COPT Reports Third Quarter 2012 Results

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COPT Reports Third Quarter 2012 Results

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT or the Company) (NYS: OFC) , announced financial and operating results for the third quarter ended September 30, 2012.

"Year to date, we are ahead of plan on leasing, on selling non-strategic properties, and in de-leveraging our balance sheet," stated Roger A. Waesche, Jr., President and Chief Executive Officer. "We remain focused on completing the strategic initiatives currently in progress to position the Company for future growth," he added.


Results:

Diluted loss per share was ($0.39) for the quarter ended September 30, 2012 as compared to earnings per share (EPS) of $0.03 in the third quarter of 2011. The third quarter 2012 loss per diluted share includes impairment losses of $55.8 million associated with non-strategic operating properties. Diluted funds from operations per share (FFOPS), as adjusted for comparability, was $0.53 for the third quarter ended September 30, 2012, which represented a 2% increase from the $0.52 reported for the third quarter of 2011. Adjustments for comparability encompass items such as acquisition costs, impairments and gains on non-operating properties, gains (losses) on early extinguishment of debt, derivative losses and issuance costs on redeemed preferred shares. Please refer to the reconciliation tables that appear later in this press release. Per NAREIT's definition, FFOPS for the third quarter of 2012 was $0.52 versus $0.49 reported in the third quarter of 2011.

Operating Performance:

Portfolio Summary - At September 30, 2012, the Company's consolidated portfolio of 206 operating office properties totaled 18.6 million square feet. The weighted average remaining lease term for the portfolio was 4.6 years and the average rental rate (including tenant reimbursements) was $27.73 per square foot. The Company's consolidated portfolio was 88.1% occupied and 89.9% leased as of September 30, 2012, up 70 and 60 basis points, respectively, from June 30, 2012 levels.

Same Office Performance - The Company's same office portfolio excludes properties identified for eventual disposal. For the quarter ended September 30, 2012, COPT's same office portfolio represents 81.6% of the rentable square feet of the portfolio and consists of 163 properties. The Company's same office portfolio occupancy was 89.3% at the end of the third quarter of 2012, down 160 basis points from the end of the third quarter 2011. Sequentially, same office occupancy declined 30 basis points from June 30, 2012 to September 30, 2012.

On a GAAP basis, same office NOI grew 2.5% year-over-year for the quarter ended September 30, 2012, and increased 3.5% for the nine months ended September 30, 2012 versus the prior year period. On a cash basis and excluding lease termination fees, same office NOI declined 2.1% in the third quarter of 2012 versus 2011, owing to the receipt of a prepayment of rent in 2011. Excluding this prepayment and lease termination fees, same office cash NOI in the third quarter would have increased 3.9% year-over-year.

Leasing - COPT leased a total of 608,000 square feet during the quarter ended September 30, 2012, which included 259,000 square feet of development and first generation leasing. During this same period, the Company's renewal rate was 48.3%. For the quarter ended September 30, 2012, total rent on renewed space increased 9.4% as measured from the straight-line rent in effect preceding the renewal date; on a cash basis, renewal rents decreased 1.9%.

Investment Activity:

Construction - The Company had eight office properties under construction at September 30, 2012, and three additional properties placed under construction in early October 2012. These 11 construction properties total 1.3 million square feet and have a total projected cost of $307.9 million, of which $162.4 million had been incurred by September 30, 2012. As of the same date, COPT had two properties under redevelopment for an anticipated total cost of $56.3 million, of which $31.1 million had been spent.

Acquisitions - In the third quarter of 2012, COPT acquired one five-story, Class-A building with 202,000 square feet for $48.3 million. The building is located at 13857 McLearen Road, known as the McLearen Center in Herndon, Virginia. McLearen Center is in close proximity to several large US Government controlled campuses. The building is 100% leased to a strategic tenant in the Defense Information Technology industry.

Dispositions - In the third quarter of 2012, COPT disposed of 24 operating properties for $178.1 million. The operating buildings contained a total of 1.5 million square feet and were 83.8% occupied (90 leases) at the time of disposition. During the nine months ended September 30, 2012, COPT disposed of a total of $318 million of properties and adjacent land that aggregated 2.3 million operational square feet that were 80.4% occupied at the time of sale.

Capital Transactions:

In August, the Company entered into a $120 million term loan agreement, with the ability to expand the amount drawn during the term, subject to certain conditions, by an additional $80 million. The Term Loan has a seven-year term and a variable interest rate of LIBOR plus 2.10% to 2.60%, depending on the Company's leverage levels.

Balance Sheet and Financial Flexibility:

As of September 30, 2012, the Company had a total market capitalization of $4.3 billion, with $2.2 billion in debt outstanding, equating to a 50% debt-to-total market capitalization ratio. Also, the Company's weighted average interest rate was 4.4% for the quarter ended September 30, 2012 and 76% of the Company's debt was subject to fixed interest rates, including the effect of interest rate swaps.

For the third quarter 2012, the Company's adjusted EBITDA to interest expense coverage ratio was 3.4x, and the adjusted EBITDA fixed charge coverage ratio was 2.6x. Adjusting for construction in progress, the Company's debt-to-adjusted EBITDA ratio was 6.2x for the three months ended September 30, 2012.

Subsequent Events:

Leasing - Between October 1 and October 17, 2012, COPT completed 437,000 square feet of leases at development projects. Specifically, the Company executed leases for 363,000 square feet of Class-A office space at Redstone Gateway in Huntsville, AL, 55,000 square feet at its redevelopment project in Blue Bell, PA, and 19,000 square feet in Colorado Springs, CO.

Capital Raises - On October 16, 2012, the Company completed a public offering of 8,625,000 common shares at a price of $24.75 per share for net proceeds of $204.9 million after underwriter discounts but before offering expenses.

2012 FFO Guidance:

Management is narrowing its previously issued guidance for 2012 FFOPS of $2.02 to $2.08 to a new range of $2.05 to $2.08. Management also is issuing fourth quarter 2012 FFOPS guidance of $0.45 to $0.48. A reconciliation of projected EPS to projected FFOPS for the quarter and year ending December 31, 2012 is provided as follows:

  
Quarter EndingYear Ending
December 31, 2012December 31, 2012
  
FFOPS, as adjusted for comparability$0.45$0.48$2.05$2.08
Gains on non-operating properties, net of income taxes--0.010.01
Net gains on early extinguishment of debt--0.010.01
Issuance costs on redeemed Preferred shares -   -  (0.02)  (0.02)
 
FFOPS, NAREIT definition0.450.482.052.08
 
Real estate depreciation and amortization(0.40)(0.40)(1.62)(1.62)
Impairments and exit costs on previously depreciated properties--(0.90)(0.90)
Gains on sales of previously depreciated properties -   -  0.27   0.27 
 
EPS$0.05  $0.08 $(0.20) $(0.17)
 

Conference Call Information:

Management will discuss third quarter 2012 earnings results, as well as its 2012 guidance, on its conference call today at 11:00 a.m. Eastern Time, details of which are listed below:

   
Time:11:00 a.m. Eastern Time
 
Telephone Number: (within the U.S.)888-679-8018
 
Telephone Number: (outside the U.S.)617-213-4845
 
Passcode:49667248
 

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. Pre-registration only takes a few moments and you may pre-register at anytime, including up to and after the call start time. To pre-register, please click on the below link:
https://www.theconferencingservice.com/prereg/key.process?key=PQFR39JDX

You may also pre-register in the Investor Relations 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. A replay of this call will be available beginning Thursday, October 25 at 3:00 p.m. Eastern Time through Thursday, November 8 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 51365923. To access the replay outside the United States, please call 617-801-6888 and use passcode 51365923.

The conference calls 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.

Company Information:

COPT is an office REIT that focuses primarily on strategic customer relationships and specialized tenant requirements in the U.S. Government and Defense Information Technology sectors and Data Centers serving such sectors. The Company acquires, develops, manages and leases office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in strong markets that we believe possess growth opportunities. As of September 30, 2012, the Company's consolidated portfolio consisted of 206 office properties totaling 18.6million rentable square feet. The Company's portfolio primarily consists of technically sophisticated buildings in visually appealing settings that are environmentally sensitive, sustainable and meet unique customer requirements. COPT is an S&P MidCap 400 company and more information can be found at www.copt.com.

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 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 strategic tenants;
  • 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;
  • the Company's ability to sell properties included in its Strategic Reallocation Plan;
  • 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 or views of market economic conditions or failure to obtain development rights, any of which could result in recognition of 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 dilutive effect 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, 2011.

Reconciliations:

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the tables, below. Please refer to the information furnished with our Form 8-K on our website (www.copt.com) for definitions of these non-GAAP measures and other terms used in this press release.

  
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
 
For the Three Months EndedFor the Nine Months Ended
September 30,September 30,
2012 20112012 2011
Revenues
Real estate revenues$114,861$107,978$336,687$317,013
Construction contract and other service revenues15,283 18,729 53,812 67,854 
Total revenues130,144 126,707 390,499 384,867 
Expenses
Property operating expenses42,79941,669126,339123,135
Depreciation and amortization associated with real estate operations28,69831,26984,92084,205
Construction contract and other service expenses14,41018,17151,30265,698
Impairment losses46,09641,26042,983
General and administrative expenses5,0616,15419,82019,251
Business development expenses and land carry costs1,632 1,751 4,506 4,322 
Total operating expenses138,696 99,014 328,147 339,594 
Operating (loss) income(8,552)27,69362,35245,273
Interest expense(23,239)(24,176)(71,909)(74,861)
Interest and other income1,095(242)3,1523,682
Loss on early extinguishment of debt(768)(1,611)(937)(1,636)
(Loss) income from continuing operations before equity in loss of unconsolidated entities and income taxes(31,464)1,664(7,342)(27,542)
Equity in loss of unconsolidated entities(246)(159)(522)(223)
Income tax (expense) benefit(106)457 (4,296)6,043 
(Loss) income from continuing operations(31,816)1,962(12,160)(21,722)
Discontinued operations11,051 5,508 10,212 (18,109)
(Loss) income before gain on sales of real estate(20,765)7,470(1,948)(39,831)
Gain on sales of real estate, net of income taxes  21 2,728 
Net (loss) income(20,765)7,470(1,927)(37,103)
Net loss (income) attributable to noncontrolling interests
Common units in the Operating Partnership1,569(178)1,0203,188
Preferred units in the Operating Partnership(165)(165)(495)(495)
Other consolidated entities(411)(561)(939)(1,038)
Net (loss) income attributable to COPT(19,772)6,566(2,341)(35,448)
Preferred share dividends(6,546)(4,025)(14,738)(12,076)
Issuance costs associated with redeemed preferred shares(1,827) (1,827) 
Net (loss) income attributable to COPT common shareholders$(28,145)$2,541 $(18,906)$(47,524)
 
Earnings per share ("EPS") computation:
Numerator for diluted EPS:
Net (loss) income attributable to common shareholders$(28,145)$2,541$(18,906)$(47,524)
Dilutive effect of common units in the Operating Partnership(3,188)
Amount allocable to restricted shares(111)(262)(357)(781)
Numerator for diluted EPS$(28,256)$2,279 $(19,263)$(51,493)
 
Denominator:
Weighted average common shares - basic71,68871,31271,59068,718
Dilutive effect of common units in the Operating Partnership   4,371 
Weighted average common shares - diluted
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