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:

Table 1: Reconciliation of EPS to FFOPS, per Nareit	Quarter ending		Quarter ending		Year ending
and As Adjusted for Comparability	September 30, 2021		December 31, 2021		December 31, 2021
	Low	High	Low	High	Low	High

EPS	$ 0.19	$ 0.21	$ 0.21	$ 0.23	$ 0.72	$ 0.76
Real estate-related depreciation and amortization	0.35	0.35	0.35	0.35	1.36	1.36
Gain on sales of real estate	-	-	-	-	(0.35)	(0.35)
FFOPS, Nareit definition	0.54	0.56	0.56	0.58	1.73	1.77
Loss on early extinguishment of debt	-	-	-	-	0.51	0.51

FFOPS, as adjusted for comparability	$ 0.54	$ 0.56	$ 0.56	$ 0.58	$ 2.24	$ 2.28

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:

Conference Call Date:			Friday, July 30, 2021
Time:			12:00 p.m. Eastern Time
Telephone Number: (within the U.S.)			855-463-9057
Telephone Number: (outside the U.S.)			661-378-9894
Passcode:			8848821

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

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Revenues
Revenues from real estate operations	$	144,423	$	132,538	$	289,587	$	264,654
Construction contract and other service revenues	19,988		12,236		36,546		25,917
Total revenues	164,411		144,774		326,133		290,571
Operating expenses
Property operating expenses	54,616		50,204		111,590		100,203
Depreciation and amortization associated with real estate operations	37,555		33,612		74,876		66,208
Construction contract and other service expenses	19,082		11,711		34,875		24,832
General and administrative expenses	7,293		6,511		13,355		11,814
Leasing expenses	1,929		1,647		4,273		3,830
Business development expenses and land carry costs	1,372		1,262		2,466		2,380
Total operating expenses	121,847		104,947		241,435		209,267
Interest expense	(15,942)		(16,797)		(33,461)		(33,637)
Interest and other income	2,228		2,282		4,093		3,487
Credit loss (expense) recoveries	(193)		(615)		714		(1,304)
Gain on sales of real estate	40,233		—		39,743		5
Loss on early extinguishment of debt	(25,228)		—		(58,394)		—
Income before equity in income of unconsolidated entities and income taxes	43,662		24,697		37,393		49,855
Equity in income of unconsolidated entities	260		454		482		895
Income tax expense	(24)		(30)		(56)		(79)
Net income	43,898		25,121		37,819		50,671
Net income attributable to noncontrolling interests:
Common units in the Operating Partnership ("OP")	(559)		(284)		(474)		(571)
Preferred units in the OP	—		(77)		—		(154)
Other consolidated entities	(938)		(1,263)		(1,613)		(2,395)
Net income attributable to COPT common shareholders	$	42,401	$	23,497	$	35,732	$	47,551

Earnings per share ("EPS") computation:
Numerator for diluted EPS:
Net income attributable to COPT common shareholders	$	42,401	$	23,497	$	35,732	$	47,551
Amount allocable to share-based compensation awards	(125)		(109)		(235)		(206)
Redeemable noncontrolling interests	(20)		—		7		—
Numerator for diluted EPS	$	42,256	$	23,388	$	35,504	$	47,345
Denominator:
Weighted average common shares - basic	111,974		111,800		111,931		111,762
Dilutive effect of share-based compensation awards	297		321		280		280
Dilutive effect of redeemable noncontrolling interests	133		—		125		—
Weighted average common shares - diluted	112,404		112,121		112,336		112,042
Diluted EPS	$	0.38	$	0.21	$	0.32	$	0.42

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	43,898	$	25,121	$	37,819	$	50,671
Real estate-related depreciation and amortization	37,555		33,612		74,876		66,208
Gain on sales of real estate	(40,233)		—		(39,743)		(5)
Depreciation and amortization on unconsolidated real estate JVs	476		818		930		1,636
Funds from operations ("FFO")	41,696		59,551		73,882		118,510
FFO allocable to other noncontrolling interests	(1,302)		(1,525)		(2,329)		(13,540)
Basic FFO allocable to share-based compensation awards	(193)		(254)		(353)		(447)
Noncontrolling interests - preferred units in the OP	—		(77)		—		(154)
Basic FFO available to common share and common unit holders ("Basic FFO")	40,201		57,695		71,200		104,369
Dilutive preferred units in the OP	—		77		—		154
Redeemable noncontrolling interests	11		37		70		69
Diluted FFO available to common share and common unit holders ("Diluted FFO")	40,212		57,809		71,270		104,592
Loss on early extinguishment of debt	25,228		—		58,394		—
Diluted FFO comparability adjustments allocable to share-based compensation awards	(137)		(1)		(304)		(51)
Demolition costs on redevelopment and nonrecurring improvements	302		9		302		52
FFO allocation to other noncontrolling interests resulting from capital event	—		—		—		11,090
Diluted FFO available to common share and common unit holders, as adjusted for comparability	65,605		57,817		129,662		115,683
Straight line rent adjustments and lease incentive amortization	(1,288)		2,523		(4,645)		1,671
Amortization of intangibles and other assets included in net operating income	41		(73)		81		(147)
Share-based compensation, net of amounts capitalized	2,009		1,638		3,913		3,027
Amortization of deferred financing costs	811		642		1,604		1,217
Amortization of net debt discounts, net of amounts capitalized	520		390		1,062		776
Replacement capital expenditures	(13,095)		(16,132)		(25,325)		(33,886)
Other diluted AFFO adjustments associated with real estate JVs	178		(115)		419		(156)
Diluted adjusted funds from operations available to common share and common unit holders ("Diluted AFFO")	$	54,781	$	46,690	$	106,771	$	88,185
Diluted FFO per share	$	0.35	$	0.51	$	0.63	$	0.92
Diluted FFO per share, as adjusted for comparability	$	0.58	$	0.51	$	1.14	$	1.02
Dividends/distributions per common share/unit	$	0.275	$	0.275	$	0.550	$	0.550

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

	June 30, 2021			December 31, 2020
Balance Sheet Data
Properties, net of accumulated depreciation	$	3,530,717		$	3,562,549
Total assets	4,052,032			4,077,023
Debt, per balance sheet	2,109,640			2,086,918
Total liabilities	2,354,680			2,357,881
Redeemable noncontrolling interests	26,040			25,430
Equity	1,671,312			1,693,712
Net debt to adjusted book	39.4		%	39.1		%

Core Portfolio Data (as of period end) (1)
Number of operating properties	181			179
Total operational square feet (in thousands)	20,978			20,802
% Occupied	93.7		%	94.3		%
% Leased	94.6		%	95.0		%

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Payout ratios
Diluted FFO	77.5	%	53.9	%	87.4	%	59.6	%
Diluted FFO, as adjusted for comparability	47.5	%	53.9	%	48.1	%	53.9	%
Diluted AFFO	56.9	%	66.8	%	58.4	%	70.7	%
Adjusted EBITDA fixed charge coverage ratio	4.9	x	3.8	x	4.6	x	3.8	x
Net debt plus preferred equity to in-place adjusted EBITDA ratio (2)	6.3	x	6.4	x	N/A		N/A
Net debt adj. for fully-leased development plus pref. equity to in-place adj. EBITDA ratio (3)	5.8	x	5.9	x	N/A		N/A

Reconciliation of denominators for per share measures
Denominator for diluted EPS	112,404		112,121		112,336		112,042
Weighted average common units	1,262		1,237		1,254		1,232
Redeemable noncontrolling interests	—		157		—		133
Dilutive convertible preferred units	—		176		—		176
Denominator for diluted FFO per share and as adjusted for comparability	113,666		113,691		113,590		113,583

(1)		Represents Defense/IT Locations and Regional Office properties.
(2)		Represents net debt plus the total liquidation preference of preferred equity as of period end divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).
(3)		Represents net debt less costs incurred on properties under development that were 100% leased as of period end plus the total liquidation preference of preferred equity divided by in-place adjusted EBITDA for the period, as annualized (i.e. three month periods are multiplied by four).

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Reconciliation of common share dividends to dividends and distributions for payout ratios
Common share dividends - unrestricted shares and deferred shares	$	30,811	$	30,761	$	61,616	$	61,515
Common unit distributions - unrestricted units	347		341		694		680
Distributions on dilutive preferred units	—		77		—		154
Dividends and distributions for payout ratios	$	31,158	$	31,179	$	62,310	$	62,349

Reconciliation of GAAP net (loss) income to earnings before interest, income taxes, depreciation and amortization for real estate ("EBITDAre"), adjusted EBITDA and in-place adjusted EBITDA
Net income	$	43,898	$	25,121	$	37,819	$	50,671
Interest expense	15,942		16,797		33,461		33,637
Income tax expense	24		30		56		79
Real estate-related depreciation and amortization	37,555		33,612		74,876		66,208
Other depreciation and amortization	1,045		448		1,600		867
Gain on sales of real estate	(40,233)		—		(39,743)		(5)
Adjustments from unconsolidated real estate JVs	711		1,270		1,404		2,540
EBITDAre	58,942		77,278		109,473		153,997
Loss on early extinguishment of debt	25,228		—		58,394		—
Net (gain) loss on other investments	(63)		2		(63)		2
Credit loss expense (recoveries)	193		615		(714)		1,304
Business development expenses	584		678		1,132		1,216
Demolition costs on redevelopment and nonrecurring improvements	302		9		302		52
Adjusted EBITDA	85,186		78,582		$	168,524	$	156,571
Proforma net operating income adjustment for property changes within period	(379)		959
Change in collectability of deferred rental revenue	—		1,007
In-place adjusted EBITDA	$	84,807	$	80,548

Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA
Interest expense	$	15,942	$	16,797	$	33,461	$	33,637
Less: Amortization of deferred financing costs	(811)		(642)		(1,604)		(1,217)
Less: Amortization of net debt discounts, net of amounts capitalized	(520)		(390)		(1,062)		(776)
COPT's share of interest expense of unconsolidated real estate JVs, excluding deferred financing costs	236		442		470		883
Scheduled principal amortization	959		1,023		1,921		2,044
Capitalized interest	1,707		3,174		3,512		6,532
Preferred unit distributions	—		77		—		154
Denominator for fixed charge coverage-Adjusted EBITDA	$	17,513	$	20,481	$	36,698	$	41,257

Corporate Office Properties Trust Summary Financial Data (unaudited) (in thousands)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures
Tenant improvements and incentives	$	8,303	$	8,870	$	15,442	$	20,227
Building improvements	6,771		13,662		10,399		16,137
Leasing costs	2,805		2,222		3,934		4,984
Net additions to tenant improvements and incentives	(988)		329		1,912		2,355
Excluded building improvements and leasing costs	(3,796)		(8,951)		(6,362)		(9,817)
Replacement capital expenditures	$	13,095	$	16,132	$	25,325	$	33,886

Same Properties cash NOI	$	77,241	$	75,414	$	149,604	$	149,874
Straight line rent adjustments and lease incentive amortization	(2,272)		(1,131)		(2,231)		(1,115)
Amortization of acquired above- and below-market rents	98		97		197		193
Amortization of intangibles and other assets to property operating expenses	—		(23)		—		(46)
Lease termination fees, net	1,094		200		2,456		238
Tenant funded landlord assets and lease incentives	441		(20)		620		348
Cash NOI adjustments in unconsolidated real estate JV	40		49		82		102
Same Properties NOI	$	76,642	$	74,586	$	150,728	$	149,594

	June 30, 2021		December 31, 2020
Reconciliation of total assets to adjusted book
Total assets	$	4,052,032	$	4,077,023
Accumulated depreciation	1,182,432		1,124,253
Accumulated amortization of real estate intangibles and deferred leasing costs	219,666		217,124
COPT's share of liabilities of unconsolidated real estate JVs	27,529		26,710
COPT's share of accumulated depreciation and amortization of unconsolidated real estate JVs	2,578		1,489
Less: Property - operating lease liabilities	(29,909)		(30,746)
Less: Property - finance lease liabilities	(18)		(28)
Less: Cash and cash equivalents	(17,182)		(18,369)
Less: COPT's share of cash of unconsolidated real estate JVs	(373)		(152)
Adjusted book	$	5,436,755	$	5,397,304

	June 30, 2021		December 31, 2020		June 30, 2020
Reconciliation of debt outstanding to net debt and net debt adjusted for fully-leased development plus preferred equity
Debt outstanding (excluding net debt discounts and deferred financing costs)	$	2,157,325	$	2,127,715	$	2,073,351
Less: Cash and cash equivalents	(17,182)		(18,369)		(21,596)
Less: COPT's share of cash of unconsolidated real estate JVs	(373)		(152)		(627)
Net debt	$	2,139,770	$	2,109,194	$	2,051,128
Preferred equity	—		—		8,800
Net debt plus preferred equity	$	2,139,770	$	2,109,194	$	2,059,928
Costs incurred on fully-leased development properties	(171,453)		(114,532)		(152,557)
Net debt adjusted for fully-leased development plus preferred equity	$	1,968,317	$	1,994,662	$	1,907,371

View source version on businesswire.com: https://www.businesswire.com/news/home/20210729006045/en/

COPT Reports Second Quarter 2021 Results; Raises Midpoint of Full Year Guidance by 4-Cents, Implying 6.6% Growth in FFOPS, as Adjusted for Comparability