投资房地产投资信托基金之前您需要了解什么

To stay out of trouble, you must first learn how to behave.

REITs can be notoriously volatile, but this should be a positive, not a negative.

Price is what you pay, value is what you get.

Real estate and REITs should always be an income investment first and foremost.

REITs have a long history of producing market-beating returns along with high dividend payments and only moderate risk. Therefore, most investors understand that they should invest in REITs whether it's for:

In fact, over the past 20 years, REITs had the very best performance among 10 major asset classes including large-cap stocks (SPY), value stocks (IWM), growth stocks (IWF), utilities (XLU), and high-yield bonds (HYG), etc.

source

A total of over 80 million Americans invest in REITs today. Some of them are highly sophisticated, but others are beginners who are just getting started by reading articles on Seeking Alpha.

Over the years, we have found that there is often a large disconnect between

and it sets investors for failure.

Today, I am supposed to be one of the "professionals" with access to superior information

and yet, I still keep on learning something new every day.

Below, we pass on 5 lessons that have allowed us to considerably improve our investment results.

The REIT market is notoriously volatile with share prices moving up and down by 10%, 20%, even 30%+ within very short time periods. If you are not prepared to this, you are likely to overreact to volatility and sell-off at the worst time.

In a world where most analysts are focused on the next quarter’s earnings, our “landlord” mindset is what differentiate us from the rest. We see REITs as real estate investments, and NOT as stocks. We are real estate owners, not “stock market traders.” We mind fundamental performance of the properties, and NOT the short-term share price performance.

In this sense, at

High Yield Landlord

, we follow a strict investment principles to remain disciplined even when the market is behaving irrationally:

(To read our full version "Investment Policy Statement, click here)

By adopting this “landlord” mindset, we believe that REIT investors can improve performance because it leads to a more disciplined approach with less trading and more compounding.

Price is what you pay, value is what you get. In this sense, a great company won’t make a great investment, unless the price is right. Many high-quality REITs such as Realty Income (O) are way overpriced and we would not expect outperformance from these high-quality companies.

You need to find what the market does not already know. As an example, W.P Carey (WPC) is arguably better positioned than Realty Income with a less retail centric net lease portfolio and better diversification. The company has an equally strong track record and solid balance sheet. Yet it trades at a sizable discount and much greater dividend yield.

It is easy to get sold on the quality of operations and to forget to ask what price you are paying for it. The price is just as important as the underlying fundamentals and you should always make sure to not overpay for your REITs.

At the same time, there is a difference between being a “value” investor and just being too cheap. You never want to overpay, but you should not take excessive risks either just to get a slightly lower price. The following quote is a good illustration of what we mean here:

From our experience, picking the 10% cheapest REITs never worked well. These are companies that will most commonly undergo significant challenges and cheap can very quickly get even cheaper.

Think of Washington Prime Group (WPG), New Senior Investment (SNR), Uniti Group (UNIT) or even Global Net Lease (GNL). These are all deep value REITs that are popular on Seeking Alpha due to their high yield land low valuations. Yet, their total returns have been disappointing and investors have strongly underperformed market indexes.

In active REIT investing, you do not want to pay full price, but you should not be too cheap either.

Over time, we have found that our sweet spot is in quality companies undergoing temporary challenges that are solvable over time. They are not the the cheapest in their peer group, but they are discounted relative to the average and provide good alpha-generation potential as they solve the issues and reprice closer to peers.

Spirit Realty Capital (SRC) was a great example of that as we invested in the company in May of 2017:

Since presenting ourthesis, SRC has returned 77% in just two years – close to 4x more than the REIT indexes (VNQ).

It is by targeting this type of situations that we aim to outperform market averages. SRC was our largest position then and remains a sizable holding to this day at High Yield Landlord.

If a REIT lacks management alignment, the rest of the story is meaningless. Even if a REIT appears to present great value, the management will always find a way to destroy more of it to earn higher fees if that is its goal.

Therefore, the very first step should always be to take a good look at the management and its alignment of interest. The management structure and the insider ownership are the two most relevant criteria to research here.

Exceptions exist, but generally speaking, externally-managed REITs suffer from greater conflicts of interest, have higher G&A cost, and shareholder returns have historically been significantly lower. The reasons that led to underperformance remain perfectly relevant today and we do not expect future results to be drastically different.

Therefore, by simply skipping all the externally managed REITs, investors can improve their expected returns as compared to Index funds that hold exposure to many externally managed REITs.

Even if an externally-managed REIT is very cheap - it does not necessarily become worthy of an investment candidate if we cannot rely on the management and its integrity. This has allowed us to avoid numerous serial underperformers such as the RMR (RMR) managed entities: Senior Housing Properties (SNH), Hospitality Properties (HPT), Industrial Logistic Properties (ILPT), Office Properties (OPI) - which cannot be trusted.

The most important decision of your REIT investment career should be whether you should invest in an index fund or venture into building your own portfolio of undervalued REITs.

Here you should be aware of your limits. Quite frankly, if you know that you have little access to research, do not possess the expertise, or the time to research individual opportunities, you are most likely be better off going the index route.

However, if you know what you are doing, have access to quality insights on the best opportunities of the moment, and are not scared to occasionally open an annual report, then the reward potential can be drastically improved.

As an example, our Core Portfolio currently pays a

7.75%

dividend yield

with a comparable

69% payout ratio

despite a yield that's almost double the index. Beyond the dividends, the core holdings are trading substantially below intrinsic value at just 9.5x FFO - providing both margin of safety and capital appreciation potential (REITs trade on average at over 20x FFO).

In this sense, our alpha is expected to come from many different angles

This is not however for everyone. We have been playing this game for a long time and spend over $30,000 per year researching the market for the best REIT investment opportunities. Know your limits and decide wisely!

To put theory into practice, we present one 8.3% yielding REIT that we are currently eyeing for a future potential investment: Kite Realty (KRG)

KRG is a high-quality REIT that is having some temporary issues that are solvable within 12-24 months. Yet, due to the market's excessive focus on short-term results - the company is today priced at a hefty 50% discount to NAV and a well-covered 8.3% dividend yield.

As such, you may earn a generous 8.3% dividend yield while we wait for the management to fix the issues (redevelop properties to release space) and create value to shareholders. This is the ideal type of REIT investment that we like to target because

(1)

we can take a landlord approach and focus on high cash flow;

(2)

we are not buying a deeply distressed business;

(3)

we get paid handsomely to wait for long-term appreciation. We are finalizing our due diligence and may soon add KRG to our diversified REIT Portfolio.

REITs can be truly wonderful, but you need to know what you are doing. To demonstrate this, consider that the average investor generated only 2.6% per year over the past 20 years:

Clearly, the average investor does NOT know what they are doing. In comparison, passive REIT indexes returned 12.5% per year and outperformed almost all other asset classes:

source

Then taking it one step further, active and more entrepreneurial REIT investors who target market inefficiencies have managed to reach up to +22% annual returns over the same time period:

source

The REIT market can be notoriously rewarding but also very unforgiving to investors who pick the wrong company. Since I started investing in REITs, I have experienced both; great losses and significant gains. I have made mistakes, but most importantly, I have learnt from these and continue to perfect my approach every year in an effort to achieve even stronger future results. 2019 is off to a strong start for us - and I already wonder what the lessons will be for this year.

I am/we are long SRC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.