Report sees continued health in REIT market.

AEW Capital Management, L.P. (AEW), a Boston-based real estate investment advisory firm, recently releases its semi-Annual AEW REIT Report, which concludes that despite the impressive returns posted by REITs in 1996, REIT stocks remain attractively valued relative to the broader equity market.

REITs continue to offer significantly higher current dividend yields, with the spread between the National Association of Real Estate Investment Trusts (NAREIT) Equity Index and the S&P 500 hovering around 400 basis points, the report says.

Noting that REIT market capitalization has grown at an average rate of 55 percent between 1991 and 1996, AEW forecasts that strong investor demand for REITs will continue during 1997 and throughout the balance of the decade. As a result, AEW expects the capitalization of the REIT market will more than double to $200-$250 billion by 2001.

Much of this growth is being fueled by changes in the nature of REITs, as the industry continues to transform from a collection of dominant regional companies to a sophisticated group of truly national real estate operators, specialized by property type and internally managed by highly experienced real estate professionals.

Clear evidence of this change can be found in the size of REITs now available in the marketplace. In 1993, only one equity REIT boasted an equity capitalization in excess of $1 billion; at year-end 1996, there were 25 publicly-traded REITs of that size.

Consistent with this trend was the slight decline in the number of public REITs during 1996, a reflection of ongoing consolidation and merger activity in the industry. AEW expects this trend to continue.

"Since 1991, REITs have entered a new era," said Douglas M. Poutasse, managing director of AEW Research. "The REIT market of today is very different from that of even a few years ago. With the maturing of the market, REITs are positioned as an ideal investment alternative. Mutual funds, 401(k) plans and other types of self-directed pension programs are the fastest growing sources of new investment capital - capital that heretofore couldn't access the largely private and illiquid real estate markets. REITs solve that problem, offering strong diversification benefits and solid returns."

Equity REITs were one of the strongest performing sectors of the stock market during 1996, posting a total return of 36.4 percent, as measured by NAREIT. Since 1991, equity REITs have outperformed the S&P 500 by approximately 300 basis points per year.

For the balance of 1997, AEW expects the office and hotel sectors of the REIT market will show the most growth, with a number of office REITs currently positioned for IPOs. The office sector is also likely to generate the most significant growth in earnings, particularly in "late recovery" markets such as California. AEW continues to expect that REITs will generate total returns in the range of 10 to 12 percent over the next three to five years.

AEW Capital Management serves as investment advisor to institutional investors, including corporate, public and union pension funds, university endowments and governmental entities. The firm focuses on the construction and management of real estate securities and portfolios (REITs and CMBS), high-yield direct equity and debt investing, and the active management and repositioning of direct property portfolios.

On behalf of its institutional clients, AEW currently manages over $7 billion of capital, which is invested in more than $18 billion of real estate nationwide.