COLUMBIA, MD–Corporate Office Properties Trust just announced that it has sold $210.7 million of suburban office assets in the third quarter period, which ended Sept. 30, 2016. The REIT is now slightly more than halfway to meeting its 2016 sales goal of $440 million.

But this track record should not necessarily be taken as a sign that the suburban office market — at least the properties with high vacancy rates — is on it way back. Corporate Office Properties Trust had to make a few adjustments to its original plan to get to this point.

A Plan to Sell Non-Core Assets

At the start of the year, COPT announced it wouldn't be making any new acquisitions for 2016. Rather, its mission would be to focus on maximizing its cash flow and to sell off between $400 million and $425 million of non-core assets, mainly in suburban office properties.

Fast forward to Q3: Seemingly all is going to plan. Sales for the quarter totaled 1.1 million square feet, for an average sale price per square foot of approximately $187.

What is noteworthy is that these properties were 92% occupied.

COPT, according to its original guidance for the year, had originally planned to sell non core properties with occupancy rates at 75% to 80%. But by Q2 an analyst pointed out that COPT's sales were of properties with occupancy rates of 93% to 94%.

A Higher-Quality Asset Pool

COPT, in other words, appeared to be selling a higher-quality asset pool than originally planned, the analyst said — a point with which CEO Steve Budorick agreed.

Budorick also said during the call that there were not a lot of buyers for larger suburban deals, so the REIT broke up its White Marsh portfolio into components and got good results.

The company also decided to accelerate the sale of Arbor Crest in Philadelphia for this year, as opposed to in the future, Budorick said. Indeed, good portion of the $210.7 million of suburban office assets it sold in the third quarter period can be accounted for by the August sale of Arborcrest Corporate Campus, a redevelopment office project in Plymouth Meeting, Pa. It traded for $143 million.

The campus consists of four properties totaling 654,000 square feet that are 100% leased.

The other assets it sold during the quarter had occupancy rates of 61%, 82% and 83%.

Instant Insights /

The Adjustments COPT Made As It Marketed Its Suburban Office Portfolio

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