Corporate Office Properties Trust Reports Second Quarter 2009 Results

Corporate Office Properties Trust (COPT) (NYSE:OFC) announced today financial and operating results for the quarter ended June 30, 2009.

Highlights

• 14% increase in diluted Funds from Operations ("FFO”) per share to $.67 or $46.9 million of FFO for the second quarter 2009 from $.59 per share or $37.8 million of FFO for the second quarter 2008.
• 29% increase in diluted earnings per share ("Diluted EPS”) to $.22 or $12.6 million of net income available to common shareholders for the second quarter 2009 as compared to $.17 per diluted share or $8.1 million of net income available to common shareholders for the second quarter 2008.

• 46% increase in diluted Adjusted Funds from Operations available to common share and common unit holders ("Diluted AFFO”) to $36.2 million for the second quarter 2009 as compared to $24.8 million for the second quarter 2008.
• 92.3% occupied and 93.2% leased for our wholly-owned portfolio as of June 30, 2009.
• 70% renewal rate on expiring leases for second quarter 2009, with an 11% increase in total straight-line rents for renewed space.
• 5% increase in same office property cash NOI for the quarter compared to the second quarter 2008. The Company’s same office portfolio for the quarter ended June 30, 2009 represents 92% of the rentable square feet of its consolidated portfolio and consists of 228 properties.

"Continuing our strong 2009 performance, the Company had an excellent second quarter and is well positioned for the second half of 2009. Real estate is a lagging indicator, therefore the full impact of the recession has not yet been felt in the real estate markets. In anticipation of this trend, we have strengthened our financial position with no debt maturing for the remainder of 2009 and continue to tighten operating expenses,” stated Randall M. Griffin, President and Chief Executive Officer, Corporate Office Properties Trust. "We are well positioned to accelerate product to meet the imminent demand in several of our markets resulting from BRAC and the cyber initiative,” he stated.

Financial Ratios

Diluted FFO payout ratio for the six months ended June 30, 2009 was 56% as compared to 59% for the six months ended June 30, 2008. Diluted AFFO payout ratio for the six months ended June 30, 2009 was 66% as compared to 77% for the six months ended June 30, 2008.

As of June 30, 2009, the Company had a total market capitalization of $3.9 billion, with $1.8 billion in debt outstanding, equating to a 47% debt to total market capitalization ratio.

As of June 30, 2009, the Company’s weighted average interest rate was 4.7% and the Company had 74% of the total debt subject to fixed interest rates.

For the second quarter 2009, the Company’s EBITDA to interest coverage ratio was 3.7x, and the EBITDA fixed charge coverage ratio was 3.0x.

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 June 30, 2009, the Company’s wholly-owned portfolio of 243 office properties totaled 18.7 million square feet. The weighted average remaining lease term for the portfolio was 4.7 years and the average rental rate (including tenant reimbursements) was $23.12 per square foot.

For the quarter ended June 30, 2009, 499,000 square feet was renewed equating to a 70% renewal rate, at an average committed cost of $9.42 per square foot. Total rent on renewed space increased 11% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date and remained flat on a cash basis. For renewed and retenanted space of 630,000 square feet, total straight-line rent increased 8% and total rent on a cash basis decreased 4%. The average committed cost for renewed and retenanted space was $10.79 per square foot.

Development Activity

At June 30, 2009, the Company had 2.4 million square feet under construction, development and redevelopment for a total projected cost of $498.9 million.

The Company’s land inventory (wholly-owned and joint venture) at June 30, 2009 totaled 1,827 acres that can support 16.2 million square feet of development.

During the quarter, the Company placed into service 175,000 square feet located in three newly-constructed properties.

Financing and Capital Transactions

The Company executed the following transactions during the quarter:

• Issued approximately 3.0 million common shares in an underwritten public offering made in conjunction with the Company’s inclusion in the S&P MidCap 400 Index on April 1, 2009. The shares were issued at a public offering price of $24.35 per share for net proceeds after underwriting discounts but before offering expenses of $72.1 million. The net proceeds were used to pay down the Company’s Revolving Credit Facility and for general corporate purposes.
• Closed on a $50.0 million secured loan with a five-year term that carries interest at LIBOR plus 3.0% (subject to a LIBOR floor of 2.5%). The proceeds were used to repay the Company’s maturing debt and pay down its Revolving Credit Facility.
• Closed on a $23.4 million joint venture construction loan with a two-year term and the right to extend for an additional year that carries interest at LIBOR plus 2.75%. The proceeds were used to pay down the Company’s Revolving Credit Facility.

Subsequent Event

The Company repaid its remaining 2009 maturing debt of approximately $22.5 million using proceeds from its unsecured credit facility and closed on a $90.0 million secured loan with a five-year term that carries interest at 7.25%. Most of the proceeds were used to pay down the Company’s Revolving Credit Facility.

Earnings Guidance

The Company revised its 2009 diluted EPS guidance from a range of $.70 to $.80 to a range of $.59 to $.67 per diluted share.

The Company revised its 2009 diluted FFO per share guidance from a range of $2.41 to $2.51 to a range of $2.43 to $2.51, representing growth of 2% to 5% compared to 2008 diluted FFO per share, as adjusted, of $2.38. The adjusted 2008 results reflect the change in accounting for exchangeable debt as required by the adoption of the FSP regarding APB 14-1 and excludes gains on extinguishment of exchangeable notes.

Conference Call

The Company will hold an investor/analyst conference call:

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=PN9KBNJAM

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, July 30 at 3:00 p.m. Eastern Time through Thursday, August 13 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 48082544. To access the replay outside the United States, please call 617-801-6888 and use passcode 48082544.

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 June 30, 2009, the Company owned 262 office and data properties totaling 19.6 million rentable square feet, which includes 19 properties totaling 852,000 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”, "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, 2008.