Saturday, June 18, 2005

REIT buildup

The REIT sector is extremely expensive, and has been that way for a while. But takeover activity is showing signs of heating up.

Just over the last week there have been three sizable buyouts. The one that is of particular interest is the acquisition of Catellus (CDX), an REIT with sizable holdings in San Francisco. Catellus never appeared on my watchlist - infact, I did not know of its existence until the previous day when it appeared on a REIT list in Investor's Business Daily.

REITs owning office space in the San Francisco/Silicon Valley/Bay Area and other former bubble hotspots could be targets, as they are relatively cheap since office vacancy rates are still high and the glory days of the past are not showing any signs of returning. I have added Digital Realty (DLR) and Prentiss Properties (PP) to my watchlist. Digital Realty, with its technology (data centers for eBay, AT&T, NTT etc.) properties in the valley, looks particularly attractive now.

REITs owning medical properties will always be targets, with the economy having little effect on their pricing. When the housing market starts to cool, REIT's owning rental properties will also make a big comeback. One REIT sector to keep away from is the shopping mall area - there has been massive overbuilding of malls and any substantial slowdown in spending will have drastic impact on these REITs.


At 9:56 AM, Anonymous Anonymous said...

What do you think of FR and AFR? I own both.

At 2:47 PM, Blogger Guru said...

AFR looks attractively valued and will be a takeover target down the road. The only minor downsides I see are from a possible bank/S&L meltdown like the early 90's and reduction in required real estate space from a pickup in bank mergers.

FR looks expensive to me, and with manufacturing all but disappearing from the US, this is a risk that I won't be taking.

In general, niche REITs are good, especially when their fortunes are not dependent on consumer confidence.


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