Investors in real estate investment trusts (REITs) have been hammered lately. After returns of 35 percent in 1996 and 20 percent in 1997, the average REIT plunged 18 percent last year and is down again this year.
But with the economy humming along, odds favor another, longer rally in REITs. That's because a growing economy means occupancy rates should stay high and demand for additional space should increase, allowing REITs to raise rents and increase their funds from operations.This should translate into higher share prices. Yet REIT share prices are only half the picture. REITs must distribute 95 percent of their income as dividends to shareholders, which makes them a wonderful source of steady income.
Investors interested in owning REIT shares should heed the old real estate mantra, "location, location, location."
A REIT with widely dispersed holdings is somewhat protected from local economic downturns or regional imbalances in supply and demand.
Here are four REITs with diverse niches:
Apartment Investment and Management (symbol AIV, recent price $39) is the biggest player among REITs in apartments. Aimco, as it is called, operates about 370,000 apartments spread across 49 states, the District of Columbia and Puerto Rico.
Chelsea GCA owns and runs outlet shopping malls in 11 states along the East and West coasts. Chelsea (CCG, $32) is expanding its outlets, adding 300,000 square feet of retail area in 1999 and 430,000 square feet at an outlet placed between Walt Disney World and Sea World in Orlando in 2000.
Equity Office Properties (EOP, $24) is the largest publicly held REIT in the United States with a stock-market value of $7.2 billion. Its portfolio of 76 million square feet of office space in 39 major U.S. markets is about evenly split between downtown and suburban office spaces.
General Growth Properties (GGP, $32), a Chicago-based retail REIT, benefits from the simple fact that Americans love to shop. General Growth owns and operates 124 shopping malls in 39 states.