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The Archstone Company Portfolio Essay


Company overview

Archstone Company is a self-governed Real Estate Investment Trust (REIT). The company ranks among the major developers, operators, and investors of real estates in the US. As of 30 June in the year 2011, the portfolio of the company contained 434 real estates situated in Europe and the US, which denoted 77,084 entities, taking into consideration units going through construction.

Almost the entire portfolio of Archstone is centralized in big cities at the coastal regions of Boston, Los Angeles, San Francisco, San Diego, and Seattle. Archstone was made private following a 22 billion US dollars purchase by the non-public real estate companies Lehman Brothers Holdings and Tishman Speyer in conjunction with numerous major investment banks in the US in October in the year 2007 (Murray 5-8).

Economic data of the US

  • GDP- over 1.7 per cent
  • Rate of unemployment- 8 per cent
  • Inflation- 2 per cent

Population inclinations and demographics: California

The state of California is situated at the West Coastal region of the US. In North America, California stands as the most densely inhabited sub-national unit. If California existed as an independent nation, it would be the 34th most populated nation worldwide. In comparison with the next largest state in the US, Texas, the population of California is a third larger.

California overcame New York State by population size and took the first position by population size in the year 1962, a position it has held to date (Joppke 23-27). The state of California is home to some of the largest inhabited areas in the US (San Francisco Bay and Los Angeles Area), in addition to eight among the top fifty greatly inhabited cities (for instance, San Francisco, San Diego, and Los Angeles).

In the year 2011, the population of California was approximately 37,691,912. This population size represents a 1.2 per cent augment when compared with the population indicated by the census of the year 2010. By the close of the first decade of the 21st century, California’s population escalated by 3,090,016 naturally.

The population data of California illustrates a population of approximately 38,292,687 people as at the beginning of the year 2009. In the year 2010, unlawful aliens comprised an approximated seven percent of the entire inhabitants in California.

The seven percent population represented the third greatest proportion by State in the US, representing approximately 2.6 million people. Of the unlawful alien population, over half came from Mexico.

From the year 2010, inhabitants born in California formed the preponderance of the population and thus denoted the foremost instance ever since the California Gold Rush (Harris 2-5). In terms of the highest growth by states in the US, California ranks number thirteen and its fertility rate stood at 2.2 in the year 2008.

There is not a single race or ethic community making preponderance in terms of population in California, which makes it a marginal-preponderance state. The number of non-Hispanic whites in California constitutes 40 per cent of the entire population. By the year 2005, 58 per cent of people in California spoke English as mother tongue, whereas 28 per cent spoke Spanish, making Spanish the second most used language in California.

Approximately half of the total 60 native languages in California are no more used, and the remaining half is endangered. In this state, the official language is definitely English (Joppke 28-31). The assumptions of demographers affirm that the State of California will comprise of a Hispanic preponderance at some point in this century because of the high immigration and birth rates when judged against those of non-Hispanic society.

Market matters

Archstone has numerous advantages for being in the Californian market since the year 1946. Throughout this period, Archstone has formed powerful connections with residents as well as members of the municipal (Pacelle 3-6). The aforementioned connections assist the company with letting and new expansion schemes.

Archstone Company is susceptible to a number of local economic situations with the greatest part of their portfolio in the Californian market, which makes them vulnerable to Californian market situations because of their deficiency with respect to market diversity (Wilson and Zurbruegg 257-278).

Capital formation

Throughout the last 5 years, Archstone has not been successful in demonstrating constant income on its investment in real estates, projects, and buildings.

Dividend and return of capital

Archstone has a sturdy dividend history. The company has constantly issued a dividend since the year 1992 with consecutive increase for the last fifteen years (since 1997). This signifies that the company boasts of a well-created stand in its markets and gives expectations to have a dividend issuance into the coming years. The table below shows the most recent dividend information for the company.

 

Dividend Information
Dividend Yield: 6.00 %
Dividend Yield 5yr Avg: 6.60 %
Dividend Rate: $ 4.85 %
Dividend Payout Ratio: 1,868.00 %
Dividend Payout Ratio 5yr Avg: 625.00 %
Dividend Growth Rate 3yr Avg: 4.92 %
Dividend Growth Rate 5yr Avg: 7.50 %
Dividend AllStar™ Ranking: 4 stars
Consecutive Div. Increases: 15 years
Dividend Payment Type: None
Dividend affirmation Date: Oct-18-2012
Dividend Ex Date: Oct-29-2012
Dividend Record Date: Oct-31-2012
Dividend Pay Date: Nov-14-2012
Dividend Amount Current: $ 1.2600
Dividend Amount Previous: $ 1.2300
Dividend Disbursements: Past one year disbursements: 4
Dividends Paid Since 1992

Table 1: Dividend information (Feng, McKay, and Clemon 341-343)

Moat positions

The strongest attribute of Archstone is the competitive advantage it has in the market. The company boasts of an attractive branding and capacity to maintain low costs. These points of strengths for the company should augur advantageously for its future viewpoints and maintain them sustainably for the time being (Frantz 100-103).

This Real Estate Investment Trust has excellent assets with fine locations, cost of capital that is low in comparison with cost on capital, and restricted lease turnover risk in markets, which will experience higher demand as compared to new supply to challenge its functioning properties.

Control matters

Managers and board of directors in additio ratingn to major investors have purchased and sold shares of Archstone at an appealing steady and equal rate (Ursery 11-13). There is no cause to believe the company shares are accruing to any further extent unless selloff shares given the future economic situations (Reprise, Rykodisc, and Warner 430-433).

Numerous monetary institutions are greatly hoarding shares from Archstone, which is constructive for the company. The major direct shareholders of Archstone include Neely Alfred, Chief Development Officer (CEO) and President of Smith High-rise Division, and Jack Callison, the head of operations in the United States.

The named shareholders have more than a million shares altogether. Managers’ pay comes from operation inducements and equity grants. In total, the directors and managers have ownership of 6 per cent of the company.

The top ranking institutional holders of the shares of Archstone are Stichting Pensioenfonds ABP, Cohen & Steers Capital Management Company, and Deutsche Bank Aktiengesellchaft, and they possess more than thirty million shares altogether. The top ranking fund holders are Capital Income Builder Company, Vanguard Specialized-REIT Index Fund, and Cohen & Steers Realty Shares Incorporated who hold more than ten million shares altogether (Rudnitsky 113-115).

Top Institutional Holders Shares %Out* Value** Reported
Stichting Pensi0Enfonds Abp 15,398,000 7.8 $530,923,040 30-Sep-04
Cohen & Steers Capital Management, Inc. 14,282,004 7.24 $492,443,497 30-Sep-04
Deutsche Bank Aktiengesellschaft 10,769,105 5.46 $371,318,740 30-Sep-04
Morgan Stanley 10,704,326 5.42 $369,085,160 30-Sep-04
Lasalle Investment Management Securities LP 10,463,096 5.3 $360,767,550 30-Sep-04
Security Capital Research & Management Inc. 7,978,563 4.04 $275,100,852 30-Sep-04
Capital Research and Management Company 7,517,000 3.81 $259,186,160 30-Sep-04
Vanguard Group, Inc. (The) 7,129,671 3.61 $245,831,056 30-Sep-04
Barclays Bank Plc 7,061,987 3.58 $243,497,311 30-Sep-04
Clarion Cra Securities 5,254,390 2.66 $181,171,367 30-Sep-04
Top Mutual Fund Holders Shares %Out* Value** Reported
Capital Income Builder, Inc. 5,665,000 2.87 $195,329,200 30-Sep-04
Vanguard Specialized-Reit Index Fund 4,321,784 2.19 $149,015,112 31-Oct-04
Cohen & Steers Realty Shares Incorporated 2,372,000 1.2 $81,786,560 30-Sep-04
Cohen & Steers Reit & Preffred Income Fund 2,324,000 1.18 $80,131,520 30-Sep-04
Vanguard/Wellington Fund Inc. 2,286,900 1.16 $78,852,312 31-Aug-04
Income Fund of America Inc 1,852,000 0.94 $63,856,960 30-Sep-04
Morgan Stanley Inst Fd Inc-U.S. Real Estate Port 1,715,596 0.87 $59,153,750 30-Sep-04
Cohen & Steers Reality Income Fund 1,590,100 0.81 $54,826,648 30-Sep-04
Universal Institutional Fds-U.S. Real Estate Port 1,369,441 0.69 $47,218,325 30-Sep-04
Ishares Cohen & Steers Realty Majors Index Fd 1,363,751 0.69 $47,022,134 31-Jul-04

* denotes institutional investments in percentage to present outstanding shares

** represents hypothetical value derived from price of 34.48 US dollars as of the year 2005. The aforementioned positions might have rose or reduced ever since the date of this report.

Table 2: Top institutional holders (above) and top mutual fund holders (below) (Feng, McKay, and Clemon 311-313)

Analyst information

Performance in comparison to Benchmarks

The graph in figure 1 below illustrates the performance of 5 years for Archstone (shown by blue color) in comparison to four different Real Estate Investment Trusts (Pederson 23-26). The other Real Estate Investment Trusts include Emmett Douglas (red color), Boston Properties (orange color), Dow Jones (purple color), and S&P 500 (green color).

Out of the five listed companies, Archstone shows the worst performance (-44 per cent), Boston properties have a slightly better performance (-11 per cent), while S&P 500 has the best performance (2 per cent). Both Emmet Douglass and Dow Jones have performed poorly although their performance is better than that of Archstone.

Performance of 5 years for Archstone

Table 3: Key ratios of Archstone (Holshouser and Baek 13)

Key ratios of Archstone

Analysis

The last part of the performance of the five companies illustrates an improvement for Archstone because of its rise in acquisitions and revenue. In this analysis, Archstone, Douglas Emmett, and Boston Properties are the three companies that have been considered. The rise in performance of Archstone is stimulated by its 638 million US dollars acquisition in the year 2011.

The rise in performance of Archstone is particularly significant with the consideration that the revenue for Douglas Emmett decreased. Both Douglas Emmett and Archstone are vulnerable to local economic situations, only concentrating in the large local Californian markets of Seattle, Los Angeles, San Francisco, and San Diego.

The focus in these markets makes the companies vulnerable to existing housing catastrophes that can generate insecurity amid numerous tenants. The little geographic moat denotes improvement when judged against Douglas Emmett, which just concentrates on Hawaii and Los Angeles and has of late experienced decreases in occupancy, throughout the recent recession.

The percentage represented by the clients of Douglas Emmett in Los Angeles is approximately 86 per cent. The high dependence on Los Angeles by Douglas Emmett makes it severely vulnerable to declines in the economy of Los Angeles (Feng, McKay, and Clemon 315-340). A different risk for Archstone is great tenant focus.

The major five clients of Archstone form approximately 19 per cent of the entire yearly income thus make its major clients extremely important. Archstone ought to see advancements in its market in years to come because it has a good opportunity to expand to other markets and avoid focusing on just one section (Californian market).

With respect to Boston Properties, both Archstone and Douglas Emmett have a very high concentration in the Californian market whereas Boston Properties is more widespread in the country.

The concentration of Boston Properties is situated in four different markets that include Boston, Manhattan, San Francisco, and Washington, DC. The four mentioned markets for Boston Properties possess a consistent demand from a profound tenant support.

The consistent great demand is supposed to signify sustained high income for Boston Properties in addition to entire sturdy economic outcomes and thus excellent fiscal strength for Boston properties. Boston Properties boasts of consistent benefits and cash flow from lasting lets.

Boston Properties has more than 60 per cent of income generated from about a hundred dissimilar tenants, giving it great economic flexibility and keep on increasing its dividends each year for fifteen consecutive years, with an average growth of 7.5 per cent for the last five years and1.26 US dollars per share for the year 2012. Boston Properties is entering into Europe as a way of expansion (Holshouser and Baek 1-12).

It has a tendency of possessing high-rise assets that it lets to financial customers. The tenants have few alternatives with regard to communication and electronic paraphernalia that the company installs. In San Francisco, for instance, the company possesses, manages, and lets Embarcadero apartments.

After the entire study, this paper concludes that the excellent value and chance for development comes from Archstone Real Estate Investment Trust. The high and consistent dividend for Archstone is encouraging (Hoesli and Lekander 162-176). The share price for Douglas Emmett Company was reasonably priced in comparison to the asset value for each share of the company.

It is logical to assume that Boston Properties had the best-regulated finances from its operations, more than twice that of the other two companies; nevertheless, the stock price for Boston Properties is much higher in comparison to that of Archstone and Douglas Emmett.

It appears that these three Real Estate Investment Trusts have bounced back well from the financial crisis some years ago arriving at their maximum share price from the year 2008. Nevertheless, they have not managed to recover completely from their greatest appraisals prior to the year 2008.

Conventionally, it appears as if Archstone possesses the best opportunity for growth. The Funds from Operations (FFO) for Archstone keep growing with no possibilities of stopping to grow in the near future. The Archstone Company has as well entered into Seattle and San Francisco markets of late, and this move will assist the company in diversifying from a number of local risks existing in the market of Southern California.

Since office assets possess three, five, and seven years lets, the only means by which Archstone will maintain the income growth is in the availability of rollover room, which it could embrace for a better market rate (Saudagaran 5-18). An additional way lies in the augment in acquirements that lead to accumulated earnings in opposition to being expensive. Boston Properties is an additional dish as it has integrated rental adjustments to indexes that signify that it has a chance for income growth.

Dividend analysis

Dividend yield by Archstone

Table 4: Dividend yield by Archstone (Feng, McKay, and Clemon 314)

Dividend yield by Archstone- 3.68%

Boston Properties = 2.0%

Douglass Emmett = 2.2%

S&P Dividend Yield = 2.1%

Treasury Dividend Yield = 1.98%

Archstone possesses a considerably greater dividend yield when judged against the other listed counterparts. When seeking a greater payout with a supplement on income, one would thus prefer to purchase stocks from Archstone (Hoesli, Lekander, and Witkiewicz 161-206).

In addition, some of the major Real Estate Investment Trusts in California provide a high dividend as well as high upside potential because they experience slight competition with high demands that create a chance for rentals to move up every year. With the availability of space for lease in San Francisco, it is usual for owners to increase the rental fee for their tenants.

Holds versus Sell proposals

The Real Estate Investment Trust sector is proposing a purchase/hold for Archstone REITs. From a group of fifteen analysts, seven proposed to hold it, two proposed purchase/hold it, and the remaining six proposed to buy it (Worzala and Clemon 1115-1149). Fifteen analysts believe that the income for every share will go up by 383 per cent by the year 2013.

Works Cited

Feng, Zhilan, Price McKay, and Sirmans Clemon. “An Overview of Equity Real Estate Investment Trusts (REITS): 1993-2009.” Journal of Real Estate Literature 19.2 (2011): 307-343. Print.

Frantz, John. “The high-rise of a REIT powerhouse.” National Real Estate Investor 43.6 (2001): 100-103. Print.

Georgiev, Georgi, Gupta Bhaswar, and Thomas Kunkel. “Benefits of real estate Investment.” The Journal of Portfolio Management 29.5 (2003): 28-33. Print.

Harris, David. “U.S. REITs Expected to Grow & Increase Dividends.” Wall Street Transcript 189.12 (2012): 2-5. Print.

Hoesli, Martin, and Jon Lekander. “Real estate portfolio strategy and product Innovation in Europe.” Journal of Property Investment & Finance 26.2 (2008): 162-176. Print.

Hoesli, Martin, Jon Lekander, and Witold Witkiewicz. “International evidence on real Estate as a portfolio diversifier.” Journal of Real Estate Research 26.2 (2004): 161-206. Print.

Holshouser, Jesse, and Young Baek. “US REITs Internationalization and Firm Value.” Journal of International Business Research 9.1 (2010):1-13. Print.

Joppke, Christian. Immigration and the nation-state: the United States, Germany, and Great Britain. Oxford: Oxford University Press, 2000. Print.

Murray, Barbra. “Tishman Speyer, Lehman Brothers Buy Archstone-Smith.” Commercial Property News 21.12 (2007): 5-8. Print.

Pacelle, Mitchell. “REITs Plan Merger Aimed at National Branding.” Wall Street Journal 5.3 (2001): 3-6. Print.

Pederson, Jay. International Directory of Company Histories. Michigan: Cengage Learning, 2003. Print.

Reprise, Rhino, Roadrunner Rykodisc, and Sire Warner. “International Directory of Company Histories, Volume 90.” International Directory of Company Histories 121.1 (2007): 430-433. Print.

Rudnitsky, Howard, “Reinventing Bill Sanders.” Institutional Investor 35.4 (2001): 113-115. Print.

Saudagaran, Shahrokh. “A review of the literature on the market valuation of multinational firms.” Managerial Finance 28.3 (2002): 5-18. Print.

Ursery, Stephen. “Timing Is Everything.” National Real Estate Investor 5.2 (2002): 11-13. Print.

Wilson, Patrick, and Ralf Zurbruegg. “International diversification of real estate

assets: Is it worth it? Evidence from the literature.” Journal of Real Estate Literature 11.3 (2003): 257-278. Print.

Worzala, Elaine, and Sirmans Clemon. “Investing in international real estate stocks: a review of the literature.” Urban Studies 40.5-6 (2003): 1115-1149. Print.

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