I wrote a post about what is in IYR here - [Nov 12, 2008: REITs Continue to be a Gold Mine on the Short Side]
This group (REITs) has bounced smartly the past few days as "worst is best" in the first stages of a bear market rally. The danger with shorting individual names is when they rebound they have a nasty tendency to squeeze shorts for 30-50% in a few days. But already they have begun rolling over - I have a list of about 10-12 putrid companies that might not make it out of the other side of 2011. One name SL Green (SLG) is already down 16% today so I already missed jumping back on that on! It is basically a way to play the New York office space market. ProLogis (PLD) is another staring into an abyss.
I'm going to create a basket of REITs as "fundamental" shorts - some of these I should of done at the beginning of 2009 once I could do individual stocks; even if I chased them down after large drops I would of been up 50%+ on some names. Now as I said above, the danger is these can squeeze you big time on any rally so I am going to put a moderate amount into each and trade around them. If we can get to S&P 780-800 I will be more interested in hefty accumulation.
The first two candidates are Kimco Realty (KIM) and Macerich (MAC) - I was hoping these would rally more so I could short them higher but I do not want to repeat the mistake I made in January-February 2009 of waiting for a "perfect" entry point and missing the whole trade.
EDIT 1:30 PM I added Duke Realty (DRE) as well
REITs will be to 2009 and 2010 what financials were to 2008. We already have a few in the sector on death's door... more to come as half empty strip malls and 70% full office space fills the land. [Nov 11, 2008: General Growth Properties Looks to Join Its Tenants]
In an ironic note I was just short Ultrashort Real Estate (SRS) 24 hours ago anticipating the rebound. ;) Today is one of the few days in the past 1.5 years I do not own SRS.
I will be adding to this basket as time goes by... I put about a 1.3% stake into both names today just to get a toe in the water. I wish I had been paying attention to SL Green because that would of been my third. My hope is these stocks actually surge higher on Kool Aid so I can get scaled in at higher prices on the shorts. Again these are not fast money scalps, these will be with us for a long time. There are more names coming - this will probably be a 6 position type of basket by the time I am done. Commercial real estate will be the next disaster as our national savings rate rises (hammering retail) and our job market continues to degrade - no matter what Kool Aid or government assistance [Dec 22, 2008: Wall Street Journal - Property Developers Ask for Government Bailouts] is tossed their way. Since I'm relatively bullish on the market unless we break S&P 741 I am going to build my positions slowly.
The Macerich Company operates as a real estate investment trust (REIT) in the United States. The company, through its majority-owned partnership, The Macerich Partnership, L.P., engages in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. As of June 30, 2005, it owned or had ownership interests in 76 regional shopping centers, 20 community shopping centers, and 2 development/redevelopment projects.
Kimco Realty Corporation is a publicly owned real estate investment trust. The firm engages in acquisitions, development, and management of neighborhood and community shopping centers.
SL Green Realty Corp. is a real estate investment trust (REIT). The firm engages in the property management, acquisitions, financing, development, construction, and leasing. It also provides tenant services to its clients. The firm invests in real estate markets of the United States. It primarily invests in commercial office and retail properties.
[Jan 6, 2009: As Vacant Office Space Grows, So Does Lenders Crisis][Jul 21, 2008: Add Mervyn's to Our Growing list of Retailers Heading to the Great Sunset]
Short IYR in fund and personal account; short MAC/KIM in fund
8 comments:
REIIIIT party. SLG is a beauty in terms of downtrending recently past few months. what's curious about MAC is i hear a lot of good things about them kind of like "best house in a bad neighborhood" thing. and also im pretty sure forbes had them rated as one of the highest reits... just interesting. obviously i think any house in a bad neighborhood gets brought down, but just thought i'd flag that as for whatever reason people seem to think that one will be ok... need to do more digging.
VNO is also offices and then federal realty is strip malls.
It is funny
I was going to short MAC over $20
based on their sector exposure
then I did more reading and found the same thing you did - best operator this, not bad that
and I held back
now its 60% lower
so much for research
VNO is "a good operator" too! ;)
Mark, any thoughts about storage REITs, like PSA or SSS? There was an article that said that many tenants are choosing not to pay the rent on their storage unit and are walking away much like the current housing crisis. It also said that many are having trouble attracting new customers and have resorted to offering several months free rent to lure in new tenants. So, they're not only losing tenants they also can't attract new ones. Sounds like it could be a losing proposition for these guys in the near-term.
Hi mark
I saw that same story but have never looked into those names other than to always hear how PSA is recession proof. If not there is a lot of meat to those bones (shorting)
Never heard of SSS, but PSA is a household (to investors anyhow) name. As recession deepends you might be onto something there.
Keep in mind many of these REITs have lots of debt to rollover and thats why they are wickedly weak on TOP of the decrease in rents coming
Not sure what the debt situation is with those 2 - if you find out feel free to drop a line. PSA has resistance at $60 so you can do a short and stop out over that if you are wrong quite easily.
But a good idea there. I was thinking a similar thought when I read the article but only could think of PSA as an obvious candidate.
Mark, do you follow ESS? It still trades at high multiple and high price. A lot of meat left on this Reits.
Recent travel took me off exit 8A - NJ Turnpike, Hightstown area. Was shocked to see about a 5 sq. mile area of huge warehouses and office buildings almost all totally vaccant and for sale or lease. Most were fairly new buildings. FYI....
Anon #1, no I dont follow ESS - a quick glance shows its focused on apartments in the West. I'd think that would actually be a decent area since many former owners are now renters. Maybe rents will go down somewhat but I expect units to be strong. People gotta live somewhere theory?
Anon #2, get used to it. It will be worse a year from now. With global trade stagnating and small/medium businesses dying off - we have overbuilt. No different than retail.
Upon further reflection that might be an interesting pairs trade - long ESS (or similar REIT) short office/retail focused REITs. A quick glance at the chart shows a stock OVER its 50 day moving average which is like finding a needle in a haystack in REIT world.
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