re: REITs
REITS are retesting their lows, and look really weak. Look at your calendar - its near the end of tax loss selling and here we have a sector that is heavily owned by retail investors, and which many retail investors bought right at the peak two years ago. If anything is being sold for tax loss reasons, its REITs.
First point, and I think the reason Mike is asking this question at this time. The sector broke its March low, which preceded a 20% rally, and is retesting its October 1998 low. (I use RMS as my benchmark for the sector.) If we break that October 1998 low, which we are right at now, then we've got a problem. My thesis on REITs says that that shouldn't happen.
This is not just technical analysis. REITs have bottomed there twice for a very good fundamental reason. That level is approximately a 20% discount to net asset value. When hard assets like real estate, in an environment of real estate guys who live to do deals, trade at a 20% discount to what they are worth...things happen. In March we started to see takeovers and LBO plans. I think that will happen again.
Now for what to do now. What I have done is put a substantial portion of my retirement money in a diversified REIT mutual fund about a month ago. I am down about 5%, but my next move would be to add to that position.
If you're looking for five securities, I would make sure one or two of them is an institutional quality (i.e. market cap over 3 billion) REIT. Those will lead the rally, because at the first sniff of a rally in the sector that is what the big money will buy. My picks there are nothing fancy - the obvious names - EOP, EQR, BXP. Be careful about Crescent.
I would be careful of hotels, where the fundamentals really do appear to be deteriorating, and where the leverage (both financial leverage and operating leverage) are much higher than other sectors of REITS.
For the other three names, I would go with CLP below 25, CCG around 30, and Mike's pick of SNH anywhere near the current price of 12.
If asked for one pick, I would say SNH, though I would not guarantee it moves with the REIT sector. This one may be a lone wolf. That is why, if you want to play the REIT sector, make sure you have a position in the stocks that will definitely move if and when the sector gets legs.
JJC |
