Chelsea: a REIT for All Seasons

10/10/2003 12:00 am EST

Focus:

Barry Vinocur

Editor, Realty Stock Review and REIT Wrap

"A growing chorus has been forecasting that 'it’s over' for REITs," notes Barry Vinocur, editor of Realty Stock Review.  "However, REIT performance hasn’t flagged; in fact, it has been nothing short of eye-popping." Vinocur, a leading authority on real estate investment trusts, remains bullish, and offers a favorite in the sector.

"Chelsea Property Group (CPG NYSE), which specializes in upscale outlet malls is a REIT for all seasons. The firm reported second quarter earnings that underscore (yet again) not only why it has been on our recommended list since 1994, but also why Chelsea is on our short list of the best of the best in REITdom. Chelsea’s second quarter diluted FFO per share of $0.81 represented a nearly 21% increase over 2002 (Editor's note: Comparable to earnings per share, FFO--funds from operations--is a benchmark that is often used in assessing REITs.)

"Chelsea’s earnings growth continues at a brisk pace. Since 1994, annual earnings growth has averaged an impressive 13.8%. Looking ahead, we believe CPG management’s 10% annual earnings growth rate target is achievable. Said differently, Chelsea has several engines of growth. The first is acquisitions. As the dominant player in the outlet subsector (public and private) and with ready access to attractively priced capital, Chelsea should continue in its role of industry consolidator. The expansion of Chelsea’s footprint outside the US adds another dimension to the company’s already impressive platform. Chelsea has a 40% ownership stake in the Sano and Gotemba centers through its investment in Chelsea Japan Co., Ltd. Chelsea’s third engine is its existing centers. Same-space sales at its US Premium Outlet centers were up 4% for the second quarter of 2003. Chelsea renewed or re-tenanted 1.2 million square feet of space, at an average base rent of $24.69 per foot; that’s nearly 12% higher than the average expiring rent.

"Chelsea has consistently delivered at a level few other REITs can match. While we’re not arguing Chelsea is cheap, cheap, cheap, and we acknowledge that current pricing 'assumes' CPG can keep on going, it’s one of a handful of companies we believe you can buy and tuck away for the truly long haul. As noted, Chelsea is among a tiny handful of companies that make our best of the best in REITdom list."

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