Quote from optioncoach:
Did some more research and came up with the following interesting REIT CEF candidate:
RQI- Cohen & Steers Quality Income Realty Fund
Share Price: $20.00 (12/02)
NAV: $23.12
Discount: -13.49%
Yield: 8.40%
RQI invests in REIT stocks and REIT preferreds and I like it as as large-cap REIT, Office sector addition with a great yield supplied by that discount. The discount has widended from its low of about 6% in early January but I feel that this widening is a result of two factors, (1) pullback in the huge run-up of REIT stocks and (2) rising rates hurting the profit margin due to use of leverage. However, the NAV has increased slightly over the last quarter and I feel the above two factors will not be as big a weight on the NAV and share price.
First, I have read from analysts that continued expansion of the U.S. economy and improving occupancy rates will keep REITS growing and thus keep the NAV growth positive. Also, many believe the FED is near the end of its monetary tightening cycle, all things remaining constant so further squeezes in profit margins from leverage should be minimalized. Moreover, the fund, at 33% leverage, has entered into fixed rate swaps for half that leveraged amount to lock in as much of their interest costs as possible to protect as much of the dividend stream as they can. Based on the above, I think it is not a bad time to grab a REIT CEF, especially one at such a nice discount and with that nice yield.
Another reason I like RQI is diversification. Geographically, the fund has 21% in the South Atlantic, 21% in the Pacific, 18% in the Mid-Atlantic and 11% in the North East Central (Chicago), so the REIT holdings are spread out over the major metropolitan centers in the U.S. Also, no one holding makes up more than 5% although the top 10 holdings do make up 33% of the fund. THis is because most of the holdings are in large-cap REIT stocks such as Vornado, EOP, CarrAmerica, etc. But still, the sectors still range from OFFICE (25%) to Hotel (1%) so you have a pretty good diversified real estate investment with no one sector in any part of the country being able to drag down the fund.
The discount is at the high for the year but the NAV has upticked the past 6 months or so and if conditions continue to improve I would hope the share price would follow. However, my main enticement is that 8.4% yield and diversification of CEFs within a portfolio can help hedge away most of that share price risk will still collecting nice monthly income.
Downside naturally exists on increasing rates related to leverage and unexpected weakness in office space sector.
So for REITs with a slight bias towards office properties, I like RQI.
