Corporate Office Properties CEO Discusses Q3 2010 Results - Earnings Call Transcript

Corporate Office Properties CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Corporate Office Properties Trust (

OFC

)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Mary Ellen Fowler - SVP & Treasurer

Rand Griffin - CEO

Roger Waesche - President & COO

Steve Riffee - CFO

Wayne Lingafelter - EVP, Development and Construction

Analysts

George Auerbach - ISI Group

Craig Mailman - KeyBanc Capital Markets

Sri Nagarajan - FBR Capital Markets

John Guinee - Stifel Nicolaus

Dave Rodgers - RBC

Brendan Maiorana - Wells Fargo

Michael Knott - Green Street Advisors

Christopher Lucas - Robert W. Baird

Josh Attie - Citi

Steve Benyik - Jefferies

Jordan Sadler - KeyBanc Capital Markets

Presentation

Operator

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Welcome to the Corporate Office Properties Trust third quarter 2010 earnings conference call. My name is Luanne and I will be your operator today. As a reminder, today's call is being recorded. At this time I will turn the call over to Mary Ellen Fowler, the company's Senior Vice President and Treasurer. Miss Fowler, please go ahead.

Mary Ellen Fowler

Thank you and good morning everyone. Today we will be discussing our third quarter 2010 results and annual 2010 and 2011 guidance. With me today, are Rand Griffin, CEO; Roger Waesche, President and COO; Steve Riffee, CFO; and Wayne Lingafelter, Executive Vice President of Development and Construction. As they review our financial results, the management team will be referring to our quarterly supplemental information package. You can access our supplemental package as well as our press release on the Investor Relations section of our website at www.copt.com.

Within the supplemental package, you will find a reconciliation of GAAP measures to non-GAAP financial measures referenced throughout this call. Also under the Investor Relations section of our website, you will find a reconciliation of our 2010 and 2011 annual guidance. At the conclusion of this discussion, the call will be opened up for your questions.

First, I must remind all of you the outset that certain statements made during this call regarding anticipated operating results and future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although such statements and projections are based upon what we believe to be reasonable assumptions, actual results may differ from those projected.

These factors that could cause actual results to differ materially, include, without limitation, the ability to renew or release space under favorable terms, regulatory changes, changes in the economy, the successful and timely completion of acquisitions and development projects, changes in interest rates and other risks associated with the commercial real estate business, as detailed in our filings from time-to-time with the Securities and Exchange Commission.

Now, I will turn the call over to Rand.

Rand Griffin

Thank you, Mary Ellen, and good morning, everyone. We're reporting FFO excluding acquisition cost $0.58 per diluted share for the quarter, a 3% decline compared to the same quarter last year. Portions of our existing operating portfolio continue to be challenged where we have seen signs of bottoming and are experiencing heavy leasing volume. Also we have steady BRAC leasing demand for our construction pipeline and that give momentum on acquisitions.

As we indicated last quarter, we are starting to see some acquisition opportunities in our markets. We believe we will have a window of opportunity to buy a well leased, Super Core and core product as attractive yields. As Roger will discuss in detail, during the quarter we closed on two wholly-owned acquisitions totaling $238 million. Still far this year we have closed on $275 million in acquisitions and expect to acquire over $300 million for the year.

We have the capacity on our line to fund the remaining acquisitions. With regard to dispositions during the quarter we sold the last two buildings and a contiguous land parcel in our New Jersey portfolio for $23.9 million and are now completely out of that market.

During the quarter we raised our dividend 5.1%, the 13

th

year in a row continuing our long history of increasing our dividend each year since being public and continuing to pay our dividend in cash. In fact we have averaged a 9.4% compounded annual dividend increase over that time period totaling 222%, the largest increase among public reach.

Also during the quarter as part of the company's ongoing personnel development and succession program the Board of Trustees appointed Roger to President, in addition to his current role as COO. We congratulate Roger on this significant promotion and look forward to his continuing leadership role in the success of the company.

We are also adding Wayne Lingafelter to our earnings calls as he is responsible for all of our development and construction activities, a very important part of our business. During recent meetings with investors we have received several questions regarding potential cuts in defense spending and their impact on the company. This is a normal process as the Pentagon begins to look towards peacetime reprioritization of spending. There certainly will be cuts, but Secretary of Defense Gates has clearly indicated that he is trying to extract efficiencies from the budget in order to fund the new priorities, and these new priorities will be on cybersecurity, intelligence and data storage.

Some weapon systems and soft combat support will be at risk, but by and large our defense contractor tenants concentrated areas of priority that should provide future growth opportunities for us. Our strategy of locating adjacent to five expanding BRAC locations; Aberdeen Proving Ground, Fort Meade, Fort Belvoir, San. Antonio and Redstone Arsenal allow the company to continue to grow as the command moves occur next year and our buildings deliver.

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