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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Grommit who wrote (43472)	7/21/2011 11:29:35 AM
From: E_K_S	Respond to of 78517

Hi Grommit - Re: Government Properties Income Trust (GOV) Their is still the dilution factor that 6.5 million shares produces with a 40 million share base. That represents a 16.5% dilution. However as you say, their LT debt is low and depending how they use the $164 million of new capital, GOV could be a better buy now than it was earlier this month. I think the value proposition can be stated like this: Is the capital raised from issuing more shares (and resulting in the stock dilution) produce a better return (and margin of safety) than equivalent borrowing off the company's credit facility. If management is smart, they have a basket full of new properties bought on the cheap that generate a sufficient cash flow to make the transaction a net positive to the company. From a recent article:"...Government Properties has been expanding its portfolio of properties through big-ticket acquisitions. In May, it paid $114 million for a New York City building leased to the United Nations. Last summer, it purchased 15 properties from another commercial landlord for $231 million....". ======================================================================= The wild card in the mix is that CommonWealth Reit (NYSE: CWH ) owns 25% of the outstanding shares (it is rumored that the extra 1.5 million shares in the recent offering was due to CWH selling a portion of their holdings). At some point CWH may want to sell all of their shares as their main business needs the capital. Is their any chance that GOV could be packaging itself up for a pending private placement leverage buy out? That would allow CWH to sell it's 25% interest in the company at a much higher price than selling "at the market".? Is GOV worth more to a a leverage buy out prospect than currently structured. A $30.00/share - $35.00/share was discussed in a recent blog posting I read. I just do not see the screaming Value proposition and by some measure GOV is overvalued by as much as 7% if priced by Mr Market in May 2011 (w/ their $114 Million property purchases) or even early last summer 2010 ( w/ their $231 million buys). Therefore, I can see more value since the company has less debt and their leverage profile is low compared to its peers, they operate in a segment where their lessees pay their rent better (however in CA you may get IOU vouchers), and in the current environment there may be more lease back deals w/ FED & State municipalities which could significantly increase cash flow for the company. Do you see any compelling positive argument that the company is packaging itself up for a private party leverage buy out? If so, to the right group GOV could be worth 30% more from today's price of $25.20/share. EKS