Opportunity Abounds In Battered REIT Market

The industry ran into so much trouble last year that its trade organization, the National Association of Real Estate Investment Trusts, persuaded the IRS to give REITs a new option for meeting the 90 percent rule. REITs can meet the requirement mostly by giving investors new shares of stock, rather than paying out only in cash. At least seven REITs have paid dividends in part stock and part cash this year, including shopping mall owner Simon Property Group Inc.

Such a step reduces the value of existing shares because more are out there in the marketplace — known as dilution. On the positive side, holding more shares can be attractive to a long-term investor. But that's only if the stock price eventually bounces back.

Meanwhile, Meredith, the amateur REIT investor, still likes REITs overall as good sources of income — even if many of the first-quarter numbers that REITs begin reporting this month will be accompanied by dividend cut announcements.

"I think if the company is not so deeply in debt that its cash flow is seriously impaired, there is a lot of staying power in the average REIT," Meredith says. "There are quite a few of them today that are real bargains."