Real Estate Investment Trusts (REITs)

Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

Real Estate Investment Trusts (REITs) are considered excellent long-term investments. There are two underlying reasons. First, under the Internal Revenue Code, they are considered income tax free investments. To comply, the REIT must distribute at least 90% of all net income earned to shareholders. The shareholders pay income tax on those dividends received. Because of the dividend distribution requirement, REITs have excellent dividend yields. This is why REITs are considered perfect investments for widow and orphan funds whereby cash is necessary to fund the monthly payments to annuitants.

Secondly, similar to any real estate investment, time is beneficial to the overall value of the REIT’s fixed assets. No differently than owning a home, time allows the underlying asset to increase in value. Thus, the normal pattern for a REIT’s market price should be a slow and continuously positive increase over time. Long-term resale of the stock should provide capital gains for the investor. Putting the two financial benefits together creates an excellent long-term return on one’s investment in the stock.

With value investing, the concept is to own quality stocks at good prices. This matches the primary concept of business – ‘Buy Low, Sell High’. When the price returns to normal, proceed to sell the stock and continue the pattern. The long-term outcome is significantly greater returns than many of the common market indicators (DOW Jones Industrial Average, S&P 500, Russell 2000, etc.).

REIT’s are generally high-quality investments. Their financial statements are moderately difficult to read due to two uncommon financial measurement indicators of 1) funds from operations (FFO) and 2) normalized funds from operations. However, with an understanding of basic accounting reporting information and how FFO is quantified, a reader of REIT financial reports can quickly ascertain overall performance of the entity.

Analyzing and evaluating REITs is similar to owning residential property as a landlord. However, the scale is exponentially greater; practically eliminating variances. In effect, there is improved predictability and reliance on the information provided. Intrinsic value is tied to market value of the respective apartment complexes. There are several articles within this section explaining and illustrating how to determine and apply fair market values for apartment complexes.

With REITs, investors look for three key financial indicators of performance. First, is the dividend yield percentage. This matches the landlord’s desire for cash flow from their investment in real estate. Secondly, holders of rental property desire positive net income in order to assure adequate proceeds to make the principal payments on any mortgages associated with the property. Finally, landlords want to ensure that their rents charged mirror the economic conditions of the property’s location. With publicly traded REITs, this is evaluated with the fixed assets turnover ratio.

Earning a good return on a REIT investment requires a long-term view. Rarely do REIT investments recover quickly; it takes several quarters to reaffirm to shareholders the company’s performance. Thus, there is a longer outlook required with this type of investment. Adherence to the fourth principle of value investing, patience, is definitely required.

Within this section of the Value Investment Fund, you must be a member of the Value Investment Club to access the articles, spreadsheets, resources and respective buy/sell model.

Value Investment Club

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Value investing utilizes a buy low, sell high tenet of systematic processing of stock and other security investments. Value investing reaps substantially greater returns than all other major market measurement indices (DOW, S&P 500, Russell 2000, NASDAQ, etc.). The average annual pre-tax return is >20%. When you subscribe, you receive access to all existing articles, books, lessons, webinars and reports explaining how value investing works. In addition, each month, the subscriber receives additional articles, reports and buy/sell points for high quality stock purchases. Follow along as the fund updates regularly and discover how to invest like a pro and earn excellent returns on your investment. Subscription is for one year of access to the value investing pool of information.

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Sold Equity Residential for $83 per Share/Purchased at $52 per Share
On July 15, 2021 at 10:23 AM, the stock price hit $83 per share triggering the automatic sale of all 574.459 shares.
Essex Property Trust – Value Investment Fund Buy
The market price for Essex Property Trust, Inc. dropped below the 'Buy' point of $278 triggering the 'Buy' at $278 per share.
Essex Property Trust, Inc. – Sold PUTs
The Value Investment Fund sold 80 PUTs on Essex Property Trust, Inc. at $11.30 netting $10.30 each after transaction fees. These PUTs have a strike price of $260 each and expire on October 21, 2022.
Bought Essex Property Trust
On June 14, 2022, the Value Investment Fund purchased 77.7000 shares of Essex Property Trust at $256.40 per share. Adding the $1 per share transaction fee, a total of $20,000 was invested into this security. In addition, the Fund sold a PUT option for 100 shares at $9.90 netting $8.80 per share. The strike price is $240 per share with an expiration date of October 21, 2022.
Purchased 100 Shares of Essex Property Trust, Inc.
On Friday afternoon, just prior to market closing, this site's Value Investment Fund purchased 100 shares of Essex Property Trust, Inc. at $221.21 per share.
Sold PUT Contract for Essex Property Trust
The Value Investment Fund sold a PUT contract on Essex Property Trust for 100 shares.
Bought 100 Shares of Avalonbay Communities
The Value Investment Fund purchased 100 shares of Avalonbay Communities Inc. for $161 per share including transaction fees.
Compliance with PUT Options Contract for Essex Property Trust
Compliance with PUT Options Contract for Essex Property Trust This site’s Value Investment Fund had to comply with with two separate PUT options contract for Essex Property Trust sold back in late May and mid June of 2022. The combined total of both contracts were for 180 shares with strike prices as follows: 80 Shares @ $260 ...