Sold Equity Residential for $83 per Share/Purchased at $52 per Share
Throughout the last five months, over several different articles, the Fund stated that the goal for this particular investment within the REITs pool was to sell once the stock price hit $83 per share. On July 15, 2021 at 10:23 AM, the stock price hit $83 per share triggering the automatic sale of all 574.459 shares.
Total net receipts after deducting $1 per share for the transaction costs were $47,105.64 (574.459 * $82 net per share). Basis in this investment was $30,000 including the $1 transaction fee per share at purchase. Net earnings totaled $17,105.64.
There were two tranches purchased. One tranche was purchased on October 23, 2020 and the second tranche purchased on October 25, 2020. Average holding period was 265 days. Effective yield for the gain was 57%. When annualized, it equals 78.54%.
This doesn’t include the value of dividends received during this holding period. Total dividends earned were $1,039.20 (three dividend payments). Thus, cumulative earnings for Equity Residential over this 9 month period totaled $18,145. This equates to an annualized return of 83.3%.
Not bad for a few hours of work doing the research on this particular investment.
Equity Residential was a holding in the REIT’s pool of investments in this Fund’s portfolio. The COVID pandemic drove many of the members’ share price downward in early 2020. Due to rent collection restrictions imposed by the government, these particular investments were very slow in recovering from that dramatic market price decline. The Fund simply took advantage of this opportunity once the respective intrinsic values were calculated. The current market price at that time was more than 20% less than intrinsic value making these stocks incredibly cheap in comparison to other industries. Now it is time to collect on the good decisions made.
On a per share basis, this is the report:
- Sold the Stock on 07/15/21 for $83/Share $83.00
- Transaction Fees of $1/Share for Broker Fees (1.00)
- Net Proceeds from the Sale 82.00
- Average Purchase Price for Two Tranches (10/23/20 & 10/25/21) for $51.22
- Held the Stock for 265 Days (Weighted Average)
- Transaction Fee of $1/Share 1.00
- Basis in the Stock $52.22
- Gain on the Sale $29.78
- Actual Return on Investment ($29.78/52.22) 57.03%
- Effective Annual Return 78.54%
- Dividends Earned $1.81
Real Estate Investment Trusts – Equity Residential as a Member
Real estate investment trust investments are excellent overall investments. This site’s six member pool of apartment based REITs performs extremely well. There are several underlying reasons:
First, REITs are income tax free companies. They exist under a special Internal Revenue Code Section and as such are not taxed by the IRS and by many states where they operate. Secondly, REITs provide reasonable dividend yields. With the above Equity Residential position, Equity pays $2.38 per share per year and have always increased their dividend payout year after year. The basis of the investment was $52.22. Thus, at $2.38 per year dividend payments on $52.22, the dividend yield was a respectable 4.55%/Year. Even at $83 per share, it is a reasonable 2.86% per year.
Thirdly, REITs have excellent cash flow. Just like any real estate rental, cash flow is the core value real estate investments provide. REITs are no different. Operational cash flow per share for Equity Residential during the last twelve months (3rd & 4th quarter 2020, and the first six months of 2021) was an impressive $2.70 per share. This alone with a 4 percent discount rate means the stock is worth north of $40 per share and this assumes no growth! Thus, a REIT’s underlying value is always significantly greater than that company’s book value per share.
Hands down, when a REIT is purchased at less than intrinsic value, an investor will always reap excellent returns. The intrinsic value for Equity Residential is estimated at or near $72 per share with a book value around $29 per share. Anytime you can purchase this stock with a 15% or more discount to the intrinsic value, you will reap significant returns on your investment. This is a definite buy if the price drops below $61 per share. Please refer to the REIT’s pool for the respective models, buy and sell points and the corresponding business ratio outcomes. You must be a member of the Value Investment Club to have access to this information. Act on Knowledge.