A REIT WITH THE RIGHT IDEA
By Karen Nickel

(FORTUNE Magazine) – In the 1980s, like many other real estate investment trusts, El Paso's Property Trust of America cast its net everywhere from shopping centers to the Holiday Inn at San Francisco's Fisherman's Wharf. But the market hasn't known how to value a diversified REIT portfolio because some sectors are much healthier than others. Southwest Capital Group, which currently manages the assets of Property Trust and owns about 22% of the REIT's shares, is addressing that problem by refocusing on just one sector: apartment complexes throughout the Southwest -- a market niche that has seen the worst and is headed up again. Analysts especially applaud the REIT's decision to serve the low-income market. Says Bruce Garrison, partner in Garrison Brothers, a Houston-based REIT research firm: ''The Southwest was never overbuilt in that sector.'' Indeed, the three apartment complexes Property Trust owns in El Paso post impressive 96% occupancy rates. The trust is now heading yonder into the New Mexico towns of Santa Fe and Albuquerque, where affordable housing is in short supply. To fuel its expansion, the REIT raised $22 million in a rights offering in June. Investors are excited by the new management at Property Trust, which trades on the New York Stock Exchange. William Sanders, head of Southwest Capital, founded LaSalle Partners, one of the largest real estate managers in the country. When he retired in 1990, he planned to start a family of REITs, each focused on a different sector. Property Trust is phase one of that plan. After recovering from the drubbing they took in the fourth quarter of 1990, some REITs surged to rich premiums over their net asset values. Not so Property Trust, says Michael Kirby, a principal at Green Street Advisers, a real estate securities research firm in Newport Beach, California. By Kirby's estimates, the El Paso REIT still trades at a bargain basement 13% discount to the value of its underlying properties. But Property Trust's secret is starting to slip out. At a recent price of $8 a share, it returns around 8% -- and that dividend is fully earned out of cash flow, a bonanza compared with the anemic 5.45% money market funds are paying. Garrison expects the shares to hit $12 over the next two years and the dividend to surge 30%. Did somebody say real estate was dead?