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TheStreet Open House

COPT Reports 2012 Results; Affirms 2013 Guidance

Stocks in this article: OFC

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.

Definitions:

Please refer to the information furnished with our Form 8-K or our website ( www.copt.com) for definitions of certain terms used in this press release. 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 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 December 31, 2012, the Company’s consolidated portfolio consisted of 208 office properties totaling 18.8 million 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 sell properties included in its Strategic Reallocation Plan;
  • 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 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 Company's ability to achieve projected results;
  • 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 and in our Current Report on Form 8-K dated October 10, 2012.

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

For the Three Months Ended

December 31,

   

For the Years Ended

December 31,

2012     2011 2012     2011
Revenues
Real estate revenues $ 117,481 $ 111,483 $ 454,171 $ 428,496
Construction contract and other service revenues   20,024     16,491     73,836     84,345  
Total revenues   137,505     127,974     528,007     512,841  
Expenses
Property operating expenses 44,887 42,525 167,161 162,397
Depreciation and amortization associated with real estate operations 28,560 28,906 113,480 113,111
Construction contract and other service expenses 19,274 15,941 70,576 81,639
Impairment losses 1,954 40,495 43,214 83,478
General and administrative expenses 5,740 5,881 26,271 25,133
Leasing expenses 1,363 1,433 5,629 5,181
Business development expenses and land carry costs   1,205     1,800     5,711     6,122  
Total operating expenses   102,983     136,981     432,042     477,061  
Operating income (loss) 34,522 (9,007 ) 95,965 35,780
Interest expense (22,715 ) (23,361 ) (94,624 ) (98,222 )
Interest and other income 4,020 1,921 7,172 5,603
Loss on early extinguishment of debt (6 ) (3 ) (943 ) (1,639 )
Loss on interest rate derivatives       (29,805 )       (29,805 )
Income (loss) from continuing operations before equity in loss of unconsolidated entities and income taxes 15,821 (60,255 ) 7,570 (88,283 )
Equity in loss of unconsolidated entities (24 ) (108 ) (546 ) (331 )
Income tax (expense) benefit   (54 )   38     (381 )   6,710  
Income (loss) from continuing operations 15,743 (60,325 ) 6,643 (81,904 )
Discontinued operations   3,267     (30,781 )   13,677     (48,404 )
Income (loss) before gain on sales of real estate 19,010 (91,106 ) 20,320 (130,308 )
Gain on sales of real estate, net of income taxes       4     21     2,732  
Net income (loss) 19,010 (91,102 ) 20,341 (127,576 )
Net (income) loss attributable to noncontrolling interests
Common units in the Operating Partnership (651 ) 5,348 87 8,439
Preferred units in the Operating Partnership (165 ) (165 ) (660 ) (660 )
Other consolidated entities   345     423     1,209     369  
Net income (loss) attributable to COPT 18,539 (85,496 ) 20,977 (119,428 )
Preferred share dividends (6,106 ) (4,026 ) (20,844 ) (16,102 )
Issuance costs associated with redeemed preferred shares           (1,827 )    
Net income (loss) attributable to COPT common shareholders $ 12,433   $ (89,522 ) $ (1,694 ) $ (135,530 )
 
Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net income (loss) attributable to common shareholders $ 12,433 $ (89,522 ) $ (1,694 ) $ (135,530 )
Amount allocable to restricted shares   (112 )   (256 )   (469 )   (1,037 )
Numerator for diluted EPS $ 12,321   $ (89,778 ) $ (2,163 ) $ (136,567 )
 
Denominator:
Weighted average common shares - basic 79,004 71,351 73,454 69,382
Dilutive effect of share-based compensation awards   67              
Weighted average common shares - diluted   79,071     71,351     73,454     69,382  
Diluted EPS $ 0.16   $ (1.26 ) $ (0.03 ) $ (1.97 )
 
 
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
 
 
   

For the Three Months Ended

December 31,

   

For the Years Ended

December 31,

2012     2011 2012     2011
Net income (loss) $ 19,010 $ (91,102 ) $ 20,341 $ (127,576 )
Real estate-related depreciation and amortization 28,560 33,030 121,937 134,131
Impairment losses on previously depreciated operating properties 247 39,481 70,263 70,512
Gain on sales of previously depreciated operating properties, net of income taxes 8 (3,362 ) (20,928 ) (4,811 )
Depreciation and amortization on unconsolidated real estate entities       142     346     492  
Funds from operations (“FFO”) 47,825 (21,811 ) 191,959 72,748
Noncontrolling interests - preferred units in the Operating Partnership (165 ) (165 ) (660 ) (660 )
FFO allocable to other noncontrolling interests (738 ) (283 ) (1,989 ) (1,887 )
Preferred share dividends (6,106 ) (4,026 ) (20,844 ) (16,102 )
Issuance costs associated with redeemed preferred shares (1,827 )
Basic and diluted FFO allocable to restricted shares   (191 )   (255 )   (919 )   (1,037 )
Basic and diluted FFO available to common share and common unit holders (“Basic and diluted FFO”) 40,625 (26,540 ) 165,720 53,062
Operating property acquisition costs 4 229 156
Gain on sales of non-operating properties, net of income taxes (33 ) (2,717 )
Impairment losses (recoveries) on non-operating properties 1,893 39,193 (3,353 ) 80,509
Income tax expense on impairment (losses) recoveries on non-operating properties 452 673 (4,775 )
Loss on interest rate derivatives 29,805 29,805
Loss (gain) on early extinguishment of debt 6 3 (793 ) 2,023
Issuance costs associated with redeemed preferred shares           1,827      
Diluted FFO available to common share and common unit holders, as adjusted for comparability 42,524 42,917 164,270 158,063
Straight line rent adjustments (3,385 ) (2,144 ) (10,016 ) (8,669 )
Amortization of intangibles included in net operating income 221 249 880 849
Share-based compensation, net of amounts capitalized 1,720 3,764 9,982 11,920
Amortization of deferred financing costs 1,547 1,506 6,243 6,596
Amortization of net debt discounts, net of amounts capitalized 693 634 2,721 4,680
Amortization of settled debt hedges 16 15 62 62
Recurring capital expenditures   (27,476 )   (12,550 )   (43,943 )   (39,510 )
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) $ 15,860   $ 34,391   $ 130,199   $ 133,991  
Diluted FFO per share $ 0.49 $ (0.35 ) $ 2.13 $ 0.72
Diluted FFO per share, as adjusted for comparability $ 0.51 $ 0.57 $ 2.11 $ 2.14
Dividends/distributions per common share/unit $ 0.2750 $ 0.4125 $ 1.1000 $ 1.6500
 
 
Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(in thousands, except per share data)
 
 
            December 31, 2012     December 31, 2011
Balance Sheet Data
Properties, net of accumulated depreciation $ 3,163,044 $ 3,352,975
Total assets 3,653,759 3,863,555
Debt, net 2,019,168 2,426,303
Total liabilities 2,206,962 2,648,748
Redeemable noncontrolling interest 10,298 8,908
Equity 1,436,499 1,205,899
Debt to adjusted book 47.8 % 54.6 %
Debt to total market capitalization 45.0 % 56.8 %
 
Consolidated Property Data (as of period end)
Number of operating properties 208 238
Total net rentable square feet owned (in thousands) 18,831 20,514
Occupancy 87.8

%

86.2 %
 
Reconciliation of total assets to denominator for debt to adjusted book
Denominator for debt to total assets $ 3,653,759 $ 3,863,555
Accumulated depreciation 555,975 559,679
Accumulated depreciation included in assets held for sale   12,201     17,922  
Denominator for debt to adjusted book $ 4,221,935   $ 4,441,156  
 

For the Three Months Ended

December 31,

For the Years Ended

December 31,

2012 2011

2012

2011

Payout ratios
Diluted FFO 57.5 % (118.6 )% 52.1 % 233.5 %
Diluted FFO, as adjusted for comparability 55.0 % 73.3 % 52.6 % 78.4 %
Diluted AFFO 147.4 % 91.5 % 66.3 % 92.5 %
Adjusted EBITDA interest coverage ratio

 

3.4

x

 

3.2

x

 

3.2

x

 

3.0

x

Adjusted EBITDA fixed charge coverage ratio

 

2.6

x

 

2.7

x

 

2.6

x

 

2.6

x

Debt to Adjusted EBITDA ratio (1)

 

7.2

x

 

8.5

x

 

7.1

x

 

8.6

x

Adjusted debt to Adjusted EBITDA ratio (2)

 

6.0

x

 

7.0

x

 

6.0

x

 

7.1

x

 
Reconciliation of denominators for diluted EPS and diluted FFO per share
Denominator for diluted EPS 79,071 71,351 73,454 69,382
Weighted average common units 4,171 4,308 4,235 4,355
Anti-dilutive EPS effect of share-based compensation awards       29     53     111  
Denominator for diluted FFO per share   83,242     75,688     77,742     73,848  
 
Reconciliation of FFO to FFO, as adjusted for comparability
FFO $ 47,825 $ (21,811 ) $ 191,959 $ 72,748
Gain on sales of non-operating properties, net of income taxes (33 ) (2,717 )
Impairment losses (recoveries) on non-operating properties, net of associated tax 1,893 39,645 (2,680 ) 75,734
Operating property acquisition costs 4 229 156
Loss on interest rate derivatives 29,805 29,805
Loss (gain) on early extinguishment of debt, continuing and discontinued operations 6 3 (793 ) 2,023
Issuance costs associated with redemption of preferred shares           1,827      
FFO, as adjusted for comparability $ 49,724   $ 47,646   $ 190,509   $ 177,749  

 

 

(1)

Represents debt as of period end divided by Adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

(2)

Represents debt adjusted to subtract construction in progress as of period end divided by Adjusted EBITDA for 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 For the Years Ended
Ended December 31, December 31,
2012   2011 2012   2011
Reconciliation of common share dividends to dividends and distributions for payout ratios
Common share dividends $ 22,255 $ 29,693 $ 81,720 $ 116,717
Common unit distributions 1,119   1,775   4,617   7,173  
Dividends and distributions for payout ratios $ 23,374   $ 31,468   $ 86,337   $ 123,890  
 
Reconciliation of GAAP net income (loss) to adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”)
Net income (loss) $ 19,010 $ (91,102 ) $ 20,341 $ (127,576 )
Interest expense on continuing operations 22,715 23,361 94,624 98,222
Interest expense on discontinued operations 67 1,553 2,174 6,079
Income tax expense (benefit) 54 (38 ) 381 (6,710 )
Real estate-related depreciation and amortization 28,560 33,030 121,937 134,131
Depreciation of furniture, fixtures and equipment 610 601 2,481 2,463
Impairment losses 2,140 78,674 66,910 151,021
Loss (gain) on early extinguishment of debt on continuing and discontinued operations 6 3 (793 ) 2,023
Gain on sales of operating properties 8 (3,362 ) (20,928 ) (4,811 )
Gain on sales of non-operational properties (33 ) (2,717 )
Net gain on investments in unconsolidated entities included in interest and other income (2,992 ) (771 ) (3,589 ) (1,820 )
Operating property acquisition costs 4 229 156
Loss on interest rate derivatives   29,805     29,805  
Adjusted EBITDA $ 70,178   $ 71,758   $ 283,734   $ 280,266  
 
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 $ 22,715 $ 23,361 $ 94,624 $ 98,222
Interest expense from discontinued operations 67 1,553 2,174 6,079
Less: Amortization of deferred financing costs (1,547 ) (1,506 ) (6,243 ) (6,596 )
Less: Amortization of net debt discount, net of amounts capitalized (693 ) (634 ) (2,721 ) (4,680 )
Denominator for interest coverage-Adjusted EBITDA 20,542 22,774 87,834 93,025
Preferred share dividends 6,106 4,026 20,844 16,102
Preferred unit distributions 165   165   660   660  
Denominator for fixed charge coverage-Adjusted EBITDA $ 26,813   $ 26,965   $ 109,338   $ 109,787  
 
   

Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

 
For the Three Months For the Years Ended
Ended December 31, December 31,
2012   2011 2012   2011
Reconciliations of tenant improvements and incentives, capital improvements and leasing costs for operating properties to recurring capital expenditures
 
Tenant improvements and incentives on operating properties $ 10,713 $ 10,036 $ 21,816 $ 30,756
Building improvements on operating properties 18,049 4,519 24,862 9,840
Leasing costs for operating properties 1,381 1,448 6,490 10,474
Less: Nonrecurring tenant improvements and incentives on operating properties (283 ) (1,371 ) (4,793 ) (6,264 )
Less: Nonrecurring building improvements on operating properties (2,226 ) (2,106 ) (4,145 ) (4,294 )
Less: Nonrecurring leasing costs for operating properties (5 ) (209 ) (1,098 )
Add: Recurring capital expenditures on operating properties held through joint ventures (158 ) 29   (78 ) 96  
Recurring capital expenditures $ 27,476   $ 12,550   $ 43,943   $ 39,510  
 
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 $ 64,911 $ 64,601 $ 262,343 $ 254,419
Less: Straight-line rent adjustments (1,291 ) (617 ) (5,703 ) (5,170 )
Less: Amortization of deferred market rental revenue (79 ) (83 ) (354 ) (288 )
Add: Amortization of above-market cost arrangements 371   434   1,466   1,735  
Same office property cash net operating income 63,912 64,335 257,752 250,696
Less: Lease termination fees, gross (544 ) (48 ) (1,692 ) (491 )
Same office property cash net operating income, excluding gross lease termination fees $ 63,368   $ 64,287   $ 256,060   $ 250,205  
 
Reconciliation of debt, net to denominator for adjusted debt to Adjusted EBITDA ratio
Debt, net $ 2,019,168 $ 2,426,303 $ 2,019,168 $ 2,426,303
Less: Construction in progress (329,054 ) (409,086 ) (329,054 ) (409,086 )
Less: Construction in progress on assets held for sale   (12,277 )   (12,277 )
Denominator for adjusted debt to adjusted EBITDA ratio $ 1,690,114   $ 2,004,940   $ 1,690,114   $ 2,004,940  
 




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