Steve Sjuggerud just started teasing a new website that he’s launched called valuableproperties.com — which apparently is an add-on to his True Wealth newsletter, at least for now (one presumes that if it’s a big hit, they’ll come up with a way to charge more for it).
The ad is posed as an “interview” with a Stansberry “reporter,” and the first long shtick of it is all about how he thinks the best way to make a fortune is by earning money from huge companies like Microsoft, Facebook, Verizon, etc without touching their stocks, bonds or options, taking advantage of something he calls “micropayments” that are contractually obligated payments from these companies.
Well, the short explanation for what that means (and yes, I’m saving you from reading through pages of their blather to get to this point) is this: He wants you to buy landlords who own valuable property (or sometimes “property,” in the case of less traditional assets), and the “micropayments” are the rent that those landlords earn, which then gets passed through to you, the person who owns the companies who collect those micropayments.
And he has apparently built this valuableproperties.com database to track which companies own valuable assets, and which of those companies are the best investments according to his system. In many cases that means just publicly traded real estate investment trusts (REITs), but some of the teased investments in his initial recommendations list are less traditional, companies that own other valuable assets or royalties but who don’t necessarily collect rents at the moment.
The intro, of course, makes it sound far more mysterious than that:
“A STANSBERRY RESEARCH INVESTIGATION:
“Elizabeth Jarosz interviews a former U.S. hedge fund manager who’s figured out a clever way to collect an extra $325/month as a result of ‘micro-payments’ from big U.S. corporations like Amazon, FedEx, Microsoft, and Home Depot…
“WITHOUT touching their stocks… and without touching mutual funds, options, or bonds either.”
And the “interview” runs through several examples of these kinds of profitable companies who collect “micro-payments” from big and profitable corporations — including examples that we’ve written about from time to time in this space as well, lower-risk plays on tech trends like Digital Realty (DLR) and American Tower (AMT). So that’s the basic spiel: he has been using researchers to put together databases of valuable and perhaps less-well-known properties that investors can benefit from, and he’s publishing these using his new valuableproperties.com website.
But what we want to know, of course, is which ones are his favorites right now. So let’s dig into that, shall we? They’re being released in some kind of “special report” that explains his investment thesis on these different stocks:
- - The Government Landlord, which pays you nearly 8% a year for renting to the government.
- - The Denver Group, which owns stakes in precious metals properties. Steve says this is one property investment EVERY American should own.
- - The Chicago Group, which has paid investors 400% since the year 2000… but is super-cheap today.
- - And Southwest Water Rights, which Steve believes could help you make 10 times your money over the next decade.
- - Rich America’s Landlord, which owns properties in 4 of the 5 wealthiest counties.
So that’s the basic idea — these five are “The Safest Way to Make a Small Fortune in the Next Five Years” … let’s get a few clues about each one and see if we can identify them for you. The True Wealth newsletter is now going for $39 “on sale” this year (Stansberry seems to be cutting the intro price to $39 for a LOT of their letters lately), renewing at $79 a year after that, but we like to do things a bit more free-ish around these parts, so we’ll sniff it out and share what we find, gratis.
(Though of course, we do dearly love our paying members, the Stock Gumshoe Irregulars, and if you’d like to join that noble group we will open our arms wide to accept you.)
So … one at at time. The first one is “The Government Landlord,” so who is that? Here are some of the clues:
“Here’s an incredible opportunity I’m guessing 99% of investors will never hear about, until it’s too late…
“Recently, I’ve found a very safe and easy way to get a nearly 8% dividend starting immediately.
“And in addition to this huge and safe dividend, you also have the chance to make several times your money over the next few years….
“… it all starts in Fresno, California.
“You see, that’s where the IRS, in December 2011, renewed its lease on the building it rents in Fresno, California.
“The terms of the lease were not fully disclosed… But it is public information that the lease is for in excess of $8 million dollars a year. And it is a 10-year lease – ending in late 2021.
“Interestingly, according to public documents, the lease ‘does not provide an early termination right by the tenant prior to the lease expiration’ in 2021.
“So the IRS is locked in for 10 years – paying roughly $700,000 a month in rent on that building.
“A ten-year lease – with no right of early termination – would be tough for a normal business. But the IRS is no “normal” business. It will be here a decade – heck… probably a century – from now.
“The question is, to whom is the IRS paying the rent? …
“… the IRS has a landlord… and you can become an equity owner in this and other buildings just like it, which are rented almost exclusively to the government and government agencies.
“The IRS is this group’s biggest tenant. The next biggest tenant is U.S. Customs & Immigration. These two make up over 20% of this group’s rental income. The next biggest in terms of rental income is the Department of Justice.
“None of these government ‘businesses’ are going anywhere. These departments of the Federal Government will be around a decade from now… and most likely a century from now too.”
And a wee bit more:
“Because of the way these guys have structured their operation, they don’t pay any income taxes on the rent they earn, as long as they pass nearly all of it along to regular shareholders… that’s regular people like you and me. That’s how they are able to pay out a nearly 8% dividend….
“According to the most recent numbers, this investment trades at a 12%+ discount to its liquidation value. That is just ridiculous! You might not get the chance to get in this cheap for another decade or so.
“If you are looking for a safe and reliable place to earn high yields, it’s doesn’t get any better than this. Since this operation went public three years ago, it has returned 40% to investors… but I think that is just the tip of the iceberg.”
OK, so the “don’t pay income taxes” part is nothing particularly special — it just means they’re structured as a REIT and pass through the income and tax obligation to their shareholders (that’s why REIT dividends don’t get the lower “qualified” 15% tax rate that other corporate dividends enjoy … at least for now). And of course, “liquidation value” is a somewhat squishy estimate so we can’t verify exactly what numbers he might use to value their properties or other assets … but we can throw all those clues into the Mighty, Mighty Thinkolator and the answers comes out quick enough: This is Government Properties Income Trust (GOV), which is an externally managed REIT that leases office space to government agencies — about 2/3 of their revenue comes from the federal government, 20% from state governments, and the rest from municipal, international or a few non-government tenants.
They did become public in 2009, but the properties and management are not new, they were a spinoff from HRPT Properties Trust (which renamed itself Commonwealth REIT, and which still owns a big chunk of GOV), one of several other REITs that are all managed by the same management group, including several healthcare REITs. And they do indeed have a yield approaching 8%, which is large for a REIT these days, and a pretty appealing looking income statement and portfolio — the properties that are leased by government tenants are not often the nicest or the best-located buildings, so they don’t command the valuations that midtown Manhattan real estate would get, but the tenants are very sticky. The company is actually headquartered here in Massachusetts, and as you might expect they own quite a number of office buildings around Washington DC (more in Maryland and Virginia than downtown), but federal office buildings and large employment centers are everywhere that senior Senators want to spur employment, and they’ve got properties in 20 states.
I’ve never looked at this one in much detail, there is one other government-focused REIT that I’m aware of called Corporate Office Properties Trust (OFC), but GOV is substantially smaller and more directly government-focused (OFC leases to a lot of government contractors and related companies, not necessarily to the government itself), and carries a dramatically lower dividend yield (4% versus 8%). So if GOV were to get that kind of a valuation just on a dividend yield basis, that would mean the stock would have to come close to doubling.
That likely wouldn’t happen overnight, of course, since GOV arguably carries a reasonable valuation on other measures, like book value, replacement value or cap rate, but you do get some stability and the sense that there’s a foundation for the stock when it carries a nice big and sustainable yield like this — analysts think they’ll easily be able to keep posting more than two dollars a share in funds from operations, which should make the distribution of $1.72 sustainable even if it probably won’t grow quickly (they did raise the dividend by a penny for this last payment, but dividend growth has been very tepid). And they just successfully raised a bucket of cash in a follow-on offering of 7.5 million shares, which is why the stock just got crunched last week (that means they’re increasing the share count by about 15%, so the earnings are theoretically diluted by that amount … they’re using the cash to pay off debt and/or make more acquisitions). The offering was made at $23.25, a little bit under the then-market price of $24+, and was oversubscribed, but the stock has since fallen another 5% or so to $22ish.
There’s a quick and thoughtful look at this REIT here in a SeekingAlpha piece that looks at a couple different valuation scenarios that seem to indicate that GOV is pretty much just fairly valued, but there’s obviously plenty of room for opinion variations on both sides of the stock. I like the idea of having such a recession-resistant tenant base, and the yield is strong and probably sustainable, so there’s at least something to like here even if you might reasonably be skeptical that the shares could double in the next year.
How about another one?
The “Denver Group” is teased as a play on precious metals … here’s a bit more about it:
“There’s a group of men and women, based in Denver, Colorado, and they just might hold the title of ‘the most unique and profitable business’ in all of North America….
“these guys don’t really have a “normal” business, at least not in any traditional sense of the word.
“What they do instead is simply scour the globe for really great properties in the precious metals industry, and when they find such property, they take a contractual ownership stake for a set period of time….
“… after their initial investment, the Denver Group doesn’t have to put up any money for the upkeep or improvement of these properties. They don’t have to worry about repairs when something on the property breaks, or permits, or anything like that.
“They simply collect an incredible stream of ‘rental income,’ which in turn sends the value of this investment soaring.
“I think this is a business that every American should own.”
There’s more to the tease, but we’ll just jump ahead and tell you that yes, in this case the “rental income” is royalty payments, and the stock he’s pitching is almost certainly Royal Gold (RGLD), the leading gold royalty firm in the US (and yes, they are headquartered in Denver). I’ve written so much about royalty firms and Royal Gold over the years that it seems foolish to go into a lot more detail again here, but yes, they have small royalties on a bunch of huge mines, mostly gold mines, and they collect their little fraction of the production from those mines while diversifying away the specific mine risk and contractually avoiding paying for things like mining cost overruns, construction delays, etc. that bedevil most miners. Teasers about both Royal Gold and the search for the “next Royal Gold” are legion, you can see the last several of them that we’ve covered here. The company is not cheap by conventional metrics (PE ratio is over 50, for example), but you can argue that it’s still cheap relative to the fair value of their future royalties … and if you think gold is going up over the next decade they and most of their competitors should be extraordinarily profitable. Sjuggerud says it’s the number one ranked investment on his “valuableproperties.com” service right now.
Next “micropayments” buy?
The Chicago Group … so what is that? Teaser hints:
“For example, right now, there’s a group based in Chicago (Steve and his team refer to them as the Chicago Group), which owns 700,000 acres of mineral rights in the Texas Permian Basin and 7,600 miles of energy pipelines. They also own some of the most valuable buildings in places like Miami Beach, Denver, Hollywood, California, and Chicago.
“Steve says they are incredibly good at buying properties super-cheap, earning great income for shareholders, and selling off these properties as they become worth more and more over time.
“For example, since the year 2000, the guys who run The Chicago Group (and their shareholders) have earned gains of as much as 373%.”
This one is also often referred to as a mini Berkshire Hathaway, it’s an insurance-based conglomerate that does indeed own a variety of interesting assets … this is Loews Corp (L). And yes, they do own some of the most valuable buildings in those cities, but those are mostly their Loews Hotels, which are a teensy part of the value of the corporation, most of the value comes from their subsidiaries, some of which are also publicly traded, like Boardwalk Pipeline (BWP), which owns major pipelines and gathering systems, Highmount Exploration, which explores for and produces natural gas and is therefore not valued very highly right now but owns those Permian Basin rights, Diamond Offshore (DO), a dividend-spewing owner of deepwater drilling rigs, and CNA Financial (CNA), a lousy insurance company that, despite a history of weak performance, does give them more capital to play with.
I owned Loews briefly several years ago, and featured them for the Irregulars, but determined not long after that it was silly to own a weak insurance company and a second-tier rig owner, even if they’re discounted because they’re owned by a conglomerate, when you could buy great insurers (Markel and Berkshire Hathaway among them) and great drillers (Seadrill) on the cheap at that time, too. Loews is well-run and they do a good job investing in valuable assets for the long term, but a huge amount of their value, close to half, is tied up in CNA Financial and I just haven’t gotten comfortable with how likely it is that CNA will turn its operations around … so there is certainly “property value” hidden in Loews, I just don’t know how long it will take for it to be realized and you won’t receive much of a dividend while you wait. Both Highmount and Boardwalk Pipeline are levered to natural gas — Highmount directly, and BWP because they own gathering systems and pipes in natural gas production areas, particularly the Fayetteville Shale, so if gas recovers quickly they might enjoy a pop from that. When it comes to underlying performance and assets I’d rather buy BWP on its own and get insurance and drilling exposure through other companies, but it’s certainly possible that if CNA does eventually turn things around and get back to a more typical valuation for a property and casualty insurer (ie, 0.8 to 1.0X book value instead of 0.6X book), then Loews could see a nice spike from that as well. I expect that Loews still probably trades at a discount to the fair valuation of its assets, but it has almost always done so.
Another? You bet.
“It’s a very interesting and unique opportunity in what’s known in the property industry as ‘water rights.’
“Today, one of the great ways to put yourself in a similar situation to owning a stake in cell phone towers 10 years ago is to own water properties and water rights, especially in the West and Southwest parts of the U.S.
“the company I’m recommending you invest with describes it in detail in one of their reports….
‘A water right is the legal right to divert water and put it to beneficial use. Water rights are assets which can be bought and sold… We seek to acquire water rights at prices consistent with their current use, which, typically, is an agricultural use, with the expectation of an increase in value if the water right can be converted through the development process to a higher use.’
“It involves a group of guys who have been quietly buying up as many property rights as possible.
“Today these guys own water assets in places like California, Nevada, Arizona, Colorado, and New Mexico… all the spots where we know there are already water shortages, and where these shortages are only going to get worse.
“These guys focus on the Southwest, Steve says, because… well… those are the places that have the biggest water shortages now, which are expected to get much worse in the very near future.
“Owning these water assets means many things, according to Steve. These guys own delivery systems… they find and produce wells… they build pipelines… they have hundreds of billions of gallons of water in underground storage facilities… and they have water ‘rights’
to hundreds of billions of gallons more.
“In order to generate some property income, they sell some of this water and water rights to developers, farmers, and other businesses. They also sell some of their stored water… and rights to future use of stored water.
“The long and short of it is that these guys have some enormously valuable properties, which are likely to absolutely skyrocket in price over the next few years… and they produce millions of dollars of reliable income every year.
“Steve says you can buy a stake in them today at extraordinarily low prices.
“When I asked exactly how low, he said you can buy a stake in these properties for literally HALF of what it would have cost you just a few years ago.”
So who’s that? Well, that may ring a bit familiar to you already but we tossed the clues into the ol’ Thinkolator, just to be sure, and yes — this is PICO Holdings (PICO), an unusual company that gets a fair amount of attention from value investors because it’s odd and we love odd stuff, particularly when it’s so odd that we feel smart for talking about it.
PICO started off as a runoff insurance company, meaning they held cash in reserve for insurance policies that had been sold and underwritten years ago and for which they had to keep a reserve to be ready for potential claims, but they’re not selling new policies, they’re just waiting until risk of claims expires. That’s where they originally came by the name, Physicians Insurance Company of Ohio (PICO), but it has been largely a real estate and water story for the past decade or more – the break down their primary divisions pretty nicely on their website here.
And yes, the stock is trading for about half of what it was in the peak before the most recent crash, the 2006-2008 timeframe was a good one both for water focused investors and for “hidden real estate” plays, and PICO had a stake in some housing development potential in Nevada that got them a fair amount of attention at the time … for what it’s worth, the shares are also twice as high as they were back in 2004, so the time frame for comparison is important. Their numbers are extremely volatile quarter to quarter and year to year, since much of their revenue comes from asset sales, but they have not booked an annual profit since 2008, after which they kicked into acquisitions mode and tried to buy real estate, water rights and agricultural assets on the cheap to take advantage of all the distressed sellers hitting the market at once.
My presumption would be that because of the long-term nature of many of their holdings and the fact that they bought a lot of stuff in 2008-2010, PICO’s holdings, particularly the water rights but also some of their real estate, are probably carried at a substantial discount on their books. So the company is likely trading at a discount to their real asset value (they trade at just about reported book value now) … but “value” and “value that will be recognized within the next 18 months” are not necessarily the same thing. I haven’t dug into their books enough to understand what the likely catalysts are for future stock appreciation, whether they have operations that will turn a profit in the foreseeable future or assets that they’re likely to monetize, so I can’t tell you much more than that — but PICO has been pitched as a “the Southwest needs water, folks who own water will get rich” story for at least seven or eight years in my memory, and maybe longer, so I wouldn’t be against that being true eventually … but I also wouldn’t bet that it will happen specifically in the next six months or the next two years.
I know that water is a bit topic for investment discussion and that many Gumshoe readers have held PICO in the past, so if you’ve got an update or want to correct my probably outdated perception of the company, by all means, jump right in with a comment below.
The basic story from Sjuggerud, then, is that now’s the time to buy undervalued “real property assets” — he makes a comparison to gold which is pretty interesting, so we’ll close with that:
“Gold could easily go up 100% over the next five years. But we could certainly see a few years in which gold drops, perhaps significantly. I’m a firm believer in gold over the long run, but it’s run up so much so fast, and without a single down year.
“But valuable, income-producing properties, on the other hand, are just starting their uptrend. In short: America’s most valuable properties are the ‘new gold.’
“I think you could make hundreds of percent gains in the next few years by owning a stake in the best valuable properties, and just like owning gold, owning valuable properties will protect you from inflation and a collapsing U.S. dollar.”
So that’s what the True Wealth folks are pitching today — sound like a plan for your money? If you’ve got an opinion on Royal Gold, or Loews, or PICO, or Government Properties, by all means, let us know with a comment below … and if your own “valuable properties” database tells you something different about the best property buys, well, we’d love to hear about that, too. Thanks!