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STATISTICAL SPOTLIGHT
The ground floor
Real estate investmenttrusts haven't participated
in the market's rally, but some look like good buys .
By Eric S . Hardy
Priced to sell
6VF -% r DO short-sellers <strong>and</strong> holders of
real estate investment trusts have in
common? Ther haven't benefited
from the bull market .
The s&? 600 shons a 12-month
return, including reinvested dividends,
of 27% through mid-Julr .
An index of 220 IrtTS compiled by
Nareit, a Washington, D .C .-based
trade association, has around a 6%n
return . This slump is particularly frustrating
for tt21T holders because this
interest-rsste-sensitiec sector has been
knos+n to prosper «hen interest rares
are Calling .
What ails the market? Lack ofinvestor
confidence is one problem "The
most recognized ne me in our industn'
[Rockefeller Center Properties] went
bankrupt . That really hurt," states
Nareit President Lkfark Decker . But
REITS are not without their supporters
: "[nvesrors are either underestimating
the growth potentiai [of
~irs] or overestimating the risks,"
says real estate arralvst Kevin Comer at
Bankers Trust in New York C:n .
In evahtating real estate trusts . net
income counts less than any of various
measures of cash generation . One important
measure is "fimds from ooerations,"
which is defined as net income
plus depreciation <strong>and</strong> amortization,
excluding gains (or lossesj ftom
debt restructuring <strong>and</strong> sales of properties
. ?nother measure is shown in
the table as "cash flow," here defined
to mean net income plus depreciation
<strong>and</strong> amortization, less preferred dividends
. Either ~raN, vou are looking at
a measure of profits before depreciation,
a charge that goes on the books
but doesn't require the o%cner of the
propern, to write out a check .
As a group, RElrs are trading at ten
times the funds from operations expeered
br anahysts for 1995 .
.U17s pay high disidends because
they're required to distribute almost
all their income to shareholders . This
avoids double taxaeon, but it also has
a donnside : Unlike most corporations,
R&trs can't build up retained
earnings . So you can't count on these
stocks to hold their o«n against the
overall market, although the best of
them-in particular, New Plan Realn-have
done so in the past .
The table below lists ten 1tEi'rs with
a%arving mix of real estate assets .
Some have portfolios focused on
properties like malls, strip shopping
cenrers <strong>and</strong> office buildings . Some
ox~n assets that are a bit less mainstream-such
as public storage N .arehouses-atd
son-te list aoartment
buiidings among their holdings .
The RPJTS listed in our table have
veids of benveen 5% <strong>and</strong> 10% <strong>and</strong> sell
for less than 19 times latest fiscal vear
funds from operations . All these
stocks .shoatotal debt that is no
higher than 75%ofequity, when equity
is measured by stock market value .
Bruce Garrison, who follows RE1?s
for PaineWebber in New Yorlc, likes
Bradley Real Estate, which is accumu-
!ating a portfolio of shopping malls in
the,sSidwest<strong>and</strong>tiemEngl<strong>and</strong> . Bradev
vields 8% <strong>and</strong> sells for nine times
1995 estimated funds from operations
. Garrison also likes New Plan
Rcalty Trust, «itich has raised its dividend
for 64 consecuti%e quarters <strong>and</strong>
nearly tripled its book % alue over the
past decade. ~
i REIHpcmaryassets P r mary R ecent °rice divided b y
Yield Debt as % Revenues'
region price book
value
earnings fundsfrom
operations
cash
flow
of market
value
($mip
.
Berkshire Realty/s~tppping centers ; apadmeots SoutheasPWest 9% 6,9 23 .5 9E 3. : 9 .4% 74% $72
Bradley Real Estate/shaap'mg aanters 411dwest ;5 . 1 .4 15,4 i0 .5 9.3 8 .4 51 34
Duke Realty Investmentallndust^al & pftice parks Midwest 28 13 ls .l 13 .6 :IA 6-7 45 108
FranchiseFinanceofAmerica/rastaurans nationwide 21% 1 .7 32,4 ! 15 7.8 8.4 Il 97
JP Realry/shooolcg oenter ; malls West 2011s 2.1 !7 .8 97 9.2 7 .9 39 54
zsz
Merry L<strong>and</strong> & Investment/apartme bulldings S)utheast 20% 1 .5 's86 124 11.3 68 26 !16 O
MGIProperties/warehousavaprtrcents East 1416 0 .9 105 9 .2 7 .fi 65 43 43 J."
New Plan Realty/shecpirg centers, aeadments Eas; 21Y. 2 .0 18 .6 184 15,4 6 .3 :1 i23 ~
StorageEquitles/tempcrarystmagefacPilies nat :onwce IB'h 1 .3 15 .9 112 7 .8 5 .3 14 157 ~
Washington REIT/ptfice hwltlings : anartments R'asaington.9.i. 14°/s 2 .6 17,3 15.8 14 .7 70 8 47 ~i
'Lares:l2 montFs . Suumes . Mataet Gulae via Gnesource Intormatmn Serc,ces : .vanonal Assx ;atmn of Real Estere rnvestment?msts INarertJ .
These REITs pay decent yields <strong>and</strong> are r easonably priced relative to the cash gen erated by th eir propert ies . t .:.
Forbes . August ! 4 . 1995 185
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