  |
|
Discount Henderson, NV Life Insurance
Real estate investment trusts are turning aroundJohn S. DeMottUNTIL JUST NOW, most investors couldn't have cared less about real estate investment trusts, or REITs. Morgan Stanley Dean Witter's REIT index lost 5% in 1999--the second negative year in a row. But lately REITs have been edging up as most U.S. stocks head down. Since bottoming last December, property-owning REITs have risen an average of 4%. And with their prices still so depressed, these stocks are terrific investments for people who need spendable income--dividend yields average 8.5% for property-owning REITs and 11.7% for those that hold mortgages. Examples of the new life in REITs abound (all those listed here trade on the New York Stock Exchange). Equity Residential Properties Trust (symbol EQR) rose from less than $29 in mid December to a recent $39. Apartment Investment & Management (AIV) went from $34 to $44 before trailing off to $37. Yet most REITs could scarcely be called overpriced. Lots of them still sport price-earnings ratios of 6 or less, based on estimates of this year's funds from operations (or FFO, the REIT equivalent of earnings, which adds back some noncash expenses). Equilibrium. Unlike two years ago, the supply of office buildings, apartments, industrial parks, hotels, malls and self-storage units--what REITs are made of--is running about equal to demand. "Supply and demand are nearly balanced," says John Neff, who ran Vanguard Windsor fund for 33 years, until his retirement in 1995. As leases expire this year and next, the result should be higher rental income from new agreements. Says Thierry Perrein, head of fixed-income research at Donaldson, Lufkin & Jenrette: "There's nothing wrong with the REIT industry. The fundamentals from a real estate viewpoint are good." Still, in picking REITs, you have to be as selective as a Harvard admissions officer. For starters, focus on REITs specializing in office and industrial properties--they're beneficiaries of the brisk economy. Pay less attention to those that own retail properties, such as strip malls, which could fall prey to online shopping. With commercial space heavily occupied--as full as 98% in some metropolitan areas--tenants have no way of dodging rent increases by going elsewhere when their leases expire. Two REITs favored by Goldman Sachs REIT analyst Jim Kammert are Atlanta-based Cousins Properties (CUZ, $36), with interests in 12 million square feet of office space in California and the bustling Southeast, and Spieker Properties (SPK, $41), which owns 40 million square feet of commercial space in California's Silicon Valley, Oregon and Washington. Spieker's FFO per share increased 17% in 1999. Be suspicious of any REIT whose dividend looks too good--say, 12% or more. Management may be thinking short term and taking risks that it shouldn't. A REIT that fits the sensible-dividend mold, says Perrein, is ProLogis Trust (PLD, $18), which owns more than 1,500 warehouses in the U.S. and Europe and yields 7%. Another of his favorites: Simon Property Group (SPG, $23), which intends to qualify as a REIT and owns parts of 168 regional malls and 78 shopping centers. It yields 8.8%. Neff's favorites are Highwoods Properties (HIW, $21)and Brandywine Realty (BDN, $16), both of which own offices and apartments. Brandywine's P/E, based on First Call's consensus of estimates of this year's FFOs, is a dirt-cheap 6, and Highwoods' is 5.7. Testing period. This will be a pivotal year for REITs because a substantial amount of their debts is up for refinancing. That should quickly separate REITs with access to money from those that are overextended. Says Perrein: "If you have financial flexibility, you're king." Perrein has compiled a list of 64 real estate investment trusts, ranging from the least to the most leveraged. At the top of the heap is Public Storage (PSA, $21), with 4% debt to book value. At the bottom: Rouse Co. (RSE, $21), at 84%. Smack in the middle, and a good buy, says Perrein, is Vornado Realty Trust (VNO, $31), at 51% debt to book value. Vornado's funds from operation should rise 9% in 2000; its dividend yields 6%. 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 41 | 42 | 43 | 44 | 45 | 46 | 47 | 48 | 49 | 50 51 | 52 | 53 | 54 | 55 | 56 | 57 | 58 | 59 | 60 | 61 | 62 | 63 | 64 | 65 | 66 | 67 | 68 | 69 | 70 | 71 | 72 | 73 | 74 | 75 | 76 | 77 | 78 | 79 | 80 81 | 82 | 83 | 84 | 85 | 86 | 87 | 88 | 89 | 90 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 100 |