Corporate Office Properties Trust (“COPT”) OFC revealed its initial outlook for 2016. The company expects funds from operations (FFO) per share of $1.95–$2.05 for the year, below the Zacks Consensus Estimate of $2.08. Moreover, the mid-point of its 2016 FFO per share guidance range of $2.00 is a penny lower than the mid-point of its 2015 outlook.
Importantly, amid rising demand for newly developed space in its markets, the company raised its 2016 sales guidance of operating properties to the $400–$425 million range, up significantly from $225 million projected earlier. The company expects its enhanced pipeline of dispositions to help improve its leverage, credit metrics and fund its key developments.
In a separate press release, COPT provided an update on its fourth-quarter 2015 dispositions and investment activity. The company disclosed that it has completed the disposition of 9690 Deereco Road and 375 W. Padonia Road in Timonium, a suburban submarket in Greater Baltimore, MD, for $44.5 million. These would result in the company realizing gains on sale of $15 million in the fourth quarter.
Including these dispositions, over $150 million worth of suburban properties have been sold in the fourth quarter itself, and around $200 million worth of buildings and non-strategic land year-to-date. Additionally, $95 million of suburban properties and non-strategic land dispositions are under contract or letter of intent. These transactions are projected to be complete next year.
On the other hand, COPT revealed two new developments that are already 75% pre-leased (on average) to key tenants. COPT expects to invest an incremental $55 million in these projects. The company also entered a joint venture with Akridge, which offers the company an opportunity to build a trophy office asset in Washington, DC.
We expect COPT to reap long-term benefits from such portfolio repositioning activities. However, the company will be unable to bypass the impact of near-term earnings dilution from these dispositions. Nevertheless, its expanding development pipeline is expected to fuel growth over the long haul.
COPT currently has a Zacks Rank #3 (Hold). Investors interested in the REIT space can consider better-ranked stocks like Arbor Realty Trust Inc. ABR, Mack-Cali Realty Corp. CLI and Hersha Hospitality Trust HT. All these stocks sport a Zacks Rank #1 (Strong Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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