UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) February 7, 2019
CORPORATE OFFICE PROPERTIES TRUST
CORPORATE OFFICE PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
Corporate Office Properties Trust
 
Maryland
 
1-14023
 
23-2947217
 
 
(State or other jurisdiction of
 
(Commission File
 
(IRS Employer
 
 
incorporation or organization)
 
Number)
 
Identification No.)
 
 
 
 
 
 
 
Corporate Office Properties, L.P.
 
Delaware
 
333-189188
 
23-2930022
 
 
(State or other jurisdiction of
 
(Commission File
 
(IRS Employer
 
 
incorporation or organization)
 
Number)
 
Identification No.)

6711 Columbia Gateway Drive, Suite 300
Columbia, Maryland 21046
(Address of principal executive offices)
(443) 285-5400
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company (Corporate Office Properties Trust) o
Emerging Growth Company (Corporate Office Properties, L.P.) o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Corporate Office Properties Trust o
Corporate Office Properties, L.P. o
 
 
 
 
 




Item 2.02.             Results of Operations and Financial Condition
 
On February 7, 2019, Corporate Office Properties Trust (the “Company”) issued a press release relating to its financial results for the three months and year ended December 31, 2018 and, in connection with this release, is making available certain supplemental information pertaining to its properties and operations as of and for the period ended December 31, 2018.  The earnings release and supplemental information are included as Exhibit 99.1 to this report and are incorporated herein by reference.
 
The information included herein, including the exhibits, shall not be deemed “filed” for any purpose, including the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to liabilities of that Section.  The information included herein, including the exhibits, shall also not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act regardless of any general incorporation language in such filing.

Item 9.01.             Financial Statements and Exhibits

Exhibit Number
 
Exhibit Title
 




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
CORPORATE OFFICE PROPERTIES TRUST
 
CORPORATE OFFICE PROPERTIES, L.P.
 
 
 
By: Corporate Office Properties Trust,
 
 
 
its General Partner
 
 
 
 
 
 
 
 
 
/s/ Anthony Mifsud
 
/s/ Anthony Mifsud
 
Anthony Mifsud
 
Anthony Mifsud
 
Executive Vice President and Chief Financial Officer
 
Executive Vice President and Chief Financial Officer
 
 
 
 
Dated:
February 7, 2019
Dated:
February 7, 2019




Exhibit

Exhibit 99.1

a2018q4covera01.jpg



tableofcontentsa67.jpg


Corporate Office Properties Trust
Summary Description

The Company: Corporate Office Properties Trust (the “Company” or “COPT”) is a self-managed real estate investment trust (“REIT”). COPT is listed on the New York Stock Exchange under the symbol “OFC” and is an S&P MidCap 400 Company. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support the United States Government and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable, priority missions; we refer to these properties as Defense/IT Locations (sometimes also referred to as “Mission-Centric”). We also own a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics; these properties are included in a segment referred to as Regional Office Properties (sometimes also referred to as “Urban-Centric”). As of December 31, 2018, we derived 88% of our core portfolio annualized revenue from Defense/IT Locations and 12% from our Regional Office Properties. As of December 31, 2018, our core portfolio of 161 office and data center shell properties, including six owned through an unconsolidated joint venture, encompassed 17.9 million square feet and was 94.0% leased. As of the same date, we also owned a wholesale data center with a critical load of 19.25 megawatts in operations.
Management:
Investor Relations:
Stephen E. Budorick, President & CEO
Stephanie M. Krewson-Kelly, VP of IR
Paul R. Adkins, EVP & COO
443-285-5453, stephanie.kelly@copt.com
Anthony Mifsud, EVP & CFO
Michelle Layne, Manager of IR
 
443-285-5452, michelle.layne@copt.com
 
Corporate Credit Rating: Fitch: BBB- Positive; Moody’s: Baa3 Stable; and S&P: BBB- Stable

Disclosure Statement: This supplemental package contains forward-looking statements within the meaning of the Federal securities laws. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology.  Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate.  Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved.  Future events and actual results may differ materially from those discussed in the forward-looking statements.  Important factors that may affect these expectations, estimates and projections include, but are not limited to: general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values; adverse changes in the real estate markets, including, among other things, increased competition with other companies; governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers; our ability to borrow on favorable terms; risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated; risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives; changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of impairment losses; our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships; the dilutive effects of issuing additional common shares; our ability to achieve projected results; security breaches relating to cyber attacks, cyber intrusions and other factors; and environmental requirements.  We undertake no obligation to update or supplement any forward-looking statements.  For further information, refer to our filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.

1

Corporate Office Properties Trust
Equity Research Coverage
 
Firm
 
Senior Analyst
 
Phone
 
Email
Bank of America Merrill Lynch
 
Jamie Feldman
 
646-855-5808
 
james.feldman@baml.com
BTIG
 
Tom Catherwood
 
212-738-6410
 
tcatherwood@btig.com
Capital One Securities
 
Chris Lucas
 
571-633-8151
 
christopher.lucas@capitalone.com
Citigroup Global Markets
 
Manny Korchman
 
212-816-1382
 
emmanuel.korchman@citi.com
Evercore ISI
 
Steve Sakwa
 
212-446-9462
 
steve.sakwa@evercoreisi.com
Green Street Advisors
 
Daniel Ismail
 
949-640-8780
 
dismail@greenst.com
Jefferies & Co.
 
Jonathan Petersen
 
212-284-1705
 
jpetersen@jefferies.com
JP Morgan
 
Tony Paolone
 
212-622-6682
 
anthony.paolone@jpmorgan.com
KeyBanc Capital Markets
 
Craig Mailman
 
917-368-2316
 
cmailman@key.com
Mizuho Securities USA Inc.
 
Haendel St. Juste
 
212-205-7860
 
haendel.st.juste@mizuhogroup.com
Raymond James
 
Bill Crow
 
727-567-2594
 
bill.crow@raymondjames.com
Robert W. Baird & Co., Inc.
 
Dave Rodgers
 
216-737-7341
 
drodgers@rwbaird.com
Stifel Financial Corp.
 
John Guinee
 
443-224-1307
 
jwguinee@stifel.com
SunTrust Robinson Humphrey, Inc.
 
Michael Lewis
 
212-319-5659
 
michael.lewis@suntrust.com
Wells Fargo Securities
 
Blaine Heck
 
443-263-6529
 
blaine.heck@wellsfargo.com
 
With the exception of Green Street Advisors, the above-listed firms are those whose analysts publish research material on the Company and whose estimates of our FFO per share can be tracked through Thomson’s First Call Corporation. Any opinions, estimates, or forecasts the above analysts make regarding COPT’s future performance are their own and do not represent the views, estimates, or forecasts of COPT’s management.

2

Corporate Office Properties Trust
Selected Financial Summary Data
(in thousands, except per share data)
 
 
Page
 
Three Months Ended
 
Year Ended
SUMMARY OF RESULTS 
 
Refer.
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Net income
 
6
 
$
18,456

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

NOI from real estate operations
 
13
 
$
80,738

 
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
321,036

 
$
323,821

Same Properties NOI
 
16
 
$
71,413

 
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
284,809

 
$
287,684

Same Properties Cash NOI
 
17
 
$
70,923

 
$
71,813

 
$
71,809

 
$
68,905

 
$
71,711

 
$
283,450

 
$
284,470

Adjusted EBITDA
 
10
 
$
75,200

 
$
75,768

 
$
75,572

 
$
73,707

 
$
76,862

 
$
300,247

 
$
303,391

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

 
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
160,264

 
$
155,313

Dividend per common share
 
N/A
 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
0.275

 
$
1.100

 
$
1.100

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share - diluted:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
EPS
 
8
 
$
0.16

 
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.69

 
$
0.56

FFO - NAREIT
 
8
 
$
0.47

 
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
1.97

 
$
1.94

FFO - as adjusted for comparability
 
8
 
$
0.50

 
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
2.01

 
$
2.02

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

 
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
71,839

 
$
55,230

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

 
$
53,642

 
$
53,720

 
$
51,537

 
$
48,824

 
$
211,942

 
$
199,170

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

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payout ratios:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

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

 
 

 
 
 
 

 
 

 
 

 
 
Total Market Capitalization
 
28
 
$
4,193,726

 
$
5,119,467

 
$
4,979,083

 
$
4,598,028

 
$
4,903,623

 
 
 
 
Total Equity Market Capitalization
 
28
 
$
2,355,222

 
$
3,296,155

 
$
3,095,017

 
$
2,729,913

 
$
3,061,456

 
 
 
 
Gross debt
 
29
 
$
1,868,504

 
$
1,853,312

 
$
1,914,066

 
$
1,898,115

 
$
1,872,167

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

 
N/A

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

 
N/A

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

 
N/A

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

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



3

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

 
161

 
159
 
159

 
159

Consolidated Portfolio
157

 
155

 
153
 
153

 
153

Core Portfolio
161

 
159

 
157
 
157

 
156

Same Properties
147

 
147

 
147
 
147

 
147

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

 
17,867

 
17,655

 
17,613

 
17,345

Consolidated Portfolio
17,132

 
16,905

 
16,694

 
16,651

 
16,383

Core Portfolio
17,937

 
17,710

 
17,498

 
17,456

 
17,059

Same Properties
16,221

 
16,221

 
16,221

 
16,221

 
16,221

 
 
 
 
 
 
 
 
 
 
Wholesale Data Center (in megawatts (“MWs”))
 
 
 
 
 
 
 
 
 
MWs Operational
19.25

 
19.25

 
19.25

 
19.25

 
19.25

MWs Leased (3)
16.86

 
16.86

 
16.86

 
16.86

 
16.86

(1)
Our total portfolio, core portfolio and Same Properties reporting included six properties owned through an unconsolidated joint venture totaling 962,000 square feet that were 100% occupied and leased.
(2)
The data above reflects the effect of two properties reported as fully placed in service during the first quarter of 2018 that were previously reported as construction projects since they were held for future lease to the United States Government. If these two properties were reported as fully placed in service as of 12/31/17, our Core Portfolio would have been 92.8% occupied and 93.3% leased as of 12/31/17. Our Same Properties data is reported as if these two properties were fully placed in service as of 1/1/17.
(3)
Leased to tenants with further expansion rights of up to a combined 17.92 megawatts as of 12/31/18.

4

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

 
 

 
 

 
 

 
 

Properties, net:
 

 
 

 
 

 
 

 
 

Operating properties, net
$
2,847,265

 
$
2,796,577

 
$
2,760,632

 
$
2,740,264

 
$
2,737,611

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

 
149,042

 
91,630

 
61,844

 
50,316

Land held (1)
264,057

 
261,808

 
331,275

 
356,171

 
353,178

Total properties, net
3,250,626

 
3,207,427

 
3,183,537

 
3,158,279

 
3,141,105

Assets held for sale (2)
—

 
42,226

 
42,226

 
42,226

 
42,226

Cash and cash equivalents
8,066

 
9,492

 
8,472

 
8,888

 
12,261

Investment in unconsolidated real estate joint venture
39,845

 
40,318

 
40,806

 
41,311

 
41,787

Accounts receivable, net
26,277

 
19,245

 
23,656

 
23,982

 
31,802

Deferred rent receivable, net
89,350

 
89,171

 
89,606

 
87,985

 
86,710

Intangible assets on real estate acquisitions, net
43,470

 
47,065

 
50,586

 
54,600

 
59,092

Deferred leasing costs, net
50,191

 
49,510

 
48,183

 
47,886

 
48,322

Investing receivables
56,982

 
55,688

 
54,427

 
58,800

 
57,493

Interest rate derivatives
5,617

 
10,875

 
9,792

 
7,960

 
3,073

Prepaid expenses and other assets, net
85,581

 
79,349

 
61,071

 
64,321

 
71,334

Total assets
$
3,656,005

 
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

Liabilities and equity
 

 
 

 
 

 
 

 
 

Liabilities:
 

 
 

 
 

 
 

 
 

Debt
$
1,823,909

 
$
1,808,030

 
$
1,871,445

 
$
1,854,886

 
$
1,828,333

Accounts payable and accrued expenses
92,855

 
90,224

 
88,885

 
95,721

 
108,137

Rents received in advance and security deposits
30,079

 
23,159

 
24,905

 
26,569

 
25,648

Dividends and distributions payable
30,856

 
30,483

 
29,449

 
29,146

 
28,921

Deferred revenue associated with operating leases
9,125

 
10,006

 
10,783

 
11,246

 
11,682

Deferred property sale (2)
—

 
43,377

 
43,377

 
43,377

 
43,377

Capital lease obligation
660

 
660

 
640

 
11,778

 
15,853

Other liabilities
15,213

 
9,267

 
9,849

 
17,643

 
41,822

Total liabilities
2,002,697

 
2,015,206

 
2,079,333

 
2,090,366

 
2,103,773

Redeemable noncontrolling interests
26,260

 
25,431

 
24,544

 
23,848

 
23,125

Equity:
 

 
 

 
 

 
 
 
 
COPT’s shareholders’ equity:
 

 
 

 
 

 
 
 
 
Common shares
1,102

 
1,088

 
1,033

 
1,022

 
1,013

Additional paid-in capital
2,431,355

 
2,390,484

 
2,254,430

 
2,221,427

 
2,201,047

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

 
9,012

 
7,204

 
2,167

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

 
1,568,172

 
1,442,205

 
1,416,351

 
1,402,142

Noncontrolling interests in subsidiaries:
 

 
 

 
 

 
 

 
 

Common units in the Operating Partnership
19,168

 
19,525

 
44,651

 
44,327

 
45,097

Preferred units in the Operating Partnership
8,800

 
8,800

 
8,800

 
8,800

 
8,800

Other consolidated entities
13,669

 
13,232

 
12,829

 
12,546

 
12,268

Total noncontrolling interests in subsidiaries
41,637

 
41,557

 
66,280

 
65,673

 
66,165

Total equity
1,627,048

 
1,609,729

 
1,508,485

 
1,482,024

 
1,468,307

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

 
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

(1)
Refer to pages 24, 25 and 27 for detail.
(2)
The carrying amount and sale proceeds relate to a property sale not recognized for accounting purposes until 10/1/18.

5

Corporate Office Properties Trust
Consolidated Statements of Operations
(in thousands, except per share data)
 
Three Months Ended
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Rental revenue
$
103,599

 
$
102,132

 
$
101,121

 
$
100,834

 
$
101,485

 
$
407,686

 
$
405,722

Tenant recoveries and other real estate operations revenue
27,226

 
26,856

 
28,041

 
27,444

 
26,200

 
109,567

 
104,258

Construction contract and other service revenues
7,657

 
8,423

 
17,581

 
27,198

 
36,882

 
60,859

 
102,840

Total revenues
138,482

 
137,411

 
146,743

 
155,476

 
164,567

 
578,112

 
612,820

Expenses
 

 
 

 
 

 
 

 
 

 
 
 
 
Property operating expenses
51,298

 
49,340

 
49,446

 
50,951

 
47,449

 
201,035

 
190,964

Depreciation and amortization associated with real estate operations
36,219

 
34,195

 
33,190

 
33,512

 
33,938

 
137,116

 
134,228

Construction contract and other service expenses
7,111

 
8,058

 
16,941

 
26,216

 
36,029

 
58,326

 
99,618

Impairment losses
2,367

 
—

 
—

 
—

 
13,659

 
2,367

 
15,123

General and administrative expenses
5,105

 
5,796

 
6,067

 
5,861

 
5,552

 
22,829

 
24,008

Leasing expenses
1,976

 
1,103

 
1,561

 
1,431

 
1,447

 
6,071

 
6,829

Business development expenses and land carry costs
1,425

 
1,567

 
1,234

 
1,614

 
1,646

 
5,840

 
6,213

Total operating expenses
105,501

 
100,059

 
108,439

 
119,585

 
139,720

 
433,584

 
476,983

Operating income
32,981

 
37,352

 
38,304

 
35,891

 
24,847

 
144,528

 
135,837

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

 
1,486

 
1,439

 
1,359

 
1,501

 
4,358

 
6,318

Gain on sales of real estate
2,367

 
—

 
(23
)
 
(4
)
 
4,452

 
2,340

 
9,890

Loss on early extinguishment of debt
(258
)
 
—

 
—

 
—

 
—

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

 
19,657

 
20,775

 
18,462

 
11,589

 
75,583

 
74,549

Equity in income of unconsolidated entities
1,577

 
374

 
373

 
373

 
372

 
2,697

 
1,490

Income tax benefit (expense)
190

 
291

 
(63
)
 
(55
)
 
(953
)
 
363

 
(1,098
)
Net income
18,456

 
20,322

 
21,085

 
18,780

 
11,008

 
78,643

 
74,941

Net income attributable to noncontrolling interests:
 

 
 

 
 

 
 

 
 

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

 
18,697

 
19,434

 
17,150

 
9,621

 
72,301

 
68,745

Preferred share dividends
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

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

 
$
18,697

 
$
19,434

 
$
17,150

 
$
9,621

 
$
72,301

 
$
55,679

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

 
$
18,583

 
$
19,317

 
$
17,033

 
$
9,509

 
$
71,839

 
$
55,230



6

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

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

Real estate-related depreciation and amortization
36,219

 
34,195

 
33,190

 
33,512

 
33,938

 
137,116

 
134,228

Impairment losses on previously depreciated operating properties
6

 
—

 
—

 
—

 
9,004

 
6

 
10,455

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

 
23

 
4

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

 
564

 
564

 
563

 
563

 
2,256

 
2,252

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

 
55,081

 
54,862

 
52,859

 
50,061

 
215,681

 
217,385

Preferred share dividends
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

 
(6,847
)
Noncontrolling interests - preferred units in the Operating Partnership
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(165
)
 
(660
)
 
(660
)
FFO allocable to other noncontrolling interests (4)
(1,011
)
 
(1,060
)
 
(753
)
 
(944
)
 
(874
)
 
(3,768
)
 
(3,675
)
Basic and diluted FFO allocable to share-based compensation awards
(200
)
 
(214
)
 
(224
)
 
(213
)
 
(198
)
 
(851
)
 
(814
)
Basic FFO available to common share and common unit holders (3)
51,503

 
53,642

 
53,720

 
51,537

 
48,824

 
210,402

 
199,170

Redeemable noncontrolling interests
331

 
—

 
—

 
—

 
—

 
1,540

 
—

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

 
53,642

 
53,720

 
51,537

 
48,824

 
211,942

 
199,170

Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
4,655

 
2,361

 
4,668

Income tax expense associated with FFO comparability adjustments
—

 
—

 
—

 
—

 
800

 
—

 
800

Gain on interest rate derivatives
—

 
—

 
—

 
—

 
(191
)
 
—

 
(234
)
Loss on early extinguishment of debt
258

 
—

 
—

 
—

 
—

 
258

 
513

Issuance costs associated with redeemed preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
6,847

Demolition costs on redevelopment and nonrecurring improvements
163

 
251

 
9

 
39

 
—

 
462

 
294

Executive transition costs
371

 
46

 
213

 
163

 
—

 
793

 
732

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

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356


(1)
FFO adjustment pertaining to COPT’s share of an unconsolidated real estate joint venture reported on page 33.
(2)
See reconciliation on page 34 for components of FFO per NAREIT.
(3)
Refer to the section entitled “Definitions” for a definition of this measure.
(4)
Pertains to noncontrolling interests in consolidated real estate joint ventures reported on page 32.

7

Corporate Office Properties Trust
Diluted Share and Unit Computations
(in thousands)
 
Three Months Ended
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
EPS Denominator:
 

 
 

 
 

 
 

 
 

 
 
 
 
Weighted average common shares - basic
108,528

 
104,379

 
101,789

 
100,999

 
99,304

 
103,946

 
98,969

Dilutive effect of share-based compensation awards
45

 
231

 
119

 
144

 
68

 
134

 
132

Dilutive effect of forward equity sale agreements
—

 
178

 
—

 
—

 
215

 
45

 
54

Weighted average common shares - diluted
108,573

 
104,788

 
101,908

 
101,143

 
99,587

 
104,125

 
99,155

Diluted EPS
$
0.16

 
$
0.18

 
$
0.19

 
$
0.17

 
$
0.10

 
$
0.69

 
$
0.56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares for period ended:
 

 
 

 
 

 
 

 
 

 
 

 
 

Common Shares Outstanding
108,528

 
104,379

 
101,789

 
100,999

 
99,304

 
103,946

 
98,969

Dilutive effect of share-based compensation awards
45

 
231

 
119

 
144

 
68

 
134

 
132

Dilutive effect of forward equity sale agreements
—

 
178

 
—

 
—

 
215

 
45

 
54

Common Units
1,345

 
2,135

 
3,197

 
3,221

 
3,252

 
2,468

 
3,362

Redeemable noncontrolling interests
1,126

 
—

 
—

 
—

 
—

 
936

 
—

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

 
106,923

 
105,105

 
104,364

 
102,839

 
107,529

 
102,517

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

 
—

 
—

 
—

 
(936
)
 
—

Denominator for diluted EPS
108,573

 
104,788

 
101,908

 
101,143

 
99,587

 
104,125

 
99,155

Diluted FFO per share - NAREIT
$
0.47

 
$
0.50

 
$
0.51

 
$
0.49

 
$
0.47

 
$
1.97

 
$
1.94

Diluted FFO per share - as adjusted for comparability
$
0.50

 
$
0.50

 
$
0.51

 
$
0.50

 
$
0.53

 
$
2.01

 
$
2.02






8

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

 
$
53,938

 
$
53,941

 
$
51,738

 
$
54,065

 
$
215,800

 
$
207,356

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

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

Amortization of intangibles included in NOI
153

 
153

 
231

 
356

 
342

 
893

 
1,344

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

 
1,557

 
1,550

 
1,485

 
1,523

 
6,193

 
5,353

Amortization of deferred financing costs
550

 
468

 
468

 
468

 
443

 
1,954

 
2,928

Amortization of net debt discounts, net of amounts capitalized
365

 
362

 
358

 
354

 
350

 
1,439

 
1,379

Accum. other comprehensive loss on derivatives amortized to expense
34

 
33

 
34

 
34

 
54

 
135

 
143

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

 
(32
)
 
131

 
(39
)
 
121

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

 
$
38,340

 
$
39,742

 
$
38,218

 
$
31,920

 
$
160,264

 
$
155,313

Replacement capital expenditures (1)
 

 
 

 
 

 
 

 
 

 
 
 
 
Tenant improvements and incentives
$
7,876

 
$
12,894

 
$
8,117

 
$
8,615

 
$
14,804

 
$
37,502

 
$
37,034

Building improvements
9,306

 
5,975

 
5,775

 
1,921

 
9,241

 
22,977

 
22,308

Leasing costs
3,800

 
2,945

 
1,822

 
1,280

 
3,242

 
9,847

 
8,487

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

 
3,289

 
(2,929
)
 
1,577

 
2,984

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

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

 
(46
)
 
—

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

 
$
18,803

 
$
15,613

 
$
15,520

 
$
23,475

 
$
64,784

 
$
63,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Refer to the section entitled “Definitions” for a definition of this measure.
 
 
 
 
(2) AFFO adjustments pertaining to noncontrolling interests on consolidated joint ventures reported on page 32 and 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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Net income
$
18,456

 
$
20,322

 
$
21,085

 
$
18,780

 
$
11,008

 
$
78,643

 
$
74,941

Interest expense
18,475

 
19,181

 
18,945

 
18,784

 
19,211

 
75,385

 
76,983

Income tax (benefit) expense
(190
)
 
(291
)
 
63

 
55

 
953

 
(363
)
 
1,098

Depreciation of furniture, fixtures and equipment
404

 
561

 
459

 
523

 
600

 
1,947

 
2,273

Real estate-related depreciation and amortization
36,219

 
34,195

 
33,190

 
33,512

 
33,938

 
137,116

 
134,228

Impairment losses on previously depreciated operating properties
6

 
—

 
—

 
—

 
9,004

 
6

 
10,455

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

 
23

 
4

 
(4,452
)
 
(2,340
)
 
(4,491
)
Adjustments from unconsolidated real estate JV (1)
832

 
830

 
828

 
824

 
829

 
3,314

 
3,310

EBITDAre
71,835

 
74,798

 
74,593

 
72,482

 
71,091

 
$
293,708

 
$
298,797

Impairment losses on non-operating properties
2,361

 
—

 
—

 
—

 
4,655

 
2,361

 
4,668

Loss on early extinguishment of debt
258

 
—

 
—

 
—

 
—

 
258

 
513

Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
—

 
—

 
(5,399
)
Net gain on other investments
(449
)
 
—

 
—

 
—

 
—

 
(449
)
 
—

Business development expenses
661

 
673

 
757

 
1,023

 
1,116

 
3,114

 
3,786

Demolition costs on redevelopment and nonrecurring improvements
163

 
251

 
9

 
39

 
—

 
462

 
294

Executive transition costs
371

 
46

 
213

 
163

 
—

 
793

 
732

Adjusted EBITDA
75,200

 
75,768

 
75,572

 
73,707

 
76,862

 
$
300,247

 
$
303,391

Proforma NOI adjustment for property changes within period
2,052

 
166

 
418

 
—

 
(578
)
 
 
 
 
In-place adjusted EBITDA
$
77,252

 
$
75,934

 
$
75,990

 
$
73,707

 
$
76,284

 
 
 
 

(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) - 12/31/18
(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

 
3,816

 
87.8
%
 
88.7
%
Howard County
 
34

 
2,665

 
94.9
%
 
95.2
%
Other
 
22

 
1,623

 
92.5
%
 
94.6
%
Total Fort Meade/BW Corridor
 
87

 
8,104

 
91.1
%
 
92.0
%
Northern Virginia (“NoVA”) Defense/IT
 
13

 
1,999

 
91.3
%
 
91.9
%
Lackland AFB (San Antonio, Texas)
 
7

 
953

 
100.0
%
 
100.0
%
Navy Support
 
21

 
1,252

 
90.5
%
 
93.0
%
Redstone Arsenal (Huntsville, Alabama)
 
8

 
669

 
99.0
%
 
99.3
%
Data Center Shells:
 
 
 
 
 
 
 
 
Consolidated Properties
 
12

 
1,991

 
100.0
%
 
100.0
%
Unconsolidated JV Properties (3)
 
6

 
962

 
100.0
%
 
100.0
%
Total Defense/IT Locations
 
154

 
15,930

 
93.6
%
 
94.4
%
Regional Office
 
7

 
2,007

 
89.2
%
 
91.5
%
Core Portfolio
 
161

 
17,937

 
93.1
%
 
94.0
%
Other Properties
 
2

 
157

 
77.2
%
 
77.2
%
Total Portfolio
 
163

 
18,094

 
93.0
%
 
93.9
%
Consolidated Portfolio
 
157

 
17,132

 
92.6
%
 
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)
 
 
12/31/18
 
 
 
 
 
 
# 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 Year Ended
Property Grouping
 
 
 
% Occupied (1)
 
% Leased (1)
 
 
 
12/31/18
 
12/31/18
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Properties: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
139

 
15,102

 
92.7%
 
93.6%
 
$
456,136

 
91.3
%
 
$
69,747

 
$
278,181

Unconsolidated real estate JV (4)
 
6

 
962

 
100.0%
 
100.0%
 
5,515

 
1.1
%
 
1,211

 
4,818

Total Same Properties in Core Portfolio (3)
 
145

 
16,064

 
93.1%
 
93.9%
 
461,651

 
92.4
%
 
70,958

 
282,999

Properties Placed in Service (5)
 
16

 
1,873

 
93.1%
 
94.8%
 
34,934

 
7.0
%
 
5,372

 
19,937

Wholesale Data Center and Other
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
3,933

 
16,134

Total Core Portfolio
 
161

 
17,937

 
93.1%
 
94.0%
 
496,585

 
99.4
%
 
80,263

 
319,070

Disposed Office Properties
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
20

 
156

Other Properties (Same Properties)
 
2

 
157

 
77.2%
 
77.2%
 
3,196

 
0.6
%
 
455

 
1,810

Total Portfolio
 
163

 
18,094

 
93.0%
 
93.9%
 
$
499,781

 
100.0
%
 
$
80,738

 
$
321,036

Consolidated Portfolio
 
157

 
17,132

 
92.6%
 
93.5%
 
$
494,266

 
98.9
%
 
$
79,527

 
$
316,218

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12/31/18
 
 
 
 
 
 
# 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 Year Ended
Property Grouping
 
 
 
% Occupied (1)
 
% Leased (1)
 
 
 
12/31/18
 
12/31/18
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
148

 
14,968

 
93.2%
 
94.0%
 
$
433,838

 
87.4
%
 
$
67,622

 
$
268,049

Unconsolidated real estate JV (4)
 
6

 
962

 
100.0%
 
100.0%
 
5,515

 
1.1
%
 
1,211

 
4,818

Total Defense/IT Locations
 
154

 
15,930

 
93.6%
 
94.4%
 
439,353

 
88.5
%
 
68,833

 
272,867

Regional Office
 
7

 
2,007

 
89.2%
 
91.5%
 
57,232

 
11.5
%
 
7,502

 
30,792

Wholesale Data Center and Other
 
N/A

 
N/A

 
N/A
 
N/A
 
N/A

 
N/A

 
3,928

 
15,411

Total Core Portfolio
 
161

 
17,937

 
93.1%
 
94.0%
 
$
496,585


100.0
%
 
$
80,263

 
$
319,070

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Percentages calculated based on operational square feet.
(2)
Excludes Annualized Rental Revenue from our wholesale data center, DC-6, of $23.1 million as of 12/31/18. 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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Consolidated real estate revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
62,756

 
$
61,396

 
$
61,993

 
$
62,782

 
$
62,220

 
$
248,927

 
$
245,613

NoVA Defense/IT
13,879

 
13,960

 
13,118

 
12,561

 
12,126

 
53,518

 
47,118

Lackland Air Force Base
11,207

 
11,254

 
12,382

 
11,443

 
11,522

 
46,286

 
47,209

Navy Support
8,031

 
7,899

 
8,127

 
7,870

 
7,587

 
31,927

 
29,540

Redstone Arsenal
3,726

 
3,734

 
3,652

 
3,633

 
3,706

 
14,745

 
14,322

Data Center Shells-Consolidated
7,175

 
6,689

 
5,955

 
5,831

 
6,322

 
25,650

 
24,320

Total Defense/IT Locations
106,774

 
104,932

 
105,227

 
104,120

 
103,483

 
421,053

 
408,122

Regional Office
15,329

 
15,272

 
15,296

 
15,284

 
15,868

 
61,181

 
68,262

Wholesale Data Center
7,929

 
7,781

 
8,105

 
8,077

 
7,674

 
31,892

 
28,875

Other
793

 
1,003

 
534

 
797

 
660

 
3,127

 
4,721

Consolidated real estate revenues
$
130,825

 
$
128,988

 
$
129,162

 
$
128,278

 
$
127,685

 
$
517,253

 
$
509,980

 
 
 
 
NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
41,331

 
$
41,549

 
$
41,894

 
$
41,178

 
$
41,880

 
$
165,952

 
$
164,916

NoVA Defense/IT
8,699

 
8,442

 
8,209

 
7,838

 
8,202

 
33,188

 
30,180

Lackland Air Force Base
4,843

 
4,822

 
4,888

 
4,845

 
4,835

 
19,398

 
19,397

Navy Support
4,438

 
4,691

 
4,696

 
4,566

 
4,359

 
18,391

 
16,921

Redstone Arsenal
2,194

 
2,165

 
2,143

 
2,193

 
2,217

 
8,695

 
8,539

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
6,117

 
6,115

 
5,156

 
5,037

 
5,486

 
22,425

 
21,611

COPT’s share of unconsolidated real estate JV (1)
1,211

 
1,206

 
1,202

 
1,199

 
1,203

 
4,818

 
4,805

Total Defense/IT Locations
68,833

 
68,990

 
68,188

 
66,856

 
68,182

 
272,867

 
266,369

Regional Office
7,548

 
7,847

 
8,127

 
7,406

 
8,860

 
30,928

 
39,280

Wholesale Data Center
3,960

 
3,816

 
3,955

 
3,819

 
4,164

 
15,550

 
15,324

Other
397

 
201

 
648

 
445

 
233

 
1,691

 
2,848

NOI from real estate operations
$
80,738

 
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
321,036

 
$
323,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
41,027

 
$
41,398

 
$
41,338

 
$
40,212

 
$
41,685

 
$
163,975

 
$
163,932

NoVA Defense/IT
8,773

 
9,394

 
7,312

 
7,218

 
7,426

 
32,697

 
29,663

Lackland Air Force Base
5,157

 
5,012

 
5,067

 
5,024

 
5,016

 
20,260

 
19,721

Navy Support
4,508

 
4,925

 
4,933

 
4,577

 
4,341

 
18,943

 
16,910

Redstone Arsenal
2,219

 
2,221

 
2,200

 
2,167

 
2,165

 
8,807

 
8,311

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
5,688

 
5,630

 
4,755

 
4,297

 
4,646

 
20,370

 
20,053

COPT’s share of unconsolidated real estate JV (1)
1,154

 
1,144

 
1,134

 
1,132

 
1,130

 
4,564

 
4,469

Total Defense/IT Locations
68,526

 
69,724

 
66,739

 
64,627

 
66,409

 
269,616

 
263,059

Regional Office
6,990

 
7,108

 
7,465

 
6,894

 
8,428

 
28,457

 
37,200

Wholesale Data Center
3,601

 
3,391

 
3,479

 
3,374

 
3,470

 
13,845

 
13,415

Other
435

 
236

 
673

 
469

 
263

 
1,813

 
2,306

Cash NOI from real estate operations
79,552

 
80,459

 
78,356

 
75,364

 
78,570

 
313,731

 
315,980

Straight line rent adjustments and lease incentive amortization
56

 
(576
)
 
1,209

 
519

 
1,027

 
1,208

 
(1,336
)
Amortization of acquired above- and below-market rents
(97
)
 
(98
)
 
(176
)
 
(300
)
 
(287
)
 
(671
)
 
(1,123
)
Amortization of below-market cost arrangements
(152
)
 
(148
)
 
(148
)
 
(149
)
 
(149
)
 
(597
)
 
(595
)
Lease termination fees, gross
906

 
830

 
771

 
1,155

 
828

 
3,662

 
2,911

Tenant funded landlord assets and lease incentives
416

 
325

 
838

 
1,870

 
1,377

 
3,449

 
7,648

Cash NOI adjustments in unconsolidated real estate JV
57

 
62

 
68

 
67

 
73

 
254

 
336

NOI from real estate operations
$
80,738

 
$
80,854

 
$
80,918

 
$
78,526

 
$
81,439

 
$
321,036

 
$
323,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 

(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
 
Year Ended
 
 
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
81

 
7,750

 
92.4
%
 
92.2
%
 
91.3
%
 
91.4
%
 
93.7
%
 
91.8
%
 
92.9
%
NoVA Defense/IT
12

 
1,759

 
83.9
%
 
80.6
%
 
80.5
%
 
80.0
%
 
79.5
%
 
81.3
%
 
78.7
%
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

 
89.8
%
 
87.1
%
 
88.3
%
 
87.7
%
 
85.6
%
 
88.2
%
 
81.5
%
Redstone Arsenal
6

 
632

 
100.0
%
 
99.7
%
 
99.2
%
 
99.2
%
 
99.2
%
 
99.5
%
 
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

 
14,057

 
92.9
%
 
92.1
%
 
91.7
%
 
91.6
%
 
92.6
%
 
92.1
%
 
91.7
%
Regional Office
7

 
2,007

 
89.3
%
 
88.3
%
 
87.3
%
 
87.3
%
 
90.0
%
 
88.1
%
 
92.2
%
Core Portfolio Same Properties
145

 
16,064

 
92.4
%
 
91.6
%
 
91.1
%
 
91.1
%
 
92.3
%
 
91.6
%
 
91.8
%
Other Same Properties
2

 
157

 
77.2
%
 
80.6
%
 
80.6
%
 
79.9
%
 
59.0
%
 
79.6
%
 
70.2
%
Total Same Properties
147

 
16,221

 
92.3
%
 
91.5
%
 
91.0
%
 
91.0
%
 
92.0
%
 
91.5
%
 
91.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
 
 
 
Core Portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
81

 
7,750

 
92.3
%
 
92.9
%
 
91.7
%
 
91.3
%
 
93.6
%
 
 
 
 
NoVA Defense/IT
12

 
1,759

 
90.1
%
 
81.6
%
 
80.6
%
 
80.3
%
 
79.5
%
 
 
 
 
Lackland Air Force Base
7

 
953

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

 
1,252

 
90.5
%
 
88.0
%
 
88.3
%
 
88.0
%
 
87.7
%
 
 
 
 
Redstone Arsenal
6

 
632

 
100.0
%
 
100.0
%
 
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

 
14,057

 
93.7
%
 
92.7
%
 
91.9
%
 
91.6
%
 
92.8
%
 
 
 
 
Regional Office
7

 
2,007

 
89.2
%
 
89.0
%
 
87.2
%
 
86.8
%
 
89.5
%
 
 
 
 
Core Portfolio Same Properties
145

 
16,064

 
93.1
%
 
92.2
%
 
91.3
%
 
91.0
%
 
92.4
%
 
 
 
 
Other Same Properties
2

 
157

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

 
16,221

 
93.0
%
 
92.1
%
 
91.2
%
 
90.9
%
 
92.1
%
 
 
 
 

(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Same Properties real estate revenues
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
60,906

 
$
59,623

 
$
59,940

 
$
60,542

 
$
60,135

 
$
241,011

 
$
237,785

NoVA Defense/IT
11,962

 
11,804

 
11,458

 
11,107

 
11,030

 
46,331

 
44,250

Lackland Air Force Base
11,200

 
11,254

 
12,382

 
11,443

 
11,523

 
46,279

 
47,210

Navy Support
8,031

 
7,899

 
8,127

 
7,870

 
7,586

 
31,927

 
29,539

Redstone Arsenal
3,340

 
3,339

 
3,281

 
3,328

 
3,390

 
13,288

 
13,125

Data Center Shells
3,084

 
2,818

 
3,186

 
3,217

 
3,021

 
12,305

 
12,073

Total Defense/IT Locations
98,523

 
96,737

 
98,374

 
97,507

 
96,685

 
391,141

 
383,982

Regional Office
15,300

 
15,271

 
15,294

 
15,168

 
15,871

 
61,033

 
64,412

Other Properties
821

 
1,003

 
528

 
783

 
658

 
3,135

 
3,931

Same Properties real estate revenues
$
114,644

 
$
113,011

 
$
114,196

 
$
113,458

 
$
113,214

 
$
455,309

 
$
452,325

Same Properties NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
40,195

 
$
40,307

 
$
40,246

 
$
39,653

 
$
40,448

 
$
160,401

 
$
159,901

NoVA Defense/IT
7,690

 
7,349

 
7,179

 
6,775

 
7,152

 
28,993

 
27,615

Lackland Air Force Base
4,836

 
4,822

 
4,888

 
4,845

 
4,835

 
19,391

 
19,397

Navy Support
4,438

 
4,691

 
4,696

 
4,566

 
4,360

 
18,391

 
16,922

Redstone Arsenal
2,369

 
2,340

 
2,296

 
2,398

 
2,394

 
9,403

 
9,358

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
2,719

 
2,717

 
2,717

 
2,665

 
2,623

 
10,818

 
10,503

COPT’s share of unconsolidated real estate JV (1)
1,211

 
1,206

 
1,202

 
1,199

 
1,203

 
4,818

 
4,805

Total Defense/IT Locations
63,458

 
63,432

 
63,224

 
62,101

 
63,015

 
252,215

 
248,501

Regional Office
7,500

 
7,846

 
8,125

 
7,313

 
8,909

 
30,784

 
36,521

Other Properties
455

 
341

 
588

 
426

 
322

 
1,810

 
2,662

Same Properties NOI
$
71,413

 
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
284,809

 
$
287,684


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

Same Properties cash NOI
 

 
 

 
 

 
 

 
 

 
 
 
 
Defense/IT Locations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
$
39,951

 
$
40,474

 
$
39,906

 
$
38,850

 
$
40,090

 
$
159,181

 
$
159,183

NoVA Defense/IT
7,709

 
7,801

 
7,770

 
7,212

 
7,433

 
30,492

 
28,438

Lackland Air Force Base
5,157

 
5,012

 
5,067

 
5,024

 
5,016

 
20,260

 
19,721

Navy Support
4,508

 
4,924

 
4,934

 
4,577

 
4,342

 
18,943

 
16,910

Redstone Arsenal
2,434

 
2,407

 
2,364

 
2,384

 
2,351

 
9,589

 
9,136

Data Center Shells:
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
2,576

 
2,567

 
2,558

 
2,476

 
2,521

 
10,177

 
10,025

COPT’s share of unconsolidated real estate JV (1)
1,154

 
1,144

 
1,134

 
1,132

 
1,130

 
4,564

 
4,469

Total Defense/IT Locations
63,489

 
64,329

 
63,733

 
61,655

 
62,883

 
253,206

 
247,882

Regional Office
6,943

 
7,107

 
7,463

 
6,801

 
8,476

 
28,314

 
34,467

Other Properties
491

 
377

 
613

 
449

 
352

 
1,930

 
2,121

Same Properties cash NOI
70,923

 
71,813

 
71,809

 
68,905

 
71,711

 
283,450

 
284,470

Straight line rent adjustments and lease incentive amortization
(638
)
 
(1,088
)
 
(1,005
)
 
(1,556
)
 
(1,050
)
 
(4,287
)
 
(2,808
)
Amortization of acquired above- and below-market rents
(97
)
 
(98
)
 
(176
)
 
(300
)
 
(287
)
 
(671
)
 
(1,123
)
Amortization of below-market cost arrangements
(147
)
 
(147
)
 
(148
)
 
(147
)
 
(147
)
 
(589
)
 
(590
)
Lease termination fees, gross
906

 
759

 
558

 
1,008

 
828

 
3,231

 
2,911

Tenant funded landlord assets and lease incentives
409

 
318

 
831

 
1,863

 
1,118

 
3,421

 
4,488

Cash NOI adjustments in unconsolidated real estate JV
57

 
62

 
68

 
67

 
73

 
254

 
336

Same Properties NOI
$
71,413

 
$
71,619

 
$
71,937

 
$
69,840

 
$
72,246

 
$
284,809

 
$
287,684

Percentage change in total Same Properties cash NOI (2)
(1.1
)%
 
 
 
 
 
 
 
 
 
(0.4
)%
 
 
Percentage change in Defense/IT Locations Same Properties cash NOI (2)
1.0
 %
 
 
 
 
 
 
 
 
 
2.1
 %
 
 

(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 12/31/18
(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 Office
Renewed Space
 

 
 

 
 
 
 

 
 
 
 
 
 

 
 
 
 

Leased Square Feet
467

 
110

 
63

 
17

 
—

 
657

 
1

 
46

 
704

Expiring Square Feet
589

 
113

 
77

 
22

 
—

 
801

 
10

 
46

 
857

Vacating Square Feet
122

 
4

 
13

 
5

 
—

 
143

 
9

 
—

 
153

Retention Rate (% based upon square feet)
79.3
 %
 
96.7
 %
 
82.8
 %
 
79.1
 %
 
—
%
 
82.1
 %
 
10.6
%
 
100.0
 %
 
82.2
 %
Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
1.82

 
$
4.09

 
$
0.34

 
$
5.31

 
$
—

 
$
2.15

 
$
—

 
$
2.89

 
$
2.19

Weighted Average Lease Term in Years
4.9

 
4.5

 
2.7

 
4.6

 
—

 
4.6

 
5.0

 
4.8

 
4.6

Average Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Average Rent
$
37.33

 
$
36.82

 
$
14.94

 
$
21.84

 
$
—

 
$
34.67

 
$
16.57

 
$
28.13

 
$
34.22

Expiring Average Rent
$
34.67

 
$
39.27

 
$
15.86

 
$
19.42

 
$
—

 
$
33.22

 
$
14.05

 
$
33.95

 
$
33.23

Change in Average Rent
7.7
 %
 
(6.2
)%
 
(5.8
)%
 
12.4
 %
 
—
%
 
4.4
 %
 
17.9
%
 
(17.1
)%
 
3.0
 %
Cash Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Cash Rent
$
36.30

 
$
35.26

 
$
15.79

 
$
20.57

 
$
—

 
$
33.73

 
$
15.60

 
$
26.50

 
$
33.23

Expiring Cash Rent
$
36.70

 
$
44.37

 
$
16.53

 
$
20.94

 
$
—

 
$
35.61

 
$
15.15

 
$
37.05

 
$
35.68

Change in Cash Rent
(1.1
)%
 
(20.5
)%
 
(4.4
)%
 
(1.7
)%
 
—
%
 
(5.3
)%
 
3.0
%
 
(28.5
)%
 
(6.9
)%
Average escalations per year
2.8
 %
 
2.5
 %
 
2.0
 %
 
3.0
 %
 
—
%
 
2.7
 %
 
3.0
%
 
2.5
 %
 
2.7
 %
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development and Redevelopment Space (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
11

 
—

 
—

 
—

 
366

 
377

 
—

 
—

 
377

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
14.80

 
$
—

 
$
—

 
$
—

 
$
—

 
$
0.43

 
$
—

 
$
—

 
$
0.43

Weighted Average Lease Term in Years
5.8

 
—

 
—

 
—

 
15.0

 
14.7

 
—

 
—

 
14.7

Average Rent Per Square Foot
$
28.55

 
$
—

 
$
—

 
$
—

 
$
14.51

 
$
14.92

 
$
—

 
$
—

 
$
14.92

Cash Rent Per Square Foot
$
30.00

 
$
—

 
$
—

 
$
—

 
$
12.73

 
$
13.23

 
$
—

 
$
—

 
$
13.23

Other New Leases (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
191

 
22

 
3

 
2

 
—

 
217

 
31

 
—

 
248

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
3.63

 
$
6.63

 
$
0.67

 
$
2.53

 
$
—

 
$
3.88

 
$
9.95

 
$
—

 
$
4.64

Weighted Average Lease Term in Years
9.3

 
6.5

 
2.0

 
5.5

 
—

 
8.9

 
5.6

 
—

 
8.5

Average Rent Per Square Foot
$
17.02

 
$
27.99

 
$
15.00

 
$
20.81

 
$
—

 
$
18.12

 
$
31.75

 
$
—

 
$
19.82

Cash Rent Per Square Foot
$
17.48

 
$
27.74

 
$
15.00

 
$
19.22

 
$
—

 
$
18.48

 
$
31.18

 
$
—

 
$
20.07

Total Square Feet Leased
669

 
131

 
66

 
19

 
366

 
1,251

 
32

 
46

 
1,329

Average escalations per year
2.5
 %
 
2.5
 %
 
1.9
 %
 
3.0
 %
 
2.3
%
 
2.4
 %
 
2.6
%
 
2.5
 %
 
2.4
 %
Average escalations excl. data center shells
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.5
 %
(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)
Year Ended 12/31/18
(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
1,525

 
193

 
377

 
268

 
—

 
2,363

 
124

 
51

 
2,538

Expiring Square Feet
2,043

 
207

 
445

 
275

 
—

 
2,971

 
215

 
51

 
3,237

Vacating Square Feet
518

 
14

 
68

 
7

 
—

 
608

 
91

 
—

 
699

Retention Rate (% based upon square feet)
74.6
 %
 
93.3
 %
 
84.7
%
 
97.3
%
 
—
%
 
79.6
 %
 
57.6
%
 
100.0
 %
 
78.4
 %
Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
1.80

 
$
4.36

 
$
2.19

 
$
0.83

 
$
—

 
$
1.96

 
$
4.14

 
$
3.02

 
$
2.09

Weighted Average Lease Term in Years
4.5

 
3.9

 
2.0

 
1.3

 
—

 
3.7

 
4.8

 
4.4

 
3.8

Average Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Average Rent
$
36.14

 
$
33.70

 
$
26.77

 
$
21.63

 
$
—

 
$
32.80

 
$
30.17

 
$
28.26

 
$
32.58

Expiring Average Rent
$
33.27

 
$
34.21

 
$
24.98

 
$
20.90

 
$
—

 
$
30.62

 
$
27.06

 
$
33.45

 
$
30.51

Change in Average Rent
8.6
 %
 
(1.5
)%
 
7.2
%
 
3.5
%
 
—
%
 
7.1
 %
 
11.5
%
 
(15.5
)%
 
6.8
 %
Cash Rent Per Square Foot
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Cash Rent
$
35.02

 
$
32.91

 
$
26.73

 
$
21.51

 
$
—

 
$
32.00

 
$
28.84

 
$
26.80

 
$
31.74

Expiring Cash Rent
$
35.18

 
$
38.68

 
$
26.61

 
$
21.01

 
$
—

 
$
32.50

 
$
28.56

 
$
36.22

 
$
32.38

Change in Cash Rent
(0.5
)%
 
(14.9
)%
 
0.4
%
 
2.4
%
 
—
%
 
(1.5
)%
 
1.0
%
 
(26.0
)%
 
(2.0
)%
Average escalations per year
2.6
 %
 
2.5
 %
 
2.2
%
 
3.0
%
 
—
%
 
2.6
 %
 
2.5
%
 
2.5
 %
 
2.6
 %
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Development and Redevelopment Space (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
96

 
159

 
—

 
18

 
798

 
1,071

 
—

 
—

 
1,071

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
8.00

 
$
7.84

 
$
—

 
$
11.02

 
$
—

 
$
2.06

 
$
—

 
$
—

 
$
2.06

Weighted Average Lease Term in Years
8.8

 
10.0

 
—

 
7.7

 
13.4

 
12.4

 
—

 
—

 
12.4

Average Rent Per Square Foot
$
29.28

 
$
35.15

 
$
—

 
$
19.55

 
$
16.18

 
$
20.23

 
$
—

 
$
—

 
$
20.23

Cash Rent Per Square Foot
$
28.50

 
$
35.15

 
$
—

 
$
20.04

 
$
14.34

 
$
18.80

 
$
—

 
$
—

 
$
18.80

Other New Leases (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Square Feet
371

 
50

 
99

 
9

 
—

 
529

 
63

 
5

 
596

Statistics for Completed Leasing:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Annum Average Committed Cost per Square Foot (2)
$
4.65

 
$
8.01

 
$
5.56

 
$
4.81

 
$
—

 
$
5.14

 
$
10.49

 
$
7.35

 
$
5.72

Weighted Average Lease Term in Years
8.5

 
5.8

 
5.3

 
5.6

 
—

 
7.6

 
6.6

 
2.5

 
7.4

Average Rent Per Square Foot
$
21.53

 
$
29.03

 
$
24.25

 
$
24.80

 
$
—

 
$
22.80

 
$
32.19

 
$
25.60

 
$
23.82

Cash Rent Per Square Foot
$
21.21

 
$
28.51

 
$
24.49

 
$
22.94

 
$
—

 
$
22.54

 
$
31.29

 
$
24.95

 
$
23.48

Total Square Feet Leased
1,992

 
403

 
476

 
294

 
798

 
3,962

 
187

 
56

 
4,205

Average escalations per year
2.6
 %
 
1.0
 %
 
2.4
%
 
2.6
%
 
2.4
%
 
2.3
 %
 
2.5
%
 
2.6
 %
 
2.3
 %
Average escalations excl. data center shells
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.3
 %
(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 75.9% 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 12/31/18 (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
 
1,353

 
$
44,231

 
8.9
%
 
$
32.70

 
NoVA Defense/IT
 
201

 
7,112

 
1.4
%
 
35.41

 
Navy Support
 
188

 
4,535

 
0.9
%
 
24.13

 
Redstone Arsenal
 
38

 
920

 
0.2
%
 
24.05

 
Data Center Shells-Consolidated properties
 
155

 
2,675

 
0.5
%
 
17.26

 
Regional Office
 
127

 
3,897

 
0.8
%
 
30.59

 
2019
 
2,062

 
63,370

 
12.8
%
 
30.73

 
Ft Meade/BW Corridor
 
1,051

 
36,800

 
7.4
%
 
35.03

 
NoVA Defense/IT
 
175

 
5,211

 
1.0
%
 
29.76

 
Lackland Air Force Base
 
250

 
11,633

 
2.3
%
 
46.47

 
Navy Support
 
253

 
9,370

 
1.9
%
 
37.04

 
Redstone Arsenal
 
253

 
5,317

 
1.1
%
 
20.99

 
Regional Office
 
115

 
3,697

 
0.7
%
 
32.13

 
2020
 
2,097

 
72,028

 
14.5
%
 
34.34

 
Ft Meade/BW Corridor
 
893

 
30,767

 
6.2
%
 
34.46

 
NoVA Defense/IT
 
108

 
3,025

 
0.6
%
 
27.99

 
Navy Support
 
268

 
7,338

 
1.5
%
 
27.42

 
Redstone Arsenal
 
159

 
3,589

 
0.7
%
 
22.58

 
Regional Office
 
39

 
1,196

 
0.2
%
 
30.89

 
2021
 
1,467

 
45,915

 
9.2
%
 
31.31

 
Ft Meade/BW Corridor
 
603

 
19,973

 
4.0
%
 
33.13

 
NoVA Defense/IT
 
135

 
4,745

 
1.0
%
 
35.11

 
Navy Support
 
139

 
3,118

 
0.6
%
 
22.37

 
Redstone Arsenal
 
2

 
55

 
—
%
 
29.31

 
Regional Office
 
489

 
16,171

 
3.3
%
 
33.05

 
2022
 
1,368

 
44,062

 
8.9
%
 
32.20

 
Ft Meade/BW Corridor
 
1,342

 
45,034

 
9.1
%
 
33.56

 
NoVA Defense/IT
 
144

 
4,552

 
0.9
%
 
31.67

 
Navy Support
 
103

 
2,530

 
0.5
%
 
24.61

 
Redstone Arsenal
 
4

 
98

 
—
%
 
23.49

 
Regional Office
 
163

 
4,781

 
1.0
%
 
29.35

 
2023
 
1,756

 
56,995

 
11.5
%
 
32.46

 
Thereafter
 
 
 
 
 
 
 
 
 
Consolidated Properties
 
6,988

 
208,700

 
42.0
%
 
29.87

 
Unconsolidated JV Properties
 
962

 
5,515

 
1.1
%
 
11.47

 
Core Portfolio
 
16,700

 
$
496,585

 
100.0
%
 
$
30.07

 

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
 
16,700

 
$
496,585

 
99.4
%
 
$
30.07

 
Other Properties
 
121

 
3,196

 
0.6
%
 
26.33

 
Total Portfolio
 
16,821

 
$
499,781

 
100.0
%
 
$
30.04

 
Consolidated Portfolio
 
15,859

 
$
494,266

 
 
 
 
 
Unconsolidated JV Properties
 
962

 
$
5,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Note: As of 12/31/18, the weighted average lease term is 4.9 years for the Core Portfolio, 4.9 years for the Total Portfolio and 4.8 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)
2019
 
1.11

 
$
2,014

2020
 
12.55

 
16,837

2021
 
0.05

 
116

2022
 
2.00

 
1,941

2023
 
1.15

 
1,981

Thereafter
 
—

 
228

 
 
16.86

 
$
23,117


(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 12/31/18 of 167,000 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 12/31/18 (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 12/31/18 (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
 
275

 
$
7,763

 
1.6
%
 
$
28.24

NoVA Defense/IT
 
3

 
92

 
—
%
 
34.40

Navy Support
 
45

 
1,009

 
0.2
%
 
22.37

Redstone Arsenal
 
9

 
191

 
—
%
 
21.01

Regional Office
 
61

 
1,747

 
0.4
%
 
28.62

Q1 2019
 
393

 
10,802

 
2.2
%
 
27.50

Ft Meade/BW Corridor
 
186

 
5,480

 
1.1
%
 
29.51

NoVA Defense/IT
 
126

 
5,099

 
1.0
%
 
40.32

Navy Support
 
15

 
361

 
0.1
%
 
24.19

Regional Office
 
14

 
408

 
0.1
%
 
29.35

Q2 2019
 
341

 
11,348

 
2.3
%
 
33.28

Ft Meade/BW Corridor
 
186

 
6,505

 
1.3
%
 
34.98

NoVA Defense/IT
 
72

 
1,921

 
0.4
%
 
26.78

Navy Support
 
77

 
1,408

 
0.3
%
 
18.22

Regional Office
 
2

 
75

 
—
%
 
48.43

Q3 2019
 
337

 
9,909

 
2.0
%
 
29.45

Ft Meade/BW Corridor
 
705

 
24,483

 
4.9
%
 
34.68
Navy Support
 
51

 
1,757

 
0.4
%
 
34.71

Redstone Arsenal
 
29

 
729

 
0.1
%
 
25.00

Data Center Shells-Consolidated Properties
 
155

 
2,675

 
0.5
%
 
17.26

Regional Office
 
51

 
1,667

 
0.3
%
 
32.74

Q4 2019
 
991

 
31,311

 
6.3
%
 
31.57

 
 
 
 
 
 
 
 
 
 
 
2,062

 
$
63,370

 
12.8
%
 
$
30.73

 
 
 
 
 
 
 
 
 

(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 12/31/18.
(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 12/31/18 (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 12/31/18 (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)
$
171,150

 
32.7
%
 
4,262

 
5.3

VADATA, Inc.
 
46,282

 
8.9
%
 
2,798

 
8.1

General Dynamics Corporation
 
24,459

 
4.7
%
 
666

 
3.9

The Boeing Company
 
19,743

 
3.8
%
 
688

 
2.2

CACI International Inc
 
12,522

 
2.4
%
 
319

 
3.4

Northrop Grumman Corporation
 
12,111

 
2.3
%
 
450

 
1.7

CareFirst Inc.
 
11,723

 
2.2
%
 
342

 
3.9

Booz Allen Hamilton, Inc.
 
10,600

 
2.0
%
 
294

 
2.6

University of Maryland
 
7,290

 
1.4
%
 
242

 
4.9

Wells Fargo & Company
 
6,891

 
1.3
%
 
186

 
9.1

Science Applications International Corp.
(5)
6,669

 
1.3
%
 
181

 
2.6

The Raytheon Company
 
5,525

 
1.1
%
 
147

 
2.3

Miles and Stockbridge, PC
 
5,504

 
1.1
%
 
160

 
8.7

KEYW Corporation
 
5,284

 
1.0
%
 
177

 
6.0

Kratos Defense and Security Solutions
 
5,063

 
1.0
%
 
131

 
1.3

Transamerica Life Insurance Company
 
4,712

 
0.9
%
 
141

 
3.0

The MITRE Corporation
 
4,170

 
0.8
%
 
118

 
5.6

Accenture Federal Services, LLC
 
3,831

 
0.7
%
 
128

 
0.9

AT&T Corporation
 
3,825

 
0.7
%
 
153

 
2.9

International Business Machines Corp.
 
3,587

 
0.7
%
 
178

 
0.8

Subtotal Top 20 Tenants
 
370,941

 
71.0
%
 
11,761

 
5.2

All remaining tenants
 
151,957

 
29.0
%
 
5,060

 
4.1

Total/Weighted Average
 
$
522,898

 
100.0
%
 
16,821

 
4.9


(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 12/31/18, 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 12/31/18, $2.0 million in ARR (or 1% of our ARR from the United States Government and 0.4% of our total ARR) was through the General Services Administration (GSA).
(5)
Includes Engility Corporation as a result of its merger with Science Applications International on 1/14/19.


23


Corporate Office Properties Trust
Summary of Construction Projects as of 12/31/18 (1)
(dollars and square feet in thousands) 
 
 
 
Total Rentable Square Feet
Percentage Leased as of 1/2/19
as of 12/31/18 (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
 
Fort Meade/BW Corridor:
 
 
 
 
 
 
 
 
 
5801 University Research Court (4)
College Park, Maryland
 
71

100%
$
18,844

$
16,070

$
13,591

3Q 18
2Q 19
 
 
 
 
 
 
 
 
 
 
 
Redstone Arsenal:
 
 
 
 
 
 
 
 
4100 Market Street
Huntsville, Alabama
 
36

59%
7,459

4,898

—

4Q 18
4Q 19
 
4000 Market Street (5)
Huntsville, Alabama
 
43

63%
9,099

6,973

3,684

4Q 18
4Q 19
 
8800 Redstone Gateway
Huntsville, Alabama
 
76

0%
17,325

992

—

3Q 19
3Q 20
 
Subtotal / Average
 
155

31%
33,883

12,863

3,684

 
 
 
 
 
 
 
 
 
 
 
 
 
Data Center Shells:
 
 
 
 
 
 
 
 
 
IN 1
Northern Virginia
 
150

100%
18,745

13,362

—

1Q 19
1Q 19
 
DC 23
Northern Virginia
 
149

100%
21,347

4,902

—

2Q 19
2Q 19
 
MP 1
Northern Virginia
 
216

100%
36,080

25,306

—

2Q 19
2Q 19
 
IN 2
Northern Virginia
 
216

100%
29,600

7,298

—

2Q 19
2Q 19
 
Subtotal / Average
 
731

100%
105,772

50,868

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Regional Office:
 
 
 
 
 
 
 
 
 
2100 L Street Washington, DC
 
190

43%
174,000

82,619

—

1Q 20
1Q 21
 
Total Under Construction
 
1,147

81%
$
332,499

$
162,420

$
17,275

 
 
 
 
 
 
 
 
 
 
 
 

(1)
Includes properties under, or contractually committed for, construction as of 12/31/18.
(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)
Although classified as under construction, 60,000 square feet were operational as of 12/31/18.
(5)
Although classified as under construction, 18,000 square feet were operational as of 12/31/18.

24


Corporate Office Properties Trust
Summary of Redevelopment Projects as of 12/31/18
(dollars and square feet in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property Segment
Total Rentable Square Feet
Percentage Leased as of 2/6/19
as of 12/31/18 (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
 
6950 Columbia Gateway
Columbia, Maryland
 
Ft Meade/BW Corridor
106

9%
$
10,172

$
14,962

$
25,134

$
11,642

$
11,019

2Q 19
2Q 20
 

(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.


25

Corporate Office Properties Trust
Construction and Redevelopment Placed in Service as of 12/31/18
(square feet in thousands)
 
 
 
Total Property
 
Square Feet Placed in Service in 2018
Space Placed in Service % Leased as of 12/31/18
 
Property Segment
% Leased as of 1/2/19
 
 
Property and Location
Rentable Square Feet
Prior Year
1st Quarter
2nd Quarter
3rd Quarter
4th 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

4

22

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
100%
71

—

—

—

60

—

60

100%
MP 2
Northern Virginia
Data Center Shells
100%
216

—

—

—

—

216

216

100%
4000 Market Street
Huntsville, Alabama
Redstone Arsenal
63%
43

—

—

—

—

18

18

100%
Project EX (1)
Confidential
Defense/IT Locations
100%
N/A

—

—

—

—

N/A

N/A

100%
Total Construction/Redevelopment Placed in Service (1)
89%
795

71

85

151

214

238

688

90%

(1)
Project EX is land under a long-term contract that was placed in service in the fourth quarter of 2018. This project is excluded from the total line since we do not report square footage for the land.


26

Corporate Office Properties Trust
Summary of Land Owned/Controlled as of 12/31/18 (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
19

 
290

 
 
Other
131

 
1,440

 
 
Total Fort Meade/BW Corridor
346

 
3,836

 
 
NoVA Defense/IT
59

 
1,965

 
 
Lackland AFB
49

 
785

 
 
Navy Support
44

 
109

 
 
Redstone Arsenal (2)
414

 
3,928

 
 
Data Center Shells
10

 
216

 
 
Total Defense/IT Locations
922

 
10,839

 
 
Regional Office
10

 
900

 
 
Total land owned/controlled for future development
932

 
11,739

 
$
259,528

 
 
 
 
 
 
Other land owned/controlled
150

 
1,638

 
4,529

Land held, net
1,082

 
13,377

 
$
264,057


(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)
 
12/31/18
Debt
 
 
 
 
 
 
Secured debt
 
5.1

 
4.22
%
 
4.10
%
 
$
174,043

Unsecured debt
 
4.4

 
4.10
%
 
4.11
%
 
1,664,461

Total Consolidated Debt
4.5

 
4.11
%
 
4.11
%
 
$
1,838,504

 
 
 
 
 
 
 
 
 
Fixed rate debt (2)
 
4.7

 
4.30
%
 
4.15
%
 
$
1,711,926

Variable rate debt
 
4.0

 
3.60
%
 
3.65
%
 
126,578

Total Consolidated Debt
 
 
 
 
 
 
 
$
1,838,504

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

 
 
 
$
8,800

 
 
 
 
 
 
 
 
 
Common Equity
 
 
 
 
 
 
 
 
Common Shares
 
 
 
 
 
 
 
110,242

Common Units
 
 
 
 
 
 
 
1,333

Total Common Shares and Units
 
 
 
 
 
111,575

 
 
 
 
 
 
 
 
 
Closing Common Share Price on 12/31/18
 
 
 
$
21.03

Common Equity Market Capitalization
 
 
 
$
2,346,422

 
 
 
 
 
Total Equity Market Capitalization
 
 
 
$
2,355,222

 
 
 
 
 
Total Market Capitalization
 
 
 
$
4,193,726

 
 
 
 
 
Forward Equity Sale Agreements Capacity (4)
 
 
 
$
46,362

(1) Excludes the effect of deferred financing cost amortization.
(2) Includes the effect of interest rate swaps with notional amounts of $362.8 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 12/31/18.

 
 
Investment Grade Ratings & Outlook:
Latest Affirmation
 
Fitch
 
BBB-
Positive
9/12/18
 
Moody’s
 
Baa3
Stable
11/20/18
 
Standard & Poor’s
BBB-
Stable
5/1/18
chart-71933b6b95c553e68bc.jpgchart-ad708279066d574aab2.jpg

28

Corporate Office Properties Trust
Summary of Outstanding Debt as of 12/31/18
(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 + 1.10%

 
$
213,000

Mar-23
(1)(2)
 
7015 Albert Einstein Drive
7.87
%
 
$
411

$
—

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

 
12,834

12,132

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

Jun-21
 
 
7740 Milestone Parkway
3.96
%
 
17,786

15,902

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

May-23
 
 
100 & 30 Light Street
4.32
%
 
52,551

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)
33,923

27,649

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

 
 
 
M Square (5825 & 5850
 
 
 
 
 
 
 
 
 
 
 
 
 
University Research Court) (3)
3.82
%
 
42,960

35,603

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

 
13,578

13,578

Sep-22
(5)
2022 Maturity
L + 1.25%

 
$
250,000

Dec-22
(2)
 
Total Secured Debt
4.22
%
 
$
174,043

 
 
 
Other Unsecured Debt
—
%
 
1,461

May-26
 
 
 
 
 
 
 
 
 
Total Unsecured Debt
4.10
%
 
$
1,664,461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Summary
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Unsecured Debt
4.10
%
 
$
1,664,461

 
 
 
 
 
 
 
 
 
 
Total Secured Debt
4.22
%
 
174,043

 
 
 
 
 
 
 
 
 
 
Consolidated Debt
4.11
%
 
$
1,838,504

 
 
 
 
 
 
 
 
 
 
Net discounts and deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
financing costs
 
 
(14,595
)
 
 
 
 
 
 
 
 
 
 
Debt, per balance sheet
 
 
$
1,823,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Debt
 
 
$
1,838,504

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

 
 
 
 
 
 
 
 
 
 
Gross debt
 
 
$
1,868,504

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
The Company's $800 million Revolving Credit Facility matures in March 2023 and may be extended for two six-month periods, at our option.
(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 12/31/18 (continued)

chart-9ab4009d99a7551a98b.jpg
chart-e93b798dd7fd5935a04.jpgchart-24595bcc2c145891a69.jpg
(1) Revolving Credit Facility maturity of $213.0 million scheduled for 2023 is presented 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
 
12/31/18
 
Term Loan Covenants (1)
Required
 
12/31/18
Total Debt / Total Assets
 
< 60%
 
39.4%
 
Total Debt / Total Assets
< 60%
 
34.5%
Secured Debt / Total Assets
 
< 40%
 
3.7%
 
Secured Debt / Total Assets
< 40%
 
3.4%
Debt Service Coverage
 
> 1.5x
 
4.0x
 
Adjusted EBITDA / Fixed Charges
> 1.5x
 
3.5x
Unencumbered Assets / Unsecured Debt
 
> 150%
 
252.0%
 
Unsecured Debt / Unencumbered Assets
< 60%
 
34.6%
 
 
 
 
 
 
 
Unencumbered Adjusted NOI / Unsecured Interest Expense
> 1.75x
 
4.1x
 
 
 
 
 
 
 
 
 
 
 
 
Debt Ratios
 
Source
 
 
 
Unencumbered Portfolio Analysis
 
 
 
Gross debt
 
 
p. 29
 
$
1,868,504

 
# of unencumbered properties
147

Adjusted book
 
p. 36
 
$
4,785,794

 
% of total portfolio
90
%
Net debt / adjusted book ratio
 
 
 
38.9
%

Unencumbered square feet in-service
 
15,630

Net debt plus pref. equity / adj. book ratio
 
 
 
39.1
%
 
% of total portfolio
 
86
%
Net debt
 
 
p. 36
 
$
1,860,145

 
NOI from unencumbered real estate operations
 
$
73,923

Net debt plus preferred equity
 
 
p. 36
 
$
1,868,945

 
% of total NOI from real estate operations
 
92
%
In-place adjusted EBITDA
 
p. 10
 
$
77,252

 
Adjusted EBITDA from unencumbered real estate operations
 
$
68,562

Net debt / in-place adjusted EBITDA ratio
6.0
x
 
% of total adjusted EBITDA from real estate operations
 
91
%
Net debt plus pref. equity / in-place adj. EBITDA ratio
6.0
x
 
Unencumbered adjusted book
 
$
4,287,840

Denominator for debt service coverage
 
p. 35
 
$
18,865

 
% of total adjusted book
 
90
%
Denominator for fixed charge coverage
 
p. 35
 
$
20,778

 
 
 


Adjusted EBITDA
 
p. 10
 
$
75,200

 
 
 
 
Adjusted EBITDA debt service coverage ratio
 
 
4.0
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 12/31/18
(dollars and square feet in thousands)
Operating Properties
Operational
Square Feet
Occupancy %
Leased %
NOI for the Three Months Ended 12/31/18 (1)
NOI for the Year Ended 12/31/18 (1)
Total Assets (2)
Venture Level Debt
% COPT Owned
Suburban Maryland:
 

 
 
 
 
 

 

 
M Square Associates, LLC (3 properties)
302

98.2%
98.2%
$
1,832

$
6,266

$
66,337

$
42,960

50%
Huntsville, Alabama:
 
 
 
 
 
 
 
 
LW Redstone Company, LLC (7 properties)
532

98.7%
99.1%
1,847

7,406

84,510

46,757

85%
Total/Average
834

98.6%
98.6%
$
3,679

$
13,672

$
150,847

$
89,717

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

 
 
 

 

 
M Square Research Park
461

 
 
$
9,002

$
—

50%
Huntsville, Alabama:
 

 
 
 

 

 
Redstone Gateway (3)
4,065

 
 
85,023

—

85%
Washington, DC:
 
 
 
 
 
 
Stevens Place
190

 
 
83,118

13,578

95%
Total
4,716

 
 
$
177,143

$
13,578

 
 
(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 $57.0 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 12/31/18
(dollars and square feet in thousands) 
 
 
 
 
 
 
 
Joint venture information
 
 
 
 
 
 
 
COPT ownership %
50
%
 
 
 
 
 
 
Investment in unconsolidated real estate joint venture
$
39,845

 
 
 
 
 
 
Number of properties
6

 
 
 
 
 
 
Square feet
962

 
 
 
 
 
 
Percentage occupied
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance sheet information
Venture
 
COPT’s Share (1)
 
 
 
 
Operating properties, net
$
123,704

 
$
61,852

 
 
 
 
Total Assets
$
139,524

 
$
69,762

 
 
 
 
Debt
$
59,646

 
$
29,823

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended 12/31/18
 
Year Ended 12/31/18
Operating information
Venture
 
COPT’s Share (1)
 
Venture
 
COPT’s Share (1)
Revenue
$
2,929

 
$
1,464

 
$
11,634

 
$
5,817

Operating expenses
(507
)
 
(253
)
 
(1,998
)
 
(999
)
NOI and EBITDA
2,422

 
1,211

 
9,636

 
4,818

Interest expense
(533
)
 
(267
)
 
(2,115
)
 
(1,058
)
Depreciation and amortization
(1,130
)
 
(565
)
 
(4,513
)
 
(2,256
)
Net income
$
759

 
$
379

 
$
3,008

 
$
1,504

 
 
 
 
 
 
 
 
NOI (per above)
$
2,422

 
$
1,211

 
$
9,636

 
$
4,818

Tenant funded landlord assets
(149
)
 
(75
)
 
(548
)
 
(274
)
Straight line rent adjustments
35

 
18

 
40

 
20

Cash NOI
$
2,308

 
$
1,154

 
$
9,128

 
$
4,564

 
 
 
 
 
 
 
 

(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Gain on sales of real estate, net, per statements of operations
$
2,367

 
$
—

 
$
(23
)
 
$
(4
)
 
$
4,452

 
$
2,340

 
$
9,890

Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
—

 
—

 
(5,399
)
Gain on sales of previously depreciated operating properties
$
2,367

 
$
—

 
$
(23
)
 
$
(4
)
 
$
4,452

 
$
2,340

 
$
4,491

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment losses, per statements of operations
$
2,367

 
$
—

 
$
—

 
$
—

 
$
13,659

 
$
2,367

 
$
15,123

Impairment losses on previously depreciated operating properties
(6
)
 
—

 
—

 
—

 
(9,004
)
 
(6
)
 
(10,455
)
Impairment losses on non-operating properties
$
2,361

 
$
—

 
$
—

 
$
—

 
$
4,655

 
$
2,361

 
$
4,668

 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOI from real estate operations (1)
 

 
 

 
 

 
 

 
 

 
 
 
 
Real estate revenues
$
130,825

 
$
128,988

 
$
129,162

 
$
128,278

 
$
127,685

 
$
517,253

 
$
509,980

Real estate property operating expenses
(51,298
)
 
(49,340
)
 
(49,446
)
 
(50,951
)
 
(47,449
)
 
(201,035
)
 
(190,964
)
COPT’s share of NOI in unconsolidated real estate JV (2)
1,211

 
1,206

 
1,202

 
1,199

 
1,203

 
4,818

 
4,805

NOI from real estate operations
80,738

 
80,854

 
80,918

 
78,526

 
81,439

 
321,036

 
323,821

General and administrative expenses
(5,105
)
 
(5,796
)
 
(6,067
)
 
(5,861
)
 
(5,552
)
 
(22,829
)
 
(24,008
)
Leasing expenses
(1,976
)
 
(1,103
)
 
(1,561
)
 
(1,431
)
 
(1,447
)
 
(6,071
)
 
(6,829
)
Business development expenses and land carry costs
(1,425
)
 
(1,567
)
 
(1,234
)
 
(1,614
)
 
(1,646
)
 
(5,840
)
 
(6,213
)
NOI from construction contracts and other service operations
546

 
365

 
640

 
982

 
853

 
2,533

 
3,222

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

 
—

 
—

 
(4,655
)
 
(2,361
)
 
(4,668
)
Equity in income (loss) of unconsolidated non-real estate entities
1,198

 
(2
)
 
(1
)
 
(2
)
 
(2
)
 
1,193

 
(5
)
Interest and other income
74

 
1,486

 
1,439

 
1,359

 
1,501

 
4,358

 
6,318

Loss on early extinguishment of debt
(258
)
 
—

 
—

 
—

 
—

 
(258
)
 
(513
)
Gain on sales of non-operating properties
—

 
—

 
—

 
—

 
—

 
—

 
5,399

Interest expense
(18,475
)
 
(19,181
)
 
(18,945
)
 
(18,784
)
 
(19,211
)
 
(75,385
)
 
(76,983
)
COPT’s share of interest expense of unconsolidated real estate JV (2)
(267
)
 
(266
)
 
(264
)
 
(261
)
 
(266
)
 
(1,058
)
 
(1,058
)
Income tax benefit (expense)
190

 
291

 
(63
)
 
(55
)
 
(953
)
 
363

 
(1,098
)
FFO - per NAREIT (1)
$
52,879

 
$
55,081

 
$
54,862

 
$
52,859

 
$
50,061

 
$
215,681

 
$
217,385

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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
 
Year Ended
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
12/31/18
 
12/31/17
Total interest expense
$
18,475

 
$
19,181

 
$
18,945

 
$
18,784

 
$
19,211

 
$
75,385

 
$
76,983

Less: Amortization of deferred financing costs
(550
)
 
(468
)
 
(468
)
 
(468
)
 
(443
)
 
(1,954
)
 
(2,928
)
Less: Amortization of net debt discounts, net of amounts capitalized
(365
)
 
(362
)
 
(358
)
 
(354
)
 
(350
)
 
(1,439
)
 
(1,379
)
Less: Accum. other comprehensive loss on derivatives amortized to expense
(34
)
 
(33
)
 
(34
)
 
(34
)
 
(54
)
 
(135
)
 
(143
)
Gain on interest rate derivatives
—

 
—

 
—

 
—

 
191

 
—

 
234

COPT’s share of interest expense of unconsolidated real estate JV, excluding deferred financing costs
260

 
261

 
258

 
255

 
260

 
1,034

 
1,034

Denominator for interest coverage
17,786

 
18,579

 
18,343

 
18,183

 
18,815

 
72,891

 
73,801

Scheduled principal amortization
1,079

 
1,060

 
1,049

 
1,052

 
1,034

 
4,240

 
4,062

Denominator for debt service coverage
18,865

 
19,639

 
19,392

 
19,235

 
19,849

 
77,131

 
77,863

Capitalized interest
1,748

 
1,410

 
1,397

 
1,374

 
1,032

 
5,929

 
5,229

Preferred share dividends
—

 
—

 
—

 
—

 
—

 
—

 
6,219

Preferred unit distributions
165

 
165

 
165

 
165

 
165

 
660

 
660

Denominator for fixed charge coverage
$
20,778

 
$
21,214

 
$
20,954

 
$
20,774

 
$
21,046

 
$
83,720

 
$
89,971

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred share dividends
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
6,219

Preferred unit distributions
165

 
165

 
165

 
165

 
165

 
660

 
660

Common share dividends - unrestricted shares
30,206

 
29,821

 
28,284

 
27,974

 
27,747

 
116,285

 
109,489

Common share dividends - restricted shares
114

 
114

 
117

 
117

 
112

 
462

 
449

Common unit distributions
367

 
373

 
879

 
879

 
894

 
2,498

 
3,661

Total dividends/distributions
$
30,852

 
$
30,473

 
$
29,445

 
$
29,135

 
$
28,918

 
$
119,905

 
$
120,478

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common share dividends - unrestricted shares
$
30,206

 
$
29,821

 
$
28,284

 
$
27,974

 
$
27,747

 
$
116,285

 
$
109,489

Common unit distributions
367

 
373

 
879

 
879

 
894

 
2,498

 
3,661

Dividends and distributions for payout ratios
$
30,573

 
$
30,194

 
$
29,163

 
$
28,853

 
$
28,641

 
$
118,783

 
$
113,150

 
 
 
 
 
 
 
 
 
 
 
 
 
 

35

Corporate Office Properties Trust
Supplementary Reconciliations of Non-GAAP Measures (continued)
(dollars in thousands)
 
Three Months Ended
 
 
 
 
 
12/31/18
 
9/30/18
 
6/30/18
 
3/31/18
 
12/31/17
 
 
 
 
Total Assets
$
3,656,005

 
$
3,650,366

 
$
3,612,362

 
$
3,596,238

 
$
3,595,205

 
 
 
 
Accumulated depreciation
897,903

 
867,659

 
839,478

 
813,457

 
786,193

 
 
 
 
Accumulated amort. of real estate intangibles and deferred leasing costs
204,882

 
200,229

 
201,645

 
197,520

 
193,151

 
 
 
 
COPT’s share of liabilities of unconsolidated real estate JV
29,917

 
30,103

 
30,015

 
30,100

 
29,908

 
 
 
 
COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JV
5,446

 
4,881

 
4,317

 
3,752

 
3,189

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

 
(42,226
)
 
(42,226
)
 
(42,226
)
 
(42,226
)
 
 
 
 
Less: Cash and cash equivalents
(8,066
)
 
(9,492
)
 
(8,472
)
 
(8,888
)
 
(12,261
)
 
 
 
 
Less: COPT’s share of cash of unconsolidated real estate JV
(293
)
 
(444
)
 
(410
)
 
(295
)
 
(371
)
 
 
 
 
Adjusted book
$
4,785,794

 
$
4,701,076

 
$
4,636,709

 
$
4,589,658

 
$
4,552,788

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross debt (page 29)
$
1,868,504

 
$
1,853,312

 
$
1,914,066

 
$
1,898,115

 
$
1,872,167

 


 


Less: Cash and cash equivalents
(8,066
)
 
(9,492
)
 
(8,472
)
 
(8,888
)
 
(12,261
)
 


 


Less: COPT’s share of cash of unconsolidated real estate JV
(293
)
 
(444
)
 
(410
)
 
(295
)
 
(371
)
 
 
 
 
Net debt
$
1,860,145

 
$
1,843,376

 
$
1,905,184

 
$
1,888,932

 
$
1,859,535

 


 


Preferred equity
8,800

 
8,800

 
8,800

 
8,800

 
8,800

 
 
 
 
Net debt plus preferred equity
$
1,868,945

 
$
1,852,176

 
$
1,913,984

 
$
1,897,732

 
$
1,868,335

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 or loss on other investments, 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.
 
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 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.


39


Corporate Office Properties Trust
Definitions

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 (a) properties acquired or placed in service subsequent to the commencement of a quarter made in order to reflect a full quarter of ownership/operations and (b) significant mid-quarter occupancy changes associated with properties recently placed in service with no occupancy. 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), (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) or (5) replacements of significant components of a building after the building has reached the end of its original useful life. 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. 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

logo2dtd021015a01a10.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 4Q and Full Year 2018 Results

COLUMBIA, MD February 7, 2019-Corporate Office Properties Trust (“COPT” or the “Company”) (NYSE: OFC) announced financial and operating results for the fourth quarter and full year ended December 31, 2018.

Management Comments

“Our fourth quarter represented a strong finish to a solid year,” stated Stephen E. Budorick, COPT’s President & Chief Executive Officer. “Leasing further accelerated during the fourth quarter, resulting in nearly 250,000 square feet of vacancy leasing, 377,000 square feet of development leasing, and 700,000 square feet of renewals, resulting in a robust 82% retention rate. For the year, we leased over 4.2 million square feet, including nearly 600,000 square feet of vacancy leasing, and 1.1 million square feet of development leasing-the second highest level in our 20 year history as a public company.” He continued, “Thus far in 2019, we have completed the lease for the second floor at 310 NBP with the U.S. Government, are in advanced negotiations on a significant level of development leasing, and are on track to register another strong year of leasing in the operating portfolio.”

Financial Highlights

4th Quarter Financial Results:
•
Diluted earnings per share (“EPS”) was $0.16 for the quarter ended December 31, 2018 as compared to $0.10 for the fourth quarter of 2017.

•
Diluted funds from operations per share (“FFOPS”), as calculated in accordance with NAREIT’s definition, was $0.47 for the fourth quarter of 2018, equal to fourth quarter 2017 results.

•
FFOPS, as adjusted for comparability, was $0.50 for the quarter ended December 31, 2018 as compared to $0.53 for the fourth quarter of 2017.

Full Year 2018 Financial Results:
•
EPS for the year ended December 31, 2018 was $0.69 as compared to $0.56 for 2017.

•
Per NAREIT’s definition, FFOPS for 2018 was $1.97 as compared to $1.94 for 2017.

•
FFOPS, as adjusted for comparability, for 2018 was $2.01 as compared to $2.02 for 2017.

Adjustments for comparability encompass items such as gains and impairment losses on non-operating properties, losses on early extinguishment of debt, derivative gains (losses), issuance costs associated with

i

redeemed preferred shares, demolition costs of redevelopment and nonrecurring improvements, and executive transition costs.

Operating Performance Highlights

Operating Portfolio Summary:
•
At December 31, 2018, the Company’s core portfolio of 161 operating office properties was 93.1% occupied and 94.0% leased.

During the quarter, the Company placed two developments aggregating 238,000 square feet plus our build-to-suit for a defense contractor into service; all three developments were 100% leased. During the year, the Company placed seven developments totaling 688,000 square feet that were 90% leased and the build-to-suit for a defense contractor that was 100% leased into service.

Same-Property Performance:
•
At December 31, 2018, COPT’s same-property portfolio of 147 buildings was 93.0% occupied and 93.8% leased.

•
For the quarter and year ended December 31, 2018, the Company’s same-property cash NOI from Defense/IT locations increased 1.0% and 2.1%, respectively, over the prior year’s comparable periods. For the same time periods, the Company’s total same-property cash NOI decreased 1.1% and 0.4%, respectively, over the prior year’s comparable periods.

Leasing:
•
Square Feet Leased–For the quarter ended December 31, 2018, the Company leased 1.3 million total square feet, including 704,000 square feet of renewing leases, 248,000 square feet of new leases on vacant space, and 377,000 square feet in development projects.

For the year ended December 31, 2018, the Company leased 4.2 million total square feet, including 2.5 million square feet of renewing leases, 596,000 square feet of new leases on vacant space, and 1.1 million square feet in development projects.

•
Renewal Rates–During the fourth quarter and year ended December 31, 2018, the Company renewed 82.2% and 78.4%, respectively, of total expiring leases.

•
Rent Spreads & Average Escalations on Renewing Leases–For the quarter ended December 31, 2018, rents on renewed space increased 3.0% on a GAAP basis and decreased 6.9% on a cash basis; average annual escalations on renewing leases in the fourth quarter were 2.7%. For the year ended December 31, 2018, rents on renewed space increased 6.8% on a GAAP basis and decreased 2.0% on a cash basis; average annual escalations on renewing leases for the year were 2.6%.

•
Lease Terms–In the fourth quarter, lease terms averaged 4.6 years on renewing leases, 8.5 years on new leasing of vacant space, and 14.7 years on development leasing. For the year, lease terms averaged 3.8 years on renewing leases, 7.4 years on new leasing of vacant space, and 12.4 years on development leasing.

Investment Activity Highlights

Development & Redevelopment Projects:
•
Construction Pipeline. At January 2, 2019, the Company’s construction pipeline consisted of nine properties totaling 1.1 million square feet that were 81% leased. These projects have a total estimated cost of $332.5 million, of which $162.4 million has been incurred.


ii

•
Redevelopment. At the end of the quarter, one project was under redevelopment totaling 106,000 square feet that was 0% leased. Subsequent to the quarter, the Company executed a 10,000 square foot pre-lease, bringing the project to 9% leased. The Company has invested $11.6 million of the $25.1 million anticipated total cost.

Balance Sheet and Capital Transaction Highlights
•
As of December 31, 2018, the Company’s net debt plus preferred equity to adjusted book ratio was 39.1% and its net debt plus preferred equity to in-place adjusted EBITDA ratio was 6.0x. For the same period, the Company’s adjusted EBITDA fixed charge coverage ratio was 3.6x.

•
As of December 31, 2018 and including the effect of interest rate swaps, the Company’s weighted average effective interest rate was 4.1%; additionally, 93% of the Company’s debt was subject to fixed interest rates and the consolidated debt portfolio had a weighted average maturity of 4.5 years.

•
During the fourth quarter and year ended December 31, 2018, the Company issued 1.4 million and 5.9 million common shares under its forward equity sale agreement for net proceeds of $40.0 million and $172.5 million, respectively. Also during the year, 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.

•
In October, the Company entered into a new $800 million credit agreement to replace its existing $800 million revolving credit facility. 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.

Associated Supplemental Presentation
Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its fourth quarter and year end 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 fourth quarter and year end 2018 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:    Friday, February 8, 2019
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:    1485747

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

Replay Information
A replay of the conference call will be immediately available via webcast on the Investors website. Additionally, a telephonic replay of this call will be available beginning at 3:00 p.m. Eastern Time on Friday, February 8, through 3:00 p.m. Eastern Time on Friday, February 22. 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 1485747.

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 December 31, 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 161 office and data center shell properties encompassed 17.9 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 dilutive effects of issuing additional common shares;
*
the Company's ability to achieve projected results;
*
security breaches relating to cyber attacks, cyber intrusions or other factors; 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 December 31,
 
For the Years Ended December 31,
 
2018
 
2017
 
2018
 
2017
Revenues
 

 
 

 
 
 
 
Real estate revenues
$
130,825

 
$
127,685

 
$
517,253

 
$
509,980

Construction contract and other service revenues
7,657

 
36,882

 
60,859

 
102,840

Total revenues
138,482

 
164,567

 
578,112

 
612,820

Expenses
 

 
 

 
 
 
 
Property operating expenses
51,298

 
47,449

 
201,035

 
190,964

Depreciation and amortization associated with real estate operations
36,219

 
33,938

 
137,116

 
134,228

Construction contract and other service expenses
7,111

 
36,029

 
58,326

 
99,618

Impairment losses
2,367

 
13,659

 
2,367

 
15,123

General and administrative expenses
5,105

 
5,552

 
22,829

 
24,008

Leasing expenses
1,976

 
1,447

 
6,071

 
6,829

Business development expenses and land carry costs
1,425

 
1,646

 
5,840

 
6,213

Total operating expenses
105,501

 
139,720

 
433,584

 
476,983

Operating income
32,981

 
24,847


144,528


135,837

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

 
1,501

 
4,358

 
6,318

Gain on sales of real estate
2,367

 
4,452

 
2,340

 
9,890

Loss on early extinguishment of debt
(258
)
 
—

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

 
11,589

 
75,583

 
74,549

Equity in income of unconsolidated entities
1,577

 
372

 
2,697

 
1,490

Income tax benefit (expense)
190

 
(953
)
 
363

 
(1,098
)
Net income
18,456

 
11,008

 
78,643

 
74,941

Net income attributable to noncontrolling interests:
 

 
 

 
 
 
 
Common units in the Operating Partnership (“OP”)
(210
)
 
(314
)
 
(1,742
)
 
(1,890
)
Preferred units in the OP
(165
)
 
(165
)
 
(660
)
 
(660
)
Other consolidated entities
(1,061
)
 
(908
)
 
(3,940
)
 
(3,646
)
Net income attributable to COPT
17,020

 
9,621

 
72,301

 
68,745

Preferred share dividends
—

 
—

 
—

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

 
—

 
—

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

 
$
9,621

 
$
72,301

 
$
55,679

 
 
 
 
 
 
 
 
Earnings per share (“EPS”) computation:
 

 
 

 
 
 
 
Numerator for diluted EPS:
 

 
 

 
 
 
 
Net income attributable to COPT common shareholders
$
17,020

 
$
9,621

 
$
72,301

 
$
55,679

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

 
$
9,509

 
$
71,839

 
$
55,230

Denominator:
 

 
 

 
 
 
 
Weighted average common shares - basic
108,528

 
99,304

 
103,946

 
98,969

Dilutive effect of share-based compensation awards
45

 
68

 
134

 
132

Dilutive effect of forward equity sale agreements
—

 
215

 
45

 
54

Weighted average common shares - diluted
108,573

 
99,587

 
104,125

 
99,155

Diluted EPS
$
0.16

 
$
0.10

 
$
0.69

 
$
0.56


vi


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

 
For the Three Months Ended December 31,
 
For the Years Ended December 31,
 
2018
 
2017
 
2018
 
2017
Net income
$
18,456

 
$
11,008

 
$
78,643

 
$
74,941

Real estate-related depreciation and amortization
36,219

 
33,938

 
137,116

 
134,228

Impairment losses on previously depreciated operating properties
6

 
9,004

 
6

 
10,455

Gain on sales of previously depreciated operating properties
(2,367
)
 
(4,452
)
 
(2,340
)
 
(4,491
)
Depreciation and amortization on unconsolidated real estate JV
565

 
563

 
2,256

 
2,252

Funds from operations (“FFO”)
52,879

 
50,061

 
215,681

 
217,385

Preferred share dividends
—

 
—

 
—

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

 
—

 
—

 
(6,847
)
Noncontrolling interests - preferred units in the OP
(165
)
 
(165
)
 
(660
)
 
(660
)
FFO allocable to other noncontrolling interests
(1,011
)
 
(874
)
 
(3,768
)
 
(3,675
)
Basic and diluted FFO allocable to share-based compensation awards
(200
)
 
(198
)
 
(851
)
 
(814
)
Basic FFO available to common share and common unit holders (“Basic FFO”)
51,503

 
48,824

 
210,402

 
199,170

Redeemable noncontrolling interests
331

 
—

 
1,540

 
—

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

 
48,824

 
211,942

 
199,170

Gain on sales of non-operating properties
—

 
—

 
—

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

 
4,655

 
2,361

 
4,668

Income tax expense associated with FFO comparability adjustments
—

 
800

 
—

 
800

Gain on interest rate derivatives
—

 
(191
)
 
—

 
(234
)
Loss on early extinguishment of debt
258

 
—

 
258

 
513

Issuance costs associated with redeemed preferred shares
—

 
—

 
—

 
6,847

Demolition costs on redevelopment and nonrecurring improvements
163

 
—

 
462

 
294

Executive transition costs
371

 
—

 
793

 
732

Diluted FFO comparability adjustments allocable to share-based compensation awards
(13
)
 
(23
)
 
(16
)
 
(35
)
Diluted FFO available to common share and common unit holders, as adjusted for comparability
54,974

 
54,065

 
215,800

 
207,356

Straight line rent adjustments and lease incentive amortization
(46
)
 
(1,343
)
 
(1,487
)
 
46

Amortization of intangibles included in net operating income
153

 
342

 
893

 
1,344

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

 
1,523

 
6,193

 
5,353

Amortization of deferred financing costs
550

 
443

 
1,954

 
2,928

Amortization of net debt discounts, net of amounts capitalized
365

 
350

 
1,439

 
1,379

Accum. other comprehensive loss on derivatives amortized to expense
34

 
54

 
135

 
143

Replacement capital expenditures
(14,848
)
 
(23,475
)
 
(64,784
)
 
(63,026
)
Other diluted AFFO adjustments associated with real estate JVs
(28
)
 
(39
)
 
121

 
(210
)
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)
$
42,755

 
$
31,920

 
$
160,264

 
$
155,313

Diluted FFO per share
$
0.47

 
$
0.47

 
$
1.97

 
$
1.94

Diluted FFO per share, as adjusted for comparability
$
0.50

 
$
0.53

 
$
2.01

 
$
2.02

Dividends/distributions per common share/unit
$
0.275

 
$
0.275

 
$
1.100

 
$
1.100



vii


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

 
December 31,
2018
 
December 31,
2017
Balance Sheet Data
 

 
 

Properties, net of accumulated depreciation
$
3,250,626

 
$
3,141,105

Total assets
3,656,005

 
3,595,205

Debt, per balance sheet
1,823,909

 
1,828,333

Total liabilities
2,002,697

 
2,103,773

Redeemable noncontrolling interest
26,260

 
23,125

Equity
1,627,048

 
1,468,307

Net debt to adjusted book
38.9
%
 
40.8
%
 
 
 
 
Core Portfolio Data (as of period end) (1)
 

 
 

Number of operating properties
161

 
156

Total net rentable square feet owned (in thousands)
17,937

 
17,059

Occupancy %
93.1
%
 
94.5
%
Leased %
94.0
%
 
95.1
%
 
 
 
 
 
For the Three Months Ended December 31,
 
For the Years Ended December 31,
2018
 
2017
 
2018
 
2017
Payout ratios
 

 
 

 
 

 
 

Diluted FFO
59.0
%
 
58.7
%
 
56.0
%
 
56.8
%
Diluted FFO, as adjusted for comparability
55.6
%
 
53.0
%
 
55.0
%
 
54.6
%
Diluted AFFO
71.5
%
 
89.7
%
 
74.1
%
 
72.9
%
Adjusted EBITDA fixed charge coverage ratio
3.6
x
 
3.7
x
 
3.6
x
 
3.4
x
Net debt to in-place adjusted EBITDA ratio (2)
6.0
x
 
6.1
x
 
N/A

 
N/A

Net debt plus preferred equity to in-place adjusted EBITDA ratio (3)
6.0
x
 
6.1
x
 
N/A

 
N/A

 
 
 
 
 
 
 
 
Reconciliation of denominators for per share measures
 
 

 
 
 
 
Denominator for diluted EPS
108,573

 
99,587

 
104,125

 
99,155

Weighted average common units
1,345

 
3,252

 
2,468

 
3,362

Redeemable noncontrolling interests
1,126

 
—

 
936

 
—

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

 
102,839

 
107,529

 
102,517

 
 
 
 
 
 
 
 

(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 December 31,
 
For the Years Ended December 31,
 
2018
 
2017
 
2018
 
2017
Reconciliation of common share dividends to dividends and distributions for payout ratios
 

 
 

 
 
 
 
Common share dividends - unrestricted shares
$
30,206

 
$
27,747

 
$
116,285

 
$
109,489

Common unit distributions
367

 
894

 
2,498

 
3,661

Dividends and distributions for payout ratios
$
30,573

 
$
28,641

 
$
118,783

 
$
113,150

 
 
 
 
 
 
 
 
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
$
18,456

 
$
11,008

 
$
78,643

 
$
74,941

Interest expense
18,475

 
19,211

 
75,385

 
76,983

Income tax (benefit) expense
(190
)
 
953

 
(363
)
 
1,098

Depreciation of furniture, fixtures and equipment
404

 
600

 
1,947

 
2,273

Real estate-related depreciation and amortization
36,219

 
33,938

 
137,116

 
134,228

Impairment losses on previously depreciated operating properties
6

 
9,004

 
6

 
10,455

Gain on sales of previously depreciated operating properties
(2,367
)
 
(4,452
)
 
(2,340
)
 
(4,491
)
Adjustments from unconsolidated real estate JV
832

 
829

 
3,314

 
3,310

EBITDAre
71,835

 
71,091

 
293,708

 
298,797

Impairment losses on non-operating properties
2,361

 
4,655

 
2,361

 
4,668

Loss on early extinguishment of debt
258

 
—

 
258

 
513

Gain on sales of non-operating properties
—

 
—

 
—

 
(5,399
)
Net gain on other investments
(449
)
 
—

 
(449
)
 
—

Business development expenses
661

 
1,116

 
3,114

 
3,786

Demolition costs on redevelopment and nonrecurring improvements
163

 
—

 
462

 
294

Executive transition costs
371

 
—

 
793

 
732

Adjusted EBITDA
75,200

 
76,862

 
$
300,247

 
$
303,391

Proforma net operating income adjustment for property changes within period
2,052

 
(578
)
 
 
 
 
In-place adjusted EBITDA
$
77,252

 
$
76,284

 

 

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

 
 

 
 

 
 

Interest expense
$
18,475

 
$
19,211

 
$
75,385

 
$
76,983

Less: Amortization of deferred financing costs
(550
)
 
(443
)
 
(1,954
)
 
(2,928
)
Less: Amortization of net debt discounts, net of amounts capitalized
(365
)
 
(350
)
 
(1,439
)
 
(1,379
)
Less: Accum. other comprehensive loss on derivatives amortized to expense
(34
)
 
(54
)
 
(135
)
 
(143
)
Gain on interest rate derivatives
—

 
191

 
—

 
234

COPT’s share of interest expense of unconsolidated real estate JV, excluding deferred financing costs
260

 
260

 
1,034

 
1,034

Scheduled principal amortization
1,079

 
1,034

 
4,240

 
4,062

Capitalized interest
1,748

 
1,032

 
5,929

 
5,229

Preferred share dividends
—

 
—

 
—

 
6,219

Preferred unit distributions
165

 
165

 
660

 
660

Denominator for fixed charge coverage-Adjusted EBITDA
$
20,778

 
$
21,046

 
$
83,720

 
$
89,971

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ix


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

 
For the Three Months Ended December 31,
 
For the Years Ended December 31,
 
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
$
7,876

 
$
14,804

 
$
37,502

 
$
37,034

Building improvements
9,306

 
9,241

 
22,977

 
22,308

Leasing costs
3,800

 
3,242

 
9,847

 
8,487

Net (exclusions from) additions to tenant improvements and incentives
(2,131
)
 
(2,929
)
 
1,577

 
2,984

Excluded building improvements
(3,984
)
 
(853
)
 
(7,073
)
 
(7,757
)
Excluded leasing costs
(19
)
 
(30
)
 
(46
)
 
(30
)
Replacement capital expenditures
$
14,848

 
$
23,475

 
$
64,784

 
$
63,026

 
 
 
 
 
 
 
 
Same Properties cash NOI
$
70,923

 
$
71,711

 
$
283,450

 
$
284,470

Straight line rent adjustments and lease incentive amortization
(638
)
 
(1,050
)
 
(4,287
)
 
(2,808
)
Amortization of acquired above- and below-market rents
(97
)
 
(287
)
 
(671
)
 
(1,123
)
Amortization of below-market cost arrangements
(147
)
 
(147
)
 
(589
)
 
(590
)
Lease termination fees, gross
906

 
828

 
3,231

 
2,911

Tenant funded landlord assets and lease incentives
409

 
1,118

 
3,421

 
4,488

Cash NOI adjustments in unconsolidated real estate JV
57

 
73

 
254

 
336

Same Properties NOI
$
71,413

 
$
72,246

 
$
284,809

 
$
287,684

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

 
 

Total assets
 
$
3,656,005

 
$
3,595,205

Accumulated depreciation
 
897,903

 
786,193

Accumulated amortization of real estate intangibles and deferred leasing costs
 
204,882

 
193,151

COPT’s share of liabilities of unconsolidated real estate JV
 
29,917

 
29,908

COPT’s share of accumulated depreciation and amortization of unconsolidated real estate JV
 
5,446

 
3,189

Less: Disposed property included in assets held for sale
 
—

 
(42,226
)
Less: Cash and cash equivalents
 
(8,066
)
 
(12,261
)
Less: COPT’s share of cash of unconsolidated real estate JV
 
(293
)
 
(371
)
Adjusted book
 
$
4,785,794

 
$
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)
 
$
1,868,504

 
$
1,872,167

Less: Cash and cash equivalents
 
(8,066
)
 
(12,261
)
Less: COPT’s share of cash of unconsolidated real estate JV
 
(293
)
 
(371
)
Net debt
 
$
1,860,145

 
$
1,859,535

Preferred equity
 
8,800

 
8,800

Net debt plus preferred equity
 
$
1,868,945

 
$
1,868,335


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