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Real Estate Investment Trusts (or REITs) are companies engaged in the purchasing, development, management, and sales of real estate assets. In essence, they pool investors’ money and invest in real estate or real estate-related assets, such as shopping centers, office buildings, hotels, and mortgages secured by real estate.

In order to qualify as a REIT, a corporation (or trust) must comply with several guidelines issued by the U.S. Internal Revenue Service. The most prominent regulation stipulates that at least 90% of income must be paid to shareholders in the form of dividends. So REIT stocks almost always ensure investors of a higher dividend income than non-REIT companies.

REITs are heavily leveraged businesses, and they fall on hard times when the real estate market is weak, as has been the case for the past three years. Convertibles issued by these companies, however, can usually weather these storms better than their underlying stocks. Below is a partial list of REIT convertibles in our Service, with an average current yield advantage over the underlying stocks of 6.7%.

 

Maturity

Recent

Cv Cur

Conv

Stock

Stock

 

Convertible Securities

Date

Price

Yld(%)

YtM(%)

Price

Ticker

Exch

RAIT Fin'l Tr 6.875s2027 (144A)

4/15/2027

50.50

13.6

15.6

$4.06

      RAS 

N

FelCor Lodging Tr. $1.95 A     

         

$19.83

9.8

 PFD

$8.11

      FCH 

N

Cohen (Alesco Finl) 7.625s2027 

5/15/2027

88.00

8.7

9.2

$5.73

     COHN 

A

CapLease 7.5s2027 (144A)       

10/1/2027

100.13

7.5

7.6

$5.83

      LSE 

N

Alexandria RE Equities $1.75 D 

         

$23.00

7.6

 PFD

$70.81

      ARE 

N

First Indus Tr 4.625s11 (144A) 

9/15/2011

98.13

4.7

6.2

$7.98

      FR  

N

Morgans Hotel Group 2.375s2014 

10/15/2014

50.88

4.7

20.2

$8.47

    MHGC 

O

Avatar Holdings 4.5s2024       

4/1/2024

99.13

4.5

4.6

$23.84

    AVTR 

O

Forest City Ent 5s2016 (144A)  

10/15/2016

132.31

3.8

 NMF

$15.45

    FCE/A 

N

* Prices as of April 30, 2010

Selected Convertible Profiles:

Founded in 1993, the Chicago-based First Industrial Realty Trust (FR) operates as a real estate investment trust that is engaged in the ownership, management, acquisition, sale, development, and redevelopment of industrial real estate properties. Included in its in-service portfolio are 403 light industrial properties, 125 research and development/flex properties, 162 bulk warehouse properties, 89 regional warehouse properties, and 25 manufacturing properties containing approximately 64 million square feet of gross leasable area located in 28 states in the United States, and one province in Canada. The First Industrial Trust convertible notes due 2011 are call protected until September 14, 2011. Meanwhile, the notes offer a 4.7% current yield and a 6.2% yield to maturity. The company discontinued paying dividends on the underlying common stock in 2009.

Avatar Holdings (AVTR) owns and develops land, primarily in Florida and Arizona. The company develops, sells, and manages adult communities and residential communities, as well as commercial and industrial properties. In addition, Avatar operates resorts and cable television stations. Avatar’s 4.5% convertible notes due 2024 trade at a 4.5% current yield advantage over the underlying common stock, as the common stock does not pay dividends at this time. The debt becomes callable and putable on April 5, 2011.