Minutes

AAII Orange County Chapter

Monthly Meeting, May 12th, 2007

Oasis Senior Center

800 Marguerite

Corona del Mar, CA 92625

Reported by: Rex Chen

 

Title: How You Can Improve Portfolio Performance While Decreasing Volatility with REITs and a Case Study with LXP: Taking the Mystery Out of Investing in REITs

Speakers:  Robert Valero, VP NARIET and Carol Merriman, VP Investor Relations Lexington Realty-Trust

 

 

            Chapter President Bob Welge brought the meeting to order at 9:00 am.  In the beginning of the meeting, Bob announce the AAII Orange County’s website and the resources available on the web, including meeting minutes from past events.  Bob then introduce today’s speakers, Robert Valero and Carol Merriman to discuss about today’s topic on Real Estate Investment Trust (REITs). 

 

In this talk, Robert first gives a recap of REITs and its characteristics.  REITs started in the 1960s with the idea that investors who do not have large capital to purchase real estate (e.g. commercial properties) are allowed to invest in this industry through real estate public companies called REITs.  Among the different types of REITs include equity (92%, rental), mortgage (6%, interest payments), and hybrid (2%).  Historical figures have shown the reliability of REITs with significant growth, and outperform the S&P 500 and the consumer price index.

 

REITs provide another venue of diversification in one’s portfolio, and allow investors to profit through the form of dividends distribution.   However, public company REITs need to follow certain regulations and scrutiny from Wall Street, including the rule that 75% of the assets must be real properties and 75% of revenues must come from real estates.  Robert has made available his PowerPoint presentation for AAII OC members in this web link:  www.investinreits.com/aaiiOC.ppt

 

After the break, Carol discusses a specific instance of REITs known as single-tenant real estate investments, which is the sector her employer Lexington Realty-Trust (LXP) resides.  For this particular case, Carol describes that in many instances, the tenant initially owns the property, but then sells to LXP and leases the property from LXP.  Tenants, especially for large companies, make such transactions in order to concentrate on their core business and generate cash flow through the leaseback.  Carol mentions the key factors for REIT companies running successful single-tenant real estate resides in having high occupancy, tenant diversification, and long-term lease contracts. 

 

Upon taking questions from the audience, one discussion was about the effect of interest rates on REITs.  Roberts suggests that rising interest rates do not always result in declining REIT performance since residential housing may not necessary be correlated with the return of commercial properties where many REIT companies invest in.  Finally, Robert describes that REITs have become global and opportunities are available for investors to invest in REITs outside of the U.S.  Recommended resources by the speakers to find out more information about REITs include:

http://www.Investinreits.com

http://www.reitcafe.com

http://www.fool.com (REIT forum board)

 

Following the conclusion of Robert and Carol’s presentation slides, Bob adjourned the meeting at 11:00 am.