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Gold/Mining/Energy : Canadian REITS, Trusts & Dividend Stocks -- Ignore unavailable to you. Want to Upgrade?

To: David Alon who wrote (4403)	10/1/2002 10:21:44 AM
From: trustmanic	Respond to of 11633

Real estate party set to wind down Reduce expectations Ian Karleff Financial Post Tuesday, October 01, 2002 ADVERTISEMENT The debate on whether a housing bubble is forming is best left to the academics and barflies, because at the end of the day few homeowners are prepared to take the risk of a market moving higher while suffering under a landlord. But for those who have invested in bricks and mortar via the stock market, and have reaped handsome rewards over the past two years, now might be the time to read the writing on the sector's walls. "We are rapidly approaching a crossroads between the benefits of low interest rates and the continuing erosion and weakness of income property real estate fundamentals," wrote Raymond James' real estate analyst Harry Rannala. Mr. Rannala now sees most Canadian REITs mirroring rather than outperforming the economy, and downgraded to "underperform" Royal Host REIT, Summit REIT, and O&Y REIT, to name a few. "I am not predicting a disastrous environment, but investors should tone down their yield requirements," said the analyst. Depressed and declining rental rates, lower rental space absorption and increased vacancy for all real estate sectors will erode the group's ability to outperform as it has over the past two years, he says. Rents and occupancy rates will continue under pressure into 2003, and because of this, investors should expect to get only 6% to 8% yields, rather than Mr. Rannala's earlier view of 10% to 12%. Investors in publicly traded real estate firms have had excellent returns during a period in which the S&P/TSX index has lost 36%. Apartment operator Boardwalk Equities has seen its stock rise 25%, Summit REIT is up 73%, while the S&P/TSX real estate sector is up about 20%. Furthermore, some REITs (an asset class mainly owned by retail rather than institutional investors) may have overpaid for properties to meet investors' unprecedented demand for income, at a time when many bond and treasury bill yields are under 2%. "Investors are scouring the countryside looking for returns relative to lousy alternatives. Investors are buying property at prices well above what they would have paid in previous times or cycles," notes Mr. Rannala. Brookfield Properties has been selling off property, and is finding it tough to redeploy the cash into the sector, while H&R REIT can't find any value after a buying spree a few months ago, and Dundee Realty isn't uncovering any bargains. Meanwhile, the real estate market for single family homes is cooling off, which is probably the result of more listings. Exhaustive studies have flowed from brokerages and other economic think tanks in recent months, and the consensus continues to say the housing sector is not a bubble about to burst, as incomes have risen along with prices at a time when rates are at 40-year lows. UBS Warburg calculated that real estate is 34% of total household assets in Canada, while stocks are a mere 16%, and it is unlikely that house prices will fall and have a negative effect on consumer spending. The brokerage goes so far as to debunk the thought that sinking stock markets will stifle the economy, as "the vast majority of wealth gains were among only 1.7% of Canadian taxpayers, and 3.6% of those in the U.S." Affordability is hovering close to a 20-year high, with interest and principal payments on the typical home running at 28% of pre-tax family income, while housing prices over the past two decades are up 5% per year compared with annual income gains of 4.3%, said UBS in a recent study.