COPT Reports Third Quarter 2016 Results

10/27/16

COLUMBIA, Md.--(BUSINESS WIRE)--Corporate Office Properties Trust (NYSE: OFC) announced financial and operating results for the third quarter ended September 30, 2016.

Management Comments

“As the third quarter demonstrated, we are executing well on all aspects of our 2016 plan, and key performance metrics were in-line with our guidance and expectations,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer. “Same office cash NOI grew 1.1% in the quarter and 4.1% for the first nine months of the year, and we have completed over $300 million of asset sales to date.” He added, “Demand throughout our portfolio is steady and provides solid momentum for 2017.”

Financial Highlights

3rd Quarter Financial Results:

  • Diluted earnings per share (“EPS”) was $0.25 for the quarter ended September 30, 2016 as compared to $0.91 for the third quarter of 2015.
  • Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.49 for the third quarter of 2016 as compared to $1.32 for the third quarter of 2015.
  • FFOPS, as adjusted for comparability, was $0.51 for the quarter ended September 30, 2016 and $0.52 for the third quarter of 2015.

Adjustments for comparability encompass items such as impairment losses and gains on non-operating properties, gains (losses) on early extinguishment of debt, derivative gains (losses), executive transition costs and write-offs of original issuance costs for redeemed preferred shares.

Operating Performance Highlights

Portfolio Summary:

  • At September 30, 2016, the Company’s core portfolio of 146 operating office properties were 93.0% occupied and 94.4% leased.
  • During the quarter, the Company placed 192,000 square feet of development in service that, at September 30, 2016, were 83% leased.
  • At September 30, 2016, the Company had approximately $161 million of assets held for sale composed of 19 operating properties that contain a total of 1.3 million square feet and 153 acres of non-strategic land.

Same Office Performance:

  • At September 30, 2016, COPT’s same office portfolio of 129 buildings was 91.4% occupied and 93.2% leased.
  • For the quarter ended September 30, 2016, the Company’s same office property cash NOI increased 1.1% as compared to the quarter ended September 30, 2015. For the nine months ended September 30, 2016, same office cash NOI grew 4.1% versus the comparable period in 2015.

Leasing:

  • Square Feet Leased ? For the quarter ended September 30, 2016, the Company leased a total of 741,000 square feet, including 26,000 square feet in development projects. During the first nine months of the year, we executed on 2.3 million square feet of leasing, including 571,000 square feet in development projects.
  • Renewal Rates ? During the three and nine months ended September 30, 2016, the Company renewed 83% and 79%, respectively, of expiring leases.
  • Rent Spreads on Renewing Leases ? In the quarter, the Company successfully executed early renewals on three large, non-defense tenant leases, representing 275,000 square feet, to assure long-term, steady cash flows from all three assets. The impact of these renewals was a decline in cash renewal rates in the third quarter. For the quarter ended September 30, 2016 and as compared to expiring rents, rents on renewed space decreased 2.2% on a GAAP basis and decreased 11.9% on a cash basis. For the nine months of 2016, GAAP rents on renewing leases increased 4.5% and cash rents decreased 5.7%. Excluding these three early renewals, cash renewal rents declined only 1.9% for the nine months ended September 30, 2016.
  • Lease Terms ? In the third quarter, lease terms averaged 7.6 years on the 597,000 square feet of renewing leases, and 7.0 years on the 144,000 square feet of development and other new leasing, for an average lease term of 7.5 years on all leasing completed in the quarter.

    For the nine months ended September 30, 2016, lease terms averaged 6.0 years on the 1.4 million square feet of renewing leases, and 8.5 years on the 938,000 square feet of development and other new leasing, for an average lease term of 7.0 years on all leasing completed in the nine months of the year.

Investment Activity Highlights

Development & Redevelopment Projects:

  • The Company has five properties totaling 769,000 square feet under construction that, at September 30, 2016, were 89% pre-leased. The five projects have a total estimated cost of $149.7 million, of which $64.3 million has been incurred.
  • The Company also has two recently completed properties that total 352,000 square feet which are being held for the U.S. Government. In the third quarter ended September 30, 2016, the Company leased 15,000 square feet in The National Business Park to a U.S. Government tenant and expects further leasing progress in the coming quarters. The Company anticipates leasing the balance of the building during 2017.
  • Including these two U.S. Government projects, the Company’s construction pipeline totals 1.1 million square feet and is 63% leased.
  • COPT has 104,000 square feet in three properties under redevelopment, representing a total expected cost of $27.7 million, of which $20.3 million has been invested. The three projects were 19% leased at quarter end.

Dispositions: During the quarter, the Company closed on $285 million of sales detailed as follows:

  • $74 million from six data center properties contributed to a newly-formed, 50% unconsolidated joint venture with an institutional partner.
  • $143 million from four properties and land at the Arborcrest Campus in the Plymouth Meeting submarket of Philadelphia.
  • $17 million from six properties in the White Marsh submarket of Baltimore.
  • $51 million from five properties in the Airport Square / BWI South submarkets in the B/W Corridor.

Subsequent to the quarter, the Company sold another 151,000 square foot operating property in Northern Virginia and a parcel of non-strategic land for an aggregate of $14.1 million, bringing total assets to-date to $304 million, or 69% of the full year goal.

Balance Sheet and Capital Transaction Highlights

  • As of September 30, 2016, the Company’s net debt to adjusted book ratio was 41.2% and its net debt to in-place adjusted EBITDA ratio was 6.3x. For the quarter ended September 30, 2016, its adjusted EBITDA fixed charge coverage ratio was 3.1x.
  • The Company’s weighted average effective interest rate was 3.8% as of September 30, 2016; including the effect of interest rate swaps, 96% of the Company’s debt was subject to fixed interest rates and the debt portfolio had a weighted average maturity of 6.1 years.
  • Subsequent to the quarter, the Company used cash on hand and capacity on its line of credit to repay a $120 million term loan. As a result, the Company has no debt maturities until 2020.


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 September 30, 2016, we derived 86% of core portfolio annualized revenue from Defense/IT Locations and 14% from our Regional Office Properties. As of September 30, 2016, our core portfolio of 146 office properties encompassed 15.9 million square feet and was 94.4% leased.