As many readers know, I have been questioning the valuations of many REITs recently [including the untouchable Realty Income (O)] as premiums to net asset value [NAV] and funds from operations (FFO) multiples are high. One sector that came into my crosshairs is the multifamily/apartment sector. Back in April I recommended a swap out of the apartment sector based on the following premise:

The rationale for this is straightforward: the massive shift from owning to renting has mostly occurred. While there is certainly more to go, the bulk of the shift has happened and outperformance going forward will be harder to achieve.

My opinion has not changed, rather it has become firmer. The following is a valuation table containing the larger and more liquid multifamily REIT, namely:

• AIMCO (AIV),
• Avalon Bay (AVB),
• BRE Properties (BRE),
• Camden Properties (CPT),
• Colonial Properties (CLP),
• Equity residential (EQR),
• Essex Property (ESS),
• Mid-America Apartment

The credit (corporate bonds) market has been steadily increasing volume, and there have been some interesting issues lately. As I stated in a recent article:

Bottom Line: Corporate bonds are still attractive from a risk premium (spread) perspective relative to their historical levels. While absolute yields continue to be low (although this has recently been changing in the 7-10yr sector due to the treasury sell off), relative yields are still decent and somewhat compelling.

As many investors prefer not to buy bonds at a premium, we have to keep our eyes on the new issue market as newly minted issues typically come at a small concession to existing issues and at par.

Interesting issues recently include:

As many who have read my articles on real estate and housing are aware, I believe that housing is off the bottom and has begun to grow. For months, data has supported my assertion, and on Wednesday, the market got more data that supports my thesis. The Commerce Department released August's new residential construction data. Among the highlights are:

Building Permits:

• Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 803,000 (-1% sequentially, +24.5% YOY)
• Single-family authorizations in August were at a rate of 512,000
• (+0.2% sequentially)
• The Northeast and West were the weakest sequentially, but showed the strongest growth YOY (-7.7%/+35.5% and -1.7%/+39.3%, respectively)

Housing Starts:

• Privately-owned housing starts in August were at a seasonally adjusted annual rate of 750,000 (+2.3% sequentially and +29.1% YOY)
• Single-family housing starts in August were at a rate of 535,000 (+5.5% sequentially)
• Starts came

Over the past few months, I have written a decent number of articles on individual bonds such as Hewlett-Packard (HPQ), Nokia (NOK), Cisco (CSCO) and Anheuser-Busch InBev (BUD) - some I liked, and some I didn't like. It has, however, been nearly five months since I addressed the bond market (or more specifically, the credit market) generally.

In my last macro corporate bond article "Credit (Corporate Bonds) Still Attractive But Headwinds Are Building," I opined:

While there are headwinds facing the credit markets, I believe there is room for additional spread tightening and positive excess returns. As a result, I continue to recommend investors stay overweight credit, especially in the "BBB", "BBB/BB" and "BB" rating sectors.

In May, I wrote an article titled "Why High Yield Bonds Should Continue To Perform Well" in which I opined:

High yield bonds should continue to perform well

On Thursday, I wrote an article on mortgage REIT preferreds, in which I stated:

Bottom Line: Investors who want higher yields, but are wary of potential dividend cuts of the mortgage REITs, should consider the preferred stock of mREITs. While the yield is not as high as the common equity yields, the preferred stocks cannot cut the dividend, creating a more stable yield alternative.

After the article was published, I realized that I have been writing about mortgage REITs quite a bit lately and swore I was going to take a break and set my sights on other sectors (I have been working on Energizer Holdings) to avoid falling into a rut. As well, many of my readers/followers are not singularly focused on mREITs and I owe them diversity.

Well, the best laid plans of mice and men... Along comes Apollo Residential Mortgage (AMTG) with its maiden

I recently wrote two articles on the sensitivity of mortgage REITs to changes in interest rates as a result of requests from readers to explore this topic. The rationale behind the request was to determine the staying power of the dividends and the impact of the market value changes on the value of the various mREITs.

In the discussion streams on mREITs over the various articles I have read and written, the single largest concern that readers/investors have is dividend cuts as the yields are one of the motivating factors for investment in the sector. The two Harbors (TWO) dividend cut announced on Wednesday, September 11th will, no doubt, only serve to heighten this concern.

There is, however, another way to invest in the sector which creates a fixed stream of dividends: preferred stock.

Preferred stock is a level up the capital structure from common equity and, in most instances,

Two Harbors Investment Corp (TWO) altered their investment strategy in 2011 to include single family residences to its portfolio (I wrote about it here). The rationale was simple: single family housing is cheap and there is money to be made in the own to rent market. Other companies such as KKR (KKR) and Blackstone (BX) have also gotten into the own to rent business seeing the same compelling valuations that Two Harbors saw.

In the course of my article on Two Harbors getting into this market I stated:

The opportunity in buying portfolios of single family homes (and don't forget, I am sure the bigger banks will talk to portfolio investors as well) is interesting and potentially very lucrative. Imagine buying the house, renting it for a spread to cost of funds (maybe rent to own) and then selling it after a holding period and - as my Texan

While the credit markets were not as hot as they were Monday, there were some interesting deals launched - a few investors might consider looking into.

Tuesday's deals included:

Tucson Electric term sheet. CSC term sheet, AstraZeneca prospectus.

In order to calculate the yield, the following are the relevant treasury points:

• 3yr: 0.33%
• 5yr: 0.67%
• 7yr: 1.13%
• 10yr: 1.71%
• 30yr: 2.86%

The credit markets continued their slow and steady march tighter as risk continues to be en vogue. The way I view spreads - as risk premiums relative to the risk free rate - the market continues to have value.

After two lackluster weeks, the credit market heated up Monday with a decent amount of deals across various sectors being priced. Among the deals that priced Monday:

NOTE: "e" is estimated spread, EXC and PEG are first mortgage bonds.

The

Just when you thought the yield lows in the REIT preferred stock market had been set - Kimco's (KIM) 5.50% Series J - Public Storage (PSA) comes to market trying to lower the preferred stock yield limbo bar.

Details of the issue are as follows:

Prospectus

While the rate is not yet known, I would expect that we will see a rate around 5.375% as that is near where their Series U are trading (the most recent issue).

As I have noted in the past, many REITs are taking advantage of today's low rate environment and demand for income products to add cheap, long-term capital (perpetual) to their balance sheet. Public Storage has built their capital structure on preferred stock and common equity, ensuring that there are no maturities that require refinancing unless they opt to do so (the structure also makes the preferred stock the de facto

Over the course of my career analyzing companies and markets as well as managing investment portfolios, I have been very careful to avoid the use of the words/phrase "bubble", "it's different this time" and the currently popular "new normal". While there have indeed been speculative bubbles, not all price increases reflect "bubble" status. Similarly, "it's different this time" usually implies that history has not been adequately studied. Finally, the "new normal" may reflect new levels of a business/economic cycle, and these levels may be normal for such a period, but "new normal" to describe a structural change is somewhat of a paradox.

I have recently heard of REIT dividend yields (well, many yields across sectors) being described as a "new normal" state. The paradox befuddles me and causes me to scratch my head. Speaking specifically about REITs and their dividend yields, the "new normal" may be appealing to investors who

On Thursday, Annaly Capital Management (NLY) raised $400 million of perpetual capital in the preferred stock market. Details of the issue are below, and here is a link to the prospectus.

Relative Value:

The table below compares the new Annaly issue with peers American Capital Agency (AGNC), Dynex Capital (DX), MFA Financial (MFA) and Armour Residential (ARR).

(click to enlarge)

As the table shows, this new preferred is not being issued at a discount to market, it is being issued right at the market. The only reason to buy this instead of the existing Annaly Series C is to take out the premium (or

This morning, Realty Income (O) announced that it is purchasing American Realty Capital Trust (ARCT) in an all-stock deal worth $2.95B. Under the terms of the agreement, American Realty Capital Trust shareholders will receive a fixed exchange ratio of 0.2874 Realty Income shares for each share of American Realty Capital Trust that they own. The transaction has the following benefits for Realty Income and ARCT investors:

• The credit quality of the REITs tenants improves, which improves the stability and consistency of their rental stream (Revenues generated by investment-grade tenants increases from approximately 19% to 34% of pro forma total revenue).
• The purchase allows Realty Income to further diversify their tenant exposure and exposure to the retail sector (largest 15 tenants declines from 49% to 42%, and its revenue from retail properties declines from 86% to 77%).
• The transaction modestly increases occupancy (97.7% from 97.3%) and lease duration (11.4yrs as

Continuing a trend we have seen throughout the summer, another REIT tapped the preferred stock market seeking sub 6% perpetual capital.

PS Business Parks (PSB) brought the following issue on Wednesday:

Term sheet, Prospectus

Issuer Description:

PS Business Parks is a REIT focused on "flex" properties that can be easily configured to suit a variety of uses and are located in high population growth markets near decision maker housing. This property type supports a wide variety of uses and customers. As of July 2012 the Company owned and operated approximately 28.2 million rentable square feet of commercial space located in eight states: Arizona, California, Florida, Maryland, Oregon, Texas, Virginia, and Washington. The Company also manages approximately 1.3 million rentable square feet on behalf of

The best defense is a good offense. This simple phrase has been embraced in various forms by military tacticians, corporate executives and political leaders. Its inherent meaning is that offensive strikes (preemptive or preventative actions meant to gain a strategic advantage) are often the best way to ensure the protection of a nation, company or leadership role.

Contained within the seminal work of military theorist and philosopher Carl von Clausewitz, "On War," is the following statement:

Although the concept of defense is parrying a blow and its characteristic feature is awaiting the blow, "if we are really waging war, we must return the enemy's blows. . . . Thus a defensive campaign can be fought with offensive battles. . . "The defensive form of war is not a simple shield, but a shield made up of well-directed blows."

Corporations are not waging war in the traditional sense, but business strategy

On Sept. 4, I wrote an article that contained the various portfolio attributes of a select group of mREITs. At the end of the article (in the disclosure), I mentioned that I am a holder of the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (REM) and that I do not intend to hold it any longer.

A couple of readers asked me about this disclosure and my response was:

The reason that I said not for long for REM is that I plan to hold two to four positions instead of REM as a properly chosen combination should outperform. That said, if someone wants to take a more diversified position that is easier to monitor and will still provide decent income, REM is a good option. The reason I own REM was to buy the sector, which has worked out well, I just want to drive it a

As Banco Santander (SAN) prepares to conduct an initial public offering of its Mexican bank, an overview of the bank is in order.

Grupo Financiero Santander Mexico (Santander Mexico) is the second largest financial services holding company in Mexico based on net income and the fourth largest financial services holding company in Mexico based on total assets, loans and deposits as of June 30, 2012. Through the bank and other subsidiaries, they provide a wide range of financial and related services, principally in Mexico, including retail and commercial banking, securities underwriting and brokerage and custody services, and asset management.

The principal subsidiaries are:

• Banco Santander Mexico, the commercial bank subsidiary (which as of June 30, 2012 accounted for 99.8% of total assets and 101.1% of shareholders' equity, and for the six months ended June 30, 2012 accounted for 98.0% of net income),
• Casa de Bolsa Santander, the brokerage subsidiary, and

Back on August 23, 2012, I wrote an article on Annaly Capital (NLY) and other mREITs, which laid out the sensitivities of their net interest spread and their portfolios to changes in interest rates. In the discussion stream that followed the article, readers asked me to lay out the facts for other mREITs. This article is following up with the various sensitivities of the mREITs requested - it is not an analysis of these REITs, just the facts.

The REITs that will be addressed are:

ARMOUR Residential REIT (ARR) invests in hybrid adjustable rate, adjustable rate and fixed rate residential mortgage-backed securities issued by or guaranteed by U.S. Government agencies or U.S. Government-sponsored entities.

American Capital Mortgage Investment Corp. (MTGE) invests in, finances and manages a leveraged portfolio of mortgage-related investments, which include agency mortgage investments, non-agency mortgage investments and commercial mortgage-backed securities, commercial mortgage loans, mortgage-related

Real Estate Investment Trusts (REITs) have become a popular investment vehicle for investors who desire a source of reliable, consistent and safe income. As a result of low rates and few safe and viable alternatives, many REITs are trading near their historical price highs and yield lows. One way around this problem is to cast your investment net in different waters.

An example of this is the retail shopping center REIT sector. The sector has returned 25% year-to-date and 2.54% in August. As a result of this strong performance, the majority of the larger retail REITs have dividend yields below 4%. A look at the retail REIT landscape shows the following yields:

• Federal Realty (FRT): 2.71%,
• Kimco Realty (KIM): 3.74%,
• Regency Centers (REG): 3.77%
• Tanger Factory Outlets Center (SKT): 2.50%, and
• Weingarten Realty (WRI): 4.15%.

It is hard for income investors to get excited about these types

As many readers know, I have written a couple of articles on Nokia's (NOK) bonds as they have been an overlooked way to position the troubled telecom. Just to recap some of my opinions:

June 6, 2012: "If you really like the company and think everyone has gotten it wrong -- buy the bonds and let the coupon pay for longer dated call options, or hedge with bonds and puts."

June 28, 2012: "Ultimately, I continue to believe that investors who want exposure to Nokia might consider the bonds and possibly a call option."

July 20, 2012: "The company continues to be focused on managing for cash and NSN has continued to add value to cash and to overall results, both of which are a positive and should help support bond prices. I continue to believe that the best way to position this company is through the