Real Estate Stocks Continue to Be Undervalued; Is It Time to Buy? by Lesley Hensell
The real estate industry continues to struggle with fair-to-middling stock prices while other issues on Wall Street soar to unprecedented heights. This has given rise to another somewhat disturbing trend as even the most solid real estate firms initiate aggressive stock repurchase programs, sometimes increasing debt or reducing cash reserves in hopes of resurrecting the stock price. Of course, all of the firms engaged in the repurchase of their own shares will put forth solid business reasons for undertaking such programs. And none of those reasons will indicate panic or insecurity regarding stock performance. But those of us who have been watching the market for the past couple of years can imagine the frustration of real estate corporate executives, who oftentimes are turning in solid earnings performances only to receive an undervalued price on The Street. We can only wonder how many firms taking this action are hoping to boost internal equity to increase their chances of being taken over. In the short run, however, dedicated shareholders are sure to appreciate efforts to increase the value of their holdings. And if there is anything that real estate firms must do in these early months of 2000, they must shore up value and trust for those loyal shareholders who believe in the worth of real estate investments. Our three contestants for today surely must bemoan their inadequate price-to-earnings ratios, which stand as they do largely because of the general unattractiveness of real estate equities to common investors, rather than actual company performance. One such firm, FelCor Lodging Trust Inc. (NYSE: FCH), is one of the country’s largest hotel real estate investment trusts. The company has a solid track record of purchasing run-down hotel properties in excellent locations and refurbishing them, resulting in higher-than-average RevPAR (revenue per available room, the most commonly used industry measurement of performance). Yet FelCor has expanded its repurchase program from a $100 million stock buyback initiated in September to a $300 million program total. Through the end of last year, FelCor had bought back around 5.8 million shares for nearly $100 million. Future purchases will be funded through long-term fixed-rate debt, existing credit lines, sales of assets or cash. The stock currently rests not far above its 52-week low of 16 ¼, and carries a weak price-to-earnings ratio of 11.14. Prentiss Properties Trust (NYSE: PP) also has increased the size of its repurchase program. What started as a 2 million share buyback now has risen to 3.5 million shares. The company has bought back 1.5 million shares from an institutional owner at $19 per share, a couple of bucks less than the going rate. "Although we continue to see some excellent external investment alternatives, at $19 a share our stock represents an extraordinary investment opportunity," said Mike Prentiss, chairman. "We believe that this transaction created substantial value for our remaining shareholders." However few of them there may be remaining. With this trade, Prentiss Properties has repurchased approximately 3 million of the 3.5 million shares authorized by its board "This trade demonstrates again Prentiss Properties' commitment to creating shareholder value as opposed to solely growing assets," said Tom August, president and CEO. The purchases may have had some effect on price, with the stock nearing $22, close to its year-long high of $24 3/8. But the company’s P/E still remains low, at 12.46. Perhaps the most desperate among our buyback buddies is Wellsford Real Properties, Inc. (AMEX: WRP), which repurchased approximately 1.45 million shares - or 7 percent - of its common stock. Most purchases were made at between $8 and $9 per share. The stock now hovers at $8 ½, near the bottom of its 52-week range ($7 5/8 - $12 ¼). The company suffers from a P/E ratio of less than 1. Investors who are not true believers likely are running scared. But those still drumming to the beat of fundamentals may take this as a cue to buy. | 
