Alok Swain

Avalon Bay: A Look at Apartment REITs

A few points:

a) From what I have been reading from the quarterly discussion of the earning statements, the companies are not having problem refinancing. They are getting Fannie Mae loans are what are reasonable and attractive rates around 6-6.5% or so.

b) Another advantage that I see in apartment reits is the ability of these companies to raise rents when inflation makes a comeback because of the money printing going on. I am of the opinion that Real-Estate might ba a better place than Precious Metals to sheild oneself from that.

c) Plus after a long long time have the REITs shown an yield thats attractive, paying considerable longer than say 10 year or 30 year US treasuries for instace.

d) The REITs are also bying back some of their preferred shares are fairly attractive discounts, and replacing that with lower cost Fannie Mae debt or accessing the Line of Credit. Its kind of bond arbitrage actually. Its smart strategy.

e) My only near term fear is dividend cuts and replacement with PIK dividends. Its good for making the company survive the uncertain economic enviroment but kinds betrays the purpose of investors who look for dividends from tax favoured investments for clock work like quaterly dividends. But still its better to have a dividend cut and make sure the company survive than get the dividend and let the company die.

Thanks

Alok

Disclosure : Long AIV