Chambers Street Properties (NYSE:CSG) only entered the market back in May. Unfortunately, this was a very bad time for the company to enter the market as a REIT. On May 21st, when Bloomberg’s REIT index touched an all-time high, talk of Federal Reserve tapering  started to do the rounds and investors rapidly sold off REITs in favor of relatively risk free treasuries, whose yields had started to rise again. Since then Bloomberg’s REIT index has fallen 12 percent, and this has hit Chambers hard.

Chambers street

Luckily, this presents an opportunity as the market has yet to realize the underlying value in Chambers. For a start, the company has a book value of $15.70 per share, which currently puts the company on a PB ratio of 0.6. Secondly, the company has a relatively strong balance sheet for a REIT. Total debt is covered 2.8 times by assets and interest expenses are covered more than five times by investment income.

However, one of the biggest stumbling blocks that the market has yet to see past is the company’s net income. You see, Chambers has not reported a profit for the last three years, which at first glance puts most investors off the company, especially as it indicates that Chambers Street Properties (NYSE:CSG) dividend yield of 5.5 percent, is not covered by earnings.

[I should note here that Chambers Street Properties (NYSE:CSG) did report a profit for the first quarter of this year but this was due to a one-off payment.]

Cash Flows Indicate Promising Future

Having said that, Chambers’ cash flows tell a different story.

After adding back in high levels of depreciation and amortization from Chambers’ property portfolio, the firm’s net operating cash flow has grown 133 percent from $39.6 million in 2010, to $92.5 million in 2012, giving the company plenty of cash to cover dividend payouts. Indeed, the company’s cumulative dividend payout during 2010 totaled $41.20 million and has grown with earnings, 93 percent during the past three years, to a total of $78.80 million last year.

So, the company’s total dividend payout of $78.80 million for 2012 was easily covered by its net operating cash flow of $92.5 million. So, all in all, the payout looks safe and operating cash flow is growing rapidly, which should lead to rising dividend payments.

Additionally, Chambers Street Properties (NYSE:CSG) has also recently undertaken a tender offer to buy back up to 4.97 percent of its currently issued and outstanding shares as a way of returning capital to shareholders. The company spent $125 million repurchasing 12.38 million common shares at $10.10 per share, which should drive up the company’s net asset value per share and improve EPS.

Chambers Street Offers a Solid Dividend Payout

So overall, REITs are well known for their defensive nature and income. Chambers Street Properties (NYSE:CSG) offers a solid dividend payout that is well covered by operating cash flow and as a bonus, the company currently trades at a 40 percent discount to the value of its assets – giving investors the rare opportunity to buy $1 for $0.60 and get paid an annual dividend yield of 5.5 percent while they wait for the valuation gap to close.