just one other all but important comment.
I'm involved with a REIT investment(WRI)...but not for much.
I'm gonna ride it through their earnings conference call on the 30th, but may take a loss and cut it loose if I do not like what I hear.
To play devil's advocate, here is, I think, the general argument against the sector right now.
The best REITS juggle risk like hot potatoes in tough times, and just keep raising the dividend each year. They are very good at it.
But the counter argument would go that this time,for once in our lives, IS different.
REITs have to pay a huge part of their cash flow out to shareholders, so they cannot stockpile cash. And most carry quite a bit of debt, but usually that is easily serviced from rents and capital gains.
They rely on very solid credit lines and raising market money from yield hungry investors to see them through rough patches.
The bears would say...
The market decline takes away the market as a major source of income. And in fact many have had to put off stock offerings.
In the credit crisis, the bears would say, the credit lines will dry up. I doubt that but...
Bears would say vacancy rates will rise a great deal in a deep recession, and it won't be easy to find new tenants.
If the perfect storm hits the REITS, some may have to sell off properties at bargain basement rates just to service their dividends and bank debt.
Dividends would fall rather than rise. Faithful investors would exit rapidly if that occurs.
And in the meantime you can get preferred stock from the huge banks that are now backed by the US government that often pay out yields well north of 10%.....one of the unintended consequences of the infusion of capital into the huge banks is an unfair playing field.....and IF many REITS tumble,there will be consequences that are precisely the opposite of the government's best intentions.
I'm bettin it won't happen but it could...
( sorry for all the typos..no time to edit) |
