New Trade for November 11th, 2020

Futures are pointing to a higher open this morning.  The Nasdaq is leading the way after lagging for the past two sessions.  

Trump’s signature tax reform, the 2017 Tax Cuts and Jobs Act, lowered the corporate tax rate from 35% to 21%.  This was great for traditional corporations, but made special tax shelter like real estate investment trusts (REITs) less attractive by comparison.  REITs are not required to pay federal taxes as long as they distribute at least 90% of their profits as dividends.  

Joe Biden’s tax plan would raise corporate taxes back to 28% and would more aggressively tax foreign income.  The plan is also designed to force large, profitable tech companies to pay more.  This bodes poorly for the stock market, but it wouldn’t be such a bad thing for REITs.  

Brandywine Realty Trust (BDN) is a REIT that owns, manages, leases, acquires and develops primarily suburban office properties.  The company also owns an interest in and operates a commercial real estate management services company.  Brandywine reported net income growth of 3,948.9% despite a 13.2% decline in revenue for Q3 2020.  The increase in net income was primarily driven by gains on the sale of real estate assets, but also got a boost from lower operating expenses.  The company gave no guidance for 2021 due to the uncertainty around the pandemic, but with vaccine news this week, business will likely be on the upswing in 2021.  

BDN share price is still down ~35% from pre-covid levels and currently has a relatively low 12-month trailing P/E ratio of 5.7.  An EPS of 3,900% YOY for Q3 shows that the company is growing strong.  Plus, BDN stock also comes along with an attractive 7.50% dividend yield.  

A combination of receding COVID fears and a stricter tax regime might be just the right mix to send BDN shares higher.