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COPT Reports First Quarter 2020 Results

04/30/2020

EPS and FFO per Share Exceeded Guidance

Same-Property Cash NOI Growth of 5% in 1Q20 Exceeded Expectations

Core Portfolio 94% Occupied & 95.2% Leased

230,000 SF of 100% Leased Developments Placed in Service

2.2 Million SF Under Development are 78% Leased

Solid Leasing Volumes

Total Leasing of 631,000 SF

Strong Tenant Retention of 89%; Increasing Full-Year Retention Guidance to 75-80%

Minimal COVID-19 Impact on Operations and Results Expected

Lowering Mid-Point of Full-Year Guidance for FFO per Share, As Adjusted for Comparability, to $2.07, a 1-Cent Reduction

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the first quarter ended March 31, 2020.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “The Company delivered solid first quarter results, with FFO per share, as adjusted for comparability, exceeding the high end of our guidance range. Cost savings associated with the mild winter and solid overall performance drove same-office cash NOI growth of 5%.” He continued, “Importantly, I am pleased to report that the COVID-19 pandemic and related responses have had minimal impact on our operations due to the high concentration of U.S. Government National Security activity in our tenancy and markets, all of which are essential business activities and have not been materially affected. Construction activity on our 2.2 million square foot, highly leased development pipeline continues unabated, with no schedule delays from virus-related shutdowns or delivery of materials. New lease negotiations that commenced before the shutdowns continue to advance, albeit at a slower pace, and renewal leasing has been robust. Notwithstanding the negligible impact the pandemic-related shutdowns have had on our business, in order to create capacity to absorb unforeseen events that may occur, we are lowering the mid-point of our 2020 guidance for FFO per share, as adjusted for comparability, by one-cent, to $2.07.”

Financial Highlights

1st Quarter Financial Results:

  • Diluted earnings per share (“EPS”) was $0.21 for the quarter ended March 31, 2020 as compared to $0.19 for the first quarter of 2019.
  • Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.41 for the first quarter of 2020 as compared to $0.50 for first quarter 2019 results.
  • FFOPS, as adjusted for comparability, was $0.51 for the first quarter of 2020 as compared to $0.50 for first quarter 2019 results.

Adjustments for comparability encompass items such as demolition costs of redevelopment and noncontrolling interest allocations resulting from a capital event.

Operating Performance Highlights

Operating Portfolio Summary:

  • At March 31, 2020, the Company’s core portfolio of 169 operating office and data center shell properties was 94.0% occupied and 95.2% leased.
  • During the quarter, the Company placed into service 230,000 square feet that were 100% leased.

Same-Property Performance:

  • At March 31, 2020, COPT’s same-property portfolio of 152 buildings was 92.7% occupied and 94.1% leased.
  • For the quarter ended March 31, 2020, the Company’s same-property cash NOI increased 5.0% over the prior year’s comparable period.

Leasing:

  • Total Square Feet Leased: For the quarter ended March 31, 2020, the Company leased 631,000 total square feet, including 488,000 square feet of renewals and 143,000 square feet of new leases on vacant space.
  • Renewal Rates: During the quarter ended March 31, 2020, the Company renewed 89% of total expiring square feet.
  • Cash Rent Spreads & Average Escalations on Renewing Leases: For the quarter ended March 31, 2020, cash rents on renewed space decreased 1.0%. For the same time period, average annual escalations on renewing leases were 2.4%.
  • Lease Terms: In the first quarter, lease terms averaged 4.9 years on renewing leases and 7.5 years on new leasing of vacant space.

Investment Activity Highlights

Development & Redevelopment Projects:

  • Development Pipeline: At April 8, 2020, the Company’s development pipeline consisted of 13 properties totaling 2.2 million square feet that were 78% leased. These projects have a total estimated cost of $640.7 million, of which $352.9 million had been incurred as of March 31, 2020.
  • Redevelopment: At March 31, 2020, one project was under redevelopment totaling 106,000 square feet that was 80% leased. The Company has invested $23.4 million of the $25.4 million anticipated total cost.

Balance Sheet and Capital Transaction Highlights

  • As of March 31, 2020, the Company’s net debt plus preferred equity to adjusted book ratio was 38.3% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.3x. For the quarter ended March 31, 2020, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.8x.
  • As of March 31, 2020, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate was 3.68%; additionally, 85.7% of the Company’s debt was subject to fixed interest rates and the consolidated debt portfolio had a weighted average maturity of 3.2 years.
  • In March, the Company amended its bank term loan scheduled to mature December 2022 to increase the loan amount by $150 million and to lower the interest rate.

2020 Guidance

To create capacity for unknown impacts on results that may emerge as a result of the COVID-19 pandemic shutdowns, management is lowering its previously issued full-year guidance ranges of $0.66-$0.70 for EPS, $2.06-$2.10 for FFOPS per Nareit, and $2.06-$2.10 for FFOPS, as adjusted for comparability, to new ranges of $0.65-$0.69, $1.95-$1.99, and $2.05-$2.09, respectively.

Management also is establishing guidance for EPS and FFOPS, per Nareit and as adjusted for comparability, for the second quarter ending June 30, 2020 at ranges of $0.13-$0.15 and $0.48-$0.50, respectively. Reconciliations of projected diluted EPS to projected FFOPS are as follows:

Table 1: Reconciliation of EPS to FFOPS, per Nareit and

Quarter ending

 

Year ending

As Adjusted for Comparability

June 30, 2020

 

December 31, 2020

Low

 

High

 

Low

 

High

 
EPS

$

0.13

$

0.15

$

0.65

 

$

0.69

 

Real estate-related depreciation and amortization

 

0.35

 

0.35

 

1.40

 

 

1.40

 

FFO allocation to other noncontrolling interest resulting from capital event

 

-

 

-

 

(0.10

)

 

(0.10

)

FFOPS, Nareit definition

 

0.48

 

0.50

 

1.95

 

 

1.99

 

FFO allocation to other noncontrolling interest resulting from capital event

 

-

 

-

 

0.10

 

 

0.10

 

FFOPS, as adjusted for comparability

$

0.48

$

0.50

$

2.05

 

$

2.09

 

 
 

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its first quarter 2020 conference call, the details of which are provided below. The accompanying slide presentation can be viewed on and downloaded from the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Conference Call Information

Management will discuss first quarter 2020 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:

Friday, May 1, 2020

Time:

12:00 p.m. Eastern Time

Telephone Number: (within the U.S.)

855-463-9057

Telephone Number: (outside the U.S.)

661-378-9894

Passcode:

8873456

The conference call will also be available via live webcast in the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Replay Information

A replay of the conference call will be immediately available via webcast on the Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, May 1, through 3:00 p.m. Eastern Time on Friday, May 15. To access the replay within the United States, please call 855-859-2056; to access it from outside the United States, please call 404-537-3406. In either case, use passcode 8873456.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company’s Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT

COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties. The majority of its portfolio is in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what it believes are growing, durable, priority missions (“Defense/IT Locations”). The Company also owns a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office Properties”). As of March 31, 2020, the Company derived 88% of its core portfolio annualized rental revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of the same date and including 15 buildings owned through unconsolidated joint ventures, COPT’s core portfolio of 169 office and data center shell properties encompassed 19.2 million square feet and was 95.2% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts that was 76.9% leased.

Forward-Looking Information

This press release may contain “forward-looking” statements, as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on the Company’s current expectations, estimates and projections about future events and financial trends affecting the Company. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, the Company can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as well as risks associated with uncertainties regarding the impact of the COVID-19 pandemic on the Company’s business and national, regional and local economic conditions.

Category: Quarterly Results

Source: Corporate Office Properties Trust

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(in thousands, except per share data)

 

 

For the Three Months
Ended March 31,

 

2020

 

2019

Revenues

 

 

 

Revenues from real estate operations

$

132,116

 

 

$

131,990

 

Construction contract and other service revenues

13,681

 

 

16,950

 

Total revenues

145,797

 

 

148,940

 

Operating expenses

 

 

 

Property operating expenses

49,999

 

 

49,445

 

Depreciation and amortization associated with real estate operations

32,596

 

 

34,796

 

Construction contract and other service expenses

13,121

 

 

16,326

 

General and administrative expenses

5,303

 

 

6,719

 

Leasing expenses

2,183

 

 

2,032

 

Business development expenses and land carry costs

1,118

 

 

1,113

 

Total operating expenses

104,320

 

 

110,431

 

Interest expense

(16,840

)

 

(18,674

)

Interest and other income

1,205

 

 

2,286

 

Credit loss expense

(689

)

 

 

Gain on sales of real estate

5

 

 

 

Income before equity in income of unconsolidated entities and income taxes

25,158

 

 

22,121

 

Equity in income of unconsolidated entities

441

 

 

391

 

Income tax expense

(49

)

 

(194

)

Net income

25,550

 

 

22,318

 

Net income attributable to noncontrolling interests:

 

 

 

Common units in the Operating Partnership (“OP”)

(287

)

 

(257

)

Preferred units in the OP

(77

)

 

(165

)

Other consolidated entities

(1,132

)

 

(1,037

)

Net income attributable to COPT common shareholders

$

24,054

 

 

$

20,859

 

 

 

 

 

Earnings per share (“EPS”) computation:

 

 

 

Numerator for diluted EPS:

 

 

 

Net income attributable to COPT common shareholders

$

24,054

 

 

$

20,859

 

Amount allocable to share-based compensation awards

(97

)

 

(86

)

Numerator for diluted EPS

$

23,957

 

 

$

20,773

 

Denominator:

 

 

 

Weighted average common shares - basic

111,724

 

 

109,951

 

Dilutive effect of share-based compensation awards

239

 

 

267

 

Weighted average common shares - diluted

111,963

 

 

110,218

 

Diluted EPS

$

0.21

 

 

$

0.19

 

 

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(in thousands, except per share data)

 

 

For the Three Months
Ended March 31,

 

2020

 

2019

Net income

$

25,550

 

 

$

22,318

 

Real estate-related depreciation and amortization

32,596

 

 

34,796

 

Gain on sales of real estate

(5

)

 

 

Depreciation and amortization on unconsolidated real estate JVs

818

 

 

566

 

Funds from operations (“FFO”)

58,959

 

 

57,680

 

Noncontrolling interests - preferred units in the OP

(77

)

 

(165

)

FFO allocable to other noncontrolling interests

(12,015

)

 

(971

)

Basic FFO allocable to share-based compensation awards

(193

)

 

(185

)

Basic FFO available to common share and common unit holders (“Basic FFO”)

46,674

 

 

56,359

 

Redeemable noncontrolling interests

32

 

 

381

 

Diluted FFO available to common share and common unit holders (“Diluted FFO”)

46,706

 

 

56,740

 

Demolition costs on redevelopment and nonrecurring improvements

43

 

 

44

 

Executive transition costs

 

 

4

 

Dilutive preferred units in the Operating Partnership

77

 

 

 

FFO allocation to other noncontrolling interests resulting from capital event

11,090

 

 

 

Diluted FFO comparability adjustments allocable to share-based compensation awards

(50

)

 

 

Diluted FFO available to common share and common unit holders, as adjusted for comparability

57,866

 

 

56,788

 

Straight line rent adjustments and lease incentive amortization

(852

)

 

(1,667

)

Amortization of intangibles included in net operating income

(74

)

 

62

 

Share-based compensation, net of amounts capitalized

1,389

 

 

1,673

 

Amortization of deferred financing costs

575

 

 

528

 

Amortization of net debt discounts, net of amounts capitalized

386

 

 

370

 

Accum. other comprehensive loss on derivatives amortized to expense

 

 

34

 

Replacement capital expenditures

(17,754

)

 

(11,173

)

Other diluted AFFO adjustments associated with real estate JVs

(41

)

 

33

 

Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)

$

41,495

 

 

$

46,648

 

Diluted FFO per share

$

0.41

 

 

$

0.50

 

Diluted FFO per share, as adjusted for comparability

$

0.51

 

 

$

0.50

 

Dividends/distributions per common share/unit

$

0.275

 

 

$

0.275

 

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars and shares in thousands, except per share data)

 

March 31,
2020

 

December 31,
2019

Balance Sheet Data

 

 

 

Properties, net of accumulated depreciation

$

3,419,628

 

 

$

3,340,886

 

Total assets

4,054,457

 

 

3,854,453

 

Debt, per balance sheet

2,076,839

 

 

1,831,139

 

Total liabilities

2,366,359

 

 

2,105,777

 

Redeemable noncontrolling interest

22,912

 

 

29,431

 

Equity

1,665,186

 

 

1,719,245

 

Net debt to adjusted book

38.2

%

 

36.8

%

 

 

 

 

Core Portfolio Data (as of period end) (1)

 

 

 

Number of operating properties

169

 

 

168

 

Total net rentable square feet owned (in thousands)

19,221

 

 

19,016

 

% Occupied

94.0

%

 

93.1

%

% Leased

95.2

%

 

94.6

%

 

For the Three Months Ended
March 31,

2020

 

2019

Payout ratios

 

 

 

Diluted FFO

66.6

%

 

54.7

%

Diluted FFO, as adjusted for comparability

53.9

%

 

54.7

%

Diluted AFFO

75.1

%

 

66.6

%

Adjusted EBITDA fixed charge coverage ratio

3.8

x

 

3.6

x

Net debt to in-place adjusted EBITDA ratio (2)

6.3

x

 

6.2

x

Net debt plus preferred equity to in-place adjusted EBITDA ratio (3)

6.3

x

 

6.2

x

 

 

 

 

Reconciliation of denominators for per share measures

 

 

Denominator for diluted EPS

111,963

 

 

110,218

 

Weighted average common units

1,226

 

 

1,331

 

Redeemable noncontrolling interests

110

 

 

1,013

 

Anti-dilutive EPS effect of share-based compensation awards

 

 

35

 

Denominator for diluted FFO per share

113,299

 

 

112,597

 

Dilutive convertible preferred units

176

 

 

 

Denominator for diluted FFO per share, as adjusted for comparability

113,475

 

 

112,597

 

(1) Represents Defense/IT Locations and Regional Office properties.
(2) Represents net debt as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).
(3) Represents net debt plus the total liquidation preference of preferred equity as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

 

 

For the Three Months
Ended March 31,

 

2020

 

2019

Reconciliation of common share dividends to dividends and distributions for payout ratios

 

 

 

Common share dividends - unrestricted shares and deferred shares

$

30,754

 

 

$

30,685

 

Common unit distributions - unrestricted units

339

 

 

365

 

Dividends and distributions for diluted FFO payout ratio

31,093

 

 

31,050

 

Distributions on dilutive preferred units

77

 

 

 

Dividends and distributions for other payout ratios

$

31,170

 

 

$

31,050

 

 

 

 

 

Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA

 

 

 

Net income

$

25,550

 

 

$

22,318

 

Interest expense

16,840

 

 

18,674

 

Income tax expense

49

 

 

194

 

Depreciation of furniture, fixtures and equipment

419

 

 

433

 

Real estate-related depreciation and amortization

32,596

 

 

34,796

 

Gain on sales of real estate

(5

)

 

 

Adjustments from unconsolidated real estate JVs

1,270

 

 

827

 

EBITDAre

76,719

 

 

77,242

 

Net gain on other investments

 

 

(388

)

Credit loss expense

689

 

 

 

Business development expenses

538

 

 

548

 

Demolition costs on redevelopment and nonrecurring improvements

43

 

 

44

 

Executive transition costs

 

 

4

 

Adjusted EBITDA

77,989

 

 

77,450

 

Proforma net operating income adjustment for property changes within period

734

 

 

252

 

In-place adjusted EBITDA

$

78,723

 

 

$

77,702

 

 

 

 

 

Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA

 

 

 

Interest expense

$

16,840

 

 

$

18,674

 

Less: Amortization of deferred financing costs

(575

)

 

(528

)

Less: Amortization of net debt discounts, net of amounts capitalized

(386

)

 

(370

)

Less: Accum. other comprehensive loss on derivatives amortized to expense

 

 

(34

)

COPT’s share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs

441

 

 

255

 

Scheduled principal amortization

1,021

 

 

1,098

 

Capitalized interest

3,358

 

 

2,004

 

Preferred unit distributions

77

 

 

165

 

Denominator for fixed charge coverage-Adjusted EBITDA

$

20,776

 

 

$

21,264

 

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

 

 

For the Three Months Ended
March 31,

 

2020

 

2019

Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures

 

 

 

Tenant improvements and incentives

$

11,357

 

 

$

7,152

 

Building improvements

2,475

 

 

4,531

 

Leasing costs

2,762

 

 

3,182

 

Net additions to (exclusions from) tenant improvements and incentives

2,026

 

 

(1,469

)

Excluded building improvements

(866

)

 

(2,223

)

Replacement capital expenditures

$

17,754

 

 

$

11,173

 

 

 

 

 

Same Properties cash NOI

$

74,962

 

 

$

71,408

 

Straight line rent adjustments and lease incentive amortization

(567

)

 

686

 

Amortization of acquired above- and below-market rents

96

 

 

(40

)

Amortization of below-market cost arrangements

(23

)

 

(23

)

Lease termination fees, gross

85

 

 

521

 

Tenant funded landlord assets and lease incentives

369

 

 

396

 

Cash NOI adjustments in unconsolidated real estate JV

28

 

 

59

 

Same Properties NOI

$

74,950

 

 

$

73,007

 

 

 

March 31,
2020

 

December 31,
2019

Reconciliation of total assets to adjusted book

 

 

 

Total assets

$

4,054,457

 

 

$

3,854,453

 

Accumulated depreciation

1,035,703

 

 

1,007,120

 

Accumulated amortization of real estate intangibles and deferred leasing costs

214,693

 

 

212,547

 

COPT’s share of liabilities of unconsolidated real estate JVs

50,966

 

 

50,734

 

COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JVs

8,990

 

 

8,164

 

Less: Property - operating lease liabilities

(17,365

)

 

(17,317

)

Less: Property - finance lease liabilities

(702

)

 

(702

)

Less: Cash and cash equivalents

(159,061

)

 

(14,733

)

Less: COPT’s share of cash of unconsolidated real estate JVs

(593

)

 

(498

)

Adjusted book

$

5,187,088

 

 

$

5,099,768

 

 

 

 

 

Reconciliation of debt outstanding to net debt and net debt plus preferred equity

 

 

 

Debt outstanding (excluding net debt discounts and deferred financing costs)

$

2,139,130

 

 

$

1,893,057

 

Less: Cash and cash equivalents

(159,061

)

 

(14,733

)

Less: COPT’s share of cash of unconsolidated real estate JVs

(593

)

 

(498

)

Net debt

$

1,979,476

 

 

$

1,877,826

 

Preferred equity

8,800

 

 

8,800

 

Net debt plus preferred equity

$

1,988,276

 

 

$

1,886,626

 

 

IR Contacts:
Stephanie Krewson-Kelly
443-285-5453
stephanie.kelly@copt.com

Michelle Layne
443-285-5452
michelle.layne@copt.com

Source: Corporate Office Properties Trust

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