Commercial real estate stocks started the year under selling pressure after two influential analysts cut their ratings and earnings estimates on a host of names in the sector.
The downgrades come amid a host of concerns about how a slowing economy will hurt fundamentals for landlords. REITs and other property owners were among the worst-performing stocks in 2007, after having been some of the best performers since the 2001
Citigroup analyst Jonathan Litt downgraded several prominent REITs Wednesday. He cut luxury apartment developer
to sell from hold and mall landlord
General Growth Properties
to hold from buy.
Litt was cautious about AvalonBay's rich valuation and its large exposure to ground-up development in the apartment sector, "which should lead to underperformance given weakening apartment fundamentals," he wrote in a research note. Shares fell 3.7% to $90.84 in afternoon trading.
While General Growth Properties' core mall property fundamentals remain solid -- with 5% expected net operating income growth over the next two years -- the company will face problems refinancing some of the $2.8 billion in mortgage loans maturing in 2008 because of the shutdown of the commercial mortgage-backed securities lending market, Litt said in his note. General Growth shares fell 2.4% to $40.20 in recent trading.
Elsewhere, Bear Stearns analyst Joseph Greff lowered his earnings estimates and price targets on several hotel companies because of slowing rate increases in business travel. Greff cut earnings estimates on
Greff expects corporate lodging rate increases of 5% in 2008, vs. his prior estimate of mid-to-high single digit increases.
Marriott shares slid 3.9% to $32.86, Starwood fell 2.7% to $42.84, Sunstone Hotels dropped 2.2% to 17.89 and Host Hotels fell 0.7% to 16.93 in recent trading.