Credit Suisse Expert Analyst Picks The Mortgage REIT Winners Of 2011: Douglas Harter Details His Top Picks

67 WALL STREET, New York - August 29, 2011 - The Wall Street Transcript has just published its REITs Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online. Topics covered: Acquisition and Financing Costs - Real Estate New Supply - Pricing Power Outlook - Residential and Commercial REITs - Correlation Between Macroeconomy and Real Estate Companies include: Fannie Mae (FNMA.OB); Invesco Mortgage (IVR); American Campus (ACC); American Capital Agency (AGNC); Annaly (NLY); Associated Estates Realty Corp. (AEC); AvalonBay Communities (AVB); Best Buy (BBY); Boston Properties (BXP); Campus Crest Communities, Inc. (CCG); Colonial Properties Trust (CLP); Crexus (CXS); DDR (DDR); Douglas Emmett (DEI); EQR (EQR); EastGroup (EGP); Entertainment Properties Trust (EPR); Equity Lifestyle Properties (ELS); Essex (ESS); Home Depots (HD); Home Properties (HME); Kohl's (KSS); Lexington (LXP); Liberty (LRY); MFA (MFA); ProLogis (PLD); SL Green (SLG); Simon (SPG); Sovran Self Storage (SSS); Two Harbors (TWO); U-Store-It Trust (YSI); Washington REIT (WRE); Weyerhaeuser (WY); the Wal-Marts (WMT). In the following brief excerpt from just one of the in depth interviews in this extensive report, an experienced real estate mortgage portfolio manager discusses the outlook for the sector for investors. Douglas Harter, CFA, is a Vice President at Credit Suisse Group covering the mortgage REITs and mortgage insurers. He joined Credit Suisse in 2000 covering the specialty finance sector. Mr. Harter has a B.S. in accountancy and a B.S. in finance from Villanova University. TWST: What's the likely impact on this space of potential interest-rate increases and inflation in the future? Mr. Harter: As owners of fixed income securities, if long-term rates are to go higher, the value of those securities would likely go down and their book values would go down. So rising long-term rates would be a negative for the book values of this group and likely the performance of the stocks. And if short-term rates rise, the profitability will compress, as they are generally funded on a short-term basis, so that will compress their net-interest margins, and again, lead the dividend yields to be lower. The agency-only REITs are going to be more impacted from the rate moves than the nonagency REITs or the REITs that do a combination of those two strategies, because the nonagency securities are more credit focused and less rate sensitive. You could probably even argue that if rates are starting to rise, then the economy is improving, and those nonagency securities could actually be faring better. It's been my viewpoint that I've favored the hybrid REITs that do both. To me, it offers a little bit more balanced risk to any of the potential outcomes. TWST: What names do you like in the space right now and why? Mr. Harter: Like I said as we started, I'm generally constructive on the group as a whole, but the two favorite names that I have right now would be Invesco Mortgage (IVR) and Two Harbors (TWO). Those are both hybrid mortgage REITs. Two Harbors invests in both agency MBS and nonagency residential mortgages. They tend to focus on more-credit-impaired nonagency bonds. They like subprime. They like option ARMs. They feel like those offer better risk/returns given what the assumptions they are able to price into those bonds. Invesco Mortgage is also a hybrid. In addition to the residential area, they invest in CMBS as well. They tend to focus on less-credit-impaired nonagency bonds. They take a different opinion. They think that those offer better relative returns. But both are seeing better relative opportunity in the nonagency side today, and both recently raised capital to take advantage of some of those opportunities. TWST: How readily do these companies have access to capital? Mr. Harter: Lately, it's been pretty readily available. Two Harbors has raised a combined $700 million between May and July, and Invesco raised about $400 million in June. They both raised money in the first quarter as well. So they have found that the equity markets have been very open to them over the past year. TWST: There have been others raising capital, also, such as Annaly and Crexus? Mr. Harter: Correct. Annaly (NLY), Crexus (CXS), American Capital Agency (AGNC), MFA (MFA) have raised some money over the past year. The space as a whole has been very active from a capital-raising standpoint. TWST: Overall, do you see balance sheets being healthy in this space? Mr. Harter: Yes. The amount of leverage that the players are holding today is down significantly from precrisis levels. If you look at the agency side, the players used to lever that asset about 10 times debt to equity. Today they are more about seven times debt to equity. So they have definitely reined that in. The nonagency side is typically levering around one to 1.5 times debt to equity. The one question mark that some people have on the balance sheet side right now, which should be resolved by the time this gets published, would be the whole issue with the U.S. debt ceiling and potential for raising that and the effect that would have on the short-term capital markets. The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online . The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations. For Information on subscribing to The Wall Street Transcript, please call 800/246-7673