Corporate Office Properties Trust Reports Third Quarter 2009 Results
COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE:OFC) announced today financial and operating results for the quarter and nine months ended September 30, 2009.
Highlights
-- 6% increase in diluted earnings per share ("Diluted EPS") to $.18 or
$10.4 million of net income available to common shareholders for the
third quarter 2009 as compared to $.17 per diluted share or $8.2 million
of net income available to common shareholders for the third quarter
2008. Year to date, diluted EPS increased 32% to $.62 or $35.2 million
of net income available to common shareholders as compared to $.47 per
diluted share or $23.0 million of net income available to common
shareholders for the first nine months of 2008.
-- 3% decrease in diluted Funds from Operations ("FFO") per share to $.60
for the third quarter 2009 from $.62 for the third quarter 2008. FFO
increased 7% to $42.4 million for the third quarter 2009 from $39.5
million for the third quarter 2008. Year to date, diluted FFO per share
increased 10% to $1.94 or $134.1 million from $1.77 or $113.2 million
for the first nine months of 2008.
-- 9% increase in diluted Adjusted Funds from Operations available to
common share and common unit holders ("Diluted AFFO") to $27.8 million
for the third quarter 2009 as compared to $25.5 million for the third
quarter 2008. Year to date, diluted AFFO increased 31% to $97.4 million
from $74.5 million for the first nine months of 2008.
-- 91% occupied and leased for our wholly-owned portfolio as of September
30, 2009.
-- 68% renewal rate on expiring leases for third quarter 2009, with a 4%
decrease in total straight-line rents for renewed space.
-- 5% increase in same office property cash NOI for the quarter compared to
the third quarter 2008. The Company's same office portfolio for the
quarter ended September 30, 2009 represents 91% of the rentable square
feet of its consolidated portfolio and consists of 230 properties.
-- 761,000 square feet leased in the quarter and approximately 1.9 million
square feet leased year to date.
"The Company continues to perform well despite an increasingly difficult real estate environment. We increased our cash dividend during the quarter by 5.4%, one of the few REITs to do so this year," stated Randall M. Griffin, President and Chief Executive Officer, Corporate Office Properties Trust. "We had an active leasing quarter. Our focused expense control efforts helped produce strong same office performance," he added.
Financial Ratios
Diluted FFO payout ratio for the nine months ended September 30, 2009 was 59% as compared to 60% for the nine months ended September 30, 2008. Diluted AFFO payout ratio for the nine months ended September 30, 2009 was 73% as compared to 81% for the nine months ended September 30, 2008.
As of September 30, 2009, the Company had a total market capitalization of $4.5 billion, with $1.9 billion in debt outstanding, equating to a 43% debt to total market capitalization ratio.
For the third quarter 2009, the Company's weighted average interest rate was 4.9% and at September 30, 2009, the Company had 85% of its total debt subject to fixed interest rates.
For the third quarter 2009, the Company's EBITDA to interest coverage ratio was 3.2x, and the EBITDA fixed charge coverage ratio was 2.6x.
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, 2009, the Company's wholly-owned portfolio of 246 office properties totaled 18.4 million square feet. The weighted average remaining lease term for the portfolio was 4.5 years and the average rental rate (including tenant reimbursements) was $24.04 per square foot.
For the quarter ended September 30, 2009, 529,000 square feet was renewed equating to a 68% renewal rate, at an average committed cost of $5.04 per square foot. Total rent on renewed space decreased 4% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date and decreased 8% on a cash basis. For renewed and retenanted space of 670,000 square feet, total straight-line rent decreased 6% and total rent on a cash basis decreased 12%. The average committed cost for renewed and retenanted space was $6.09 per square foot.
For the nine months ended September 30, 2009, 1.4 million square feet was renewed equating to a 72% renewal rate, at an average committed cost of $6.14 per square foot.
Development Activity
At September 30, 2009, the Company had 2.4 million square feet under construction, development and redevelopment for a total projected cost of $478.3 million.
The Company's land inventory (wholly-owned and joint venture) at September 30, 2009 totaled 1,821 acres that can support 16.1 million square feet of development.
During the quarter, the Company placed into service 338,000 square feet located in six properties.
Financing and Capital Transactions
The Company closed the following transactions during the quarter:
-- A $90.0 million secured loan with a five-year term that carries interest
at 7.25%.
-- A $185.0 million secured loan with a seven-year term that carries
interest at 7.25%.
Subsequent Events
The Company executed the following transactions subsequent to quarter end:
-- Acquired a newly-constructed, 156,000 square foot property that is 100%
leased, long-term to Northrop Grumman Corporation and a 0.9 acre
adjacent land parcel located in Linthicum, Maryland.
-- Acquired a 474,000 square foot office tower, parking lot, utility
distribution center, four waterfront lots and riparian rights, all part
of the Canton Crossing planned unit development in Baltimore, Maryland.
The waterfront lots are approved for 500,000 square feet of office,
150,000 square feet of retail, a 450 room hotel and a marina. The office
tower is 91% leased with CareFirst as the largest tenant at 34%.
Earnings Guidance
The Company will discuss its updated 2009 diluted FFO per share guidance and its initial 2010 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 29, 2009 Time: 11:00 a.m. Eastern Time Telephone Number: 888-679-8018 Passcode: 90330872 Conference Call (outside the United States) Date: Thursday, October 29, 2009 Time: 11:00 a.m. Eastern Time Telephone Number: 617-213-4845 Passcode: 90330872
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=P86DV6HWU
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 29 at 3:00 p.m. Eastern Time through Thursday, November 12 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 18266981. To access the replay outside the United States, please call 617-801-6888 and use passcode 18266981.
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 September 30, 2009, the Company owned 265 office and data properties totaling 19.4 million rentable square feet, which includes 19 properties totaling 989,000 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", "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, 2008.
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,
2009 2008 2009 2008
Revenues
Real estate revenues $ 104,843 $ 101,086 $ 317,405 $ 296,034
Service operations revenues 95,321 90,002 273,534 123,040
Total revenues 200,164 191,088 590,939 419,074
Expenses
Property operating expenses 38,583 35,854 114,778 104,353
Depreciation and other
amortization associated with 26,712 25,583 81,911 75,430
real estate operations
Service operations expenses 93,805 87,657 268,289 120,090
General and administrative 5,898 5,904 17,275 17,608
expenses
Business development 458 199 1,550 464
expenses
Total operating expenses 165,456 155,197 483,803 317,945
Operating income 34,708 35,891 107,136 101,129
Interest expense (20,986 ) (22,503 ) (59,088 ) (65,580 )
Interest and other income 2,619 559 4,949 924
Income from continuing
operations before equity in 16,341 13,947 52,997 36,473
loss of unconsolidated
entities and income taxes
Equity in loss of (758 ) (57 ) (1,075 ) (167 )
unconsolidated entities
Income tax expense (47 ) (97 ) (169 ) (102 )
Income from continuing 15,536 13,793 51,753 36,204
operations
Discontinued operations - (9 ) - 2,571
Income before gain on sales 15,536 13,784 51,753 38,775
of real estate
Gain on sales of real - 4 - 1,104
estate, net of income taxes
Net income 15,536 13,788 51,753 39,879
Less net income attributable
to noncontrolling interests
Common units in the (956 ) (1,467 ) (4,032 ) (4,130 )
Operating Partnership
Preferred units in the (165 ) (165 ) (495 ) (495 )
Operating Partnership
Other 40 90 15 (132 )
Net income attributable to 14,455 12,246 47,241 35,122
COPT
Preferred share dividends (4,025 ) (4,025 ) (12,076 ) (12,076 )
Net income attributable to $ 10,430 $ 8,221 $ 35,165 $ 23,046
COPT common shareholders
Earnings per share "EPS"
computation:
Numerator for diluted EPS:
Net income available to $ 10,430 $ 8,221 $ 35,165 $ 23,046
common shareholders
Amount allocable to (253 ) (192 ) (763 ) (528 )
restricted shares
Numerator for diluted EPS 10,177 8,029 34,402 22,518
Denominator:
Weighted average common 57,470 47,273 55,366 47,128
shares - basic
Dilutive effect of stock 485 779 506 765
option awards
Weighted average common 57,955 48,052 55,872 47,893
shares - diluted
Diluted EPS $ 0.18 $ 0.17 $ 0.62 $ 0.47
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,
2009 2008 2009 2008
Net income $ 15,536 $ 13,788 $ 51,753 $ 39,879
Add: Real estate-related 26,712 25,583 81,911 75,482
depreciation and amortization
Add: Depreciation and
amortization on unconsolidated 160 162 481 489
real estate entities
Less: Gain on sales of
operating properties, net of - - - (2,630 )
income taxes
Funds from operations ("FFO") 42,408 39,533 134,145 113,220
Less: Noncontrolling interests
- preferred units in the (165 ) (165 ) (495 ) (495 )
Operating Partnership
Less: Noncontrolling interests 40 90 15 (132 )
- other consolidated entities
Less: Preferred share (4,025 ) (4,025 ) (12,076 ) (12,076 )
dividends
Less: Depreciation and
amortization allocable to (91 ) (74 ) (251 ) (198 )
noncontrolling interests in
other consolidated entities
Less: Basic and diluted FFO (395 ) (321 ) (1,298 ) (903 )
allocable to restricted shares
Basic and diluted FFO
available to common share and 37,772 35,038 120,040 99,416
common unit holders ("Basic
and diluted FFO")
Less: Straight-line rent (2,665 ) (2,850 ) (5,523 ) (8,284 )
adjustments
Less: Amortization of deferred (451 ) (555 ) (1,447 ) (1,458 )
market rental revenue
Less: Recurring capital (7,572 ) (7,008 ) (17,838 ) (17,611 )
expenditures
Add: Amortization of discount
on Exchangeable Senior Notes, 762 828 2,183 2,446
net of amounts capitalized
Diluted adjusted funds from
operations available to common $ 27,846 $ 25,453 $ 97,415 $ 74,509
share and common unit holders
("Diluted AFFO")
Weighted average shares
Weighted average common shares 57,470 47,273 55,366 47,128
Conversion of weighted average 5,084 8,130 5,932 8,145
common units
Weighted average common
shares/units - basic FFO per 62,554 55,403 61,298 55,273
share
Dilutive effect of share-based 485 779 506 765
compensation awards
Weighted average common
shares/units - diluted FFO per 63,039 56,182 61,804 56,038
share
Diluted FFO per share $ 0.60 $ 0.62 $ 1.94 $ 1.77
Dividends/distributions per $ 0.3925 $ 0.3725 $ 1.1375 $ 1.0525
common share/unit
Earnings payout ratio 219.1 % 233.3 % 184.0 % 223.7 %
Diluted FFO payout ratio 65.8 % 63.4 % 58.9 % 60.5 %
Diluted AFFO payout ratio 89.2 % 87.2 % 72.6 % 80.7 %
EBITDA interest coverage ratio 3.20x 2.92x 3.47x 2.91x
EBITDA fixed charge coverage 2.64x 2.44x 2.83x 2.43x
ratio
Reconciliation of denominators
for diluted EPS and diluted
FFO per share
Denominator for diluted EPS 57,955 48,052 55,872 47,893
Weighted average common units 5,084 8,130 5,932 8,145
Denominator for diluted FFO 63,039 56,182 61,804 56,038
per share
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
September 30, December 31,
2009 2008
Balance Sheet Data (in
thousands) (as of period
end)
Properties, net of $ 2,868,707 $ 2,778,466
accumulated depreciation
Total assets 3,230,647 3,114,239
Debt 1,897,852 1,856,751
Total liabilities 2,094,464 2,031,816
Beneficiaries' equity 1,136,183 1,082,423
Debt to total assets 58.7 % 59.6 %
Debt to undepreciated book
value of real estate 56.7 % 57.8 %
assets
Debt to total market 42.6 % 47.4 %
capitalization
Property Data (wholly
owned properties) (as of
period end)
Number of operating 246 238
properties owned
Total net rentable square 18,449 18,462
feet owned (in thousands)
Occupancy 90.9 % 93.2 %
Reconciliation of
denominator for debt to
total assets to
denominator for debt to
undepreciated book value
of real estate assets
Denominator for debt to $ 3,230,647 $ 3,114,239
total assets
Assets other than assets
included in properties, (361,940 ) (335,773 )
net
Accumulated depreciation 402,125 343,110
on real estate assets
Intangible assets on real 75,506 91,848
estate acquisitions, net
Denominator for debt to
undepreciated book value $ 3,346,338 $ 3,213,424
of real estate assets
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Reconciliation of tenant
improvements and
incentives, capital
improvements and leasing
costs for operating
properties to recurring
capital expenditures
Total tenant improvements
and incentives on $ 3,553 $ 6,305 $ 11,604 $ 14,883
operating properties
Total capital improvements 2,927 3,179 6,763 6,827
on operating properties
Total leasing costs on 1,855 999 4,431 2,764
operating properties
Less: Nonrecurring tenant
improvements and (711 ) (1,995 ) (2,780 ) (4,077 )
incentives on operating
properties
Less: Nonrecurring capital
improvements on operating (58 ) (1,299 ) (1,340 ) (2,667 )
properties
Less: Nonrecurring leasing
costs incurred on - (217 ) (916 ) (269 )
operating properties
Add: Recurring capital
expenditures on operating 6 36 76 150
properties held through
joint ventures
Recurring capital $ 7,572 $ 7,008 $ 17,838 $ 17,611
expenditures
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Reconciliation of dividends
for earnings payout ratio to
dividends and distributions
for FFO & AFFO payout ratio
Common share dividends for $ 22,851 $ 19,183 $ 64,712 $ 51,553
earnings payout ratio
Common unit distributions 1,995 3,021 5,974 8,564
Dividends and distributions $ 24,846 $ 22,204 $ 70,686 $ 60,117
for FFO & AFFO payout ratio
Reconciliation of GAAP net
income to earnings before
interest, income taxes,
depreciation and amortization
("EBITDA")
Net income $ 15,536 $ 13,788 $ 51,753 $ 39,879
Interest expense on continuing 20,986 22,503 59,088 65,580
operations
Interest expense on - - - 51
discontinued operations
Income tax expense 47 97 169 680
Real estate-related 26,712 25,583 81,911 75,482
depreciation and amortization
Depreciation of furniture, 458 401 1,261 1,177
fixtures and equipment
EBITDA $ 63,739 $ 62,372 $ 194,182 $ 182,849
Reconciliation of interest
expense from continuing
operations to the denominators
for interest coverage-EBITDA
and fixed charge
coverage-EBITDA
Interest expense from $ 20,986 $ 22,503 $ 59,088 $ 65,580
continuing operations
Interest expense from - - - 51
discontinued operations
Less: Amortization of deferred (1,056 ) (1,143 ) (3,089 ) (2,805 )
financing costs
Denominator for interest 19,930 21,360 55,999 62,826
coverage-EBITDA
Preferred share dividends 4,025 4,025 12,076 12,076
Preferred unit distributions 165 165 495 495
Denominator for fixed charge $ 24,120 $ 25,550 $ 68,570 $ 75,397
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 $ 63,608 $ 62,412 $ 185,660 $ 179,560
operating income
Less: Straight-line rent (733 ) (2,529 ) (2,204 ) (6,683 )
adjustments
Less: Amortization of deferred (385 ) (480 ) (944 ) (1,117 )
market rental revenue
Same office property cash net $ 62,490 $ 59,403 $ 182,512 $ 171,760
operating income
Less: Lease termination fees, (966 ) (209 ) (5,184 ) (368 )
gross
Same office property cash net
operating income, excluding $ 61,524 $ 59,194 $ 177,328 $ 171,392
gross lease termination fees
Top Twenty Office Tenants of Wholly Owned Properties as of September 30, 2009 (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) 67 2,649,894 15.8 % 75,570 18.7 % 6.2
of America
Northrop
Grumman (6) 15 1,135,642 6.8 % 30,218 7.5 % 6.0
Corporation
Booz Allen 9 738,284 4.4 % 21,545 5.3 % 5.5
Hamilton, Inc.
Computer
Sciences (6) 3 454,986 2.7 % 12,475 3.1 % 1.8
Corporation
L-3
Communications (6) 5 266,943 1.6 % 9,877 2.4 % 4.5
Holdings, Inc.
General
Dynamics (6) 10 299,153 1.8 % 8,302 2.1 % 1.3
Corporation
Wells Fargo & (6) 7 218,199 1.3 % 7,764 1.9 % 8.4
Company
The Aerospace (6) 3 245,935 1.5 % 7,523 1.9 % 5.3
Corporation
ITT (6) 8 305,689 1.8 % 7,223 1.8 % 4.8
Corporation
Integral (6) 4 241,504 1.4 % 6,062 1.5 % 10.4
Systems, Inc.
Comcast (6) 7 306,123 1.8 % 6,011 1.5 % 4.1
Corporation
AT&T (6) 5 306,932 1.8 % 5,955 1.5 % 3.7
Corporation
Unisys 2 258,498 1.5 % 4,631 1.1 % 0.5
Corporation
The Boeing (6) 4 144,227 0.9 % 4,467 1.1 % 4.0
Company
Ciena 4 229,842 1.4 % 4,391 1.1 % 3.7
Corporation
BAE Systems (6) 7 211,805 1.3 % 3,235 0.8 % 5.8
PLC
The Johns
Hopkins (6) 4 128,827 0.8 % 3,234 0.8 % 3.1
Institutions
Merck & Co., (6) 2 225,900 1.3 % 2,772 0.7 % 7.0
Inc.
Lockheed
Martin 5 143,943 0.9 % 2,683 0.7 % 2.8
Corporation
Magellan
Health 2 113,727 0.7 % 2,681 0.7 % 2.6
Services, Inc.
Subtotal Top
20 Office 173 8,626,053 51.4 % 226,619 56.2 % 5.3
Tenants
All remaining 702 8,151,421 48.6 % 176,721 43.8 % 3.6
tenants
Total/Weighted 875 16,777,474 100.0 % $ 403,340 100.0 % 4.5
Average
Table excludes owner occupied leasing activity which represents 164,257
(1) square feet with a weighted average remaining lease term of 5.8 years as of
September 30, 2009.
Total Annualized Rental Revenue is the monthly contractual base rent as of
(2) September 30, 2009, 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 (COPT)
Released October 28, 2009