REITs Look to Real Estate Basics for Revenue Boost

After buying everything from skyscrapers to industrial parks, the nation’s real estate investment trusts have to find more mundane ways to grow and boost profits, such as raising rents and selling advertising space, according to industry executives.

For example, Macerich Co., a Los Angeles-based shopping center REIT, is exploring ways it can make money by renting rooftop space to satellite dish operators, said company President and Chief Executive Art Coppola.

“We have to figure out different ways to make money off of properties,” said Coppola last week at a midyear outlook that was held by the Real Estate Conference Group and co-sponsored by the Los Angeles Times.

Squeezing more money out of existing properties is one of the many strategies REITs are exploring as spiraling property values and stagnant stock prices have forced them to cut back on a dramatic real estate shopping spree. In many cases, REITs are pursuing some basic real estate strategies: keep tenant turnover low, keep your properties up to date and raise the rent.

“We are keeping to the original fundamentals that got us into the business,” said Martin J. Coyne, vice president and regional manager for AMB Property Corp.

Spieker Properties, an office building REIT headquartered in Menlo Park, is looking forward to some hefty rent hikes--ranging from 15% to 20%--as many of the leases on the properties it has amassed in recent years come up for renewal.

“Acquisitions will be a nominal driver of growth,” said Jeffrey K. Nickell, vice president of Spieker. “Cash flow from leases will play a greater role” in the company’s financial performance, he said.

REITs are also looking to generate more profits by modernizing and remodeling existing properties. Keith R. Guericke, president and chief executive of Palo Alto-based Essex Property Trust, said the company has benefited from upgrading its apartment complexes in downtown Los Angeles and Thousand Oaks.

“That’s where the real estate investment trust can create value for its shareholders,” said Guericke.

In addition, REITs, which have been known for accumulating properties, will also be busy unloading real estate that has failed to meet expectations or no longer fits into the corporate strategy. AMB Property, for example, expects to sell off between $100 million to $150 million of its real estate portfolio.

REITs will continue to buy properties, but only after they fit into some carefully tailored guidelines. Victor Coleman, president of Los Angeles-based Arden Realty Inc., said his company will buy $750 million worth of real estate in areas where his company already dominates the market.

“We have to maintain our focus,” Coleman said.

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The REIT Race

The following REITs are based in Southern California. The chart shows their closing prices as of July 17, their low and high share prices during the last year and their yield per share.

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Ticker July 17 Southern California REITs symbol Exchange close Low** Alexander Haagen Properties* ACH AMEX $15.19 $13.75 Alexandria Real Estate Equities ARE NYSE 31.00 23.75 American Residential INV NYSE 9.75 8.94 Investment Trust Angeles Mortgage ANM AMEX 19.00 15.00 Investment Trust Apex Mortgage Capital AXM NYSE 11.38 10.19 Arden Realty ARI NYSE 26.19 24.88 Burnham Pacific Properties BPP NYSE 14.69 12.75 Excel Realty Trust XEL NYSE 29.63 25.94 G&L; Realty GLR NYSE 17.19 16.31 Health Care Property Investors HCP NYSE 37.13 32.75 IMPAC Commercial Holdings ICH AMEX 14.88 14.00 IMPAC Mortgage Holdings IMH AMEX 16.63 14.00 Imperial Credit Commercial ICMI NASDAQ 12.56 12.50 Mort. Investment INMC Mortgage Holdings NDE NYSE 22.50 21.00 Irvine Apartment Communities IAC NYSE 29.63 28.06 Kilroy Realty KRC NYSE 25.13 22.00 LTC Properties LTC NYSE 18.25 17.88 Macerich MAC NYSE 29.06 24.75 National Golf Properties TEE NYSE 30.63 28.13 Nationwide Health Properties NHP NYSE 25.00 21.81 Pacific Gulf Properties PAG NYSE 22.13 20.75 Pan Pacific Retail Properties PNP NYSE 21.69 19.38 Price Enterprises PREN NASDAQ 18.38 17.13 PS Business Parks PSB AMEX 26.56 19.31 Public Storage PSA NYSE 27.75 26.13 Realty Income O NYSE 26.75 23.75 Sunstone Hotel Investors SSI NYSE 12.94 12.50 Westfield America WEA NYSE 17.44 14.25

Southern California REITs High** Yield Alexander Haagen Properties* $18.25 9.48% Alexandria Real Estate Equities 34.56 5.16 American Residential 16.75 11.49 Investment Trust Angeles Mortgage 19.88 6.74 Investment Trust Apex Mortgage Capital 15.00 8.79 Arden Realty 32.38 6.42 Burnham Pacific Properties 15.75 7.15 Excel Realty Trust 35.63 6.75 G&L; Realty 21.75 9.08 Health Care Property Investors 40.38 6.95 IMPAC Commercial Holdings 20.75 9.28 IMPAC Mortgage Holdings 18.63 11.21 Imperial Credit Commercial 19.13 5.17 Mort. Investment INMC Mortgage Holdings 27.19 8.31 Irvine Apartment Communities 33.50 5.06 Kilroy Realty 30.00 6.45 LTC Properties 21.94 8.55 Macerich 30.38 6.33 National Golf Properties 33.69 5.62 Nationwide Health Properties 26.94 6.72 Pacific Gulf Properties 24.63 7.59 Pan Pacific Retail Properties 22.75 7.01 Price Enterprises 20.25 7.62 PS Business Parks 26.63 3.76 Public Storage 33.63 3.17 Realty Income 27.81 7.40 Sunstone Hotel Investors 18.19 8.50 Westfield America 18.75 8.14

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*Will become Center Trust Retail Properties.

**52-week range

Source: Deloitte & Touche

Performance Comparison

Closing share prices of Alexandria Real Estate Equities are compared with performance of the Wilshire Real Estate Securities Index between June 1997 and June 1998.

Wilshire REIT Index: 235.42

Alexandria Real Estate Equities: $29.94

Note: The Wilshire Real Estate Securities Index is a market-capitalization-weighted index of publicly traded real estate securities, such as real estate investment trusts (REITs), real estate operating companies (REOCs) and partnerships. The index is made up of companies whose charter is the equity ownership and operation of commercial real estate. The REIT share price return component is displayed in this overview.