Exhibit 99.1

 

Supplemental Information

(Unaudited)

 

December 31, 2008

 

CORPORATE OFFICE

PROPERTIES TRUST

 

 

Corporate Office Properties Trust

Index to Supplemental Information (Unaudited)

December 31, 2008

 

		Page
Highlights and Discussion
Reporting Period Highlights – Year Ended December 31, 2008		1
Reporting Period Highlights – Fourth Quarter 2008		3
Forward-Looking Statements		4
Financial Statements
Annual Selected Financial Summary Data		6
Annual Consolidated Balance Sheets		7
Annual Consolidated Statements of Operations		8
Annual Consolidated Reconciliations of FFO, AFFO, EPS and as adjusted amounts		9
Annual Consolidated Reconciliations of EBITDA, Discontinued Operations, Gains on Sales of Real Estate and Certain Non-GAAP Measures		10
Quarterly Selected Financial Summary Data		11
Quarterly Consolidated Balance Sheets		12
Quarterly Consolidated Statements of Operations		13
Quarterly Consolidated Reconciliations of FFO, AFFO, EPS and as adjusted amounts		14
Quarterly Consolidated Reconciliations of EBITDA, Combined NOI, Discontinued Operations, Gains on Sales of Real Estate and Certain Non-GAAP Measures		15
Selected Financial Analyses
Quarterly Equity Analysis		16
Quarterly Debt Analysis		17
Quarterly Operating Ratios		18
Quarterly Dividend Analysis		19
Investor Composition and Analyst Coverage		20
Debt Maturity Schedule – December 31, 2008		21
Portfolio Summary
Property Summary by Region – December 31, 2008 – Wholly Owned Properties		22
Property Summary by Region – December 31, 2008 – Joint Venture Properties		28
Property Occupancy Rates by Region by Quarter – Wholly Owned Properties		29
Property Occupancy Rates by Region by Quarter – Joint Venture Properties		30
Top Twenty Office Tenants of Wholly Owned Properties as of December 31, 2008		31
Combined Real Estate Revenue and Combined Net Operating Income by Geographic Region by Quarter		32
Same Office Property Cash and GAAP Net Operating Income by Year		33
Same Office Property Cash and GAAP Net Operating Income by Quarter		34
Average Occupancy Rates by Region for Same Office Properties for Quarter		35
Office Lease Expiration Analysis by Year for Wholly Owned Properties		36
Annual Office Renewal Analysis		37
Quarterly Office Renewal Analysis for Wholly Owned Properties as of December 31, 2008		38
Year to Date Wholly Owned Acquisition Summary as of December 31, 2008		39
Year to Date Wholly Owned Disposition Summary as of December 31, 2008		39
Development Summary as of December 31, 2008		40
Total Development Placed into Service as of December 31, 2008		42
Land Inventory as of December 31, 2008		43
Joint Venture Summary as of December 31, 2008		44
Reconciliations of Non GAAP Measurements		45

 

 

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 and Treasurer at (443) 285-5450 or maryellen.fowler@copt.com.  Reconciliations between GAAP and non GAAP measurements have been provided.  Refer to our Form 8-K for definitions of certain terms used herein.

 

Corporate Office Properties Trust (COPT) (NYSE: OFC) is a specialty office real estate investment trust (REIT) that focuses on strategic customer relationships and specialized tenant requirements in the U.S. Government, Defense Information Technology and Data sectors.  The Company acquires, develops, manages and leases properties which are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in growth corridors.  More information on COPT can be found at www.copt.com.

 

Reporting Period Highlights – Year Ended December 31, 2008

 

Financial Results

·      We reported net income available to common shareholders of $42.6 million, or $0.87 per diluted share, for the year ended December 31, 2008 as compared to $18.7 million, or $0.39 per diluted share, for the year ended December 31, 2007, representing an increase of 123% per share.  Included in net income available to common shareholders in 2008 was $10.4 million in gain recognized ($8.9 million net of minority interests) on our repurchase of a $37.5 million aggregate principal amount of 3.5% Exchangeable Senior Notes.  Without this gain, our earnings per diluted share for the year ended December 31, 2008 would have been $0.69 per share, representing a 77% increase over the year ended December 31, 2007.

·      We reported funds from operations (“FFO”) – diluted of $150.4 million, or $2.64 per diluted share, for the year ended December 31, 2008 as compared to $125.3 million, or $2.24 per share, for the year ended December 31, 2007, representing an increase of 18% per share.  Included in FFO – diluted in 2008 was $10.4 million in gain recognized on our repurchase of a $37.5 million aggregate principal amount of 3.5% Exchangeable Senior Notes.  Without this gain, our FFO per dilutive share for the year ended December 31, 2008 would have been $2.46 per share, representing a 10% increase over the year ended December 31, 2007.

·      We reported Adjusted FFO (“AFFO”) – diluted of $111.8 million for the year ended December 31, 2008 as compared to $90.8 million for the year ended December 31, 2007, representing an increase of 23%.

·      Our diluted FFO payout ratio was 55% for the year ended December 31, 2008 as compared to 57% for the year ended December 31, 2007.  Our diluted AFFO payout ratio was 74% for the year ended December 31, 2008 as compared to 79% for the year ended December 31, 2007.

 

Acquisitions / Dispositions

·      We completed the acquisition of three office properties totaling 247,280 square feet for $40.5 million, which included the following:

·      a 124,000 square foot office property located at 3535 Northrop Grumman Point in Colorado Springs, Colorado for $23.2 million on June 10, 2008.  The property is 100% leased, long-term, to Northrop Grumman Corporation and is the location of their Colorado Springs headquarters; and

·      two office properties totaling 123,000 square feet, located at 1560 Cable Ranch Road in San Antonio, Texas, that are known collectively as 151 Technology Center for $17.3 million on June 19, 2008.  The buildings are 100% leased, long-term, to Sears, Air Force Federal Credit Union and AFNI.

·      We sold three operating properties totaling 223,000 square feet for an aggregate of $25.3 million, resulting in a gain before minority interests of $2.6 million.

 

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Development Activities

·      We placed into service 524,000 newly-constructed square feet in nine properties during the year ended December 2008.  Two of these properties contained an aggregate of 89,000 square feet placed into service during 2007.  The space placed in service in these nine properties as of December 31, 2008 was 87.5% leased.

·      We executed leases on an aggregate of approximately 642,000 square feet of newly-constructed or to be constructed space.

·      We completed the formation of M Square Associates, LLC, a joint venture in which we hold a 45% economic interest, and affiliates of the University of Maryland and Manekin LLC hold a combined 55% economic interest.  This joint venture will ground lease, develop and manage office properties, approved for up to approximately 750,000 square feet, located in M Square Research Park in College Park, Maryland, including 222,000 square feet that were under construction at December 31, 2008.

 

Operations

·      During 2008, we renewed 1.9 million square feet, or 78%, of our expiring office leases (based upon square footage), with an average committed cost of $7.12 per square foot.  For our renewed space, we realized increases of 16% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and 6% in total cash rent.  For our renewed and retenanted space of 2.3 million square feet, we realized increases of 12% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and 3% in total cash rent.  The average committed cost for our space renewed and retenanted totaled $9.25 per square foot.

·      We recognized $481,000 in lease termination fees, net of write-offs of related straight-line rents and previously unamortized deferred market revenue (SFAS 141 revenues) for the year ended December 31, 2008, as compared to $4.1 million for the year ended December 31, 2007, representing a decrease of 88%.

·      Our same office property cash NOI, excluding the effect of a $2.3 million reduction in gross lease termination fees, increased for the year ended December 31, 2008 by $8.3 million, or 4%, as compared to the year ended December 31, 2007.  Including the effect of lower lease termination fees, our same office property cash NOI increased $5.9 million million, or 3%, as compared to the year ended December 31, 2007.  Our same office portfolio for the year consists of 162 properties and represents 80% of the rentable square footage of our consolidated properties as of December 31, 2008.

·      During 2008, we completed leases for 375,000 square feet on the Unisys Campus in Blue Bell, Pennsylvania, which included the following:

·      a new lease with Merck, Inc. to continue occupancy of the entire 219,000 square foot property located at 785 Jolly Road; and

·      a renewal of Unisys Corporation for 156,000 square feet in the property located at 760 Jolly Road.

 

Financing Activity and Capital Transactions

·      On May 2, 2008, we closed on a $225.0 million revolving construction loan facility that will be utilized to fund most of the Company’s construction costs over the next several years. The facility has a three-year term with a one-year extension option, and requires interest only payments throughout the term. The interest rate is based on a pricing grid that is dependent on the Company’s leverage, with an initial interest rate on the facility of LIBOR plus 160 basis points.  The facility also has an accordion feature that allows for a potential increase to as much as $325.0 million at a future date.

·      On July 18, 2008, we borrowed $221.4 million under a mortgage loan requiring interest only payments for the term at a variable rate of LIBOR plus 225 basis points. This loan facility has a four-year term with an option to extend by an additional year.

·      The aggregate amount of debt repaid by us during the year ended December 31, 2008 totaled $279.6 million, excluding scheduled principal amortization payments and repayments of our unsecured revolving credit facility and revolving construction facility.

·      Our weighted average interest rates decreased to 5.2% for the year ended December 31, 2008 from 5.8% for the year ended December 31, 2007.

 

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·                  In September 2008, we issued 3.7 million common shares at a public offering price of $39.00 per share for net proceeds of $139.2 million after underwriting discounts but before offering expenses.  The net proceeds were used to pay down our Revolving Credit Facility.

·                  Our Board of Trustees increased our quarterly dividend per Common Share of beneficial interest to $0.3725 per share, representing a 10% increase from the previous per share quarterly dividend of $0.34.

 

Other Transaction

·                  On August 26, 2008, we loaned $24.8 million to the owner of a 17-story Class A+ office property containing 471,000 square feet in Baltimore, Maryland. We have a secured interest in the ownership of the entity that owns the property and adjacent land parcels that is subordinate to that of a first mortgage on the property. The loan carries an interest rate of 16.0% and matures on August 26, 2011. The property was 90% leased as of December 31, 2008.

 

Reporting Period Highlights – Fourth Quarter 2008

 

Financial Results

·                  We reported net income available to common shareholders of $17.4 million, or $0.34 per diluted share, for the quarter ended December 31, 2008 as compared to $5.9 million, or $0.12 per diluted share, for the quarter ended December 31, 2007, representing an increase of 183% per share.  Included in net income available to common shareholders in the quarter ended December 31, 2008 was $10.4 million in gain recognized ($8.9 million net of minority interests) on our repurchase of a $37.5 million aggregate principal amount of 3.5% Exchangeable Senior Notes.  Without this gain, our earnings per diluted share for the quarter ended December 31, 2008 would have been $0.16 per share, representing a 33% increase over the year ended December 31, 2007.

·                  We reported FFO – diluted of $47.6 million, or $0.80 per dilutive share, for the quarter ended December 31, 2008 as compared to $32.8 million, or $0.59 per dilutive share, for the quarter ended December 31, 2007, representing an increase of 36% per share.  Included in FFO – diluted for the quarter ended December 31, 2008 was $10.4 million in gain recognized on our repurchase of a $37.5 million aggregate principal amount of 3.5% Exchangeable Senior Notes.  Without this gain, our FFO per dilutive share for the quarter ended December 31, 2008 would have been $0.62 per share, representing a 5% increase over the quarter ended December 31, 2007.

·                  We reported AFFO – diluted of $36.4 million for the quarter ended December 31, 2008 as compared to $23.2 million for the quarter ended December 31, 2007, representing an increase of 57%.

·                  Our diluted FFO payout ratio was 47% for the quarter ended December 31, 2008 as compared to 57% for the quarter ended December 31, 2007.  Our diluted AFFO payout ratio was 61% for the quarter ended December 31, 2008 as compared to 81% for the quarter ended December 31, 2007.

 

Development Activities

·                  During the quarter ended December 31, 2008, we placed into service 91,000 square feet in newly-constructed space located at 7700 Potranco Road in San Antonio, Texas.  We also placed into service 59,000 square feet in a redeveloped property located at 2900 Towerview Road in Herndon, Virginia.

·                  We executed leases on an aggregate of approximately 87,000 square feet of newly-constructed or to be constructed space, the largest of which was for 73,000 of the 186,000 square foot property to be located at 300 Sentinel Drive in Annapolis Junction, Maryland with Mitre Corporation for a ten-year term.

 

Operations

·                  Our wholly owned portfolio was 93.2% occupied and 93.7% leased as of December 31, 2008.  Our entire portfolio was 93.1% occupied and 93.6% leased as of December 31, 2008.

·                  The weighted average lease term of our wholly owned portfolio was 4.8 years as of December 31, 2008, with an average contractual rental rate (including tenant reimbursements of operating costs) of $22.40 per square foot.

·                  Our same office property cash NOI, excluding the effect of a $488,000 reduction in gross lease termination fees, increased for the quarter ended December 31, 2008 by $1.5 million, or 3%, as

 

3

 

compared to the quarter ended December 31, 2007.  Including the effect of lower lease termination fees, our same office property cash NOI increased $1.0 million, or 2%, as compared to the quarter ended December 31, 2007.  Our same office portfolio for the quarter consists of 220 properties and represents 91% of the rentable square footage of our consolidated properties as of December 31, 2008.

·                  For the quarter ended December 31, 2008, we renewed 315,000 square feet, or 79%, of our expiring office leases (based upon square footage), with an average committed cost of $10.38 per square foot.  For our renewed space during the quarter ended December 31, 2008, we realized an increase of 5% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and a decrease of 3% in total cash rent.  For our renewed and retenanted space of 347,000 square feet during the quarter ended December 31, 2008, we realized an increase of 5% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and a decrease of 3% in total cash rent.  The average committed cost for our space renewed and retenanted during the quarter ended December 31, 2008 totaled $11.08 per square foot.

·                  We recognized $183,000 in lease termination fees, net of write-offs of related straight-line rents and accretion of intangible assets and liabilities (i.e., SFAS 141 revenues), in the quarter ended December 31, 2008, as compared to $578,000 in the quarter ended December 31, 2007, representing a decrease of 68%.

 

Financing Activity

·                  As of December 31, 2008, our ratio of debt to market capitalization was 48%, and our ratio of debt to undepreciated book value of real estate assets was 58%.  We achieved an EBITDA to interest coverage ratio of 3.74x and an EBITDA to fixed charge coverage ratio of 3.08x for the quarter ended December 31, 2008.

·                  In November 2008, we repurchased a $37.5 million aggregate principal amount of our 3.5% Exchangeable Senior Notes for $26.7 million.  As discussed above, we recognized a gain of $10.4 million in connection with this repurchase.

·                  During the quarter ended December 31, 2008, we executed the following interest rate swap agreements:

·                  $100.0 million notional amount on October 24, 2008 that fixes the one-month LIBOR base rate at 2.51% effective on November 3, 2008 and expiring on December 31, 2009;

·                  $120.0 million notional amount on December 17, 2008 that fixes the one-month LIBOR base rate at 1.76% effective on January 2, 2009 and expiring on May 1, 2012; and

·                  $100.0 million notional amount on December 29, 2008 that fixes the one-month LIBOR base rate at 1.975% effective on January 1, 2010 and expiring on May 1, 2012.

·                  As of December 31, 2008, 74.0% of our debt had fixed interest rates, including the effect of interest rate swaps in effect.

 

Subsequent Events

·                  We executed a lease on 54,000 of an 82,000 square foot property to be constructed at North Gate Business Park in Aberdeen, Maryland with the MITRE Corporation for a ten-year term.

 

·      Our property located at 2900 Towerview in Herndon, Virginia became 100% leased with the execution of a 67,000 square foot lease with Qwest Corporation for an eight-year term.

 

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:

 

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·                  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;

·                  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, 2007.

 

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Annual Selected Financial Summary Data

(Dollars in thousands, except per share amounts)

 

		Year Ended December 31,
		2008			2007			2006
Revenues from real estate operations		$	399,633		$	365,914		$	291,444
Total revenues		$	588,018		$	407,139		$	351,528
Earnings before interest, income taxes, depreciation and amortization (“EBITDA”)		255,633			235,271			213,389
Net income		58,668			34,784			49,227
Preferred shared dividends		(16,102		)	(16,068		)	(15,404		)
Issuance costs associated with redeemed preferred shares		—			—			(3,896		)
Net income available to common shareholders		$	42,566		$	18,716		$	29,927
Diluted earnings per share (“EPS”)		$	0.87		$	0.39		$	0.69
Diluted EPS, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	0.69		$	0.39		$	0.78
Diluted funds from operations (“FFO”)		$	150,401		$	125,309		$	98,937
Diluted FFO per share		$	2.64		$	2.24		$	1.91
Diluted FFO per share, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	2.46		$	2.24		$	1.99
Diluted adjusted funds from operations (“AFFO”)		$	111,833		$	90,767		$	74,679
Payout ratios:
Earnings payout		166.4		%	327.7		%	166.0		%
Diluted FFO payout		54.8		%	57.5		%	60.3		%
Diluted AFFO payout		73.6		%	79.3		%	79.9		%
Total dividends/distributions		$	99,108		$	88,741		$	75,730

 

6

 

Annual Consolidated Balance Sheets

(dollars in thousands)

 

		December 31,
		2008			2007			2006
Assets
Investment in real estate:
Land - operational		$	423,985		$	416,711		$	343,098
Land - development		220,863			214,696			153,436
Construction in progress		272,220			181,316			144,991
Buildings and improvements		2,202,931			2,079,963			1,689,359
Less: accumulated depreciation		(343,110		)	(288,747		)	(219,574		)
Net investment in real estate		2,776,889			2,603,939			2,111,310
Cash and cash equivalents		6,775			24,638			7,923
Restricted cash		13,745			15,121			52,856
Accounts receivable, net		13,684			24,831			26,367
Deferred rent receivable		64,131			53,631			41,643
Intangible assets on real estate acquisitions, net		91,848			108,661			43,710
Deferred charges, net		52,006			49,051			87,325
Prepaid and other assets		93,789			51,981			48,467
Total assets		$	3,112,867		$	2,931,853		$	2,419,601
Liabilities and shareholders’ equity
Liabilities:
Mortgage and other loans payable		$	1,704,123		$	1,625,842		$	1,298,537
3.5% Exchangeable Senior Notes		162,500			200,000			200,000
Accounts payable and accrued expenses		93,625			75,535			68,190
Rents received in advance and security deposits		30,464			31,234			20,237
Dividends/distributions payable		25,794			22,441			19,164
Deferred revenue associated with acquired operating leases		10,816			11,530			11,120
Distributions in excess of investment in unconsolidated real estate joint ventures		4,770			4,246			3,614
Other liabilities		9,596			8,288			8,249
Total liabilities		2,041,688			1,979,116			1,629,111
Minority interests:
Common units in the Operating Partnership		118,810			114,127			104,934
Preferred units in the Operating Partnership		8,800			8,800			8,800
Other consolidated real estate joint ventures		10,255			7,168			2,453
Total minority interests		137,865			130,095			116,187
Commitments and contingencies		—			—			—
Shareholders’ equity:
Preferred shares (aggregate liquidation preference of $216,333)		81			81			76
Common shares		518			474			429
Additional paid-in capital		1,091,890			950,615			758,032
Cumulative distributions in excess of net income		(154,426		)	(126,156		)	(83,541		)
Accumulated other comprehensive loss		(4,749		)	(2,372		)	(693		)
Total shareholders’ equity		933,314			822,642			674,303
Total shareholders’ equity and minority interests		1,071,179			952,737			790,490
Total liabilities, minority interests and shareholders’ equity		$	3,112,867		$	2,931,853		$	2,419,601

 

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Annual Consolidated Statements of Operations

(in thousands, except per share data)

 

		Year Ended December 31,
		2008			2007			2006
Revenues
Rental revenue		$	336,942		$	314,696		$	253,021
Tenant recoveries and other real estate operations revenue		62,691			51,218			38,423
Construction contract revenues		186,608			37,074			52,182
Other service operations revenues		1,777			4,151			7,902
Total revenues		588,018			407,139			351,528
Expenses
Property operating expenses		141,139			123,258			93,088
Depreciation and amortization associated with real estate operations		102,720			104,700			76,344
Construction contract expenses		182,111			35,723			49,961
Other service operations expenses		2,031			4,070			7,384
General and administrative expenses		25,329			21,704			18,048
Total operating expenses		453,330			289,455			244,825
Operating income		134,688			117,684			106,703
Interest expense		(83,646		)	(85,576		)	(72,984		)
Interest and other income		2,070			3,030			1,077
Gain on early extinguishment of debt		10,376			—			—
Income from continuing operations before equity in loss of unconsolidated entities, income taxes and minority interests		63,488			35,138			34,796
Equity in loss of unconsolidated entities		(147		)	(224		)	(92		)
Income tax expense		(201		)	(569		)	(887		)
Income from continuing operations before minority interests		63,140			34,345			33,817
Minority interest in income from continuing operations
Common units in the Operating Partnership		(6,772		)	(2,793		)	(3,218		)
Preferred units in the Operating Partnership		(660		)	(660		)	(660		)
Other consolidated entities		(56		)	122			136
Income from continuing operations		55,652			31,014			30,075
Income from discontinued operations, net of income taxes and minority interests		2,179			2,210			18,420
Income before gain on sales of real estate		57,831			33,224			48,495
Gain on sales of real estate, net of income taxes and minority interests		837			1,560			732
Net income		58,668			34,784			49,227
Preferred share dividends		(16,102		)	(16,068		)	(15,404		)
Issuance costs associated with redeemed preferred shares		—			—			(3,896		)
Net income available to common shareholders		$	42,566		$	18,716		$	29,927
For diluted EPS computations:
Numerator for dilutive EPS		$	42,566		$	18,716		$	29,927
Denominator:
Weighted average common shares - basic		48,132			46,527			41,463
Dilutive effect of share-based compensation awards		733			1,103			1,799
Weighted average common shares - diluted		48,865			47,630			43,262
Diluted EPS		$	0.87		$	0.39		$	0.69

 

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Annual Consolidated Reconciliations of FFO, AFFO, EPS

and as adjusted amounts

(in thousands, except per share data)

 

		Year Ended December 31,
		2008			2007			2006
Net income		$	58,668		$	34,784		$	49,227
Combined real estate related depreciation and other amortization		102,772			106,260			78,631
Depreciation and amortization of unconsolidated real estate entities		648			666			910
Depreciation and amortization allocable to minority interests in other consol. entities		(270		)	(188		)	(163		)
Gain on sale of real estate properties, excluding redevelopment, net of income taxes		(2,630		)	(3,827		)	(17,644		)
FFO		$	159,188		$	137,695		$	110,961
Minority interest - common units, gross		7,315			3,682			7,276
Preferred share dividends		(16,102		)	(16,068		)	(15,404		)
Issuance costs associated with redeemed preferred shares		—			—			(3,896		)
Basic and diluted FFO		$	150,401		$	125,309		$	98,937
Straight line rent adjustments		(10,211		)	(11,722		)	(9,740		)
Amortization of deferred market rental revenue		(2,064		)	(1,985		)	(1,904		)
Recurring capital expenditures		(26,293		)	(20,835		)	(16,510		)
Issuance costs associated with redeemed preferred shares		—			—			3,896
Diluted AFFO		$	111,833		$	90,767		$	74,679
Preferred dividends		$	16,102		$	16,068		$	15,404
Preferred distributions		660			660			660
Common distributions		11,510			10,682			9,996
Common dividends		70,836			61,331			49,670
Total dividends/distributions		$	99,108		$	88,741		$	75,730
Denominator for diluted EPS		48,865			47,630			43,262
Common units		8,107			8,296			8,511
Denominator for diluted FFO per share		56,972			55,926			51,773
Diluted FFO		$	150,401		$	125,309		$	98,937
Gain on early extinguishment of debt		(10,376		)	—			—
Issuance costs associated with redeemed preferred shares		—			—			3,896
Diluted FFO, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	140,025		$	125,309		$	102,833
Diluted FFO per share, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	2.46		$	2.24		$	1.99
Numerator for diluted EPS computation		$	42,566		$	18,716		$	29,927
Gain on early extinguishment of debt		(10,376		)	—			—
Minority interests share of gain on early extinguishment of debt		1,438			—			—
Issuance costs associated with redeemed preferred shares		—			—			3,896
Numerator for diluted EPS computation, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	33,628		$	18,716		$	33,823
Diluted EPS, as adjusted for gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares		$	0.69		$	0.39		$	0.78

 

9

 

Annual Consolidated Reconciliation of EBITBA,

Discontinued Operations, Gains on Sales of Real Estate

and Certain Non-GAAP Measures

(Dollars and shares in thousands)

 

		Year Ended December 31,
		2008			2007			2006
Net income		$	58,668		$	34,784		$	49,227
Combined interest expense		83,697			86,958			75,401
Combined income tax expense		779			1,684			887
Depreciation of furniture, fixtures and equipment		1,570			1,365			1,443
Combined real estate related depreciation and other amortization		102,772			106,260			78,631
Minority interest - preferred units		660			660			660
Minority interest - other consolidated entities		172			(122		)	(136		)
Minority interest - common units, gross		7,315			3,682			7,276
EBITDA		$	255,633		$	235,271		$	213,389
Common dividends for earnings payout ratio		$	70,836		$	61,331		$	49,670
Common distributions		11,510			10,682			9,996
Dividends and distributions for diluted FFO and AFFO payout ratio		$	82,346		$	72,013		$	59,666
Total tenant improvements and incentives on operating properties		$	20,355		$	21,487		$	20,649
Total capital improvements on operating properties		11,261			11,230			11,779
Total leasing costs for operating properties		4,033			7,562			8,610
Less: Nonrecurring tenant improvements and incentives on operating properties		(5,692		)	(12,192		)	(13,862		)
Less: Nonrecurring capital improvements on operating properties		(3,503		)	(4,494		)	(5,418		)
Less: Nonrecurring leasing costs for operating properties		(318		)	(2,856		)	(6,388		)
Add: Recurring improvements on operating properties held through joint ventures		157			98			1,140
Recurring capital expenditures		$	26,293		$	20,835		$	16,510
Discontinued operations
Revenues from real estate operations		$	358		$	3,608		$	13,271
Property operating expenses		(210		)	(1,871		)	(3,277		)
Depreciation and amortization		(52		)	(1,560		)	(2,287		)
Income taxes		—			(44		)	—
Interest		(51		)	(1,382		)	(2,417		)
Gain on sales of depreciated real estate properties		2,526			3,871			17,031
Income from discontinued operations		2,571			2,622			22,321
Minority interests in discontinued operations		(392		)	(412		)	(3,901		)
Income from discontinued operations, net of minority interests		$	2,179		$	2,210		$	18,420
Interest expense from continuing operations		$	83,646		$	85,576		$	72,984
Interest expense from discontinued operations		51			1,382			2,417
Combined interest expense		$	83,697		$	86,958		$	75,401
Depreciation and amortization		$	102,720		$	104,700		$	76,344
Depreciation and amortization from discontinued operations		52			1,560			2,287
Combined real estate related depreciation and other amortization		$	102,772		$	106,260		$	78,631
Income tax expense from continuing operations		$	201		$	569		$	887
Income tax expense from gain on sales of discontinued operations		—			44			—
Income tax expense from gain on other sales of real estate		578			1,071			—
Combined income tax expense		$	779		$	1,684		$	887
Gain on sales of real estate, net, per statements of operations		$	837		$	1,560		$	732
Add income taxes and minority interest		845			1,548			157
Gain on sales of real estate from discontinued operations		2,526			3,871			17,031
Combined gain on sales of real estate		4,208			6,979			17,920
Non-operational property sales and real estate services		(1,682		)	(3,108		)	(276		)
Gain on sales of depreciated real estate properties		$	2,526		$	3,871		$	17,644

 

10

 

Quarterly Selected Financial Summary Data

(dollars in thousands, except per share data)

 

		2008												2007
		December 31			September 30			June 30			March 31			December 31
Revenues from real estate operations		$	103,599		$	101,086		$	97,946		$	97,002		$	94,352
Total revenues		$	168,944		$	191,088		$	120,370		$	107,616		$	102,850
Combined net operating income		$	66,813		$	65,223		$	64,063		$	62,543		$	63,519
EBITDA		$	72,784		$	62,372		$	60,327		$	60,150		$	61,255
Net income		$	21,471		$	12,949		$	12,853		$	11,395		$	9,929
Preferred share dividends		(4,026		)	(4,025		)	(4,026		)	(4,025		)	(4,025		)
Net income available to common shareholders		$	17,445		$	8,924		$	8,827		$	7,370		$	5,904
Diluted EPS		$	0.34		$	0.19		$	0.18		$	0.15		$	0.12
Diluted EPS, as adjusted for gain on early extinguishment of debt		$	0.16		$	0.19		$	0.18		$	0.15		$	0.12
Diluted FFO		$	47,636		$	36,187		$	34,205		$	32,373		$	32,832
Diluted FFO per share		$	0.80		$	0.64		$	0.61		$	0.58		$	0.59
Diluted FFO per share, as adjusted for gain on early extinguishment of debt		$	0.62		$	0.64		$	0.61		$	0.58		$	0.59
Diluted AFFO		$	36,421		$	25,774		$	25,148		$	24,490		$	23,232
Payout ratios:
Earnings payout		110.5		%	215.0		%	183.5		%	219.4		%	272.6		%
Diluted FFO payout		46.7		%	61.4		%	55.5		%	58.5		%	57.5		%
Diluted AFFO payout		61.0		%	86.1		%	75.4		%	77.4		%	81.2		%
Total dividends/distributions		$	26,420		$	26,394		$	23,160		$	23,134		$	23,064

 

11