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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Tapcon who wrote (5829)	1/22/1999 9:05:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 78748

<<2. What am I missing here: when I look at these stocks on Yahoo, I see most with earnings/share MUCH less than dividend/share. How is this sustained over time?>> GAAP earnings is not the way to look at a REIT because of the accounting for depreciation. This is why real estate was always used as a tax shelter, because you could generate tax losses (negative net income) but still have very positive cash flow. Depreciation is often a non-economic charge in the real estate world - a property often appreciates instead. So look at cash flow, not earnings. If you go back to the last downturn in 1991-94, you are going to find that none of these REITs existed. What were called REITs then were a different animal, and will be a misleading comparison. What I look at is leverage - real estate owners went into the last downturn with 90% debt, and lots of them got completely wiped out. Be careful with REITs that have debt/capital of much over 50%. Your point about safety on the downside, given their lousy performance in August, is well taken. A lot of us REIT fans were VERY surprised when they dropped with the market. So no promises there, but intuitively I cannot imagine REITs paying the yields they are paying taking the full brunt of a bear market. One additional caveat on REITs. They are boring beyond belief. I tend to get bored out of my REITs long before I get scared out of them. Jim