Should You Make Room in Your Portfolio for This REIT?

Let's face it: We are poised to see a major rethink in how we work. And this rethink will drive incremental spending on digital infrastructure, and, more importantly, pressure the shares of corporate office building real estate investment trusts. Here we'll look at one REIT, and see whether it should feel gain or pain based on the trends we're seeing play out. But first, look at what's happened just over the last few weeks, as a growing number of companies have pushed back their expected return-to-the-office plans amid rising cases for the delta variant. Facebook has announced it would join the ranks of Amazon , Lyft , and other companies that have delayed planned returns of U.S. employees to offices until January 2022. According to Global Workplace Analytics, there are roughly 75 million U.S. employees whose jobs are compatible with remote work. For some context, that's about 55% of the domestic workforce and odds are a mini-repeat of the 2020 work from home boom will give companies reason to re-think work from home. Arguably that's not much of a stretch given that Alphabet gave the green light to 85% of the reported 10,000 requests for remote work that it received after pushing out its return to office date to mid-October from September. The 15% of the requests it didn't approve were for positions that either mission critical, require specialized equipment or call for face time with customers. We've already started to see another pullback in the shares of SL Green Realty Corp. , a real estate investment trust that focuses on commercial and residential properties in the New York metropolitan area. Granted, SLG made a pronounced recovery beginning in November of last year, but even so they remain well off their pre-pandemic 2020 high of $97.80. One company whose shares would appear to come under similar pressure is Corporate Office Properties Trust . But when you dig into its business, you realize its business isn't propelled by the trends in commercial office space like the kind you would find in a major metro area, but rather U.S. government defense and IT properties. In reviewing the company, we find its business focuses on knowledge- and technology-based activities for the U.S. government, which include cybersecurity, research and development and other highly technical defense and security areas as well as data centers. Exiting its June quarter, the company had 181 properties, with more than 170 focused on the defense and IT markets; for some context, 26 of those properties were data center shells. Coming into 2021, Corporate Office Properties had 11 properties under development of which nine were office properties and two were data center shells. All told, roughly 87% of the company's office and data center shell properties' total annualized rental revenue was from Defense/IT Locations. What I like about the company's business focus is it's tied to areas of continued growth that are likely to see greater allocation of Department of Defense budgets in the coming years. It's also a plus the company's largest customer is the government, arguably one of the most reliable customers a company could have. And because Corporate Office Properties is a REIT, we know it has to pay out at least 90% of its taxable income to shareholders. The company recently announced its latest quarterly dividend of $0.275 per share will be paid to on Oct. 15 to shareholders of record on Sep. 30. This is the same quarterly dividend payment it's made since 2012, and while that may not impress some folks, the current dividend yield of 3.9% means OFC shares easily warrant a closer look. (FB, AMZN, GOOGL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

Should You Make Room in Your Portfolio for This REIT?

Here we'll look at one REIT, and see whether it should feel gain or pain based on the work-from-home trends we're seeing play out.

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