Investors can lose their way exploring alternate realty.

AuthorWilliams, Christopher C.
PositionNorth Carolina's real estate investment trusts

In 1995 and 1996, real-estate investment trusts raised the roof nationwide, generating a 53% total return. North Carolina REITs were no different, beefing up their property portfolios while producing double-digit returns from stock-price increases and the dividends REITS must pay out.

But the keg might be running dry. A five-year building boom is creating a glut of commercial properties in the Southeast. That could slow expansion, disrupting earnings. In the first half of this year, Wall Street's wariness about overbuilding in the region hampered the stocks of some of the six REITs based in North Carolina, though they've looked better since.

Summit Properties Inc. in Charlotte (SMT-NYSE) and Winston Hotels Inc. (WXH-NYSE) in Raleigh have seen their stocks flounder. Even Highwoods Properties Inc. in Raleigh (HIW-NYSE), an analyst favorite, is up only 4% this year, after gaining 19% in 1996. Another darling, Greensboro-based Tanger Factory Outlet Centers Inc. (SKTNYSE), has seen an 8% rise through late September, but that still trails the Dow Jones Industrial Average of about 23%.

The anomalies are Boddie-Noell Restaurant Properties Inc. in Charlotte (BNP-AMEX) and FAC Realty Inc. in Cary (FAC-NYSE). Both stocks are up significantly. Still, they are far from sure bets, as both companies are in the midst of changing focus.

Highwoods is many folks' pick as the Southeast's best REIT. It's the region's largest office and industrial one. Since going public in 1994, it has expanded its portfolio from 2.5 million square feet to 21.6 million, spanning 16 cities in seven states. In September, it paid $622 million to buy Orlando-based Associated Capital Properties Inc., which owns Florida office buildings. To pay off some of the debt it assumed, it sold $150 million of new stock.

Analyst James H. Kammert of Robinson-Humphrey Co. says Highwoods won't suffer growing pains. It's disciplined about deals and keeps local staff to ensure continuity. Highwoods is building less in Charlotte and Atlanta, areas close to overbuilt, says spokeswoman Gail Rosenberg. It reported funds from operations, a standard measure of REIT performance, of $1.59 a share in 1996. That should jump to $2.72 in '97, Kammert says.

Like Highwoods, Tanger, operator of 30 factory-outlet centers in 22 states, is regarded as one of the better-managed REITs. It has generated a total return of 32% since the start of 1996 by focusing on maximizing cash flows from its existing portfolio, now...

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