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There Are Still Good Buys in Real Estate

07/03/2007 12:00 am EST

Focus: REITS

Neil George

Editor, Profitable Investing

Neil George, editor of Personal Finance, says well-managed, well-positioned real estate companies can continue to prosper despite the weakness in some property markets. 

We own a host of real estate companies with properties around the world. Despite pitfalls in some parts of the home market, our picks continue to deliver year after year.

Northern Property REIT (OTC: NPRUF) leads off our lineup of apartment companies. The Calgary-based REIT, along with Canadian Apartment Properties REIT (OTC: CDPYF), is right in the thick of a great, resource-boom-based market. Rental properties in high-growth regions like oil- and gas-rich Alberta are scarce—and getting scarcer by the day.

Condo conversions and other construction dynamics have resulted in a drop in available vacancies to the low single-digits on a percentage basis. With demand for labor rising by double-digit rates, it’s a landlord’s dream market.

Results for Northern Property and CAP REIT show the real cash: revenues are gaining by 30% to more than 40% in the past two years alone. And from those substantial revenues comes our cut: distributions paid out in the solid 5.5%-plus rate every month. Continue to buy Northern Property REIT up to $27 and Canadian Apartment Properties REIT up to $22. (Northern Property closed below $22 and Canadian Apartment Properties closed at $18.45 Monday—Editor.)

These two are joined by our US apartment companies, Home Properties (NYSE: HME) and Mid-America Apartment Communities (NYSE: MAA). With a tougher mortgage market, more folks are demanding rental properties rather than buying their own places.

The results are similar to our Canadian REITs, with revenues expanding at solid, double-digit rates. And we keep getting our checks. Home Properties and Mid-America both pay us in the mid- to upper-4% range. Buy Home Properties and Mid-America Apartment Communities, both under $60 a share. (HME closed below $53 and MAA at around $54 Monday—Editor.)

Last up is our commercial property company, WP Carey (NYSE: WPC). This company focuses on the same Standard & Poor’s 500 companies that sell their real estate, properties ranging from headquarter buildings to distribution centers, then lease them back under long-term contracts. This is a risk-averse business that WP Carey has pioneered and led with impressive and consistent results, the major one being the quarterly payday. With a 6% annualized dividend rate, WP Carey is a buy under $35. (It closed just above $32 Monday—Editor.)

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