12-11-00                                                                                           Vol. 3: No. 12 RealtyStocks’ Observer If you're not receiving this free monthly e-newsletter, please register. Plan a Great Ski Trip This Winter See: ParkCityTownhome.com Monthly Feature: REALTY COMMUNICATION FIRMS SINK Large REITs Edge Up A. Realty Communication Firms Sink B. Tech Corner C. Election Backlash? D. Large Cap REIT Performance E. Equity REIT Performance F. Mortgage REIT Performance G. Realty Corporations H. Real Estate Mutual Funds (REMFs) I. Holiday Tidings A. REALTY COMMUNICATION FIRMS SINK Until recently, realty communication firms - referred to as Onsite Tech / Building Service Providers (BSPs), Building and Competitive Local Exchange Carriers (BLECs & CLECs) as well as other names and acronyms - were a hot item. They expected to profit from making broadband access available to tenants in different types of buildings. There has been an overabundance of such firms, both public and private, especially those involved in office properties. Most of these companies wire buildings through the elevator shafts or risers, typically at no cost to the building owner, and each believed that those with the largest building portfolios would be the eventual winners. To grab greater market share, these communication firms teamed up with large owners, including some office REITs. The building owners obtained interests in these communication firms, directly or indirectly, in return for granting a preferred provider status. What seemed to be attractive deals have encountered some problems. First, the risers in most buildings have turned out to have rather limited physical capacity. There is simply not enough space to contain the wiring for every company that wants to service some buildings, and the replication of similar wiring in risers seems to be wasteful. Second, tenants have sometimes questioned the building owners exclusive rights to riser space with "Forced Access" legislation. Although not a serious problem in most states, it may create some issues for building owners. Third, the adoption of broadband is not materializing as quickly which has caused the revenues of these firms to be under projections while capital costs are still high to build out national networks. Finally, most of the communication firms are becoming low on money and investors are reluctant to pump in more capital without near term prospects for profits. The doom and gloom discussed in last month's newsletter about real estate technology can be extended to these realty communication firms. It appears a shakeout in this industry inevitable. Some communication firms are announcing layoffs, more limited national rollouts and changes in business models. As mentioned under the Tech Corner below, the stock prices of these public companies are off over 40% just last month, and some of these stocks are down over 90% for the year. Despite some rough sleding and possible failures, this shakeout could eventually result in some very strong companies.   Top B. TECH CORNER Realty communication firms, or OnSite Tech firms as used in RealtyStocks, have had a disastrous month, retreating -44.1%. In just the last couple of weeks, analysts have downgraded their ratings on many of these companies. Firms that were particularly hard hit in November, and their monthly percentage drops, are: Tut Systems (TUTS) -78.8%, Teligent (TGNT) -77.4%, CAIS Internet (CAIS) -75.6%, Velocity HSI (VHSI) -68%, Cypress Communications (CYCO) -65.1%, and Allied Riser (ARCC) -47.1%. For the year, the worst performing stocks in this group are: Teligent -97.7%, CAIS Internet -97.1%, Cypress -96%, Velocity HSI -93% and Allied Riser -91.8%. With the vitality of these public companies in question, similar companies in the private sector, such as OnSite Access, Broadband Office, BroadbandNow, Eureka Broadband and Urban Media, are also feeling more pressure. It would not be surprising to see some fallout and consolidation among these players. Were it not for the stability of a subset of realty communication firms, antenna and rooftop management providers, the percentage decline of this group would have been much worse this year. Firms in this subset with more stable stock prices have included Am. Tower (AMT), Crown & Castle (TWRS), SBA Communications (SBAC) and SpectraSite (SITE). The Tech group is dwindling to several "hangers-on" and two major players. Besides Mortgage.com which will probably be delisted soon, there are now three other companies that are considered to be penny stocks (under $1) in this group. They include: Homeseekers (HMSK), VistaInfo (VINF), and Improvement (IMPRV). Three others stocks (between $1 and $3) including: Internet Pictures (IPIX), E-Loan (EELN), and Lending Tree (TREE), will hopefully escape such a slide. The two major companies in this sector, with per share prices currently in the $20s, are HomeStore (HOMS), with a residential focus, and Co-Star (CSGP) with a commercial orientation. The difficulties of public real estate tech companies (RETCOs) and communication firms is troublesome. Equally concerning are the earning warnings issued by technology companies last quarter, more than in any quarter over the past five years. This slowing of business indicators may begin to have more of an impact upon all aspects of our economy, especially start-ups and private companies. Since most investors in RETCOs have endured much financial pain, those embracing the lower priced stocks, in particular, need to have an adequate risk perspective. As Mortgage.com has shown us, some of these companies may not survive. However, should some of these low priced stocks make it into profitability, their return possibilities are tremendous. For instance, IF a company like IPIX (now $1.50) could recover and increase its share price to $10, it would represent an increase of about 550% over its present price. A price of $15 would produce a "10-bagger" (10 times the current price). There is going to be some carnage, but there could also be some spectacular recoveries and returns for those brave (or foolish) enough to take some higher risks.   Top C. ELECTION BACKLASH? Who could have anticipated the closeness and continued saga of the Presidential race this year? Whether this race is over this week, or next month, the deadlock or standoff has not been well received by financial markets. There is even concern by Florida Chief Justice Wells in his dissenting opinion on Florida's Supreme Court decision to allow the counting of undervotes that our country could be on the verge of a "Constitutional Crisis". Whatever your position and they way the election plays out, it's hard to argue that a continued stalemate is good for our country and equity investments. The longer this drags on, the more downward pressure will be exerted on stocks. So far, REITs have escaped this election impact while technology firms have carried the big brunt. Although the growth prospects for REITs are not as robust now as a year ago, the possibility of the Feds lowering rates may make the yields of REITs look more attractive. If other industries remain precarious, REITs may not be especially harmed during this uncertainty, but could actually be a beneficiary of minor sorts. In particular, the larger REITs with reasonable returns may perform a bit better as they have this past month. However, should this election somehow have a good closure and the economy avoid a slump, money may eventually start running back into techs and that could drain some money flow from REITs again.   Top D. LARGE CAP REIT PERFORMANCE Despite the decline in the broad Equity REIT markets covered below, the 20 largest REITs posted a gain of 2.1% for November. The best performing large cap REITs were General Growth Properties (GGP) and Crescent Real Estate Equities (CEI), increasing 11.4% and 10.6%, repsectively. The laggards were Spieker Properties (SPK), down -5.6% and Duke Realty (DRE) down -4%. (Please see Large Cap REITs.)   Top E. EQUITY REIT PERFORMANCE For the month of November, all but four property groups were down and Equity REIT prices were off -1.22% overall. The group that had the largest gain was Industrial with a gain of 1.16%. The worst performing group, with a loss of -5.45%, was HealthCare. The best performing Equity REITs for November were Host Marriott Corporation (HMT) and General Growth Properties (GGP), up 11.8% and 11.4%, respectively. The worst monthly performers were Golf Trust of America (GTA) and Omega Healthcare Investors Inc. (OHI), down -35.6% and -31.5%, respectively. The best performers YTD were Wellsford Residential Property Trust (WRP) and Urban Shopping Centers (IOT), up 81.6% and 76.5%, respectively. The worst performers for the year were Omega Healthcare Investors Inc. (OHI) and National Health Investors (NHI), down -69% and -57.6%, respectively. (Please see Equity Gainers and Losers.).   Top F. MORTGAGE REIT PERFORMANCE Mortgage REITs were in the negative for the month of November, down -1.22%. Almost all property groups pushed into negative territory in November with overall price decreases of 1.65%. Residential & Commercial Mortgages posted the best mark with a 1.85% gain. The worst performing Mortgage REIT group was Commercial Mortgages with a -3.74% loss. The best performing Mortgage REITs for November were Hanover Capital Management (HCM) and Arizona Land Income Corp (AZL), up 14.5% and 12.1%. The worst monthly performers were Imperial Mortgage Holdings, Inc. (IMH) and Wilshire REIT (WREI), down -37.6% and -15.5%. The best performer YTD is Capstead Mortgage Corp (CMO) up 147.8% YTD. The bottom YTD performers are Dynex Capital (DX) and American Residential Inv. Trust (INV), down -79.6% and -59.1%, respectively. (Please see Mortgage Gainers and Losers.)   Top G. REALTY CORPORATIONS Realty and Housing Corporations lost -9.84% for November. This sector was brought down largely by OnSite Technology, down -44.1%, and Tech & Net, down -33.2%. The group gaining the most for the month was Resort Co's, up 4.81%. The best individual monthly performer was US Timberlands (TIMBZ) with a large gain of 25.6% largely due to a privatization initiative announced by management. The worst monthly stocks are Tut Systems, Inc. (TUTS) and Teligent, Inc. (TGNT), down -78.6% and -77.4%. The best performers YTD were Monterey Homes Corp (MTH), up 128.2% and Toll Brothers, Inc. (TOL), up 114.1%. For the year, the worst performers were Mortgage.com (MDCM) and Teligent, Inc. (TGNT), down -99.2% and -97.7%. (Please see Realty Corp. Gainers and Losers.)   Top As reported in the Wall Street Journal last month, it is important to note that one segment of Realty Corporations, Property Services, could be in for a change. Prices for the five largest NYSE listed real estate service firms were reported as being down 54% since the beginning of 1998. As a result of these low prices and Wall Street's apparent lack of enthusiasm for these stocks, some of these companies are considering alternatives, including privatization. An example includes a recent buyout offer for CB/Richard Ellis (CBG) recently made by Blum Capital Partners at $15.50, close to its current price. Prices of some of these issues are beginning to creep higher on anticipation that announcements on another company or two may be forthcoming. H. REAL ESTATE MUTUAL FUNDS (REMFs) The realty fund sector cooled down in November with a gain of 1.13% for 108 funds. All of the funds were positive for the month. Prudential Real Estate and Undiscovered Managers REIT, the best performers, had a gain 2.92% and 2.73%, respectively. For the year, REMFs still continue to post very attractive total returns averaging 17.64 %. The best performers year-to-date include Third Avenue, Security Capital U.S. Real Estate and SSgA Tuckerman all up between 26.5% and 24.7%. (Please see REMFs.)   Top I. HOLIDAY TIDINGS This is the last issue of this newsletter in the first year of this Millennium. It appears the Grinch avoided astute REIT investors this year, but certainly delivered some surprises to those favoring technology. Our year-end wrap up will come out in the next edition. Your editor apologizes for being somewhat late with this newsletter; but some nasty flu or cold bug has entered his body and rendered him fairly useless temporarily. He hopes all his readers avoid this little bug that packs a big wallop this winter. Also, we wish all a very happy holiday season. If you happen to be looking for some timely Holiday Gifts for the boss, employees, clients, friends, or family, keep in mind some books or videos about real estate. Please see RealtyBooks.com and HomeBuddy.com. Stock Changes - within RealtyStocks: USRealTel's symbol was changed from USRTE.OB to USRE.OB. Mortgage.com is officially removed from coverage. For simplification, Real Estate Technology and Internet Companies (RETICs) are now being referred to just as Real Estate Tech Companies or RETCOs.   Top Note: All gains or losses regarding Realty Stocks are price changes only; dividends are excluded. Disclaimer: The material provided herein should not be taken as endorsements or recommendations to invest in a stock, fund, a group of stocks or other securities. No guarantee can be made as to the expected performance of such investments. Investors should consult all available information, including data external to RealtyStocks and associated Web sites, and exercise own best judgement before making any investment decisions. The author may have equity positions in some of the companies covered in RealtyStocks, which may change from time to time, and will divulge such information upon request   Top InRealty Sponsors Inquire about our special advertising banner promotions! E-MAIL: stocks@inrealty.com Copyright © 2000, WebVisers Inc. All rights reserved .