Tuesday, June 30, 2009

Is it time for REITS?

Link to article

Here come the real estate vultures

REITs are raising cash to take advantage of bargain prices on distressed commercial properties and mortgages.

By Michael V. Copeland, senior writer

(Fortune Magazine) -- These are tempting times for real estate bargain hunters. Whether it's the tony house down the street with an asking price that keeps dropping or office space at a deep discount, if you have the means, there are deals to be had. Individual investors snapping up foreclosed houses have helped boost home-sale figures sharply in recent months (although prices have remained depressed). And now some real estate investment trusts are raising money to fund acquisitions of distressed commercial properties.

In April we pointed out that financially strong REITs offered attractive yields. That remains the case. But now some of the equity REITs with stronger balance sheets are looking to move from defense to offense, building billion-dollar war chests to fund acquisitions of troubled properties on the cheap. Indeed, if you believe that now is a once-in-a-generation opportunity to buy low in real estate, REITs allow you a way to bet on a rebound in the market without getting approval for financing and taking possession of a piece of property yourself.

And there seems to be no shortage of prospective purchases. There is an estimated $90 billion in commercial real estate in the U.S. alone that is "distressed," according to New York-based real estate research firm Real Capital Analytics. These are properties that have been foreclosed on, or whose owners are in default on their loans or in bankruptcy. "On top of those properties, there is hundreds of billions more in debt coming due in the next few years," says Peter Slatin, editorial director at Real Capital. "Some REITs are getting prepared for that."

Are they ever. REITs have raised about $12 billion by issuing stock in recent months. Among them are well-known names such as Boston Properties (BXP), Regency Centers (REG), Simon Property Group (SPG), and Vornado Realty Trust (VNO). "Our mood here is getting a little bit more forward-thinking than it has been over the last six months," Simon Property chairman and CEO David Simon told analysts during the company's earnings call May 1. One big opportunity the gang at Simon is keeping an eye on is the portfolio of General Growth Properties, the real estate giant that filed for Chapter 11 in April, taking more than 160 properties with it, including such trophies as Faneuil Hall Marketplace in Boston and South Street Seaport in New York City.

The four blue-chip REITs cited above represent a fairly conservative way for individual investors to profit from the (hoped-for) real estate rebound. The fact that they have the resources to exploit today's weak market may set them up for years of healthy cash flows. "These are the commercial real estate companies that are going to survive," says Jim Sullivan, senior REIT analyst with Green Street Advisors. "They all have balance sheets that are stronger than average and management teams that have proven their ability to take advantage of downturns."

But there are other ways to play. The distress in the market has emboldened some privately held real estate funds (including newly formed ones) to raise money by offering stock to the public. These companies aren't focused on owning property but on the debt underlying it. On June 11, Cypress Sharpridge Investments (CYS), which invests in mortgage-backed securities (yes, those infamous bonds), raised about $100 million in an IPO. And several more IPOs are in the works, including a proposed $500 million offering from Starwood Property Trust, led by former chairman of Starwood Hotels Barry Sternlicht, and a $750 million offering from PennyMac Mortgage, run by Stanford Kurland and other former executives of Countrywide Financial (yes, that Countrywide). And Invesco Mortgage Capital is looking to raise about $400 million to go shopping for debt. But these IPOs are for high-risk investors only.

And anyone who goes bargain hunting in real estate today has to be patient. REITs fell earlier and harder than the broader real estate market. In the two years from March 2007 to March 2009, REIT stocks fell a stunning 75% on average. Lately, however, REITs have been on a roll, with the MSCI U.S. REIT index gaining more than 45% since the March low. Does this spurt mean that REITs are foreshadowing a sharp rise in real estate values? Some experts caution that there is more pain to come. "Prices have gotten ahead of the fundamentals in real estate," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and a professor emeritus at the University of California at Berkeley. "It has gone too far, too fast." Rosen expects a correction in the coming months.

But many analysts like the longer-term outlook. "The underpinnings of the commercial real estate market are really in pretty good shape," says Philip Martin, a senior vice president of Golub & Co., a Chicago-based real estate investment and development firm. He notes that there isn't the kind of massive oversupply of commercial properties that existed during the slump of the late 1980s and early 1990s. "So when we do recover, you are likely to see a pretty healthy snap-back in real estate prices," he says. "This is an excellent environment for those REITs with the right combination of knowledge and capital. They are going to have an opportunity to make some great deals, and the risk-adjusted returns at this point in the real estate cycle are going to be pretty darn good." To top of page

Monday, June 29, 2009

SGL - Global Bond Fund on Sale

Strategic Global Income Fund (SGL) has been available since January 1992.

The fund invests primarily in U.S. corporate bonds, asset-backed securities, commercial mortgage-backed securities, U.S. treasury bonds and notes, foreign government bonds, international corporate bonds, short-term investments, mortgage-backed securities, and U.S. government obligations. Its portfolio includes investments in beverages, commercial banks, consumer finance, diversified financial services, food products, media, road and rail, thrifts and mortgage finance, electric utilities, and oil and gas sectors.

SGL is selling at a 10.7% discount to its Net Asset Value (NAV) with a current yield of 8.78%. It is well diversified and concentrates on global investment grade bonds. Given the funds long-term track record and level of return for over 15 years, this is another one I really like.

Chart link

Click chart to enlarge




Sunday, June 28, 2009

THE GREAT AMERICAN BUBBLE MACHINE

Every investor should read this article:

THE GREAT AMERICAN BUBBLE MACHINE

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

By MATT TAIBBI

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

More


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Friday, June 26, 2009

Is Propane a Clean Fuel Play?

Or are people flocking to dividend stocks again?

I think it could be both and noticed propane stocks such as AmerGas Partners LP (APU), and Ferrellgas Partners LP (FGP) doing well today.

APU
is yielding 7.9% and FGP is yielding 12.3% at todays prices.

Both operate as Master Limited Limited Partnerships ( MLPs) and distribute the majority of profits to the unit holders rather than pay taxes.

AmeriGas Partners, L.P. (APU) Is the nation’s largest retail propane marketer, serving nearly 1.3 million customers from approximately 600 locations in 46 states.

Ferrellgas Partners LP (FGP) was founded in 1939, and is the largest provider of propane by branded propane tank exchange through its Blue Rhino brand. It serves approximately 1 million Customers in all 50 states, the District of Columbia, and Puerto Rico.

We can only speculate whether propane becomes a clean fuel for cars or not. These two companies already pay a fair distribution and the stocks look ready to move higher. If propane finds increase use as a motor vehicle fuel, so much the better.

APU chart

click charts for a larger view


FGP chart

I have a position in FGP.

By the way, MLPs have their own language; they call dividends distributions, and share holders are called Unit holders. MLP distributions are often treated differently than typical stock dividends. You may want to contact your accountant prior to purchasing Master Limited Partnerships.



Thursday, June 25, 2009

GLO - An Overlooked Fund

Most people have never heard of Closed End Funds (CEFs) and that creates opportunity for the rest of us.

Closed End Funds are like Mutual Funds except they trade openly during the day, and the price is set by buyers and sellers. They trade for what people are willing to pay.

When CEFs become popular they can sell for more then they should and when they aren't they can sell for less than they should. That brings us to Clough Global Opportunities Fund (GLO).
GLO is on sale. It is trading at almost 20% off.

GLO is managed by Charles I. Clough, Jr. Founder, Clough Capital Partners LP and former chief investment strategist, Merrill Lynch & Co.

The investment objective of the Fund is to provide a high level of total return. The Fund seeks to pursue this objective by applying a fundamental research driven investment process and will invest in equity and equity-related securities as well as fixed income securities including both corporate and sovereign debt in both U.S. and non-U.S. markets. The Fund is flexibly managed so that depending on the Fund investment adviser outlook it sometimes will be more heavily invested in equity securities or in debt or fixed income securities. Investments in non-U.S. markets will be made primarily through liquid securities including depositary and exchange traded funds.

It is a go anywhere, flexible fund with a good manager paying over 8% and selling at a 19% discount. Mr. Clough has a proven record and is invested in the right areas such as Energy, China and Brazil. As the world economy recovers, these are areas I want to own and GLO has them at a discount.
I don't own it yet, but I will.
Chart

click chart to enlarge



Some stocks are worth owning

There are a few public companies with the potential to take advantage of the mess created in housing and on Wall Street. In particular I am looking at Business Development Companies (BDC) and Real Estate Investment Trusts (REIT).

Some of the best of these companies can be found in one CEF (closed end fund) under one symbol; FGB - First Trust/Gallatin Specialty Finance and Financial Opportunities Fund.

This fund owns stock in companies that loan money to and invest in other businesses. These include two of my favorite areas of investing; Business Development Companies (BDC) and Real Estate Investment Trusts (REIT).

To reduce taxes, these types of businesses are required to pass along the bulk of their earnings to the share holders as distributions. I have found it harder for Company Management to squander investor money when they can't keep it to themselves.

The top holding make up about 80%:
Prospect Energy Corp -
MVC Capital Inc -
Annaly Capital Management, Inc
Ares Capital Corp.
Gladstone Capital Corp.
Hatteras Financial Corp.
BlackRock Kelso Capital Corp.
Cypress Sharpridge Investments, Inc.
Medallion Financial Corp.
Hercules Technology Growth Capital, Inc

This fund is currently selling for $4.26 a share and paying over 13% yield.
It trades in fairly light volume so use limit orders if you buy it.
current chart link

Click chart to enlarge


Be aware, there are special tax considerations to contend with when you own these. You may want to consult an accountant.

Wednesday, June 24, 2009

Compounding Divdends

Since the Markets bottomed in March 2009, we've had a nice recovery in both stocks and bonds. Both have advanced around 40% off their lows. Of the two, my favorite long term investment right now would be High Yield Bond funds.

In spite of the rise, High Yield bonds are still attractively priced and yielding over 10%. The easiest way to own these are with ETFs (exchange trades funds) and CEFs (closed end funds).

You could buy mutual funds, but I prefer both ETFs and CEFs over Mutual funds, because they trade all day and can often be purchased at a discount to actual value. Purchasing funds at a discount increases your yield and lowers risk; two things we should always be concerned with.


Three examples I own: JNK, HYG and HYV

Barclays Capital High Yield Bond ETF (JNK) is paying over 14%.
iShares iBoxx $ High Yield Corporate Bond Fund (HYG) is paying 11%.
BlackRock Corporate High Yield Fund V, Inc. (HYV) is paying 13% and selling at a 7% discount.

Things can change, dividends could be reduced, but I believe these are worth owning and in my opinion will beat the stock market over the next few years.

If you purchase these, and don't need the income right away you should consider having your dividends automatically re-invested allowing your investment to compound. Just tell your broker you would like the dividends re-invested.

I would not recommend buying individual high yield bonds. These require knowledge and research capabilities beyond the average investor, myself included and I believe funds or ETFs are a safer, more practical way for individual investors to participate.

As always, you should do your own research to become familiar with these or other investments before putting your money at risk.