From the desk:Public REITs (Capital Deployment)

Three weeks of comparing nine REIT tickers and I still own nothing

I have 25k earmarked for a first real estate position and a spreadsheet with nine tickers across industrial, data centers, residential and net lease. Columns for yield, price to FFO, payout ratio, debt to EBITDA. I've rebuilt the sheet twice.

The problem is that every ranking I try produces a different winner depending on which column I sort by. Sort by yield and I get the ones I'm least comfortable with. Sort by price to FFO and I get names whose growth looks slowest. I don't have a way to break the tie, so I keep adding columns instead of buying.

My actual decision is whether to skip picking names entirely and buy a broad REIT index fund with all 25k, or pick the two names I understand best and put 12.5k in each. I lean index for the reason that I clearly can't rank nine companies, but part of me thinks that's just giving up on the sector-weighting question everyone says is the important part. What breaks the tie for someone at this stage.

1 reply

1ryanmck27SC2C

The tie breaks when you write down what each column is supposed to predict. Yield predicts current income and nothing about growth. Price to FFO is a guess about future cash flow that you haven't actually made yet. Payout ratio tells you whether the yield survives a bad year. They disagree because they answer different questions, so sorting by all four at once can't produce an answer.

For 25k I'd take the index fund and then read the fund's sector weights against what you actually believe. If the fund gives you 4 percent data centers and you think that should be 12, you have a real question to work on for the next six months while you're already invested. That's a better position than a perfect sheet and no exposure. And if you buy two names, understand you're making a company bet on top of a sector bet, which is two decisions when you haven't finished the first one.