Cohen & Steers: Two Plays on Real Estate

09/04/2018 5:00 am EST

Focus: FUNDS

Robert Carlson

Editor, Retirement Watch

Real estate investment trusts (REITs) have been in a trading range the last couple of months, but the intermediate-term rally seems to be intact, suggests Bob Carlson, editor of Retirement Watch.

Cohen & Steers Realty Shares (CSRSX) declined 0.95% over the last four weeks but is up 1.75% for the year to date. It’s also up 4.57% over the last three months.

Commercial real estate has both strong and weak sectors these days. That’s one reason I like CSRSX. The fund focuses on the REITs management likes best. The fund owns 47 securities, and about 44% of the fund is in the 10 largest positions.

The fund develops an economic outlook and identifies the real estate sectors and regions of the country that are likely to do best in that environment. Then, fund management buys REITs concentrated in those sectors and regions. It looks for high-quality properties and management and reasonable prices.

Top REITs in the fund recently were Essex Property Trust, UDR, Prologis, Equinix and Extra Space Storage. The top sectors were offices, apartments, data centers, health care and hotels.

A related investment is Cohen & Steers REIT & Preferred Income (RNP). This closed-end fund is a roughly equal mixture of REITs and preferred securities. The preferreds increase the income and reduce some of the volatility of a REIT-only fund.

Like other funds with REITs, this closed-end fund had a rough patch in 2017 and early 2018. The discount to net asset value increased to over 11%. It now is 10.63%. So, we’re able to buy quality REITs and preferreds at a substantial discount.

The fund uses leverage of around 25% to boost the yield and total return. It returned 0.08% in the last month and 6.17% over three months. It’s still down 4.02% for the year to date. The distribution yield is 7.62%. In some years, a portion of the distributions is a return of capital, and it’s returned some capital in 2018.

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