From: darkness39@yahoo.com
Newsgroups: misc.invest.financial-plan
Subject: Re: diverifying portfolio with RE - but REITs overvalued?
Date: Fri, 12 Jan 2007 07:15:10 -0600
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johnrichardson_us@yahoo.com wrote:
> On Jan 9, 4:39 pm, dsmo...@stat.purdue.edu (David Moore) wrote:
> > To follow valuation of REITs over time, go to Green Street Advisors,
> > click on Free Research, then on Historical Data -- NAV Premiums and
> > Discounts.  The direct link is
> >        http://www.greenstreetadvisors.com/about/page/research_nav/
>
> Am I reading this wrong, or does that graph really indicate that REITs
> are only slightly overvalued, according to Green Street Advisors'
> evaluation?

Yes on that chart, only slightly overvalued.

*except* remember NAV is historical, share prices reflect current
expectations of the market.

I agree the chart doesn't argue that REITs are expensive in historic
terms.  However REIT yields are, I believe, as low as they have ever
been (a function of a general fall in interest rates and market
yields).

A major factor must be the 'take private' moves that are currently
taking place.  Even America's largest REITs are the subject of
leveraged buyout attempts by US private equity houses.  Now private
equity is an area that it awash with cash, and struggling to find ways
to deploy it.  I believe this is, in turn, driving up the stock prices
of REITs.

If there were to be any form of recession, if bond yields were to rise,
or if worldwide investors were to slow or stop their rush into
property, then I think commercial property would be vulnerable
(although I accept that it looks much less overvalued than residential
property in many markets).  There isn't a case that REITs are 'cheap'
to provide the 'margin of safety' in the investment.