No New Acquisitions For COPT This Year

Corporate Office Properties Trust’s new CEO Stephen Budorick

COLUMBIA, MD—Corporate Office Properties Trust has given shareholders a lot to absorb in recent days. First, CEO Roger Waesche provided more details about his succession last week, namely that COO and EVP Stephen Budorick would become CEO after he steps down in May. The company is now searching for a new COO, someone who, as Budorick described during the REIT’s earnings call, is “a value creator with real estate background who can continue the work that I’ve been conducting for the last four years, and be a teammate that’s very complementary.” 2016 Is All About Maximizing Cash COPT also revealed more details about its strategic plan for 2016, which is to focus on a few key areas. It will not make any acquisitions for the next twelve months but focus on its strategic tenant niche, which the REIT is now calling Defense IT. All of the REIT’s resources are focused on maximizing cash flow from its existing portfolio, pursuing “NAV enhancing developments” at its Defense IT locations, and recycling capital through asset sales. Those proceeds will be used to to fund development and further strengthen its balance sheet. Some Strategic Development The vast majority, or 90%, of its development spending this year will be allocated to the Defense IT category, according to the company.  For example, COPT said that there are two separate government customers that are likely to sign leases at three secured campuses by year’s end. Presumably its development spending will be invested in these projects.

Akridge and COPT plan to develop a 190,0000-square foot, 10-story office at 2100 L St, NW — but at the earliest in 2017.

Here’s where those dollars won’t be invested however, at least in 2016: the office building it plans to develop with Akridge in Washington DC that it announced at the end of last year. Briefly, last December COPT and Akridge announced they formed a JV to “acquire and improve the land” at DC’s southwest corner of 21st and L streets in the CBD. Akridge has envisioned a 190,0000-square foot, 10-story  office at the site, which would have the address of 2100 L St, NW. Right now the companies are working through the design, EVP of Development and Construction Services Wayne Lingafelter said during the earnings call. Construction will start likely in 2017 “when the leasing activity justifies it.” A Year of Dispositions This year COPT will be focusing on selling between $400 million and $425 million of its non-core assets — all of which it expects to have put on the market no later than the beginning of April. Already the REIT is either under contract or letter of intent to sell $175 million of properties before the end of the second quarter. The 2016 plan also includes selling $40 million of non-strategic land. COPT already closed on $4 million of land sales in February and has another $20 million under contract or LOI. Waesche appears content that he is leaving COPT in good shape. Its balance sheet has been deleveraged and the company has secured investment grade ratings. Best of all, he said, “the government contractor business model and space reset has been weathered, and now is in a position to start to grow again.”