Corporate Office Properties Trust Reports First Quarter 2010 Results

COLUMBIA, Md.--(BUSINESS WIRE)-- Corporate Office Properties Trust (COPT) (NYSE: OFC) announced today financial and operating results for the quarter ended March 31, 2010.

Highlights

    --  Net income attributable to common shareholders for the first quarter
        2010 was $5.9 million or $.10 per diluted earnings per share ("Diluted
        EPS") as compared to $12.1 million of net income available to common
        shareholders or $.23 Diluted EPS for the first quarter 2009, a decrease
        of 57% per share.
    --  Funds from Operations ("FFO") per diluted share for the first quarter
        2010 was $.53 as compared to $.67 for the first quarter 2009, a decrease
        of 21%. The decrease was primarily attributable to a decrease in lease
        termination fee revenue of approximately $3 million and higher net costs
        for snow removal of approximately $3 million.
    --  Diluted Adjusted Funds from Operations ("Diluted AFFO") available to
        common share and common unit holders was $25.2 million for the first
        quarter 2010 as compared to $33.4 million for the first quarter 2009, a
        decrease of 24%.
    --  89.6% occupied and 90.2% leased for our wholly-owned portfolio as of
        March 31, 2010.
    --  Renewed 359,000 square feet.
    --  450,000 square feet of development space leased in the quarter.
    --  969,000 square feet of overall leasing.

"We indicated previously that 2010 would be a challenging year for the industry since the real estate sector lags the economy. Our first quarter results reflect those challenges with some pressure on occupancy and lease rates. Offsetting this pressure was strong leasing volume with 969,000 square feet of overall leasing and good progress on development leasing, signing over 450,000 square feet," stated Randall M. Griffin, President and Chief Executive Officer, Corporate Office Properties Trust.

Financial Ratios

Diluted FFO payout ratio for the three months ended March 31, 2010 was 75% as compared to 56% for the three months ended March 31, 2009. Diluted AFFO payout ratio for the three months ended March 31, 2010 was 99% as compared to 67% for the three months ended March 31, 2009.

As of March 31, 2010, the Company had a total market capitalization of $4.9 billion, with $2.1 billion in debt outstanding, equating to a 43% debt to total market capitalization ratio.

For the first quarter 2010, the Company's weighted average interest rate was 4.8% and at March 31, 2010, the Company had 73% of its total debt subject to fixed interest rates.

For the first quarter 2010, the Company's EBITDA to interest coverage ratio was 3.0x, and the EBITDA fixed charge coverage ratio was 2.5x.

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the tables that follow the text of this press release.

Operating Results

At March 31, 2010, the Company's wholly-owned portfolio of 248 office properties totaled 18.9 million square feet. The weighted average remaining lease term for the portfolio was 4.8 years and the average rental rate (including tenant reimbursements) was $24.64 per square foot.

For the quarter ended March 31, 2010, 359,000 square feet was renewed, at an average committed cost of $7.63 per square foot. Total rent on renewed space increased 2% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date and decreased 7% on a cash basis. For renewed and retenanted space of 454,000 square feet, total straight-line rent decreased 1% and total rent on a cash basis decreased 9%. The average committed cost for renewed and retenanted space was $8.96 per square foot.

For the quarter ended March 31, 2010, same office property cash NOI excluding gross lease termination fees decreased 4% for the quarter compared to the first quarter 2009. The Company's same office portfolio for the quarter represents 87% of the rentable square feet of its consolidated portfolio and consists of 232 properties.

Development Activity

At March 31, 2010, the Company had 3.1 million square feet under construction, development and redevelopment for a total projected cost of $619.5 million.

The Company's land inventory (wholly-owned and joint venture) at March 31, 2010 totaled 2,258 acres that can support 20.8 million square feet of development.

In March 2010, the Company 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. The joint venture will work closely with Redstone Arsenal to create a business park that will total approximately 4.6 million square feet of office and retail space when completed, including 4.4 million square feet of Class A office space. In addition, the business park will include hotel and other amenities. The Company will be the managing partner of the joint venture with a controlling interest and responsible for development, leasing and management of the office space at Redstone Gateway.

Subsequent Events

The Company executed the following transactions subsequent to quarter end:

    --  On April 7, 2010, the Company issued $240 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 for
        $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). The Company used the proceeds for
        general corporate purposes, including repayment of borrowings under its
        unsecured revolving credit facility.
    --  Increased the Company's revolving credit facility by $100 million, from
        $600 million to $700 million in April 2010.

Conference Call

The Company will hold an investor/analyst conference call:


Conference Call (within the United States)

Date:               Thursday, April 29, 2010

Time:               11:00 a.m. Eastern Time

Telephone Number:   888-679-8034

Passcode:           46054719

Conference Call (outside the United States)

Date:               Thursday, April 29, 2010

Time:               11:00 a.m. Eastern Time

Telephone Number:   617-213-4847

Passcode:           46054719



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=P9AH3ECQC

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, April 29 at 2:00 p.m. Eastern Time through Thursday, May 13 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 22745357. To access the replay outside the United States, please call 617-801-6888 and use passcode 22745357.

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 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

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. As of March 31, 2010, the Company owned 268 office and data properties totaling 20 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", "expect", "estimate" 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:

    --  the Company's 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 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;
    --  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.

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, 2009.


Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Amounts in thousands, except per share data)

                                                      Three Months Ended
                                                      March 31,

                                                      2010         2009

Revenues

Real estate revenues                                  $ 112,228    $ 106,108

Construction contract and other service revenues        37,365       74,889

Total revenues                                          149,593      180,997

Expenses

Property operating expenses                             48,135       38,964

Depreciation and other amortization associated with     27,596       26,277
real estate operations

Construction contract and other service expenses        36,399       73,323

General and administrative expenses                     5,900        5,543

Business development expenses                           155          646

Total operating expenses                                118,185      144,753

Operating income                                        31,408       36,244

Interest expense                                        (22,638 )    (19,363 )

Interest and other income                               1,302        1,078

Income from continuing operations before equity in
loss of unconsolidated

entities and income taxes                               10,072       17,959

Equity in loss of unconsolidated entities               (205    )    (115    )

Income tax expense                                      (41     )    (70     )

Income from continuing operations                       9,826        17,774

Discontinued operations                                 832          392

Income before gain on sales of real estate              10,658       18,166

Gain on sales of real estate, net of income taxes       17           -

Net income                                              10,675       18,166

Less net income attributable to noncontrolling
interests

Common units in the Operating Partnership               (527    )    (1,804  )

Preferred units in the Operating Partnership            (165    )    (165    )

Other                                                   (45     )    (50     )

Net income attributable to COPT                         9,938        16,147

Preferred share dividends                               (4,025  )    (4,025  )

Net income attributable to COPT common shareholders   $ 5,913      $ 12,122

Earnings per share "EPS" computation:

Numerator for diluted EPS:

Net income available to common shareholders           $ 5,913      $ 12,122

Amount allocable to restricted shares                   (290    )    (268    )

Numerator for diluted EPS                               5,623        11,854

Denominator:

Weighted average common shares - basic                  57,844       51,930

Dilutive effect of share-based compensation awards      364          498

Weighted average common shares - diluted                58,208       52,428

Diluted EPS                                           $ 0.10       $ 0.23




Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Amounts in thousands, except per share data and ratios)

                                                          Three Months Ended

                                                          March 31,

                                                          2010        2009

Net income                                                $ 10,675    $ 18,166

Add: Real estate-related depreciation and amortization      27,603      26,491

Add: Depreciation and amortization on unconsolidated        175         160
real estate entities

Less: Gain on sales of operating properties, net of         (297   )    -
income taxes

Funds from operations ("FFO")                               38,156      44,817

Less: Noncontrolling interests - preferred units in the     (165   )    (165   )
Operating Partnership

Less: Noncontrolling interests - other consolidated         (45    )    (50    )
entities

Less: Preferred share dividends                             (4,025 )    (4,025 )

Less: Depreciation and amortization allocable to
noncontrolling interests in other

consolidated entities                                       (282   )    (53    )

Less: Basic and diluted FFO allocable to restricted         (379   )    (453   )
shares

Basic and diluted FFO available to common share and         33,260      40,071
common unit holders ("Basic and diluted FFO")

Less: Straight-line rent adjustments                        (2,346 )    (1,140 )

Less: Amortization of acquisition intangibles included      (270   )    (380   )
in FFO

Less: Recurring capital expenditures                        (6,211 )    (5,883 )

Add: Amortization of discount on Exchangeable Senior        782         698
Notes, net of amounts capitalized

Diluted adjusted funds from operations available to       $ 25,215    $ 33,366
common share and common unit holders ("Diluted AFFO")

Weighted average shares

Weighted average common shares                              57,844      51,930

Conversion of weighted average common units                 5,017       7,253

Weighted average common shares/units - basic FFO per        62,861      59,183
share

Dilutive effect of share-based compensation awards          364         498

Weighted average common shares/units - diluted FFO per      63,225      59,681
share

Diluted FFO per share                                     $ 0.53      $ 0.67

Dividends/distributions per common share/unit             $ 0.3925    $ 0.3725

Diluted FFO payout ratio                                    75.2   %    55.8   %

Diluted AFFO payout ratio                                   99.3   %    67.0   %

EBITDA interest coverage ratio                            2.97x       3.65x

EBITDA fixed charge coverage ratio                        2.47x       2.95x

Reconciliation of denominators for diluted EPS and
diluted FFO per share

Denominator for diluted EPS                                 58,208      52,428

Weighted average common units                               5,017       7,253

Denominator for diluted FFO per share                       63,225      59,681




Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars and shares in thousands, except per share data)

                                                    March 31,      December 31,

                                                    2010           2009

Balance Sheet Data (in thousands) (as of period
end)

Properties, net of accumulated depreciation         $ 3,064,962    $ 3,029,900

Total assets                                          3,398,352      3,380,022

Debt                                                  2,107,131      2,053,841

Total liabilities                                     2,287,813      2,259,390

Beneficiaries' equity                                 1,110,539      1,120,632

Debt to total assets                                  62.0      %    60.8      %

Debt to undepreciated book value of real estate       58.5      %    57.8      %
assets

Debt to total market capitalization                   43.1      %    44.6      %

Property Data (wholly owned properties)

(as of period end)

Number of operating properties owned                  248            249

Total net rentable square feet owned (in              18,918         19,101
thousands)

Occupancy                                             89.6      %    90.7      %

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                $ 3,398,352    $ 3,380,022

Assets other than assets included in properties,      (333,390  )    (350,122  )
net

Accumulated depreciation on real estate assets        443,246        422,612

Intangible assets on real estate acquisitions, net    94,925         100,671

Denominator for debt to undepreciated book value    $ 3,603,133    $ 3,553,183
of real estate assets

                                                    Three Months Ended

                                                    March 31,

                                                    2010           2009

Reconciliation of tenant improvements and
incentives, capital

improvements and leasing costs for operating
properties to

recurring capital expenditures

Total tenant improvements and incentives on         $ 4,071        $ 4,225
operating properties

Total capital improvements on operating properties    870            1,513

Total leasing costs on operating properties           1,338          1,626

Less: Nonrecurring tenant improvements and            (77       )    (41       )
incentives on operating properties

Less: Nonrecurring capital improvements on            (60       )    (588      )
operating properties

Less: Nonrecurring leasing costs incurred on          54             (900      )
operating properties

Add: Recurring capital expenditures on operating      15             48
properties held through joint ventures

Recurring capital expenditures                      $ 6,211        $ 5,883




Corporate Office Properties Trust

Summary Financial Data

(unaudited)

(Dollars in thousands)

                                                          Three Months Ended

                                                          March 31,

                                                          2010        2009

Reconciliation of dividends for earnings payout ratio to

dividends and distributions for FFO & AFFO payout ratio

Common share dividends for earnings payout ratio          $ 23,160    $ 20,264

Common unit distributions                                   1,867       2,085

Dividends and distributions for FFO & AFFO payout ratio   $ 25,027    $ 22,349

Reconciliation of GAAP net income to earnings before
interest,

income taxes, depreciation and amortization ("EBITDA")

Net income                                                $ 10,675    $ 18,166

Interest expense on continuing operations                   22,638      19,363

Interest expense on discontinued operations                 65          61

Income tax expense                                          52          70

Real estate-related depreciation and amortization           27,603      26,491

Depreciation of furniture, fixtures and equipment           650         539

EBITDA                                                    $ 61,683    $ 64,690

Reconciliation of interest expense from continuing
operations

to the denominators for interest coverage-EBITDA

and fixed charge coverage-EBITDA

Interest expense from continuing operations               $ 22,638    $ 19,363

Interest expense from discontinued operations               65          61

Less: Amortization of deferred financing costs              (1,126 )    (1,024 )

Less: Amortization of discount on Exchangeable Senior       (782   )    (698   )
Notes, net of amounts capitalized

Denominator for interest coverage-EBITDA                    20,795      17,702

Preferred share dividends                                   4,025       4,025

Preferred unit distributions                                165         165

Denominator for fixed charge coverage-EBITDA              $ 24,985    $ 21,892

Reconciliation of same 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                 $ 58,785    $ 63,942

Less: Straight-line rent adjustments                        (1,367 )    (1,191 )

Less: Amortization of deferred market rental revenue        (520   )    (287   )

Same office property cash net operating income            $ 56,898    $ 62,464

Less: Lease termination fees, gross                         (278   )    (3,660 )

Same office property cash net operating income,
excluding

gross lease termination fees                              $ 56,620    $ 58,804





Top Twenty Office Tenants of Wholly Owned Properties as of March 31, 2010 (1)

(Dollars in thousands)

                                        Percentage  Total       Percentage  Weighted
                                        of

                            Total       Total       Annualized  of Total    Average

                    Number  Occupied    Occupied    Rental      Annualized  Remaining
                    of                                          Rental

Tenant              Leases  Square      Square      Revenue     Revenue     Lease
                            Feet        Feet        (2)(3)                  Term (4)

United States   (5) 69      2,673,290   15.8%       82,486      19.8%       5.7
of America

Northrop
Grumman         (6) 17      1,302,589   7.7%        33,329      8.0%        6.8
Corporation

Booz Allen          7       721,564     4.3%        21,352      5.1%        5.3
Hamilton, Inc.

Computer
Sciences        (6) 3       454,986     2.7%        12,384      3.0%        3.4
Corporation

General
Dynamics        (6) 9       294,982     1.7%        8,200       2.0%        0.8
Corporation

Wells Fargo &   (6) 6       215,673     1.3%        7,719       1.8%        8.2
Company

The Aerospace   (6) 3       247,253     1.5%        7,702       1.8%        4.8
Corporation

L-3
Communications  (6) 4       256,120     1.5%        7,324       1.8%        4.0
Holdings, Inc.

ITT             (6) 8       305,689     1.8%        7,317       1.8%        4.6
Corporation

CareFirst,          2       211,972     1.3%        7,229       1.7%        6.5
Inc.

Integral        (6) 4       241,610     1.4%        5,985       1.4%        9.9
Systems, Inc.

Comcast         (6) 7       306,123     1.8%        5,934       1.4%        3.5
Corporation

AT&T            (6) 7       346,292     2.0%        5,590       1.3%        8.6
Corporation

Ciena               5       263,724     1.6%        4,832       1.2%        3.0
Corporation

The Boeing      (6) 4       150,768     0.9%        4,750       1.1%        3.5
Company

Unisys              2       258,498     1.5%        4,607       1.1%        9.5
Corporation

The Johns
Hopkins         (6) 5       139,295     0.8%        3,506       0.8%        6.6
Institutions

BAE Systems     (6) 6       186,605     1.1%        2,995       0.7%        2.8
PLC

Merck & Co.,    (6) 2       225,900     1.3%        2,777       0.7%        2.3
Inc.

Magellan
Health              2       118,801     0.7%        2,691       0.6%        1.3
Services, Inc.

Subtotal Top
20 Office           172     8,921,734   52.6%       238,710     57.2%       5.5
Tenants

All remaining       717     8,025,224   47.4%       178,898     42.8%       3.8
tenants

Total/Weighted      889     16,946,958  100.0%      $417,608    100.0%      4.8
Average




     Table excludes owner occupied leasing activity which represents 164,313
(1)  square feet with total annualized rental revenue of $3,905 and a weighted
     average remaining lease term of 5.3 years as of March 31, 2010.

     Total Annualized Rental Revenue is the monthly contractual base rent as of
(2)  March 31, 2010, multiplied by 12, plus the estimated annualized expense
     reimbursements under existing office leases.

(3)  Order of tenants is based on Annualized Rent.

(4)  The weighting of the lease term was computed using Total Rental Revenue.

(5)  Many of our government leases are subject to early termination provisions
     which are customary to government leases.

     The weighted average remaining lease term was computed assuming no exercise
     of such early termination rights.

(6)  Includes affiliated organizations or agencies.




    Source: Corporate Office Properties Trust