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Real estate stock funds have legs?

- Alan Lavine and Gail Liberman

Mergers and acquisitions still are driving the real estate investment trust (REIT) market, particularly in the office and small cap sector.

Analysts and money managers believe that consolidation in the industry will continue to bode well for REITs.

Real Estate Investment Trusts (REITs) are coming off a sizzling five-year period that saw real estate stock prices more than double.David Siopack, managing director of Charles Schwab Investment Management, San Francisco, expects acquisitions particularly to hit the small-company and mid-size company stock sector. Potential targets are about 25 companies with market capitalizations below $250 billion and 50 companies with capitalizations to $500 million.

Going forward, however, the pace of acquisitions should slow, Siopack said. This could adversely affect stock prices. But small REITs that can benefit from improved management efficiency are in play.

"It is tough to get extra added value out of an acquisition of large REITS," he said. "Two-thousand-and seven is expected to be an active year. But not along the lines of 2006. Mergers and acquisitions are not sustainable at that level."

Siopack believes that REIT fundamentals will moderate over the next one-to-two years.

Nevertheless, REITs should deliver their historical rates of return of between 11 percent and 14 percent annually, he says. Growing occupancy rates and rental rates should boost dividends and earnings over the longer term.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

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