Friday, November 05, 2004

REIT Stocks Fall on Downgrade, Profits

By Emma Johnson, AP Business Writer

REIT Stocks Fall on Analyst Downgrade, Lower Quarterly Profits
NEW YORK (AP) -- Stocks of real estate investment trusts stumbled Friday as sector giants posted lower quarterly profits and an industry leader was downgraded on analyst opinion that REIT investors will start to shift their focus to total returns.

The Dow Jones Equity All REIT Index fell 2.55 percent to 212.56 in midday trading, while its Composite All REIT counterpart dropped 2.49 percent to 188.28.

Shares of Equity Office Property Trust fell 93 cents, or 3.3 percent, to $27.42 on the New York Stock Exchange on a downgrade by Bear Stearns, which now rates the Chicago company a "Peer Perform," below from the previous "Outperform."

On Tuesday, the company reported third-quarter funds from operations sank to $49.4 million, or 11 cents per share, from $316 million, or 69 cents per share, in the year-ago period. Equity Office posted a loss of $129 million, or 32 cents per share, for the quarter, down from earnings of $110 million, or 28 cents per share, last year.

In the report, Bear Stearns analysts Ross L. Smotrich and Jeffrey L. Langbaum said their lowered rating stems from the company's poor quarterly earnings performance, as well as a projected shift in investor approach to real estate trusts.

"Given market dynamics over the past two years, ours was admittedly a defensive stance; namely that rich income potential and the determination that EOP would maintain its dividend payout made for an attractive investment, notwithstanding our generally negative outlook for the office sector," the analysts wrote. "But that market dynamic has changed, in our view. From here, we think investor psychology is a bit more offensive, a bit more total return driven, and in that context, investors will increasingly focus on stronger earnings growth, in addition to income, to achieve the best total returns."

Meanwhile, shares of another big player, Vornado Realty Trust, sank nearly 1 percent, or 52 cents, to $68.73 on the NYSE after gaining $1.05 cents on Thursday. Vornado performed poorly despite a positive earnings report -- in which the New York company's third-quarter funds from operations rose to $156.7 million, or $1.18 per share, up from $123.9 million, or $1.04 per share, last year. The company also announced on Friday that it bought a 4.3 percent interest in retail giant Sears Roebuck & Co.

Other decliners were Simon Property Group Inc., whose shares tumbled 4.3 percent, or $2.57, to $57.71, on the NYSE, and Equity Residential, whose stock was off 39 cents, or 1.2 percent, to $33.11 after reporting Tuesday its third-quarter funds from operations fell to 50 cents per share from 56 cents last year.


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