Are real estate investment trust stocks in full-recovery mode?
The shares continued their torrid run Tuesday, surging about 4% after the group was raised to "buy" from "hold" by Donaldson, Lufkin & Jenrette Inc. analyst Larry Raiman, the second analyst in two days to raise his ratings.
The Morgan Stanley REIT index jumped 3.9%, notching its biggest gain since its launch in 1995. It was led by Equity Residential Properties Trust, up $3.31 to $43.50; Glendale-based Public Storage Inc., up $2.13 to $27.38; and Simon DeBartolo Group Inc., up $2.13 to $29.63. Bloomberg's REIT index gained 4.1%.
Raiman cited a decrease in real estate lending, which could make it harder for developers to start new construction and alleviate fears of overbuilding.
Raiman, ranked as one of the top analysts by several industry publications, was the first to cut his ratings on the group, lowering REITs to "hold" in February. On Tuesday, he said REITs, which had been down about 20% year-to-date before this week, could produce total returns of 15% to 20% during the next 12 months.
"A lot of investors are perceiving that the growth stories of non-REIT stocks are not as clear as they thought. I'm not so sure you could get a 15% return on a Coca-Cola or Gillette," said REIT analyst and author Ralph Block of San Francisco-based Bay Isle Financial, noting the blue chips' slowing growth.
Many investors said they had been sitting on the sidelines waiting for Raiman to become bullish.
"He made the early call, and investors have been paying a lot of attention to him," said Kenneth Campbell, head of CRA Real Estate Securities.
Raiman raised his ratings on mall developer Simon DeBartolo and self-storage property owner Public Storage to "top pick."
Other big gainers Tuesday included Vornado Realty Trust, up $2.63 to $36.38; Mack-Cali Realty Corp., up $3 to $32.75; and ProLogis Trust, up $1.31 to $23.94.
The move comes one day after Lehman Bros. Inc. analyst Steve Hash, another prominent analyst, raised his ratings on the group.
REITs invest in all types of real estate, including shopping malls, office buildings and prisons.
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The Bloomberg real estate investment trust index tracks the performance of 161 REITs with market capitalization of $15 million and above. Weekly performance and latest:
Source: Bloomberg News