Office Property Income Trust, Mar.2023

Company: OFFICE PROPERTY INCOME TRUST (OPI: NASDAQ)

Sector:  Real estate

Price (March 24^th, 2023): USD11.4

Target price (12m): USD16.8

Expected Share Price Return: +47%

Dividend Yield: 13%

Investment Risk: Low

Rationale for investment

• High dividend payer (dividend yield 13%)
• High discount of price to book value of 0.4x
• Mostly investment grade rated tenants in US

I share an investment opportunity in the real estate sector. I am monitoring OPI stock for some time and now is trading near 52-week low. FED aggressive interest-rate increase has crushed the real estate sector.

Profile

Office Properties Income Trust (Nasdaq: OPI) is an investment grade rated real estate investment trust (REIT) focused on a diverse portfolio of high-quality office and mixed-use properties in select growth-oriented U.S. markets.  The portfolio consists of 160 properties valued at $4.5bn with a 91% occupancy rate.

OPI investments are focused on:

• Properties primarily leased to single tenants. Strategic to the tenant, which may include: built‐to‐suit properties, corporate headquarters and buildings where tenants have invested meaningful capital;
• Minimum remaining lease term of seven years;
• Properties leased to government tenants. Please see below top 20 tenants:

In addition, OPI runs a capital recycling program also generating capital available for distribution:

• Sell properties older in age, capital intensive, or that have maximized value
• Exit markets with limited future rent growth
• Reinvest proceeds into higher quality properties with strong cash flows.

Investment Case

Even featuring higher dividends than the stock market at large, real estate has soundly underperformed the broader market through this bear turn. I see this is a good entry point as I like to be against consensus.

Rationale for selecting OPI is the following lies among others is: diversified portfolio with a focus on strong, growing markets, +60% of annualized rental income comes from investment grade rated tenants. It is sustainable dividend payer with dividends of $0.55 per share per quarter, or $2.20 annually.

Valuation

OPI provides a 13% dividend yield and shares trade at a relatively wide discount of c 0.4x price to book value (PBV) at present. Historically the stock traded at 0.7x price to book value which in line with the peers.

I set up a target price based on a 0.7x to current Book value. Hence my 12m target price is USD16.8.

Investment Risks

• Potential dividend cut in case of lower occupancy
• Portfolio valuation adjustments due to increase in rates
• Portfolio concentrated only in US

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