Hey, boys and girls, it’s time for Uncle K explains the rules. (Sorry, got Uncle Jay on the brain.) Of course, what I really mean is, it’s time for the "Bluest of the Blue" (aka "Blue List", BofB, BoB) discussion. This post contains the "official" rules, followed by our current, 2009 "Blue List", including the 18 Bluest of the Blue.

Below are the current rules. Nominations will be open through the end of February.

Purpose:
The purpose of this exercise is two-fold (in order of importance):
1. To facilitate discussion of REITs by disseminating facts and opinions on individual REITs.
2. To create a list of Blue Chip REITs for others to consider for their own investigation.

Method:
1. All discussion takes place on this thread. Please try to keep the thread clear of off-topic posts.
2. All valid nominations will be voted upon once voting starts. To be valid, a nomination must follow the rules shown below.
3. Once voting begins, there will be a separate poll for each validly nominated REIT. The choices for each REIT will be:

     One of the Bluest of the Blue
     A Blue Chip, but not quite one of the Bluest
     Not a Blue Chip

Rules:
1. Remember, this is still the “Bluest of the Blue” discussion. All nominations should be made with the Bluest of the Blue Criteria in mind:
http://boards.fool.com/Message.asp?mid=20237736

2. Nominations do not need to be Reitnut-like in quality or length (of course, the more in-depth a job you can do, the more likely it is you will convince people of your opinions). However, nominations will not be considered valid unless some supporting information is given (preferably, based on the above B of B criteria). Simply naming a REIT for inclusion with no supporting evidence is not acceptable. (A chart of past performance by itself is not considered supporting evidence.)

2a.There is no need for nominations to be "seconded". That doesn't mean that you can't support a nomination. In fact, that's strongly encouraged. But please do not create a post that says only "I second the nomination of ...". If you want to let everyone know that you support a nomination, please add something to the discussion. It doesn't have to be a lot, but it really should be a little more than "I agree".

3. REITs are nominated for “Bluest of the Blue” status. If a REIT does not get enough “Bluest” votes to make the top 20, it may still be part of the list, as follows:

3a. If a REIT receives more than a 50% “Bluest” vote (but not enough to qualify for the list due to available space), it will be part of the “Bluest of the Blue” list as an “ Honorable Mention“.

3b. If a REIT receives more than a 50% combined vote of “Bluest" + “A Blue Chip" (but less than a 51% "Bluest" vote), it will be part of the “Blue List” (but not a “Bluest of the Blue”).

3c. In the event that 2 or more REITs tie for the 20th “Bluest” position, the one with the most “Bluest” votes wins. If 2 or more REITs are still tied, they will all be awarded “Bluest” status.

4 A REIT must receive more than a 50% “Bluest” vote in order to be included as one of the “Bluest of the Blue”. If not enough REITs pass this hurdle, the list may have fewer than 20 entries.

Ken


Here’s the current Blue List:

Apartments
* AVB AvalonBay                      (*B of B) S&P 500
* EQR Equity Residential             (*B of B) S&P 500
  HME Home Properties                          S&P 600
  UDR UDR                                      S&P 400

Manufactured Housing
  ELS Equity Lifestyle Properties

Shopping Centers
  AKR Acadia Realty                            S&P 600
* FRT Federal Realty                 (*B of B) S&P 400
* KIM Kimco                          (*B of B) S&P 500
* REG Regency                        (*B of B) S&P 400
* SKT Tanger Factory Outlet Centers  (*B of B) S&P 600
  WRI Weingarten                               S&P 400 

Malls
  MAC Macerich                                 S&P 400
* SPG Simon                          (*B of B) S&P 500
  TCO Taubman Centers                                  

Office
* BXP Boston                         (*B of B) S&P 500
  OFC Corporate Office                         S&P 400
  SLG SL Green                                 S&P 400

Industrial
  AMB AMB                                      S&P 400

Office/Industrial
  DLR Digital Realty
* DRE Duke                           (*B of B) S&P 400
  OFC Corporate Office Properties
  PSB PS Business Parks                        S&P 600

Self Storage
* PSA Public Storage                 (*B of B) S&P 500

Healthcare & Net Lease
* HCN Health Care REIT               (*B of B) S&P 500
* HCP HCP, Inc                       (*B of B) S&P 500
* NHP Nationwide Health Properties   (*B of B) S&P 400
*   O Realty Income                  (*B of B) S&P 400
* VTR Ventas                         (*B of B) S&P 500

Diversified
* CUZ Cousins                        (*B of B) S&P 400
* VNO Vornado                        (*B of B) S&P 500
* WRE Washington Real Estate         (*B of B)

Hotels
  (None)

Others
  (None)

Hey Ken !

Is there a place for mREITs or financial REITs anywhere on the list? Maybe in "other"?

Thanx,
Rich (haywool)

Is there a place for mREITs or financial REITs anywhere on the list? Maybe in "other???????>>>>>> Rich, do you hve one that won't cause an anginal attack in Grandma?

missash

What about Annaly? We don't own any, but it certainly has performed well so far.

brucedoe

Hi, Rich,

Is there a place for mREITs or financial REITs anywhere on the list? Maybe in "other"?

"Other" would definitely fit.

Ken

I don't know how we can keep KIM as one of the BofB's. At the beginning of 2007 it was $50/sh. then it slowly decline until September of 2008 when it was in the high $30s/sh. Then the drop came to less than $10/sh. Yes it has bounce back to something over $13/sh, but is that a stock for Grandma? They also dropped their dividend. I hope Grandma was dependent on that dividend.

Are the prospects of KIM common really good for 2010?

As a hedge against recessions, I say it has been lousy.

Now if Grandma was in KIM-G, she is doing all right with dividends and the preferred is selling at or near par. Maybe the preferred is worth BofB, but not the common, in my viewpoint.

brucedoe

Bruce, I agree with you on KIM; despite their excellent growth history and their much admired CEO, they were clearly over leveraged and paid a great price for that......I wonder if we should look at those companies that maintained their dividend, whether it be in all cash or a combination of cash and stock, as we construct a new "Blue" list. Seems like a decent starting point to me. We had a thread on this awhile back; can anyone find it?

Both Brucedoe and Missash have suggested the elimination of KIM from the Blue list - while Missash has added that we look at all companies and their dividend histories.

I would note that - at least - KIM is paying a better div now than it did in 2000. Both REG and WRI are paying a smaller div than in 2000.

I am letting the bond market with both its pricing and ratings inform me on my selection of equities. KIM is rated by S&P as a BBB+ while both REG and WRI are BBB. The liquidity in the bond market is poor - so pricing can [and often does] send incorrect signals. I try to gather data on bonds that are close to 10 years from maturity to compare apples to apples. As of 10-15-10:

KIM bond maturing in 2019 was trading at a yield of 6.081%
REG bond maturing in 2017 was trading at a yield of 6.782%
WRI bond maturing in 2016 was trading at a yield of 6.397%

note - in the data in the spreadsheets below, I am using a bond with a much longer maturity for REG - and it is lower in yield than the KIM bond.

For preferred stocks [which also somewhat suffers in liquidity - but is more liquid than bonds] WRI has the smaller yield, followed by KIM and then REG.

Finally, looking at the dividend/FFO ratio as a measure of safety, the safest is WRI followed by REG and then KIM.

The data:

  Share Price    		Div/	  YTD Percent Change  
Co	1-01	01-15	Yield	FFO	Price	Pr+Div	10 FFO
AKR	16.87	17.14	4.20	68.57	1.60	2.67	0.00
BFS	32.76	33.83	4.26	57.83	3.27	3.27	0.00
CDR	6.80	7.28	0.00	0.00	7.06	7.06	0.00
DDR	9.26	9.23	0.87	7.02	-0.32	-0.11	0.00
EPR	35.27	35.69	7.28	74.29	1.19	3.03	0.00
EQY	16.17	17.54	6.84	109.09	8.47	8.47	0.00
FRT	67.72	67.59	3.85	67.89	-0.19	-0.19	0.00
GTY	23.53	23.20	8.19	100.53	-1.40	0.62	0.00
IRC	8.15	8.82	6.46	65.52	8.22	8.22	0.00
KIM	13.53	13.62	7.34	84.75	0.67	2.51	0.00
KRG	4.07	4.20	5.71	51.06	3.19	4.67	0.00
O	25.91	27.49	6.23	91.08	6.10	6.65	0.00
REG	35.06	36.43	5.08	82.59	3.91	3.91	0.00
RPT	9.54	9.30	7.02	49.08	-2.52	-0.81	0.00
WRI	19.79	20.61	4.85	59.88	4.14	4.14	0.00
Non-Mall Average	5.21	103.64	2.89	3.61	0.00
Mall	
CBL	9.67	10.38	1.93	10.75	7.34	7.86	0.00
FMP	0.15	0.10	0.00	0.00	-33.33	-33.33	0.00
GGP	11.56	10.98	0.00	0.00	-5.02	-5.02	0.00
GRT	2.70	3.45	11.59	21.39	27.78	31.48	0.00
MAC	35.95	32.78	7.32	77.17	-8.82	-8.82	0.00
PEI	8.46	9.91	6.05	29.27	17.14	17.14	0.00
SPG	79.80	74.89	3.20	43.09	-6.15	-6.15	0.00
TCO	35.91	33.98	4.89	62.88	-5.37	-5.37	0.00
Mall Average		4.66	46.41	129.09	129.74	-37.23
Average			4.92	83.29	1.61	2.26	0

Retail Price/FFO Ratios 01-15
	                 FFO / Share                   	FFO Growth 	 Price/FFO 
Co.	2006	2007	2008	2009	2010	08-09	09-10	2009	2010
AKR	119	130	116	125	105 	7.76% 	-16.0% 	13.71 	16.32
BFS	257	275	268	240	249 	-10.4% 	3.75% 	14.10 	13.59
CDR	121	122	24	7	12 	-70.8% 	71.43% 	104.00 	60.67
DDR	341	379	152	10	114 	-93.4% 	1040% 	92.30 	8.10
EPR	374	418	457	50	350 	-89.1% 	600.0% 	71.38 	10.20
EQY	148	134	81	169	110 	108.6% 	-34.9% 	10.38 	15.95
FRT	326	363	387	342	383 	-11.6% 	11.99% 	19.76 	17.65
GTY	198	194	200	200	189 	0.00% 	-5.50% 	11.60 	12.28
IRC	133	143	133	87	87 	-34.6% 	0.00% 	10.14 	10.14
KIM	221	259	202	81	118 	-59.9% 	45.68% 	16.81 	11.54
KRG	116	126	117	48	47 	-58.9% 	-2.08% 	8.75 	8.94
O	172	189	183	184	188 	0.55% 	2.17% 	14.94 	14.62
REG	388	420	375	105	224 	-72.0% 	113.3% 	34.70 	16.26
RPT	254	256	221	183	133 	-17.2% 	-27.3% 	5.08 	6.99
WRI	283	306	244	196	167 	-19.7% 	-14.8% 	10.52 	12.34
Retail Average -				-28.05	105.16	29.21	15.7
Malls	
CBL	339	310	322	238	186 	-26.1% 	-21.8% 	4.36 	5.58
FMP	83	80	5	5	5 	0.00% 	0.00% 	2.00 	2.00
GGP	306	371	272	54	205 	-80.1% 	279.6% 	20.33 	5.36
GRT	117	137	204	155	187 	-24.0% 	20.65% 	2.23 	1.84
MAC	435	462	550	372	311 	-32.4% 	-16.4% 	8.81 	10.54
PEI	362	390	357	323	205 	-9.52% 	-36.5% 	3.07 	4.83
SPG	539	590	642	547	557 	-14.8% 	1.83% 	13.69 	13.45
TCO	256	288	154	83	264 	-46.1% 	218.1% 	40.94 	12.87
Mall Average	--------			-25.87	58.41	11.13	6.11
Sector Average	--------			-28.43	97.09	23.2	12.7


Dividend History [based on Q4 Dividends]
	                             Dividend/Share/Quarter                             
Co.	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
AKR	12.0	12.0	13.0	16.0	17.3	18.5	20.0	20.0	21.0	18.0
BFS	39.0	39.0	39.0	39.0	39.0	42.0	42.0	47.0	47.0	36.0
CDR	0.0	0.0	0.0	0.0	22.5	22.5	22.5	22.5	22.5	0.0
DDR	36.0	37.0	38.0	46.0	51.0	54.0	59.0	66.0	37.5	2.0
EPR	44.0	45.0	47.5	50.0	56.3	62.5	68.8	76.0	84.0	65.0
EQY	26.0	27.0	27.0	28.0	29.0	30.0	30.0	30.0	30.0	30.0
FRT	47.0	48.0	48.5	49.0	50.5	55.5	57.5	61.0	65.0	65.0
GTY	15.0	41.3	41.3	41.9	42.5	44.5	45.5	45.5	46.5	47.5
IRC	0.0	0.0	0.0	0.0	8.0	8.0	8.0	8.2	8.2	4.8
KIM	24.0	26.0	27.0	28.5	30.5	33.0	36.0	40.0	44.0	25.0
KRG	0.0	0.0	0.0	0.0	18.8	18.8	19.5	20.5	20.5	6.0
O	9.2	9.4	9.7	9.9	10.9	11.7	12.6	13.6	14.1	14.3
REG	48.0	50.0	51.0	52.0	53.0	55.0	59.5	66.0	72.5	46.3
RPT	42.0	42.0	42.0	42.0	42.0	43.8	44.8	46.3	46.3	16.3
WRI	33.3	35.1	37.0	39.0	41.5	44.0	46.5	49.5	52.5	25.0
CBL	25.5	26.7	32.8	36.3	40.6	45.8	50.5	54.5	37.0	5.0
FMP	0.0	0.0	0.0	0.0	0.0	22.8	22.8	0.0	0.0	0.0
GGP	17.0	21.7	24.0	30.0	36.0	41.0	45.0	50.0	0.0	0.0
GRT	48.1	48.1	48.0	48.0	48.1	48.1	48.1	48.1	32.0	10.0
MAC	53.0	55.0	55.0	61.0	65.0	68.0	71.0	80.0	80.0	60.0
PEI	51.0	50.0	51.0	51.0	54.0	57.0	57.0	57.0	57.0	15.0
SPG	50.5	52.5	55.0	60.0	65.0	70.0	76.0	84.0	90.0	60.0
TCO	25.5	25.5	26.0	27.0	28.5	30.5	30.5	37.5	41.5	41.5


Retail/Mall REIT Bonds 1-01-10
Comp	CUSIP --	Coupon	Current	Calc	FINRA	Maturity
---------------			Price	yield	yield	Date
DDR	25159NAW5	7.5000	86.00	8.7209%	9.9650%	07-15-18
DDR	251591AT0	9.6250	104.37	9.2217%	8.4610%	03-15-16
EQY	294752AF7	6.0000	98.55	6.0883%	6.2370%	09-15-17
EQY	294752AD2	6.2500	81.74	7.6459%	9.7200%	01-15-17
FRT	313747AN7	6.2000	100.50	6.1688%	6.1100%	01-15-17
FRT	313747AL1	5.6500	96.80	5.8367%	6.6200%	06-01-16
KIM	49446RAJ8	6.0000	104.42	5.7463%	6.3900%	10-01-19
KIM	49446QBC4	5.3500	101.00	5.2970%	4.5670%	06-15-17
REG	75884RAQ6	5.8750	97.85	6.0041%	6.2380%	02-25-28
WRI	94874RCQ7	5.5420	95.25	5.8184%	6.3970%	12-15-16
SPG	828807BZ9	7.3750	102.25	7.2127%	5.7300%	05-30-18
SPG	828783AT7	6.1250	107.89	5.6773%	6.1670%	05-15-18
SPG	828807CA3	10.3500	125.90	8.2208%	6.3000%	06-15-18
--------				6.7430%	6.8386%

Note that the calculated yield is not the yield to maturity - it does not capture the discount or premium being paid when purchase price is significantly different than the par price. The FINRA yield is adjusted to capture at least some of the difference from par price.

Retail/Mall REIT Preferred Stocks 1-15-10
Comp	Div	Current	Yield	Yield	Call	Cap Gain
		Price		@ Par	Date	Potential
BFS pA	2.0000	24.04	8.3195	8.0000	11-05-08	3.99%
BFS pB	2.2500	25.74	8.7413	9.0000	07-15-13	-2.87%
CBL pC	1.9325	20.70	9.3357	7.7300	08-28-08	20.77%
CBL pD	1.8437	20.08	9.1818	7.3748	08-05-08	24.50%
CDR pA	2.2187	24.25	9.1493	8.8748	08-22-08	3.09%
DDR pG	2.0000	20.25	9.8765	8.0000	08-02-08	23.46%
DDR pH	1.8437	18.54	9.9444	7.3748	07-28-08	34.84%
DDR pI	1.8750	18.89	9.9259	7.5000	05-07-09	32.35%
EPR pB	1.9375	21.64	8.9533	7.7500	04-01-08	15.53%
EPR pC	1.4375	16.95	8.4808	5.7500	04-01-08	47.49%
EPR pD	1.8437	20.58	8.9587	7.3748	05-25-12	21.48%
EPR pE	2.2500	24.95	9.0180	9.0000	01-01-01	0.20%
GRT pF	2.1875	19.04	11.4890	8.7500	08-25-08	31.30%
GRT pG	2.0312	17.56	11.5672	8.1248	02-23-09	42.37%
KIM pF	1.6625	21.74	7.6472	6.6500	06-05-08	15.00%
KIM pG	1.9375	24.55	7.8921	7.7500	10-10-12	1.83%
LXP pB	2.0125	21.83	9.2190	8.0500	12-08-09	14.52%
LXP pC	3.2500	34.84	9.3284	6.5000	12-18-08	43.51%
LXP pD	1.8875	19.60	9.6301	7.5500	12-18-08	27.55%
NNN pC	1.8437	24.50	7.5253	7.3748	07-20-11	2.04%
O pD	1.8437	25.12	7.3396	7.3748	06-27-08	-0.48%
O pE	1.6875	23.75	7.1053	6.7500	05-02-10	5.26%
REG pC	1.8625	23.60	7.8919	7.4500	04-03-08	5.93%
REG pD	1.8125	23.22	7.8058	7.2500	08-31-09	7.67%
REG pE	1.6750	21.58	7.7618	6.7000	08-02-10	15.85%
SPG pD	3.0000	65.08	4.6097	6.0000	01-01-01	-23.17%
SPG pJ	4.1875	60.00	6.9792	8.3750	10-15-27	-16.67%
TCO pG	2.0000	24.61	8.1268	8.0000	11-23-09	1.58%
TCO pH	1.9062	23.60	8.0771	7.6248	07-10-10	5.93%
WRI pD	1.6875	22.44	7.5201	6.7500	04-30-08	11.41%
WRI pE	1.7375	22.40	7.7567	6.9500	07-08-09	11.61%
WRI pF	1.6250	21.40	7.5935	6.5000	01-30-12	16.82%
			8.5235%	7.5064%

Preferred YTD Price and Yield Changes
Comp	Current	Yield	12-31-9	Yield	% Price
	Price		Price		Change
BFS pA	24.04	8.3195	24.05	8.3160	-0.04
BFS pB	25.74	8.7413	25.23	8.9180	2.02
CBL pC	20.70	9.3357	20.40	9.4730	1.47
CBL pD	20.08	9.1818	19.31	9.5479	3.99
CDR pA	24.25	9.1493	23.96	9.2600	1.21
DDR pG	20.25	9.8765	20.00	10.0000	1.25
DDR pH	18.54	9.9444	18.55	9.9391	-0.05
DDR pI	18.89	9.9259	18.61	10.0752	1.50
EPR pB	21.64	8.9533	21.65	8.9492	-0.05
EPR pC	16.95	8.4808	16.55	8.6858	2.42
EPR pD	20.58	8.9587	20.30	9.0823	1.38
EPR pE	24.95	9.0180	24.87	9.0470	0.32
GRT pF	19.04	11.4890	18.56	11.7861	2.59
GRT pG	17.56	11.5672	17.30	11.7410	1.50
KIM pF	21.74	7.6472	22.21	7.4854	-2.12
KIM pG	24.55	7.8921	24.55	7.8921	0.00
LXP pB	21.83	9.2190	20.76	9.6941	5.15
LXP pC	34.84	9.3284	33.97	9.5673	2.56
LXP pD	19.60	9.6301	18.24	10.3481	7.46
NNN pC	24.50	7.5253	24.06	7.6629	1.83
O pD	25.12	7.3396	25.10	7.3454	0.08
O pE	23.75	7.1053	23.88	7.0666	-0.54
REG pC	23.60	7.8919	23.42	7.9526	0.77
REG pD	23.22	7.8058	23.01	7.8770	0.91
REG pE	21.58	7.7618	21.77	7.6941	-0.87
SPG pD	65.08	4.6097	68.00	4.4118	-4.29
SPG pJ	60.00	6.9792	62.00	6.7540	-3.23
TCO pG	24.61	8.1268	24.50	8.1633	0.45
TCO pH	23.60	8.0771	23.80	8.0092	-0.84
WRI pD	22.44	7.5201	21.49	7.8525	4.42
WRI pE	22.40	7.7567	21.42	8.1116	4.58
WRI pF	21.40	7.5935	20.75	7.8313	3.13

Preferred to Common Yield Spreads
Pref	Yield	Common	Spread
		Yield	
BFS pA	8.32	4.26	4.06
BFS pB	8.74	4.26	4.48
CBL pC	9.34	1.93	7.41
CBL pD	9.18	1.93	7.25
CDR pA	9.15	1.93	7.22
DDR pG	9.88	0.87	9.01
DDR pH	9.94	0.87	9.08
DDR pI	9.93	0.87	9.06
EPR pB	8.95	7.28	1.67
EPR pC	8.48	7.28	1.20
EPR pD	8.96	7.28	1.67
EPR pE	9.02	7.28	1.73
GRT pF	11.49	11.59	-0.11
GRT pG	11.57	11.59	-0.03
KIM pF	7.65	7.34	0.31
KIM pG	7.89	7.34	0.55
O pD	7.34	6.23	1.11
O pE	7.11	6.23	0.88
REG pC	7.89	5.08	2.81
REG pD	7.81	5.08	2.73
REG pE	7.76	5.08	2.68
SPG pD	4.61	3.20	1.41
SPG pJ	6.98	3.20	3.77
TCO pG	8.13	4.89	3.24
TCO pH	8.08	4.89	3.19
WRI pD	7.52	4.85	2.67
WRI pE	7.76	4.85	2.90
WRI pF	7.59	4.85	2.74

Preferred and Common YTD Price Changes
Pref	12-31-9	Current	Change	12-31-9	Current	Change
	Price	Price		Common	Common
BFS pA	24.05	24.04	-0.04	32.76	33.83	3.27
BFS pB	25.23	25.74	2.02	32.76	33.83	3.27
CBL pC	20.40	20.70	1.47	9.67	10.38	7.34
CBL pD	19.31	20.08	3.99	9.67	10.38	7.34
CDR pA	23.96	24.25	1.21	9.67	10.38	7.34
DDR pG	20.00	20.25	1.25	9.26	9.23	-0.32
DDR pH	18.55	18.54	-0.05	9.26	9.23	-0.32
DDR pI	18.61	18.89	1.50	9.26	9.23	-0.32
EPR pB	21.65	21.64	-0.05	35.27	35.69	1.19
EPR pC	16.55	16.95	2.42	35.27	35.69	1.19
EPR pD	20.30	20.58	1.38	35.27	35.69	1.19
EPR pE	24.87	24.95	0.32	35.27	35.69	1.19
GRT pF	18.56	19.04	2.59	2.70	3.45	27.78
GRT pG	17.30	17.56	1.50	2.70	3.45	27.78
KIM pF	22.21	21.74	-2.12	13.53	13.62	0.67
KIM pG	24.55	24.55	0.00	13.53	13.62	0.67
O pD	25.10	25.12	0.08	23.15	27.49	6.10
O pE	23.88	23.75	-0.54	23.15	27.49	6.10
REG pC	23.42	23.60	0.77	46.70	36.43	3.91
REG pD	23.01	23.22	0.91	46.70	36.43	3.91
REG pE	21.77	21.58	-0.87	46.70	36.43	3.91
SPG pD	68.00	65.08	-4.29	53.13	74.89	-6.15
SPG pJ	62.00	60.00	-3.23	53.13	74.89	-6.15
TCO pG	24.50	24.61	0.45	25.46	33.98	-5.37
TCO pH	23.80	23.60	-0.84	25.46	33.98	-5.37
WRI pD	21.49	22.44	4.42	20.69	20.61	4.14
WRI pE	21.42	22.40	4.58	20.69	20.61	4.14
WRI pF	20.75	21.40	3.13	20.69	20.61	4.14

CUZ should be dropped from the B of B list, Its quartrly dividend has dropped from 37 cents in Aug 08 to 3 cents in Oct 09, and 9 cents for the current quarter. Hardy the kind of stock for grandma!

Don

The following dividend info is from yahoo. Yahoo is not always the most reliable, so corrections and refinements welcome.

My feeling is that if the company cut their dividend, they no longer belong as a bluest of blue (*B of B). In my book they could still be a blue. Just my opinion.

Lee (meanderingMecan)

Apartments                                     Dividend Cut?
* AVB AvalonBay                      (*B of B) no cut
* EQR Equity Residential             (*B of B) cut .483 to .338
  HME Home Properties                          no cut
  UDR UDR                                      cut .33 to .18

Manufactured Housing
  ELS Equity Lifestyle Properties              no cut

Shopping Centers
  AKR Acadia Realty                            cut .21 to .18
* FRT Federal Realty                 (*B of B) no cut
* KIM Kimco                          (*B of B) cut .44 to .06 to .16
* REG Regency                        (*B of B) cut .725 to .463
* SKT Tanger Factory Outlet Centers  (*B of B) no cut
  WRI Weingarten                               cut .525 to .25 

Malls
  MAC Macerich                                 cut .80 to .06 to .56
* SPG Simon                          (*B of B) cut .90 to .60 to .12
  TCO Taubman Centers                          no cut      

Office
* BXP Boston                         (*B of B) cut .68 to .50
  OFC Corporate Office                         no cut
  SLG SL Green                                 cut .788 to .375 to .10

Industrial
  AMB AMB                                      cut .52 to .28


Office/Industrial
  DLR Digital Realty                           no cut
* DRE Duke                           (*B of B) cut .485 to .25 to .17
  OFC Corporate Office Properties              no cut
  PSB PS Business Parks                        no cut


Self Storage
* PSA Public Storage                 (*B of B) no cut

Healthcare & Net Lease
* HCN Health Care REIT               (*B of B) no cut
* HCP HCP, Inc                       (*B of B) no cut
* NHP Nationwide Health Properties   (*B of B) no cut
*   O Realty Income                  (*B of B) no cut
* VTR Ventas                         (*B of B) no cut

Diversified
* CUZ Cousins                        (*B of B) cut .37 to .25 to .15 to .03
* VNO Vornado                        (*B of B) cut .95 to .375 to .378
* WRE Washington Real Estate         (*B of B) no cut

Hotels
  (None)

Others
  (None)

I hate dividend cuts as much as the next person. But I don't believe that simply because a REIT cut their dividend during this extraordinary period it should not be a Bluest of the Blue.

Indeed, I think for some REITs, a dividend cut was the prudent and Blue thing to do.

We are now in a different world, one in which high leverage is frowned upon. It always has been to some extent, of course, but the acceptable amount (i.e., the definition of "high") has come down quite a bit.

Of course I think we should punish those REITs that imprudently managed their balance sheet. But I don't think a dividend cut is necessarily the only (or even right) measure to use. Hopefully someone who knows more than I do has a superior substitute.

Ken

Ken wrote:
<<I hate dividend cuts as much as the next person. But I don't believe that simply because a REIT cut their dividend during this extraordinary period it should not be a Bluest of the Blue.

Indeed, I think for some REITs, a dividend cut was the prudent and Blue thing to do.

We are now in a different world, one in which high leverage is frowned upon. It always has been to some extent, of course, but the acceptable amount (i.e., the definition of "high") has come down quite a bit.

Of course I think we should punish those REITs that imprudently managed their balance sheet. But I don't think a dividend cut is necessarily the only (or even right) measure to use. Hopefully someone who knows more than I do has a superior substitute.
>>

I believe it is possible to make a case that a few of the reits that cut their dividends, did so out of prudence rather than need – perhaps BXP, SPG, VNO. However, if they have an ongoing policy of maintaining their dividend, then shouldn’t they be reinstating their dividend to pre-cut levels now that the credit markets have thawed? I question their commitment to the dividend maintenance policy when they leave the dividend cut in place, when there is no longer a crisis.

Quite a few of our blue list companies managed to make it through the crisis without cutting their dividend. The B* of B is intended to be those companies that BEST match our selection criteria – one of which is maintenance of the dividend. I would like to see all of the dividend cutters removed from the B* of B. Those that subsequently restore their dividend, can be reinstated at the next opportunity.

Just my opinion,

Lee (MeanderingMecan)

Maybe there are NO "blue" Reits, only black and blue Reits....? On the other hand, did ANY reit management team foresee and prepare for the seizing up and freezing of the credit markets?

Probably no one foresaw the credit market freeze. But i would think it's an excellent thing to use as a filter to gauge how well a company was run to start with. I think along these lines with my pfds considering the recent events as "fire testing". It is not over by any means but some companies should carry the "fire tested" label. DLR? SKT? O perhaps? NRF is fire tested i think though they did cut divs. Don't think they are a blue company by any means but they are working through these times. I'm comfortable holding onto their pfds because of this fire testing thought process.................................Xot

In this unusual economic circumstance, shouldn't the voting on BofB be delayed until after all the candidates report 2009 earnings and complete their conference calls?

I expected high yield for some REITs but slow FFO growth; for others expected lower yield but higher FFO growth (growthie). I don't mind it too much for a growthie (such as VNO and SPG) to cut their dividend; I'm a disappointed with KIM but maybe I should have classified it as a growthie. The bottom line is that in the voting for BoB, I'll forgive the growthies for cutting their dividends but less so for others.

klee12

In this unusual economic circumstance, shouldn't the voting on BofB be delayed until after all the candidates report 2009 earnings and complete their conference calls?

I think last year at this time things were even worse off (at least, we were even more uncertain of how bad it might get). We started the voting last year on March 1.

But we can certainly delay voting if the discussions warrant it.

Ken

Is it permissible for a growthie to be trashed? KIM was certainly trashed and hasn't recovered that much either.

brucedoe

Below I have compiled the ten year total return per year (average)
for each of the companies on our blue list. I got the numbers from
Morningstar. Corrections welcome.

While this metric is only one part in the total picture of a company,
I think most of us would agree it is one of the more important
objective measures.

While ten years is a pretty long period, results vary based not only
on a company’s performance, but on how it’s sector’s space markets
have performed as well as the stock markets’ level of enthusiasm for
the company and sector today and 10 years ago.

I found the underperformance of KIM, WRI, DRE, and CUZ to be notable.

Lee (Meanderingmecan)

 Apartments                                 Ten Year total return (avg)
* AVB AvalonBay                      (*B of B) 12.1 %
* EQR Equity Residential             (*B of B)  9.3
  HME Home Properties                           9.3
  UDR UDR                                      10.6

Manufactured Housing
  ELS Equity Lifestyle Properties              10.1

Shopping Centers
  AKR Acadia Realty                            17.1
* FRT Federal Realty                 (*B of B) 16.1
* KIM Kimco                          (*B of B)  7.9
* REG Regency                        (*B of B) 11.2
* SKT Tanger Factory Outlet Centers  (*B of B) 16.8
  WRI Weingarten                                7.7 

Malls
  MAC Macerich                                 10.1
* SPG Simon                          (*B of B) 15.0
  TCO Taubman Centers                          14.1   

Office
* BXP Boston                         (*B of B) 13.3
  OFC Corporate Office                         20.2
  SLG SL Green                                 12.2

Industrial
  AMB AMB                                       7.5


Office/Industrial
  DLR Digital Realty                           NA
* DRE Duke                           (*B of B)  4.6
  OFC Corporate Office Properties              20.2
  PSB PS Business Parks                        11.1


Self Storage
* PSA Public Storage                 (*B of B) 15.5

Healthcare & Net Lease
* HCN Health Care REIT               (*B of B) 15.2
* HCP HCP, Inc                       (*B of B) 13.8
* NHP Nationwide Health Properties   (*B of B) 13.7
*   O Realty Income                  (*B of B) 14.2
* VTR Ventas                         (*B of B) 30.8

Diversified
* CUZ Cousins                        (*B of B)  3.7
* VNO Vornado                        (*B of B) 12.2
* WRE Washington Real Estate         (*B of B) 10.3

Hotels
  (None)

Others
  (None)

Lee, nice work !!! VTR and OFC have been stand outs.

Another thing that strikes me are the returns of the HC Reits and NNN "O", as compared to the presumed "growthies".....who would have thought the HC guys would outperform the likes of VNO, EQR, etc.?

missash

If anyone thought that HC stocks would outperform, I thought it would be you (or perhaps me). You have been bullish on them all along. Nice work.

brucedoe

Bruce, thank you; I have been singing their praises for quite a while now and have held my core 4 throughout the recent upheaval; I did not realize the degree of outperformance shown by the recent post, except, perhaps, for VTR.....btw, their best days may lie ahead.....8,000 of us turning 60 every day will see to it

My personal opinion is that a dividend cut should perhaps eliminate a REIT from the bluest of the blue, but not disqualify it as a blue-chip REIT. But much depends upon one's definition of "bluest of the blue."

I believe that Boston Properties is one of the very highest quality companies in REITland for lots of reasons, but they have, indeed, cut their dividend. Simon did the same but should, IMO, be similarly regarded - just to name two of them.

If we eliminate from "bluest of the blue" every company that cut the dividend, there are just a few companies left. But, perhaps, that's the way it oughtta be.

Perhaps this ought to be submitted to a vote? (Or, perhaps, we already have and I just haven't gotten that far down in the thread).

Ralph

I would like to nominate the following REITs be removed from the bluest of blue because they have cut their dividend.

Apartments
* EQR Equity Residential (*B of B) cut .483 to .338

Shopping Centers
* KIM Kimco (*B of B) cut .44 to .06 to .16
* REG Regency (*B of B) cut .725 to .463


Malls
* SPG Simon (*B of B) cut .90 to .60 to .12 to .60


Office
* BXP Boston (*B of B) cut .68 to .50

Office/Industrial
* DRE Duke (*B of B) cut .485 to .25 to .17

Diversified
* CUZ Cousins (*B of B) cut .37 to .25 to .15 to .03
* VNO Vornado (*B of B) cut .95 to .375 to .378

Further, I would like to nominate CUZ and DRE for removal from the blue list because in addition to cutting their dividend, their 10 year total return has seriously lagged their peers.

Lee (MeanderingMecan)

I nominate FRT and WRE to be retained as BofB. With 41 and 38 consecutive years of dividend increases, there must be something good about the management of these and all the other 6 criteria. Granted, WRE (at least) has sometimes resorted to return of capital to provide a dividend, but they do not do it to excess so that it becomes liquidation. I don't know FRT's record because we have never owned any.

I nominate PSA to be retained as BofB because they are not beholden to the credit industry, though they have a heavy load of preferred stocks they must feed. Still they are masters of their fait.

I don't know if any real estate companies are suitable for grandma, but if any are, these are they. They might even be suitable for great grandma, which my wife is.

I believe I was the first to nominate KIM for removal from the BofB because of their poor performance. I don't recall anyone suggesting they were over leveraged a few years ago, but it turns out they were. The management is supposed to be pros, and they did not protect grandma. I do hope their preferred is safe because we have a lot of KIM-G. I recall Jim have a discussion with someone and they agreed that they could see no way KIM couldn't service their preferred stocks. Don't know if he is wavering.

brucedoe

While we're on the subject, I propose we keep the following names on the "Blue" list, as they either maintained or increased their dividends over the last 2+ years: OFC, HCN,HCP,NHP, VTR, HME, ELS, SKT,O,and DLR. I can think of no company that should be added to the list

Bruce and missash, there is no mechanism (or need) to nominate a REIT to remain on the list.

Nominations are made to add or remove a REIT, not to maintain status quo.

However, any discussion is better than no discussion, so forget I wrote this. :-)

Ken

Being a new contributor to the REIT board, I have a simple question. Has anyone done a systematic review of previous Bluest of the Blue picks to see how they perform? Have they done any better than the index, VGSIX? In particular it seems like many of the BoB suffered in the 2008-2009 downturn with both share prices and dividend cuts. This might be fine if the BofB choices had outperformed in earlier years, but if the 2008 underachievers caused a cumulative net under-performance, then it is troubling.

I also understand that one of the main purposes of having the BofB list is to have dialogue on the choices, so that hopefully the collective wisdom is brought to the forefront.

My research time is consumed mostly working on inflation/deflation otherwise I would volunteer to work on BofB cumulative returns if it has not already been done.

Thanks,

Yodaorange

Yoda...........1)re: past performance; Meanderingmecan did an admirable job summarizing this in post #60904.....2) "Have they done any better than the index".....the numbers are there for examination; reviewing the criteria for inclusion on the "blues" list, I come to the conclusion that a Reit need not have outperformed the index.....many or most of the criteria may have been met and, yet, a company may not have outperformed; stuff like quality of management in utilizing capital, maintaining a sterling bal;ance sheet, outstanding corporate governance, with management( and the BOD?) having "skin in the game"......one "criterion", not listed originally, has been "Can Grandma sleep well at night" holding company XYZ? Included here would be items like volatility, consistancy in following their business plan( EPR comes to mind as NOT doing this, sustainability and growth of the dividend to at least equal inflation.....yes, a number of these attributes require a subjective evaluation, but taken as a whole I think can lead to a proper conclusion..........the criteria list is/was an attempt to avoid conclusions like defining "porn" as something you know when you see it.

Hi Missash, I agree that Meanderingmecan did an admirable job in post #60904. I think he listed the 10 year returns for the 2009 BofB list. I should have been more specific when I talked about the BofB historical performance. My assumption is that the BofB list for 2009 is different from 2008 is different from 2007 etc. So what I think would be most valuable would be to score each years BofB list as a 1 year portfolio. Then compare this to each years VGSIX return.

If Meanderingmecan has done a similar analysis for each of the BofB years, then the work is 95% done. All that would be required is to put all of the years together into a single document or post. This will allow a determination of how well the BofB's have done over the longer term.

Thanks,

Yodaorange

Yoda, perhaps I'm misguided, but I don't think anyone had one year returns in mind when the Blues list was first compiled. It was more like "buy it and forgetaboutit", barring any major problems. Perhaps you disagre, but, as I mentioned, I don't think a "Blue" has to be an outperformer to be included on the list.

Hi Missash, I understand the the BofB is not intended to be bought and sold every year. It is intended for longer term holding. I picked one year because a new or revised BofB list has been generated each year.

Here is the real question:

If someone had bought the BofB with equal dollar weighting from day one, then sold/bought/rebalanced each year as the list changed, how would they have done compared to VGSIX?

Thanks,

Yodaorange

Yoda wrote:
If someone had bought the BofB with equal dollar weighting from day one, then sold/bought/rebalanced each year as the list changed, how would they have done compared to VGSIX?


I think that is an interesting question, but is too big an undertaking
for me. However, I would be willing to look up the 1 year and 10 year
returns, and include VGSIX as a comparison. I will post it on this thread when I get it done.

Lee

Yoda, don't know if your question can be answered, as I don't know if previous years' lists are available. Ken?

I would like to add OFC to that B/B list!

Yoda, don't know if your question can be answered, as I don't know if previous years' lists are available. Ken?

Of course they are. They are listed in the FAQ:

2008: http://boards.fool.com/Message.asp?mid=26457518
2007: http://boards.fool.com/Message.asp?mid=25295035
2006:http://boards.fool.com/Message.asp?mid=23793632
2005: http://boards.fool.com/Message.asp?mid=22166742
2004: http://boards.fool.com/Message.asp?mid=20469052
2003: http://boards.fool.com/Message.asp?mid=18601186
2002: http://boards.fool.com/Message.asp?mid=16676705
2001: http://boards.fool.com/Message.asp?mid=14310199
2000: http://boards.fool.com/Message.asp?mid=12380511

However, as many of the past members no longer exist (e.g., ASN, CRE, EOP come to mind off the top of my head), it would be very difficult to come up with an accurate picture of how the BofB has fared.

While one would hope that the BofB might outperform the index, that never has been one of the criteria for inclusion. I think at one time we had felt that even if they did underperform, they might be more stable (i.e., less volatile) -- but clearly those days are long gone.

I would like to add OFC to that B/B list!

So post your best argument for it, using the criteria listed in the first post of this thread as a guide. :-)

So post your best argument for it'''
*****************
OFC paid a dividend of $1.07 in 2006. In 2007 OFC increased the dividend more than 10% to $1.18, in 2008 OFC increased the dividend to $1.30 and in 2009 OFC increased the dividend again to $1.43!

The average total return over the last 10 years was 19.3% and the total return over the last 5 years was 8.6%.

In 2008 OFC produced a 648% total return for its shareholders over the past decade which was the highest among all equity REITs and far higher than the negative 13% return for the S&P 500 stock index; equally important for the Company's shareholders is its dividend growth of 111% for the 10 year period.

"In 2009 OFC continued to perform well despite an increasingly difficult real estate environment; year to date (Sep 30 09), we had leased over 1.9 million SF of which 1.35 million SF were renewals, 340,000 was retenanting, 177,000 SF was first time lease up of previously acquired space and 79,000 was development space

Company increased cash dividend during the 3rd quarter by 5.4%, one of the few REITs to do so this year; into November 2009, we are experiencing positive total shareholder return for the year of approximately 13%"
http://www.copt.com/web/page/578/sectionid/554/pagelevel/2/p...

Below I have compiled the one, three, five and ten year total return per year (average) for each of the companies on our blue list. I got the numbers from Morningstar. The data reflects prices through 2/8/2010.
I calculated the average total returns over these periods for our current (2009) bluest of the blues (18 REITs) and the blue but not bluest (12 REITs) and compared these returns to those of the Vanguard REIT Index fund (VGSIX).

                                                    Total Return
                                                  1 yr  3 yr 5 yr 10 yr 

  VGSIX Vanguard REIT Index         		  39.4 -17.7  0.5   9.4
  Bluest of the blue (2009)    		          25.2 -12.7  4.7  13.1 
  Blue (but not bluest) (2009)        		  55.3 -15.8  5.2  12.4

This appears to show the desired qualities of less downside risk and superior long term results.

Unfortunately, it appears that in large part, this is the result of the benefits of hindsight rather than wisdom (IMO). In 2009 the changes to the list removed a number of REITs that had already suffered big losses.

When we do the same calculations for the 2008 version of the B of B list (also prices through 2/8/2010), we get these results:

                                                    Total Return
                                                  1 yr  3 yr 5 yr 10 yr 

  VGSIX Vanguard REIT Index         		  39.4 -17.7  0.5   9.4
  Bluest of the blue (2008)        		  85.0 -18.8  1.1  11.5 
  Blue (but not bluest) (2008)        		  59.1 -17.4  1.0  11.5

Note that the downside risk is no better than the index fund, and the long term performance advantage is much reduced. I suspect (but have no proof) the the 5 and 10 year total return advantage may also be caused by changes made to the list over the years.
Disclaimer: None of this is rigorous enough to be considered to be proof of anything.
Corrections and bricks welcome.
Lee (Meanderingmecan)

                                                    Total Return
                                               1 yr  3 yr 5 yr 10 yr 
Apartments                                     
* AVB AvalonBay                      (*B of B) 53.0 -16.5  6.2  12.1 %
* EQR Equity Residential             (*B of B) 47.7 -10.9  5.1   9.1 
  HME Home Properties                          42.0 – 6.7  6.7   9.8
  UDR UDR                                      57.6 -15.8 -0.6  10.9

Manufactured Housing
  ELS Equity Lifestyle Properties              22.3 – 5.4  7.9  10.7

Shopping Centers
  AKR Acadia Realty                            32.9 -12.8  4.3  16.5
* FRT Federal Realty                           27.5 – 9.5  8.8  15.8
* KIM Kimco                          (*B of B)- 0.4 -31.8 -7.1   7.6
* REG Regency                        (*B of B)  3.6 -23.6 -2.1  11.1
* SKT Tanger Factory Outlet Centers  (*B of B) 35.4   0.6 13.6  17.2
  WRI Weingarten                               19.7 -22.9 -5.7   7.8 

Malls
  MAC Macerich                                146.1 -24.9 -3.9  10.3
* SPG Simon                          (*B of B) 58.7 -13.0  6.3  14.8
  TCO Taubman Centers                          64.0 -16.5  6.6  14.7

Office
* BXP Boston                         (*B of B) 38.7 -16.1  8.7  13.2
  OFC Corporate Office                         25.7 -12.3  8.6  19.3
  SLG SL Green                                148.2 -31.2  0.1  11.6 

Industrial
  AMB AMB                                      35.3 -25.1 -4.3   7.0


Office/Industrial
  DLR Digital Realty                           38.3  10.2 30.5
* DRE Duke                           (*B of B) 12.7 -31.5 -9.0   4.1
  OFC Corporate Office Properties              25.7 -12.3  8.6  19.3
  PSB PS Business Parks                         6.3 -13.3  3.9  10.5


Self Storage
* PSA Public Storage                 (*B of B) 20.3 -10.6  9.3  15.8

Healthcare & Net Lease
* HCN Health Care REIT               (*B of B) 14.3   0.4  9.6  15.3
* HCP HCP, Inc                       (*B of B) 14.8  –8.0  6.4  13.3
* NHP Nationwide Health Properties   (*B of B) 23.1   2.5 12.4  13.5
*   O Realty Income                  (*B of B) 37.0   1.0  6.6  14.6
* VTR Ventas                         (*B of B) 46.5  -0.1 14.0  31.6

Diversified
* CUZ Cousins                        (*B of B)-10.6 -34.7 -9.7   3.7
* VNO Vornado                        (*B of B) 26.0 -16.5  3.9  12.6
* WRE Washington Real Estate         (*B of B)  4.8 -10.6  2.1  10.4

Hotels
  (None)

Others
  (None)
Index Fund
  VGSIX Vanguard REIT Index         	       39.4 -17.7  0.5   9.4
  Bluest of the blue         		       25.2 -12.7  4.7  13.1 
  Blue (but not bluest)         	       55.3 -15.8  5.2  12.4

Just for the record, 2 more Reits that maintained their dividends throughout the carnage are 1) UBA and 2)MNRTA, one of Ecnirp's companies.......not "Blues", but they should get some respect.

Meandering........nice work !!!! A quick scan of the data suggests to me that our "work" on these lists has been, for want of a better word, "vindicated". 1) Again, VTR and OFC stand out, and I am somewhat surprised that the "slow", steady, growers ( HC and the triple net retailer "O")have performed significantly better than the index.......2) Surpeised at the the underperformers ?? (KIM,WRI,AMB,DRE and CUZ)........I suppose each underperformed for its own unique reasons; KIM for being too highly leveraged, CUZ and WRI for having large development platforms going into the downturn; AMB and DRE, I dunno; don't follow either.........I am wondering how this analysis would have turned out if it had been done at the height of the Reit "bubble" in February of 2007.

Due to the obscenely long nature of this post, I will separate it into two parts. This is part 1.

Commercial real estate is cyclical – with respect to both space markets and pricing. However, this asset class has always offered solid, conservative, income-based returns, if bought and held with no (or only modest amounts of) debt leverage. Investors have historically been able to get average annual total returns of approximately 9% (or real returns of approximately 6%), with only modest risk, over an entire real estate cycle.

REITs are securitized commercial real estate, “plus.” The “plus” consists of a management team that, over time, is able to create an incremental amount of added value for shareholders via acquisitions, developments and even joint ventures that generate fee income. Conservative REIT investors do not view REITs as growth companies; they expect moderate risk-adjusted returns that consist, largely, of a stable and slowly-growing dividend, plus a modest component of capital appreciation via value creation, increasing real estate values, and intelligent deployment of modest retained earnings.

What, specifically, do conservative investors look for? I don’t know, but I can guess: Good management teams that know how to allocate precious capital wisely and conservatively, and how the restrictions of the REIT format limit external growth. Stable dividends, increasing at least in line with inflation. The REIT’s properties should be in good long-term locations, well-managed and kept in good shape. They may be looking for some value-add, via the methods briefly summarized above, but they don’t want the management to take on undue risk.

They also should want a conservative balance sheet, with debt in modest amounts, well covered by free cash flow, and with carefully laddered maturities. Similarly, they should want their REITs to manage the balance sheet so that it always – or almost always – has access to debt and equity capital when advantageous, at reasonable cost. And, of course, good governance, with management having lots of “skin in the game.”

In short, conservative REIT investors should be looking for safe dividend yields, plus 3-4% average annual cash flow growth from rising NOI, value creation, and reinvestment of retained earnings. They would normally want to recommend the same REIT stocks they own to their moms and their grandmothers.

What should they NOT look for? They shouldn’t expect to shoot the lights out; there are plenty of other investments that offer double-digit return prospects. They don’t want the management teams to take the risks inherent in business strategies that “promise” to generate 8-10% growth rates. And they don’t want to run the risk of a company failure via a risky balance sheet, e.g., General Growth.

I therefore, personally, define a “Blue Chip REIT” as having five of the following six attributes (not in any particular order):

1. Strong management team that routinely creates a modest amount of value via the exercise of its own particular expertise, without taking excessive risk.

2. Sound balance sheet, strong capital allocation skills, and access to capital

3. Conservative dividend policy, sustainable except in the event of a 100-year flood

4. Owning good properties in stable markets, and well-leased

5. Business strategy consistent with the ability to deliver 7-8% total returns with modest risk

6. Good governance, good disclosure, and concern for the shareholders

I have not included a 5- or 10-year stock performance track record in this criteria. I understand that others will want to do so; however, it seems to me that there are so many variables that will impact such performance that its value for determining a “blue chip” REIT is marginal. Nonetheless, I think it’s justifiable to add this to the mix. I question only its weighting.

Unfortunately, many (perhaps even most) of these criteria are at least somewhat subjective, and one man’s Blue Chip will be another’s sleepy dullard. There is no Pope or Grand Poobah who, in his or her infinite wisdom, can legitimately confer Bluechiphood on a REIT – so the anointment process is very messy. Furthermore, sometimes a REIT will lose its way, while another will ascend to higher levels of respect. The process continually changes and evolves.

As for the “Bluest of the Blue,” I am not sure how this designation came into being. But so be it. I will assume, for purposes of this post, that “Bluest of the Blue” means, simply, a Blue Chip REIT exalted to a higher level.

Before I begin to judge this beauty contest, I will note that many erstwhile Blue Chip REITs have been caught swimming naked during the Great Economic Tsunami, and I believe that naked ladies, whatever the interest in their attributes, normally don’t win beauty contests. Thus I believe our list of Blue Chips (and Bluest of the Blue) should be whittled down in quantity this year.

To be continued in Part 2.

Ralph

Part 2. OK, here are my REIT-specific thoughts. Caveat: Reasonable minds will surely differ. And, I am making the assumption that stock pricing is NOT one of the criteria.

APTS:
AVB: Still a B of B. Strong balance sheet helped it to avoid selling stock near the March lows. Still the best balance sheet in the sector. Same strong management team, with the best development skills. No major errors during the Tsunami.
EQR: A blue chip, but why a B of B rating? Is this REIT that good? I am willing to be convinced.
HME & UDR: Why are they blue chips? What have they done to deserve it? I am willing to listen to a good argument.

MH:
ELS: No suggested changes. Low leverage has helped. Tortoises often win races.

NSCs:
FRT & SKT: The past year has shown why they deserve their B of B ratings. Sure, there cash flow growth has ceased, but they are in great shape. Splendid balance sheets, and able to acquire if opportunities arise.
KIM & REG: Should they be demoted just one notch, or kicked out of the Blue Chip family? I could go either way. Both used aggressive business strategies that bit us all in the butts – hard. But the management teams remain solid, and both have de-levered quickly. Both own quality assets in good locations, and have dropped their dividends to sustainable levels. They are both pursuing more conservative business strategies going forward. I still own ‘em both, but more of their pfds than their commons.
AKR: Blue chip. OK. But I don’t follow this company.
WRI: Blue chip? Why? Management is very experienced and capable, but they were late to the development game and had balance sheet issues. A reasonably good company, but not sure Blue Chip. I would love to be convinced.

MALLS:
SPG: They cut the dividend out of an abundance of precaution, and de-levered hard and quickly. The dominant US mall owner. The management team is top-notch. They are loaded for bear. If they buy GGP, they will do it on attractive terms. Still a B of B, in my opinion.
TCO: Still a blue chip. No reason to change its ranking.
MAC: I have always liked this local So. California mall REIT. But they found themselves with too much debt leverage, and some uncomfortable near-term debt maturities. I never doubted their survival but, because others did, a dire future could have become a self-fulfilling prophecy. But they are a survivor, thanks in part to the reputation they have developed with private institutional investors who bought some of their assets to help them to de-lever. MAC meets 5 of my 6 criteria, and I would vote to keep them as a blue chip. I realize, however, that this judgment may be controversial.

OFFICE:
BXP: Like Simon, they cut the dividend. But in all other respects they are as fine a REIT organization as exists anywhere. Great properties, great management team, excellent balance sheet, capable of creating value without taking on undue risk. I continue to regard them as B of B.
OFC: I don’t follow this company closely enough to add anything to the discussion.
SLG: Too aggressive a balance sheet, too aggressive a business strategy. They sold stock late, and haven’t delevered enough. Dividend was slashed very hard. Good properties and a smart management team don’t offset these negatives. I’d have to vote to drop SLG from the Blue Chip list. If this happens, I am confident that, like the Terminator, it will return.

INDUST:
AMB: Still a Blue Chip despite a large dividend cut. They had an aggressive business strategy, but it was working well until the Tsunami. They were one of the first to raise equity, an industry leader. They still have great relationships with JV partners, and a fine management team. They still know how to create value.

OFF-IND:
DLR: The company is doing well, their stock performance has been excellent, and they’ve been raising the dividend. This is a niche company, going where no office REIT has gone before. I do hope that their product doesn’t become obsolete. They’ve managed the balance sheet well. Certainly it’s a Blue Chip, but I believe their aggressive business strategy disqualifies it for B of B.
DRE: Can someone remind me of why this company is a Blue Chip, let alone a B of B?
PSB: Blue chip. OK, no issues with that, but I don’t follow the company.

STORAGE:
PSA: B of B, no need for any discussion. They have reminded us why debt leverage can be a dangerous toy to play with. Ron Havener is one of the most under-rated CEOs in the business. I just wish they’d be a bit more liberal with the dividend.

HC & NL:
It is odd that we have 5 B of Bs in this space, which doesn’t make much sense to me. OK, these companies have held up well, but they should, given their sector. Many of you will disagree, but I propose that we keep all five as Blue Chips, but confer B of B-hood on only two of them:
NHP & VTR: Both have very strong balance sheets, and have allocated capital conservatively and wisely. OK, VTR screwed up (short-term, anyway) by buying the Sunrise assets and choosing to manage them, but other than that their capital allocation skills have been awesome. NHP’s management is conservative and smart; they handled the problems with Hearthstone and PMI very well. They underpromise and outperform. They are a leader in disclosure in this sector. As for VTR, well, leadership doesn’t get any better than Debbie Cafaro. Both of these should be B of Bs.
HCP & HCN: A cut below the above two. HCN’s balance sheet is excellent, and HCP has very good tenants and is well-diversified. But why did it interfere in VTR’s acquisition of Sunrise? HCP’s business strategy is just a tad too aggressive for election as a B of B, IMO. HCN has a huge development pipeline that may not deliver adequate returns, and its MOB portfolio is not performing well. Blue Chip? Yes. B of B? No.
O: OK, some investors love the Big O. I have lots of respect for management, but can someone remind me of why it’s a blue chip besides its steady dividend? Is it creating value for shareholders? I am agnostic on this one, but would love to be convinced.

DIVERSIFIED:
Last year CUZ, VNO and WRE were all anointed not only as Blue Chips, but also as B of Bs! Say what? I wouldn’t give B of B-hood to any of them. VNO and WRE should be cut to merely Blue Chips, as I don’t know what they are doing to merit a higher rating than that. As for CUZ, well, suffice it to say that their business strategy has always been very aggressive, and they didn’t know when to rein it in. They have been overpaying the dividend for years, before slashing it, and they’ve been playing Musical Chairs with respect to the management team. Heck, I’m even afraid to own their pfds.

Sorry this post has been so long. Hope I haven’t bored you to death. All the foregoing, of course, is just one guy’s opinion. I have been wrong many times, and surely will be wrong again.

Ralph

We don't have specific voting to demote a BofB down to "Blue Chip" status. Given that, here is my summary of those REITs that Ralph believes we should re-consider their statuses (be it BofB or "Blue Chip"):

EQR, HME, UDR
KIM, REG, WRI
SLG
DRE
HCP, HCN
CUZ, VNO, WRE

But I'm not sure if just a mention of a company is enough to qualify as an official nomination, so I'd have to remove DRE, VNO, and WRE from the list. If someone has an argument why they should be voted on for removal (of BofB or Blue Chip status), then please post it.

Ken

PS - Thanks for the posts, Ralph.

PSB: Blue chip. OK, no issues with that, but I don’t follow the company>>>>>>>>>>>>> Uh oh; bad things can and do occur to good companies. PSB SLASHED its dividend yesterday; stock lost double digits.

Ken,

In post 61223, I nominated VNO and DRE for removal.

In that post I also nominated KIM for removal, but this was redundant because BruceDoe had already nominated KIM for removal.

Lee

Guess I shouldn't post until I've finished my morning coffee........it has been pointed out to me that it was PKY, not PSB, that took the reported action ............apologies

Hi, Lee,

In post 61223, I nominated VNO and DRE for removal.

I know you did, but I didn't consider it to be a valid nomination as the only reason given related to either cutting the dividend, or the total return (as opposed to reasons listed in the so-called "official" criteria).

However, perhaps it is time to get the group's opinion on this, in case I'm enforcing a rule no one wants.

Ken

Hi Ken,

Are you suggesting that for a company to be removed, it must fail to meet all six criteria? I thought failing to meet one or two of the criteria would be sufficient to make it worthwhile to put its removal up for a vote.

On the other hand, if you would like each nomination to be accompanied by our best case to support its removal, I can understand where that may be more educational.

I will prepare a more complete removal nomination for DRE.

Thanks for all your work moderating this discussion.


Lee

Are you suggesting that for a company to be removed, it must fail to meet all six criteria? I thought failing to meet one or two of the criteria would be sufficient to make it worthwhile to put its removal up for a vote.

On the other hand, if you would like each nomination to be accompanied by our best case to support its removal, I can understand where that may be more educational.

Lee, most definitely the latter. A Bluest of the Blue Chips should meet as many of the criteria as possible. It needn't meet every one, but the more it doesn't meet, the less likely it is deserving to be a BofB. Most should meet all or all but one criteria, IMO. Missing 2 or more is grounds for at least voting on removal, if not succeeding.

The point of this exercise was to identify the VERY best REITs. I fear that the introduction of the "Blue List" part (Blue Chips that aren't the Bluest of the Blues) may have caused us to stray from the original direction a bit.

Hmmmm. I wonder if people would mind another poll about that ....

Ken

I hereby nominate Duke Realty (DRE) to be removed from the bluest of blue list AND
From the blue list.

The bluest criteria are in italics. My assessment follows in plain text:

Comments and corrections welcome.

Lee

Duke Realty (DRE)
1. Outstanding proven management.

(a) a history of value-creation,
Poor. Their three, five, and ten year total return numbers significantly trail most other office and industrial REITs

(b) avoiding “dumb” transactions
OK

(c) good property management
Very good

(d) understanding shareholders' risk-tolerance limits and return objectives
Poor. They pursued (in a big way) the strategy of developing distribution properties with substantially no pre leasing required. This is extremely risky. They paid the price when the credit crunch/recession hit – big writedowns for abandoned projects and new buildings sitting largely empty.

(e) maintaining good control over the business, including keeping promises and making accurate earnings forecasts (consistent with changes in market conditions
Good.

2. Shareholder-friendly use of equity capital.
Poor. Poor timing on development (see 1(d))
Their poor balance sheet management forced them to issue new equity when it was highly dilutive to existing shareholders.


3. Balance sheet strength.
Poor. Even though they managed to keep their investment grade credit rating, they failed to manage their maturity schedule. When the the credit crunch arrived they were forced to sell equity at a steep discount and the market price of the preferreds indicated that their chance of default was significant. They made the classic mistake of financing long term assets with short term borrowing. The fact that many other REITs made the same mistake was cold comfort to shareholders.

Even now, they have a weaker fixed coverage ratio (1.7) than most of their office and industrial peers.

4. Adheres to an appropriate geographic strategy.
Very Poor. They expanded into quite a number of new markets simultaneously with the intention of developing properties. Now that new development is on hold, in these markets they are stuck with too much land, and not enough properties to manage efficiently.

5. Good corporate governance.
I believe DRE has been rated very high in this regard.

6. Policy of dividend sustainability.
Failure here. They have had to slash their dividend.

Meandering, well done and concisely summarized; I agree that DRE is no longer a "Blue", fwiw..........Missash; no position

Reitnut

Regarding O, while many REITs were caught with their pants down on leverage, they had no debt coming due until 2014. I don't know if this was by luck or foresight, but it is impressive. The credit crunch will be over by that time, won't it, won't it?

I think that if you want to worry about this stock, it is that their dividend is so close to their FFO. Of course, they know this and have commented on it, saying they will continue to go that route. But they have not only kept their dividend right through Armageddon, unlike so many others, but have continued to give their microscopic dividend increases quarterly for more than 10 years.

They also had one of their tenants go bankrupt (Buffets), but seemed to come out of it smelling like a rose. I hadn't realized it, but apparently landlords can come in ahead of bond holders. At least O did this.

They certainly are well diversified - nationally as well as industrially in their tenants.

When their stock price got above $27/sh recently, we did take some "skin" off the table, but it looks to me as if they are a very solid company and probably worthy of BofB status. We are still overweight (for us) on O even after the sales.

Incidentally, they have a nice preferred stock (O-E) that we bought at about $22/sh. If they ever call it, one could get some capital gains.

brucedoe

Reitnut

About WRE, a lot of people like it because it is concentrated in the Washington, D.C., area and feel that no matter what, the government will still be there along with the so-called "beltway bandits" that leach off the government. I'm not sure just where the increased government contracting has gone to handle the stimulus money, TARP, etc., but suppose a good piece has remained in the D.C. area. The increase in Federal employees is minimal so that contractors must be handling it. Anyway, I think location is a big reason for the BofB nominaltion.

They were hurt a bit when the tech bubble burst because buildings built for tech had a different footprint (more internal space) than is preferred for office buldings (lot of windows).

I do think the company has not done as well since the founder retired. He had a very conservative style with very little or no debt and very few employees. But after FRT, they have the longest record of increasing their dividend (38 yrs), though sometimes the increase is very small and it often includes some return of capital.

We used to be way overweight on WRE, but, when it got over #30/sh, we lightened up back to our normal weighting.

As you have said, REITs are in a cyclical industry so if ANY REITs are to be suitable for grandma, it must be on the basis of continuing and increasing dividends. Surely WRE has done that. Thus if WRE is to be removed from BofB, I think there must be reason to believe they cannot sustain their divdend or at least not keep increasing it. There may be such concern out there, but I don't know what it is.

brucedoe

Ken, thanks for that clarification.

As a REIT can apparently stay a blue chip simply through inertia, I would suggest removing a few names from blue chip status - and allow others to come in and defend them. I will keep an open mind as far as my vote is concerned. My bias here is to reduce the number of Blue Chip REITs and the number of B of B REITs, given the fact that a lot of REITs almost didn't survive the Great Tsunami.

Apartments: I propose that HME and UDR be removed as Blue Chips, as I don't know what they are doing to merit that distinction.

NSCs: I propose that WRI be removed as a Blue Chip, for the same reason. As noted in my prior post, they were very late into development, and got stuck with a troubled balance sheet.

OFF: I propose that SLG be removed as a Blue Chip, due to their exceedingly levered balance sheet and very aggressive business strategy. The dividend wasn't merely cut, but an axe taken to it. And, the compensation to officers has often been criticized for being excessively generous. They still have good properties, though, and will likely come out of the downturn in decent shape.

OFF - IND: I propose that DRE be removed as a Blue Chip. The balance sheet was extremely extended, and they are still very heavily levered. Where have they added value in recent years?

DIV: I propose that CUZ be removed as a Blue Chip. Excessively aggressive business strategy, developed much too late in the cycle. Destroyed shareholder value. Slashed the dividend, after overpaying it for too long. Too many changes in executive officers.

Sorry, guys, if I've stepped on too many toes. Would love to hear counter-arguments.

Ralph

Ken says, I know you did, but I didn't consider it to be a valid nomination as the only reason given related to either cutting the dividend, or the total return (as opposed to reasons listed in the so-called "official" criteria).

I think the problem may lie with the rule that a REIT stays a Blue Chip forever if nobody provides solid reasons for its removal. Perhaps that rule should be amended, i.e., such that anyone can propose the removal of a Blue Chip for any reason, which would require someone to come in and defend it with some valid reasons beyond a dividend cut or good total returns? I am guilty of violating the rule by suggesting removal of HME and UDR, for example, without providing reasons - but would love to hear why they should stay as Blue Chips.

Or would that be too complicated. Easy for me to make this suggestion, but I am not taking the time to monitor all this.

Ralph

I think the problem may lie with the rule that a REIT stays a Blue Chip forever if nobody provides solid reasons for its removal. Perhaps that rule should be amended, i.e., such that anyone can propose the removal of a Blue Chip for any reason, which would require someone to come in and defend it with some valid reasons beyond a dividend cut or good total returns? I am guilty of violating the rule by suggesting removal of HME and UDR, for example, without providing reasons - but would love to hear why they should stay as Blue Chips.

I recently posted a poll with this listed as one of the options:
http://boards.fool.com/Message.asp?mid=28297736

However, it has received only 12% of the vote so far, with the vast majority (71%) saying that supporting information should be needed for both adding and removing REITs.

Ken

De-nomination of HME for Blue Chip status

This HME shareholder believes the stats no longer support HME being a Blue Chip REIT. HME has not cut its div - and has a long track record of moderately increasing its div. HME's footprint is very good. Debt maturities are well spaced. The one big downside - the stats would question dividend sustainability [AFFO/share is below dividend.].

Pro's for HME - track record and very good geographic footprint.

Dividend History [based on Q4 Dividends]

	                             Dividend/Share/Quarter                             
Co.	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
AIV	70.0	78.0	82.0	60.0	60.0	60.0	60.0	60.0	60.0	10.0
AVB	56.0	64.0	70.0	70.0	70.0	71.0	78.0	85.0	89.3	89.3
BRE	42.5	46.5	48.8	48.8	48.8	50.0	51.3	53.8	56.3	37.5
CPT	56.3	61.0	63.5	63.5	63.5	63.5	66.0	69.0	70.0	45.0
EQR	40.8	43.3	43.3	43.3	43.3	43.3	44.3	46.3	48.3	33.8
ESS	61.0	70.0	77.0	78.0	79.0	81.0	84.0	93.0	102.0	103.0
HME	57.0	60.0	61.0	62.0	62.0	63.0	65.0	66.0	67.0	67.0
MAA	58.0	58.5	58.5	58.5	58.5	59.5	59.5	60.5	61.5	61.5
PPS	76.0	78.0	78.0	45.0	45.0	45.0	45.0	45.0	45.0	20.0
UDR	26.8	27.0	27.8	28.5	29.3	30.0	31.3	33.0	33.0	18.0
ACC	0.0	0.0	0.0	0.0	0.0	33.8	33.8	33.8	33.8	33.8
EDR	0.0	0.0	0.0	0.0	0.0	30.0	20.5	20.5	20.5	5.0

HME footprint:
Suburban Washington, D.C. 25.65%
Baltimore MD 21.47%
Suburban New York City NY/NJ 19.15%
Philadelphia PA 17.02%
Boston MA 6.55%

Case-Shiller evidence of strength of footprint :

Metro area	index	 Oct.	Nov. 2008
Atlanta	--------109.29	-0.8%	-6.2%
Boston --	153.97	-0.5%	-0.7%
Charlotte	118.66	-0.3%	-5.5%
Chicago	------- 129.39	-1.1%	-8.5%
Cleveland	104.75	-0.2%	-2.5%
Dallas -	119.92	0.0%	1.4%
Denver -	128.29	-0.5%	0.5%
Detroit -	72.59	-0.7%	-13.0%
Las Vegas	104.22	-0.5%	-24.5%
Los Angeles	169.72	0.8%	-3.5%
Miami --	149.08	0.0%	-12.1%
Minneapolis	123.85	-0.5%	-6.8%
New York	173.24	-1.0%	-7.1%
Phoenix -	111.96	1.1%	-14.2%
Portland	150.38	0.3%	-7.5%
San Diego	156.06	0.4%	0.4%
San Francisco	136.63	0.6%	1.0%
Seattle -	148.56	-0.5%	-10.6%
Tampa --	139.66	-0.4%	-13.2%
Washington	179.20	-0.5%	-0.6%
Composite-10	158.49	-0.2%	-4.5%
Composite-20	146.28	-0.2%	-5.3%

The indexes have a base value of 100 in January 2000; so an index value of 150 equals 50% appreciation since January 2000 for a typical home in the market.

This footprint has aided HME in having stable results
For Q3-09 - Average physical occupancy for the Core properties was 95.1%, compared to 95.0% during the third quarter of 2008. Average monthly rental rates decreased 0.5% compared to the year-ago period to $1,132.
YTD - Average physical occupancy for the Core properties was 94.9% during the first nine months of 2009, down from 95.0% a year ago, with average monthly base rents rising 0.6%.

Cons to HME being a Blue Chip - AFFO coverage of div and debt

for Q3 --------2009 --- 2008
FFO –-- basic $0.82 --- $0.85
FFO – diluted $0.81 --- $0.84
AFFO - ------ $0.65 --- $0.68
Div ----------$0.67 --- $0.66

YTD -----------2009 --- 2008
FFO -– basic $2.45 ---- $2.53
FFO diluted $2.45 ---- $2.50
AFFO ------- $1.96 ---- $2.03
Div ---------$2.01 ---- $1.98

Dividend is not covered by AFFO. Above stats would imply a fair change of the dividend being cut to $0.63/share/quarter.

Debt-to-total market capitalization was 54.6%
equity $1.9 billion
debt - $2.3 billion
Debt to market cap is OK - but this is based at a market price that probably has not priced in a chance of a div cut. I do not believe there will be a div cut, but some chance of a cut should probably be already priced in to HME, and it is not. If there were a div cut, then debt to market cap rises and HME's shares fall. But div cut [if it happens] should be small - and the market has been somewhat forgiving of div cuts for REITs. So the level of fear of a falling price hurting the debt to market cap ratio should be somewhat small. Q3-09's Interest coverage was 2.2x - which is a bit low.

Maturing Debt - stats do not show a problem
Year Rate - DEBT in dollar % of TOTAL
2010 5.5% - 304,791,973 ---- 14.9%
2011 6.3% - 299,348,645 ----- 14.7%
2012 5.4% - 128,036,112 ------ 6.3%
2013 6.0% - 205,916,954 ----- 10.1%
2014 5.6% - 96,143,243 ------ 4.7%