Earlier Development Completions & Stronger Same-Property Results Drive Higher 2021 Expectations

Reported EPS of $0.38 in 2Q;

FFO per Share, as Adjusted for Comparability, of $0.58 was 1-Cent Above

High-End of Guidance

Same-Property Cash NOI Increased 2.4% in the Quarter, Strongly Outperforming Guidance

Raising Midpoint of Same-Property Cash NOI Guidance for the Year

Core Portfolio 93.7% Occupied & 94.6% Leased

1.95 Million SF of Active Developments are 87% Leased

Solid Leasing Activity

Total Leasing of 1.4 Million SF in the Quarter Included 630,000 SF of Development Leasing

2Q Tenant Retention of 89% and Cash Rent Rolled Up 0.1%

78% Retention Rate and a Modest (0.2%) Change in Cash Rents for the First Half of 2021

Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced results for the second quarter ended June 30, 2021.

Management Comments

Stephen E. Budorick, COPT’s President & Chief Executive Officer, commented, “Our differentiated portfolio of office and data center properties that support priority missions at U.S. defense installations continues to produce strong results. Existing operations generated better than expected same-property results, vacancy leasing for Defense/IT Locations was solid, and development leasing was strong. Having completed 694,000 square feet of development leasing through July, we are confident we will achieve our one million square feet development leasing goal for the year. Additionally, we expect to deliver three major development projects early, thereby accelerating our lease commencements. Due to excellent execution on development projects and an improved outlook for same-property operations, we are increasing the midpoint of our full-year guidance for FFO per share, as adjusted for comparability, from $2.22 to $2.26. The midpoint of our updated full year guidance is seven-cents above our original midpoint and represents 6.6% growth over 2020 elevated results.”

Financial Highlights

2^nd Quarter Financial Results:

• Diluted earnings per share (“EPS”) was $0.38 for the quarter ended June 30, 2021 compared to $0.21 for the second quarter of 2020.

• Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition, was $0.35 for the second quarter of 2021 compared to $0.51 for second quarter 2020.

• FFOPS, as adjusted for comparability, was $0.58 for the second quarter of 2021 compared to $0.51 for the second quarter of 2020.

Operating Performance Highlights

Operating Portfolio Summary:

• At June 30, 2021, the Company’s core portfolio of 181 operating office and data center shell properties was 93.7% occupied and 94.6% leased.

• During the quarter, the Company placed into service 197,000 square feet that were 60% leased.

Same-Property Performance:

• At June 30, 2021, COPT’s same-property portfolio of 158 buildings was 92.6% occupied and 93.5% leased.

• For the quarter ended June 30, 2021, the Company’s same-property cash NOI increased 2.4% over the prior year’s comparable period.

Leasing:

• Total Square Feet Leased: For the quarter ended June 30, 2021, the Company leased 1.4 million total square feet, including 661,000 square feet of renewals, 630,000 square feet in development projects, and 111,000 square feet of new leases on vacant space. For the six months ended June 30, 2021, the Company executed 1.7 million square feet of total leasing, including 815,000 square feet of renewals, 641,000 square feet in development projects, and 205,000 square feet of vacancy leasing.

• Renewal Rates: During the quarter and six months ended June 30, 2021, the Company renewed 88.9% and 78.3%, respectively, of expiring square feet.

• Rent Spreads & Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2021, cash rents on renewed space increased 0.1% and decreased 0.2%, respectively. For the same time periods, annual escalations on renewing leases averaged 2.6%.

• Lease Terms: In the second quarter of 2021, lease terms averaged 4.6 years on renewing leases, 12.9 years on development leasing, and 7.3 years on new leasing of vacant space. For the first six months, lease terms averaged 4.3 years on renewing leases, 12.8 years on development leasing, and 7.8 years on vacancy leasing.

Investment Activity Highlights

• Development Pipeline: At June 30, 2021, the Company’s development pipeline consisted of 13 properties totaling 1.9 million square feet that were 87% leased. These projects have a total estimated cost of $628.9 million, of which $239.7 million has been incurred.

• During the quarter, the Company also moved 6740 Alexander Bell Drive, a 57,000 square foot building in Columbia Gateway into redevelopment. COPT intends to invest $11.6 million to reposition the property.

Balance Sheet and Capital Transaction Highlights

• In April, the Company redeemed the remaining $166 million of its 3.6% senior notes due 2023 and $104 million of its 5.25% senior notes due 2024.

• In June, the Company sold two data center shells to a new, 90%/10% joint venture with Blackstone Real Estate, generating approximately $107 million of equity.

• At June 30, 2021, the Company’s net debt to adjusted book ratio was 39.4% and its net debt to in-place adjusted EBITDA ratio was 6.3x. As of the same date, net debt adjusted for fully-leased development plus preferred equity to in-place adjusted EBITDA ratio was 5.8x. For the quarter ended June 30, 2021, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.9x.

• At June 30, 2021, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 2.99% with a weighted average maturity of 4.9 years; additionally, 80.9% of the Company’s debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its second quarter 2021 conference call, the details of which are provided below. The accompanying slide presentation can be viewed on and downloaded from the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

2021 Guidance

Management is increasing its full-year guidance for EPS and FFOPS, per Nareit and as adjusted for comparability from the prior ranges of $0.28-$0.34, $1.68-$1.74, and $2.19-$2.25, respectively, to new ranges of $0.72-$0.76, $1.73-$1.77, and $2.24-$2.28, respectively. Management is establishing guidance ranges for EPS and FFOPS (per Nareit and as adjusted for comparability) for third quarter at $0.19-$0.21 and $0.54-$0.56, respectively, and fourth quarter at $0.21-$0.23 and $0.56-$0.58, respectively. Reconciliations of projected EPS to projected FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Conference Call Information

Management will discuss second quarter 2021 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

The conference call will also be available via live webcast in the ‘Latest Updates’ section of COPT’s Investors website: https://investors.copt.com/

Replay Information

A replay of the conference call will be immediately available via webcast on the Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, July 30, through 3:00 p.m. Eastern Time on Friday, August 13. To access the replay within the United States, please call 855-859-2056; to access it from outside the United States, please call 404-537-3406. In either case, use passcode 8848821.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company’s Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT

COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties. The majority of its 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 it believes are growing, durable, priority missions (“Defense/IT Locations”). The Company also owns 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 (“Regional Office Properties”). As of June 30, 2021, the Company derived 88% of its core portfolio annualized rental revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of the same date and including 19 properties owned through unconsolidated joint ventures, COPT’s core portfolio of 181 office and data center shell properties encompassed 21.0 million square feet and was 94.6% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts that was 86.7% leased.

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. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, 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 and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Category: Quarterly Results

Source: Corporate Office Properties Trust

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