Corporate Office Properties Trust Reports First Quarter 2007 Results
COLUMBIA, Md.--(BUSINESS WIRE)--
Corporate Office Properties Trust (COPT) (NYSE:OFC) announced today financial and operating results for the quarter ended March 31, 2007.
Highlights
-- Earnings per Share ("EPS") diluted of $.03 for the first
quarter 2007 compared to $.15 per diluted share for the first
quarter 2006, representing an 80% decrease per share. Included
in the first quarter 2007 net income is a $7.9 million
increase in depreciation and amortization associated with real
estate operations, as compared to the first quarter 2006,
contributing to the significant decline in EPS. The
acquisition of the Nottingham portfolio generated depreciation
and amortization of $6.3 million, the primary driver of the
$7.9 million increase.
-- 4.1% increase in Funds from Operations ("FFO") per diluted
share to $.51, or $28.3 million, for first quarter 2007 from
$.49, or $24.4 million, for first quarter 2006. First quarter
2007 was adversely impacted by $1.1 million in expenses
primarily related to unrecoverable snow removal and electric
costs.
-- $362.5 million acquisition of the Nottingham portfolio
consisting of 56 operating properties with approximately 2.4
million square feet and 187 acres of land, that can
accommodate a minimum of 2 million square feet of development.
-- 935,000 square feet under construction in 9 buildings that
were 71.9% leased at March 31, 2007.
-- 1.3 million square feet under development in 11 buildings at
March 31, 2007.
-- 93.0% occupied and 93.7% leased for our wholly-owned portfolio
as of March 31, 2007.
-- 60.4% Diluted FFO payout ratio, 77.4% Diluted Adjusted Funds
from Operations ("AFFO") payout ratio for the quarter.
-- 72.1% of leases expiring during the quarter were renewed, with
a 7.4% increase in total straight line rent for renewed and
retenanted space.
"We are excited about the growth opportunities for 2007. We have fully integrated the Nottingham acquisition into the Company and are diligently working to increase NOI significantly as we bring occupancy levels up to our projected 94% level over the next two years. We are seeing positive leasing activity which will impact the Company later in the year," stated Randall M. Griffin, President and CEO, Corporate Office Properties Trust. "We expect to place approximately 550,000 square feet of development into service which will accelerate our growth during the second half of the year," he added.
Financial Results
EPS for the quarter ended March 31, 2007 totaled $.03 per diluted share, or $1.6 million of net income available to common shareholders, as compared to $.15 per diluted share, or $6.3 million for the quarter ended March 31, 2006. Included in the first quarter 2007 net income is a $7.9 million increase in depreciation and amortization associated with real estate operations, as compared to the first quarter 2006, contributing to the significant decline in EPS. The acquisition of the Nottingham portfolio generated depreciation and amortization of $6.3 million, the primary driver of the $7.9 million increase.
Diluted FFO for the quarter ended March 31, 2007 totaled $28.3 million, or $.51 per diluted share, as compared to $24.4 million, or $.49 per diluted share, for the quarter ended March 31, 2006, representing a 4.1% increase on a per share basis. First quarter 2007 was adversely impacted by $1.1 million in expenses primarily related to unrecoverable snow removal and electric costs.
Diluted FFO payout ratio was 60.4% for first quarter 2007 compared to 56.0% for the comparable 2006 period.
Diluted AFFO for the quarter ended March 31, 2007 totaled $22.1 million, as compared to $18.9 million for the quarter ended March 31, 2006, representing a 17.0% increase.
The Company's AFFO payout ratio was 77.4% for first quarter 2007 compared to 72.3% for the comparable 2006 period.
Revenues from real estate operations for the quarter ended March 31, 2007 were $89.7 million, as compared to revenue for the quarter ended March 31, 2006 of $69.2 million. As of March 31, 2007, the Company had a total market capitalization of $4.5 billion, with $1.7 billion in debt outstanding, equating to a 38.5% debt-to-total market capitalization ratio. The Company's total quarterly weighted average interest rate was 5.8%. The Company had 78.8% of the total debt subject to fixed interest rates.
For the first quarter 2007, EBITDA interest coverage ratio was 2.66x and EBITDA fixed charge coverage ratio was 2.21x.
Operating Results
At March 31, 2007, the Company's wholly-owned portfolio of 226 office properties totaling 17.4 million square feet was 93.0% occupied and 93.7% leased. The weighted average remaining lease term for the portfolio was 4.8 years and the average rental rate (including tenant reimbursements) was $20.93 per square foot.
During the quarter, 571,000 square feet were renewed equating to a 72.1% renewal rate, at an average capital cost of $7.98 per square foot. Total rent on renewed space increased 10.1% on a straight line basis and 3.1% on a cash basis. The Company achieved a 7.4% increase in total straight line rent and a 1.1% increase in total cash rent for 780,000 square feet of renewed and retenanted space. The average capital cost for renewed and retenanted space was $10.06 per square foot.
Same property cash NOI increased by 2.4% for the quarter compared to the quarter ended March 31, 2006. Our same office property cash NOI was positively impacted by an increase of $.5 million in termination fees and improved occupancy and negatively impacted by unrecoverable costs. The Company's same property portfolio consists of 157 buildings and represents 75.7% of the total square feet owned as of March 31, 2007.
The Company recognized lease termination fees of $1.7 million for the quarter, net of write-offs of related straight-line rents and accretion of intangible assets and liabilities, as compared to $348,000 in the first quarter of 2006.
Development Activity
At quarter end March 31, the Company's development pipeline consisted of:
-- Nine buildings under construction totaling 935,000 square feet
for a total cost of $212.1 million, that are 71.9% leased.
-- Eleven buildings under development totaling 1.3 million square
feet at a total projected cost of $260.0 million.
-- Four projects under redevelopment totaling 740,000 square feet
for a total projected cost of $88.6 million.
The Company's land inventory (wholly-owned and joint venture) at quarter end totaled 1,594 acres that can support 14.3 million square feet of development.
Acquisition Activity
During the quarter, the Company acquired the Nottingham portfolio:
-- 56 operating properties containing 2.4 million square feet
that were 84.9% occupied at closing and 187 acres of land with
a minimum of 2.0 million developable square feet for $362.5
million, plus approximately $1.4 million in transaction costs.
The buildings are located in Maryland in the submarkets of
White Marsh, Columbia, BWI, Towson and Hunt Valley. The total
price was funded through $182.4 million in debt assumption and
cash, with the seller receiving $154.9 million in the form of
common shares issued at a deemed value of $49.00 per share and
$26.6 million in Series K Cumulative Redeemable Convertible
Preferred Shares with a fixed coupon of 5.6%.
Financing and Capital Transactions
The Company executed the following transaction during the quarter:
-- Assumed $38.0 million of indebtedness with an average fixed
interest rate of 6.03% and an average term of 8.5 years, in
connection with the Nottingham portfolio acquisition.
Additionally, we closed on an $89.1 million variable rate loan
which matures in June 2007 and bears interest at the same rate
as the Company's Revolving Line of Credit.
Subsequent Events
The Company executed the following transaction subsequent to quarter end:
-- Purchased the remaining 50% interest in a joint venture for
$14.0 million which holds title to 132 acres that can support
future development of 1.75 million square feet of office space
in Colorado Springs, Colorado. The Company issued 262,165
common units valued at $47.68 per unit for total consideration
of $12.5 million.
Conference Call
The Company will hold an investor/analyst conference call:
Conference Call and Webcast Date: Thursday, May 3, 2007
Time: 4:00 p.m. Eastern Time
Dial In Number: 866-711-8198
Passcode: 85741802
A replay of this call will be available beginning Thursday, May 3, 2007 at 6:00 p.m. Eastern Time through Thursday, May 17, 2007 at midnight Eastern Time. To access the replay, please call 888-286-8010 and use passcode 67566640.
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 GAAP and non-GAAP measurements are included in the attached tables.
Company Information
Corporate Office Properties Trust (COPT) is a fully integrated, self-managed real estate investment trust (REIT) that focuses on the ownership, management, leasing, acquisition and development of suburban office properties located primarily in submarkets within the Greater Washington, DC region. As of March 31, 2007, the Company owned 244 office properties totaling 18.2 million rentable square feet, which included 18 properties totaling 806,000 square feet held through joint ventures. The Company has implemented a core customer expansion strategy that is built around meeting, through acquisitions and development, the multi-location requirements of the Company's existing strategic tenants. The Company's property management services team provides comprehensive property and asset management to company owned properties and select third party clients. The Company's development and construction services team provides a wide range of development and construction management services for company owned properties, as well as land planning, design/build services, consulting, and merchant development to select third party clients. The Company's shares are traded on the New York Stock Exchange under the symbol OFC. More information on Corporate Office Properties Trust can be found on the Internet 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 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Revenues
Real estate revenues $ 89,675 $ 69,222
Service operations revenues 10,077 16,309
--------- ---------
Total revenues 99,752 85,531
--------- ---------
Expenses
Property operating expenses 31,748 21,061
Depreciation and other amortization associated
with real estate operations 26,569 18,672
Service operations expenses 9,888 15,704
General and administrative expenses 4,614 3,963
--------- ---------
Total operating expenses 72,819 59,400
--------- ---------
Operating income 26,933 26,131
Interest expense (19,876) (17,029)
Amortization of deferred financing costs (884) (556)
--------- ---------
Income from continuing operations before equity in
loss of unconsolidated entities, income taxes and
minority interests 6,173 8,546
Equity in loss of unconsolidated entities (94) (23)
Income tax expense (105) (215)
--------- ---------
Income from continuing operations before minority
interests 5,974 8,308
Minority interests in income from continuing
operations (426) (958)
--------- ---------
Income from continuing operations 5,548 7,350
(Loss) income from discontinued operations, net of
minority interests (1) 2,477
--------- ---------
Income before gain on sales of real estate 5,547 9,827
Gain on sales of real estate, net - 110
--------- ---------
Net income 5,547 9,937
Preferred share dividends (3,993) (3,654)
--------- ---------
Net income available to common shareholders $ 1,554 $ 6,283
========= =========
Earnings per share "EPS" computation
Numerator $ 1,554 $ 6,283
========= =========
Denominator:
Weighted average common shares - basic 45,678 39,668
Dilutive effect of share-based compensation awards 1,465 1,842
--------- ---------
Weighted average common shares - diluted 47,143 41,510
========= =========
EPS
Basic $ 0.03 $ 0.16
========= =========
Diluted $ 0.03 $ 0.15
========= =========
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data and ratios)
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Net income $ 5,547 $ 9,937
Add: Real estate-related depreciation and
amortization 26,300 19,068
Add: Depreciation and amortization on
unconsolidated real estate entities 168 85
Less: Depreciation and amortization allocable to
minority interests in other consolidated entities (42) (33)
Less: Gain on sales of real estate, excluding
development portion - (2,459)
--------- ---------
Funds from operations ("FFO") 31,973 26,598
Add: Minority interests-common units in the
Operating Partnership 308 1,406
Less: Preferred share dividends (3,993) (3,654)
--------- ---------
Funds from Operations - basic and diluted ("Basic
and Diluted FFO") 28,288 24,350
Less: Straight-line rent adjustments (2,571) (2,122)
Less: Recurring capital expenditures (3,141) (2,808)
Less: Amortization of deferred market rental
revenue (511) (555)
--------- ---------
Adjusted Funds from Operations - diluted ("Diluted
AFFO") $ 22,065 $ 18,865
========= =========
Weighted average shares
Weighted average common shares 45,678 39,668
Conversion of weighted average common units 8,411 8,520
--------- ---------
Weighted average common shares/units - basic FFO
per share 54,089 48,188
Dilutive effect of share-based compensation
awards 1,465 1,842
--------- ---------
Weighted average common shares/units - diluted
FFO per share 55,554 50,030
========= =========
Diluted FFO per common share $ 0.51 $ 0.49
========= =========
Dividends/distributions per common share/unit $ 0.31 $ 0.28
========= =========
Earnings payout ratio 934.9% 179.2%
========= =========
Diluted FFO payout ratio 60.4% 56.0%
========= =========
Diluted AFFO payout ratio 77.4% 72.3%
========= =========
EBITDA interest coverage ratio 2.66x 2.78x
========= =========
EBITDA fixed charge coverage ratio 2.21x 2.29x
========= =========
Reconciliation of denominators for diluted EPS and
diluted FFO per share
Denominator for diluted EPS 47,143 41,510
Weighted average common units 8,411 8,520
--------- ---------
Denominator for diluted FFO per share 55,554 50,030
========= =========
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
March 31, December 31,
2007 2006
------------ ------------
Balance Sheet Data (in thousands) (as of
period end):
Investment in real estate, net of
accumulated depreciation $ 2,474,177 $ 2,111,310
Total assets 2,814,723 2,419,601
Debt 1,715,183 1,498,537
Total liabilities 1,849,483 1,629,111
Minority interests 129,822 116,187
Beneficiaries' equity 835,418 674,303
Debt to Total Assets 60.9% 61.9%
Debt to Undepreciated Book Value of Real
Estate Assets 60.3% 62.0%
Debt to Total Market Capitalization 38.5% 34.9%
Property Data (wholly owned properties)
(as of period end):
Number of operating properties owned 226 170
Total net rentable square feet owned (in
thousands) 17,401 15,050
Occupancy 93.0% 92.8%
Reconciliation of denominator for debt to
total assets to denominator for debt to
undepreciated book value of real estate
assets
Denominator for debt to total assets $ 2,814,723 $ 2,419,601
Assets other than assets included in
investment in real estate (340,546) (308,291)
Accumulated depreciation on real estate
assets 236,650 219,574
Intangible assets on real estate
acquisitions, net 131,934 87,325
------------ ------------
Denominator for debt to undepreciated book
value of real estate assets $ 2,842,761 $ 2,418,209
============ ============
Three Months Ended
March 31,
-------------------------
2007 2006
------------ ------------
Reconciliation of tenant improvements and
incentives, capital improvements and
leasing costs for operating properties to
recurring capital expenditures
Total tenant improvements and incentives on
operating properties $ 6,517 $ 2,873
Total capital improvements on operating
properties 1,581 3,123
Total leasing costs on operating properties 2,979 946
Less: Nonrecurring tenant improvements and
incentives on operating properties (5,858) (1,281)
Less: Nonrecurring capital improvements on
operating properties (408) (2,519)
Less: Nonrecurring leasing costs incurred on
operating properties (1,698) (358)
Add: Recurring improvements on operating
properties held through joint ventures 28 24
------------ ------------
Recurring capital expenditures $ 3,141 $ 2,808
============ ============
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Reconciliation of dividends for Earnings Payout
Ratio to dividends and distributions for FFO &
AFFO Payout Ratio
Common share dividends for earnings payout ratio $ 14,529 $ 11,257
Common unit distributions 2,554 2,374
--------- ---------
Dividends and distributions for FFO & AFFO payout
ratio $ 17,083 $ 13,631
========= =========
Reconciliation of GAAP net income to earnings
before interest, income taxes, depreciation and
amortization ("EBITDA")
Net income $ 5,547 $ 9,937
Interest expense on continuing operations 19,876 17,029
Interest expense on discontinued operations 388 686
Income tax expense 105 215
Real estate-related depreciation and amortization 26,300 19,068
Amortization of deferred financing costs-
continuing operations 884 556
Amortization of deferred financing costs-
discontinued operations - 3
Other depreciation and amortization 326 269
Minority interests 426 1,538
--------- ---------
EBITDA $ 53,852 $ 49,301
========= =========
Reconciliation of interest expense from continuing
operations to the denominators for interest
coverage-EBITDA and fixed charge coverage-EBITDA
Interest expense from continuing operations $ 19,876 $ 17,029
Interest expense from discontinued operations 388 686
--------- ---------
Denominator for interest coverage-EBITDA 20,264 17,715
Preferred share dividends 3,993 3,654
Preferred unit distributions 165 165
--------- ---------
Denominator for fixed charge coverage-EBITDA $ 24,422 $ 21,534
========= =========
Reconciliation of same property net operating
income to same property cash net operating income
Same property net operating income $ 47,980 $ 47,583
Less: Straight-line rent adjustments (1,384) (1,976)
Less: Amortization of deferred market rental
revenue (303) (379)
--------- ---------
Same property cash net operating income $ 46,293 $ 45,228
========= =========
Top Twenty Office Tenants of Wholly Owned Properties as of March 31,
2007 (1)
(Dollars in thousands)
Percentage of
Total Total
Number of Occupied Occupied
Tenant Leases Square Feet Square Feet
------------------------------ --------- ------------ -------------
United States of America (5) 47 2,212,793 13.7%
Booz Allen Hamilton, Inc. 9 779,936 4.8%
Northrop Grumman Corporation (6) 18 761,163 4.7%
Computer Sciences Corporation (6) 4 454,645 2.8%
L-3 Communications Holdings,
Inc. (6) 4 221,635 1.4%
Unisys Corporation (7) 4 760,145 4.7%
General Dynamics Corporation 9 278,239 1.7%
Wachovia Corporation (6) 5 189,478 1.2%
The Aerospace Corporation 2 221,785 1.4%
AT&T Corporation (6) 9 337,052 2.1%
Comcast Corporation 8 278,589 1.7%
The Boeing Company (6) 4 143,480 0.9%
Ciena Corporation 3 221,609 1.4%
Science Applications
International Corp. 12 170,839 1.1%
Lockheed Martin Corporation 6 163,685 1.0%
Magellan Health Services,
Inc. 3 142,199 0.9%
BAE Systems PLC (6) 7 212,339 1.3%
Merck & Co., Inc. (Unisys) (7) 2 227,273 1.4%
The Johns Hopkins University 4 115,854 0.7%
Wyle Laboratories, Inc. 4 174,792 1.1%
Subtotal Top 20 Office
Tenants 164 8,067,530 49.9%
All remaining tenants 764 8,110,202 50.1%
--------- ------------ -------------
Total/Weighted Average 928 16,177,732 100.0%
========= ============ =============
Total Percentage Weighted
Annualized of Total Average
Rental Annualized Remaining
Revenue (2) Rental Lease
Tenant (3) Revenue Term (4)
------------------------------ ------------- ----------- ----------
United States of America (5) $48,630 14.4% 6.4
Booz Allen Hamilton, Inc. 21,107 6.2% 6.9
Northrop Grumman Corporation (6) 18,298 5.4% 4.3
Computer Sciences Corporation (6) 11,347 3.4% 4.2
L-3 Communications Holdings,
Inc. (6) 8,844 2.6% 6.7
Unisys Corporation (7) 8,665 2.6% 2.5
General Dynamics Corporation 7,160 2.1% 2.9
Wachovia Corporation (6) 6,745 2.0% 11.2
The Aerospace Corporation 6,433 1.9% 7.7
AT&T Corporation (6) 5,852 1.7% 5.2
Comcast Corporation 5,215 1.5% 4.7
The Boeing Company (6) 4,071 1.2% 2.7
Ciena Corporation 3,657 1.1% 4.9
Science Applications
International Corp. 3,244 1.0% 0.7
Lockheed Martin Corporation 3,048 0.9% 2.3
Magellan Health Services,
Inc. 2,944 0.9% 3.7
BAE Systems PLC (6) 2,815 0.8% 3.7
Merck & Co., Inc. (Unisys) (7) 2,621 0.8% 2.2
The Johns Hopkins University 2,478 0.7% 8.7
Wyle Laboratories, Inc. 2,427 0.7% 5.3
Subtotal Top 20 Office
Tenants 175,601 51.9% 5.5
All remaining tenants 162,965 48.1% 4.1
------------- -----------
Total/Weighted Average $338,567 100.0% 4.8
============= ===========
(1) Table excludes owner occupied leasing activity which represents 146,604 square feet with a weighted average remaining lease term of 5.8 years as of March 31, 2007. (2) Total Annualized Rental Revenue is the monthly contractual base rent as of March 31, 2007, 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. (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 May 2, 2007