COPT Reports First Quarter 2021 Results; Raises Midpoint of Full Year Guidance by 3-Cents, Implying 4.7% Growth
Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the first quarter ended March 31, 2021.
Management Comments
Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “We are off to a strong start in 2021. Due to our unique investment strategy of concentrating assets around U.S. defense installations executing priority missions in support of national security, and the extremely high credit quality of our tenants, our operations continue to be fundamentally unaffected by pandemic-related externalities. First quarter leasing results were in-line with our internal forecast, and we are off to a blistering start in the second quarter, completing over 660,000 square feet of new and renewal leasing, and achieving an 88% renewal rate. Based on leasing achieved in April and the transactions in negotiation, we are increasing our full-year tenant retention guidance from the prior range of 65%-75% to a new range of 70%-75%. With roughly 900,000 square feet of development transactions in advanced negotiations, we also remain on-track to meet or exceed previously established guidance of leasing 1 million square feet in developments this year.”
He continued, “The exceptional execution of our March bond offering and solid operations drove first quarter FFO per share, as adjusted for comparability, to the high-end of guidance and the interest savings will continue to benefit the remainder of the year. Additionally, our improved leasing outlook is driving higher expectations for same-property results. Accordingly, we are increasing the midpoint of our updated full-year guidance for FFO per share, as adjusted for comparability, from $2.19 to a new midpoint of $2.22, which would represent 4.7% growth over 2020 results.”
Financial Highlights
1st Quarter Financial Results:
Diluted (loss) earnings per share (“EPS”) was ($0.06) for the quarter ended March 31, 2021 as compared to $0.21 for the first quarter of 2020. Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.27 for the first quarter of 2021 as compared to $0.41 for first quarter 2020 results. FFOPS, as adjusted for comparability, was $0.56 for the first quarter of 2021 as compared to $0.51 for the first quarter of 2020.Operating Performance Highlights
Operating Portfolio Summary:
At March 31, 2021, the Company’s core portfolio of 180 operating office and data center shell properties was 94.0% occupied and 94.9% leased. During the quarter, the Company placed into service 46,000 square feet that were 100% leased.Same-Property Performance:
At March 31, 2021, COPT’s same-property portfolio of 161 buildings was 92.8% occupied and 93.8% leased. For the quarter ended March 31, 2021, the Company’s same-property cash NOI decreased 2.7% over the prior year’s comparable period.Leasing:
Total Square Feet Leased: For the quarter ended March 31, 2021, the Company leased 258,000 total square feet, including 154,000 square feet of renewals, 11,000 square feet in development projects, and 93,000 square feet of new leases on vacant space. Renewal Rates: During the quarter ended March 31, 2021, the Company renewed 51.8% of total expiring square feet. Rent Spreads & Average Escalations on Renewing Leases: For the quarter ended March 31, 2021, cash rents on renewed space decreased 2.2% and GAAP rents on renewed space increased 4.9%. For the same period, annual escalations on renewing leases averaged 2.6%. Lease Terms: In the first quarter of 2021, lease terms averaged 3.1 years on renewing leases, 5.5 years on development leasing, and 8.5 years on new leasing of vacant space.Investment Activity Highlights
Development Pipeline: At March 31, 2021, the Company’s development pipeline consisted of 10 properties totaling 1.4 million square feet that were 85% leased. These projects have a total estimated cost of $595.2 million, of which $340.2 million has been incurred.Balance Sheet and Capital Transaction Highlights
In March, the Company issued $600 million of 2.75% senior unsecured notes due 2031. This issuance enabled the Company to complete tender offers for, and subsequent redemptions of, its $350 million of 3.6% senior unsecured notes due 2023 and $250 million of 5.25% senior unsecured notes due 2024. The tender offers were completed effective March 11, 2021, and the redemptions of the remaining notes were completed on April 12, 2021. At March 31, 2021, the Company’s net debt to adjusted book ratio was 40.8% and its net debt to in-place adjusted EBITDA ratio was 6.6x. As of the same date, net debt adjusted for fully-leased development plus preferred equity to in-place adjusted EBITDA ratio was 6.3x. For the quarter ended March 31, 2021, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.3x. At March 31, 2021, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 3.25% with a weighted average maturity of 4.8 years; additionally, 89.4% 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 first quarter 2021 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/
2021 Guidance
Management is increasing its full-year guidance for EPS and FFOPS, per Nareit and as adjusted for comparability from the prior range of $0.25-$0.31, $1.65-$1.71, and $2.16-$2.22, respectively, to new ranges of $0.28-$0.34, $1.68-$1.74, and $2.19-$2.25, respectively. Management is establishing second quarter guidance for EPS and FFOPS per Nareit, and FFOPS, as adjusted for comparability at ($0.02)-$0.00, $0.33-$0.35, and $0.55-$0.57, respectively. Reconciliations of projected EPS to projected FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:
Reconciliation of EPS to FFOPS, per Nareit, Quarter ending Year ending and As Adjusted for Comparability June 30, 2021 December 31, 2021 Low High Low High EPS$
(0.02
)
$
-
$
0.28
$
0.34
Real estate-related depreciation and amortization
0.35
0.35
1.40
1.40
FFOPS, Nareit definition
0.33
0.35
1.68
1.74
Loss on early extinguishment of debt
0.22
0.22
0.51
0.51
FFOPS, as adjusted for comparability$
0.55
$
0.57
$
2.19
$
2.25
Conference Call Information
Management will discuss first quarter 2021 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:
Conference Call Date:
Friday, April 30, 2021
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:
8353839
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, April 30, through 3:00 p.m. Eastern Time on Friday, May 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 8353839.
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 March 31, 2021, 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 17 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 180 office and data center shell properties encompassed 20.8 million square feet and was 94.9% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts that was 86.7% 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, 2020.
Category: Quarterly Results
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
March 31,
2021
2020
Revenues
Revenues from real estate operations
$
145,164
$
132,116
Construction contract and other service revenues
16,558
13,681
Total revenues
161,722
145,797
Operating expenses
Property operating expenses
56,974
49,999
Depreciation and amortization associated with real estate operations
37,321
32,596
Construction contract and other service expenses
15,793
13,121
General and administrative expenses
6,062
5,303
Leasing expenses
2,344
2,183
Business development expenses and land carry costs
1,094
1,118
Total operating expenses
119,588
104,320
Interest expense
(17,519
)
(16,840
)
Interest and other income
1,865
1,205
Credit loss recoveries (expense)
907
(689
)
Gain on sales of real estate
(490
)
5
Loss on early extinguishment of debt
(33,166
)
—
(Loss) income before equity in income of unconsolidated entities and income taxes
(6,269
)
25,158
Equity in income of unconsolidated entities
222
441
Income tax expense
(32
)
(49
)
Net (loss) income
(6,079
)
25,550
Net loss (income) attributable to noncontrolling interests:
Common units in the Operating Partnership (“OP”)
85
(287
)
Preferred units in the OP
—
(77
)
Other consolidated entities
(675
)
(1,132
)
Net (loss) income attributable to COPT common shareholders
$
(6,669
)
$
24,054
Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net (loss) income attributable to COPT common shareholders
$
(6,669
)
$
24,054
Amount allocable to share-based compensation awards
(170
)
(97
)
Numerator for diluted EPS
$
(6,839
)
$
23,957
Denominator:
Weighted average common shares - basic
111,888
111,724
Dilutive effect of share-based compensation awards
—
239
Weighted average common shares - diluted
111,888
111,963
Diluted EPS
$
(0.06
)
$
0.21
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
For the Three Months Ended
March 31,
2021
2020
Net (loss) income
$
(6,079
)
$
25,550
Real estate-related depreciation and amortization
37,321
32,596
Gain on sales of real estate
490
(5
)
Depreciation and amortization on unconsolidated real estate JVs
454
818
Funds from operations (“FFO”)
32,186
58,959
FFO allocable to other noncontrolling interests
(1,027
)
(12,015
)
Basic FFO allocable to share-based compensation awards
(162
)
(193
)
Noncontrolling interests - preferred units in the OP
—
(77
)
Basic FFO available to common share and common unit holders (“Basic FFO”)
30,997
46,674
Redeemable noncontrolling interests
—
32
Diluted FFO available to common share and common unit holders (“Diluted FFO”)
30,997
46,706
Loss on early extinguishment of debt
33,166
—
Diluted FFO comparability adjustments for redeemable noncontrolling interests
458
—
Diluted FFO comparability adjustments allocable to share-based compensation awards
(167
)
(50
)
Demolition costs on redevelopment and nonrecurring improvements
—
43
Dilutive preferred units in the OP
—
77
FFO allocation to other noncontrolling interests resulting from capital event
—
11,090
Diluted FFO available to common share and common unit holders, as adjusted for comparability
64,454
57,866
Straight line rent adjustments and lease incentive amortization
(3,357
)
(852
)
Amortization of intangibles included in net operating income
40
(74
)
Share-based compensation, net of amounts capitalized
1,904
1,389
Amortization of deferred financing costs
793
575
Amortization of net debt discounts, net of amounts capitalized
542
386
Replacement capital expenditures
(12,230
)
(17,754
)
Other diluted AFFO adjustments associated with real estate JVs
241
(41
)
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)
$
52,387
$
41,495
Diluted FFO per share
$
0.27
$
0.41
Diluted FFO per share, as adjusted for comparability
$
0.56
$
0.51
Dividends/distributions per common share/unit
$
0.275
$
0.275
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
March 31,
2021
December 31,
2020
Balance Sheet Data
Properties, net of accumulated depreciation
$
3,579,254
$
3,562,549
Total assets
4,112,948
4,077,023
Debt, per balance sheet
2,207,903
2,086,918
Total liabilities
2,430,231
2,357,881
Redeemable noncontrolling interests
25,925
25,430
Equity
1,656,792
1,693,712
Net debt to adjusted book
40.8
%
39.1
%
Core Portfolio Data (as of period end) (1)
Number of operating properties
180
179
Total operational square feet (in thousands)
20,849
20,802
% Occupied
94.0
%
94.3
%
% Leased
94.9
%
95.0
%
For the Three Months Ended
March 31,
2021
2020
Payout ratios
Diluted FFO
100.5
%
66.6
%
Diluted FFO, as adjusted for comparability
48.3
%
53.9
%
Diluted AFFO
59.5
%
75.1
%
Adjusted EBITDA fixed charge coverage ratio
4.3
x
3.8
x
Net debt plus preferred equity to in-place adjusted EBITDA ratio (2)
6.6
x
6.3
x
Net debt adj. for fully-leased development plus pref. equity to in-place adj. EBITDA ratio (3)
6.3
x
5.8
x
Reconciliation of denominators for per share measures
Denominator for diluted EPS
111,888
111,963
Weighted average common units
1,246
1,226
Anti-dilutive EPS effect of share-based compensation awards
261
—
Redeemable noncontrolling interests
—
110
Denominator for diluted FFO per share
113,395
113,299
Redeemable noncontrolling interests
940
—
Dilutive convertible preferred units
—
176
Denominator for diluted FFO per share, as adjusted for comparability
114,335
113,475
(1)
Represents Defense/IT Locations and Regional Office properties.
(2)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).
(3)Represents net debt less costs incurred on properties under development that were 100% leased as of period end plus the total liquidation preference of preferred equity 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)
(in thousands)
For the Three Months Ended
March 31,
2021
2020
Reconciliation of common share dividends to dividends and distributions for payout ratios
Common share dividends - unrestricted shares and deferred shares
$
30,805
$
30,754
Common unit distributions - unrestricted units
347
339
Dividends and distributions for diluted FFO payout ratio
31,152
31,093
Distributions on dilutive preferred units
—
77
Dividends and distributions for other payout ratios
$
31,152
$
31,170
Reconciliation of GAAP net (loss) income to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA
Net (loss) income
$
(6,079
)
$
25,550
Interest expense
17,519
16,840
Income tax expense
32
49
Real estate-related depreciation and amortization
37,321
32,596
Other depreciation and amortization
555
419
Gain on sales of real estate
490
(5
)
Adjustments from unconsolidated real estate JVs
693
1,270
EBITDAre
50,531
76,719
Loss on early extinguishment of debt
33,166
—
Credit loss (recoveries) expense
(907
)
689
Business development expenses
548
538
Demolition costs on redevelopment and nonrecurring improvements
—
43
Adjusted EBITDA
83,338
77,989
Proforma net operating income adjustment for property changes within period
166
734
Change in collectability of deferred rental revenue
124
—
In-place adjusted EBITDA
$
83,628
$
78,723
Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA
Interest expense
$
17,519
$
16,840
Less: Amortization of deferred financing costs
(793
)
(575
)
Less: Amortization of net debt discounts, net of amounts capitalized
(542
)
(386
)
COPT’s share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs
234
441
Scheduled principal amortization
962
1,021
Capitalized interest
1,805
3,358
Preferred unit distributions
—
77
Denominator for fixed charge coverage-Adjusted EBITDA
$
19,185
$
20,776
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands)
For the Three Months Ended
March 31,
2021
2020
Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures
Tenant improvements and incentives
$
7,139
$
11,357
Building improvements
3,628
2,475
Leasing costs
1,129
2,762
Net additions to tenant improvements and incentives
2,900
2,026
Excluded building improvements and leasing costs
(2,566
)
(866
)
Replacement capital expenditures
$
12,230
$
17,754
Same Properties cash NOI
$
74,000
$
76,041
Straight line rent adjustments and lease incentive amortization
151
182
Amortization of acquired above- and below-market rents
99
96
Amortization of intangibles and other assets to property operating expenses
—
(23
)
Lease termination fees, net
1,362
38
Tenant funded landlord assets and lease incentives
179
368
Cash NOI adjustments in unconsolidated real estate JV
42
53
Same Properties NOI
$
75,833
$
76,755
March 31,
2021
December 31,
2020
Reconciliation of total assets to adjusted book
Total assets
$
4,112,948
$
4,077,023
Accumulated depreciation
1,157,059
1,124,253
Accumulated amortization of real estate intangibles and deferred leasing costs
217,811
217,124
COPT’s share of liabilities of unconsolidated real estate JVs
27,603
26,710
COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JVs
2,043
1,489
Less: Property - operating lease liabilities
(30,176
)
(30,746
)
Less: Property - finance lease liabilities
(28
)
(28
)
Less: Cash and cash equivalents
(36,139
)
(18,369
)
Less: COPT’s share of cash of unconsolidated real estate JVs
(202
)
(152
)
Adjusted book
$
5,450,919
$
5,397,304
Reconciliation of debt outstanding to net debt and net debt adjusted for fully-leased development plus preferred equity
Debt outstanding (excluding net debt discounts and deferred financing costs)
$
2,257,854
2,127,715
Less: Cash and cash equivalents
(36,139
)
(18,369
)
Less: COPT’s share of cash of unconsolidated real estate JVs
(202
)
(152
)
Net debt
$
2,221,513
$
2,109,194
Costs incurred on fully-leased development properties
(128,032
)
(114,532
)
Net debt adjusted for fully-leased development plus preferred equity
$
2,093,481
$
1,994,662
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