OFC Corporate Office Properties Trust

Corporate Office Properties Trust (COPT) (NYSE: OFC) is an office REIT headquartered in Columbia, Maryland. As of Sept. 30, 2020, COPT’s core portfolio of 174 office and data center properties encompassed 20.2 million square feet and was 94.6% leased. COPT is differentiated from other office REITs because: 1) it has a unique franchise of office properties and land positions that serve priority U.S. Government defense activities, such as information technology and hyperscale cloud computing, collectively referred to as Defense/IT Locations, and 2) its impressive track record of completing an average of 1 million square feet of developments annually at its Defense/IT Locations, which are highly leased and create significant shareholder value.

These Defense/IT Locations are adjacent to defense installations that execute high-tech and research-oriented defense missions encompassing intelligence, surveillance and reconnaissance (ISR), research and development (R&D) for unmanned drones, missile defense, space, and cybersecurity. Accordingly, COPT’s business is not correlated with the broader economy or traditional office fundamentals, and the Company has strongly outperformed the REIT market during the pandemic.

• Healthy defense spending environment in the United States continues to drive strong demand for COPT’s locations. In 2019 the Company completed over 2 million square feet of development leasing—an all-time record. Because demand for COPT locations is not correlated to the economy, COPT is on track to complete another 1 million square feet of development leasing in 2020. Additionally, this year’s tenant retention is on track to set a 20-year record of 80%-85%.
• COPT owns and controls over 850 acres of the most relevant land locations, which limits competing supply and can accommodate over 10 million square feet of future mission growth.
• 1.6 million square feet are under construction; 84% of that space is pre-leased and should support impressive growth in the coming quarters.
• A secure common dividend yields 4.8%—an attractive premium to the yield from 10-year U.S. Treasuries.
• An investment grade-rated balance sheet supports future growth through development and ensures dividend safety.
• The Company continues to meet or exceed its 2020 plan objectives and operates largely unimpeded by pandemic-related restrictions, shutdowns, or tenant credit issues.

Click here to view the COPT Corporate Fact Sheet

Click here to view the COPT Investor Presentation

Advisor Access spoke with Corporate Office Properties’ President and CEO, Stephen Budorick, about the trust’s business model and growth strategy.

Advisor Access: COPT fills a unique niche in the REIT space. Please describe your business model.

Steve Budorick: As of Sept. 30, 2020, we derived 88% of our business from Defense/IT Locations, which encompass 20.2 million square feet of office space and more than 850 acres of strategic developable land…An important distinction is that the defense and intelligence locations we support are not involved with weapons manufacturing or in the training and deployment of troops; rather, the missions involve high-tech, R&D, cloud computing and cybersecurity aspects of national defense…

AA: Looking back on 2020, are there specific properties or innovations you'd like to highlight?

SB: Our newest and fastest growing park is Redstone Gateway, which we are developing on a land lease from the U.S. Government at the main gate of Redstone Arsenal in Huntsville, Alabama. That park consists of nearly 1.2 million square feet of operating properties that are 100% leased, and we have another 330,000 square feet under development, including 100 Secured Gateway, a 250,000-square-foot facility and our first project in the Redstone Gateway’s secure campus behind Redstone Arsenal’s security fence. 100 Secured Gateway is 84% pre-leased today, and should be 100% leased when fully operational in 2021.

AA: In November, COPT announced its 92nd consecutive common dividend. Tell us how you've been able to sustain this remarkable record even in the face of unprecedented economic, social, and political headwinds. Do you anticipate being able to continue the run?

SB: One of the main reasons investors buy REIT shares is for dividend income. We manage our operations to ensure the safety of our dividend, regardless of economic, social, political, or capital market trends.

In addition to generating 88% of our revenues from Defense/IT Locations, where demand for facilities remains solid regardless of the broader economy, we operate with very conservative levels of debt, and have been investment grade-rated by all three major rating agencies since 2013…

AA: The coronavirus pandemic, and the resulting emphasis on employees working remotely from their homes, has had a significant effect on office occupancy. How have COPT's properties—and bottom-line funds from operation (FFO) per share results—been impacted, and how have you addressed these impacts?

SB: Throughout this pandemic, our operations and rent collection rates have been minimally impacted. In strong contrast to other office REITs…

AA: The pandemic will likely continue to affect all markets, including REITs, for months to come. What steps has COPT taken to weather what could be a rocky start to 2021, and beyond?

SB: We actually do not expect a rocky start to 2021, and are not making any adjustments to our proven strategy. We have consistently outperformed on many metrics throughout 2020—bottom-line results, and our stock price, to name two—and are highly confident in our ability to grow FFO per share growth by 3–6% in 2021.

AA: Thank you, Steve.

Read the complete answers to these questions and the full interview with COPT HERE.

About Advisor Access:

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DISCLOSURE: COPT has paid Advisor Access a fee to distribute this press release. Stephen Budorick had final approval of the content and is wholly responsible for the validity of the statements and opinions.

CONTACT INFORMATION

Advisor Access
Rick Baggelaar
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