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CommonWealth Reit Message Board

  • sfruehling1 sfruehling1 Dec 31, 2010 8:04 PM Flag

    Is CWH’s Book Value Too High? Part 2

    Income Analysis

    Gross Rent from Real Estate $ 859.6 M
    Operating Expenses ($ 362.2 M)
    Mgt & Adm Expenses ( 41.2 M)
    Total Expenses ($ 403.4 M)

    Net Operating Income $ 456.2 M
    Capitalized at 7.5% .075
    Capitalized NOI $6,082.7 M

    Plus Stk Hldgs (25% of GOV) 269.0 M
    Plus Cash 175.0 M
    Total Value $6,526.7 M

    Comments: The Gross Rent from Real Estate, Operating Expenses, Cash Position, Stock Holdings figures were extracted primarily from its third quarter 2010 supplemental. The overall rate of 7.5% was selected after looking at office cap rates (CBD Av.- 7.5%, Suburban Av- 8.2%) and industrial cap rates (Av.- 8.0%) from a 4th quarter 2010 survey by PWC and leaning slightly towards the lower end of the spectrum because cap rates have lately been declining and part of the CWH’s income is from Hawaii land leases that should have a lower cap rate than most improved properties.

    Conclusion: CWH has a total depreciated book value of $6,374 M ($40.38/basic sh). The market value of its hard assets (real estate, stock holdings, & cash) was estimated at $7,712 M by the above Sales Comparison Analysis and at $6,527 M by the Income Analyses for a potential combined average of $7,120 M ($52/basic sh assuming no changes in debt & preferred). CWH with a current stock price of $26/sh +/- would need to increase approximately 55% to reach its book value of $40.36/sh and 100% to reach its potential average (hard asset) market value of $52/sh +/-. Its book value is judged to be reasonable or low depending on what parameters it is compared. I hold shares in CWH and CWHPRD as a mid to long-term hold.

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    • Bdn owns both suburban and downtown office bldgs.

      Bdn pays wholesale for its properties when the market is strong because it is a developer. At the time I bought it, it was in the process of renovating an 860,000 sf post office for the irs but it didnt have end loan financing. I thought that was an impediment to value in the markets mind but, with a long term govt lease, i was sure that bdn could secure financing. It did, but i didnt think the terms were all that great. Bought 40k shares at $2.50-$3.00 and sold at $9.75+/- to purchase 2 shares of lxp for each share of bdn. Had to pay cap gains on my earnings and it took about 7-8 months to break even. Now I am ahead. It was a combination of luck and smarts. Luck to be playing at the bottom of the market and smarts in my stock selection.

      Bdn will be a very good stock again when the rental market strengthens. It builds class A bldgs. But different reits have advantages depending on what stage of the business cycle the economy is in. Migrating between the reits as the cycle changes can be profitable but dump everything when the love affair goes crazy with real estate again because there is always a bust cycle. A 5% dividend on reit during ordinary markets seems crazy to me. Not much upside and a poor risk/reward ratio.

    • If suburban office bldgs aren't good, why do you think BDN is a buy? AS I recall from your message earlier, that was BDN's focus.

    • Fritz can tell you why duke is trading office bldgs for industrial bldgs. Its because industrial bldgs arent worth anything per fritz.

      IMO-multitenanted suburban office bldgs are management intensive-are subject to wide swings in cap ex-and are easier to replicate than are downtown office bldgs because of more readily available land and smaller sized investments due to the ability to build in phases.

    • Fritz-

      I disagree. I think investing 101 is too much for you. Start with investing 99. Even if it takes 4 or 5 attempts to pass-you will be far better informed than your are today.

      Good luck.

    • So what does that mean??????

      Did you ever think that lower estimates might have something to do with the price.
      Did you ever think that issueing more shares after the split might have something to do with it.
      Me thinks investing 101 is in order

    • Every REIT is different, one can't compare an entire sector to an individual company.

      The fact is that ever since the reverse split, CWH has been around 24-26.

    • I have doubts about book value as much of a measure but if one looks at RE investments net of depreciation, glance at revenues, the gross cash flow return is 15% or north...probably a good sign that these are good investments. And as for forecasts on revenues, I'd guesstimate stable with a slight upward bias, which has been the trend for awhile. With pfd D, revenues would have to decline huge for the pfds to be affected.

      Long 3100 shs pfd D.

    • moran3119 Jan 2, 2011 10:06 AM Flag

      Good job. I am bullish on CWH and would make a few comments and would like to hear your thoughts.

      I think book value is not great measure as how often the REIT "turns" it properties has a big effect on that number. My guess is BDN, CLI and others hve a higher % of properties they have held longer.

      Key numbers in my mind are discount based on NAV and FFO mutliple. Here, CWH is at a discount to a sector, suburban office, that is at a discount to REITs generally.

      I would argue that CWH shoud not be at as big of a discount because they have a fairly high % of high quality CBD office and industrial. I would also argue that they are selling their net lease type properties with less upside to GOV and SNH. I think (hope) they are also selling their weaker, smaller properties (which they should have never owned). They are buying in place of what they are selling larger, nicer properties with upside as the economy gets better as generally their are not many buyers for larger properties (outside of CBD NYC and DC) because of a lack of financing.

      Your two valuations of CWH, based on NOI and price per sf, to me represent what CWH is worth today and what it will be worth in a little better office market.

      • 3 Replies to moran3119
      • 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.

      • tacoboy,did yahoo delete your message,was it that bad, if so shame on you for getting off your meds during the holidays.

    • Thanks for the detailed analysis.

      I think RMR ruined the shareholders chances of reaching par with book value with the reverse split. We were at 33, and moving close to 40...

      The dilutive secondary didn't help either.

      • 1 Reply to olee2116
      • The reverse split has/had nothing to do with the share price.
        It starts with RMR being outside management and anti takeover provisions,but the current main culprit is occupancy and turnover.
        9/30/08 occupancy was 90.6% as of 9/30/10 it was 86.4%. During those two years over 20% of all leases were up for renewal,I doubt there were many that signed at a higher number.
        With that you get declining EPS,4.32 in 09,3.76 est for this year and 3.61 est for 2011.
        Some of the decline is due to more shares outstanding,but proceeds from share offerings should generate income to offset.
        The analysts aren't totally stupid they know that CWH has about 1% per month up for renewal for the foreseeable future.
        How many will they lose and how many might get a better deal.
        Economy turns around we are golden,if it sputters we lose occupancy