8-8-02                                                                                           Vol. 5: No. 8 RealtyStocks' Observer If you're not receiving this free monthly e-newsletter, please register. Monthly Feature: SEARCHING FOR REALITY A. Searching for Reality B. Technology and the Market Bottom B. REITs Decline, but Avoid Freefall D. Large Cap REIT Performance E. Equity REIT Performance F. Mortgage REIT Performance G. Realty Corporations H. Real Estate Mutual Funds (REMFs) A. SEARCHING FOR REALITY For the past several months, we were told that the recession was over and our economic recovery was on track. However, about a week ago revisions in our GDP now indicate we had three consecutive negative quarters, we were definitely in a recession and that the economy is more weak than originally thought. Surprised? Within the last year, investors and the public have indurred accounting scandals, insider trading scandals, massive layoffs from major firms, a bear stock market and illegal energy trading besides a major terroist trajedy on domestic soil. Now, our government acknowledges that the economy was worse that portrayed for months, and could actually be faltering again. Yet, there seems to be little critism about the overly optimistic GDP estimates of past quarters. It's almost as if it makes the missery of the finacial markets more understandable and acceptable. What some people are trying to piece together, is an understanding of financial reality. It appears the smoked mirrors that have distorted corporate health as measured by real earnings are cracked, but they may not be completely broken or removed. Before the public is truly comfortable that financial reporting is reliable again, it will take important changes and time. Unfortunately, they will not be resolved quickly and more corporate failures and new business corruption will continue to be exposed in the near term. Having received an overdose of bad business news for months, it is easy to ignore it and believe that everything will eventually become better. But until we are serious about punishing white collar criminals who have taken billions of dollars from investors of all types and developing serious regulations and penalties that are enforced to prohibit similar acts, it will be difficult to truly move forward. Although the recent legislation enacted is a start, it does not modify corpororate culture overnight or change what has already been done.   Top B. TECHNOLOGY AND THE EQUITY MARKET BOTTOM For months we believed that the economy was worse than what was said. We now believe that there are more fundamental problems with business practices and reporting. This could continue to dampen economic growth for possibly much longer than the rest of this year. Even so, the most critical factor that may determine how long our economy faulters may be dependent upon what has lead us into our current finacial malidies - technology. In retrospect, technology promised too much, too fast, and more often than not, was not economically viable. Although we are still in a technology revolution, transition periods require years, even decades. The benefits of technology to improve the quaility of our lives will not happen overnight, but ultimately, could still become a major positive economic force. Yet, it may also create new economic cycles. Just as real estate overbuilding contributed to past recessions, technology may become the new variable. There is a growing consensus that the worst for stocks is over. Twice in the last week the NASDAQ and the Dow Jones indices provided support. Although there could still be a bear ralley where underlying current is still down despite a short term rise, many bulls believe we may have reached the bottom. Further, the recent rumors that the Federal Reserve may again lower rates, is sparking hope that this will finally help break the bear market. Unfortunately, once a bear market reaches a low, history has shown that a new low point is often reached about two or three months thereafter. There are also the numerous ominious points previously mentioned, and some not mentioned, like another act of domestic terrorism or a new war on Iraq. However, the underlying force for a market turnaround is a fundamental improvement in what caused the problem in the first place. Therefore, a true bull market may not develop until we see more consolidation and a true earnings turnaround in technology. This could be quarters or even years away. In the meantime we may have a market that we have not seen in decades. It could continue to be highly volatile with a sideways motion for some time. Instead of the strong upward cycle of the 1990s, and the deep decline in the last couple of years, market timing in this decade could become much more important as it was with the sideway markets of the 1970's.   Top C. REITs DECLINE, BUT AVOID FREEFALL   Top D. LARGE CAP REIT PERFORMANCE These REITs decreased -5.4% in July with 22 of the 25 stocks in this group negative. The broader REIT performance for the month is still up 6.5% this year. The best performer for July was iStar Financial Inc. (SFI) and Health Care Property Inv. (HCP), that jumped 3.7% and 2.1%, respectively. The laggard was Trizec Propertie, Inc. (TRZ) down -17.3%. The best performer YTD was Host Marriott (HMT), up 25%. The laggard YTD was Trizec Properties, Inc. (TRZ), losing -15%, respectively. YTD, Large Cap REITs have risen 6.5%. (Please see Large Cap REITs.)   Top E. EQUITY REIT PERFORMANCE Equity REITs were down in July with a broad based price loss of -4.28% which reduces the YTD to 8.1%. All the groups showed a monthly loss for July. The top performers were self storage, down only -0.42% and Retail Factory Outlets, lossing just -0.93%. For the year, all the groups are still showing gains. The top performing groups both contain Retail Malls & Centers, up 17.02%, followed by Retail Factory Centers, up 13.41%. None of the groups are negative year-to-date (YTD), but the laggards are Offices and Apartments, with price increases of only 2.43% and 0.1%, respectively. The best performing stocks for July were National Golf Properties (TEE) and Urstadt Biddle (UBP), gaining 33.9% and 12.2%, respectively. The worst monthly performers were Patriot American Hospitality (WYN) and Jameson Inns, Inc (JAMS), which lost -28.4% and -24.4%, respectively. The best performers year-to-date are Patriot American Hospitality (WYN) and Center Trust, Inc., gaining 48.5% and 43.5%, respectively. The worst performers YTD are Golf Trust of America (GTA) and Prime Group Realty Trust (PGE), off -42.2% and -38.2%, respectively. (Please see Equity Gainers and Losers.).   Top F. MORTGAGE REIT PERFORMANCE For July, Mortgage REITs decreased -6.94%. The YTD still is showing an increase of 18.82%. The best performing Mortgage REIT group for the month, but still in the negative, was Residential & Commercial Mortgages down -11.28%. The best individual Mortgage REITs for the month were Thorning Mortgage Asset. (TMA) and Pimco Commercial Securities (PCM), gaining 4.7% and 2.8%, respectively. The worst monthly performers were Novastar Financial (NFI) and American Residential Inv. Trust (INV), losing -22% and -19.6%, respectively. The best performers YTD were Dynex Capital (DX) and CRIIMI Mae, Inc. (CMM), gaining 129.5% and 74.2%, respectively. The worst performers YTD was Impac Commercial (ICH) and Allied Capital Reit (ALD), down -20.7% and -20%, respectively. (Please see Mortgage Gainers and Losers.)   Top G. REALTY CORPORATIONS All of the Realty and Housing Corporations in July posted negative returns and overall price decline for the month was -13.48%. The worst groups were OnSite Tech and Tech & Net, both off -21%, respectively. For the month of July, the best groups were Developers and Resorts, decreasing -7.13% and -8.61%, respectively. The worst performing group YTD, OnSite Tech, was down -51.7%. The YTD decrease for Realty Corps. was -8.11%. The best monthly Realty Corps were US Realtel Inc. (USRTE) and SBA Communications Corp. (SBAC), gaining 29% and 24.1%, respectively. The worst monthly performers were Tut Systems, Inc. (TUTS) and Crown Castle Intl. Corp. (CCI), losing -50.3% and -41.5%, respectively. The best performers YTD were Vista Info Sol (FNIS) and US Realtel Inc. (USRTE), up 99.2% and 90.5%, respectively. The worst performers YTD were SpectraSite Holdings (SITE) and SBA Communication Corp (SBAC), down -96.9% and -86.6%, respectively. (Please see Realty Corp. Gainers and Losers.)   Top H. REAL ESTATE MUTUAL FUNDS (REMFs) The top five real estate mutual funds for the first half of the year all had stellar overall returns of over 20%, with Alpine U.S. claiming the top spot of 26.81%. It also had the best monthly return of 4.8%. International real estate funds also did very well YTD with Morgan Stanley Euro and Security Capital Euro placing second and third with gains of 26.39% and 25.7%. The average YTD return of 155 funds was 13.22% and for June the average return was 2.07%. Behind gold and a few other select funds, REMFs have delivered some of the best fund returns for the first half of 2002. (Please see REMFs.)   Top Stock Changes - Burnham Pacific Properties (BPP) was deleted. Sun International (SIH) was changed to Kerzner International Limited (KZL). Trendwest Resorts, Inc.(TWRI) merged to Cendent (CD). Laser Mortgage Management (LMM) was delisted from NYSE. 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 .