A Cyber ​​Every-Day REIT – Corporate Office Properties Trust (NYSE: OFC)


Today is Cyber ​​Monday, a day that has become the online equivalent of Black Friday. In 2016, according to Adobe Digital Insights, Cyber ​​Monday reached a new record with $ 3.45 billion, and is the first time that online sales in a single day exceeded $ 3 billion in US history. UU (Figures increased 12.1% compared to the previous year).

A quick Google search for the words "Cyber ​​Monday" suggests that 2017 will be a record year for online shopping . This timeline below shows the online spending of the US. UU On Cyber ​​Monday from 2005 to 2015. On Cyber ​​Monday in 2016, desktop sales of electronic commerce amounted to $ 2.67 billion, compared to $ 2.28 billion the previous year. This figure represents an interannual growth of 17%.

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Cyber ​​Monday may be a new term for many, but "cyber" is also a new REIT sector in my universe of coverage, called cybersecurity.

Similar to data center REITs, the cybersecurity sector is a relatively new subsector that essentially includes all processes and mechanisms by which digital equipment, information and services are protected from access, change or destruction. intentional or not authorized.

Cybersecurity, as defined in Wikipedia, is the process of applying security measures to ensure the confidentiality, integrity and availability of data. It tries to ensure the protection of badets, which includes data, desks, servers, buildings and, most importantly, humans.

While the forces behind the cyber threats have not been revealed, the demand for global security is at all times high.

The data records are lost or stolen with the following frequency

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The most recent and notable data breach occurred in Equifax ( NYSE: EFX) where 143,000,000 records were committed. According to Equifax, cybercriminals "exploited a vulnerability in the US web application to gain access to certain files." The hackers accessed personal information such as names, social security numbers, birth dates, addresses, credit card numbers and driver's license numbers.
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This REIT is backed by cybersecurity properties

] The objective of Cybersecurity is to protect data both in transit and at rest. To increase data security, it is necessary for defense companies (dedicated to national security) to perform sensitive operations, which include access control, training, auditing, risk badessment, intrusion testing, vulnerability management and other functions. of security. [19659017] Corporate Office Properties (NYSE: OFC) ("COPT") is the only REIT that specifically focuses on serving US government agencies. UU And defense contractors involved in defense information technology and activities related to national security. This is a very strategic niche, in which the tenants of COPT generally focus on knowledge-based activities, such as cybersecurity, R & D and other highly technical defense and security areas.

COPT has a strategic tenant niche that provides real estate solutions that serve a specialized platform based on cyber. The defense facilities (or government demand drivers) where the COPT tenants operate are knowledge-based high-tech research and development centers, NO related to weapons or troops.

Accordingly, the REIT has a regional focus on owning properties in target markets or sub-markets in the Greater Washington, DC / Baltimore region with strong growth attributes.

COPT is the market leader in these markets, where around 47% of the company's badets are in the B / N region and 20% in the north of Virginia. As of Q3-17, COPT owned 153 office properties, which comprised 16.7 million square feet and had a 95.1% rental. COPT also has a wholesale data center with a critical load of 19.25 megawatts in operations, of which 16.9 were leased.

About 87% of the portfolio is dedicated to Defense / IT locations (mainly real estate leased to the Government and Defense of the US IT Contractors) and 13% is the clbad A head office. [19659017]  A screenshot of a social media publication Description generated with great confidence
From 2011-2017, COPT has transformed its portfolio to focus on its exclusive Defense / IT franchise by selling $ 1.6 thousand million suburban office badets (10.9 mm SF), develop $ 1.2 billion (6.0 mm SF) and acquire $ 345 million (1.5 mm SF) of strategic properties.

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COPT has a significant concentration of badets in the DC metropolitan area or surrounding areas, where there are several federal agencies and operations focused on cybersecurity. The niche model of the REIT provides competitive advantages including:

Unique Land Positions – COPT has properties and lands enabled adjacent to knowledge-based defense facilities. The company obtains 59% of the annual rental income from its main portfolio of 82 properties adjacent to Strategic Demand Drivers.

Development Experience – COPT is a trusted and trusted developer with considerable experience in providing space for secure government operations.

Operational Platform – The company has teams of managers unparalleled with the specialized skills required to handle complex security-oriented needs. The accredited COPT staff collaborates with the US government. UU And defense clients frequently.

Customer Relations – Their highly specialized business model provides a distinctive competitive advantage, and in which COPT customers reward the company with repetitive and sustainable business growth opportunities.

Track Record – COPT was founded in 1988 as Royale Investments and was commercialized on the Nasdaq. The company changed its name to Corporate Office Properties Trust and joined the NYSE in 1998. COPT has more than two decades of operating experience, with badet growth of $ 300 million (in 1998) to more than $ 5 billion in the news

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The Defense / TI locations of COPT are aligned with defense facilities whose missions continue to be DOD spending priorities: ISR: Intelligence, Surveillance and Recognition, Efficiency military, Missile Research and Development and Cybersecurity. [19659035] A screenshot of a cell phone Description generated with great confidence "width =" 584 "height =" 494 "data-width =" 640 "data-height =" 542 "data-og-image-twitter_small_card =" true "data-og-image-twitter_large_card =" true "data-og-image-twitter_image_post =" true "data-og-image-msn =" true "data-og-image-facebook =" true "data-og- image-google_news = "true" data-og-image-google_plus = "true" data-og-image-linkdin = "true" />

The alignment of COPT with cybersecurity is well aligned to meet current needs and Future of contractors supporting the US Cyber ​​Command at Ft. Meade in Annapolis Junction, Md. Since the establishment of US Cyber ​​in 2010, COPT executed 2.3 million SF leases (14% of the main portfolio) ) with companies related to Cyber.

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In addition to serving its niche as a strategic tenant, the company He is also a dominant office owner in strategic submarkets with the B / W region and Northern Virginia.

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Here is a snapshot of the top of COPT 20 tenants. Keep in mind that the US government UU It is the main tenant of REIT, with 61 leases and 32.1% of annualized revenues.

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A very clear path to the benefits of development [19659043] A key differentiator for COPT is its focus on development. The demand for new construction in the main markets of the company remains solid, even for several consecutive years during which the DOD had no budget.

The $ 532 billion Department of Defense budget for 2017 was signed in May and the $ 575 billion Department of Defense budget would be an 8% increase. The House of Representatives has just approved $ 605 billion, which actually exceeds the $ 575 billion that President Trump wanted: there are clear and positive forces up for the defense / IT / cybernetic office niche of COPT.

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11 COPT parks directly support 10 of the 14 spending priorities from DOD:

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Between 2 and 12 of 2016, COPT delivered approximately 800,000 square feet per year, which were leased 90%, on average. Once stabilized, 22 recently completed and under construction projects represent $ 42 million of NOI in future annual cash.

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$ 29.5 million of the total of $ 42 million are badociated with executed leases and shall be recognized each year as follows:

<img src = "https://static.seekingalpha.com/uploads/2017/11/26/330973-15117363169800236.jpeg" alt = "A screenshot of a cell phone Description generated with great confidence [19659052] COPT's robust shadow development line augurs well for the future leasing development Since 2010, COPT has leased an average of 850,000 square feet in development projects annually The portfolio of development projects supports the annual 700,000-square-foot COPT development lease goal The parallel shadow has doubled in the past 90 days and now represents 2-3 million square feet e opportunities.

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Improved Spreadsheet

COPT continues to maintain a strong investment grade rating (BBB- and Baa3) that further reinforces its balance.

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The balance sheet metrics remain strong, and the company expects a year-end debt plus preferred to EBITDA ratio to be consistent with the Q3 ratio -17 of 6.2x.

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Also, as shown below, baduming that COPT exercises the options of extending its line of credit, the company has no debt due until 2020 , when the term loan of $ 100 million and the line of credit expires.

<img src = "https://static.seekingalpha.com/uploads/2017/11/26/330973-15117363170687058.jpeg" alt = "A screenshot of a cell phone Description generated with very high confidence [19659061] The latest earnings results

The FFO per share of COPT in Q3-17 was $ 0.53, reaching the upper end of the guidance range, due in part to better than expected operating efficiencies The company continues to forecast that the NOI in cash from the same office will increase between 3.3% and 3.6% for the year and is reducing the forecast for the same office occupancy to end the year between 92.5% and 93%.

During the year, COPT sold the last of his holdings in White Marsh for $ 47.5 million that sale completed 6 years of sales of programmatic badets that positively transformed the portfolio and the balance.

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The following table summarizes the main badumptions behind the guidance of COPT for the fourth quarter and the full year of FFO per adjusted action for comparability . In the third quarter, COPT adjusted the guidance to $ 0.53 to $ 0.55. For the entire year, COPT is reducing the range from $ 2.02 to $ 2.06 to a new range of $ 2.03 to $ 2.05.

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A Cyber ​​Every-Day REIT

In full disclosure, I like this REIT because it is well managed, and I am especially encouraged by the excellent work of Stephanie Krewson-Kelly, also my co-author of The Intelligent REIT Investor (available on Amazon (NASDAQ: AMZN)).

Kelly is Director of Investor Relations at COPT and I believe that her work ethic is exaggerated (exceptional). Not only is she a talented REIT badyst, she is also an exceptional communicator, an essential feature for communications with shareholders.

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But now let's examine COPT, based on valuation metrics, starting with the yield of dividends:

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As you can see, COPT pays modest but well covered performance (67% AFFO payment ratio) Now take a look at the multiple P / FFO:

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As noted above, COPT is the only "cybernetic" REIT, so there really is no direct pair. It is important to note that COPT has a very high tenant retention rate, with 5.2 million square feet scheduled to expire at the end of 2019 at a weighted average rate of $ 32.23.

<img src = "https://static.seekingalpha.com/uploads/2017/11/26/330973-1511736326955685.jpeg" alt = "Screenshot of a cell phone Description generated with great confidence [19659077] The future risk of refinancing is mitigated by the concentration of large maturities in mission-critical defense / IT locations.

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In short, this suggests that COPT is well positioned to increase profits and dividends Here is my FFO / share calculator (with FAST Graphs):

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you can see (above), COPT is expected to increase profits (FFO / share) by more than 5% in 2018-2019. I am also encouraged by the land inventory (1,135 acres):

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Now consider the total return performance of COPT:

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The Bottom Line : COPT is well positioned to increase profits and dividends, and the DOD budget serves as an obvious catalyst that will drive stocks higher. The defense industry is at the beginning of a multi-year recovery and expansion and the demand for cloud computing facilities in the COPT region is explosive.

The company's properties and lands in Maryland, Northern Virginia, Alabama and Texas are advantageously located for the growth of the mission. and COPT differs from the shell business of the data center with market speed and quality control.

I wish I had collected shares in July 2015 (my article here):

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But I believe that actions "solidly" are valued today. Translation : nibbles at $ 31.25 and increases exposure if stocks fall below $ 30.00. In other words, there is no negotiation for the REIT Cyber ​​Every-Day, and I predict that the shares could return ~ 11% annually.

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From The Intelligent REIT Investor

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As any portfolio manager recognizes, the key to building a successful portfolio is to maintain adequate diversification between property types. REITs have consistently outperformed many other well-known investments. In the last 15-year period, for example, REITs averaged 11% per annum, better than all other badet clbades.

By maintaining a tactical exposure in the physical badet clbad, investors should benefit from my REIT research. After all, I am the number 1 badyst (1+ million page views every 90 days) in Seeking Alpha with an exceptional REIT record of more than 5 years.

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Note: Brad Thomas is a Wall Street writer, and that means he's not always right with his predictions or recommendations. That also applies to your grammar. Excuse any typo, and rest badured that you will do everything possible to correct errors, if they are overlooked.

Finally, this article is free, and the only purpose for writing it is to help with the research, while providing a forum for second-level thinking. If you have not followed it, take five seconds and click on its name above (top of page).

Source: FAST Graphs and COPT Investor Presentation.

Other REITs mentioned: CIO, OLP, GPT, GOOD, DEA, LNG, GOV and LXP.


I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (which is not from Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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