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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | AUGUST 12, 2004
 FUND Q&A Investors, Know Your REITs [Page 2 of 2] Q: Can you discuss some of your favorite holdings? Melquist: Unlike most REITs this year, LaSalle Hotel Properties wasn't hurt in April. LaSalle is more geographically concentrated than most hotel companies, because it has several hotels in the Washington, D.C., area, which is flourishing. LaSalle made some smart acquisitions, and we're confident about their management. The stock has gained 36% this year, but we think it has further upside. The hotel sector goes through four- or five-year cycles, and we think we're currently in an up cycle. Earnings from hotel stocks are increasing dramatically, as the hotel subsector is benefiting from the economic recovery and more business travel. Wenker: We also like Corporate Office Properties Trust (OFC ), although we aren't too bullish on the office subsector. OFC has focused on Washington, D.C., suburban Northern Virginia, and Maryland, areas that are doing extremely well. Q: What would make you sell a stock? Melquist: We will sell a holding when a company's growth prospects weaken relative to its peers, when its management team changes significantly, or when the stock reaches the upper end of our price target. Q: Can you cite a stock you recently sold? Melquist: We sold Apartment Investment & Management (AIV ) last October. We believed consensus earnings estimates were too high, and we were concerned that they would cut the dividend. We got out of it entirely, as the stock price was too high. However, we recently repurchased AIV, because they've since made some management changes and refocused on their core businesses. The company's stock price declined from about $41 last November, to the high $20s in May, 2004, so this was mostly a valuation bet. Q: What's your annual turnover? Wenker: The average annual turnover is typically about 90%, but this mostly reflects adding or trimming of existing positions. We don't sell holdings outright very often. REIT stocks, as a group, tend to move up or down in tandem, so we add or cut back based on valuations. Q: What place should REITs have in an investor's portfolio? Wenker: REITs provide great diversification, because they show very low correlation with other stocks or bonds. Q: What's your outlook for REITs for the rest of 2004? Wenker: It's a mixed picture. Investors should be cautious about high valuations, which exceed the industry's fundamentals. However, we feel interest rates will rise at a modest pace, so investors probably won't abandon REITs. Melquist: In addition, REITs had higher second-quarter earnings, leading to higher dividends and better yields. Occupancy rates are also increasing slightly around the country, although pricing power has not appreciably improved.
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