Buy between 45 and 50

There was good news from the REIT world last week. David Simon, CEO of mall owner Simon Property Group (SPG), the nation's largest real-estate investment trust, said Thursday at a New York REIT conference that "it is our desire to pay [an all-cash] dividend very soon" and that 2010 is the target date. This year, Simon has taken advantage of an IRS debt-financing option for cash-strapped REITs, allowing it to pay 90% of its dividend in stock and 10% in cash. Simon added that his company has enough capital to make acquisitions, if it so chooses, and that, after having sold $1.6 billion in new equity recently, has no need to sell more "at this point." No acquisitions are on the horizon just now, he added, although the company is examining a few opportunities. As he put it: "We're being very thoughtful and cautious."

"That means virtually any of the large-cap banks or retailers or auto-related entities or insurance companies or natural gas companies that are too levered are candidates for a spot equity offering. Think about it: offerings like Simon Property's (SPG) have been going on for weeks in the real estate investment trusts and the utilities. Dow Chemical (DOW) and Las Vegas Sands (LVS) showed you a similar pattern." ("A Bevy of Bank Offerings," 5-12-09)

Investors in the volatile REIT sector should stick with the biggest, best-capitalized outfits, including Simon Property Group (SPG) and Vornado Realty Trust (VNO); Taubman Properties (TCO), which runs upscale malls; Boston Properties (BXP), an owner of prime office buildings in New York and Washington; Public Storage (PSA), the top owner of self-storage facilities, and AvalonBay Communities (AVB), a high-end apartment owner.

The worst-rated fund of the group, the Kensington Strategic Realty Fund (KSRAX), holds real estate investment trusts, or REITS. Key holdings include Simon Property Group (SPG), Equity Residential (EQR), Boston Properties (BXP), Vornado Realty Trust (VNO) and Public Storage (PSA). Read more here.

Shares of Boston Properties (BXP) closed significantly lower on Tuesday as did Simon Property Group (SPG) as well as the iShares Dow Jones US Real Estate ETF (IYR) which tracks the sector.

In retail, Gartman is gaming the same trend that Jeff Macke and retail analyst Howard Davidowtiz have been telling you about for a while. That is, people are going downscale. “I’d get long Family Dollar [FDO] and short Simon Properties [SPG] against it,” says Gartman. It keeps working and I’m going to stay with it until it doesn’t.

Q: Given the state of things, should investors keep their distance from REITs, or step in while prices are down?

A: I have never seen REITs cheaper than they are today. The three largest REITs I would recommend are Simon Property Group [SPG], the biggest owner of malls and other retail properties in the country; Boston Properties [BXP], a large owner of Class A offices in New York, Washington, Boston and San Francisco; and AvalonBay Communities , [AVB], one of the largest owners of rental apartments in the most vibrant rental markets on the east and west coasts. All three are well capitalized, in the Standard & Poor's 500, extremely well managed, well positioned from a property standpoint, and with a lot of capital so they aren't going to be caught in a liquidity crunch. Here is an illustration: Simon is trading in the mid-40s with a dividend yield of about 8%. Its high was over 100 per share. When the economy turns, retail will start growing again. There is no reason Simon's share price couldn't get back to its old high in the next few years. In the meantime, the dividend pays you to wait. Similar metrics apply to Boston and AvalonBay.

Big real estate companies were hardest hit in Wednesday with shares of Simon Property Group [SPG] the No. 1 mall operator and Boston Properties [BXP], which owns skyscrapers and other office buildings taking the biggest hits.

PE of 34, a PEG of 1.27, and it pays a yield of 1.8%.

subject to mortgage downturn

Bad technicals

declining real estate market

the partys over