In the world of value investing, “stuff” always trumps “fluff.” And today’s stock has some of the best stuff on the planet.
My approach to investing is really asset-dependent. I think most investors pay far too much attention to the income statement and not enough to the balance sheet. Buying asserts at a discount give me a margin of safety, as most of the securities could theoretically be liquidated for more than I paid for them. As long as the company survives, I create a situation where good things can happen in the form of asset conversions — sales or outright takeover. If business improves, these improvements will flow from the income statement to the balance sheet and the value of the company and the stock price will go higher.
One of my favorite assets is real estate. We’ve seen real estate securities take a plunge in recent years, and many have now recovered nicely. But the recovery has not been as rapid in the commercial office property space — and that means there’s a big opportunity for upside.
Brookfield Office Properties (BPO) owns 109 premier downtown office properties around the world with more than 81 million square feet of leasable space. We’re talking major metropolitan areas including New York, Boston, Washington D.C., Houston, Los Angeles and Seattle. This real estate investment trust (REIT) has 29 properties in major Canadian cities as well as locations in Australia and London.
Owning shares of the REIT allows you to literally own a piece of the skyline across the world.
The market has been focusing on the large amount of space Brookfield has coming up for lease later in 2013, a scenario that has kept a lid on the stock price. I think people are missing all the positive developments occurring with this company.
- Brookfield has made substantial progress in leasing out the 3 million square feet in the World Financial Center, and the overall occupancy rate for the portfolio is 91%.
- The company has been leasing properties throughout its portfolio this year at higher rates (the average lease renewed last quarter notched an 11% hike).
- Brookfield will be closing on the acquisition of MPG Office Properties this quarter in a joint venture that will deliver a nice chuck of the Los Angeles skyline.
- The company has been active buying buildings during the past five years at depressed prices — which means big upside to future performance.
The market is overlooking a lot of positive developments and the potential of this world-class collection of properties. Shares of the REIT trade at just 70% of tangible book value and strikes me as too cheap not to own.
At the time of publication, Melvin was long BPO.