Commercial Real Estate With a Smaller Footprint: Columbia Property Trust (CXP)

Glass office building with green trees in background

Columbia Property Trust (CXP), founded in 2003, is an Atlanta-based real estate investment trust (REIT) that owns 16 commercial office properties across seven cities. The company’s focus is on Class A (highest-quality) properties in prime central business districts in markets with supply constraints. Its properties are in San Francisco (35%), New York City (31%), Atlanta (12%), Boston (4%), Washington, D.C. (3%), and other (15%). The company went public in 2013.
Columbia’s strategy is to generate long-term shareholder returns from a combination of steadily growing cash flows and appreciation in net asset values.
The most important strategic move thus far has been to transform its property portfolio from lower-quality, suburban properties to Class A office properties in markets with lower office supply. The company often finds an undervalued property, renovates it for efficiency, accessibility, and modern tastes, and brings it back onto the market at a premium value.  Columbia also has reduced its exposure to single-tenant properties to reduce its risk.
The capital redeployment has streamlined the company and refocused it on the company’s core markets. The number of properties fell from 67 in 2011 to 16 currently, and from 31 markets to 7 currently. The company is now among the top five office REITs that operate in prime markets.
Management’s capital allocation strategy seems shrewd, with large property sales over the past two years, as property prices are high after the commercial real estate market has recovered sharply since the financial crisis. Since the U.S. office market tends to track the overall economy with a lag, an economic downturn – especially in Silicon Valley and Wall Street – would hurt this company. The average lease term, however, still has 6.9 years left, so there would be some protection against a recession.
The company is in a solid financial condition, and its credit rating is investment grade.
The valuation is extraordinarily attractive. The price/estimated net asset value ranges from $22.50 to $35.00, using the company’s projection of net operating income. Even on a conservative valuation basis ($22.50), the apparent value is greater than the current stock price.
Chart of CXP stock price
Columbia has a good sustainability profile. Its central business district office buildings have a much smaller environmental footprint than the sprawl of suburban properties. In addition, nearly 40% of the company’s square footage is in LEED-certified buildings. Columbia also has a sustainability officer. Women comprise a decent portion of senior management positions, with 9/20 vice presidents and 1/6 senior executives.
Columbia Property Trust (CXP) is an overlooked REIT that has transformed its portfolio into a high-quality set of properties in attractive markets. The stock seems to be selling significantly below the net asset value of its real estate.
Symbol: CXP
Price: $21.50
52-week low and high: $20.27 – $24.63
Market capitalization: $2.6 billion
Dividend yield: 3.7%
Risk: Average