COPT Reports 2Q 2022 Results

Raises Midpoint of Full-Year Guidance for FFOPS, As Adjusted for Comparability by 1-Cent to $2.35, Implying 2.6% Growth

Reports EPS of $0.29 in 2Q22;
FFO per Share, as Adjusted for Comparability, of $0.59 at High-End of Guidance

Increased Midpoint of Full-Year Same-Property Occupancy to 92.5%;
Maintains Full-Year Guidance for Change in Same-Property Cash NOI at (2%)-0%;
2.4% Decrease in Same-Property Cash NOI During Quarter, In-Line with Expectations

Core Portfolio 91.8% Occupied & 93.7% Leased

80,000 SF of 94% Leased Developments Placed into Service in 2Q22

1.9 Million SF of Active Developments are 91% Leased

Solid Leasing

Total Leasing of 558,000 SF in 2Q22 and 1.4 Million SF Year-to-Date

Tenant Retention of 58% in 2Q22 and 62% Year-to-Date;
Increased Midpoint of Year-End Tenant Retention Rate to 75%

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced results for the second quarter ended June 30, 2022.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “Our Defense/IT investment strategy concentrating on priority missions at U.S. defense installations continues to produce strong, reliable results that are not correlated to traditional office fundamentals. Second quarter results were slightly favorable to our plan, positioning the Company to achieve or exceed our full-year operating, leasing, and FFOPS objectives. Second quarter FFOPS exceeded the midpoint of guidance by $0.01, and we are elevating full-year guidance by $0.01 at the midpoint and narrowing the range. Same-property cash NOI was slightly better than expectations, declining 2.4% as a result of prior quarter non-renewals. Leasing volume met our expectations and sets the stage for a very strong remainder of the year. We pre-leased another full building build-to-suit in The National Business Park for a Fortune 100 defense contractor, our second in the past year. The 120,000 square feet of vacancy leasing we achieved was concentrated in Defense/IT Locations and equaled our 5-year average for the second quarter. The 58% tenant retention rate in the quarter was expected and reflected some proactive portfolio management in Huntsville, transitioning space from an existing tenant to a new contractor to support another new development in Redstone Gateway. We expect full-year retention to exceed our initial guidance, and we are elevating our target range.”

He continued, “During the quarter, we placed 80,000 square feet into service, bringing our year-to-date deliveries to 363,000 square feet that are 99% leased. We further expanded our active development pipeline to 1.9 million square feet that are 91% leased and we expect to place another 900,000 square feet of fully leased projects into service by year end. Lastly, the midpoint of our elevated full-year guidance implies 2.6% growth in diluted FFO per share, as adjusted for comparability, reduced by roughly 2% from the dilutive sale of DC-6 during the first quarter.”

Financial Highlights

2^nd Quarter Financial Results:

• Diluted earnings per share (“EPS”) was $0.29 for the quarter ended June 30, 2022 compared to $0.38 for the second quarter of 2021.

• Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.59 for the second quarter of 2022 compared to $0.35 for the second quarter of 2021.

• FFOPS, as adjusted for comparability, was $0.59 for the second quarter of 2022 compared to $0.58 for the second quarter of 2021.

Operating Performance Highlights

Operating Portfolio Summary:

• At June 30, 2022, the Company’s 21.9 million square foot core portfolio was 91.8% occupied and 93.7% leased.

• During the quarter, the Company placed into service 80,000 square feet of developments that were 94% leased.

Same-Property Performance:

• At June 30, 2022, COPT’s 20.3 million square foot same-property portfolio was 91.6% occupied and 93.6% leased.

• For the quarter ended June 30, 2022, the Company’s same-property cash NOI decreased 2.4% compared to the second quarter of 2021.

Leasing:

• Total Square Feet Leased: For the quarter ended June 30, 2022, the Company leased 558,000 square feet, including 228,000 square feet of renewals, 120,000 square feet of new leases on vacant space, and 211,000 square feet in development projects. For the six months ended June 30, 2022, the Company executed 1.4 million square feet of total leasing, including 676,000 square feet of renewals, 277,000 square feet of vacancy leasing, and 476,000 square feet in development projects.

• Tenant Retention Rates: During the quarter and six months ended June 30, 2022, the Company renewed 58% and 62%, respectively, of expiring square feet.

• Rent Spreads & Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2022, straight-line rents on renewals increased 7.8% and 1.2%, respectively, and cash rents on renewed space decreased 0.8% and 4.1%, respectively. For the same time periods, annual escalations on renewing leases averaged 1.9% and 2.3%, respectively.

• Lease Terms: In the second quarter of 2022, lease terms averaged 4.3 years on renewing leases, 6.4 years on vacancy leasing, and 11.1 years on development leasing. For the first six months, lease terms averaged 3.6 years on renewing leases, 6.4 years on vacancy leasing, and 13.3 years on development leasing.

Investment Activity Highlights

• Development Pipeline: The Company’s development pipeline consists of 12 properties and an expansion of one fully-operational property totaling 1.9 million square feet that were 91% leased at June 30, 2022. These projects represent a total estimated investment of $646.3 million, of which $274.9 million has been spent.

Balance Sheet and Capital Transaction Highlights

• For the quarter ended June 30, 2022, the Company’s adjusted EBITDA fixed charge coverage ratio was 5.3x.

• At June 30, 2022, the Company’s net debt to in-place adjusted EBITDA ratio was 6.4x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 5.8x.

• At June 30, 2022, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 2.75% with a weighted average maturity of 6.7 years; additionally, 96.3% of the Company’s debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its second quarter 2022 conference call; the presentation can be viewed and downloaded from the ‘Financial Info – Financial Results’ section of COPT’s Investors website: https://investors.copt.com/financial-information/financial-results

2022 Guidance

Management is updating its full-year guidance for diluted EPS and diluted FFOPS, per Nareit and as adjusted for comparability, from the prior range of $1.16-$1.22, and $2.31-$2.37, respectively, to new ranges of $1.33-$1.37, and $2.33-$2.37, respectively. Management is establishing third quarter guidance for diluted EPS and diluted FFOPS per Nareit and as adjusted for comparability at $0.27-$0.29 and $0.57-$0.59, respectively. Reconciliations of projected diluted EPS to projected diluted FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Conference Call Information

Management will discuss second quarter 2022 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Participants must register for the conference call at the link below to receive the dial-in number and personal pin. Registering only takes a few moments and provides direct access to the conference call without waiting for an operator. You may register at any time, including up to and after the call start time:
https://register.vevent.com/register/BIc8c0e17ac73c4a0fa291f2b763956f45

The conference call will also be available via live webcast in the ‘News & Events – IR Calendar’ section of COPT’s Investors website: https://investors.copt.com/news-events/ir-calendar

Replay Information

A replay of the conference call will be immediately available via webcast only on COPT’s Investors website.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company’s Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT

COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties. The majority of its portfolio is in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what the Company believes are growing, durable, priority missions (“Defense/IT Locations”). The Company also owns a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office Properties”). As of June 30, 2022, the Company derived 90% of its core portfolio annualized rental revenue from Defense/IT Locations and 10% from its Regional Office Properties. As of the same date and including 19 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 186 properties encompassed 21.9 million square feet and was 93.7% leased.

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,” “believe,” “anticipate,” “expect,” “estimate,” “plan” 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. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, 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 and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Source: Corporate Office Properties Trust

View source version on businesswire.com: https://www.businesswire.com/news/home/20220728006007/en/

IR Contact:
Michelle Layne
443-285-5452
michelle.layne@copt.com

Source: Corporate Office Properties Trust

Released July 28, 2022