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Published: December 20, 2009
The U.S. federal government has 1.8 million
civilian employees. Add in postal workers, and that number
swells to 2.5 million. The government also owns a lot of land --
about 30% of the country, in fact -- but in addition to Grand
Teton National Park and the Aberdeen Proving Grounds it also
needs office space for its workforce, which is not only large
but growing: During the past decade, the government's payroll
grew by more than +50%, from $10.0 billion in 1998 to $15.4
billion in 2008.
The government's spending priorities are largely immune to
economic cycles, so Washington doesn't have the same money
problems that businesses and individuals have. It doesn't have
to cut staff or spending when times get tough. (As it turns out,
the opposite is usually true.)
So the good news is that the government can always find money.
The bad news is that it often finds it in your pocket. In
addition to its power to tax, the government can and does also
borrow a tremendous amount of cash from a seemingly endless
supply of lenders.
The bottom line is that one way or another Uncle Sam always pays
all his bills -- no matter how large -- on time every time.
This makes the government a very good tenant. Government
Properties Income Trust (NYSE: GOV) is a real-estate
investment trust that owns 30 office properties comprising 3.6
million square-feet. Twenty-five of these properties are leased
to the U.S. government; four more are leased to states. These
properties are located in 15 states and the District of
Columbia.
The $500 million company is fairly new, having been spun off
in June from HRPT Properties Trust (NYSE: HRP), which
still owns 46.3% of the company. GOV's shares have appreciated
+15% from their debut at $20.
Because Government Properties Income Trust is organized as an
investment trust, it must pay 90% of its taxable earnings to
shareholders. The company now pays $1.60 per year in dividends
in four quarterly distributions of $0.40. Its first dividend was
higher to account for several weeks of operations in the second
quarter. The next dividend of $0.40 will be paid at the end of
January. At current prices, the company yields about 7%.
Government Properties Income Trust can easily afford these
payments. For the first nine months of the year, revenue
increased +4.2%, to $58.3 million. Funds from operations (used
by REITs to measure performance) decreased -6.5%, to $32.0
million. The decrease was largely due to increased interest
expense from a revolving loan, of which $65 million of $250
million has been used, as of the most-recent filing.
In August, Government Properties Income Trust bought an
industrial property for about $18 million, a purchase it funded
with cash and by drawing on its credit line. The company plans
to fund further acquisitions with some of its remaining $185
million credit facility. It's looking for new properties that
generate positive cash flow.
Going forward, Government Properties Income Trust believes that
the rapid growth of government will increase its demand for
space. It has also said that budgetary pressure on government
entities means they will lease space rather than build or buy
space outright.
While individuals and businesses can find it tough to pay the
rent, the government, with its endless supply of funds, won't.
And its landlord, Government Properties Income Trust, will
benefit from having the most reliable tenant in the world. A 7%
yield doesn't come any safer, or easier.
-- Anthony Haddad
Staff Writer
StreetAuthority
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