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COPT Reports Strong Second Quarter 2020 Results

·20 mins read

2Q20 Results Outperform Expectations

FFO per share of $0.51 in 2Q Exceeded High-End of Guidance by $0.01

Solid Same-Property Cash NOI Growth of 1.7% in 2Q Outperformed Guidance

Core Portfolio 93.6% Occupied & 94.7% Leased

412,000 SF of 97.5% Leased Developments Placed in Service during 2Q; 642,000 SF of 99% Leased Developments Placed in Service During First Half of 2020

Solid Leasing Volumes

Total Leasing in 2Q of 959,000 SF included 276,000 SF of Development Leasing and 70,000 SF of Vacancy Leasing

Continued Strong Tenant Retention of 76% in 2Q; 81% for First Half of 2020

1.9 Million SF Under Development are 84% Leased

Executed a New, 3.1MW Lease with Defense Contractor at DC-6

COVID-19 Impact on Operations Continues to be Minimal

Maintaining Mid-Point of Full-Year Guidance for FFO per Share, As Adjusted for Comparability, of $2.07

Monthly Rent Collections, Net of Rent Accommodations, Continue to Exceed 99%

Corporate Office Properties Trust ("COPT" or the "Company") (NYSE: OFC) announced financial and operating results for the second quarter ended June 30, 2020.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, "The Company delivered strong second quarter results, with FFO per share exceeding the high-end of our guidance range by 1-cent. Cost savings and the timing of repair and maintenance costs more than offset the reserves we took on tenants impacted by the shutdowns and drove same-property cash NOI growth of 1.7%." He continued, "Our operations and ability to execute development and renewal leasing continue to be minimally impacted by the pandemic due to the high concentration of U.S. Government national security activity in our portfolio. Accordingly, we affirm the $2.07 mid-point of our updated 2020 guidance for FFO per share, as adjusted for comparability."

Financial Highlights

2nd Quarter Financial Results:

  • Diluted earnings per share ("EPS") was $0.21 for the quarter ended June 30, 2020 as compared to $0.95 for the second quarter of 2019.

  • Diluted funds from operations per share ("FFOPS"), as calculated in accordance with Nareit’s definition and as adjusted for comparability, was $0.51 for the second quarter of 2020 as compared to $0.52 for second quarter 2019 results.

Operating Performance Highlights

Operating Portfolio Summary:

  • At June 30, 2020, the Company’s core portfolio of 172 operating office and data center shell properties was 93.6% occupied and 94.7% leased.

  • During the quarter, the Company placed into service 412,000 square feet that were 97.5% leased.

Same-Property Performance:

  • At June 30, 2020, COPT’s same-property portfolio of 152 buildings was 92.3% occupied and 93.5% leased.

  • For the quarter and six months ended June 30, 2020, the Company’s same-property cash NOI increased 1.7% and 3.3%, respectively, over the prior year’s comparable periods.

Leasing:

  • Total Square Feet Leased: For the quarter ended June 30, 2020, the Company leased 959,000 total square feet, including 613,000 square feet of renewals, 70,000 square feet of new leases on vacant space, and 276,000 square feet in development projects. For the six months ended June 30, 2020, the Company executed 1.6 million square feet of total leasing.

  • Renewal Rates: During the quarter and six months ended June 30, 2020, the Company respectively renewed 75.6% and 81.0% of total expiring square feet.

  • Cash Rent Spreads & Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2020, cash rents on renewed space decreased 3.2% and 2.0%, respectively. For the same time periods, annual escalations on renewing leases averaged 2.4%.

  • Lease Terms: In the second quarter, lease terms averaged 5.2 years on renewing leases, 4.9 years on new leasing of vacant space, and 16.3 years on development leasing. For the first six months, lease terms averaged 5.1 years on renewing leases, 6.7 years on vacancy leasing, and 16.3 years on development leasing.

  • DC-6: At the Company’s wholesale data center, COPT executed a new, 3.1 megawatt lease with a defense contractor in April, increasing DC-6 to 90.6% leased.

Investment Activity Highlights

Development & Redevelopment Projects:

  • Development Pipeline: At July 7, 2020, the Company’s development pipeline consisted of 11 properties and expansions in three fully-operational properties totaling 1.9 million square feet that were 84% leased. These projects have a total estimated cost of $612.2 million, of which $379.1 million had been incurred as of June 30, 2020.

Balance Sheet and Capital Transaction Highlights

  • As of June 30, 2020, the Company’s net debt plus preferred equity to adjusted book ratio was 38.8% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.4x. For the quarter ended June 30, 2020, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.8x.

  • As of June 30, 2020, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 3.66% with a weighted average maturity of 3.0 years; additionally, 88.5% of the Company’s debt was subject to fixed interest rates.

2020 Guidance

Management is increasing its prior full-year guidance ranges of $0.65-$0.69 for EPS to a new range of $0.76-$0.80. Management is maintaining its full-year guidance ranges for FFOPS per Nareit and FFOPS, as adjusted for comparability, at $1.95-$1.99 and $2.05-$2.09, respectively.

Management also is establishing guidance for EPS and FFOPS, per Nareit and as adjusted for comparability, for the third quarter ending September 30, 2020 at ranges of $0.16-$0.18 and $0.51-$0.53, respectively; and for the fourth quarter ending December 31, 2020, management is establishing guidance ranges for EPS and FFOPS, per Nareit and as adjusted for comparability, at $0.17-$0.19 and $0.52-$0.54, respectively. Reconciliations of projected diluted EPS to projected FFOPS are as follows:

Table 1: Reconciliation of EPS to FFOPS, per Nareit and

Quarter ending

Quarter ending

Year ending

As Adjusted for Comparability

September 30, 2020

December 31, 2020

December 31, 2020

Low

High

Low

High

Low

High

EPS

$

0.16

$

0.18

$

0.17

$

0.19

$

0.76

$

0.80

Real estate-related depreciation and amortization

0.35

0.35

0.35

0.35

1.29

1.29

FFO allocation to other noncontrolling interests resulting from capital event

-

-

-

-

(0.10

)

(0.10

)

FFOPS, Nareit definition

0.51

0.53

0.52

0.54

1.95

1.99

FFO allocation to other noncontrolling interests resulting from capital event

-

-

-

-

0.10

0.10

FFOPS, as adjusted for comparability

$

0.51

$

0.53

$

0.52

$

0.54

$

2.05

$

2.09

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its second quarter 2020 conference call, the details of which are provided below. The accompanying slide presentation can be viewed on and downloaded from the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Conference Call Information

Management will discuss second quarter 2020 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:

Friday, July 31, 2020

Time:

12:00 p.m. Eastern Time

Telephone Number: (within the U.S.)

855-463-9057

Telephone Number: (outside the U.S.)

661-378-9894

Passcode:

4686936

The conference call will also be available via live webcast in the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Replay Information

A replay of the conference call will be immediately available via webcast on the Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, July 31, through 3:00 p.m. Eastern Time on Friday, August 14. To access the replay within the United States, please call 855-859-2056; to access it from outside the United States, please call 404-537-3406. In either case, use passcode 4686936.

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 it 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, 2020, the Company derived 88% of its core portfolio annualized rental revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of the same date and including 15 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 172 office and data center shell properties encompassed 19.6 million square feet and was 94.7% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts that was 90.6% 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, 2019 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Category: Quarterly Results

Source: Corporate Office Properties Trust

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,

2020

2019

2020

2019

Revenues

Revenues from real estate operations

$

132,538

$

132,771

$

264,654

$

264,761

Construction contract and other service revenues

12,236

42,299

25,917

59,249

Total revenues

144,774

175,070

290,571

324,010

Operating expenses

Property operating expenses

50,204

47,886

100,203

97,331

Depreciation and amortization associated with real estate operations

33,612

34,802

66,208

69,598

Construction contract and other service expenses

11,711

41,002

24,832

57,328

General and administrative expenses

6,511

7,650

11,814

14,369

Leasing expenses

1,647

1,736

3,830

3,768

Business development expenses and land carry costs

1,262

870

2,380

1,983

Total operating expenses

104,947

133,946

209,267

244,377

Interest expense

(16,797

)

(18,475

)

(33,637

)

(37,149

)

Interest and other income

2,282

1,849

3,487

4,135

Credit loss expense

(615

)

(1,304

)

Gain on sales of real estate

84,469

5

84,469

Income before equity in income of unconsolidated entities and income taxes

24,697

108,967

49,855

131,088

Equity in income of unconsolidated entities

454

420

895

811

Income tax (expense) benefit

(30

)

176

(79

)

(18

)

Net income

25,121

109,563

50,671

131,881

Net income attributable to noncontrolling interests:

Common units in the Operating Partnership ("OP")

(284

)

(1,339

)

(571

)

(1,596

)

Preferred units in the OP

(77

)

(165

)

(154

)

(330

)

Other consolidated entities

(1,263

)

(1,268

)

(2,395

)

(2,305

)

Net income attributable to COPT common shareholders

$

23,497

$

106,791

$

47,551

$

127,650

Earnings per share ("EPS") computation:

Numerator for diluted EPS:

Net income attributable to COPT common shareholders

$

23,497

$

106,791

$

47,551

$

127,650

Distributions on dilutive convertible preferred units

165

Redeemable noncontrolling interests

902

66

Common units in the OP

1,515

Amount allocable to share-based compensation awards

(109

)

(346

)

(206

)

(391

)

Numerator for diluted EPS

$

23,388

$

107,512

$

47,345

$

128,840

Denominator:

Weighted average common shares - basic

111,800

111,557

111,762

110,759

Dilutive convertible preferred units

176

Dilutive effect of redeemable noncontrolling interests

1,062

130

Common units in the OP

1,329

Dilutive effect of share-based compensation awards

321

310

280

289

Weighted average common shares - diluted

112,121

113,105

112,042

112,507

Diluted EPS

$

0.21

$

0.95

$

0.42

$

1.15

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,

2020

2019

2020

2019

Net income

$

25,121

$

109,563

$

50,671

$

131,881

Real estate-related depreciation and amortization

33,612

34,802

66,208

69,598

Gain on sales of real estate

(84,469

)

(5

)

(84,469

)

Depreciation and amortization on unconsolidated real estate JVs

818

566

1,636

1,132

Funds from operations ("FFO")

59,551

60,462

118,510

118,142

Noncontrolling interests - preferred units in the OP

(77

)

(165

)

(154

)

(330

)

FFO allocable to other noncontrolling interests

(1,525

)

(1,188

)

(13,540

)

(2,159

)

Basic FFO allocable to share-based compensation awards

(254

)

(229

)

(447

)

(414

)

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

57,695

58,880

104,369

115,239

Dilutive preferred units in the OP

77

154

Redeemable noncontrolling interests

37

33

69

942

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

57,809

58,913

104,592

116,181

Demolition costs on redevelopment and nonrecurring improvements

9

52

44

Executive transition costs

4

Non-comparable professional and legal expenses

311

311

FFO allocation to other noncontrolling interests resulting from capital event

11,090

Diluted FFO comparability adjustments allocable to share-based compensation awards

(1

)

(2

)

(51

)

(2

)

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

57,817

59,222

115,683

116,538

Straight line rent adjustments and lease incentive amortization

2,523

1,051

1,671

(616

)

Amortization of intangibles included in net operating income

(73

)

(50

)

(147

)

12

Share-based compensation, net of amounts capitalized

1,638

1,623

3,027

3,296

Amortization of deferred financing costs

642

529

1,217

1,057

Amortization of net debt discounts, net of amounts capitalized

390

374

776

744

Accum. other comprehensive loss on derivatives amortized to expense

33

67

Replacement capital expenditures

(16,132

)

(16,002

)

(33,886

)

(27,175

)

Other diluted AFFO adjustments associated with real estate JVs

(115

)

181

(156

)

214

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

$

46,690

$

46,961

$

88,185

$

94,137

Diluted FFO per share

$

0.51

$

0.52

$

0.92

$

1.02

Diluted FFO per share, as adjusted for comparability

$

0.51

$

0.52

$

1.02

$

1.03

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,

2020

December 31,

2019

Balance Sheet Data

Properties, net of accumulated depreciation

$

3,513,099

$

3,340,886

Total assets

4,011,325

3,854,453

Debt, per balance sheet

2,012,019

1,831,139

Total liabilities

2,331,253

2,105,777

Redeemable noncontrolling interests

23,148

29,431

Equity

1,656,924

1,719,245

Net debt to adjusted book

38.6

%

36.8

%

Core Portfolio Data (as of period end) (1)

Number of operating properties

172

168

Total operational square feet (in thousands)

19,624

19,016

% Occupied

93.6

%

93.1

%

% Leased

94.7

%

94.6

%

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2020

2019

2020

2019

Payout ratios

Diluted FFO

53.9

%

52.7

%

59.6

%

53.5

%

Diluted FFO, as adjusted for comparability

53.9

%

52.4

%

53.9

%

53.3

%

Diluted AFFO

66.8

%

66.1

%

70.7

%

66.0

%

Adjusted EBITDA fixed charge coverage ratio

3.8x

3.7x

3.8x

3.7x

Net debt to in-place adjusted EBITDA ratio (2)

6.4x

5.7x

N/A

N/A

Net debt plus preferred equity to in-place adjusted EBITDA ratio (3)

6.4x

5.7x

N/A

N/A

Reconciliation of denominators for per share measures

Denominator for diluted EPS

112,121

113,105

112,042

112,507

Weighted average common units

1,237

1,327

1,232

Redeemable noncontrolling interests

157

(926

)

133

907

Dilutive convertible preferred units

176

(176

)

176

Denominator for diluted FFO per share and as adjusted for comparability

113,691

113,330

113,583

113,414

(1)

Represents Defense/IT Locations and Regional Office properties.

(2)

Represents net debt as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

(3)

Represents net debt plus the total liquidation preference of preferred equity as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2020

2019

2020

2019

Reconciliation of common share dividends to dividends and distributions for payout ratios

Common share dividends - unrestricted shares and deferred shares

$

30,761

$

30,693

$

61,515

$

61,378

Common unit distributions - unrestricted units

341

365

680

730

Distributions on dilutive preferred units

77

154

Dividends and distributions for payout ratios

$

31,179

$

31,058

$

62,349

$

62,108

Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization for real estate ("EBITDAre"), adjusted EBITDA and in-place adjusted EBITDA

Net income

$

25,121

$

109,563

$

50,671

$

131,881

Interest expense

16,797

18,475

33,637

37,149

Income tax expense (benefit)

30

(176

)

79

18

Depreciation of furniture, fixtures and equipment

448

496

867

929

Real estate-related depreciation and amortization

33,612

34,802

66,208

69,598

Gain on sales of real estate

(84,469

)

(5

)

(84,469

)

Adjustments from unconsolidated real estate JVs

1,270

830

2,540

1,657

EBITDAre

77,278

79,521

153,997

156,763

Net loss (gain) on other investments

2

(12

)

2

(400

)

Credit loss expense

615

1,304

Business development expenses

678

460

1,216

1,008

Non-comparable professional and legal expenses

311

311

Demolition costs on redevelopment and nonrecurring improvements

9

52

44

Executive transition costs

4

Adjusted EBITDA

78,582

80,280

$

156,571

$

157,730

Proforma net operating income adjustment for property changes within period

959

(1,981

)

Change in collectability of deferred rental revenue

1,007

In-place adjusted EBITDA

$

80,548

$

78,299

Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA

Interest expense

$

16,797

$

18,475

$

33,637

$

37,149

Less: Amortization of deferred financing costs

(642

)

(529

)

(1,217

)

(1,057

)

Less: Amortization of net debt discounts, net of amounts capitalized

(390

)

(374

)

(776

)

(744

)

Less: Accum. other comprehensive loss on derivatives amortized to expense

(33

)

(67

)

COPT’s share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs

442

258

883

513

Scheduled principal amortization

1,023

1,095

2,044

2,193

Capitalized interest

3,174

2,388

6,532

4,392

Preferred unit distributions

77

165

154

330

Denominator for fixed charge coverage-Adjusted EBITDA

$

20,481

$

21,445

$

41,257

$

42,709

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2020

2019

2020

2019

Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures

Tenant improvements and incentives

$

8,870

$

8,568

$

20,227

$

15,720

Building improvements

13,662

4,333

16,137

8,864

Leasing costs

2,222

2,761

4,984

5,943

Net additions to tenant improvements and incentives

329

1,759

2,355

290

Excluded building improvements and leasing costs

(8,951

)

(1,419

)

(9,817

)

(3,642

)

Replacement capital expenditures

$

16,132

$

16,002

$

33,886

$

27,175

Same Properties cash NOI

$

75,837

$

74,584

$

150,799

$

145,992

Straight line rent adjustments and lease incentive amortization

(1,513

)

(701

)

(2,080

)

(15

)

Amortization of acquired above- and below-market rents

97

73

193

33

Amortization of below-market cost arrangements

(23

)

(23

)

(46

)

(46

)

Lease termination fees, gross

358

285

443

806

Tenant funded landlord assets and lease incentives

(147

)

530

222

926

Cash NOI adjustments in unconsolidated real estate JV

35

46

63

105

Same Properties NOI

$

74,644

$

74,794

$

149,594

$

147,801

June 30,

2020

December 31,

2019

Reconciliation of total assets to adjusted book

Total assets

$

4,011,325

$

3,854,453

Accumulated depreciation

1,065,094

1,007,120

Accumulated amortization of real estate intangibles and deferred leasing costs

216,267

212,547

COPT’s share of liabilities of unconsolidated real estate JVs

50,984

50,734

COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JVs

9,815

8,164

Less: Property - operating lease liabilities

(20,796

)

(17,317

)

Less: Property - finance lease liabilities

(688

)

(702

)

Less: Cash and cash equivalents

(21,596

)

(14,733

)

Less: COPT’s share of cash of unconsolidated real estate JVs

(627

)

(498

)

Adjusted book

$

5,309,778

$

5,099,768

Reconciliation of debt outstanding to net debt and net debt plus preferred equity

Debt outstanding (excluding net debt discounts and deferred financing costs)

$

2,073,351

$

1,893,057

Less: Cash and cash equivalents

(21,596

)

(14,733

)

Less: COPT’s share of cash of unconsolidated real estate JVs

(627

)

(498

)

Net debt

$

2,051,128

$

1,877,826

Preferred equity

8,800

8,800

Net debt plus preferred equity

$

2,059,928

$

1,886,626

View source version on businesswire.com: https://www.businesswire.com/news/home/20200730006025/en/

Contacts

IR Contacts:
Stephanie Krewson-Kelly
443-285-5453
stephanie.kelly@copt.com

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