9-9-02                                                                                           Vol. 5: No. 9 RealtyStocks' Observer If you're not receiving this free monthly e-newsletter, please register. Monthly Feature: A YEAR AFTER 9/11: The U.S. Position on Iraq & Economic Challenges A. A Year After 9/11 and Possible U.S. Actions on Iraq B. Challenges for an Economic Recovery C. Large Cap REIT Performance D. Equity REIT Performance E. Mortgage REIT Performance F. Realty Corporations G. Real Estate Mutual Funds (REMFs) A. A YEAR AFTER 9/11 and Possible U.S. Actions on Iraq It may seem like a lifetime to some or only yesterday for others since 9/11. Many ceremonies, vigils and other activities were held yesterday in memory of the thousands that died a year ago. The healing process has been difficult for many and many economic uncertainties still abound. Since 9/11, the War on Terrorism and the U.S. involvement in Afghanistan seemed to start slowly but appears to have been very successful so far. However, as recent assassination attempts on Afghan leaders indicate, the political situation in that country is still fragile. Although Osama Bin Laden has not been found and the Al Qaeda is less feared, they and other terrorists groups have not been eliminated. Heightened alert for potential terrorist threats both in this county and abroad were held this week, and such alerts will also occur during the coming holidays and for some time to come. Of much recent controversy is our country's position on Iraq. There is no question President Bush strongly believes that Iraq is a great threat, especially to the U.S., and wants to have Saddam Hussein removed, requiring a very costly military action. However, no other major country except Great Britain has supported him. Without unquestionable proof that Iraq was involved in 9/11 and actively engaged in developing nuclear and chemical weapons, it is uncertain whether the U.S. will truly initiate a war on Iraq, especially without more International support. Although Bush's position is clear - eliminate the potential threat before another catastrophe occurs - the majority of American's are not in favor of such action. We believe that Bush is pushing Iraq as hard as possible primarily to achieve some weapons inspection accord. This would help diffuse the situation, at least in the near term. However, should the U.S. wage a War on Iraq, we believe the U.S. financial markets will quickly find new lows. It would also increase the possibility of domestic terror and could cause military casualties abroad. A decision on this situation will probably be reached before the end of this year. Although some argue that this will eventually help the U.S. economy because of increased military spending, the immediate consequences could be very negative not only economically, but politically and socially. The impact of an Iraq War upon the U.S. should not be underestimated. Therefore, the events that could lead up to this war need to be closely monitored.   Top B. CHALLENGES FOR AN ECONOMIC RECOVERY In our last newsletter we discussed that in order for the U.S. to truly rebound economically, it would require a resurgence in technology. In recent days, additional economic data released shows some paradoxes and more negativity. We know the financial markets have lost a great deal in the last couple of years, and recently it has been estimated that this loss has amounted to over $6 trillion. During the same period, housing values were reported to increase over $2 trillion. Granted, housing values do not totally offset the loss in stocks, but it may help partly explain why the economy has not suffered more. Economists tell us that we are having a consumer led recovery. With large layoffs and unemployment claims increasing, this seems a little hard to fathom. But with most homeowner's enjoying increased home values and taking advantage of refinancing or home equity loans, and loading up on debt as well, it may help explain where consumers are getting their money. The residential housing markets have performed very well in most areas of the country. In some parts of California, housing prices are on a tear and are up 20 to 30 percent year to date and have doubled in three or four years. Residential prices in the devastated financial area of New York are up over 50 percent since 9/11. Many people have become very comfortable with real estate and have found it a better alternative than stocks. Unfortunately, certain cracks are forming in residential real estate markets and such robust gains are expected to curtail. National mortgage foreclosures, although only 0.4%, have climbed to their highest levels since such statistics began in 1972. And, as reported by the MBA, mortgage delinquencies, when payments are over 30-days due, are near their highest levels ever at nearly 5%. Although some economists are a little miffed by this, it should not be too surprising considering greater layoffs, but also the increased leniency provided by the mortgage industry. More homeowners than ever before are attracted to low adjustable and even floating rate financing and are maximizing their loan to value ratios. If rates suddenly jump, the honeymoon period for residential real estate could quickly end spelling financial difficulties not only for many homeowners, but also for the mortgage industry. Just as stocks may languish for a couple years or more as they did in the 1970s and as mentioned in our previous newsletter, interest rates could also become fairly stable for a year or more and housing prices could begin to stabilize soon. Many markets are reporting softness and some price declines for higher priced properties over $1million. As long as interest rates do not change appreciably, home prices could remain rather static for years.   Top C. LARGE CAP REIT PERFORMANCE With a slight decline of -1.5% in August, large caps slightly underperformed the broader REIT market. The best performer for August was Equity Office Properties (EOP) and Equity Residential Properties Trust (EQR), increasing 5.7% and 4.4%, respectively. The laggard was Public Storage, Inc. (PSA) down -15.5%. The best performer YTD was General Growth Properties (GGP), up 29%. The laggard YTD was Trizec Properties, Inc. (TRZ), losing -27%, respectively. YTD, Large Cap REITs have risen 4.9%, only about half as much as the broader REIT index. (Please see Large Cap REITs.)   Top D. EQUITY REIT PERFORMANCE Equity REITs were down in August with a broad-based price loss of -1.35%, reducing the gain for the year to 8.57%. Nine out of the 14 groups showed a monthly loss. The top performers were Retail Regional Malls, up 2.67% and Retail Factory Outlets, gaining just 0.78%. The laggard was Self Storage, dropping -9.79%. For the year, all but two groups are still showing gains. The top performing groups were Retail Factory Outlets, up 38.81%, followed by Retail Regional Malls, up 18.05%. The laggards YTD, and the only two groups negative for the year, were Self Storage and Apartments with price declines of only -1.51% and -0.59%, respectively. The best performing stocks for August were Jameson Inns (JAMS) and Capital Automotive Realty (CARS), gaining 24.5% and 10.2%, respectively. The worst monthly performers were Patriot American Hospitality (WYN) and Golf Trust of America (GTA), which lost -21.7% and -21.6%, respectively. The best performers year-to-date are Chelsea GCA Realty, Inc. (CPG) and Tanger Factory Outlet Centers., gaining 42.2% and 39.6%, respectively. The worst performers YTD are Golf Trust of America (GTA) and Prime Group Realty Trust (PGE), off -54.7% and -42.8%, respectively. (Please see Equity Gainers and Losers.).   Top E. MORTGAGE REIT PERFORMANCE For August, Mortgage REITs decreased -0.41% and still show a strong increase YTD of 23.01%. The best performing Mortgage REIT group for the month was Residential & Commercial Mortgages up 4.48%. The best individual Mortgage REITs for the month were CRIMI Mae (CMM) and Answorth (ANH), gaining 21.5% and 17.8%, respectively. The worst monthly performers were American Residential Inv. Trust (INV) and BRT Realty Trust (BRT), losing -16.6% and -9.8%, respectively. The best performers YTD were Dynex Capital (DX) and CRIIMI Mae, Inc. (CMM), gaining 135.7% and 111.7%, respectively. The worst performers YTD were Impac Commercial (ICH) and Arizona Land Income Corp. (AZL), down -24.3% and -18.7%, respectively. (Please see Mortgage Gainers and Losers.)   Top F. REALTY CORPORATIONS Five of the nine Realty and Housing Corporation groups in August posted a slight positive return which helped post a slight monthly increase of 0.9%. There is still an overall price decline for this sector YTD of -6.59%, however. The best group for the month was Home Builders with a gain of 9.6%. The worst group was Mobile Home Manufacturers, off -10.5%, respectively. The best performing group for YTD was Tech & Net, up 44.2%. The worst performing group YTD, OnSite Tech, was down -53.5%. The best monthly Realty Corps were DeWolfe Co. Inc. (DWL) and SpectraSite Holdings. (SITE), gaining 94.5% and 89.2%, respectively. The worst monthly performers were Oakwood Homes Corp. (OH) and Champion Enterprises. (CHB), losing -42.2% and -33.3%, respectively. The best performers YTD were LendingTree (TREE) and Vista Info Sol. (FNIS), up 129.7% and 126.7%, respectively. The worst performers YTD were SpectraSite Holdings (SITE) and SBA Communication Corp (SBAC), down -94.2% and -89%, respectively. (Please see Realty Corp. Gainers and Losers.)   Top G. REAL ESTATE MUTUAL FUNDS (REMFs) August was a strong month for real estate mutual funds with the average overall return for 137 of 3.73%. Alpine U.S. Real Estate, showing a positive overall return of 7.59%, was the best monthly performer. Overall returns for REMFs this year is 7.14%. Several REMFs have double digit returns with the best performers YTD consisting of foreign investments including Morgan Stanley Euro and Security Capital Euro and Security Capital European up 19.11% and 18.81%. (Please see REMFs.)   Top Stock Changes - There were no changes for August. 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! 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