J.P. Morgan Downgrades Rating, Lowers PT On OFC To $35

J.P. Morgan, citing three-fold rationale on the subject, is downgrading its rating on Corporate Office Properties Trust OFC from Neutral to Underweight and has lowered its price target from $39 to $35 on the stock. According to J.P. Morgan, “We are lowering our rating on OFC to Underweight from Neutral. The reason for our downgrade is three-fold: 1) the company's earnings momentum is weakening in the near term, and we think this will weigh on the stock. As part of its 1Q earnings release, it outlined a plan to increase non-core asset sales, which will be dilutive to FFO in the near term, and management noted it continues to see weak fundamentals in its suburban office portfolio. Guidance was subsequently lowered $0.16/share at the midpoints; 2) the government budget wrangling in Washington, D.C., has had an impact on leasing in the portfolio, and we think this risk can emerge again as government spending continues to be debated. With development (and subsequent lease-up as opposed to a lot of pre-leasing) being a big part of OFC's growth model, it may take several quarters of demonstrating lease-up progress before investors get over the hump on this risk; and 3) while OFC goes through this repositioning, which it outlined as occurring through 2013, its CEO's employment contract will end, and there could be further transition at the top. While this is not new news to investors, it is nonetheless something that will be watched closely.” OFC closed Friday at $35.21.