Government Properties Income Trust is not a popular stock.
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But maybe it should be.
Yesterday, analysts at FBR Capital
According to our data here at Motley Fool CAPS, FBR Capital spends more time following REIT investments than any other type of company on its coverage list. In fact, with more than 50 active recommendationsanyone in the market -- and with a record of outperforming the market by nearly 1,000 percentage points across its field of coverage, they may be more successful than anyone else, too.
Here, then, are three things you should know about why FBR likes Government Properties stock.
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Government Properties stock doesn't rent out this particular government building, but it does rent out a whole lot more like it. Image source: Getty Images.
Thing No. 1: 92-72-31
After digging through the filings for Government Properties stock, FBR came to the conclusion that "the market has only recently begun to recognize the value imbedded in this niche office REIT." FBR explains, in a write-up covered by StreetInsider.com
93% of the income Government Properties collects comes from leasing the 11 million square feet contained in these properties to state and federal agencies and government offices.
Thing No. 2: Your government for lease -- and on sale
FBR values all this real estate at $1.8 billion -- un-depreciated. At the same time, Government Properties stock appears to sell for much less. Most financial information websites (Yahoo! Finance and S&P Global Market Intelligence
Thing No. 3: Property and equity
In addition to its undervalued physical assets, FBR notes that Government Properties stock owns approximately $624 million worth of stock in the Select Income REIT , and a further $36 million worth "of its external manager," The RMR Group Inc. .
Real estate, real cheap?
Even accounting for the stock's $1.2 billion in net debt, therefore, the value of the REIT's properties plus its equity interests in related companies comes to nearly $1.3 billion -- not much less than the market capitalization on Government Properties stock. Factor in possible appreciation in the value of the real estate it owns, and the ongoing payments of Government Properties' generous 8.7% dividend yield, and FBR concludes that Government Properties stock is significantly undervalued today, and worth close to 25% more than what the market is currently charging for it -- thus $25 a share.
Is FBR right about that? Given the analyst's track record, I'd say the odds are better than 50-50is right about Government Properties stock. But even if it's wrong, there's still that 8.7% dividend yield to fall back on.
For investors today, paying tax rates as high as 39.6%
Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he currently ranks No. 298 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 daysconsidering a diverse range of insightsdisclosure policy Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy
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