{"s" : "agnc,aiv,nly,wy","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} On Wednesday September 14, 2011, 11:17 am EDT
67 WALL STREET, New York - September 14, 2011 - The Wall Street Transcript has just published its REITs Report offering a timely review of the sector to serious investors and industry executives. This REITs Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Acquisition and Financing Costs - Real Estate New Supply - Pricing Power Outlook - Residential and Commercial REITs - Correlation Between Macroeconomy and Real Estate
Companies include: Fannie Mae (FNMA.OB); Invesco Mortgage (IVR); American Campus (ACC) and many more.
In the following brief excerpt from the REITs Report, interviewees discuss the outlook for the sector and for investors.
Douglas Harter, CFA, is a Vice President at Credit Suisse Group covering the mortgage REITs and mortgage insurers. He joined Credit Suisse in 2000 covering the specialty finance sector. Mr. Harter has a B.S. in accountancy and a B.S. in finance from Villanova University.
TWST: What is your overall sentiment and outlook for mortgage REITs and why?
Mr. Harter: I have a positive stance on the mortgage REITs. I believe that while the shares are generally fairly valued, the stocks are going to be able to continue to deliver about a midteens dividend yield, and that's where the majority of the total return should come from. As to why I think the current environment is very favorable, on the agency side, that's because they have a steep yield curve, and on the nonagency side, credit spreads are still very wide from a historical standpoint, even though they have tightened quite a bit since early 2009.
And also today on the nonagency side, the availability of credit, of financing, for those positions is much more available today than it has been really at any point over the past couple of years. And that's leading these companies again to be able to generate midteens returns today. I think that the level of return is sustainable given the weaker economic data points we've seen, which should leave the Fed on hold at least until midyear of next year and probably longer than that.
So that's the near-term positive for the group. The longer-term positive opportunity I see is that, clearly right now, the government has been very involved in the mortgage market. And as the government starts to step back from the mortgage market, I do think that the REITs are going to be a provider of capital to help absorb some of that extra opportunity that should arise.
TWST: What names do you like in the space right now and why?
Mr. Harter: Like I said as we started, I'm generally constructive on the group as a whole, but the two favorite names that I have right now would be Invesco Mortgage (IVR) and Two Harbors (TWO). Those are both hybrid mortgage REITs. Two Harbors invests in both agency MBS and nonagency residential mortgages.
They tend to focus on more-credit-impaired nonagency bonds. They like subprime. They like option ARMs. They feel like those offer better risk/returns given what the assumptions they are able to price into those bonds.
Invesco Mortgage is also a hybrid. In addition to the residential area, they invest in CMBS as well. They tend to focus on less-credit-impaired nonagency bonds. They take a different opinion. They think that those offer better relative returns. But both are seeing better relative opportunity in the nonagency side today, and both recently raised capital to take advantage of some of those opportunities.
TWST: Overall, do you see balance sheets being healthy in this space?
Mr. Harter: Yes. The amount of leverage that the players are holding today is down significantly from precrisis levels. If you look at the agency side, the players used to lever that asset about 10 times debt to equity. Today they are more about seven times debt to equity. So they have definitely reined that in.
The nonagency side is typically levering around one to 1.5 times debt to equity. The one question mark that some people have on the balance sheet side right now, which should be resolved by the time this gets published, would be the whole issue with the U.S. debt ceiling and potential for raising that and the effect that would have on the short-term capital markets.
TWST: What were the key themes from last quarter's earnings, and what are you looking for as we head into earnings season for the second quarter?
Mr. Harter: I think one of the key themes is you have started to see some companies look to increase the amount of hedges that they have against their interest-rate risk, and to look to better position themselves to protect the returns they have today and to really build or extend the current level of returns further out to the future, and to mitigate some of the impact of interest-rate risks. We started to see some of the beginning of that last quarter.
I would expect to see some additional moves along those lines in the coming earnings. I think the other key thing, as evidenced by the capital that's been raised recently, would be the opportunity that these companies continue to see, and how and where they're seeing the opportunities to put that money to work.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This REITs Report is available by calling (212) 952-7433 or via The Wall Street Transcript Online .
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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