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These 'Sucker Yields' Could Soon Become 'Strong Buys'

Published Wed, 29 Aug 2018 07:30:00 -0400 on Seeking Alpha

In Third Avenue Real Estate Value Fund’s Q1-18 report, co-portfolio managers Jason Wolf and Ryan Dobratz explained:
“While not widely discussed, another impact of the tax-code changes could include certain US REITs electing to become C-corps or de-REITing. Fund Management would welcome this move as Third Avenue has always preferred the real estate operating company (REOC) structure. In our view, REOCs have two key advantages. One, it seems to be a more reliant business model as the companies can typically self-finance their expansion whereas REITs are more often forced to rely on asset sales and the capricious capital markets to raise new proceeds. Our late founder Marty Whitman helped shape this view having been on Wall Street in the 1970's when a number of REITs filed for bankruptcy (which may have occurred in more cases during the financial crisis had the distribution requirements not been changed to alleviate pressure on most US REITs). Two, retaining capital and reinvesting in the business is a more tax-efficient way to compound capital over the longer-term, which is our primary goal as a real estate fund that seeks to maximize total return with an emphasis on capital appreciation not current income.”
As the co-managers point out, “the REIT structure does make perfect sense for companies that own more static pools of assets. This is especially the case for property types that do not require substantial cap-ex, as it allows the true free cash... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
WP GLIMCHER 5.42   13.2 0.41 1.00 18.52
CBL & ASSOCIATES PROPERTIES 1.85   0.0 -0.72 0.30 16.39
VORNADO REALTY TRUST 66.49   32.9 2.02 2.64 3.95


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