This pitch has been around for more than a year now, but apparently it’s in heavy rotation again so I took another look today.

And yes, you guessed it, the ad is almost completely unchanged from what ran in the Spring of 2013… the same pitch for REIT dividends being “Real Estate Tax Rebates,” the same spiel about the same teaser pick. So we’re re-sharing our article below (if they can’t be bothered to update their ad, well, we’ll take a half-vacation as well).

The updates? Not a lot, actually, the company teased is still a small commercial REIT, it still pays a monthly dividend (yes, the next “ex div” date is today, August 18, so you’ve already missed this month’s payout… but don’t worry, it was only 12.5 cents and the dividend has not changed since 2008 so there will be, in all likelihood, another one coming next month. The stock was around $20 when he teased it, in the midst of the runup of REITs in the Spring of 2013, but like most of those REITs it spiked and then fell back again and has more recently been pretty flat (it’s been between $17-$19 for most of the past year)… what you would expect from a fairly high-yield stock that doesn’t raise its dividend. It has been more stable than most REITs I follow, but is, like all of them, influenced heavily (probably too heavily) by interest rate expectations (I hold several REITs, though not the one teased here by Wyatt, and last wrote about REITs and interest rates in any detail over the Winter for the Irregulars, just FYI).

So we’ve got the same company being teased, a slightly cheaper price, and it’s still very misleading to call the dividends they pay “Tax Rebate Checks” … for more detail, what follows is our original article on this from May 14, 2013. The original comments and discussion are also included at the bottom, feel free to add on if you have thoughts to share:

——–from 5/13/13———

Ian Wyatt is no stranger to the misleading teaser ad — I say this not to pick on him specifically (there are dozens of others with similar-seeming ads), but because his pitches seem to catch the attention of gumshoe readers with their misleading references to “rebate checks” and “savings accounts.”

And this new pitch about “Real Estate Tax Rebate Checks” is no different — it sounds, in fact, quite a bit like his “gas rebate checks” pitch a few months ago. That one followed the same leap of logic we’re looking at here — he said you could earn enough from owning a particularly refinery stock that it would be like getting a rebate on the gas you buy … but judging from the comments these articles generate, and the response from readers, the ads give enough of a misleading big picture to make folks skim right through and just look for where they can input their name and address to start gettin’ those free checks.

I do so hate to burst any bubbles but no, there aren’t really “real estate tax rebate checks”, any more than there were “gas rebate checks.” (Though frankly, since property taxes are typically deductible you kind of do get a rebate on your taxes — though that’s obviously too boring and real to be teased or hyped.) So what is Wyatt talking about with these “checks” you get as a way of offsetting your real estate taxes?

Here’s a bit of the ad to get you all jazzed up before we begin:

“How to Collect Your Real Estate Tax Rebate on May 16th, 2013

“While the rest of the country is getting gouged by federal, state, and local taxes… a handful of everyday Americans are using a little-known rebate program to completely pay off their real estate taxes.

“This program is available to ALL U.S. citizens… regardless of income or employment status…

“Anyone can collect a share of the more than $171 million to be paid out in Real Estate Tax Rebates this year.

“The best part: These refund checks are mandated by the U.S. Government… meaning you’re guaranteed to collect!”

Man, I don’t know who Wyatt’s lawyer is … but I’d be sweating that “guaranteed to collect!” bit. The initial assumption I’m working with here is that he’s touting some sort of tax-advantaged real estate play, most likely a Real Estate Investment Trust (REIT), which means the government does mandate that they send their income to shareholders. But the government sure doesn’t mandate that they make any income, or that they make a certain specific amount of income … and if they don’t make anything they don’t have to send you anything, so be careful how you define “guaranteed” in your head as you read along. Almost all REITs pay out more in dividends than they the government mandates them to pay — it’s the lust of investors for dividends, not the government rules, that keeps payouts increasing for successful REITs.

But moving on … we do want to find out specifically which investment he’s touting for these “rebate checks,” so how about some more clues?

“According to Kiplinger’s… ‘If you’re an investor looking for income, [Real Estate Tax Rebate Checks] are a great way to go.’

“In fact, you could be eligible to start collecting payments of up to $6,175.50 on Thursday, May 16th! ….

“Thanks to the unique nature of this program, you’re eligible to start collecting your rebate right away…

“You see, these rebates don’t pay out annually… they pay out monthly!

“When you enroll today, you’ll start receiving checks every 30 days….”

Still not specific enough … how about some more background to make sure we’re sniffing around the right area?

“In just the past few years, Real Estate Tax Rebates have been raised 4 times… even while home prices were sinking after the mortgage bubble burst.

“Now you might be surprised to learn that the Real Estate Tax Rebate programs are nothing new.

“The truth is, in-the-know Americans have been receiving these ever-increasing payments since the 1960s!

“As you might recall, back in the mid 1950s, housing was booming… they couldn’t build homes fast enough!

“The problem was there was shortage of capital to build all these homes…

“Demand for new homes was far outstripping supply… and as a result home prices were being driven up – unfairly punishing would-be new homeowners.

“That’s when President Eisenhower stepped in and passed a law that provided an unprecedented opportunity that would allow for massive inflows of private investment capital where it was needed most – to build new homes and neighborhoods for quickly growing American families.

“And despite the fact that most people still don’t know about this law, it turned out to be one of Eisenhower’s most critical moves in office because it made it possible for towns, cities, and suburbs everywhere to rapidly expand… without putting the cost on individual taxpayers.

“By 1965, Real Estate Tax Rebate plans were gaining in popularity as expansion continued and home prices – and along with them, taxes, – were spiking to new highs.

“But once things leveled off in the 70s, a lot of folks completely forgot about these rebate checks.”

Well, that’s all more or less true — since Eisenhower was behind both the GSE-backed privatized mortgage boom and the creation of the real estate investment trust, you could say that both REITs or mortgage REITS (mREITs) owe their current popularity to him, though I’m pretty sure Wyatt is teasing a more traditional REIT here. The first REITs were started up in 1960 after the category was created by law, and started going public not long after, but they did indeed lose most of their popularity in the 1970s and 1980s and they were largely small cap stocks — the “modern era” of public REITs and their growing acceptance and growing investor interest probably dates back to the early 1990s and the REIT boom of that era that brought us the real large-capitalization REITs that are now brand names for US investors (like Kimco Realty and Vornado).

And then we finally get into a few specifics …

“There’s one under-the-radar company that is legally obligated to siphon off the majority of its cash flow and pass it on everyday citizens.

“Last year, it distributed over $171 million to just a few thousand check recipients…

“But why are these checks so big?

“Well, it’s because this company makes millions off the most profitable tracts of real estate… commercial land.

“And the government requires that the bulk of the profits go right into the Real Estate Tax Rebate program…

“Here’s how it works…

“This company hauls in millions owning, acquiring, and building big commercial real estate developments…

“I’m talking office buildings, factories, warehouses, retail stores… massive buildings and pieces of land….

“This company rakes in millions from companies including Corning, Pennzoil, and Verizon.

“(In fact, it owns over 70 giant, cash cranking commercial properties.)

“And as I mentioned earlier, this firm is required by law to pay out 90% of the profits from its real estate business into the Real Estate Tax Rebate Program.

“That’s $171 million… paid out to citizens like you and me – each year.

“That’s why out of the select few companies funding this government-mandated Real Estate Tax Rebate Program… this one company is safest I know of to help you earn back the money you’ve had to pay on taxes over the years – AND collect a regular income.

“Plus, over the past couple years, it’s continued to contribute more and more to the Real Estate Tax Rebate Program – paying out bigger checks every time!

“And the next check is scheduled to be paid out in the next 30 days…

“But in order to collect – you must be enrolled in the Real Estate Tax Rebate program by: May 16, 2013.”

So they’re not great clues — the specific tenants, the number of properties, the fact that it’s a REIT, etc. — but that’s enough to fill up the Thinkolator about halfway and give it something to chew on. A few minutes later and our answer comes out the other end: This is most likely Gladstone Commercial (GOOD), a commercial REIT that’s chaired (as are the other public Gladstone companies — Gladstone Capital, Gladstone Investment, etc.) by David Gladstone.

This is a pretty stable REIT, so we can give Wyatt credit on that front — they do own “more than 70” buildings (81 as of the last count I saw), and they stress stability over growth. They have paid a monthly dividend for many years, and the dividend has been unchanged since it was last raised in early 2008.

Of course, it has a nice yield — just under 8% — but it’s not a free “rebate check.” To get your check for one of those big payouts teased in the ad, like $6,000+, you’d first have to buy in to Gladstone by purchasing something close to $100,000 worth of stock — assuming that they are able to keep paying the dividend, and I don’t know any specific reason why they wouldn’t, then $100,000 invested today into GOOD at roughly $20 a share would get you about 5,000 shares. And those 5,000 shares would each spit out 12.5 cents in dividends per month, so your monthly take would be $625. Not bad … and higher than my property taxes … but still, you did pitch in $100,000 to get there.

It looks like GOOD’s dividend was entirely return of capital last year, interestingly enough, so in this case you might not have even had to pay taxes on it — that’s not terribly uncommon for REITs, particularly those that have low maintenance expenses like GOOD, they spit out essentially all of their free cash flow to shareholders and, thanks to non-cash charges like depreciation on their properties, the cash flow is much higher than the taxable earnings. Return of capital also forms most of the distribution for lots of other high-yielding asset-heavy investments like MLPs, and it basically just means that instead of getting taxable income from the company, you get your capital returned and your cost basis in the shares is reduced, so when you sell your capital gains would be higher. Their dividend has not always been entirely return of capital, they have reported earnings in some years — just not in 2012.

So if a company is not holding on to any of that depreciation cash, you’d hope that they don’t need it for, say, renovating or refreshing their aging and depreciated properties. And that appears to be the case with GOOD to at least some extent, part of their focus on stability is that they do only triple net (NNN) leases, so the tentants are responsible for maintenance, upkeep and taxes on the properties, so GOOD is really almost exclusively a financial partner of their tenants.

In many cases these kinds of leases come about because the tenant wants to monetize its real estate without losing control of it — some companies need to own real estate, but often for a retail company or a company with lots of far flung offices, owning real estate is just a drag on the balance sheet, something that ties up capital without generating a return. So they sell it off with a triple net lease, or they sign long-term triple net leases to build new properties, and GOOD puts up the capital to own the property and collects the rent but doesn’t do much else to the property. Unless there’s something substantial beyond regular maintenance, depending on the specific lease. Most of the time these are single-tenant properties with long-term inflation adjusted leases (10-15 years or longer), and they have very few vacancies. They do take on some financing risk, since GOOD does hold mortgages on about 2/3 of the value of their real state — most of those mortgages are for shorter terms than the lease, but presumably they’re typical commercial mortgages so there would still be a big balloon payment to refinance after the 4-6 year mortgage term (I haven’t checked, that’s an assumption).

There are some things that don’t precisely match with the teaser — the clients do match exactly, the yield matches, the strategy and the monthly payment of the dividend match (there are some other monthly dividend payers in REITdom, but not that many), and the timing matches (their ex-dividend date for the next payment is May 16, meaning you’d have to be in by the 15th to get the next 12.5 cent payout). But this specific company doesn’t pay out anywhere near $171 million in dividends in a year — the company has an enterprise value of less than $650 million, so that would be an absurdly high payout (they do pay a little over $20 million in dividends per year right now). So perhaps he’s referring to some broader group of real estate investments that he recommends, or perhaps the Thinkolator is sniffing up the wrong tree.

If you want to delve into this little segment of the market, “Triple nets” do get some investor attention as their own little subclass of the REIT space, and there are some substantially larger triple-net-lease REITs that are probably more conservative and more stable, and that come closer to paying the $170 million in annual dividends — but those stocks, like W.P. Carey (WPC) and Lexington Realty (LXP), have substantially lower yields and pay quarterly, not monthly. The granddaddy of monthly dividends and triple net leases, Realty Income (O), is far larger and, I think, a bit overloved by investors at the moment (though to be honest, I’ve been skeptical of the valuation for a while and it keeps going up) — and it pays out over $300 million in dividends a year and leases largely in strip malls and similar properties. So I’ll stick with Gladstone Commercial as our best match on this one … as to whether it will make you (gradually) wealthy, well, that’s your call. Let us know what you think with a comment below.