2-17-01                                                                                           Vol. 4: No. 2 RealtyStocks’ Observer If you're not receiving this free monthly e-newsletter, please register. Rent a Condo for the 2002 Winter Olympics! See: ParkCityTownhome.com Monthly Feature: TOPSY TURVY A. Topsy Turvy B. Economic Hebie Gebies C. Bottoms Up D. Large Cap REIT Performance E. Equity REIT Performance F. Mortgage REIT Performance G. Realty Corporations H. Real Estate Mutual Funds (REMFs) I. Happy President's Week(end) A. TOPSY TURVY Last year the REIT returns reported by RealtyStocks were much lower than most other REIT indices, not only because we solely measure price changes, but primarily because we evenly weight our returns with smaller companies and by groups. Since the other indices only include large cap REITs or are heavily weighted in that direction, and also emphasize two of the best performing groups last year, Office and Apartments, they hit on the right cylinders. So far this year, the REIT engine is working off of other cylinders - other groups and smaller companies. This has made the RealtyStocks REITs increase a strong 6% in just a month in comparison to a flat performance for the large cap REITs. The shift in group performance foreshadowed in our previous newsletter could just be an adjustment, but it could also be a trend to watch in the near future. The improved performance in smaller REITs may also be part of a phenomenon that is occurring with many small cap issues. This year small caps are also up about 6% and were up over 16% last year. Mid caps also performed nearly as well last year. This is a change in direction over the last few years where large cap stocks had most of the momentum. In the current financial markets, bigger is not necessarily better. Another major change that has continued with us for several months is the decline of tech stocks. One of the few tech sectors that seemed resistant to major corrections was optical networks. This sector sharply declined last week, and it's difficult to find any tech issues that are not down at least 50% from their highs over the past year. The significance with this is twofold. First, as mentioned in previous newsletters, there has been an inverse relation between Nasdaq and REIT performance. So, if techs finally get oversold and hit the "dead cat bounce" it could redirect funds back out of REITs - possibly in the last half of the year. Second, it was widely believed that techs could be immune from any weakness that may occur in the economy. False. Not only is this not true, but the slowdown in certain regional economies may actually be attributed to declines in technology companies.  Top B. ECONOMIC HEBIE-GEBIES A growing concern is the weakness in the economy and the loss in consumer confidence. Although most economists are staying away from predictions with the R (recession) word, further economic declines could depress rents and occupancies. Also, this slowdown could be more pronounced in some regions of the country than others. This would mean that the holdings of some regional stocks may perform better than those in other areas or with a more national focus. This is another trend to watch. We waited two years before we had a bounce-back in REITs last year and we see factors that may restrain forward momentum. Although lower interest rates may help real estate in general, any structural decline in the demand for real estate can more than off set lower rates. An economic slowdown will not affect all property groups equally. Apartments can be one of the first groups to feel some pain in economic down turns, because of more doubling up, attrition due to home buying at lower rates and short term leases which impact the bottom line quicker than office or industrial properties. This may be why Apartments under-performed nearly every other group last month. In contrast, self-storage facilities may actually feel less pressure and could actually benefit in some areas as young adults move back in with their parents or friends, but need to store their belongings. Also, Specialty and Healthcare REITs, primarily comprised of sale-leaseback properties, as well as mortgage REITs, are more prone to rise as rates become lower. Home Builders also benefited a great deal over the last few months as rates declined, and even Manufactured Housing performed strongly last month. However, if rates turn-about and rise, be careful not to get caught in the interest sensitive stocks.   Top C. BOTTOMS UP In last months section about Doom & Gloom we mentioned that there could be some opportunities in the groups that performed the worst last year, like Tech & Net, OnSite, HealthCare, Specialty and Hotels. Interestingly, these groups have all started out as some of the best for 2001, most with double digit returns in January. A major factor that is affecting some of the sectors, however, is that very low priced stocks (around a dollar) have increased a dollar or two. Examples are those mentioned under the best monthly performers under Equity REITs and Realty Co's. below. Since the performance is weighted, and some of these groups only consist of just several stocks, triple digit gains in only one stock can have a significant influence on a group's performance. To mitigate some of this overly sensitive fluctuation, as is our normal practice, all stocks that started the month under a dollar are excluded from performance calculations. And if a stock is under a dollar or two for more than a couple months, it is excluded from the group. Although there could be some real standout stories with stocks around a dollar this year, certain companies at this level will not make it. If a penny stock (under $1) or another low priced issue could come back from the grave, its could provide tremendous returns and can significantly influence the performance of a group. However, be forewarned that such stocks carry a high degree of risk.   Top D. LARGE CAP REIT PERFORMANCE In contrast to the strong performance of broad market of Equity REITs, the 20 largest REITs posted a slight loss of -0.6% in January. The largest gainer was Simon DeBartolo (SPG), up 9.7%, followed by Public Storage (PSA) and Spieker Properties (SPK), both rising 6.9%. The biggest losers were Apt. Investment & Management (AIV), Equity Office (EOP) and Boston Properties (BXP), all down from -7.7% to -6.7%. Of note, the same groups that lagged in the broad group performance, Office and Apartment REITs, also fell behind with the large caps. (Please see Large Cap REITs.)   Top E. EQUITY REIT PERFORMANCE Equity REIT prices were up 6.62% in January, exceeding their gain from the previous month by about one percent. Again, all groups were up except for three. However, the two worst groups, Apartments and Offices, off -1.58% and -1.16%, respectively, were the best performing groups in 2000. The best monthly groups beginning 2001 were Health Care, Hotels and Specialty with gains of 17.8%, 13.8%% and 12.2%, respectively. The best performing Equity REITs for January were two health care REITS, Meditrust (MT) and National Health Investors (NHI), up 44.4% and 32.3%, respectively. The worst monthly performers were Presidential Realty (PDLA) and Century Realty Trust (CRLTS), down -16.9% and -11.6%, respectively. (Please see Equity Gainers and Losers.).   Top F. MORTGAGE REIT PERFORMANCE Mortgage REITs started 2001 with a roar, up 12.63% for January. The best performing Mortgage REIT group was Residential Mortgages surging 18.61%. As interest rates have dropped, it has helped to boost all types of mortgages, but especially those in residential. The best performing Mortgage REITs for January were Am. Residential Inv. Trust (INV) up 71.9% and Novastar (NFI), up 47.7%. The worst monthly performer continued to be Dynex Capital (DX), down -33%, and INMC Mortage (NDE), falling -14.8%. (Please see Mortgage Gainers and Losers.)   Top G. REALTY CORPORATIONS Realty and Housing Corporations bounced back in January lead by Tech & Net and Mobile Home Manufactures, up 30% and 25.1%, respectively. Two other strong sectors, both up about 17%, were Construction and Engr. and OnSite Tech. Although none of the groups in this sector were negative, Timberland only edged up 0.6% and Developers gained a modest 1.8%. It's interesting that the best groups this month were the worst just a month ago. Tremendous percentage gainers that were not included in our calculations because the stocks were under a dollar at the end of the year, involved E-Loan (EELN) and Zaring National (ZHOM) spurting 456% and 370% in just one month. Other gainers over 100% that were under a dollar were Oakwood Homes (OH), Cavalier Homes (CAV), Terremark Worldwide (TWW) and ImproveNet (IMPRV). The best performers over a dollar at the end of last year were Champion (CHB) piping 156%, Lending Tree (TREE) rising 106% and Allied Riser (ARCC) up 93.8%. The worst monthly stocks were two Developers, LNR Property (LNR) and BF Enterprises (BFEN) down -73.6% and -20%. Two major home builders, Pulte (PHM) and Toll Brothers (TOL), also stumbled -18.2% and -14.9%. (Please see Realty Corp. Gainers and Losers.)   Top H. REAL ESTATE MUTUAL FUNDS (REMFs) The changes in the favorite REIT groups, mentioned earlier in this newsletter, are having some profound changes in REMF performance. Although the average fund was up a measly 0.3% in January, over three-quarters of 133 REMFs were negative for the month. They were pulled up by funds that successfully shifted away from apartments and offices into other groups. The best performers were Alpine U. S. up a strong 13%. Alpine International, FBR, Kensington and Merrill Lynch also performed well and were up between 3.8% and 8%. These represent new REMF performance leaders. (Please see REMFs.)   Top I. HAPPY PRESIDENT's WEEK(END) Hopefully you were out of the office for a long weekend, some place warm or fluffy with snow. If you're even luckier, maybe you're out for the whole week. Your editor apologizes for being somewhat late again with this newsletter. Stock Changes - Zaring National (ZHOM) was removed because it is under a $1 and Wishire Real Estate (WREI) was changed to Fog Cutter Capital (FCCG).   Top Note: In reporting group percentage changes, stocks that were under $1 are excluded from our calculations. If a stock is under $1 for more than two months, it is subject to removal from our coverage. 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 ©1998-2001, WebVisers Inc. All rights reserved .