June 17, 2024

More Lies & Stolen Ideas...

Tim Melvin

Some won't stop until they deplete every good thing they have...

Seriously, where is the integrity? Where is the character?

Just look at the foolish headlines and propaganda...

"Real estate is the worst thing you could possibly own right now."

It is all over the news.

Commercial real estate values are collapsing.

It is probably going to collapse the entire banking system, and only those of us who understand super magical options trading and own the right $2 super-secret AI stocks will survive.

Nobody is going to work in offices ever again. It is only a matter of time before Midtown Manhattan looks like a scene from The Walking Dead.

This expert analysis is all over the internet.

Like most of the advice from clickbait-hunting instant experts, it is not only wrong; it is so spectacularly wrong that it almost always signals an opportunity to go bargain hunting.

I have been investing in banks and real estate since the 1980s, and I have seen the same news cycle on numerous occasions.

It has always ended the same way.

The doom-and-gloom crowd moves on to show that the next opportunity to expose people's fear of their own funds and benefits can be found, leaving behind individuals who missed an opportunity.

It's the same old ploys, schemes, and lies...

Those who understood credit profiles and valuations and ignored the Sad Sacks and Cassandras go on to make fortunes.

A Real Opportunity

The opportunities in real estate investment trusts today have as much potential as I have ever seen for patient, aggressive investors.

Boston Properties (BXP) is a great example of what I am talking about.

Boston Properties owns offices.

As we all know by now, offices have been having problems since the early days of the pandemic.

Work from home to flatten the curve has turned into "I ain't coming back in there no more," which has reduced the need for office space in certain segments of the economy.

As the largest publicly traded developer, owner, and manager of office space in the United States, you would think that Boston Properties was facing financial difficulties because of these alarming developments.

They are not.

Its buildings are almost 90% occupied, and the company has an investment-grade credit rating.

Boston Properties owns Class A buildings in key markets, including Boston, New York, San Francisco, and Washington, D.C.

Class A buildings are the best in town. They have the best locations and the nicest amenities. In difficult times like the one we are currently experiencing in office real estate, tenants leave the lower-grade buildings and take advantage of special offers and attractive rates to upgrade their office space.

They own the best properties in town, and they have very little trouble attracting and keeping tenants.

In what everyone agrees is the worst office market in decades, Boston Properties is generating over $1 billion in operating income.

It paid out $688 million to investors over the past 12 months.

At the current price, shares of Boston Properties are yielding 6.4%.

I took Boston Properties financial statements and used three specific models based on cash flows, dividends, and asset values to calculate its value.

The average valuation came out to $92 a share.

Thanks to the current negative sentiment, you can buy Boston Properties' shares for less than 70% of the business's intrinsic value.

I have no idea what the share price will do over the next several weeks or months.

I am very confident that Boston Properties will increase cash flows, bump up the dividend, and increase the business's value over the next several years.

At some point, REITs will be in favor again, and the shares will trade at a premium to an intrinsic value well above today's value.

Those who buy now will be sitting on massive gains.

More Class A: Keeping Standards High

Vornado Realty (VNO) is another large owner of Class A office space, with most of its properties in New York City.

It also has an office occupancy rate of about 90%, well above the current industry average of closer to 80%.

Like Boston Properties, Vornado owns the properties that are the properties where people and companies want to be.

It is also an investment-grade credit with no problem paying its bills.

Performing the same valuation exercises I did with Boston Properties, I get a value for shares of Vornado of $41, well above the current $25 area where the stock currently trades.

I have no idea how long it will take for office markets to return to normal.

In some cities where technology is the dominant industry, they may never return to what they looked like pre-COVID.

I do know that in cities like Boston and New York, banks, private equity, and real estate firms are telling employees to come back or go away permanently.

I do know that if given half a chance, tenants in Class B and C properties who need to renew their leases will flock to Class A buildings.

Real estate is going to collapse further, especially the office buildings. Everyone hates it, and everyone says it is time to sell before the office apocalypse comes to pass.

The prudent, smart move now for patient, aggressive investors is to start accumulating office properties.

Boston Properties and Vornado are a good place to start.

Stay informed,

Tim Melvin
Yield & Growth Expert

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