Corporate Office Property Trust: A Good Offense Is Owning 'Defense'
This is always a sign that something is going on within the REIT. In Corporate Office Property Trust's case it is due to a portfolio restructuring.
In April 2011, management and the Board announced a strategic reallocation plan that called for the disposition of $512 million in operating properties and $50 million in land.
Warren Buffett believes in picking an industry in which you know much more than the average investor. He calls that industry your circle of competence. His partner Charlie Munger once said that the simple way to get success in life is to play on the field that we are the best at, otherwise we would get beaten up pretty fast.
Corporate Office Property Trust has come to the same conclusion and is reorganizing its portfolio to operate within its circle of competence.
As 60% of Corporate Office Property Trust's annualized rents are derived from office properties occupied primarily by government agencies and defense IT contractors, its tenant roster is somewhat concentrated.
It includes Northrop Grumman(NOC) , Computer Sciences(CSC) , Wells Fargo(WFC) , Boeing(BA) and Booz Allen Hamilton(BAH) . In fact, 36 of the 50 largest Defense Contractors, or 72%, already are COPT tenants:
Like most office REITs, Corporate Office Properties Trust's occupancy has been hard hit and slow to recover.
On the most recent earnings call, Steve Budorick, the company's chief operating officer, said uncertainty about the 2012 and 2013 federal budgets has affected the commercial office market in and around Washington, D.C. He added that overall vacancies hover in the 15% to 16% range.
The company's CEO, Roger Waesche, said the company was "thinking in terms of 92% to 93%" for its target occupancy, adding it would take until 2013 and early 2014 to see occupancy stabilize in that range.
As Corporate Office Properties Trust is government focused, 83% of its square footage is located in the Baltimore Washington area:
Although normally this would be too concentrated, the company is located where their preferred client is located. When focusing on the government and defense industries, it is reasonable to expect a focused geographic concentration.