REIT Ride Slows Down

With the annual NAREIT convention starting Wednesday in San Francisco, analysts and fund managers are once again questioning how much zoom is left among highflying real estate investment trust stocks.

Since the bull market for commercial real estate began about four years ago, REITs' net asset values have risen an average of 24% a year, according to Green Street Advisors, an independent REIT research shop. Year to date, most of the better real estate mutual funds are up over 25%, making them one of the best sector performers.

However, REITs have fallen 4% over the past week, the largest correction in months, again raising fears among some that the sector could post disappointing returns going forward.

A string of companies recently either missed quarterly earnings estimates, reduced guidance or provided lower-than-expected 2007 forecasts, spooking investors.

General Growth Properties(GGP Quote), the second largest mall owner in the country, reported funds from operations Tuesday that missed analyst estimates. The REIT also cut its guidance for the remainder of the year because of increased expenses and weak sales at its community development business.

Among those that also posted disappointing results in recent weeks are Mack-Cali(CLI Quote), Liberty Property Trust(LRY Quote), Macerich(MAC Quote), Post Properties(PPS Quote), Sunstone Hotel Investors(SHO Quote) and Equity Residential(EQR Quote).

While the causes of the shortfalls varied, the bad news overshadowed solid reports from mall owner Simon Property Group(SPG Quote) and office landlord Equity Office(EOP Quote), two of the largest companies in the sector, according to Bank of America analyst Ross Nussbaum.