dew250 (95.30)

REITs

January 17, 2008 – Comments (2) | RELATED TICKERS: AEC , SUI , MPG

REITs are undervalued.  Historically and fundamentally, the market cap of a REIT should be in line with the NAV (net asset value).  The only factor that throws that off is FFO (funds from operations, which is effectively like looking at their cashflow).  Remember that these are not traditional stocks, these are Real Estate portfolios.

When you find NAVs that are 2+ times the Market Cap and yet positive FFO, there are only two things that can happen:

1)  Market Cap moves UP

2)  NAV moves DOWN

Chances are that we'll see movement both ways.  NAV will move down, but we're not going to see these companies' real estate holdings lose more than 50% of their value.  In other words, Market Cap must move up.

We are witnessing an abberation that can't last.  Be savvy and buy this real estate to cash in on the crazy dividends, be confident because FFO is positive (they're not going to have major cash problems) and enjoy it while it's cheap.