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Strategies & Market Trends : REITS - Buying 1 - 2 weeks before going ex-dividend -- Ignore unavailable to you. Want to Upgrade?

To: Richard Barron who wrote (2484)	12/4/2003 12:40:22 AM
From: James Kibler	Respond to of 2561

Rich.............just ran across this ............ Office REITs Are Most At Risk Of Div Cuts In Next Year 12-03-03 12:09 PM EST NEW YORK (Dow Jones)--Real estate investment trust investors and analysts are abuzz these days, and their conversations have them sounding like Sir Laurence Olivier in the 1970s paranoid thriller "Marathon Man." Is it safe? The "it" in this case is the dividend, which turns out not to be safe at a number of REITs. And many believe more dividend payouts will be slashed over the next year or two, particularly among office REITs. Indeed, falling rents and occupancies continue to plague the real-estate world as job growth and the economic recovery have been slower than expected. The weaker rents and occupancies have led to lower cash flows, causing some REITs to struggle to pay their dividends. To date, apartment REITs have been hit hardest as a flurry of companies, such as Apartment Investment & Management Co.(NYSE:AIV) (AIV), Post Properties Inc.(NYSE:PPS) (PPS), and Summit Properties Inc.(NYSE:SMT) (SMT) have all trimmed their dividends, analysts noted. However, many now believe this sector has bottomed, and that office REITs are most vulnerable now. Highwood Properties Inc. (HIW), a Raleigh, N.C., office REIT, slashed its dividend by 27% earlier this year. And many analysts and investors expect it won't be the last one. Some companies "have not earned their dividend by a long shot for quite some time," said Bob Steers, co-portfolio manager at Cohen & Steers Capital Management Inc. But many have been able to offset the cash-flow shortfall by selling off noncore properties or by borrowing money. But for how long? Steers admits his firm sold off shares in REITs it considered most vulnerable to a dividend cut, such as Apartment Investment & Management Co.(NYSE:AIV) and Post Properties. The fund manager names Crescent Real Estate Equities Co.(NYSE:CEI) (CEI), Reckson Associates Realty Corp.(NYSE:RA) (RA), and Arden Realty Group Inc.(NYSE:ARI) (ARI) as among the REITs most at risk of dividend cuts over the next year. Still, Steers said he also considers valuation and company fundamentals when making investment decisions. Although Arden has a high payout ratio - which means its cash flow falls short of the amount needed to cover its dividend - its valuation is low and its growth prospects are high, making it attractive, he said. Arden focuses on the southern California market, where occupancies and cash flow are on the upswing, he noted. Deutsche Bank analyst Louis Taylor names office REITs - Arden, Reckson and Equity Office Properties Trust(NYSE:EOP) (EOP) - as well as industrial REIT, First Industrial Realty Trust Inc.(NYSE:FR) (FR), as the ones most at risk of a dividend cut. During a conference call last month, Equity Office Chief Executive Richard Kincaid indicated that his company would likely face a cash-flow shortfall of $ 100 million to $150 million at year's end. However, he said the company will have enough liquidity from property sales to pay its dividend. "(Equity Office Chairman) Sam Zell has said he considers the dividend to be a fixed cost" and has vowed to continue funding it through other avenues, said Taylor. Still, to reflect the dividend risk, Taylor rates Equity Office, Arden and Reckson at hold, and First Industrial at sell. Taylor doesn't hold shares in these companies, but his firm has an investment-banking relationship with First Industrial and Reckson. Cobblestone Research LLC analyst Paul Adornato names Great Lakes REIT (GL), Glenborough Realty Trust (GLB), Arden, Kilroy Realty Corp.(NYSE:KRC) (KRC), Koger Equity Inc.(NYSE:KE) (KE) and Reckson as those most at risk of a dividend cut. -By Janet Morrissey, Dow Jones Newswires; 201-938-2118 Dow Jones Newswires 12-03-03 1209ET Copyright (C) 2003 Dow Jones & Company, Inc. All Rights Reserved. Copyright 2002 Dow Jones & Co., Inc.

To: Richard Barron who wrote (2484)	12/9/2003 12:06:59 PM
From: gregor	Read Replies (1) \| Respond to of 2561

Dear Richard. I read a recent article in Business Week that stated something that goes against all that a rational person would think. The premise begins with productivity rates that are acceleratiing. I know in the past quarter that productivity increased over 9% in the last quarter over the year before quarter. My first observation is that the 9% number is higher than I can ever remember, and that is not saying that my memory is perfect by a longshot. My rational mind thinks that with productivity increasing by that amount that there will be a lot of goods available at lower prices thus keeping pricing power very low. I know that raw materials have been increasing in price but I know that in general labor is more of a cost component than raw materials so 9% would have to outpace labor and raw materials. You would have to conclude that this much of an increase in productivity would have to have a lowering effect on interest rates since there would have to be less of a demand for capital goods since manufacturers would have to be bringing more goods to the markets at lower prices...or so I thought...but this is what really happens according to the article. When there is this much of an increase in productivity it always signals the earlier stages of a strong recovery. Business and manufacturing will wait until the last moments to hire new workers and will be working existing workers to the bone and until over time is kicking in. The result is an increase in productivity. Not only that but higher cost producers will notice that competitors will be producing lower and lower cost goods and they will come to the conclusion that the only way that they will be able to stay competitive is for them to reinvest in new equipment to lower thier costs of production and to increase their productivity to the levels of the competition. This last minute rush on capital goods is what eventually will bring on the increase in interest rates through loan demand. The conclusion that the writer made was that the 10 year bond will hit 7.5% in the current cycle up significanlty from the present 4.3% level. When asked what level of inflation this would translate into the writer stated that he saw no more than 2.5% inflation. This floored me since one would assume that the ten year bond would trade at no more than three points over the level of inflation which would translate to 5.5%. The conclusion reached was the level of equilibruim the level of interest rates would need to reach balances loan demand and the level of supply. You have previously stated that higher interest rates accompanied with higher inflation is not necessarily negative for reits since higher inflation would give reits the pricing power to raise rents. Richard. If this writer is correct in his assumption that inflation will only reach 2.5% and the long bond or the ten year would reach 7.5% then I can only see very negative implications for this sector. 2.5% inflation is not very high in my opinion and will not leave much room to raise rents. Today there is talk of demand already slowing down and some sectors already cutting dividends. If so what will follow? I for one do not feel the outlook is very good. We are already reinvesting our dividends in other areas and selling off some of our holdings.....what do you think and comments. Gregor