- The Washington Times - Sunday, June 8, 2003

Nearly all sectors of the local real estate market, including the much-maligned apartment and hotel industries, are attracting renewed interest from investors, who are anticipating better occupancy rates this summer.

Three local real estate investment trusts, or REITs, saw the price of their shares hit 52-week highs Friday, while two other local REIT stocks reached new peaks for 2003. The increases came at the end of a week that saw the Dow Jones Industrial Average climb to 9,000 points for the first time in 10 months.

Shares of Columbia, Md.-based Corporate Office Properties Trust closed Friday at $16.45 on the New York Stock Exchange, the highest price in its history, after the company announced it paid $72 million for a fully leased 404,000-square-foot office building in Herndon. The company, which owns and manages 113 office buildings in the Baltimore-Washington region, went public in 1992.

Town and Country Trust, a Baltimore company that owns 44 apartment communities along the East Coast, saw its shares rise to $23.80, the highest level since May of last year.

Choice Hotels, the Silver Spring-based operator of more than 5,000 hotels worldwide, said its shares rose to an all-time high of $26.15.

The Morgan Stanley REIT Index has risen more than 11 percent since the beginning of the year, and a similar equity index from the National Association of Real Estate Investment Trusts is up more than 9 percent. The Dow Jones Equity REIT Index reached an 11-month high Friday and has risen 10 percent this year.

Other local REIT stocks that hit highs for 2003 on Friday include Alexandria apartment REIT Avalon Bay Communities and CarrAmerica Realty, an office REIT based in the District.

Reasons for the increases vary, depending on the company, though most analysts credit the broader increase in most stock values since the end of the war in Iraq. Many REIT stocks had been underpeforming the market as a whole during much of April and May but climbed in recent weeks.

Some analysts said a slowdown in construction of hotels, offices and apartments has allowed occupancy rates to rise.

And most analysts agree that the Washington region is one of the most stable commercial real estate markets in the country.

In the case of Corporate Office Properties, investors appear to have responded favorably to the company’s Herndon acquisition, which increasesits portfolio of office buildings in Northern Virginia. The purchase came with several unusual provisions, including one that would allow the company to pay the current tenant $2 per square foot to vacate.

Analysts said such a provision would give Corporate Office Properties the flexibility to lease the entire building to a new tenant.

Corporate Office Properties reported net income of $7.99 million (22 cents per share) for the first quarter of this year, up from $5.29 million (13 cents per share) for the comparable quarter in 2002. Revenues increased to $35.98 million from $29.89 million during the same period.

Choice Hotels has seen its shares rise in part because of improved earnings and a cautious optimism about the summer travel season, analysts said.

PricewaterhouseCoopers predicted occupancy in hotels would increase slightly this year over 2002, and AAA said 71 percent of its members intend to travel as much or more than last year.

The automobile association said that more Americans will choose to travel by car and to destinations close to home, and this bodes well for Choice Hotels, analysts said, because most of its hotels are considered “drive-to” destinations.

Investors have not soured on REIT stocks even though most are ineligible for the tax cut on dividends signed by President Bush as part of an broad economic stimulus package last month.

Most REITs do not pay corporate income tax, and are instead required to pay out at least 90 percent of their taxable income in the form of dividends.

REIT dividends are among the highest of any stocks, and recent analyst reports show that after-tax yields of REIT stocks are still higher than most stocks in the Standard & Poor’s 500.

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