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COPYRIGHT 2003 Adams Business Media
Ross Smotrich
Bear Stearns
212-272-8046
rsmotrich@bear.com
AREAS OF COVERAGE: Industrial, Multifamily, Office, Retail, Specialty Finance
OUTLOOK: Real estate fundamentals are expected to remain challenging throughout most of 2003 as the economic slowdown negatively affects occupancies and rental rates. Yet property values remain strong and REIT stocks continue to outperform. The RMS Total Return Index was up three percent year-to-date at the close of 2002, in contrast to the broader market indices, which were off 15% to 30%. In our view, these disconnects are due to the lack of attractive investment alternatives and the REIT sector's relatively rich and secure dividend yields. We expect that an economic recovery will lead to improved real estate fundamentals, but on a lagging basis. Further, in the current "jobless recovery," forecasting an inflection point is difficult and sector gains will be uneven. Our investment stance for the REITs remains defensive for the near term. Our sector picks remain focused on property types less reliant on job growth--industrial and shopping centers. We expect industrial REITs to hold up relatively better than other sectors. Retail real estate--particularly shopping centers--should hold up well because of its defensive characteristics relative to other property types. However, returns in this sector will likely be muted. Multifamily operating results are expected to be weak throughout 2003, as will office sector fundamentals.
BUYS: AMB Property (AMB), Boston Properties (BXP), Equity Office Properties Trust (EOP), Equity One (EQY) Equity Residential (EQR), Kimco Realty Corp. (KIM), Newcastle (NCT), iStar Financial (SFI), ProLogis Trust (PLD), Vornado Realty Trust (VNO)
TOP PICK: ProLogis...
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