Bottom of the Barrel: Reviewing the REITs

That doesn't mean the stock is cheap. Calculating the value of any REIT's properties is subjective, but Alexandria's assets appear to be worth about $37 per share, when viewed conservatively. That suggests the shares are trading at a 15% premium to asset value, near the top of the range that investors are traditionally willing to pay for a public real estate company, especially in an uncertain economy.

A combination of Alexandria's strong property niche, solid growth rate and dividend indicates that the stock will be a stalwart in tough times for mainstream real estate. However, it seems fairly priced, given both its multiple to FFO and premium to net asset value. If you're looking for a nice dividend with longer-term appreciation potential, consider Alexandria, but keep your short-term expectations in check.

Acadia Still Solid

Long Island-based Acadia Realty (AKR Quote) isn't on any analyst's radar screen anymore since CIBC dropped coverage about a month ago.

That's too bad, because this small shopping-center REIT knows how to do things right: It runs its portfolio to benefit shareholders. The company owns more than 30 community shopping centers, largely in urban centers in the Northeast.

Since I profiled the stock in June, it's up about 6.5%. Combined with a dividend yield of nearly 7%, Acadia has offered shelter from a stormy market.

But shopping-center landlords aren't without problems, either. There's a glut of suburban space, problems with major tenants like Kmart (KM Quote) and the ever-present challenges from Wal-Mart (WMT Quote). However, Acadia's centers are in in-fill locations -- meaning there's little surrounding land on which to build competing projects -- and that protects them from ravenous competition. In fact, Wal-Mart is an Acadia tenant, contributing just over 3% of the company's total rents.

Acadia's portfolio performed well in the third quarter as the company posted an 8% increase in FFO and a 2.3% increase in net operating income. In addition, it was able to sell two shopping centers during the quarter, including one with a 112,000-square-foot anchor.

The company expects to post FFO of 85 to 90 cents a share in 2003, placing the forward multiple at about 8 times, below the shopping-center average of 9.7 times 2003 estimates. Although Acadia's small size is the reason for part of the discount, the stock seems reasonably priced. With a 7% yield and a management team that seems to be on the right track, this small REIT still looks cheap.

The JDN Marriage

When I profiled JDN Realty (JDN Quote), the Atlanta-based big-box retail REIT, I said there was a good chance of a merger, which should provide a modest benefit to shareholders. That proved correct.

In October the company agreed to be purchased by Developers Diversified Realty (DDR Quote) in a stock deal that is now worth about $11.22 per share for JDN shareholders. That's not great, but given the dividend, holders have fared alright. Once the deal is complete, JDN shareholders would become shareholders of Developers Diversified, a decent retail REIT. However, there's little to say about JDN except to congratulate CEO Craig Macnab for keeping the company afloat after a troubling chapter in JDN's history. Because of the merger, I'll remove JDN from the portfolio.

Next week, there'll be another Barrel pick and the return of Barrelology, my historical look at the portfolio.