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No. of Recommendations: 7
NYYanqui wrote, As we know, REITs have generally reached healthy valuations. Question for this distinguished Board: if tomorrow you had $20,000 to invest in ONE REIT, which would it be, and why?

I liked his question so much I am starting a new thread.

My response is out of character for conservative REITster. TZH.

Trizec Hahn is a large Canadian real estate company with substantial properties in the U.S. They have announced a reorganization, to take place in May, whereby they will form a new U.S. REIT, Trizec Properties, to be officed in NY, if I remember correctly. They plan to sell a significant number of currently held properties instead of placing them in the REIT.

They believe the substantial savings in income taxes, etc. will allow them to pay a dividend in 2003 in the US$1.30 to US$1.45 range. The stock is around $16.00 currently, which will give a yield in the 8 to 9% range, if they successfully pull this off. At $16, TZH is selling at a 28% discount to the $22.38 NAV (RSR NAV).

Fundamentally, TZH is OK, not great. Its debt is about 55% of asset value (NAV + Debt). I would prefer the debt to be less than 50%.

Due to the substantial discount to NAV and the prospect of an 8% or more yield, this one looks like a good speculation, with a better that even chance of significant price rise over the next couple of years.
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No. of Recommendations: 5
I liked his question too, especially since I've been grappling with a similar question myself. Of course, I've got a particular set of things that I look at, dividend safety & growth being the top two. Maybe the only two, come to think of it (as everything else can fit under those categories). Others may be more interested in total return, which is an entirely different animal.

My favorite sector is Manufactured Housing, since Ralph and others have pointed out that this is probably the most stable of sectors, through bad times & good. At present, I like SUI the most in this sector. Paying almost 6%, with a decent (though not great) long-term record of raising dividends at or above the CPI. It's also got the lowest payout ratio of the 3 (MHC & CPJ being the others in that sector), so maybe their record of dividend increases will improve. It sells for around NAV (according to RSR). This is my #1 personal pick; YMMV.

I recently commented on CPJ, which has a higher yield, sells at a discount to NAV, and has a better record of raising dividends. But they've run into difficulties of late involving a recent takeover, and a new computer program, and aren't expected to grow FFO much this year. More troublesome to me is a high payout ratio, but they do have decent coverage ratios. Since I already own as much SUI as I like, I may add to my CPJ holdings, but only if I can get it at a bit better discount to NAV than the current 9% or so.

The REITs I'm currently considering for purchase include BRE, BXP, LRY, PP, and RSE (RSE being one that no one seems to like, for some reason). I'm getting so desparate to find something to purchase, I'm including 2 REITs that are unrated by Moodys (BXP & PP), and am even willing to pay modest premiums above NAV for most of these. Still, they all seem fairly attractive to me relative to their peers. I just hope the fact that I'm now willing to bend my "rules" isn't yet another indication that a top is near. I better save some cash, just in case. :)

Ken
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No. of Recommendations: 7
Dont overlook the small cap REITS.Why is a REIT with 250 properties worth more than a Reit with 25 properties? There is no empirical evidence that large cap out performs small cap.The manufactured home reit sector includes MHC SUI CPJ ANL and UMH . Those that think Im a broken record on this subject should at least acknowledge that they should have listened two years ago.UMH was $7.50.Its total gain is a league leading 100%.Source Yahoo charts.Im glad Ken pics the manufatured home sector.Sorry he overlooks the small cap.Disclosure ECNIRP is Chairman of MNRTA UMH and MONM and totally biased toward high yield long established small cap reits.Small cap have had such a great run that they may be fairly priced at present.They certainly are not undiscovered.There appears to be serious buying in many small cap reits.MNRTA has reduced its REIT securities portfolio from $17,000,000 to $10,000,000 to fund real property purchases.MNRTA has increased its real estate portfolio $70,000,000 in the same period.Management believes when UMH and MNRTA reach $100,000,000 market cap and are included in the indexes,they will also be included in this discussion board.
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No. of Recommendations: 0
My "excuse" for failing to mention ANL & UMH as being part of the Manufactured Housing sector is mainly due to their not being included in RSR's coverage world. As I know you know, RSR excludes many small cap REITs, and I use RSR as my main source of data. So, from my point of view, the too-small universe of MHs is unfortunately made up of only 3 members.

Which is most certainly not to say that some small cap REITs can't be better investments than their large cap counterparts. In fact, last year, almost all of them were. :-) But since one of the filters I try to employ is an investment grade bond rating (for better or worse), it makes it more difficult for small cap REITs to make my watch list. (Of course, it also depends on the definition of "small cap", since most of the REITs I own would probably be considered "small cap" by non-REITsters.)

Ken
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No. of Recommendations: 12
REITster,

I would like to refer you back to one your older threads, the Bluest of the Blue. I'm writing for that group of Reitsters, including me, who have not yet completed a portfolio. I see no reason to take a different tack now that REITs are trading at fair value. At these levels, this group may offer better security than they ever have. I would look to the B of B group for companies not yet represented in my portfolio and would start to dollar cost average into 2%-4% positions in some of those companies selling slightly above or below NAV.

If it would be helpful, I'll give you my take on the B of B list:

The purpose of this exercise is to generate discussion. I'm only half convinced of my own opinions.

The apartment sector has started to move recently. I would definitely establish positions over the next year in ASN, AVB, of EQR if I didn't already have 4% alloted to each of them.

KIM, WRI, and SPG (also GGP) are probably fully valued, but I wouldn't avoid them if I didn't own them.

The same goes for MHC.

In the office group, the least loved sector, probably all three; EOP, BXP, and CRE could be purchased now and dollar cost averaged for the rest of the year up to 4% positions.

In the industrials, probably AMB could be purchased now; and PLD presents an interesting opportunity as 30% of the shares may be coming to market soon. You may want to hold some cash until GE decides what to do with the 38% owned by SCZ. If they distribute most of it, there may be an opportunity based on the imbalance of shares being offered into the market to purchase this fine company with exposure to Europe, Japan, and Mexico.

CNT is off the charts. I hope you already own it and are enjoying your 4% dividend. Referring back to the "if pigs could fly" thread, CNT, PSA, and PSB investors have been happy with 4%(+/-) for a long time. I have been trimming my position in CNT to maintain 2%.


DRE is trading at about NAV and one probably wouldn't get hurt too much by purchasing a few shares, though mid-west office may be slower coming back and development risk is part of this company's M.O.

PSA is on a tear the last year, could have been purchased at $22 at the beginning of 2001 and is currently trading at $38, up more than 50% on share price only and pays a 4.5% dividend. This largest Self-Storage REIT is a well recognized brand, about as close to a brand name as we have in REITs, and clearly deserves an NAV premium. Sadly, I don't own it; but will if it ever pulls back a little (wishful thinking).

Among the diversified sector, both CUZ and VNO look fairly valued to me and could be purchased if you don't already own them; but I would purchase VNO first, in fact, probably first among the B of B now. My CUZ holding is about 1/2 of my VNO allotment (2% and 4%). I sold WRE at the end of 2000 and think it is too rich now compared to several of the other REITs. It's a great company, but, like PSA, I seem to be marching behind it, to the left, and out of step. At some point I would like to pull up beside them, fall in, do a stutter step, and march with them.

For those of you who don't remember the Bluest of the Blue list, this is from REITster's post earlier this year:



Presenting the 2002 Bluest of the Blue:

Apartments
ASN
AVB
CPT
EQR
HME

Shopping Ctrs
KIM
WRI

Malls
SPG

Mfg Homes
MHC

Offices
BXP
CRE
EOP

Industrial
AMB
CNT
PLD

Office/Industrial
DRE

Self Storage
PSA

Diversified
CUZ
VNO
WRE
Hon. Mention
HCP

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Management believes when UMH and MNRTA reach $100,000,000 market cap and are included in the indexes,they will also be included in this discussion board.

We can only hope the NAVS keep up with those caps.
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No. of Recommendations: 3
In response to my post on TZH, 782grear wrote, REITster, I would like to refer you back to one your older threads, the Bluest of the Blue. I'm writing for that group of Reitsters, including me, who have not yet completed a portfolio. I see no reason to take a different tack now that REITs are trading at fair value. At these levels, this group may offer better security than they ever have. I would look to the B of B group for companies not yet represented in my portfolio and would start to dollar cost average into 2%-4% positions in some of those companies selling slightly above or below NAV.

You wrote a great message. I whole heartedly agree with you that the best place to put your money in the long run is in the BofB REITs, and I have put most of my money there.

However, despite my very conservative nature, occasionally I see a special situation that I am willing to gamble on. TZH is speculative, as I previously stated. It is not the conservative, smart place for your money. It is not for money that is vital to your future well being.

TZH has what appears to be a sound strategy and owns some fine U.S. office properties. They are selling properties which should get the debt down below the 50% level, which I prefer. See this from their home page.

http://www.trizechahn.com/trizechahn/profile.html

If, and "if" is an important word, they can execute, I believe that someone who buys TZH at these prices can earn a better than average dividend in the future and also have better than average appreciation in the stock price over the next several years. Yesterday, TZH closed at a 29% discount to the RSR NAV of $22.38. That is 71 cents on the dollar. If that NAV is reasonably accurate, I don't see a lot of downside risk. If, and again I say "if" is vital, their plan works, the price of the stock should move toward NAV. If someone buys TZH at $15.88 and the price moves to 90% of NAV over the next three years, that will be a gain of around 27% on top of the yield. And that assumes no growth in NAV.

My ramblings are intended just for those of us who are able and willing to take an above average risk on this one. I have bought some TZH to go with my fine BofB REIT portfolio.

REITster

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A possible catalyst for some price appreciation in TZH may come from the realization by reitsters other than REITster that with REIT status the dividend is going to leap...this plus the deep discount to NAV will possibly make it attractive to "value" investors.....in my undereducated opinion TZH seems attractive at current price
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No. of Recommendations: 1
If, and "if" is an important word, they can execute, I believe that someone who buys TZH at these prices can earn a better than average dividend in the future and also have better than average appreciation in the stock price over the next several years.

I don't follow TZH and I don't have a subscription to Green St., but I have been told Green St. awards TZH the 2nd-largest warranted discount to NAV in the office sector, which means they believe TZH's assets would be worth more separated from TZH management than under TZH management. This suggests your "if" is a triumph of hope over experience. Look back at their telecom hotels, their second mtg. on the Sears tower, their Enron exposure (major tenant).

I pass this along only to suggest things to check out if you haven't already -- anything is a bargain if it's cheap enough and I have not even looked at the current discount to NAV. Maybe it over-discounts all this. Maybe my facts are wrong.

Apologies to Greent St. and TZH if my second-hand info is incorrect.
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If TZH earned the 2nd largest warranted discount to NAV, I am curious as to who was 1st.......must be CEI.....surely both got sidetracked..but, management of both seem to be mending their ways....CEI has just about exited the psych centers; they are dealing with COPI and the cold storage fiasco....recall that the highly esteemed S.Roth got caught up in the cold storage mess as well....likewise, telecom hotels probably looked very attractive "back then"(heck, Worldcom was a strong buy on every analyst's list and Global Crossing, well, they had a great business plan....)..From a possible capital gains point of view I feel these 2 offer the best risk/reward in the office sector....both managements seem to be gaining/have gained "religion".....
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My 2 cents:

In regard to TZH, a look at the 5-year chart from Yahoo gives me pause

http://quote.yahoo.com/q?d=c&c=eop+vno+slg&k=c1&t=5y&s=tzh&a=v&p=s&l=on&z=m&q=l

In office sector I like SLG for risk adjusted returns. I think in one of their presentations they said their average rent was around $28, while they estimated their average market rent was in mid $30's. Proven good management IMHO and local sharpshooter in NYC.


klee12
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<<Look back at their telecom hotels, their second mtg. on the Sears tower, their Enron exposure (major tenant).>>

They also opened Hollywood & Highland, a retail, entertainment and hotel complex in Hollywood in late 2001 and which has to cope with the current environment for business travelers and tourism, and economic conditions have impacted demand for travel in general.

They also own the Desert Passage mall in Las Vegas, Nevada, which adjoins the Aladdin Hotel and Casino. The owners of the Aladdin filed for Chapter 11 reorganization in September 2001.

Mark
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