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October, 2009


Real estate investment trusts trade like stocks but, as the name suggests, buy and sell real estate properties. They are also mandated to give back most of their income to shareholders. As such, they are normally like a blend of bond and equity investments. Often they have higher dividends than stocks but provide less price performance. In the recent financial crisis, however, the average REIT has been just as volatile, if not more so, than a typical common stock. Considering that much of the economic meltdown in 2008 and through March of this year was occasioned by a severe downturn in U.S. housing, it is hardly surprising that REITs also took it on the chin. However, since early March, they have charged back, actually doing better than the stock market by a wide margin. Thus, many of the terrific REIT bargains available early in 2009 have now disappeared.

Accordingly, I am not a cheerleader for REIT investing at this time. Rather, I would approach this investment category warily. Stocks have had a run-up of around 60% since March and REITs have done even better! One rarely sees this kind of short-term bull market without noting plenty of red flags warning the careful contrarian of imminent declines. A big sell-off is not guaranteed, but the risks are now apparently greater on the upside than the downside.

That being the case, why am I even bothering to mention REITs now? First, though one may occasionally call it right in the short-term, trying to time the markets perfectly, getting all in or out of them based on what one thinks they will do, is seldom an effective way to invest. Instead, some prefer to keep a certain percentage of their assets in liquid real estate assets at all times, as a way of better allocating their portfolios and so limiting overall risk. REITs usually do not go up or down right in synch with stocks. And, as mentioned, they tend to provide higher income. With foreclosures going up, more homes on the market, less consumer spending and so greater pressure on commercial real estate as well, real estate is no doubt going to be getting cheaper for awhile. This will be an opportunity for the better run REITs to buy more properties cheaply. In addition, given how much greater government debt levels are than only a couple years ago, there is concern about inflation just over the horizon, and REITs often perform well in an inflationary environment.

Yet, due to that big increase in REIT prices of late, I want to only get into this type investment a little at a time. Below, then, are several real estate investment trusts I think still look reasonably good and are worthy of consideration. Their average yield is 6.34%. (While HPT has no current dividend, it has a reasonably low price to earnings ratio [below 12]). With my own money, I intend to purchase some shares now and then review these assets later. If they still look attractive, I expect to buy more on market dips.

Associated Estates Realty Corp.AEC$9.906.95%
Chimera Investment Corp.CIM$3.9512.34%
Hospitality Properties REITHPT$21.830.00%
Washington REITWRE$28.026.07%

As with all investing suggestions, though, I encourage one to first do her or his own duly diligent research, and/or consult a financial advisor, before acquiring any shares.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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