Exhibit 99.2

 

Supplemental Information

(Unaudited)

 

 

March 31, 2010

 

 

 

 

Corporate Office Properties Trust

Index to Supplemental Information (Unaudited)

March 31, 2010

 

	Page
Highlights and Discussion
Reporting Period Highlights — Periods Ended March 31, 2010	1
Forward-Looking Statements	3
Financial Statements
Selected Financial Summary Data	4
Quarterly Consolidated Balance Sheets	5
Consolidated Statements of Operations	6
Consolidated Reconciliations of Funds From Operations (FFO), Adjusted FFO (AFFO), Earnings Per Share (EPS)	7
Consolidated Reconciliations of Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA), Net Operating Income (NOI), Discontinued Operations, Gains on Sales of Real Estate and Certain Non-GAAP Measures	8
Reconciliations of Non GAAP Measurements	9
Selected Financial Analyses
Real Estate Revenues from Continuing and Discontinued Operations and Net Operating Income by Geographic Region	10
Same Office Property Cash and GAAP Net Operating Income by Three Month Period	11
Quarterly Operating Ratios	12
Debt Analysis	13
Debt Maturity Schedule — March 31, 2010	14
Quarterly Equity Analysis	15
Quarterly Dividend Analysis	16
Investor Composition and Analyst Coverage	17
Portfolio Summary
Property Summary by Region — March 31, 2010 — Wholly Owned Properties	18
Property Summary by Region — March 31, 2010 — Joint Venture Properties	24
Property Occupancy Rates by Region by Quarter — Wholly Owned Properties	25
Property Occupancy Rates by Region by Quarter — Joint Venture Properties	26
Top Twenty Office Tenants of Wholly Owned Properties as of March 31, 2010	27
Average Occupancy Rates by Region for Same Office Properties for Quarter	28
Office Lease Expiration Analysis by Year for Wholly Owned Properties	29
Office Renewal Analysis for Wholly Owned Properties for Period Ended March 31, 2010	30
Development Summary as of March 31, 2010	31
Land Controlled as of March 31, 2010	33
Joint Venture Summary as of March 31, 2010	34

 

 

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, Senior 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 primarily 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 that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities.  More information on COPT can be found at www.copt.com.

 

Reporting Period Highlights — Quarter Ended March 31, 2010

 

Financial Results

 

·                  FFO was $38.2 million, or $0.53 per diluted share, for the quarter ended March 31, 2010 as compared to $44.8 million, or $0.67 per diluted share, for the quarter ended March 31, 2009, a decrease of 21% per share.  This decrease was primarily attributable to a decrease in lease termination fee revenue of approximately $3 million and to higher net costs for snow removal of approximately $3 million.

 

·                  Net income attributable to COPT common shareholders was $5.9 million, or $0.10 per diluted share, for the quarter ended March 31, 2010 as compared to $12.1 million, or $0.23 per diluted share, for the quarter ended March 31, 2009, a decrease of 57% per share.

 

·                  Diluted AFFO available to common share and common unit holders was $25.2 million for the quarter ended March 31, 2010 as compared to $33.4 million for the quarter ended March 31, 2009, a decrease of 24%.

 

·                  Our diluted FFO payout ratio was 75% for the quarter ended March 31, 2010 as compared to 56% for the quarter ended March 31, 2009.  Our diluted AFFO payout ratio was 99% for the quarter ended March 31, 2010 as compared to 67% for the quarter ended March 31, 2009.

 

Development Activities

 

·                  In March 2010, we completed the formation of LW Redstone Company, LLC, a joint venture created to develop Redstone Gateway, a 468 acre land parcel adjacent to Redstone Arsenal in Huntsville, Alabama.  The land is owned by the U.S. Government and is under a long term master lease to the joint venture through the Enhanced Use Lease program.  Through this master lease, we will work closely with Redstone Arsenal to create a business park that we expect will total approximately 4.6 million square feet of office and retail space when completed, including approximately 4.4 million square feet of Class A office space.  In addition, the business park will include hotel and other amenities.  We will be the managing partner of the joint venture with a controlling interest and responsibility for development, leasing and management of the office space at the business park.  Development and construction of the business park is expected to take place over a 20 year period.

 

·                  During the quarter ended March 31, 2010, we completed leasing on an aggregate of approximately 450,000 square feet in properties under construction, including the following:

 

·                  324 Sentinel Way, a 125,000 square foot property in Annapolis Junction, Maryland, for a ten year term; and

 

·                  8000 and 8030 Potranco Road, two properties in San Antonio, Texas totaling 250,000 square feet, each for ten year terms.

 

1

 

Operations

 

·                  Our wholly owned portfolio was 89.6% occupied and 90.2% leased as of March 31, 2010.  Our entire portfolio was 88.5% occupied and 89.2% leased as of March 31, 2010.

 

·                  The weighted average remaining lease term of our wholly owned portfolio was 4.8 years as of March 31, 2010, with an average contractual rental rate (including tenant reimbursements of operating costs) of $24.64 per square foot.

 

·                  Same office property cash NOI for the three months ended March 31, 2010, excluding gross lease termination fees, decreased by $2.2 million, or 4%, as compared to the three months ended March 31, 2009.  Including gross lease termination fees, our same office property cash NOI decreased by $5.6 million, or 9%, as compared to the three months ended March 31, 2009.  Our same office portfolio for the quarter consists of 232 properties and represents 87% of the rentable square footage of our consolidated properties as of March 31, 2010.

 

·                  We renewed 359,000 square feet in the quarter ended March 31, 2010 with an average committed cost of $7.63 per square foot.  For our renewed space during the quarter ended March 31, 2010, we realized an increase of 2% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and a decrease of 7% in total cash rent.  For our renewed and retenanted space of 454,000 square feet during the quarter ended March 31, 2010, we realized decreases of 1% in total rent, as measured from the GAAP straight-line rent in effect preceding the renewal date, and 9% in total cash rent.  The average committed cost for our space renewed and retenanted during the quarter ended March 31, 2010 totaled $8.96 per square foot.

 

·                  We recognized $240,000 in lease termination fees for the quarter ended March 31, 2010, net of write-offs of related straight-line rents and accretion of intangible assets and liabilities, as compared to $3.1 million in the quarter ended March 31, 2009.

 

Financing Activity and Capital Transactions

 

·                  As of March 31, 2010, our ratio of debt to total market capitalization was 43% and our ratio of debt to undepreciated book value of real estate assets was 58%.

 

·                  For the quarter ended March 31, 2010, we achieved an EBITDA interest coverage ratio of 2.97x and an EBITDA fixed charge coverage ratio of 2.47x.

 

·                  As of March 31, 2010, 73% of our debt had fixed interest rates, including the effect of interest rate swaps in effect.

 

Subsequent Events

 

·                  On April 7, 2010, we issued $240.0 million aggregate principal amount of 4.25% Exchangeable Senior Notes due 2030.  The notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and our common shares at an initial exchange rate (subject to adjustment) of 20.7658 shares per $1,000 principal amount of the notes (equivalent to an exchange price of $48.16 per common share, a 20% premium over the closing price on the NYSE on the transaction pricing date).  On or after April 20, 2015, we may redeem the notes in cash, in whole or in part.  The holders of the notes have the right to require us to repurchase the notes in cash, in whole or in part, on each of April 15, 2015, April 15, 2020 and April 15, 2025, or in the event of a “fundamental change,” as defined under the terms of the notes.  We used the proceeds for general corporate purposes, including repayment of borrowings under our Revolving Credit Facility.

 

·                  On April 26, 2010, we increased the borrowing capacity under our Revolving Credit Facility by $100.0 million, from $600.0 million to $700.0 million.

 

2

 

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,” “could,” “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;

 

·                  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 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

 

3

 

Selected Financial Summary Data

(dollars in thousands, except per share data)

 

		Three Months Ended
		3/31/10			12/31/09			9/30/09			6/30/09			3/31/09
Real estate revenues from continuing operations		$	112,228		$	108,737		$	104,132		$	105,007		$	106,108
Total revenues from continuing operations		$	149,593		$	178,290		$	199,453		$	208,331		$	180,997
NOI		$	64,700		$	66,822		$	66,260		$	68,556		$	67,811
EBITDA		$	61,683		$	61,056		$	63,918		$	66,062		$	64,690
Net income		$	10,675		$	9,546		$	15,536		$	18,051		$	18,166
Net income attributable to noncontrolling interests		(737		)	(458		)	(1,081		)	(1,412		)	(2,019		)
Preferred share dividends		(4,025		)	(4,026		)	(4,025		)	(4,026		)	(4,025		)
Net income attributable to COPT common shareholders		$	5,913		$	5,062		$	10,430		$	12,613		$	12,122
Diluted EPS		$	0.10		$	0.08		$	0.18		$	0.22		$	0.23
FFO		$	38,156		$	37,180		$	42,408		$	46,920		$	44,817
FFO, excluding operating property acquisition costs		$	38,156		$	39,147		$	42,408		$	46,920		$	44,817
Basic and diluted FFO available to common share and common unit holders		$	33,260		$	32,586		$	37,772		$	42,197		$	40,071
Diluted FFO per share		$	0.53		$	0.52		$	0.60		$	0.67		$	0.67
Diluted FFO per share, excluding operating property acquisition costs		$	0.53		$	0.55		$	0.60		$	0.67		$	0.67
Diluted AFFO available to common share and common unit holders		$	25,215		$	20,455		$	27,846		$	36,203		$	33,366
Payout ratios:
Diluted FFO payout ratio		75.2		%	76.3		%	65.8		%	55.7		%	55.8		%
Diluted AFFO payout ratio		99.3		%	121.6		%	89.2		%	64.9		%	67.0		%
Total dividends/distributions		$	29,217		$	29,063		$	29,036		$	27,682		$	26,539

 

4

 

Quarterly Consolidated Balance Sheets

(dollars in thousands)

 

		3/31/10			12/31/09			9/30/09			6/30/09			3/31/09
Assets
Properties, net
Operating properties		$	2,954,575		$	2,950,327		$	2,790,568		$	2,722,959		$	2,653,802
Land - development		236,350			231,809			214,147			219,775			222,242
Construction in progress		317,283			270,376			266,117			293,787			295,686
Less: accumulated depreciation		(443,246		)	(422,612		)	(402,125		)	(382,385		)	(362,318		)
Properties, net		3,064,962			3,029,900			2,868,707			2,854,136			2,809,412
Cash and cash equivalents		10,180			8,262			9,981			11,931			12,702
Restricted cash and marketable securities		18,981			16,549			16,779			17,879			15,408
Accounts receivable, net		13,982			17,459			14,004			13,776			12,737
Deferred rent receivable		74,113			71,805			69,816			67,137			65,346
Intangible assets on real estate acquisitions, net		94,925			100,671			75,506			81,090			85,774
Deferred charges, net		52,797			53,421			52,551			48,812			47,350
Prepaid and other assets		68,412			81,955			123,303			103,914			88,561
Total assets		$	3,398,352		$	3,380,022		$	3,230,647		$	3,198,675		$	3,137,290
Liabilities and shareholders’ equity
Liabilities:
Mortgage and other loans payable, net		$	1,950,070		$	1,897,694		$	1,742,604		$	1,677,351		$	1,715,144
3.5% Exchangeable Senior Notes, net		157,061			156,147			155,248			154,362			153,488
Accounts payable and accrued expenses		86,650			116,455			113,416			142,734			111,135
Rents received in advance and security deposits		32,575			32,177			33,322			29,936			31,524
Dividends and distributions payable		28,556			28,440			28,411			27,057			25,891
Deferred revenue associated with operating leases		13,827			14,938			8,044			8,926			9,880
Distributions in excess of investment in unconsolidated real estate joint ventures		5,238			5,088			4,966			4,873			4,809
Other liabilities		13,836			8,451			8,453			7,029			8,793
Total liabilities		2,287,813			2,259,390			2,094,464			2,052,268			2,060,664
Commitments and contingencies		—			—			—			—			—
COPT’s shareholders’ equity:
Preferred shares (aggregate liquidation preference of $216,333)		81			81			81			81			81
Common shares		589			583			583			580			544
Additional paid-in capital		1,244,046			1,238,704			1,234,910			1,229,931			1,148,424
Cumulative distributions in excess of net income		(227,189		)	(209,941		)	(192,119		)	(179,698		)	(170,714		)
Accumulated other comprehensive loss		(3,278		)	(1,907		)	(2,291		)	(1,176		)	(3,256		)
Total COPT’s shareholders’ equity		1,014,249			1,027,520			1,041,164			1,049,718			975,079
Noncontrolling interests
Common units in the Operating Partnership		68,113			73,892			75,657			76,873			81,793
Preferred units in the Operating Partnership		8,800			8,800			8,800			8,800			8,800
Other consolidated real estate joint ventures		19,377			10,420			10,562			11,016			10,954
Total noncontrolling interests		96,290			93,112			95,019			96,689			101,547
Total equity		1,110,539			1,120,632			1,136,183			1,146,407			1,076,626
Total liabilities and equity		$	3,398,352		$	3,380,022		$	3,230,647		$	3,198,675		$	3,137,290

 

5

 

Consolidated Statements of Operations

(in thousands, except per share data)

 

		Three Months Ended
		3/31/10			12/31/09			9/30/09			6/30/09			3/31/09
Revenues
Rental revenue		$	91,010		$	89,346		$	86,973		$	87,649		$	88,845
Tenant recoveries and other real estate operations revenue		21,218			19,391			17,159			17,358			17,263
Construction contract and other service revenues		37,365			69,553			95,321			103,324			74,889
Total revenues		149,593			178,290			199,453			208,331			180,997
Expenses
Property operating expenses		48,135			42,567			38,523			37,100			38,964
Depreciation and amortization associated with real estate operations		27,596			27,261			26,498			28,493			26,277
Construction contract and other service expenses		36,399			68,230			93,805			101,161			73,323
General and administrative expenses		5,900			5,965			5,898			5,834			5,543
Business development expenses		155			2,149			458			446			646
Total operating expenses		118,185			146,172			165,182			173,034			144,753
Operating income		31,408			32,118			34,271			35,297			36,244
Interest expense		(22,638		)	(23,273		)	(20,931		)	(18,620		)	(19,363		)
Interest and other income		1,302			215			2,619			1,252			1,078
Income from continuing operations before equity in (loss) income of unconsolidated entities and income taxes		10,072			9,060			15,959			17,929			17,959
Equity in (loss) income of unconsolidated entities		(205		)	134			(758		)	(202		)	(115		)
Income tax expense		(41		)	(27		)	(47		)	(52		)	(70		)
Income from continuing operations		9,826			9,167			15,154			17,675			17,774
Discontinued operations		832			379			382			376			392
Income before gain on sales of real estate		10,658			9,546			15,536			18,051			18,166
Gain on sales of real estate, net of income taxes		17			—			—			—			—
Net income		10,675			9,546			15,536			18,051			18,166
Less net income attributable to noncontrolling interests
Common units in the Operating Partnership		(527		)	(463		)	(956		)	(1,272		)	(1,804		)
Preferred units in the Operating Partnership		(165		)	(165		)	(165		)	(165		)	(165		)
Other consolidated entities		(45		)	170			40			25			(50		)
Net income attributable to COPT		9,938			9,088			14,455			16,639			16,147
Preferred share dividends		(4,025		)	(4,026		)	(4,025		)	(4,026		)	(4,025		)
Net income attributable to COPT common shareholders		$	5,913		$	5,062		$	10,430		$	12,613		$	12,122
For diluted EPS computations:
Numerator for diluted EPS
Net income available to common shareholders		$	5,913		$	5,062		$	10,430		$	12,613		$	12,122
Amount allocable to restricted shares		(290		)	(247		)	(253		)	(242		)	(268		)
Numerator for diluted EPS		$	5,623		$	4,815		$	10,177		$	12,371		$	11,854
Denominator:
Weighted average common shares - basic		57,844			57,604			57,470			56,637			51,930
Dilutive effect of share-based compensation awards		364			413			485			546			498
Weighted average common shares - diluted		58,208			58,017			57,955			57,183			52,428
Diluted EPS		$	0.10		$	0.08		$	0.18		$	0.22		$	0.23

 

6

 

Consolidated Reconciliations of FFO, AFFO, EPS

(in thousands, except per share data)

 

		Three Months Ended
		3/31/10			12/31/09			9/30/09			6/30/09			3/31/09
Net income		$	10,675		$	9,546		$	15,536		$	18,051		$	18,166
Real estate-related depreciation and amortization		27,603			27,475			26,712			28,708			26,491
Depreciation and amortization on unconsolidated real estate entities		175			159			160			161			160
Gain on sales of operating properties, net of income taxes		(297		)	—			—			—			—
FFO		38,156			37,180			42,408			46,920			44,817
Noncontrolling interests - preferred units in the Operating Partnership		(165		)	(165		)	(165		)	(165		)	(165		)
Noncontrolling interests - other consolidated entities		(45		)	170			40			25			(50		)
Preferred share dividends		(4,025		)	(4,026		)	(4,025		)	(4,026		)	(4,025		)
Depreciation and amortization allocable to noncontrolling interests in other consolidated entities		(282		)	(242		)	(91		)	(107		)	(53		)
Basic and diluted FFO allocable to restricted shares		(379		)	(331		)	(395		)	(450		)	(453		)
Basic and diluted FFO available to common share and common unit holders		33,260			32,586			37,772			42,197			40,071
Straight line rent adjustments		(2,346		)	1,676			(2,665		)	(1,718		)	(1,140		)
Amortization of acquisition intangibles included in NOI		(270		)	(679		)	(451		)	(616		)	(380		)
Recurring capital expenditures		(6,211		)	(13,900		)	(7,572		)	(4,383		)	(5,883		)
Amortization of discount on Exchangeable Senior Notes, net of amounts capitalized		782			772			762			723			698
Diluted AFFO available to common share and common unit holders		$	25,215		$	20,455		$	27,846		$	36,203		$	33,366
Preferred dividends		$	4,025		$	4,026		$	4,025		$	4,026		$	4,025
Preferred distributions		165			165			165			165			165
Common distributions		1,867			1,988			1,995			1,894			2,085
Common dividends		23,160			22,884			22,851			21,597			20,264
Total dividends/distributions		$	29,217		$	29,063		$	29,036		$	27,682		$	26,539
Denominator for diluted EPS		58,208			58,017			57,955			57,183			52,428
Common units		5,017			5,078			5,084			5,483			7,253
Denominator for diluted FFO per share		63,225			63,095			63,039			62,666			59,681
FFO		$	38,156		$	37,180		$	42,408		$	46,920		$	44,817
Operating property acquisition costs		—			1,967			—			—			—
FFO, excluding operating property acquisition costs		$	38,156		$	39,147		$	42,408		$	46,920		$	44,817
Diluted FFO available to common share and common unit holders		$	33,260		$	32,586		$	37,772		$	42,197		$	40,071
Operating property acquisition costs		—			1,967			—			—			—
Diluted FFO available to common share and common unit holders, excluding operating property acquisition costs		$	33,260		$	34,553		$	37,772		$	42,197		$	40,071
Diluted FFO per share, excluding operating property acquisition costs		$	0.53		$	0.55		$	0.60		$	0.67		$	0.67

 

7

 

Consolidated Reconciliations of EBITDA, NOI, Discontinued Operations,

Gains on Sales of Real Estate and Certain Non-GAAP Measures

(in thousands)

 

		Three Months Ended
		3/31/10			12/31/09			9/30/09			6/30/09			3/31/09
Net income		$	10,675		$	9,546		$	15,536		$	18,051		$	18,166
Interest expense of continuing and discontinued operations		22,703			23,332			20,986			18,678			19,424
Total income tax expense (1)		52			27			47			52			70
Depreciation of furniture, fixtures and equipment (FF&E)		650			676			637			573			539
Real estate-related depreciation and other amortization		27,603			27,475			26,712			28,708			26,491
EBITDA		$	61,683		$	61,056		$	63,918		$	66,062		$	64,690
Add back:
General and administrative		5,900			5,965			5,898			5,834			5,543
Business development		155			2,149			458			446			646
Depreciation of FF&E		(650		)	(676		)	(637		)	(573		)	(539		)
Income from construction contracts and other service operations		(966		)	(1,323		)	(1,516		)	(2,163		)	(1,566		)
Interest and other income		(1,302		)	(215		)	(2,619		)	(1,252		)	(1,078		)
Gain on sales of operating properties		(297		)	—			—			—			—
Non-operational property sales		(28		)	—			—			—			—
Equity in loss (income) of unconsolidated entities		205			(134		)	758			202			115
NOI		$	64,700		$	66,822		$	66,260		$	68,556		$	67,811
Discontinued Operations
Revenues from real estate operations		$	768		$	713		$	711		$	711		$	736
Property operating expenses		(161		)	(61		)	(60		)	(62		)	(69		)
Depreciation and amortization		(7		)	(214		)	(214		)	(215		)	(214		)
Interest		(65		)	(59		)	(55		)	(58		)	(61		)
Gain on sales of depreciated real estate properties		297			—			—			—			—
Discontinued operations		$	832		$	379		$	382		$	376		$	392
Gain on sales of real estate, net, per statements of operations		$	17		$	—		$	—		$	—		$	—
Add income taxes		11			—			—			—			—
Gain on sales of real estate from discontinued operations		297			—			—			—			—
Gain on sales of real estate from continuing and discontinued operations		325			—			—			—			—
Non-operational property sales		(28		)	—			—			—			—
Gain on sales of operating properties		$	297		$	—		$	—		$	—		$	—

 

(1) Includes income taxes from continuing operations, discontinued operations and gains on other sales of real estate (see components on page 9).

 

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