Corporate Office Properties Trust Reports Second Quarter 2009 Results
COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE:OFC) announced today financial and operating results for the quarter ended June 30, 2009.
Highlights
-- 14% increase in diluted Funds from Operations ("FFO") per share to $.67 or $46.9 million of FFO for the second quarter 2009 from $.59 per share or $37.8 million of FFO for the second quarter 2008. -- 29% increase in diluted earnings per share ("Diluted EPS") to $.22 or $12.6 million of net income available to common shareholders for the second quarter 2009 as compared to $.17 per diluted share or $8.1 million of net income available to common shareholders for the second quarter 2008.
-- 46% increase in diluted Adjusted Funds from Operations available to common share and common unit holders ("Diluted AFFO") to $36.2 million for the second quarter 2009 as compared to $24.8 million for the second quarter 2008. -- 92.3% occupied and 93.2% leased for our wholly-owned portfolio as of June 30, 2009. -- 70% renewal rate on expiring leases for second quarter 2009, with an 11% increase in total straight-line rents for renewed space. -- 5% increase in same office property cash NOI for the quarter compared to the second quarter 2008. The Company's same office portfolio for the quarter ended June 30, 2009 represents 92% of the rentable square feet of its consolidated portfolio and consists of 228 properties.
"Continuing our strong 2009 performance, the Company had an excellent second quarter and is well positioned for the second half of 2009. Real estate is a lagging indicator, therefore the full impact of the recession has not yet been felt in the real estate markets. In anticipation of this trend, we have strengthened our financial position with no debt maturing for the remainder of 2009 and continue to tighten operating expenses," stated Randall M. Griffin, President and Chief Executive Officer, Corporate Office Properties Trust. "We are well positioned to accelerate product to meet the imminent demand in several of our markets resulting from BRAC and the cyber initiative," he stated.
Financial Ratios
Diluted FFO payout ratio for the six months ended June 30, 2009 was 56% as compared to 59% for the six months ended June 30, 2008. Diluted AFFO payout ratio for the six months ended June 30, 2009 was 66% as compared to 77% for the six months ended June 30, 2008.
As of June 30, 2009, the Company had a total market capitalization of $3.9 billion, with $1.8 billion in debt outstanding, equating to a 47% debt to total market capitalization ratio.
As of June 30, 2009, the Company's weighted average interest rate was 4.7% and the Company had 74% of the total debt subject to fixed interest rates.
For the second quarter 2009, the Company's EBITDA to interest coverage ratio was 3.7x, and the EBITDA fixed charge coverage ratio was 3.0x.
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 June 30, 2009, the Company's wholly-owned portfolio of 243 office properties totaled 18.7 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 $23.12 per square foot.
For the quarter ended June 30, 2009, 499,000 square feet was renewed equating to a 70% renewal rate, at an average committed cost of $9.42 per square foot. Total rent on renewed space increased 11% 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 630,000 square feet, total straight-line rent increased 8% and total rent on a cash basis decreased 4%. The average committed cost for renewed and retenanted space was $10.79 per square foot.
Development Activity
At June 30, 2009, the Company had 2.4 million square feet under construction, development and redevelopment for a total projected cost of $498.9 million.
The Company's land inventory (wholly-owned and joint venture) at June 30, 2009 totaled 1,827 acres that can support 16.2 million square feet of development.
During the quarter, the Company placed into service 175,000 square feet located in three newly-constructed properties.
Financing and Capital Transactions
The Company executed the following transactions during the quarter:
-- Issued approximately 3.0 million common shares in an underwritten public offering made in conjunction with the Company's inclusion in the S&P MidCap 400 Index on April 1, 2009. The shares were issued at a public offering price of $24.35 per share for net proceeds after underwriting discounts but before offering expenses of $72.1 million. The net proceeds were used to pay down the Company's Revolving Credit Facility and for general corporate purposes. -- Closed on a $50.0 million secured loan with a five-year term that carries interest at LIBOR plus 3.0% (subject to a LIBOR floor of 2.5%). The proceeds were used to repay the Company's maturing debt and pay down its Revolving Credit Facility. -- Closed on a $23.4 million joint venture construction loan with a two-year term and the right to extend for an additional year that carries interest at LIBOR plus 2.75%. The proceeds were used to pay down the Company's Revolving Credit Facility.
Subsequent Event
The Company repaid its remaining 2009 maturing debt of approximately $22.5 million using proceeds from its unsecured credit facility and closed on a $90.0 million secured loan with a five-year term that carries interest at 7.25%. Most of the proceeds were used to pay down the Company's Revolving Credit Facility.
Earnings Guidance
The Company revised its 2009 diluted EPS guidance from a range of $.70 to $.80 to a range of $.59 to $.67 per diluted share.
The Company revised its 2009 diluted FFO per share guidance from a range of $2.41 to $2.51 to a range of $2.43 to $2.51, representing growth of 2% to 5% compared to 2008 diluted FFO per share, as adjusted, of $2.38. The adjusted 2008 results reflect the change in accounting for exchangeable debt as required by the adoption of the FSP regarding APB 14-1 and excludes gains on extinguishment of exchangeable notes.
Conference Call
The Company will hold an investor/analyst conference call:
Conference Call (within the United States) Date: Thursday, July 30, 2009 Time: 11:00 a.m. Eastern Time Telephone Number: 888-679-8034 Passcode: 24073962 Conference Call (outside the United States) Date: Thursday, July 30, 2009 Time: 11:00 a.m. Eastern Time Telephone Number: 617-213-4847 Passcode: 24073962
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=PN9KBNJAM
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, July 30 at 3:00 p.m. Eastern Time through Thursday, August 13 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 48082544. To access the replay outside the United States, please call 617-801-6888 and use passcode 48082544.
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 June 30, 2009, the Company owned 262 office and data properties totaling 19.6 million rentable square feet, which includes 19 properties totaling 852,000 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 Six Months Ended June 30, June 30, 2009 2008 2009 2008 Revenues Real estate revenues $ 105,718 $ 97,946 $ 212,562 $ 194,948 Service operations revenues 103,324 22,424 178,213 33,038 Total revenues 209,042 120,370 390,775 227,986 Expenses Property operating expenses 37,162 33,957 76,195 68,499 Depreciation and other amortization associated with 28,708 24,955 55,199 49,847 real estate operations Service operations expenses 101,161 21,926 174,484 32,433 General and administrative 5,834 5,934 11,377 11,704 expenses Business development 446 102 1,092 265 expenses Total operating expenses 173,311 86,874 318,347 162,748 Operating income 35,731 33,496 72,428 65,238 Interest expense (18,678 ) (21,162 ) (38,102 ) (43,077 ) Interest and other income 1,252 170 2,330 365 Income from continuing operations before equity in 18,305 12,504 36,656 22,526 loss of unconsolidated entities and income taxes Equity in loss of (202 ) (56 ) (317 ) (110 ) unconsolidated entities Income tax (expense) benefit (52 ) 107 (122 ) (5 ) Income from continuing 18,051 12,555 36,217 22,411 operations Discontinued operations - 1,314 - 2,580 Income before gain on sales 18,051 13,869 36,217 24,991 of real estate Gain on sales of real - 41 - 1,100 estate, net of income taxes Net income 18,051 13,910 36,217 26,091 Less net income attributable to noncontrolling interests Common units in the (1,272 ) (1,461 ) (3,076 ) (2,663 ) Operating Partnership Preferred units in the (165 ) (165 ) (330 ) (330 ) Operating Partnership Other 25 (122 ) (25 ) (222 ) Net income attributable to 16,639 12,162 32,786 22,876 COPT Preferred share dividends (4,026 ) (4,026 ) (8,051 ) (8,051 ) Net income attributable to $ 12,613 $ 8,136 $ 24,735 $ 14,825 COPT common shareholders Earnings per share "EPS" computation: Numerator for diluted EPS: Net income available to $ 12,613 $ 8,136 $ 24,735 $ 14,825 common shareholders Amount allocable to (242 ) (166 ) (510 ) (336 ) restricted shares Numerator for diluted EPS 12,371 7,970 24,225 14,489 Denominator: Weighted average common 56,637 47,110 54,296 47,055 shares - basic Dilutive effect of stock 546 790 522 746 option awards Weighted average common 57,183 47,900 54,818 47,801 shares - diluted Diluted EPS $ 0.22 $ 0.17 $ 0.44 $ 0.30
Corporate Office Properties Trust Summary Financial Data (unaudited) (Amounts in thousands, except per share data and ratios) Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 Net income $ 18,051 $ 13,910 $ 36,217 $ 26,091 Add: Real estate-related 28,708 24,955 55,199 49,899 depreciation and amortization Add: Depreciation and amortization on unconsolidated 161 163 321 327 real estate entities Less: Gain on sales of operating properties, net of - (1,250 ) - (2,630 ) income taxes Funds from operations ("FFO") 46,920 37,778 91,737 73,687 Less: Noncontrolling interests - preferred units in the (165 ) (165 ) (330 ) (330 ) Operating Partnership Less: Noncontrolling interests 25 (122 ) (25 ) (222 ) - other consolidated entities Less: Preferred share (4,026 ) (4,026 ) (8,051 ) (8,051 ) dividends Less: Depreciation and amortization allocable to (107 ) (75 ) (160 ) (124 ) noncontrolling interests in other consolidated entities Less: Basic and diluted FFO (450 ) (308 ) (903 ) (582 ) allocable to restricted shares Basic and diluted FFO available to common share and 42,197 33,082 82,268 64,378 common unit holders ("Basic and diluted FFO") Less: Straight-line rent (1,718 ) (2,778 ) (2,858 ) (5,434 ) adjustments Less: Amortization of deferred (616 ) (458 ) (996 ) (903 ) market rental revenue Less: Recurring capital (4,383 ) (5,821 ) (10,266 ) (10,603 ) expenditures Add: Amortization of discount on Exchangeable Senior Notes, 723 815 1,421 1,618 net of amounts capitalized Diluted adjusted funds from operations available to common $ 36,203 $ 24,840 $ 69,569 $ 49,056 share and common unit holders ("Diluted AFFO") Weighted average shares Weighted average common shares 56,637 47,110 54,296 47,055 Conversion of weighted average 5,483 8,151 6,363 8,153 common units Weighted average common shares/units - basic FFO per 62,120 55,261 60,659 55,208 share Dilutive effect of share-based 546 790 522 746 compensation awards Weighted average common shares/units - diluted FFO per 62,666 56,051 61,181 55,954 share Diluted FFO per share $ 0.67 $ 0.59 $ 1.34 $ 1.15 Dividends/distributions per $ 0.3725 $ 0.3400 $ 0.7450 $ 0.6800 common share/unit Earnings payout ratio 171.2 % 199.1 % 169.2 % 218.3 % Diluted FFO payout ratio 55.7 % 57.3 % 55.7 % 58.9 % Diluted AFFO payout ratio 64.9 % 76.4 % 65.9 % 77.3 % EBITDA interest coverage ratio 3.73x 2.97x 3.62x 2.91x EBITDA fixed charge coverage 3.01x 2.46x 2.93x 2.42x ratio Reconciliation of denominators for diluted EPS and diluted FFO per share Denominator for diluted EPS 57,183 47,900 54,818 47,801 Weighted average common units 5,483 8,151 6,363 8,153 Denominator for diluted FFO 62,666 56,051 61,181 55,954 per share
Corporate Office Properties Trust Summary Financial Data (unaudited) (Dollars and shares in thousands, except per share data) June 30, December 31, 2009 2008 Balance Sheet Data (in thousands) (as of period end) Properties, net of $ 2,854,136 $ 2,778,466 accumulated depreciation Total assets 3,198,675 3,114,239 Debt 1,831,713 1,856,751 Total liabilities 2,052,268 2,031,816 Beneficiaries' equity 1,146,407 1,082,423 Debt to total assets 57.3 % 59.6 % Debt to undepreciated book value of real estate 55.2 % 57.8 % assets Debt to total market 46.9 % 47.4 % capitalization Property Data (wholly owned properties) (as of period end) Number of operating 243 238 properties owned Total net rentable square 18,740 18,462 feet owned (in thousands) Occupancy 92.3 % 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 $ 3,198,675 $ 3,114,239 total assets Assets other than assets included in properties, (344,539 ) (335,773 ) net Accumulated depreciation 382,385 343,110 on real estate assets Intangible assets on real 81,090 91,848 estate acquisitions, net Denominator for debt to undepreciated book value $ 3,317,611 $ 3,213,424 of real estate assets Three Months Ended Six Months Ended June 30, June 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 $ 3,826 $ 4,731 $ 8,051 $ 8,578 operating properties Total capital improvements 2,323 2,631 3,836 3,648 on operating properties Total leasing costs on 950 520 2,576 1,765 operating properties Less: Nonrecurring tenant improvements and (2,028 ) (1,287 ) (2,069 ) (2,082 ) incentives on operating properties Less: Nonrecurring capital improvements on operating (694 ) (866 ) (1,282 ) (1,368 ) properties Less: Nonrecurring leasing costs incurred on (16 ) (22 ) (916 ) (52 ) operating properties Add: Recurring improvements on operating 22 114 70 114 properties held through joint ventures Recurring capital $ 4,383 $ 5,821 $ 10,266 $ 10,603 expenditures
Corporate Office Properties Trust Summary Financial Data (unaudited) (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 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 $ 21,597 $ 16,197 $ 41,861 $ 32,370 earnings payout ratio Common unit distributions 1,894 2,772 3,979 5,543 Dividends and distributions $ 23,491 $ 18,969 $ 45,840 $ 37,913 for FFO & AFFO payout ratio Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization ("EBITDA") Net income $ 18,051 $ 13,910 $ 36,217 $ 26,091 Interest expense on continuing 18,678 21,162 38,102 43,077 operations Interest expense on - 10 - 51 discontinued operations Income tax expense (benefit) 52 (102 ) 122 583 Real estate-related 28,708 24,955 55,199 49,899 depreciation and amortization Depreciation of furniture, 415 392 803 776 fixtures and equipment EBITDA $ 65,904 $ 60,327 $ 130,443 $ 120,477 Reconciliation of interest expense from continuing operations to the denominators for interest coverage-EBITDA and fixed charge coverage-EBITDA Interest expense from $ 18,678 $ 21,162 $ 38,102 $ 43,077 continuing operations Interest expense from - 10 - 51 discontinued operations Less amortization of deferred (1,009 ) (885 ) (2,033 ) (1,662 ) financing costs Denominator for interest 17,669 20,287 36,069 41,466 coverage-EBITDA Preferred share dividends 4,026 4,026 8,051 8,051 Preferred unit distributions 165 165 330 330 Denominator for fixed charge $ 21,860 $ 24,478 $ 44,450 $ 49,847 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 $ 64,988 $ 62,796 $ 128,415 $ 123,218 operating income Less: Straight-line rent (860 ) (2,014 ) (1,229 ) (4,123 ) adjustments Less: Amortization of deferred (446 ) (362 ) (655 ) (733 ) market rental revenue Same office property cash net $ 63,682 $ 60,420 $ 126,531 $ 118,362 operating income Less: Lease termination fees, (558 ) (59 ) (4,218 ) (158 ) gross Same office property cash net operating income, excluding $ 63,124 $ 60,361 $ 122,313 $ 118,204 gross lease termination fees
Corporate Office Properties Trust Summary Financial Data (unaudited) (Amounts in thousands, except per share data) Reconciliation of projected diluted EPS to projected diluted FFO per share Year Ending December 31, 2009 Low High Reconciliation of numerators Numerator for projected diluted EPS $ 33,174 $ 37,714 Real estate-related depreciation and amortization (1) 114,783 114,783 Minority interests-common units 3,597 4,082 Incremental FFO allocable to restricted shares (754 ) (779 ) Numerator for projected diluted FFO per share $ 150,800 $ 155,800 Reconciliation of denominators Denominator for projected diluted EPS 56,334 56,334 Weighted average common units 5,726 5,726 Denominator for projected diluted FFO per share 62,060 62,060 Projected diluted EPS $ 0.59 $ 0.67 Projected diluted FFO per share $ 2.43 $ 2.51
(1) The estimate of real estate-related depreciation and amortization excludes any impact of potential write-offs resulting from lease terminations.
Top Twenty Office Tenants of Wholly Owned Properties as of June 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) 66 2,583,040 14.9 % 69,134 17.3 % 6.0 of America Northrop Grumman (6) 15 1,135,594 6.6 % 29,119 7.3 % 6.9 Corporation Booz Allen 8 710,692 4.1 % 20,968 5.2 % 5.6 Hamilton, Inc. Computer Sciences (6) 4 454,645 2.6 % 12,371 3.1 % 2.0 Corporation L-3 Communications (6) 5 267,354 1.5 % 9,863 2.5 % 4.8 Holdings, Inc. Unisys (7) 5 760,145 4.4 % 9,097 2.3 % 4.3 Corporation General Dynamics (6) 10 293,329 1.7 % 8,111 2.0 % 1.1 Corporation Wells Fargo & (6) 6 215,760 1.2 % 7,583 1.9 % 8.8 Company Aerospace (6) 3 245,598 1.4 % 7,569 1.9 % 5.6 Corporation ITT (6) 9 290,312 1.7 % 6,859 1.7 % 5.3 Corporation AT&T (6) 8 306,988 1.8 % 5,903 1.5 % 4.0 Corporation Comcast (6) 11 306,123 1.8 % 5,854 1.5 % 4.3 Corporation Integral (6) 4 240,846 1.4 % 5,675 1.4 % 10.5 Systems, Inc. The Boeing (6) 4 143,480 0.8 % 4,394 1.1 % 4.2 Company Ciena 4 229,848 1.3 % 4,346 1.1 % 3.9 Corporation The Johns Hopkins (6) 4 128,827 0.7 % 3,205 0.8 % 7.3 Institutions BAE Systems (6) 7 212,339 1.2 % 3,201 0.8 % 3.4 PLC Science Applications (6) 9 137,142 0.8 % 3,127 0.8 % 0.4 International Corp. Merck & Co., (6) 2 225,900 1.3 % 2,722 0.7 % 3.1 Inc. (Unisys) (7) Magellan Health 2 113,727 0.7 % 2,681 0.7 % 2.1 Services, Inc. Subtotal Top 20 Office 186 9,001,689 52.0 % 221,781 55.4 % 5.4 Tenants All remaining 777 8,302,030 48.0 % 178,214 44.6 % 3.7 tenants Total/Weighted 963 17,303,719 100.0 % $ 399,995 100.0 % 4.7 Average
Table excludes owner occupied leasing activity which represents 155,433 (1) square feet with a weighted average remaining lease term of 6.1 years as of June 30, 2009. Total Annualized Rental Revenue is the monthly contractual base rent as of (2) June 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. 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. (7) Merck & Co., Inc. subleases 219,065 rentable square feet from Unisys' 960,349 leased rentable square feet in our Greater Philadelphia region.
Source: Corporate Office Properties Trust (COPT)
Released July 29, 2009