A few weeks ago we had the pleasure of snooping around in Ian Wyatt’s teaser for a “Real Estate Tax Rebate,” so when I saw this latest Oxford Club pitch for a “Reverse Income Tax Fund” that you could invest in, well, it seemed only fair to give it a gander.
So what’s the story? Well, in exchange for joining the Oxford Club and getting their Communique newsletter, they’ll tell you how to collect these “Reverse Income Tax Payments” four times a year.
And yes, the quotes are there for a good reason — that means they had some lawyers check out their copy, because when you’re reading a teaser ad anything within quotes means “not really.” There are not, of course, real “Reverse Income Tax Payments” available for you (other than the earned income tax credit, arguably, but there aren’t many folks subscribing to investment newsletters who qualify for that — and the free tax helpers down at the library or the senior center next Winter will undoubtedly be able to tell you all about that if you need help), and there is no “enrollment period” for these “payments” that ends on July 25.
Don’t worry, we’ll explain what they’re actually talking about — but first, here’s a sample in their own words:
“Americans Now Collecting From ‘Reverse Income Tax Fund’
“Thanks to the IRS, 27,000 U.S. Citizens Are Now Getting Cash Distributions of Up to $7,573 Every 90 Days – Regardless of Income, Deductions, or Exemptions….
“On Jan. 2, 2013, taxes went up on 77% of Americans across the country….
“Millions of citizens are still scrambling to figure out how much the legislation will wind up costing them.
“But surprisingly, some folks don’t really care.
“That’s because they’re taking advantage of a new way to ‘turn the tables’ on the Internal Revenue Service.
“And while the typical American family pays $16,134 in taxes a year (an average rate of 22%), these ‘in the know’ people are raking in thousands of dollars… every 90 days, as you’ll see….
“Just decide how much you want to collect, and get on the special distribution list using the instructions I’ll lay out in a moment.
“There’s no annoying paperwork to fill out, no complicated forms to file.
“And get this…
“You remain eligible for this program regardless of your current income.”
So … naturally, you want to be “in the know,” right? Don’t worry, that’s why you’re here and that’s why I’m here, to sniff out some answers for you.
How is it that you get all this money? Well, it turns out, you do … sort of … get it from the IRS. Here’s how they put it in the ad:
“Stroll down Washington D.C.’s historic Pennsylvania Avenue… Turn on 10th Street NW towards the National Mall…
“And you’ll find yourself standing in front of the Internal Revenue Service headquarters.
“Commissioner Steven Miller and 2,000 other staffers report to work here every day.
“Yet that represents just a fraction of the agency’s nationwide workforce.
“All told, the IRS employs a jaw-dropping 92,000 people.
“And here’s the thing: Every one of them needs a place to work.”
No one likes the IRS very much, but 92,000 doesn’t sound particularly jaw dropping to me — there are something like 150 million tax returns (just individual returns) filed every year, and more than 1% of them are individually “examined”. The IRS is chronically underfunded, since no one can get votes by saying they’re in favor of more audits and more tax compliance, so perhaps someday that number will grow even larger.
But you can probably tell what point we’re getting to here: Like with most other federal agencies, IRS employees are scattered around the country in regional and local offices, with larger groups concentrated in the areas that have powerful congressional representatives (like the IRS computing center in Martinsville, WV, thanks to the late Senator Byrd). And most of the humdrum federal offices scattered around the country to house our nation’s bureaucrats and clerks are in leased buildings … so do you see where we’re headed?
Yes, this is yet another tease for being a landlord to the US government by owning an office Real Estate Investment Trust.
Which one? Let’s check the other clues quickly.
“Getting a piece of the Reverse Income Tax Fund could be the smartest income-generating move you’ll ever make.
“In short, the Fund is a special kind of corporation that’s responsible for collecting these rent payments, and then distributing the profits to participating Americans.
“The Fund owns buildings all over the USA, from Tampa to San Diego to Washington, D.C….
“Right now, the IRS is just pouring money into the Reverse Income Tax Fund.
“One IRS office in Cheyenne, Wyoming contributes $1.3 million a year to the pot.
“Another IRS facility located in Trenton, New Jersey helps add some $6.5 million per year to the Reverse Income Tax Fund.
“Then there’s an IRS lease for a 531,976 square foot building located in Fresno, California. This 10-year rental goes for more than $8.4 million per year….
“Overall, the Reverse Income Tax Fund collects money on 62 government properties, with a staggering total of 7.6 million rentable square feet.
“And it’s growing fast…
“Case in point: The Fund added 13 of those 62 income properties to the portfolio in 2012 alone.”
We get a few other arguments for investing in this fund — from the fact that the government will alway be able to pay its bills and is price-insensitive, to the fact that agencies generally sign long-term leases and renew them happily rather than moving, and they rarely close down their offices.
And of course, it’s a REIT so it’s required to pay out 90% of income to shareholders as dividends — and apparently it’s a well-respected one, we’re told that “Forbes just named this business one of ‘America’s 100 Most Trustworthy Companies.'”
A tease for a REIT wouldn’t be complete without mentioning the yield, particularly in this chronically low-yield environment, so we are told that the dividend is 230% higher than the average Dow dividend, and 358% higher than Treasuries … which isn’t saying much, actually. And the distribution has been climbing, we’re told, and — though they don’t mention how much you’d have to invest (they never do mention that number), they do say how much you could earn …
“With as few as 1,000 shares, you could automatically start collecting $1,720 or more every year.”
So what is this REIT that’s supposed to give us such warm fuzzy feelings and a nice full wallet?
This is Government Properties Income Trust (GOV), which is indeed a government-focused REIT (overwhelmingly Federal, with IRS and Customs as big tenants, though they lease a bunch of buildings to state governments and one to the United Nations). And they do pay an annual $1.72 in dividends at the current rate, though at the current share price getting $1,720 in annual dividends would mean you’re putting up almost $25,000 as your initial investment for 1,000 shares (it’s just under $25 at the moment).
GOV is actually one of the more appealing office REITs — it should have very little economic sensitivity, they shouldn’t lose any major tenants, and they’re not growing super fast but they are growing and raising the dividend (like all REITs, they can’t pour their earnings back into new buildings since it has to be dividended out, so major growth projects have to be funded by selling stock or, if they have balance sheet flexibility, adding debt). Their last quarter actually brought a solid FFO growth rate of 20% due to accretive acquisitions, but that’s not consistent (FFO is what REITs generally use instead of earnings, and it’s usually what goes into the reported PE ratio for REITs in most websites who publish that data, too — it’s basically the cash flow they have available to pay dividends, without the non-cash charges like depreciation).
So that stability of customers and tenants, and that slow growth in the dividend, look pretty good when you note that the yield is quite solid at better than 7%. That’s unusually high for a solid REIT, most relatively solid and predictable REITs have substantially lower yields down in the 4-5% neighborhood, including some others that are at least partially exposed to the federal government like the Washington Real Estate Investment Trust, for example (ticker WRE — that one’s far more diversified in terms of tenants and property type, but is geographically focused on Metro Washington, which gets the flu if the Federal Government catches a cold). I haven’t looked closely at this one in recent months and I don’t know if there are any hidden skeletons in there somewhere — but there don’t seem to be major issues at first glance, their FFO is fine and growing and supports the dividend, they don’t carry an unreasonable amount of debt, so unless you believe that states and the federal government will be shuttering office space or breaking leases, or unless there’s a strong possibility of a bunch of their leases rolling over at lower rates in the next few years (I haven’t checked), there shouldn’t be any big operational shocks.
You can see their last conference call transcript here — and there are other fans of GOV in newsletter land as well, Steve Sjuggerud teased them last Fall as part of his “ValuableProperties.com” push, and later wrote in his free email about the appeal of this company at prices pretty close to where it is today.
So why did the stock fall 10% or so in recent weeks to get back to those prices we saw last Fall? Well, you can probably chalk that up to interest rate sensitivity — which plagues pretty much any income-focused investment. The Fed got everyone spooked a few weeks ago, rates bumped up on mortgages and treasuries, and therefore rates bumped up on REITs and many other income investments as well. And if Mr. Market needs to bump up the dividend income yield for a REIT without that REIT actually raising the dividend dramatically in short order, that means he’s dropping the share price. So changes in interest rates will certainly impact the shares of GOV and all their competitors, but I’ve given up on any hope of predicting what those changes might be — I thought rates were ridiculously low when 10-year Treasuries were at 4% a few years ago, so you’ll have to find your forecasting acumen somewhere else.
Interested in being a landlord to the government? Think the current 7.1% yield makes GOV a good buy? Let us know what you think with a comment below.