REITs - Real Estate Investment Trusts - Info & Discussion: REITs Fall on Bad News

» JenL_2 - REITs Fall on Bad News

This bearish REIT article from 10/3 WSJ:

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REITs Fall On Rating, Estimate Cuts, Recession Worries

By Victoria Marcinkowski

Real-estate stocks were the latest in line to see their values drop as Wall Street grew concerned that the economic slowdown will eventually hurt a sector that has been holding up well so far.

UBS Warburg on Wednesday cut its 2002 earnings growth estimates by 3% to 5% for 35 real estate investment trusts, citing the "significantly lowered expectations" for U.S. Gross Domestic Product growth.

"In the past few weeks, economists have revised downward their expectations for an already struggling economy," said Stuart B. Seeley, an analyst with UBS Warburg.

Seeley said the firm's decision to cut earnings estimates - and reduce investment opinions - on REITs was made because the health of real estate is closely tied with the health of the economy. "Real estate will not escape a downdraft in GDP," Seeley said.

On Monday, a U.S. Treasury spokeswoman said that Secretary Paul O'Neill would tell congressional committees that he believes the U.S. economy might record negative growth in the third quarter just ended.

UBS Warburg economists said they expect the GDP number to shrink by 1% in the third quarter and 2% in the fourth quarter this year. A recession is generally characterized by two consecutive quarters of negative GDP growth.

"We expect to see a flow of bad news from the REITs," Seeley said, adding that real estate investors generally have very little patience with bad news.

All areas of real estate are likely to suffer, the analyst said. He sees the apartment REITs getting hit first, because of their dependency on short-term leases.

Manufactured home REITs will be affected the least, he said, because they represent a "low-cost housing alternative."

In spite of the slowdown in the sector, Seeley said the REITs should perform relatively well compared with other industries. "We think the dividends are secure and the fundamentals quite strong," he said.

Other analysts recently cut their estimates and investment opinions on REITs. On Tuesday, Lehman Brothers warned that the "onset of war and recession" will likely hurt REITs.

Wednesday, Salomon Smith Barney analyst Jonathan Litt cut his earnings estimates for the group - for the third time this quarter. "The news we're getting from the group is negative," Litt said, adding that the negative news from the REITs comes nowhere near the stream of warnings from other industries.

The Dow Jones equity index of real estate investment trusts was recently down 1.9%. Among the worst performers were Avalon Bay Communities Inc. (AVB), down $2.49, or 5%; Boston Properties Inc. (BXP), down $1.49, or 3.9%; and Equity Residential Properties Trust (EQR), trading down $1.78, or 3%.

Also, shares of Apartment Investment and Management (AIV) lost $1.52, or 3.4%, while Brandywine Realty Trust (BDN) traded 93 cents lower, or 4.3%. Shares of Vornado Realty Trust (VNO) lost $1.10, or 2.8%, while Post Properties Inc. (PPS) fell $1.11, or 3%.

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Rhyne - if you're around - what say you? Buying op in REITs approaching?.....Jen

-- posted by JenL_2