COPT Reports First Quarter 2011 Results and Launches Strategic Reallocation Plan
COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE: OFC) today announced financial and operating results for the first quarter ended March 31, 2011. Diluted earnings per share was ($0.33) for the quarter ended March 31, 2011 as compared to $0.10 for the quarter ended March 31, 2010. Excluding a previously announced, non-cash impairment charge associated with the Company's Fort Ritchie investment, funds from operations (FFO) per diluted share for the first quarter of 2011 was $0.52, a 2% decline from the $0.53 FFO per share reported in the first quarter of 2010. Including the impairment charge, FFO per diluted share for the quarter ended March 31, 2011 was $0.13.
Strategic Reallocation Plan:
COPT's management also announced it is accelerating asset dispositions as part of a Strategic Reallocation Plan designed to increase its concentration of buildings serving the specialized needs of tenants in the U.S. Government and Defense Information Technology industries (Defense IT), and Data Centers catering to both sectors.
"By executing our Strategic Reallocation Plan, COPT will increase its percentage of real estate revenues serving our super core customers from 59% today, to 67% at the end of 2013," stated Randall M. Griffin, Chief Executive Officer of Corporate Office Properties Trust. "We also will decrease our exposure to traditional suburban office buildings, which will position us to better weather future economic downturns. In short, COPT will be an even stronger, more focused company that can deliver impressive earnings growth and shareholder returns."
Revised 2011 Guidance:
Management is revising its prior earnings and FFO guidance to reflect its updated outlook for the year and the near-term dilution it anticipates from assets to be sold as part of the Strategic Reallocation Plan. Details will be provided on its conference call today at 11:00 a.m. Eastern Time. Conference call details are provided later in this press release.
First Quarter 2011 Results:
For the first quarter ended March 31, 2011 - EPS was ($0.33) for the quarter ended March 31, 2011 as compared to $0.10 for the quarter ended March 31, 2010. Excluding a $27.7 million non-cash impairment charge associated with its investment in Fort Ritchie, FFO for the first quarter ended March 31, 2011 totaled $42.3 million, or $0.52 per diluted share. First quarter 2011 results represent a 2% decrease on a per share basis from the $0.53 per diluted share, or $38.2 million of FFO for the first quarter of 2010. Including the impairment charge, FFO per diluted share for the first quarter of 2011 was $0.13 versus $0.53 reported in the first quarter of 2010.
Operating Performance:
Portfolio Summary - At March 31, 2011, the Company's wholly-owned portfolio of 252 office properties totaled 20.2 million square feet. The weighted average remaining lease term for the portfolio was 4.9 years and the average rental rate (including tenant reimbursements) was $25.75 per square foot. The Company's wholly-owned portfolio was 87.0% occupied and 89.2% leased as of March 31, 2011.
Same Office Performance - The Company's same office portfolio for the quarter ended March 31, 2011 represents 91% of the rentable square feet of its consolidated portfolio and consists of 241 properties. For the quarter ended March 31, 2011, the Company's same office property cash NOI decreased 5% as compared to the three months ended March 31, 2010.
Leasing - For the quarter ended March 31, 2011, 784,000 square feet were renewed equating to a 67% renewal rate, at an average committed cost of $10.69 per square foot. Total rent on renewed space increased 5.5% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date, and remained flat on a cash basis. For renewed and retenanted space of 1.0 million square feet, total straight-line rent increased 4.3% and total rent on a cash basis remained flat. The average committed cost for renewed and retenanted space was $15.61 per square foot.
Investment Activity:
Developments - At March 31, 2011, the Company had properties totaling 3.1 million square feet under construction, development and redevelopment for a total projected cost of $672.8 million. The Company controlled land at March 31, 2011 of 2,265 acres that can support up to 21.8 million square feet of development.
Acquisitions - The Company did not complete any acquisitions during the first quarter 2011.
Balance Sheet and Financial Flexibility:
As of March 31, 2011, the Company had a total market capitalization of $5.2 billion, with $2.4 billion in debt outstanding, equating to a 46% debt-to-total market capitalization ratio. Also, the Company's weighted average interest rate was 4.9% for the quarter ended March 31, 2011 and 82% of its debt was subject to fixed interest rates as of March 31, 2011.
For the first quarter 2011, the Company's adjusted EBITDA to interest expense coverage ratio was 2.93x, and the adjusted EBITDA fixed charge coverage ratio was 2.49x. Adjusting for construction in progress, the Company's adjusted debt-to-adjusted EBITDA ratio was 7.23x as of March 31, 2011.
Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the tables that follow the text of this press release.
Conference Call:
Supplemental presentation - COPT will be posting a supplemental presentation that discusses the Strategic Reallocation Plan approximately 15 minutes before its 11:00 a.m. Eastern Time conference call in the Investor Relations section of COPT's website, www.copt.com.
Management will discuss first quarter earnings results, the details of its Strategic Reallocation Plan and its revised earnings and FFO guidance for 2011 on its conference call today at 11:00 a.m. Eastern Time, details of which are listed below:
Conference Call Date: Thursday, April 28, 2011 Time: 11:00 a.m. Eastern Time Telephone Number: (within the U.S.) 888-679-8034 Telephone Number: (outside the U.S.) 617-213-4847 Passcode: 18057385
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. Pre-registration
only takes a few moments and you may pre-register at anytime, including
up to and after the call start time. To pre-register, please click on
the below link:
https://www.theconferencingservice.com/prereg/key.process?key=PG9V4G73R
You may also pre-register in the Investor Relations 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. A replay of this call will be available beginning Thursday, April 28 at 2:00 p.m. Eastern Time through Thursday, May 5 at midnight Eastern Time. To access the replay within in the United States, please call 888-286-8010 and use passcode 96513809. To access the replay outside the United States, please call 617-801-6888 and use passcode 96513809.
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:
Please refer to the information furnished with our Form 8-K or our website (www.copt.com) for definitions of certain terms used in this press release. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.
Company Information
Corporate Office Properties Trust (COPT) (NYSE: OFC) is a specialty office real estate investment trust (REIT) that focuses primarily on strategic customer relationships and specialized tenant requirements in the U.S. Government and Defense Information Technology sectors and Data Centers serving such sectors. The Company acquires, develops, manages and leases office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in strong markets that we believe possess growth opportunities. As of March 31, 2011, the Company owned 272 office properties totaling 21.3 million rentable square feet, which includes 20 properties totaling 1.1 million square feet held through joint ventures. The Company's portfolio primarily consists of technically sophisticated buildings in visually appealing settings that are environmentally sensitive, sustainable and meet unique customer requirements. COPT is an S&P MidCap 400 company and more information can be found at www.copt.com.
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 demand and rents, tenant
creditworthiness, interest rates and financing availability;
-- adverse changes in the real estate markets including, among other
things, increased competition with other companies;
-- 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 our plans or views of market economic conditions or failure
to obtain development rights, either of which could result in
recognition of impairment losses;
-- our ability to satisfy and operate effectively under Federal income tax
rules relating to real estate investment trusts and partnerships;
-- governmental actions and initiatives; 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, 2010.
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
2011 2010
Revenues
Real estate revenues $ 122,367 $ 112,228
Construction contract and other service revenues 21,028 37,365
Total revenues 143,395 149,593
Expenses
Property operating expenses 50,905 48,135
Depreciation and amortization associated with real 33,020 27,596
estate operations
Construction contract and other service expenses 20,618 36,399
Impairment loss 27,742 -
General and administrative expenses 6,777 5,900
Business development expenses 488 155
Total operating expenses 139,550 118,185
Operating income 3,845 31,408
Interest expense (26,928 ) (22,638 )
Interest and other income 1,168 1,302
(Loss) income from continuing operations before equity
in income (loss) of unconsolidated entities and income (21,915 ) 10,072
taxes
Equity in income (loss) of unconsolidated entities 30 (205 )
Income tax benefit (expense) 544 (41 )
(Loss) income from continuing operations (21,341 ) 9,826
Discontinued operations 74 832
(Loss) income before gain on sales of real estate (21,267 ) 10,658
Gain on sales of real estate, net of income taxes 2,701 17
Net (loss) income (18,566 ) 10,675
Less net (loss) income attributable to noncontrolling
interests
Common units in the Operating Partnership 1,479 (527 )
Preferred units in the Operating Partnership (165 ) (165 )
Other consolidated entities (538 ) (45 )
Net (loss) income attributable to COPT (17,790 ) 9,938
Preferred share dividends (4,025 ) (4,025 )
Net (loss) income attributable to COPT common $ (21,815 ) $ 5,913
shareholders
Earnings per share "EPS" computation:
Numerator for diluted EPS:
Net (loss) income attributable to common shareholders $ (21,815 ) $ 5,913
Amount allocable to restricted shares (282 ) (290 )
Numerator for diluted EPS (22,097 ) 5,623
Denominator:
Weighted average common shares - basic 66,340 57,844
Dilutive effect of share-based compensation awards - 364
Weighted average common shares - diluted 66,340 58,208
Diluted EPS $ (0.33 ) $ 0.10
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data and ratios)
Three Months Ended
March 31,
2011 2010
Net (loss) income $ (18,566 ) $ 10,675
Add: Real estate-related depreciation and amortization 33,020 27,603
Add: Depreciation and amortization on unconsolidated 119 175
real estate entities
Less: Gain on sales of previously depreciated operating - (297 )
properties, net of income taxes
Funds from operations ("FFO") 14,573 38,156
Less: Noncontrolling interests - preferred units in the (165 ) (165 )
Operating Partnership
Less: Noncontrolling interests - other consolidated (538 ) (45 )
entities
Less: Preferred share dividends (4,025 ) (4,025 )
Less: Depreciation and amortization allocable to
noncontrolling interests in other
consolidated entities (65 ) (282 )
Less: Basic and diluted FFO allocable to restricted (282 ) (379 )
shares
Basic and diluted FFO available to common share and 9,498 33,260
common unit holders ("Basic and diluted FFO")
Less: Straight line rent adjustments (3,912 ) (2,346 )
Less: Amortization of acquisition intangibles included 161 (270 )
in net operating income
Less: Recurring capital expenditures (14,344 ) (6,211 )
Add: Amortization of discount on Exchangeable Senior 1,558 782
Notes, net of amounts capitalized
Add: Impairment loss 27,742 -
Add: Operating property acquisition costs 23 19
Diluted adjusted funds from operations available to $ 20,726 $ 25,234
common share and common unit holders ("Diluted AFFO")
Weighted average shares
Weighted average common shares 66,340 57,844
Conversion of weighted average common units 4,396 5,017
Weighted average common shares/units - basic FFO per 70,736 62,861
share
Dilutive effect of share-based compensation awards 261 364
Weighted average common shares/units - diluted FFO per 70,997 63,225
share
Diluted FFO per share $ 0.13 $ 0.53
Diluted FFO per share, as adjusted for comparability $ 0.52 $ 0.53
Dividends/distributions per common share/unit $ 0.4125 $ 0.3925
Diluted FFO payout ratio, as adjusted for comparability 79.2 % 75.2 %
Diluted AFFO payout ratio 142.4 % 99.2 %
Adjusted EBITDA interest coverage ratio 2.93x 2.97x
Adjusted EBITDA fixed charge coverage ratio 2.49x 2.47x
Debt to Adjusted EBITDA ratio (1) 8.66x 8.54x
Adjusted debt to Adjusted EBITDA ratio (2) 7.23x 7.25x
Reconciliation of denominators for diluted EPS and
diluted FFO per share
Denominator for diluted EPS 66,340 58,208
Weighted average common units 4,396 5,017
Anti-dilutive EPS effect of share-based compensation 261 -
awards
Denominator for diluted FFO per share 70,997 63,225
(1) Represents debt divided by Adjusted EBITDA for the three month period
multiplied by four.
Represents debt adjusted to subtract construction in progress as of period
(2) end divided by Adjusted EBITDA for the three month period multiplied by
four.
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
March 31, December 31,
2011 2010
Balance Sheet Data (in thousands) (as of period
end)
Properties, net of accumulated depreciation $ 3,468,771 $ 3,445,455
Total assets 3,865,809 3,844,517
Debt, net 2,396,795 2,323,681
Total liabilities 2,594,151 2,521,379
Beneficiaries' equity 1,271,658 1,323,138
Debt to total assets 62.0 % 60.4 %
Debt to undepreciated book value of real estate 58.4 % 57.2 %
assets
Debt to total market capitalization 46.0 % 46.1 %
Property Data (wholly owned office properties)
(as of period end)
Number of operating properties owned 252 252
Total net rentable square feet owned (in 20,183 19,990
thousands)
Occupancy 87.0 % 88.2 %
Reconciliation of denominator for debt to total
assets to denominator for debt to undepreciated
book value of real estate assets
Denominator for debt to total assets $ 3,865,809 $ 3,844,517
Assets other than assets included in properties, (397,038 ) (399,062 )
net
Accumulated depreciation on real estate assets 526,825 503,032
Intangible assets on real estate acquisitions, net 106,444 113,735
Denominator for debt to undepreciated book value $ 4,102,040 $ 4,062,222
of real estate assets
Three Months Ended
March 31,
2011 2010
Reconciliation of tenant improvements and
incentives, capital improvements and leasing costs
for operating properties to recurring capital
expenditures
Total tenant improvements and incentives on $ 13,270 $ 4,071
operating properties
Total capital improvements on operating properties 1,990 870
Total leasing costs on operating properties 2,736 1,338
Less: Nonrecurring tenant improvements and (2,448 ) (77 )
incentives on operating properties
Less: Nonrecurring capital improvements on (610 ) (60 )
operating properties
Less: Nonrecurring leasing costs incurred on (616 ) 54
operating properties
Add: Recurring capital expenditures on operating 22 15
properties held through joint ventures
Recurring capital expenditures $ 14,344 $ 6,211
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
2011 2010
Reconciliation of common share dividends to
dividends and distributions for payout ratios
Common share dividends $ 27,704 $ 23,160
Common unit distributions 1,809 1,867
Dividends and distributions for payout ratios $ 29,513 $ 25,027
Reconciliation of FFO to FFO, as adjusted for
comparability
FFO $ 14,573 $ 38,156
Impairment loss 27,742 -
Operating property acquisition costs 23 19
FFO, as adjusted for comparability $ 42,338 $ 38,175
Reconciliation of diluted FFO to diluted FFO
available to common share and common unit holders,
as adjusted for comparability
Diluted FFO $ 9,498 $ 33,260
Impairment loss 27,742 -
Operating property acquisition costs 23 19
Diluted FFO available to common share and common $ 37,263 $ 33,279
unit holders, as adjusted for comparability
Reconciliation of GAAP net income to adjusted
earnings before interest, income taxes,
depreciation and amortization ("Adjusted EBITDA")
Net income $ (18,566 ) $ 10,675
Interest expense on continuing operations 26,928 22,638
Interest expense on discontinued operations - 65
Income tax (benefit) expense (544 ) 52
Real estate-related depreciation and amortization 33,020 27,603
Depreciation of furniture, fixtures and equipment 625 650
Impairment loss 27,742 -
Adjusted EBITDA $ 69,205 $ 61,683
Reconciliation of interest expense from continuing
operations to the denominators for interest
coverage-Adjusted EBITDA and fixed charge
coverage-Adjusted EBITDA
Interest expense from continuing operations $ 26,928 $ 22,638
Interest expense from discontinued operations - 65
Less: Amortization of deferred financing costs (1,759 ) (1,126 )
Less: Amortization of discount on Exchangeable (1,558 ) (782 )
Senior Notes, net of amounts capitalized
Denominator for interest coverage-Adjusted EBITDA 23,611 20,795
Preferred share dividends 4,025 4,025
Preferred unit distributions 165 165
Denominator for fixed charge coverage-Adjusted $ 27,801 $ 24,985
EBITDA
Reconciliation of same office property net
operating income to same office property cash net
operating income and same office property cash net
operating income, excluding gross lease
termination fees
Same office property net operating income $ 62,123 $ 64,935
Less: Straight-line rent adjustments (3,136 ) (2,293 )
Less: Amortization of deferred market rental (278 ) (605 )
revenue
Same office property cash net operating income $ 58,709 $ 62,037
Less: Lease termination fees, gross (157 ) (278 )
Same office property cash net operating income, $ 58,552 $ 61,759
excluding gross lease termination fees
Reconciliation of debt, net to denominator for
adjusted debt to Adjusted EBITDA ratio
Debt, net $ 2,396,795 $ 2,107,131
Less: Construction in progress (396,170 ) (317,283 )
Denominator for adjusted debt to Adjusted EBITDA $ 2,000,625 $ 1,789,848
ratio
First Quarter
2011
Top 20 Tenants
(Based on Annualized Rental Revenue of wholly owned office properties, dollars in
thousands)
Percentage Total Percentage Weighted
of
Total Total Annualized of Total Average
Number Occupied Occupied Rental Annualized Remaining
of Rental
Tenant Leases Square Square Revenue Revenue Lease
Feet Feet (2) Term (3)
United States (4) 77 3,165,508 18.0% $95,956 21.2% 5.9
of America
Northrop
Grumman (5) 16 1,204,210 6.9% 31,957 7.1% 6.5
Corporation
Booz Allen 9 806,288 4.6% 24,627 5.5% 4.9
Hamilton, Inc.
Computer
Sciences (5) 6 609,715 3.5% 18,539 4.1% 2.9
Corporation
ITT (5) 9 332,490 1.9% 8,162 1.8% 3.9
Corporation
The MITRE 4 267,087 1.5% 7,880 1.7% 5.6
Corporation
Wells Fargo & (5) 6 216,374 1.2% 7,780 1.7% 7.2
Company
The Aerospace 3 238,610 1.4% 7,631 1.7% 3.9
Corporation
L-3
Communications (5) 4 258,192 1.5% 7,521 1.7% 3.0
Holdings, Inc.
CareFirst, 2 222,610 1.3% 7,247 1.6% 5.5
Inc.
Integral (5) 4 241,627 1.4% 6,249 1.4% 8.9
Systems, Inc.
Comcast (5) 7 308,332 1.8% 6,156 1.4% 2.5
Corporation
The Boeing (5) 6 196,939 1.1% 5,974 1.3% 3.5
Company
AT&T (5) 4 317,570 1.8% 5,408 1.2% 7.7
Corporation
Ciena 5 270,557 1.5% 5,074 1.1% 2.0
Corporation
General
Dynamics (5) 6 208,264 1.2% 4,601 1.0% 2.4
Corporation
Raytheon 6 164,404 0.9% 4,402 1.0% 3.0
Company
Unisys 1 156,695 0.9% 4,143 0.9% 9.2
Corporation
The Johns
Hopkins (5) 5 141,403 0.8% 3,634 0.8% 5.6
Institutions
Merck & Co., 2 225,894 1.3% 2,949 0.7% 1.3
Inc.
Subtotal Top
20 Office 182 9,552,769 54.4% 265,890 58.8% 5.3
Tenants
All remaining 713 7,998,604 45.6% 185,971 41.2% 4.2
tenants
Total/Weighted 895 17,551,373 100.0% $451,861 100.0% 4.9
Average
Table excludes owner occupied leasing activity which represents 173,085
(1) square feet with total annualized rental revenue of $4.0 million, and a
weighted average remaining lease term of 4.9 years as of March 31, 2011.
Total Annualized Rental Revenue is the monthly contractual base rent as of
(2) March 31, 2011, multiplied by 12, plus the estimated annualized expense
reimbursements under existing office leases.
(3) The weighting of the lease term was computed using Total Rental Revenue.
Many of our government leases are subject to early termination provisions
(4) which are customary to government leases. The weighted average remaining
lease term was computed assuming no exercise of such early termination
rights.
(5) Includes affiliated organizations or agencies.
Source: Corporate Office Properties Trust (COPT)
Released April 28, 2011