Here Is The Latest On The REITs Sector

The credit freeze will have a positive effect on commercial real estate down the road; new office, apartment and retail construction has slowed considerably, which will benefit owners in a couple of years. Many companies that we cover have stopped all-new construction.

In this environment, we like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (AGNC), a mortgage REIT that invests exclusively in agency securities for which the principal and interest payments are guaranteed by U.S. government agencies like Ginnie Mae, Fannie Mae (FNM) and Freddie Mac (FRE). During the second quarter of 2009, American Capital reported net spread of 3.66% with 39.8% return on equity (ROE), and is one of the few companies to have increased the dividend.

Another stock worth mentioning is Vornado Realty Trust (VNO), the largest publicly traded office REIT in the New York region concentrating on Class A office properties. The core properties of Vornado are still performing at a high level, maintaining strong occupancies and increasing rents in most property formats. We believe this puts the company well ahead of many competitors, and warrants upside potential.

We would also like to mention Simon Property Group Inc. (SPG), the largest publicly traded retail real estate company in North America, with assets in almost all retail distribution channels. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income. Furthermore, Simon Property’s international presence gives it a more sustainable long-term growth story than its domestically focused peers.

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