REIT in a taxable account

[fiveoh]

I only have one REIT (DLR) which is currently in my IRA. With the HUGE drop today, i'm tempted to buy some in my taxable account(no cash in my IRA). How exactly do the REIT taxes work in a taxable account? I've heard its a PITA but haven't looked into it.

[EricL]

I believe dividends received from a REIT in a taxable account are similar to taxable income (non-qualified dividend) when reporting so you don't get the discounted tax rate like you do with qualified dividends.

http://www.bogleheads.org/wiki/Real_esta...ment_trust

I am in no way, shape or form a tax accountant so you'd best do some more research =).

[hendi_alex]

Taxed as regular income.

[fiveoh]

Thanks for the replies. I'd rather not pay taxes on it, since I'm in the 15% and pay 0% on div income. I guess I'll pass on more DLR.

[Kerim]

Hey fiveoh --

That was a hell of a move today for DLR. I have never really studied that REIT, but I've read enough about it that it has been on my "if I ever have a lot of spare time and can get down to my "C" list I'll have a closer look" list. So when I saw the plunge I was very tempted to buy a few shares, even as a speculative, short-term play. The news doesn't seem so terrible to me as to warrant a 15 percent decline, so perhaps it will see a bit of a bounce in the coming days or weeks. But I held off. Like most folks, the REITs that I do hold have gotten killed this year, and I am not really in the mood to add more exposure.

I guess you're confident in the company since you were interested in adding more shares, but for the tax issue. Can you share some of your thoughts about DLR generally?

[fiveoh]

It's down another 3% today for over a 6.6% yield.

http://seekingalpha.com/article/1792322-...ected-weak

This article sums up most of my thoughts on the risks/rewards involved with DLR, which I see as mostly short term(0-18 months). EVERYTHING is going to the cloud and I don't see digital storage demand slowing over the long term. Yes some of the larger companies are opening their own data centers, but a lot of them will find it easier/cheaper/more efficient to use DLR or similar companies.

From that article:
"Bottom Line: While certainly not a growth story, Digital Realty has a conservative balance sheet, scale within their markets and has seen decent lease-up volumes and is compelling for income focused investors. The stock is cheap to peers on virtually every metric and as a result of the earnings debacle is "on sale". Once again, I have to state from a total return perspective I like CoreSite, but I might be a buyer of Digital Realty for an income portfolio."

I see it as a good high yield, low growth prospect.

TBH my average price is somewhere around 56-57 so i'm now down over 20% in 6 months on it. Not really what I was hoping for with my first REIT. lol. I figured it would be a low risk/high yield type of investment. Kind of funny the 2 companies I've lost the most on so far are a utility(exc) and a REIT(dlr). It also makes up a good chunk of my portfolio(7%) so I'm just going to sit tight. If it drops to 45 I will buy another chunk probably.

[EricL]

(10-31-2013, 09:28 AM)fiveoh Wrote: It's down another 3% today for over a 6.6% yield.

http://seekingalpha.com/article/1792322-...ected-weak

This article sums up most of my thoughts on the risks/rewards involved with DLR, which I see as mostly short term(0-18 months). EVERYTHING is going to the cloud and I don't see digital storage demand slowing over the long term. Yes some of the larger companies are opening their own data centers, but a lot of them will find it easier/cheaper/more efficient to use DLR or similar companies.

From that article:
"Bottom Line: While certainly not a growth story, Digital Realty has a conservative balance sheet, scale within their markets and has seen decent lease-up volumes and is compelling for income focused investors. The stock is cheap to peers on virtually every metric and as a result of the earnings debacle is "on sale". Once again, I have to state from a total return perspective I like CoreSite, but I might be a buyer of Digital Realty for an income portfolio."

I see it as a good high yield, low growth prospect.

TBH my average price is somewhere around 56-57 so i'm now down over 20% in 6 months on it. Not really what I was hoping for with my first REIT. lol. I figured it would be a low risk/high yield type of investment. Kind of funny the 2 companies I've lost the most on so far are a utility(exc) and a REIT(dlr). It also makes up a good chunk of my portfolio(7%) so I'm just going to sit tight. If it drops to 45 I will buy another chunk probably.

The recently announced $500M stock buyback is looking pretty good with the pullback. Could soak up about 8% of the outstanding shares at current prices.

[hendi_alex]

I notice that DLR is heavily shorted to the tune of 25.5% as of Oct 15 and that continues a strong move up in short positions from the previous month. I would be very careful when deciding to take on the institutional shorts as they usually have done very thorough DD.

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I know what I would do with DLR, way before the losses hit 20%. To me one major part of investing is to manage the losers, cutting them loose before too much damage can be done.

[EricL]

I'm still holding my shares and plan to hold long term.

Not to say the big price drop isn't a bit unsettling, but my reinvestment of dividends is getting juiced by the pullback.

[hendi_alex]

I just tossed some gambling cash at DLR. Bought 500 December $50 calls at 90 cents. The shares will go ex. dividend a week before expiration. So if today's damage is overdone, and/or there happens to be some dividend capture interest, the calls could do very well.

[Kerim]

(10-31-2013, 09:28 AM)fiveoh Wrote: TBH my average price is somewhere around 56-57 so i'm now down over 20% in 6 months on it. Not really what I was hoping for with my first REIT. lol.

Yeah, most of the REITs have been a horror show for the past year or so. I am tempted at times to double down (buy more to lower my average price per share), but I am not sure I have the stomach for it. At the end of the day, I just don't understand the REITs as well as I understand MO or JNJ. When something like that tanks, I buy with a knowing grin on my face and no discomfort at all that that portion of my portfolio has taken a hit. Not so much with the REITs. So I am hesitant to increase my exposure right now.

Though again, buying when they're cheap is the long-term winning strategy, so perhaps I should have more fortitude.

[fiveoh]

Yield is over 7% on DLR now! I've lost over 30% in under a year... text book falling knife. Ouch. Glad I didn't buy more when I was considering it.