Finally! I’ve been looking for ways to make money off Washington spending its way into oblivion, and all this time an opportunity was right under my nose. What could be better than being a landlord leasing property to the government? That’s exactly what Government Properties Income Trust (NYSE:GOV) does, and this real estate investment trust pays a 7.2% dividend in the process. Yay!
Specifically, the company own 33 properties in 16 states and leases them to government tenants. In Q4 alone, Government acquired four properties, two of which were 94% leased (56% to U.S. Customs and Border Protection), and the other two were 84% leased (70% to Oregon Dept. of Human Services).
The key to this REIT is how much money it can borrow, and if it can collect more in rent than it spends in debt service and operating expenses. In this case, GOV just renegotiated its unsecured revolving credit line from $500 million to $550 million, and it reduced its interest payment from LIBOR + 210 basis points to LIBOR + 150, while extending the maturity out two years to October of 2015.
Go back and read that again. This is an unsecured facility, that just got increased at a lower interest rate for two extra years. That’s how certain the company’s lenders are in this business model. And that doesn’t even speak to the recently closed five-year term loan, again unsecured, for $350 million. It carries only $95 million in mortgage payables on the balance sheet.
I’m not finished. I’m not happy about the almost 20% increase in shares outstanding over the past year, still, the company still grew funds from operations (or, cash flow to you and me) by almost 50%.
And yes, it pays a 7.2% yield.
I normally scream and yell bloody murder over how the government spends too much money, but in this case, I say, “spend spend spend!” This REIT looks like a winner to me, and given that it’s underfollowed, it likely holds some value. It doesn’t really have any direct competitors, but looking at the enterprise value-to-EBITDA ratio of 16, then compared to other REITs, it seems right in the middle in terms of valuation.
Boston Properties (NYSE:BXP): EV-EBITDA = 20
Corporate Office Properties (NYSE:OFC): EV-EBITDA = 16
Piedmont Office Realty Trust, I (NYSE:PDM): EV-EBITDA = 14
Equity Residential (NYSE:EQR): EV-EBITDA = 22
However, given that the tenants are government agencies, and not going out of business, I’d give Government Properties a bit of a premium. That makes it a buy to me, right here, right now.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.