REIT Interest: Chelsea's Earnings, Stock Show Resilience Amid Sales Slowdown
WITH Chelsea Property Group Inc.'s business driven by two things heavily impacted by the Sept. 11 attacks -- tourism and retail sales -- one might expect the outlet-center owner's stock to plummet and the company to lower its earnings projection.</br></br>But surprisingly, the company has emerged as one of a small number of real-estate investment trusts this year to publicly announce satisfaction with earlier earnings projections. And its total return -- stock price plus dividend paid to shareholders -- has risen 5% since trading resumed after Sept. 11, according to the Morgan Stanley REIT index. REITs overall have risen an average 4% in the same period.</br></br>To be sure, the Roseland, N.J., REIT looks especially vulnerable, as fears of flying keep would-be travelers -- and shoppers -- home and as the economy has sunk into a recession. But investors seem to be focusing more on Chelsea's earnings, which have risen, than on same-space sales, which have fallen. Chelsea reported 9% growth in per-share, third-quarter funds from operations, a commonly used measure of REITs' financial performance, beating analysts' estimates compiled by Thomson Financial/First Call.</br></br>In addition, company officials expect an immediate earnings boost from Chelsea's $180 million acquisition of 31 retail properties from Konover Property Trust Inc., Raleigh, N.C. The deal was completed Sept. 25.</br></br>"It's a good news, bad news thing," says Lee Schalop, analyst at Banc of America Securities in New York, with the good news winning out. "They have some bad news on sales but they bought some assets at incredibly attractive prices, with extremely high returns. Those high returns will flow through their bottom line in 2002."