Investing in REITs: Real Estate Investment Trusts-Revised & Updated Edition, Ralph L. Block, 2002, 472 pages, Bloomberg Press, 2002.
This is an introductory book on Real Estate Investment Trusts (REITs) that provides an excellent source of information about the characteristics of REITs, as well as the risks and rewards involved in investments in REITs. A graduate degree in business or finance is not required to follow the book, but the author assumes that the reader is familiar with basic financial concepts. Topics covered include the development, valuation and future prospects of REITs.
Although the book is a good source of information that is relevant to REIT investors, I found that some of the important concepts are not explained or skipped altogether. An example of such a concept is the valuation of REITs. One cannot emphasize enough the importance of valuing assets for investment purposes. However, valuation techniques that are discussed in the book are not presented in a comprehensive format that would involve an actual numerical example.
Part I of the book provides information on what REITs are, how they compare to alternative investments, how today's investment environment for REITs looks and what contributes to cyclicality of real estate. Chapter 1 provides information on basic investment characteristics of REITs, for example low price volatility and low correlation between REIT returns and returns on other asset classes. These characteristics of REITs provide one important argument for investing in REITs, which says an investor can improve portfolio risk and return trade off by including REITs in the portfolio. Chapter 2 compares REITs to other investments such as bonds, preferred stocks, convertibles and other methods of investing in real estate, including partnerships. The author concludes that REITs are superior to the above-mentioned investments because REITs can provide tax-advantages, lower variability and higher investment liquidity.
Chapter 3 reviews the organizational formations of REITs, which are subject to certain restrictions to maintain their status as non-taxable entities at the corporate level. Chapter 4 describes property sectors and investment characteristics of REITs, which includes apartments, retail, offices and industrial properties, health care, self-storage, hotels and manufactured housing. This chapter is a good review of factors that affect different types of REITs. Most of the discussion is straightforward and easy to follow.
Part II of the book includes Chapter 5 and Chapter 6 and explains some of the common misbeliefs about investing in REITs and an excellent review of the history of REITS, respectively. These chapters are important to gain an understanding on how the market views REITs and how they are developed over time.
Part III explains the valuation of REITs for investment purposes. The chapters in this part are designed as easy reading material, but lack vigor in the valuation models. …