Replies to post #38984 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi Steve, Re: your REIT article.............

By coincidence, the V.I.E.W. decided to sell some VNQ today. I let 5% of
it go to others at the tidy price of 84.69/share. While I hate to sell
income generators and store more cash, it had been a very long time
since my last sale (2013). Having a bit more cash on hand is fine for
now.

With REITs like VNQ I've been content to cap the cash reserve at 30%
with 70% invested. Because VNQ has been rising, the cash content had
dropped by dilution to about 28%. So, the sale put the cash just above
my target and brought things back into balance. I've owned REITs and
REIT funds since the late '80s and they have been good earners and AIM
has managed the large but infrequent price swings.

I use settings of 10% Buy SAFE, zero Sell SAFE, and 10% of Portfolio
Control for minimum trade value. In this case, with the cash just below
my target and I'm getting a sell signal, I sneak up on the target by
selling just 5%. I keep the buys larger, however. If cash were just 20%
I'd sell the full 10% of PC value on a sell signal.

I use "vealies" to control the cash level if I'm still getting sell
signals and have 30% or more cash.

So, I'm glad that guy wrote the article. He may have helped me get my
trade done today!

[SFSecurity]

Hi Grabber, The law in the US for trusts based in the US, is that they are required to pay out 90% or more of their net income. There are a couple of minor fiddles that can affect this a bit, not not all that much. There are Real Estate Investment Trusts (REIT) and others that often seem to be commodity trusts. I see them around oil and natural gas. There are probably others that I am not aware of.

A couple of things to watch for is the stability of the price for the shares, the 52 week (more is wise to look at) range, high to low, are they selling at, above or below Net Asset Value (NAV) and how long the trust will be in existence. Another thing to look for with all trusts is what will happen with the money you spent on the shares. Most, but not all, return the par value when the trust ends. Some, however, collapse to no value at all - go to zero - once certain conditions are met. Oil trusts are often like that. Once they have delivered x per the trust agreement then it ends, period.

One example of this is WHX.

The net profits interest will terminate when 9.11 MMBOE (8.20 MMBOE to the 90% net profits interest) have been produced and sold from the underlying properties, and the Trust will soon thereafter wind up its affairs and terminate, after which it will pay no further distributions. Consequently the market price of the Trust units will decline to zero around or shortly after the net profits interest termination date, which is currently estimated to occur during the quarterly payment period ending March 31, 2015. Therefore, to the extent that the Trust units are trading at a price substantially in excess of the aggregate distributions that may be reasonably expected to be made prior to the termination of the Trust, the market price decline in Trust units is likely to include one or more abrupt substantial decreases. As described in the Trust’s public filings, since the assets of the Trust are depleting assets, a portion of each cash distribution paid on the Trust units should be considered by investors as a return of capital, with the remainder being considered as a return on investment or yield.

This is from Business Wire.

So it behooves all to read at least the summary of the trust to see if there are any gotchas like this in the paperwork.

Best,

Allen