Spieker Results Underscore Resurgence of REIT Stocks

This year’s rebound in real estate investment trust stocks shifted into high gear Tuesday after Spieker Properties Inc.--a major owner of West Coast office and industrial properties--reported better than expected second-quarter results.

But investors who are now flocking to REIT stocks--up more than 20% so far this year--may have to settle for more modest yet still healthy gains for the rest of the year, according to some industry analysts.

“There is still room for more [growth], but you’re not going to see as much appreciation as in the first seven months [of the year],” said Craig Silvers, who follows real estate stocks at Sutro & Co. in Los Angeles.

After being shunned by Wall Street for nearly two years, REIT stocks have attracted investors looking for a stable haven amid this year’s market turmoil. Investors have also been drawn by solid operating results tied to strong demand for space and little new construction. As a result, REITs are able to collect increasingly higher rents which are passed on to investors in the form of larger dividends.

“If the market continues to have a defensive bent, you could see more money going to REITs,” said Louis Taylor, an industry analyst at Prudential Securities.

It’s payback time for REIT executives, who once fumed as investors ignored their shares in favor of profitless Internet companies. In fact, while Nasdaq and the S&P; 500 index are down for the year, the Bloomberg REIT index so far is up 20.5%.

Menlo Park, Calif.-based Spieker Properties is one of the REIT world’s star performers for the first half of 2000. Its shares have soared more than 55% since the beginning of the year.

On Tuesday, Spieker shares on the New York Stock Exchange jumped $4.87--or about 10%--to $56.53, a day after it released its strong second-quarter earnings report.

The firm reported that its funds from operations--a common financial yardstick used by real estate companies--during the second quarter jumped 23.5% from the same period last year. The intense demand for space--particularly in Silicon Valley and the Bay Area--allowed Spieker to renew its leases at rates that were 68% higher on average.

“Conditions up and down the West Coast remain extremely strong,” said John Foster, the company’s co-chief executive officer. “While the pace is not as frenzied as it was six months ago, we continue to experience high levels of demand from a broad range of industries.”

The pace of REIT stock appreciation for the remainder of the year may slow, but it will continue to outpace the rest of the market, according to industry analysts. Despite this year’s run-up, the value of most REIT shares is barely equal to the value of the company’s underlying property portfolio, said Taylor at Prudential Securities.

“I think there is still more room to go,” Taylor said of stock appreciation.

But analysts are quick to remind investors that REIT shares in the long run are considered the equivalent of utility stocks, which are known for stable dividends and not for soaring appreciation. Investors apparently forgot about that important concept during the mid-1990s, when REIT shares generated annual returns as high as 36% before the group fell into a slump.

“I hope people don’t buy REITs with that expectation,” said Silvers. “They should look at them as more of a growth utility. They are more stable.”