Office Properties Income Trust Stock Pays Reliable, Inflation-Crushing 14.1% Yield
November 17, 2022
Why OPI Stock Is Attractive
Real estate investment trusts (REITs) can provide lucrative dividends to investors. The key is to find REITs that have the best tenants. When it comes to having tenants with deep pockets, few REITS could do as well as Office Properties Income Trust (NASDAQ:OPI).
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, the U.S. government remains Office Properties’ biggest single tenant. The federal government accounts for 19% of the REIT’s annualized rent, “other” governments account for 10%, and government contractors account for seven percent. And if you can’t trust governments to pay their bills, who can you trust? (Source: “Investor Presentation: Q2 2022,” Office Properties Income Trust, last accessed November 16, 2022.)
Office Properties Income Trust primarily leases out office properties to single tenants and those with high-credit-quality characteristics. Roughly 63% of its revenue comes from investment-grade tenants.
The company’s portfolio is always evolving. The REIT currently owns more than 160 properties comprising 21.2 million square feet in 31 states and D.C. During the third quarter, it completed 606,000 square feet of new and renewal leasing. It also sold 10 properties for approximately $118.0 million during the quarter. Year-to-date, Office Properties Income Trust has sold approximately $196.0 million worth of properties, which places the company at the high end of its stated objective for the year.
The REIT’s occupancy rate of 90.7% continues to outperform the broader market, and Office Properties expects to reach approximately 92% occupancy by year-end.
| Office Properties Income Trust’s Top 10 Tenants |
Portion of Annualized Rental Income |
| U.S. Government | 18.5% |
| Alphabet Inc | 4.2% |
| Shook, Hardy & Bacon L.L.P. | 3.4% |
| IG Investments Holdings LLC | 2.9% |
| Bank of America Corp | 2.8% |
| State of California | 2.8% |
| Commonwealth of Massachusetts | 2.2% |
| CareFirst, Inc. | 2.0% |
| Northrop Grumman Corp | 2.0% |
| Tyson Foods, Inc. | 2.0% |
(Source: Ibid.)
Office Properties Income Trust Reports Strong Q3 Results & Maintains Dividend
For the third quarter ended September 30, Office Properties announced that its net income improved to $17.0 million, or $0.35 per share. That’s up from $3.7 million, or $0.08 per share, in the same period of last year. (Source: “Office Properties Income Trust Announces Third Quarter 2022 Results,” Office Properties Income Trust, October 27, 2022.)
The REIT’s normalized funds from operations (FFO) were $53.8 million, or $1.11 per share, compared to $59.6 million, or $1.24 per diluted share, in the same period of last year. Its cash available for distribution was $28.1 million, or $0.58 per share, versus $30.9 million, or $0.64 per share, in the third quarter of 2021.
Office Properties Income Trust ended the third quarter of 2022 with cash and cash equivalents of $14.0 million. It also had $615.0 million available to borrow under a revolving credit facility.
For the third quarter, the company’s board declared a quarterly cash distribution of $0.55 per share, for a yield of 14.1%. Its cash available for distribution can safely cover the payout.
There’s more to this dividend stock than inflation-thrashing ultra-high-yield dividends. Office Properties Income Trust stock’s price has been steadily trending higher over the last few weeks. While the stock is down by 30% year-to-date and 37% year-over-year, it has rallied by 26% over the course of the last month.
More gains are expected, with analysts looking for OPI stock to advance between 35% and 87% over the coming 12 months.
Chart courtesy of StockCharts.com
The Lowdown on Office Properties Income Trust
All equities come with some kind of volatility, but Office Properties Income Trust stock’s downside is mitigated by the fact that the government accounts for 36% of the REIT’s total annualized rent.
Moreover, of the company’s tenant credit profile, 63.4% comes from investment-grade clients. This allows Office Properties to maintain a reliable cash flow, which it returns to OPI stockholders in the form of reliable, ultra-high-yield dividends.
