Dividend Tax Plan Weighing on REITs

Shares of real estate investment trusts have fallen this week on concerns that President Bush’s plan to repeal the tax investors pay on dividends may dim the allure of the REITs, investors and analysts said.

The Bloomberg index of 144 REITs is off 2.4% since Monday. Among the losers have been shares of Equity Office Properties Trust, the largest office building owner in the U.S.; Equity Residential, the largest apartment owner; and Simon Property Group, the biggest mall owner.

The elimination of dividend taxation may make other dividend-paying companies more attractive relative to REITs. Dividends paid by REITs won’t qualify for the tax exemption because REITs themselves don’t pay federal tax on income.

REIT stocks overall may decline as much as 9% from recent levels, depending on the outcome of the legislation, said Steve Sakwa, a Merrill Lynch & Co. real estate analyst.

“REITs have been favorably treated and now the rest of the world is going to get more favorably treated,” said Lehman Bros. REIT analyst David Shulman.

On Wednesday, Equity Office fell 35 cents to $25.20, Equity Residential shares fell 9 cents to $25.41 and Simon Property lost 63 cents to $33.97, all on the New York Stock Exchange.

REITs own all types of real estate, from Manhattan skyscrapers to California shopping malls. REIT dividend yields average about 6.7%, compared with 1.7% for the S&P; 500 index.