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CommonWealth Reit Message Board

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  • sfruehling1 sfruehling1 Jan 3, 2011 2:36 PM Flag

    Is CWH’s Book Value Too High? Part 2

    Moran311, I have not been able find any data on the average property length hold of CWH ‘s portfolio or for that matter of other office reits. My guess is CWH’s average property hold is not too much different than that of the average office reit. Though, it might be less as you suggested.

    It seems to me that CWH is under valued and does have good upside potential for the reasons you gave. CWH might deserve a 10% to 20% discount in terms of its price/book ratio (.6/1.0), price/ffo ratio (7.0/1.0), or yield (7.9%) for quality of portflio & management in comparison to the average office reit (Price/Bk– 1.4/1.0, Price/ffo- 14/1.0, Yield- 3.9%), but not the 50% +/- discounts it seems to routinely get. From a cursory look at data going back 7 years, I believe the 50% +/- discount has been going on for sometime. I do not understand why Wall Street gives them such a stout discount and have no crystal ball to predict if that will change. Even if it does not change, I like the current dividends of both the common and preferred D shares and feel they are relatively safe. The common, though riskier, has much greater potential for appreciation and adjusting upward if inflation starts.

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    • moran3119@sbcglobal.net moran3119 Jan 3, 2011 4:49 PM Flag

      I looked some time back at property sales by CWH. It looks like they bought about 500 million a year going back to at least 06. With 7 billion or so in assets, that gets them a 12 year turnover. I do not think other REITs turn their properties so often. Though I could be wrong.

      Right now, CWH is going to have rent roll downs as leases are renewed. This will pressure FFO. But it seems they are taking advantage of low interest rates to reduce their cost of capital (redeeming the preferred and the term loan) Also can they reinvest sales proceeds at higher cap rates? My guess is these two factors will offset and FFO will be flat, which will be ahead of what Wall Street expects.

      Longer term, can they get better properties that will be able to increase rents as the market gets better. If they can, the discount verses suburban office REIT may go away (or at least be reduced). I have looked at their properties on their web site. The comp with BDN is interesting. They have a lot of properties as good or better than the best of BDN, but a lot of lower quality. Can they use this market to upgrade.

    • Good analysis! Have you guys looked at the Schedule III towards the back of the 10-K. The second to the last column has the info you are looking for. I remember this one because they used to cause me a lots of pain.

 

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