Opportunity Abounds In Battered REIT Market

BY MARK JEWELL

BOSTON (AP) — When a seasoned real estate investor like Ross Meredith admits to being scared, you know it's time to do your homework before leaping back into a battered market.

Meredith, a 63-year-old retired bank examiner from Salt Lake City, has traded shares of real estate investment trusts for more than three decades. REITs are companies that own, and often operate, income-producing real estate. If you own REIT shares, you can buy into the commercial real estate market, without worrying about keeping tenants or wheeling and dealing in huge sums like Donald Trump.

Meredith is a self-described "dividend-aholic" who relies on REITs' quarterly payouts to supplement retirement savings and earn spending money for travel. After all, REITs are mostly about dividends. To escape corporate taxes, REITs must distribute at least 90 percent of their taxable income to shareholders each year.

Meredith was savvy enough to scale back his REIT holdings in 2006 when he saw property values and REIT share prices continue rising even as the industry took on too much debt.

Now, with commercial real estate teetering, the good times are long gone. Real estate mutual funds, which mostly hold REITs, have been the worst-performing domestic stock fund category of late. They're down more than 50 percent over the past 12 months, including 15 percent year-to-date, according to Morningstar Inc. Real estate funds are middle-of-the-road based on five-year performance, with an average annual loss of 3.9 percent.