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  • sam_0534 sam_0534 Mar 5, 1999 2:32 PM Flag

    Watch them flock in

    <Picture: Y
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    Friday March 5, 1:56 pm Eastern
    Time

    ANALYSIS-REITs still lose out to hot growth stocks

    By
    Suchita Nayar

    NEW YORK, March 5 (Reuters) - The
    worst storm to hit U.S. real estate investment trusts
    in more than two decades appears to have blown over.
    But investors who abandoned ship are refusing to come
    back, leaving REIT stocks adrift.

    Given how
    Internet and other high-flying technology stocks can
    double in one day alone, investors have ignored the
    10-20 percent annual total return that trusts
    historically promise, analysts say. The National Association
    of Real Estate Investment Trusts (NAREIT) equity
    index fell 19 percent last year, its worst drop since
    1972.

    ``(REITs) are a dull story in a very sexy market,'' said
    Jeffrey Donnelly of Everen Securities.

    ``The only
    catalyst pulling this sector back will be one of relative
    valuations,'' he added. ``People will get tired of buying
    companies at 80 times earnings and might take some money
    off the table and put it in companies with more
    conservative and consistent valuations.''

    REITs, which
    own a portfolio of properties and are required to pay
    out 95 percent of their cash flow in the form of
    dividends, hold the promise of consistent income for
    shareholders. They have delivered at least a 5-10 percent
    growth in funds from operations, a key measure of their
    operating earnings.

    ``Investors don't want to play
    defensive when they can get 20-30 percent returns --
    sometimes ever larger -- in a day from frenetic stock
    activity in sectors like the Internet,'' said Jay Leupp at
    BancBoston Robertson Stephens. ``That's more than what REITs
    are expected to appreciate in an entire
    year.''

    But some think the tide for the beleaguered sector --
    once considered a safe haven -- could turn later this
    year as people realize its inherent value. Most REITs
    are trading at a discount to the value of their
    physical assets.

    Since the beginning of the year to
    Thursday's close, the Morgan Stanley Dean Witter benchmark
    real estate index (^RMS - news) has fallen by about 5
    percent, compared with the Dow Jones Industrial average
    (^DJI - news) and the technology-laden Nasdaq market
    (^IXIC - news), which have gone up some 3
    percent.

    Most REITs have hit rock bottom, such as shopping mall
    owner Simon Property Group Inc. (NYSE:SPG - news),
    which set a new 52-week low of $24.25 on
    Thursday.

    Few others, meanwhile, have managed to stay
    afloat.

    Mortimer Zuckerman's Boston Properties Inc. (NYSE:BXP -
    news) shares ended 6 cents higher at $32.81 on
    Thursday, near a year high of $36, while Sam Zell's
    Apartment Investment and Management Co. (NYSE:AIV - news)
    closed 50 cents lower at $38, near its year high of
    $41.63.

    Some analysts argue that the group has become highly
    oversold amid the possibility of a strong recovery in the
    second half of the year. Fears of a looming economic
    recession -- which rocked the sector last year -- appear to
    have dissipated, while demand for space remains strong
    in most markets. The credit crunch that curbed REIT
    expansion plans in 1998 also appears to have
    abated.

    But investors continue to pull capital out of the
    sector, causing mutual funds that own REIT stocks to sell
    their shares, dealing another blow to the companies,
    said Christopher Haley of First Union
    Capital.

    Tero Tiilikainen of SNL Securities said the REIT story
    in 1999 is going to be ``an operations story,'' with
    trusts focusing on internal growth and placing a premium
    on solid management teams and
    liquidity.




    ------------------------------------------------------------------------

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