COPT Reports Second Quarter 2017 Results

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the second quarter ended June 30, 2017.

Management Comments

“Our FFO per share, as adjusted for comparability, in the second quarter of $0.49 was at the high end of our guidance due primarily to the timing of certain operating expenses that boosted same office NOI. We have strong visibility on the remaining quarters and, are narrowing our guidance for the full year but maintaining the original mid-point of $2.04. Our second quarter same office cash NOI increase of 2.6% represents our ninth consecutive quarter of increases, and equates to 3.8% growth for the first half of the year,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer.

“In May, the fiscal 2017 federal budget was signed into law, giving the Department of Defense (“DOD”) a base discretionary budget (“Base Budget”) of $532 billion, a 2% increase over 2016’s Base Budget. The Administration’s Base Budget request for fiscal 2018 of $575 billion would represent an 8% increase over the current year and is slightly higher than the defense industry expectations for average annual growth of 5% through 2021. By unanimous and nearly unanimous votes, the Senate and the House Armed Services Committees, respectively, recommended substantial increases to the DOD’s Base Budget beyond the Administration’s requested level, which evidences bipartisan support for such growth. Given our portfolio’s unique geographic alignment with DOD spending priorities, we believe we are well positioned to benefit from incremental space requirements related to mission growth at our Defense/IT installations,” added Mr. Budorick.

Financial Highlights

2^nd Quarter Financial Results:

• Diluted earnings (loss) per share (“EPS”) was $0.08 for the quarter ended June 30, 2017 as compared to ($0.54) for the second quarter of 2016.
• Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.42 for the second quarter of 2017 as compared to $0.36 for the second quarter of 2016.
• FFOPS, as adjusted for comparability, was $0.49 for the quarter ended June 30, 2017 as compared to $0.52 for the second quarter of 2016.

Adjustments for comparability encompass items such as gains and impairment losses on non-operating properties, gains (losses) on early extinguishment of debt, derivative gains (losses), and write-offs of original issuance costs for redeemed preferred shares.

Operating Performance Highlights

Portfolio Summary:

• At June 30, 2017, the Company’s core portfolio of 153 operating office properties was 93.8% occupied and 94.8% leased.
• During the quarter, the Company placed 297,000 square feet of development into service that was 97% leased.
• At June 30, 2017, the Company had nine operating properties and land held for sale with an aggregate book value of $51.3 million. The buildings contain a total of 469,000 square feet that were 95.4% occupied and leased at June 30, 2017.

Same Office Performance:

• At June 30, 2017, COPT’s same office portfolio of 137 buildings was 92.7% occupied and 93.6% leased.
• For the quarter and six months ended June 30, 2017, the Company’s same office property cash NOI increased 2.6% and 3.8%, respectively, over the prior year’s comparable periods.

Leasing: For the six months ended June 30, 2017, the Company leased a total of 936,000 square feet. The 383,000 square feet of development leasing through June 30, 2017, represents approximately half of the Company’s goal of leasing 700,000 square feet in development projects during the year.

Detail on the Company’s second quarter leasing results are as follows:

• Square Feet Leased―For the three months ended June 30, 2017, the Company leased a total of 696,000 square feet composed of 293,000 square feet of renewing leases, 78,000 square feet of new leases on previously vacant space, and 325,000 square feet in development projects. The bulk of the development leasing in the quarter consisted of two build-to-suit projects totaling 297,000 square feet.
• Renewal Rates & Rent Spreads on Renewing Leases―During the second quarter, the Company renewed 85% of expiring leases; rents on renewed space increased 9.3% on a GAAP basis and decreased 1.0% on a cash basis.
• Lease Terms―In the second quarter, lease terms averaged 3.7 years on renewing space, 6.7 years on vacant space, and 11.6 years on development leasing, for a weighted average lease term of 7.7 years on all leasing.
• Wholesale Data Center Leasing―During the quarter ended June 30, 2017, the Company leased 2.0 megawatts (“MW”) in its COPT DC-6 data center, which is now 87.6% leased.

Investment Activity Highlights

Development & Redevelopment Projects:

• As of June 30, 2017, the Company has six properties under construction totaling 970,000 square feet that were 85% leased.
• The Company also has two completed development properties held-for-lease to the U.S. Government. These buildings total 352,000 square feet and currently are 6% leased. Including these two projects, the Company’s construction pipeline totals 1.3 million square feet, is 64% leased, and represents a total estimated cost of $302.7 million.
• COPT also has two projects under redevelopment that total 36,000 square feet and represent a total expected cost of $11.0 million. These projects were 39% leased as of June 30, 2017.

Dispositions:

• During the quarter, the Company sold one 37,000 square foot suburban office property for $2.3 million.

Balance Sheet and Capital Transaction Highlights

• As of June 30, 2017, the Company’s net debt plus preferred equity to adjusted book ratio was 42.6% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.4x. For the same period, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.2x.
• As of June 30, 2017 and including the effect of interest rate swaps, the Company’s weighted average effective interest rate was 4.1%; additionally, 90% of the Company’s debt was subject to fixed interest rates and the debt portfolio had a weighted average maturity of 5.5 years.
• Effective June 27, 2017, the Company redeemed all of the outstanding shares of its 7.375% Series L Cumulative Preferred Shares (the “Series L Preferred Shares”) at a price of $25.00 per share, or $172.5 million in the aggregate, plus accrued and unpaid dividends thereon up to but not including the date of redemption.
• The Company repaid $200 million of the $300 million balance on a term loan scheduled to mature in 2020.
• Also during the quarter, COPT issued 44,260 common shares at a weighted average price of $33.19 per share under its existing at-the-market (“ATM”) stock offering program, generating net proceeds totaling $1.4 million. For the six months ended June 30, 2017, the Company realized $19.7 million of net proceeds from the ATM issuance.

2017 Guidance

Management is narrowing its previously issued guidance range for full year EPS and FFOPS, as adjusted for comparability, to revised ranges of $0.62―$0.66 and $2.02―$2.06, respectively. Management also is establishing EPS and FFOPS, as adjusted for comparability, guidance for the third quarter ending September 30, 2017 at ranges of $0.17―$0.19 and $0.51―$0.53, respectively, and also for the fourth quarter ending December 31, 2017, at ranges of $0.19―$0.21 and $0.54―$0.56, respectively. Reconciliations of projected diluted EPS to projected FFOPS are as follows:

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its second quarter 2017 conference call, the details of which are provided below. The accompanying slide presentation can be viewed on and downloaded from the ‘Investors’ section of the Company’s website (www.copt.com).

Conference Call Information

Management will discuss second quarter 2017 earnings results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Replay Information

A replay of this call will be available beginning at 4:00 p.m. Eastern Time on Friday, July 28, through 4:00 p.m. Eastern Time on Friday, August 11. To access the replay within the United States, please call 855-859-2056 and use passcode 47698579. To access the replay outside the United States, please call 404-537-3406 and use passcode 47698579.

The conference call will also be available via live webcast in the Investor Relations section of the Company’s website at www.copt.com. A replay of the conference call will be immediately available via webcast in the Investor Relations section of the Company’s website.

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.

Company Information

COPT is an office REIT that owns, manages, develops and selectively acquires office and data center properties 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 priority missions (“Defense/IT Locations”). The Company also owns a portfolio of office properties located in select urban/urban-like submarkets within its regional footprint with durable Class-A office fundamentals and characteristics (“Regional Office Properties”). As of June 30, 2017, the Company derived 87% of core portfolio annualized revenue from Defense/IT Locations and 13% from its Regional Office Properties. As of June 30, 2017, and including six buildings that are owned through an unconsolidated joint venture, its core portfolio of 153 office properties, encompassed 16.6 million square feet and was 94.8% leased. As of the same date, it also owned one wholesale data center with a critical load of 19.25 megawatts.

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. Accordingly, 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.

Important factors that may affect these expectations, estimates, and projections include, but are not limited to:

• general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;
• adverse changes in the real estate markets including, among other things, increased competition with other companies;
• governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases, and/or a curtailment of demand for additional space by the Company's strategic customers;
• the Company’s ability to borrow on favorable terms;
• risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
• risks of investing through joint venture structures, including risks that the Company’s joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with the Company’s objectives;
• changes in the Company’s plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
• the Company’s ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
• the Company's ability to achieve projected results;
• the dilutive effects of issuing additional common shares; and
• environmental requirements.

The Company undertakes no obligation to update or supplement any forward-looking statements. For further information, please refer to the Company’s filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170727006636/en/

Corporate Office Properties Trust
IR Contacts:
Stephanie Krewson-Kelly, 443-285-5453
stephanie.kelly@copt.com
or
Michelle Layne, 443-285-5452
michelle.layne@copt.com

Source: Corporate Office Properties Trust

Released July 27, 2017