COPT Reports 4Q and Full Year 2017 Results

February 8, 2018 4:16 PM

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the fourth quarter and full year ended December 31, 2017.

Management Comments

“Our strong fourth quarter topped off an excellent year of leasing achievement that included nearly one million square feet in the development portfolio and leasing over 400,000 square feet of vacant space in operating properties. As a result, our total portfolio occupancy increased 150 basis points during the year, to 93.6% at December 31, 2017,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer. “We exceeded our disposition goal and recycled capital through the sale of two assets located in non-core markets. Our portfolio is now essentially 100% strategic, so growth from our consistent pipeline of low-risk, accretive developments will no longer be offset by dilutive sales. Our new leasing pipeline remains strong with over one million square feet of new leasing prospects. We are confident that the continued bipartisan support in Congress to increase defense spending at a healthy pace will create an expanding set of growth opportunities on which we will capitalize.”

Financial Highlights

4th Quarter Financial Results:

Full Year 2017 Financial Results:

Adjustments for comparability exclude gains and losses from certain investing and financing activities and certain other items that the Company believes are not closely correlated to (or associated with) its operating performance.

Operating Performance Highlights

Portfolio Summary:

Same-Property Performance:

Leasing: During 2017, the Company leased 3.2 million square feet, including 975,000 square feet of development leasing. Details are as follows:

Investment Activity Highlights

Development & Redevelopment Projects:

Pre-Construction. The Company has one property under pre-construction at December 31, 2017. The project is expected to total 190,000 square feet, is 43% pre-leased, and is expected to cost $170 million. Construction is expected to commence during the second quarter of 2018.

Dispositions. During 2017, the Company completed $184 million of dispositions, including non-strategic land and 13 operating properties totaling 992,000 square feet that, on average, were 91.8% occupied at the time of sale.

Balance Sheet and Capital Transaction Highlights

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its fourth quarter and full year 2017 conference call, the details of which are provided below. An accompanying slide presentation can be viewed on and downloaded from the ‘Investors’ section of the Company’s website (www.copt.com).

Conference Call Information

Management will discuss fourth quarter and full year 2017 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date: Friday, February 9, 2018
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: 8784659

The conference call will also be available via live webcast in the ‘Investors’ section of the Company’s website at www.copt.com.

Replay Information

A replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, February 9, through 3:00 p.m. Eastern Time on Friday, February 23. To access the replay within the United States, please call 855-859-2056 and use passcode 8784659. To access the replay outside the United States, please call 404-537-3406 and use passcode 8784659. A replay of the conference call will also be available immediately after the call on the ‘Investors’ 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, leases, develops and selectively acquires office and data center properties 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 December 31, 2017, the Company derived 88% of core portfolio annualized revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of December 31, 2017 and including six buildings owned through an unconsolidated joint venture, COPT’s core portfolio of 156 office and data center shell properties encompassed 17.1 million square feet and was 95.1% leased. As of the same date, the Company also owned one wholesale data center with a critical load of 19.25 megawatts.

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:

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, 2016.

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)

For the Three MonthsEnded December 31,

For the Year EndedDecember 31,

2017 2016 2017 2016
Revenues
Real estate revenues $ 127,685 $ 127,999 $ 509,980 $ 525,964
Construction contract and other service revenues 36,882 13,992 102,840 48,364
Total revenues 164,567 141,991 612,820 574,328
Expenses
Property operating expenses 47,449 47,562 190,964 197,530
Depreciation and amortization associated with real estate operations 33,938 32,929 134,228 132,719
Construction contract and other service expenses 36,029 12,968 99,618 45,481
Impairment losses 13,659 1,554 15,123 101,391
General and administrative expenses 5,552 6,211 24,008 30,095
Leasing expenses 1,447 1,578 6,829 6,458
Business development expenses and land carry costs 1,646 1,747 6,213 8,244
Total operating expenses 139,720 104,549 476,983 521,918
Operating income 24,847 37,442 135,837 52,410
Interest expense (19,211 ) (18,664 ) (76,983 ) (83,163 )
Interest and other income 1,501 1,567 6,318 5,444
Loss on early extinguishment of debt (1,073 ) (513 ) (1,110 )
Income (loss) before equity in income of unconsolidated entities and income taxes 7,137 19,272 64,659 (26,419 )
Equity in income of unconsolidated entities 720 718 2,882 1,332
Income tax expense (953 ) (272 ) (1,098 ) (244 )
Gain on sales of real estate 4,452 6,885 9,890 40,986
Net income 11,356 26,603 76,333 15,655
Net (income) loss attributable to noncontrolling interests
Common units in the Operating Partnership (“OP”) (325 ) (793 ) (1,936 ) 155
Preferred units in the OP (165 ) (165 ) (660 ) (660 )
Other consolidated entities (908 ) (912 ) (3,646 ) (3,711 )
Net income attributable to COPT 9,958 24,733 70,091 11,439
Preferred share dividends (3,640 ) (6,219 ) (14,297 )
Issuance costs associated with redeemed preferred shares (17 ) (6,847 ) (17 )
Net income (loss) attributable to COPT common shareholders $ 9,958 $ 21,076 $ 57,025 $ (2,875 )
Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net income attributable to common shareholders $ 9,958 $ 21,076 $ 57,025 $ (2,875 )
Amount allocable to share-based compensation awards (112 ) (100 ) (449 ) (419 )
Numerator for diluted EPS $ 9,846 $ 20,976 $ 56,576 $ (3,294 )
Denominator:
Weighted average common shares - basic 99,304 95,066 98,969 94,502
Dilutive effect of forward equity sale agreements and share-based compensation awards 283 76 186
Weighted average common shares - diluted 99,587 95,142 99,155 94,502
Diluted EPS $ 0.10 $ 0.22 $ 0.57 $ (0.03 )
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)

For the Three MonthsEnded December 31,

For the Year EndedDecember 31,

2017 2016 2017 2016
Net income $ 11,356 $ 26,603 $ 76,333 $ 15,655
Real estate-related depreciation and amortization 33,938 32,929 134,228 132,719
Impairment losses on previously depreciated operating properties 9,004 1,518 10,455 83,346
Gain on sales of previously depreciated operating properties (4,452 ) 312 (4,491 ) (33,789 )
Depreciation and amortization on unconsolidated real estate JV 311 311 1,243 518
Funds from operations (“FFO”) 50,157 61,673 217,768 198,449
Preferred share dividends (3,640 ) (6,219 ) (14,297 )
Noncontrolling interests - preferred units in the OP (165 ) (165 ) (660 ) (660 )
FFO allocable to other noncontrolling interests (874 ) (1,085 ) (3,675 ) (4,020 )
Issuance costs associated with redeemed preferred shares (17 ) (6,847 ) (17 )
Basic and diluted FFO allocable to share-based compensation awards (198 ) (208 ) (814 ) (694 )
Basic and Diluted FFO available to common share and common unit holders (“Diluted FFO”) 48,920 56,558 199,553 178,761
Gain on sales of non-operating properties (7,197 ) (5,399 ) (7,197 )
Impairment losses on non-operating properties 4,655 36 4,668 18,045
Income tax expense associated with FFO comparability adjustments 800 800
Gain on interest rate derivatives (191 ) (725 ) (234 ) (378 )
Loss on early extinguishment of debt 1,073 513 1,110
Issuance costs associated with redeemed preferred shares 17 6,847 17
Demolition costs on redevelopment properties 294 578
Executive transition costs 431 732 6,454
Diluted FFO comparability adjustments allocable to share-based compensation awards (23 ) 26 (35 ) (73 )
Diluted FFO available to common share and common unit holders, as adjusted for comparability 54,161 50,219 207,739 197,317
Straight line rent adjustments and lease incentive amortization (1,343 ) 1,294 46 1,500
Amortization of intangibles included in net operating income 342 463 1,344 1,488
Share-based compensation, net of amounts capitalized 1,523 1,174 5,353 5,549
Amortization of deferred financing costs 443 1,093 2,928 4,573
Amortization of net debt discounts, net of amounts capitalized 350 336 1,379 1,312
Accum. other comprehensive loss on derivatives amortized to expense 54 143
Replacement capital expenditures (23,475 ) (13,716 ) (63,026 ) (53,102 )
Other diluted AFFO adjustments associated with real estate JVs (135 ) (146 ) (593 ) (150 )
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) $ 31,920 $ 40,717 $ 155,313 $ 158,487
Diluted FFO per share $ 0.48 $ 0.57 $ 1.95 $ 1.82
Diluted FFO per share, as adjusted for comparability $ 0.53 $ 0.51 $ 2.03 $ 2.01
Dividends/distributions per common share/unit $ 0.275 $ 0.275 $ 1.100 $ 1.100
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)

December 31, 2017

December 31, 2016

Balance Sheet Data
Properties, net of accumulated depreciation $ 3,141,105 $ 3,073,362
Total assets 3,578,484 3,780,885
Debt, per balance sheet 1,828,333 1,904,001
Total liabilities 2,103,773 2,163,242
Redeemable noncontrolling interest 23,125 22,979
Equity 1,451,586 1,594,664
Net debt to adjusted book 41.0 % 38.3 %
Core Portfolio Data (as of period end) (1)
Number of operating properties 156 152
Total net rentable square feet owned (in thousands) 17,059 16,301
Occupancy % 94.5 % 92.9 %
Leased % 95.1 % 94.4 %

For the Three MonthsEnded December 31,

For the Year EndedDecember 31,

2017 2016 2017 2016
Payout ratios
Diluted FFO 58.5 % 49.5 % 56.7 % 60.9 %
Diluted FFO, as adjusted for comparability 52.9 % 55.7 % 54.5 % 55.1 %
Diluted AFFO 89.7 % 68.7 % 72.9 % 68.6 %
Adjusted EBITDA fixed charge coverage ratio 3.7 x 3.1 x 3.4 x 3.0 x
Net debt to in-place adjusted EBITDA ratio (2) 6.1 x 5.7 x N/A N/A
Net debt plus preferred equity to in-place adjusted EBITDA ratio (3) 6.1 x 6.3 x N/A N/A
Reconciliation of denominators for per share measures
Denominator for diluted EPS 99,587 95,142 99,155 94,502
Weighted average common units 3,252 3,591 3,362 3,633
Anti-dilutive EPS effect of share-based compensation awards 92
Denominator for diluted FFO per share and as adjusted for comparability 102,839 98,733 102,517 98,227
(1) Represents Defense/IT Locations and Regional Office properties, and includes six properties owned through an unconsolidated joint venture totaling 962,000 square feet that were 100% occupied and leased.
(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 MonthsEnded December 31,

For the Year EndedDecember 31,

2017 2016 2017 2016
Reconciliation of common share dividends to dividends and distributions for payout ratios
Common share dividends - unrestricted shares $ 27,747 $ 26,991 $ 109,489 $ 104,811
Common unit distributions 894 987 3,661 3,990
Dividends and distributions for payout ratios $ 28,641 $ 27,978 $ 113,150 $ 108,801
Reconciliation of GAAP net income to adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and in-place adjusted EBITDA
Net income $ 11,356 $ 26,603 $ 76,333 $ 15,655
Interest expense 19,211 18,664 76,983 83,163
Income tax expense 953 272 1,098 244
Real estate-related depreciation and amortization 33,938 32,929 134,228 132,719
Depreciation of furniture, fixtures and equipment 600 512 2,273 2,151
Impairment losses 13,659 1,554 15,123 101,391
Loss on early extinguishment of debt 1,073 513 1,110
Gain on sales of operating properties (4,452 ) 312 (4,491 ) (33,789 )
Gain on sales of non-operational properties (7,197 ) (5,399 ) (7,197 )
Net gain on investments in unconsolidated entities included in interest and other income (117 ) (149 )
Business development expenses 1,116 1,167 3,786 4,823
Demolition costs on redevelopment properties 294 578
Adjustments from unconsolidated real estate JV 577 578 2,301 993
Executive transition costs 431 732 6,454
Adjusted EBITDA $ 76,958 $ 76,781 $ 303,774 $ 308,146
Proforma net operating income adjustment for property changes within period (578 ) 39
In-place adjusted EBITDA $ 76,380 $ 76,820
Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA
Interest expense $ 19,211 $ 18,664 $ 76,983 $ 83,163
Less: Amortization of deferred financing costs (443 ) (1,093 ) (2,928 ) (4,573 )
Less: Amortization of net debt discounts and prem., net of amounts capitalized (350 ) (336 ) (1,379 ) (1,312 )
Less: Accum. other comprehensive loss on derivatives amortized to expense (54 ) (143 )
Gain on interest rate derivatives 191 725 234 378
COPT’s share of interest expense of unconsolidated real estate JV, excluding deferred financing costs 260 261 1,034 465
Scheduled principal amortization 984 941 3,862 5,395
Capitalized interest 1,032 1,419 5,229 5,723
Preferred share dividends 3,640 6,219 14,297
Preferred unit distributions 165 165 660 660
Denominator for fixed charge coverage-Adjusted EBITDA $ 20,996 $ 24,386 $ 89,771 $ 104,196
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)

For the Three MonthsEnded December 31,

For the Year EndedDecember 31,

2017 2016 2017 2016
Reconciliations of tenant improvements and incentives, capital improvements and leasing costs for operating properties to replacement capital expenditures
Tenant improvements and incentives $ 14,804 $ 8,000 $ 37,034 $ 45,020
Building improvements 9,241 7,064 22,308 22,026
Leasing costs 3,242 1,387 8,487 9,365
Net (exclusions from) additions to tenant improvements and incentives (2,929 ) 871 2,984 (14,073 )
Excluded building improvements (853 ) (3,606 ) (7,757 ) (8,817 )
Excluded leasing costs (30 ) (30 ) (419 )
Replacement capital expenditures $ 23,475 $ 13,716 $ 63,026 $ 53,102
Same property cash NOI $ 69,607 $ 68,973 $ 276,440 $ 267,306
Straight line rent adjustments and lease incentive amortization (1,635 ) (1,288 ) (4,551 ) (6,561 )
Amortization of acquired above- and below-market rents (287 ) (315 ) (1,123 ) (897 )
Amortization of below-market cost arrangements (146 ) (239 ) (585 ) (956 )
Lease termination fee, gross 828 601 2,911 2,279
Tenant funded landlord assets 276 1,370 1,119 7,160
Same property NOI $ 68,643 $ 69,102 $ 274,211 $ 268,331

December 31, 2017

December 31, 2016

Reconciliation of total assets to adjusted book
Total assets $ 3,578,484 $ 3,780,885
Accumulated depreciation 786,193 706,385
Accumulated depreciation included in assets held for sale 9,566
Accumulated amortization of real estate intangibles and deferred leasing costs 193,151 210,692
Accumulated amortization of real estate intangibles and deferred leasing costs included in assets held for sale 11,575
COPT’s share of liabilities of unconsolidated real estate JV 29,908 29,873
COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JV 3,189 938
Less: Disposed property included in assets held for sale (42,226 )
Less: Cash and cash equivalents (12,261 ) (209,863 )
COPT’s share of cash of unconsolidated real estate JV (371 ) (283 )
Adjusted book $ 4,536,067 $ 4,539,768
Reconciliation of debt outstanding to net debt and net debt plus preferred equity
Debt outstanding (excluding net debt discounts and deferred financing costs) $ 1,872,167 $ 1,950,229
Less: Cash and cash equivalents (12,261 ) (209,863 )
COPT’s share of cash of unconsolidated real estate JV (371 ) (283 )
Net debt $ 1,859,535 $ 1,740,083
Preferred equity 8,800 207,883
Net debt plus preferred equity $ 1,868,335 $ 1,947,966

Corporate Office Properties Trust

IR Contacts:

Stephanie Krewson-Kelly, 443-285-5453

stephanie.kelly@copt.com

or

Michelle Layne, 443-285-5452

michelle.layne@copt.com

Source: Corporate Office Properties Trust

Categories

Press Releases