Controlling the Apartment PopulationThough apartment REITs underperformed in 2001 -- 10.3% vs. nearly 14% for the average REIT -- they still don't look cheap. The average apartment REIT trades at 10.6 times current
Health Care on the Mend?Health care REITs were star performers of 2001, providing investors with a total return of 56.2%, according to SNL Securities. Yet the current 8.8% yield for the average health care REIT remains the best among property types. While attractive to yield chasers, most health care companies are paying out 95% to 100% of their available cash, says Ferguson, suggesting that dividends can't grow without earnings growth. "There's no growth in sight," he says. Yet it could be worse. "The operator crisis has run its course," he explains, "and for the most part, the companies are beyond bankruptcy and markdown risk." Larry Raiman at Credit Suisse First Boston thinks health care should continue to outperform other property sectors because of long lease duration and above-average yields. He says investors should consider Health Care Property Investors ( HCP) and Healthcare Realty ( HR). He rates both buy, and his firm has not provided banking services to either.
Hotels: Overstaying the Welcome?Lodging stocks were among the most affected by Sept. 11 because business and leisure travel both evaporated. Yet after the rapid and painful selloff in hotel stocks, the stocks are up 50% or more since Sept. 20, leading many pundits to suggest the sector has rebounded too quickly. "Lodging stocks are acting like what happened Sept. 11 never happened," says Ferguson. "A lot of the 2003 recovery is already built into the prices of the stocks. Trends for these companies will improve into the year, but the reality is, that means things are only going to be less horrible than they were." He notes that lodging operating companies have mostly recovered to pre-Sept. 11 levels and that hotel REITs have recovered as well, though not as quickly as the operating companies. Still, some remain bullish on lodging stocks. "Since
Coming next: a look at the performance of our REIT "Growth at a Reasonable Price" portfolio and a new list of GARP REITs for 2002.