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  • 5 O'Clock Shadow
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« on: August 24, 2020, 05:43:21 PM »
« Last Edit: December 24, 2021, 12:29:32 AM by Finances_With_Purpose »


  • Walrus Stache
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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.

The #2 holding is Prologis Inc (PLD) with 0.50 debt/equity.


  • Magnum Stache
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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.

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.

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

  • Handlebar Stache
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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.