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.
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.
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.
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
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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.
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.
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.
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