Corporate Office Properties Trust (OFC) Q4 2020 Earnings Conference Call February 5, 2021 12:00 PM ET Company Participants Stephanie Krewson-Kelly - IR Steve Budorick - President & CEO Anthony Mifsud - EVP & CFO Todd Hartman - EVP & COO Conference Call Participants Manny Korchman - Citi Craig Mailman - KeyBanc Capital Markets Blaine Heck - Wells Fargo Steve Sakwa - Evercore ISI Tom Catherwood - BTIG Jamie Feldman - Bank of America Jay Kornreich - SMBC Dave Rodgers - Baird Omotayo Okusanya - Mizuho Chris Luc ...

Corporate Office Properties Trust (OFC) Q3 2020 Earnings Conference Call October 30, 2020 12:00 PM ET Company Participants Stephanie Krewson-Kelly - IR Steve Budorick - President & CEO Anthony Mifsud - EVP & CFO Conference Call Participants Manny Korchman - Citi Steve Sakwa - Evercore ISI Jamie Feldman - Bank of America Craig Mailman - KeyBanc Dave Rodgers - Baird Omotayo Okusanya - Mizuho Securities Danny Ismail - Green Street Operator Welcome to the Corporate Office Properties Trust Third Quarter 2020 Ear ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | --- | |-----------------------------------------------------------|---------------------------------------------------------------------------------------------------- ...

Corporate Office Properties Trust (OFC) Q2 2020 Earnings Conference Call July 31, 2020 12:00 PM ET Company Participants Stephanie Krewson-Kelly - VP, IR Stephen Budorick - President, CEO & Trustee Anthony Mifsud - EVP & CFO Conference Call Participants Craig Mailman - KeyBanc Capital Markets James Feldman - Bank of America Merrill Lynch Blaine Heck - Wells Fargo Securities Emmanuel Korchman - Citigroup Stephen Sakwa - Evercore ISI Christopher Lucas - Capital One Securities Peter Abramowitz - Jefferies Richa ...

PART I: FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for COPT and COPLP for the quarterly period ended June 30, 2020 [Corporate Office Properties Trust (COPT) and Subsidiaries](index=5&type=section&id=Corporate%20Office%20Properties%20Trust%20and%20Subsidiaries) COPT reported total assets of $4.01 billion and net income of $47.6 million for the six months ended June 30, 2020 COPT Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total properties, net | $3,513,099 | $3,340,886 | | Total assets | $4,011,325 | $3,854,453 | | Debt, net | $2,012,019 | $1,831,139 | | Total liabilities | $2,331,253 | $2,105,777 | | Total equity | $1,656,924 | $1,719,245 | COPT Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total revenues | $144,774 | $290,571 | | Net income attributable to COPT common shareholders | $23,497 | $47,551 | | Diluted EPS | $0.21 | $0.42 | COPT Consolidated Cash Flow Highlights - Six Months Ended June 30 (in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $136,537 | $111,815 | | Net cash used in investing activities | ($227,288) | ($13,630) | | Net cash provided by (used in) financing activities | $98,487 | ($59,401) | [Corporate Office Properties, L.P. (COPLP) and Subsidiaries](index=14&type=section&id=Corporate%20Office%20Properties%2C%20L.P.%20and%20Subsidiaries) COPLP's financial statements reflect total assets of $4.01 billion and net income of $48.1 million for the six months ended June 30, 2020 COPLP Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total properties, net | $3,513,099 | $3,340,886 | | Total assets | $4,008,793 | $3,851,393 | | Debt, net | $2,012,019 | $1,831,139 | | Total liabilities | $2,328,721 | $2,102,717 | | Total equity | $1,656,924 | $1,719,245 | COPLP Consolidated Statement of Operations Highlights (in thousands, except per unit data) | Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total revenues | $144,774 | $290,571 | | Net income attributable to COPLP common unitholders | $23,781 | $48,122 | | Diluted EPU | $0.21 | $0.42 | [Notes to Consolidated Financial Statements](index=21&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on accounting policies, segment performance, debt, and the impact of COVID-19 - The company owns, manages, and develops office and data center properties, with a majority of its portfolio supporting the **U.S. Government and its contractors in Defense/IT Locations**[47](index=47&type=chunk) - As of June 30, 2020, the portfolio included **174 properties totaling 19.8 million square feet**, 11 properties under development, and land for future development[47](index=47&type=chunk) - Effective January 1, 2020, the company adopted new credit loss guidance, resulting in a **$5.5 million cumulative-effect adjustment to equity**[56](index=56&type=chunk) [Note 9: Debt, Net](index=32&type=section&id=Note%209%3A%20Debt%2C%20Net) Total net debt increased to $2.01 billion as of June 30, 2020, composed of various fixed and variable rate instruments Debt Composition as of June 30, 2020 (in thousands) | Debt Type | Carrying Value | Stated Interest Rates | | :--- | :--- | :--- | | Mortgage and Other Secured Debt | $250,121 | Various (Fixed & Variable) | | Revolving Credit Facility | $169,000 | LIBOR + 0.775% to 1.45% | | Term Loan Facility | $398,058 | LIBOR + 1.00% to 1.65% | | Unsecured Senior Notes | $1,193,870 | 3.60% - 5.25% | | **Total debt, net** | **$2,012,019** | | - On March 6, 2020, the company amended its Term Loan Facility, **increasing the loan amount by $150.0 million** and changing the interest terms[100](index=100&type=chunk) [Note 13: Information by Business Segment](index=36&type=section&id=Note%2013%3A%20Information%20by%20Business%20Segment) The Defense/IT Locations segment generated the vast majority of NOI and comprised most of the company's total assets NOI from Real Estate Operations by Segment - Six Months Ended June 30, 2020 (in thousands) | Segment | NOI from Real Estate Operations | | :--- | :--- | | Defense/IT Locations | $143,926 | | Regional Office | $16,197 | | Wholesale Data Center | $6,931 | | Other | $835 | | **Total** | **$167,889** | [Note 17: Commitments and Contingencies](index=46&type=section&id=Note%2017%3A%20Commitments%20and%20Contingencies) The company faces potential losses from tax claims and significant uncertainty from the COVID-19 pandemic's future impact - Management believes a loss of up to **$3.2 million is reasonably possible** for certain municipal tax claims, which could be material to results of operations but not to financial position or liquidity[151](index=151&type=chunk) - The **COVID-19 pandemic poses significant risks**, including disruption to tenants' operations, ability to maintain occupancy, access to capital, and potential for development delays, with an uncertain long-term impact[156](index=156&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, high portfolio occupancy, and the significant future risks posed by COVID-19 [Effects of COVID-19](index=49&type=section&id=Effects%20of%20COVID-19) The portfolio's concentration in Defense/IT Locations has mitigated the pandemic's impact, though risks remain - The portfolio is concentrated in **Defense/IT Locations (87.8% of annualized rental revenue)**, which are primarily occupied by the USG and its contractors, designated as "essential businesses," mitigating much of the pandemic's impact[174](index=174&type=chunk) - As of the filing date, **COVID-19 had not significantly affected results**, with the company agreeing to defer $2.8 million in lease receivables, primarily for Regional Office and amenity tenants[177](index=177&type=chunk)[178](index=178&type=chunk) - An **impairment analysis was triggered** for the Regional Office portfolio due to the economic disruption, but it was concluded that the carrying value of each asset was recoverable[178](index=178&type=chunk) [Results of Operations](index=52&type=section&id=Results%20of%20Operations) Net income decreased significantly year-over-year due to a large 2019 gain on sale of real estate that did not recur Comparison of Net Income (in thousands) | Period | 2020 | 2019 | Variance | | :--- | :--- | :--- | :--- | | **Three Months Ended June 30** | $25,121 | $109,563 | ($84,442) | | **Six Months Ended June 30** | $50,671 | $131,881 | ($81,210) | Change in NOI from Real Estate Operations (in thousands) | Period | 2020 | 2019 | Variance | | :--- | :--- | :--- | :--- | | **Three Months Ended June 30** | $84,059 | $86,136 | ($2,077) | | **Six Months Ended June 30** | $167,889 | $169,900 | ($2,011) | - The large decrease in net income for both the three and six-month periods was primarily driven by a **significant gain on the sale of real estate recognized in 2019** which was absent in 2020[199](index=199&type=chunk)[207](index=207&type=chunk) [Funds from Operations](index=59&type=section&id=Funds%20from%20Operations) Diluted FFO per share was $0.51 for Q2 2020 and $0.92 for the first six months of 2020 FFO Reconciliation and Per Share Data | Metric (in thousands, except per share) | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net income | $25,121 | $50,671 | | FFO | $59,551 | $118,510 | | Basic FFO available to common holders | $57,695 | $104,369 | | Diluted FFO available to common holders | $57,809 | $104,592 | | **Diluted FFO per share** | **$0.51** | **$0.92** | | **Diluted FFO per share, as adjusted** | **$0.51** | **$1.02** | [Liquidity and Capital Resources of COPLP](index=64&type=section&id=Liquidity%20and%20Capital%20Resources%20of%20COPLP) COPLP maintained strong liquidity with $21.6 million in cash and $631.0 million available under its credit facility - As of June 30, 2020, COPLP had **$21.6 million in cash** and **$631.0 million available** under its $800.0 million Revolving Credit Facility[233](index=233&type=chunk)[235](index=235&type=chunk) Contractual Obligations Summary as of June 30, 2020 (in thousands) | Period | Total Contractual Cash Obligations | | :--- | :--- | | 2020 (remainder) | $250,372 | | 2021 | $428,400 | | 2022 | $536,827 | | 2023 | $624,468 | | 2024 | $299,977 | | Thereafter | $493,645 | | **Total** | **$2,633,689** | [Quantitative and Qualitative Disclosures about Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate changes affecting its $2.02 billion in total debt Debt Obligations by Rate Type as of June 30, 2020 (in thousands) | Debt Type | Total Amount | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Fixed rate debt | $1,343,261 | 4.30% | | Variable rate debt | $679,840 | 1.35% | - A **1% increase in the applicable LIBOR rate** would have increased interest expense by **$1.2 million** for the six months ended June 30, 2020[248](index=248&type=chunk) [Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures for both COPT and COPLP were effective as of June 30, 2020 - The CEO and CFO concluded that **disclosure controls and procedures for both COPT and COPLP were effective** as of June 30, 2020[249](index=249&type=chunk)[252](index=252&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter that materially affected, or are reasonably likely to materially affect, internal controls for either COPT or COPLP[250](index=250&type=chunk)[253](index=253&type=chunk) PART II: OTHER INFORMATION [Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material litigation beyond routine matters covered by insurance - There is **no material litigation** currently involving the company, other than routine matters expected to be covered by insurance[254](index=254&type=chunk) [Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the significant risks and uncertainties associated with the COVID-19 pandemic - The primary update to risk factors relates to the **COVID-19 pandemic** and the restrictive measures instituted to control its spread[256](index=256&type=chunk) - Specific risks from the pandemic include: disruption of tenants' operations and ability to fulfill lease obligations; difficulty in maintaining occupancy and leasing new space; potential shortages and increased costs from vendors; **constrained access to debt and equity capital**; and delays in development projects[257](index=257&type=chunk)[259](index=259&type=chunk) - A potential long-term increase in **remote work arrangements could adversely affect demand for office space**[259](index=259&type=chunk)