Thank you for taking the time to respond, especially on your vacation. Dont forget to have fun and rest. Thats what your vacation is about. I guess I need to request a 10K from GRT and look at the cash flow statement. I guess Im hung up on the decreasing book value and fear of the valuations of the properties if the economy gets worse. You know, once burned twice shy.
Thanks again, I have printed off your post so I can use it with the 10K study.
On vacation but.....
Thought I would add my 2 cents...
Return of capital [not normally known till the "end" of the "YEARLY" reporting period] is "NOT" a bad thing if it is properly used by the REIT's. It sometimes has a "positive" effect for investors [below is a brief explanation].....
FFO is calculated by adding operating earnings and noncash charges, primarily real estate depreciation. However, REIT analysts go a step further by calculating funds available for distribution (FAD). FAD is FFO minus recurring capital expenditures for nonincremental revenue-generating items, straight-line adjustments to rental income and other uses of cash that are not reflected in the income statement. Thus, a REIT�s dividend typically �EXCEEDS� net earnings because its actual cash inflows exceed its net taxable earnings (majority of the difference is attributed to depreciation of the REIT portfolio). The return of capital is that portion of the dividend that �EXCEEDS� the REIT�s net earnings(reduces the investors cost basis). Since the return of capital portion of a REIT�s dividend is tax deferred and the cap gains tax rate is generally more favorable than the rate on ordinary income, a return of capital feature has the favorable impact of increasing a REIT�s taxable equivalent yield.
The bottom line is that, in cases where a significant portion of the REIT�s dividend is a return of capital, taxable investors could enjoy an enhanced yield as a result of both tax deferral (until shares sold) and tax savings (the cap gains tax rate instead of the ordinary income rate). Example follows:
An investor owns one share of a REIT that pays an annual dividend of $1.50, 30% of which is return of capital. The investor would pay current ordinary income tax on $1.05 and would reduce the cost basis in the share by the return of capital of $0.45, �DEFERRED UNTIL THE TIME THE INVESTOR SELLS THE SHARE� . The investor will also pay cap gains tax on any share appreciation:
$1.50 * (1-0.30)=$1.05 taxed at ordinary rate
$1.50 * 0.30=$0.45 subject to the cap gains tax which will be deferred until the share is sold.
Assume a $20 stock price with a indicated annual dividend yield $1.50/$20.00=7.5%.
Taxable Equivalent Yield (see note a.):
(R*D) + [ (1-R) * (D) * (1-T) ]
P * (1-T)
(0.3*1.50)+ [ (1-0.3) * ($1.50) * (1-0.396)]
$20 * ( 1-0.396)
note (a)...R=return of capital (30% in example), D= current annual dividend, T= Ordinary income tax rate, and P=Current Reit share price.
In the example above the REIT�s taxable equivalent yield has a favorable impact (8.98% vs 7.5%).
The "bet" is that if the NAV holds firm (at a minimum) and you are getting ROC dividends including income that the overall ROI takes care of itself in the end. My take is that the you can play this strategy with a GRT if you are disciplined enough to hold thru the turbulance that regularly greets the regional mall sector and buy with a sell time frame that is disciplined.
The reits of the 70s do not compare to today's reits. Those reits were so overleveraged as to make GRT and MLS look downright conservative by those past standards.
The one good thing I see in GRT is that they are finally making a move towards capital recycling and taking hold of their better ppties and letting some of these non core holdings go. It appears they are doing it in a disciplined manner.
I can't believe that they told you that. That is a bunch of crap. I would have thought that it would have been a better approach to say that the rentals have not kicked in from Polaris, as it is not complete as of yet, and when it does, the dividend would be covered rather than a return of capital.(If in fact that would be the case, of which I do not know.)
That was the same line used in the earlier REIT blow up back in the seventies. There are enough REITS that cover their dividend without taking the risk. I learned that the hard way. I also found that when these things blew up in the seventies, they blew in a hurry. I'm not saying that GRT is going to blow up. I'm just saying that an uncovered dividend without a time frame to cover is an inordinate risk to your principal. Why go for a big dividend only to find you lost more in principal. Either way, you will loose.
At "11.00" it was a great buy. At the present 15.85 price it is now "overvalued". The top side of this [on the value side] is 15.77.
Most of the REIT's are now outside the "value" buy's as the REIT sector is being fled to as the rest of the market has been collapsing. If you notice, Real Estate values have not been going down and that makes REIT's worth something.
Enjoy the dividend [at what you paid for the REIT---"11"] and the capital gain associated with it.
There is no telling where this might go [on the upside] as investors might be willing to pay more than it is worth.
Guess what Skelly, its now almost 18. It appears that either you and I have a different opinion of its value than the rest of the world or our valuation models need refining. I would rate this stock a sell but I don't know what else to buy without serious deterioration in my income.