Replies to post #66163 on Savvy Trades and Investments

[SSKILLZ1]

SVC

MPW eps doesn't meet it's distribution either by the way. Almost 0 REIT's with properties does.

But here is the problem with your line of thinking these reit take enormous and I do mean enormous depreciation every quarter, you do realize over time that mean properties will have waaaaaaaaaaaaaay less value on the books and will be worth much more in reality in real life if you hold that property over years, we both know that property value generally goes up if you hold it for 10 years not down. So to me I think your line of thinking in this case with depreciation is flawed in my opinion because of that.

SVC has not been flat for many year, each year they increased the divy for over the last 5 years. So I don't agree with that line of thing either. I strongly disagree with your take not just on SVC but REITS in general, because the depreciation is not on a piece of equipment, here it is a building with land, which when you go to sell it will be valued generally more 20 years from now than it is today. Hence the properties they hold over time are value will probably be understated in a lot of cases, unless the building loses tenants of course, that is what will really lose it some value in a hurry. So if your case is that the divy reduces the nav, I argue fake/at least over exaggerated depreciation in terms of this sector over time will make the NAV lower than they are.

Why do you think REITS give out FFO info?

You know when we buy a house should we take depreciation on it, so in theory that house would be worth less 20 years from now than it is today. We know that isn't generally true. There is a serious flaw with this logic in my opinion from a NAV perspective what is going on a book basis is not what is happening in reality the value of that properties don't keep dropping by 100 million every quarter they really don't in my opinion. All is just my opinion, and I could always be wrong though.

[swampboots]

Both of you are right because you are focusing on different data. Re the weight put on the depreciation factor, not FFO's or NAV's which may not be linked to true bottom line market values,but which accountants have an imperative to construct and measure from the secluded comfort of a scolarly place separate from the reality of market forces.... In NYC a hotel most likely is worth more as a teardown if property yields more usable space in the new construction. In L.A. I passed buying some homes only to see it worth double as a tear down. The depreciation history for those properties were irrelevant. That is market forces can ( in a dynamic market) so outweigh the drips of measuring replacement cost over time in the markets I am familiar. Yet depreciation could be a factor in a market like the outskirts of Atlanta where market values tend to be very stagnant and purely based on actual net income, with almost no recourse to speculative redevelopment forces,..... so a better up to date infrastructure (new appliances, walkways and roofs) would in theory reduce yearly capital replacements for many years and be of major concern to a new investor to consider.
I own a unit in L/A. where I try to max out depreciation which represents an additional 1% overall return, yet in fact nothing significant depreciates when measured over the 20-30 year history of these types of buildings, in favored markets.
So to get more to the point , it would take a long analysis of the exact portfolios of these REITS to measure the impact of depreciation on their books, as it (depreciation) can mask and undervalue the actual value based on where those properties are located.