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




Exhibit

Exhibit 99.1

a2018q3covera01.jpg



tableofcontentspptx.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 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, 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 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
 
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
 
Jed Reagan
 
949-640-8780
 
jreagan@greenstreetadvisors.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.
 
Richard Anderson
 
212-205-8445
 
richard.anderson@us.mizuho-sc.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
 
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 COPT’s 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

 
$
18,780

 
$
11,008

 
$
22,334

 
$
60,187

 
$
63,933

Interest expense
19,181

 
18,945

 
18,784

 
19,211

 
19,615

 
56,910

 
57,772

Income tax (benefit) expense
(291
)
 
63

 
55

 
953

 
57

 
(173
)
 
145

Depreciation of furniture, fixtures and equipment
561

 
459

 
523

 
600

 
577

 
1,543

 
1,673

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
)
Adjustments from unconsolidated real estate JV (1)
830

 
828

 
824

 
829

 
830

 
2,482

 
2,481

EBITDAre
74,798

 
74,593

 
72,482

 
71,091

 
77,684

 
$
221,873

 
$
227,706

Impairment losses (recoveries) on non-operating properties
—

 
—

 
—

 
4,655

 
(2
)
 
—

 
13

Loss on early extinguishment of debt
—

 
—

 
—

 
—

 
—

 
—

 
513

Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
(1,180
)
 
—

 
(5,399
)
Business development expenses
673

 
757

 
1,023

 
1,116

 
737

 
2,453

 
2,670

Demolition costs on redevelopment and nonrecurring improvements
251

 
9

 
39

 
—

 
—

 
299

 
294

Executive transition costs
46

 
213

 
163

 
—

 
2

 
422

 
732

Adjusted EBITDA
75,768

 
75,572

 
73,707

 
76,862

 
77,241

 
$
225,047

 
$
226,529

Proforma NOI adjustment for property changes within period
166

 
418

 
—

 
(578
)
 
(410
)
 
 
 
 
In-place adjusted EBITDA
$
75,934

 
$
75,990

 
$
73,707

 
$
76,284

 
$
76,831

 
 
 
 

(1) Includes COPT’s share of adjusted EBITDA adjustments in an unconsolidated real estate joint venture (see page 33).


10


Corporate Office Properties Trust
Office and Data Center Shell Properties by Segment (1) - 9/30/18
(square feet in thousands)
 
 
# of
Properties
 
Operational
Square Feet
 
Occupancy
%
 
Leased
 %
Core Portfolio: (2)
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
Fort Meade/Baltimore Washington (“BW”) Corridor:
 
 

 
 

 
 

 
 

National Business Park
 
31

 
3,820

 
88.1
%
 
88.9
%
Howard County
 
34

 
2,667

 
95.8
%
 
96.5
%
Other
 
22

 
1,623

 
93.3
%
 
94.1
%
Total Fort Meade/BW Corridor
 
87

 
8,110

 
91.7
%
 
92.4
%
Northern Virginia (“NoVA”) Defense/IT
 
13

 
2,000

 
83.8
%
 
92.1
%
Lackland AFB (San Antonio, Texas)
 
7

 
953

 
100.0
%
 
100.0
%
Navy Support
 
21

 
1,252

 
88.0
%
 
93.2
%
Redstone Arsenal (Huntsville, Alabama)
 
7

 
651

 
99.0
%
 
99.3
%
Data Center Shells:
 
 
 
 
 
 
 
 
Consolidated Properties
 
11

 
1,775

 
100.0
%
 
100.0
%
Unconsolidated JV Properties (3)
 
6

 
962

 
100.0
%
 
100.0
%
Total Defense/IT Locations
 
152

 
15,703

 
92.6
%
 
94.5
%
Regional Office
 
7

 
2,007

 
89.0
%
 
90.1
%
Core Portfolio
 
159

 
17,710

 
92.2
%
 
94.0
%
Other Properties
 
2

 
157

 
77.2
%
 
77.2
%
Total Portfolio
 
161

 
17,867

 
92.1
%
 
93.9
%
Consolidated Portfolio
 
155

 
16,905

 
91.7
%
 
93.5
%

(1)
This presentation sets forth Core Portfolio data by segment followed by data for the remainder of the portfolio.
(2)
Represents Defense/IT Locations and Regional Office properties.
(3)
See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.




11

Corporate Office Properties Trust
NOI from Real Estate Operations and Occupancy by Property Grouping
(dollars and square feet in thousands)
 
 
9/30/18
 
 
 
 
 
 
# of Office and Data Center Shell
Properties
 
Operational Square Feet
 
 
 
 
 
Office and Data Center Shell Properties
Annualized
Rental Revenue (2)
 
Percentage of Total Office and Data Center Shell Properties
Annualized
Rental Revenue (2)
 
NOI from Real
Estate Operations
for Three Months Ended
 
NOI from Real
Estate Operations
for Nine Months Ended
Property Grouping
 
 
 
% Occupied (1)
 
% Leased (1)
 
 
 
9/30/18
 
9/30/18
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Properties: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
139

 
15,113

 
91.7%
 
93.6%
 
$
445,649

 
92.1
%
 
$
70,072

 
$
208,434

Unconsolidated real estate JV (4)
 
6

 
962

 
100.0%
 
100.0%
 
5,515

 
1.1
%
 
1,206

 
3,607

Total Same Properties in Core Portfolio (3)
 
145

 
16,075

 
92.2%
 
94.0%
 
451,164

 
93.3
%
 
71,278

 
212,041

Properties Placed in Service (5)
 
14

 
1,635

 
92.3%
 
94.3%
 
29,464

 
6.1
%
 
5,472

 
14,565

Wholesale Data Center and Other
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
3,737

 
12,201

Total Core Portfolio
 
159

 
17,710

 
92.2%
 
94.0%
 
480,628

 
99.3
%
 
80,487

 
238,807

Disposed Office Properties
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
26

 
136

Other Properties (Same Properties)
 
2

 
157

 
77.2%
 
77.2%
 
3,159

 
0.7
%
 
341

 
1,355

Total Portfolio
 
161

 
17,867

 
92.1%
 
93.9%
 
$
483,787

 
100.0
%
 
$
80,854

 
$
240,298

Consolidated Portfolio
 
155

 
16,905

 
91.7%
 
93.5%
 
$
478,272

 
98.9
%
 
$
79,648

 
$
236,691

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9/30/18
 
 
 
 
 
 
# of Office and Data Center Shell
Properties
 
Operational Square Feet
 
 
 
 
 
Office and Data Center Shell
Properties Annualized
Rental Revenue (2)
 
Percentage of Core Office and Data Center Shell Properties
Annualized
Rental Revenue (2)
 
NOI from Real
Estate Operations
for Three Months Ended
 
NOI from Real
Estate Operations
for Nine Months Ended
Property Grouping
 
 
 
% Occupied (1)
 
% Leased (1)
 
 
 
9/30/18
 
9/30/18
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
146

 
14,741

 
92.2%
 
94.2%
 
$
418,324

 
87.0
%
 
$
67,784

 
$
200,427

Unconsolidated real estate JV (4)
 
6

 
962

 
100.0%
 
100.0%
 
5,515

 
1.1
%
 
1,206

 
3,607

Total Defense/IT Locations
 
152

 
15,703

 
92.6%
 
94.5%
 
423,839

 
88.2
%
 
68,990

 
204,034

Regional Office
 
7

 
2,007

 
89.0%
 
90.1%
 
56,789

 
11.8
%
 
7,848

 
23,290

Wholesale Data Center and Other
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
3,649

 
11,483

Total Core Portfolio
 
159

 
17,710

 
92.2%
 
94.0%
 
$
480,628


100.0
%
 
$
80,487

 
$
238,807

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Percentages calculated based on operational square feet.
(2)
Excludes Annualized Rental Revenue from our wholesale data center, DC-6, of $23.0 million as of 9/30/18. With regard to properties owned through an unconsolidated real estate joint venture, we include the portion of Annualized Rental Revenue allocable to COPT’s ownership interest.
(3)
Includes office and data center shell properties continually owned and 100% operational since at least 1/1/17.
(4)
Represents total information pertaining to properties owned through an unconsolidated real estate joint venture except for the amounts reported for Annualized Rental Revenue and NOI from real estate operations, which represent the portion allocable to COPT’s ownership interest. See page 33 for additional disclosure regarding this joint venture.
(5)
Newly constructed or redeveloped properties placed in service that were not fully operational by 1/1/17.

12

Corporate Office Properties Trust
Consolidated Real Estate Revenues and NOI by Segment
(dollars 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
Consolidated real estate revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
61,396

 
$
61,993

 
$
62,782

 
$
62,220

 
$
61,254

 
$
186,171

 
$
183,393

NoVA Defense/IT
13,960

 
13,118

 
12,561

 
12,126

 
12,190

 
39,639

 
34,992

Lackland Air Force Base
11,254

 
12,382

 
11,443

 
11,522

 
11,024

 
35,079

 
35,687

Navy Support
7,899

 
8,127

 
7,870

 
7,587

 
7,494

 
23,896

 
21,953

Redstone Arsenal
3,734

 
3,652

 
3,633

 
3,706

 
3,532

 
11,019

 
10,616

Data Center Shells-Consolidated
6,689

 
5,955

 
5,831

 
6,322

 
6,676

 
18,475

 
17,998

Total Defense/IT Locations
104,932

 
105,227

 
104,120

 
103,483

 
102,170

 
314,279

 
304,639

Regional Office
15,272

 
15,296

 
15,284

 
15,868

 
16,656

 
45,852

 
52,394

Wholesale Data Center
7,781

 
8,105

 
8,077

 
7,674

 
7,398

 
23,963

 
21,201

Other
1,003

 
534

 
797

 
660

 
1,007

 
2,334

 
4,061

Consolidated real estate revenues
$
128,988

 
$
129,162

 
$
128,278

 
$
127,685

 
$
127,231

 
$
386,428

 
$
382,295

 
 
 
 
NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
41,549

 
$
41,894

 
$
41,178

 
$
41,880

 
$
41,546

 
$
124,621

 
$
123,036

NoVA Defense/IT
8,442

 
8,209

 
7,838

 
8,202

 
7,847

 
24,489

 
21,978

Lackland Air Force Base
4,822

 
4,888

 
4,845

 
4,835

 
4,831

 
14,555

 
14,562

Navy Support
4,691

 
4,696

 
4,566

 
4,359

 
4,337

 
13,953

 
12,562

Redstone Arsenal
2,165

 
2,143

 
2,193

 
2,217

 
2,100

 
6,501

 
6,322

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
6,115

 
5,156

 
5,037

 
5,486

 
6,039

 
16,308

 
16,125

COPT’s share of unconsolidated real estate JV (1)
1,206

 
1,202

 
1,199

 
1,203

 
1,202

 
3,607

 
3,602

Total Defense/IT Locations
68,990

 
68,188

 
66,856

 
68,182

 
67,902

 
204,034

 
198,187

Regional Office
7,847

 
8,127

 
7,406

 
8,860

 
9,250

 
23,380

 
30,420

Wholesale Data Center
3,816

 
3,955

 
3,819

 
4,164

 
4,223

 
11,590

 
11,160

Other
201

 
648

 
445

 
233

 
690

 
1,294

 
2,615

NOI from real estate operations
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
82,065

 
$
240,298

 
$
242,382

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)     See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.

13

Corporate Office Properties Trust
Cash NOI by Segment
(dollars 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
41,398

 
$
41,338

 
$
40,212

 
$
41,685

 
$
41,630

 
$
122,948

 
$
122,247

NoVA Defense/IT
9,394

 
7,312

 
7,218

 
7,426

 
8,206

 
23,924

 
22,237

Lackland Air Force Base
5,012

 
5,067

 
5,024

 
5,016

 
4,886

 
15,103

 
14,705

Navy Support
4,925

 
4,933

 
4,577

 
4,341

 
4,266

 
14,435

 
12,569

Redstone Arsenal
2,221

 
2,200

 
2,167

 
2,165

 
2,098

 
6,588

 
6,146

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
5,630

 
4,755

 
4,297

 
4,646

 
5,412

 
14,682

 
15,407

COPT’s share of unconsolidated real estate JV (1)
1,144

 
1,134

 
1,132

 
1,130

 
1,120

 
3,410

 
3,339

Total Defense/IT Locations
69,724

 
66,739

 
64,627

 
66,409

 
67,618

 
201,090

 
196,650

Regional Office
7,108

 
7,465

 
6,894

 
8,428

 
8,942

 
21,467

 
28,772

Wholesale Data Center
3,391

 
3,479

 
3,374

 
3,470

 
3,352

 
10,244

 
9,945

Other
236

 
673

 
469

 
263

 
580

 
1,378

 
2,043

Cash NOI from real estate operations
80,459

 
78,356

 
75,364

 
78,570

 
80,492

 
234,179

 
237,410

Straight line rent adjustments and lease incentive amortization
(576
)
 
1,209

 
519

 
1,027

 
244

 
1,152

 
(2,363
)
Amortization of acquired above- and below-market rents
(98
)
 
(176
)
 
(300
)
 
(287
)
 
(263
)
 
(574
)
 
(836
)
Amortization of below-market cost arrangements
(148
)
 
(148
)
 
(149
)
 
(149
)
 
(148
)
 
(445
)
 
(446
)
Lease termination fees, gross
830

 
771

 
1,155

 
828

 
860

 
2,756

 
2,083

Tenant funded landlord assets and lease incentives
325

 
838

 
1,870

 
1,377

 
798

 
3,033

 
6,271

Cash NOI adjustments in unconsolidated real estate JV
62

 
68

 
67

 
73

 
82

 
197

 
263

NOI from real estate operations
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
82,065

 
$
240,298

 
$
242,382

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)     See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.

14

Corporate Office Properties Trust
Same Properties (1) Average Occupancy Rates by Segment 
(square feet in thousands)
 
Number of Buildings
 
Rentable Square Feet
 
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
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
81

 
7,760

 
92.2
%
 
91.3
%
 
91.4
%
 
93.7
%
 
92.9
%
 
91.6
%
 
95.0
%
NoVA Defense/IT
12

 
1,760

 
80.6
%
 
80.5
%
 
80.0
%
 
79.5
%
 
78.9
%
 
80.4
%
 
86.3
%
Lackland Air Force Base
7

 
953

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Navy Support
21

 
1,252

 
87.1
%
 
88.3
%
 
87.7
%
 
85.6
%
 
82.5
%
 
87.7
%
 
80.2
%
Redstone Arsenal
6

 
632

 
99.7
%
 
99.2
%
 
99.2
%
 
99.2
%
 
99.7
%
 
99.4
%
 
99.1
%
Data Center Shells
11

 
1,711

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Total Defense/IT Locations
138

 
14,068

 
92.1
%
 
91.7
%
 
91.6
%
 
92.6
%
 
91.9
%
 
91.8
%
 
93.8
%
Regional Office
7

 
2,007

 
88.3
%
 
87.3
%
 
87.3
%
 
90.0
%
 
92.5
%
 
87.7
%
 
92.9
%
Core Portfolio Same Properties
145

 
16,075

 
91.6
%
 
91.1
%
 
91.1
%
 
92.3
%
 
92.0
%
 
91.3
%
 
93.7
%
Other Same Properties
2

 
157

 
80.6
%
 
80.6
%
 
79.9
%
 
59.0
%
 
62.2
%
 
80.3
%
 
73.9
%
Total Same Properties
147

 
16,232

 
91.5
%
 
91.0
%
 
91.0
%
 
92.0
%
 
91.7
%
 
91.2
%
 
93.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Office Properties Trust
Same Properties (1) Period End Occupancy Rates by Segment 
(square feet in thousands)
 
Number of Buildings
 
Rentable Square Feet
 
Three Months Ended
 
 
 
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
 
 
 
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
81

 
7,760

 
92.9
%
 
91.7
%
 
91.3
%
 
93.6
%
 
93.4
%
 
 
 
 
NoVA Defense/IT
12

 
1,760

 
81.6
%
 
80.6
%
 
80.3
%
 
79.5
%
 
79.1
%
 
 
 
 
Lackland Air Force Base
7

 
953

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
Navy Support
21

 
1,252

 
88.0
%
 
88.3
%
 
88.0
%
 
87.7
%
 
82.5
%
 
 
 
 
Redstone Arsenal
6

 
632

 
100.0
%
 
99.2
%
 
99.2
%
 
99.2
%
 
99.2
%
 
 
 
 
Data Center Shells
11

 
1,711

 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
Total Defense/IT Locations
138

 
14,068

 
92.7
%
 
91.9
%
 
91.6
%
 
92.8
%
 
92.1
%
 
 
 
 
Regional Office
7

 
2,007

 
89.0
%
 
87.2
%
 
86.8
%
 
89.5
%
 
92.4
%
 
 
 
 
Core Portfolio Same Properties
145

 
16,075

 
92.2
%
 
91.3
%
 
91.0
%
 
92.4
%
 
92.1
%
 
 
 
 
Other Same Properties
2

 
157

 
77.2
%
 
82.2
%
 
80.1
%
 
62.3
%
 
53.3
%
 
 
 
 
Total Same Properties
147

 
16,232

 
92.1
%
 
91.2
%
 
90.9
%
 
92.1
%
 
91.8
%
 
 
 
 

(1)
Includes office and data center shell properties continually owned and 100% operational since at least 1/1/17.


15

Corporate Office Properties Trust
Same Properties Real Estate Revenues and NOI by Segment
(dollars 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
Same Properties real estate revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
59,623

 
$
59,940

 
$
60,542

 
$
60,135

 
$
59,010

 
$
180,105

 
$
177,650

NoVA Defense/IT
11,804

 
11,458

 
11,107

 
11,030

 
11,120

 
34,369

 
33,220

Lackland Air Force Base
11,254

 
12,382

 
11,443

 
11,523

 
11,024

 
35,079

 
35,687

Navy Support
7,899

 
8,127

 
7,870

 
7,586

 
7,494

 
23,896

 
21,953

Redstone Arsenal
3,339

 
3,281

 
3,328

 
3,390

 
3,247

 
9,948

 
9,735

Data Center Shells
2,818

 
3,186

 
3,217

 
3,021

 
3,007

 
9,221

 
9,052

Total Defense/IT Locations
96,737

 
98,374

 
97,507

 
96,685

 
94,902

 
292,618

 
287,297

Regional Office
15,271

 
15,294

 
15,168

 
15,871

 
16,201

 
45,733

 
48,541

Other Properties
1,003

 
528

 
783

 
658

 
924

 
2,314

 
3,273

Same Properties real estate revenues
$
113,011

 
$
114,196

 
$
113,458

 
$
113,214

 
$
112,027

 
$
340,665

 
$
339,111

Same Properties NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
40,307

 
$
40,246

 
$
39,653

 
$
40,448

 
$
40,014

 
$
120,206

 
$
119,453

NoVA Defense/IT
7,349

 
7,179

 
6,775

 
7,152

 
6,802

 
21,303

 
20,463

Lackland Air Force Base
4,822

 
4,888

 
4,845

 
4,835

 
4,831

 
14,555

 
14,562

Navy Support
4,691

 
4,696

 
4,566

 
4,360

 
4,337

 
13,953

 
12,562

Redstone Arsenal
2,340

 
2,296

 
2,398

 
2,394

 
2,295

 
7,034

 
6,964

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
2,717

 
2,717

 
2,665

 
2,623

 
2,622

 
8,099

 
7,880

COPT’s share of unconsolidated real estate JV (1)
1,206

 
1,202

 
1,199

 
1,203

 
1,202

 
3,607

 
3,602

Total Defense/IT Locations
63,432

 
63,224

 
62,101

 
63,015

 
62,103

 
188,757

 
185,486

Regional Office
7,846

 
8,125

 
7,313

 
8,909

 
8,898

 
23,284

 
27,612

Other Properties
341

 
588

 
426

 
322

 
639

 
1,355

 
2,340

Same Properties NOI
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
71,640

 
$
213,396

 
$
215,438


(1)     See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.

16



Corporate Office Properties Trust
Same Properties Cash NOI by Segment
(dollars 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
Same Properties cash NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
40,474

 
$
39,906

 
$
38,850

 
$
40,090

 
$
40,207

 
$
119,230

 
$
119,093

NoVA Defense/IT
7,801

 
7,770

 
7,212

 
7,433

 
7,204

 
22,783

 
21,005

Lackland Air Force Base
5,012

 
5,067

 
5,024

 
5,016

 
4,886

 
15,103

 
14,705

Navy Support
4,924

 
4,934

 
4,577

 
4,342

 
4,266

 
14,435

 
12,568

Redstone Arsenal
2,407

 
2,364

 
2,384

 
2,351

 
2,293

 
7,155

 
6,785

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
2,567

 
2,558

 
2,476

 
2,521

 
2,511

 
7,601

 
7,504

COPT’s share of unconsolidated real estate JV (1)
1,144

 
1,134

 
1,132

 
1,130

 
1,120

 
3,410

 
3,339

Total Defense/IT Locations
64,329

 
63,733

 
61,655

 
62,883

 
62,487

 
189,717

 
184,999

Regional Office
7,107

 
7,463

 
6,801

 
8,476

 
8,602

 
21,371

 
25,991

Other Properties
377

 
613

 
449

 
352

 
527

 
1,439

 
1,769

Same Properties cash NOI
71,813

 
71,809

 
68,905

 
71,711

 
71,616

 
212,527

 
212,759

Straight line rent adjustments and lease incentive amortization
(1,088
)
 
(1,005
)
 
(1,556
)
 
(1,050
)
 
(1,298
)
 
(3,649
)
 
(1,758
)
Amortization of acquired above- and below-market rents
(98
)
 
(176
)
 
(300
)
 
(287
)
 
(263
)
 
(574
)
 
(836
)
Amortization of below-market cost arrangements
(147
)
 
(148
)
 
(147
)
 
(147
)
 
(148
)
 
(442
)
 
(443
)
Lease termination fees, gross
759

 
558

 
1,008

 
828

 
860

 
2,325

 
2,083

Tenant funded landlord assets and lease incentives
318

 
831

 
1,863

 
1,118

 
791

 
3,012

 
3,370

Cash NOI adjustments in unconsolidated real estate JV
62

 
68

 
67

 
73

 
82

 
197

 
263

Same Properties NOI
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
71,640

 
$
213,396

 
$
215,438

Percentage change in total Same Properties cash NOI (2)
0.3
%
 
 
 
 
 
 
 
 
 
(0.1
)%
 
 
Percentage change in Defense/IT Locations Same Properties cash NOI (2)
2.9
%
 
 
 
 
 
 
 
 
 
2.6
 %
 
 

(1)
See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.
(2)
Represents the change between the current period and the same period in the prior year.

17

Corporate Office Properties Trust
Leasing - Office and Data Center Shell Portfolio (1)
Quarter Ended 9/30/18
(square feet in thousands)
 
Defense/IT Locations
 
 
 
 
 
 
 
Ft Meade/BW Corridor
 
NoVA Defense/IT
 
Navy Support
 
Redstone Arsenal
 
Data Center Shells
 
Total Defense/IT Locations
 
Regional Office
 
Other
 
Total
Renewed Space
 

 
 

 
 
 
 

 
 
 
 
 
 

 
 
 
 

Leased Square Feet
468

 
39

 
92

 
8

 
—

 
608

 
4

 
5

 
618

Expiring Square Feet
597

 
46

 
137

 
11

 
—

 
791

 
4

 
5

 
801

Vacating Square Feet
129

 
7

 
45

 
3

 
—

 
183

 
—

 
—

 
183

Retention Rate (% based upon square feet)
78.5
 %
 
85.3
 %
 
67.3
%
 
74.8
%
 
—
%
 
76.9
 %
 
100.0
 %
 
100.0
%
 
77.1
 %
Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
6.15

 
$
5.92

 
$
3.16

 
$
9.15

 
$
—

 
$
5.72

 
$
19.26

 
$
—

 
$
5.76

Weighted Average Lease Term in Years
4.3

 
3.3

 
1.7

 
2.8

 
—

 
3.8

 
2.6

 
1.0

 
3.8

Average Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Average Rent
$
35.37

 
$
31.46

 
$
20.51

 
$
26.26

 
$
—

 
$
32.73

 
$
34.13

 
$
29.28

 
$
32.71

Expiring Average Rent
$
32.97

 
$
29.59

 
$
19.71

 
$
23.01

 
$
—

 
$
30.60

 
$
32.43

 
$
29.28

 
$
30.60

Change in Average Rent
7.3
 %
 
6.3
 %
 
4.1
%
 
14.1
%
 
—
%
 
7.0
 %
 
5.3
 %
 
—
%
 
6.9
 %
Cash Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Cash Rent
$
34.00

 
$
33.00

 
$
20.77

 
$
25.24

 
$
—

 
$
31.81

 
$
33.95

 
$
29.28

 
$
31.80

Expiring Cash Rent
$
34.67

 
$
34.40

 
$
20.42

 
$
23.41

 
$
—

 
$
32.33

 
$
34.46

 
$
29.28

 
$
32.32

Change in Cash Rent
(1.9
)%
 
(4.1
)%
 
1.7
%
 
7.8
%
 
—
%
 
(1.6
)%
 
(1.5
)%
 
—
%
 
(1.6
)%
Average escalations per year
2.4
 %
 
2.5
 %
 
2.9
%
 
3.0
%
 
—
%
 
2.4
 %
 
4.4
 %
 
—
%
 
2.4
 %
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development and Redevelopment Space (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
1

 
—

 
—

 
18

 
—

 
19

 
—

 
—

 
19

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
254.65

 
$
—

 
$
—

 
$
84.50

 
$
—

 
$
96.92

 
$
—

 
$
—

 
$
96.92

Weighted Average Lease Term in Years
10.2

 
—

 
—

 
7.7

 
—

 
7.8

 
—

 
—

 
7.8

Average Rent Per Square Foot
$
16.15

 
$
—

 
$
—

 
$
19.55

 
$
—

 
$
19.30

 
$
—

 
$
—

 
$
19.30

Cash Rent Per Square Foot
$
15.00

 
$
—

 
$
—

 
$
20.04

 
$
—

 
$
19.67

 
$
—

 
$
—

 
$
19.67

Other New Leases (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
79

 
6

 
54

 
2

 
—

 
142

 
19

 
—

 
161

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
51.08

 
$
25.27

 
$
35.10

 
$
2.19

 
$
—

 
$
43.15

 
$
88.67

 
$
—

 
$
48.56

Weighted Average Lease Term in Years
7.7

 
5.4

 
5.1

 
3.8

 
—

 
6.5

 
8.2

 
—

 
6.7

Average Rent Per Square Foot
$
30.60

 
$
32.76

 
$
25.12

 
$
29.24

 
$
—

 
$
28.58

 
$
32.85

 
$
—

 
$
29.09

Cash Rent Per Square Foot
$
29.41

 
$
32.80

 
$
25.47

 
$
27.17

 
$
—

 
$
28.02

 
$
32.16

 
$
—

 
$
28.51

Total Square Feet Leased
549

 
46

 
147

 
28

 
—

 
769

 
23

 
5

 
798

Average escalations per year
2.4
 %
 
2.6
 %
 
2.6
%
 
2.4
%
 
—
%
 
2.4
 %
 
2.7
 %
 
—
%
 
2.4
 %
Average escalations excl. data center shells
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.4
 %
(1)
Activity is exclusive of owner occupied space and leases with less than a one-year term. Weighted average lease term is based on the non-cancelable term of tenant leases determined in accordance with GAAP. Committed costs for leasing are reported above in the period of lease execution. Actual capital expenditures for leasing are reported on page 9 in the period such costs are incurred.
(2)
Committed costs include tenant improvements and leasing commissions and exclude free rent concession.
(3)
Other New Leases includes acquired first generation space and vacated second generation space. Effective 7/1/18, Other New Leases also includes leases executed on developed and redeveloped space previously placed in service; leases of this type executed prior to 7/1/18 were included in Development and Redevelopment Space. 

18

Corporate Office Properties Trust
Leasing - Office and Data Center Shell Portfolio (1)
Nine Months Ended 9/30/18
(square feet in thousands)
 
Defense/IT Locations
 
 
 
 
 
 
 
Ft Meade/BW Corridor
 
NoVA Defense/IT
 
Navy Support
 
Redstone Arsenal
 
Data Center Shells
 
Total Defense/IT Locations
 
Regional Office
 
Other
 
Total
Renewed Space
 

 
 

 
 
 
 

 
 
 
 
 
 

 
 
 
 

Leased Square Feet
1,058

 
84

 
314

 
250

 
—

 
1,706

 
123

 
5

 
1,834

Expiring Square Feet
1,454

 
94

 
369

 
253

 
—

 
2,170

 
205

 
5

 
2,380

Vacating Square Feet
396

 
10

 
55

 
3

 
—

 
464

 
82

 
—

 
546

Retention Rate (% based upon square feet)
72.8
 %
 
89.3
 %
 
85.1
%
 
98.9
%
 
—
%
 
78.6
%
 
60.0
%
 
100.0
%
 
77.1
%
Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
7.94

 
$
14.37

 
$
1.49

 
$
0.71

 
$
—

 
$
6.01

 
$
19.51

 
$
—

 
$
6.89

Weighted Average Lease Term in Years
4.3

 
3.1

 
1.9

 
1.1

 
—

 
3.3

 
4.8

 
1.0

 
3.4

Average Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Average Rent
$
35.61

 
$
29.61

 
$
29.16

 
$
21.61

 
$
—

 
$
32.07

 
$
30.29

 
$
29.28

 
$
31.95

Expiring Average Rent
$
32.66

 
$
27.58

 
$
26.82

 
$
21.00

 
$
—

 
$
29.63

 
$
27.17

 
$
29.28

 
$
29.46

Change in Average Rent
9.0
 %
 
7.4
 %
 
8.7
%
 
2.9
%
 
—
%
 
8.3
%
 
11.5
%
 
—
%
 
8.4
%
Cash Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Cash Rent
$
34.46

 
$
29.83

 
$
28.93

 
$
21.58

 
$
—

 
$
31.33

 
$
28.96

 
$
29.28

 
$
31.16

Expiring Cash Rent
$
34.52

 
$
31.23

 
$
28.65

 
$
21.02

 
$
—

 
$
31.29

 
$
28.68

 
$
29.28

 
$
31.11

Change in Cash Rent
(0.2
)%
 
(4.5
)%
 
1.0
%
 
2.7
%
 
—
%
 
0.1
%
 
1.0
%
 
—
%
 
0.2
%
Average escalations per year
2.6
 %
 
2.6
 %
 
2.2
%
 
3.0
%
 
—
%
 
2.5
%
 
2.5
%
 
—
%
 
2.5
%
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development and Redevelopment Space (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
85

 
159

 
—

 
18

 
432

 
694

 
—

 
—

 
694

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
60.14

 
$
78.41

 
$
—

 
$
84.50

 
$
—

 
$
27.49

 
$
—

 
$
—

 
$
27.49

Weighted Average Lease Term in Years
9.2

 
10.0

 
—

 
7.7

 
12.0

 
11.1

 
—

 
—

 
11.1

Average Rent Per Square Foot
$
29.38

 
$
35.15

 
$
—

 
$
19.55

 
$
17.60

 
$
23.11

 
$
—

 
$
—

 
$
23.11

Cash Rent Per Square Foot
$
28.31

 
$
35.15

 
$
—

 
$
20.04

 
$
15.70

 
$
21.82

 
$
—

 
$
—

 
$
21.82

Other New Leases (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
180

 
28

 
96

 
7

 
—

 
311

 
32

 
5

 
348

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Committed Cost per Square Foot (2)
$
39.38

 
$
45.69

 
$
34.16

 
$
33.55

 
$
—

 
$
38.21

 
$
86.10

 
$
20.96

 
$
42.35

Weighted Average Lease Term in Years
7.6

 
5.2

 
5.4

 
5.6

 
—

 
6.7

 
7.5

 
2.5

 
6.7

Average Rent Per Square Foot
$
26.32

 
$
29.84

 
$
24.52

 
$
25.77

 
$
—

 
$
26.07

 
$
32.63

 
$
25.60

 
$
26.67

Cash Rent Per Square Foot
$
25.18

 
$
29.10

 
$
24.77

 
$
23.84

 
$
—

 
$
25.38

 
$
31.39

 
$
24.95

 
$
25.92

Total Square Feet Leased
1,323

 
271

 
410

 
275

 
432

 
2,711

 
155

 
10

 
2,876

Average escalations per year
2.6
 %
 
0.6
 %
 
2.4
%
 
2.4
%
 
2.5
%
 
2.3
%
 
2.5
%
 
3.5
%
 
2.3
%
Average escalations excl. data center shells
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.2
%
(1)
Activity is exclusive of owner occupied space and leases with less than a one-year term. Retention rate excludes the effect of 108,000 square feet vacated in a property in the Ft Meade/BW Corridor that was removed from service for redevelopment in June 2018; our retention rate would be 70.0% if the effect of this vacancy was included. Weighted average lease term is based on the non-cancelable term of tenant leases determined in accordance with GAAP. Committed costs for leasing are reported above in the period of lease execution. Actual capital expenditures for leasing are reported on page 9 in the period such costs are incurred.
(2)
Committed costs include tenant improvements and leasing commissions and exclude free rent concession.
(3)
Excludes a long-term contract executed in June 2018 to use an asset at a confidential Defense/IT Location, the economics of which are equivalent to that of a 115,000 square foot office property or 190,000 data center shell lease.
(4)
Other New Leases includes acquired first generation space and vacated second generation space. Effective 7/1/18, Other New Leases also includes leases executed on developed and redeveloped space previously placed in service; leases of this type executed prior to 7/1/18 are included in Development and Redevelopment Space. 

19

Corporate Office Properties Trust
Lease Expiration Analysis as of 9/30/18 (1)
(dollars and square feet in thousands, except per square foot amounts)

Office and Data Center Shells
Segment of Lease and Year of Expiration (2)
 
Square Footage of Leases Expiring
 
Annualized Rental
Revenue of Expiring Leases (3)
 
Percentage
of Core/Total
Annualized 
Rental
Revenue
Expiring (3)(4)
 
Annualized Rental
Revenue of
Expiring
Leases per
Occupied Sq. Foot
 
Core Portfolio
 
 
 
 
 
 
 
 
 
Ft Meade/BW Corridor
 
362

 
$
13,268

 
2.8
%
 
$
36.7

 
NoVA Defense/IT
 
17

 
188

 
—
%
 
11.05

 
Navy Support
 
101

 
1,994

 
0.4
%
 
19.71

 
Redstone Arsenal
 
4

 
235

 
—
%
 
52.68

 
Regional Office
 
10

 
306

 
0.1
%
 
29.42

 
2018
 
494

 
15,991

 
3.3
%
 
32.34

 
Ft Meade/BW Corridor
 
1,500

 
48,508

 
10.1
%
 
32.33

 
NoVA Defense/IT
 
314

 
11,920

 
2.5
%
 
37.96

 
Navy Support
 
165

 
3,877

 
0.8
%
 
23.54

 
Redstone Arsenal
 
43

 
992

 
0.2
%
 
23.16

 
Data Center Shells-Consolidated properties
 
155

 
2,675

 
0.6
%
 
17.26

 
Regional Office
 
125

 
3,888

 
0.8
%
 
31.14

 
2019
 
2,302

 
71,860

 
15.0
%
 
31.22

 
Ft Meade/BW Corridor
 
1,073

 
36,921

 
7.7
%
 
34.40

 
NoVA Defense/IT
 
175

 
5,165

 
1.1
%
 
29.50

 
Lackland Air Force Base
 
250

 
11,437

 
2.4
%
 
45.69

 
Navy Support
 
229

 
9,146

 
1.9
%
 
40.01

 
Redstone Arsenal
 
253

 
5,306

 
1.1
%
 
20.94

 
Regional Office
 
83

 
2,641

 
0.5
%
 
31.65

 
2020
 
2,063

 
70,616

 
14.7
%
 
34.21

 
Ft Meade/BW Corridor
 
878

 
30,120

 
6.3
%
 
34.30

 
NoVA Defense/IT
 
108

 
3,025

 
0.6
%
 
28.00

 
Navy Support
 
253

 
7,050

 
1.5
%
 
27.91

 
Redstone Arsenal
 
167

 
3,628

 
0.8
%
 
21.68

 
Regional Office
 
39

 
1,196

 
0.2
%
 
30.89

 
2021
 
1,445

 
45,019

 
9.4
%
 
31.16

 
Ft Meade/BW Corridor
 
593

 
17,088

 
3.6
%
 
28.80

 
NoVA Defense/IT
 
107

 
3,439

 
0.7
%
 
32.13

 
Navy Support
 
139

 
3,107

 
0.6
%
 
22.29

 
Redstone Arsenal
 
2

 
55

 
—
%
 
29.31

 
Regional Office
 
519

 
16,902

 
3.5
%
 
32.59

 
2022
 
1,360

 
40,591

 
8.4
%
 
29.84

 
Thereafter
 
 
 
 
 
 
 
 
 
Consolidated Properties
 
7,709

 
231,036

 
48.1
%
 
29.97

 
Unconsolidated JV Properties
 
962

 
5,515

 
1.1
%
 
11.47

 
Core Portfolio
 
16,335

 
$
480,628

 
100.0
%
 
$
29.76

 

20

Segment of Lease and Year of Expiration (2)
 
Square Footage of Leases Expiring
 
Annualized Rental
Revenue of Expiring Leases (3)
 
Percentage
of Core/Total
Annualized 
Rental
Revenue
Expiring (3)(4)
 
Annualized Rental
Revenue of
Expiring
Leases per
Occupied Sq. Foot
 
Core Portfolio
 
16,335

 
$
480,628

 
99.3
%
 
$
29.76

 
Other Properties
 
121

 
3,159

 
0.7
%
 
26.02

 
Total Portfolio
 
16,456

 
$
483,787

 
100.0
%
 
$
29.73

 
Consolidated Portfolio
 
15,494

 
$
478,272

 
 
 
 
 
Unconsolidated JV Properties
 
962

 
$
5,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Note: As of 9/30/18, the weighted average lease term is 4.7 years for the Core Portfolio, 4.7 years for the Total Portfolio and 4.6 years for the Consolidated Portfolio.

Wholesale Data Center
Year of Lease Expiration
 
Critical Load(MW)
 
Total
Annualized Rental
Revenue of
Expiring Leases (3)(000's)
2018
 
0.11

 
$
218

2019
 
2.00

 
4,114

2020
 
11.55

 
14,468

2021
 
0.05

 
113

2022
 
3.00

 
1,941

Thereafter
 
0.15

 
2,167

 
 
16.86

 
$
23,021


(1)
This expiration analysis reflects occupied space of our total portfolio (including consolidated and unconsolidated properties) and includes the effect of early renewals completed on existing leases but excludes the effect of new tenant leases on square feet yet to commence as of 9/30/18 of 317,000 for the Core Portfolio. With regard to properties owned through an unconsolidated real estate joint venture, the amounts reported above reflect 100% of the properties’ square footage but only reflect the portion of Annualized Rental Revenue that was allocable to COPT’s ownership interest.
(2)
A number of our leases are subject to certain early termination provisions.  The year of lease expiration is based on the non-cancelable term of tenant leases determined in accordance with GAAP.
(3)
Total Annualized Rental Revenue is the monthly contractual base rent as of 9/30/18 (ignoring free rent then in effect) multiplied by 12 plus the estimated annualized expense reimbursements under existing leases. The amounts reported above for Annualized Rental Revenue include the portion of properties owned through an unconsolidated real estate joint venture that was allocable to COPT’s ownership interest.
(4)
Amounts reported represent the percentage of our Core Portfolio for components of such portfolio while other amounts represent the percentage of our total portfolio.

21

Corporate Office Properties Trust
2019 Core Portfolio Quarterly Lease Expiration Analysis as of 9/30/18 (1)
(dollars and square feet in thousands, except per square foot amounts)
Segment of Lease and Quarter of Expiration (2)
 
Square Footage of Leases Expiring
 
Annualized Rental
Revenue of Expiring Leases (3)
 
Percentage
of Core Annualized 
Rental Revenue Expiring (3)(4)
 
Annualized Rental Revenue of Expiring Leases per Occupied Sq. Foot
Core Portfolio
 
 
 
 
 
 
 
 
Ft Meade/BW Corridor
 
270

 
$
8,114

 
1.7
%
 
$
30.02

NoVA Defense/IT
 
3

 
92

 
—
%
 
34.40

Navy Support
 
41

 
777

 
0.2
%
 
19.03

Regional Office
 
59

 
1,757

 
0.4
%
 
30.04

Q1 2019
 
373

 
10,740

 
2.3
%
 
28.85

Ft Meade/BW Corridor
 
223

 
6,273

 
1.3
%
 
28.13

NoVA Defense/IT
 
130

 
5,157

 
1.1
%
 
39.76

Navy Support
 
16

 
376

 
0.1
%
 
23.63

Data Center Shells-Consolidated Properties
 
155

 
2,675

 
0.6
%
 
17.26

Regional Office
 
33

 
1,067

 
0.2
%
 
32.60

Q2 2019
 
557

 
15,548

 
3.3
%
 
27.95

Ft Meade/BW Corridor
 
209

 
7,102

 
1.5
%
 
34.02

NoVA Defense/IT
 
72

 
1,921

 
0.4
%
 
26.73

Navy Support
 
62

 
1,085

 
0.2
%
 
17.43

Redstone Arsenal
 
14

 
280

 
0.1
%
 
20.49

Regional Office
 
2

 
75

 
—
%
 
48.43

Q3 2019
 
359

 
10,463

 
2.2
%
 
29.22

Ft Meade/BW Corridor
 
796

 
27,020

 
5.6
%
 
33.84
NoVA Defense/IT
 
110

 
4,750

 
1.0
%
 
43.26

Navy Support
 
46

 
1,639

 
0.3
%
 
35.86

Redstone Arsenal
 
29

 
711

 
0.1
%
 
24.41

Regional Office
 
32

 
989

 
0.2
%
 
30.82

Q4 2019
 
1,013

 
35,109

 
7.3
%
 
34.58

 
 
 
 
 
 
 
 
 
 
 
2,302

 
$
71,860

 
15.0
%
 
$
31.22

 
 
 
 
 
 
 
 
 

(1)
This expiration analysis reflects occupied space of our total portfolio (including consolidated and unconsolidated properties) and includes the effect of early renewals completed on existing leases but excludes the effect of new tenant leases on square feet yet to commence as of 9/30/18.
(2)
A number of our leases are subject to certain early termination provisions.  The period of lease expiration is based on the non-cancelable term of tenant leases determined in accordance with GAAP.
(3)
Total Annualized Rental Revenue is the monthly contractual base rent as of 9/30/18 (ignoring free rent then in effect) multiplied by 12 plus the estimated annualized expense reimbursements under existing leases.
(4)
Amounts reported represent the percentage of our Core Portfolio.

22

Corporate Office Properties Trust
Top 20 Tenants as of 9/30/18 (1)
(dollars and square feet in thousands)
Tenant
 
Total
Annualized
Rental Revenue (2)
 
Percentage
of Total
Annualized 
Rental Revenue (2)
 
Occupied Square Feet in Office and Data Center Shells (3)
 
Weighted
Average
Remaining Lease Term in Office and Data Center Shells (3)
United States Government
(4)
$
162,574

 
32.1
%
 
4,100

 
5.0

VADATA, Inc.
 
43,001

 
8.5
%
 
2,582

 
8.0

General Dynamics Corporation
 
29,169

 
5.8
%
 
764

 
3.0

The Boeing Company
 
19,793

 
3.9
%
 
688

 
2.4

Northrop Grumman Corporation
 
12,052

 
2.4
%
 
450

 
1.5

CareFirst, Inc.
 
11,460

 
2.3
%
 
342

 
4.3

Booz Allen Hamilton, Inc.
 
10,600

 
2.1
%
 
294

 
2.8

CACI International Inc
 
7,540

 
1.5
%
 
224

 
2.2

University of Maryland
 
7,290

 
1.4
%
 
242

 
5.2

Wells Fargo & Company
 
6,891

 
1.4
%
 
186

 
9.3

The Raytheon Company
 
5,525

 
1.1
%
 
147

 
2.6

Miles and Stockbridge, PC
 
5,504

 
1.1
%
 
160

 
9.0

KEYW Corporation
 
5,243

 
1.0
%
 
177

 
6.3

Kratos Defense and Security Solutions
 
5,063

 
1.0
%
 
131

 
1.6

Transamerica Life Insurance Company
 
4,712

 
0.9
%
 
141

 
3.3

Science Applications International Corp.
 
4,516

 
0.9
%
 
127

 
2.8

The MITRE Corporation
 
4,358

 
0.9
%
 
122

 
3.9

Accenture Federal Services, LLC
 
3,831

 
0.8
%
 
128

 
1.2

AT&T Corporation
 
3,822

 
0.8
%
 
153

 
1.7

International Business Machines Corp.
 
3,566

 
0.7
%
 
178

 
0.6

Subtotal Top 20 Tenants
 
356,510

 
70.3
%
 
11,336

 
5.0

All remaining tenants
 
150,298

 
29.7
%
 
5,120

 
4.1

Total/Weighted Average
 
$
506,808

 
100.0
%
 
16,456

 
4.7


(1)
Includes Annualized Rental Revenue (“ARR”) in our portfolio of operating office and data center shells and our wholesale data center. For six properties owned through an unconsolidated real estate joint venture, includes COPT’s share of those properties’ ARR of $5.5 million (see page 33 for additional information).
(2)
Total ARR is the monthly contractual base rent as of 9/30/18, multiplied by 12, plus the estimated annualized expense reimbursements under existing leases. With regard to properties owned through unconsolidated real estate joint ventures, the amounts reported above reflect 100% of the properties’ square footage but only reflect the portion of ARR that was allocable to COPT’s ownership interest.
(3)
Weighted average remaining lease term is based on the non-cancelable term of tenant leases determined in accordance with GAAP for our office and data center shell properties (i.e., excluding the effect of our wholesale data center leases). The weighting of the lease term was computed based on occupied square feet.
(4)
Substantially all of our government leases are subject to early termination provisions which are customary in government leases. As of 9/30/18, $2.0 million in ARR (or 1.0% of our ARR from the United States Government and 0.4% of our total ARR) was through the General Services Administration (GSA).


23


Corporate Office Properties Trust
Summary of Construction Projects as of 9/30/18 (1)
(dollars and square feet in thousands) 
 
 
Property Segment
 
Total Rentable Square Feet
Percentage Leased as of 10/24/18
as of 9/30/18 (2)
Actual or Anticipated Shell Completion Date
 Anticipated Operational Date (3)
 
Anticipated Total Cost
Cost to Date
Cost to Date Placed in Service
 
 
Property and Location
 
Under Construction
 
 
 
 
 
 
 
 
 
 
Project EX (4)
    Confidential
Defense/IT Locations
 
N/A

100%
$
26,337

$
11,287

$
—

4Q 18
4Q 18
 
MP 2
Northern Virginia
Data Center Shells
 
216

100%
36,159

27,369

—

4Q 18
4Q 18
 
DC 23
Northern Virginia
Data Center Shells
 
149

100%
21,347

3,338

—

1Q 19
1Q 19
 
IN 1
Northern Virginia
Data Center Shells
 
150

100%
18,745

2,534

—

1Q 19
1Q 19
 
MP 1
Northern Virginia
Data Center Shells
 
216

100%
36,080

15,629

—

2Q 19
2Q 19
 
IN 2
Northern Virginia
Data Center Shells
 
216

100%
29,600

3,576

—

2Q 19
2Q 19
 
5801 University Research Court (5)
College Park, Maryland
Ft Meade/BW Corridor
 
71

86%
18,844

15,938

13,505

3Q 18
3Q 19
 
4100 Market Street
Huntsville, Alabama
Redstone Arsenal
 
36

59%
7,459

4,639

—

4Q 18
4Q 19
 
4000 Market Street
Huntsville, Alabama
Redstone Arsenal
 
43

40%
9,099

5,980

—

4Q 18
4Q 19
 
2100 L Street Washington, DC
Regional Office
 
190

43%
174,000

78,546

—

1Q 20
1Q 21
 
Total Under Construction
 
 
1,287

89%
$
377,670

$
168,836

$
13,505

 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Includes properties under, or contractually committed for, construction as of 9/30/18. Also included are IN 1 and IN 2, which were leased subsequent to 9/30/18.
(2)
Cost includes land, construction, leasing costs and allocated portion of structured parking and other shared infrastructure, if applicable.
(3)
Anticipated operational date is the earlier of the estimated date when leases have commenced on 100% of a property’s space or one year from the cessation of major construction activities.
(4)
Represents land under a long-term contract.
(5)
Although classified as under construction, 60,000 square feet were operational as of 9/30/18.



24


Corporate Office Properties Trust
Summary of Redevelopment Projects as of 9/30/18
(dollars and square feet in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property Segment
Total Rentable Square Feet
Percentage Leased as of 9/30/18
as of 9/30/18 (1)
Actual or Anticipated Completion Date
 Anticipated Operational Date (2)
 
 
Historical Basis, Net
Incremental Redevelopment Cost
Anticipated Total Cost
 Cost to Date
Cost to Date Placed in Service
 
 
Property and Location
 
7142 Columbia Gateway (3)
Columbia, Maryland
 
Ft Meade/BW Corridor
22

100%
$
622

$
3,435

$
4,057

$
3,952

$
3,439

1Q 18
4Q 18
6950 Columbia Gateway
Columbia, Maryland
 
Ft Meade/BW Corridor
106

0%
11,019

14,962

25,981

11,571

11,019

1Q 19
1Q 20
Total Under Redevelopment
128

17%
$
11,641

$
18,397

$
30,038

$
15,523

$
14,458

 
 
 




(1)
Cost includes land, construction, leasing costs and allocated portion of shared infrastructure.
(2)
Anticipated operational date is the earlier of the estimated date when leases have commenced on 100% of a property’s space or one year from the cessation of major construction activities.
(3)
A portion of this property was redeveloped (22,000 of the 47,000 square feet). Of the square feet under redevelopment, 18,000 square feet were operational as of 9/30/18.


25

Corporate Office Properties Trust
Construction and Redevelopment Placed in Service as of 9/30/18
(square feet in thousands)
 
 
 
Total Property
 
Square Feet Placed in Service in 2018
 
Space Placed in Service % Leased as of 9/30/18
 
Property Segment
% Leased as of 9/30/18
 
 
 
Property and Location
Rentable Square Feet
Prior Year
1st Quarter
2nd Quarter
3rd Quarter
Total 2018
540 National Business Parkway
Annapolis Junction, Maryland
Ft Meade/BW Corridor
49%
145

71

74

—

—

74

49%
7142 Columbia Gateway
Columbia, Maryland
Ft Meade/BW Corridor
100%
22

—

11

2

5

18

100%
BLC 1
Northern Virginia
Data Center Shells
100%
149

—

—

149

—

149

100%
BLC 2
Northern Virginia
Data Center Shells
100%
149

—

—

—

149

149

100%
5801 University Research Court
College Park, Maryland
Ft Meade/BW Corridor
86%
71

—

—

—

60

60

100%
Total Construction/Redevelopment Placed in Service (1)
84%
536

71

85

151

214

450

86%

(1)
Excludes 310 Sentinel Way and NOVA Office B, two properties that were completed in 2016 but reported as construction projects through 12/31/17 since they were held for future lease to the United States Government.


26

Corporate Office Properties Trust
Summary of Land Owned/Controlled as of 9/30/18 (1)
Location
Acres
 
Estimated Developable Square Feet (in thousands)
 
Carrying Amount
Land Owned/Controlled for Future Development
 
 
 
 
 
Defense/IT Locations:
 

 
 

 
 
Fort Meade/BW Corridor:
 
 
 
 
 
National Business Park
196

 
2,106

 
 
Howard County
27

 
590

 
 
Other
131

 
1,440

 
 
Total Fort Meade/BW Corridor
354

 
4,136

 
 
NoVA Defense/IT
59

 
1,965

 
 
Lackland AFB
49

 
785

 
 
Navy Support
44

 
109

 
 
Redstone Arsenal (2)
422

 
4,005

 
 
Total Defense/IT Locations
928

 
11,000

 
 
Regional Office
10

 
900

 
 
Total land owned/controlled for future development
938

 
11,900

 
$
257,288

 
 
 
 
 
 
Other land owned/controlled
150

 
1,638

 
4,520

Land held, net
1,088

 
13,538

 
$
261,808


(1)
This land inventory schedule includes properties under ground lease to us and excludes all properties listed as construction or redevelopment as detailed on pages 24 and 25. The costs associated with the land included on this summary are reported on our consolidated balance sheet in the line entitled “land held.”
(2)
This land is controlled under a long-term master lease agreement to LW Redstone Company, LLC, a consolidated joint venture (see page 32). As this land is developed in the future, the joint venture will execute site-specific leases under the master lease agreement. Rental payments will commence under the site-specific leases as cash rents under tenant leases commence at the respective properties.


27

Corporate Office Properties Trust
Capitalization Overview
(dollars, shares and units in thousands)


 
 
Wtd. Avg.
 
 
 
Effective
 
Gross Debt
 
 
Maturity
 
Stated
 
Rate
 
Balance at
 
 
(Years)
 
Rate
 
(1)(2)
 
9/30/18
Debt
 
 
 
 
 
 
Secured debt
 
5.3

 
4.18
%
 
4.08
%
 
$
172,801

Unsecured debt
 
4.3

 
4.08
%
 
4.14
%
 
1,650,511

Total Consolidated Debt
4.4

 
4.09
%
 
4.14
%
 
$
1,823,312

 
 
 
 
 
 
 
 
 
Fixed rate debt (2)
 
4.9

 
4.30
%
 
4.18
%
 
$
1,713,006

Variable rate debt
 
2.8

 
3.49
%
 
3.48
%
 
110,306

Total Consolidated Debt
 
 
 
 
 
 
 
$
1,823,312

 
 
 
 
 
 
 
 
 
Preferred Equity
 
 
Redeemable
 
 
 
7.5% Series I Convertible Preferred Units (3)
 
Sep-19

 
 
 
$
8,800

 
 
 
 
 
 
 
 
 
Common Equity
 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 
 
108,848

Common Units
 
 
 
 
 
 
 
1,355

Total Common Shares and Units
 
 
 
 
 
110,203

 
 
 
 
 
 
 
 
 
Closing Common Share Price on 9/28/18
 
 
 
$
29.83

Common Equity Market Capitalization
 
 
 
$
3,287,355

 
 
 
 
 
Total Equity Market Capitalization
 
 
 
$
3,296,155

 
 
 
 
 
Total Market Capitalization
 
 
 
$
5,119,467

 
 
 
 
 
Forward Equity Sale Agreements Capacity (4)
 
 
 
$
86,505

(1) Excludes the effect of deferred financing cost amortization.
(2) Includes the effect of interest rate swaps with notional amounts of $362.9 million that hedge the risk of changes in interest rates on variable rate debt.
(3) 352,000 units outstanding with a liquidation preference of $25 per unit, and convertible into 176,000 common units.
(4) Based on settlement value on remaining capacity as of 9/30/18.

 
 
Investment Grade Ratings & Outlook:
Latest Affirmation
 
Fitch
 
BBB-
Positive
9/12/18
 
Moody’s
 
Baa3
Positive
8/27/18
 
Standard & Poor’s
BBB-
Stable
5/1/18
chart-fe7aeb2f31155195b9e.jpgchart-2793bdf243c55debaf1.jpg

28

Corporate Office Properties Trust
Summary of Outstanding Debt as of 9/30/18
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Balloon
 
 
 
 
 
 
 
 
 
 
 
 
 
Payment
 
 
 
Stated
 
Amount
Maturity
 
 
 
Stated
 
Amount
Due Upon
Maturity
 
Unsecured Debt
Rate
 
Outstanding
Date
 
 
Secured Debt
Rate
 
Outstanding
Maturity
Date
 
Revolving Credit Facility
L + 1.20%

 
$
99,000

May-19
(1)(2)
 
7015 Albert Einstein Drive
7.87
%
 
$
520

$
—

Nov-19
 
Senior Unsecured Notes
 
 
 
 
 
 
7200 & 7400 Redstone Gateway (3)
L + 1.85%

 
12,931

12,132

Oct-20
 
3.70% due 2021
3.70
%
 
$
300,000

Jun-21
 
 
7740 Milestone Parkway
3.96
%
 
17,892

15,902

Feb-23
 
3.60% due 2023
3.60
%
 
350,000

May-23
 
 
100 & 30 Light Street
4.32
%
 
52,800

47,676

Jun-23
 
5.25% due 2024
5.25
%
 
250,000

Feb-24
 
 
1000, 1200 and 1100 Redstone
 
 
 
 
 
 
5.00% due 2025
5.00
%
 
300,000

Jul-25
 
 
Gateway (3)
4.47
%
(4)
34,178

27,649

Jun-24
 
Subtotal - Senior Unsecured Notes
4.32
%
 
$
1,200,000

 
 
 
M Square (5825 & 5850
 
 
 
 
 
 
 
 
 
 
 
 
 
University Research Court) (3)
3.82
%
 
43,174

35,603

Jun-26
 
Unsecured Bank Term Loans
 
 
 
 
 
 
2100 L Street (2)(3)
L + 2.35%

 
11,306

11,306

Sep-22
(5)
2020 Maturity
L + 1.40%

 
$
100,000

May-20
(2)
 
Total Secured Debt
4.18
%
 
$
172,801

 
 
 
2022 Maturity
L + 1.35%

 
250,000

Dec-22
(2)
 
 
 
 
 
 
 
 
Subtotal - Term Loans
3.47
%
 
350,000

 
 
 
 
 
 
 
 
 
 
Other Unsecured Debt
—
%
 
1,511

May-26
 
 
 
 
 
 
 
 
 
Total Unsecured Debt
4.08
%
 
$
1,650,511

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Unsecured Debt
4.08
%
 
$
1,650,511

 
 
 
 
 
 
 
 
 
 
Total Secured Debt
4.18
%
 
172,801

 
 
 
 
 
 
 
 
 
 
Consolidated Debt
4.09
%
 
$
1,823,312

 
 
 
 
 
 
 
 
 
 
Net discounts and deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
financing costs
 
 
(15,282
)
 
 
 
 
 
 
 
 
 
 
Debt, per balance sheet
 
 
$
1,808,030

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Debt
 
 
$
1,823,312

 
 
 
 
 
 
 
 
 
 
COPT’s share of unconsolid. JV gross debt (6)
 
30,000

 
 
 
 
 
 
 
 
 
 
Gross debt
 
 
$
1,853,312

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
On 10/10/18, we entered into a new $800 million Revolving Credit Facility to replace our existing facility that was scheduled to mature in May 2019. The new facility matures in March 2023 and may be extended for two six-month periods, at our option. The initial spread over LIBOR for the new facility is LIBOR + 1.10%.
(2)
Pre-payable anytime without penalty.
(3)
These properties are owned through consolidated joint ventures.
(4)
Represents the weighted average rate of three loans on the properties.
(5)
The loan maturity may be extended by one year, provided certain conditions are met.
(6)
See page 33 for additional disclosure regarding an unconsolidated real estate joint venture.

29

Corporate Office Properties Trust
Summary of Outstanding Debt as of 9/30/18 (continued)

chart-6213efae47e6570d99b.jpg
chart-58d139c5dc765bb6824.jpgchart-aa6d6af948dd5902b51.jpg
(1) Revolving Credit Facility maturity of $99.0 million is included above in 2024 maturities based on the maturity date of our new facility and assuming our exercise of two six-month extension options.
(2) Includes the effect of interest rate swaps in effect that hedge the risk of changes in interest rates on variable rate debt.

30

Corporate Office Properties Trust
Debt Analysis
(dollars and square feet in thousands)
 
 
 
 
 
As of and for Three
 
 
 
 
 
As of and for Three
 
 
 
 
 
Months Ended
 
Line of Credit &
 
Months Ended
Senior Note Covenants (1)
 
Required
 
9/30/18
 
Term Loan Covenants (1)
Required
 
9/30/18
Total Debt / Total Assets
 
< 60%
 
39.2%
 
Total Debt / Total Assets
< 60%
 
35.4%
Secured Debt / Total Assets
 
< 40%
 
3.7%
 
Secured Debt / Total Assets
< 40%
 
3.5%
Debt Service Coverage
 
> 1.5x
 
3.9x
 
Adjusted EBITDA / Fixed Charges
> 1.5x
 
3.5x
Unencumbered Assets / Unsecured Debt
 
> 150%
 
253.3%
 
Unsecured Debt / Unencumbered Assets
< 60%
 
35.3%
 
 
 
 
 
 
 
Unencumbered Adjusted NOI / Unsecured Interest Expense
> 1.75x
 
4.1x
 
 
 
 
 
 
 
 
 
 
 
 
Debt Ratios
 
Source
 
 
 
Unencumbered Portfolio Analysis
 
 
 
Gross debt
 
 
p. 29
 
$
1,853,312

 
# of unencumbered properties
145

Adjusted book
 
p. 36
 
$
4,701,076

 
% of total portfolio
90
%
Net debt / adjusted book ratio
 
 
 
39.2
%

Unencumbered square feet in-service
 
15,404

Net debt plus pref. equity / adj. book ratio
 
 
 
39.4
%
 
% of total portfolio
 
86
%
Net debt
 
 
p. 36
 
$
1,843,376

 
NOI from unencumbered real estate operations
 
$
74,199

Net debt plus preferred equity
 
 
p. 36
 
$
1,852,176

 
% of total NOI from real estate operations
 
92
%
In-place adjusted EBITDA
 
p. 10
 
$
75,934

 
Adjusted EBITDA from unencumbered real estate operations
 
$
69,260

Net debt / in-place adjusted EBITDA ratio
6.1
x
 
% of total adjusted EBITDA from real estate operations
 
91
%
Net debt plus pref. equity / in-place adj. EBITDA ratio
6.1
x
 
Unencumbered adjusted book
 
$
4,209,044

Denominator for debt service coverage
 
p. 35
 
$
19,639

 
% of total adjusted book
 
90
%
Denominator for fixed charge coverage
 
p. 35
 
$
21,214

 
 
 


Adjusted EBITDA
 
p. 10
 
$
75,768

 
 
 
 
Adjusted EBITDA debt service coverage ratio
 
 
3.9
x
 
 
 
 
Adjusted EBITDA fixed charge coverage ratio
 
 
3.6
x
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The covenants are calculated as defined in the applicable agreements, and the calculations differ between those agreements.


31

Corporate Office Properties Trust
Consolidated Real Estate Joint Ventures as of 9/30/18
(dollars and square feet in thousands)
Operating Properties
Operational
Square Feet
Occupancy %
Leased %
NOI for the Three Months Ended 9/30/18 (1)
NOI for the Nine Months Ended 9/30/18 (1)
Total Assets (2)
Venture Level Debt
% COPT Owned
Suburban Maryland:
 

 
 
 
 
 

 

 
M Square Associates, LLC (3 properties)
302

100.0%
100.0%
$
1,697

$
4,434

$
64,867

$
43,174

50%
Huntsville, Alabama:
 
 
 
 
 
 
 
 
LW Redstone Company, LLC (6 properties)
514

98.7%
99.1%
1,833

5,559

81,590

47,109

85%
Total/Average
816

98.1%
99.4%
$
3,530

$
9,993

$
146,457

$
90,283

 
 
    
Non-operating Properties
Estimated Developable Square Feet
 
 
Total Assets (1)
Venture Level Debt
% COPT Owned
Suburban Maryland:
 

 
 
 

 

 
M Square Research Park
461

 
 
$
9,981

$
—

50%
Huntsville, Alabama:
 

 
 
 

 

 
Redstone Gateway (3)
4,084

 
 
84,162

—

85%
Washington, DC:
 
 
 
 
 
 
Stevens Place
190

 
 
79,093

11,306

95%
Total
4,735

 
 
$
173,236

$
11,306

 
 
(1)
Represents NOI of the joint venture operating properties before allocation to joint venture partners.
(2)  Total assets includes the assets of the consolidated joint venture plus any outside investment basis.
(3)
Total assets include $52.7 million due from the City of Huntsville (including accrued interest) in connection with infrastructure costs funded by the joint venture.

32

Corporate Office Properties Trust
Unconsolidated Real Estate Joint Venture as of 9/30/18
(dollars and square feet in thousands) 
 
 
 
 
 
 
 
Joint venture information
 
 
 
 
 
 
 
COPT ownership %
50
%
 
 
 
 
 
 
Investment in unconsolidated real estate joint venture
$
40,318

 
 
 
 
 
 
Number of properties
6

 
 
 
 
 
 
Square feet
962

 
 
 
 
 
 
Percentage occupied
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance sheet information
Venture
 
COPT’s Share (1)
 
 
 
 
Operating properties, net
$
124,219

 
$
62,110

 
 
 
 
Total Assets
$
140,841

 
$
70,420

 
 
 
 
Debt
$
59,635

 
$
29,818

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 9/30/18
 
Nine Months Ended 9/30/18
Operating information
Venture
 
COPT’s Share (1)
 
Venture
 
COPT’s Share (1)
Revenue
$
2,891

 
$
1,446

 
$
8,705

 
$
4,353

Operating expenses
(478
)
 
(240
)
 
(1,491
)
 
(746
)
NOI and EBITDA
2,413

 
1,206

 
7,214

 
3,607

Interest expense
(533
)
 
(266
)
 
(1,582
)
 
(791
)
Depreciation and amortization
(1,129
)
 
(564
)
 
(3,383
)
 
(1,691
)
Net income
$
751

 
$
376

 
$
2,249

 
$
1,125

 
 
 
 
 
 
 
 
NOI (per above)
$
2,413

 
$
1,206

 
$
7,214

 
$
3,607

Tenant funded landlord assets
—

 
—

 
(399
)
 
(199
)
Straight line rent adjustments
(124
)
 
(62
)
 
5

 
2

Cash NOI
$
2,289

 
$
1,144

 
$
6,820

 
$
3,410

 
 
 
 
 
 
 
 

(1) COPT’s share represents the portion allocable to our ownership interest.





33

Corporate Office Properties Trust
Supplementary Reconciliations of Non-GAAP Measures
(dollars 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on sales of real estate, net, per statements of operations
$
—

 
$
(23
)
 
$
(4
)
 
$
4,452

 
$
1,188

 
$
(27
)
 
$
5,438

Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
(1,180
)
 
—

 
(5,399
)
Gain on sales of previously depreciated operating properties
$
—

 
$
(23
)
 
$
(4
)
 
$
4,452

 
$
8

 
$
(27
)
 
$
39

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment losses (recoveries), per statements of operations
$
—

 
$
—

 
$
—

 
$
13,659

 
$
(161
)
 
$
—

 
$
1,464

Impairment (losses) recoveries on previously depreciated operating properties
—

 
—

 
—

 
(9,004
)
 
159

 
—

 
(1,451
)
Impairment losses (recoveries) on non-operating properties
$
—

 
$
—

 
$
—

 
$
4,655

 
$
(2
)
 
$
—

 
$
13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOI from real estate operations (1)
 

 
 

 
 

 
 

 
 

 
 
 
 
Real estate revenues
$
128,988

 
$
129,162

 
$
128,278

 
$
127,685

 
$
127,231

 
$
386,428

 
$
382,295

Real estate property operating expenses
(49,340
)
 
(49,446
)
 
(50,951
)
 
(47,449
)
 
(46,368
)
 
(149,737
)
 
(143,515
)
COPT’s share of NOI in unconsolidated real estate JV (2)
1,206

 
1,202

 
1,199

 
1,203

 
1,202

 
3,607

 
3,602

NOI from real estate operations
80,854

 
80,918

 
78,526

 
81,439

 
82,065

 
240,298

 
242,382

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
)
NOI from construction contracts and other service operations
365

 
640

 
982

 
853

 
998

 
1,987

 
2,369

Impairment (losses) recoveries on non-operating properties
—

 
—

 
—

 
(4,655
)
 
2

 
—

 
(13
)
Equity in loss of unconsolidated non-real estate entities
(2
)
 
(1
)
 
(2
)
 
(2
)
 
(1
)
 
(5
)
 
(3
)
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
)
Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
1,180

 
—

 
5,399

Interest expense
(19,181
)
 
(18,945
)
 
(18,784
)
 
(19,211
)
 
(19,615
)
 
(56,910
)
 
(57,772
)
COPT’s share of interest expense of unconsolidated real estate JV (2)
(266
)
 
(264
)
 
(261
)
 
(266
)
 
(267
)
 
(791
)
 
(792
)
Income tax benefit (expense)
291

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

 
(145
)
FFO - per NAREIT (1)
$
55,081

 
$
54,862

 
$
52,859

 
$
50,061

 
$
57,168

 
$
162,802

 
$
167,324

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Refer to the section entitled “Definitions” for a definition of this measure.
 
 
 
 
(2) See page 33 for a schedule of the related components.
 
 
 
 

34

Corporate Office Properties Trust
Supplementary Reconciliations of Non-GAAP Measures (continued)
(dollars 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
Total interest expense
$
19,181

 
$
18,945

 
$
18,784

 
$
19,211

 
$
19,615

 
$
56,910

 
$
57,772

Less: Amortization of deferred financing costs
(468
)
 
(468
)
 
(468
)
 
(443
)
 
(554
)
 
(1,404
)
 
(2,485
)
Less: Amortization of net debt discounts, net of amounts capitalized
(362
)
 
(358
)
 
(354
)
 
(350
)
 
(347
)
 
(1,074
)
 
(1,029
)
Less: Accum. other comprehensive loss on derivatives amortized to expense
(33
)
 
(34
)
 
(34
)
 
(54
)
 
(53
)
 
(101
)
 
(89
)
Gain on interest rate derivatives
—

 
—

 
—

 
191

 
34

 
—

 
43

COPT’s share of interest expense of unconsolidated real estate JV, excluding deferred financing costs
261

 
258

 
255

 
260

 
261

 
774

 
774

Denominator for interest coverage
18,579

 
18,343

 
18,183

 
18,815

 
18,956

 
55,105

 
54,986

Scheduled principal amortization
1,060

 
1,049

 
1,052

 
1,034

 
1,015

 
3,161

 
3,028

Denominator for debt service coverage
19,639

 
19,392

 
19,235

 
19,849

 
19,971

 
58,266

 
58,014

Capitalized interest
1,410

 
1,397

 
1,374

 
1,032

 
1,055

 
4,181

 
4,197

Preferred share dividends
—

 
—

 
—

 
—

 
—

 
—

 
6,219

Preferred unit distributions
165

 
165

 
165

 
165

 
165

 
495

 
495

Denominator for fixed charge coverage
$
21,214

 
$
20,954

 
$
20,774

 
$
21,046

 
$
21,191

 
$
62,942

 
$
68,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred share dividends
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
6,219

Preferred unit distributions
165

 
165

 
165

 
165

 
165

 
495

 
495

Common share dividends - unrestricted shares
29,821

 
28,284

 
27,974

 
27,747

 
27,282

 
86,079

 
81,742

Common share dividends - restricted shares
114

 
117

 
117

 
112

 
95

 
348

 
337

Common unit distributions
373

 
879

 
879

 
894

 
895

 
2,131

 
2,767

Total dividends/distributions
$
30,473

 
$
29,445

 
$
29,135

 
$
28,918

 
$
28,437

 
$
89,053

 
$
91,560

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common share dividends - unrestricted shares
$
29,821

 
$
28,284

 
$
27,974

 
$
27,747

 
$
27,282

 
$
86,079

 
$
81,742

Common unit distributions
373

 
879

 
879

 
894

 
895

 
2,131

 
2,767

Dividends and distributions for payout ratios
$
30,194

 
$
29,163

 
$
28,853

 
$
28,641

 
$
28,177

 
$
88,210

 
$
84,509

 
 
 
 
 
 
 
 
 
 
 
 
 
 

35

Corporate Office Properties Trust
Supplementary Reconciliations of Non-GAAP Measures (continued)
(dollars in thousands)
 
Three Months Ended
 
 
 
 
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
9/30/17
 
 
 
 
Total Assets
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

 
$
3,576,841

 
 
 
 
Accumulated depreciation
867,659

 
839,478

 
813,457

 
786,193

 
759,262

 
 
 
 
Accumulated depreciation included in assets held for sale
—

 
—

 
—

 
—

 
24,903

 
 
 
 
Accumulated amort. of real estate intangibles and deferred leasing costs
200,229

 
201,645

 
197,520

 
193,151

 
187,219

 
 
 
 
Accumulated amortization of real estate intangibles and deferred leasing costs included in assets held for sale
—

 
—

 
—

 
—

 
1,874

 
 
 
 
COPT’s share of liabilities of unconsolidated real estate JV
30,103

 
30,015

 
30,100

 
29,908

 
30,028

 
 
 
 
COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JV
4,881

 
4,317

 
3,752

 
3,189

 
2,627

 
 
 
 
Less: Disposed property included in assets held for sale (1)
(42,226
)
 
(42,226
)
 
(42,226
)
 
(42,226
)
 
—

 
 
 
 
Less: Cash and cash equivalents
(9,492
)
 
(8,472
)
 
(8,888
)
 
(12,261
)
 
(10,858
)
 
 
 
 
Less: COPT’s share of cash of unconsolidated real estate JV
(444
)
 
(410
)
 
(295
)
 
(371
)
 
(376
)
 
 
 
 
Adjusted book
$
4,701,076

 
$
4,636,709

 
$
4,589,658

 
$
4,552,788

 
$
4,571,520

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross debt (page 29)
$
1,853,312

 
$
1,914,066

 
$
1,898,115

 
$
1,872,167

 
$
1,917,201

 


 


Less: Cash and cash equivalents
(9,492
)
 
(8,472
)
 
(8,888
)
 
(12,261
)
 
(10,858
)
 


 


Less: COPT’s share of cash of unconsolidated real estate JV
(444
)
 
(410
)
 
(295
)
 
(371
)
 
(376
)
 
 
 
 
Net debt
$
1,843,376

 
$
1,905,184

 
$
1,888,932

 
$
1,859,535

 
$
1,905,967

 


 


Preferred equity
8,800

 
8,800

 
8,800

 
8,800

 
8,800

 
 
 
 
Net debt plus preferred equity
$
1,852,176

 
$
1,913,984

 
$
1,897,732

 
$
1,868,335

 
$
1,914,767

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
We provided a financial guaranty to the buyer of this property under which we provided a limited indemnification for losses it could incur related to a potential defined capital event occurring on the property. Accordingly, we did not recognize the sale of the property for accounting purposes until the expiration of the guaranty on 10/1/18, and we reported the sale price of the property, less sale costs, as a liability on our consolidated balance sheet as of 12/31/17 and each subsequent reporting date through 9/30/18. Our financial guaranty to the buyer expired on 10/1/18, resulting in no loss to us.


36


Corporate Office Properties Trust
Definitions

Non-GAAP Measures

We believe that the measures defined below that are not determined in accordance with generally accepted accounting principles (“GAAP”) are helpful to investors in measuring our performance and comparing it to that of other real estate investment trusts (“REITs”).  Since these measures exclude certain items includable in their respective most comparable GAAP measures, reliance on the measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are weighed in balance with other GAAP and non-GAAP measures.  These measures should not be used as an alternative to the respective most comparable GAAP measures when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.
 
Adjusted book
Defined as total assets presented on our consolidated balance sheet excluding the effect of cash and cash equivalents, accumulated depreciation on real estate properties, accumulated amortization of intangible assets on real estate acquisitions, accumulated amortization of deferred leasing costs, disposed properties included in assets held for sale, unconsolidated real estate joint venture (“JV”) cash and cash equivalents, liabilities and accumulated depreciation and amortization (of real estate intangibles and deferred leasing costs) allocable to our ownership interest in the JV and the effect of properties serving as collateral for debt in default that we extinguished (or intend to extinguish) via conveyance of such properties.

Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) 
Adjusted EBITDA is net income adjusted for the effects of interest expense, depreciation and amortization, impairment losses, gain on sales of properties, gain or loss on early extinguishment of debt, net gain on unconsolidated entities, operating property acquisition costs, income taxes, business development expenses, demolition costs on redevelopment and nonrecurring improvements and executive transition costs.  Adjusted EBITDA also includes adjustments to net income for the effects of the items noted above pertaining to an unconsolidated real estate JV that was allocable to our ownership interest in the JV. While EBITDA (earnings before interest, taxes, depreciation and amortization) is a universally-defined supplemental measure, Adjusted EBITDA incorporates additional adjustments for gains and losses from investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that adjusted EBITDA is a useful supplemental measure for assessing our un-levered performance.  We believe that net income is the most directly comparable GAAP measure to adjusted EBITDA.
 
Amortization of acquisition intangibles included in NOI 
Represents the amortization of intangible asset and liability categories that is included in net operating income, including amortization of above- or below-market leases and above- or below-market cost arrangements.

Basic FFO available to common share and common unit holders (“Basic FFO”) 
This measure is FFO adjusted to subtract (1) preferred share dividends, (2) income attributable to noncontrolling interests through ownership of preferred units in Corporate Office Properties, L.P. (the “Operating Partnership”) or interests in other consolidated entities not owned by us, (3) depreciation and amortization allocable to noncontrolling interests in other consolidated entities, (4) Basic FFO allocable to restricted shares and (5) issuance costs associated with redeemed preferred shares.  With these adjustments, Basic FFO represents FFO available to common shareholders and holders of common units in the Operating Partnership (“common units”).  Common units are substantially similar to our common shares of beneficial interest (“common shares”) and are exchangeable into common shares, subject to certain conditions.  We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares.  We believe that net income is the most directly comparable GAAP measure to Basic FFO.


37


Corporate Office Properties Trust
Definitions

Cash net operating income (“Cash NOI”) 
Defined as NOI from real estate operations adjusted to eliminate the effects of: straight-line rental adjustments, amortization of tenant incentives, amortization of acquisition intangibles included in FFO and NOI (including above- and below-market leases and above- or below-market cost arrangements), lease termination fees from tenants to terminate their lease obligations prior to the end of the agreed upon lease terms and rental revenue recognized under GAAP resulting from landlord assets and lease incentives funded by tenants.  Cash NOI also includes adjustments to NOI from real estate operations for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV. Under GAAP, rental revenue is recognized evenly over the term of tenant leases (through straight-line rental adjustments and amortization of tenant incentives), which, given the long term nature of our leases, does not align with the economics of when tenant payments are due to us under the arrangements.  Also under GAAP, when a property is acquired, we allocate the acquisition to certain intangible components, which are then amortized into NOI over their estimated lives, even though the resulting revenue adjustments are not reflective of our lease economics.  In addition, revenue from lease termination fees and tenant-funded landlord improvements, absent an adjustment from us, would result in large one-time lump sum amounts in Cash NOI that we do not believe are reflective of a property’s long-term value.  We believe that Cash NOI is a useful supplemental measure of operating performance for a REIT’s operating real estate because it makes adjustments to NOI for the above stated items to be more reflective of the economics of when tenant payments are due to us under our leases and the value of our properties.  As is the case with NOI, the measure is useful in our opinion in evaluating and comparing the performance of geographic segments, Same Properties groupings and individual properties.  We believe that operating income, as reported on our consolidated statements of operations, is the most directly comparable GAAP measure to Cash NOI.

COPT’s share of NOI from unconsolidated real estate JV
Represents the net of revenues and property operating expenses of real estate operations owned through an unconsolidated JV that is allocable to COPT’s ownership interest. This measure is included in the computation of NOI, our segment performance measure, as discussed below.

Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) 
Defined as Diluted FFO, as adjusted for comparability, adjusted for the following: (1) the elimination of the effect of (a) noncash rental revenues and property operating expenses (comprised of straight-line rental adjustments, which includes the amortization of recurring tenant incentives, and amortization of acquisition intangibles included in FFO and NOI, both of which are described under “Cash NOI” above), (b) share-based compensation, net of amounts capitalized, (c) amortization of deferred financing costs, (d) amortization of debt discounts and premiums and (e) amortization of settlements of debt hedges; and (2) replacement capital expenditures (defined below).  Diluted AFFO also includes adjustments to Diluted FFO, as adjusted for comparability for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV. We believe that Diluted AFFO is a useful supplemental measure of operating performance for a REIT because it incorporates adjustments for: certain revenue and expenses that are not associated with cash to or from us during the period; and certain capital expenditures for operating properties incurred during the period that do require cash outlays.  We believe that net income is the most directly comparable GAAP measure to Diluted AFFO.

Diluted FFO available to common share and common unit holders (“Diluted FFO”) 
Diluted FFO is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares.  The computation of Diluted FFO assumes the conversion of common units in the Operating Partnership but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase Diluted FFO per share in a given period.  We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below.  We believe that net income is the most directly comparable GAAP measure to Diluted FFO.

38


Corporate Office Properties Trust
Definitions

 
Diluted FFO available to common share and common unit holders, as adjusted for comparability (“Diluted FFO, as adjusted for comparability”)
Defined as Diluted FFO or FFO adjusted to exclude: operating property acquisition costs; gains on sales of, and impairment losses on, properties other than previously depreciated operating properties; gain or loss on early extinguishment of debt; FFO associated with properties that secured non-recourse debt on which we defaulted and, subsequently, extinguished via conveyance of such properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; demolition costs on redevelopment and nonrecurring improvements; executive transition costs; and accounting charges for original issuance costs associated with redeemed preferred shares.  Diluted FFO, as adjusted for comparability also includes adjustments to Diluted FFO for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. The adjustment for FFO associated with properties securing non-recourse debt on which we defaulted pertains to the periods subsequent to our default on the loan’s payment terms, which was the result of our decision to not support payments on the loan since the estimated fair value of the properties was less than the loan balance. While we continued as the legal owner of the properties during this period, all cash flows produced by them went directly to the lender and we did not fund any debt service shortfalls, which included incremental additional interest under the default rate. We believe that net income is the most directly comparable GAAP measure to this non-GAAP measure.
 
Diluted FFO per share 
Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  The computation of Diluted FFO per share assumes the conversion of common units in the Operating Partnership but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase Diluted FFO per share in a given period.  We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share (“EPS”) in evaluating net income available to common shareholders.  We believe that diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share.
 
Diluted FFO per share, as adjusted for comparability 
Defined as (1) Diluted FFO available to common share and common unit holders, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  The computation of this measure assumes the conversion of common units in the Operating Partnership but does not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase the per share measure in a given period.  We believe this to be a useful supplemental measure alongside Diluted FFO per share as it excludes gains and losses from investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that diluted EPS is the most directly comparable GAAP measure.
 
Dividend coverage-Diluted FFO, Diluted FFO, as adjusted for comparability, and Dividend coverage-Diluted AFFO 
These measures divide either Diluted FFO, Diluted FFO, as adjusted for comparability, or Diluted AFFO by the sum of (1) dividends on unrestricted common shares and (2) distributions to holders of interests in the Operating Partnership and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO.

Earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”) 
Defined as net income adjusted for the effects of interest expense, depreciation and amortization, impairment losses on operating properties, gain on sales of operating properties and income taxes. EBITDAre also includes adjustments to net income for the effects of the items noted above pertaining to an unconsolidated real estate JV that was allocable to our ownership interest in the JV. While EBITDA (earnings before interest, taxes, depreciation and amortization) is a universally-defined supplemental

39


Corporate Office Properties Trust
Definitions

measure, EBITDAre incorporates additional adjustments for gains and losses from investing activities related to our investments in operating properties. We believe that EBITDAre is a useful supplemental measure for assessing our un-levered performance. We believe that net income is the most directly comparable GAAP measure to EBITDAre.

Funds from operations (“FFO” or “FFO per NAREIT”) 
Defined as net income computed using GAAP, excluding gains on sales of, and impairment losses on, previously depreciated operating properties and real estate-related depreciation and amortization.  When multiple properties consisting of both operating and non-operating properties exist on a single tax parcel, we classify all of the gains on sales of, and impairment losses on, the tax parcel as all being for previously depreciated operating properties when most of the value of the parcel is associated with operating properties on the parcel. FFO also includes adjustments to net income for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV. We believe that we use the National Association of Real Estate Investment Trust’s (“NAREIT”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs.  We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related to sales of, and impairment losses on, previously depreciated operating properties and excluding real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods.  We believe that net income is the most directly comparable GAAP measure to FFO.

Gross debt
Defined as total consolidated outstanding debt, which is debt reported per our balance sheet adjusted to exclude net discounts and premiums and deferred financing costs, as further adjusted to include outstanding debt of an unconsolidated real estate JV that were allocable to our ownership interest in the JV.

In-place adjusted EBITDA
Defined as Adjusted EBITDA, as further adjusted for: (1) the removal of NOI pertaining to properties in the quarterly periods in which such properties were sold; and (2) the addition of pro forma adjustments to NOI for properties acquired or placed in service subsequent to the commencement of a quarter made in order to reflect a full quarter of ownership/operations. The measure also includes adjustments to Adjusted EBITDA for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV. We believe that in-place adjusted EBITDA is a useful supplemental measure of performance for assessing our un-levered performance, as further adjusted for changes in operating properties subsequent to the commencement of a quarter.  We believe that net income is the most directly comparable GAAP measure to in-place adjusted EBITDA.

Net debt
Defined as Gross debt (total outstanding debt reported per our balance sheet as adjusted to exclude net discounts and premiums and deferred financing costs), as adjusted to subtract cash and cash equivalents as of the end of the period and debt in default that was extinguished via conveyance of properties. The measure also includes adjustments to Gross debt for the effects of the items noted above pertaining to an unconsolidated real estate JV that were allocable to our ownership interest in the JV.

Net debt plus preferred equity
Defined as Net debt plus the total liquidation preference of our outstanding preferred equity.

Net debt to Adjusted book and Net debt plus preferred equity to Adjusted book
These measures divide either Net debt or Net debt plus preferred equity (defined above) by Adjusted book (defined above).

Net debt to in-place adjusted EBITDA ratio and Net debt plus preferred equity to in-place adjusted EBITDA ratio
Defined as Net debt or Net debt plus preferred equity (as defined above) divided by in-place adjusted EBITDA (defined above) for the three month period that is annualized by multiplying by four.


40


Corporate Office Properties Trust
Definitions

Net operating income from real estate operations (“NOI”)
NOI, which is our segment performance measure, includes: consolidated real estate revenues; consolidated property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through an unconsolidated real estate JV that is allocable to COPT’s ownership interest in the JV. We believe that NOI is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of the core real estate operations that is unaffected by depreciation, amortization, financing and general, administrative and leasing expenses; we believe this measure is particularly useful in evaluating the performance of geographic segments, Same Properties groupings and individual properties.  We believe that operating income, as reported on our consolidated statements of operations, is the most directly comparable GAAP measure to NOI.

NOI debt service coverage ratio and Adjusted EBITDA debt service coverage ratio 
These measures divide either NOI from real estate operations or Adjusted EBITDA by the sum of interest expense (excluding amortization of deferred financing costs and amortization of debt discounts and premiums, net of amounts capitalized, gains or losses on interest rate derivatives and interest expense on debt in default to be extinguished via conveyance of properties) and scheduled principal amortization on mortgage loans.
 
NOI fixed charge coverage ratio and Adjusted EBITDA fixed charge coverage ratio 
These measures divide either NOI from real estate operations or Adjusted EBITDA by the sum of (1) interest expense (excluding amortization of deferred financing costs and amortization of debt discounts and premiums, net of amounts capitalized, gains or losses on interest rate derivatives and interest expense on debt in default to be extinguished via conveyance of properties), (2) scheduled principal amortization on mortgage loans, (3) capitalized interest, (4) dividends on preferred shares and (5) distributions on preferred units in the Operating Partnership not owned by us.
 
NOI interest coverage ratio and Adjusted EBITDA interest coverage ratio 
These measures divide either NOI from real estate operations or Adjusted EBITDA by interest expense (excluding amortization of deferred financing costs and amortization of debt discounts and premiums, net of amounts capitalized, gains on losses on interest rate derivatives and interest expense on debt in default to be extinguished via conveyance of properties).

Payout ratios based on: Diluted FFO; Diluted FFO, as adjusted for comparability; and Diluted AFFO 
These payout ratios are defined as (1) the sum of (a) dividends on unrestricted common shares and (b) distributions to holders of interests in the Operating Partnership and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by (2) the respective non-GAAP measures on which the payout ratios are based.

Replacement capital expenditures 
Replacement capital expenditures are defined as tenant improvements and incentives, building improvements and leasing costs incurred during the period for operating properties that are not (1) items contemplated prior to the acquisition of a property, (2) improvements associated with the expansion of a building or its improvements, (3) renovations to a building which change the underlying classification of the building (for example, from industrial to office or Class C office to Class B office) or (4) capital improvements that represent the addition of something new to the property rather than the replacement of something (for example, the addition of a new heating and air conditioning unit that is not replacing one that was previously there). Replacement capital expenditures excludes expenditures of operating properties included in disposition plans during the period that were already sold or are held for future disposition. The measure also includes replacement capital expenditures of an unconsolidated real estate JV that were allocable to our ownership interest in the JV. For cash tenant incentives not due to the tenant for a period exceeding three months past the date on which such incentives were incurred, we recognize such incentives as replacement capital expenditures in the periods such incentives are due to the tenant. Replacement capital expenditures, which is included in the computation of Diluted AFFO, is intended to represent non-transformative capital expenditures of existing properties held for long-term investment. We believe that the excluded expenditures are more closely associated with our investing activities than the performance of our operating portfolio.


41


Corporate Office Properties Trust
Definitions

Same Properties NOI and Same Properties Cash NOI
Defined as NOI, or Cash NOI, from real estate operations of Same Properties.  We believe that these are important supplemental measures of operating performance of Same Properties for the same reasons discussed above for NOI from real estate operations and Cash NOI.

Other Definitions
 
Acquisition Costs — Transaction costs expensed in connection with executed or anticipated acquisitions of operating properties.
 
Annualized Rental Revenue — The monthly contractual base rent as of the reporting date multiplied by 12, plus the estimated annualized expense reimbursements under existing leases for occupied space. With regard to properties owned through an unconsolidated real estate JV, we include the portion of Annualized Rental Revenue allocable to COPT’s ownership interest.

Average escalations — Leasing statistic used to report average increase in rental rates over lease terms for leases with a term of greater than one-year.
 
Construction Properties — Properties under, or contractually committed for, construction.

Core Portfolio — Represents Defense/IT Locations and Regional Office properties.

Defense/IT Locations — Represents properties in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and IT related activities servicing what we believe are growing, durable priority missions.

First Generation Space — Newly constructed or redeveloped space that has never been occupied.
 
Operational Space — The portion of a property in operations (excludes portion under construction or redevelopment).

Redevelopment Properties — Properties previously in operations on which activities to substantially renovate such properties were underway or approved.

Regional Office Properties — Includes office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics. In prior years, this segment also included suburban properties that did not meet these characteristics (that were since disposed).

Same Properties — Operating office and data center shell properties continually owned and 100% operational since at least 1/1/17, excluding properties held for sale.
 
Second Generation Space — Space leased that has been previously occupied.
 
Total Portfolio — Operating properties, including ones owned through an unconsolidated real estate JV.

42

logo2dtd021015a01a09.jpg
6711 Columbia Gateway Drive, Suite 300
Columbia, Maryland 21046
Telephone 443-285-5400
Facsimile 443-285-7650
www.copt.com
NYSE: OFC
 
 
 
NEWS RELEASE
 
 
 
FOR IMMEDIATE RELEASE
IR Contacts:
 
 
Stephanie Krewson-Kelly
Michelle Layne
 
443-285-5453
443-285-5452
 
stephanie.kelly@copt.com
michelle.layne@copt.com


COPT Reports Third Quarter 2018 Results

COLUMBIA, MD October 25, 2018 - Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the third quarter and nine months ended September 30, 2018.

Management Comments

“We had a solid third quarter during which results met or modestly exceeded our quarterly guidance,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer. “Momentum from the fiscal year 2017 Defense budget continues to drive leasing, as defense contractors and U.S. Government agencies advance plans for new, strategically located facilities to accommodate mission growth and to comply with security mandates. We completed 2.9 million square feet of leasing in the first nine months of the year, including 694,000 square feet of development leasing. With the two build to suit projects announced earlier today, we have completed over one million square feet of development leasing to-date. We also completed 348,000 square feet of new leasing in the first nine months, which is 50% more volume than leasing achieved in the prior year period.” He continued, “We expect to see new demand related to the 2018 budget emerge and to broaden the scope of leasing opportunities next year.”

Financial Highlights

3rd Quarter Financial Results:
•
Diluted earnings per share (“EPS”) was $0.18 for the quarter ended September 30, 2018 as compared to $0.21 for the third quarter of 2017.

•
Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.50 for the third quarter of 2018 as compared to $0.54 for the third quarter of 2017.

•
FFOPS, as adjusted for comparability, was $0.50 for the quarter ended September 30, 2018 as compared to $0.53 for the third quarter of 2017.

Adjustments for comparability encompass items such as gains and impairment losses on non-operating properties, derivative gains (losses), demolition costs of redevelopment and nonrecurring improvements, and executive transition costs.

Operating Performance Highlights

Operating Portfolio Summary:
•
At September 30, 2018, the Company’s core portfolio of 159 operating office properties was 92.2% occupied and 94.0% leased.


i

•
During the quarter, the Company placed 214,000 square feet of development into service that were 100% leased. During the nine months ended September 30, 2018, the Company placed 450,000 square feet into service in properties that were 86% leased.

Same-Property Performance:
•
At September 30, 2018, COPT’s same-property portfolio of 147 buildings was 92.1% occupied and 93.8% leased.

•
For the quarter and nine months ended September 30, 2018, the Company’s same-property cash NOI from Defense/IT locations increased 2.9% and 2.6%, respectively, over the prior year’s comparable periods. For the same time periods, the Company’s total same-property cash NOI increased 0.3% and decreased 0.1%, respectively, over the prior year’s comparable periods.

Leasing:
•
Square Feet Leased - For the quarter ended September 30, 2018, the Company leased 798,000 total square feet, including 618,000 square feet of renewing leases, 161,000 square feet of new leases on vacant space, and 19,000 square feet in development projects.

For the nine months ended September 30, 2018, the Company leased 2.9 million total square feet, including 1.8 million square feet of renewing leases, 348,000 square feet of new leases on vacant space, and 694,000 square feet in development projects.

•
Renewal Rates - During the third quarter and for the nine months ended September 30, 2018, the Company renewed 77% of total expiring leases.

•
Rent Spreads & Average Escalations on Renewing Leases - For the quarter ended September 30, 2018, rents on renewed space increased 6.9% on a GAAP basis and decreased 1.6% on a cash basis; average annual escalations on renewing leases in the third quarter were 2.4%. For the nine months ended September 30, 2018, rents on renewed space increased 8.4% on a GAAP basis and 0.2% on a cash basis; average annual escalations on renewing leases for the nine months were 2.5%.

•
Lease Terms - In the third quarter, lease terms averaged 3.8 years on renewing leases, 6.7 years on new leasing of vacant space, and 7.8 years on development leasing. For the nine months, lease terms averaged 3.4 years on renewing leases, 6.7 years on new leasing of vacant space, and 11.1 years on development leasing.

Investment Activity Highlights

Development & Redevelopment Projects:
•
Construction Pipeline. At October 24, 2018, the Company’s construction pipeline consisted of ten properties totaling 1.3 million square feet that were 89% leased. These projects have a total estimated cost of $377.7 million, of which $168.8 million has been incurred.

•
Redevelopment. At the end of the quarter, two projects were under redevelopment totaling 128,000 square feet that were 17% leased. The Company has invested $15.5 million of the $30.0 million anticipated total cost.

Balance Sheet and Capital Transaction Highlights

•
As of September 30, 2018, the Company’s net debt plus preferred equity to adjusted book ratio was 39.4% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.1x. For the same period, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.6x.

•
As of September 30, 2018 and including the effect of interest rate swaps, the Company’s weighted average effective interest rate was 4.14%; additionally, 94% of the Company’s debt was subject to fixed interest rates and the consolidated debt portfolio had a weighted average maturity of 4.4 years.

ii


•
During the third quarter, the Company issued 2.75 million common shares under its forward equity sale agreement for net proceeds of $80.2 million. Also during the quarter, the Company issued 992,000 common shares through its At-the-Market (“ATM”) program at an average gross price of $30.46 per share for net proceeds of $29.8 million.

•
After the quarter, the Company entered into a new $800 million credit agreement to replace its existing $800 million revolving credit facility that was scheduled to mature in May 2019. The new credit facility has a maturity date of March 2023, plus two six-month extension options. The new facility’s interest rate is calculated as LIBOR plus 77.5-145 basis points; based on the Company’s current credit ratings, the initial spread over LIBOR is 110 basis points.

2018 Guidance
Management is tightening its previously issued guidance range for full year EPS and FFOPS, as adjusted for comparability, to revised ranges of $0.65-$0.67 and $2.00-$2.02, respectively. Management is also tightening its previously issued EPS and FFOPS, as adjusted for comparability, guidance for the fourth quarter ending December 31, 2018, to ranges of $0.15-$0.17 and $0.49-$0.51, respectively. Reconciliations of projected diluted EPS to projected FFOPS are as follows:
 
 
Quarter Ending
 
Year Ending
 
 
December 31, 2018
 
December 31, 2018
 
 
Low
 
High
 
Low
 
High
EPS
 
$
0.15

 
$
0.17

 
$
0.65

 
$
0.67

Real estate depreciation and amortization
 
0.35

 
0.35

 
1.35

 
1.35

Gain on sales of depreciable real estate
 
(0.01
)
 
(0.01
)
 
(0.01
)
 
(0.01
)
FFOPS, NAREIT definition
 
0.49

 
0.51

 
1.99

 
2.01

Other
 
—

 
—

 
0.01

 
0.01

FFOPS, as adjusted for comparability
 
$
0.49

 
$
0.51

 
$
2.00

 
$
2.02

 
 
 
 
 
 
 
 
 

Associated Supplemental Presentation
Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its third quarter 2018 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/

Conference Call Information
Management will discuss third quarter 2018 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:            Friday, October 26, 2018
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:                  7587659

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 COPT’s Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, October 26, through 2:00 p.m. Eastern Time on Friday, November 9. 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 7587659.


iii

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.

Company Information
COPT is a REIT that owns, manages, leases, develops and selectively acquires office and data center properties 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 September 30, 2018, the Company derived 88% of its core portfolio annualized revenue from Defense/IT Locations and 12% from its Regional Office Properties. As of the same date and including six buildings owned through an unconsolidated joint venture, COPT’s core portfolio of 159 office and data center shell properties encompassed 17.7 million square feet and was 94.0% leased; the Company also owned one wholesale data center with a critical load of 19.25 megawatts.

iv


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.

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 the Company's strategic customers;
*
the Company’s 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 the Company’s joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with the Company’s objectives;
*
changes in the Company’s plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
*
the Company’s ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
*
possible adverse changes in tax laws;
*
the Company's ability to achieve projected results;
*
the dilutive effects of issuing additional common shares; and
*
environmental requirements.

The Company undertakes no obligation to update or supplement any forward-looking statements. For further information, please refer to the Company’s filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.




v


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


 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 

 
 

 
 
 
 
Real estate revenues
$
128,988

 
$
127,231

 
$
386,428

 
$
382,295

Construction contract and other service revenues
8,423

 
29,786

 
53,202

 
65,958

Total revenues
137,411

 
157,017

 
439,630

 
448,253

Expenses
 

 
 

 
 
 
 
Property operating expenses
49,340

 
46,368

 
149,737

 
143,515

Depreciation and amortization associated with real estate operations
34,195

 
34,438

 
100,897

 
100,290

Construction contract and other service expenses
8,058

 
28,788

 
51,215

 
63,589

Impairment (recoveries) losses
—

 
(161
)
 
—

 
1,464

General and administrative expenses
5,796

 
5,692

 
17,724

 
18,456

Leasing expenses
1,103

 
1,676

 
4,095

 
5,382

Business development expenses and land carry costs
1,567

 
1,277

 
4,415

 
4,567

Total operating expenses
100,059

 
118,078

 
328,083

 
337,263

Operating income
37,352

 
38,939


111,547


110,990

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

 
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

 
20,832

 
58,921

 
57,522

Equity in income of unconsolidated entities
374

 
371

 
1,120

 
1,118

Income tax benefit (expense)
291

 
(57
)
 
173

 
(145
)
Gain on sales of real estate
—

 
1,188

 
(27
)
 
5,438

Net income
20,322

 
22,334

 
60,187

 
63,933

Net income attributable to noncontrolling interests:
 

 
 

 
 
 
 
Common units in the Operating Partnership (“OP”)
(380
)
 
(693
)
 
(1,532
)
 
(1,576
)
Preferred units in the OP
(165
)
 
(165
)
 
(495
)
 
(495
)
Other consolidated entities
(1,080
)
 
(897
)
 
(2,879
)
 
(2,738
)
Net income attributable to COPT
18,697

 
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

 
$
20,579

 
$
55,281

 
$
46,058

 
 
 
 
 
 
 
 
Earnings per share (“EPS”) computation:
 

 
 

 
 
 
 
Numerator for diluted EPS:
 

 
 

 
 
 
 
Net income attributable to COPT common shareholders
$
18,697

 
$
20,579

 
$
55,281

 
$
46,058

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

 
$
20,484

 
$
54,933

 
$
45,721

Denominator:
 

 
 

 
 
 
 
Weighted average common shares - basic
104,379

 
99,112

 
102,401

 
98,855

Dilutive effect of share-based compensation awards
231

 
146

 
165

 
154

Dilutive effect of forward equity sale agreements
178

 
—

 
60

 
—

Weighted average common shares - diluted
104,788

 
99,258

 
102,626

 
99,009

Diluted EPS
$
0.18

 
$
0.21

 
$
0.54

 
$
0.46


vi


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

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
20,322

 
$
22,334

 
$
60,187

 
$
63,933

Real estate-related depreciation and amortization
34,195

 
34,438

 
100,897

 
100,290

Impairment (recoveries) losses on previously depreciated operating properties
—

 
(159
)
 
—

 
1,451

Gain on sales of previously depreciated operating properties
—

 
(8
)
 
27

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

 
563

 
1,691

 
1,689

Funds from operations (“FFO”)
55,081

 
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 OP
(165
)
 
(165
)
 
(495
)
 
(495
)
FFO allocable to other noncontrolling interests
(1,060
)
 
(917
)
 
(2,757
)
 
(2,801
)
Basic and diluted FFO allocable to share-based compensation awards
(214
)
 
(215
)
 
(651
)
 
(616
)
Basic and Diluted FFO available to common share and common unit holders (“Diluted FFO”)
53,642

 
55,871

 
158,899

 
150,346

Gain on sales of non-operating properties
—

 
(1,180
)
 
—

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

 
(2
)
 
—

 
13

Gain on interest rate derivatives
—

 
(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

 
—

 
299

 
294

Executive transition costs
46

 
2

 
422

 
732

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

 
(3
)
 
(12
)
Diluted FFO available to common share and common unit holders, as adjusted for comparability
53,938

 
54,662

 
159,617

 
153,291

Straight line rent adjustments and lease incentive amortization
582

 
(561
)
 
(1,441
)
 
1,389

Amortization of intangibles included in net operating income
153

 
318

 
740

 
1,002

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

 
1,272

 
4,592

 
3,830

Amortization of deferred financing costs
468

 
554

 
1,404

 
2,485

Amortization of net debt discounts, net of amounts capitalized
362

 
347

 
1,074

 
1,029

Accum. other comprehensive loss on derivatives amortized to expense
33

 
53

 
101

 
89

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

 
(53
)
 
149

 
(171
)
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)
$
38,340

 
$
41,359

 
$
116,300

 
$
123,393

Diluted FFO per share
$
0.50

 
$
0.54

 
$
1.51

 
$
1.47

Diluted FFO per share, as adjusted for comparability
$
0.50

 
$
0.53

 
$
1.51

 
$
1.50

Dividends/distributions per common share/unit
$
0.275

 
$
0.275

 
$
0.825

 
$
0.825



vii


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

 
September 30,
2018
 
December 31,
2017
Balance Sheet Data
 

 
 

Properties, net of accumulated depreciation
$
3,207,427

 
$
3,141,105

Total assets
3,650,366

 
3,595,205

Debt, per balance sheet
1,808,030

 
1,828,333

Total liabilities
2,015,206

 
2,103,773

Redeemable noncontrolling interest
25,431

 
23,125

Equity
1,609,729

 
1,468,307

Net debt to adjusted book
39.2
%
 
40.8
%
 
 
 
 
Core Portfolio Data (as of period end) (1)
 

 
 

Number of operating properties
159

 
156

Total net rentable square feet owned (in thousands)
17,710

 
17,059

Occupancy %
92.2
%
 
94.5
%
Leased %
94.0
%
 
95.1
%
 
 
 
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
2018
 
2017
 
2018
 
2017
Payout ratios
 

 
 

 
 

 
 

Diluted FFO
56.3
%
 
50.4
%
 
55.5
%
 
56.2
%
Diluted FFO, as adjusted for comparability
56.0
%
 
51.5
%
 
55.3
%
 
55.1
%
Diluted AFFO
78.8
%
 
68.1
%
 
75.8
%
 
68.5
%
Adjusted EBITDA fixed charge coverage ratio
3.6
x
 
3.6
x
 
3.6
x
 
3.3
x
Net debt to in-place adjusted EBITDA ratio (2)
6.1
x
 
6.2
x
 
N/A

 
N/A

Net debt plus preferred equity to in-place adjusted EBITDA ratio (3)
6.1
x
 
6.2
x
 
N/A

 
N/A

 
 
 
 
 
 
 
 
Reconciliation of denominators for per share measures
 
 

 
 
 
 
Denominator for diluted EPS
104,788

 
99,258

 
102,626

 
99,009

Weighted average common units
2,135

 
3,350

 
2,847

 
3,400

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

 
102,608

 
105,473

 
102,409

 
 
 
 
 
 
 
 

(1)
Represents Defense/IT Locations and Regional Office properties.
(2)
Represents net debt 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 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).


viii


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

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Reconciliation of common share dividends to dividends and distributions for payout ratios
 

 
 

 
 
 
 
Common share dividends - unrestricted shares
$
29,821

 
$
27,282

 
$
86,079

 
$
81,742

Common unit distributions
373

 
895

 
2,131

 
2,767

Dividends and distributions for payout ratios
$
30,194

 
$
28,177

 
$
88,210

 
$
84,509

 
 
 
 
 
 
 
 
Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA
 

 
 

 
 

 
 

Net income
$
20,322

 
$
22,334

 
$
60,187

 
$
63,933

Interest expense
19,181

 
19,615

 
56,910

 
57,772

Income tax (benefit) expense
(291
)
 
57

 
(173
)
 
145

Depreciation of furniture, fixtures and equipment
561

 
577

 
1,543

 
1,673

Real estate-related depreciation and amortization
34,195

 
34,438

 
100,897

 
100,290

Impairment (recoveries) losses on previously depreciated operating properties
—

 
(159
)
 
—

 
1,451

Gain on sales of previously depreciated operating properties
—

 
(8
)
 
27

 
(39
)
Adjustments from unconsolidated real estate JV
830

 
830

 
2,482

 
2,481

EBITDAre
74,798

 
77,684

 
221,873

 
227,706

Impairment (recoveries) losses on non-operating properties
—

 
(2
)
 
—

 
13

Loss on early extinguishment of debt
—

 
—

 
—

 
513

Gain on sales of non-operating properties
—

 
(1,180
)
 
—

 
(5,399
)
Business development expenses
673

 
737

 
2,453

 
2,670

Demolition costs on redevelopment and nonrecurring improvements
251

 
—

 
299

 
294

Executive transition costs
46

 
2

 
422

 
732

Adjusted EBITDA
75,768

 
77,241

 
$
225,047

 
$
226,529

Proforma net operating income adjustment for property changes within period
166

 
(410
)
 
 
 
 
In-place adjusted EBITDA
$
75,934

 
$
76,831

 

 

 
 
 
 
 
 
 
 
Reconciliation of interest expense to the denominators for fixed charge coverage-Adjusted EBITDA
 

 
 

 
 

 
 

Interest expense
$
19,181

 
$
19,615

 
$
56,910

 
$
57,772

Less: Amortization of deferred financing costs
(468
)
 
(554
)
 
(1,404
)
 
(2,485
)
Less: Amortization of net debt discounts, net of amounts capitalized
(362
)
 
(347
)
 
(1,074
)
 
(1,029
)
Less: Accum. other comprehensive loss on derivatives amortized to expense
(33
)
 
(53
)
 
(101
)
 
(89
)
Gain on interest rate derivatives
—

 
34

 
—

 
43

COPT’s share of interest expense of unconsolidated real estate JV, excluding deferred financing costs
261

 
261

 
774

 
774

Scheduled principal amortization
1,060

 
1,015

 
3,161

 
3,028

Capitalized interest
1,410

 
1,055

 
4,181

 
4,197

Preferred share dividends
—

 
—

 
—

 
6,219

Preferred unit distributions
165

 
165

 
495

 
495

Denominator for fixed charge coverage-Adjusted EBITDA
$
21,214

 
$
21,191

 
$
62,942

 
$
68,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ix


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

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Reconciliations of tenant improvements and incentives, capital improvements and leasing costs for operating properties to replacement capital expenditures
 
 
 
 
 
 
 
Tenant improvements and incentives
$
12,894

 
$
11,342

 
$
29,626

 
$
22,230

Building improvements
5,975

 
3,865

 
13,671

 
13,067

Leasing costs
2,945

 
2,428

 
6,047

 
5,245

Net (exclusions from) additions to tenant improvements and incentives
(896
)
 
(1,509
)
 
3,708

 
5,913

Excluded building improvements
(2,134
)
 
(893
)
 
(3,089
)
 
(6,904
)
Excluded leasing costs
19

 
—

 
(27
)
 
—

Replacement capital expenditures
$
18,803

 
$
15,233

 
$
49,936

 
$
39,551

 
 
 
 
 
 
 
 
Same Properties cash NOI
$
71,813

 
$
71,616

 
$
212,527

 
$
212,759

Straight line rent adjustments and lease incentive amortization
(1,088
)
 
(1,298
)
 
(3,649
)
 
(1,758
)
Amortization of acquired above- and below-market rents
(98
)
 
(263
)
 
(574
)
 
(836
)
Amortization of below-market cost arrangements
(147
)
 
(148
)
 
(442
)
 
(443
)
Lease termination fees, gross
759

 
860

 
2,325

 
2,083

Tenant funded landlord assets and lease incentives
318

 
791

 
3,012

 
3,370

Cash NOI adjustments in unconsolidated real estate JV
62

 
82

 
197

 
263

Same Properties NOI
$
71,619

 
$
71,640

 
$
213,396

 
$
215,438

 
 
 
 
 
 
 
 
 
 
September 30,
2018
 
December 31,
2017
Reconciliation of total assets to adjusted book
 
 

 
 

Total assets
 
$
3,650,366

 
$
3,595,205

Accumulated depreciation
 
867,659

 
786,193

Accumulated amortization of real estate intangibles and deferred leasing costs
 
200,229

 
193,151

COPT’s share of liabilities of unconsolidated real estate JV
 
30,103

 
29,908

COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JV
 
4,881

 
3,189

Less: Disposed property included in assets held for sale
 
(42,226
)
 
(42,226
)
Less: Cash and cash equivalents
 
(9,492
)
 
(12,261
)
Less: COPT’s share of cash of unconsolidated real estate JV
 
(444
)
 
(371
)
Adjusted book
 
$
4,701,076

 
$
4,552,788

 
 
 
 
 
Reconciliation of debt outstanding to net debt and net debt plus preferred equity
 
 
 
 
Debt outstanding (excluding net debt discounts and deferred financing costs)
 
$
1,853,312

 
$
1,872,167

Less: Cash and cash equivalents
 
(9,492
)
 
(12,261
)
Less: COPT’s share of cash of unconsolidated real estate JV
 
(444
)
 
(371
)
Net debt
 
$
1,843,376

 
$
1,859,535

Preferred equity
 
8,800

 
8,800

Net debt plus preferred equity
 
$
1,852,176

 
$
1,868,335


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