Mr. Goldfarb: We maintain our positive bias for the REITs. We don't have a price target per se but think that the REITs should continue to do well. That said, valuations are towards the high end. The multiples are about 16.5 times FFO, versus historic 13.2. Dividend yields are back towards matching the 10-year treasury. They are not as juicy as they were previously. There is limited dividend growth in the near term because earnings are still going to be pressured this year; capital is still a precious commodity. And unless you are forced to raise your dividend because of taxable income, why would you? No one seems to care about dividends, so why would you raise your dividend, right? Certainly, I would expect companies to switch back to a cash dividend given the vote of confidence that paying cash dividends provides to the market. Vornado did it earlier this week. Simon has indicated their intention to go back to a cash dividend. So we would expect that companies that can go back to cash dividends instead of the stock dividends will do so sooner than later. And I do think that's a positive that people will notice. I think the real question for REITs this year is, the way they are priced, if interest rates or credit spreads widen without a concurrent improvement in the economy, i.e., stagflation. That's not good for REITs. Real estate is traditionally viewed as an inflation hedge, but the way the REITs are priced, I don't think that's the case this time. If you own physical real estate and it's properly levered, and you are comfortable with the rent roll, then, yes, absolutely it's a good inflation hedge. But with REITs, where you are subject to market volatility, you have no control over the dividend streams, and they're priced the way they are priced. Rising interest rates or a widening of credit spreads may not be good. Think about it this way: The implied cap rates of these companies are at or below financing costs. REITs are trading at premium valuations to the private markets. So while there are a lot of positives to being public and having access to that capital, the risk to where they are priced is any disruption in the force; the stocks will not react well.
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