A. PERFORMANCE DIFFERENCE BY PROPERTY TYPES / SECTORS
In the aftermath of September 11th, Real Estate Investment Trusts (REITs)
and other realty stocks sustained one of their worst monthly performances
this year. Although the performance of these stocks and most others have
improved so far in October, September saw all REITs decline -5.48% and
Realty Companies drop -19.07%.
However, the slowing economy and concerns over future terrorist activities
are affecting certain realty stocks much differently than others. With
interest rates expected to remain low over the next couple of quarters or
more, stocks that provide high and stable dividends are expected to remain
attractive. In particular, they include such groups as Health Care,
Specialty and Mortgage REITs that have performed well all year, even in this
past month. On the flip side is the travel and tourism industry that has
been particularly hard hit and includes such groups as Hotel REITs, Lodging
and Resort stocks. Last month they declined -34%, -28% and -20%,
respectively. More about these stocks is discussed below in section B.
Compared to a year ago, a turnabout in the performance of REITs by property
types has continued to have multiple affects. Although not widely
acknowledged, indices that reflect only large cap REITs have actually
underperformed the broader market because they exclude the best performing
groups previously mentioned. This explains why the broad price performance
of all REITs according to our calculations is up 18.22% and 10.38% for
Equity REITs, compared to a paltry price return of 0.6% for Large Cap REITs.
However, since there are also no large cap Hotel REITs, overall REIT indices
could have been worse. ( Please see Large Cap REITs.)
The most evident effect upon the differences in REIT performance by property
types is among the real estate mutual funds or REMFs. One and two years ago,
the performance of these funds were very close to one another as most had a
heard mentality and were investing in similar large cap REITs. A recent
study conducted by us and available to our members indicates that with the
increasing number for REMFs, some fund managers have decome less diversifed. (See Top Stock Holdings.) For a few funds that were more oriented to yield sensitive issues like Health Care and Mortgage REITs, returns have been stellar. For those funds that were betting on a rebound in Hotel Stocks, the past several months were devastating. For most REMF managers that still favor the traditional
property type groups like office, apartments and retail, however, returns have been fairly flat and have generally lagged behind most REIT indices. (Please see REMFs.)
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