National Golf Earnings Up, But Its Stock Not Up to Par.

NATIONAL Golf Properties Inc.'s share price has sagged in the past year, along with all real estate investment trusts. But as golf keeps surging in popularity due to the superstar status of Tiger Woods and the aging of the baby boomers, Santa Monica-based National Golf stands to benefit.

As the largest U.S. publicly traded company specializing in the acquisition and ownership of golf courses, National Golf reported same-course revenue growth of 5.7 percent in 1999 over the year before.

And ever with its stock down, National Golf has been able to make select acquisitions. Last year, it picked up Meditrust's Cobblestone Golf Group in a $200 million deal, giving it 21 courses in its key market clusters. It also sold five courses for a total of $13.6 million in the past year.

"From a capital-raising standpoint, we don't need to issue equity, so the lower stock price is not hurting," said Jim Stanich, National Golf's president (and an occasional golfer). "We're able to think long-term and be patient and hopeful the (stock) price gets back up to where it's been in the past."

The Cobblestone acquisition was a double-edged sword, however. While those courses are expected to contribute this year to rent growth, they've also increased National Golf's floating-rate debt, which stands at $254 million. It was the best financing at the time, as National Golfs share price was down, but it also poses a problem when interest rates rise.

"The biggest risk for the company is the significant amount of floating-rate debt," said William Marks, an analyst at Bane of America Securities, who gives the stock at "buy" rating. "But that said, they're one of the safest RElTs to invest in from a cash-flow perspective. We don't expect the debt to increase."

National Golf owns 150 courses nationwide and receives either a percentage of rent based on increasing annual revenue at each course or linked to inflation, whichever is greater.

After dipping below $19 a share in mid-December, National Golf -- and other REITs -- ticked up, possibly because billionaire investor Warren Buffett dispensed a tip to invest in REIT stock. But the momentum appears to be short-lived, as investors keep flocking to tech issues and other perceived growth sectors.

National Golf was trading at around $21.75 last week, down from $25.37 a year ago (and down from an all-time high of $35 in the summer 1997).

"When you look at the quality of our assets and the operating fundamentals of the golf industry, we think the company's stock is extremely undervalued," Stanich said.

Of the seven analysts who issue recommendations on National Golf, one gives it a "strong buy," four a "moderate buy" and two a "hold."

"They're putting shareholders' money to work efficiently," said Anthony Paolone, an analyst at Donaldson Lufkin & Jenrette, who gives the stock a neutral rating. "If they fix their balance sheet and the reduction of the Wall Street estimates gets worked into the stock, we're bullish."

National Golf posted a strong performance last year, reporting net income of $17.3 million ($1.37 a share), up from $16.6 million ($1.32) the year before.

Most recently, it posted net income for the fourth quarter ended Dec. 31 of $9 million (73 cents) compared with $6.3 million (50 cents) in the like period a year earlier. Revenue was $35.8 million vs. $25.4 million.

To improve its financial picture, the company is looking at converting a portion of its floating-rate debt to fixed rate. Matthew Dembski, an analyst at Friedman, Billings, Ramsey, said he expects National Golf to resolve the problem.

Still, the floating-rate debt caused analysts to lower their funds-from-operations estimate for this year by upwards of 7 cents, to about $2.95 per diluted share. (Funds from operations are a common measure of REIT performance and consist of the net income plus depreciation).

David Price founded National Golf in 1969, when he and his sister purchased three golf courses. The firm went public in 1993. Price also founded American Golf Corp., which leases all but four of the National Golf courses, and he retains a significant financial interest in both companies.