OPI Stock Provides Investors With Safe Dividends
Office real estate investment trusts (REITs) weren’t anyone’s go-to investment in early 2020. What with quarantined employees working from home and businesses laying off staff, the demand for office space in some parts of the U.S. tumbled and vacancy rates increased significantly.
Despite many businesses opening back up and pushing their employees to return to the workplace, the national office vacancy rates for the U.S. are still expected to hit record highs within the next few years, from 19.3% in 2020, to 19.9% in 2021, to 20.0% in 2022. The previous record was 19.7% in 1991. (Source: “Moody’s Analytics Forecasts US Office Vacancy Rate Hitting Historic High of 19.9% in 2021,” Moody’s Analytics, August 17, 2020.)
While this kind of data could dissuade some from investing in REITs, there are still many office REITs that have continued to have high occupancy rates, expand their property portfolios, and report wonderful financial results. One of those REITs is the high-dividend stock Office Properties Income Trust (NASDAQ:OPI).
Based in Newton, MA, Office Properties is focused on owning, operating, and leasing buildings primarily to single tenants and those that are investment-grade-rated. The company used to be called Government Properties Income Trust, which should give you an idea of who some of its clients are. In fact, 43% of Office Properties’ revenue is paid by “Uncle Sam.” (Source: “Investor Presentation: May 2021,” Office Properties Income Trust, last accessed July 29, 2021.)
The company’s $4.4-billion investment portfolio consists of 180 properties covering 24.6 million square feet. With an occupancy rate of 90.8%, the majority (65%) of its revenue comes from investment-rated tenants. Moreover, 79% of its tenants are in industries that have been deemed essential.
That was one of the reasons the company’s monthly rent collection average from April 2020 through March 2021 was 99%.
Office Properties Income Trust’s diverse property portfolio is located in 34 states and D.C. The REIT’s top 10 market areas are Washington, D.C.; Atlanta, GA; Chicago, IL; Silicon Valley and Sacramento, CA; Dallas/Fort Worth, TX; Kansas City, MO; Boston, MA; Denver, CO; and Seattle, WA.
Some of the company’s tenants are the Kansas City Federal Reserve, Centers for Disease Control and Prevention, Internal Revenue Service, Hallmark Cards, Inc., Bank of America Corp (NYSE:BAC), Northrop Grumman Corporation (NYSE:NOC), IBM (NYSE:IBM), and Allstate Corp (NYSE:ALL).
Great Q1 2021 Results
Because of its diverse property portfolio and enviable tenants, Office Properties Income Trust was able to report excellent results in 2020, with that momentum carrying into 2021.
The REIT’s rent collection figures were healthy over the past year, averaging above 99%. Office Properties’ balance sheet remains solid, with more than $930.0 million of liquidity, allowing the company to focus on its primary growth strategies through leasing and acquisitions. (Source: “Office Properties Income Trust Announces First Quarter 2021 Results,” Office Properties Income Trust, April 29, 2021.)
For the first quarter of 2021, Office Properties announced that it earned net income of $37.9 million, or $0.78 per diluted share, up from $10.8 million, or $0.23 per diluted share, in the quarter ended March 31, 2020.
The REIT’s normalized funds from operations (FFO) for the quarter were $61.8 million, or $1.28 per diluted share. Its cash available for distribution (CAD) was $47.7 million, or $0.99 per diluted share. That compares to first-quarter 2020 normalized FFO of $67.6 million, or $1.40 per diluted share, and CAD of $47.4 million, or $0.98 per diluted share.
During the first quarter, the company finished 575,000 square feet of new and renewal leasing, with a roll-up in rent of 3.2% and a weighted average lease term of 5.4 years. It also has a current leasing pipeline of more than three million square feet.
Furthermore, at the end of April, Office Properties entered a $27.0-million agreement to acquire a property adjacent to one it already owns in Boston. This property is 49.5% leased, with a weighted average lease term of 2.3 years.
$550-Million Property Acquisition
In June, the company completed the acquisition of two office properties for a total of $550.0 million. (Source: “Office Properties Income Trust Announced Two Class A Acquisitions Totaling $550 Million,” Office Properties Income Trust, June 28, 2021.)
One of the properties is in Chicago. Office Properties paid $355.0 million for this 531,190-square-foot office. More than 70% of the building is leased to Google—otherwise known as Alphabet Inc (NASDAQ:GOOG)—as its Midwest headquarters. Overall, 99% of this building is leased out.
The other newly acquired property is in Atlanta. The company acquired this 345,917-square-foot office for $195.0 million. The property is 96% leased to Insight Global as its corporate headquarters. Overall, 98% of this building is leased out.
Because of Office Properties’ aggressive acquisition strategy and healthy rent collection figures, it has been able to reward Office Properties Income Trust stock investors with reliable, high-yield dividends. On July 7, the company declared a regular quarterly dividend of $0.55 per share. At the current price of OPI stock, that translates to an annual dividend yield of 7.7%.
The company’s high dividend yield isn’t the result of a plunging share price. Office Properties actually has a history of providing investors with inflation-trouncing dividends. Office Properties Income Trust stock’s trailing annual dividend yield is 7.4% and its five-year average dividend yield is 10.9%.
The strong cash flow doesn’t mean OPI stock’s quarterly dividend increases every year, but it does increase with some regularity.
|
Year |
Dividend Amount |
| 2020 | $2.20 |
| 2019 | $2.20 |
| 2018 | $1.72 |
| 2017 | $1.72 |
| 2016 | $1.72 |
| 2015 | $1.72 |
| 2014 | $1.72 |
| 2013 | $1.72 |
| 2012 | $1.69 |
| 2011 | $1.67 |
(Source: “Dividend History,” Office Properties Income Trust, last accessed July 29, 2021.)
The Lowdown on Office Properties Income Trust
While some REITs have fared poorly during the coronavirus pandemic, Office Properties Income Trust has done well. From April 2020 through March 2021, the company collected 99% of its rent. That momentum has continued in 2021.
The company’s reliable revenue stream has allowed Office Properties Income Trust stock to pay investors a high dividend yield, and it should allow OPI stock to continue doing so.