Time to Study and Prepare Buying Points for REITs

Interest in REITs has been reignited by investors in April. The Dow Jones REIT Index began the month at 100 and has already risen to 129. Investors are willing to accept more risk for double digits yields. A major bankruptcy last week did not get in the way of this advance.

A good example of greater favor for REITs is Glimcher Realty (GRT). I bought it for my IRA more than a decade ago. The market was low enabling me to earn a 12% yield from the dividend. After the REIT sell off in recent months, the stock is down substantially reflecting dividend cuts. It plunged to 1 but recovered to 3.21 in the recent REIT recovery. Despite the stock's low price, my investment is only about 1/3 below the original value because the number of shares have more than tripled from reinvested dividends. Compared with many other investments, that's not such a bad record (can you spell Citigroup (C)?). Meanwhile other REITs have had profitable runs, even in today's depressed market.

Last week, General Growth Properties, second largest business property owner, filed for bankruptcy. But the REIT index continued to climb. The bankruptcy was not unexpected, the company had been on death's door for several months. Simon Property (SPG), the largest business property owner, stock went up. There was even limited good news. Tanger Property (SKT) raised the dividend, extending its streak to 16 consecutive years of paying higher dividends. The increase was only a penny annualized, but an increase is an increase.

REITs have tough road ahead, along with the rest of the economy. If the recession drags on, income from tenant leases will suffer. Given the large amount of uncertainty, this time can be used to study and prepare buying points for REITs. Assets of REITs are long term, investors need to have long term horizons. History has taught that troubled times are followed by better times and eventually good times. High yields locked up when available prove worthwhile.

Comments

[Emerald:]

Be very careful, of office and retail REITs in this deflationary environment. Consumers are abandoning retail and tnenat improvement costs are crippling to office owners in a downturn. If you are looking two years out, look for apartment REIT's will little debt maturing until 2012. Better ones are EQR and AVB. Note: long EQR.

Apr 21 12:42 PM

[Old Trader:]

In this sector, my favorite is O.

Disclosure: long O

Apr 22 03:36 AM