Across corporate America, companies are bragging about their global presence. Bigger is better, they say as they expand from sea to shining sea and beyond. Commercial real estate companies are following suit as many seek to establish a presence in multiple major U.S. markets.

But one real estate investment trust has bet the farm on its single geographic market, and the bet is paying off. For investors who love strong fundamentals and are not afraid of the recent REIT curse, Washington REIT (NYSE: WRE) is a great gamble.

CFO Larry Finger says the company's strong performance, despite five U.S. recessions and three real estate "meltdowns" since 1965 – has resulted in:

• 33 consecutive years of increased earnings per share
• 28 consecutive years of increased dividends per share
• 26 consecutive years of increased funds from operations per share

"No other REIT can come close to this record," Finger said.

The company's strategy is simple, diversify in terms of real estate, but keep the geographic focus tight. Washington REIT's multi-sector portfolio includes 19 office buildings, 13 shopping centers, eight apartment complexes and 15 industrial distribution centers, all in the Washington-Baltimore region.

And unlike many other REITs whose balance sheets are hampered by debt, Washington REIT uses leverage conservatively. The company's market cap is $900 million, and the REIT refuses to go below a 3:1 debt service ratio.

This REIT has been a steady performer for decades. From 1971 through 1998, Washington REIT produced a compound annual total return of 18.3 percent, compared to 12.8 percent for the NAREIT index and 13.6 percent for the S&P 500.

In addition to the company's careful acquisition and debt strategies, a tight rein on costs results in healthy financials. This strategy is near and dear to my heart, as it should be to all professionals in the maturing real estate industry.

"The largest REITs promote how their size and national buying power result in lower operating expenses," Finger said. "We don't just operate as efficiently as the largest REITs, we operate substantially more efficiently."

Finger emphasizes the company's strength as a local real estate operating company. Since most real estate operating expenses are purchased locally, savings may be achieved through local size. This means that national size is no advantage, he said.

Still, Washington REIT's revenue stream is rather small. In 1998, the REIT achieved sales of $111.2 million, an impressive 38.3 percent over the year before. Net income in 1998 grew similarly, to $41.1 million, for a margin of 37 percent.

Recently, the company's trustees announced a 5 cent per share increase in the annual dividend rate to a total $1.17 per share. This was Washington REIT's 150th consecutive quarterly dividend at equal or increasing rates.

With these strong numbers, Washington REIT's stock price has been far less volatile than its REIT compadres over the last couple of years. The stock's simple moving average is a graceful, wavering curve, with no steep climbs or descents. In early 1996, the stock hovered near $15 ½ and has steadily climbed since then to its current price of near $17.

With a conservative price-to-earnings ratio of around 14, this stock would be an excellent addition to the income-oriented side of anyone's portfolio. Washington REIT won't break any stock price growth records. But an aggressively conservative internal growth and cost control strategy makes it a reliable income generator. And, if the REIT market ever wakes up, Washington REIT could even be a small-cap market star.

Published: June 24, 1999

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net