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  • REITs Whimper After Relatively Strong Year [View article]
    Whether REITS are a good investment depends on your time horizon. In the short run, I agree that the fundamentals of most sectors are weak and will take a long time to recovery. We need sustained improvement in GDP, employment, and global trade. But longer term, as REIT shares pull back this may be a good opportunity to invest. Share prices will turn up long before fundamentals. I'd look for REITS with good dividend yields and good dividend coverage. Health Care reits offer high dividend yields as do some industrial reits.
    Oct 4, 2009. 12:06 PM | 2 Likes Like |Link to Comment
  • Searching for Financially Sound Equity REITS [View article]
    I think this is an excellent list. I just wanted to add a few thoughts.

    First, I would focus on investing in REITS that have maintained a focus on creating value and growth from operating real estate rather than from growth through acquisition (many of these made bad capital allocation decisions at the peak of the market). I think of Boston Properties and Public Storage as examples of well managed REITS. Second, even though some REITs continue to have debt/equty ratios over 50, several of these have active programs to reduce or extend debt through equity issuances or asset sales - so their risk profile will change over time. Also, watch revolver maturities as many revolvers will be reduced substantially when they mature and will be replaced with higher cost debt. As debt cost increase and rents rolldown in this market, fixed charge coverage ratios can be adversely impacted.
    Aug 14, 2009. 10:39 AM | 4 Likes Like |Link to Comment
  • Commercial Real Estate ETFs: Long or Short? [View article]
    The recent run up in REIT equity prices is likely driven by investors who are looking for an attractive place to bet on a cyclical recovery in the economy, even though REITs typically recover late in the cycle. Unfortunately, REIT fundamentals still have a long way to go before they are healthy with tons of debt coming due, more mortgage foreclosures, rents resetting to lower levels as leases expire or tenants default, etc. I suspect there will be a better time to get in but the momentum may continue in the short term with the rest of the market.
    Aug 10, 2009. 10:15 AM | Likes Like |Link to Comment
  • In the Commercial Banking Sector, No Green Shoots Yet [View article]
    There are other factors at work that reduce banks willingness to lend to businesses. One more to mention here. There has been a lot of consolidation in the banking industry since the credit crisis began. Credit exposures that banks were willing to accept for individual businesses were often established before the credit crisis and related recent consolidation of many banks in the industry. Therefore, post - consolidation, banks want to reduce their now combined credit exposures to at least pre-consolidation levels. Thus, they are making less credit available to many businesses. At the same time, they also want to further reduce their credit exposures to account for the economic downturn's effect on borrower credit worthiness. You see this effect as lines of credit become due and are renegotiated to much lower levels of total credit availability (all other things being equal). There are a lot of factors that effect banks willingness to lend - this is just one more.
    Aug 1, 2009. 11:05 AM | Likes Like |Link to Comment
  • In the Commercial Banking Sector, No Green Shoots Yet [View article]
    There are other reasons that make bank lending to business difficult in this market. There has been a lot of bank consolidations over the last couple of years. Banks that previously determined credit exposures to a business seperately - once the banks consolidate - now want their combined credit exposure reduced to at least the pre-consolidation levels. At the same time, the pre-consolidation levels were high given relative lax lending standards at that time - and now even the pre-consolidation levels are too high given banks's willingness to take risk and the economy's effect on the credit worthiness of the banks borrowers/potential borrows. Thus you will see commerical credit lines reduced substantially as they expire and require renegotiation.
    Aug 1, 2009. 10:50 AM | Likes Like |Link to Comment