COPT Reports First Quarter 2014 Results

  COPT Reports First Quarter 2014 Results

Business Wire

COLUMBIA, Md. -- April 25, 2014

Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC)
announced financial and operating results for the first quarter ended March
31, 2014.

“During the quarter, occupancy increased modestly in nearly all of our
submarkets, reflecting strong demand by customers in our strategic tenant
niche and the gradual yet broad-based, improvement in local economic
conditions,” stated Roger A. Waesche, Jr., COPT’s President & Chief Executive
Officer. “We are at a positive inflection point, and expect 2014 will be a
rewarding year for shareholders,” he added.

Results:

Diluted earnings per share (“EPS”) was $0.00 for the quarter ended March 31,
2014 as compared to $0.11 in the first quarter of 2013. Per NAREIT’s
definition, diluted funds from operations per share (“FFOPS”) for the first
quarter of 2014 was $0.48 versus $0.45 reported in the first quarter of 2013.
FFOPS, as adjusted for comparability, was $0.48 for the quarter ended March
31, 2014 as compared to $0.48 reported for the first quarter of 2013.
Adjustments for comparability could encompass items such as acquisition costs,
impairment losses and gains on non-operating properties (net of related tax
adjustments), losses (gains) on early extinguishment of debt and write-offs of
original issuance costs for redeemed preferred stock. Please refer to the
reconciliation tables that appear later in this press release.

Operating Performance:

Portfolio Summary – At March 31, 2014, the Company’s portfolio of 183
operating office properties totaled 17.5 million square feet. The Company’s
portfolio was 89.8% occupied and 91.1% leased as of March 31, 2014.

Same Office Performance – The Company’s same office portfolio for the quarter
ended March 31, 2014 represents 88% of the rentable square feet of the
portfolio and consists of 170 properties. The Company’s same office portfolio
was 89.9% occupied at March 31, 2014, up 50 basis points from year end 2013
occupancy. As of the same date, our same office portfolio was 91.4% leased.
For the first quarter ended March 31, 2014, the Company’s same office property
cash NOI, excluding gross lease termination fees, was essentially flat as
compared to the first quarter of 2013.

Leasing – COPT completed approximately 446,000 square feet of total leasing in
core office properties during the quarter ended March 31, 2014, and achieved a
56% renewal rate. For the quarter ended March 31, 2014, total rent on renewed
space increased 1.6% on a GAAP basis and decreased 6.9% on a cash basis.

Investment Activity:

At March 31, 2014, the Company had eight properties totaling 1.2 million
square feet under construction for a total projected cost of $300.3 million,
of which $126.1 million had been incurred. These eight projects were 50%
pre-leased at March 31, 2014. As of the same date, COPT had four properties
under redevelopment representing a total projected cost of $75.6 million, of
which $39.7 million has been incurred. The four redevelopment properties
totaled approximately 400,000 square feet that, at March 31, 2014, were 68%
pre-leased.

Balance Sheet and Capital Transactions:

As of March 31, 2014, the Company’s debt to adjusted book ratio was 43.5% and
its adjusted EBITDA fixed charge coverage ratio was 2.9x. Also, the Company’s
weighted average interest rate was 4.3% for the quarter ended March 31, 2014
and 89% of the Company’s debt was subject to fixed interest rates, including
the effect of interest rate swaps.

2014 FFO Guidance:

Management is raising the low-end of previously issued guidance for 2014
FFOPS, as adjusted for comparability, by $0.01, to a new range of $1.85–$1.92.
Management is establishing guidance for second quarter 2014 FFOPS, as adjusted
for comparability, of $0.43–$0.45. A reconciliation of projected diluted EPS
to projected FFOPS for the quarter ending June 30, 2014 and the year ending
December 31, 2014 is provided, as follows:

                                                                
                                 Quarter Ending          Year Ending
                                 June 30, 2014           December 31, 2014
                                 Low         High        Low         High
                                                                     
EPS                              $ 0.07      $ 0.09      $ 0.97      $ 1.04
Real estate depreciation and      0.32      0.32      1.44      1.44  
amortization
                                                                     
FFOPS, NAREIT definition           0.39        0.41        2.41        2.48
                                                                     
Net operating income from          (0.01 )     (0.01 )     (0.02 )     (0.02 )
properties to be conveyed (a)
Interest expense on loan
secured by properties to be        0.05        0.05        0.14        0.14
conveyed (a)
Net gains on early                -         -         (0.68 )    (0.68 )
extinguishment of debt (b)
                                                                     
FFOPS, as adjusted for           $ 0.43     $ 0.45     $ 1.85     $ 1.92  
comparability

   
     The Company expects to transfer two operating properties in satisfaction
     of non-recourse secured indebtedness. These amounts represent the
a.   Company's forecast of net operating income generated by these assets and
     interest expense (accrued at the default rate) from April 1st through
     year-end, and assuming a transfer date of December 31, 2014.
b.   Represents debt and accrued interest in excess of the book value of the
     assets to be conveyed.
     

1Q 2014 Conference Call Information:

Management will discuss first quarter 2014 earnings results, as well as its
2014 guidance, on its conference call on April 25, 2014 at 12:00 p.m. Eastern
Time, details of which are listed below:

                                
Earnings Release Date:             Friday, April 25, 2014 at 6:00 a.m. Eastern
                                   Time
Conference Call Date:              Friday, April 25, 2014
Time:                              12:00 p.m. Eastern Time
Telephone Number: (within the      888-713-4213
U.S.)
Telephone Number: (outside the     617-213-4865
U.S.)
Passcode:                          65527969
                                   

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=PC84V8CXU

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 Friday, April 25 at 4:00
p.m. Eastern Time through Friday, May 9 at midnight Eastern Time. To access
the replay within the United States, please call 888-286-8010 and use passcode
50491518. To access the replay outside the United States, please call
617-801-6888 and use passcode 50491518.

The conference call 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.

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 focuses primarily on serving the specialized
requirements of U.S. Government agencies and defense contractors, most of
which are engaged in defense information technology and national
security-related activities. As of March 31, 2014, COPT derived 73% of its
annualized revenue from its strategic tenant niche properties and 23% from its
regional office properties. The Company generally acquires, develops, manages
and leases office and data center properties concentrated in large office
parks primarily located near knowledge-based government demand drivers and/or
in targeted markets or submarkets in the Greater Washington, DC/Baltimore
region. As of March 31, 2014, the Company’s consolidated portfolio consisted
of 183 office properties totaling 17.5  million rentable square feet. COPT is
an S&P MidCap 400 company.

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 prolonged 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 the Company's
    strategic customers;
  *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;
  *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 for properties or views of market economic
    conditions or failure to obtain development rights, either of which could
    result in recognition of significant 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 Company's ability to achieve projected results;
  *the dilutive effects 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, 2013.


Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
                                                  
                                                    For the Three Months Ended
                                                    March 31,
                                                    2014          2013
Revenues
Real estate revenues                                $  124,877     $ 111,957
Construction contract and other service revenues    21,790        14,262    
Total revenues                                      146,667       126,219   
Expenses
Property operating expenses                         49,772         40,388
Depreciation and amortization associated with       43,596         27,010
real estate operations
Construction contract and other service expenses    18,624         13,477
General and administrative expenses                 6,158          5,984
Leasing expenses                                    1,985          1,836
Business development expenses and land carry        1,326         1,359     
costs
Total operating expenses                            121,461       90,054    
Operating income                                    25,206         36,165
Interest expense                                    (20,827    )   (20,290   )
Interest and other income                           1,285          946
Loss on early extinguishment of debt                —             (5,184    )
Income from continuing operations before equity
in income of unconsolidated entities and income     5,664          11,637
taxes
Equity in income of unconsolidated entities         60             41
Income tax expense                                  (64        )   (16       )
Income from continuing operations                   5,660          11,662
Discontinued operations                             11            1,261     
Income before gain on sales of real estate          5,671          12,923
Gain on sales of real estate, net of income taxes   —             2,354     
Net income                                          5,671          15,277
Net (income) loss attributable to noncontrolling
interests
Common units in the Operating Partnership           (16        )   (429      )
Preferred units in the Operating Partnership        (165       )   (165      )
Other consolidated entities                         (749       )   337       
Net income attributable to COPT                     4,741          15,020
Preferred share dividends                           (4,490     )   (6,106    )
Net income attributable to COPT common              $  251        $ 8,914   
shareholders
                                                                             
Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net income attributable to common shareholders      $  251         $ 8,914
Amount allocable to restricted shares               (121       )   (118      )
Numerator for diluted EPS                           $  130        $ 8,796   
                                                                             
Denominator:
Weighted average common shares - basic              87,080         81,397
Dilutive effect of share-based compensation         112           52        
awards
Weighted average common shares - diluted            87,192        81,449    
Diluted EPS                                         $  0.00       $ 0.11    
                                                                             

                                                  
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
                                                    
                                                    For the Three Months Ended
                                                    March 31,
                                                    2014           2013
Net income                                          $  5,671        $ 15,277
Real estate-related depreciation and amortization   43,596          28,252
Impairment losses on previously depreciated         1               1,857
operating properties
Loss on sales of previously depreciated operating   4              —        
properties
Funds from operations (“FFO”)                       49,272          45,386
Noncontrolling interests - preferred units in the   (165       )    (165     )
Operating Partnership
FFO allocable to other noncontrolling interests     (761       )    (727     )
Preferred share dividends                           (4,490     )    (6,106   )
Basic and diluted FFO allocable to restricted       (205       )    (183     )
shares
Basic and diluted FFO available to common share     43,651          38,205
and common unit holders (“Basic and diluted FFO”)
Gain on sales of non-operating properties, net of   —               (2,354   )
income taxes
Loss on early extinguishment of debt                23             5,184    
Diluted FFO available to common share and common    43,674          41,035
unit holders, as adjusted for comparability
Straight line rent adjustments                      760             (3,833   )
Amortization of intangibles included in net         217             177
operating income
Share-based compensation, net of amounts            1,555           1,649
capitalized
Amortization of deferred financing costs            1,167           1,528
Amortization of net debt discounts, net of          171             628
amounts capitalized
Amortization of settled debt hedges                 15              15
Recurring capital expenditures                      (11,052    )    (5,308   )
Diluted adjusted funds from operations available
to common share and common unit holders (“Diluted   $  36,507      $ 35,891 
AFFO”)
Diluted FFO per share                               $  0.48         $ 0.45
Diluted FFO per share, as adjusted for              $  0.48         $ 0.48
comparability
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,      December 31,
                                                  2014           2013
Balance Sheet Data
Properties, net of accumulated depreciation       $3,224,628     $ 3,214,301
Total assets                                      3,605,897        3,629,952
Debt, net                                         1,931,831        1,927,703
Total liabilities                                 2,115,208        2,114,945
Redeemable noncontrolling interest                17,654           17,758
Equity                                            1,473,035        1,497,249
Debt to adjusted book                             43.5       %     43.6      %
Debt to total market capitalization               41.7       %     44.3      %
                                                                 
Consolidated Property Data (as of period end)
Number of operating properties                    183              183
Total net rentable square feet owned (in          17,473           17,370
thousands)
Occupancy %                                       89.8       %     89.1      %
Leased %                                          91.1       %     90.3      %
                                                                 
                                                  For the Three Months Ended
                                                  March 31,
                                                  2014           2013
Payout ratios
Diluted FFO                                          57.7    %     64.5      %
Diluted FFO, as adjusted for comparability           57.6    %     60.1      %
Diluted AFFO                                         69.0    %     68.7      %
Adjusted EBITDA interest coverage ratio              3.6     x   3.5x
Adjusted EBITDA fixed charge coverage ratio          2.9     x   2.7x
Adjusted debt to in-place adjusted EBITDA ratio      6.8     x   6.8x
(1)
                                                                 
Reconciliation of denominators for diluted EPS
and diluted FFO per share
Denominator for diluted EPS                          87,192        81,449
Weighted average common units                       3,958       3,893     
Denominator for diluted FFO per share               91,150      85,342    
                                                                 
Reconciliation of FFO to FFO, as adjusted for
comparability
FFO, per NAREIT                                   $  49,272      $ 45,386
Gain on sales of non-operating properties            —             (2,354    )
Loss on early extinguishment of debt,               23          5,184     
continuing and discontinued operations
FFO, as adjusted for comparability                $  49,295     $ 48,216    

    
      Represents debt as of period end divided by in-place adjusted EBITDA for
(1)   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 Months Ended
                                                    March 31,
                                                    2014           2013
Reconciliation of common share dividends to
dividends and distributions for payout ratios
Common share dividends                              $  24,091       $ 23,594
Common unit distributions                           1,081          1,050    
Dividends and distributions for payout ratios       $  25,172      $ 24,644 
                                                                             
Reconciliation of GAAP net income to adjusted
earnings before interest, income taxes,
depreciation and amortization (“Adjusted EBITDA”)
and in-place adjusted EBITDA
Net income                                          $  5,671        $ 15,277
Interest expense on continuing operations           20,827          20,290
Interest expense on discontinued operations         —               2,081
Income tax expense                                  64              16
Real estate-related depreciation and amortization   43,596          28,252
Depreciation of furniture, fixtures and equipment   505             530
Impairment losses                                   1               1,857
Loss on early extinguishment of debt on             23              5,184
continuing and discontinued operations
Loss on sales of operating properties               4               —
Gain on sales of non-operational properties         —               (2,354   )
Net loss (gain) on investments in unconsolidated    20             (60      )
entities included in interest and other income
Adjusted and in-place adjusted EBITDA               $  70,711      $ 71,073 
                                                                             
Reconciliation of interest expense from
continuing operations to the denominators for
interest coverage-Adjusted EBITDA and fixed
charge coverage-Adjusted EBITDA
Interest expense from continuing operations         $  20,827       $ 20,290
Interest expense from discontinued operations       —               2,081
Less: Amortization of deferred financing costs      (1,167     )    (1,528   )
Less: Amortization of net debt discount, net of     171            (628     )
amounts capitalized
Denominator for interest coverage-Adjusted EBITDA   19,831          20,215
Preferred share dividends                           4,490           6,106
Preferred unit distributions                        165            165      
Denominator for fixed charge coverage-Adjusted      $  24,486      $ 26,486 
EBITDA
                                                                             

                                               
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
                                               
                                                 For the Three Months Ended
                                                 March 31,
                                                 2014           2013
Reconciliations of tenant improvements and
incentives, capital improvements and leasing
costs for operating properties to recurring
capital expenditures
Tenant improvements and incentives on            $ 6,319         $ 2,291
operating properties
Building improvements on operating properties      3,982           1,600
Leasing costs for operating properties             1,528           1,669
Less: Nonrecurring tenant improvements and         (16       )     15
incentives on operating properties
Less: Nonrecurring building improvements on        (568      )     (267      )
operating properties
Less: Nonrecurring leasing costs for operating    (193      )    —         
properties
Recurring capital expenditures                   $ 11,052       $ 5,308     
                                                                 
Reconciliation of same office property net
operating income to same office property cash
net operating income and same office property
cash net operating income, excluding gross
lease termination fees
Same office property net operating income        $ 65,789        $ 66,628
Less: Straight-line rent adjustments               (537      )     (1,588    )
Less: Amortization of deferred market rental       8               (29       )
revenue
Add: Amortization of above-market cost            272           319       
arrangements
Same office property cash net operating income     65,532          65,330
Less: Lease termination fees, gross               (512      )    (224      )
Same office property cash net operating          $ 65,020       $ 65,106    
income, excluding gross lease termination fees
                                                                 
                                                 March 31,       December 31,
                                                 2014            2013
Reconciliation of total assets to denominator
for debt to adjusted book
Total assets                                     $ 3,605,897     $ 3,629,952
Accumulated depreciation                           635,178         597,649
Accumulated amortization of real estate           199,500       193,142   
intangibles and deferred leasing costs
Denominator for debt to adjusted book            $ 4,440,575    $ 4,420,743 
                                                                 
Reconciliation of debt to numerator for
adjusted debt to in-place adjusted EBITDA
ratio
Debt, net                                        $ 1,931,831     $ 1,927,703
Less: Cash and cash equivalents                   (18,374   )    (54,373   )
Numerator for adjusted debt to in-place          $ 1,913,457    $ 1,873,330 
adjusted EBITDA ratio
                                                                             

Contact:

Corporate Office Properties Trust
IR Contacts:
Stephanie Krewson, 443-285-5453
stephanie.krewson@copt.com
or
Michelle Layne, 443-285-5452
michelle.layne@copt.com
 
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