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Invesco Files to Offer Mortgage Securities Real Estate Trust

New Public REIT Expands Offerings, Enhances Evolutionary Efforts

Invesco, the global investment management firm with its U.S. headquarters in Atlanta, is continuing its efforts to evolve into a bigger global power brand with both diverse and expansive investment offerings. Parent company Invesco Ltd. is headquartered in London.

On June 13, the firm registered with the Securities and Exchange Commission to offer a public real estate investment trust (REIT) to be called Invesco Agency Securities and invest in agency mortgage-backed securities, which are mortgage-backed securities for which a U.S. government agency guarantees both principal and interest payments. Such agencies include the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).

According to the registration filing, the REIT will invest in mortgage pass-through certificates as well as collateralized mortgage obligations. The firm hopes to provide attractive risk-adjusted returns through the payment of dividends and possibly capital appreciation.

Invesco has registered $250 million in common stock for the securities offering, with Credit Suisse and Morgan Stanley as the underwriters. Invesco Institutional will serve as the manager of the REIT with its management fee to be set at 1.5% annually for up to $500 million in assets and $1.25% for any additional assets. The REIT is expected to trade on the New York Stock Exchange.

Invesco claims to currently manage over $9 billion of similar agency mortgage-backed securities and have a team of 13 investment professionals dedicated to this market, although it has never managed a REIT before. The firm's election to be a REIT for Federal tax purposes means that most of the REIT's earnings must be passed through to investors annually.

A company spokesman declined to discuss the Invesco Agency Securities REIT registration, sighting the typical quiet period required before an initial public offering.

Billions and Billions Served

As of May 31, Invesco had $491.5 billion in assets under management across all of its investment management subsidiaries, which include Atlantic Trust, Invesco, Invesco Aim (which prior to March of this year was simply Aim), Perpetual, Invesco PowerShares, Trimark and WL Ross.

In September 2006, Invesco acquired PowerShares Capital Management of Wheaton, Ill., then sponsor of 36 innovative exchange-traded funds. The ETF unit was fused into the AIM Investments subsidiary, giving PowerShares access to AIM's deep distribution network to financial advisers and AIM a new investment option to add to its mutual fund and separate account management lineup. The ETF lineup has since been renamed Invesco PowerShares.

One month later, in October 2006, Invesco acquired WL Ross, a New York based private equity and hedge fund firm. That acquisition boosted Invesco's lineup of alternative investment offerings to investors. Post acquisition, Invesco merged its private equity unit into WL Ross'.

Invesco's newly planned REIT allows the firm to spread its roots more deeply into the world of mortgaged-back securities at a time when many are predicting that this could be the bottom of the market for such securities with no place to go but up.

Rich Real Estate Potential

A slew of hedge funds and other investment management firms have, in recent months, announced their own plans to start or invest in mortgage REITS or start up their own private investment funds focused on distressed mortgages or downtrodden areas of the mortgage market. Invesco could find itself competing with some well-known managers in seeking to find its own piece of the broad real estate market.

TIAA-CREF Asset Management of New York, a division of Teachers Advisors, Inc. and a unit of TIAA-CREF the national financial services organization, this past April jumped into the real estate fray by launching the TIAA-CREF U.S. Real Estate Fund 1, LP. The fund is organized as a closed-end fund and will invest directly in real estate properties, not shares of REITs. The portfolio will be invested in a diversified smattering of industrial, office, retail and multi-family properties across many geographic markets. The fund is designed for high-net-worth investors, requires a $150,000 minimum investment and has a term of seven years the manager can extend to 10 years.

Suman Gera, managing director of TIAA-CREF global real estate and portfolio manager of the fund, insists that TIAA-CREF's debut of this fund was not timed to any market gyrations, but, rather, has been three years in development. But she admits, "Our timing is just perfect." Despite troubles in the residential marketplace, commercial real estate market demand is still there, she added.

"The genesis [of the new fund] was demand from registered investment advisors and trust companies that wanted access to our real estate expertise," said Shawn Paulk, head of advisor services group at TIAA-CREF Asset Management. The firm's first voyage into real estate dates back to 1995 with an offering within its pension and IRA plans, which now have a combined $17 billion in assets under management.

TIAA-CREF's new commercial real estate fund is designed to be a core holding in an investor's portfolio and provide diversification. The fund can leverage up to 50% of assets-more leverage than most other funds, Gera added.

Where REITS can be more correlated to stock and bond market movements and typically are volatile, direct holdings in real properties are more stable and tend to be less volatile, Gera notes, adding that a real property fund can peacefully co-exist alongside a REIT.

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