B. WHAT LIES BENEATH
After unwrapping the REIT box and looking deeper inside, however, we see a more sanguine situation. The indices include mostly large cap REITs and are tilted heavily towards the apartment, office and industrial groups. The appreciation alone for these three groups were 21.18%, 20.17% 15.57%, respectively, and the 20 largest REITs appreciated 24.9%. Digging a bit deeper, we find that four of the 14 REIT groups we cover were negative last year, with the worst being Health Care with a loss of -12.7%. No other group gained over 9% for the year. If you equally weight these groups or if the stocks are unweighted by capitalized value or size we arrive at a gain for Equity REITs in 2000 of only 5.64% and for all REITs of 5.8%. Throw on dividends of several percent, and you have a total return for REITs of the low teens.
Although most investors would be delighted with the REIT returns in 2000 regardless of the way they're measured, there is a large performance difference between being weighted and unweighted, and esepcially if REIT groups are considered equally. Last year was a great year for the big cats that became fatter. But it doesn't say much for the small REITs, and especially the more specialized groups of REITs. It also may reflect on the trend of the REIT industry. Expect more consolidation and bigger being more influential. But will bigger continue to perform better this year?
Of course getting even deeper, and looking under the REIT box, we see that there are numerous indicators that the economy is slowing and new business formations are down. This is not particular bullish for real estate. However, as rates have headed lower, it has helped propel housing and home building stocks in the second half of last year. It may also help explain the jump in some of the higher yield REITs last month. But lower rates may not influence the larger and lower yielding REITs. It could even hurt apartment REITs as renters find it more affordable to buy and provide problems for office and industrial REITs with less business expansion. Due to legistlative changes, this year also enables REITs to branch out into more non-real estate activities. For those of us that remember the S&L hey days of the eighties, this may not turn out as well as many REIT executives and analysts may hope. Top
C. SOME HOPE IN GLOOM AND DOOM?
If you're looking for some opportunities this coming year, it may pay to look at was neglected last year. Although one month does not a trend make, it is interesting to see what the best performing groups were in December as mentioned below under Equity REITs and also under Realty Cos. Despite the gloom discussed in our two prior newsletters about realty tech companies and communication firms, some issues in these groups have had nice increases since year end. Although some REIT enthusiasts have reveled in the demise of NASDAQ and tech stocks, it doesn't mean this will continue. Since the end of the year, some tech and small cap indices are up over 12% while REIT performance is a bit under water.
Although it is too early to call the re-emergence of techs, this is a different year. It is noteworthy that the big fat cats actually lost over -5% in price last month as noted in Large Cap REITs. In contrast, with dividends included, most REIT mutual funds gained 3% and some REIT indices were up about 6%. Although some year end portfolio shifting occurred and could be temporary, it could also be a future indicator that some large cap REITs may not enjoy their forthcoming performance as much as last year. We don't expect a flash back of 1998 and 1999 for REITs. Possibly 2001 may finally be the year that the "normal" 12 % to 15% return that has been forecasted for REITs for years and never attained recently may become a reality in realty. Top
Comc'l, Resd'l, Both
Constr., Developers,
E-MAIL: