ETF= 6.17%

The 50 year portfolio outperformed the REIT index by 2.37% which is impressive. It did underperform the SP500 by 3.98%. COVID was not kind to REITS in general. The FANG stocks continue to power the SP500 higher. TSLA which got added to the SP500 was up ~338% in the last year compared to the median Equity REIT which was up 41.4%. The 50 year portfolio handily beat a standard 60/40 ETF by 4.3%, so you can argue that it has performed better than a more diversified portfolio.

The annual income stream has increased from $83.84 to $172.29 which is a 105% increase. However, the income stream is lower today than it was one year ago. It was $185.65 last year so has fallen -7.2% year over year.
The IRR of the income stream is 9.64% which is down from last year’s impressive 12.27%.


Here are the results for the four REITS from 6/6/13 through 4/2/21:



REIT Total Dividend Reinvested
Return Per Share Dividends
IRR IRR IRR

AVB 7.55% 5.19% 8.59%
EXR 19.9% 12.4% 16.37%
SPG -0.78% 1.58% 5.86%
VTR 1.16% -4.96% -0.35%



Extra Space Storage, EXR in the self storage space continues to be the star and even it was affected by COVID. EXR’s top line sales were up 3.6% y/y and FFO/share was up +8.25%. EXR is solely responsible for the 50 year portfolio outperforming the REIT index VNQ. The future continues to look bright both for EXR and the self storage sector.

Avalonbay Communities, AVB in the apartment sector saw top line revenues decrease -3.2% and FFO/share decrease -7.0%. There were three negatives for AVB. Occupancy was down due to some people losing their jobs and/or moving away from coastal hubs, so AVB lowered rents in an attempt to maintain occupancy levels. Eviction moratoriums also played a role, so they have some tenants living rent free with no hope of every recovering that lost rental income. The eviction moratoriums will eventually stop, but with today’s political climate, even that is not certain. The long term question is whether coastal cities will see their population recover post COVID. I am betting yes on this and still have confidence in AVB.


Simon Property Group, SPG was in arguably the worst REIT sector, shopping malls, for COVID. Two lower tier REITS, CBL and PEI, declared bankruptcy. WPG which was spun out of SPG is teetering on the edge of bankruptcy. For a time last year, literally 100% of SPG’s malls were closed. Tough for your renters to pay their leases with zero revenues coming in. Top line revenues fell a staggering -20% and FFO/share was down -25%. SPG discontinued their dividend for ~ one quarter, then reinstated it @ $1.30, down from $2.10. We have literally lost money over 8 years on SPG with it being down -0.78%/year. NOT GOOD. SPG bought out TCO which was the other owner of top tier Class 1 shopping malls. So SPG was the clear leader before adding TCO and now is like the Secretariat of shopping malls. SPG has an international presence but 91% of its income comes from US properties. I am betting that American’s return to upscale shopping malls post COVID and that long term SPG will prosper. They have a very strong balance sheet and can access both more debt and equity if needed. I am little off put by the arrogance of their CEO, David Simon, but maybe when you are riding Secretariat you are allowed to be that way. The portfolio will never recover the lost dividend, but long term I expect their dividend to get back to the $2.10/qtr and grow from there. I am NOT in the camp that thinks all shopping malls are doomed. SPG also started buying bankrupt retailers like Forever21, Brooks Brothers and Penneys. They claim these are immediately accretive to earnings and have already paid back their investment in some cases.


Ventas, VTR, is in the senior living REIT sector that underperformed. It was doing poorly before the virus hit, so kind of a double hit. VTR’s top line revenue was down -2.0% and FFO/share was down -13.0%.I think it is the Bluest of the Blue in a poor sector. The virus has taken a heavy toll on many senior living facilities in the US. We all know that many of the COVID fatalities disproportionally were from seniors living in those communities. This raised the cost for the facilities trying to contain the virus in addition to literally having many of the residents decease. Not exactly a good time to be trying to convince seniors to move into your facility. VTR claims the trends are becoming favorable as more people are vaccinated. At least two of the operators of VTR owned facilities have mandated vaccines for all residents and staff. Most if not all of the facilities have created onsite vaccination programs. This all points to a long term return to normalcy, but we don’t know if that is in 2021 or later. I will not hazard a forecast when VTR’s FFO gets back to a high water mark. They did NOT miss any dividend payments, but did reduce it from $.7925 to $.45/qtr which is a 43% drop. This is the lowest dividend since 2006. Nothing like a 15 year setback on dividends. It is hard for me to separate VTR’s performance from the senior living sector. CEO Debbie Cafaro was widely regarded as one of the best CEO’s just a few years ago. Does she just join a long line of CEO’s that have lost their deity status, like Jack Welch for example? They had a shakeup of management under Debbie and brought in a new Executive VP of North America Senior Housing. I am guessing there is some serious teeth gnashing going on behind the scenes. Long term we know there will be strong demand for senior housing as boomers age, but it is NOT clear to me that REITS and VTR in particular will be able to capitalize on it. I am not able to forecast the US government’s role in paying for all of the indigent seniors that require this housing. Nor am I able to forecast how seniors that have the wealth to self-pay might be taxed on that wealth. So we are stuck with an investment that has a) gained 1.16%/year over ~ 8 years and b) has reduced its dividend back to a 15 year ago level. This is most difficult call of the four 50 year portfolio holdings. I am going to continue holding it for three reasons: a) behavioral finance- don’t let your emotions cause you to buy high and sell low, b) top line demand for senior living beds will grow and c) a weak hope that Debbie and VTR can regain their mojo and turn in above average FFO/dividend growth.


Amongst REITS, the standout sector has been data centers. CONE, COR, EQIX, DLR and QTS are all up on the year. The story is clear, much higher internet bandwidth demands because of the work at home movement. If REITNUT were here, I am wondering if he would add one of the REITS in this sector?


At the end of the day, I am NOT making any changes to the 50 year portfolios. We are 8 years in and have 42 years to go. While SPG and VTR have performed poorly, long term I have confidence in SPG, less so for VTR. Clearly at this point, the returns would have greater if the portfolio was 100% invested in the SP500. REITS were winning until after the 2016 presidential election. Since then, large cap growth stocks have been the place to be. I am guessing at some point(s), there will be rotation out of these growth stocks and their relative outperformance will diminish. 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 Down 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/interest rate forecasts are beyond the scope of this post in addition to being highly controversial.


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.

(4) 2020 50 year portfolio update
https://boards.fool.com/reitnut-50-year-portfolio-review-822...
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