OFC - COPT 1Q 2022 Results Exceed Guidance

April, 28 2022 04:16 PM Corporate Office Properties Trust

1Q22 EPS of $0.52 and FFO per Share of $0.58 Exceeded High-End of Guidance

1.2% Increase in Same-Property Cash NOI During Quarter Outperformed
High-End of Guidance by 20 Basis Points;
Maintain Full-Year Guidance for Change in Same-Property Cash NOI at (2%)-0%

Core Portfolio 92.2% Occupied & 94.1% Leased

2 83,000 SF of 100% Leased Developments Placed into Service in 1Q22

1.7 Million SF of Active Developments are 96% Leased

Solid Leasing

Total Leasing of 871,000 SF in the Quarter Represents Strong Start to the Year

265,000 SF of Development Leasing in 1Q is On-Track to Meet 2022 Goal of Completing 700,000 SF Goal During the Year

157,000 SF of Vacancy Leasing Represents 157% of First Quarter 5-Year Average

64% Retention Rate In-Line with Expectations;
Full-Year Retention Guidance of 70-75% Unchanged

Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced results for the first quarter ended March 31, 2022.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “Our strategy of prioritizing capital allocation and leasing efforts at our Defense/IT Locations that serve priority missions at U.S. defense installations continues to produce strong, reliable results that are not correlated to traditional office fundamentals. First quarter results represent a strong start to the year, and we remain on-track to achieve our full year operating, leasing, and FFO per share objectives. Same-property results modestly exceeded expectations, and leasing was strong in the operating and development portfolios. The 157,000 square feet of vacancy leasing we achieved exceeded our 5-year average for the quarter. Our 64% tenant retention rate in the quarter reflected the anticipated non-renewal by Transamerica at 100 Light Street, which was included in our full-year retention guidance of 70-to-75%. The 265,000 square foot data center shell lease we executed in the quarter represents nearly 40% of the 700,000 square feet of development leasing we expect to complete this year, and we anticipate a productive second quarter.” He continued, “During the quarter, we placed 283,000 square feet of fully-leased developments into service and, among the 1.7 million square feet of active developments currently underway, we expect to place nearly 800,000 square feet of fully-leased projects into service for the year. Lastly, the mid-point of our full-year guidance implies 2.2% growth in FFO per share, as adjusted for comparability, reduced by roughly 2% from the dilutive sale of DC-6 during the quarter.”

Financial Highlights

1 ^st Quarter Financial Results:

Diluted earnings per share (“EPS”) was $0.52 for the quarter ended March 31, 2022 compared to ($0.06) for the first quarter of 2021.

Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.58 for the first quarter of 2022 compared to $0.27 for first quarter 2021.

FFOPS, as adjusted for comparability, was $0.58 for the first quarter of 2022 compared to $0.56 for the first quarter of 2021.

Operating Performance Highlights

Operating Portfolio Summary:

At March 31, 2022, the Company’s 21.8 million square foot core portfolio was 92.2% occupied and 94.1% leased.

During the quarter, the Company placed into service 283,000 square feet of developments that were 100% leased.

Same-Property Performance:

At March 31, 2022, COPT’s 20.3 million square foot same-property portfolio was 92.0% occupied and 93.9% leased.

For the quarter ended March 31, 2022, the Company’s same-property cash NOI increased 1.2%, over the prior year’s comparable period.

Leasing:

Total Square Feet Leased : For the quarter ended March 31, 2022, the Company leased 871,000 square feet, including 448,000 square feet of renewals, 157,000 square feet of new leases on vacant space, and 265,000 square feet in development projects.

Tenant Retention Rates : During the quarter ended March 31, 2022, the Company renewed 64% of expiring square feet. First quarter non-renewals included a 141,000 square foot lease expiration in the Company’s Regional Office portfolio. This non-renewal was included in management’s original full-year retention guidance of 70-75%.

Rent Spreads & Average Escalations on Renewing Leases : For the quarter ended March 31, 2022, straight-line rents on renewals decreased 1.9%, and cash rents on renewed space decreased 5.7%. For the same time period, annual escalations on renewing leases averaged 2.6%.

Lease Terms : In the first quarter of 2022, lease terms averaged 3.3 years on renewing leases, 6.4 years on new leasing of vacant space, and 15.0 years on development leasing.

Investment Activity Highlights

Development Pipeline : The Company’s development pipeline consists of 11 properties totaling 1.7 million square feet that were 96% leased at March 31, 2022. These projects represent a total estimated investment of $552.7 million, of which $214.3 million has been spent.

Dispositions: On January 25, 2022, the Company sold 100% of COPT DC-6 (“DC-6”), the only asset in the Company’s Wholesale Data Center reporting segment, for $223 million. There was no debt on the asset.

Balance Sheet and Capital Transaction Highlights

In January and as referenced in the preceding paragraph, the Company sold its wholesale data center for $223 million and used the proceeds to repay unsecured, variable rate debt.

For the quarter ended March 31, 2022, the Company’s adjusted EBITDA fixed charge coverage ratio was 5.2x.

At March 31, 2022, the Company’s net debt to in-place adjusted EBITDA ratio was 6.6x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 6.1x.

At March 31, 2022, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 2.72% with a weighted average maturity of 6.9 years; additionally, 97.2% of the Company’s debt was subject to fixed interest rates.

On April 8, 2022, the Company filed a new universal shelf registration statement with the SEC to replace its expired registration. In conjunction with this filing, the Company will also file a new prospectus supplement in May to attach its $300 million at-the-market (“ATM”) stock offering program to the new shelf registration statement.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its first quarter 2022 conference call; the presentation can be viewed and downloaded from the ‘Financial Info – Financial Results’ section of COPT’s Investors website: https://investors.copt.com/financial-information/financial-results

2022 Guidance

Management is updating its full-year guidance for EPS and FFOPS, per Nareit and as adjusted for comparability, from the prior range of $1.12-$1.20, and $2.30-$2.38, respectively, to new ranges of $1.16-$1.22, and $2.31-$2.37, respectively. Management is establishing second quarter guidance for EPS and FFOPS per Nareit and as adjusted for comparability at $0.22-$0.24 and $0.57-$0.59, respectively. Reconciliations of projected EPS to projected FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Reconciliation of EPS to FFOPS, per Nareit and
Quarter ending

Year ending
As Adjusted for Comparability
June 30, 2022

December 31, 2022

Low

High

Low

High








EPS
$0.22

$0.24

$1.16

$1.22
Real estate-related depreciation and amortization
0.35

0.35

1.40

1.40
Gain on sales of real estate
-

-

(0.25)

(0.25)
FFOPS, Nareit definition and as adjusted for comparability
$0.57

$0.59

$2.31

$2.37

Conference Call Information

Management will discuss first quarter 2022 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:

Friday, April 29, 2022

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:

7286907

The conference call will also be available via live webcast in the ‘News & Events – IR Calendar’ section of COPT’s Investors website: https://investors.copt.com/news-events/ir-calendar

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, April 29, through 3:00 p.m. Eastern Time on Friday, May 13. 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 7286907.

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 the Company 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 March 31, 2022, the Company derived 90% of its core portfolio annualized rental revenue from Defense/IT Locations and 10% from its Regional Office Properties. As of the same date and including 19 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 186 properties encompassed 21.8 million square feet and was 94.1% 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, 2021.

Source: Corporate Office Properties Trust

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



For the Three Months Ended March 31,


2022



2021

Revenues



Revenues from real estate operations
$
142,280


$
137,830

Construction contract and other service revenues

53,200



16,558

Total revenues

195,480



154,388

Operating expenses



Property operating expenses

57,181



53,276

Depreciation and amortization associated with real estate operations

34,264



34,500

Construction contract and other service expenses

51,650



15,793

General and administrative expenses

6,670



6,062

Leasing expenses

1,874



2,344

Business development expenses and land carry costs

783



1,094

Total operating expenses

152,422



113,069

Interest expense

(14,424
)


(17,519
)
Interest and other income

1,893



1,865

Credit loss recoveries

316



907

Gain on sales of real estate

15



(490
)
Loss on early extinguishment of debt

(342
)


(33,166
)
Income (loss) from continuing operations before equity in income of unconsolidated entities and income taxes

30,516



(7,084
)
Equity in income of unconsolidated entities

888



222

Income tax expense

(153
)


(32
)
Income (loss) from continuing operations

31,251



(6,894
)
Discontinued operations

29,573



815

Net Income (loss)

60,824



(6,079
)
Net (income) loss attributable to noncontrolling interests:



Common units in the Operating Partnership (“OP”)

(856
)


85

Other consolidated entities

(649
)


(675
)
Net income (loss) attributable to COPT common shareholders
$
59,319


$
(6,669
)




Earnings per share (“EPS”) computation:



Numerator for diluted EPS:



Net income (loss) attributable to COPT common shareholders
$
59,319


$
(6,669
)
Amount allocable to share-based compensation awards

(181
)


(170
)
Redeemable noncontrolling interests

(39
)


—

Numerator for diluted EPS
$
59,099


$
(6,839
)
Denominator:



Weighted average common shares - basic

112,020



111,888

Dilutive effect of share-based compensation awards

426



—

Dilutive effect of redeemable noncontrolling interests

132



—

Weighted average common shares - diluted

112,578



111,888

Diluted EPS
$
0.52


$
(0.06
)

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



For the Three Months Ended March 31,


2022



2021

Net income (loss)
$
60,824


$
(6,079
)
Real estate-related depreciation and amortization

34,264



37,321

Gain on sales of real estate from continuing and discontinued operations

(28,579
)


490

Depreciation and amortization on unconsolidated real estate JVs

526



454

Funds from operations (“FFO”)

67,035



32,186

FFO allocable to other noncontrolling interests

(1,042
)


(1,027
)
Basic FFO allocable to share-based compensation awards

(362
)


(162
)
Basic FFO available to common share and common unit holders (“Basic FFO”)

65,631



30,997

Redeemable noncontrolling interests

(6
)


—

Diluted FFO adjustments allocable to share-based compensation awards

27



—

Diluted FFO available to common share and common unit holders (“Diluted FFO”)

65,652



30,997

Loss on early extinguishment of debt

342



33,166

Diluted FFO comparability adjustments for redeemable noncontrolling interests

—



458

Diluted FFO comparability adjustments allocable to share-based compensation awards

(2
)


(167
)
Diluted FFO available to common share and common unit holders, as adjusted for comparability

65,992



64,454

Straight line rent adjustments and lease incentive amortization

(3,189
)


(3,357
)
Amortization of intangibles and other assets included in net operating income

(372
)


40

Share-based compensation, net of amounts capitalized

2,111



1,904

Amortization of deferred financing costs

597



793

Amortization of net debt discounts, net of amounts capitalized

605



542

Replacement capital expenditures

(17,358
)


(12,230
)
Other diluted AFFO adjustments associated with real estate JVs

39



241

Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)
$
48,425


$
52,387

Diluted FFO per share
$
0.58


$
0.27

Diluted FFO per share, as adjusted for comparability
$
0.58


$
0.56

Dividends/distributions per common share/unit
$
0.275


$
0.275

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





March 31, 2022

December 31, 2021
Balance Sheet Data



Properties, net of accumulated depreciation
$
3,580,281


$
3,532,944

Total assets

4,132,026



4,262,452

Debt, per balance sheet

2,156,784



2,272,304

Total liabilities

2,414,670



2,578,479

Redeemable noncontrolling interests

26,820



26,898

Equity

1,690,536



1,657,075

Net debt to adjusted book

39.7
%


40.5
%




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



Number of operating properties

186



184

Total operational square feet (in thousands)

21,849



21,553

% Occupied

92.2
%


92.6
%
% Leased

94.1
%


94.4
%


For the Three Months Ended March 31,
2022

2021
Payout ratios





Diluted FFO
47.6
%

100.5
%
Diluted FFO, as adjusted for comparability
47.4
%

48.3
%
Diluted AFFO
64.5
%

59.5
%
Adjusted EBITDA fixed charge coverage ratio
5.2
x

4.3
x
Net debt to in-place adjusted EBITDA ratio (2)
6.6
x

6.6
x
Net debt adj. for fully-leased development to in-place adj. EBITDA ratio (3)
6.1
x

6.3
x






Reconciliation of denominators for per share measures




Denominator for diluted EPS
112,578


111,888

Weighted average common units
1,384


1,246

Anti-dilutive EPS effect of share-based compensation awards
—


261

Denominator for diluted FFO per share
113,962


113,395

Redeemable noncontrolling interests
—


940

Denominator for diluted FFO per share, as adjusted for comparability
113,962


114,335

(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 less costs incurred on properties under development that were 100% leased 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) (in thousands)



For the Three Months Ended March 31,


2022



2021

Reconciliation of common share dividends to dividends and distributions for payout ratios



Common share dividends - unrestricted shares and deferred shares
$
30,837


$
30,805

Common unit distributions - unrestricted units

404



347

Common unit distributions - dilutive restricted units

13



—

Dividends and distributions for payout ratios
$
31,254


$
31,152





Reconciliation of GAAP net income (loss) to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA



Net income (loss)
$
60,824


$
(6,079
)
Interest expense

14,424



17,519

Income tax expense

153



32

Real estate-related depreciation and amortization

34,264



37,321

Other depreciation and amortization

607



555

Gain on sales of real estate

(28,579
)


490

Adjustments from unconsolidated real estate JVs

758



693

EBITDAre

82,451



50,531

Loss on early extinguishment of debt

342



33,166

Net gain on other investments

(565
)


—

Credit loss recoveries

(316
)


(907
)
Business development expenses

326



548

Adjusted EBITDA

82,238



83,338

Pro forma net operating income adjustment for property changes within period

579



166

Change in collectability of deferred rental revenue

—



124

In-place adjusted EBITDA

82,817



83,628





Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA



Interest expense
$
14,424


$
17,519

Less: Amortization of deferred financing costs

(597
)


(793
)
Less: Amortization of net debt discounts, net of amounts capitalized

(605
)


(542
)
COPT’s share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs

231



234

Scheduled principal amortization

774



962

Capitalized interest

1,529



1,805

Denominator for fixed charge coverage-Adjusted EBITDA
$
15,756


$
19,185

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)



For the Three Months Ended March 31,


2022



2021

Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures



Tenant improvements and incentives
$
10,010


$
7,139

Building improvements

6,832



3,628

Leasing costs

2,270



1,129

Net additions to tenant improvements and incentives

1,808



2,900

Excluded building improvements and leasing costs

(3,562
)


(2,566
)
Replacement capital expenditures
$
17,358


$
12,230





Same Properties cash NOI
$
79,567


$
78,650

Straight line rent adjustments and lease incentive amortization

(1,503
)


1,724

Amortization of acquired above- and below-market rents

519



99

Lease termination fees, net

221



1,362

Tenant funded landlord assets and lease incentives

1,463



228

Cash NOI adjustments in unconsolidated real estate JV

83



101

Same Properties NOI
$
80,350


$
82,164



March 31, 2022

December 31, 2021
Reconciliation of total assets to adjusted book




Total assets

$
4,132,026


$
4,262,452

Accumulated depreciation


1,182,652



1,152,523

Accumulated depreciation included in assets held for sale


—



82,385

Accumulated amortization of intangibles on property acquisitions and deferred leasing costs


217,607



215,925

Accumulated amortization of intangibles on property acquisitions and deferred leasing costs included in assets held for sale


—



4,547

COPT’s share of liabilities of unconsolidated real estate JVs


27,367



27,312

COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JVs


4,328



3,744

Less: Property - operating lease liabilities


(29,729
)


(29,342
)
Less: Cash and cash equivalents


(19,347
)


(13,262
)
Less: COPT’s share of cash of unconsolidated real estate JVs


(458
)


(434
)
Adjusted book

$
5,514,446


$
5,705,850

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)









March 31, 2022

December 31, 2021

March 31, 2021
Reconciliation of debt to net debt, net debt adjusted for fully-leased development and pro forma net debt adjusted for fully-leased development






Debt, per balance sheet

$
2,156,784


$
2,272,304


$
2,207,903

Net discounts and deferred financing costs


24,728



25,982



23,701

COPT’s share of unconsolidated JV gross debt


26,250



26,250



26,250

Gross debt

$
2,207,762


$
2,324,536


$
2,257,854

Less: Cash and cash equivalents


(19,347
)


(13,262
)


(36,139
)
Less: COPT’s share of cash of unconsolidated real estate JVs


(458
)


(434
)


(202
)
Net debt

$
2,187,957


$
2,310,840


$
2,221,513

Costs incurred on fully-leased development properties


(154,259
)


(162,884
)


(128,032
)
Net debt adjusted for fully-leased development

$
2,033,698


$
2,147,956


$
2,093,481

Net debt

$
2,187,957


$
2,310,840


$
2,221,513

Debt pay down from Wholesale Data Center sale proceeds


N/A



(216,000
)


N/A

Pro forma net debt

$
2,187,957


$
2,094,840


$
2,221,513

Costs incurred on fully-leased development properties


(154,259
)


(162,884
)


(128,032
)
Pro forma net debt adjusted for fully-leased development

$
2,033,698


$
1,931,956


$
2,093,481

View source version on businesswire.com: https://www.businesswire.com/news/home/20220428006238/en/

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

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

Company Name:	Corporate Office Properties Trust
Stock Symbol:	OFC
Market:	NYSE
Website:	copt.com

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