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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) February 7, 2019
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 February 7, 2019, Corporate Office Properties Trust (the “Company”) issued a press release relating to its financial results for the three months and year ended December 31, 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 December 31, 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:
February 7, 2019
Dated:
February 7, 2019




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1

396662851_a2018q4covera01.jpg




396662851_tableofcontentsa67.jpg



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 December 31, 2018, we derived 88% of our core portfolio annualized revenue from Defense/IT Locations and 12% from our Regional Office Properties. As of December 31, 2018, our core portfolio of 161 office and data center shell properties, including six owned through an unconsolidated joint venture, encompassed 17.9 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, stephanie.kelly@copt.com
Anthony Mifsud, EVP & CFO
Michelle Layne, Manager of IR
 
443-285-5452, michelle.layne@copt.com
 
Corporate Credit Rating: Fitch: BBB- Positive; Moody’s: Baa3 Stable; 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; security breaches relating to cyber attacks, cyber intrusions and other factors; 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
 
james.feldman@baml.com
BTIG
 
Tom Catherwood
 
212-738-6410
 
tcatherwood@btig.com
Capital One Securities
 
Chris Lucas
 
571-633-8151
 
christopher.lucas@capitalone.com
Citigroup Global Markets
 
Manny Korchman
 
212-816-1382
 
emmanuel.korchman@citi.com
Evercore ISI
 
Steve Sakwa
 
212-446-9462
 
steve.sakwa@evercoreisi.com
Green Street Advisors
 
Daniel Ismail
 
949-640-8780
 
dismail@greenst.com
Jefferies & Co.
 
Jonathan Petersen
 
212-284-1705
 
jpetersen@jefferies.com
JP Morgan
 
Tony Paolone
 
212-622-6682
 
anthony.paolone@jpmorgan.com
KeyBanc Capital Markets
 
Craig Mailman
 
917-368-2316
 
cmailman@key.com
Mizuho Securities USA Inc.
 
Haendel St. Juste
 
212-205-7860
 
haendel.st.juste@mizuhogroup.com
Raymond James
 
Bill Crow
 
727-567-2594
 
bill.crow@raymondjames.com
Robert W. Baird & Co., Inc.
 
Dave Rodgers
 
216-737-7341
 
drodgers@rwbaird.com
Stifel Financial Corp.
 
John Guinee
 
443-224-1307
 
jwguinee@stifel.com
SunTrust Robinson Humphrey, Inc.
 
Michael Lewis
 
212-319-5659
 
michael.lewis@suntrust.com
Wells Fargo Securities
 
Blaine Heck
 
443-263-6529
 
blaine.heck@wellsfargo.com
 
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
 
Year Ended
SUMMARY OF RESULTS 
 
Refer.
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Net income
 
6
 
$
18,456

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

NOI from real estate operations
 
13
 
$
80,738

 
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
321,036

 
$
323,821

Same Properties NOI
 
16
 
$
71,413

 
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
284,809

 
$
287,684

Same Properties Cash NOI
 
17
 
$
70,923

 
$
71,813

 
$
71,809

 
$
68,905

 
$
71,711

 
$
283,450

 
$
284,470

Adjusted EBITDA
 
10
 
$
75,200

 
$
75,768

 
$
75,572

 
$
73,707

 
$
76,862

 
$
300,247

 
$
303,391

Diluted AFFO avail. to common share and unit holders
 
9
 
$
42,755

 
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
160,264

 
$
155,313

Dividend per common share
 
N/A
 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
1.100

 
$
1.100

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share - diluted:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
EPS
 
8
 
$
0.16

 
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.69

 
$
0.56

FFO - NAREIT
 
8
 
$
0.47

 
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
1.97

 
$
1.94

FFO - as adjusted for comparability
 
8
 
$
0.50

 
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
2.01

 
$
2.02

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Numerators for diluted per share amounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
6
 
$
16,906

 
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
71,839

 
$
55,230

Diluted FFO available to common share and unit holders
 
7
 
$
51,834

 
$
53,642

 
$
53,720

 
$
51,537

 
$
48,824

 
$
211,942

 
$
199,170

Diluted FFO available to common share and unit holders, as adjusted for comparability
 
7
 
$
54,974

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payout ratios:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Diluted FFO
 
N/A
 
59.0
%
 
56.3
%
 
54.3
%
 
56.0
%
 
58.7
%
 
56.0
%
 
56.8
%
Diluted FFO - as adjusted for comparability
 
N/A
 
55.6
%
 
56.0
%
 
54.1
%
 
55.8
%
 
53.0
%
 
55.0
%
 
54.6
%
Diluted AFFO
 
N/A
 
71.5
%
 
78.8
%
 
73.4
%
 
75.5
%
 
89.7
%
 
74.1
%
 
72.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CAPITALIZATION
 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 
Total Market Capitalization
 
28
 
$
4,193,726

 
$
5,119,467

 
$
4,979,083

 
$
4,598,028

 
$
4,903,623

 
 
 
 
Total Equity Market Capitalization
 
28
 
$
2,355,222

 
$
3,296,155

 
$
3,095,017

 
$
2,729,913

 
$
3,061,456

 
 
 
 
Gross debt
 
29
 
$
1,868,504

 
$
1,853,312

 
$
1,914,066

 
$
1,898,115

 
$
1,872,167

 
 
 
 
Net debt to adjusted book
 
31
 
38.9
%
 
39.2
%
 
41.1
%
 
41.2
%
 
40.8
%
 
N/A

 
N/A

Net debt plus preferred equity to adjusted book
 
31
 
39.1
%
 
39.4
%
 
41.3
%
 
41.3
%
 
41.0
%
 
N/A

 
N/A

Adjusted EBITDA fixed charge coverage ratio
 
31
 
3.6
x
 
3.6
x
 
3.6
x
 
3.5
x
 
3.7
x
 
3.6
x
 
3.4
x
Net debt to in-place adjusted EBITDA ratio
 
31
 
6.0
x
 
6.1
x
 
6.3
x
 
6.4
x
 
6.1
x
 
N/A

 
N/A

Net debt plus pref. equity to in-place adj. EBITDA ratio
 
31
 
6.0
x
 
6.1
x
 
6.3
x
 
6.4
x
 
6.1
x
 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



3


Corporate Office Properties Trust
Selected Portfolio Data (1)
 
 
 
 
 
 
 
 
 
 
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018 (2)
 
12/31/17
Operating Office and Data Center Shell Properties
 
 
 
 
 
 
 
 
 
# of Properties
 
 
 
 
 
 
 
 
 
Total Portfolio
163

 
161

 
159
 
159

 
159

Consolidated Portfolio
157

 
155

 
153
 
153

 
153

Core Portfolio
161

 
159

 
157
 
157

 
156

Same Properties
147

 
147

 
147
 
147

 
147

 
 
 
 
 
 
 
 
 
 
% Occupied
 
 
 
 
 
 
 
 
 
Total Portfolio
93.0
%
 
92.1
%
 
91.4
%
 
91.0
%
 
93.6
%
Consolidated Portfolio
92.6
%
 
91.7
%
 
90.9
%
 
90.5
%
 
93.2
%
Core Portfolio (2)
93.1
%
 
92.2
%
 
91.5
%
 
91.1
%
 
94.5
%
Same Properties
93.0
%
 
92.1
%
 
91.2
%
 
90.9
%
 
92.1
%
 
 
 
 
 
 
 
 
 
 
% Leased
 
 
 
 
 
 
 
 
 
Total Portfolio
93.9
%
 
93.9
%
 
93.3
%
 
91.8
%
 
94.2
%
Consolidated Portfolio
93.5
%
 
93.5
%
 
92.9
%
 
91.3
%
 
93.9
%
Core Portfolio (2)
94.0
%
 
94.0
%
 
93.4
%
 
91.9
%
 
95.1
%
Same Properties
93.8
%
 
93.8
%
 
93.3
%
 
91.7
%
 
92.8
%
 
 
 
 
 
 
 
 
 
 
Square Feet (in thousands)
 
 
 
 
 
 
 
 
 
Total Portfolio
18,094

 
17,867

 
17,655

 
17,613

 
17,345

Consolidated Portfolio
17,132

 
16,905

 
16,694

 
16,651

 
16,383

Core Portfolio
17,937

 
17,710

 
17,498

 
17,456

 
17,059

Same Properties
16,221

 
16,221

 
16,221

 
16,221

 
16,221

 
 
 
 
 
 
 
 
 
 
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 12/31/18.

4


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

 
 

 
 

 
 

 
 

Properties, net:
 

 
 

 
 

 
 

 
 

Operating properties, net
$
2,847,265

 
$
2,796,577

 
$
2,760,632

 
$
2,740,264

 
$
2,737,611

Construction and redevelopment in progress, including land (1)
139,304

 
149,042

 
91,630

 
61,844

 
50,316

Land held (1)
264,057

 
261,808

 
331,275

 
356,171

 
353,178

Total properties, net
3,250,626

 
3,207,427

 
3,183,537

 
3,158,279

 
3,141,105

Assets held for sale (2)

 
42,226

 
42,226

 
42,226

 
42,226

Cash and cash equivalents
8,066

 
9,492

 
8,472

 
8,888

 
12,261

Investment in unconsolidated real estate joint venture
39,845

 
40,318

 
40,806

 
41,311

 
41,787

Accounts receivable, net
26,277

 
19,245

 
23,656

 
23,982

 
31,802

Deferred rent receivable, net
89,350

 
89,171

 
89,606

 
87,985

 
86,710

Intangible assets on real estate acquisitions, net
43,470

 
47,065

 
50,586

 
54,600

 
59,092

Deferred leasing costs, net
50,191

 
49,510

 
48,183

 
47,886

 
48,322

Investing receivables
56,982

 
55,688

 
54,427

 
58,800

 
57,493

Interest rate derivatives
5,617

 
10,875

 
9,792

 
7,960

 
3,073

Prepaid expenses and other assets, net
85,581

 
79,349

 
61,071

 
64,321

 
71,334

Total assets
$
3,656,005

 
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

Liabilities and equity
 

 
 

 
 

 
 

 
 

Liabilities:
 

 
 

 
 

 
 

 
 

Debt
$
1,823,909

 
$
1,808,030

 
$
1,871,445

 
$
1,854,886

 
$
1,828,333

Accounts payable and accrued expenses
92,855

 
90,224

 
88,885

 
95,721

 
108,137

Rents received in advance and security deposits
30,079

 
23,159

 
24,905

 
26,569

 
25,648

Dividends and distributions payable
30,856

 
30,483

 
29,449

 
29,146

 
28,921

Deferred revenue associated with operating leases
9,125

 
10,006

 
10,783

 
11,246

 
11,682

Deferred property sale (2)

 
43,377

 
43,377

 
43,377

 
43,377

Capital lease obligation
660

 
660

 
640

 
11,778

 
15,853

Other liabilities
15,213

 
9,267

 
9,849

 
17,643

 
41,822

Total liabilities
2,002,697

 
2,015,206

 
2,079,333

 
2,090,366

 
2,103,773

Redeemable noncontrolling interests
26,260

 
25,431

 
24,544

 
23,848

 
23,125

Equity:
 

 
 

 
 

 
 
 
 
COPT’s shareholders’ equity:
 

 
 

 
 

 
 
 
 
Common shares
1,102

 
1,088

 
1,033

 
1,022

 
1,013

Additional paid-in capital
2,431,355

 
2,390,484

 
2,254,430

 
2,221,427

 
2,201,047

Cumulative distributions in excess of net income
(846,808
)
 
(833,508
)
 
(822,270
)
 
(813,302
)
 
(802,085
)
Accumulated other comprehensive (loss) income
(238
)
 
10,108

 
9,012

 
7,204

 
2,167

Total COPT’s shareholders’ equity
1,585,411

 
1,568,172

 
1,442,205

 
1,416,351

 
1,402,142

Noncontrolling interests in subsidiaries:
 

 
 

 
 

 
 

 
 

Common units in the Operating Partnership
19,168

 
19,525

 
44,651

 
44,327

 
45,097

Preferred units in the Operating Partnership
8,800

 
8,800

 
8,800

 
8,800

 
8,800

Other consolidated entities
13,669

 
13,232

 
12,829

 
12,546

 
12,268

Total noncontrolling interests in subsidiaries
41,637

 
41,557

 
66,280

 
65,673

 
66,165

Total equity
1,627,048

 
1,609,729

 
1,508,485

 
1,482,024

 
1,468,307

Total liabilities, redeemable noncontrolling interests and equity
$
3,656,005

 
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

(1)
Refer to pages 24, 25 and 27 for detail.
(2)
The carrying amount and sale proceeds relate 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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Rental revenue
$
103,599

 
$
102,132

 
$
101,121

 
$
100,834

 
$
101,485

 
$
407,686

 
$
405,722

Tenant recoveries and other real estate operations revenue
27,226

 
26,856

 
28,041

 
27,444

 
26,200

 
109,567

 
104,258

Construction contract and other service revenues
7,657

 
8,423

 
17,581

 
27,198

 
36,882

 
60,859

 
102,840

Total revenues
138,482

 
137,411

 
146,743

 
155,476

 
164,567

 
578,112

 
612,820

Expenses
 

 
 

 
 

 
 

 
 

 
 
 
 
Property operating expenses
51,298

 
49,340

 
49,446

 
50,951

 
47,449

 
201,035

 
190,964

Depreciation and amortization associated with real estate operations
36,219

 
34,195

 
33,190

 
33,512

 
33,938

 
137,116

 
134,228

Construction contract and other service expenses
7,111

 
8,058

 
16,941

 
26,216

 
36,029

 
58,326

 
99,618

Impairment losses
2,367

 

 

 

 
13,659

 
2,367

 
15,123

General and administrative expenses
5,105

 
5,796

 
6,067

 
5,861

 
5,552

 
22,829

 
24,008

Leasing expenses
1,976

 
1,103

 
1,561

 
1,431

 
1,447

 
6,071

 
6,829

Business development expenses and land carry costs
1,425

 
1,567

 
1,234

 
1,614

 
1,646

 
5,840

 
6,213

Total operating expenses
105,501

 
100,059

 
108,439

 
119,585

 
139,720

 
433,584

 
476,983

Operating income
32,981

 
37,352

 
38,304

 
35,891

 
24,847

 
144,528

 
135,837

Interest expense
(18,475
)
 
(19,181
)
 
(18,945
)
 
(18,784
)
 
(19,211
)
 
(75,385
)
 
(76,983
)
Interest and other income
74

 
1,486

 
1,439

 
1,359

 
1,501

 
4,358

 
6,318

Gain on sales of real estate
2,367

 

 
(23
)
 
(4
)
 
4,452

 
2,340

 
9,890

Loss on early extinguishment of debt
(258
)
 

 

 

 

 
(258
)
 
(513
)
Income before equity in income of unconsolidated entities and income taxes
16,689

 
19,657

 
20,775

 
18,462

 
11,589

 
75,583

 
74,549

Equity in income of unconsolidated entities
1,577

 
374

 
373

 
373

 
372

 
2,697

 
1,490

Income tax benefit (expense)
190

 
291

 
(63
)
 
(55
)
 
(953
)
 
363

 
(1,098
)
Net income
18,456

 
20,322

 
21,085

 
18,780

 
11,008

 
78,643

 
74,941

Net income attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

 
 
 
 
Common units in the Operating Partnership
(210
)
 
(380
)
 
(608
)
 
(544
)
 
(314
)
 
(1,742
)
 
(1,890
)
Preferred units in the Operating Partnership
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(660
)
 
(660
)
Other consolidated entities
(1,061
)
 
(1,080
)
 
(878
)
 
(921
)
 
(908
)
 
(3,940
)
 
(3,646
)
Net income attributable to COPT
17,020

 
18,697

 
19,434

 
17,150

 
9,621

 
72,301

 
68,745

Preferred share dividends

 

 

 

 

 

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

 

 

 

 

 

 
(6,847
)
Net income attributable to COPT common shareholders
$
17,020

 
$
18,697

 
$
19,434

 
$
17,150

 
$
9,621

 
$
72,301

 
$
55,679

Amount allocable to share-based compensation awards
(114
)
 
(114
)
 
(117
)
 
(117
)
 
(112
)
 
(462
)
 
(449
)
Numerator for diluted EPS
$
16,906

 
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
71,839

 
$
55,230



6


Corporate Office Properties Trust
Funds from Operations
(in thousands)
 
Three Months Ended
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Net income
$
18,456

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

Real estate-related depreciation and amortization
36,219

 
34,195

 
33,190

 
33,512

 
33,938

 
137,116

 
134,228

Impairment losses on previously depreciated operating properties
6

 

 

 

 
9,004

 
6

 
10,455

Gain on sales of previously depreciated operating properties
(2,367
)
 

 
23

 
4

 
(4,452
)
 
(2,340
)
 
(4,491
)
Depreciation and amortization on unconsolidated real estate JV (1)
565

 
564

 
564

 
563

 
563

 
2,256

 
2,252

FFO - per NAREIT (2)(3)
52,879

 
55,081

 
54,862

 
52,859

 
50,061

 
215,681

 
217,385

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
)
 
(660
)
 
(660
)
FFO allocable to other noncontrolling interests (4)
(1,011
)
 
(1,060
)
 
(753
)
 
(944
)
 
(874
)
 
(3,768
)
 
(3,675
)
Basic and diluted FFO allocable to share-based compensation awards
(200
)
 
(214
)
 
(224
)
 
(213
)
 
(198
)
 
(851
)
 
(814
)
Basic FFO available to common share and common unit holders (3)
51,503

 
53,642

 
53,720

 
51,537

 
48,824

 
210,402

 
199,170

Redeemable noncontrolling interests
331

 

 

 

 

 
1,540

 

Diluted FFO available to common share and common unit holders (3)
51,834

 
53,642

 
53,720

 
51,537

 
48,824

 
211,942

 
199,170

Gain on sales of non-operating properties

 

 

 

 

 

 
(5,399
)
Impairment losses on non-operating properties
2,361

 

 

 

 
4,655

 
2,361

 
4,668

Income tax expense associated with FFO comparability adjustments

 

 

 

 
800

 

 
800

Gain on interest rate derivatives

 

 

 

 
(191
)
 

 
(234
)
Loss on early extinguishment of debt
258

 

 

 

 

 
258

 
513

Issuance costs associated with redeemed preferred shares

 

 

 

 

 

 
6,847

Demolition costs on redevelopment and nonrecurring improvements
163

 
251

 
9

 
39

 

 
462

 
294

Executive transition costs
371

 
46

 
213

 
163

 

 
793

 
732

Diluted FFO comparability adjustments allocable to share-based compensation awards
(13
)
 
(1
)
 
(1
)
 
(1
)
 
(23
)
 
(16
)
 
(35
)
Diluted FFO avail. to common share and common unit holders, as adj. for comparability (3)
$
54,974

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356


(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
EPS Denominator:
 

 
 

 
 

 
 

 
 

 
 
 
 
Weighted average common shares - basic
108,528

 
104,379

 
101,789

 
100,999

 
99,304

 
103,946

 
98,969

Dilutive effect of share-based compensation awards
45

 
231

 
119

 
144

 
68

 
134

 
132

Dilutive effect of forward equity sale agreements

 
178

 

 

 
215

 
45

 
54

Weighted average common shares - diluted
108,573

 
104,788

 
101,908

 
101,143

 
99,587

 
104,125

 
99,155

Diluted EPS
$
0.16

 
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.69

 
$
0.56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares for period ended:
 

 
 

 
 

 
 

 
 

 
 

 
 

Common Shares Outstanding
108,528

 
104,379

 
101,789

 
100,999

 
99,304

 
103,946

 
98,969

Dilutive effect of share-based compensation awards
45

 
231

 
119

 
144

 
68

 
134

 
132

Dilutive effect of forward equity sale agreements

 
178

 

 

 
215

 
45

 
54

Common Units
1,345

 
2,135

 
3,197

 
3,221

 
3,252

 
2,468

 
3,362

Redeemable noncontrolling interests
1,126

 

 

 

 

 
936

 

Denominator for diluted FFO per share and as adjusted for comparability
111,044

 
106,923

 
105,105

 
104,364

 
102,839

 
107,529

 
102,517

Weighted average common units
(1,345
)
 
(2,135
)
 
(3,197
)
 
(3,221
)
 
(3,252
)
 
(2,468
)
 
(3,362
)
Redeemable noncontrolling interests
(1,126
)
 

 

 

 

 
(936
)
 

Denominator for diluted EPS
108,573

 
104,788

 
101,908

 
101,143

 
99,587

 
104,125

 
99,155

Diluted FFO per share - NAREIT
$
0.47

 
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
1.97

 
$
1.94

Diluted FFO per share - as adjusted for comparability
$
0.50

 
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
2.01

 
$
2.02






8


Corporate Office Properties Trust
Adjusted Funds from Operations
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Diluted FFO available to common share and common unit holders, as adjusted for comparability
$
54,974

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356

Straight line rent adjustments and lease incentive amortization
(46
)
 
582

 
(1,195
)
 
(828
)
 
(1,343
)
 
(1,487
)
 
46

Amortization of intangibles included in NOI
153

 
153

 
231

 
356

 
342

 
893

 
1,344

Share-based compensation, net of amounts capitalized
1,601

 
1,557

 
1,550

 
1,485

 
1,523

 
6,193

 
5,353

Amortization of deferred financing costs
550

 
468

 
468

 
468

 
443

 
1,954

 
2,928

Amortization of net debt discounts, net of amounts capitalized
365

 
362

 
358

 
354

 
350

 
1,439

 
1,379

Accum. other comprehensive loss on derivatives amortized to expense
34

 
33

 
34

 
34

 
54

 
135

 
143

Replacement capital expenditures (1)
(14,848
)
 
(18,803
)
 
(15,613
)
 
(15,520
)
 
(23,475
)
 
(64,784
)
 
(63,026
)
Other diluted AFFO adjustments associated with real estate JVs (2)
(28
)
 
50

 
(32
)
 
131

 
(39
)
 
121

 
(210
)
Diluted AFFO available to common share and common unit holders (“diluted AFFO”)
$
42,755

 
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
160,264

 
$
155,313

Replacement capital expenditures (1)
 

 
 

 
 

 
 

 
 

 
 
 
 
Tenant improvements and incentives
$
7,876

 
$
12,894

 
$
8,117

 
$
8,615

 
$
14,804

 
$
37,502

 
$
37,034

Building improvements
9,306

 
5,975

 
5,775

 
1,921

 
9,241

 
22,977

 
22,308

Leasing costs
3,800

 
2,945

 
1,822

 
1,280

 
3,242

 
9,847

 
8,487

Net (exclusions from) additions to tenant improvements and incentives
(2,131
)
 
(896
)
 
1,315

 
3,289

 
(2,929
)
 
1,577

 
2,984

Excluded building improvements
(3,984
)
 
(2,134
)
 
(1,370
)
 
415

 
(853
)
 
(7,073
)
 
(7,757
)
Excluded leasing costs
(19
)
 
19

 
(46
)
 

 
(30
)
 
(46
)
 
(30
)
Replacement capital expenditures
$
14,848

 
$
18,803

 
$
15,613

 
$
15,520

 
$
23,475

 
$
64,784

 
$
63,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Net income
$
18,456

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

Interest expense
18,475

 
19,181