San Diego Business Journal

Real Estate: Realty Income to Buy Back $10M in Stock; Pan Pacific Buys Center

San Diego County real estate investment trusts are busy with property acquisitions, top executives said.

One local professional stock watcher, who follows two of the companies, foresees the REIT's stocks moving higher in the coming weeks. Their high dividend yields appeal to investors seeking current income as well as an inflation hedge.

David Allen, an analyst with Granite Financial Group in San Diego, said Monday Jan. 24 the REIT industry with an 9 percent to11 percent average annual company dividend, would be even more attractive once the rate on long-term bonds drops below the current 6 & #382; percent rate.

"You need a couple of points yield over the long-term bond rate to make REITs attractive," Allen said.

Three of the companies , Vista-based Pan Pacific Retail Properties Inc., Realty Income Corp. of Escondido and Burnham Pacific Properties Inc. of San Diego , own retail commercial real estate.

Another one, Del Mar-based American Residential Investment Trust, owns first mortgages secured by single-family residences.

Realty Income Corp. announced Jan. 13 it will be buying back some of its stock , up to $10 million worth.

Realty Income Corp. mainly owns single-tenant retail properties across the United States that are leased to chain stores.

In the third quarter of 1999, it bought 38 properties for $68.7 million in five states, said President Tom A. Lewis.

Its common stock is trading around $22 per share, pays a 9.9 percent annual dividend in monthly installments and has a price-earnings ratio of 14.2-1.

"Realty Income markets to the retail investors," Allen said. "Most REITs are owned 25 to 50 percent by institutional investors but Realty Income is mainly owned by individuals."

Pan Pacific Retail Properties Inc. said Jan. 10 it bought Cable Park Shopping Center, a supermarket and drug store-anchored shopping center in Sacramento for $12.2 million. Pan Pacific also sold two assets for approximately $8.6 million: Rosewood Village, a 50,000-square-foot shopping center in Santa Rosa; and Foothill Plaza, a 20,000-square-foot shopping center located in Rialto.

The company owns 58 strip shopping centers in four Western states.

"The purchase price of approximately $76 per square foot is well below the cost of new construction and the existing leases are well below market on average," said Stuart Tanz, Pan Pacific's president.

The company last month declared a fourth-quarter dividend of 40 cents per share. Its common stock is trading at $18 a share, up from a low of $15 a share in December 1999. It has an annual dividend yield of 8.6 percent and a price-earnings ratio of 12.6-1.

"Pan Pacific is still well-positioned with a basic product based on grocery and drug store chains. They provide an essential product to the consumer, and I think their business model is a sound one." Allen said.

Burnham Pacific Properties of San Diego also owns strip shopping centers on the West Coast.

Its president, J. David Martin, said earlier this month it had sold a 28,000-square-foot office building in San Diego because it was a non-strategic asset. The sale price for the building was $2.8 million.

Burnham Pacific Properties is trading around $9 a share, down from $12.50 a share in June. It has a price-earnings ratio of 18.75-1 and pays an 11.67 percent dividend.

American Residential Investment Trust Inc., which buys mortgages at a discount to produce income for its shareholders, announced a fourth-quarter dividend of 30 cents per share earlier this month.

For the year ended Dec. 31, the company paid a total dividend of $1.02. At the current trading price of $5.75 per share, the stock yields a 20.87 percent dividend.

Clay Strittmatter, a spokesman for the company, said it is studying its legal options against the originator and the broker for some loans that the company was forced to write off for the fourth quarter.

The company announced Jan. 20 it had taken a $12.3 million write off on its loans, which resulted in a loss of $9.7 million.

The difference in the two figures is due to the discounted price at which the loans were purchased, Strittmatter said. The loans are discounted when purchased so that a higher interest yield can be obtained.

Rancho Bernardo-based Excel Legacy Corp., which is considered an opportunistic real estate company, not a REIT, by Wall Street analysts and is also treated differently for tax purposes, acquired Price Enterprises, a San Diego-based REIT that owns retail properties, on Nov. 3.