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COPT Reports 2Q 2022 Results

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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., July 28, 2022--(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

2nd 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:

Reconciliation of Diluted EPS to Diluted FFOPS, per Nareit and

Quarter ending

Year ending

As Adjusted for Comparability

September 30, 2022

December 31, 2022

Low

High

Low

High

Diluted EPS

$

0.27

$

0.29

$

1.33

$

1.37

Real estate-related depreciation and amortization

0.30

0.30

1.25

1.25

Gain on sales of real estate

-

-

(0.25

)

(0.25

)

Diluted FFOPS, Nareit definition and as adjusted for comparability

$

0.57

$

0.59

$

2.33

$

2.37

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:

Conference Call Date:

Friday, July 29, 2022

Time:

12:00 p.m. Eastern Time

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

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(dollars and shares in thousands, except per share data)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Revenues

Revenues from real estate operations

$

143,246

$

137,219

$

285,526

$

275,049

Construction contract and other service revenues

42,557

19,988

95,757

36,546

Total revenues

185,803

157,207

381,283

311,595

Operating expenses

Property operating expenses

54,116

50,914

111,297

104,190

Depreciation and amortization associated with real estate operations

34,812

34,732

69,076

69,232

Construction contract and other service expenses

41,304

19,082

92,954

34,875

General and administrative expenses

6,467

7,293

13,137

13,355

Leasing expenses

1,888

1,929

3,762

4,273

Business development expenses and land carry costs

701

1,372

1,484

2,466

Total operating expenses

139,288

115,322

291,710

228,391

Interest expense

(14,808

)

(15,942

)

(29,232

)

(33,461

)

Interest and other income

1,818

2,228

3,711

4,093

Credit loss (expense) recoveries

(225

)

(193

)

91

714

Gain on sales of real estate

(19

)

40,233

(4

)

39,743

Loss on early extinguishment of debt

(25,228

)

(342

)

(58,394

)

Income from continuing operations before equity in income of unconsolidated entities and income taxes

33,281

42,983

63,797

35,899

Equity in income of unconsolidated entities

318

260

1,206

482

Income tax expense

(4

)

(24

)

(157

)

(56

)

Income from continuing operations

33,595

43,219

64,846

36,325

Discontinued operations

679

29,573

1,494

Net Income

33,595

43,898

94,419

37,819

Net income attributable to noncontrolling interests:

Common units in the Operating Partnership ("OP")

(496

)

(559

)

(1,352

)

(474

)

Other consolidated entities

(789

)

(938

)

(1,438

)

(1,613

)

Net income attributable to COPT common shareholders

$

32,310

$

42,401

$

91,629

$

35,732

Earnings per share ("EPS") computation:

Numerator for diluted EPS:

Net income attributable to COPT common shareholders

$

32,310

$

42,401

$

91,629

$

35,732

Amount allocable to share-based compensation awards

(75

)

(125

)

(259

)

(235

)

Redeemable noncontrolling interests

(30

)

(20

)

(69

)

7

Numerator for diluted EPS

$

32,205

$

42,256

$

91,301

$

35,504

Denominator:

Weighted average common shares - basic

112,082

111,974

112,052

111,931

Dilutive effect of share-based compensation awards

429

297

427

280

Dilutive effect of redeemable noncontrolling interests

126

133

129

125

Weighted average common shares - diluted

112,637

112,404

112,608

112,336

Diluted EPS

$

0.29

$

0.38

$

0.81

$

0.32

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Net income

$

33,595

$

43,898

$

94,419

$

37,819

Real estate-related depreciation and amortization

34,812

37,555

69,076

74,876

Gain on sales of real estate from continuing and discontinued operations

19

(40,233

)

(28,560

)

(39,743

)

Depreciation and amortization on unconsolidated real estate JVs

525

476

1,051

930

Funds from operations ("FFO")

68,951

41,696

135,986

73,882

FFO allocable to other noncontrolling interests

(1,178

)

(1,302

)

(2,220

)

(2,329

)

Basic FFO allocable to share-based compensation awards

(357

)

(193

)

(719

)

(353

)

Basic FFO available to common share and common unit holders ("Basic FFO")

67,416

40,201

133,047

71,200

Redeemable noncontrolling interests

4

11

(2

)

70

Diluted FFO adjustments allocable to share-based compensation awards

27

54

Diluted FFO available to common share and common unit holders ("Diluted FFO")

67,447

40,212

133,099

71,270

Loss on early extinguishment of debt

25,228

342

58,394

Demolition costs on redevelopment and nonrecurring improvements

302

302

Executive transition costs

137

137

Diluted FFO comparability adjustments allocable to share-based compensation awards

(137

)

(2

)

(304

)

Diluted FFO available to common share and common unit holders, as adjusted for comparability

67,584

65,605

133,576

129,662

Straight line rent adjustments and lease incentive amortization

(3,198

)

(1,288

)

(6,387

)

(4,645

)

Amortization of intangibles and other assets included in net operating income

49

41

(323

)

81

Share-based compensation, net of amounts capitalized

2,154

2,009

4,265

3,913

Amortization of deferred financing costs

541

811

1,138

1,604

Amortization of net debt discounts, net of amounts capitalized

608

520

1,213

1,062

Replacement capital expenditures

(17,717

)

(13,095

)

(35,075

)

(25,325

)

Other

406

178

445

419

Diluted adjusted funds from operations available to common share and common unit holders ("Diluted AFFO")

$

50,427

$

54,781

$

98,852

$

106,771

Diluted FFO per share

$

0.59

$

0.35

$

1.17

$

0.63

Diluted FFO per share, as adjusted for comparability

$

0.59

$

0.58

$

1.17

$

1.14

Dividends/distributions per common share/unit

$

0.275

$

0.275

$

0.550

$

0.550

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)

June 30,
2022

December 31,
2021

Balance Sheet Data

Properties, net of accumulated depreciation

$

3,639,751

$

3,532,944

Total assets

4,185,193

4,262,452

Debt, per balance sheet

2,177,811

2,272,304

...