REITs have rallied significantly since mid-March when the 2000 trough of the REIT market coincided with the peak in the NASDAQ. Total returns for the REITs since mid-March are 16% vs. declines of 24% for the NASDAQ and 6% for the S&P 500.

At PaineWebber, analysts Jeff Olson and Stuart Seeley believe that REITs will trade in a net asset value-based (NAV) range. They contend that high end of the range is the point where multiples are high enough to trigger equity issuance. While some stocks are at, or even above NAV, analysts believe the industry, on average is still 5% to 10% below NAV.

Olson and Seeley believe that the floor is the point where REITs are priced at significant discounts to their underlying net asset values. This should lead to some combination of stock buybacks and value investor interest to support the stocks. If the stocks don't bounce, consolidation and corporate transactions may take place.

The analysts at PaineWebber believe that the sector is currently closer to the higher end of the range than the lower end. As such, while property fundamentals are solid, the analysts do not believe that REITs will rally significantly beyond this point, as equity issuance would dampen substantial further upward movement. Nonetheless, at these prices, the REITs should deliver a respectable 8% to 12% total return over the next 12 months.

The analysts at PaineWebber recently initiated coverage of 35 real estate companies. Their ratings included five "Buys," 25 "Attractives," four "Neutrals" and one "Unattractive." Their top picks include:

* Kimco Realty Corp.: KIM is the largest community shopping center REIT in the country. The Buy rating is based on its creative management team with a strong track record, double-digit earnings growth, high-quality properties containing below-market leases and its fast-growing dividend. Kimco's long-term earnings growth rate is 12%, double the sector average. Analysts at PaineWebber see the company's dividend growing at this same rate as they have nearly reached the legal minimum distribution requirement for REIT status. PaineWebber's 12-month price target is $47 a share, implying a 22% total return when including its 6.5% dividend yield.

* Essex Property Trust: ESS specializes in Class-B multifamily properties located in the San Francisco, Los Angeles and Seattle markets. PaineWebber anal ysts view Essex as a pure-play on the hottest apartment markets in the country. The 12-month price target is $47 a share, implying a 20% total return when including its 5.9% dividend yield.

* Duke-Weeks Realty: PaineWebber believes that DRE has a business model that will survive and prosper over the long term in the public markets and has the capacity and platform to develop 10% to 15% of its asset base annually at yields 200 to 300 bp above existing properties. DRE also has a large land bank to support future development. With a strong franchise and clear strategy, DRE remains a core real estate stock, according to PaineWebber.

* Equity Office Properties: Analysts believe EOP offers investors an excellent combination of liquidity and stability at a reasonable price. EOP has a high-quality management team and a deep corporate infrastructure to manage its assets and execute a well-defined and relatively conservative business strategy. With a total market capitalization of $14.7 billion (pre-merger) and a long-term business model, EOP provides investors who want exposure to the industry an excellent vehicle to invest in REITs on a risk-adjusted basis.

* AIMCO: AIV has an excellent track record of value investing and generating above earnings growth. PaineWebber looks favorably on management's propensity to execute complex transactions is a means to an end, namely to acquire assets and make investments at a cost advantage. AIV has strategically developed several proprietary investment opportunities that should fuel strong earnings growth even if the conventional apartment investment markets remain competitive. Analysts believe AIV's above-average growth compensates for the complexity.