Lets follow the Insder's lead

August 26, 2016

At least one JC Penny's insider is buying stock.
I like their debt better than their stock. At $19 a share, PFH is yielding 10% annually.  That gets my attention.

PFH is a  Corporate Asset Backed Corp., CABCO Trust Certificates, principal amount $25 per trust certificate. The underlying securities are the J.C. Penney Co. Inc. 7 5/8% debentures due 3/01/2097. The certificates are redeemable any time at the issuer's option at $25 plus an additional redemption premium amount based on the present value of the remaining scheduled payments based on a certain benchmark interest rate plus 20 basis points which appears to make the actual redemption of these securities unlikely prior to the maturity date. The certificates pay distributions $1.90625 per annum semiannually on 3/1 & 9/1.

It can't be called for less than $25, and doesn't come due until March 2097.  We could be collecting money from this one for 80 more years. 

This debt was investment grade when issued in March of 1999, but is currently rated CCC (junk), so don't go crazy and buy more than you're willing to risk.

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

Last Updated: June 22, 2009: 11:53 AM ET

(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."

First Published: June 22, 2009: 11:08 AM ET
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My take on REITs - Updated Sept. 13th

I like both BXP and SPG, but want better diversification by investing in a funds holding these two REITs plus others.

One fund I favor is the Cohen and Steers REIT and Preferred Income Fund (RNP).
It is heavier weighted in preferred stocks than the other funds I follow and I believe the over-weighting in preferred stocks vs. equity will prove to be a better choice for the foreseeable future.

RNP is currently selling at a 16% discount and yielding nearly 8.6% (Sept 13/09)

RNP chart

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

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.