Time to Buy REITs?

I read but did not act....recommended REITs are up 30% in a month!

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From Porter Stansberry's Investment Advisory, May 2009

Why do I think the bear market in REITs is over? Because the floodgates of new capital have opened... Sentiment and access to capital play a huge role in real estate prices. The more capital that's available, the higher prices will move. The higher prices move, the more capital becomes available – because there's more collateral. Sentiment is incredibly important to these markets because it opens the flow of new capital.

And sentiment is now completely different than it was in March. Simon Property announced another equity offering [in addition to the $500 million it raised in March] – this time $800 million in new equity. The fact that REITs have this kind of access to capital tells me the yield spread has peaked and it's time to buy REITs.

More Pain for REITs

Good article from Bloomberg summarizing the upcoming pain. Some salient quotes:
“REITs are cheap but they’re going to continue to be cheap,” said Marc Halle, managing director of Prudential Real Estate Investors in Parsippany, New Jersey, whose firm manages about $32.5 billion in real estate assets. “We’re going to see increased corporate bankruptcies and continued unemployment for the next few months.”

More than a dozen retailers, including Circuit City Stores Inc. and Linens ‘n Things Inc., filed for bankruptcy protection in 2008. Store closures have hit shopping center landlords including Developers Diversified Realty Corp., whose stock fell 95 percent during the past year to $1.89.

The dividend yield on the retail REIT index is almost 15 percent, more than five times the 2.88 percent yield of the 10- year Treasury note, a traditional benchmark of value. During the past decade, REIT yields averaged less than 2 percentage points above Treasury yields.

Retail REITs are worse off because they borrowed more heavily than apartment and health care landlords, said Dean Frankel, a senior portfolio manager at Urdang Securities who helps manage about $1 billion of real estate securities.

Refinancing Risk

The real estate market has been in limbo while investors await government measures to deal with the collapse of the banking industry and boost an economy in its second year of recession.

Refinancing risk is driving REIT prices, said Prudential’s Halle.

“No one cares about value,” he said. “It’s about survival and making your balance sheet as strong as you can.”