viiContentsIntroduction xiAcknowledgments xvPart I Meet the REITChapter 1 REITs: What They Are and How They Work 3Types of REITs 5General Investment Characteristics 6Higher Current Returns 11Summary 17Chapter 2 REITs versus Competitive Investments 19Bonds 20Convertible Bonds 22Preferred Stocks 23Other High- Yielding Equities 24Other Real Estate Investment Vehicles 26Summary 31Chapter 3 Todays REITs 33The First REIT 33The Tax Reform Act of 1986 34UPREITs and DownREITs 35REIT Modernization Act and RIDEA 37Lending REITs versus Ownership REITs 39Expansion of REIT Property Sector Offerings 40Summary 41Chapter 4 Property Sectors and Their Cycles 43Ups and Downs 45Property Sectors 49Summary 87Part II History and MythologyChapter 5 REITs: Mysteries and Myths 91Changing Attitudes toward REITs 91Myths about REITs 97Summary 108Chapter 6 A History of REITs and REIT Performance 109The 1960s: Infancy 109The 1970s: Adolescence and Turbulence 111The 1980s: OverbuildingThe Troll Under the Bridge 113The 1990s: The Modern REIT EraPlus More Growing Pains 1152000 to 2007: Credibility and Market Acceptance 1242007 through 2010: REITs Survive the Great Recession 127Recent Trends 134Summary 139Part III Investing Intelligently in REITsChapter 7 REITs: Growth and Value Creation 143The Significance of FFO and AFFO 144The Dynamics of FFO/AFFO Growth 149Internal Growth 152How to Build Internal Growth into a Lease 157Other Ways to Generate Internal Growth and to Create Shareholder Value 158External Growth 163More External Growth Avenues 172Summary 173viii ContentsChapter 8 Searching for Blue Chips 175Investment Styles 175Growth REITs 176Value or “Turnaround” REITs 178Bond- Proxy REITs 179The Virtues of Blue- Chip REITs 180The Importance of Allocating Capital Wisely 190Summary 212Chapter 9 The Quest for Investment Value 215The Investors Dilemma: Buy-and-Hold versus Trading 215The Buy- and- Hold Strategy 217REIT Stock Valuation 218Valuing REITs as a Group 231Summary 237Chapter 10 Building a REIT Portfolio 239How Much of a Good Thing Do You Want? 239Diversification among REITs 245Toward a Well- Balanced Portfolio 248How to Get Started 251Summary 259Chapter 11 Investing in Global REITs and Property Companies 261How the U.S. REIT Revolution Spread around the Globe 264Mapping the Size of Global Property Stock Markets 274Managing a Global Real Estate Securities Portfolio 284The Practicalities of Investing Overseas for the Individual Investor 287A Summary: Stocks for All Investment Seasons 298The Long- Term Evidence Supporting Investments in Global Real Estate Securities 300Part IV Risks and Future ProspectsChapter 12 What Can Go Wrong? 309Issues Affecting All REITs 309Contents ixProblems Affecting Individual REITs 323Summary 333Chapter 13 Tea Leaves: Some Thoughts about the Future 335Additional Real Estate Owners Will “REITize” 337Increasing Investor Demand for REITs 344Larger REITs: Is Bigger Really Better? 353Additional New Trends 360So Much More to Come 366Summary 367Appendix A Death and Taxes 369Appendix B Case Study: FFO, AFFO, FAD, and CAD 373Appendix C Cost of Equity Capital 377Appendix D REIT Portfolio Management 381Appendix E Largest Global Real Estate Companies as of December 2010 391Glossary 413About the Author 423About the Contributors 425Steven D. Burton 425Kenneth D. Campbell 425Index 427x ContentsIP A R TMEET THE REIT31C H A P T E RREITs: What They Are and How They Work“Buy land. They aint makin any more of the stuff.” Will RogersWhats your idea of a perfect investment? Thats a trick question there is no perfect investment! Greater returns come with greater risk. But those looking for above- average current returns, along with reasonably good price appreciation prospects over time and with only modest riskwill certainly want to consider apart-ment communities, office and industrial buildings, shopping centers, and similar investments. In other words, commercial real estate that can be leased to tenants to generate reliable streams of rental income. Sure, you might say, but only if there were an easy way to buy and own real estate, where an experienced professional could han-dle the business of owning and managing it well and efficiently, and give you the profits. And only if you could sell your real estate if you wanted toas easily as you can sell a common stock like General Electric or Intel. Well, read on. This is all possible with real estate investment trusts, or REITs (pronounced “reets”).4 Meet the REITREITs have provided investors everywhere with an easy way to buy major office buildings, shopping malls, hotels, and apartment buildingsin fact, just about any kind of commercial real prop- erty you can think of. REITs give you the steady and predictable cash flow that comes from owning and leasing real estate, but with the benefit of a common stocks liquidity. Equally impor- tant, REITs usually have ready access to capital and can therefore acquire and build additional properties as part