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Shares of real estate investment trusts were mixed Tuesday as a Lehman Brothers analyst lowered some price targets, due to concerns that eroding credit quality will hurt property values.
David Harris (nyse: HRS - news - people ) said in a client note that investors appeared to be swept up earlier this year by the number of private equity takeovers in the sector and ignored warnings of a downturn. However, the group, along with the broader market, is now being squeezed by a credit crisis prompted by rising defaults in subprime mortgages - home loans made to people with weak credit histories
Harris contends that continuing declines in credit quality will further pressure property prices, diminishing the worth of net asset value as a gauge of a REIT's performance. Net asset value is the book value of assets minus liabilities.
He recommends investors try to weather the storm by sticking with REITs that have solid balance sheets, strong management teams and quality assets. Harris views Brookfield Properties Corp. (nyse: BPO - news - people ), Boston Properties Inc. (nyse: BXP - news - people ) and SL Green Realty Corp. (nyse: SLG - news - people ) among the safest bets.
Brookfield's stock fell 67 cents to $100.26 in midday trading, while shares of Boston Properties shed a penny to $23.41. SL Green's stock dropped $1.81 to $106.88.
Harris lowered his price target on Kite Realty Group Trust (nyse: KRG - news - people ) by $1 to $18. He is a bit cautious on the company's large development pipeline, but said it appears to be properly funded.
Shares of Kite added 21 cents to $16.37.
Harris cut his price target on Vornado Realty Trust (nyse: VNO - news - people ) by $5 to $120. While he is worried about the company's increased exposure to the financial services sector, Harris said Vornado is still one of his top picks due to its solid balance sheet and assets.
Shares of Vornado gained 44 cents to $104.10.
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