Corporate Office Properties Trust Reports First Quarter 2010 Results
COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE: OFC) announced today financial and operating results for the quarter ended March 31, 2010.
Highlights
-- Net income attributable to common shareholders for the first quarter
2010 was $5.9 million or $.10 per diluted earnings per share ("Diluted
EPS") as compared to $12.1 million of net income available to common
shareholders or $.23 Diluted EPS for the first quarter 2009, a decrease
of 57% per share.
-- Funds from Operations ("FFO") per diluted share for the first quarter
2010 was $.53 as compared to $.67 for the first quarter 2009, a decrease
of 21%. The decrease was primarily attributable to a decrease in lease
termination fee revenue of approximately $3 million and higher net costs
for snow removal of approximately $3 million.
-- Diluted Adjusted Funds from Operations ("Diluted AFFO") available to
common share and common unit holders was $25.2 million for the first
quarter 2010 as compared to $33.4 million for the first quarter 2009, a
decrease of 24%.
-- 89.6% occupied and 90.2% leased for our wholly-owned portfolio as of
March 31, 2010.
-- Renewed 359,000 square feet.
-- 450,000 square feet of development space leased in the quarter.
-- 969,000 square feet of overall leasing.
"We indicated previously that 2010 would be a challenging year for the industry since the real estate sector lags the economy. Our first quarter results reflect those challenges with some pressure on occupancy and lease rates. Offsetting this pressure was strong leasing volume with 969,000 square feet of overall leasing and good progress on development leasing, signing over 450,000 square feet," stated Randall M. Griffin, President and Chief Executive Officer, Corporate Office Properties Trust.
Financial Ratios
Diluted FFO payout ratio for the three months ended March 31, 2010 was 75% as compared to 56% for the three months ended March 31, 2009. Diluted AFFO payout ratio for the three months ended March 31, 2010 was 99% as compared to 67% for the three months ended March 31, 2009.
As of March 31, 2010, the Company had a total market capitalization of $4.9 billion, with $2.1 billion in debt outstanding, equating to a 43% debt to total market capitalization ratio.
For the first quarter 2010, the Company's weighted average interest rate was 4.8% and at March 31, 2010, the Company had 73% of its total debt subject to fixed interest rates.
For the first quarter 2010, the Company's EBITDA to interest coverage ratio was 3.0x, and the EBITDA fixed charge coverage ratio was 2.5x.
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 March 31, 2010, the Company's wholly-owned portfolio of 248 office properties totaled 18.9 million square feet. The weighted average remaining lease term for the portfolio was 4.8 years and the average rental rate (including tenant reimbursements) was $24.64 per square foot.
For the quarter ended March 31, 2010, 359,000 square feet was renewed, at an average committed cost of $7.63 per square foot. Total rent on renewed space increased 2% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date and decreased 7% on a cash basis. For renewed and retenanted space of 454,000 square feet, total straight-line rent decreased 1% and total rent on a cash basis decreased 9%. The average committed cost for renewed and retenanted space was $8.96 per square foot.
For the quarter ended March 31, 2010, same office property cash NOI excluding gross lease termination fees decreased 4% for the quarter compared to the first quarter 2009. The Company's same office portfolio for the quarter represents 87% of the rentable square feet of its consolidated portfolio and consists of 232 properties.
Development Activity
At March 31, 2010, the Company had 3.1 million square feet under construction, development and redevelopment for a total projected cost of $619.5 million.
The Company's land inventory (wholly-owned and joint venture) at March 31, 2010 totaled 2,258 acres that can support 20.8 million square feet of development.
In March 2010, the Company completed the formation of LW Redstone Company, LLC, a joint venture created to develop Redstone Gateway, a 468 acre land parcel adjacent to Redstone Arsenal in Huntsville, Alabama. The land is owned by the U.S. Government and is under a long term master lease to the joint venture through the Enhanced Use Lease program. The joint venture will work closely with Redstone Arsenal to create a business park that will total approximately 4.6 million square feet of office and retail space when completed, including 4.4 million square feet of Class A office space. In addition, the business park will include hotel and other amenities. The Company will be the managing partner of the joint venture with a controlling interest and responsible for development, leasing and management of the office space at Redstone Gateway.
Subsequent Events
The Company executed the following transactions subsequent to quarter end:
-- On April 7, 2010, the Company issued $240 million aggregate principal
amount of 4.25% Exchangeable Senior Notes due 2030. The notes have an
exchange settlement feature that provides that the notes may, under
certain circumstances, be exchangeable for cash and our common shares at
an initial exchange rate (subject to adjustment) of 20.7658 shares for
$1,000 principal amount of the notes (equivalent to an exchange price of
$48.16 per common share, a 20% premium over the closing price on the
NYSE on the transaction pricing date). The Company used the proceeds for
general corporate purposes, including repayment of borrowings under its
unsecured revolving credit facility.
-- Increased the Company's revolving credit facility by $100 million, from
$600 million to $700 million in April 2010.
Conference Call
The Company will hold an investor/analyst conference call:
Conference Call (within the United States) Date: Thursday, April 29, 2010 Time: 11:00 a.m. Eastern Time Telephone Number: 888-679-8034 Passcode: 46054719 Conference Call (outside the United States) Date: Thursday, April 29, 2010 Time: 11:00 a.m. Eastern Time Telephone Number: 617-213-4847 Passcode: 46054719
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=P9AH3ECQC
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 29 at 2:00 p.m. Eastern Time through Thursday, May 13 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 22745357. To access the replay outside the United States, please call 617-801-6888 and use passcode 22745357.
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 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 properties which are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in growth corridors. As of March 31, 2010, the Company owned 268 office and data properties totaling 20 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;
-- 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
March 31,
2010 2009
Revenues
Real estate revenues $ 112,228 $ 106,108
Construction contract and other service revenues 37,365 74,889
Total revenues 149,593 180,997
Expenses
Property operating expenses 48,135 38,964
Depreciation and other amortization associated with 27,596 26,277
real estate operations
Construction contract and other service expenses 36,399 73,323
General and administrative expenses 5,900 5,543
Business development expenses 155 646
Total operating expenses 118,185 144,753
Operating income 31,408 36,244
Interest expense (22,638 ) (19,363 )
Interest and other income 1,302 1,078
Income from continuing operations before equity in
loss of unconsolidated
entities and income taxes 10,072 17,959
Equity in loss of unconsolidated entities (205 ) (115 )
Income tax expense (41 ) (70 )
Income from continuing operations 9,826 17,774
Discontinued operations 832 392
Income before gain on sales of real estate 10,658 18,166
Gain on sales of real estate, net of income taxes 17 -
Net income 10,675 18,166
Less net income attributable to noncontrolling
interests
Common units in the Operating Partnership (527 ) (1,804 )
Preferred units in the Operating Partnership (165 ) (165 )
Other (45 ) (50 )
Net income attributable to COPT 9,938 16,147
Preferred share dividends (4,025 ) (4,025 )
Net income attributable to COPT common shareholders $ 5,913 $ 12,122
Earnings per share "EPS" computation:
Numerator for diluted EPS:
Net income available to common shareholders $ 5,913 $ 12,122
Amount allocable to restricted shares (290 ) (268 )
Numerator for diluted EPS 5,623 11,854
Denominator:
Weighted average common shares - basic 57,844 51,930
Dilutive effect of share-based compensation awards 364 498
Weighted average common shares - diluted 58,208 52,428
Diluted EPS $ 0.10 $ 0.23
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data and ratios)
Three Months Ended
March 31,
2010 2009
Net income $ 10,675 $ 18,166
Add: Real estate-related depreciation and amortization 27,603 26,491
Add: Depreciation and amortization on unconsolidated 175 160
real estate entities
Less: Gain on sales of operating properties, net of (297 ) -
income taxes
Funds from operations ("FFO") 38,156 44,817
Less: Noncontrolling interests - preferred units in the (165 ) (165 )
Operating Partnership
Less: Noncontrolling interests - other consolidated (45 ) (50 )
entities
Less: Preferred share dividends (4,025 ) (4,025 )
Less: Depreciation and amortization allocable to
noncontrolling interests in other
consolidated entities (282 ) (53 )
Less: Basic and diluted FFO allocable to restricted (379 ) (453 )
shares
Basic and diluted FFO available to common share and 33,260 40,071
common unit holders ("Basic and diluted FFO")
Less: Straight-line rent adjustments (2,346 ) (1,140 )
Less: Amortization of acquisition intangibles included (270 ) (380 )
in FFO
Less: Recurring capital expenditures (6,211 ) (5,883 )
Add: Amortization of discount on Exchangeable Senior 782 698
Notes, net of amounts capitalized
Diluted adjusted funds from operations available to $ 25,215 $ 33,366
common share and common unit holders ("Diluted AFFO")
Weighted average shares
Weighted average common shares 57,844 51,930
Conversion of weighted average common units 5,017 7,253
Weighted average common shares/units - basic FFO per 62,861 59,183
share
Dilutive effect of share-based compensation awards 364 498
Weighted average common shares/units - diluted FFO per 63,225 59,681
share
Diluted FFO per share $ 0.53 $ 0.67
Dividends/distributions per common share/unit $ 0.3925 $ 0.3725
Diluted FFO payout ratio 75.2 % 55.8 %
Diluted AFFO payout ratio 99.3 % 67.0 %
EBITDA interest coverage ratio 2.97x 3.65x
EBITDA fixed charge coverage ratio 2.47x 2.95x
Reconciliation of denominators for diluted EPS and
diluted FFO per share
Denominator for diluted EPS 58,208 52,428
Weighted average common units 5,017 7,253
Denominator for diluted FFO per share 63,225 59,681
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
March 31, December 31,
2010 2009
Balance Sheet Data (in thousands) (as of period
end)
Properties, net of accumulated depreciation $ 3,064,962 $ 3,029,900
Total assets 3,398,352 3,380,022
Debt 2,107,131 2,053,841
Total liabilities 2,287,813 2,259,390
Beneficiaries' equity 1,110,539 1,120,632
Debt to total assets 62.0 % 60.8 %
Debt to undepreciated book value of real estate 58.5 % 57.8 %
assets
Debt to total market capitalization 43.1 % 44.6 %
Property Data (wholly owned properties)
(as of period end)
Number of operating properties owned 248 249
Total net rentable square feet owned (in 18,918 19,101
thousands)
Occupancy 89.6 % 90.7 %
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 $ 3,398,352 $ 3,380,022
Assets other than assets included in properties, (333,390 ) (350,122 )
net
Accumulated depreciation on real estate assets 443,246 422,612
Intangible assets on real estate acquisitions, net 94,925 100,671
Denominator for debt to undepreciated book value $ 3,603,133 $ 3,553,183
of real estate assets
Three Months Ended
March 31,
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 $ 4,071 $ 4,225
operating properties
Total capital improvements on operating properties 870 1,513
Total leasing costs on operating properties 1,338 1,626
Less: Nonrecurring tenant improvements and (77 ) (41 )
incentives on operating properties
Less: Nonrecurring capital improvements on (60 ) (588 )
operating properties
Less: Nonrecurring leasing costs incurred on 54 (900 )
operating properties
Add: Recurring capital expenditures on operating 15 48
properties held through joint ventures
Recurring capital expenditures $ 6,211 $ 5,883
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
2010 2009
Reconciliation of dividends for earnings payout ratio to
dividends and distributions for FFO & AFFO payout ratio
Common share dividends for earnings payout ratio $ 23,160 $ 20,264
Common unit distributions 1,867 2,085
Dividends and distributions for FFO & AFFO payout ratio $ 25,027 $ 22,349
Reconciliation of GAAP net income to earnings before
interest,
income taxes, depreciation and amortization ("EBITDA")
Net income $ 10,675 $ 18,166
Interest expense on continuing operations 22,638 19,363
Interest expense on discontinued operations 65 61
Income tax expense 52 70
Real estate-related depreciation and amortization 27,603 26,491
Depreciation of furniture, fixtures and equipment 650 539
EBITDA $ 61,683 $ 64,690
Reconciliation of interest expense from continuing
operations
to the denominators for interest coverage-EBITDA
and fixed charge coverage-EBITDA
Interest expense from continuing operations $ 22,638 $ 19,363
Interest expense from discontinued operations 65 61
Less: Amortization of deferred financing costs (1,126 ) (1,024 )
Less: Amortization of discount on Exchangeable Senior (782 ) (698 )
Notes, net of amounts capitalized
Denominator for interest coverage-EBITDA 20,795 17,702
Preferred share dividends 4,025 4,025
Preferred unit distributions 165 165
Denominator for fixed charge coverage-EBITDA $ 24,985 $ 21,892
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 operating income $ 58,785 $ 63,942
Less: Straight-line rent adjustments (1,367 ) (1,191 )
Less: Amortization of deferred market rental revenue (520 ) (287 )
Same office property cash net operating income $ 56,898 $ 62,464
Less: Lease termination fees, gross (278 ) (3,660 )
Same office property cash net operating income,
excluding
gross lease termination fees $ 56,620 $ 58,804
Top Twenty Office Tenants of Wholly Owned Properties as of March 31, 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) 69 2,673,290 15.8% 82,486 19.8% 5.7
of America
Northrop
Grumman (6) 17 1,302,589 7.7% 33,329 8.0% 6.8
Corporation
Booz Allen 7 721,564 4.3% 21,352 5.1% 5.3
Hamilton, Inc.
Computer
Sciences (6) 3 454,986 2.7% 12,384 3.0% 3.4
Corporation
General
Dynamics (6) 9 294,982 1.7% 8,200 2.0% 0.8
Corporation
Wells Fargo & (6) 6 215,673 1.3% 7,719 1.8% 8.2
Company
The Aerospace (6) 3 247,253 1.5% 7,702 1.8% 4.8
Corporation
L-3
Communications (6) 4 256,120 1.5% 7,324 1.8% 4.0
Holdings, Inc.
ITT (6) 8 305,689 1.8% 7,317 1.8% 4.6
Corporation
CareFirst, 2 211,972 1.3% 7,229 1.7% 6.5
Inc.
Integral (6) 4 241,610 1.4% 5,985 1.4% 9.9
Systems, Inc.
Comcast (6) 7 306,123 1.8% 5,934 1.4% 3.5
Corporation
AT&T (6) 7 346,292 2.0% 5,590 1.3% 8.6
Corporation
Ciena 5 263,724 1.6% 4,832 1.2% 3.0
Corporation
The Boeing (6) 4 150,768 0.9% 4,750 1.1% 3.5
Company
Unisys 2 258,498 1.5% 4,607 1.1% 9.5
Corporation
The Johns
Hopkins (6) 5 139,295 0.8% 3,506 0.8% 6.6
Institutions
BAE Systems (6) 6 186,605 1.1% 2,995 0.7% 2.8
PLC
Merck & Co., (6) 2 225,900 1.3% 2,777 0.7% 2.3
Inc.
Magellan
Health 2 118,801 0.7% 2,691 0.6% 1.3
Services, Inc.
Subtotal Top
20 Office 172 8,921,734 52.6% 238,710 57.2% 5.5
Tenants
All remaining 717 8,025,224 47.4% 178,898 42.8% 3.8
tenants
Total/Weighted 889 16,946,958 100.0% $417,608 100.0% 4.8
Average
Table excludes owner occupied leasing activity which represents 164,313
(1) square feet with total annualized rental revenue of $3,905 and a weighted
average remaining lease term of 5.3 years as of March 31, 2010.
Total Annualized Rental Revenue is the monthly contractual base rent as of
(2) March 31, 2010, multiplied by 12, plus the estimated annualized expense
reimbursements under existing office leases.
(3) Order of tenants is based on Annualized Rent.
(4) The weighting of the lease term was computed using Total Rental Revenue.
(5) Many of our government leases are subject to early termination provisions
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
Released April 28, 2010