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Bricks and Mortar Portfolio: Staying the Course

Editor's note: "Bricks and Mortar" is a new series of columns written by real estate reporter Nicholas Yulico and meant to help readers generate real-estate-related stock ideas.

Last week proved to be a busy one for the Bricks and Mortar portfolio, with earnings reports from Penn National Gaming (PENN), Brookfield Properties (BPO) and Trump Entertainment (TRMP).

The end of the week also saw a sharp sector-wide selloff among REITs, homebuilders and casino operators.

The downtick was a natural correction, since each of these sectors has been off to a hot start this year.

I still believe that adding quality names among REITs and gaming companies remains a solid investment strategy. Meanwhile, the disastrous news from subprime lender New Century (NEW) and the disappointing order numbers from Toll Brothers (TOL) only reinforced my bearish opinion of housing stocks.

I'll start off the discussion this week with Penn National, a casino stock I recommended last week prior to its earnings. Since that time, the stock is down 2.4% because its earnings missed Wall Street's target by 6 cents a share.

Is it still worth owning Penn? The short answer is yes, because the earnings report represented only a small hiccup.

Meanwhile, the earnings reports from Brookfield and Trump also helped to solidify my opinion of those stocks.

Penn National (Own)

Much of Penn National's quarterly earnings miss was due to higher-than-expected depreciation charges and costs associated with the company's failed attempt to purchase Harrah's (HET).

On a property cash-flow level, results remained strong, particularly at Penn's two largest properties. EBITDA, or earnings before interest, taxes, depreciation and amortization, rose 18% at the Charles Town casino in West Virginia and 7% at the Lawrenceburg riverboat casino in Indiana.

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