Bottom of the Barrel: REITs Lend Some Support

Alexandria Remains Healthy

The niche biotechnology office market has worked well for Alexandria Real Estate. When I profiled the company about a year ago, the stock was trading at $40.25. Although it's down from its highs, the stock now trades at about $42, a nice gain in a very sloppy market. Like most REITs, the dividend is meaningful, with the stock yielding 4.8%.

Alexandria is one of the more aggressive REITs, constantly upgrading its portfolio to meet the needs of the rapidly changing biotechnology business. Unlike other office markets, Alexandria's niche remains strong.

Alexandria Its niche stays strong

"Alexandria's strong performance has been an anomaly among the office REITs and gives further credence to the company's strategic focus on lab space," said Anatole Pevnev, REIT analyst at McDonald & Co. He rates Alexandria a buy, and his firm expects to provide investment banking services to the company. He has a 12-month price target of $46 per share.

Although Alexandria should continue to grow, it isn't likely to keep pace with growth in previous years. The company is expected to earn $4.28 a share in 2003 and $4.70 in 2004, a price-to-FFO multiple of about 10 times, with projected growth of about 10%. That suggests Alexandria is trading close to fair value. I don't see significant price appreciation ahead, but I do think the dividend can support the current share price.

Taking a Ride With CARS

Capital Automotive The stock is a little rich

Capital Automotive also remains an interesting play. It's the only publicly traded company focused on providing sale/lease-back financing to operators of retail automotive dealerships. The company targets operators of multisite, multifranchised dealerships in major U.S. metropolitan areas.

Capital's growth is economically sensitive, but its roll-up strategy has plenty of room to run. I especially like its management, its conservative accounting practices and its openness with shareholders. The company should post 2003 FFO of about $2.20. That makes the stock slightly rich at 11.2 times 2003 FFO, though that number may be slightly conservative.