Are These REIT’s Cheap?

In a recent column at Smart Money, they posit that the recent sell-off in Real Estate Investment Trusts has gone too far.

Last Thursday alone, shares of home-mortgage REITs suffered massive market-capitalization losses. Some prominent examples: Accredited Home Lenders (LEND: 25.33, +0.83, +3.4%) dropped 7%; Novastar Financial (NFI: 16.29, +0.33, +2.1%) dropped 12%; Fieldstone Investment Corp. (FICC: 2.65, +0.12, +4.7%) fell 9.2%, and New Century Financial (NEW: 17.94, +0.73, +4.2%), which also said it would restate results for the first three quarters of 2006, dropped as much as 30% intraday last Thursday and now trades for a third of its high for the year. The carnage has continued this week, albeit at not quite such a precipitous rate.

Did it really take the HSBC announcement to wake up investors in these REITs to the fact that they have exposure to subprime mortgages? Evidently, though I find that hard to explain. If the efficient-market hypothesis has any validity, an expectation of higher default rates was already built into these prices, and most were trading well below their highs for the year. Given the severity of the correction, it’s possible the pendulum has now swung too far, just as the bond market overreacted two years ago to the downgrades of GM (GM: 36.31, +0.60, +1.7%) and Ford (F: 8.42, -0.23, -2.7%) bonds. If so, there may be some opportunities here. At its current price of $17, down from a 52-week high of nearly $52,

New Century yields an eye-popping 44%. Novastar Financial, this week trading at just under $16, was yielding 35%.

I tend to agree with this statement and I am currently looking to add more shares of my favorite REITWashington Real Estate Investment Trust (WRE) .  I’m pretty sure that we won’t be getting less government any time soon!  In addition, WRE holds a broad diversification of Real Estate from Commercial to Residential, making it even more attractive.

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