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Section 1: 8-K (8-K)

Document


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) October 25, 2018
CORPORATE OFFICE PROPERTIES TRUST
CORPORATE OFFICE PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
Corporate Office Properties Trust
 
Maryland
 
1-14023
 
23-2947217
 
 
(State or other jurisdiction of
 
(Commission File
 
(IRS Employer
 
 
incorporation or organization)
 
Number)
 
Identification No.)
 
 
 
 
 
 
 
Corporate Office Properties, L.P.
 
Delaware
 
333-189188
 
23-2930022
 
 
(State or other jurisdiction of
 
(Commission File
 
(IRS Employer
 
 
incorporation or organization)
 
Number)
 
Identification No.)

6711 Columbia Gateway Drive, Suite 300
Columbia, Maryland 21046
(Address of principal executive offices)
(443) 285-5400
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company (Corporate Office Properties Trust) o
Emerging Growth Company (Corporate Office Properties, L.P.) o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Corporate Office Properties Trust o
Corporate Office Properties, L.P. o
 
 
 
 
 





Item 2.02.             Results of Operations and Financial Condition
 
On October 25, 2018, Corporate Office Properties Trust (the “Company”) issued a press release relating to its financial results for the three and nine months ended September 30, 2018 and, in connection with this release, is making available certain supplemental information pertaining to its properties and operations as of and for the period ended September 30, 2018.  The earnings release and supplemental information are included as Exhibit 99.1 to this report and are incorporated herein by reference.
 
The information included herein, including the exhibits, shall not be deemed “filed” for any purpose, including the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to liabilities of that Section.  The information included herein, including the exhibits, shall also not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act regardless of any general incorporation language in such filing.

Item 9.01.             Financial Statements and Exhibits

Exhibit Number
 
Exhibit Title
 





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
CORPORATE OFFICE PROPERTIES TRUST
 
CORPORATE OFFICE PROPERTIES, L.P.
 
 
 
By: Corporate Office Properties Trust,
 
 
 
its General Partner
 
 
 
 
 
 
 
 
 
/s/ Anthony Mifsud
 
/s/ Anthony Mifsud
 
Anthony Mifsud
 
Anthony Mifsud
 
Executive Vice President and Chief Financial Officer
 
Executive Vice President and Chief Financial Officer
 
 
 
 
Dated:
October 25, 2018
Dated:
October 25, 2018




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1

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Corporate Office Properties Trust
Summary Description

The Company: Corporate Office Properties Trust (the “Company” or “COPT”) is a self-managed real estate investment trust (“REIT”). COPT is listed on the New York Stock Exchange under the symbol “OFC” and is an S&P MidCap 400 Company. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our 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 we believe are growing, durable, priority missions; we refer to these properties as Defense/IT Locations (sometimes also referred to as “Mission-Centric”). We also own 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; these properties are included in a segment referred to as Regional Office Properties (sometimes also referred to as “Urban-Centric”). As of September 30, 2018, we derived 88% of our core portfolio annualized revenue from Defense/IT Locations and 12% from our Regional Office Properties. As of September 30, 2018, our core portfolio of 159 office and data center shell properties, including six owned through an unconsolidated joint venture, encompassed 17.7 million square feet and was 94.0% leased. As of the same date, we also owned a wholesale data center with a critical load of 19.25 megawatts in operations.
Management:
Investor Relations:
Stephen E. Budorick, President & CEO
Stephanie M. Krewson-Kelly, VP of IR
Paul R. Adkins, EVP & COO
443-285-5453, [email protected]
Anthony Mifsud, EVP & CFO
Michelle Layne, Manager of IR
 
443-285-5452, [email protected]
 
Corporate Credit Rating: Fitch: BBB- Positive; Moody’s: Baa3 Positive; and S&P: BBB- Stable

Disclosure Statement: This supplemental package contains forward-looking statements within the meaning of the Federal securities laws. 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 we cannot predict with accuracy and some of which we might not even anticipate.  Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we 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 our strategic customers; our 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 our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives; changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of impairment losses; our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships; the dilutive effects of issuing additional common shares; our ability to achieve projected results; and environmental requirements.  We undertake no obligation to update or supplement any forward-looking statements.  For further information, refer to our filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

1


Corporate Office Properties Trust
Equity Research Coverage
 
Firm
 
Senior Analyst
 
Phone
 
Email
Bank of America Merrill Lynch
 
Jamie Feldman
 
646-855-5808
 
BTIG
 
Tom Catherwood
 
212-738-6410
 
Capital One Securities
 
Chris Lucas
 
571-633-8151
 
Citigroup Global Markets
 
Manny Korchman
 
212-816-1382
 
Evercore ISI
 
Steve Sakwa
 
212-446-9462
 
Green Street Advisors
 
Jed Reagan
 
949-640-8780
 
Jefferies & Co.
 
Jonathan Petersen
 
212-284-1705
 
JP Morgan
 
Tony Paolone
 
212-622-6682
 
KeyBanc Capital Markets
 
Craig Mailman
 
917-368-2316
 
Mizuho Securities USA Inc.
 
Richard Anderson
 
212-205-8445
 
Raymond James
 
Bill Crow
 
727-567-2594
 
Robert W. Baird & Co., Inc.
 
Dave Rodgers
 
216-737-7341
 
Stifel Financial Corp.
 
John Guinee
 
443-224-1307
 
SunTrust Robinson Humphrey, Inc.
 
Michael Lewis
 
212-319-5659
 
Wells Fargo Securities
 
Blaine Heck
 
443-263-6529
 
 
With the exception of Green Street Advisors, the above-listed firms are those whose analysts publish research material on the Company and whose estimates of our FFO per share can be tracked through Thomson’s First Call Corporation. Any opinions, estimates, or forecasts the above analysts make regarding COPT’s future performance are their own and do not represent the views, estimates, or forecasts of COPT’s management.

2


Corporate Office Properties Trust
Selected Financial Summary Data
(in thousands, except per share data)
 
 
Page
 
Three Months Ended
 
Nine Months Ended
SUMMARY OF RESULTS 
 
Refer.
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income
 
6
 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
22,334

 
$
60,187

 
$
63,933

NOI from real estate operations
 
13
 
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
82,065

 
$
240,298

 
$
242,382

Same Properties NOI
 
16
 
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
71,640

 
$
213,396

 
$
215,438

Same Properties Cash NOI
 
17
 
$
71,813

 
$
71,809

 
$
68,905

 
$
71,711

 
$
71,616

 
$
212,527

 
$
212,759

Adjusted EBITDA
 
10
 
$
75,768

 
$
75,572

 
$
73,707

 
$
76,862

 
$
77,241

 
$
225,047

 
$
226,529

Diluted AFFO avail. to common share and unit holders
 
9
 
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
41,359

 
$
116,300

 
$
123,393

Dividend per common share
 
N/A
 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.825

 
$
0.825

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share - diluted:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
EPS
 
8
 
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.21

 
$
0.54

 
$
0.46

FFO - NAREIT
 
8
 
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
0.54

 
$
1.51

 
$
1.47

FFO - as adjusted for comparability
 
8
 
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
0.53

 
$
1.51

 
$
1.50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerators for diluted per share amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
6
 
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
20,484

 
$
54,933

 
$
45,721

Diluted FFO available to common share and unit holders
 
7
 
$
53,642

 
$
53,720

 
$
51,537

 
$
48,824

 
$
55,871

 
$
158,899

 
$
150,346

Diluted FFO available to common share and unit holders, as adjusted for comparability
 
7
 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
54,662

 
$
159,617

 
$
153,291

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payout ratios:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Diluted FFO
 
N/A
 
56.3
%
 
54.3
%
 
56.0
%
 
58.7
%
 
50.4
%
 
55.5
%
 
56.2
%
Diluted FFO - as adjusted for comparability
 
N/A
 
56.0
%
 
54.1
%
 
55.8
%
 
53.0
%
 
51.5
%
 
55.3
%
 
55.1
%
Diluted AFFO
 
N/A
 
78.8
%
 
73.4
%
 
75.5
%
 
89.7
%
 
68.1
%
 
75.8
%
 
68.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CAPITALIZATION
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 
Total Market Capitalization
 
28
 
$
5,119,467

 
$
4,979,083

 
$
4,598,028

 
$
4,903,623

 
$
5,272,960

 
 
 
 
Total Equity Market Capitalization
 
28
 
$
3,296,155

 
$
3,095,017

 
$
2,729,913

 
$
3,061,456

 
$
3,385,759

 
 
 
 
Gross debt
 
29
 
$
1,853,312

 
$
1,914,066

 
$
1,898,115

 
$
1,872,167

 
$
1,917,201

 
 
 
 
Net debt to adjusted book
 
31
 
39.2
%
 
41.1
%
 
41.2
%
 
40.8
%
 
41.7
%
 
N/A

 
N/A

Net debt plus preferred equity to adjusted book
 
31
 
39.4
%
 
41.3
%
 
41.3
%
 
41.0
%
 
41.9
%
 
N/A

 
N/A

Adjusted EBITDA fixed charge coverage ratio
 
31
 
3.6
x
 
3.6
x
 
3.5
x
 
3.7
x
 
3.6
x
 
3.6
x
 
3.3
x
Net debt to in-place adjusted EBITDA ratio
 
31
 
6.1
x
 
6.3
x
 
6.4
x
 
6.1
x
 
6.2
x
 
N/A

 
N/A

Net debt plus pref. equity to in-place adj. EBITDA ratio
 
31
 
6.1
x
 
6.3
x
 
6.4
x
 
6.1
x
 
6.2
x
 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Revenue from early termination of leases
 
N/A
 
$
859

 
$
874

 
$
1,246

 
$
634

 
$
749

 
$
2,979

 
$
1,828

Capitalized interest costs
 
N/A
 
$
1,410

 
$
1,397

 
$
1,374

 
$
1,032

 
$
1,055

 
$
4,181

 
$
4,197




3


Corporate Office Properties Trust
Selected Portfolio Data (1)
 
 
 
 
 
 
 
 
 
 
 
9/30/18
 
6/30/18
 
3/31/18 (2)
 
12/31/17
 
9/30/17
Operating Office and Data Center Shell Properties
 
 
 
 
 
 
 
 
 
# of Properties
 
 
 
 
 
 
 
 
 
Total Portfolio
161

 
159

 
159
 
159

 
159

Consolidated Portfolio
155

 
153

 
153
 
153

 
153

Core Portfolio
159

 
157

 
157
 
156

 
153

Same Properties
147

 
147

 
147
 
147

 
147

 
 
 
 
 
 
 
 
 
 
% Occupied
 
 
 
 
 
 
 
 
 
Total Portfolio
92.1
%
 
91.4
%
 
91.0
%
 
93.6
%
 
93.4
%
Consolidated Portfolio
91.7
%
 
90.9
%
 
90.5
%
 
93.2
%
 
93.0
%
Core Portfolio (2)
92.2
%
 
91.5
%
 
91.1
%
 
94.5
%
 
94.3
%
Same Properties
92.1
%
 
91.2
%
 
90.9
%
 
92.1
%
 
91.8
%
 
 
 
 
 
 
 
 
 
 
% Leased
 
 
 
 
 
 
 
 
 
Total Portfolio
93.9
%
 
93.3
%
 
91.8
%
 
94.2
%
 
94.2
%
Consolidated Portfolio
93.5
%
 
92.9
%
 
91.3
%
 
93.9
%
 
93.8
%
Core Portfolio (2)
94.0
%
 
93.4
%
 
91.9
%
 
95.1
%
 
95.1
%
Same Properties
93.8
%
 
93.3
%
 
91.7
%
 
92.8
%
 
92.7
%
 
 
 
 
 
 
 
 
 
 
Square Feet (in thousands)
 
 
 
 
 
 
 
 
 
Total Portfolio
17,867

 
17,655

 
17,613

 
17,345

 
17,376

Consolidated Portfolio
16,905

 
16,694

 
16,651

 
16,383

 
16,413

Core Portfolio
17,710

 
17,498

 
17,456

 
17,059

 
16,737

Same Properties
16,232

 
16,232

 
16,232

 
16,232

 
16,232

 
 
 
 
 
 
 
 
 
 
Wholesale Data Center (in megawatts (“MWs”))
 
 
 
 
 
 
 
 
 
MWs Operational
19.25

 
19.25

 
19.25

 
19.25

 
19.25

MWs Leased (3)
16.86

 
16.86

 
16.86

 
16.86

 
16.86

(1)
Our total portfolio, core portfolio and Same Properties reporting included six properties owned through an unconsolidated joint venture totaling 962,000 square feet that were 100% occupied and leased.
(2)
The data above reflects the effect of two properties reported as fully placed in service during the first quarter of 2018 that were previously reported as construction projects since they were held for future lease to the United States Government. If these two properties were reported as fully placed in service as of 12/31/17, our Core Portfolio would have been 92.8% occupied and 93.3% leased as of 12/31/17. Our Same Properties data is reported as if these two properties were fully placed in service as of 1/1/17.
(3)
Leased to tenants with further expansion rights of up to a combined 17.92 megawatts as of 9/30/18.

4


Corporate Office Properties Trust
Consolidated Balance Sheets
(dollars in thousands)
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
Assets
 

 
 

 
 

 
 

 
 

Properties, net:
 

 
 

 
 

 
 

 
 

Operating properties, net
$
2,796,577

 
$
2,760,632

 
$
2,740,264

 
$
2,737,611

 
$
2,690,712

Construction and redevelopment in progress, including land (1)
149,042

 
91,630

 
61,844

 
50,316

 
70,202

Land held (1)
261,808

 
331,275

 
356,171

 
353,178

 
336,117

Total properties, net
3,207,427

 
3,183,537

 
3,158,279

 
3,141,105

 
3,097,031

Assets held for sale (2)
42,226

 
42,226

 
42,226

 
42,226

 
74,415

Cash and cash equivalents
9,492

 
8,472

 
8,888

 
12,261

 
10,858

Investment in unconsolidated real estate joint venture
40,318

 
40,806

 
41,311

 
41,787

 
42,263

Accounts receivable, net
19,245

 
23,656

 
23,982

 
31,802

 
27,624

Deferred rent receivable, net
89,171

 
89,606

 
87,985

 
86,710

 
84,743

Intangible assets on real estate acquisitions, net
47,065

 
50,586

 
54,600

 
59,092

 
64,055

Deferred leasing costs, net
49,510

 
48,183

 
47,886

 
48,322

 
47,033

Investing receivables
55,688

 
54,427

 
58,800

 
57,493

 
56,108

Interest rate derivatives
10,875

 
9,792

 
7,960

 
3,073

 
126

Prepaid expenses and other assets, net
79,349

 
61,071

 
64,321

 
71,334

 
72,585

Total assets
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

 
$
3,576,841

Liabilities and equity
 

 
 

 
 

 
 

 
 

Liabilities:
 

 
 

 
 

 
 

 
 

Debt
$
1,808,030

 
$
1,871,445

 
$
1,854,886

 
$
1,828,333

 
$
1,873,291

Accounts payable and accrued expenses
90,224

 
88,885

 
95,721

 
108,137

 
121,483

Rents received in advance and security deposits
23,159

 
24,905

 
26,569

 
25,648

 
26,223

Dividends and distributions payable
30,483

 
29,449

 
29,146

 
28,921

 
28,462

Deferred revenue associated with operating leases
10,006

 
10,783

 
11,246

 
11,682

 
12,047

Deferred property sale (2)
43,377

 
43,377

 
43,377

 
43,377

 

Capital lease obligation
660

 
640

 
11,778

 
15,853

 
16,347

Other liabilities
9,267

 
9,849

 
17,643

 
41,822

 
43,866

Total liabilities
2,015,206

 
2,079,333

 
2,090,366

 
2,103,773

 
2,121,719

Redeemable noncontrolling interests
25,431

 
24,544

 
23,848

 
23,125

 
23,269

Equity:
 

 
 

 
 

 
 
 
 
COPT’s shareholders’ equity:
 

 
 

 
 

 
 
 
 
Common shares
1,088

 
1,033

 
1,022

 
1,013

 
996

Additional paid-in capital
2,390,484

 
2,254,430

 
2,221,427

 
2,201,047

 
2,150,067

Cumulative distributions in excess of net income
(833,508
)
 
(822,270
)
 
(813,302
)
 
(802,085
)
 
(783,848
)
Accumulated other comprehensive income (loss)
10,108

 
9,012

 
7,204

 
2,167

 
(859
)
Total COPT’s shareholders’ equity
1,568,172

 
1,442,205

 
1,416,351

 
1,402,142

 
1,366,356

Noncontrolling interests in subsidiaries:
 

 
 

 
 

 
 

 
 

Common units in the Operating Partnership
19,525

 
44,651

 
44,327

 
45,097

 
44,716

Preferred units in the Operating Partnership
8,800

 
8,800

 
8,800

 
8,800

 
8,800

Other consolidated entities
13,232

 
12,829

 
12,546

 
12,268

 
11,981

Total noncontrolling interests in subsidiaries
41,557

 
66,280

 
65,673

 
66,165

 
65,497

Total equity
1,609,729

 
1,508,485

 
1,482,024

 
1,468,307

 
1,431,853

Total liabilities, redeemable noncontrolling interests and equity
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

 
$
3,576,841

(1)
Refer to pages 24, 25 and 27 for detail.
(2)
As of 12/31/17 and each subsequent reporting date, these lines represent the carrying amount and sale proceeds pertaining to a property sale not recognized for accounting purposes until 10/1/18.

5


Corporate Office Properties Trust
Consolidated Statements of Operations
(in thousands, except per share data)
 
Three Months Ended
 
Nine Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Rental revenue
$
102,132

 
$
101,121

 
$
100,834

 
$
101,485

 
$
102,275

 
$
304,087

 
$
304,237

Tenant recoveries and other real estate operations revenue
26,856

 
28,041

 
27,444

 
26,200

 
24,956

 
82,341

 
78,058

Construction contract and other service revenues
8,423

 
17,581

 
27,198

 
36,882

 
29,786

 
53,202

 
65,958

Total revenues
137,411

 
146,743

 
155,476

 
164,567

 
157,017

 
439,630

 
448,253

Expenses
 

 
 

 
 

 
 

 
 

 
 
 
 
Property operating expenses
49,340

 
49,446

 
50,951

 
47,449

 
46,368

 
149,737

 
143,515

Depreciation and amortization associated with real estate operations
34,195

 
33,190

 
33,512

 
33,938

 
34,438

 
100,897

 
100,290

Construction contract and other service expenses
8,058

 
16,941

 
26,216

 
36,029

 
28,788

 
51,215

 
63,589

Impairment losses (recoveries)

 

 

 
13,659

 
(161
)
 

 
1,464

General and administrative expenses
5,796

 
6,067

 
5,861

 
5,552

 
5,692

 
17,724

 
18,456

Leasing expenses
1,103

 
1,561

 
1,431

 
1,447

 
1,676

 
4,095

 
5,382

Business development expenses and land carry costs
1,567

 
1,234

 
1,614

 
1,646

 
1,277

 
4,415

 
4,567

Total operating expenses
100,059

 
108,439

 
119,585

 
139,720

 
118,078

 
328,083

 
337,263

Operating income
37,352

 
38,304

 
35,891

 
24,847

 
38,939

 
111,547

 
110,990

Interest expense
(19,181
)
 
(18,945
)
 
(18,784
)
 
(19,211
)
 
(19,615
)
 
(56,910
)
 
(57,772
)
Interest and other income
1,486

 
1,439

 
1,359

 
1,501

 
1,508

 
4,284

 
4,817

Loss on early extinguishment of debt

 

 

 

 

 

 
(513
)
Income before equity in income of unconsolidated entities and income taxes
19,657

 
20,798

 
18,466

 
7,137

 
20,832

 
58,921

 
57,522

Equity in income of unconsolidated entities
374

 
373

 
373

 
372

 
371

 
1,120

 
1,118

Income tax benefit (expense)
291

 
(63
)
 
(55
)
 
(953
)
 
(57
)
 
173

 
(145
)
Income before gain on sales of real estate
20,322

 
21,108

 
18,784

 
6,556

 
21,146

 
60,214

 
58,495

Gain on sales of real estate

 
(23
)
 
(4
)
 
4,452

 
1,188

 
(27
)
 
5,438

Net income
20,322

 
21,085

 
18,780

 
11,008

 
22,334

 
60,187

 
63,933

Net income attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

 
 
 
 
Common units in the Operating Partnership
(380
)
 
(608
)
 
(544
)
 
(314
)
 
(693
)
 
(1,532
)
 
(1,576
)
Preferred units in the Operating Partnership
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(495
)
 
(495
)
Other consolidated entities
(1,080
)
 
(878
)
 
(921
)
 
(908
)
 
(897
)
 
(2,879
)
 
(2,738
)
Net income attributable to COPT
18,697

 
19,434

 
17,150

 
9,621

 
20,579

 
55,281

 
59,124

Preferred share dividends

 

 

 

 

 

 
(6,219
)
Issuance costs associated with redeemed preferred shares

 

 

 

 

 

 
(6,847
)
Net income attributable to COPT common shareholders
$
18,697

 
$
19,434

 
$
17,150

 
$
9,621

 
$
20,579

 
$
55,281

 
$
46,058

Amount allocable to share-based compensation awards
(114
)
 
(117
)
 
(117
)
 
(112
)
 
(95
)
 
(348
)
 
(337
)
Numerator for diluted EPS
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
20,484

 
$
54,933

 
$
45,721



6


Corporate Office Properties Trust
Funds from Operations
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
22,334

 
$
60,187

 
$
63,933

Real estate-related depreciation and amortization
34,195

 
33,190

 
33,512

 
33,938

 
34,438

 
100,897

 
100,290

Impairment losses (recoveries) on previously depreciated operating properties

 

 

 
9,004

 
(159
)
 

 
1,451

Gain on sales of previously depreciated operating properties

 
23

 
4

 
(4,452
)
 
(8
)
 
27

 
(39
)
Depreciation and amortization on unconsolidated real estate JV (1)
564

 
564

 
563

 
563

 
563

 
1,691

 
1,689

FFO - per NAREIT (2)(3)
55,081

 
54,862

 
52,859

 
50,061

 
57,168

 
162,802

 
167,324

Preferred share dividends

 

 

 

 

 

 
(6,219
)
Issuance costs associated with redeemed preferred shares

 

 

 

 

 

 
(6,847
)
Noncontrolling interests - preferred units in the Operating Partnership
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(495
)
 
(495
)
FFO allocable to other noncontrolling interests (4)
(1,060
)
 
(753
)
 
(944
)
 
(874
)
 
(917
)
 
(2,757
)
 
(2,801
)
Basic and diluted FFO allocable to share-based compensation awards
(214
)
 
(224
)
 
(213
)
 
(198
)
 
(215
)
 
(651
)
 
(616
)
Basic and Diluted FFO available to common share and common unit holders (3)
53,642

 
53,720

 
51,537

 
48,824

 
55,871

 
158,899

 
150,346

Gain on sales of non-operating properties

 

 

 

 
(1,180
)
 

 
(5,399
)
Impairment losses (recoveries) on non-operating properties

 

 

 
4,655

 
(2
)
 

 
13

Income tax expense associated with FFO comparability adjustments

 

 

 
800

 

 

 

Gain on interest rate derivatives

 

 

 
(191
)
 
(34
)
 

 
(43
)
Loss on early extinguishment of debt

 

 

 

 

 

 
513

Issuance costs associated with redeemed preferred shares

 

 

 

 

 

 
6,847

Demolition costs on redevelopment and nonrecurring improvements
251

 
9

 
39

 

 

 
299

 
294

Executive transition costs
46

 
213

 
163

 

 
2

 
422

 
732

Diluted FFO comparability adjustments allocable to share-based compensation awards
(1
)
 
(1
)
 
(1
)
 
(23
)
 
5

 
(3
)
 
(12
)
Diluted FFO avail. to common share and common unit holders, as adj. for comparability (3)
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
54,662

 
$
159,617

 
$
153,291


(1)
FFO adjustment pertaining to COPT’s share of an unconsolidated real estate joint venture reported on page 33.
(2)
See reconciliation on page 34 for components of FFO per NAREIT.
(3)
Refer to the section entitled “Definitions” for a definition of this measure.
(4)
Pertains to noncontrolling interests in consolidated real estate joint ventures reported on page 32.

7


Corporate Office Properties Trust
Diluted Share and Unit Computations
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
EPS Denominator:
 

 
 

 
 

 
 

 
 

 
 
 
 
Weighted average common shares - basic
104,379

 
101,789

 
100,999

 
99,304

 
99,112

 
102,401

 
98,855

Dilutive effect of share-based compensation awards
231

 
119

 
144

 
68

 
146

 
165

 
154

Dilutive effect of forward equity sale agreements
178

 

 

 
215

 

 
60

 

Weighted average common shares - diluted
104,788

 
101,908

 
101,143

 
99,587

 
99,258

 
102,626

 
99,009

Diluted EPS
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.21

 
$
0.54

 
$
0.46

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares for period ended:
 

 
 

 
 

 
 

 
 

 
 

 
 

Common Shares Outstanding
104,379

 
101,789

 
100,999

 
99,304

 
99,112

 
102,401

 
98,855

Dilutive effect of share-based compensation awards
231

 
119

 
144

 
68

 
146

 
165

 
154

Dilutive effect of forward equity sale agreements
178

 

 

 
215

 

 
60

 

Common Units
2,135

 
3,197

 
3,221

 
3,252

 
3,350

 
2,847

 
3,400

Denominator for diluted FFO per share and as adjusted for comparability
106,923

 
105,105

 
104,364

 
102,839

 
102,608

 
105,473

 
102,409

Weighted average common units
(2,135
)
 
(3,197
)
 
(3,221
)
 
(3,252
)
 
(3,350
)
 
(2,847
)
 
(3,400
)
Denominator for diluted EPS
104,788

 
101,908

 
101,143

 
99,587

 
99,258

 
102,626

 
99,009

Diluted FFO per share - NAREIT
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
0.54

 
$
1.51

 
$
1.47

Diluted FFO per share - as adjusted for comparability
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
0.53

 
$
1.51

 
$
1.50






8


Corporate Office Properties Trust
Adjusted Funds from Operations
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Diluted FFO available to common share and common unit holders, as adjusted for comparability
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
54,662

 
$
159,617

 
$
153,291

Straight line rent adjustments and lease incentive amortization
582

 
(1,195
)
 
(828
)
 
(1,343
)
 
(561
)
 
(1,441
)
 
1,389

Amortization of intangibles included in NOI
153

 
231

 
356

 
342

 
318

 
740

 
1,002

Share-based compensation, net of amounts capitalized
1,557

 
1,550

 
1,485

 
1,523

 
1,272

 
4,592

 
3,830

Amortization of deferred financing costs
468

 
468

 
468

 
443

 
554

 
1,404

 
2,485

Amortization of net debt discounts, net of amounts capitalized
362

 
358

 
354

 
350

 
347

 
1,074

 
1,029

Accum. other comprehensive loss on derivatives amortized to expense
33

 
34

 
34

 
54

 
53

 
101

 
89

Replacement capital expenditures (1)
(18,803
)
 
(15,613
)
 
(15,520
)
 
(23,475
)
 
(15,233
)
 
(49,936
)
 
(39,551
)
Other diluted AFFO adjustments associated with real estate JVs (2)
50

 
(32
)
 
131

 
(39
)
 
(53
)
 
149

 
(171
)
Diluted AFFO available to common share and common unit holders (“diluted AFFO”)
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
41,359

 
$
116,300

 
$
123,393

Replacement capital expenditures (1)
 

 
 

 
 

 
 

 
 

 
 
 
 
Tenant improvements and incentives
$
12,894

 
$
8,117

 
$
8,615

 
$
14,804

 
$
11,342

 
$
29,626

 
$
22,230

Building improvements
5,975

 
5,775

 
1,921

 
9,241

 
3,865

 
13,671

 
13,067

Leasing costs
2,945

 
1,822

 
1,280

 
3,242

 
2,428

 
6,047

 
5,245

Net (exclusions from) additions to tenant improvements and incentives
(896
)
 
1,315

 
3,289

 
(2,929
)
 
(1,509
)
 
3,708

 
5,913

Excluded building improvements
(2,134
)
 
(1,370
)
 
415

 
(853
)
 
(893
)
 
(3,089
)
 
(6,904
)
Excluded leasing costs
19

 
(46
)
 

 
(30
)
 

 
(27
)
 

Replacement capital expenditures
$
18,803

 
$
15,613

 
$
15,520

 
$
23,475

 
$
15,233

 
$
49,936

 
$
39,551

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Refer to the section entitled “Definitions” for a definition of this measure.
 
 
 
 
(2) AFFO adjustments pertaining to noncontrolling interests on consolidated joint ventures reported on page 32 and COPTs share of an unconsolidated real estate joint venture reported on page 33.
 
 
 
 

9


Corporate Office Properties Trust
EBITDAre and Adjusted EBITDA
(in thousands)
 
Three Months Ended
 
Nine Months Ended
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
9/30/18
 
9/30/17
Net income
$
20,322

 
$
21,085