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CommonWealth Reit Message Board

  • sfruehling1 sfruehling1 Dec 31, 2010 8:02 PM Flag

    Is CWH’s Book Value Too High? Part 1

    CWH’s has a current book value of $40.38/basic sh and a stock price/basic sh of $26/sh +/-. Its price/book ratio of .6/1.0 is the lowest of 18 office Reits tracked by ReitWatch that on average have a ratio of 1.4/1.0. Is CWH’s low price/book ratio due to its book value being unrealistically high or is its stock’s price just depressed and out of favor with Wall Street? To help answer this, it would be beneficial to compare its total book value to the total market value of its hard assets (real estate, stock holdings, & cash). Determining its book value is relatively easy as its 3rd quarter 10Q and supplement report its depreciated book value at $6,374 Million (M) and its un-depreciated value at $7,285 M. There is no ready source, however, for a current estimate of the total market value of its under-lying hard assets. To try to get a rough feel for the market value of its hard assets, I have applied below a brief Sales Comparison Analysis and an Income Analysis to its hard assets as described in its 3rd quarter 2010 supplement.

    Sales Comparison Analysis

    Real Estate Value
    Office Bldgs (35.0 M sf x $160/sf) = $5,600 M
    Industrial Bldgs (13.6 M sf x $70/sf) = 952 M
    Comm/Ind Land in Hawaii (17.9 M sf x $40/sf) = 716 M

    Stk Hldgs (24.6% of GOV; 9.95 M sh at $27/sh) = 269 M
    Cash = 175 M
    Total Value = $7,712 M

    Comments: Office Bldgs of a class A quality typically sell in the $140/sf to $200/sf range. A price of $160/sf was selected. Industrial Bldgs of a class A quality typically sell in the $50/sf to $100/sf range. A price of $70/sf was selected. Industrial and commercial land listings in Hawaii that I checked on Loop Net ranged generally from $25/sf to $100+/sf with industrial land falling mainly between $25/sf and $60/sf. CWH’s Hawaii land was reported to generate an annualized gross income of $75.5 M. Subtracting out 35% for operating expenses and capitalizing this NOI by 6.5% results in a value of $755 M ($42/sf). I have selected a value of $40/sf. The preceding prices/sf are rough estimates based mainly upon my general knowledge of national real estate prices. (See Part 2 for Continuation)


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