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Seven analysts and top management from twenty-seven sector firms examine the REITs sector in this special 141-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info380.htm

TWST: Louis, were there any issues raised or trends that were discussed at the recent NAREIT Conference that could have particular significance for the REITs and for REIT investors?

Mr. Taylor: There were two things, from my perspective. Number one, we came in expecting the office fun-damentals to be weakening, if you will, and in our conversations with all the companies, they confirmed that that was the case. So we still think that vacancy rates are headed higher, and we haven’t yet seen the rental rate pressure from sublease space and other new supply that we think is going to show up in the second half of the year. Basically, the companies confirmed our worst fears. And as we look at the stocks, we don’t think that’s necessarily reflected in the stocks right now.

TWST: Louis, what’s your view?

Mr. Taylor: We just did a big report on net income a month ago. In our view, it’s time to graduate to net income. The problems with net income relate a lot to GAAP, which you can’t really get away from right now. But I think you could use GAAP EPS as a starting point, then see investors make adjustments to get at cash flow, FFO or some other figure. But underlying it all, you’re still going to have valuations around net asset value, for better or for worse. I think the other way people will look at it is on an EPS growth basis. And that’s a way, I think, to really see if management is creating value with the buying and selling of property, their portfolio activity. The second advantage of EPS is that it smoothes out some of the capital costs that are inherent in all these companies and includes the depreciation charge. And I think the other way investors will look at it is, as Larry mentioned, on free cash flow. So I think that net income is going to be the base. The adjustments you’re going to make aren’t to get to FFO, but maybe into free cash flow, earnings before gains and losses, and how it all relates to the net asset value of the company. So I think it’s the beginning of a transition period. I think the next couple of years will provide investors both numbers. The companies clearly have not managed EPS before. The growth rates are all over the map, so they’ll start to manage that going forward. I think it’s just the natural maturity of this group, and it will certainly, I think, broaden the investor base.

TWST: Are there one or two that you’d like to highlight in this group that could be attractive investments at this point?

Mr. Taylor: Kimco (NYSE:KIM) is a very opportunistic buyer, and I think it has a couple of very significant deals imminent in its pipeline. We also like Rouse (NYSE:RSE), because Rouse throws off a lot of cash flow. In our view, it’s less a retail mall company than it is a land developer in Las Vegas. So far, land sales have been terrific and continue to exceed expectations as a very small number of people migrate out of California (for utility reasons or otherwise). That’s been terrific for housing demand and pricing, and that, on the margin, is what drives Rouse’s earnings. So with the cash flow, which translates into about 2 per share of NAV growth per year, and the upside from the Summerlin, Nevada, land sales, which as recently as two weeks ago didn’t look like it’s slowing down one bit, we continue to think there’s upside there.

This special issue includes:

1) REITs - In an in-depth (15,800 words) Analyst Roundtable, Samuel Lieber, CEO/Portfolio Manager at Alpine Management & Research LLC, Daniel Pine, Senior Vice President at Alliance Capital Management, Lawrence Raiman, Managing Director at Credit Suisse First Boston, David Shulman, Managing Director at Lehman Brothers, Ross Smotrich, Managing Director at Bear, Stearns & Co. and Louis Taylor, Managing Director at Deutsche Banc Alex. Brown, examine the outlook for the sector including, recent stock performance, prospects for upside growth and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at twenty-six sector firms asked market insiders about the ability of management teams to create shareholder value.

3) Outlook for REITs - In an in-depth (5,500 words) Analyst Interview, Christopher Haley, Director of Real Estate Securities Group at First Union Securities Equity Research, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of twenty-seven sector firms examine the outlook for their firm and the sector.