Exhibit 99.1

 

Supplemental Information

(Unaudited)

 

 

March 31, 2006

 

 

 

 

Corporate Office Properties Trust

Index to Supplemental Information (Unaudited)

March 31, 2006

 

		Page
Highlights and Discussion
Reporting Period Highlights – First Quarter 2006		1
Forward-Looking Statements		3
Financial Statements
Quarterly Selected Financial Summary Data		5
Quarterly Consolidated Balance Sheets		6
Quarterly Consolidated Statements of Operations		7
Quarterly Consolidated Reconciliations of Funds From Operations (FFO), Adjusted Funds From Operations (AFFO) and Earnings per diluted share, as adjusted		8
Quarterly Consolidated Reconciliations of Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA), Combined Net Operating Income (NOI), Discontinued Operations and Gain on Sales of Real Estate		9
Selected Financial Analyses
Quarterly Equity Analysis		10
Quarterly Debt Analysis		11
Quarterly Operating Ratios		12
Quarterly Dividend Analysis		13
Investor Composition and Analyst Coverage		14
Debt Maturity Schedule – March 31, 2006		15
Portfolio Summary
Property Summary by Region – March 31, 2006 – Wholly Owned Properties		16
Property Summary by Region – March 31, 2006 – Joint Venture Properties		21
Property Occupancy Rates by Region by Quarter – Wholly Owned Properties		22
Property Occupancy Rates by Region by Quarter – Joint Venture Properties		23
Top Twenty Office Tenants of Wholly Owned Properties as of March 31, 2006		24
Combined Real Estate Revenue and Combined Net Operating Income by Geographic Region by Quarter		25
Same Office Property Cash and GAAP Net Operating Income by Quarter		26
Average Occupancy Rates by Region for Same Office Properties		27
Office Lease Expiration Analysis by Year for Wholly Owned Properties		28
Quarterly Office Renewal Analysis for Wholly Owned Properties as of March 31, 2006		29
Year to Date Wholly Owned Acquisition Summary as of March 31, 2006		30
Year to Date Wholly Owned Disposition Summary as of March 31, 2006		31
Development Summary as of March 31, 2006		32
Year to Date Development Placed into Service as of March 31, 2006		34
Land Inventory as of March 31, 2006		35
Joint Venture Summary as of March 31, 2006		36
Reconciliations of Non GAAP Measurements		37

 

 

To Members of the Investment Community:

 

We prepared this supplemental information package to provide you with additional detail on our properties and operations.  The information in this package is unaudited, furnished to the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our quarterly and annual reports.  If you have any questions or comments, please contact Ms. Mary Ellen Fowler, Vice President, Finance and Investor Relations at (410) 992-7324 or maryellen.fowler@copt.com.  Reconciliations between GAAP and non-GAAP measurements have been provided on page 37.  Refer to our Form 8-K for definitions of certain terms used herein.

 

Reporting Period Highlights – First Quarter 2006

 

Financial Results

 

•                  Reported Net Income Available to Common Shareholders of $6,283,000 or $.15 per diluted share for the first quarter of 2006 as compared to $5,386,000 or $.14 per diluted share for the comparable 2005 period, representing an increase of 7.1% per share. 

•                  Reported FFO – diluted of $24,350,000 or $.49 per share/unit for the first quarter of 2006 as compared to $21,143,000 or $.45 per share/unit for the comparable 2005 period, representing an increase of 8.9% per share/unit. 

•                  Reported AFFO – diluted of $18,865,000 for the first quarter of 2006 as compared to $14,756,000 for the comparable 2005 period, representing an increase of 27.8%. 

•                  Our FFO payout ratio was 56.0% for the first quarter of 2006 as compared to 54.5% for the comparable 2005 period.  Our AFFO payout ratio was 72.3% for the first quarter of 2006 as compared to 78.1% for the comparable 2005 period. 

 

Financing Activity and Capital Transactions

 

•                  On March 28, 2006, we executed a $50.0 million notional amount swap at a fixed one-month LIBOR rate of 5.036%, which commenced March 28, 2006 and expires March 30, 2009.

•                  As of March 31, 2006, our debt to market capitalization was 36.1% and our debt to undepreciated book value of real estate assets was 62.7%.  We achieved an EBITDA interest coverage ratio of 2.78x and an EBITDA fixed charge coverage ratio of 2.29x for this quarter.

 

Acquisitions

 

•                  On January 19, 2006, we acquired for redevelopment a building containing approximately 60,000 rentable square feet on an
11-acre land parcel, located in Colorado Springs, Colorado for $2.6 million.  The land parcel can support up to 30,000 square feet of future office space.

•                  On January 20, 2006, we acquired a 31-acre land parcel in San Antonio, Texas for $7.2 million that can support approximately 375,000 developable square feet.  This parcel is contiguous to the 27-acre land parcel and the 470,000 square foot buildings that we acquired during 2005.

•                  On February 10, 2006, we acquired for $1.8 million a 50% interest in a joint venture, which is constructing an office building containing 44,134 square feet in Hanover, Maryland.  As part of this joint venture formation, we have guaranteed a $6.2 million loan with a March 31, 2006 balance of $3.2 million, which matures in January 2007 and bears interest at a variable rate.

 

1

 

•                  On February 28, 2006, we acquired a 6-acre land parcel which can support up to 60,000 square feet, in Hanover, Maryland for $2.1 million.

 

Dispositions

 

•                  On January 17, 2006, we acquired our partner’s 50% interest in a joint venture that had constructed a building in the Baltimore/Washington Corridor for $1.2 million using cash reserves.  We then sold the property to a third party for $2.5 million and realized a gain of $111,000.

•                  On February 6, 2006, we sold two office properties containing 141,783 rentable square feet, in Laurel, Maryland for $17.0 million.

•                  On March 8, 2006, we sold an office building containing 57,280 rentable square feet, in Dayton, New Jersey for $9.7 million.

 

Development

 

•                  On January 1, 2006, we placed into service the 162,498 square foot development property at 304 Sentinel Drive (known as 304 NBP).  This building is 100% leased to a large creditworthy tenant.

•                  On March 2, 2006, we executed a ten year lease for 32,286 rentable square feet at 302 Sentinel Drive (known as 302 NBP).

•                  On March 8, 2006, we executed a long-term ground sublease agreement with The UMBC Research Park Corporation on a 5-acre land parcel, located in Baltimore County, Maryland, on which we plan to develop a 23,500 square foot building.  The entire building is leased to the United States Government for a 10 year term.

•                  On March 28, 2006, we executed an eight year and four month lease for 77,651 rentable square feet at 15010 Conference Center Drive (known as WTP II).

 

Operations

 

•                  Our wholly owned portfolio was 93.3% occupied and 94.4% leased as of March 31, 2006.  Our entire portfolio was 92.9% occupied and 94.0% leased as of March 31, 2006.

•                  Our same property cash NOI for the quarter ended March 31, 2006 increased by 5.5% or $2.0 million as compared to the quarter ended March 31, 2005.  The primary driver of the increase in cash NOI for our same office portfolio as compared to first quarter of 2005 was higher rental revenues, primarily attributable to the improved occupancy and higher rental rates in our Baltimore/Washington Corridor.  Our same office portfolio consists of 120 properties and represents 78.7% of our wholly owned portfolio as of March 31, 2006.

•                  Weighted average lease term of our wholly owned portfolio is 5 years as of March 31, 2006, with an average contractual rental rate (including tenant reimbursements of operating costs) of $20.72 per square foot.

•                  We renewed 420,826 square feet, or 64.9%, of our expiring office leases (based upon square footage) with an average committed cost of $2.80 per square foot during the first quarter.  For our renewed and retenanted space of approximately 491,773 square feet, we realized an increase in total rent of 14.11%, as measured from the GAAP straight-line rent in effect

 

2

 

preceding the renewal date, and an increase of 4.84% in total cash rent.  We incurred an average committed cost of $4.11 per square foot for our renewed and retenanted space in the first quarter.

 

Subsequent Events

 

•                  On April 4, 2006, we entered into a long-term ground sublease agreement with The UMBC Research Park Corporation on a
6-acre land parcel located in Baltimore County, Maryland, on which we plan to develop a 110,000 square foot building.

•                  On April 17, 2006, we issued 1,750,000 common shares, generating proceeds of $72.3 million before offering expenses, or $41.31 per share.  The proceeds have been used to pay down our unsecured revolving credit facility that will later be drawn upon and primarily used as follows: (i) $28.8 million to fund the planned redemption of all of our outstanding 10.25% Series E Cumulative Redeemable Preferred Shares on or after July 15, 2006; and (ii) $35.6 million to fund the planned redemption of all of our outstanding 9.875% Series F Cumulative Redeemable Preferred Shares on or after October 15, 2006.  On April 24, 2006, we issued an additional 250,000 common shares to cover the over-allotment, generating proceeds of $10.3 million before offering expenses.

•                  On April 21, 2006, we acquired a 20-acre land parcel with approximately 300,000 developable square feet in Colorado Springs, Colorado, for $1.1 million. The parcel is adjacent to our 64-acre Patriot Park Business Park acquired in 2005.

•                  On April 27, 2006, we executed swaps for an aggregate notional amount of $50.0 million at a fixed one-month LIBOR rate of 5.232%, which commenced May 1, 2006 and expires May 1, 2009.

 

Forward-Looking Statements

 

This supplemental information contains “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 our current expectations, estimates and projections about future events and financial trends affecting us.  Forward-looking statements can be identified by the use of words such as “may”, “will”, “should”, “expect”, “estimate” or other comparable terminology.  Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate.  Accordingly, we 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:

 

•                  our ability to borrow on favorable terms;

•                  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;

•                  risk of real estate acquisition and development, 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;

 

3

 

•      risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;

•      our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships;

•      governmental actions and initiatives; and

•      environmental requirements.

 

We undertake no obligation to update or supplement any forward-looking statements.  For further information, please refer to our filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2005.

 

4

 

Quarterly Selected Financial Summary Data

(Dollars in thousands)

 

		2006			2005
		March 31			December 31			September 30			June 30			March 31
Revenues from Real Estate Operations		$	71,700		$	66,121		$	62,131		$	59,421		$	58,928
Total Revenues		88,009			80,010			91,915			77,885			76,025
Combined Net Operating Income		50,113			46,938			44,338			43,133			41,709
EBITDA		49,302			43,386			45,918			40,463			39,366
Net Income		9,937			10,282			10,589			9,120			9,040
Preferred Share dividends		(3,654		)	(3,654		)	(3,654		)	(3,654		)	(3,654		)
Net Income Available to Common Shareholders		$	6,283		$	6,628		$	6,935		$	5,466		$	5,386
Earnings per diluted share		$	0.15		$	0.16		$	0.18		$	0.14		$	0.14
Funds From Operations (FFO) - Diluted		$	24,350		$	23,804		$	22,126		$	21,834		$	21,143
FFO per diluted share		$	0.49		$	0.48		$	0.47		$	0.47		$	0.45
Adjusted FFO - Diluted		$	18,865		$	15,892		$	15,891		$	16,981		$	14,756
Payout Ratios:
Earnings Payout		179.2		%	167.0		%	158.1		%	171.6		%	173.4		%
FFO - Diluted		56.0		%	57.0		%	60.6		%	53.1		%	54.5		%
AFFO - Diluted		72.3		%	85.3		%	84.4		%	68.2		%	78.1		%
Total Dividends/Distributions		$	17,450		$	17,274		$	17,236		$	15,405		$	15,337

 

Note:  The above presentation does not separately report discontinued operations.

 

5

 

Quarterly Consolidated Balance Sheets

(Dollars in thousands except per share data)

 

		2006			2005
		March 31			December 31			September 30			June 30			March 31
Assets
Investment in real estate:
Land - operational		$	314,550		$	314,720		$	268,583		$	274,531		$	268,307
Land - development		126,738			117,434			127,085			108,320			97,085
Construction in progress		140,607			138,183			147,184			138,337			109,345
Buildings and improvements		1,501,426			1,491,253			1,315,611			1,333,168			1,294,099
Investment in and advances to unconsolidated real estate joint ventures		1,439			1,451			1,447			1,233			1,209
Less: accumulated depreciation		(183,920		)	(174,935		)	(163,381		)	(165,058		)	(153,084		)
Net investment in real estate		1,900,840			1,888,106			1,696,529			1,690,531			1,616,961
Cash and cash equivalents		20,169			10,784			17,348			21,486			6,212
Restricted cash		23,793			21,476			15,083			15,982			13,830
Accounts receivable, net		16,729			15,606			12,298			13,613			17,529
Investment in and advances to other unconsolidated entities		1,621			1,621			1,621			1,621			1,621
Deferred rent receivable		34,247			32,579			30,222			29,291			27,890
Deferred charges, net		33,731			35,046			31,420			28,662			27,168
Intangible assets on real estate acquisitions, net		85,699			90,984			67,686			66,354			64,965
Prepaid and other assets		21,722			29,255			25,465			19,501			19,658
Fair value of derivatives		110			—			—			—			—
Furniture, fixtures and equipment, net		4,214			4,302			4,024			3,407			3,086
Total assets		$	2,142,875		$	2,129,759		$	1,901,696		$	1,890,448		$	1,798,920
Liabilities and shareholders’ equity
Liabilities:
Mortgage and other loans payable		$	1,360,638		$	1,348,351		$	1,124,299		$	1,177,779		$	1,091,688
Accounts payable and accrued expenses		43,242			41,693			38,795			53,984			46,400
Rents received in advance and security deposits		16,394			14,774			14,191			13,421			13,298
Deferred revenue associated with acquired operating leases		11,721			12,707			8,045			8,092			6,612
Distributions in excess of investment in unconsolidated real estate joint venture		3,010			3,081			2,519			—			—
Dividends and distributions payable		16,878			16,703			16,665			14,834			14,766
Fair value of derivatives		—			—			1,516			4,188			—
Other liabilities		5,314			4,727			4,619			4,024			7,661
Total liabilities		1,457,197			1,442,036			1,210,649			1,276,322			1,180,425
Minority interests:
Preferred units in the Operating Partnership		8,800			8,800			8,800			8,800			8,800
Common units in the Operating Partnership		92,903			95,014			98,433			87,439			87,539
Other consolidated real estate joint ventures		1,190			1,396			1,297			861			1,699
Total minority interests		102,893			105,210			108,530			97,100			98,038
Commitments and contingencies		—			—			—			—			—
Shareholders’ equity:
Preferred Shares ($0.01 par value; 15,000,000 authorized)		67			67			67			67			67
Common Shares of beneficial interest ($0.01 par value; 75,000,000 authorized, 40,243,729 shares issued as of March 31, 2006)		400			400			396			372			371
Additional paid-in capital		655,368			657,337			654,024			586,567			582,802
Cumulative distributions in excess of net income		(72,670		)	(67,697		)	(63,256		)	(59,226		)	(55,312		)
Value of unearned restricted common share grants		—			(7,113		)	(7,318		)	(7,396		)	(7,471		)
Accumulated other comprehensive loss		(380		)	(481		)	(1,396		)	(3,358		)	—
Total shareholders’ equity		582,785			582,513			582,517			517,026			520,457
Total shareholders’ equity and minority interests		685,678			687,723			691,047			614,126			618,495
Total liabilities and shareholders’ equity		$	2,142,875		$	2,129,759		$	1,901,696		$	1,890,448		$	1,798,920

 

6

 

Quarterly Consolidated Statements of Operations

(Dollars and units in thousands)

 

		2006			2005
		March 31			December 31			September 30			June 30			March 31
Revenues
Rental revenue		$	62,662		$	57,234		$	54,157		$	52,865		$	51,701
Tenant recoveries and other real estate operations revenue		9,038			8,887			7,974			6,556			7,227
Construction contract revenues		14,544			12,708			28,476			17,445			15,728
Other service operations revenues		1,765			1,181			1,308			1,019			1,369
Total Revenues		88,009			80,010			91,915			77,885			76,025
Expenses
Property operating		21,885			19,746			18,714			17,288			18,169
Depreciation and amortization associated with real estate operations		19,313			15,376			17,783			14,848			14,169
Construction contract expenses		14,026			12,341			28,073			17,223			14,897
Other service operations expenses		1,678			1,254			1,253			955			1,291
General and administrative expenses		3,963			3,774			3,318			3,166			3,276
Total Operating Expenses		60,865			52,491			69,141			53,480			51,802
Operating Income		27,144			27,519			22,774			24,405			24,223
Interest expense		(17,584		)	(15,129		)	(14,132		)	(13,497		)	(12,962		)
Amortization of deferred financing costs		(559		)	(732		)	(642		)	(471		)	(396		)
Income from continuing operations before equity in loss of unconsolidated entities, income taxes and minority interests		9,001			11,658			8,000			10,437			10,865
Equity in loss of unconsolidated entities		(23		)	(88		)	—			—			—
Income tax (expense) benefit		(215		)	265			(263		)	(213		)	(457		)
Income from continuing operations before minority interests		8,763			11,835			7,737			10,224			10,408
Minority interest in income from continuing operations
Common units in the Operating Partnership		(909		)	(1,501		)	(788		)	(1,260		)	(1,292		)
Preferred units in the Operating Partnership		(165		)	(165		)	(165		)	(165		)	(165		)
Other consolidated entities		33			27			19			15			24
Income from continuing operations		7,722			10,196			6,803			8,814			8,975
Income from discontinued operations, net of minority interests		2,105			65			3,727			138			46
Income before gain on sales of real estate		9,827			10,261			10,530			8,952			9,021
Gain on sales of real estate		110			21			59			168			19
Net Income		9,937			10,282			10,589			9,120			9,040
Preferred share dividends		(3,654		)	(3,654		)	(3,654		)	(3,654		)	(3,654		)
Net Income Available to Common Shareholders		$	6,283		$	6,628		$	6,935		$	5,466		$	5,386
For EPS Computations:
Numerator for Dilutive EPS		$	6,283		$	6,628		$	6,935		$	5,466		$	5,386
Denominator:
Weighted Average Common Shares - Basic		39,668			39,297			36,913			36,692			36,555
Dilutive options		1,658			1,678			1,667			1,528			1,537
Dilutive restricted shares		184			—			—			—			—
Weighted Average Common Shares - Diluted		41,510			40,975			38,580			38,220			38,092
Earnings per diluted share		$	0.15		$	0.16		$	0.18		$	0.14		$	0.14

 

7

 

Quarterly Consolidated Reconciliations of Funds From Operations (FFO), Adjusted Funds From

Operations (AFFO) and Earnings per diluted share, as adjusted

(Dollars in thousands)

 

		2006			2005
		March 31			December 31			September 30			June 30			March 31
Net Income		$	9,937		$	10,282		$	10,589		$	9,120		$	9,040
Combined real estate related depreciation and other amortization		19,068			15,410			17,848			15,087			14,505
Depreciation and amortization of unconsolidated real estate entities		85			182			—			—			—
Depreciation and amortization allocable to minority interests in other consol. entities		(33		)	(29		)	(23		)	(30		)	(32		)
Gain on sales of real estate properties, excluding development		(2,459		)	(14		)	(4,360		)	(24		)	(24		)
Funds From Operations (FFO)		26,598			25,831			24,054			24,153			23,489
Minority interest - common units, gross		1,406			1,520			1,726			1,335			1,308
Preferred share dividends		(3,654		)	(3,654		)	(3,654		)	(3,654		)	(3,654		)
Funds From Operations (FFO) - Basic		24,350			23,697			22,126			21,834			21,143
Restricted share dividends		—			107			—			—			—
Funds From Operations (FFO) - Diluted		$	24,350		$	23,804		$	22,126		$	21,834		$	21,143
Straight line rent adjustments		(2,122		)	(2,292		)	(1,519		)	(1,369		)	(1,583		)
Amortization of deferred market rental revenue		(555		)	(394		)	229			(191		)	(70		)
Recurring capital expenditures		(2,808		)	(5,226		)	(4,945		)	(3,293		)	(4,734		)
Adjusted Funds from Operations - Diluted		$	18,865		$	15,892		$	15,891		$	16,981		$	14,756
Preferred dividends - redeemable non-convertible		3,654			3,654			3,653			3,654			3,654
Preferred distributions		165			165			165			165			165
Common distributions		2,374			2,386			2,452			2,205			2,179
Common dividends		11,257			11,069			10,966			9,381			9,339
Total Dividends/Distributions		$	17,450		$	17,274		$	17,236		$	15,405		$	15,337
Denominator for earnings per share - Diluted		41,510			40,975			38,580			38,220			38,092
Restricted shares		—			224			—			—			—
Common units		8,520			8,688			8,758			8,676			8,544
Denominator for funds from operations per share - Diluted		50,030			49,887			47,338			46,896			46,636

 

8

 

Quarterly Consolidated Reconciliations of Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA), Combined Net Operating Income (NOI), Discontinued Operations and Gain on Sales of Real Estate

(Dollars in thousands)

 

		2006			2005
		March 31			December 31			September 30			June 30			March 31
Net Income		$	9,937		$	10,282		$	10,589		$	9,120		$	9,040
Combined interest expense		17,715			15,374			14,496			13,916			13,358
Amortization of deferred financing costs		559			732			641			471			396
Income tax (expense) benefit, gross		215			(265		)	294			213			457
Depreciation of furniture, fixtures and equipment		270			195			178			171			161
Combined real estate related depreciation and other amortization		19,068			15,410			17,848			15,087			14,505
Minority interest - preferred units		165			165			165			165			165
Minority interest - other consolidated entities		(33		)	(27		)	(19		)	(15		)	(24		)
Minority interest - common units, gross		1,406			1,520			1,726			1,335			1,308
Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA)		$	49,302		$	43,386		$	45,918		$	40,463		$	39,366
Addback:
General and administrative		3,963			3,774			3,318			3,166			3,276
(Income) from service operations		(605		)	(294		)	(458		)	(286		)	(909		)
Gain on sales of depreciated real estate properties		(2,459		)	(14		)	(4,360		)	(24		)	(24		)
Merchant sales and real estate services		(111		)	(2		)	(80		)	(186		)	—
Equity in loss of unconsolidated entities		23			88			—			—			—
Combined Net Operating Income (NOI)		$	50,113		$	46,938		$	44,338		$	43,133		$	41,709
Discontinued Operations:
Revenues from real estate operations		$	479		$	903		$	1,537		$	1,621		$	1,699
Property operating expenses		(181		)	(339		)	(614		)	(620		)	(749		)
Depreciation and amortization		(25		)	(229		)	(244		)	(410		)	(496		)
Interest		(132		)	(244		)	(364		)	(419		)	(397		)
Gain (loss) on sales of real estate		2,435			(11		)	4,335			—			—
Income from discontinued operations		2,576			80			4,650			172			57
Minority interests in discontinued operations		(471		)	(15		)	(923		)	(34		)	(11		)
Income from discontinued operations, net of minority interests		$	2,105		$	65		$	3,727		$	138		$	46
Gain on sales of real estate, net, per statement of operations		$	110		$	21		$	59		$	168		$	19
Add income taxes and minority interest		25			6			46			42			5
Gain (loss) on sales of real estate from discontinued operations		2,435			(11		)	4,335			—			—
Combined gain on sales of real estate		2,570			16			4,440			210			24
Merchant sales and real estate services		(111		)	(2		)	(80		)	(186		)	—
Gain on sales of depreciated real estate properties		$	2,459		$	14		$	4,360		$	24		$	24

 

9