Corporate Office Properties Trust Reports Strong Third Quarter 2008 Results

Corporate Office Properties Trust (COPT) (NYSE:OFC) announced today financial and operating results for the quarter ended September 30, 2008.

Highlights

• 10.3% increase to $.64 per share in Diluted Funds from Operations ("Diluted FFO”) or $36.2 million for the third quarter 2008, from $.58 or $32.4 million for the third quarter 2007.

• Diluted earnings per share ("Diluted EPS”) of $.19 or $8.9 million of net income available to common shareholders for the third quarter 2008 as compared to $.15 per diluted share or $7.4 million of net income available to common shareholders for the third quarter 2007.
• 8.0% increase in Adjusted Funds from Operations ("AFFO”) diluted to $25.8 million for the third quarter 2008 as compared to $23.9 million for the third quarter 2007. 11.7% increase in AFFO to $75.4 million for the nine months ended September 30, 2008 as compared to $67.5 million for the nine months ended September 30, 2007.
• 93.2% occupied and 94.3% leased for our wholly-owned portfolio as of September 30, 2008.
• 1.1 million square feet of overall leasing for the third quarter 2008, including renewal, retenanting and development space.
• 79.6% renewal rate on expiring leases for the third quarter 2008, with a 26.7% increase in total straight-line rent for renewed space.
• 3.1% increase in same office property cash NOI for the quarter, excluding the effect of a $431,000 reduction in lease termination fees. Including the effect of lower lease termination fees, same office property cash NOI increased 2.4% for the quarter. The Company’s same office portfolio for the quarter ended September 30, 2008 represents 89.9% of the rentable square feet of its consolidated portfolio and consists of 218 properties.
• 9.6% increase in quarterly common dividend from $.34 to $.3725 per share.
• 3.7 million common shares issued at a public offering price of $39.00 per share. The net proceeds were used to pay down the Company’s Revolving Credit Facility.

"We are pleased with our strong third quarter results which indicate that despite a deteriorating economy, we are well positioned for the balance of 2008 and into 2009 to deliver strong FFO growth,” stated Randall M. Griffin, President and CEO, Corporate Office Properties Trust. "We have no remaining debt maturities for the balance of 2008 and have minimal debt maturities for 2009 and 2010. Our core business remains strong as demonstrated by our year to date renewal rate of 78%,” he added.

Financial Results

Revenues from real estate operations for the quarter ended September 30, 2008 were $101.6 million, as compared to revenue for the quarter ended September 30, 2007 of $94.1 million.

Diluted FFO payout ratio year to date was 58.5% and 61.4% for the third quarter 2008 as compared to 58.3% for the third quarter 2007. Diluted AFFO payout ratio year to date was 79.7% and 86.1% for the third quarter 2008 as compared to 79.1% for the third quarter 2007.

As of September 30, 2008, the Company had a total market capitalization of $4.5 billion, with $1.9 billion in debt outstanding, equating to a 41.4% debt-to-total market capitalization ratio.

As of September 30, 2008, the Company’s weighted average interest rate was 5.1% and the Company had 71.2% of the total debt subject to fixed interest rates.

For the third quarter 2008, the Company’s EBITDA to interest expense coverage ratio was 3.04x and the EBITDA to fixed charge coverage ratio was 2.53x.

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 September 30, 2008, the Company’s wholly-owned portfolio of 235 office properties totaled 18.3 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 $22.17 per square foot.

For the quarter ended September 30, 2008, 850,000 square feet was renewed equating to a 79.6% renewal rate, at an average committed cost of $8.24 per square foot. Total rent on renewed space increased 26.7% on a straight-line basis, as measured from the straight-line rent in effect preceding the renewal date and increased 13.1% on a cash basis. For renewed and retenanted space of 950,000 square feet, total straight-line rent increased 23.1% and total rent on a cash basis increased 9.8%. The average committed cost for renewed and retenanted space was $10.14 per square foot. For the nine months ended September 30, 2008, 1.6 million square feet was renewed equating to a 77.9% renewal rate, at an average committed cost of $6.49 per square foot.

The Company recognized total lease termination fees of $188,000, net of write-offs of related straight-line rents and accretion of intangible assets and liabilities for the quarter, as compared to $1.2 million in the third quarter of 2007.

During the quarter, the Company signed leases for 333,000 square feet of space at the Unisys Campus in Blue Bell, Pennsylvania. Included in this total are the following:

• a new lease with Merck, Inc. to continue occupancy of the entire 219,000 square foot property located at 785 Jolly Road.
• a renewal of Unisys Corporation for the entire 114,000 square foot property located at 751 Jolly Road.

Development Activity

At quarter end, the Company had 2.7 million square feet under construction, development and redevelopment for a total projected cost of $526.3 million.

The Company’s land inventory (wholly-owned and joint venture) at quarter end totaled 1,872 acres that can support 16.5 million square feet of development.

During the quarter, the Company placed 44,000 square feet of development projects into service.

The Company signed leases for 122,000 square feet of space under construction and development during the quarter. Included in this total are the following:

• 39,000 square feet of the 156,000 square foot property located at 302 Sentinel Drive (302 NBP) in Annapolis Junction, Maryland, leased to a large credit worthy tenant.
• 34,000 square feet of the 146,000 square foot property located at 10807 New Allegiance Drive (Epic One) in Colorado Springs, Colorado, leased to Lockheed Martin Corporation.
• 28,000 square feet of the 106,000 square foot property located at 5520 Research Park Drive (UMBC) in Baltimore, Maryland, leased to RMF Engineering, Inc.
• 21,000 square feet of the 116,000 square foot property located at 5825 University Research Court (M Square Research Park) in College Park, Maryland.

Acquisition Activity

The Company acquired 138 acres during the quarter for $16.1 million. Included in this total, are the following:

• 31 acre land parcel in San Antonio, Texas for $8.1 million that can support approximately 500,000 developable square feet.
• 107 acre land parcel in close proximity to Fort Detrick in Frederick, Maryland for $8.0 million that can support approximately 1.0 million developable square feet.

Financing and Capital Transactions

During the quarter, the Company completed the following transactions:

• Issued 3.7 million common shares at a public offering price of $39.00 per share for net proceeds after underwriting discounts but before offering expenses of $139.2 million. The net proceeds were used to pay down the Company’s Revolving Credit Facility.
• Closed on a $221.4 million loan requiring interest only payments for the term at variable rate of LIBOR plus 225 basis points. The loan has a four year term with an option to extend by an additional year. The Company used $63.5 million of the proceeds to repay construction loan facilities due to mature in 2008, $11.8 million to repay borrowings under the Company’s Construction Revolver, $142.0 million to repay borrowings under the Company’s Revolving Credit Facility and the balance to fund transaction costs.
• The aggregate amount of maturing debt repaid by the Company totaled $187.6 million during the quarter, excluding scheduled principal amortization payments and repayments of our revolving credit facilities. The Company has no remaining debt scheduled to mature during 2008 and only $92.8 million of loans maturing in 2009.

Subsequent Event

The Company placed into service 91,000 square feet in two properties located at 7700 Potranco Road in San Antonio, Texas, leased entirely to a large credit worthy tenant.

Earnings Guidance

The Company’s 2008 EPS guidance has been revised from a range of $.62 to $.70 to a range of $.70 to $.73 per diluted share.

The Company’s 2008 FFO guidance has been revised from a range of $2.42 to $2.48 to a range of $2.43 to $2.46 per diluted share, representing FFO growth of 8.5% to 9.8% compared to 2007 actual results.

Conference Call

The Company will hold an investor/analyst conference call:

A replay of this call will be available beginning Thursday, October 30 at 1:00 p.m. Eastern Time through Thursday, November 13 at midnight Eastern Time. To access the replay, please call 888-286-8010 and use passcode 51167930.

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.

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: www.theconferencingservice.com/prereg/key.process?key=PG3YGJYDN

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.

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 September 30, 2008, the Company owned 254 office and data properties totaling 19.1 million rentable square feet, which includes 19 properties totaling 847,000 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. More information on COPT 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 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.