COPT Reports First Quarter 2021 Results; Raises Midpoint of Full Year Guidance by 3-Cents, Implying 4.7% Growth

Stronger Outlook for Same-Property Cash NOI and Interest Savings from Senior Notes Refinancing Boost 2021 Expectations

EPS of ($0.06) Exceeded High End of Guidance by 1-Cent;

FFO per Share, as Adjusted for Comparability, of $0.56 was at the High End of Guidance

Raising Same-Property Cash NOI Guidance for the Year by 100 Basis Points, to (1%)-1%

Same-Property Cash NOI Declined 2.7% in the Quarter, Consistent with Guidance

Core Portfolio 94.0% Occupied & 94.9% Leased

46,000 SF of 100% Leased Development Placed into Service

1.4 Million SF of Active Developments are 85% Leased

Solid Leasing Activity; Raising Tenant Retention Forecast

Total Leasing of 258,000 SF in the Quarter; Over 660,000 SF of New and Renewal Leasing Achieved in April

Total Leasing Through April Exceeds 920,000 SF

1Q Tenant Retention of 52% was In-Line with Internal Forecast

88% Retention Rate in April and Revised Forecast Drive Increased Full-Year Guidance of 70%-75%

1Q GAAP Rents on Renewals Increased 4.9%; Cash Rents Rolled Down 2.2% with Average Escalations of 2.6%

Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the first quarter ended March 31, 2021.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “We are off to a strong start in 2021. Due to our unique investment strategy of concentrating assets around U.S. defense installations executing priority missions in support of national security, and the extremely high credit quality of our tenants, our operations continue to be fundamentally unaffected by pandemic-related externalities. First quarter leasing results were in-line with our internal forecast, and we are off to a blistering start in the second quarter, completing over 660,000 square feet of new and renewal leasing, and achieving an 88% renewal rate. Based on leasing achieved in April and the transactions in negotiation, we are increasing our full-year tenant retention guidance from the prior range of 65%-75% to a new range of 70%-75%. With roughly 900,000 square feet of development transactions in advanced negotiations, we also remain on-track to meet or exceed previously established guidance of leasing 1 million square feet in developments this year.”

He continued, “The exceptional execution of our March bond offering and solid operations drove first quarter FFO per share, as adjusted for comparability, to the high-end of guidance and the interest savings will continue to benefit the remainder of the year. Additionally, our improved leasing outlook is driving higher expectations for same-property results. Accordingly, we are increasing the midpoint of our updated full-year guidance for FFO per share, as adjusted for comparability, from $2.19 to a new midpoint of $2.22, which would represent 4.7% growth over 2020 results.”

Financial Highlights

1st Quarter Financial Results:

  • Diluted (loss) earnings per share (“EPS”) was ($0.06) for the quarter ended March 31, 2021 as compared to $0.21 for the first quarter of 2020.
  • Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.27 for the first quarter of 2021 as compared to $0.41 for first quarter 2020 results.
  • FFOPS, as adjusted for comparability, was $0.56 for the first quarter of 2021 as compared to $0.51 for the first quarter of 2020.

Operating Performance Highlights

Operating Portfolio Summary:

  • At March 31, 2021, the Company’s core portfolio of 180 operating office and data center shell properties was 94.0% occupied and 94.9% leased.
  • During the quarter, the Company placed into service 46,000 square feet that were 100% leased.

Same-Property Performance:

  • At March 31, 2021, COPT’s same-property portfolio of 161 buildings was 92.8% occupied and 93.8% leased.
  • For the quarter ended March 31, 2021, the Company’s same-property cash NOI decreased 2.7% over the prior year’s comparable period.

Leasing:

  • Total Square Feet Leased: For the quarter ended March 31, 2021, the Company leased 258,000 total square feet, including 154,000 square feet of renewals, 11,000 square feet in development projects, and 93,000 square feet of new leases on vacant space.
  • Renewal Rates: During the quarter ended March 31, 2021, the Company renewed 51.8% of total expiring square feet.
  • Rent Spreads & Average Escalations on Renewing Leases: For the quarter ended March 31, 2021, cash rents on renewed space decreased 2.2% and GAAP rents on renewed space increased 4.9%. For the same period, annual escalations on renewing leases averaged 2.6%.
  • Lease Terms: In the first quarter of 2021, lease terms averaged 3.1 years on renewing leases, 5.5 years on development leasing, and 8.5 years on new leasing of vacant space.

Investment Activity Highlights

  • Development Pipeline: At March 31, 2021, the Company’s development pipeline consisted of 10 properties totaling 1.4 million square feet that were 85% leased. These projects have a total estimated cost of $595.2 million, of which $340.2 million has been incurred.

Balance Sheet and Capital Transaction Highlights

  • In March, the Company issued $600 million of 2.75% senior unsecured notes due 2031. This issuance enabled the Company to complete tender offers for, and subsequent redemptions of, its $350 million of 3.6% senior unsecured notes due 2023 and $250 million of 5.25% senior unsecured notes due 2024. The tender offers were completed effective March 11, 2021, and the redemptions of the remaining notes were completed on April 12, 2021.
  • At March 31, 2021, the Company’s net debt to adjusted book ratio was 40.8% and its net debt to in-place adjusted EBITDA ratio was 6.6x. As of the same date, net debt adjusted for fully-leased development plus preferred equity to in-place adjusted EBITDA ratio was 6.3x. For the quarter ended March 31, 2021, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.3x.
  • At March 31, 2021, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 3.25% with a weighted average maturity of 4.8 years; additionally, 89.4% of the Company’s debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its first quarter 2021 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/

2021 Guidance

Management is increasing its full-year guidance for EPS and FFOPS, per Nareit and as adjusted for comparability from the prior range of $0.25-$0.31, $1.65-$1.71, and $2.16-$2.22, respectively, to new ranges of $0.28-$0.34, $1.68-$1.74, and $2.19-$2.25, respectively. Management is establishing second quarter guidance for EPS and FFOPS per Nareit, and FFOPS, as adjusted for comparability at ($0.02)-$0.00, $0.33-$0.35, and $0.55-$0.57, 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, Quarter ending Year ending
and As Adjusted for Comparability June 30, 2021 December 31, 2021
Low High Low High
 
EPS

$

(0.02

)

$

-

$

0.28

$

0.34

Real estate-related depreciation and amortization

 

0.35

 

 

0.35

 

1.40

 

1.40

FFOPS, Nareit definition

 

0.33

 

 

0.35

 

1.68

 

1.74

Loss on early extinguishment of debt

 

0.22

 

 

0.22

 

0.51

 

0.51

FFOPS, as adjusted for comparability

$

0.55

 

$

0.57

$

2.19

$

2.25

Conference Call Information

Management will discuss first quarter 2021 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:

   

Friday, April 30, 2021

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:

   

8353839

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, April 30, through 3:00 p.m. Eastern Time on Friday, May 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 8353839.

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 March 31, 2021, 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 17 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 180 office and data center shell properties encompassed 20.8 million square feet and was 94.9% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts that was 86.7% 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, 2020.

Category: Quarterly Results

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,

 

 

2021

 

2020

Revenues

 

 

 

 

Revenues from real estate operations

 

$

145,164

 

 

$

132,116

 

Construction contract and other service revenues

 

16,558

 

 

13,681

 

Total revenues

 

161,722

 

 

145,797

 

Operating expenses

 

 

 

 

Property operating expenses

 

56,974

 

 

49,999

 

Depreciation and amortization associated with real estate operations

 

37,321

 

 

32,596

 

Construction contract and other service expenses

 

15,793

 

 

13,121

 

General and administrative expenses

 

6,062

 

 

5,303

 

Leasing expenses

 

2,344

 

 

2,183

 

Business development expenses and land carry costs

 

1,094

 

 

1,118

 

Total operating expenses

 

119,588

 

 

104,320

 

Interest expense

 

(17,519

)

 

(16,840

)

Interest and other income

 

1,865

 

 

1,205

 

Credit loss recoveries (expense)

 

907

 

 

(689

)

Gain on sales of real estate

 

(490

)

 

5

 

Loss on early extinguishment of debt

 

(33,166

)

 

 

(Loss) income before equity in income of unconsolidated entities and income taxes

 

(6,269

)

 

25,158

 

Equity in income of unconsolidated entities

 

222

 

 

441

 

Income tax expense

 

(32

)

 

(49

)

Net (loss) income

 

(6,079

)

 

25,550

 

Net loss (income) attributable to noncontrolling interests:

 

 

 

 

Common units in the Operating Partnership (“OP”)

 

85

 

 

(287

)

Preferred units in the OP

 

 

 

(77

)

Other consolidated entities

 

(675

)

 

(1,132

)

Net (loss) income attributable to COPT common shareholders

 

$

(6,669

)

 

$

24,054

 

 

 

 

 

 

Earnings per share (“EPS”) computation:

 

 

 

 

Numerator for diluted EPS:

 

 

 

 

Net (loss) income attributable to COPT common shareholders

 

$

(6,669

)

 

$

24,054

 

Amount allocable to share-based compensation awards

 

(170

)

 

(97

)

Numerator for diluted EPS

 

$

(6,839

)

 

$

23,957

 

Denominator:

 

 

 

 

Weighted average common shares - basic

 

111,888

 

 

111,724

 

Dilutive effect of share-based compensation awards

 

 

 

239

 

Weighted average common shares - diluted

 

111,888

 

 

111,963

 

Diluted EPS

 

$

(0.06

)

 

$

0.21

 

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(in thousands, except per share data)

 

 

 

For the Three Months Ended

March 31,

 

 

2021

 

2020

Net (loss) income

 

$

(6,079

)

 

$

25,550

 

Real estate-related depreciation and amortization

 

37,321

 

 

32,596

 

Gain on sales of real estate

 

490

 

 

(5

)

Depreciation and amortization on unconsolidated real estate JVs

 

454

 

 

818

 

Funds from operations (“FFO”)

 

32,186

 

 

58,959

 

FFO allocable to other noncontrolling interests

 

(1,027

)

 

(12,015

)

Basic FFO allocable to share-based compensation awards

 

(162

)

 

(193

)

Noncontrolling interests - preferred units in the OP

 

 

 

(77

)

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

 

30,997

 

 

46,674

 

Redeemable noncontrolling interests

 

 

 

32

 

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

 

30,997

 

 

46,706

 

Loss on early extinguishment of debt

 

33,166

 

 

 

Diluted FFO comparability adjustments for redeemable noncontrolling interests

 

458

 

 

 

Diluted FFO comparability adjustments allocable to share-based compensation awards

 

(167

)

 

(50

)

Demolition costs on redevelopment and nonrecurring improvements

 

 

 

43

 

Dilutive preferred units in the OP

 

 

 

77

 

FFO allocation to other noncontrolling interests resulting from capital event

 

 

 

11,090

 

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

 

64,454

 

 

57,866

 

Straight line rent adjustments and lease incentive amortization

 

(3,357

)

 

(852

)

Amortization of intangibles included in net operating income

 

40

 

 

(74

)

Share-based compensation, net of amounts capitalized

 

1,904

 

 

1,389

 

Amortization of deferred financing costs

 

793

 

 

575

 

Amortization of net debt discounts, net of amounts capitalized

 

542

 

 

386

 

Replacement capital expenditures

 

(12,230

)

 

(17,754

)

Other diluted AFFO adjustments associated with real estate JVs

 

241

 

 

(41

)

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

 

$

52,387

 

 

$

41,495

 

Diluted FFO per share

 

$

0.27

 

 

$

0.41

 

Diluted FFO per share, as adjusted for comparability

 

$

0.56

 

 

$

0.51

 

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,

2021

 

December 31,

2020

Balance Sheet Data

 

 

 

 

Properties, net of accumulated depreciation

 

$

3,579,254

 

 

$

3,562,549

 

Total assets

 

4,112,948

 

 

4,077,023

 

Debt, per balance sheet

 

2,207,903

 

 

2,086,918

 

Total liabilities

 

2,430,231

 

 

2,357,881

 

Redeemable noncontrolling interests

 

25,925

 

 

25,430

 

Equity

 

1,656,792

 

 

1,693,712

 

Net debt to adjusted book

 

40.8

%

 

39.1

%

 

 

 

 

 

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

 

 

 

 

Number of operating properties

 

180

 

 

179

 

Total operational square feet (in thousands)

 

20,849

 

 

20,802

 

% Occupied

 

94.0

%

 

94.3

%

% Leased

 

94.9

%

 

95.0

%

 

 

For the Three Months Ended

March 31,

 

2021

 

2020

Payout ratios

 

 

 

 

Diluted FFO

 

100.5

%

 

66.6

%

Diluted FFO, as adjusted for comparability

 

48.3

%

 

53.9

%

Diluted AFFO

 

59.5

%

 

75.1

%

Adjusted EBITDA fixed charge coverage ratio

 

4.3

x

 

3.8

x

Net debt plus preferred equity to in-place adjusted EBITDA ratio (2)

 

6.6

x

 

6.3

x

Net debt adj. for fully-leased development plus pref. equity to in-place adj. EBITDA ratio (3)

 

6.3

x

 

5.8

x

 

 

 

 

 

Reconciliation of denominators for per share measures

 

 

Denominator for diluted EPS

 

111,888

 

 

111,963

 

Weighted average common units

 

1,246

 

 

1,226

 

Anti-dilutive EPS effect of share-based compensation awards

 

261

 

 

 

Redeemable noncontrolling interests

 

 

 

110

 

Denominator for diluted FFO per share

 

113,395

 

 

113,299

 

Redeemable noncontrolling interests

 

940

 

 

 

Dilutive convertible preferred units

 

 

 

176

 

Denominator for diluted FFO per share, as adjusted for comparability

 

114,335

 

 

113,475

 

(1)  

Represents Defense/IT Locations and Regional Office properties.

(2)  

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).

(3)  

Represents net debt less costs incurred on properties under development that were 100% leased as of period end plus the total liquidation preference of preferred equity 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,

 

 

2021

 

2020

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

 

 

 

 

Common share dividends - unrestricted shares and deferred shares

 

$

30,805

 

 

$

30,754

 

Common unit distributions - unrestricted units

 

347

 

 

339

 

Dividends and distributions for diluted FFO payout ratio

 

31,152

 

 

31,093

 

Distributions on dilutive preferred units

 

 

 

77

 

Dividends and distributions for other payout ratios

 

$

31,152

 

 

$

31,170

 

 

 

 

 

 

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

 

 

 

 

Net (loss) income

 

$

(6,079

)

 

$

25,550

 

Interest expense

 

17,519

 

 

16,840

 

Income tax expense

 

32

 

 

49

 

Real estate-related depreciation and amortization

 

37,321

 

 

32,596

 

Other depreciation and amortization

 

555

 

 

419

 

Gain on sales of real estate

 

490

 

 

(5

)

Adjustments from unconsolidated real estate JVs

 

693

 

 

1,270

 

EBITDAre

 

50,531

 

 

76,719

 

Loss on early extinguishment of debt

 

33,166

 

 

 

Credit loss (recoveries) expense

 

(907

)

 

689

 

Business development expenses

 

548

 

 

538

 

Demolition costs on redevelopment and nonrecurring improvements

 

 

 

43

 

Adjusted EBITDA

 

83,338

 

 

77,989

 

Proforma net operating income adjustment for property changes within period

 

166

 

 

734

 

Change in collectability of deferred rental revenue

 

124

 

 

 

In-place adjusted EBITDA

 

$

83,628

 

 

$

78,723

 

 

 

 

 

 

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

 

 

 

 

Interest expense

 

$

17,519

 

 

$

16,840

 

Less: Amortization of deferred financing costs

 

(793

)

 

(575

)

Less: Amortization of net debt discounts, net of amounts capitalized

 

(542

)

 

(386

)

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

 

234

 

 

441

 

Scheduled principal amortization

 

962

 

 

1,021

 

Capitalized interest

 

1,805

 

 

3,358

 

Preferred unit distributions

 

 

 

77

 

Denominator for fixed charge coverage-Adjusted EBITDA

 

$

19,185

 

 

$

20,776

 

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(in thousands)

   

 

 

For the Three Months Ended

March 31,

 

 

2021

 

2020

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

 

 

 

 

Tenant improvements and incentives

 

$

7,139

 

 

$

11,357

 

Building improvements

 

3,628

 

 

2,475

 

Leasing costs

 

1,129

 

 

2,762

 

Net additions to tenant improvements and incentives

 

2,900

 

 

2,026

 

Excluded building improvements and leasing costs

 

(2,566

)

 

(866

)

Replacement capital expenditures

 

$

12,230

 

 

$

17,754

 

 

 

 

 

 

Same Properties cash NOI

 

$

74,000

 

 

$

76,041

 

Straight line rent adjustments and lease incentive amortization

 

151

 

 

182

 

Amortization of acquired above- and below-market rents

 

99

 

 

96

 

Amortization of intangibles and other assets to property operating expenses

 

 

 

(23

)

Lease termination fees, net

 

1,362

 

 

38

 

Tenant funded landlord assets and lease incentives

 

179

 

 

368

 

Cash NOI adjustments in unconsolidated real estate JV

 

42

 

 

53

 

Same Properties NOI

 

$

75,833

 

 

$

76,755

 

 

 

March 31,

2021

 

December 31,

2020

Reconciliation of total assets to adjusted book

 

 

 

 

Total assets

 

$

4,112,948

 

 

$

4,077,023

 

Accumulated depreciation

 

1,157,059

 

 

1,124,253

 

Accumulated amortization of real estate intangibles and deferred leasing costs

 

217,811

 

 

217,124

 

COPT’s share of liabilities of unconsolidated real estate JVs

 

27,603

 

 

26,710

 

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

 

2,043

 

 

1,489

 

Less: Property - operating lease liabilities

 

(30,176

)

 

(30,746

)

Less: Property - finance lease liabilities

 

(28

)

 

(28

)

Less: Cash and cash equivalents

 

(36,139

)

 

(18,369

)

Less: COPT’s share of cash of unconsolidated real estate JVs

 

(202

)

 

(152

)

Adjusted book

 

$

5,450,919

 

 

$

5,397,304

 

 

 

 

 

 

Reconciliation of debt outstanding to net debt and net debt adjusted for fully-leased development plus preferred equity

 

 

 

 

Debt outstanding (excluding net debt discounts and deferred financing costs)

 

$

2,257,854

 

 

2,127,715

 

Less: Cash and cash equivalents

 

(36,139

)

 

(18,369

)

Less: COPT’s share of cash of unconsolidated real estate JVs

 

(202

)

 

(152

)

Net debt

 

$

2,221,513

 

 

$

2,109,194

 

Costs incurred on fully-leased development properties

 

(128,032

)

 

(114,532

)

Net debt adjusted for fully-leased development plus preferred equity

 

$

2,093,481

 

 

$

1,994,662

 

 

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