Roger Waesche Jr., president and CEO of Corporate Offices Properties Trust (NYSE: OFC), which is commonly known as COPT, joined REIT.com for a CEO Spotlight video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.
Waesche was asked about the impact of political instability on company operations. He responded that about 70 percent of corporate revenues come from the government, particularly the defense information technology sector: “We have been caught up in the deficit and budget issues surrounding the government and all the political malaise that’s happened.”
At the same time, Waesche noted that the impact has been more from an investor sentiment standpoint than from any operational fall out. In fact, he said, COPT’s cyber security tenants have shielded the company from feeling the full brunt of government dysfunction. Waesche pointed out that of the 70 percent of its portfolio comprised of government tenants, occupancy levels in that niche stand at 94 percent.
“We continue to see some challenges, but we think we’ll be able to work through this over the next year or two,” he said.
Turning to development, Waesche said COPT has 1.3 million square feet under construction, of which 88 percent is preleased. The company also has a 200,000-square-foot development pipeline that’s 51 percent preleased and represents $18 million of net operating income (NOI) over the next two years, according to Waesche.
Development that has already been put into service but isn’t leased yet represents another $9 million in NOI in the next 24 months, Waesche noted.
“We’ve had a very good several years from a development leasing standpoint,” he said.
He added that in 2012, COPT booked 1.2 million square feet of development leasing, or about 6 percent of the square footage of the company. So far in 2013, COPT has leased 700,000 square feet, with an additional couple of hundred thousand square feet expected before the end of the year. Based on these developments and a shadow development pipeline of about 750,000 square feet, Waesche said 2014 and 2015 will likely be good development years for the company.
Meanwhile, Waesche said the company’s balance sheet has been a priority, resulting in leverage reduction of more than 700 basis points and improved fixed charge coverage. COPT has also accessed the unsecured bond market twice this year in transactions totaling $600 million. “Going into 2014, we’re very comfortable with our balance sheet and over time, we’ll continue to deleverage as we can opportunistically,” Waesche said.