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This REIT Finds the Right Locations in Los Angeles and Honolulu

11/28/2019 5:00 am EST

Focus: REITS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Douglas Emmett (DEI) is a real estate investment trust that owns and operates approximately 18.4 million square feet of Class A office space and 4,147 apartment units in the premier coastal markets of Los Angeles and Honolulu, observes Mark Skousen, income and growth expert and editor of Home Run Trader.

The Santa Monica, California based REIT has seen revenue and profits grow steadily by following an investment strategy honed over almost five decades.

First, it selects markets that are supply-constrained, with high barriers to entry, affluent tenants and proximity to high-end executive housing.

Then it follows a disciplined acquisition strategy of gaining substantial market share to provide it with pricing power in lease negotiations, economies of scale in property management and an enhanced ability to identify and capitalize on investment opportunities.

In its target Los Angeles sub-market, for example, it owns 41% of the Class A office space. In Honolulu, it owns more than a third of the Central Business District Class A office space. It then serves tenants with in-house leasing, proactive property management and internal design and construction services. Tenant demand for its office buildings is robust.

In the most recent quarter, Douglas Emmett leased 1 million square feet, including a record 461,000 square feet of new leases. Occupancy increased 50 basis points to 93.1%. And same-property leases generated 6.7% more revenue.

Those numbers will only get better in the weeks and months ahead, as the company doesn’t face any meaningful new construction in its markets. This fact isn’t lost on Douglas Emmett Director Christopher Anderson.

Securities and Exchange Commission (SEC) filings reveal that a week ago he purchased 35,000 shares of Douglas Emmett at $43.23 per share in an investment of more than $1.51 million. This wasn’t Anderson’s first trip to the well, since he has been on the board of directors for eight years and is one of the company’s largest shareholders, with more than 2.3 million shares.

Anderson knows that net income is likely to rise from $0.69 a share this year to more than $0.90 in 2020. And that the dividend — already ample at 2.36% — will only grow in the weeks ahead. My advice? Follow Anderson’s lead. Pick up Douglas Emmett at market today. And place a sell stop at $35 for protection. 

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