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No. of Recommendations: 3
VTR is now 22% below its recent 52 week high (also an all-time high, I believe). My 400 sh have now lost more than $7,000 and may well go negative. Currently it is still $1,000+ above my purchase price.

brucedoe
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No. of Recommendations: 15
One of the difficulties I have with our favorite investment sector is that the pool is not filled with similarly minded people.

So when I read posts that evaluate how well many of our well known REITs are doing, I feel good. We see top shelf management teams, very reasonable debt loads, high occupancy rates and solid fundamentals, with no harsh weather on the immediate or intermediate horizon. Yet, we have seen many REITs selling well off their highs.

Two cases in point. O was as low as $44.65 earlier today, some 19.6% off its $55.54 high. HCP was down to $37.18 which is 25.1% below it's $44.65 high. This morning I read the beginning of a Barrons article that said REITs are sitting on the edge of a cliff awaiting a push. I cant link the article as it requires a sign up to see the rest of it.

I like to understand what makes a business work well. It disturbs me to see a company being well run but trashed or tossed aside for reasons not directly related to what they do. I am not talking about REITs that are far out on the risk branch with high debt loads, low occupancy rates or governance that is not investor friendly.

If the fed does raise rates, nobody is seeing them going to 4-5%? Is a rate of 1-1.5% so catastrophic to their business models? IOW, the question should not center irrationally on IF there is a rate increase coming, but how much are the cumulative hikes likely to be.

There is always talk of a market correction. How many times in the last few years have we heard that? REITs have already been through a correction. Are they really a sector that is totally unworthy of investment in such an environment? Shouldn't the good ones be more than able to manage their way through the current and anticipated situations? The sector is one that should be in most reasonably assembled portfolios. Is it simply those who move in and out for reasons totally unrelated to the fundamentals far outnumber those who do? What is the rational way to play this? Does one just hunker down?

My REIT holdings are about 1/3 fewer than they were. I don't hold any high risk or marginal players. I only have two current preferreds which is way down from my prior level of holdings. I never felt that REITs were excessively overvalued. My sales were generally near the highs, although some went higher after my sale. The ones I held onto have seen their gains mostly disappear. However, I still like them as businesses and investments.

I guess I am looking for the collective wisdom here to chime in with their $.02 on the subject. In the last 20 years or so there has not been a time when I did not own any REITs. My holding percentages have varied a bit over the years. Also, there were a few times when I was totally out of preferreds as where we were in a particular cycle drove the decision to buy, sell or hold. Broadly speaking, preferreds are an easier animal to analyze and develop a strategy for. REIT commons today are not.


BG
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No. of Recommendations: 14
http://gersteinfisher.com/viewpoints/reits-and-rising-rates-...

On why you shouldn't fear short-termers fleeing their REIT positions, since they're just arbing interest rates.

Jim
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No. of Recommendations: 2
Thanks for the link, Jim. Reminds me of Warren Buffett's often repeated statement. If everyone likes a sale, shouldn't they like it when their their stocks (or REITS) go on sale?

Don
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No. of Recommendations: 2
"shouldn't they like it when their their stocks (or REITS) go on sale?"

Yes, a couple of months ago or so I switched from getting cash for the dividends to taking additional shares instead. Bought another batch of VTR also. I like sales!
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No. of Recommendations: 4
If everyone likes a sale, shouldn't they like it when their their stocks (or REITS) go on sale?

I think a sale is a relative term. The right way is what is the underlying value vs the price. If you see a discount and like the stock, yes.

The real question is, are REIT common valuation high? Were people looking for yield pushed the valuation too high? And whether the current price is just low from that high but relative to historical valuation is it high or normal?

I think these are relevant questions. Buffett's quotes are nuanced and cannot be followed blindly.
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No. of Recommendations: 4
<<<Thanks for the link, Jim. Reminds me of Warren Buffett's often repeated statement. If everyone likes a sale, shouldn't they like it when their their stocks (or REITS) go on sale?>>>

Absolutely not!

If you buy a shirt on sale, you saved some money and may have gotten a bargain.

If you buy a stock on sale you may own a falling knife, and it may cut deeply.
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No. of Recommendations: 2
If you buy a stock on sale you may own a falling knife, and it may cut deeply.

I bought some more on Friday when the price dropped to $63.20 (at $63.20 it pays a nice round 5% dividend). If it drops substantially from here, guess I will sacrifice my other hand.:-)
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No. of Recommendations: 5
I am buying VTR at this price
I buy with no intent to sell unless the stock were to rally with a yield of less than 3.5%. Then I would see a portion of my holdings. VTR is my largest REIT holding.

Martin
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No. of Recommendations: 27
<<<Thanks for the link, Jim. Reminds me of Warren Buffett's often repeated statement. If everyone likes a sale, shouldn't they like it when their their stocks (or REITS) go on sale?>>>

Absolutely not!

If you buy a shirt on sale, you saved some money and may have gotten a bargain.

If you buy a stock on sale you may own a falling knife, and it may cut deeply.


A few respectful comments........

I'm confident that historical evidence will support the fact that two keys to investing success include (among other things):
(1) Investing in well run companies for the long term
(2) Buying well run companies at good prices will enhance both short and long term investment returns.

Sometimes stocks that are rapidly declining in price are falling knives, but many times they are simply stocks on sale. I believe the most successful investors will have the skill to recognize the difference. A few questions I ask myself when evaluating the purchase of a stock rapidly declining in price:

(a) Historically has the company been profitable and well run?
(b) Is the company still profitable and well run?
(c) Is the industry in which the company participates healthy (i.e. expected to continue to grow and/or not currently subject to disruptive technology or government intervention)?
(d) Is the company selling at a lower than normal valuation (which does not necessarily mean cheap)?
(e) Is the rapid price decline likely to be due to a general market correction (or a market sector correction) rather than a company specific issue?

If I can answer yes to all of these questions, in general, I am very comfortable initiating a new investment or adding to an existing position.

I believe VTR fits this situation very well.....and earlier today I added (again) to my already modestly overweight position is VTR.

It was un-nerving at times, but during the 2008-2009 credit crisis I used these guidelines and kept purchasing great companies at amazing prices. In hindsight, those were some of the very best purchases in my 23 year investing career.

Because we never know anything in the stock market for sure, except in hindsight, when buying rapidly declining stocks I always buy in series of small purchases.
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No. of Recommendations: 13
<(a) Historically has the company been profitable and well run?
(b) Is the company still profitable and well run?
(c) Is the industry in which the company participates healthy (i.e. expected to continue to grow and/or not currently subject to disruptive technology or government intervention)?
(d) Is the company selling at a lower than normal valuation (which does not necessarily mean cheap)?
(e) Is the rapid price decline likely to be due to a general market correction (or a market sector correction) rather than a company specific issue?>



Thanks for a good post on a very important topic.

I agree with your sentiments, but I also give some credence to the prior poster about falling knives.

For starters I will say that we are generally discussing REITs that we all know very well and have really good management teams with LT track records. There are plenty of other lesser REITs out there, but we can save them for another day.

I would say that A, B and C all apply to those companies we are talking about. Point D about selling at lower than normal valuations is a bit harder to quantify. Point E has not applied as many good REITs are 20-25% off their earlier in the year highs with the overall market is not off by anywhere near those numbers.

Many were able to justify the higher prices even though REITs have had a nice run in the last couple of years (with some dips along the way). I actually made a small buy of O in the $48+ range after it had fallen from $55.50 earlier. It was "for sale" @44.67 earlier today. This is a better entry point than my earlier buy, but is it soon to be offered at an even better price?

The falling knife phrase is sometimes used to imply that what looks like a nice sale may not be good for your financial health. Think of say a Lumber Liquidators when it dropped from $70 to $50 then $40. It is now selling around $20, so that buys made at 50/40/30 have still lost lots more money. Of course the company does not come close to meeting your A-E criteria. I just use it as an obvious current example of a falling knife that deserves to be falling.

My larger issue with our REITs is that a lot of the monies that flow into and out of the sector comes from people or funds that do not care in the least about the fundamentals of individual REITs. That disturbs me because money that supports our favorite asset class can move out suddenly without any fundamental changes in the business models. So what could justifiably be a 5-10% retrenchment can become a 20-30% drop that can do some serious harm by scaring away people who would or should normally invest in the asset class.

I personally do not believe that anything on the rising interest rate front poses a dramatic challenge to any of the well run REITs. Nobody is talking about huge increases over a short period of time. Everything suggests a few modest raises that will be carefully evaluated. IOE, the sky is not falling. Yet here we are in a bad spot that leaves us wondering if a buy made today will look dumb in the next few months like my O buy (or my ROIC buy or my failure to sell my HCP anywhere near their prior highs). A full blown market correction of 20% can take REITs out to the shed even more than they have been or it can signal them as a good safe haven in turbulent times. Of course nobody ever rings the doorbell telling you when it is safe to go back outside.

I have always considered fundamentals to be critically important in narrowing down ones investment choices. But it is certainly unnerving to see fundamentals downplayed or ignored by a significant segment of REIT investors.


BG
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No. of Recommendations: 9
There seems to be a strong inverse relation between the ^RMZ and the 10 year treasury yields, ^TNX

http://stockcharts.com/freecharts/perf.php?$TNX,$rmz

It seems if in the next few months if

1. rates goes down, ^RMZ will go up, and this will be a great time to buy

2. rates stays same, ^RMZ will, other things being equal, stay pretty much where it is

3. rates continues to go up, the ^RMZ will go down and many bargains become falling knives.

I personally think the rates (and the RMZ) will stay pretty much the same at this point. REITs are not on sale or falling knives.

However some individual REITs have fallen much more than the ^RMZ and those REITs may go up in the future but in general those REITs, other things being equal, will not revisit their highs when interest rate were at a bottom.

We had a good run last year. All good things, especially 30% returns, come to and end. The 10 year yields, IMHO, will revert to the mean. The problem is to determine what the mean is.

At this particular point if you're interested primarily in the dividends, you can relax as they seem safe. I'm interested in the dividends but it still hurts to see the prices dive.

I've recently sold some preferreds which have come down a little and may a few purchases in REITs which have come down more.

Comments, corrections, bricks welcome

klee12
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No. of Recommendations: 10
I too added a little bit to my VTR holdings, already that had been my largest REIT holding.

One thing is that all the principal health care REITs are down much like VTR. We should also keep in mind that the mass of baby boomers is entering into the major health care sector so I believe they deserve a premium price which they do not now have.

So I will stick to VTR. My regret as I am in the stage of drawing down my investments, I cannot purchase even more.

I might point out, however, the my Vanguard health care mutual fund (that is even a larger holding than my VTR) is near its all-time high, and the T. Rowe Price Health Sciences fund (in my late wife's trust) is not far below its all-time high. So even though the health care REITs are not doing well right now, health care in general is still doing well.

brucedoe
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No. of Recommendations: 4
So I was looking through the 2013 annual report of VTR (btw when do they post the 2014 one?) and I noticed that the growth in FFO looked ordinary to me. I believe in 2007 it was 3 bucks a share and now it is 4 bucks (not sure what the FFO number looks like)

The CEO definitely seems like a great business minded lady. She has been able to acquire assets and build the company into a really solid REIT with leverage below average.

The shareholder returns also seems ordinary if I map it from 2007 to current. Moved from 41 to 64 - (of course you got to tag on 5% of dividend annually along the way - is it good absolutely, is it great - may be not)

I also took a look at PEB - their FFO growth is just spectacular. No doubt they were fortunate to acquire lot of assets during the real downturn of 2009 - 2013 - but still the CEO seemed to be really good in finding value.

I understand one is in rock solid health care industry, another is in very volatile hotel industry. One has occupancy rate in 90's, the other in more like low 70's. But to me FFO over a period of time captures those differences. I would say that the hotel industry has not really seen a downturn in last 5 years and what lay ahead could be very different that what they have been experiencing in last 5 years.

What I am driving towards is, if you had 10K today to put in REIT(s), why VTR sounds better than PEB or may be an apartment REIT that has grown AFFO much more aggressively.

SS
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No. of Recommendations: 16
The shareholder returns also seems ordinary if I map it from 2007 to current.

I suppose that depends on one's definition of 'ordinary'. It also of course is hindsight, which we all know is much easier than predicting the future.

Here's a perfchart of VTR relative to VNQ: http://stockcharts.com/freecharts/perf.php?vnq,vtr

If you move the date bar to around the start of 2007, you'll see that VNQ's total return was around 35%, vs about 125% for VTR. Not *my* definition of 'ordinary'.

Did PEB do better? Well, I can't say; it didn't exist in 2007. If you add it to the symbol list and display the longest period available, it did outperform VTR by quite a bit, but was far more ordinary in comparison to VNQ. If we add HCN and HCP to the mix, we see that for the past 5+ years healthcare (at least, those 3 REITs) has been underperforming the market pretty substantially.

Comparing VTR to PEB or an apartment REIT just doesn't make much sense to me. VTR needs to be compared with others in its sector. If you remove PEB from the chart and compare HCN, HCP, and VTR over the time period starting around 2007, HCN has actually outperformed VTR, though not by that much, but HCP vastly underperformed. If you go all the way back to the oldest date possible, VTR comes out way ahead. So perhaps that's where a lot of the positive VTR sentiment comes from -- historical return (and Ms. Cafaro's track record).

We can all guess whether 10K today would be better put towards VTR, PEB, or some other REIT. That's one of the primary reasons this board exists. But over a long enough period of time, you either need to trade aggressively (and successfully), or be well diversified across sectors and individual holdings. Or just buy an index fund.

Ken
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No. of Recommendations: 4

If you move the date bar to around the start of 2007, you'll see that VNQ's total return was around 35%, vs about 125% for VTR. Not *my* definition of 'ordinary'


Ok my bad. I saw the capital appreciation being 57% - did not realize the dividend returns made it so juicy to bring it up to 125% - I am just astounded by the impact of consistent dividend on overall performance and if someone reinvested it, it would go much much further. And likely most folks have it in IRA account thus negating the tax consequence.

Thank you for setting that straight for me.

Comparing VTR to PEB or an apartment REIT just doesn't make much sense to me. VTR needs to be compared with others in its sector.

It does not really make sense. Completely agree. I was really reaching here.

But over a long enough period of time, you either need to trade aggressively (and successfully), or be well diversified across sectors and individual holdings

A follow up - are most folks on this board always hold at least 12-13 may be 20 REITs. I suppose a well planned diversification would need to have apartment, shopping, industrial, hospitality, health, office. 2 each makes it 12, and 3 each gets us to 18. I suppose at some point VNQ is a much better option. It sure is a personal preference, but I would struggle to justify not holding VNQ if one has 15 or more REIT in a portfolio AND 25% or less of portfolio allocation to REIT world. (my personal portfolio target is around 8% or so)

I am wondering for the individual stock pickers here is the percentage of REIT in their portfolio much larger than 10% - may be 30% or more. I suppose at that number trying to go individual REIT may make sense.

Thoughts?

SS
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No. of Recommendations: 11
A follow up - are most folks on this board always hold at least 12-13 may be 20 REITs. I suppose a well planned diversification would need to have apartment, shopping, industrial, hospitality, health, office. 2 each makes it 12, and 3 each gets us to 18. I suppose at some point VNQ is a much better option. It sure is a personal preference, but I would struggle to justify not holding VNQ if one has 15 or more REIT in a portfolio AND 25% or less of portfolio allocation to REIT world. (my personal portfolio target is around 8% or so)

I am wondering for the individual stock pickers here is the percentage of REIT in their portfolio much larger than 10% - may be 30% or more. I suppose at that number trying to go individual REIT may make sense.


An excellent question, and one that we used to talk about here, back in the day. In fact, it is FAQ #12 ("How many REITs should I own?"). The answer is different for everyone, and as you wrote, it also depends on the size of one's portfolio allocation to REITs.

Personally, it also changes. Years ago, I had more time to devote to studying and keeping track of individual REITs. While I wasn't necessarily trying to outperform the index, I simply felt more comfortable holding individual REITs through down times than an index fund. Now I am fine with letting an index fund take care of things, through good and bad times. (Though I do still hold a smattering of individual REITs, they make up only a small portion of my holdings.)

I don't know what others are doing now, as we just don't seem to talk about it much any more. 2008-9, and the loss of missash, had a big impact on this board. It's too bad, but I'm happy that the board has only changed rather than died completely.

Ken
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No. of Recommendations: 8
Personally I only hold individual REIT's (no ETF's). The % of my entire portfolio varies from 5 - 15 %. Currently I own 8 different REIT's. I own about equal amounts of AVB, BXP, EXR and SPG and about double the amounts in AMT, NHI, O & ROIC. Currently I have about 13% of my portfolio in REIT's. I sold all of my preferreds about one half a years ago. I used to have a lot of them (about 20% of my entire portfolio).
Norm
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No. of Recommendations: 3
the loss of miss ash

Very much missed and glad you remembered
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No. of Recommendations: 3
missash, very much missed and remembered.

David
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No. of Recommendations: 6
We should remember that pices of stocks move up and down. I'm not sure why Health Care Reists are being hit so hard. Perhaps the "real money" thinks they got ahead of themselves so decided to short? But let's be optimisitc and think that Health Care REITs will rise again. The target will be $81+/sh for VTR that was looking exceptionally good to me at the time. Don' know when that will be but remember the youngest baby boomers are only 51 (since 1964) this year so the group has a lot of health growth left. I'm sticking with it.

That said, I have decided to keep my Vanguard Health Care mutual fund close to $50,000 and so far have withdrawn $23,000 from it over the last 30 months. The fund is currently at about $51,000 so I feel comfortable waiting for more growth. I cash in when I can get out $4,000 and stay at $50,000. I do reinvest all dividends and capital gains.

brucedoe
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No. of Recommendations: 3
<Perhaps the "real money" thinks they got ahead of themselves so decided to short? But let's be optimisitc and think that Health Care REITs will rise again.>

I was considering this possibility also when I was considering what is driving the prices down of the Health Care REITs. This explanation would make some sense, I also thought that perhaps the big money boys know something (that we are not privy to)about coming changes to Obamacare or otherwise that would affect the future of these companies. I do not think that the decline is profit taking because the way the stock prices are falling does not follow a "profit taking" mode of short down then back up.
Any other ideas out there as to other causes of the price decline?
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No. of Recommendations: 11
VTR now yields nearly 5%. Back when it was $73 the yield was still a respectable 4% so it doesn't seem to be outpacing itself as far as yield is concerned

They raised the dividend 9% in December and the payout ratio is lower than it was during the last fire sale. Looking through the 10Q raises no red flags supporting a sell off. It's not a bad chance to add.

REITs have been in sell off mode this year in anticipation of interest rates rising. As someone pointed out, when rates are actually rising REIT performance is good. Why health care is underperforming the indexes isn't clear. VTR and HCN are only slightly worse than the index sell offs. SNH is not doing well at all.

The senior living NOI growth partly through acquisition was 21% last Q and even senior living same store sales were OK at 3%.

Number of skilled nursing properties are going down slightly and these are the third party payers that can be a problem. The senior housing is increasing and that's private pay -- was looking for that trend to continue. I like it.

http://blogs.barrons.com/incomeinvesting/2015/06/12/get-read...

<SNIPS>

Get Ready for the REIT Rebound?

By Amey Stone

This week was the big annual conference for investors in the real estate investment trust (REIT) industry. Despite the second quarter sell-off in REITS due to fears of rising interest rates, analysts say they found the NAREIT meetings upbeat.

Cowen & Company analyst James Sullivan says he came away from the conference more positive about the prospects for a recovery in share prices and operating performance for the sector in the second half of this year. He believes at least the first Federal Reserve rate hike is already priced in and writes:

The coming rate increase in the Fed Funds rate is long awaited and well-advertised. When we look at prior similar periods, REITs underperform in anticipation of such increases (as do bonds) and outperform, both their historic averages and the broader market in the subsequent 1-2 quarters.
He said he continues to recommend his three top names: Alexandria Real Estate Equities (ARE) (his favorite), Boston Properties (BXP) and Simon Property Group (SPG). He also upgraded apartment REIT UDR (UDR) to Outperform from Market Perform.
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No. of Recommendations: 5
Hello,

There seems to be some puzzlement as to why VTR has become such a perceived bargain. Here are some comments.

1. Looking at the performance of the three largest healthcare REITs

http://stockcharts.com/freecharts/perf.php?$RMZ,VTR,HCN,HCP

VTR and HCN slighly outperformed the RMZ over the last 200 days. So it hasn't done some badly compared to other REITs over that period. But note that VTR and HCN rose more than the the RMZ from the beginning of the period until about Jan 15, and fell more after Jan 15 than the RMZ

2. There is one metric that I don't have access to, and that is the NAV per Green Street. What is the premium of VTR versus that of other REITs. Is it very high or inline with other REITs? If it is inline with other REITs then maybe it is not such a screaming buy.

Comments, corrections, bricks welcome

klee12
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No. of Recommendations: 3
<He said he continues to recommend his three top names: Alexandria Real Estate Equities (ARE) (his favorite), Boston Properties (BXP) and Simon Property Group (SPG). He also upgraded apartment REIT UDR (UDR) to Outperform from Market Perform.>


Please just take this as a data point and nothing more.

From their 52 week highs each one of these is off about the following percentages:

ARE -11%
BXP -15
SPG -15
VTR -22
UDR --8

Those numbers by themselves do not mean very much. They are only meant to be used in the context of all that is being discussed in this thread. As others have said, sometimes the high may have been due to a surge for one REIT, but may have been a slower move up for another. Sometimes one may be similar to the index, but overshot it in both directions.

One should not overstate these numbers, but they do help to paint a picture that may be useful. When I look at a chart I like to see a current position in context with where it has moved historically. For REIT holders I think a 10 year chart is useful in that it shows you enough time to see how well they dealt with the 2008-08 period. You should also look for the dividend history and whether or not they slashed the div, maintained it or increased it through the years.

The problem with focusing on how much off the high a price is at is that it can give a false impression that the high price is a reasonable target. In the last couple of years VTR has seen two sharp upward movements in price, followed by some equally sharp declines. How much weight, if any does one give that? I don't know enough to give an answer to that question.


BG
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No. of Recommendations: 1
there is one metric that I don't have access to, and that is the NAV per Green Street.

We can do that ourselves and approximate value at least in the ballpark
I have a calculation from 2013 and will check the current value for comparison. @013 was a reasonably good entry point
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