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Survivors Thrive As Local Sharpshooters

Only two real estate investment trusts (REITs) still exist from the original 1960s vintage, and both have stuck firmly to a well-defined geographic focus.

Only two real estate investment trusts (REITs) still exist from the original 1960s vintage, and both have stuck firmly to a well-defined geographic focus that has served them well. Their longevity is proof that real estate is still a local business.

As the name implies, Washington Real Estate Investment Trust (NYSE: WRE) owns and manages a portfolio of office, industrial and retail properties in the Washington, D.C. area. Through its initial public offering in 1961, the company raised $3 million, and its first purchase was an 87-unit apartment property for $900,000.

Today, the market capitalization of Rockville, Md.-based Washington Real Estate Investment Trust (WRIT) is approximately $3 billion, or 1000 times the original IPO. “To me that says how the REIT industry has grown,” says CEO George “Skip” McKenzie.

One of the company's claims to fame is that it has never cut its dividend. “Unlike most of the other peer REITs who have a geographic diversity and property focus, ours is really the flip side of that,” says McKenzie.

“We have a property type diversification strategy and a geographic focus in what we think is the best market in the country,” continues McKenzie. “When you're the only REIT that's paid a dividend for 48 years, it's actually a fairly easy story to sell.” WRIT currently pays a dividend of 43 cents a share.

While the majority of larger REITs have a high concentration of institutional shareholders — in many cases above 90 percent — in the case of WRIT, individual investors own about 35 percent of the shares. That appears to be almost a throwback to the original idea behind creating REITs in the first place.

“We think that helps insulate the stock price because retail shareholders tend to stay with the stock. If you're true to them with your dividend, they tend to stay true to you,” says McKenzie. WRIT's stock closed at $32.04 on Sep. 20, up 12.5 percent over a year earlier.


Another of the original REITs, Pennsylvania Real Estate Investment Trust (PREIT), also has maintained its geographic focus on the East Coast, but the company is virtually unrecognizable from its early beginnings.

Company founder Sylvan Cohen, a lawyer, built the firm to handle financing for his developer clients. “PREIT was really a financial intermediary for active developers,” notes Edward Glickman, president and chief operating officer of Philadelphia-based PREIT (NYSE: PEI).

Thanks to several mergers, including one with office developer The Rubin Organization in 1987 and another with mall owner Crown American in 2003, the company went through major strategic shifts, finally settling on its present-day retail property focus.

“We are an opportunistic retail real estate company,” says Glickman. “We are a company that appreciates the power of knowledge of your geography, and the kinds of mistakes you can make if you don't understand your geography.” PREIT stock closed at $12.55 on Sep. 20, up 31 percent from a year earlier.

Industry analysts tend to agree that the local strategy works for WRIT and PREIT.

“There's something about being a local sharpshooter that allows you to see the storm a bit sooner and then likely weather it more successfully,” says Adam Markman, managing director at Green Street Advisors, an independent research firm specializing in publicly traded real estate companies.

The impact that Washington Real Estate Investment Trust and Pennsylvania Real Estate Investment Trust have had on the REIT industry can't be overstated, says Glickman, despite the modest size of their portfolios. “They are companies that have weathered a lot of different business cycles, who never missed a dividend over 50 years. It's just part of the way we think about the world, part of the discipline of being a REIT.”

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