Gordon F. DuGan, President and Chief Executive Officer of W. P. Carey & Co. LLC (WPC), and CEO of its series of Corporate Property Associates (CPA) non-traded REIT funds, talked to the Wall Street Transcript about his company W. P. Carey & Co. LLC.  Click here to read the complete interview.

TWST: Please give our readers a brief history and overview of the company.

Mr. DuGan: W.P. Carey (WPC) is an interesting company in that we have been in existence for a long time. We were founded in 1973; we have a terrific 30-year track record, and we manage approaching $10 billion in assets - and not many people have heard of us. I attribute this to two things. One, we have kept a low profile and just gone about our business, and two, we’ve done a very good job for our investors of providing predictable income and managing their investments through various cycles. Generally it’s either the more spectacular winners in a good market and the more spectacular failures in a bad market that get all the press. We’ve been somewhere in between, just cranking through and providing steady, attractive returns for investors.

Our featured Interview this week is Mid Penn Bancorp, Inc (MPB)

The complete interview with Rory G. Ritrievi President and CEO, is now available.

Mid Penn Bancorp, Inc., is the parent company of Mid Penn Bank. Mid Penn Bank is a local, community bank with a strong, stable earnings history which continues to provide solid performance and growth. Large bank mergers continue to disrupt the Capital Region of Pennsylvania, giving small, well-run community banks such as Mid Penn Bank, the opportunity to provide services to a number of dissatisfied retail and business customers.

As part of our Banking Report we conducted a Roundtable Forum with Anthony Polini,Senior Vice President, Financial Services, Raymond James & Associates and Christopher Nolan, Vice President Equity Research, Maxim Group who had some differing views ;

Mr. Polini: Like I said before, I’ve never been more bullish. I’ve been following the banks since 1985 and in many ways banks are all in the same boat. I think some boats are going to rise a little more over the next three to six months. But we’re still looking at the big macro picture. I’m very eager to find out what happened to consumer delinquencies this quarter to see a follow through, if you will, on early signs of positive news on the consumer credit front. The commercial loan losses and NPAs are probably at least six months away from peaking. So we still have a difficult environment. Like I tell people, you can make money walking around in Beverly Hills buying bank stocks and over the next year I think you’re going to make a lot of money, but you’re not walking in Beverly Hills, you’re walking in my old hometown, Flushing.

 

Mr. Nolan: My only “buy”-rated stock is SVB Financial (SIVB), with a price target $44. It’s a bank focusing on the technology inventory capital sector and has very little commercial real estate exposure. The company is basically trading at about 1.5 tangible book. The stock has increased by 40% or so since reporting second-quarter earnings. I tend to think that because the stock is not really tied too much to commercial real estate, has a very strong liquidity position, I think credit quality is stabilizing and earnings are positioned to go to outperform peers. That’s my only “buy” rating, but I’m favorably disposed to two “hold”-rated stocks. The first is Signature Bank (SBNY), which is a New York-based bank using a private banker model, targeting small and mid-size companies in the New York metropolitan area. It has been an extremely successful core deposit growth story, and it has limited commercial real estate exposure, which really dates back to 2008. So it doesn’t really have too much legacy

As part of our REITs report we spoke with Merrie S. Frankel Senior Credit Officer & Vice President Real Estate Finance at Moody’s Investors Service and she gave us her view on the REITs Industry. She predicts most US REIT rating actions to be negative in the coming year, she has a stable outlook for retail, office, multifamily and health care REITs but a negative outlook on lodging:

“Now the least stable is clearly lodging -  on that we have a negative outlook and negative fundamentals on the business. Every company is cutting back on business travel, mine included, and cut­ting back on expenses. People are doing “staycations” now, so lodg­ing is the least stable.”

Companies mentioned include: Kimco Realty Corporation (KIM), Simon Property Group Inc. (SPG), Federal Realty Investment Trust (FRT), Realty Income Corp. (O), Prologis (PLD), AMB Property Corp. (AMB), First Industrial Realty Trust Inc. (FR) and General Growth Properties Inc. (GGP).
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Our REITs report includes an interview with David Wigginton of Macquarie Capital (USA), Inc. he gave us his take on the sector:

“REITs sometimes get unfairly grouped with the overall commercial real estate industry. While they are commercial real estate owners and operators, unlike a lot of the smaller, private operators, they are much better capitalized, they have greater access to capital and typically own the better properties in the markets in which they oper­ate. I’m speaking from a retail perspective only here. I think you can say there are signs of life, but they are faint. When looking at prop­erty fundamentals, vacancy rates are increasing and rental rate growth is declining. In addition, you’re facing macro headwinds in the form of high unemployment rates, declining consumer spend­ing, negative consumer sentiment and stagnating wages in general. The federal stimulus package helped prop things up a little bit, but it’s still hard to get a clear read on what the run rate will be going forward.”

Mr. Wigginston breaks his coverage into two areas mall REITs and  strip center REITs and has some top picks for each section but you will have to read that on our TWITTER

In our recent REITs Report we spoke with David Aubuchon of  Robert W. Baird & Co. Inc. where he discussed the outlook for REITs and a new asset class of REITs - Data Centers:

“Digital Realty focuses on data centers. That is a fairly new real estate asset class and there’s a huge amount of demand for data centers, given the huge increase in Web-based activities from social networking sites, retailing, outsourcing from corporations, and the amount of video and music that is conducted over the Internet. It’s pretty dramatic. All of that is really increasing the demand for data center space, places to store our data digitally.”

“Digital is the one REIT I cover that could be labeled as having positive fundamen­tals now and for the foreseeable future.”

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We spoke to analyst Aaron Deer of Sandler O’Neill + Partners in the most recent issue of TWST, as part of our special focus on Western Banks. He gave us a relatively positive outlook for the space, given the current state of the economy:

 Mr. Deer: I certainly think the banks are doing the right things. The problem assets are working their way through the pipeline, they’re selling notes that they can sell, they’re selling their foreclosed assets. But as quickly as they’re able to move things off the balance sheet, new problems are developing. So it’s a process, but they’re doing what they need to do. Maybe most encouraging is the fact that the banks have had some success in raising new capital to bolster their balance sheets. Meanwhile, they’re also taking steps to improve liquidity. In the first quarter, we saw strong deposit growth at most banks in the West. My sense is that has continued into the second quarter.

For the complete Western Banks report, including a full interview with Mr. Deer, as well as CEOs from top companies in the space, click here. 

Donald A. Worthington of Howe Barnes Hoefer & Arnett, Inc. in our recent Western Banks roundtable gave us his view on the industry and his picks for the sector:

“Buy ratings at the time. I just have a couple and they tend to be smaller, under the radar screen banks like Pacific Premier Bancorp (PPBI), and Central Valley Community Bancorp (CVCY). Even though it is located in the Central Valley, CVCY has done a good job of avoiding the severe credit problems that others have had in that market. I think it is a matter of keeping an eye on the quality franchises and being familiar enough with them so that you can buy them on dips in their stock prices and get into them at attractive prices. You need to have a longer-term outlook. Fundamentally, I believe this industry will bounce back and there will be many good investment opportunities in the future. You just have to select names that are going to survive and are well positioned to build market share once the credit cycle works its way through.”

Mr. Worthington also has a sell:

“The only Sell rating I have currently is on TriCo Bancshares (TCBK), which is actually a good, well-run franchise. I just think it’s overvalued, particularly with a large home equity loan exposure relative to its total loan portfolio. So it is a valuation call based on where the stock is trading — substantially north of tangible book value and well above the median peer group valuation. I would just avoid that stock for now. “

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In our recent Western Banks Report we spoke with Aaron James Deer of Sandler O’Neill + Partners, LP  where he gave us his opinion on the state of Western banks

“The banks’ loan books tend to be shrinking, and so you’re seeing much stronger liquidity on banks’ balance sheets. Loan to deposit ratios are coming down, they’re paying down their borrowings, and they’re letting higher cost, brokered CDs run off. So they’re doing all the things that they need to do, which you’d expect to see at this point in the cycle, and I think that they’re on the road to recovery barring any kind of big step down in the economy.”

Mr. Deer did have some positive things to say about Nara Bancorp:

“Nara Bancorp is a small Korean bank down in Los Angeles that in my view is arguably one of the best Korean banks operating, and they’ve got good solid capital levels. They’ve got some exposure to retail and hospitality in their commercial real estate book, but I think that the problems are manageable, and they’ve got a good management team that’s been very transparent in how they’re dealing with their challenges.”

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Our recent Western Banks Report points to low investors interest in community banks but Tim Coffey of FIG Partners, LLC in our recent Western Banks roundtable points to some companies to be positive on:

“We like Pacific Continental out of Oregon, we like American River Bankshares out of Sacramento and we like Bank of Marin. These are not heavily discounted names, these are not trading below tangible book, but they all have a pretax pre-provision ROA greater than 2%, which is kind of the defining line in this market right now, about whether or not a bank has sufficient earnings power to build capital and get prepared for what they might not see right now.”

Community bank investing for the long term remains attractive but in the near term we have to work through the poor economic environment and further credit quality issues, particularly in the CRE and C&I segments of bank loan portfolios. Banks that survive these problems will have plenty of opportunities to pick up market share in terms of deposits, staff and business relationships from troubled banks. The survivors will be the most transaction-based banks that are making the transition from real estate dependency to a more relationship-based focus. The banks are very cheap right now but investors should make sure that they are rightsizing their cost structure and adding low-cost deposits.

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