Dream Office Real Estate Investment Trust T.D.UN

ok a serious post from me

[MTLfinecity]

Full dislosure, I'm actually a macro trader/investor. I don't dig into details at a micro.I appreciate all the valuation model using $/Squre feet, discounted cash flow/NAV, or cap rate valuation. Everyone is right, D.UN and most REITS are a screaming buy at this point from a long term perspective. But unfortunately those models are all useless for timing the market and for short term forecast. Don't lie to yourself, if you are feeling the pain right now, you made a bad trade and you know it. The key is now to understand how to improve your skills moving forward. Something is missing to the models you are using, and the market is pounding the table to tell you that. Do not be in denial. 

The question is, where is the bottom and how low will this go. I have always believed that it's possible to time the market, and it's no different for REITs. 

The key to play D.UN is to understand inflation and what long term bonds are pricing in. So the inflatino is tredning back up towards 4% and 10yr bond is now pricing in 4.% over a period of 10 years.

Take a look at mortgage rate, most REITs are obtaining a interest rate of 6% on their 5-year mortgage , (2% spread to the risk-free 5-yr government bond 4%). To those who don't understand the pricing of long term bonds, the coupon rate reflects what the market thinks the short-term interest rate gonna be daily, and discounted back to the present over a period of 5 years. The sell-off of the 5-yr bond started in may and still ongoing (incidentally, most reits started to trend down at that point). So really, you have to make your bet on inflation and interest rate to properly enter a REIT trade. If you think the interest rate is going to 7% and the 5yr bond gonna spike to 6%, stay away from REITs. If you think inflation/interest rate will remain at 4% on average over 5 years and the current bond yield (4.3%)  provides enough margin of safety, go for the REIT trade. 

REITs are bond proxies.And this is the key to understand where REITs are going.

Another point is, is there enough fear in the system on REITs in general or the office reits space? Well, the near all time low says a lot.

So, is this the top for 5 or 10 year bond yield? Hell I do not know. But, as long as Fed is hawkish, don't play smart and try to catch the bottom. So, the collorary to this is very simpler: enter REITS when Feds are no more hawkish. It really is this simple......and that's when shorts will start to cover. Until then, collect your 10% distribution and see the unit price sink. 

GLTA.

[SNAKEYBOY]

The fact you overlook is real estate in general still has some buyers for low cap rates, like artis been selling 5.5% all year....maybe doesnt apply to office reit, but funds rather buy a good property with SPNOI growth then put it in a government bond.  Good real estate is heavily demanded by private $

[MTLfinecity]

The fact you overlooked is that we are in the public market. .Public market considers real estate as bond proxies and private market sees real estate as a personal property/valuable asset for the operations of the business. Welcome to the public market my boy

[EstevanOutsider]

Thanks for the post. I don't think buying Dream here is a bad trade at all even if it goes down because unlike you, I don't think I can time the market perfectly. That being said I do agree with your views on interest rate narrative but do not agree that inflation is going up. Short-term there was a spike due to energy costs which I do not think will continue to go up much further for

[MTLfinecity]

It's very good that you placed your bet. So you are assuming that inflation is heading down despite large upcoming wage increases (auto union and holuwood union negotiations, social securities reset).  You are also assuming that bond proxies would rally before the fed stops being hawkish Interesting point of view. I appreciate your opinion. You obviously are a long term investor who

[SNAKEYBOY]

They'll probably be political pressure for fed to pivot in election year and getting paid under the table as the rich get hosed on their assets or bank stocks.  Too much money to be made on their cuts

[EstevanOutsider]

well when the clown fed was calling inflation transitory a couple years ago i took the other side of the trade and bought inflation stocks like energy. now the clown fed is claiming rates will stay high for longer and things start to blow up, so i am just trtying to position ahead of the curve. was a bit too early but surely the fed is almost done being hawkish and will be forced to pivot from

[MTLfinecity]

Beware of confirmation biais.  Huge wage increases (10% a year) + spking oil price. Inflation coming down? I'm not so sure about that.  Anyways. Good luck! 

[EstevanOutsider]

doesnt matter much from here. dream office is not worth $280 psf with or without inflation. i guarantee u that. it is up 50% in the next 18-months or sooner.

[MTLfinecity]

long term yes I think a total return of 100% over 36 months is very reasonable.  But short term...God has mercy Why isn't d.un red today? lol it;s ex-divdend tomorrow.  More downside short term. 

[ndiamond]

This was a very well thought out and intelligent post by MTLfinecity.      Thanks. Full dislosure, I'm actually a macro trader/investor. I don't dig into details at a micro.I appreciate all the valuation model using $/Squre feet, discounted cash flow/NAV, or cap rate valuation. Everyone is right, D.UN and most REITS are a screaming buy at this point from a long term

[Frankie10]

Thoughtful post. I believe you are correct - REITs trade as bond proxy. I believe the market is in correct. A durable, hard asset with free cash flow is NOT a F$&KING bond! 10+ year investment horizon so it doesn't matter. 

[borne2run]

Based on his monthly chart, Rick Santelli recently suggested that the 5 year US Treasury "could" (not will) reach 13.5% - 14% in 7 to 8 years time.  40 year generational bull market in bonds is over.  Peak on the 5 year was 16% in Sept 1981. Some boomers began their careers at peak interest rates and retired at the bottom in rates.  Some millennials may experience the

[mnztr]

sept 26 2019 I sold 600 shares at 29.63 still stuck with 748 shares @ over 20 av cost and falling with every drip

[colombuss]

Its a great fear picture. With rates that high we could call it a generational wealth redistribution, a la the 70 ties. It would be healthy for the planet, for younger generations. For productivity, even office attendance as a percentage off office workers. The rest would be flush and rinse. I dont belive central banks will allow it. Only scenario where I see it possible, is if a atpm bomb is