Corporate Office Properties Trust Reports Third Quarter 2010 Results
COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE: OFC) announced today financial and operating results for the quarter ended September 30, 2010.
Highlights
-- Funds from Operations ("FFO") per diluted share for the third quarter
2010, excluding the effect of operating property acquisition costs, was
$.58 as compared to $.60 for the third quarter 2009, a decrease of 3%.
Including these costs, FFO per diluted share for the third quarter 2010
was $.54. This decline was primarily a result of a $5.6 million increase
in interest expense. Net Operating Income ("NOI") increased primarily
due to development placed in service and acquisitions.
-- Net income attributable to common shareholders for the third quarter
2010 was $4.8 million or $.08 of diluted earnings per share ("Diluted
EPS") as compared to $10.4 million of net income available to common
shareholders or $.18 Diluted EPS for the third quarter 2009, a decrease
of 56% per share.
-- Diluted Adjusted Funds from Operations ("Diluted AFFO") available to
common share and common unit holders was $29.5 million for the third
quarter 2010 as compared to $27.8 million for the third quarter 2009, an
increase of 6%.
-- 87.4% occupied and 88.7% leased for our wholly-owned portfolio as of
September 30, 2010.
-- 3% increase in same office property cash NOI excluding gross lease
termination fees for the quarter ended September 30, 2010 as compared to
the quarter ended September 30, 2009.
-- 428,000 square feet renewed for a 54% renewal rate for the quarter ended
September 30, 2010.
-- 253,000 square feet of development space leased in the third quarter
2010 and 798,000 square feet of development space leased during the nine
months ended September 30, 2010.
-- 5.1% increase in quarterly common dividend from $.3925 to $.4125 per
share.
"During the third quarter, we achieved significant progress in positioning the Company for future growth with a Super Core acquisition in a Washington, DC submarket and the establishment of a wholesale data center growth platform through the acquisition of Power Loft @ Innovation," stated Randall M. Griffin, Chief Executive Officer, Corporate Office Properties Trust. "Despite the lingering effects of a recession that continues to pressure NOI, we were able to demonstrate steady development leasing and strong leasing on our overall portfolio," he added.
Financial Ratios
Diluted FFO payout ratio for the nine months ended September 30, 2010, excluding the effect of operating property acquisition costs, was 73% as compared to 59% for the nine months ended September 30, 2009. Diluted AFFO payout ratio for the nine months ended September 30, 2010 was 93% as compared to 73% for the nine months ended September 30, 2009.
As of September 30, 2010, the Company had a total market capitalization of $5.1 billion, with $2.5 billion in debt outstanding, equating to a 49% debt to total market capitalization ratio.
For the third quarter 2010, the Company's weighted average interest rate was 5.1% compared to 4.9% for the third quarter 2009. At September 30, 2010, the Company had 72% of its total debt subject to fixed interest rates.
For the third quarter 2010, the Company's EBITDA to interest coverage ratio was 2.8x, and the EBITDA fixed charge coverage ratio was 2.4x.
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.
Operating Results
At September 30, 2010, the Company's wholly-owned portfolio of 249 office properties totaled 19.9 million square feet. The weighted average remaining lease term for the portfolio was 4.7 years and the average rental rate (including tenant reimbursements) was $25.48 per square foot.
For the quarter ended September 30, 2010, 428,000 square feet was renewed, at an average committed cost of $3.62 per square foot. Total rent on renewed space decreased 1% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date, and decreased 9% on a cash basis. For renewed and retenanted space of 524,000 square feet, total straight-line rent decreased 2% and total rent on a cash basis decreased 10%. The average committed cost for renewed and retenanted space was $7.92 per square foot.
Development Activity
At September 30, 2010, the Company had 2.8 million square feet under construction, development and redevelopment for a total projected cost of $591.1 million.
The Company's land inventory (wholly-owned and joint venture) at September 30, 2010 totaled 2,314 acres that can support up to 21.9 million square feet of estimated development.
During the quarter, the Company placed into service 493,000 square feet located in five properties.
Acquisition Activity
The Company completed the following acquisitions during the quarter:
-- Acquired a 233,000 square foot wholesale data center known as Power Loft
@ Innovation in Manassas, Virginia for $115.5 million. The shell of the
data center was completed in early 2010 and the property was 17% leased,
long term, on the acquisition date to two tenants who have a combined
initial critical load of 3 megawatts and further expansion rights of up
to a combined 5 megawatts. The Company will complete the remaining
development with an initial stabilization at 18 megawatts with
additional development costs estimated at $166 million. Full critical
load of the property is expected to be up to 30 megawatts.
-- Acquired 362,000 square feet in two Class A office buildings known as
Maritime Plaza I and II in the Capitol Riverfront submarket of
Washington, DC for approximately $119 million. In connection with the
acquisition, we assumed a $70.1 million mortgage loan with a fixed
interest rate of 5.35% that matures in March 2014. The buildings are
subject to ground leases that expire August 2099 and November 2100. The
buildings are 100% leased with over 50% of the space leased to
investment grade tenants, of which most are Super Core tenants, such as
Computer Sciences Corporation, General Dynamics and SAIC.
Disposition Activity
During the quarter, the Company sold two properties in Dayton, New Jersey totaling 201,000 square feet for $20.9 million and recognized a gain of $784,000. The Company also sold a contiguous land parcel for $3 million and recognized a gain of $2.5 million.
Earnings Guidance
The Company will discuss its updated 2010 diluted FFO per share guidance and its initial 2011 diluted FFO per share guidance on its earnings conference call.
Conference Call
The Company will hold an investor/analyst conference call:
Conference Call (within the United States) Date: Thursday, October 28, 2010 Time: 11:00 a.m. Eastern Time Telephone Number: 888-679-8018 Passcode: 55526047 Conference Call (outside the United States) Date: Thursday, October 28, 2010 Time: 11:00 a.m. Eastern Time Telephone Number: 617-213-4845 Passcode: 55526047
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=P4J9NCBW8
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, October 28 at 3:00 p.m. Eastern Time through Thursday, November 11 at midnight Eastern Time. To access the replay within in the United States, please call 888-286-8010 and use passcode 90157200. To access the replay outside the United States, please call 617-801-6888 and use passcode 90157200.
The conference calls 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
Please refer to 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 on strategic customer relationships and specialized tenant requirements in the U.S. Government, Defense Information Technology and Data sectors. The Company acquires, develops, manages and leases office and data center properties which are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in growth corridors. As of September 30, 2010, the Company owned 269 office properties totaling 21.0 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", "expect", "estimate" 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:
-- the Company's ability to borrow on favorable terms;
-- 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;
-- risk of real estate acquisition and development, 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 for properties or our views of market economic
conditions that 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, 2009.
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Revenues
Real estate revenues $ 114,550 $ 104,132 $ 336,035 $ 315,247
Construction contract and 13,608 95,321 77,038 273,534
other service revenues
Total revenues 128,158 199,453 413,073 588,781
Expenses
Property operating expenses 44,260 38,523 132,400 114,587
Depreciation and
amortization associated with 30,745 26,498 87,889 81,268
real estate operations
Construction contract and 13,347 93,805 75,148 268,289
other service expenses
General and administrative 6,079 5,898 17,905 17,275
expenses
Business development 2,886 458 3,506 1,550
expenses
Total operating expenses 97,317 165,182 316,848 482,969
Operating income 30,841 34,271 96,225 105,812
Interest expense (26,537 ) (20,931 ) (74,987 ) (58,914 )
Interest and other income 395 2,619 1,942 4,949
Income from continuing
operations before equity in
income (loss) of 4,699 15,959 23,180 51,847
unconsolidated entities and
income taxes
Equity in income (loss) of 648 (758 ) 371 (1,075 )
unconsolidated entities
Income tax expense (27 ) (47 ) (75 ) (169 )
Income from continuing 5,320 15,154 23,476 50,603
operations
Discontinued operations 1,129 382 2,447 1,150
Income before gain on sales 6,449 15,536 25,923 51,753
of real estate
Gain on sales of real 2,477 - 2,829 -
estate, net of income taxes
Net income 8,926 15,536 28,752 51,753
Less net income attributable
to noncontrolling interests
Common units in the (363 ) (956 ) (1,254 ) (4,032 )
Operating Partnership
Preferred units in the (165 ) (165 ) (495 ) (495 )
Operating Partnership
Other consolidated entities 434 40 233 15
Net income attributable to 8,832 14,455 27,236 47,241
COPT
Preferred share dividends (4,025 ) (4,025 ) (12,076 ) (12,076 )
Net income attributable to $ 4,807 $ 10,430 $ 15,160 $ 35,165
COPT common shareholders
Earnings per share "EPS"
computation:
Numerator for diluted EPS:
Net income attributable to $ 4,807 $ 10,430 $ 15,160 $ 35,165
common shareholders
Amount allocable to (267 ) (253 ) (807 ) (763 )
restricted shares
Numerator for diluted EPS 4,540 10,177 14,353 34,402
Denominator:
Weighted average common 58,656 57,470 58,333 55,366
shares - basic
Dilutive effect of
share-based compensation 296 485 367 506
awards
Weighted average common 58,952 57,955 58,700 55,872
shares - diluted
Diluted EPS $ 0.08 $ 0.18 $ 0.24 $ 0.62
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data and ratios)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Net income $ 8,926 $ 15,536 $ 28,752 $ 51,753
Add: Real estate-related 30,745 26,712 87,896 81,911
depreciation and amortization
Add: Depreciation and
amortization on 166 160 512 481
unconsolidated real estate
entities
Less: Gain on sales of
operating properties, net of (784 ) - (1,081 ) -
income taxes
Funds from operations ("FFO") 39,053 42,408 116,079 134,145
Less: Noncontrolling
interests - preferred units (165 ) (165 ) (495 ) (495 )
in the Operating Partnership
Less: Noncontrolling
interests - other 434 40 233 15
consolidated entities
Less: Preferred share (4,025 ) (4,025 ) (12,076 ) (12,076 )
dividends
Less: Depreciation and
amortization allocable to (666 ) (91 ) (1,245 ) (251 )
noncontrolling interests in
other consolidated entities
Less: Basic and diluted FFO
allocable to restricted (353 ) (395 ) (1,078 ) (1,298 )
shares
Basic and diluted FFO
available to common share and 34,278 37,772 101,418 120,040
common unit holders ("Basic
and diluted FFO")
Less: Straight-line rent 1,267 (2,665 ) (2,552 ) (5,523 )
adjustments
Less: Amortization of
acquisition intangibles (96 ) (451 ) (460 ) (1,447 )
included in net operating
income
Less: Recurring capital (10,156 ) (7,572 ) (23,447 ) (17,838 )
expenditures
Add: Amortization of discount
on Exchangeable Senior Notes, 1,541 762 3,811 2,183
net of amounts capitalized
Operating property 2,664 - 2,954 -
acquisition costs
Diluted adjusted funds from
operations available to $ 29,498 $ 27,846 $ 81,724 $ 97,415
common share and common unit
holders ("Diluted AFFO")
Weighted average shares
Weighted average common 58,656 57,470 58,333 55,366
shares
Conversion of weighted 4,453 5,084 4,674 5,932
average common units
Weighted average common
shares/units - basic FFO per 63,109 62,554 63,007 61,298
share
Dilutive effect of
share-based compensation 296 485 367 506
awards
Weighted average common
shares/units - diluted FFO 63,405 63,039 63,374 61,804
per share
Diluted FFO per share $ 0.54 $ 0.60 $ 1.60 $ 1.94
Diluted FFO per share,
excluding operating property $ 0.58 $ 0.60 $ 1.65 $ 1.94
acquisition costs
Dividends/distributions per $ 0.4125 $ 0.3925 $ 1.1975 $ 1.1375
common share/unit
Diluted FFO payout ratio,
excluding operating property 71.3 % 65.8 % 73.2 % 58.9 %
acquisition costs
Diluted AFFO payout ratio 89.3 % 89.2 % 93.4 % 72.6 %
EBITDA interest coverage 2.85 x 3.33 x 2.88 x 3.62 x
ratio
EBITDA fixed charge coverage 2.42 x 2.74 x 2.43 x 2.93 x
ratio
Reconciliation of
denominators for diluted EPS
and diluted FFO per share
Denominator for diluted EPS 58,952 57,955 58,700 55,872
Weighted average common units 4,453 5,084 4,674 5,932
Denominator for diluted FFO 63,405 63,039 63,374 61,804
per share
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
September 30, December 31,
2010 2009
Balance Sheet Data (in
thousands) (as of period
end)
Properties, net of $ 3,349,150 $ 3,029,900
accumulated depreciation
Total assets 3,737,372 3,380,022
Debt 2,468,419 2,053,841
Total liabilities 2,647,644 2,259,390
Beneficiaries' equity 1,089,728 1,120,632
Debt to total assets 66.0 % 60.8 %
Debt to undepreciated book
value of real estate 62.5 % 57.8 %
assets
Debt to total market 48.6 % 44.6 %
capitalization
Property Data (wholly
owned office properties)
(as of period end)
Number of operating 249 245
properties owned
Total net rentable square 19,929 19,086
feet owned (in thousands)
Occupancy 87.4 % 90.8 %
Reconciliation of
denominator for debt to
total assets to
denominator for debt to
undepreciated book value
of real estate assets
Denominator for debt to $ 3,737,372 $ 3,380,022
total assets
Assets other than assets
included in properties, (388,222 ) (350,122 )
net
Accumulated depreciation 479,218 422,612
on real estate assets
Intangible assets on real 123,307 100,671
estate acquisitions, net
Denominator for debt to
undepreciated book value $ 3,951,675 $ 3,553,183
of real estate assets
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Reconciliation of tenant
improvements and
incentives, capital
improvements and leasing
costs for operating
properties to recurring
capital expenditures
Total tenant improvements
and incentives on $ 7,789 $ 3,553 $ 16,490 $ 11,572
operating properties
Total capital improvements 1,717 2,927 3,835 6,795
on operating properties
Total leasing costs on 2,004 1,855 4,692 4,431
operating properties
Less: Nonrecurring tenant
improvements and (1,067 ) (711 ) (1,280 ) (2,780 )
incentives on operating
properties
Less: Nonrecurring capital
improvements on operating (171 ) (58 ) (248 ) (1,340 )
properties
Less: Nonrecurring leasing
costs incurred on (120 ) - (69 ) (916 )
operating properties
Add: Recurring capital
expenditures on operating 4 6 27 76
properties held through
joint ventures
Recurring capital $ 10,156 $ 7,572 $ 23,447 $ 17,838
expenditures
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
Reconciliation of common share
dividends to dividends and
distributions for payout
ratios
Common share dividends $ 24,494 $ 22,851 $ 70,913 $ 64,712
Common unit distributions 1,834 1,995 5,450 5,974
Dividends and distributions $ 26,328 $ 24,846 $ 76,363 $ 70,686
for payout ratios
Reconciliation of diluted FFO
to diluted FFO available to
common share and common unit
holders, excluding operating
property acquisition costs
Diluted FFO $ 34,278 $ 37,772 $ 101,418 $ 120,040
Operating property acquisition 2,664 - 2,954 -
costs
Diluted FFO available to
common share and common unit $ 36,942 $ 37,772 $ 104,372 $ 120,040
holders, excluding operating
property acquisition costs
Reconciliation of GAAP net
income to earnings before
interest, income taxes,
depreciation and amortization
("EBITDA")
Net income $ 8,926 $ 15,536 $ 28,752 $ 51,753
Interest expense on continuing 26,537 20,931 74,987 58,914
operations
Interest expense on 89 55 263 174
discontinued operations
Income tax expense 27 47 86 169
Real estate-related 30,745 26,712 87,896 81,911
depreciation and amortization
Depreciation of furniture, 652 637 1,934 1,749
fixtures and equipment
EBITDA $ 66,976 $ 63,918 $ 193,918 $ 194,670
Reconciliation of interest
expense from continuing
operations to the denominators
for interest coverage-EBITDA
and fixed charge
coverage-EBITDA
Interest expense from $ 26,537 $ 20,931 $ 74,987 $ 58,914
continuing operations
Interest expense from 89 55 263 174
discontinued operations
Less: Amortization of deferred (1,554 ) (1,056 ) (4,175 ) (3,089 )
financing costs
Less: Amortization of discount
on Exchangeable Senior Notes, (1,541 ) (762 ) (3,811 ) (2,183 )
net of amounts capitalized
Denominator for interest 23,531 19,168 67,264 53,816
coverage-EBITDA
Preferred share dividends 4,025 4,025 12,076 12,076
Preferred unit distributions 165 165 495 495
Denominator for fixed charge $ 27,721 $ 23,358 $ 79,835 $ 66,387
coverage-EBITDA
Reconciliation of same
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 $ 61,282 $ 63,921 $ 185,370 $ 194,454
operating income
Less: Straight-line rent 2,651 (1,205 ) 296 (3,945 )
adjustments
Less: Amortization of deferred (422 ) (428 ) (1,484 ) (1,360 )
market rental revenue
Same office property cash net $ 63,511 $ 62,288 $ 184,182 $ 189,149
operating income
Less: Lease termination fees, (209 ) (966 ) (1,573 ) (5,184 )
gross
Same office property cash net
operating income, excluding $ 63,302 $ 61,322 $ 182,609 $ 183,965
gross lease termination fees
Top Twenty Tenants of Wholly Owned Office Properties as of September 30, 2010 (1)
(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) (3) Term (4)
United States (5) 75 3,125,009 17.9% 91,503 20.6% 5.9
of America
Northrop
Grumman (6) 16 1,229,313 7.1% 31,735 7.2% 6.6
Corporation
Booz Allen 8 726,070 4.2% 21,246 4.8% 4.8
Hamilton, Inc.
Computer
Sciences (6) 6 612,024 3.5% 18,733 4.2% 3.1
Corporation
The MITRE 4 261,474 1.5% 8,366 1.9% 4.6
Corporation
ITT (6) 9 333,169 1.9% 7,960 1.8% 4.2
Corporation
The Aerospace (6) 3 247,253 1.4% 7,728 1.7% 4.4
Corporation
Wells Fargo & (6) 6 215,673 1.2% 7,479 1.7% 7.6
Company
L-3
Communications (6) 4 256,120 1.5% 7,344 1.7% 3.5
Holdings, Inc.
CareFirst, 2 221,893 1.3% 7,229 1.6% 6.0
Inc.
Integral (6) 4 241,627 1.4% 6,205 1.4% 9.4
Systems, Inc.
Comcast (6) 7 306,123 1.8% 6,100 1.4% 3.0
Corporation
AT&T (6) 5 321,063 1.8% 5,490 1.2% 8.1
Corporation
The Boeing (6) 4 161,591 0.9% 5,027 1.1% 3.1
Company
Ciena 5 263,724 1.5% 4,956 1.1% 2.5
Corporation
General
Dynamics (6) 5 175,716 1.0% 4,859 1.1% 0.6
Corporation
Unisys 1 156,695 0.9% 4,143 0.9% 9.7
Corporation
The Johns
Hopkins (6) 5 139,295 0.8% 3,507 0.8% 6.1
Institutions
Merck & Co., (6) 2 225,900 1.3% 2,945 0.7% 1.8
Inc.
Magellan
Health (6) 2 118,801 0.7% 2,755 0.6% 0.8
Services, Inc.
Subtotal Top
20 Office 173 9,338,533 53.6% 255,310 57.5% 5.4
Tenants
All remaining 706 8,074,097 46.4% 188,337 42.5% 3.8
tenants
Total/Weighted 879 17,412,630 100.0% $443,647 100.0% 4.7
Average
Table excludes owner occupied leasing activity which represents 170,999
(1) square feet with total annualized rental revenue of $4,039 and a weighted
average remaining lease term of 5.1 years as of September 30, 2010.
Total Annualized Rental Revenue is the monthly contractual base rent as of
(2) September 30, 2010, multiplied by 12, plus the estimated annualized expense
reimbursements under existing office leases.
(3) Order of tenants is based on Total Annualized Rental Revenue.
(4) The weighting of the lease term was computed using Total Rental Revenue.
Many of our government leases are subject to early termination provisions
(5) which are customary to government leases. The weighted average remaining
lease term was computed assuming no exercise of such early termination
rights.
(6) Includes affiliated organizations or agencies.
Source: Corporate Office Properties Trust (COPT)
Released October 27, 2010