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 email@example.com or Michelle Layne, 443-285-5452 firstname.lastname@example.org
COPT Reports First Quarter 2014 Results
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