Non Traded REITs Ranked By Dividend Coverage

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Non Traded REITs Ranked By Dividend Coverage

Postby REIT Wrecks » Sun May 01, 2011 1:50 am

Keefe, Bruyette & Woods (a well-known investment firm specializing in the financial sector) recently introduced a REIT honor roll, and not surprisingly, there were no non-traded REITs on the list. To make the list, each REIT must have a market capitalization of at least $500 million, they must have consecutively increased or maintained regular cash dividends since 2000, and they must have an adjusted funds from operations (AFFO) payout ratio of less than 95% in 2011.

Interestingly, only two of the 14 REITs on KBW's honor roll had a payout ratio of more than 90% of AFFO in 2011. The rest had even more conservative payout ratios of between 54.2% and 89% of AFFO. Not surprisingly, the price performance of these REITs was stellar. For the five-year period (2005-2010) the KBW Honor Roll REITs returned 71% -- vs. 16% for the Morgan Stanley REIT index and 12% S&P 500. For the 10-year period (2000-2010) those selected in the Honor Roll returned an amazing 424% -- vs. 173% for the Morgan Stanley REIT index and and 15% for the S&P 500.

KBW concluded that “while there is a tremendous amount of focus by REIT investors on net asset value creation, we continue to believe, over time, dividends are a particularly relevant weighing mechanism and ultimately a key factor for investing in the sector,”

Of course, I couldn't help but wonder what a list of non-traded REITs ranked by dividend payout ratio would look like, so I created one using data from the 2010 10Ks. Sadly, of the 45 REITs on the list, only five can boast a payout ratio of less than 95% of FFO (I used FFO because not all NTRs report AFFO, and if they do report AFFO, they do not all calculate it in the same way that publicly traded REITs do). Two of those are hard luck stories - Inland Western had to slash its dividend to 2%, and Lighthouse Value Plus REIT I will never see a 74% coverage ratio again in its lifetime. Except for Northstar, all five of them are closed to new investors.

The lower the payout ratio, the better. Higher payout ratios mean the dividend is being funded with debt and offering proceeds. The higher the ratio, the lower the coverage.

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Non-traded REITs are clearly not focused on financial performance metrics -- their goal is simply to sell more shares to clueless investors. With very few exceptions, most are using artificially high and unsustainable dividends to meet this goal. Shamefully, nine of the REITs on this list had a payout ratio in excess of 200% of FFO, and nine more had a payout ratio in excess of 300%. Investors in these REITs will have a very difficult time getting 100% of their principal back, never mind beating the Morgan Stanley REIT index or the S&P.

Non-Traded REIT Comparison: Dividends, Leverage & Fees

Non-Traded REITs Ranked By Total Assets

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby sammyz » Tue Jul 12, 2011 9:50 pm

It's interesting that these forums are loaded with banner ads of so called Wall Street traditional investments....ETF's. Cramers Best Picks......like all these strategies did not loose huge amounts of capital in 2008-09......as a former pro trader I can tell you this forum is a joke just based on content and banner ads it is promoting........Top 12 Stocks to Buy Now.....! Wow really.......lets see how that strategy works or fails for the 10th time in a decade.......I guess we all have some agenda don't we ?

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby REIT Wrecks » Wed Jul 13, 2011 12:09 am

Gee, thanks. As a former "pro trader" :roll: do you have any substantive comments on the lack of dividend coverage outlined in the table, or did the adverts generated automatically by Google based on your personal search history distract you?

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby DHollands51 » Wed Jul 18, 2012 8:04 am

So did ARCT just buck the trend (recently trading over $11/sh) or is your data/supposition just not a good predictor of whether investors will see their principal back?

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby REIT Wrecks » Thu Jul 19, 2012 4:13 pm

Hah! Your myopia is on full display, sadly. ARCT only corroborates KBW's data (this data is not mine, it's theirs). Absolute returns for ARCT investors were about flat, miraculously, and I think they were flat only because of cap rate compression. Investors would have realized much better returns with much less risk if they had paid a $14.95 commission to own almost any one of ARCT's publicly-traded peers over the same period of time.

Given that Non-Traded REIT fees and commissions are so extraordinarily high relative to public REITs, then NTR's like ARCT should also be generating extraordinarily high risk-adjusted returns relative to their public peers. Let me be more clear - extraordinarily high fees would be justified if investment performance is also extraordinarily high, but in the case of non-traded REITs, this doesn't seem to be true.

In fact, I took a quick look at eight non-traded REITs that have announced revised share valuations over the past 12 months or so, and it appears that the exact opposite is true. By my rough cut, these eight non-traded REITs have vaporized more than $8 billion of shareholder equity, and there are more announcements yet to come. This is TRIPLE the amount that JPMorgan initially lost in London -- and this was JP Morgan's own money -- yet unlike the JP Morgan's own losses, no non-traded REIT "self" regulatory group (e.g., FINRA, the IPA) has been called to Washington to explain how a bunch of heavily commissioned independent financial planners and sponsors managed to lose $8 billion of their clients' retirement savings. How could this be?

It's not just that the market eroded. Not all real estate funds blew up during this period. I believe this disaster relates mostly to egregiously high fees & commission, poor underwriting, lack of transparency, conflicts of interest, bad management and an overall poor alignment of interests between sponsors, advisors and investors. Add FINRA, a "self" regulator (a ridiculous notion on its face) that is either bought and paid for, incompetent, or both -- and this is what you get. Take a look for yourself and please explain:

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby REIT Wrecks » Fri Jul 20, 2012 12:51 pm

Coincidentally, this Morningstar report on REIT funds was just published by the Washington Post this morning:

"Real estate funds have posted an average annualized return of 33 percent over the last three years, according to Morningstar. That’s the top performance among the fund categories it tracks. Year-to-date, the funds are up nearly 17 percent. That’s about double the average return for diversified stock funds...The average dividend yield of a benchmark REIT index is 3.2 percent, substantially higher than the 2.1 percent yield of the Standard & Poor’s 500 index [emphasis mine]....REIT stocks have performed better than the S&P 500 in recent years because the decline in commercial real estate wasn’t as severe as the residential market crash. Offices, industrial properties, hotels and apartments weren’t overbuilt to the same degree as homes, and commercial leases and rents have held up better than home prices."

http://www.washingtonpost.com/business/ ... story.html

Once again, donde Non-Traded REITs??

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Re: Non Traded REITs Ranked By Dividend Coverage

Postby mikelafrench » Sun Mar 23, 2014 9:10 am

In a victory for shareholders, the Inland American revealed that it would not pay an internalization fee to insiders in connection with becoming a self-managed REIT. The Trust, however, is now offering to buy back shares for less than its estimated share value announced just two months ago. If the Trust estimates the share price to be $6.94, why is it offering to buy back shares for as little as $6.10/share? Find out more at: http://www.inlandinvestoralert.org

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