We haven’t looked at a “free money!” teaser in a while, so when readers asked about this one I figured I should check it out — it’s another one that’s all about “loopholes” and “bonus cash” and “signing up to qualify” or “putting your name on a list”… which means that in all likelihood this is not really the “free money” that the ad would like you to believe. But still, sometimes there’s a real idea under the tease… so let’s check it out.

Here’s the pitch at the top of the ad:

“Last year a little-known loophole allowed a handful of regular Americans to legally collect over $105,868,000 in bonus cash.

“Here’s the one simple step you must take before June 19, 2020 to qualify for the next round of payouts…

“This income-boosting loophole is so obscure, less than 1/10 of 1% of Americans are taking advantage of it.

“And that’s a shame. Because it allows you to boost your income by up to $18,836.

“Every year. For the rest of your life.“

What person in retirement, or contemplating retirement, wouldn’t be tempted by that? And apparently it’s available to everybody…

“This income boost is available to EVERYONE.

“Whether you’re 25… 40… 65… or even 80!

“In fact, my research shows 100% of the people who put their name on this “plan’s” list were approved.

“You heard that right.

“Every single person who ever applied to this program had the chance to receive money.”

They also throw in some examples, with photos of smiling people, to make it seem ever more real…

“Brian W. from Augusta, Georgia would back me up on that.

“Even though he’s 48—and decades from retirement—he was still able to tap this opportunity for more than $2,043.

“Kathy N. a 57-year-old from Pennsylvania collected $5,121.

“And Tom S. who’s 69, raked in $18,836 last year thanks to this loophole.

“That’s just over $1,569 a month.”

I’m sure those are based on real people, though they’ve probably changed the names — sometimes they pull them from communications from their subscribers, but as often they just pull from public records… which oftentimes means that the people they cite as pulling down big income from these “programs” are actually the board members or other reporting insiders of the publicly traded company being teased.

And yes, that’s the sad part — these are never really ‘benefit checks’ that you can sign up for… in almost every case I’ve looked at, they’re just stocks which you can buy, and in turn receive dividends from (though to this point in the ad, there’s been no mention of buying anything, just collecting checks). I expect we’ll get some more careful wording as we move along, surely all publishers paid close attention when Zach Scheidt was dinged by the FTC last year for his similarly-themed ads about collecting “Congressional Checks” or “Republican Checks” that implied a secret government benefit program was sending out money.

So we’ll keep that in mind as we wade through the teaser. What else does Pearce say to tantalize us?

Well, a ways into the ad he finally drops that key “invest” word…

“… the form which allows you to collect payments that average up to $1,569 a month is so simple to understand…

“You can complete it in 90 seconds. Maybe less.

“There’s nothing confusing about it.

“There’s no way you can mess it up.

“Now to be clear, not everyone will get payouts of this size…

“How much you receive depends on how much you’ve got available to invest of course.”

Ah, yes… no free money. Dang it.

So this is about buying a stock of some kind and getting income from that, no surprise. What do we learn about which stock?

“… this ‘plan’ has nothing to do with the actual Social Security fund.

“When you submit the “membership form” you’re joining forces with a private sector company that has one of the most unique financial relationships ever formed with the U.S. Government.

“I’m not exaggerating.

“Unlike outfits who provide overlooked ‘everyday’ services like internet access, electric, or even garbage collection…

“The company behind the ‘plan’ I’m sharing with you today provides a resource so immense, expensive, and time-consuming to control…

“The folks in Washington paid them more than $149 million last year to oversee it.”

And then we throw in the “legal requirement” that you be sent this income…

“When you become a member of this company’s ‘plan’ it is legally obligated to pay you a share of its profits.

“And since it has dozens of contracts with the U.S. General Services Administration, which represents federal agencies like the two that siphon at least 31.2% from most Americans paychecks:

“The Internal Revenue Service (IRS) and the Social Security Administration (SSA)…

“As soon as you’re accepted into this ‘plan’, you’ll immediately become eligible to ‘recoup’ MORE of the tax money the government takes from you.”

Ah, so now we know where we’re headed — this is another of the ‘be the government’s landlord!” teases, of a type that was so popular five or ten years ago. Ads that tease about payments being “legally guaranteed” are essentially always about REITs — those are Real Estate Investment Trusts, which are pass-through entities that were designed to make access to real estate investing more accessible to individuals.

REITs in their simplest form own buildings and collect rent from their tenants, and they get to avoid federal taxes as long as they send 90% of their pre-tax income to shareholders in the form of dividends. So yes, dividends are required by law… but only if the company makes money. In practice, almost every REIT pays out far, far more than is required by law, and if they don’t make a profit or have a bad year it’s not unusual for them to pause the dividend or reduce it — there’s no law against that.

Here’s what Pearce says about this particular opportunity:

“I can’t promise you this ‘plan’ will continue paying money out hand over fist…

“You know the drill by now—past results don’t guarantee future performance.

“But after spending nearly $30,000 of my company’s money—and months of my time—researching this situation…

“I simply don’t see much in the way of downside.”

And one more hint about which one he’s teasing here:

“Last year the payouts totaled a staggering $105,868,000.

“Plus, since there’s little chance of government spending ever shrinking…

“I fully expect these payouts will continue to grow….

“This opportunity is so simple to become a part of…

“All you need to join is internet access and about $30 in your investment account.”

So what’s the story here? Pearce is again teasing a stock that he has pitched many times — a blast from the past, really. It used to be called Government Properties Income Trust (GOV), but about 18 months ago it went through a “rescue” merger with a different RMR-managed REIT to form Office Properties Income Trust (OPI), a (mostly) office building-owning REIT that still has a heavy reliance on government tenants but is no longer entirely government-focused. Here’s how they describe themselves:

“Office Properties Income Trust (Nasdaq: OPI) is a REIT focused on owning, operating and leasing buildings primarily leased to single tenants and those with high credit quality characteristics like government entities.”

And that transition was a really, really ugly one — partly because GOV had built itself up and sold itself as a high-yielder for years, getting too much in debt and paying out a dividend that they couldn’t afford… so the merger was also used as occasion to dramatically slash the dividend payout. When that happens, REITs almost always get clobbered — they are, after all, primarily owned because of the dividend income they provide — and that was certainly the case with GOV/OPI. Here’s what the total return for investors would have looked like if you had bought GOV the last time we noticed Personal Finance teasing it as a “income benefits” idea, about three years ago in September, 2017:

See that straight line down in the fall of 2019? That’s the dividend cut. And while that cut and the merger eventually did help to stabilize the share price a bit, since the much lower dividend was more easily covered by the company’s operations, and they were able to reduce debt a bit to improve the balance sheet, the share price never recovered.

I actually speculated on this last year, after the dividend cut collapse, just because I thought the collapse was overdone and that investor hatred for the shares would fade with time, and people would again buy the shares once the dividend looked above-average again. And they did, so I sold my holdings and was fully out of the shares in January — it’s not a stock I was particularly interested in holding for the longer term, just because of their historic underperformance under the external management team (along with a few other REITs, OPI is actually run by The RMR Group (RMR), itself a publicly traded management firm).

The nice thing about OPI is that they have tenants with strong credit ratings, largely because a lot of their tenants are government agencies (they now say 38% of rent is paid by “government tenants,” which can include state and local governments, 25% is the US Govt… no other single tenant generates more than 4% of their revenue). And the stock has performed so poorly of late that they haven’t had to pay much in incentive fees to RMR for their management services.

The challenging thing is that occupancy is pretty low (at 91.5%), and they’ve embarked on a “capital recycling” strategy to sell their lesser buildings and buy better ones, which generally means improving the quality but probably shrinking cash flow, since better buildings cost more (though they say that program is “on pause until markets stabilize”).

I don’t know what their future will look like, they don’t have many big lease expirations this year but it’s a little bit of a scary time for office REITs these days, with so many companies deciding to further embrace “work from home” and maybe shrink their office space (and others perhaps having to increase office space, I imagine, to allow for more “distancing” at work if the pandemic is seen as a longer-term issue). They have kept the dividend steady since that big cut in late 2018, so at 55 cents/quarter it does still provide an above-average yield and they said in their last call that they expect the dividend to remain well-covered for the remainder of 2020… and they said that “We currently do not expect the material impact to our results from the COVID-19 pandemic.” So that’s a positive, the dividend seems relatively safe and provides an 8% yield right now, which is well above-average among the companies that would be considered near-peers.

I see very little chance for OPI to grow meaningfully from here, so dividend growth is not terribly likely anytime soon and dividend growth tends to be what creates share price increases for REITs, but it’s certainly a better investment than it was the last time Pearce teased it in 2017 — they’ve reduced leverage, they can actually afford the dividend now, and they’ve diversified the business a bit. I wouldn’t try to talk you out of the shares here, access to capital is cheap and easy for REITs right now and the valuation is rational, with tenants who will probably not jettison their offices and go to “work from home” en masse… it just won’t change your life or generate free money, and if you buy and the shares ever catch up with a valuation more like the higher-quality office REITs I’d count my lucky stars and sell them again.

If you want a possibly higher quality company with a similar focus, I’d look at either Corporate Office Properties Trust (OFC), which also relies heavily on the Washington, DC area with both government and security/defense-related tenants, or Easterly Government Properties (DEA), which buys properties leased to US government agencies — I like the portfolio of both of those companies better than OPI, but that’s not a contrarian view: both of them are also priced higher to recognize that better quality. They also pay much lower dividends, in the 4% neighborhood, and have also not been growing their payouts.

Or if you want to go a bit on the strange side, there’s always the Postal Realty Trust (PSTL), which, as you might guess, owns post offices — I wrote about that one back in November and it’s clearly tiny and risky, but they have at least been able to aggressively increase their dividend payout (which is now just over 5%). I don’t own any of these, and real estate is a tough business to be focused on right now, but it’s possible that more bad news will create some more compelling buying opportunities among the government-focused REITs one of these days… we’ll see.

And I always do like to come back to those headline promises and do the math behind them — so what would it take for you to get $1,569 in “monthly benefits” from an investment in OPI? Well, the current dividend is $2.20 per year, paid quarterly, so that would average out to about 18.3 cents a month per share. To turn that into $1,569 a month in income you’d have to own 8,573 shares. A share of OPI would cost you about $27.50 right now, so getting $1,569 in “benefits” would cost you a bit over $235,000 (and those “benefits” are just REIT dividends, so they are not guaranteed into the future — the dividend could go up, go down, or disappear). REIT dividends are also taxable, if you hold them in a taxable account, though the tax burden tends to be lighter than expected because of recent tax cuts and the fact that some REITs pay out part of the dividend as a “return of capital.”

I enjoyed the move from “terrible” to “less bad” for OPI last year, but it hasn’t fallen enough to tempt me again. That’s just my thinking, though — with your cash, you have to make the call. Ready to invest in a government landlord as the opportunities for yield dwindle elsewhere? Think office REITs have further to fall? Let us know with a comment below. Thanks for reading!