J.P. Morgan analysts expect funds from operations to rise 7 percent in 2005 and for dividends to increase about 3 percent to 4 percent, the Wall Street Journal reported. However, the FFO growth will be offset by investors pulling out of the sector.
Banc of America Securities analysts predict 3 percent total returns in 2005, with dividends being the key driver. He favors industrial and self-storage REITs — such as ProLogis (PLD), Catellus Development Corp. REIT (CDX) and Public Storage Inc. (PSA); office REITs that have a New York or Southern California focus — such as SL Green Realty Corp. (SLG), Brookfield Properties Corp. (BPO), and Maguire Properties Inc. (MPG); and high-profile retail REITs — such as Simon Property Group Inc. (SPG) and Kimco Realty Corp. (KIM).
J.P. Morgan analysts report that hotel, office, apartment and industrial REITs were hit hardest during the recession and therefore stand to benefit from accelerated earnings growth in 2005 and 2006. Defensive property types, such as net lease and retail REITs, that held their own during the downturn could have a tougher time attracting capital as their growth rates may not have as much upside in the recovery.
In the first 12 days of 2005, the Morgan Stanley REIT index fell 7.4 percent. Banc of America Securities speculates the selloff was likely triggered by profit-taking and interest rate fears. Analysts expect REITs will find a floor during the earnings season and possibly rebound in February and March as positive earnings reports come out.
