In an economy that is contracting, how safe are the dividends of REIT companies that specialize in the retail, office, and industrial real estate arena. Here we look at five REITs with this question in mind:
Lexington Realty Trust Inc (NYSE:LXP): Shares are trading around $6, as against their 52-week trading range of $5.71to $10.14. At the current market price, the company is capitalized at $947 million. Earnings per share for the last year show a loss of $0.49, It paid a dividend of $0.46 last year (a yield of 7.70%).
Lexington only makes a portion of its income through its REIT operations. Its advisory business performed poorly last year, and it is hard to see how this will turn around in the next twelve months. Its shares are trading at the company’s reported book value of $5.98 per share, and debt stands at $1.72 billion. If the economy can recover, then its 185 properties could drive profits growth strongly. However, such a scenario may be some way off. At this price, I rate the shares as a hold.
First Potomac Realty Trust (NYSE:FPO): Shares are trading at $12.60 at the time of writing, against their 52-week trading range of $11.31 to $17.25. At the current market price, the company is capitalized at $631 million. The company made a loss per share for the last fiscal year of $0.38. It paid a dividend of $0.80 last year (a yield of 6.30%).
Earnings are expected to come in next year at over $1 per share, as new developments come on line and start to contribute to the bottom line. Most of its business is centered on Washington D.C., Maryland, and Virginia. Recent deals include a long term lease to DTLR of its Candlewood Road property in Maryland, and two leases at Chesapeake that take its Crossways Commerce Center and Diamond Hill Distribution Center to over 88% occupied. Expect the shares to perform well, mirroring the company’s good management. Buy.
Brandywine Realty Trust (NYSE:BDN): Shares are trading at $7.10 at the time of writing, against their 52-week trading range of $6.77 to $13.08. At the current market price, the company is capitalized at $958.85 million. Earnings per share for the last fiscal year showed a loss of $0.19. It paid a dividend of $0.60 last year (a yield of 8.50%).
An economic downturn is not good for companies that rent out office space. This is Brandywine’s business. It is hard to see how the company will be able to turn its poor share performance around. Its operating cash flow of $170 million is attractive, but announcements of lease agreements are few and far between. Until its management can act more aggressively in its market place then I see little to recommend as a buy: this may have to wait until the economic outlook is brighter. Avoid.
Excel Trust Inc (NYSE:EXL): Shares are trading around $10 at the time of writing, as against their 52-week trading range of $8.88 to $13.21. At the current market price, the company is capitalized at $309.05 million. Earnings per share for the last fiscal year were a loss of $0.12. It paid a dividend of $0.62 last year (a yield of 6.20%).
A relatively new company, incorporated in 2009, Excel predominantly owns and leases shopping malls and retail centers. In July it announced the completion of the acquisition of The Promenade, 725, 000 square feet of retail space in Arizona, for $110 million. The $52 million mortgage bears an interest of 4.8%, and matures in 2015. The space is 97% occupied. Shortly after this deal the company announced a stock repurchase program, which will see it buy up to $30 million of stock on the open market. The company has a cash pile of $89 million, and debts of just $200 million. The reported book value is $10.74 per share. Strong management, confident in its investment strategy, will propel the shares higher in the medium term. Buy for prospects going forward.
Franklin Street Properties Inc (NYSEMKT:FSP): Shares are trading around $11 at the time of writing, as against their 52-week trading range of $10.49 to $15.63. At the current market price, the company is capitalized at $897 million. Earnings per share for the last fiscal year were $0.57, placing the shares on a price to earnings ratio of 19.44. It paid a dividend of $0.76 last year (a yield of 6.90%). Shares are trading near the reported book value of $11.38, and look fairly valued. However, the company has a credit line of up to $500 million available to invest, and recently announced the acquisition of offices in Evanston, Illinois for $35.1 million. The building is 95% leased and brings total square footage in the company’s 35 properties to 6.94 million. Investing in highly leased properties will prove profitable in the longer term, and add value when the economy returns to growth. Hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.