COLUMBIA, Md.--(BUSINESS WIRE)--Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the first quarter ended March 31, 2016.
Management Comments
“We’ve started the year with a strong first quarter,” stated Roger A. Waesche, Jr., COPT’s President & Chief Executive Officer. “Solid tenant retention and positive rent spreads on renewing leases − 11.4% on a GAAP basis and 2.0% on a cash basis – combined with a 6.4% increase in same office cash NOI all demonstrate the strength of our portfolio.” Stephen E. Budorick, COPT’s Chief Operating Officer added, “We are highly confident in our leasing forecast and, accordingly, are increasing our same office cash NOI guidance range for the year by 50 bps to between 3.5% and 4.0%. We are executing our 2016 plan which, in addition to generating strong same office results, includes enhancing value through select asset sales that will further strengthen our balance sheet and fund our growing development pipeline.”
Financial Highlights
1st Quarter Financial Results:
- Diluted earnings per share (“EPS”) was $0.03 for the quarter ended March 31, 2016 as compared to $0.10 for the first quarter of 2015.
- Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.39 for the first quarter of 2016 as compared to $0.43 for the first quarter of 2015.
- FFOPS, as adjusted for comparability, was $0.47 for the quarter ended March 31, 2016 as compared to $0.45 for the first quarter of 2015.
Adjustments for comparability encompass items such as acquisition costs, impairment losses and gains on non-operating properties (net of related tax adjustments), gains (losses) on early extinguishment of debt, derivative losses, executive transition costs and write-offs of original issuance costs for redeemed preferred shares.
Operating Performance Highlights
Portfolio Summary:
- At March 31, 2016, the Company’s core portfolio of 153 operating office properties totaled 16.6 million square feet that were 91.6% occupied and 93.3% leased.
- During the quarter, the Company placed 200,000 square feet of development in service that was 75% leased. This excludes an additional 191,000 square feet that were completed but being held for future lease to the United States of America.
- At March 31, 2016, the Company had 21 operating properties and 111 acres of land held for sale. The held for sale properties total 1.3 million square feet and, at March 31, 2016, were 90.6% occupied.
Same Office Performance:
- At March 31, 2016, COPT’s same office portfolio of 145 buildings were 90.1% occupied and 92.0% leased, and represented 80% of the portfolio’s rentable square feet.
- For the quarter ended March 31, 2016, the Company’s same office property cash NOI increased 6.4% as compared to the quarter ended March 31, 2015.
Leasing:
- Square Feet Leased ‒ For the quarter ended March 31, 2016, the Company leased a total of 545,000 square feet, including 163,000 square feet in development projects.
- Renewal Rates ‒ During the first quarter, the Company renewed 64% of expiring leases.
- Lease Terms ‒ In the first quarter, lease terms on 248,000 square feet of renewals averaged 5.0 years and 8.2 years on 298,000 square feet of development and other new leasing, for an average lease term of 6.8 years on all leasing completed in the quarter.
- Strong Rent Spreads on Renewing Leases ‒ For the quarter ended March 31, 2016, GAAP rent on renewed space increased 11.4%; on a cash basis, renewal rates increased 2.0% in the first quarter, as compared to the expiring rents.
Investment Activity Highlights
Development & Redevelopment Projects:
- The Company has seven properties totaling 983,000 square feet under construction that, at March 31, 2016, were 72% pre-leased. The seven projects have a total estimated cost of $221.5 million, of which $119.9 million has been incurred.
- COPT has 104,000 square feet in three properties under redevelopment, representing a total expected cost of $27.1 million, of which $16.0 million has been invested. The three projects were 16% leased at quarter end.
Dispositions:
- During the quarter, the Company disposed of non-strategic land in Colorado Springs, CO, for $5.7 million.
Balance Sheet and Capital Transaction Highlights
- As of March 31, 2016, the Company’s debt to adjusted book ratio was 43.6%, adjusted debt to in-place adjusted EBITDA ratio was 6.9x, and, for the quarter ended March 31, 2016, its adjusted EBITDA fixed charge coverage ratio was 2.7x.
- The Company’s weighted average interest rate was 4.1% for the quarter ended March 31, 2016 and, including the effect of interest rate swaps, 88% of the Company’s debt was subject to fixed interest rates and the debt portfolio had a weighted average maturity of 5.8 years.
2016 FFO Guidance
Management is maintaining its previously issued guidance ranges for full year FFOPS, as adjusted for comparability, of $1.95―$2.05, and establishing guidance for the second quarter ending June 30, 2016 at a range of $0.48―$0.50. Reconciliations of projected diluted EPS to projected FFOPS are provided as follows:
|
Three Months Ending |
Year Ending |
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| Low | High | Low | High | |||||||||||||
| EPS | $ | 0.18 | $ | 0.20 | $ | 0.38 | $ | 0.48 | ||||||||
| Real estate depreciation and amortization | 0.40 | 0.40 | 1.60 | 1.60 | ||||||||||||
| Impairment losses on operating properties | - | - | 0.01 | 0.01 | ||||||||||||
| Gains on sales of operating properties | (0.10 | ) | (0.10 | ) | (0.10 | ) | (0.10 | ) | ||||||||
| FFOPS, NAREIT definition | 0.48 | 0.50 | 1.89 | 1.99 | ||||||||||||
| Executive transition costs | - | - | 0.04 | 0.04 | ||||||||||||
| Impairment losses on non-operating properties | - | - | 0.02 | 0.02 | ||||||||||||
| FFOPS, as adjusted for comparability | $ | 0.48 | $ | 0.50 | $ | 1.95 | $ | 2.05 | ||||||||
Associated Supplemental Presentation
Prior to today’s call, the Company will post a slide presentation to accompany management’s prepared remarks for its first quarter 2016 conference call, the details of which are provided below. You may access the slide presentation on the ‘Investors’ section of the website (www.copt.com). Please have the slides available to review during management’s comments.
Conference Call Information
Management will discuss first quarter 2016 earnings results on its conference call today at 12:00 p.m. Eastern Time, details of which are listed below:
| Earnings Release Date: | Friday, April 29, 2016 at 6:00 a.m. Eastern Time | ||
| Conference Call Date: | Friday, April 29, 2016 | ||
| Time: | 12:00 p.m. Eastern Time | ||
| Telephone Number: (within the U.S.) | 800-219-3192 | ||
| Telephone Number: (outside the U.S.) | 617-597-5412 | ||
| Passcode: | 82207639# | ||
Please use the following link to pre-register and view important
information about this conference call. Pre-registering is not mandatory
but is recommended as it will provide you immediate entry into the call
and will facilitate the timely start of the conference. To pre-register,
please click on the below link:
https://www.theconferencingservice.com/prereg/key.process?key=PVHE4AGEM
You may also pre-register in the Investors section of the Company’s website at www.copt.com. Alternatively, you may be placed into the call by an operator by calling the number provided above at least 5 to 10 minutes before the start of the call.
Replay Information
A replay of this call will be available beginning Friday, April 29, at 6:00 p.m. Eastern Time through Friday, May 13, at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 93348081. To access the replay outside the United States, please call 617-801-6888 and use passcode 93348081.
The conference call will also be available via live webcast in the Investor Relations section of the Company’s website at www.copt.com. A replay of the conference calls will be immediately available via webcast in the Investor Relations section of the Company’s website.
Definitions
For definitions of certain terms used in this press release, please refer to the information furnished in our Supplemental Information Package filed as a Form 8-K which can be found on our website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.
Company Information
COPT is an office REIT that owns, manages, develops and selectively acquires office and data center properties in locations that support United States Government agencies and their contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing priority missions (“Defense/IT Locations”). We also own a complementary portfolio of traditional Class-A office properties located in select urban/urban-like submarkets within our regional footprint (“Regional Office Properties”). As of March 31, 2016, we derived 86% of core portfolio annualized revenue from Defense/IT Locations and 14% from our Regional Office Properties. As of March 31, 2016, our core portfolio of 153 office properties encompassed 16.6 million square feet and was 93.3% 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. Accordingly, 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.
Important factors that may affect these expectations, estimates, and projections include, but are not limited to:
- general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;
- adverse changes in the real estate markets including, among other things, increased competition with other companies;
- governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases, and/or a curtailment of demand for additional space by the Company's strategic customers;
- the Company’s ability to borrow on favorable terms;
- risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
- risks of investing through joint venture structures, including risks that the Company’s joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with the Company’s objectives;
- changes in the Company’s plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
- the Company’s ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
- the Company's ability to achieve projected results;
- the dilutive effects of issuing additional common shares; and
- environmental requirements.
The Company undertakes no obligation to update or supplement any forward-looking statements. For further information, please refer to the Company’s filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
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Corporate Office Properties Trust |
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Summary Financial Data |
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|
(unaudited) |
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|
(in thousands, except per share data) |
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|
For the Three Months |
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| 2016 | 2015 | |||||||
| Revenues | ||||||||
| Real estate revenues | $ | 133,087 | $ | 122,710 | ||||
| Construction contract and other service revenues | 11,220 | 38,324 | ||||||
| Total revenues | 144,307 | 161,034 | ||||||
| Expenses | ||||||||
| Property operating expenses | 51,875 | 50,681 | ||||||
| Depreciation and amortization associated with real estate operations | 34,527 | 31,599 | ||||||
| Construction contract and other service expenses | 10,694 | 37,498 | ||||||
| Impairment losses | 2,446 | — | ||||||
| General and administrative expenses | 10,130 | 6,250 | ||||||
| Leasing expenses | 1,753 | 1,641 | ||||||
| Business development expenses and land carry costs | 2,418 | 2,790 | ||||||
| Total operating expenses | 113,843 | 130,459 | ||||||
| Operating income | 30,464 | 30,575 | ||||||
| Interest expense | (23,559 | ) | (20,838 | ) | ||||
| Interest and other income | 1,156 | 1,283 | ||||||
| Gain (loss) on early extinguishment of debt | 17 | (3 | ) | |||||
| Income from continuing operations before equity in income of unconsolidated entities and income taxes | 8,078 | 11,017 | ||||||
| Equity in income of unconsolidated entities | 10 | 25 | ||||||
| Income tax benefit (expense) | 8 | (55 | ) | |||||
| Income from continuing operations | 8,096 | 10,987 | ||||||
| Discontinued operations | — | (238 | ) | |||||
| Income before gain on sales of real estate | 8,096 | 10,749 | ||||||
| Gain on sales of real estate, net of income taxes | — | 3,986 | ||||||
| Net income | 8,096 | 14,735 | ||||||
| Net income attributable to noncontrolling interests | ||||||||
| Common units in the Operating Partnership (“OP”) | (127 | ) | (398 | ) | ||||
| Preferred units in the OP | (165 | ) | (165 | ) | ||||
| Other consolidated entities | (978 | ) | (817 | ) | ||||
| Net income attributable to COPT | 6,826 | 13,355 | ||||||
| Preferred share dividends | (3,552 | ) | (3,552 | ) | ||||
| Net income attributable to COPT common shareholders | $ | 3,274 | $ | 9,803 | ||||
| Earnings per share (“EPS”) computation: | ||||||||
| Numerator for diluted EPS: | ||||||||
| Net income attributable to common shareholders | $ | 3,274 | $ | 9,803 | ||||
| Amount allocable to share-based compensation awards | (118 | ) | (122 | ) | ||||
| Numerator for diluted EPS | $ | 3,156 | $ | 9,681 | ||||
| Denominator: | ||||||||
| Weighted average common shares - basic | 94,203 | 93,199 | ||||||
| Dilutive effect of share-based compensation awards | 95 | 198 | ||||||
| Weighted average common shares - diluted | 94,298 | 93,397 | ||||||
| Diluted EPS | $ | 0.03 | $ | 0.10 | ||||
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Corporate Office Properties Trust |
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Summary Financial Data |
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|
(unaudited) |
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|
(in thousands, except per share data) |
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|
For the Three Months |
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| 2016 | 2015 | |||||||
| Net income | $ | 8,096 | $ | 14,735 | ||||
| Real estate-related depreciation and amortization | 34,527 | 31,599 | ||||||
| Impairment losses on previously depreciated operating properties | 847 | 233 | ||||||
| Funds from operations (“FFO”) | 43,470 | 46,567 | ||||||
| Noncontrolling interests - preferred units in the OP | (165 | ) | (165 | ) | ||||
| FFO allocable to other noncontrolling interests | (1,027 | ) | (670 | ) | ||||
| Preferred share dividends | (3,552 | ) | (3,552 | ) | ||||
| Basic and diluted FFO allocable to share-based compensation awards | (166 | ) | (183 | ) | ||||
| Basic and diluted FFO available to common share and common unit holders (“Diluted FFO”) | 38,560 | 41,997 | ||||||
| Operating property acquisition costs | — | 1,046 | ||||||
| Gain on sales of non-operating properties | — | (3,986 | ) | |||||
| Impairment losses on other properties | 1,599 | — | ||||||
| (Gain) loss on early extinguishment of debt | (17 | ) | 3 | |||||
| Add: Negative FFO of properties conveyed to extinguish debt in default (1) | — | 4,271 | ||||||
| Demolition costs on redevelopment properties | 208 | 175 | ||||||
| Executive transition costs | 4,137 | — | ||||||
| Diluted FFO comparability adjustments allocable to share-based compensation awards | (31 | ) | (7 | ) | ||||
| Diluted FFO available to common share and common unit holders, as adjusted for comparability | 46,007 | 43,499 | ||||||
| Straight line rent adjustments | (917 | ) | (1,271 | ) | ||||
| Straight line rent adjustments - properties in default conveyed | — | (72 | ) | |||||
| Amortization of intangibles included in net operating income | 338 | 111 | ||||||
| Share-based compensation, net of amounts capitalized | 1,632 | 1,552 | ||||||
| Amortization of deferred financing costs | 1,176 | 990 | ||||||
| Amortization of net debt discounts, net of amounts capitalized | 319 | 264 | ||||||
| Recurring capital expenditures | (11,720 | ) | (7,349 | ) | ||||
| Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) | $ | 36,835 | $ | 37,724 | ||||
| Diluted FFO per share | $ | 0.39 | $ | 0.43 | ||||
| Diluted FFO per share, as adjusted for comparability | $ | 0.47 | $ | 0.45 | ||||
| Dividends/distributions per common share/unit | $ | 0.275 | $ | 0.275 | ||||
| (1) | Interest expense exceeded net operating income from these properties by the amounts in the statement. | |
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Corporate Office Properties Trust |
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Summary Financial Data |
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|
(unaudited) |
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|
(Dollars and shares in thousands, except per share data) |
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|
March 31, 2016 |
December 31, 2015 |
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| Balance Sheet Data | ||||||||
| Properties, net of accumulated depreciation | $ | 3,279,431 | $ | 3,349,748 | ||||
| Total assets | 3,937,908 | 3,909,312 | ||||||
| Debt, net | 2,140,212 | 2,077,752 | ||||||
| Total liabilities | 2,331,694 | 2,273,530 | ||||||
| Redeemable noncontrolling interest | 22,333 | 19,218 | ||||||
| Equity | 1,583,881 | 1,616,564 | ||||||
| Debt to adjusted book | 43.6 | % | 42.9 | % | ||||
| Core Portfolio Data (as of period end) (1) | ||||||||
| Number of operating properties | 153 | 157 | ||||||
| Total net rentable square feet owned (in thousands) | 16,556 | 17,038 | ||||||
| Occupancy % | 91.6 | % | 92.7 | % | ||||
| Leased % | 93.3 | % | 93.9 | % | ||||
|
For the Three Months Ended |
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| 2016 | 2015 | |||||||
| Payout ratios | ||||||||
| Diluted FFO | 70.1 | % | 64.3 | % | ||||
| Diluted FFO, as adjusted for comparability | 58.8 | % | 62.1 | % | ||||
| Diluted AFFO | 73.4 | % | 71.6 | % | ||||
| Adjusted EBITDA interest coverage ratio |
3.7 |
x |
4.3 |
x |
||||
| Adjusted EBITDA fixed charge coverage ratio |
2.7 |
x |
2.9 |
x |
||||
| Adjusted debt to in-place adjusted EBITDA ratio (2) |
6.9 |
x |
6.8 |
x |
||||
| Reconciliation of denominators for per share measures | ||||||||
| Denominator for diluted EPS | 94,298 | 93,397 | ||||||
| Weighted average common units | 3,677 | 3,732 | ||||||
| Denominator for diluted FFO per share | 97,975 | 97,129 | ||||||
| Reconciliation of FFO to FFO, as adjusted for comparability | ||||||||
| FFO, per NAREIT | $ | 43,470 | $ | 46,567 | ||||
| Gain on sales of non-operating properties | — | (3,986 | ) | |||||
| Impairment losses on non-operating properties | 1,599 | — | ||||||
| Operating property acquisition costs | — | 1,046 | ||||||
| Loss on interest rate derivatives | 1,551 | — | ||||||
| (Gain) loss on early extinguishment of debt, continuing and discontinued operations | (17 | ) | 3 | |||||
| Add: Negative FFO of properties conveyed to extinguish debt in default | — | 4,271 | ||||||
| Demolition costs on redevelopment properties | 208 | 175 | ||||||
| Executive transition costs | 4,137 | — | ||||||
| FFO, as adjusted for comparability | $ | 50,948 | $ | 48,076 | ||||
| (1) | Represents operating properties held for long-term investment. | |
| (2) | Represents 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). | |
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Corporate Office Properties Trust |
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Summary Financial Data |
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|
(unaudited) |
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(Dollars in thousands) |
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|
For the Three Months |
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| 2016 | 2015 | |||||||
| Reconciliation of common share dividends to dividends and distributions for payout ratios | ||||||||
| Common share dividends | $ | 26,037 | $ | 25,998 | ||||
| Common unit distributions | 1,011 | 1,012 | ||||||
| Dividends and distributions for payout ratios | $ | 27,048 | $ | 27,010 | ||||
| Reconciliation of GAAP net income to adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and in-place adjusted EBITDA | ||||||||
| Net income | $ | 8,096 | $ | 14,735 | ||||
| Interest expense on continuing operations | 23,559 | 20,838 | ||||||
| Income tax (benefit) expense | (8 | ) | 55 | |||||
| Real estate-related depreciation and amortization | 34,527 | 31,599 | ||||||
| Depreciation of furniture, fixtures and equipment | 602 | 492 | ||||||
| Impairment losses | 2,446 | 233 | ||||||
| (Gain) loss on early extinguishment of debt on continuing and discontinued operations | (17 | ) | 3 | |||||
| Gain on sales of non-operational properties | — | (3,986 | ) | |||||
| Net (gain) loss on investments in unconsolidated entities included in interest and other income | (23 | ) | 75 | |||||
| Business development expenses | 1,379 | 861 | ||||||
| Operating property acquisition costs | — | 1,046 | ||||||
| EBITDA from properties conveyed to extinguish debt in default | — | 90 | ||||||
| Demolition costs on redevelopment properties | 208 | 175 | ||||||
| Executive transition costs | 4,137 | — | ||||||
| Adjusted EBITDA | $ | 74,906 | $ | 66,216 | ||||
| Proforma net operating income adjustment for property changes within period | 471 | 1,573 | ||||||
| In-place adjusted EBITDA | $ | 75,377 | $ | 67,789 | ||||
| Reconciliation of interest expense to the denominators for interest coverage-Adjusted EBITDA and fixed charge coverage-Adjusted EBITDA | ||||||||
| Interest expense | $ | 23,559 | $ | 20,838 | ||||
| Less: Amortization of deferred financing costs | (1,176 | ) | (990 | ) | ||||
| Less: Amortization of net debt discount, net of amounts capitalized | (319 | ) | (264 | ) | ||||
| Less: Loss on interest rate derivatives | (1,551 | ) | — | |||||
| Less: Interest expense on debt in default extinguished via conveyance of properties | — | (4,182 | ) | |||||
| Denominator for interest coverage-Adjusted EBITDA | 20,513 | 15,402 | ||||||
| Scheduled principal amortization | 1,800 | 1,649 | ||||||
| Capitalized interest | 1,753 | 2,132 | ||||||
| Preferred share dividends | 3,552 | 3,552 | ||||||
| Preferred unit distributions | 165 | 165 | ||||||
| Denominator for fixed charge coverage-Adjusted EBITDA | $ | 27,783 | $ | 22,900 | ||||
|
Corporate Office Properties Trust |
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|
Summary Financial Data |
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|
(unaudited) |
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|
(Dollars in thousands) |
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| Reconciliations of tenant improvements and incentives, capital improvements and leasing costs for operating properties to recurring capital expenditures | ||||||||
| Tenant improvements and incentives on operating properties | $ | 8,766 | $ | 4,390 | ||||
| Building improvements on operating properties | 3,953 | 3,203 | ||||||
| Leasing costs for operating properties | 1,183 | 954 | ||||||
| Less: Nonrecurring tenant improvements and incentives on operating properties | (1,353 | ) | (264 | ) | ||||
| Less: Nonrecurring building improvements on operating properties | (557 | ) | (875 | ) | ||||
| Less: Nonrecurring leasing costs for operating properties | (272 | ) | (59 | ) | ||||
| Recurring capital expenditures | $ | 11,720 | $ | 7,349 | ||||
| Same office property cash NOI | $ | 63,477 | $ | 59,650 | ||||
| Straight line rent adjustments | (1,375 | ) | 1,708 | |||||
| Add: Amortization of deferred market rental revenue | 34 | 39 | ||||||
| Less: Amortization of below-market cost arrangements | (218 | ) | (253 | ) | ||||
| Add: Lease termination fee, gross | 980 | 753 | ||||||
| Add: Cash NOI on tenant-funded landlord assets | 647 | 416 | ||||||
| Same office property NOI | $ | 63,545 | $ | 62,313 | ||||
|
March 31, |
December 31, 2015 |
|||||||
| Reconciliation of total assets to adjusted book | ||||||||
| Total assets | $ | 3,937,908 | $ | 3,909,312 | ||||
| Accumulated depreciation | 713,283 | 700,363 | ||||||
| Accumulated depreciation included in assets held for sale | 33,143 | 18,317 | ||||||
| Accumulated amortization of real estate intangibles and deferred leasing costs | 198,552 | 195,506 | ||||||
| Accumulated amortization of real estate intangibles and deferred leasing costs included in assets held for sale | 20,655 | 17,456 | ||||||
| Adjusted book | $ | 4,903,541 | $ | 4,840,954 | ||||
| Reconciliation of debt to adjusted debt | ||||||||
| Debt, net | $ | 2,140,212 | $ | 2,077,752 | ||||
| Less: Cash and cash equivalents | (62,489 | ) | (60,310 | ) | ||||
| Adjusted debt | $ | 2,077,723 | $ | 2,017,442 | ||||
