Residential REITS Continue to Look Overvalued (Continued from Home Page)
June 11, 2008
If you do own any of these the key is to know how much of the past earnings are from the sale of properties for large gains which are then distributed. Some of the companies have little in the way of earning and have Funds From Operations (FFO) consisting of mainly depreciation and gains on sales of property. We believe that the gains on sales will mostly go away in the year ahead----so if they are depending on these to pay dividends there is trouble ahead.
In this market environment it is an unacceptable to own something with a yield of 3-4%-----the risk/reward just doesn't work.
