Land Value in REOCs
07/25/2003 12:00 am EST
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"REITs have grown at double-digit rates over the past three years. But some analysts say that real estate funds, at best, will perform in line with the market this year. With REIT returns slowing, some real estate fund managers are turning to Real Estate Operating Companies for long-term growth instead of current income. REOCs are not required to distribute 95% of their income, as are REITs. They can pump the retained earnings back into new developments.
"'There are pockets of opportunities, says Michael Winer, manager of the Third Avenue Real Estate Value Fund. Winer focuses on long-term capital appreciation rather than income. He's buying REOCs when he thinks the price represents a significant discount to its true value. His fund owns just 30 stocks and 70% of his top ten holdings are REOCs. Winer says that as cash comes into the fund, he is primarily accumulating more shares in the following companies due to their long-term growth potential:
"Winer sees St. Joe Co. (JOE NYSE) unlocking hidden value in millions of acres in northwest Florida, which is being developed for residential resorts, single-family homes, as well as condominium and mall, office, and industrial space. The company will create residential properties on valuable coastal land, with $500,000 condos along the beach. It also owns valuable land adjacent to the Palm City International Airport. Forest City Enterprises (FCE.A NYSE) is a commercial real estate operating company that develops projects in urban areas. It is developing an infill area in New York City and is redeveloping the old Denver airport. Its company has properties in 24 states and is well-diversified in office, retail, residential, and hotel properties. Tejon Ranch Co., (TRC NYSE) owns 270,000 acres of land that is 60 miles north of Los Angeles in Kerin County. Much of the land is adjacent to Interstate 5, the busiest freeway in the nation. It is considered the next and perhaps the last great frontier in land development in California."
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