Government Properties: Opportunity in Sell-Off

07/12/2017 2:52 am EST

Focus: REITS

Todd Shaver

Founder and Editor-in-Chief,

Don’t fall over in your chair! Government Properties Income Trust (GOV) got crushed in recent trading, but it was because of an acquisition, asserts growth and income expert Todd Shaver, editor of

Government Properties is acquiring First Potomac Realty Trust (FPO) and to finance the deal, the company sold 25 million shares in a secondary at $18.50, raising over $450 million.

 They had to knock the stock lower to get the funds they needed. This is typical. We believe the deal will work out well, and that we will see a full recovery and then some.

And the underwriters have been granted a 30-day option to purchase up to an additional 3,750,000 common shares. These overallotments are exercised about 99% of the time so expect to see another $65 million of cash in the bank.

And expect to see the stock stay around this level for a month. Then there is a great likelihood that the stock will move back into the low 20s.

You should be excited. The acquisition of First Potomac Realty Trust enables Government Properties to expand its business strategy to include the ownership and operation of office properties leased to both government and private sector tenants in the metropolitan Washington, D.C. market area.

The metropolitan Washington market area is one of the largest office markets in the U.S. and the nation’s largest beneficiary of spending by the U.S. government.

Outside of the metropolitan Washington market area, Government Properties will continue to focus on acquiring, owning and operating office properties that are majority leased to government tenants.

In addition to this transaction providing Government Properties with new potential growth opportunities, management expects to realize approximately $11 million of annual general and administrative expense savings compared to First Potomac Realty Trust on a standalone basis.

Management is very pleased that they were able to achieve an attractive per share purchase price. Their preliminary estimates call for meaningful accretion and more detail will be forthcoming.

Net asset value was $20.90 prior to raising some equity at $18.50. We don’t see any reason for the stock to trade at a discount to this lower level.

This is a buying opportunity for sure. Why do you think institutional investors just took down 25 million shares at $18.50? Get on board and put new money to work at a 9.4% yield right here.

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