COPT Reports 4Q and Full Year 2016 Results

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the fourth quarter and full year ended December 31, 2016.

Management Comments

“We executed well on all aspects of our 2016 plan, achieving or slightly exceeding our guidance for key earnings and leverage metrics,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer. “We also implemented important changes to our portfolio, balance sheet and organization that position us to capitalize on the rising demand for efficient, secure real estate solutions throughout our Defense/IT locations. The federal government is signaling broad support for increased investment in cybersecurity and national security-related defense initiatives, and our portfolio and personnel are uniquely aligned to provide real estate solutions for government and defense contractor tenants supporting these missions.”

Financial Highlights

4^th Quarter Financial Results:

• Diluted earnings per share (“EPS”) was $0.22 for the quarter ended December 31, 2016 as compared to $0.59 for the fourth quarter of 2015.
• Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.57 for the fourth quarter of 2016 as compared to $0.31 for the fourth quarter of 2015.
• FFOPS, as adjusted for comparability, was $0.51 for the quarter ended December 31, 2016 and $0.52 for the fourth quarter of 2015.

Full Year 2016 Financial Results:

• Diluted loss per share was $(0.03) for the year ended December 31, 2016 as compared to EPS of $1.74 for 2015.
• Per NAREIT’s definition, FFOPS for 2016 was $1.82 as compared to $2.55 for 2015.
• FFOPS, as adjusted for comparability, for 2016 and for 2015 was $2.01.

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), executive transition costs and write-offs of original issuance costs for redeemed preferred shares.

Operating Performance Highlights

Portfolio Summary:

• At December 31, 2016, the Company’s core portfolio of 152 operating office properties was 92.9% occupied and 94.4% leased.
• During the quarter, the Company placed 155,000 square feet of development into service that, at December 31, 2016, were 100% leased; during the year, the Company placed 700,000 square feet into service that were 93% leased at year-end.
• At year end, the Company had approximately $95 million of assets held for sale composed of nine operating properties that contain a total of 603,000 square feet and 47 acres of non-strategic land.

Same Office Performance:

• At December 31, 2016, COPT’s same office portfolio of 133 buildings was 91.5% occupied and 92.8% leased.
• For the quarter ended December 31, 2016, the Company’s same office property cash NOI increased 4.2% as compared to the quarter ended December 31, 2015. For the full year, same office property cash NOI grew 4.1% versus 2015.

Leasing: In December 2016, the Company executed a lease for a 125,000 square foot, full-building renewal with the U.S. Government. This lease was executed by the customer in January and therefore is not reflected in our year-end leasing statistics. Had the lease been executed in December, the Company’s leasing results for the fourth quarter and year ended December 31, 2016 would have been as follows:

• Square Feet Leased―For the quarter ended December 31, 2016, the Company leased 658,000 total square feet, including 290,000 square feet of renewing leases, 96,000 square feet of new leases on previously vacant space, and 272,000 square feet in development projects. For the year ended December 31, 2016, the Company completed 3.0 million square feet of leasing, composed of 1.6 million square feet of renewing leases, 463,000 square feet of vacancy leasing, and 843,000 square feet in development projects.
• Renewal Rates & Rent Spreads on Renewing Leases―During the fourth quarter and for the year, the Company renewed 69% and 77%, respectively, of expiring leases. For the quarter ended December 31, 2016, rents on renewed space increased 9.4% on a GAAP basis and declined 3.0% on a cash basis. For the year, GAAP rents on renewing leases increased 5.3% and cash rents decreased 5.3%.
• Lease Terms―In the fourth quarter, lease terms averaged 6.7 years on renewing leases, 9.6 years on development leasing, 6.1 years on vacancy leasing, for a weighted average lease term of 7.8 years on all leasing. For the full year ended December 31, 2016, lease terms averaged 6.2 years on renewing leases, 9.8 years on development leasing and 6.3 years on vacancy leasing, for a weighted average lease term of 7.2 years.

Investment Activity Highlights

Development & Redevelopment Projects:

• The Company has six properties totaling 907,000 square feet under construction that, at December 31, 2016, were 83% leased. These projects have a total estimated cost of $181.6 million, of which $79.1 million has been incurred.
• The Company also has two completed properties that total 352,000 square feet which are being held for the U.S. Government and which currently are 4% leased. Including these two projects, the Company’s construction pipeline totals 1.3 million square feet and is 61% leased.
• COPT has 104,000 square feet in three properties under redevelopment, representing a total expected cost of $26.8 million, of which $20.7 million has been invested. The three projects were 55% leased as of January 31, 2017.

Dispositions:

• During 2016, the Company completed $271 million of dispositions, including the sale of 21 operating properties totaling 1.6 million square feet that were 85.9% occupied for $249 million, and $22 million of non-strategic land.
• The Company also sold a 50% interest in six triple-net leased, single-tenant data center properties with an aggregate value of $148 million by contributing them into a newly-formed joint venture.
• The combined value of these transactions was $344 million.

Balance Sheet and Capital Transaction Highlights

• As of December 31, 2016, the Company’s net debt plus preferred equity to adjusted book ratio was 42.9% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.3x. For the quarter ended December 31, 2016, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.1x.
• As of December 31, 2016 and including the effect of interest rate swaps, the Company’s weighted average effective interest rate was 4.1%; additionally, 95% of the Company’s debt was subject to fixed interest rates and the debt portfolio had a weighted average maturity of 6.1 years.
• During the fourth quarter ended December 31, 2016, the Company issued $110 million of common shares through its At-the-Market (“ATM”) program at an average gross price of $29.56 per share. Earlier in the quarter, the Company retired its $120 million Term Loan, which was due in 2019, and now has no debt maturities until 2020.
• In January 2017, the Company used $26.6 million of cash on-hand to redeem all outstanding shares of its Series K Convertible Preferred.

2017 FFO Guidance

Management is maintaining its previously issued guidance range for full year 2017 FFOPS, as adjusted for comparability, of $2.00―$2.08, and is establishing guidance for the first quarter ending March 31, 2017 at a range of $0.44―$0.46. 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 fourth quarter and full year 2016 conference call, the details of which are provided below. An 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 fourth quarter and full year 2016 earnings results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Please use the following link to pre-register and view important information about this conference call. Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the conference. To pre-register, please click on the below link:
https://www.theconferencingservice.com/prereg/key.process?key=P3CMC7QQA

You may also pre-register in the Investors section of the Company’s website at www.copt.com. Alternatively, you may be placed into the call by an operator by calling the number provided above at least 5 to 10 minutes before the start of the call.

Replay Information

A replay of this call will be available beginning at 6:00 p.m. Eastern Time on Friday, February 10, through midnight Eastern Time on Friday, February 24. To access the replay within the United States, please call 888-286-8010 and use passcode 35538878. To access the replay outside the United States, please call 617-801-6888 and use passcode 35538878.

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 calls 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 our Supplemental Information Package filed as a Form 8-K which can be found on our 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 United States Government agencies and their contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing priority missions (“Defense/IT Locations”). We also own a portfolio of Class-A office properties located in select urban/urban-like submarkets within our regional footprint (“Regional Office Properties”). As of December 31, 2016, we derived 87% of core portfolio annualized revenue from Defense/IT Locations and 13% from our Regional Office Properties. As of December 31, 2016, our core portfolio of 152 office properties encompassed 16.3 million square feet and was 94.4% 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. 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, 2015.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170209006336/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 February 9, 2017