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Pennsylvania Real Estate Investment Trust Message Board

  • marvin339 marvin339 Dec 1, 2004 1:30 PM Flag

    REIT Sector Today

    F - A - N - T - A - S - T - I - C

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    • I certainly understand your position and your logic for the positions you have taken. I happen to disagree with some of your conclusions, that makes the world an interesting place. The things that I think you are missing relate to 1) Interest rates haver been low for some time and lots of refinancing has and is taking place which I think mitigates some of the forecasted impact of increasing interest rates. 2) I believe interest rates will go up gradually and will provide lots of RE opportunities given the amount of money that is currently on the sidelines. 3) The number of individual investors that are searching for dividend producing stocks (providing increased demand) is increasing dramatically (boomers). Having already retired I require income producing investments and I believe that REITS need to remain a substantial portion of my portfolio. While I have shorted certain stocks in the past, I can't convince myself to short any stock that pays a substantial dividend as it eats up any profit you might achieve. With regard to PREIT, I agree with your conclusions that it is too expensive to buy (except for reinvesting dividends) at todays yield. I appreciate your comments.

    • You both asked about replacing yields and reinvestment.
      I dont need the income to be replaced so Im not stuck looking for yeild. I dont think I can get hurt holding some cash for a while. I have owned REITs a long time, and I dont like the "new" volatility Im seeing- we get swings of more than the value of the dividend some days. Maybe I just miss the days when no one knew what a REIT was- you got low double digit divs and the price moved 10 cents a day.

      Im aware of the shorting pitfalls- particularly with small co like REITs- I may short against the position I have to take advantage of a sell down in price without actually selling a position and incurring a tax bite.

      I think PREIT was a buy in the lower 30's was fairly valued in the high 30's to 40 and is over valued in the low to mid 40's. Out to next year. The inflows from mutual funds have moved the REITs- too much money chasing too few vehicles. I dont see how anyone can justify buying over 40. I cant. Few have tried to justify their positions- shades of 2000. Different sector, same types of reactions.
      Just because the economy is doing weel doesnt guarantee rising FFO and profits for PEI(or any company). PEI has some investments to make in the CWN properties. For the first time in a long time I think managements are going to have to deal with inflating operating costs- utilites, maint. services etc. Even small missteps are going to stagnate or erode FFO growth. REITs have ahd a tailwind with falling rates and cheap capital, they are all going to have to transition into operating companies(in practice) rather than capital churn houses as rates rise. I havent heard anyone here or elsewhere put forth a rational reason either- I do understand the consolidation angle. Not sure I buy it with respect to PEI though. I think they would be looking at companies not being looked at. The game will be taking on smaller companies at lower multiples rather than big dollars for big deals I think.

      My theory is most of the price action is from the REIT funds, towards the end of the year they will want to look good so a steady rise unless we get some bad rate news(today it doesnt look like thats going to happen). Come the end of the year, beginning of next we may have a sell off as fund managers wait to see what happens. I thought we would do the same thing at the end of last qtr, but I was wrong. The PEI I sold 9/30 I lost a little opprotunity cost sure, but the position was a profit, and I dont think anyone goes broke taking a profit.
      As was pointed out the economy was/IS strong so some of the REIT monies I took off the table earlier this year got put into coal, transports (rails and shipping), and biotech, and technology(storage). I also have rolling Put positions in TLT, and some fund money in RRPSX- both designed to benefit from rising rates.

    • Interesting, I hold both ACAS and ALD. Approximately 18% of my total portfolio. I intend to move more money from tech and other non dividend areas to divi stocks and REIT's still look like a good place to be to me.

    • doddleon, I see we had the same question concerning where to put new cash. I've owned ACAS for several years and would not hesitate to add now. Also, I've been building a position in PSEC, a new bdc that is in the process of investing the proceeds of its IPO. Within a year it should be yielding 8-10% and show capital gains from the current price, which is basically equal to its net asset value. I'm not selling any of my preit's at this time, but I do believe we're fully valued generally. As long as the money flows into the reit dedicated institutional funds remains positive, we'll hold our own or advance a little more. I wouldn't mind holding some cash next year. Every sector of the market looks fully priced.

    • idontknow-I appreciate you point of view, but my question to you is as you move out of REIT's because they may decline in price, where do you go to replace the yield and overcome the cost of trading when calculating your rate of return. I would like to take your advice, but am having some difficulty defining where I will put the money to achieve returns.

    • I've seen short sellers chewed up & spat out for the past year in kim & cnt. You are now standing in line. What are your income needs?

    • Idont, and do what with the proceeds, pray tell? Buy Cisco?

    • Do rates matter? Perhaps. "REITs took a bath" in April when it was perceived that the fed was going to increase rates a quarter of a percent. I believe that was going to be the first increase. Currently, the rate is 100% higher and expected to be increased again this month. [I think the rate is 2%, up from 1%.] This has not yet affected the REIT sector. I will admit that higher rates will negatively impact REITs, but we haven't reached that point. Without looking at a schedule of loans and their respective interest rates, I am certain our management team has taken advantage of the cheap money that was available during the low interest rate environment. This, hopefully, will shield the company from accerlerating interest rate expense as borrowing costs increase.

      A factor that I believe has a direct affect on REITs is the price of oil. CNBC reported this morning that crude is under $45.00 a barrel. This should eventually result in a lower price at the pump.

      My local paper had the following headline in today's business secton: "Spending, income, manufacturing, job gains bode well for fourth quarter -- Reports brighten economic outlook."
      The article is lengthy, but one paragraph may support the momentum in REITs. "Consumer spending accelerated in October as a surge in hiring led to the biggest rise in incomes in five months, the government said yesterday."

      Determining a valuation is more involved than crunching numbers, using ratios we learned in accounting 101. Other factors must be considered.

      Shorting this stock may be a mistake. Consider a stop limit order good for 60 days. Since you have been "exiting over the last year," you lost potential appreciation during one of the best periods for the REIT sector.

      Good luck. I will remain long.

    • The problem with Market Timing is you have to be right twice..... when to sell and when to buy back ! If you are a really long term fan of Reits then the impending dip will be but a temporary downturn in a 10 - 15 year horizon. I agree with you , no question that we're going to see a crunch in the Reits. But so what as long as FFO's and thus Dividends don't get reduced. Remember Preit hasn't lowered the dividend for 40 years. As for me I look forward to the dip ! But I sure as heck won't guess on sell / buy. Good luck !

    • Marvin, we're peaking ! Can't possibly have too much more to go. More downside than upside at this point.

      • 1 Reply to ed31540
      • Well, Ed, that is an interesting opinion. Today's move was +4.02% on higher than average volume. We know that the dividend will be increased, and it might happen for the March payment. The company gave guidance for 2005 that indicates an improvement over 2004. The venture with Valley View Downs, contingent on a license being granted, provides a new direction that will result in additional revenue in the distant future. The company is growing by acquiring malls. In February, I plan to visit the Orlando, Florida, acquisition.

        I do not believe the consumer is tapped out, and I look forward to a good Christmas SHOPPING SEASON. Therefore, considering the positives I have mentioned, I strongly urge you to buckle your seat belt, because we are going on a fabulous ride into the FIFTIES. It may be a roller-coaster ride, but we will arrive in 2005. I will buy the bubbly, and we can celebrate.


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