Hope and fear drive market

Donald Saltz

August 23, 1991|By Donald Saltz

Emotion plays a large part in the fortunes of the stock market. While management, products, services, sales and earnings are important, a good part of the share price is tied directly into the joys and fears of investors.

After the report last Sunday night of the apparent overthrow of Soviet President Mikhail Gorbachev, investors' thoughts turned to the stock market opening the next morning. How far down would prices go was the key question, and how many points would favorite stocks lose. There was, as always, fear of the unknown, but what Monday morning really offered was an opportunity to buy quality stocks at an instant discount.

McCormick & Co., for example, lost 1 3/8 for the day but it was down about double that at one time. Tuesday it regained most of Monday's loss. Bethlehem Steel fell from 17 1/4 to 16, then rebounded to almost 17. Warner-Lambert, the company that many years ago bought Baltimore's Emerson Drug Co. -- maker of Bromo-Seltzer -- dipped to 66 3/8 but closed at 68, down only 5/8 .

Buy orders below the market are triggered during periods such as that which occurred early this week. However, history shows that prices will bounce back to their prior levels. Interludes of shock news -- the removal from office of Gorbachev was the latest -- upset the stock market very briefly, unlike economic recessions and individual company news that have a more lasting effect on stock prices.

Many investors find it difficult to place buy orders when the sky seems to be falling, but very often it is quite profitable.

The folks who manage the properties owned by the Washington Real Estate Investors Trust, based in Bethesda, known how tough the real estate market has been, but they are aware from a distance. The trust, known as Writ, has been turning in higher profits for 26 years in a row, succeeding where other real estate trusts and businesses have been floundering. Writ's quarterly earnings gains are double-digit these days.

Writ's latest report, for the three months ended June 30, was of an 11 percent rise in earnings to $4.56 million. Cash flow, which adds in depreciation, is almost $1 million more, and the outlook for further gains is bright: The company notes that leasing is running ahead of projections.

Writ has a knack of buying quality properties at reasonable prices -- generally office buildings, business centers and shopping centers, although the trust also owns apartment buildings -- improving them, and boosting occupancy and rents.

At a time when other publicly owned real estate businesses have been reducing or eliminating dividend payouts, Writ continues to raise its dividend annually and will likely do so again at year's end.

Investors generally may not realize that this veteran real estate trust has had perhaps the best dividend growth of any real estate trust in the nation, up more than six times since the mid-1970s. The current rate is $1.16 a share, providing a yield of 5 1/2 to 6 percent. That modest return attests to the dividend growth potential. If there were little chance for dividend growth, the share price would be lower and the current yield higher.

As many real estate firms scramble for funds, Writ has been able to sell new shares to raise money to buy more properties. The trust sold 1.5 million shares in May and raised $30 million. At the moment it has about $43 million in cash and securities as it reviews a vast quantity of properties being offered. Just two years earlier, Writ sold 1.65 million shares for $30 million, a good part of which has gone into newer acquisitions.

Writ usually buys its properties for cash, thus total mortgage debt is only $12 million and at low rates. Based on the $350 million market value of the shares, which management says is probably the best way to value the trust's holdings, debt is under 4 percent of assets.

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