FFO per Share to Increase 3.7% at
Midpoint
COPT Defense Properties (NYSE: CDP) (“COPT Defense” or the
“Company”) is establishing the following guidance for the year
ending December 31, 2024:
2024 Guidance.
- Diluted earnings per share (“EPS”) in the range of $1.15−$1.23;
and
- Diluted FFO per share (“FFOPS”) - Nareit and as adjusted for
comparability, in the range of $2.47−$2.55.
1Q24 Guidance. For the
quarter ending March 31, 2024, the Company is establishing the
following guidance:
- EPS in the range of $0.26−$0.28; and
- FFOPS - Nareit and as adjusted for comparability, in the range
of $0.59−$0.61.
2024 Guidance Reconciliation
Tables. Reconciliations of projected EPS to projected
FFOPS - Nareit and as adjusted for comparability, are as
follows:
Table 1: Reconciliation of EPS to FFOPS, per Nareit and
Quarter ending Year ending
As Adjusted for Comparability
March 31, 2024 December 31, 2024 Low High Low High EPS
$
0.26
$
0.28
$
1.15
$
1.23
Real estate-related depreciation and amortization
0.33
0.33
1.32
1.32
FFOPS, Nareit and as adjusted for comparability
$
0.59
$
0.61
$
2.47
$
2.55
Assumptions Underpinning 2024
Guidance. Table 2 details assumptions that underpin the
Company’s 2024 and 1Q24 full year EPS and FFOPS guidance,
respectively:
Table 2: Full Year 2024 and 1Q24 Guidance Assumptions
(a)
2023
2024
Metric Actual Low Midpoint High
Management Commentary Earnings: EPS
$
(0.67
)
$
1.15
$
1.19
$
1.23
Recognized non-recurring asset impairments in 2023 FFOPS - as
adjusted for comparability
$
2.42
$
2.47
$
2.51
$
2.55
Y/Y growth driven by an increase in NOI from the Same Property
portfolio and developments placed into service, partially offset by
higher interest expense and G&A
Key Assumptions:
2024 Same Property Pool: % Change in Cash NOI 5.7% (b)
5.0
%
6.0
%
7.0
%
Growth in 2024 driven by embedded cash rent increases in leases,
commencements of rents from 2022 and 2023 leasing activity, and
increases in cash rent at properties added into the 2024 pool
Year-end Occupancy 93.4 (b)
93.0
%
93.5
%
94.0
%
Occupancy will be positively impacted by the commencement of
leasing executed in 2023, offset by several known non-renewals,
primarily in 1Q24 Change in Cash Rents on Renewals
1.5
%
(1.0
%)
0.0
%
1.0
%
Tenant Retention
80
%
75
%
80
%
85
%
Cash NOI from Developments (c)
$
12.5
$
10.0
$
11.0
$
12.0
$275M delivered in 2023 (~850K SF, 98% leased), with another $147M
delivering in 2024 (~400K SF, 81% leased). Range is driven by
timing of rent commencement, not lease execution risk Straight-line
Rent & other GAAP Adjustments
$
(6.5
)
$
6.0
$
6.5
$
7.0
Change is primarily driven by GAAP rent commencements on 2022 and
2023 leasing activity and the impact of prior year tenant funded
landlord assets, partially offset by free rent burnoff Net
Construction Contract and Other Service Revenues
$
2.8
$
1.5
$
2.0
$
2.5
Slight reduction in overall activity and conclusion of work on a
major project in 2023 Total G&A Expenses (d)
$
42.8
$
44.0
$
45.0
$
46.0
Increase due to the impact of inflation on wages and other costs,
and filling the vacant COO position in December 2023 Consolidated
Interest Expense (net of Capitalized Interest)
$
71.1
$
80.0
$
82.0
$
84.0
Increase in interest expense due to a higher projected debt balance
and lower capitalized interest resulting from highly leased
developments placed in service Dividend / Diluted AFFO Payout Ratio
63.9
%
Below 65%
Investment Activity: Capital Invested in
Development
$
249
$
240
$
260
$
280
Costs incurred on development projects Capital Commitment to New
Investments
$
280
$
200
$
220
$
240
Capital commitments to investments in 2024 Property Sales
$
190
none Equity required for development spend to be funded with cash
flow from operations after the dividend
4Q23
1Q24
1Q24 Metric Actual Low Midpoint
High Management Commentary Earnings: EPS
$
0.30
$
0.26
$
0.27
$
0.28
FFOPS - as adjusted for comparability
$
0.62
$
0.59
$
0.60
$
0.61
4Q23 to 1Q24 decline driven by higher seasonal operating expenses
and a slight decline in occupancy due to several known non-renewals
a) Dollars are in millions (except per share data). b) Same
Property metrics in 2023 refer to the 2023 Pool c) The 2023 actual
amount represents cash NOI from developments placed into service
during 2022 and 2023. The 2024 assumption amount represents cash
NOI from developments placed into service during 2023 and expected
to be placed into service during 2024 and, as such, are not yet in
the Company’s same property portfolio. d) Includes G&A,
leasing expenses, business development expenses, and land carry
cost.
About COPT Defense
COPT Defense, an S&P MidCap 400 Company, is a self-managed
REIT focused on owning, operating and developing properties in
locations proximate to, or sometimes containing, key U.S.
Government (“USG”) defense installations and missions (referred to
as its Defense/IT Portfolio). The Company’s tenants include the USG
and their defense contractors, who are primarily engaged in
priority national security activities, and who generally require
mission-critical and high security property enhancements. As of
December 31, 2023, the Company’s Defense/IT Portfolio of 190
properties, including 24 owned through unconsolidated joint
ventures, encompassed 21.7 million square feet and was 97.2%
leased.
Non-GAAP Measures
The Company believes that the measures defined below that are
not determined in accordance with generally accepted accounting
principles (“GAAP”) are helpful to investors in measuring its
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; the Company’s 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 the Company’s financial performance or to cash flow from
operating, investing and financing activities when evaluating its
liquidity or ability to make cash distributions or pay debt
service.
Basic FFO available to common share and
common unit holders (“Basic FFO”) – FFO adjusted to
subtract (1) preferred share dividends, (2) income or loss
attributable to noncontrolling interests through ownership of
preferred units in COPT Defense 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 share-based compensation awards 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.
Cash net operating income (“Cash
NOI”) – NOI from real estate operations adjusted to
eliminate the effects of: straight-line rental adjustments,
amortization of tenant incentives, amortization of intangibles and
other assets included in FFO and NOI, 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
unconsolidated real estate JVs that were allocable to our ownership
interest in the JVs. 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.
Diluted adjusted funds from operations
available to common share and common unit holders (“Diluted
AFFO”) – 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 unconsolidated real
estate JVs that were allocable to our ownership interest in the
JVs.
Diluted FFO available to common share
and common unit holders (“Diluted FFO”) – 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
(which includes discontinued operations) assumes the conversion of
common units 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.
Diluted FFO available to common share
and common unit holders, as adjusted for comparability (“Diluted
FFO, as adjusted for comparability”) – Diluted FFO or
FFO adjusted to exclude: operating property acquisition costs; 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; executive
transition costs associated with named executive officers; and, for
periods prior to 10/1/22, demolition costs on redevelopment and
nonrecurring improvements and executive transition costs associated
with other senior management team members. Diluted FFO, as adjusted
for comparability also includes adjustments to Diluted FFO for the
effects of the items noted above pertaining to unconsolidated real
estate JVs that were allocable to our ownership interest in the
JVs.
Diluted FFO per share –
Defined as (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 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.
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
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.
Reconciliations of Diluted EPS to
Diluted FFOPS
Reconciliations of Diluted EPS to Diluted
FFOPS
Actuals
Diluted EPS to Diluted FFOPS per Nareit and as adjusted for
comparability
Quarter Ended
Year Ended
(in dollars per share)
December 31, 2023
December 31, 2023
Diluted EPS
$
0.30
$
(0.67
)
Real estate-related depreciation and amortization
0.32
1.33
Gain on sales of real estate
-
(0.43
)
Impairment losses
-
2.21
Other FFO adjustments
-
(0.03
)
Diluted FFOPS, Nareit
0.62
2.41
Executive transition costs
-
0.01
Diluted FFOPS, as adjusted for comparability
$
0.62
$
2.42
Funds from operations (“FFO” or “FFO
per Nareit”) – Defined as net income or loss computed
using GAAP, excluding gains on sales and impairment losses of real
estate and investments in unconsolidated real estate JVs (net of
associated income tax) and real estate-related depreciation and
amortization. FFO also includes adjustments to net income or loss
for the effects of the items noted above pertaining to
unconsolidated real estate JVs that were allocable to our ownership
interest in the JVs. 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.
Net operating income from real estate
operations (“NOI”) – Includes: consolidated real estate
revenues from continuing and discontinued operations; consolidated
property operating expenses from continuing and discontinued
operations; and the net of revenues and property operating expenses
of real estate operations owned through unconsolidated real estate
JVs that are allocable to COPT Defense’s ownership interest in the
JVs.
Net construction contract and other
service revenues ‒ Defined as net operating income from
real estate services such as property management, development and
construction services primarily for the Company's properties but
also for third parties. Construction contract and other service
revenues and expenses consist primarily of subcontracted costs that
are reimbursed to the Company by the customer along with a
management fee. The operating margins from these activities are
small relative to the revenue. The Company believes NOI from
service operations is a useful measure in assessing both its level
of activity and its profitability in conducting such
operations.
Reconciliation of Net Construction
Contract and Other Service Revenues (in millions)
Actuals Guidance
Year Ended
Year Ending
December 31, 2023
December 31, 2024
Construction contract and other service revenues
$
60
$
73
Construction contract and other service expenses
(57
)
(71
)
Net construction contract and other service revenues
$
3
$
2
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
dividends on common and deferred shares and distributions to
holders of interests in the Operating Partnership and dividends on
convertible preferred shares to the extent they are dilutive in the
respective FFO per share numerators divided by (2) the respective
non-GAAP measures.
Replacement capital
expenditures – 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.
Same Property – Operating
office and data center shell properties stably owned and 100%
operational since at least the beginning of the prior year.
Same Property NOI and Same Property
cash NOI – NOI, or Cash NOI, from real estate operations
of Same Property groupings.
Reconciliations of Developments
Property NOI to Cash NOI (in millions)
Actuals Guidance
Year Ended
Year Ending
December 31, 2023
December 31, 2024
Property NOI
$
36
$
24
Straight line rent adjustments
(23
)
(13
)
Cash NOI
$
13
$
11
Forward-Looking
Information
This press release may contain “forward-looking” statements, as
defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, that are based on the
Company’s current expectations, estimates and projections about
future events and financial trends affecting the Company.
Forward-looking statements can be identified by the use of words
such as “may,” “will,” “should,” “could,” “believe,” “anticipate,”
“expect,” “estimate,” “plan” or other comparable terminology.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which the Company cannot predict with
accuracy and some of which the Company might not even anticipate.
Although the Company believes that the expectations, estimates and
projections reflected in such forward-looking statements are based
on reasonable assumptions at the time made, the Company can give no
assurance that these expectations, estimates and projections will
be achieved. Future events and actual results may differ materially
from those discussed in the forward-looking statements and the
Company undertakes no obligation to update or supplement any
forward-looking statements.
The areas of risk that may affect these expectations, estimates
and projections include, but are not limited to, those risks
described in Item 1A of the Company’s Annual Report on Form 10-K
for the year ended December 31, 2022.
Source: COPT Defense Properties
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240208313169/en/
IR Contacts Venkat Kommineni, CFA 443-285-5587
venkat.kommineni@copt.com
Michelle Layne 443-285-5452 michelle.layne@copt.com
COPT Defense Properties (NYSE:CDP)
Historical Stock Chart
From Oct 2024 to Nov 2024
COPT Defense Properties (NYSE:CDP)
Historical Stock Chart
From Nov 2023 to Nov 2024