Author Topic: REITs: any knowledgeable folks out there?  (Read 618 times)

Finances_With_Purpose

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REITs: any knowledgeable folks out there?
« on: August 24, 2020, 05:43:21 PM »
I'm curious if anyone has suggestions for REITs that are well-managed and particularly low-leverage.  I've only glanced at the space but was disappointed to see how deeply leveraged many REITs appear to be. 

Any suggestions?  It's something that comes up periodically and now that I finally have a little more time and will have a little more to invest soon, I figure it's worth another look.

MustacheAndaHalf

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Re: REITs: any knowledgeable folks out there?
« Reply #1 on: August 25, 2020, 12:14:56 PM »
While I both don't know enough about REITs and don't know about low-leverage REITs, I'm curious how to determine if a REIT is deeply leveraged.  Do you use debt/equity ratio?

The largest holding of Vanguard's REIT (VNQ) is American Tower Corp (AMT).  According to Morningstar's "financials" page, they have 8.78 debt/equity.
https://www.morningstar.com/stocks/xnys/amt/financials

The #2 holding is Prologis Inc (PLD) with 0.50 debt/equity.
https://www.morningstar.com/stocks/xnys/pld/financials

ChpBstrd

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Re: REITs: any knowledgeable folks out there?
« Reply #2 on: August 26, 2020, 08:53:19 AM »
Yes, you'll need to screen by debt/equity. If your brokerage doesn't have a good screener, Yahoo's is easy to use.

https://finance.yahoo.com/screener

You can select specific REIT sub-industries and narrow the debt/equity to a range you are comfortable with.

That said, debt leverage is part of real estate investing and you might have a hard time finding REITs that have decided to turn down the opportunity to borrow at 3% in order to generate ROA at 5-10%. The candidates you find might have shaky earnings, which prevented them from borrowing as much as would be ideal. You might ask yourself why you are looking for low leverage. Is it to reduce volatility or because you anticipate rising rates? In either of these examples there would be better investments than REITs.

That said, nobody wants to buy a high-risk debt shell that will have a hard time servicing debt. I suggest screening by the "operating cash flow ratio" instead of debt/equity.

https://www.investopedia.com/terms/o/ocfratio.asp

Calculating free cash flow over liabilities would be an ideal way to evaluate leverage IMO, but Yahoo doesn't offer that. Maybe your broker does?

Just be VERY careful about buying stocks that look good on a screener. Oftentimes the metrics are attractive because the stock market foresees reasons for the business to collapse. SPG probably looks healthy on paper, but do you really want to own malls in the era of Amazon and Covid 19? And of course I assume you already know not to screen REITs by earnings-based metrics like PE ratios. You have to like both the numbers and the company's strategy.

J Boogie

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Re: REITs: any knowledgeable folks out there?
« Reply #3 on: August 26, 2020, 10:42:55 AM »
There is a company called Broadmark that IPO'd maybe a year ago, very low debt.

I think they act as kind of a hard money lender for commercial buildings.

Yield is probably 7% or so.




Finances_With_Purpose

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Re: REITs: any knowledgeable folks out there?
« Reply #4 on: August 31, 2020, 11:13:32 PM »
Interesting.  Thanks all for the tips & info on this. 

And no, I wasn't thinking about rising rates.  Instead, I just prefer lower debt levels across the board, for much the same reason that folks buy bonds: trading a little returns for more stability. 

It sounds as though I may be better off targeting particular markets.