REITs bright spot in otherwise dismal market

By STACEY WIEDOWER

The Daily News

Even with the economy in its current sag, real estate investment trusts are having a positive year, according to data provided by the National Association of Real Estate Investment Trusts, or NAREIT.

The NAREIT composite index is up 2.74 percent, said Chuck DiRocco, the associations senior director for industry analysis. Thats compared to broader benchmarks the Russell 2000 is down 26 percent, and the S&P 500 is down 27 percent.

So, right now, REITs, in an investors eyes, seem to be a stable, smart investment in an economy that everyone at this point is kind of questioning.

Kent Mathis, a financial consultant with AG Edwards & Sons Inc., said with current interest rates, he suggests REITs as a way for his clients to get some extra return without taking a lot of extra risk.

But, he also emphasizes the importance of diversification in all investing, including REITs, he said.

If youre going to invest in REITs, you dont want to own any one REIT, he said. Because, just like in any other type of equity investing, you want diversification. In the world of REITs, you want to own a housing REIT, an office or commercial REIT, and you want something in several different parts of the country.

He said some REITs he particularly recommends are Capital Automotive, or CARS, which is trading in the $25 range and paying a yield of about 6.5 percent; Boardwalk Equities, or BEI, which is trading in the $9 to $9.50 range with a yield of about 6.8 percent; and Healthcare Realty Trust, or HR, which is trading in the $30 to $31 range and paying about 7.8 percent.

He said locally owned REITs, such as Mid-America Apartment Communities and Equity Inns, are favorites of some local investors, but he always recommends diversification.

For example, Kimco Realty is one REIT Ive advocated for a long time, he said. But, as much as I think its a great company, I dont believe you need to put all $10,000 of your CD money into Kimco. Split that up, put $2,000 apiece into five different REITs so youre always covered in case of catastrophe in any one market.

When selecting REITs to purchase, local investment analysts suggest seeking companies with strong balance sheets, or not too much debt.

If you think the economy has bottomed and is coming back, it seems logical to think that REITs have kind of weathered the worst of the storm, and there doesnt seem to be a lot of downside for good, solid companies, one consultant said.

And, though low interest rates tend to have a negative effect on REIT prices, dividend payments the size of an investors checks dont typically drop, analysts said.

I dont think its a bad thing when my yield drops, Mathis said. I think its a horrible thing when my dividend drops.

Mathis said when analysts predict amazing growth in the REIT market, he doesnt necessarily get excited.

I dont get excited when Money magazine says REITs are the greatest buy in the world, and I didnt get excited when they said they stunk back in 1999, he said.

In 1999, nobody wanted REITs everybody hated them. You could make a fortune buying amazon.com, and REITs were boring, paying 6 percent. Well, REITs are still paying 6 percent, and amazon.com isnt doing so well.