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Which REIT Is the Right REIT?

Prentiss Properties Trust (NYSE: PP  ) is not your ordinary REIT. See, a lot of REITs have their underlying stock price stay relatively stable over months and even years. Sure, there are always those that have had a nice appreciation, particularly in 2000 when the tech bubble burst. But few have shown the kind of resilience that Prentiss has demonstrated in the face of a struggling economy.

Prentiss Properties Trust owns interests in 133 operating properties with approximately 18.4 million square feet -- 16.2 million of office and 2.2 million of industrial properties. On top of this, its subsidiaries manage approximately 28.2 million square feet of office and industrial properties owned by Prentiss, its affiliates and third parties. They've even managed to keep their occupancy in the low 90-percentile range for most of the past five years, even during the economic downturn. Management was also smart enough to lock in tenants to multi-year leases to guarantee decent rents.

During the past five years, Prentiss Properties has appreciated 70%. The current dividend payout comes in at $2.24 per year, representing a 6.4% yield. Investors who heard the mainstream analysts cry out that REIT returns were expected to crumble haven't seen that happen with this company.

One might contend that smaller also appears to be better in this market, as it enables REITs to focus on the most profitable investments. With a total asset base of roughly $2.3 billion, Prentiss is much smaller than rival behemoth Equity Office Properties (NYSE: EOP  ) , which has a total asset base of $24 billion. For both, though, properties comprise the better part of total asset base. However, Equity Office has only appreciated 20% over the same period, and similarly sized competitors, such as CarrAmerica Realty (NYSE: CRE  ) and Mack-Cali Realty (NYSE: CLI  ) , have jumped 40% and 80%, respectively, over the same period.

Still, Prentiss is struggling to keep up the good work. FFO, or funds from operations, this past quarter only increased 2%. Rental rates are dropping, as is occupancy, and interest rates are on the rise. However, should Prentiss decide to sell off some properties in the near-term, it might make some healthy profits. Indeed, with interest rates rising, the company might want to use the proceeds of those sales to buy some properties at bargain prices, increasing effective yields on investments despite lower rents.

Investors looking to jump into the stock might be wary, as betting on macroeconomic factors is as reliable as weather.

For related info on REITs, check out:

Fool contributor Lawrence Meyers does not own any of the REITs mentioned, and advises you to learn about the complex financial statements of REITs before investing in them.

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