COPT Reports Second Quarter 2023 Results

EPS of $0.27 for 2Q23;

FFO per Share, as Adjusted for Comparability, of $0.60

Exceeded High-End of Guidance

Increased Midpoint of 2023 FFO per Share Guidance by 2-cents to $2.40

Core Portfolio 93.6% Occupied and 95.0% Leased

Same-Property Cash NOI Increased 5.8% in 2Q23 and 7.0% Year-to-Date

Raising Same-Property Cash NOI Guidance for the Year by 100 Basis Points, to 4.5%-5.5%

1.5 million SF of Active Developments are 92% Leased

Strong Leasing Volume in 1H23; Well Positioned to Achieve 2023 Goals

Total Leasing of 891,000 SF in 2Q23 and 1.7 million SF Year-to-Date

88,000 SF of Vacancy Leasing in 2Q23 and 187,000 SF Year-to-Date

On Track to Achieve Annual Goal of 400,000 SF

Tenant Retention of 89% in 2Q23 and 83% Year-to-Date

On Track to Achieve Annual Goal of 80%-85%

495,000 SF of Development Leasing Year-to-Date

On Track to Achieve Annual Goal of 700,000 SF

Corporate Office Properties Trust ("COPT" or the "Company") (NYSE:OFC) announced results for the second quarter ended June 30, 2023.

Management Comments

Stephen E. Budorick, COPT's President & Chief Executive Officer, commented, "Our Defense/IT investment strategy, which has concentrated our portfolio near priority U.S. defense installations, continues to produce solid results. Since 2022, the significant growth in defense spending has materialized into elevated tenant demand for our portfolio, resulting in a 96.8% leased rate in our Defense/IT Locations segment, which accounts for 90% of our core portfolio annualized rental revenue. This is the highest leased rate since we started reporting the segment in 2015. Our second quarter results were strong as FFO per share exceeded the midpoint of our guidance range by $0.02. Given our outperformance year to date, we are increasing the midpoint of our full year FFO per share guidance by $0.02 to $2.40 per share, which represents a 2% increase over 2022's results. Same-property cash NOI increased 5.8% for 2Q23 over 2Q22, and 7.0% for the first half of 2023 over the first half of 2022, which led us to again increase our full year change in cash NOI guidance by 100 basis points. Our leasing activity is right on track as we are roughly halfway towards our full year vacancy leasing goal and 70% towards our development leasing goal. Our investment grade rated balance sheet is well positioned to navigate the challenging capital markets environment as we have no significant debt maturities until 2026, with 96% of our NOI unencumbered. We remain confident in our strategy and expect to continue to allocate capital to investments at our Defense/IT Locations that will support continued growth in FFO per share and shareholder value."

Financial Highlights

2nd Quarter Financial Results:

• Diluted earnings per share ("EPS") was $0.27 for the quarter ended June 30, 2023 compared to $0.29 for the quarter ended June 30, 2022.
• Diluted funds from operations per share ("FFOPS"), as calculated in accordance with Nareit's definition, and FFOPS, as adjusted for comparability, were $0.60 for the quarter ended June 30, 2023 compared to $0.59 for the quarter ended June 30, 2022.

Operating Performance Highlights

Operating Portfolio Summary:

• At June 30, 2023, the Company's 22.9 million square foot core portfolio was 93.6% occupied and 95.0% leased.

Same-Property Performance:

• At June 30, 2023, the Company's 20.6 million square foot same-property portfolio was 92.8% occupied and 94.4% leased.
• The Company's same-property cash NOI increased 5.8% for the three months ended June 30, 2023 compared to the same period in 2022.

Leasing:

• Total Square Feet Leased: For the quarter ended June 30, 2023, the Company leased 891,000 square feet, including 803,000 square feet of renewals and 88,000 square feet of vacancy leasing. For the six months ended June 30, 2023, the Company executed 1.7 million square feet of total leasing, including 1.0 million square feet of renewals, 187,000 square feet of vacancy leasing, and 495,000 square feet in development projects.
• Tenant Retention Rates: During the quarter and six months ended June 30, 2023, the Company renewed 89.0% and 82.7%, respectively, of expiring square feet.
• Rent Spreads & Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2023, straight-line rents on renewals increased 7.4% and 6.9%, respectively, and cash rents on renewed space increased 1.3% and 1.1%, respectively. For the same time periods, annual escalations on renewing leases averaged 2.6%.
• Lease Terms: In the quarter ended June 30, 2023, lease terms averaged 5.0 years on renewing leases and 6.9 years on vacancy leasing. For the six months ended June 30, 2023, lease terms averaged 4.5 years on renewing leases, 7.4 years on vacancy leasing, and 14.3 years on development leasing.

Investment Activity Highlights

• Development Pipeline: The Company's development pipeline consists of nine properties totaling 1.5 million square feet that were 92% leased at June 30, 2023. These projects represent a total estimated investment of $480.8 million, of which $222.1 million has been spent.

Balance Sheet and Capital Transaction Highlights

• For the quarter ended June 30, 2023, the Company's adjusted EBITDA fixed charge coverage ratio was 4.9x.
• At June 30, 2023, the Company's net debt to in-place adjusted EBITDA ratio was 6.3x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 5.7x.
• At June 30, 2023, and including the effect of interest rate swaps, the Company's weighted average effective interest rate on its consolidated debt portfolio was 3.1% with a weighted average maturity of 6.2 years; additionally, 95.6% 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 2023 conference call; the presentation can be viewed and downloaded from the ‘Financial Info – Financial Results' section of COPT's Investors website: https://investors.copt.com/financial-information/financial-results

2023 Guidance

Management is updating its full-year guidance for diluted EPS and diluted FFOPS, per Nareit and as adjusted for comparability, from the prior range of $1.46-$1.52, and $2.35-$2.41, respectively, to new ranges of $1.49-$1.53, and $2.38-$2.42, respectively. Management is establishing third quarter guidance for diluted EPS and diluted FFOPS per Nareit and as adjusted for comparability at $0.26-$0.28 and $0.59-$0.61, respectively. Reconciliations of projected diluted EPS to projected diluted FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Conference Call Information

Management will discuss second quarter 2023 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Participants must register for the conference call at the link below to receive the dial-in number and personal pin. Registering only takes a few moments and provides direct access to the conference call without waiting for an operator. You may register at any time, including up to and after the call start time:

https://register.vevent.com/register/BI48eea2c0fe934b24aefdd77f5c963ea1

The conference call will also be available via live webcast in the ‘News & Events – IR Calendar' section of COPT's Investors website: https://investors.copt.com/news-events/ir-calendar

Replay Information

A replay of the conference call will be immediately available via webcast only on COPT's Investors website.

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 the Company believes are growing, durable, priority missions ("Defense/IT Locations"). The Company also owns a portfolio of office properties located in select urban submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics ("Regional Office Properties"). As of June 30, 2023, the Company derived 90% of its core portfolio annualized rental revenue from Defense/IT Locations and 10% from its Regional Office Properties. As of the same date and including 24 properties owned through unconsolidated joint ventures, COPT's core portfolio of 192 properties encompassed 22.9 million square feet and was 95% 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, 2022.

Source: Corporate Office Properties Trust

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