REIT - EOP:
Good move. I have a small amount of EOP. I have them pegged at 8.5% yield and payout ratio of 70%. (i.e. Dividend of $2.00 with FFO of $2.8 or so, so nicely covered.)
I recently started to track and graph the largest 115 REITs, plotting yield vs. payout ratio. Most office REIT trade at a "premium" to average, and apartments trade at a "discount". Others in between. Comparable REITs trade at vastly different yields, in my opinion. Some of the better deals, and which you may wish to look at:
apartment: AIV, UDR, EQR, TCT, MAA,TCR,
retail: EQY, DDR,
office: HIW, HRP, EOP, KE,
hotel: HPT (revenue from long term leases, not operating the hotels -- worth looking at!.)
industrial: FR.
mixed: CLP
other: NHI, SNH.
People have been posting for a couple of years now how REITS are doomed for a fall because interest rates will increase. Today's headlines don't confirm that, with rates heading lower, most likely. Plus, I am quite comfortable taking the dividends forever and not worrying about the principal.
REIT index vs. DOW and S&P:
finance.yahoo.com
Another tidbit, if you build a model of dividend income increasing by a constant percentage --
For normal ranges of rates, you can just about add the current yield plus the growth rate to get the total IRR of an investment. Maybe a half point less. example -- If a REIT is paying 8% and growing at 4%, the long term rate of return is really around 11.5 to 12%. (Of course you have to assume a cash-out value 20 years later, I think I used the same ratio/yield as "when purchased".)
And you can mathematicall toy with the numbers and calculate the theoretical growth rate... if a REIT is retaining 30% of their profit and the ROE is such and such... I played with it a bit, and determined that the actual risk/reward of grabbing a higher yielding REIT with a lower payout (higher risk, less expected growth), seems to be rational. i.e. the slope of the line makes sense.
So then I looked for REITS unreasonably above the line. Some are listed above.
grommit |
