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By Benjamin Lee

One of the most encouraging signs for the real estate market has been the performance of Real Estate Investment Trusts (REIT's) over the past six months.

In that time, Education Realty Trust (EDR), Equity Residential (EQR), Boston Properties (BXP), Camden Property Trust (CPT), BRE Properties (BRE), and Simon Property Group (SPG) have combined for an average gain of 27.1% - not too shabby.

Additionally, all of these REIT's have hit 52-week highs in today's (Thursday's) session.

Education Realty Trust is a self-operated REIT, which acquires, develops, owns, and manages student housing properties near university campuses. It also operates a consulting service for student housing development projects for universities and other entities. Currently trading at $9.14, Education Realty Trust hit a 52-week high of $9.17 in today's session, and has gained 24% over the past six months.

Equity Residential acquires, manages, and develops apartment complexes throughout the United States. Currently trading at $62.78, Equity Residential hit a 52-week high of $62.91 in today's session, and has gained 26% over the past six months.

Boston Properties is a self-operated REIT, which develops and owns office properties concentrated in Boston, Washington D.C., midtown Manhattan, San Francisco, and Princeton, New Jersey. Currently trading at $111.67, Boston Properties hit a 52-week high of $111.94 in today's session, and has gained 32.9% over the past six months.

Camden Property Trust acquires, develops, manages, and owns multi-family apartment complexes. Currently trading at $67.51, Camden Property Trust hit a 52-week high of $68.15 in today's session, and has gained 27.3% over the past six months.

BRE Properties acquires, develops, and manages multi-family apartment complexes. Most of the properties are located in metropolitan California, Seattle, and Washington. BRE also has assets in Phoenix, Arizona, and Denver. Currently trading at $52.61, BRE Properties hit a 52-week high of $52.71 in today's session, and has gained 25.3% over the past six months.

Simon Property Group is a self-operated REIT, which owns, develops, and manages all of its associated properties. The assets consist of regional malls, Premium Outlets, The Mills, and community centers. Currently trading at $121.46, Simon Property hit a 52-week high of $121.70 in today's session, and has gained 26.8% over the past six months.

ACTION ITEMS:

Bullish:

Investors who believe that the real estate market can only get stronger from current depressed levels might want to consider legging into (building a position in small increments) the following trades:

  • Education Realty Trust has gained 11% over the past ten trading sessions. Entering a full position at this point would be dangerous considering that a retracement to the downside is likely at some point in the near future. With that in mind, adding small positions at current levels and on any pullback would be a wise way to enter this REIT, while preserving capital and maintaining risk. A 50% retracement of the last ten day surge would place shares at $8.63.
  • Equity Residential has gained 8.3% over the past ten trading sessions. A 25% retracement of the recent surge would put shares at $61.60. A 50% retracement would put shares at $60.34. Entering a small position now, with the intention of adding on any pullback to such levels would be a good way to play it.
  • Boston Properties has gained 9.7% over the past ten trading sessions. A 25% retracement of the recent surge would put shares at $109.25. A 50% retracement would put shares at $106.71. Boston Properties' 50-day simple moving average (one year daily chart) is currently at $104.29. Adding a small position here, while keeping these potential correction levels in mind for future purchases appears to be the best long term way to play it.
  • Camden Property Trust has gained 9.2% over the past ten trading sessions. A 25% retracement of the recent surge would put shares at $66.13. A 50% retracement would put shares at $64.70. Adding a small position now, with the intention of adding on any pullback to these levels is a good way to trade it.
  • BRE Properties has gained 10% over the past ten trading sessions. A 25% retracement of the recent surge would put shares at $51.46. A 50 percent retracement would put shares at $50.22. Adding a small position at current levels, with the intention of adding on any pullback to these retracement areas is a good plan.
  • Simon Property Group has gained 10.1% over the past ten trading sessions. A 25% retracement of the recent surge would put shares at $118.67. A 50% retracement would put shares at $115.88. Adding a small position now, while keeping these levels in mind for possible future acquisition points is a good way to go.

Bearish:

Investors who believe that the housing market may take another hit given the eventual rise of interest rates may consider these alternate positions:

  • The same trade works for virtually every one of these REIT's. Given their recent run to new 52-week highs, all technical indicators are pointing toward a short term correction. The RSI (14) indicators (one year daily charts) for all of the listed shares are above the “overbought” level of 75. Additionally, all of these REIT's are currently trading, on average, 6.3% higher than their 50-day simple moving averages and at the top of their Bollinger Band (20, 2.0) ranges. With shares seemingly in “overextended” territory, starting to short these names at current levels, while adding upon any further moves to the upside would be the best way to enter a short position. As with any contrarian play, the key to these types of trades is to have clear “exit” points, which limits risk and outlines potential maximum losses.
Source: How to Play the REIT Boom