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No. of Recommendations: 4
Okay, I am entering the contest on the lunatic fringe end -- I've taken a small short position in September 35 calls. I just don't think this stock is worth what it's selling for. Per RSR, about a 40% NAV premium. Something like 10.5x AFFO. For a hotel stock? For any REIT that's a pretty high multiple. I don't care how long their leases are for, they do have to renegotiate them at some point. I just think the hotel REIT money flowed into this one after 9/11, it being the only relative "safe haven" in that sector.

And I think most of the other hotel REITs are way overdone now too, given the prospects for recovery in that sector. Most folks seem to think we're looking out to at least 2003, and maybe as far as 2005 for a real recovery in that sector. The only ones I hold any significant position in now are MMH and LQI. MMH I think is misunderstood, and will (I hope) pop for one reason or another in the next couple of years. With LQI, I think it's selling $1 or $2 below NAV, debt is low, and I like the new management team a lot. I think they are going to aggressively grow the company in a very conservative manner (if that makes any sense).

For what it's worth, I am really light across the board right now. I think there is a lot of downside room for REITs, and I think it is unlikely (although of course not impossible) that there is much upside. However, with the exception of HPT, I'm not actively betting against upside, but rather betting that the probability of down or flat is much more likely (price-wise, not total return-wise). Light for me means lots of covered calls, short REIT index calls out to June, with net exposure in a big up move of about 50%, whereas my "normal" exposure is about 150%.

I don't claim to have a crystal ball. Just playing the probabilities as I see them. I don't mind getting paid in option premium to bet that there isn't a lot of upside in REITs right now. My only significant exposure to REITs is in office, and much of that is with covered call positions (EOP in a strange option position, CRE outright (no options available), TZH, CLI, KRC, HIW, RA all with in-the-money covered calls).

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