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The Federal Reserve Board's decision to increase interest rates in 1994 damaged the strength and stock prices of real estate investment trusts (REITs), and this trend will continue as long as the Fed maintains a tight monetary policy. The extremely low prices of some REITs might be attractive to investors, and real estate fundamentals will be good in 1995. However, investors should be prepared for lower yields and falling stock prices unless interest rates begin to fall.

Investing in real estate investment trusts should be done carefully because an increase in interest rates has caused a decrease in the value of the trusts. An investor should evaluate trusts over the long term and determine the solidity of their balance sheets. Those trusts with large capitalization rates will be able to enter the equity market more easily. Finally, the high yields of a trust is more important than dividends.

The real estate investment trust industry is expected to have weak growth over the short term, but long-term prospects are favorable. A growing US economy will help spur growth in the industry, although continued increases in interest rates and competition have contributed to an overall depressed industry performance. Investments in this industry should focus on trust companies having debt-to-capital ratios that are less than 50%.

Real Estate Investment Trusts (REITs) should be a good investment for the long-term, from 1994 to 1997 or 1999, but for the short term, interest rates may cause the assets of such investments to decline. Most REITs will offer price stability and income to investors, and some investors are buying them despite rising rates. Investors should examine those REITs with a stable history of FFO increases, rather than buy those with higher dividend yield.

Real Estate Investment Trusts (REITs) may be good long-term growth investments in 1994, due to REITs' recently growing strength. Some well-capitalized firms have strong growth plans to acquire real estate, to replace short-term debt with equity or to extend its maturity. Obstacles to growth could be lower cap rates or interest rate risk. Investors should look for well-managed companies with solid balance sheets and projected funds from operations growth.

Investors are advised to seek Real Estate Investment Trusts (REITs) with good prospects for growth from funds from operations, strong balance sheets and little debt. Dividend yields should make up at least 95% of cash flows in order for REITs to retain their tax status. Investors should also note that REITs are subject to interest rate fluctuations which are currently under control due to economic conditions.