mlkrborn
15 년 전
Which RE REIT to sell or buy?
Stocks
A Top REIT in an Ailing Sector
February 8, 2010
By Richard Band, Editor, Profitable Investing
We all know that housing prices have gotten hammered in the past few years. But did you know that commercial real estate (office buildings, shopping centers, apartments) has done even worse? According to statistical services that track commercial property, values nationwide have fallen 35%-40% from their peak in late 2007.
The pain may not be over yet, either. While market conditions vary from one locality to another, the odds-on call for 2010 is that prices for commercial real estate will continue to erode in most parts of the country, though perhaps "only" another 5%-10% in a majority of cases.
Given the severe downturn in commercial property values (and bleak near-term outlook), it's amazing how Wall Street has responded. As a group, publicly traded real estate investment trusts (REITs) have doubled from their March 2009 lows. Starved by the Federal Reserve's ultra-low interest rates, income investors have gobbled up REITs. The result?
From a peak yield of around 10% last winter, the average property-owning REIT now churns out a measly dividend of 3.7%, hardly enough to compensate for the risks lurking in the shadows.
7 Real Estate Investments You Don't Want to Shack Up With
My first piece of advice to you, then, is a word of caution. Most publicly listed real estate investments are overpriced. Boston Properties (BXP), the largest public owner of office buildings, and Equity Residential (EQR), the largest public apartment landlord, are both trading at a nosebleed-high 16X estimated cash flow for 2010. In a struggling economy, such a valuation is ridiculous. Sell both stocks.
Other REITs and real estate investments you should unload now include:
* AvalonBay Communities (AVB)
* BRE Properties (BRE)
* Corporate Office Properties (OFC)
* Diamondrock Hospitality (DRH)
* Essex Property Trust (ESS)
The One REIT to Own in an Ailing Sector
Fortunately, a few excellent values remain among publicly traded real estate companies. Here's a top REIT worth buying at, or slightly below, current prices.
Celebrating its 50th year in 2010, Washington Real Estate Investment Trust (WRE) maintains a conservative risk profile. WRE owns office buildings (including medical offices), warehouses, shopping centers and apartments in and around the District of Columbia. While government tenants account for only a small percentage of WRE's revenues, the trust benefits from the economic stability of the Washington metro area.
Government employees -- and the employees of government contractors -- provide a steady stream of income for local businesses. Thus, WRE posted a 93% occupancy rate during the September quarter, an increase of 190 basis points from the year-ago period. Most landlords across the nation suffered declining occupancies due to the recession.
At a current yield of 6.3%, WRE delivers almost twice as much cash as the average REIT.
In the February issue of Profitable Investing (online now) Richard Band recommends another realty vehicle poised to deliver safe, double-digit returns over the next few years, plus the names of seven more investments to avoid. Get complete details, including Richard's specific buy instructions, by joining Profitable Investing risk-free today.
Related Articles:
* 4 Stocks Set to Make a Comeback
* Five Smart Investing Strategies for 2010
* 8 Policy-Proof Stocks That Will Survive Washington
mlkrborn
15 년 전
Fitch:Banks Could Face Rating Action Over Commercial Property
Last update: 12/15/2009 2:00:00 AM
By Patricia Kowsmann
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--European banks, including those in the U.K., Spain and Ireland, have high exposure to the crisis-hit commercial real estate sector, and some of them could face negative rating actions as loan losses peak next year, Fitch Ratings said in a report Tuesday.
"Fitch believes that there will be instances of banks being over-optimistic about economic recovery prospects and future asset price trends, and may be somewhat reliant on sentiment improving before leases (and to some extent loans) fall due for renewal," the agency said.
"A prolonged period of economic weakness and/or further asset value declines could therefore result in a significant rise in defaults and losses," it said.
According to the report, the U.K. banks have the highest exposure to commercial real estate, with Royal Bank of Scotland Group PLC's (RBS) put at GBP106 billion at the end of September, followed by Lloyds Banking Group PLC (LYG), with a GBP100 billion exposure at June.
HSBC Holdings PLC (HBC) comes in third with a $111 billion lending exposure at June, and Barclays PLC (BCS) with GBP43 billion at the end of June.
In Ireland, the bank with the highest exposure to the market is nationalized Anglo Irish Bank Corp., with EUR56 billion at the end of March. In Germany, Commerzbank AG (CBK.XE) is first with EUR82 billion.
Although it didn't provide a list of banks for Spain, Fitch said the Spanish economy has had a greater reliance on the construction sector than its European peers, including Iceland and Ireland.
"This has made the Spanish economy and banking system more sensitive to the construction cycle and to a collapse in the property market," it added.
However, it said the two largest banks, Banco Santander SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBV), have lower exposure to the property sector among country peers when measured by the proportion of their businesses.
The firm also said that although some banks have high exposure to commercial real estate, potential damage from falling asset values will mostly depend on the underwriting standard they have employed, where the properties are located and the quality of the tenants.
Fitch said it is in the process of collecting data from banks, and it will conduct a stress test that could lead it to changing the rating at some companies.
"Since market dynamics remain fragile and the outlook for the sector generally remains uncertain, there is justifiable concern that some banks may be storing up problems for the future," it said.
On the two banks with the highest exposure to the sector, Fitch said RBS is somewhat protected against severe losses, as almost 40% of its exposure to commercial real estate will be protected against losses by the U.K. government through an asset protection scheme.
On Lloyds, the firm said most of its problems "derive mainly from its acquisition" of mortgage lender HBOS. On the contrary to RBS, the bank isn't participating in the government's insurance scheme, leaving it "dependent upon its own resources to deal with continuing pressure in CRE markets."
Fitch also said corporate defaults typically peak after economic contraction ends, which suggests that loan losses are unlikely to peak until into 2010.
"Refinancing will be a particular concern in 2011 and 2012 when a high volume of property loans fall due," it said.
-By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, patricia.kowsmann@dowjones.com