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Strategies & Market Trends : Real Estate Operating Companies (REOC) -- Ignore unavailable to you. Want to Upgrade?

To: 249443 who wrote (14)	9/19/2001 8:05:28 PM
From: 249443	Read Replies (1) \| Respond to of 95

Dividend Pops Mean Better REIT Returns By Christopher Edmonds Special to TheStreet.com 7/31/01 7:13 AM ET URL: thestreet.com Are you looking for solid returns from real estate stocks? One pro says that real estate investment trusts poised to boost their dividends may well outshine their peers. Larry Raiman, director of REIT research at Credit Suisse First Boston, recently released his analysis of "dividend-pop" candidates, or REITs that he thinks will push dividends higher this year and next. REITs are required to pay 90% of net income each year in dividends. REITs that raise their dividends are worth a look because, Raiman says, they have consistently "blown away the pack in price performance." His research shows that these dividend-pop REITs have outperformed the average REIT by more than 9% annually since 1997. In 2000 alone, the 16 REITs that increased their dividends by more than 8% outperformed their brethren by nearly 13%. Raiman says the outperformance isn't just serendipity. "Certainly this performance is no coincidence," he notes. "Above-average dividend growth has consistently translated into above-average total returns for shareholders." From a field of nearly 140 companies, Raiman has identified 22 REITs as dividend-pop candidates. To qualify, a REIT must demonstrate "at least 8% dividend growth and declining FFO payout ratios." (Funds from operations, or FFO, are a REIT's measure of cash flow.) Combining increasing dividends with a decreasing payout ratio supports a REIT's ability to further increase the dividend. In addition, he expects the REITs on the list to produce above-average FFO growth over the next two years. Pop Go the Dividends REITs that could provide income momentum Company/ Ticker Current Yield FFO* Multiple Est FFO Growth '01 Est FFO Growth '02 2001 Div. Increase Dividend Decision** Apartment Investment & Management (AIV:NYSE) 6.44% 8.8 12.68% 9.59% 11.43% Q1 Archstone Communities (ASN:NYSE) 6.53 11.0 3.17 9.65 NA Q4 AvalonBay Communities (AVB:NYSE) 5.43 11.5 10.27 9.31 14.29 Q1 Bedford Property (BED:NYSE) 8.47 7.9 13.08 6.34 NA NP Boston Properties (BXP:NYSE) 5.90 11.0 8.46 15.88 9.43 Q2 BRE Properties (BRE:NYSE) 6.15 10.9 8.20 9.39 9.41 Q1 Camden Property Trust (CPT:NYSE) 6.62 9.8 7.43 7.71 8.44 Q1 CenterPoint Properties (CNT:NYSE) 4.39 12.8 12.80 13.98 NA Q4 Cousins Properties (CUZ:NYSE) 5.23 12.4 12.50 12.96 NA Q4 Duke Realty (DRE:NYSE) 6.90 9.2 9.76 9.63 NA Q3 Equity Office Properties (EOP:NYSE) 5.94 9.6 11.54 10.34 NA Q3 Essex Property Trust (ESS:NYSE) 5.54 11.4 12.05 9.61 14.75 NP General Growth Properties (GGP:NYSE) 5.74 7.6 10.50 10.60 NA Q4 Host Marriott (HMT:NYSE) 8.12 6.7 -6.47 11.70 NA NP Kimco Realty (KIM:NYSE) 6.17 10.5 10.70 9.63 NA Q4 Liberty Property Trust (LRY:NYSE) 7.94 8.4 8.52 8.14 NA Q3 Parkway Properties (PKY:NYSE) 7.49 7.4 8.48 8.74 12.50 NP Prentiss Properties (PP:NYSE) 7.99 7.8 6.25 9.41 10.31 Q2 PS Business Parks (PSB:Amex) 4.16 8.8 10.00 8.44 16.00 NP SL Green Realty (SLG:NYSE) 5.31 10.2 11.24 10.77 NA Q4 Vornado Realty Trust (VNO:NYSE) 5.49 10.1 10.66 9.90 NA Q4 Washington REIT (WRE:NYSE) 5.69 11.7 8.91 7.42 NA Q2 Funds from Operations *Historical Pattern of Dividend Increase by Quarter; NP=No Pattern Source: Credit Suisse First Boston, First Call, NAREIT While Raiman's dividend-pop theory has worked in the past four years, it's off to a subpar start in the first half of 2001. According to data compiled by Raiman, while the National Association of Real Estate Investment Trusts Equity Index was up more than 10% as of July 13, the average total return of companies on the dividend-pop list was only 2.46%. In fact, of the companies on Raiman's list that already have raised dividends this year, only two -- Camden Property Trust (CPT:NYSE) and Parkway Properties (PKY:NYSE) -- have outperformed the NAREIT index. Of the 13 REITs that Raiman thinks will significantly increase their dividends, only SL Green Realty (SLG:NYSE) has outperformed the sector's broader measure. Yet, instead of viewing that as a challenge, Raiman thinks the present environment is a unique opportunity. While the "topsy-turvy returns in 2001 have gone against this thesis, that creates some interesting trading opportunities," he says. "It is just those companies that should produce the most robust cash flow growth and dividend growth for shareholders. We believe it is only a matter of time before dividend-pop REITs once again rise to their rightful place at the top of the REIT index averages." One valuable addition to this year's research is analysis of the likely timing of the dividend increase. Raiman and his research team reviewed the timing of dividend increases for each of the companies on the dividend-pop list. Given that REITs often see their shares trade higher when they announce a dividend increase, Raiman has identified, where possible, the quarter in which each REIT on the list has traditionally announced a dividend increase. For traders, that data may be helpful. "Those interested in creating short-term trading ideas off this investment thesis should note that Duke Realty (DRE:NYSE), Equity Office Properties (EOP:NYSE) and Liberty Property Trust (LRY:NYSE) could pop their dividend within the next 90 days," Raiman notes. (Late last week, Equity Office announced an 11% increase in its quarterly dividend, providing support for Raiman's thesis that REITs tend to make dividend decisions at the same time each year.) While REIT performance can be measured in a number of other important ways, Raiman finds a strong relationship between dividend growth and performance. "A strong correlation exists between total return performance and high dividend growth," he says. "The sectors and companies that generate the highest dividend growth will continue to outperform the overall REIT industry."