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Real estate investment trusts have been, as you might expect, pulverized by the downturn in housing but the Wall Street Journal reports (subscription required) that that may be setting the stage for a wave of consolidation in the field.30% of REITs are trading at prices below $5 per share, and experts say that those are the companies most likely to be the target of acquisitions.
For most investors though, the sub-$5 REIT strategy probably isn't such a hot idea. The Journal piece mentions General Growth Properties (NASDAQ: GGP) but the problem with that is that the company is very likely destined for bankruptcy court unless it can make a deal. The best strategy is to find good companies with good long-term prospects with low valuations that will make them attractive to potential acquirers. Buying junk companies in the hope that they'll be acquired by a bigger player is just too speculative -- especially in an environment where credit is so tight.
But the good news is that if there is a mergers and acquisitions boom in REITs on the way, it's because the sector is undervalued: You can invest in REITs and profit even if you don't pick the ones that got gobbled up.
If you're thinking about making an investment in REITs, REIT.com is a great place to get started with your research. A word of warning: Look for REITs that don't have massive amounts of debt coming due soon. With the credit markets tight and property values considerable lower than they were a couple years ago, there's a risk that these companies will run into liquidity problems that will harm your investment.
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