Sweet REITs.

AuthorCohen, Jeff
PositionReal-estate investment trusts - Money Matters

Given the tumble in real-estate values over the past two years, conventional wisdom might suggest it's time to invest in property. But fears that the free fall isn't over are blunting the nerve of even the most intrepid investors.

Increasingly, investors are turning to real-estate investment trusts, which offer less risk than traditional real-estate investments with many of the benefits. A REIT is essentially a mutual fund that spreads its risk by owning several properties and, to avoid taxes, pays at least 95% of its net income to stockholders in dividends.

"REITs provide investors with a way to diversify their portfolios and own real estate without having to go out and fix the plumbing," says Guy W. Ford, a vice president at the Norfolk, Va., office of Scott & Stringfellow, a regional brokerage house.

Two publicly traded REITs are based in North Carolina: Health Equity Properties (NYSE-EQP), which owns 75 nursing homes, and Boddie-Noell Restaurant Properties (AMEX-BNP), which owns 47 Hardee's restaurants in Virginia and North Carolina. A third, Raleigh-based Golden Corral Realty, owner of 28 Golden Corral steakhouses, merged in June with an Orlando, Fla.-based investment company.

Investments in these and other REITs can appreciate in value. But it's mainly the steady dividend stream -- the three funds are yielding 9% to 11% -- that makes them appealing.

In contrast to real-estate values, REITs have been riding a boom. "It has become a very attractive form of financing," Ford says. "For starters, there is little financing available for real estate from traditional sources. Banks, for example, are just not interested in making real-estate loans. At the same time, changes in the tax code have made limited partnerships less appealing."

Equally important, many REITs are benefiting from conservative investments in the 1980s. After a brutal shakeout in the 1970s, REITs couldn't afford the bidding wars that powered the '80s real-estate market. As a result, they tended to focus on typically less-risky properties such as apartment buildings and strip shopping centers, while the bigger pension funds and real-estate TABULAR DATA OMITTED partnerships focused on office towers and large shopping malls. When the real-estate market collapsed, REITs were better able to survive and, in some cases, prosper.

Stock prices of REITs really took off in 1991, with average total returns of 35.7%, vs. 30.4% for the Standard & Poor's 500. Today, the funds represent...

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