Zacks Industry Outlook Highlights: UDR, American Capital Agency, Fannie Mae, Freddie Mac and Simon Property

CHICAGO--()--Today, Zacks Equity Research discusses the Real Estate Investment Trusts (REITs) Industry, including UDR Inc. (NYSE: UDR), American Capital Agency Corp. (Nasdaq: AGNC), Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and Simon Property Group Inc. (NYSE: SPG).

A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/36386/Real+Estate+Investment+Trust+Outlook+-+July+2010.

Many REITs are still trading at discounts to NAV (net asset value), traditionally a good "buy" signal. Over the past 7 or so years, REITs had traded near or in excess of NAV.

With dividend cuts and share price gains, the average yield for equity REITs during second quarter 2010 was 4.1%, compared to 3.0% for the 10-year Treasury, as most companies have been raising cash through asset sales and equity financing to pay down debt.

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 remain bullish on UDR Inc. (NYSE: UDR), one of the best-positioned apartment REITs in the U.S., with the majority of its portfolio located in California, Florida and on the Atlantic Coast. These are areas where housing costs have soared in the past few years, and despite the drop in home values, the rent vs. own spread still remains high.

The housing meltdown will continue to help apartment REITs and we expect this sector to remain comparatively stable in the coming quarters. In addition, UDR’s properties are geographically diversified that increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of earnings. Furthermore, UDR has continuously upgraded the overall quality of its portfolio by selling smaller market, older properties and replacing them with newer assets in better long-term markets.

We also like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (Nasdaq: 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 (NYSE: FNM) and Freddie Mac (NYSE: FRE). The company has a conservative balance sheet and maintains adequate liquidity sufficient to continue operations under potentially adverse circumstances. Furthermore, American Capital is one of only a few companies to have increased its dividend during the economic downturn.

Another stock worth mentioning is Simon Property Group Inc. (NYSE: 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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Contacts

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Mark Vickery
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Contacts

Zacks.com
Mark Vickery
312-265-9380
Visit: www.zacks.com