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, which is selling subscriptions to Jim Pearce’s Personal Finance newsletter (that’s a generalist entry-level financial newsletter, it’s been around for decades, with many different editors… currently being sold at $39 for the first year):

“Last year a little-known loophole allowed a small handful of regular Americans to legally collect over $106,368,000 in bonus cash.

“Here’s the one simple step you must take before February 17, 2023 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 $21,640.

“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 $7,071.

“Kathy N. a 57-year-old from Pennsylvania collected $8,972.

“And Tom S. who’s 69, raked in $21,460 last year thanks to this loophole.

“That’s just over $1,778 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 or taking any risk, 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 a couple years ago 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 $1,778 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 $112 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 $106,368,000.

“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 $21 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 several years ago it went through a “rescue” merger with a different REIT that’s managed by the same outside management firm (RMR), 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 at an earlier time when we noticed Personal Finance teasing it as a “income benefits” idea, back in September of 2017 (GOV/OPI in purple, I included the Vanguard Real Estate ETF (VNQ, blue) and the S&P 500 (orange) for context:

And yes, that’s the total return, including the dividends.

See that straight line drop in the fall of 2018? 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. Through the various ups and downs that all REITs have experienced (most recently because of higher interest rates), it has generally continued to trend down. And to do worse than other real estate companies, on average.

The nice thing about OPI is that they have tenants with strong credit ratings, largely because a lot of their tenants are government agencies… though that government exposure has come down a lot over the years — the U.S. Government now generates 19.1% of their rental income, down from 25% a couple years ago, and the number two tenant now is Alphabet (GOOG), only two state governments (California and Massachusetts) are in their top ten, each generating less than 3% of OPI’s rental income. So they’ve certainly diversified, and mostly with high-quality customers (now 63% of rent comes from “investment grade” tenants, they say), though that also makes them less “special” because they’re not nearly as government-focused as they used to be.

And while I don’t love the external management of REITs in general, and don’t think RMR has done a great job with their managed REITs.. 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. So that’s something.

The challenging thing is that occupancy is pretty low (at 90.7%, though it has climbed from the worst levels in recent years, it was at 89% a year ago), and they’ve been actively “recycling” capital to sell their lesser buildings and buy better ones, which has generally meant improving the quality but also shrinking cash flow, since the transactions create costs and better buildings generally have lower current cash yields on the purchase price (though they say that program is “on pause until markets stabilize”), and they did a lot of that just before the COVID pandemic hit and started to be a near-crisis for owners of office buildings.

I don’t know what their future will look like, but it’s certainly a little bit of a scary time for office REITs these days, with so many companies deciding to further embrace “work from home” and shrink their office space. They have kept the dividend steady since that big cut in late 2018, so at 55 cents/quarter it now provides a very high yield. They’ve always traded at an above-average yield (pre-COVID it was around 8%), and the yields of almost all REITs have risen over the past six months because of the impact of rising interest rates (meaning, the share prices have all fallen), but this is pretty extreme — the dividend yield is now 13.5%, which is a signal that investors don’t think the dividend is safe and reliable.

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 at least a better investment today than it was when Pearce teased it in 2017 — they’ve reduced leverage, their cash flow does cover the 55-cent dividend as of last quarter (though barely, cash available for distribution was 58 cents per share, “normalized” funds from operations $1.11), and they’ve diversified the business a bit. I don’t know that the company will be a disaster, it looks like they’re actually improving the quality of their portfolio and they don’t have any worrisome debts coming due this year… but it 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.

If you want to really stick with that “rent to the government theme”, the closest thing to a “pure play” on that is now Easterly Government Properties (DEA), which buys properties leased to US government agencies — they are very likely lower risk, but have also been clobbered by rising interest rates, and they also pay much lower dividends, in the 7% neighborhood… and their dividend isn’t really growing, either, though they do have a little more wiggle room in their dividend coverage.

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. It’s still young, tiny, and risky, but they have at least been able to grow their dividend payout (which is now just over 6%). I don’t own any of these, and real estate is a tough business to be focused on right now with interest rates having reset higher and their borrowing costs increasing (and with “risk free” government bonds offering a competitive 4% yield to entice some investors away from riskier investments like REITs), but it’s possible that this weak REIT market is going to 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 $1,788 in “monthly benefits” from an investment in OPI?

Well, the current dividend is $2.20 per year (same as it has been for several years), paid quarterly, so that would average out to about 18.3 cents per month, per share. To turn that into $1,788 a month in income you’d have to own 9,770 shares. A share of OPI would cost you about $16 right now (Pearce says $21, which would have been the price last Summer — the high in recent years was about $35), so even with the extremely high dividend yield that OPI offers today, getting $1,788 in monthly “benefits” would cost you a bit over $156,000 (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.”

Ready to invest in a (sort of) government landlord as the real estate market continues to adjust to this new world? Think office REITs have further to fall, or that OPI is bottoming out and can recover from the last year’s collapse and keep paying it’s high 13% dividend? Let us know with a comment below. Thanks for reading!