7-12-01                                                                                           Vol. 4: No. 7 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: REITS REMAIN ATTRACTIVE A. REITs Remain Attractive B. More Technology Backlash on Real Estate C. Large Cap REIT Performance D. Equity REIT Performance E. Mortgage REIT Performance F. Realty Corporations A. REITs REMAIN ATTRACTIVE Despite what started out as ho hum year for REITs, with the exception of a few isolated property type groups, a broad advance is now occuring which finally includes large cap REITs. For the first quarter of this year, the major property type groups of apartments, office and industrial REITs were languishing. However, through the second quarter, prices have picked up for this group with gains of about 8%, 9% and 4%, respectively. Although these increases are still a little lower than non-core groups such as health care, hotels, malls and self-storage, up about 18%, 11%, 12% and 11%, the core real estate groups have shown life this past quarter, especially in June. Also, large cap REITs that were off a few percent in the first quarter of the year rose 8% in the second quarter. The attraction to REITs is due not only to increasing revenues (and FFO's), but to attractive yields. With most of the equity markets in the dog house and expected to experience dog days this summer, the REITs remain one of the few bright spots around. This could help propel REITs for the coming quarter, especially with the possibility of another rate cut or two to come. Eventually, however, the rate cuts will stop. Worse, the slowdown in the economy might finally be recognized as a recession, as discussed in our previous newsletters. If the much awaited economic rebound does not materialize soon, hopes for an economic turnaround may be dashed until next year. If the economy is simply slow, REITs have a good chance to come out fine. However, if we truly dip into a prolonged slump or recession, it is doubtful that REITs will be unscathed, as past downturns have taught us.   Top B. MORE TECHNOLOGY BACKLASH ON REAL ESTATE In last month's newsletter we discussed some of the problems that REITs and other real estate firms are experiencing with technology that has gone largely unnoticed. But with the demise of WebVan this past week, more attention was recently given to this issue by the press. In particular, AMB, a major investor in WebVan, posted a loss of $16.1 million this quarter, on top of a $4.7 million loss the previous quarter as a result of this failure. On a share earnings basis, this amounts to fairly modest losses of $.16 and $.05 in the past two quarters, and they were more than offset by gains from asset dispositions. More importantly, unlike Mack Cali or Reckson, who have made some mistakes that still have these companies unenamored by analysts and investors, it appears AMB is not much for worse. Investors appear to be looking at AMB's misadventure into WebVan as an event that is now over and behind them. AMB has also eloquently recognized their mistake and are refocusing back to real estate basics. But could this also mark a step back for REITs? Although the REIT Simplification Act will allow REITs to engage in real estate technology investments as mentioned in last month's newsletter, it seems that fewer REITs may be engaging in this area. Not only may REIT analysts and investors penalize a company if they are involved in such ventures, but most REITs have a lesson learned: they simply cannot transfer real estate people in their company to a venture and tech group as experts. The return to bricks and mortar for REITs is an interesting turnaround for the industry that embraced change and technology over the last couple of years. It could signal a new period where technology change in real estate is less likely to occur from within real estate firms and, therefore, must come from outside. Unfortunately, despite what might seem the to be the right direction today could impede the development of technology and real estate over the next few years. This is not to say that real estate technology will completely stall, nor that it will not be implemented within real estate firms, however. In particular, the implementation of technology in real estate is occuring and will continue to occur, especially in the back office and administrative areas such as accounting, customer service, collaboration, procurement, property/facility management and maintenance. New technologies in these areas will however, allow greater efficiencies and better responsiveness, but build mostly upon established procedures. However, technology that revolutionizes the real estate industry and turns it upside down, or disables most intermediaries and creates new ones, seems to be on hold. A social and technological revolution has started and has not stopped; it is just taking a breather. Possibly the biggest misconception is that the implementation and adoption periods for Web-based technologies were compressed to a few years. Instead, they are probably much longer. They could even be similar to the 20-plus year adoption periods required for radio, telephone or television. Do not be fooled by the slowdown and some excellent opportunities that now exist.   Top C. LARGE CAP REIT PERFORMANCE The 20 largest REITs posted their third monthly increase in a row with a gain of 4.7% in June. For the second quarter REITs gained nearly 8%, offsetting a negative first quarter, to finish the first half of the year up 4.4%. Although the best performing stock for the month was Carramerica (CRE) with a gain of 9.1%, other strong performers up about 8% included Kimco (KIM), Simon Debartolo (SPG) and Public Storage (PSA). The worst performer was Rouse (RSE) up a scant 0.7%; although none of the large caps finished in the red this month. For the first half of the year the best performing stock is Public Storage, gaining 23%, closely followed by Simon Debartolo and Spieker, both up over 20%. These stocks have outdistanced themselves from the rest of the pack, especially from the two worst performers so far this year, Boston Properties (BXP) down -5.9% and Avalon Bay (AVB) losing -5.7%. Although Large Cap REITs are still under performing the broader REIT market for the year with gains of 4.4% v.s. 16%, it is noteworthy that Large Caps finally surpassed the broader market monthly performance for the first time this year in June. (Please see Large Cap REITs.)   Top D. EQUITY REIT PERFORMANCE Equity REIT prices were up 3.93% in June, with their largest monthly gain of the year. For the first half of the year, Equity REIT prices are now up 15.6%. The best performing groups for the month were Health Care and Self Storage, gaining 8.19% and 7.94%, respectively. For the year, the best performing group is also Health Care, up 38.4%, followed by Malls & Centers, Specialty, Malls, and Self Storage - all up between 24% and 27%. All groups were up except for one, Diversified off -1.5%. The best performing Equity REITs for June were Omega Healthcare Investors, Inc. (OHI) and Center Trust Inc. (CTA), up 39.1% and 18.2%, respectively. The worst monthly performers were diversified REITs, Banyan Strategic Realty Trust (BSRTS) and Pacific Gulf Properties (PAG), down -82.4% and -20.4%, respectively. The best performers Year-to-date (YTD) Meditrust (DX) and National Health Realty (NHR), up 102.1% and 66.4%, respectively. The worst performers for the year were Banyan Strategic Realty Trust (BSRTS) and Humphrey Hospitality (HUMP), down -81.8% and -50.9%, respectively. (Please see Equity Gainers and Losers.).   Top E. MORTGAGE REIT PERFORMANCE Mortgage REITs posted a monthly gain of 2.8% and are slowing down from previous months and in comparison to Equity REITs. Still, Mortgage REITs have performed far better than their counterparts with a first half gain for the year of 36.5% compared to an increase of 15.6% for Equity REITs. However, it seems that there may be less air in the balloon for Mortgage REITs in the second half of the year than for Equity REITs. The best performing Mortgage REIT group was Commercial Mortgages up 5.74%. The best performing Mortgage REITs for June were Imperial Mortgage Holdings (IMH) and Capital Trust (CT), up 22.8% and 15.6%, respectively. The worst monthly performers were American Residential Inv. Trust (INV) and Dynex Capital (DX), down -20.4% and -9.8%, respectively. The best performers YTD Imperial Mortgage Holdings (IMH) and Novastar Financials, Inc (NFI), up 139.3% and 117.3%, respectively. The worst performers for the year were Impac Commercial (ICH) and AMRESCO Capital Trust (AMCT), down -51.2% and -15.4%, respectively. (Please see Mortgage Gainers and Losers.)   Top F. REALTY CORPORATIONS Realty and Housing Corporations underperformed REITs in June with a slight decrease of 0.18%. Still, with a first half gain of 21.2%, Realty Corps managed to easily beat Equity REIT gains for the same period by a few percent. The best monthly performing groups were Home Builders, up 6.83%. The worst performing group was Resorts, down -9.12% in June. The best performing Realty Corps for June were Pinnacle Holdings, Inc. (BIGT) and Vista Info Sol (VINF), up 43.3% and 26.1%, respectively. The worst monthly performers were Frontline Capital Group (FLCG) and Modtech, Inc. (MODT), down -56.3% and -32.0%, respectively. The best performers YTD Champion Enterprises (CHB) and Lending Tree (TREE), up 315.3% and 215.2%, respectively. The worst performers for the year were Frontline Capital (FLCG) and Tut Systems, Inc. (TUTS), down -86.8% and -79.8%, respectively. (Please see Realty Corp. Gainers and Losers.)   Top Stock Changes - Stock Symbols IND, TGNQE, WCIEQ and WNG have been deleted. Symbol MT changed to LQI and ALLC changed to ALD. 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 judgment 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 .