TAKING STOCK

Dear Mr. Berko:

Our broker is helping my wife and me plan a portfolio and we are beginning with $7,500. She has recommended these five real estate investment trusts, and I would like to know what you think about them.

We’re not big clients but hope to be able to invest between $6,000 and $9,000 a year in income stocks and reinvest the dividends. We are not aggressive and have at least 20 years till we retire.

Last year our broker helped us invest in pipeline stocks with good dividends and the year before she selected utility issues for us. Each time we wrote to ask you about her selections. So once again, please advise us.

H.W.   Oklahoma City

Dear H.W.:

I think you’ve got a great broker who really knows her stuff. I don’t like the firm where she hangs her shingle, but she seems immune to the boutique “junque” peddled by most of the salespeople employed there. With one exception, I applaud each of her recommendations to establish a real estate investment trust sector in your portfolio. I’m also impressed that she is willing to assist you and your wife in developing an ongoing investment plan, considering the fact that you folks have only $7,500 to invest.

Sadly, there are very few brokers in this business who would give small investors such as you that kind of respect and courtesy. The prime directive of Wall Street is not “the client always comes first,” but rather commission dollars. Most brokers consider the small investor with $3,000 or $6,000 to invest an insufferable nuisance because the commissions are so small. Most brokerage firms covertly discourage this business.

I think General Growth Properties Inc. (GGP-$52.12) is dandy. GGP develops and manages shopping centers and has interests in more than 110 malls around the United States. GGP’s funds from operations (FFO) have averaged more than 15 percent annually since it went public in 1993, and its dividend growth has been exceptional. The current $2.88 dividend, which yields 5.5 percent, is likely to exceed $3 this year as FFO may increase to $3.25 a share.

I don’t care for Cousins Properties Inc. (CUZ-$24.85), which owns and develops offices, retail and medical properties in the South. While these have traditionally been growth areas for CUZ, the business slowdown, lower leasing activity and overbuilding in the South have put a lid on CUZ’s sizzle. I expect lower revenues and earnings this year and next. I would avoid CUZ.

Tanger Factory Outlet Centers Inc. (SKT-$29.44) develops, leases and owns 30 factory outlet malls in 21 states. FFO have increased modestly in the past five years and so has the $2.45 dividend, which yields 8.3 percent. Significantly better than modest results are expected for 2003, and SKT’s management team seems to be getting better at doing what it does. I think SKT may raise its dividend quite nicely this year.

Her selection of Vornado Realty Trust (VNO-$33.35), which develops, owns and manages retail and industrial properties in the mid-Atlantic and Northeastern states, looks just fine. The company has excellent management and strong revenue and dividend growth, and its $2.72 dividend yields 8.2 percent. Next year should be pretty good for VNO and the dividend could be raised close to the $3 level.

I like BRE Properties Inc. (BRE-$28.34), which owns 80 apartment communities in Oregon, California, Arizona, Washington state and Utah. BRE owns classy units, the rental market is pretty strong in these areas, and management has good people working in its organization. BRE has a swell FFO record and attractive dividend growth. The current $1.95 dividend yields 6.9 percent and will likely be raised to $2.06 this year.

Your broker has done yeoman’s work in selecting these issues. Invest $7,500 among the four issues I like and I think they will do well over the long term. And make sure you and your wife treat this lady well because she seems to be a caring, knowledgeable professional who puts her customer first.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or visit his Web site at www.berkoradio.com.