Once again, my REIT portfolio beats S&P index by more than two to one!

This week Ventas, Inc (VTR ), one of the e-FinancialWriter REITs, reported second quarter 2012 funds from operations (FFO) of $236.0 million or 81 cents per share compared with $100.6 million or 57 cents in the year-earlier quarter.

The jump came from acquisitions including Nationwide Health Properties Inc., Atria Senior Living Group, Inc., and Cogdell Spencer. Plus there were rental increases from the company's triple lease portfolio.

Total revenue during the quarter was $616.4 million compared with $359.5 million in the year-earlier period. This topped analysts’ consensus of $592.0 million.

As of June 30, 2012, Ventas had an operating portfolio of 95 private pay seniors housing communities managed by Sunrise and 119 private pay seniors housing communities managed by Atria.

Ventas completed acquisitions worth $1.2 billion in the recent quarter and has commitments to acquire additional assets worth more than $300 million in the second half of 2012.

Management increased its recurring FFO guidance from the range of $3.63-$3.69 to $3.70-$3.74 per share for 2012.

I recommended VTR in my December 30, 2010, column. Since then it has had an average annual rate of return of 15.95%, not including dividends (currently 3.39%).

Portfolio Update
The REITs in the e-FinancialWriter portfolio continue leaving the S&P REIT index and the S&P 500 in the dust — up 37.28% since inception.

REIT	Sector	Blog date	Price	Closing price 07/27/12	Return to date %	Dividend yield %
PSA	Self storage	3/14/2010	90.75	149.37	64.60	2.75
VTR	Health care	12/30/2010	52.87	66.79	26.33	3.39
HCP	Health care		36.81	47.17	28.14	4.16
HCN	Health care		47.53	61.83	30.09	4.71
IAECREIN:CN	Canada	9/27/2011	19.45cn	25.85cn	32.91	0
ZRE:CN	Canada		16.29cn	21.06cn	29.28	4.75
INVRLPRA:CN	Canada		5.45cn	5.51cn	1.17	1.89
NNN	Retail	1/29/2012	27.18	29.21	7.47	5.31
Index return since inception*					37.28
Avg 12-mo return of REITs in portfolio*					23.44
Avg dividend yield of REITs in portfolio					3.37
12-mo return S&P REIT index as of 06/30/12*					8.92
12-mo return S&P 500*					7.25

Source: Bloomberg

*Does not include dividends paid

If you have trouble seeing the chart, just in zoom in with your web browser.

Enjoy your weekend!

George

P.S. I’m on Twitter. Follow me at http://twitter.com/efinancialwrite for frequent updates, personal insights and observations on how to have a healthy retirement.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the ‘Follow’ button from http://twitter.com/efinancialwrite to receive updates on either your cell phone or Twitter page.

Why Obama’s Assault on Dividends Puts a Shine on REITs

President Obama has declared war on the dividend by wanting to raise the maximum tax rate on dividends from 15% to 39.6%.

Toss in his planned phase-out of deductions and exemptions, and the rate hits 41%. And don’t forget the 3.8% investment tax surcharge in Obamacare.

Add them all up and you get new dividend tax rate of 44.8% in 2013 — nearly three times today's 15% rate.

Another thing, dividends are paid to shareholders only after the corporation pays taxes on its profits. So with a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings ending up in your hands would be 64.1%.

In other words, for each dollar the company you invest in earns, the Federal government will get 64 cents and you’ll get 36 cents!

Pretty lousy deal if you ask me.  

This new rate would apply only to those individuals who make $200,000 a year or $250,000 if you're a couple ... a tax-the-rich scheme in the Obama camp’s eyes.
But there is more to the story that the administration fails to mention …

You see, corporate dividend payouts are highly sensitive to the dividend tax. Dividends fell out of favor in the 1990s when the dividend tax rate was roughly twice the rate of capital gains. And when the rate fell to 15% on January 1, 2003, dividends reported on tax returns nearly doubled to $196 billion from $103 billion the year before the tax cut.

By 2006 dividend income had grown to nearly $337 billion, more than three times the pre-tax cut level.

So if you use history as your guide, you can expect fewer dividend payouts if Obama gets his way.

And who would get hurt the most?

According to the IRS’s data, retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65.

In short, when Obama suggests raising the tax rate on dividends, he’s taking aim right at your retirement nest egg.

Now here is where real estate investment trusts (REITs) could help you out …

REITs are required to pay 90% of their earnings to shareholders. These payouts are before corporate taxes, therefore you end up with 35% more of what a REIT makes compared to a dividend-paying company. And in case the tax hike goes through, it could mean you’ll get 55 cents of every dollar your investment earns instead of 36 cents.

Don’t get me wrong, I like dividend-paying stocks. In fact, I own several including

McDonald’s (MCD), Home Depot (HD), and Walgreen (WAG).

However, I’ve written many times that real estate can play an important role in diversifying your portfolio. And this latest potential tax change adds to my case.

Best wishes,

George

Happy Parents’ Day?

Playa Hermosa, Costa Rica

I was digging around to see which companies were set to release their quarterly financial reports this week. And I stumbled onto a few interesting notables for the week ahead.

Today happens to be Parents’ Day. It’s held the fourth Sunday of every July. Justice Ruth Bader Ginsburg has said: "Replacing Mother's Day and Father's Day with a Parents' Day should be considered, as an observance more consistent with a policy of minimizing traditional sex-based differences in parental roles.”

I guess it’s just a sign of today’s political correctness. Nevertheless, it sounds pinheaded to me.

Sanity returns tomorrow with Gorgeous Grandma Day. According to the Gorgeous Grandma website she is every woman over fifty, sixty or seventy who loves life — and lets everyone know it!

On Tuesday it’s Tell an Old Joke Day … just to through a little humor into your week.

Thursday we have All or Nothing Day. Do something you’ve never done before or always wanted to do.

Friday it’s Take Your Houseplants for a Walk Day. Take your wilted house plant for a stroll around the block without feeling like a complete idiot.

Saturday it’s your chance to honor our pioneer heritage by celebrating National Cowboy Day.

And at the same time, you can go off your diet with a handful of milk chocolates, since the 28^th is also National Milk Chocolate Day.

So there you have it, a week full of days to help you live each to its fullest!

George 

Number of long-term care options dwindling

On page 80 of a Boomer’s Guide to Long-term Care, I recommended checking with your employer to see if they offer long-term care insurance.

Well, that option is diminishing with each passing day …

Prudential, the second-largest U.S. life insurer, is getting out of the group long-term care business. The reason: Low interest rates are killing returns. And Fed Chairman Bernanke’s announcement this week that interest rates would remain low at least until 2014, meant the ax for group policies as far as Prudential was concerned.

Back in March the company stopped selling individual policies; again, because of low interest rates on reserves.

As I’ve said over and over … Boomers cannot count on the government, especially Obamacare, to help with what is surely the biggest financial challenge anyone entering retirement could face. So taking responsibility for your long-term care planning has never been more important than now.

Best wishes,

George

P.S. I’m now on Twitter. Follow me at http://twitter.com/efinancialwrite for frequent updates, personal insights and observations on how to have a healthly retirement.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the ‘Follow’ button from http://twitter.com/efinancialwrite to receive updates on either your cell phone or Twitter page.

Why you can’t count on Obamacare

If you think a government-run socialized health care system, such as  Obamacare is the route to go, read this article from Canada:

105-year-old Toronto woman forced to wait 10 years
for long-term care told to wait two more

Best wishes,

George

Weak jobs number fuels demand for apartments

Earlier in the year, I wrote that the time was approaching to consider investing in an apartment REIT. Well, this past week, I got the confirmation I was waiting for …

Bloomberg published the results from a study that found that during this year’s second quarter apartment rents in the U.S. climbed the most in almost five years. The average is now $1,041 per month compared with $1,028 for the first quarter and $1,006 last year.

Some reasons for the jump:

·       Home foreclosures — The rising number of homeowners kicked out of their homes need some place to live.

·       Collapse in housing prices — Many homeowners have simply walked away … sending the key to their lender … once their equity got wiped out by the Great Recession. Like those who were foreclosed on, they need to live somewhere. 

·       Lack of confidence — Consumers are worried about the economy and their jobs. Thus they’re afraid to make any long-term commitments.

·       Bad credit — Unlike last decade’s freewheeling lending standards, lenders are now reluctant to lend to buyers with poor credit. 

Will the trend for rising rents continue? I’d say yes. And last week’s disappointing jobs report backs me up.

I’m looking at a few REITs that specialize in residential rental real estate. And I’ll post them after I’ve picked one to buy. Meanwhile, you might want to check out this is sub-sector of the real estate market on your own.

Portfolio Update

The REITs in the e-FinancialWriter portfolio are doing exactly what they’re supposed to do — beating the pants off the S&P 500 — and up 31.82% since inception.

REIT	Sector	Blog date	Price	Closing price 07/06/12	Return to date %	Dividend yield %
PSA	Self storage	3/14/2010	90.75	144.61	59.35	2.84
VTR	Health care	12/30/2010	52.87	63.43	19.97	3.79
HCP	Health care		36.81	44.41	20.65	4.44
HCN	Health care		47.53	59.01	24.15	4.99
IAECREIN:CN	Canada	9/27/2011	19.45cn	24.99cn	28.50	0
ZRE:CN	Canada		16.29cn	20.24cn	24.25	4.99
INVRLPRA:CN	Canada		5.45cn	5.50cn	1.00	1.74
NNN	Retail	1/29/2012	27.18	28.37	4.38	5.44
Index return since inception*					31.82
Avg 12-mo return of REITs in portfolio*					17.59
Avg dividend yield of REITs in portfolio					3.50
12-mo return S&P REIT index as of 07/06/12*					8.92
12-mo return S&P 500*					0.81

Source: Bloomberg

*Does not include dividends paid

If you have trouble seeing the chart, just in zoom in with your web browser.

Enjoy your weekend!

George

P.S. I’m on Twitter. Follow me at http://twitter.com/efinancialwrite for frequent updates, personal insights and observations on how to have a healthy retirement.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the ‘Follow’ button from http://twitter.com/efinancialwrite to receive updates on either your cell phone or Twitter page.