One firm bucks the trend

Donald Saltz

October 04, 1991|By Donald Saltz

No one need tell you that commercial real estate, generally, has been a poor investment during the last several years. Overvalued real estate has brought down a number of large American banks and other companies as well.

At the same time, a few real estate firms have done well, probably none better than Washington Real Estate Investment Trust, which is headquartered in Bethesda. The company, known as Writ, has prospered throughout the real estate recession, or, as some would say, depression.

Real estate, including even individual home ownership, has disappointed many investors as prices have failed to grow at prior rates, if at all. Additionally, there are costs of maintaining real estate.

Trusts, of course, incur maintenance costs, but the well-managed ones return dividends to their shareholders. Writ's dividend payout has averaged 12 percent annually over 20 years.

B. Franklin Kahn, chairman, has instilled his basic, but simple philosophy of acquiring only well-located, quality real estate for cash and improving the properties, resulting in growing rental income. Thanks to two successful stock sales in the last couple of years, Writ has substantial liquidity -- $43 million in cash at the moment -- and in the current battered real estate market the company has unprecedented opportunities to purchase genuine bargains.

Writ hasn't bought a property in nearly a year despite daily offers by sellers who salivate when they think of Writ's available cash. The trust, however, is seriously considering two properties at this time -- a "sizable" shopping center and a business center.

Writ's portfolio includes a total of 29 properties -- nine each of business centers and shopping centers, half a dozen office buildings, and five apartment buildings. Nine properties are in Maryland and except for shopping centers in Salisbury and Westminster, they're within an hour's drive from home base in Bethesda.

Thanks to a high rate of occupancy at most of its properties -- shopping centers, for example, averaged 98 percent occupancy last year -- Writ has been able to bring in double-digit earnings gains practically quarter after quarter, although management stresses patience and long-term results.

Writ has a bit more than 17 million outstanding shares, valued at $375 million based on a $22 share price. Kahn always refers to the market valuation of the stock when asked what the properties are actually worth. Minus depreciation, the year-end 1990 cost was about $89 million. The trust has only $12 million in mortgages.

Writ has sold new shares because it's a relatively inexpensive way to raise money for property acquisitions. The latest stock sale, several months ago, brought in about $30 million. The stock was sold for 20 3/4 , so the cost of the funds is near 5 1/2 percent. Until used to purchase properties, the funds are invested short-term and earn at least enough to cover the dividend on the new shares.

That $22 share price, reached this week, is only about a point from the all-time high recorded earlier this year. The dividend yield, still above 5 percent, is a key reason investors have bought the stock. Another is the trust's policy of raising the dividend annually with another boost likely later this year. By law, Writ must pay its shareholders at least 90 percent of its earnings in order for the trust to avoid paying income taxes.

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