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Office Properties Trust: Looming defense spending spree will drive rent growth, development in 2017

An anticipated uptick in government defense spending under President Trump has REIT Office Properties Trust planning for a busy year in 2017.


The Columbia, Md.-based firm said it expects to experience an increase in leasing activity at its existing properties and to see more build-to-suit opportunities from government defense contractors seeking to expand their footprints.


To help accommodate the expected uptick in activity, the firm has hired eight new executives.


Government contractors focused on defense information technology account for 87% of the firm’s tenant base, president and CEO Steve Budorick told investors on the firm’s fourth quarter earnings call.


“Demand from contractors was in a healthy recovery throughout the year and we are encouraged by the increase in activity we have seen in the fourth quarter. We see a growing trend of contractors seeking additional space in our locations to service new contracts for which they are competing,” he said.


For the fourth quarter, the company’s core portfolio of 152 operating office properties was 92.9% occupied and 94.4% leased.


Same-office property cash NOI increased 4.2% as compared to the quarter ended December 31, 2015. For the full year, same office property cash NOI grew 4.1% versus 2015.


During the fourth quarter and for the year Office Properties Trust renewed 69% and 77%, respectively, of expiring leases.


For the quarter ended December 31, 2016, rents on renewed space increased 9.4% on a GAAP basis and declined 3.0% on a cash basis. For the year, GAAP rents on renewing leases increased 5.3% and cash rents decreased 5.3%.


Office Properties Trust has six properties totaling 907,000 square feet under construction that, at December 31, 2016, were 83% leased. These projects have a total estimated cost of $181.6 million, of which $79.1 million has been incurred.


The REIT also has two completed properties that total 352,000 square feet which are being held for the U.S. Government and which currently are 4% leased. Including these two projects, the company’s construction pipeline totals 1.3 million square feet and is 61% leased.


Office Properties Trust has 104,000 square feet in three properties under redevelopment, representing a total expected cost of $26.8 million, of which $20.7 million has been invested. The three projects were 55% leased as of January 31, 2017.





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