Corporate Office Properties Trust (NYSE:OFC) Q2 2016 Earnings Conference Call - Final Transcript

Jul 29, 2016 • 12:00 pm ET


Corporate Office Properties Trust (NYSE:OFC) Q2 2016 Earnings Conference Call - Final Transcript


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Welcome to the Corporate Office Properties Trust Second-Quarter 2016 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Krewson-Kelly, COPT's VP of IR. Ms. Krewson-Kelly, please proceed.

Stephanie Krewson-Kelly

Thank you, Mark. Good afternoon and welcome to COPT's conference call to discuss the Company's second-quarter results for 2016. With me today are Steve Budorick, President and CEO; and Anthony Mifsud, EVP and CFO. (Forward-Looking Cautionary Statements) With that, I will turn the call over to Steve.

Steve Budorick

Thank you, Stephanie, and good afternoon. We are on track to achieve the three major goals of our 2016 plan. Which are to generate same office cash NOI growth of at least 3.5%, to sell $440 million of assets to fund low-risk development and to further strengthen our balance sheet. Based on performance to date and confidence in our outlook, we increased the bottom of our full-year guidance range by $0.04 and, as a result of the significant progress made on asset sales, we've narrowed the top end by $0.02.

As summarized on slide 4, we had a strong second quarter. FFO per share of $0.52 exceeded our initial expectations set in April. Solid operations drove a 5.1% increase in same office cash NOI in the quarter and 5.7% growth during the first six months. The improving operating environment in our defense IT markets, which generate 86% of our revenues, is a major contributor to our same office performance and evidences the rebounding fundamentals in our markets.

Timing of dispositions accounted for one-third of the upside for the second-quarter results. Our initial Q2 guidance called for completing $120 million of asset sales and, while our timing was slightly delayed, devaluations we are achieving and that accrued as a benefit of our shareholders, are worth the wait. Last week we completed $148 million joint venture involving six of our data center properties. We monetized $74 million of equity and realized a 25% profit margin on the 50% interest we sold.

Additionally, we have $194 million of sales under contract with diligence completed and nonrefundable deposits posted. Plus another $75 million under contract that should close by year-end. The $80 million of sale proceeds we have raised to date, plus closing on the $269 million that are hard or under contract, will bring us to within less than $100 million of achieving our disposition goal.

In short, we remain confident in our ability to execute on planned dispositions. During the quarter, we leased a total of 1 million square feet, comprised of 508,000, square feet of renewals, 115,000 square feet of new leases on vacant space, and 382,000 square feet in development projects. In the first half of the year, we completed 1.6 million square feet of leasing, which included 756,000 square feet of renewals, and 249,000 square feet of vacancy lease-ups, 67% of which was to Defense IT tenants.

Of the 248,000 square feet that did not renew, we have backfilled 41%. For the first