Zacks Industry Outlook Highlights: Avalon Bay, HCP, Mack-Cali and St, Joe

Business Wire, Jan 27, 2009

CHICAGO -- Zacks.com announces the latest Industry Outlook. Today's outlook from Zacks Equity Research analyst Greg Sukenik discusses the Real Estate Investment Trust (REIT) sector. Highlighted stocks include: Avalon Bay (NYSE: AVB), HCP, Inc. (NYSE: HCP), Mack-Cali (NYSE: CLI) and St. Joe (NYSE: JOE).

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Here is the latest on the REIT sector:

Behind self-storage, health care was the 2nd best performing REIT sector in 2008. This is still one of our favorite sectors going in 2009. Health care is more "recession proof." In addition, health care REITs generally have long-term leases with steady, predictable rental rate increases.

A couple of names we like:

Avalon Bay (NYSE: AVB) - Apartment REIT with a portfolio in areas with high housing prices. The company has a strong balance sheet and plenty of liquidity to address 2009 debt maturities. The dividend is safe and with the recent sell off, valuations are attractive for this best-in-class operator.

HCP, Inc. (NYSE: HCP) - Health care REIT with diverse health care portfolio is good in long-term markets. The company is moving toward more private-pay sources and has taken care of most 2009 debt maturities.

We would underweight office and residential developers. The success of office REITs is highly correlated with job growth and corporate expansion. We expect the employment situation to get worse in the first half of 2009. Many companies are in a wait-and-see mode and will not commit to new space until the economy improves.

A couple of names we do not like:

Mack-Cali (NYSE: CLI) - Office REIT with holdings in suburban markets concentrated in New Jersey. The company's major geographic markets are weakening due to job losses; occupancy and rent growth will suffer in 2009.

St. Joe (NYSE: JOE) - Residential developer in Northwest Florida. Sales and profits have fallen dramatically in 2008 as builders scale back on projects in this overheated market. JOE continues to sell land at fire-sale prices to create earnings.

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