Stocks And Trading

Company Profile - Piedmont Realty Trust ticker $PDM is an office realty trust that is known for buying up office real estate in what's known as the sunbelt of the U.S. it owns 17 million sq. feet primarily in Atlanta, Boston, Dallas, Minneapolis, Newyork, Orlando, and Washington D.C.

An asymmetric bet is one where the downside is understood and limited and the upside potential is huge also known as a perfect pitch in baseball. Piedmont sits right at $8.30 a share with a market cap of about $1.00b with net debt of about 1.90b and a TBVPS of $13.30. Despite this level of debt, Piedmont is trading at about 40% of its market value. This could be because of the value of the real estate on its books. The value of property, plant & equipment after depreciation (likely cost of maintenance) is 3.40b (net of pp&e.) It is possible that these assets could actually be worth more than what shows on the books because they could be depreciating at less than what they are in the real world.

Even if they closed the doors today they have far more value in real estate than debt. If you took their price on the books of 3.40b minus net debt of 1.90b, were looking at a tangible book value of 1.50b versus a market cap of 1.00b giving a great margin of safety.

Another piece of the puzzle is the value of their cashflows as these could also increase the value. Instead of valuing it using FFO, I think a more conservative approach may be taking a 5-year average of cash from operations of 200m and subtracting the 5-year average of depreciation of 125m as this estimates the costs to maintain real estate leaving us with around 75m in earnings for the owners. This may be more conservative but I prefer that. going forward, what would a fair value of these cash flows for a steady business be worth? Should we call it 7.5x? 10x? 12.5x? Let's say 7.5x. We are now looking at 750m in valuation and -1.15b net debt but that doesn't include the value of the real estate I mentioned of 3.40b. When adding this, we find a total valuation of 2.250b.

I think to be even more conservative of the downside one might disregard these cashflows and only look at this 3.40b minus their net-debt position totaling 1.50b. Still, a 2x pitch isn't too shabby. I think the biggest thing to consider from here is what others are willing to pay for it.

NOTE: This is only some analysis of a security and not financial advice. The analysis is my own but the format is taken from an article produced by the after-dinner investor. I do own shares. I would appreciate your thoughts as well as value-added pieces of information.