REITs Have a Tough Act to Follow

REITs could be priced for perfection, or so say many pundits after the sector experienced two years of significant growth. After real estate investment trusts grew more than 40% during 2000 and 2001, as measured by the SNL Securities Equity REIT index, any additional appreciation for them becomes a bit of a challenge.

"We expect REITs will generate a 7% total return in 2002," says Goldman Sachs senior REIT analyst David Kostin. "REITs surged 42% during 2000 and 2001, dwarfing the dreadful negative 20% return of the S&P 500 during that same period."

Sure, 7% is a solid return, but that assumes little growth, because the current yield of Goldman's REIT stock universe is a hefty 6.3%. "That's a 110 basis-point spread to the 10-year Treasury," Kostin notes. ...