COPT Reports 2011 Results; Affirms 2012 Guidance

Corporate Office Properties Trust (COPT) (NYSE: OFC), an office real estate investment trust (REIT) that focuses primarily on serving the specialized requirements of U.S. Government and Defense Information Technology tenants, announced financial and operating results for the fourth quarter and full year ended December 31, 2011.

"The on-going difficult operating environment, caused by the weak economic recovery and uncertainty surrounding federal budget cuts, made 2011 a challenging year for COPT," stated Randall M. Griffin, Chief Executive Officer of Corporate Office Properties Trust. "During the year, we leased a total of 3.85 million square feet, of which 544,000 square feet was at development and redevelopment properties," he stated.

Results:

For the fourth quarter ended December 31, 2011 – Diluted earnings per share (EPS) loss was ($1.21) for the quarter ended December 31, 2011 as compared to EPS of $0.18 in the fourth quarter of 2010. Diluted funds from operations per share (FFOPS), as adjusted for comparability, was $0.56 for the fourth quarter ended December 31, 2011, which represented a 20% decrease from the $0.70 reported for the fourth quarter of 2010. Adjustments for comparability encompass items such as acquisition costs, impairments on non-operating properties, losses on early extinguishment of debt and derivative losses. Please refer to the reconciliation tables that appear later in this press release. Per NAREIT’s definition, FFOPS for the fourth quarter of 2011 was ($0.30) versus $0.69 reported in the fourth quarter of 2010.

For the year ended December 31, 2011 – EPS loss was ($1.94) for the year ended December 31, 2011 as compared to EPS of $0.43 for 2010. FFOPS for the full year 2011, as adjusted for comparability, was $2.17, which represented an 8% decrease from the $2.36 reported in 2010. Per NAREIT’s definition, FFOPS for 2011 was $0.76 as compared to $2.30 for the full year 2010.

Operating Performance:

Portfolio Summary – At December 31, 2011, the Company’s consolidated portfolio of 238 operating office properties totaled 20.5 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 $26.59 per square foot. The Company’s consolidated portfolio was 86.2% occupied and 88.2% leased as of December 31, 2011. During the fourth quarter of 2011, the Company placed four unstabilized buildings into service that previously were under construction or redevelopment and which were only 15% occupied and 37% leased at year-end.

Same Office Performance – The Company’s same office portfolio excludes properties identified for eventual sale as part of the Company’s Strategic Reallocation Plan. For the year ended December 31, 2011, COPT’s same office portfolio represents 72% of the rentable square feet of the portfolio and consists of 160 properties. The Company’s same office portfolio occupancy was 89.9% at year end 2011, down 20 basis points from the end of the third quarter 2011.

For the quarter and year ended December 31, 2011, the Company’s same office property cash NOI, excluding gross lease termination fees, decreased 1.6% and 1.9%, respectively, as compared to the quarter and year ended 2010. Including gross lease termination fees, same office property cash NOI for the quarter and year ended December 31, 2011 decreased 3.2% and 2.6%, respectively, over the same periods in 2010.

Leasing – COPT completed a total of 729,000 and 3.85 million square feet of leasing, respectively, for the quarter and year ended December 31, 2011. During these same periods, the Company’s respective renewal rates were 64% and 75%. For the quarter and year ended December 31, 2011, total rent on renewed space increased 8.1% and 5.7%, respectively, as measured from the straight-line rent in effect preceding the renewal date; on a cash basis, renewal rents were flat in the fourth quarter of 2011 and decreased 3.0% for the year versus 2010.

Investment Activity for the year ended December 31, 2011:

Construction – At December 31, 2011, the Company had six properties totaling 789,000 square feet under construction for a total projected cost of $196.2 million, of which $126.3 million had been incurred.

Acquisitions – During 2011, the Company acquired one building located at 310 The Bridge Street in Cummings Research Park in Huntsville, Alabama, with 138,000 square feet for $33.4 million.

Dispositions – In 2011, as part of the Company’s Strategic Reallocation Plan, COPT sold 23 buildings aggregating 894,000 square feet for $76.7 million.

Capital Transactions in 2011:

In May, the Company completed a public offering of 4.6 million newly issued common shares. The offering generated net proceeds, before offering expenses, of approximately $145.7 million.

During August, the Company entered into a credit agreement providing for an unsecured revolving credit facility of $1 billion that matures on September 1, 2014, and may be extended by one year. Also during 2011, the Company entered into a $400 million unsecured term loan agreement, which matures on September 1, 2015, and may be extended by one year.

With the proceeds from the new revolving credit facility and term loan, the Company repaid and extinguished its previously existing $800 million revolving credit facility, its $225 million Revolving Construction Facility, and two variable rate secured loans totaling $270.3 million. In addition, the Company used proceeds from these transactions to complete the repurchase of $162.5 million aggregate principal amount of its remaining 3.50% Exchangeable Senior Notes due 2026.

Balance Sheet and Financial Flexibility:

As of December 31, 2011, the Company had a total market capitalization of $4.3 billion, with $2.4 billion in debt outstanding, equating to a 56.8% debt-to-total market capitalization ratio. Also, the Company’s weighted average interest rate was 4.3% for the quarter ended December 31, 2011 and 80% of the Company’s debt was subject to fixed interest rates, including the effect of interest rate swaps.

For the fourth quarter 2011, the Company’s adjusted EBITDA to interest expense coverage ratio was 3.30x, and the adjusted EBITDA fixed charge coverage ratio was 2.79x. Adjusting for construction in progress, the Company’s adjusted debt-to-adjusted EBITDA ratio was 6.67x for the three months ended December 31, 2011.

2012 FFO Guidance:

Management is affirming its previously issued guidance for 2012 FFOPS of between $2.02 and $2.18, and is initiating first quarter 2012 FFOPS guidance of $0.49-$0.51. A reconciliation of projected diluted EPS to projected FFOPS for the quarter ending March 31, 2012 and the year ending December 31, 2012 is provided, as follows:

Conference Call Information:

Management will discuss fourth quarter and full year 2011 earnings results, as well as its 2012 guidance, on its conference call today at 11:00 a.m. Eastern Time, details of which are listed below:

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=PVEJ63YG9

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, February 9 at 2:00 p.m. Eastern Time through Thursday, February 23 at midnight Eastern Time. To access the replay within the United States, please call 888-286-8010 and use passcode 81352459. To access the replay outside the United States, please call 617-801-6888 and use passcode 81352459.

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 the information furnished with 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:

COPT is an office REIT that focuses primarily on strategic customer relationships and specialized tenant requirements in the U.S. Government and Defense Information Technology sectors and Data Centers serving such sectors. The Company acquires, develops, manages and leases office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in strong markets that we believe possess growth opportunities. As of December 31, 2011, the Company’s consolidated portfolio consisted of 238 office properties totaling 20.5 million rentable square feet. 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,” "believe,” "anticipate,” "expect,” "estimate,” "plan” 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:

• general economic and business conditions, which will, among other things, affect office property and data center 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;
• governmental actions and initiatives, including risks associated with the impact of a government shutdown, budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases, and/or a curtailment of demand for additional space by strategic tenants;
• the Company’s ability to sell properties included in its Strategic Reallocation Plan;
• the Company’s ability to borrow on favorable terms;
• risks of real estate acquisition and development activities, 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;
• changes in the Company’s plans or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of impairment losses;
• the Company’s ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
• the dilutive effect of issuing additional common shares; 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, 2010.

Reconciliations:

Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the tables, below: