4-5-02                                                                                           Vol. 5: No. 4 RealtyStocks' Observer If you're not receiving this free monthly e-newsletter, please register. Monthly Feature: MIDDLE EAST TURMOIL Could Hinder An Economic Rebound A. Mideast Tensions Escalate B. Changes in the Air, Travel, Lodging and Tourism Industries C. Large Cap REIT Performance D. Equity REIT Performance E. Mortgage REIT Performance F. Realty Corporations G. Real Estate Mutual Funds (REMFs) A. MIDEAST TENSIONS ESCALATE Unfortunately, Good Friday last week did not bring any good news in the Middle East. The Passover Massacre and increased suicide bombings in Israel have created a new level of violence. Any possibility of peace in the Mideast between President Yasser Arafat and Israeli Prime Minister Ariel Sharon, who have been bitter enemies for decades, appears almost hopeless. It now seems apparent that neither Arafat nor Sharon are willing to negotiate any type of peace with one another. Each of these leaders appear afraid that they will lose their power unless the other acquiesces and, therefore, want the other ousted from their positions. The U.S. and President Bush has received much criticism, both domestic and foreign, regarding the lack of any action amidst this escalating Middle East violence and have felt compelled to become involved. Yesterday the U.S. announced it will send Colin Powell to the Middle East and have presented certain conditions to both Arafat and Sharon. Whatever actions the U.S. takes will be extremely difficult. If the U.S. is too supportive of Israel, it may not only alienate support from the Arab world, but it could cause increased terrorism in other Middle East countries, Europe and even the U.S.  Violence is already starting to expand into other countries and there is growing concern that it may destabilize some governments. Besides creating great uncertainty, it could also disrupt the flow of oil to industrial nations. This would greatly affect all industrial economies. Without any sort of resolution imminent, and the possibility that the conflict could worsen, financial markets are very cautious, but realatively optimistic. Still, oil prices are increasing and gas prices look likely to rise significantly as we approach this summer. Many investors are becoming increasingly defensive, as evident by the price of gold, which is the highest it has been in years. However, most investors, economists and consumers are not yet overly concerned with oil and gas issues. A change in this perspective would have many negative consequences. Although some economic indicators are looking better as mentioned last month, our domestic economic rebound appears sluggish and we could be encountering some major hurdles. Despite international and domestic economic difficulties, real estate is acting quite well so far this year. Last month REITs showed their best monthly increase of the year. Single-family home sales appear to be stable in most of the country, and in some areas like Southern California and Southwest Florida, are quite strong. As many investors look for safety, real estate remains attractive. We recently expressed concern over real estate values if rates begin to increase. However, economic sluggishness and rising oil prices may keep the lid on rising interest rates in the immediate future.   Top B. CHANGES IN THE AIR, TRAVEL and LODGING INDUSTRIES If oil prices truly spike and remain high due to Mideast turmoil, one of the hardest hit markets forcing more rapid changes could be those involved in tourism, and possibly even the auto markets. Although these industries have already changed a great deal in a few years, the transition period could accelerate. The financial issues that most domestic airlines still face would exacerbate with increasing oil prices and create more pressure to enact different policies and possibly higher fares. For example, to curtail some expenses, Delta announced the elimination of commissions to all travel agents and Hertz has also adopted a similar policy. Many airlines are also keeping last minute specials on their own websites, trying to avoid giving profits to the Pricelines and similar resellers. Already significantly hurt by the Internet, not only are travel agencies coming under even more pressure, but the Internet resellers that helped reshape the travel industry may also face more difficulties. Of course, a rebound in recreational vehicles (RVs), lodging and even new housing may be less robust if oil prices increase and stay high. Although the RV market was looking especially bright this summer, high oil prices could not only change this market, but may ultimately influence the popularity of the large SUVs. Higher oil prices also increase the costs many products used in new homes. Although we are accustomed to temporary spikes in gas prices at the pumps, if they reach new highs this summer without immediate relief in sight, new perceptions may finally affect our purchasing habits for the first time in almost three decades. Despite many problems associated with higher oil prices, domestic tourism is still likely to do well and will probably increase, especially for amusement parks and resorts near urban centers. People will still take vacations, but more of us will want to stay closer to home. This is already causing rising rentals and prices in vacation areas close to metropolitan areas. The big change among the companies in the air, travel and lodging business, is that more consolidation is likely. An example is Cendant's recent announcement that they are acquiring TrendWest Resorts.   Top C. LARGE CAP REIT PERFORMANCE These REITs increased 5.4%, slightly ahead of the broader REIT market again this month. As mentioned in previous newsletters, though the broader index of REITs has outperformed larger cap REITs for about two years, this year could be different. For the quarter and year-to-date (YTD), Large Caps have increased 7.9%. The best performers for March were Host Marriott Corporation (HMT) and Duke Realty Investments (DRE), gaining 10.6% and 9.2%, respectively. The laggard was Plum Creek Timber Co (PCL) down -4.0%; the only stock to have a negative performance for March. The best performer YTD was Host Marriott Corporation (HMT), gaining 32.8%. The laggard for the year was Equity Office Properties (EOP), losing -0.3%, respectively. (Please see Large Cap REITs.)   Top D. EQUITY REIT PERFORMANCE Equity REITS had a gain of 5.47% for March. All the groups showed positive gains. The best performing group for March was HealthCare, up 8.66%, followed by Hotels, up 8.34%. The worst group for the month, with a gain only 0.81%, was Mobile Home Parks. For the first quarter of 2002, the best property groups were those that were some of the worst last year: Hotels and Retail Factory Outlets that are up 20.42% and 17.97%, respectively. The worst and only group with a loss for the first quarter, of -0.8%, is Retail Centers. The best performing stocks for March were Center Trust, Inc. (CTA) and Patriot American Hospitality (WYN), gaining 29% and 28.6%, respectively. The worst monthly performers were Burnham Pacific Properties (BPP) and Prime Group Realty Trust (PGE), that lost -54.8% and -17.9%, respectively. So far this year to date (YTD), the best performers are Patriot American Hotel (WYN) and LaSalle Hotel Properties (LHO), gaining 60.7% and 57.1%, respectively. The worst performers YTD are Burnham Pacific Properties (BPP) and Malan Realty Investors. (MAL), off -59.2% and -32.5%, respectively. (Please see Equity Gainers and Losers.).   Top E. MORTGAGE REIT PERFORMANCE Mortgage REITs gained 5.57% in March and bounced back from a slight loss last month. For the last couple of years, Mortgage REITs have consistently outperformed Equity REITs, which may be in for a change. The best performing Mortgage REIT group for the month was Residential & Commercial up 11.09%. For the first quarter of 2002, the groups on the residential side, both exclusively and mixed have performed well, up about 15% to 17%. The best individual Mortgage REITs for the month were American Residential Inv. Trust (INV) and AMRESCO Capital Trust (INV), gaining 33.6% and 18.9%, respectively. The worst monthly performers were Impac Commercial (ICH) and Capital Trust (CT), losing -13.2% and -9.1%, respectively. The best performers YTD were Dynex Capital (DX) and American Residential Inv. Trust (INV), gaining 69.5% and 57.1%, respectively. The worst performer YTD was Capstead Mortgage (CMO), down -17%, respectively. (Please see Mortgage Gainers and Losers.)   Top F. REALTY CORPORATIONS Realty and Housing Corporations had a robust March with an increase of 11.1%. Only two of the ten groups were negative, Home Builders and Mobile Home Manufacturers, with respective drops of -7.4% and -0.9%. Evidentially, the prospect of higher rates was of a concern to these groups. The best performing group was Tech & Net, with a whopping gain of 67%. However, this group only consists of a few stocks now, and was largely influenced by significant gains in just a couple of stocks. For the first quarter of 2002, only OnSite Technology was negative, losing -26.12%. The best performing group was Tech & Net followed by Construction, up 49.1% and 20.1%, respectively. The best monthly Realty Corps were Homestore.com. (HOMS) and Lending Tree (TREE), gaining 118% and 87.3%, respectively. The worst monthly performers were Buckhead America Corp. (BUCK) and DeWolfe Co. Inc (DWL), losing -72.1% and -38.1%, respectively. The best performers YTD were Bluegreen Corporation (BXG) and Lending Tree (TREE), up 154.5.7% and 122.2%, respectively. The worst performers YTD were Buckhead America Corp. (BUCK) and SBA Communications Corp. (SBAC), down -76% and -75%, respectively. (Please see Realty Corp. Gainers and Losers.)   Top G. REAL ESTATE MUTUAL FUNDS (REMFs) The changes in the best performing REIT groups, mentioned earlier in this newsletter, continue to have some profound changes in REMF performance. Of 137 funds, the total return of the average fund was up 4.37% in March. The majority of REMFs, which are still tied closely to large cap and core REITs, are expected to benefit in the event of performance changes that would favor Large Cap and core REITs. They could be in position to outperform the broader REIT base this year and should cause some new REMF leadership. The best monthly performer was Phoenix, up 7%, followed closely by a gain of 6.6% by ProFunds. For the first quarter, CGM Realty has the best REMF performance with a total return of 16.11%, followed by Alpine U.S. at 13.7%. The average of 157 funds YTD is 7.81%. (Please see REMFs.)   Top Stock Changes - Allied Riser Communications Corporation (ARCC) has been deleted. Frontline Capital Group (FLCG) has changed to (FLCGQ). Clarion Commercial Hldgs (CLR) has changed to (CLNHA.OB). 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 ©2002, WebVisers Inc. All rights reserved .