COPT Reports Third Quarter 2011 Results

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COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE: OFC), a specialty office real estate investment trust (REIT) that focuses primarily on serving the specialized requirements of U.S. Government and Defense Information Technology tenants, announced financial and operating results for the quarter ended September 30, 2011. Diluted earnings per share (EPS) was $0.03 for the quarter ended September 30, 2011 as compared to diluted EPS of $0.08 for the quarter ended September 30, 2010. Excluding a loss on the early retirement of debt and operating property acquisition costs, funds from operations per diluted share (FFOPS) for the third quarter of 2011 was $0.52, a 10% decrease from the $0.58 FFOPS reported in the third quarter of 2010.

"COPT modestly outperformed its expectations for the third quarter despite uncertainty caused by fears of a double dip recession, concerns over financial markets and continuing federal gridlock," stated Randall M. Griffin, Chief Executive Officer of Corporate Office Properties Trust. "During the quarter, we leased approximately 880,000 square feet of which 147,000 square feet was to the U.S. Government, our largest tenant. Leasing dynamics were strong for the quarter with an 82% renewal rate and significantly lower lease capital costs," he stated.

Operating Performance:

Portfolio Summary – At September 30, 2011, the Company’s wholly-owned portfolio of 246 operating office properties totaled 20.2 million square feet. The weighted average remaining lease term for the wholly-owned portfolio was 4.8 years and the average rental rate (including tenant reimbursements) was $26.20 per square foot. The Company’s wholly-owned portfolio was 88.0% occupied and 89.8% leased as of September 30, 2011.

Same Office Performance – The Company’s same office portfolio for the quarter ended September 30, 2011, represents 78% of the rentable square feet of its consolidated portfolio and consists of 187 properties. For the quarter ended September 30, 2011, the Company’s same office property cash NOI, excluding lease termination fees, increased 5% as compared to the second quarter of 2011 and was flat as compared to the quarter ended September 30, 2010.

Leasing – For the quarter ended September 30, 2011, 576,000 square feet were renewed equating to an 82% renewal rate, at an average committed cost of $5.39 per square foot. Total rent on renewed space increased 9.8%, as measured from the straight-line rent in effect preceding the renewal date, and decreased 2.3% on a cash basis. For renewed and retenanted space of 654,000 square feet, total straight-line rent increased 9.3% and total rent on a cash basis decreased 2.1%. The average committed cost for renewed and retenanted space was $7.76 per square foot.

Investment Activity for the quarter ended September 30, 2011:

Construction – At September 30, 2011, the Company had properties totaling 1.2 million square feet under construction for a total projected cost of $279.4 million.

Acquisitions – The Company acquired one building located at 310 The Bridge Street in Cummings Research Park in Huntsville, Alabama with 138,000 square feet for $33.4 million.

Dispositions – As part of the Company’s Strategic Reallocation Plan, during the quarter, the Company sold one 36,000 square foot building located in the Hunt Valley Business Center in Hunt Valley, Maryland for $4.7 million and its Towson Portfolio consisting of 4 buildings in Towson, Maryland, totaling 179,000 square feet for $16 million.

Capital Transactions:

Effective September 1, 2011, the Company entered into a credit agreement providing for an unsecured revolving credit facility of $1 billion that matures on September 1, 2014, and may be extended by one year. Also effective September 1, 2011, the Company entered into a $400 million unsecured term loan agreement, with the right to borrow an additional $100 million. The unsecured term loan agreement matures on September 1, 2015, and may be extended by one year.

With the proceeds from the new revolving credit facility and term loan, the Company repaid and extinguished its previously existing $800 million revolving credit facility, its $225 million Revolving Construction Facility, and two variable rate secured loans totaling $270.3 million. Upon the early extinguishment of this debt, COPT recognized a loss of $1.7 million, representing unamortized issuance costs. The Company used proceeds from these transactions to complete the repurchase of $162.5 million aggregate principal amount of its 3.50% Exchangeable Senior Notes due 2026.

Balance Sheet and Financial Flexibility:

As of September 30, 2011, the Company had a total market capitalization of $4.3 billion, with $2.4 billion in debt outstanding, equating to a 56% debt-to-total market capitalization ratio. Also, the Company’s weighted average interest rate was 4.7% for the quarter ended September 30, 2011 and 70% of the Company’s debt was subject to fixed interest rates, including the effect of interest rate swaps.

For the third quarter 2011, the Company’s adjusted EBITDA to interest expense coverage ratio was 3.04x, and the adjusted EBITDA fixed charge coverage ratio was 2.57x. Adjusting for construction in progress, the Company’s adjusted debt-to-adjusted EBITDA ratio was 7.03x for the three months ended September 30, 2011.

Management Changes:

During the third quarter, the Company announced executive management changes including the retirement of Randall M. Griffin, CEO at the end of March 2012, and the appointment of his successor. Mr. Griffin will continue as a Trustee on COPT’s Board. Roger A. Waesche, Jr., was elected as CEO and a member of the Board of Trustees effective April 1, 2012. The addition of Stephen E. Budorick as Executive Vice President and Chief Operating Officer was also announced during the quarter. Mr. Budorick joined COPT most recently from Callahan Capital Partners, LLC. He reports to Mr. Waesche and is responsible for leasing, asset management, property management, and government services.

2011 Guidance and Conference Call Information:

Management will discuss third quarter earnings results and any adjustments to earnings and FFO guidance for 2011, if applicable, on its conference call today at 11:00 a.m. Eastern Time, details of which are listed below:

Conference Call Date:		Thursday, October 27, 2011
Time:		11:00 a.m. Eastern Time
Telephone Number:		(within the U.S.) 888-679-8033
Telephone Number:		(outside the U.S.) 617-213-4846
Passcode:		52609055

Please use the following link to pre-register and view important information about this conference call. Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the conference. Pre-registration only takes a few moments and you may pre-register at anytime, including up to and after the call start time. To pre-register, please click on the below link: https://www.theconferencingservice.com/prereg/key.process?key=PKA9BJCTN

You may also pre-register in the Investor Relations section of the Company’s website at www.copt.com. Alternatively, you may be placed into the call by an operator by calling the number provided above at least 5 to 10 minutes before the start of the call. A replay of this call will be available beginning Thursday, October 27 at 2:00 p.m. Eastern Time through Thursday, November 3 at midnight Eastern Time. To access the replay within in the United States, please call 888-286-8010 and use passcode 71355680. To access the replay outside the United States, please call 617-801-6888 and use passcode 71355680.

The conference call will also be available via live webcast in the Investor Relations section of the Company’s website at www.copt.com. A replay of the conference call will be immediately available via webcast in the Investor Relations section of the Company’s website.

Definitions:

Please refer to the information furnished with our Form 8-K or our website (www.copt.com) for definitions of certain terms used in this press release. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

Company Information:

COPT is a specialty office REIT that focuses primarily on strategic customer relationships and specialized tenant requirements in the U.S. Government and Defense Information Technology sectors and Data Centers serving such sectors. The Company acquires, develops, manages and leases office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in strong markets that we believe possess growth opportunities. As of September 30, 2011, the Company owned 266 office properties totaling 21.3 million rentable square feet, which includes 20 properties totaling 1.1 million square feet held through joint ventures. The Company’s portfolio primarily consists of technically sophisticated buildings in visually appealing settings that are environmentally sensitive, sustainable and meet unique customer requirements. COPT is an S&P MidCap 400 company and more information can be found at www.copt.com.

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. Accordingly, 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.

Important factors that may affect these expectations, estimates, and projections include, but are not limited to:

• general economic and business conditions, which will, among other things, affect office property demand and rents, tenant creditworthiness, interest rates and financing availability;
• adverse changes in the real estate markets including, among other things, increased competition with other companies;
• the Company’s ability to borrow on favorable terms;
• risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
• risks of investing through joint venture structures, including risks that the Company’s joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with the Company’s objectives;
• changes in our plans or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of impairment losses;
• our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
• governmental actions and initiatives, including risks associated with the impact of a government shutdown such as a reduction in rental revenues or non-renewal of leases;
• the dilutive effect of issuing additional common shares; and
• environmental requirements.

The Company undertakes no obligation to update or supplement any forward-looking statements. For further information, please refer to the Company’s filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Reconciliations:

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the tables, below:

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenues
Real estate revenues		$	121,893			$	111,074			$	358,942			$	325,671
Construction contract and other service revenues			18,729				13,608				67,854				77,038
Total revenues			140,622				124,682				426,796				402,709
Expenses
Property operating expenses			47,655				43,013				141,287				128,331
Depreciation and amortization associated with real estate operations			35,719				29,503				97,720				84,368
Construction contract and other service expenses			18,171				13,347				65,698				75,148
Impairment losses			-				-				57,824				-
General and administrative expenses			6,154				6,079				19,251				17,905
Business development expenses			1,050				2,886				2,126				3,506
Total operating expenses			108,749				94,828				383,906				309,258
Operating income			31,873				29,854				42,890				93,451
Interest expense			(25,381	)			(26,174	)			(78,412	)			(74,042	)
Interest and other (loss) income			(242	)			395				3,682				1,942
Loss on early extinguishment of debt			(1,655	)			-				(1,680	)			-
Income (loss) from continuing operations before equity in (loss) income of unconsolidated entities and income taxes			4,595				4,075				(33,520	)			21,351
Equity in (loss) income of unconsolidated entities			(159	)			648				(223	)			371
Income tax benefit (expense)			457				(27	)			6,043				(75	)
Income (loss) from continuing operations			4,893				4,696				(27,700	)			21,647
Discontinued operations			2,577				1,753				(12,120	)			4,276
Income (loss) before gain on sales of real estate			7,470				6,449				(39,820	)			25,923
Gain on sales of real estate, net of income taxes			-				2,477				2,717				2,829
Net income (loss)			7,470				8,926				(37,103	)			28,752
Net (income) loss attributable to noncontrolling interests:
Common units in the Operating Partnership			(178	)			(363	)			3,188				(1,254	)
Preferred units in the Operating Partnership			(165	)			(165	)			(495	)			(495	)
Other consolidated entities			(561	)			434				(1,038	)			233
Net income (loss) attributable to COPT			6,566				8,832				(35,448	)			27,236
Preferred share dividends			(4,025	)			(4,025	)			(12,076	)			(12,076	)
Net income (loss) attributable to COPT common shareholders		$	2,541			$	4,807			$	(47,524	)		$	15,160
Earnings per share ("EPS") computation:
Numerator for diluted EPS:
Net income (loss) attributable to common shareholders		$	2,541			$	4,807			$	(47,524	)		$	15,160
Dilutive effect of common units in the Operating Partnership			-				-				(3,188	)			-
Amount allocable to restricted shares			(262	)			(267	)			(781	)			(807	)
Numerator for diluted EPS		$	2,279			$	4,540			$	(51,493	)		$	14,353
Denominator:
Weighted average common shares - basic			71,312				58,656				68,718				58,333
Dilutive effect of common units in the Operating Partnership			-				-				4,371				-
Dilutive effect of share-based compensation awards			-				296				-				367
Weighted average common shares - diluted			71,312				58,952				73,089				58,700
Diluted EPS		$	0.03			$	0.08			$	(0.70	)		$	0.24

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Amounts in thousands, except per share data and ratios)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income (loss)		$	7,470			$	8,926			$	(37,103	)		$	28,752
Add: Real estate-related depreciation and amortization			36,032				30,745				101,101				87,896
Add: Depreciation and amortization on unconsolidated real estate entities			116				166				350				512
Less: Gain on sales of previously depreciated operating properties, net of income taxes			(1,299	)			(784	)			(1,449	)			(1,081	)
Funds from operations ("FFO")			42,319				39,053				62,899				116,079
Noncontrolling interests - preferred units in the Operating Partnership			(165	)			(165	)			(495	)			(495	)
Noncontrolling interests - other consolidated entities			(561	)			434				(1,038	)			233
Preferred share dividends			(4,025	)			(4,025	)			(12,076	)			(12,076	)
Depreciation and amortization allocable to noncontrolling interests in other
consolidated entities			(276	)			(666	)			(566	)			(1,245	)
Basic and diluted FFO allocable to restricted shares			(263	)			(353	)			(782	)			(1,078	)
Basic and diluted FFO available to common share and common unit holders ("Basic
and diluted FFO")			37,029				34,278				47,942				101,418
Operating property acquisition costs			77				2,664				152				2,954
Impairment losses			-				-				72,347				-
Income tax benefit from impairment losses			-				-				(4,598	)			-
Loss on early extinguishment of debt			1,995				-				2,020				-
Diluted FFO available to common share and common unit holders,
as adjusted for comparability			39,101				36,942				117,863				104,372
Straight line rent adjustments			(2	)			1,267				(6,525	)			(2,552	)
Amortization of acquisition intangibles included in net operating income			212				(96	)			600				(460	)
Recurring capital expenditures			(11,599	)			(10,156	)			(40,856	)			(23,447	)
Share-based compensation, net of amounts capitalized			2,759				2,619				8,156				7,417
Amortization of deferred financing costs			1,629				1,554				5,090				4,175
Amortization of net debt discounts, net of amounts capitalized			1,184				1,496				4,046				3,772
Amortization of settled debt hedges			16				16				47				47
Diluted adjusted funds from operations available to common share and common unit
holders ("Diluted AFFO")		$	33,300			$	33,642			$	88,421			$	93,324
Recurring capital expenditures on properties included in disposition plans			2,889				-				13,896				-
Diluted AFFO, as adjusted for recurring capital expenditures on properties included
in disposition plans		$	36,189			$	33,642			$	102,317			$	93,324
Weighted average shares
Weighted average common shares			71,312				58,656				68,718				58,333
Conversion of weighted average common units			4,336				4,453				4,371				4,674
Weighted average common shares/units - basic FFO per share			75,648				63,109				73,089				63,007
Dilutive effect of share-based compensation awards			52				296				147				367
Weighted average common shares/units - diluted FFO per share			75,700				63,405				73,236				63,374
Diluted FFO per share		$	0.49			$	0.54			$	0.65			$	1.60
Diluted FFO per share, as adjusted for comparability		$	0.52			$	0.58			$	1.61			$	1.65
Dividends/distributions per common share/unit		$	0.4125			$	0.4125			$	1.2375			$	1.1975
Payout ratios
Diluted FFO, as adjusted for comparability			80.5	%			71.3	%			78.4	%			73.2	%
Diluted AFFO			94.5	%			78.3	%			104.5	%			81.8	%
Diluted AFFO, as adjusted for recurring capital expenditures on properties included in disposition plans			87.0	%			78.3	%			90.3	%			81.8	%
Adjusted EBITDA interest coverage ratio		3.04x				2.84x				3.01x				2.88x
Adjusted EBITDA fixed charge coverage ratio		2.57x				2.41x				2.55x				2.43x
Debt to Adjusted EBITDA ratio (1)		8.73x				9.21x					N/A				N/A
Adjusted debt to Adjusted EBITDA ratio (2)		7.03x				7.93x					N/A				N/A
Reconciliation of denominators for diluted EPS and diluted FFO per share
Denominator for diluted EPS			71,312				58,952				73,089				58,700
Weighted average common units			4,336				4,453				-				4,674
Anti-dilutive EPS effect of share-based compensation awards			52				-				147				-
Denominator for diluted FFO per share			75,700				63,405				73,236				63,374

(1)		Represents debt divided by Adjusted EBITDA for the three month period multiplied by four.
(2)		Represents debt adjusted to subtract construction in progress as of period end divided by Adjusted EBITDA for the three month period multiplied by four.

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars and shares in thousands, except per share data)
		September 30,				December 31,
		2011				2010
Balance Sheet Data (in thousands) (as of period end)
Properties, net of accumulated depreciation		$	3,469,217			$	3,445,455
Total assets			3,965,392				3,844,517
Debt, net			2,420,073				2,323,681
Total liabilities			2,657,769				2,521,379
Beneficiaries' equity			1,307,623				1,323,138
Debt to undepreciated book value of real estate assets			57.6	%			57.2	%
Debt to total market capitalization			56.2	%			46.1	%
Property Data (wholly owned office properties)
(as of period end)
Number of operating properties owned			246				252
Total net rentable square feet owned (in thousands)			20,205				19,990
Occupancy			88.0	%			88.2	%
Reconciliation of denominator for debt to total assets to
denominator for debt to undepreciated book value of
real estate assets
Denominator for debt to total assets		$	3,965,392			$	3,844,517
Assets other than assets included in properties, net and assets held for sale			(423,408	)			(399,062	)
Accumulated depreciation on real estate assets			553,306				503,032
Accumulated depreciation included in assets held for sale			6,791				-
Intangible assets on real estate acquisitions, net			97,954				113,735
Non real estate assets included in assets held for sale			(1,946	)			-
Denominator for debt to undepreciated book value of real estate assets		$	4,198,089			$	4,062,222
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Reconciliation of tenant improvements and incentives, capital
improvements and leasing costs for operating properties to
recurring capital expenditures
Total tenant improvements and incentives on operating properties		$	7,082			$	7,789			$	31,468			$	16,490
Total capital improvements on operating properties			5,380				1,717				9,796				4,111
Total leasing costs on operating properties			4,223				2,004				10,347				4,692
Less: Nonrecurring tenant improvements and incentives on operating properties			(1,826	)			(1,067	)			(5,149	)			(1,280	)
Less: Nonrecurring capital improvements on operating properties			(3,046	)			(171	)			(4,476	)			(524	)
Less: Nonrecurring leasing costs for operating properties			(234	)			(120	)			(1,197	)			(69	)
Add: Recurring capital expenditures on operating properties held through joint ventures			20				4				67				27
Recurring capital expenditures		$	11,599			$	10,156			$	40,856			$	23,447

Corporate Office Properties Trust
Summary Financial Data
(unaudited)
(Dollars in thousands)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Reconciliation of common share dividends to dividends and
distributions for payout ratios
Common share dividends		$	29,688			$	24,494			$	87,024			$	70,913
Common unit distributions			1,781				1,834				5,398				5,450
Dividends and distributions for payout ratios		$	31,469			$	26,328			$	92,422			$	76,363
Reconciliation of FFO to FFO, as adjusted for comparability
FFO		$	42,319			$	39,053			$	62,899			$	116,079
Impairment losses, net of related tax benefit			-				-				67,749				-
Operating property acquisition costs			77				2,664				152				2,954
Loss on early extinguishment of debt			1,995				-				2,020				-
FFO, as adjusted for comparability		$	44,391			$	41,717			$	132,820			$	119,033
Reconciliation of GAAP net income (loss) to adjusted earnings before interest,
income taxes, depreciation and amortization ("Adjusted EBITDA")
Net income (loss)		$	7,470			$	8,926			$	(37,103	)		$	28,752
Interest expense on continuing operations			25,381				26,174				78,412				74,042
Interest expense on discontinued operations			248				452				975				1,208
Income tax (benefit) expense			(457	)			27				(6,043	)			86
Real estate-related depreciation and amortization			36,032				30,745				101,101				87,896
Depreciation of furniture, fixtures and equipment			614				652				1,862				1,934
Impairment losses			-				-				72,347				-
Adjusted EBITDA		$	69,288			$	66,976			$	211,551			$	193,918
Reconciliation of interest expense from continuing operations
to the denominators for interest coverage-Adjusted EBITDA
and fixed charge coverage-Adjusted EBITDA
Interest expense from continuing operations		$	25,381			$	26,174			$	78,412			$	74,042
Interest expense from discontinued operations			248				452				975				1,208
Less: Amortization of deferred financing costs			(1,629	)			(1,554	)			(5,090	)			(4,175	)
Less: Amortization of net debt discount, net of amounts capitalized			(1,184	)			(1,496	)			(4,046	)			(3,772	)
Denominator for interest coverage-Adjusted EBITDA			22,816				23,576				70,251				67,303
Preferred share dividends			4,025				4,025				12,076				12,076
Preferred unit distributions			165				165				495				495
Denominator for fixed charge coverage-Adjusted EBITDA		$	27,006			$	27,766			$	82,822			$	79,874
Reconciliation of same office property net operating income to same office
property cash net operating income and same office property cash
net operating income, excluding gross lease termination fees
Same office property net operating income		$	61,853			$	61,872			$	182,640			$	185,412
Add (less): Straight-line rent adjustments			1,882				1,970				(2,549	)			(1,768	)
Less: Amortization of deferred market rental revenue			(197	)			(281	)			(631	)			(943	)
Add: Amortization of above-market cost arrangements			329				337				986				1,011
Same office property cash net operating income		$	63,867			$	63,898			$	180,446			$	183,712
Less: Lease termination fees, gross			(130	)			(109	)			(313	)			(1,175	)
Same office property cash net operating income, excluding
gross lease termination fees		$	63,737			$	63,789			$	180,133			$	182,537
Reconciliation of debt, net to denominator for adjusted debt to Adjusted EBITDA ratio
Debt, net		$	2,420,073			$	2,468,419
Less: Properties under construction and development, excluding associated land costs			(447,969	)			(344,924	)
Less: Properties under construction and development on assets held for sale, excluding associated land costs			(22,936	)			-
Denominator for adjusted debt to Adjusted EBITDA ratio		$	1,949,168			$	2,123,495

Corporate Office Properties TrustIR Contacts:Stephanie Krewson, VP, Investor Relations443-285-5453[email protected]orMichelle Layne, Investor Relations Specialist443-285-5452[email protected]

Source: Corporate Office Properties Trust

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