REITS and FFOs

THE MOTLEY FOOLThe Daily Legal News

Q: What are REITs and FFOs? -- V.E., Broomfield, Colorado

A: Real estate investment trusts (REITs) are companies that allow ordinary investors to get involved in commercial real estate; many are publicly traded on a stock market, like stocks. They typically buy lots of properties and then lease them out, collecting rents. Each is likely to focus on one or more niches of the real estate market, such as apartments, shopping centers, office buildings, warehouses, data centers, medical facilities and so on. Some of the biggest REITs include American Tower (communications facilities), Prologis (warehouses), Public Storage (self-storage facilities) and Simon Property Group (shopping malls). REITs are required to pay out at least 90% of their taxable income as dividends.

When you study a REIT, a key number to check out is its funds from operations (FFO). The FFO metric reflects the cash being generated from its recurring operating earnings, such as rent checks. Unlike net income, the FFO ignores the effects of depreciation and other noncash charges, offering a better picture of the REIT's true performance. You can learn more about real estate investment trusts at REIT.com.

Q: How are stock prices set? -- A.B., Hilo, Hawaii

A: Once a stock's shares have been sold to the public by a company at a set price, via an initial public offering (IPO) or a secondary offering, they are traded on the open market. From day to day, their price is determined largely by demand -- just what people are willing to pay for them. Over the long run, though, a stock's value is largely tied to the performance of the underlying company. As the company prospers (or fails) over time, so should the stock.

Fool's School

Money-Saving Health Care Tips

It's no secret that health care is very costly, so it's smart to find ways to spend less on it. Here are some ideas.

-- Don't avoid your doctor: Putting off going to the doctor can lead to undetected health issues getting worse, ending up costing you much more -- and potentially shortening your life. Get preventive screenings (such as mammograms or colonoscopies) and vaccinations on schedule, too.

-- Get healthy and stay healthy: You're likely to spend less on health care over the course of your life if you eat nutritious foods and exercise, maintaining a reasonable weight. Many health authorities suggest that 150 minutes per week of moderate exercise is a good goal. Your employer or health plan might offer gym memberships, nutrition consultations or smoking-cessation programs.

-- Choose the best health insurance plan you can: Shop around for the plan that offers the most for your money. Health maintenance organizations (HMOs) typically cost less than preferred provider organization (PPO) plans. High-deductible plans cost less, too, and can be especially good for healthy young people. (They also permit you to set up a Health Savings Account, or HSA, to which you can contribute tax-deductible dollars to be spent on qualifying health care expenses.) An employer-sponsored Flexible Spending Account (FSA) can also help you save. If you're married and each of you has health plans available through your employers, see which serves you best.

-- Shop around for lower prices for prescription drugs: It pays to shop around, as different pharmacies charge different prices. Check out HealthWarehouse.com and Costco's and Amazon's pharmacies, among other places; price tracker GoodRx.com can provide coupons. Ask your provider for generic versions of drugs, consider mail-order pharmacies and try to order 90-day supplies when possible.

-- Inspect medical bills for errors: Many doctor and hospital bills contain errors, charging you more than they should. It's smart to scrutinize medical bills to make sure they're correct.

Search online for "how to save money on" health care or drugs, and you'll find even more tips.

My Smartest Investment

A Great Long-Term Investment

My smartest investment was buying shares of Apple at $23 apiece in early 2004. -- S.R., online

The Fool responds: We hope (and suspect) you're still holding your shares, which would make that a very successful investment indeed! Apple's stock has had a rocky history, with many doubting the company's chances of survival at various points. (Before you bought your shares, for example, Steve Jobs had been ousted from the company and then rehired years later.) But a series of well-received products turned the tide. Apple introduced the iPod music player in 2001, followed by the iPhone in 2007, the iPad in 2010, the Apple Watch in 2014 and AirPods in 2016.

After multiple stock splits, your shares have likely appreciated in value more than 600-fold, enough to turn a $1,000 investment into more than $600,000. The company (and stock) isn't likely to keep growing at past rates, given its huge size now. So should you hold or buy more? Well, the stock seems somewhat overvalued at recent levels, but the company's long-term growth prospects are promising. Bulls love Apple's ecosystem of interconnected products and services, its great cash generation and its investments in artificial intelligence (AI), while bears worry about slowing growth rates and the effects of potential tariffs, among other things.

(Do you have a smart or regrettable investment move to share with us? Email it to [email protected].)

Foolish Trivia

Name That Company

I trace my roots back to 1981, when I was founded and named for Michael Kors; he built me into a major brand, selling jewelry, watches, footwear, clothing and much more. Today, I'm a "global fashion luxury group," home to brands such as Versace and Jimmy Choo -- as well as Michael Kors. (After buying Versace in 2019, I adopted a new name that evokes short pants.) Until recently, I was planning to merge with Tapestry, which owns Coach, Kate Spade and Stuart Weitzman. My market value was recently $2.4 billion, and I rake in close to $5 billion annually. Who am I?

Last Week's Trivia Answer

I trace my roots back to 1927, when two cousins in Monroe, Michigan, launched a furniture company. In 1928, they debuted the "Gossiper," a combination telephone stand and bench. In 1929, they patented the design of an innovative reclining chair. A contest to name the chair received submissions such as "Sit-N-Snooze," and the winning submission is my name today. I introduced a footrest in 1952 and a rocking version of the chair in 1961. Today, with a recent market value of $1.8 billion, I'm also home to the Joybird, Kincaid Furniture, American Drew, England Furniture and Hammary brands. Who am I? (Answer: La-Z-Boy)

The Motley Fool Take

A Beauty-ful Investment

Cosmetics retailer Ulta Beauty (Nasdaq: ULTA) is a clear leader in its niche, with more than 1,400 stores around the country, nearly as many as peer Sephora. However, the stock has pulled back this year as the company's sales growth slowed, offering investors a buying opportunity.

While Ulta's business may be maturing, the stock still has growth potential. Interest rates are predicted to come down, which in turn is expected to improve consumer confidence -- and that should help propel a rebound for Ulta and its stock. Additionally, at its recent Investor Day conference, the company revealed that it intended to accelerate the pace of new store openings, aiming for more than 1,800 stores. It's also seeing steady adoption of its loyalty program, which it expects to have 50 million members by 2028.

As a business, Ulta enjoys a number of competitive advantages. Most of its full-line stores feature hair salons, offering customers an additional reason to visit -- and a service that e-commerce rivals can't provide. Moreover, its stores are much larger than other pure-play beauty retailers: Essentially, they're superstores carrying a wide range of products and brands, making Ulta a one-stop shop for beauty shoppers.

With a recent forward-looking price-to-earnings (P/E) ratio of 14, well below its five-year average of 21, Ulta's stock is appealingly valued. (The Motley Fool owns shares of and recommends Ulta Beauty.)