Re: GOV
I recommend that everyone, as a general principle, avoid investing in any REIT managed by RMR. These are SIR, GOV, HPT, SNH and some others.
1. Even when these are trading well less than net asset value, there is no chance of a takeover, because RMR has entered contracts with the REITS that if it is ejected as manager that it is entitled to 20 years worth of management fees! You are stuck with RMR, and RMR will not go for any takeover, even if it would be good for shareholders.
2. RMR is not that good a manager. Assets they hold end up degrading.
3. RMR is not a good purchaser of assets. They always overpay.
4. RMR is fairly good at banking, and at looking after itself.
5. All of these REITs are priced with a RMR discount of around 20%. This means that they should not expand, but RMR always wants to expand to increase its fees. So let us say that XXX REIT owns assets worth $10/share net. It trades at $8. It contracts to buy a portfolio to double its size. The other portfolio wants to receive $10/share for its portfolio worth that much net. But they do not want to take XXX shares. So XXX sells shares at $7/share to make the purchase. This means that the existing shareholders take a loss to allow for the expansion and in reality the purchase is greatly overpriced in practical effect. This has recently happened with GOV, but it has happened many times with the RMR run REITs.
That said, every asset can be a purchase at the right price. The only reason to hold one of these REITs long term is the dividend. GOV might limp through the upcoming years and maintain its dividend now, and then be stronger in the future. It might cut the dividend in half. And even if cut in half, if it continued from now until the end of time at that amount, it would still be okay. This is the thinking that gets an investor into these REITs.
I know, because I have learned the hard way myself. |
