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COPT Reports Strong Second Quarter 2020 Results


Business Wire | Jul 30, 2020 04:16PM EDT

COPT Reports Strong Second Quarter 2020 Results

Jul. 30, 2020

COLUMBIA, Md.--(BUSINESS WIRE)--Jul. 30, 2020--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 Quarter ending Quarter ending Year endingof EPS to FFOPS, perNareit andAs Adjusted September 30, 2020 December 31, 2020 December 31, 2020for Comparability Low High Low High Low High

$ 0.16 $ 0.18 $ 0.17 $ 0.19 $ 0.76 $ EPS 0.80

Realestate-related depreciation 0.35 0.35 0.35 0.35 1.29 1.29andamortizationFFO allocationto other noncontrolling - - - - (0.10 ) (0.10 )interestsresulting fromcapital eventFFOPS, Nareit definition 0.51 0.53 0.52 0.54 1.95 1.99

FFO allocationto other noncontrolling - - - - 0.10 0.10 interestsresulting fromcapital eventFFOPS, as $ 0.51 $ 0.53 $ 0.52 $ 0.54 $ 2.05 $ adjusted for 2.09comparability

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 For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Revenues

Revenues from real $ 132,538 $ 132,771 $ 264,654 $ 264,761 estate operations

Construction contractand other service 12,236 42,299 25,917 59,249 revenues

Total revenues 144,774 175,070 290,571 324,010

Operating expenses

Property operating 50,204 47,886 100,203 97,331 expenses

Depreciation andamortization associated 33,612 34,802 66,208 69,598 with real estate operations

Construction contractand other service 11,711 41,002 24,832 57,328 expenses

General and 6,511 7,650 11,814 14,369 administrative expenses

Leasing expenses 1,647 1,736 3,830 3,768

Business developmentexpenses and land carry 1,262 870 2,380 1,983 costs

Total operating 104,947 133,946 209,267 244,377 expenses

Interest expense (16,797 ) (18,475 ) (33,637 ) (37,149 )

Interest and other 2,282 1,849 3,487 4,135 income

Credit loss expense (615 ) - (1,304 ) -

Gain on sales of real - 84,469 5 84,469 estate

Income before equity inincome of 24,697 108,967 49,855 131,088 unconsolidated entities and income taxes

Equity in income of 454 420 895 811 unconsolidated entities

Income tax (expense) (30 ) 176 (79 ) (18 )benefit

Net income 25,121 109,563 50,671 131,881

Net income attributableto noncontrolling interests:

Common units in theOperating Partnership (284 ) (1,339 ) (571 ) (1,596 )("OP")

Preferred units in the (77 ) (165 ) (154 ) (330 )OP

Other consolidated (1,263 ) (1,268 ) (2,395 ) (2,305 )entities

Net income attributableto COPT common $ 23,497 $ 106,791 $ 47,551 $ 127,650 shareholders



Earnings per share ("EPS") computation:

Numerator for diluted EPS:

Net income attributableto COPT common $ 23,497 $ 106,791 $ 47,551 $ 127,650 shareholders

Distributions ondilutive convertible - 165 - - preferred units

Redeemablenoncontrolling - 902 - 66 interests

Common units in the OP - - - 1,515

Amount allocable toshare-based (109 ) (346 ) (206 ) (391 )compensation awards

Numerator for diluted $ 23,388 $ 107,512 $ 47,345 $ 128,840 EPS

Denominator:

Weighted average common 111,800 111,557 111,762 110,759 shares - basic

Dilutive convertible - 176 - - preferred units

Dilutive effect ofredeemable - 1,062 - 130 noncontrolling interests

Common units in the OP - - - 1,329

Dilutive effect ofshare-based 321 310 280 289 compensation awards

Weighted average common 112,121 113,105 112,042 112,507 shares - diluted

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 For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Net income $ 25,121 $ 109,563 $ 50,671 $ 131,881

Real estate-relateddepreciation and 33,612 34,802 66,208 69,598 amortization

Gain on sales of real - (84,469 ) (5 ) (84,469 )estate

Depreciation andamortization on 818 566 1,636 1,132 unconsolidated real estate JVs

Funds from operations 59,551 60,462 118,510 118,142 ("FFO")

Noncontrolling interests- preferred units in the (77 ) (165 ) (154 ) (330 )OP

FFO allocable to other (1,525 ) (1,188 ) (13,540 ) (2,159 )noncontrolling interests

Basic FFO allocable toshare-based compensation (254 ) (229 ) (447 ) (414 )awards

Basic FFO available tocommon share and common 57,695 58,880 104,369 115,239 unit holders ("Basic FFO")

Dilutive preferred units 77 - 154 - in the OP

Redeemable noncontrolling 37 33 69 942 interests

Diluted FFO available tocommon share and common 57,809 58,913 104,592 116,181 unit holders ("Diluted FFO")

Demolition costs onredevelopment and 9 - 52 44 nonrecurring improvements

Executive transition - - - 4 costs

Non-comparableprofessional and legal - 311 - 311 expenses

FFO allocation to othernoncontrolling interests - - 11,090 - resulting from capital event

Diluted FFO comparabilityadjustments allocable to (1 ) (2 ) (51 ) (2 )share-based compensation awards

Diluted FFO available tocommon share and common 57,817 59,222 115,683 116,538 unit holders, as adjusted for comparability

Straight line rentadjustments and lease 2,523 1,051 1,671 (616 )incentive amortization

Amortization ofintangibles included in (73 ) (50 ) (147 ) 12 net operating income

Share-based compensation,net of amounts 1,638 1,623 3,027 3,296 capitalized

Amortization of deferred 642 529 1,217 1,057 financing costs

Amortization of net debtdiscounts, net of amounts 390 374 776 744 capitalized

Accum. othercomprehensive loss on - 33 - 67 derivatives amortized to expense

Replacement capital (16,132 ) (16,002 ) (33,886 ) (27,175 )expenditures

Other diluted AFFOadjustments associated (115 ) 181 (156 ) 214 with real estate JVs

Diluted adjusted fundsfrom operations availableto common share and $ 46,690 $ 46,961 $ 88,185 $ 94,137 common unit holders("Diluted AFFO")

Diluted FFO per share $ 0.51 $ 0.52 $ 0.92 $ 1.02

Diluted FFO per share, asadjusted for $ 0.51 $ 0.52 $ 1.02 $ 1.03 comparability

Dividends/distributions $ 0.275 $ 0.275 $ 0.550 $ 0.550 per common share/unit



Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars and shares in thousands, except per share data)

June 30, December 31, 2020 2019

Balance Sheet Data

Properties, net ofaccumulated $ 3,513,099 $ 3,340,886 depreciation

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

Redeemablenoncontrolling 23,148 29,431 interests

Equity 1,656,924 1,719,245

Net debt to adjusted 38.6 % 36.8 %book



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

Number of operating 172 168 properties

Total operationalsquare feet (in 19,624 19,016 thousands)

% Occupied 93.6 % 93.1 %

% Leased 94.7 % 94.6 %

For the Three Months For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Payout ratios

Diluted FFO 53.9 % 52.7 % 59.6 % 53.5 %

Diluted FFO, asadjusted for 53.9 % 52.4 % 53.9 % 53.3 %comparability

Diluted AFFO 66.8 % 66.1 % 70.7 % 66.0 %

Adjusted EBITDA fixed 3.8x 3.7x 3.8x 3.7xcharge coverage ratio

Net debt to in-placeadjusted EBITDA ratio 6.4x 5.7x N/A N/A (2)

Net debt plus preferredequity to in-place 6.4x 5.7x N/A N/A adjusted EBITDA ratio (3)



Reconciliation ofdenominators for per share measures

Denominator for diluted 112,121 113,105 112,042 112,507 EPS

Weighted average common 1,237 1,327 1,232 - units

Redeemablenoncontrolling 157 (926 ) 133 907 interests

Dilutive convertible 176 (176 ) 176 - preferred units

Denominator for dilutedFFO per share and as 113,691 113,330 113,583 113,414 adjusted for comparability



(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 For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Reconciliation of commonshare dividends todividends and distributions for payoutratios

Common share dividends -unrestricted shares and $ 30,761 $ 30,693 $ 61,515 $ 61,378 deferred shares

Common unitdistributions - 341 365 680 730 unrestricted units

Distributions on 77 - 154 - dilutive preferred units

Dividends anddistributions for payout $ 31,179 $ 31,058 $ 62,349 $ 62,108 ratios



Reconciliation of GAAPnet income to earningsbefore interest, incometaxes, depreciation and amortization for real estate ("EBITDAre"),adjusted EBITDA andin-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 30 (176 ) 79 18 (benefit)

Depreciation offurniture, fixtures and 448 496 867 929 equipment

Real estate-relateddepreciation and 33,612 34,802 66,208 69,598 amortization

Gain on sales of real - (84,469 ) (5 ) (84,469 )estate

Adjustments fromunconsolidated real 1,270 830 2,540 1,657 estate JVs

EBITDAre 77,278 79,521 153,997 156,763

Net loss (gain) on other 2 (12 ) 2 (400 )investments

Credit loss expense 615 - 1,304 -

Business development 678 460 1,216 1,008 expenses

Non-comparableprofessional and legal - 311 - 311 expenses

Demolition costs onredevelopment and 9 - 52 44 nonrecurring improvements

Executive transition - - - 4 costs

Adjusted EBITDA 78,582 80,280 $ 156,571 $ 157,730

Proforma net operatingincome adjustment for 959 (1,981 ) property changes within period

Change in collectabilityof deferred rental 1,007 - revenue

In-place adjusted EBITDA $ 80,548 $ 78,299



Reconciliation ofinterest expense to thedenominators for fixed charge coverage-AdjustedEBITDA

Interest expense $ 16,797 $ 18,475 $ 33,637 $ 37,149

Less: Amortization of (642 ) (529 ) (1,217 ) (1,057 )deferred financing costs

Less: Amortization ofnet debt discounts, net (390 ) (374 ) (776 ) (744 )of amounts capitalized

Less: Accum. othercomprehensive loss on - (33 ) - (67 )derivatives amortized to expense

COPT's share of interestexpense ofunconsolidated real 442 258 883 513 estate JVs, excludingdeferred financing costs

Scheduled principal 1,023 1,095 2,044 2,193 amortization

Capitalized interest 3,174 2,388 6,532 4,392

Preferred unit 77 165 154 330 distributions

Denominator for fixedcharge coverage-Adjusted $ 20,481 $ 21,445 $ 41,257 $ 42,709 EBITDA



Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

For the Three Months For the Six Months Ended June 30, Ended June 30,

2020 2019 2020 2019

Reconciliations of tenantimprovements andincentives, buildingimprovements and leasing costs for operatingproperties to replacementcapital expenditures

Tenant improvements and $ 8,870 $ 8,568 $ 20,227 $ 15,720 incentives

Building improvements 13,662 4,333 16,137 8,864

Leasing costs 2,222 2,761 4,984 5,943

Net additions to tenantimprovements and 329 1,759 2,355 290 incentives

Excluded buildingimprovements and leasing (8,951 ) (1,419 ) (9,817 ) (3,642 )costs

Replacement capital $ 16,132 $ 16,002 $ 33,886 $ 27,175 expenditures



Same Properties cash NOI $ 75,837 $ 74,584 $ 150,799 $ 145,992

Straight line rentadjustments and lease (1,513 ) (701 ) (2,080 ) (15 )incentive amortization

Amortization of acquiredabove- and below-market 97 73 193 33 rents

Amortization ofbelow-market cost (23 ) (23 ) (46 ) (46 )arrangements

Lease termination fees, 358 285 443 806 gross

Tenant funded landlordassets and lease (147 ) 530 222 926 incentives

Cash NOI adjustments inunconsolidated real 35 46 63 105 estate JV

Same Properties NOI $ 74,644 $ 74,794 $ 149,594 $ 147,801



June 30, December 31, 2020 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 216,267 212,547 intangibles and deferred leasing costs

COPT's share of liabilities of unconsolidated 50,984 50,734 real estate JVs

COPT's share of accumulated depreciation and 9,815 8,164 amortization of unconsolidated real estate JVs

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 (627 ) (498 )real estate JVs

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 $ 2,073,351 $ 1,893,057 and deferred financing costs)

Less: Cash and cash equivalents (21,596 ) (14,733 )

Less: COPT's share of cash of unconsolidated (627 ) (498 )real estate JVs

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/

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

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






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