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Cohen & Steers Reit and Preferr Message Board

  • ezmoney8 ezmoney8 Dec 17, 2007 9:24 AM Flag

    Return of Capital aka "ROC"

    Return of capital, why, what is the point?

    RNP is a closed end fund that holds stocks and investments of RIET's.

    At the end of the year the stocks dividends held by RNP will issue a statement listing, short term & long term capital gains and any ROC aka return of capital. RNP will past that on to their fund holders.

    What is this ROC? One thing would be the depreciation. The apartment buildings will depreciate and be noted on the balance sheet and will result in FFO aka funds from operations. This is just one example of ROC.

    Maybe others have examples of ROC and would like to share their thoughts.

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    • Return of Capital is just that, a return of your investment. It is not taxed but you must reduce your cost basis by the amount designated as ROC. This ROC helps company's like Cohen pay a larger dividend which attracts some people. The net effect is that when you sell your shares, you will have less cost basis and a bigger taxable gain (assuming you sell at a gain).

      • 1 Reply to jc143719
      • It's not like they just take cash out the account and hand it back to you. That is what some people would have you think.

        Aside from the write down of aging buildings & equipment, carryover loses can be a return of capital.

        Keep in mind RNP's ROC is for the most part what their holdings report to them. As an example; when Health Care REIT Inc. (a holding of RNP) writes down the depreciation of their buildings...that write down results in the ROC.

        An error of a lot of REIT investors is they don't understand GAAP is not the same as FFO.

        An earlier post makes it sound as if RNP is just selling shares to pay the dividend.

        On so many REIT boards and oil & gas trust the question of "how can the company pay more than it earns" comes up, the answer is FFO. Funds from operations include the write down of fixed assets and carryover loses.

        The important thing to understand about return of capital and RNP is, for the most part, "RNP reports to their shareholder the ROC that is reported to them from the companies they hold"

        RNP is NOT a 'managed distribution' fund like ZTR or BTO, that say; "We will distribute 10% of the funds NAV and pay this managed distribution monthly or quarterly"

        DON'T confuse the ignorant into thinking RNP is "simply" handing the investor back the cash investment. Depreciation, carryover loses are two examples of ROC.

 
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