12-17-03                                                                                           Vol. 6: No. 12 RealtyStocks' Observer If you're not receiving this free monthly e-newsletter, please register. Monthly Feature: REITs & STOCKS POISED TO FINISH 2003 NEAR HIGHS A. Rebounding Economy Lifts REITs Stocks to Yearly Highs B. Sadams Capture & Turning Points C. Equity REIT Performance D. Mortgage REIT Performance E. Large Cap REIT Performance F. Realty Corporations G. Real Estate Mutual Funds A. STOCKS SET TO FINISH A BANNER YEAR After flirting with a Dow Jones Industrial Average of 10,000, it will not be surprising to see this benchmark index finish above the five figure mark in 2003. This average is up 20% on the year, but the technology laden NASDAQ is up around 50% for the year and is approaching returns reached during the dot com boom. However, it appears that with tech stocks up so much this year, there has been some sector rotation away from the techs and into blue chips as well as more value stocks. This should be favorable for the Dow and even most Real Estate Investment Trusts (REITs), at least in the short term. Recent economic developments continue to look very favorable or are at least showing improvement on most fronts. Favorable signs include: the recent inflation of -.2%; unemployment falling below 6%; improving industrial production figures; increase in housing starts and consumer sentiment. The main weakness, however, is still a disappointment in job creation. Last month it was only 57,000, despite expectations of about 150,000. Though many economists expect an upward revision of this number, there is still concern over the loss of jobs in certain sectors such as manufacturing and transportation. Additionally, even in the growing information sector, there is a concern that outsourcing to other countries may not only keep U.S. employment growth modest, but also prevent much wage and earning growth potential. Retail sales look like they will not be as robust as expected due heavy snowstorms in the Northeast and an abbreviated holiday season (resulting from a late Thanksgiving). As we expected, the devaluation of the dollar is continuing and the trade deficit is becoming worse. The good news behind this bad news, is that it has helped influence the Federal Reserve to leave rates alone for now and state that they expect rates not to rise for some time. As long as there is no threat of inflation and employment growth stays under or around 100,000 to 150,000, rates will likely remain stable. However, at some point during the coming year, it seems inevitable that rates will begin to rise. Anticipating this, the mortgage industry is bracing for a large decline in their business by laying-off thousands of jobs. Although Home Builders have posted strong profits and project continued strong gains next year, their stock prices have retreated recently. This is due, in part, to their high price run-up this year, but there is also some concern that the ultimate rising of rates may start to impact their growth. This may also potentially increase pressure on REITs in the coming year. After all, REITs have increased about as much in 2003 as in all three previous years, and have appreciated about 60% on average over the last four years. Furthermore, all this occurred during a period of decreasing rentals and occupancies!   Top B. SADDAM'S CAPTURE & TURNING POINTS It's too early to tell, but the capture of Saddam may be critical in several ways. The most obvious, of course, is that it could cause a reduction in the Iraqi instability. Iraqis need to have closure and an end to the Saddam era, and this was impossible while he was missing. About a dozen of the 55 most wanted Iraqis are still at large, however this most recent development could lead to the capture of more of these fugitives thus truly ending the reign of Saddam. It may even shed light on weapons of mass destruction, in one manner or another, however most assuredly the more gruesome incidents of his regime will be revealed over the coming weeks and months. Expect to hear a lot about this and how Saddam should be brought to justice. Just because Saddam is caught, does not necessarily mean that violence in Iraq will significantly decline in the near term. It is estimated that over 5,000 freedom fighters and terrorist groups from other countries have infiltrated Iraq. Unfortunately, suicide bombings in particular will be difficult to curtail, especially with so many who are unabashedly willing to die. However, the coordinated guerrilla type warfare from remnants of the Baath Party or the Republican Guard, should decline. Further, the condition and way in which Saddam was caught, (disoriented, in a small dirt hole and giving up without a fight even though he had a pistol), should be damaging to those still fighting on his behalf. Hopefully, these factors will diminish any residual support for him among Iraqis and other Arab nations. This may eventually also help improve relations with the U.S. in these Mideast countries, including Iraq, but will be tempered as long as Osama Bin Laden remains at large. Domestically, the most obvious consequence of Saddam's capture could be a rise in President's Bush popularity, his reelection bid and the opportunity for the Republicans to continue to control both the Congressional and Executive Branches a year from now. The coming year will be an interesting one for the Presidential Election Year, and to see what Democrat nominee for President will finally remain. It seems like Howard Dean is the front runner, but his negative position on Iraq, with a possible improving situation in Iraq and a shift in public opinion, could decrease his popularity. Top C. EQUITY REIT PERFORMANCE Equity REITs posted strong gain of 5.80% for November. All groups posted positive gains for the month. The best monthly performers were Factory Outlet Centers and Self Storage, up 8.06% and 7.6%, respectively. Year-To-Date (YTD), Equity REITs have risen 31.06%. All groups have appreciated over 16% for the year. Factory Outlets and Health Care are leading the charge with respective increases of 50.5% and 44.1%. The best performing Equity REITs for November were First Union Real Estate Investments (FUR) and Humphrey Hospitality Trust (HUMP), gaining 23.1% and 20.1%, respectively. The worst monthly performers were Apartment Investment & Management (AIV) and Jameson Inns, Inc (JAMS), losing -16.4% and -12%, respectively. The best performing stocks YTD were Omega Healthcare Investors Inc. (OHI) and LTC Properties, Inc (LTC), both gaining 111.2%. The worst performing stock YTD were Phillips Int'l Realty (PHIR.ob), losing -36.4%, and Transcontinental Realty Investors (TCI), losing -18.4%, respectively. (Please see Equity Gainers and Losers.).   Top D. MORTGAGE REIT PERFORMANCE Mortgage REITs posted a stellar monthly gain of 5.76%, almost matching their equity counterparts. With a price gain of 34.59% YTD, the mortgage sector still has a slight edge over Equity REITs with only a month left. The best performers for November were Imperial Mortgage Holdings, Inc (IMH) and Impac Commercial (ICH), up 25.4% and 23.8%, respectively. The worst performer was Arizona Land Income Corp (AZl) losing -4.2%, respectively. The best performers YTD were Novastar Financial, Inc. (NFI) and American Residential Inv. Trust (INV), gaining 163.5% and 112.1%. (Please see Mortgage Gainers and Losers.)   Top E. LARGE CAP REIT PERFORMANCE With an increase of 5% for November, Large Cap REITs slightly trailed the broader monthly REIT performance. For the year, this group has gained 26.6%; a few points below the broader REIT performance. The best large cap performer for November was Public Storage, Inc (PSA) followed closely by Host Marriott Corporation (HMT) gaining 13.6% and 9.8%, respectively. The worst performing large cap REIT for the month was Apartment Investment & Management (AIV), falling -16.4%. The best performing stock, YTD, was General Growth Properties (GGP), gaining 55.3%, and the worst YTD was Apartment Investment & Management (AIV), losing -8.8%. Please see Large Cap REITs.)   Top F. REALTY CORPORATIONS Realty and Housing Corporations gained 2.72% in November, with all but two groups in positive territory. The best monthly industry performers were Developers and Home Builders, gaining 10.2% and 6%, respectively. The worst monthly performer of these groups, was OnSite Technology with a loss of -5%. The best stock performers for November were American Real Estate Ptnr (ACP), up 44.4% and Lipid Sciences, Inc (LIPD), up 44.4%. The worst monthly performers were US Realtel Inc (USRTE.OB) and Bando McGlocklin Capital (DOLL), down -25.7% and -24.3%, respectively. The best performers YTD were Tut Systems Inc. (TUTS) and Crown Castle Int'l Corp (AMT), gaining 293.7% and 237.3%. The worst performers YTD were US Realtel, Inc. (USRTE.OB), down -81%, and EMCOR Group Inc. (EME), down -20.8%, respectively. Realty Corps. are now up 50.14% on the year. (Please see Realty Corp. Gainers and Losers.)   Top G. REAL ESTATE MUTUAL FUNDS (REMFs) The average total return for real estate funds as of 12/12/03 was lower than the broader REIT performance with a gain of 2.05%. The best performing monthly REMFs were Morgan Stanley & Third Avenue with respective overall returns of 8.42% to 3.52%. The best performers YTD were CGM Realty and Alpine, both with stellar returns of 85.55% and 77.49%, respectively. The overall average for YTD was 34.97% as of 12/12/03. (Please see REMFs.)   Top Stock Changes. U.S. Timberlands Co., LP (TIMBZ.OB) has been deleted from our list. 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, and are calculated as of the end of each month. 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 ©2003, WebVisers Inc. All rights reserved .