Author Topic: How to tell if REITs are overvalued?  (Read 9502 times)

starguru

  • Pencil Stache
  • ****
  • Posts: 744
How to tell if REITs are overvalued?
« on: January 26, 2015, 03:24:40 PM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

SaintM

  • Guest
Re: How to tell if REITs are overvalued?
« Reply #1 on: January 26, 2015, 04:25:36 PM »
I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: How to tell if REITs are overvalued?
« Reply #2 on: January 26, 2015, 05:21:51 PM »
I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.

Boglehead's disagrees... http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement


OP, you should make this decision after determining your Asset Allocation, and then only invest if it falls within your Investment Policy and Asset Allocation. If you figure out those two fundamentals, you will never have to ask yourself this question again.
« Last Edit: January 26, 2015, 05:44:46 PM by zdravé »

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2267
  • Age: 54
  • Location: Ann Arbor, Michigan
Re: How to tell if REITs are overvalued?
« Reply #3 on: January 26, 2015, 08:10:55 PM »
I own the Vanguard REIT Index fund and I can tell you that there are a lot of taxes with this REIT as it disburses the gains. It's best to keep this asset in your tax deferred or tax free accounts (Roth, IRA, 401(k)).
zdrave is right on when he says you have to figure out what your REIT allocation should be, and stick with it. There were years when REITS underperformed other indexes, and now REITS are on a tear, but that usually is not the time to jump in on the bandwagon. So just make a model that you will stick to. It seems most feel that REITS should be around 5%-10% of the asset allocation, since this is really a small segment of the US economy. I'm also wondering if REIT values are correlated with perceptions of future interest rates.

innerscorecard

  • Pencil Stache
  • ****
  • Posts: 589
    • Inner Scorecard - Where financial independence, value investing and life meet
Re: How to tell if REITs are overvalued?
« Reply #4 on: January 26, 2015, 08:14:24 PM »
If you are an index investor regularly and mechanically making contributions, which is what you are, you are investing on the premise of the efficient market hypothesis, which says that securities are more or less correctly valued at all times. So to you, they are by definition not overvalued.

thedayisbrave

  • Pencil Stache
  • ****
  • Posts: 700
  • Location: Raleigh, NC
  • CFO @ My Life
Re: How to tell if REITs are overvalued?
« Reply #5 on: January 26, 2015, 08:15:06 PM »
I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.
Respectfully... Not sure where you got that info, but it's wrong.  In order to not be taxed as a corporation/partnership, REITs must disburse 90% or more of income generated from real estate holdings and this is taxed at the ordinary income tax rate.  Meaning, if you want to hold REITs, it's best to hold in a tax-advantaged account, Roth IRA being the most ideal.

I have REITs, they're part of my AA.  If you want to hold them, fine, but don't worry about if they're overvalued or not.  Buy in, hold for the long term, rebalance as necessary.  They did amazingly well in 2014, but nobody knows how long that trajectory will continue.  I personally sold some because my REIT allocation started getting too out of whack but if I were not at my REIT AA, I would be buying more.  Clear as mud?

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1620
  • Age: 48
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: How to tell if REITs are overvalued?
« Reply #6 on: January 26, 2015, 08:24:41 PM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

The long term valuation for mREITs has always been somewhere just over net book value.  This makes sense because they are bank like companies which you'd expect to be valued primarily based on book instead of P/S, P/E, P/FCF, or some kind of growth metric.  If you are paying 'about book', you are paying something around 'fair value.'

The bigger question in my mind is how well the managers have hedged their interest rate risk.  They borrow short and lend long so if they don't have swaps or other hedges in place, rising interest rates could kill them.  I prefer to bet on the industry as a whole rather than individual REITs as an all in bet could go to zero on me if some manager is "swimming naked" and go with REM at Wells Fargo where they will not allow a leveraged product and MORL (2x monthly pay REIT) at Interactive Brokers.  MORL has done better.  It is down about 18% versus basis price but dividend adjusted earnings is closing in on 20%.  I expect about 15%-16% versus my cost basis for decades as MORL has demonstrated it is committed to rebalancing holdings when/if it has underperformers.  If you get in at today's close, MORL will pay an even better yield against your cost basis, in my estimation.

TreeTired

  • Bristles
  • ***
  • Posts: 451
  • Age: 136
  • Location: North Carolina
  • I think we can make it
Re: How to tell if REITs are overvalued?
« Reply #7 on: January 26, 2015, 09:05:43 PM »
I was just looking at O today (Realty Income Corp).  This thing has been going straight up.   It is up 28% since I bought it 6 months ago and now the yield is only 4.1%   One of my happier purchases, but I am more inclined to sell here than to buy more.

sb_NoVA

  • 5 O'Clock Shadow
  • *
  • Posts: 66
Re: How to tell if REITs are overvalued?
« Reply #8 on: January 26, 2015, 09:20:44 PM »
Why do you say that Roth is most ideal place for REITs vs. other tax sheltered accounts (401k/HSA/529)?

I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.
Respectfully... Not sure where you got that info, but it's wrong.  In order to not be taxed as a corporation/partnership, REITs must disburse 90% or more of income generated from real estate holdings and this is taxed at the ordinary income tax rate.  Meaning, if you want to hold REITs, it's best to hold in a tax-advantaged account, Roth IRA being the most ideal.

I have REITs, they're part of my AA.  If you want to hold them, fine, but don't worry about if they're overvalued or not.  Buy in, hold for the long term, rebalance as necessary.  They did amazingly well in 2014, but nobody knows how long that trajectory will continue.  I personally sold some because my REIT allocation started getting too out of whack but if I were not at my REIT AA, I would be buying more.  Clear as mud?

starguru

  • Pencil Stache
  • ****
  • Posts: 744
Re: How to tell if REITs are overvalued?
« Reply #9 on: January 27, 2015, 07:20:15 AM »
I own the Vanguard REIT Index fund and I can tell you that there are a lot of taxes with this REIT as it disburses the gains. It's best to keep this asset in your tax deferred or tax free accounts (Roth, IRA, 401(k)).
zdrave is right on when he says you have to figure out what your REIT allocation should be, and stick with it. There were years when REITS underperformed other indexes, and now REITS are on a tear, but that usually is not the time to jump in on the bandwagon. So just make a model that you will stick to. It seems most feel that REITS should be around 5%-10% of the asset allocation, since this is really a small segment of the US economy. I'm also wondering if REIT values are correlated with perceptions of future interest rates.

Yes this is a tax deferred account so no worries about the tax efficiency of the fund.  WRT AA, when I released my managers a few months ago I said

10% REIT
10% Bond
15% International
65% US Stock

Weird thing, I dont think I did the math right, so right now my REIT and Bond allocations are roughly 7% each.  So according to AA, selling stocks to put into REITs works. But you also say "REITS are on a tear, but that usually is not the time to jump in on the bandwagon".  So I don't know, I get the jitters. 

starguru

  • Pencil Stache
  • ****
  • Posts: 744
Re: How to tell if REITs are overvalued?
« Reply #10 on: January 27, 2015, 07:23:05 AM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

The long term valuation for mREITs has always been somewhere just over net book value.  This makes sense because they are bank like companies which you'd expect to be valued primarily based on book instead of P/S, P/E, P/FCF, or some kind of growth metric.  If you are paying 'about book', you are paying something around 'fair value.'

The bigger question in my mind is how well the managers have hedged their interest rate risk.  They borrow short and lend long so if they don't have swaps or other hedges in place, rising interest rates could kill them.  I prefer to bet on the industry as a whole rather than individual REITs as an all in bet could go to zero on me if some manager is "swimming naked" and go with REM at Wells Fargo where they will not allow a leveraged product and MORL (2x monthly pay REIT) at Interactive Brokers.  MORL has done better.  It is down about 18% versus basis price but dividend adjusted earnings is closing in on 20%.  I expect about 15%-16% versus my cost basis for decades as MORL has demonstrated it is committed to rebalancing holdings when/if it has underperformers.  If you get in at today's close, MORL will pay an even better yield against your cost basis, in my estimation.

Fuck me, I don't understand any of this. 

I looked up MORL and HOLY SHIT 22.3% dividend?  I cant find any fee data.  Seems too good to be true.  How can one REIT fund like VNQ pay about 3.3% and MORL pay 22%?

Edit, just read this, about mREITS

http://www.moneycrashers.com/mortgage-reit-mreit-definition/

so I understand a bit more, but only a bit.
« Last Edit: January 27, 2015, 07:28:18 AM by starguru »

thedayisbrave

  • Pencil Stache
  • ****
  • Posts: 700
  • Location: Raleigh, NC
  • CFO @ My Life
Re: How to tell if REITs are overvalued?
« Reply #11 on: January 27, 2015, 08:17:49 AM »
Why do you say that Roth is most ideal place for REITs vs. other tax sheltered accounts (401k/HSA/529)?

I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.
Respectfully... Not sure where you got that info, but it's wrong.  In order to not be taxed as a corporation/partnership, REITs must disburse 90% or more of income generated from real estate holdings and this is taxed at the ordinary income tax rate.  Meaning, if you want to hold REITs, it's best to hold in a tax-advantaged account, Roth IRA being the most ideal.

I have REITs, they're part of my AA.  If you want to hold them, fine, but don't worry about if they're overvalued or not.  Buy in, hold for the long term, rebalance as necessary.  They did amazingly well in 2014, but nobody knows how long that trajectory will continue.  I personally sold some because my REIT allocation started getting too out of whack but if I were not at my REIT AA, I would be buying more.  Clear as mud?

Because money in a Roth grows tax-free, so you want as much growth in that sucker as possible.  But since REITs offer both growth AND income, you want to put them in a tax-advantaged account that is most conducive to growth... the Roth IRA.  It's not BAD if you've got them in a different tax-advantaged account, it's just optimal to have them in a Roth.

I suppose an HSA could work similarly, but you'd have to structure it correctly and put a little more planning into it with keeping receipts of QME (which effectively is the "Roth on steroids" part - tax free in, tax free out). 

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1620
  • Age: 48
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: How to tell if REITs are overvalued?
« Reply #12 on: January 27, 2015, 09:32:42 AM »

Fuck me, I don't understand any of this. 

I looked up MORL and HOLY SHIT 22.3% dividend?  I cant find any fee data.  Seems too good to be true.  How can one REIT fund like VNQ pay about 3.3% and MORL pay 22%?

Edit, just read this, about mREITS

http://www.moneycrashers.com/mortgage-reit-mreit-definition/

so I understand a bit more, but only a bit.

Starguru,

You already looked up mREITs so you have the general idea.  REM is a fund of mREITs.  MORL is an ETN (technically a debt instrument) that invests in a basket of mREITs using double leverage.  So it can be expected to pay double a comparable basket, less fees, less frictional cost of monthly rebalancing.  It can also be expect to appreciate or (IMPORTANTLY!) decline at double the rate of that basket in terms of stock price. 

So if you go MORL, go with half the normal allocation because you have double the risk/reward (the double distribution is yours to keep win/lose/draw.)  Note that some brokers such as Wells Fargo will not let you buy MORL.

I like MORL a LOT even though I bought in shortly after launch when it was more preciously priced and I have long term unrealized capital losses.  The 15+% yield versus my cost basis makes me plenty happy on something I plan to hold "forever."

rmendpara

  • Pencil Stache
  • ****
  • Posts: 602
Re: How to tell if REITs are overvalued?
« Reply #13 on: January 27, 2015, 10:24:14 AM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

How much REIT exposure do you generally want?

Do it now. If your allocation falls in the future (i.e. REITs drop), then add to the position to get back up near your target %. If your allocation rises, then trim and reallocate elsewhere.

Don't do it every 1% change... maybe 5% or some other number you choose... or on some time interval.

If you aren't qualified to value stocks/sectors, then focus on getting allocation in a good range.

starguru

  • Pencil Stache
  • ****
  • Posts: 744
Re: How to tell if REITs are overvalued?
« Reply #14 on: January 27, 2015, 10:56:01 AM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

How much REIT exposure do you generally want?

Do it now. If your allocation falls in the future (i.e. REITs drop), then add to the position to get back up near your target %. If your allocation rises, then trim and reallocate elsewhere.

Don't do it every 1% change... maybe 5% or some other number you choose... or on some time interval.

If you aren't qualified to value stocks/sectors, then focus on getting allocation in a good range.

Like I wrote earlier, the original plan was to shoot for 10% REITs in my AA.  Im at about 7% now, and am not sure if I just screwed up the math or if various items grew and the my actual AA changed.  Given that VNQ is my best performing fund over the last 3 months, I think I just screwed up the math.

I guess Im just nervous blindly following an AA.  I know, that reeks of a market timing sentiment, but it is strong in me.  Especially since I just bought a small cap fund in the wife's portfolio last night, and markets are tanking today.

RapmasterD

  • Pencil Stache
  • ****
  • Posts: 589
  • Location: SF Peninsula
Re: How to tell if REITs are overvalued?
« Reply #15 on: January 27, 2015, 02:03:37 PM »
I've been thinking a lot about the OP's question lately. I'm itching to start a small position - no more than 10% of total portfolio - in a REIT ETF like VNQ.

This is purely subjective, but to me things are pretty frothy right now. Yes, that is a term I cannot back up.

So here's what I look at.
--I'd like to see the dividend yield on VNQ much higher than it is now, e.g., 5-6% minimum.

And/or I'd like to be reading about:
--real estate markets decreasing or flat-lining price-wise in expensive areas like SF for several quarters
--higher vacancy rates in the residential rental space that hurt firms like Equity Residential
--increasing office rental and mall rental vacancies

These are the data points I'll be looking for, none of which I read about now.

ONE EXAMPLE: Look at the chart on top of this page (http://us.spindices.com/indices/real-estate/sp-case-shiller-20-city-composite-home-price-index). Make sure you click on the NATIONAL tab at the top of the page. I can't comment on whether we're high, or low, or whatever. But it's not where I'd want to get in. In today's terms, I'd like to see that index flirting with the low 140s.

If that means I sit out for a decade, I'm down with that.
« Last Edit: January 27, 2015, 02:33:38 PM by RapmasterD »

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1231
Re: How to tell if REITs are overvalued?
« Reply #16 on: January 27, 2015, 04:08:13 PM »
Don't know about the US REITS, but the Australian REITS publish their net asset value (the value of the underlying buildings) on a regular basis.  I try to avoid buying when they are a long way above their book value (direct property would make more sense), and buy more when they are well below book value.

The chart on page 7 of this report (http://www.asx.com.au/documents/products/ASX_Funds_Monthly_Update_-_December_14(1).pdf) is one I reference pretty regularly.  It lets me see the discount/premium of each of the REITS to help choose investment targets if looking for individual REITS, or a sense of the total REIT over/under valuation of the REIT sector.  Surely there must be similar available for the US markets?

As a side note, the tax treatment of REITS seems to differ significantly depending on the jurisdiction. From the sound of it, they are not very favorable tax wise in the US.  In the Australian market, the distribution of discounted capital gains, and tax deferred income make them very attractive to hold in taxable accounts - I hold most of my REITS in my own name, while I hold common stocks largely in retirement and trust structures.

J Boogie

  • Handlebar Stache
  • *****
  • Posts: 1338
Re: How to tell if REITs are overvalued?
« Reply #17 on: February 03, 2015, 11:51:26 AM »
Couldn't you just short as much MORL as you buy and enjoy the dividends risk free?

My guess is there wouldn't be many people lining up to go long on MORL, so maybe not.



YoungInvestor

  • Bristles
  • ***
  • Posts: 411
Re: How to tell if REITs are overvalued?
« Reply #18 on: February 03, 2015, 05:53:30 PM »
Couldn't you just short as much MORL as you buy and enjoy the dividends risk free?

My guess is there wouldn't be many people lining up to go long on MORL, so maybe not.

You need to pay back the dividends when you short something. Otherwise everyone would short over the ex-div of everything.

That's not to mention the short interest you'll pay.

J Boogie

  • Handlebar Stache
  • *****
  • Posts: 1338
Re: How to tell if REITs are overvalued?
« Reply #19 on: February 04, 2015, 07:26:55 AM »
Thanks YoungInvestor, I did not know that.  I've never shorted anything before.  That makes a lot of sense.

I don't think I'll be launching headfirst into either the short game or the double leveraged game.

To quote Alexander Pope, "A little learning is a dangerous thing; Drink deep, or taste not the Pierian spring."

phillyvalue

  • 5 O'Clock Shadow
  • *
  • Posts: 88
  • Age: 29
  • Location: New York, NY
Re: How to tell if REITs are overvalued?
« Reply #20 on: February 06, 2015, 10:15:17 PM »
I'd be hesitant about buying REITs at this point. At the very least, it's worth thinking about the interest rate bet you are making. REITs have rallied and fell as treasuries have rallied and fell. After a big drop in treasuries over the past few days, the 10-yr is still sub-2%. Low rates have an effect on the pricing of all sorts of assets, stocks included, but given that real estate is close to a annuity type stream, the pricing is particularly affected by rates. After what has occurred over the past year and a half, expecting with certainty that rates will rise in the near-term is foolish, but it is a very reasonable bet to assume rates are more likely to move up than down. And if so REIT valuation multiples will fall.

I'd also be hesitant about inferring much from the historical returns of REITs. If you are looking at the past twenty years or so, you are looking at the period in which REITs went from nothing to huge players in the real estate market, and you are looking at a period in which rates have fallen dramatically. The low hanging fruit are fewer now, and rates cannot physically drop much from current levels. The outperformance of REITs over equities over the past two decades can be traced to those factors and IMO should not be used to defend an expectation of future outperformance.

starguru

  • Pencil Stache
  • ****
  • Posts: 744
Re: How to tell if REITs are overvalued?
« Reply #21 on: February 07, 2015, 07:39:51 AM »
I'd be hesitant about buying REITs at this point. At the very least, it's worth thinking about the interest rate bet you are making. REITs have rallied and fell as treasuries have rallied and fell. After a big drop in treasuries over the past few days, the 10-yr is still sub-2%. Low rates have an effect on the pricing of all sorts of assets, stocks included, but given that real estate is close to a annuity type stream, the pricing is particularly affected by rates. After what has occurred over the past year and a half, expecting with certainty that rates will rise in the near-term is foolish, but it is a very reasonable bet to assume rates are more likely to move up than down. And if so REIT valuation multiples will fall.

I'd also be hesitant about inferring much from the historical returns of REITs. If you are looking at the past twenty years or so, you are looking at the period in which REITs went from nothing to huge players in the real estate market, and you are looking at a period in which rates have fallen dramatically. The low hanging fruit are fewer now, and rates cannot physically drop much from current levels. The outperformance of REITs over equities over the past two decades can be traced to those factors and IMO should not be used to defend an expectation of future outperformance.

Jeez what type of stuff do you read to be able to spout out analysis like that?

I still haven't moved on this.  I was also considering the following

LQD     Corporate Bnd Fund (dividend @ 3.3)
XLU     Utility ETF (High dividend at @3.23)
EFV      European Value
Some sort of extended market fund

I was contemplating selling some of my PXLG (Large cap growth) since it is a more substantial position and I am heavy large cap right now (one of my potentials above was extended market).  I am also under in bonds and international. 


SaintM

  • Guest
Re: How to tell if REITs are overvalued?
« Reply #22 on: February 07, 2015, 03:25:25 PM »
I don't make specific company recommendations, but I would point out that many equity REITs are tax-advantaged. You may consider owning shares in a taxable account.
Respectfully... Not sure where you got that info, but it's wrong.  In order to not be taxed as a corporation/partnership, REITs must disburse 90% or more of income generated from real estate holdings and this is taxed at the ordinary income tax rate.  Meaning, if you want to hold REITs, it's best to hold in a tax-advantaged account, Roth IRA being the most ideal.

I have REITs, they're part of my AA.  If you want to hold them, fine, but don't worry about if they're overvalued or not.  Buy in, hold for the long term, rebalance as necessary.  They did amazingly well in 2014, but nobody knows how long that trajectory will continue.  I personally sold some because my REIT allocation started getting too out of whack but if I were not at my REIT AA, I would be buying more.  Clear as mud?

I get my info from the annual 1099 from my brokerage. I hold a ton of Realy Income (O). The company pays 90% of its "distributable cash flow" which is not the same thing as "income."  Nearly half of the distribution is nontaxable return of capital. I computed my tax liability on the entire distribution he last couple of years as 15%--the same as the qualified dividend rate.

josstache

  • 5 O'Clock Shadow
  • *
  • Posts: 99
Re: How to tell if REITs are overvalued?
« Reply #23 on: February 07, 2015, 05:28:00 PM »
If I am not mistaken, REITs are required by law to distribute 90% of the their net income.  Under tax laws, they are required to depreciate their building assets (not land), reducing net income even if the assets did not economically suffer such depreciation.  They can also make distributions in excess of their net income subject to certain restrictions. 

Return of capital should reduce your basis in the REIT units, increasing your tax liability later, but presumably such difference would only be taxed as LTCG, and you get the benefits of "money now, tax later."  Since you state that your tax rate on the distributions is around 15%, and the tax would be LTCG whenever you sell, this sounds like a good setup.

Then again, I don't really know what I am talking about, so everyone should research and evaluate for themselves.

diesel15

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: How to tell if REITs are overvalued?
« Reply #24 on: February 08, 2015, 04:05:32 PM »
Im thinking of liquidating my position in Citibank and adding the proceeds to my VNQ holdings.  I really like VNQ, but dont know how to tell if REITs are expensive right now. 

Or do I just go for it; this is long term in a tax deferred account.

The long term valuation for mREITs has always been somewhere just over net book value.  This makes sense because they are bank like companies which you'd expect to be valued primarily based on book instead of P/S, P/E, P/FCF, or some kind of growth metric.  If you are paying 'about book', you are paying something around 'fair value.'

The bigger question in my mind is how well the managers have hedged their interest rate risk.  They borrow short and lend long so if they don't have swaps or other hedges in place, rising interest rates could kill them.  I prefer to bet on the industry as a whole rather than individual REITs as an all in bet could go to zero on me if some manager is "swimming naked" and go with REM at Wells Fargo where they will not allow a leveraged product and MORL (2x monthly pay REIT) at Interactive Brokers.  MORL has done better.  It is down about 18% versus basis price but dividend adjusted earnings is closing in on 20%.  I expect about 15%-16% versus my cost basis for decades as MORL has demonstrated it is committed to rebalancing holdings when/if it has underperformers.  If you get in at today's close, MORL will pay an even better yield against your cost basis, in my estimation.

Fuck me, I don't understand any of this. 

I looked up MORL and HOLY SHIT 22.3% dividend?  I cant find any fee data.  Seems too good to be true.  How can one REIT fund like VNQ pay about 3.3% and MORL pay 22%?

Edit, just read this, about mREITS

http://www.moneycrashers.com/mortgage-reit-mreit-definition/

so I understand a bit more, but only a bit.

I'm also a big fan of MORL and own quite a bit myself.  You need to be aware that this is not the same as owning an REIT directly.  Though I've heard that it depends on what brokerage you use how they report the dividends (Schwab considers this a qualified dividend for instance), in reality this is taxed as interest would be on a savings account (i.e. ordinary income).  That being said, I've just doubled my position in it as of Friday.  Extremely attractive right now in my opinion on the risk/reward scale with the fall in treasuries recently.