COPT Reports Strong Second Quarter 2020 Results
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-$0.54, respectively. Reconciliations of projected diluted EPS to projected FFOPS are as follows:
Table 1: Reconciliation of EPS to FFOPS, per Nareit andQuarter ending
Quarter ending
Year ending
As Adjusted for ComparabilitySeptember 30, 2020
December 31, 2020
December 31, 2020
Low
High
Low
High
Low
High
EPS$
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
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