External
Content
March 2011
Corporate Office Properties Trust
Disclosure
This presentation contains forward-looking information based upon the Company’s current best judgement and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with the forward-looking information include the strength of the commercial office real estate market in which the Company operates, competitive market conditions, general economic growth, interest rates and capital market conditions. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to the Company’s filings with the Securities and Exchange Commission. Defined terms for Non-GAAP measures used throughout may be found in the Disclosure. In addition, a Reconciliation of Non-GAAP measures to the most comparable GAAP measures is included in the Disclosure.
2
Disclosure
Unless otherwise noted, information in this presentation represents the Company’s wholly-owned portfolio as of or for the year ended December 31, 2010.
3
Overview
1201 M Street SE, Maritime Plaza Washington, DC (Acquired September 2010)
4
Overview
COPT has built its franchise around serving the specialized requirements of our super core office customers:
The US Government, Defense Information Technology (IT) contractors, and Data Centers serving either sector
At December 31, 2010, COPT:
Owned 252 office properties in service (20.0 million SF) Was constructing or developing 21 buildings (3.0 million SF) Derived 59% of annualized rental revenues from office properties occupied primarily by super core customers 84% of our office square footage was located in the Greater Washington/Baltimore region
5
Overview
COPT’s main objective is to maximize returns on invested capital, which ultimately drives shareholder returns. Our daily focus is on:
Expanding relationships with super core tenants, i.e., customers Delivering superior service to existing customers, including the physical maintenance of our buildings Acquiring buildings and land that expand or deepen our strategic footprint Adding value through strategic developments in existing or new office parks to meet super core tenant demand
6
Overview
To achieve our main objective, COPT has:
Created unparalleled teams of asset and property managers, design and development managers with the specialized skills required to handle the complex space and security-oriented needs of our super core tenants • COPT is one of the few REITs with over 100 employees with appropriate government credentials to serve our customer base Developed projects with unique access and proximity to Government demand drivers and/or located in growth corridors • 179 of our 252 operating properties are proximate to Government demand drivers* Acquired existing buildings and projects, both strategically and opportunistically Purchased strategic land positions for future expansions
7
*Excludes Greater Baltimore, Suburban Maryland, and Greater Philadelphia regions.
Overview
Historically, COPT’s niche approach to leasing has enabled our stock to outperform NAREIT’s office REIT index
For the 10 years ended December 31, 2010, OFC delivered a cumulative total return of 456%, ranking #1 among office REITs and #14 among all equity REITs.
500%
456%
400% 300% 200% 100% 0% 1 year -100%
Data for the periods ended December 31, 2010, compiled by NAREIT and SNL Financial. 15% 11%
COPT RMS S&P
174%
Do w Jo ne s
3 years
5 years
10 years
8
Overview
Furthermore, COPT’s diluted FFO/share* has increased 12 out of our 13 years as a publicly-traded office REIT†
$3.00
Diluted FFO / Share*
$2.00
$1.00
$0.00
98 00 99 01 02 05 07 19 19 20 20 20 20 20 20 20 20 20 20 20 10 03 04 06 08 09
* †
Excluding operating property acquisition costs, gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares. The years 1998 through 2003 do not include the effect of accounting standards adopted January 1, 2009 retrospective to prior periods. In October 1997, the Shidler Group contributed office properties to Royale Investments, a midwest shopping center company. In March 1998, the Company reformed as a REIT and changed its name to Corporate Office Properties Trust.
9
Overview
Because office fundamentals lag the economy, 2010 was a difficult year
Even in the tough operating environment in 2010, COPT:
• • Delivered FFO/share that was within our guidance Increased our quarterly dividend by 5.1% to an annualized cash payout of $1.65 per share. This was the 13th annual increase in our 13 year public history Achieved record leasing volumes
•
10
Overview
The seeds of COPT’s future success are planted in the four competitive advantages we believe we have over other office landlords:
1.
Customer relationships within the US Government and Defense IT community Strategic locations of office parks to serve core tenants Balance sheet flexibility Development capacity and capability
COPT’s Competitive Pyramid
2.
3. 4.
11
Customers
209 Research Blvd., North Gate Business Park Aberdeen, MD
12
Customers
COPT’s long-standing relationships with the US Government and Defense IT contractors is our greatest competitive advantage
We have increased our 100% concentration of annualized rental revenues from properties primarily occupied by super core tenants to 59% at year end of 2010. Our goal is to derive 65% of annualized rental revenues from super core customers by year end 2012.
% of Annualized Office Rental Revenues
55%
55%
59%
65%
0%
09 10 08 20 20 20 20 12 Go al
13
Customers
COPT’s super core tenant focus capitalizes on the REITs geographic concentration in the Greater Washington/Baltimore region
Higher renewal rates – In 2010, COPT realized an average renewal rate of 72.1% with super core customers vs. only 50.5% for other office tenants. Better pricing power – Similarly, in 2010 super core tenants renewed at GAAP rents that were 3.4% above prior GAAP rents, whereas other tenants averaged only a 2.5% increase.
14
Customers
38 of the 50 largest Defense Contractors, or 76%, already are COPT tenants
Top 50 Defense Contractors (COPT Tenants are highlighted in Yellow)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Lockheed Martin Northrop Grumman Corp. Boeing Co. Raytheon Co. SAIC General Dynamics Corp. KBR L-3 Communications Corp. Booz Allen Hamilton CSC Dell Computer Corp. Hewlett-Packard Co./EDS Harris Corp. ITT Corporation BAE Systems, Inc. CACI International, Inc. IBM Corporation
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Deloitte, LLP Verizon Communications, Inc. Jacobs Engineering Group, Inc. United Technologies Corporation Battelle Memorial Institute DynCorp International, LLC URS Corp. DRS Technologies, Inc. Rockwell Collins, Inc. Accenture Honeywell International, Inc. Serco, Inc. SRA International, Inc. ManTech International Corp. Sprint Nextel Corp. General Electric Co. Aerospace Corp.
35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Apptis, Inc. Bechtel Corp. VSE Corp. Unisys Corp. General Atomics QinetiQ North America, Inc. Alion Science and Technology SGT, Inc. Combat Support Associates Stanley, Inc. Wyle Laboratories, Inc. AT&T Fluor Corp. Alliant Techsystems, Inc. Arinc Comtech Telecommunications
Source: Ranked according to aggregate value of contracts recorded in 2010 www.washingtontechnology.com
15
Customers
Top 20 tenants account for 58% of our Annualized Rental Revenues1
Tenant2 United States of America Northrop Grumman Corporation Booz Allen Hamilton, Inc. Computer Sciences Corporation ITT Corporation The MITRE Corporation The Aerospace Corporation CareFirst, Inc. Wells Fargo & Company L-3 Communications Holdings, Inc. Integral Systems, Inc. Comcast Corporation The Boeing Company AT&T Corporation Ciena Corporation General Dynamics Corporation Unisys Corporation The Johns Hopkins Institutions Merck & Co., Inc. First Mariner Bank Total / Weighted Average
1. 2. 3.
% of Portfolio Annualized Revenue 21.1% 7.3% 4.7% 4.2% 1.8% 1.8% 1.7% 1.7% 1.7% 1.7% 1.4% 1.4% 1.3% 1.2% 1.1% 1.0% 0.9% 0.8% 0.7% 0.7% 58.1%
Average Remaining Term3 6.2 6.6 4.5 3.1 4.1 5.8 4.1 5.8 7.4 3.3 9.1 2.8 3.9 7.8 2.2 2.7 9.4 5.9 1.6 5.7 5.5 years
This list represents our top twenty tenants as of December 31, 2010, exclusive of owner occupied leases, based on annualized revenue for wholly owned office properties only. Includes affiliated organizations or agencies of tenants, where applicable. The weighting of the lease term was computed using Annualized Rental Revenue.
16 16
Defense/IT Niche
1550 Westbranch Drive McLean, VA (Acquired June 2010)
17
Defense/IT Niche
COPT’s strategy revolves around our customer relationships and the unique skill set established over 17 years of serving the intelligence community
COPT derives 59% of its annualized rental revenue from super core tenants
As of December 31, 2010, COPT had 883 leases, 74 of which were active leases with the US Government, the majority of which are with agencies using their own leasing entities. Of these 74 Government leases, only 14 are administered by GSA.
18
Defense/IT Niche
Historically, OFC’s stock performance has been highly correlated to Defense Budget “sentiment,” except during the 2007-2008 financial crisis, when all REITs traded down significantly
$800 $700
OFC Closing Prices vs. Defense Spending*
Defense $ OFC
$60.00
Defense Spending ($B)
$50.00
$600 $500 $400 $300 $200 $100 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 $10.00 $40.00
OFC Year End Prices
19
$30.00
$20.00
$0.00
*Source: SNL Financial and Office of Management and Budget (Obama Administration Projections) and Stifel Nicolaus estimates
Defense/IT Niche
COPT’s stock price has stagnated since May 2009 when talk of Defense cuts began
Defense Spending
The Pentagon’s total budget doubled from the 9/11 terrorist attacks until 2009. Base spending levels are not expected to get cut; rather they are projected to increase modestly. Supplemental spending for war efforts are expected to be cut back.
$750 $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $$0 $328 10% $365 11% $377 3% $400 6% $411 3% $432 4% $72 $91 $76 $527 11% $116 $601 14% $169
$667 $658 11% -1% $187 $145
$693 5% $75 $163 $159 $50 $571 $549 3% $531 3% $525 -1% $553 6% $553 1% 3% $586 3% $598 2% $75 $50
$17
$480 11%
$513 7%
FY13-FY15 s pe nding $120b low e r than las t proje ction
FY11E
FY12E
FY13E
FY14E
Co re B udget
Supplem entals (A ppro ved, Requested o r B udgeted)
FY10A
Stifel Supplem entals Estim ate
FY12 growth determined by final passage of FY11 budget. President requested $549b in FY11 but Congress is closer to $525b. In addition, Congress could again trim the FY12 request (prior FY12 projection was $566b).
Source: Office of Management and Budget (Obama Administration Projections) and Stifel Nicolaus estimates
20
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Defense/IT Niche
However, much of the proposed “cuts” really are reallocations
Secretary of Defense Robert Gates proposed a defense budget of $553 billion for 2012, which would represent a 4% increase over 2010 spending $100 billion of expected savings to be garnered from legacy weapons systems and non-critical missions and reallocated toward priority missions • For example, Cybersecurity is expected to grow by as much as 9% annually over the next 5 years
21
Defense/IT Niche
The majority of COPT’s super core tenants are program contractors whose missions are not likely to be cut and may, in some instances, be augmented
Under Gates’ proposed budget: • Support contractors (who augment government staffs) are likely to face cuts • Program contractors are not likely to face cuts and may see increased funding
22
Defense/IT Niche
COPT’s existing portfolio is well positioned to weather DoD cuts
Key missions identified in latest QDR1 Counterinsurgency Stability Counterterrorism ops Building the security of partner states Deterring & defeating aggression in anti-access environments Cyberspace operations Government Demand-Drivers2 proximate to COPT properties Aberdeen Proving Ground Fort Belvoir Fort Meade/NBP Peterson Air Force Base Redstone Arsenal San Antonio Military Installations
1. QDR = Quadrennial Defense Review, the report that sets the nation’s near-term defense strategy. 2. Armed forces installations that suport these missions. COPT owns projects proximate to these and other installations.
23
Defense/IT Niche
Furthermore, Government agency relocations mandated by the 2005 BRAC are nearly complete
BRAC agency moves were mandated by Congress to be completed by September 15, 2011 • There is no funding or appropriations risk associated with agency BRAC moves • BRAC buildings are 90% complete and move-ins have started • Ultimately, Program and Support contractors will have to follow to keep their contracts
24
Defense/IT Niche
COPT’s portfolio features concentrations of assets around five BRAC locations
25
Defense/IT Niche
Our portfolio is positioned to benefit from up to 10 million square feet of BRAC-related demand over the next 3-5 years
There is up to 10 million square feet of off-base contractor demand related to BRAC agency moves from which COPT could benefit: • 4 million SF supporting Fort Meade • 2.5 – 3 million SF supporting Aberdeen Proving Ground • 1 million SF supporting Fort Belvoir • 2 million SF supporting Redstone Arsenal and the US Army Materiel Command
26
Data Centers
11751 Meadowville Lane, Meadowville Technology Park Richmond, VA
27
Data Centers
COPT entered the data center business in 2003/2004
Existing intelligence community customers needed secure, high density, blast-proof data centers Prior to acquiring Power Loft® @ Innovation in 2010, 1.5 million square feet of COPT’s office portfolio contained data centers and labs dedicated to existing super core tenants’ requirements COPT is an experienced designer, builder and operator 24/7 of stateof-the-art data centers
28
Data Centers
In 2010, COPT acquired Power Loft @ Innovation for $115.5 million, a 233,000 SF state-of-the-art facility in Northern Virginia.
Power Loft features a controlled, secured perimeter, 100,000 SF of raised floor area, with the potential for 30 megawatts of critical load. Power Loft has setbacks sufficient to become ATFP compliant, a feature many Defense/IT tenants would require.
Wholesale data centers, like Power Loft, are a natural extension of the dedicated data centers that COPT has developed over the years for core tenants.
29
Data Centers
COPT expects strong, sustained demand for modern, efficient data centers, as more corporations and government agencies migrate to Cloud computing infrastructure.
At the end of 2010, for example, the US Government finalized plans to consolidate small, inefficient data centers into Cloud computing infrastructure based at off-campus, high density, high efficiency data centers similar to those in COPT’s portfolio.
30
Core Markets
308 Sentinel Drive, The National Business Park Annapolis Junction, MD
31
Core Markets
Many of COPT’s properties are strategically located in close proximity to government installations
VIRGINIA
25 buildings/3.3 Million SF Adjacent to National Geospatial Intelligence Agency & Fort Belvoir - Patriot Ridge Near US Government Facility in Chantilly – Westfields Corporate Center Near Dahlgren Naval Surface Warfare Center Dahlgren Technology Center
MARYLAND
194 buildings/13.5 Million SF Connected to Fort Meade The National Business Park Near Fort Meade – Arundel Preserve At the Contractor Gate of Aberdeen Proving Ground North Gate Business Park Adjacent to BWI Airport & US Government Facility Airport Square Adjacent to PAX River Naval Air Station Expedition & Exploration Office Parks Near Fort Detrick - Frederick Research Park
HUNTSVILLE, AL*
468 ac./4.6 million SF development potential Adjacent to the Main Gate of Redstone Arsenal Redstone Gateway
SAN ANTONIO, TX
8 buildings/915,000 SF
COLORADO SPRINGS, CO
14 buildings/1.0 Million SF Adjacent to Peterson Air Force Base Patriot Park
WASHINGTON D.C.
2 operating properties/362,000 SF Adjacent to Washington Navy Yard - Maritime Plaza
* Consolidated JV property
Near Lackland Air Force Base – Sentry Gateway Near US Government Facility
32
Core Markets
84% of COPT’s square footage is located in its core market, the Greater Washington/Baltimore region*
Asking rents in the Greater Washington/ Baltimore region were $25.83, or 11% above the US average**
* Please see Greater Washington/Baltimore region in ‘Definitions’ at the back of this presentation. ** Data excludes St. Mary’s & King George Counties, which CBRE doesn’t track due to their small size.
33
Core Markets
Office Fundamentals for Greater Washington/Baltimore regiona
Region Submarket SF (000s) Our SF (000s) Our Market Share Submarket VacancyDirect Our Vacancy
1. B/W Corridor 2. Northern Virginia Dulles South Herndon 3. Suburban MD 4. Greater Baltimore
(Excluding White Marsh)
22,223
8,433
37.9%
17.1%b
9.4%
12,532 11,879 30,498 12,840
1,454 570 695 2,171
11.6% 4.8% 2.3% 16.9%
17.7% 16.0% 14.0% 12.6%b
11.3% 2.9% 12.9% 11.6%
a. Data as of December 31, 2010 for all office classes, compiled by CBRE, Newmark Knight Frank, Turner Commercial and Company data. Suburban Maryland contains the submarkets of Gaithersburg, North Rockville, North Silver Spring, and Frederick. The Suburban Baltimore region contains the submarkets of Hunt Valley, Timonium/Towson, West, & East. CBRE does not provide data on Washington DC-Capitol Riverfront and St. Mary’s & King George Counties. b. Vacancy with sublease
34 34
Core Markets
Employment trends in COPT’s core markets has exceeded the National average, even during the Great Recession
12% 10% 8% 6% 4% 2% 0%
2
*
Year End Unemployment Statistics* US ■ Greater Washington/Baltimore region
05 0
2
06 0
2
07 0
2
08 0
2
09 0
2
10 0
Data compiled by Bureau of Labor Statistics, MD and VA state websites, and COPT.
35
Balance Sheet Flexibility
3120 Fairview Park Drive Falls Church, VA (Acquired November 2010)
36
Balance Sheet Flexibility
COPT has managed its operations so that we:
$2.00
Year End Annualized Common Share Dividend
Have raised our annualized dividend every year since our IPO in 1998
• 5.1% increase to quarterly payout in September 2010 • 9.4% compounded annual increase in our dividend since our IPO • 222% increase since our IPO*
$1.50 $1.00 $0.50 $0.00
20 10
10
$300 $250 $200
Avoided having to “re-IPO” during the Great Recession with $100 a dilutive equity offering $50
$0
19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20
$150
*
In October 1997, the Shidler Group contributed office properties to Royale Investments, a midwest shopping center company. In March 1998, the Company reformed as a REIT and changed its name to Corporate Office Properties Trust.
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09
Gross Proceeds from Common Stock Offerings
37
Balance Sheet Flexibility
Year End Leverage Levels
70% 60% 50% 40% 30% 20% 10% 0%
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
Debt to undepreciated book assets ■ Debt to total market capitalization ▲ Debt/Gross Assets*
57% 46%
*
See ‘Definitions & Glossary’ for calculation.
38
Balance Sheet Flexibility
Year End Debt/EBITDA*
10% 8% 6% 4% 2% 0%
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
Debt/EBITDA ■ Adjusted Debt/EBITDA
*
See ‘Definitions & Glossary’ for calculation.
39
Balance Sheet Flexibility
Year End EBITDA Fixed Charge Coverage Ratio
3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
40 40
Balance Sheet Flexibility
Manageable Debt Maturities as of 12-31-10a,b
$700 $600 $500
$591.4
$413.7
$400 $300
$396.5
$210.2
$200 $100 $0 2011a 2012 b 2013 2014 2015
$146.0
a. b.
Maturities in 2011 include: $295.0 million on COPT’s $800 million Revolver which can be extended into 2012. Maturities in 2012 include: $142.3 million under COPT’s $225 million Construction Revolver that was extended to 2012 in January 2011.
41
Development
6711 Columbia Gateway Drive, Columbia Gateway Business Park Columbia, MD
42
Development
In addition to acquiring assets for strategic and opportunistic purposes, COPT’s development capabilities have also fueled external growth.
Roughly $325 million in developments started & stabilized between 2005 – 2010 average unleveraged 10.1% yield on cost Current development pipeline is $504 million across 17 projects ($236 per square foot)* Current average unleveraged yield on cost is ± 11% on projects under construction Strategic land bank necessary to meet future demand
Development: Shell Completions
1,200 SF (000s) 1,000 Cost ($ millions) $200 $250
800 $150 600 $100
400 $50
200
0
$0 2007 2008 2009 2010 2011 2012
* Includes 10 projects ($224 million, 1.0 million square feet) under construction and 7 projects ($280 million, 1.1 million square feet) under development. Does not include four properties under redevelopment or two properties under development in our Huntsville, AL, joint venture.
43 43
Development
“Luck is when opportunity meets preparation.”
Seneca the Younger
COPT frequently builds new properties in advance of anticipated new demand
Many Government agencies will only lease existing buildings (versus build-to-suit) with operating leases, which enables them to avoid classifying their leases in their capital budgets.
•
This speeds the procurement process and our tenant occupancy.
COPT will build “spec” where we believe it is important to be first to market:
• The National Business Park (proven) • Sentry Gateway (in process) • Patriot Ridge (in process) • North Gate Business Park (in process)
44 44
Development
Consistent with our strategy of catering to US Government and Defense IT sectors and data centers serving them, COPT develops properties that are proximate (or even “inside the fence”) to Government demand drivers We currently list the following as our office parks with the highest growth potential:
North Gate Business Park Patriot Ridge Redstone Gateway Sentry Gateway The National Business Park
45 45
Development
North Gate Business Park, Aberdeen, MD
Demand Driver: Aberdeen Proving Ground; C4ISR 3 buildings to support contractors serving C4ISR (~8,200 jobs)
• The first building (77,192 SF) is 100% leased • The second building (79,573 SF) is 35% leased • The third building, second quarter 2011 completion (127,300 SF) is 0% leased
Contractor demand for space: 2.5 to 3 million SF (estimated)
46 46
C4ISR – Aberdeen Proving Grounds
The C4ISR Complex @ APG
New Team C4ISR Buildings
US Army Medical Research Institute of Chemical Defense
The US Army Research Development & Engineering Command
47
North Gate – Aberdeen, MD
48
North Gate – Preliminary Site Plan
206 Un Rese d Con er arch B lv d stru . ctio n
49 49
Development
Patriot Ridge, Springfield, VA
Demand Driver: Fort Belvoir; NGA
• Fort Belvoir is the beneficiary of the largest BRAC gain of any military installation in the US • The NGA is opening its new HQ (8,500 people) in 2011
COPT owns 15 acres adjacent to Fort Belvoir Development started on the 1st of 5 buildings (up to 978,000 SF)
• 240,000 SF • Leasing proposals exceed initial square footage
50 50
Patriot Ridge
51
Patriot Ridge
52
National Geospatial Intelligence Agency
53
Development
Redstone Gateway, Huntsville, AL*
Demand Drivers: Redstone Arsenal; home to NASA- George C. Marshall Space Flight Center, US Army Aviation and Missile Command, major components of the Defense Intelligence Agency plus more commands & agencies moving to Redstone Arsenal due to BRAC Development capacity of ~4.6 million SF to support BRAC workforce gain of ~4,700 DOD directed positions & ~15,000 indirect & induced jobs
• 4.4 million SF of office space to include 1.2 million SF of secured office space • 200,000 SF of retail/amenity space
2 buildings under development totaling 235,000 SF Redstone Gateway is “the next NBP”
* Owned in a consolidated joint venture.
54 54
Redstone Arsenal
Upon completion of the BRAC relocations, Redstone Arsenal becomes the epicenter of all research, development, procurement, logistics & sustainment required to support the modern warfighter on today’s battlefield by becoming the home of the US Army Materiel Command (AMC)
Major Army command responsible for total life-cycle management of the logistics to support the Army & other joint programs Directs one of the largest budgets in the Army Facility under construction, close to completion
Other commands & agencies moving to Redstone Arsenal due to BRAC:
US Army Space & Missile Defense Command (SMDC) (HQ relocated) US Army Security Assistance Command (USASAC) (HQ relocated) 2nd Recruiting Brigade (facility completed & occupied) 2nd Medical Recruiting Battalion (facility completed & occupied) Missile Defense Agency (MDA) (facility completed) Redstone Test Center (RTC) (facility completed)
55 55
Redstone Arsenal
Approximately 38,000 acres; located in the center of the Tennessee Valley in northern Alabama Total current on base working population of over 30,000
Projected 2011 Redstone workforce, according to Redstone Arsenal Garrison Command officials includes:
• 13 general officers, including one 4-star general • 121 senior executive service members (2nd highest in the country) • 1,000 active soldiers • 17,000 government contractor workers • 18,800 government civilian workers
Redstone Arsenal is completing nearly $440 million of military construction in support of the 2005 BRAC relocations that by law must be in place by September 2011
56 56
Redstone Arsenal
U.S. Army Aviation and Missile Command (AMCOM) U.S. Space & Missile Defense Command (SMDC) U.S. Army Security Assistance Command (USASAC) Missile Defense Agency (MDA)
PEO – Missiles and Space
Marshall Space Flight Center (MSFC)
PEO - Aviation
Bureau of Alcohol Tobacco & Firearms (ATF)
Aviation & Missile Research, Development & Engineering Center (AMRDEC)
Federal Bureau of Investigation (FBI)
Army Materiel Command (AMC)
DIA – Missile & Space Intelligence Center
Redstone Test Center (RTC)
U.S. Army Garrison Redstone Arsenal (USAG)
Logistics Support Activity (LOGSA)
57
Redstone Gateway
City of Huntsville
58
Redstone Gateway
Phase I Office Secured Office Education Retail/Restaurant Hotel Phase II Office R&D Office Secured Office Phase III Office R&D Office TOTALS Square Footage 1,843,000 518,000 113,000 164,000 300 Rooms Square Footage 778,000 127,000 835,000 Square Footage 864,000 107,000 5,349,000 # of Buildings 13 2 3 13 2 # of Buildings 7 2 5 # of Buildings 6 2 55
Building 1 Under Development
North
Unless otherwise noted, renderings shown are representative buildings that COPT has developed in other locations and don’t necessarily reflect the architectural style of this project.
59
Development
Sentry Gateway, San Antonio, TX
Demand Drivers: Lackland Air Force Base; a US Government facility 6 operating properties (792,000 SF) 1 building under construction (95,000 SF) 2 buildings under development (219,000 SF)
60 60
COPT in San Antonio
RANDOLPH AFB
SENTRY GATEWAY
FORT SAM HOUSTON
LACKLAND AFB
BROOKS AFB
61
Sentry Gateway
100 Sentry Gateway
100
200
62 62
Development
The National Business Park, Annapolis Junction, MD
Demand Driver: Fort Meade 24 operating properties (2.8 million SF) 4 buildings under construction (496,000 SF) to support the move of:
• Defense Information Systems Agency (DISA) from Northern Virginia to Fort Meade (5,600 federal employees) • The stand up of Cyber Command at Fort Meade (1,100 federal employees) • Contractors who support DISA and Cyber Command (15,000 private sector employees)
63 63
The National Business Park
64
NBP North – Master Plan
Under Construction: 410 NBP (110,000 SF) 430 NBP (110,000 SF)
420 NBP
410 NB P
430 NB P
65 65
March 2011
Thank You
Appendices
I. II. III.
COPT’s Sustainable Building (available upon request) Definitions & Glossary Reconciliations
67 67
II. Definitions & Glossary
Acquisition costs – transaction costs expensed in connection with executed or anticipated acquisitions of operating properties. Adjusted Debt/EBITDA – debt adjusted to subtract construction in progress as of period end divided by EBITDA for the three month period, multiplied by four. BRAC – Base Realignment and Closure Commission of the United States Congress. The Congress established the 2005 BRAC Commission to ensure the integrity of the base closure and realignment process. The Commission provided an objective, non-partisan, and independent review and analysis of the list of military installation recommendations issued by the Department of Defense (DoD) on May 13, 2005. The Commission's mission is to assess whether the DoD recommendations substantially deviated from the Congressional criteria used to evaluate each military base. While giving priority to the criteria of military value, the Commission will also take into account the human impact of the base closures and will consider the possible economic, environmental, and other effects on the surrounding communities. Cloud computing infrastructure – per Wikipedia, Cloud computing is computation, software, data access, and storage services that do not require end-user knowledge of the physical location and configuration of the system that delivers the services. Parallels to this concept can be drawn with the electricity grid where end-users consume power resources without any necessary understanding of the component devices in the grid required to provide the service. Customer – how COPT generally refers to its tenants.
Super core customer – office tenants in the United States Government and defense information technology (“defense IT”) sectors.
Debt/EBITDA – debt divided by EBITDA for the three month period, multiplied by four. Development profit or yield – calculated as cash NOI divided by the estimated total investment, before the impact of cumulative real estate impairment losses. EBITDA – net income adjusted for the effects of interest expense, depreciation and amortization and income taxes.
68 68
II. Definitions & Glossary
Fixed charges – sum of (1) interest expense on continuing and discontinued operations (excluding amortization of deferred financing costs and amortization of the discount on Exchangeable Senior Notes, net of amounts capitalized), (2) dividends on preferred shares and (3) distributions on preferred units in the Operating Partnership not owned by us. Funds from Operation (“FFO”) – defined as net income computed using GAAP, excluding gains on sales of previously depreciated operating properties, plus real estate-related depreciation and amortization. Basic FFO available to common share and common unit holders – FFO adjusted to subtract (1) preferred share dividends, (2) FFO attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (3) Basic FFO allocable to restricted shares and (4) issuance costs associated with redeemed preferred shares. Diluted FFO available to common share and common unit holders – basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares.
FFO per share – (1) diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged and that conversion or exchange would have been dilutive. GAAP – accounting principles generally accepted in the United States.
Greater Washington/Baltimore Region – includes counties that comprise the Baltimore/Washington Corridor, Northern Virginia, Greater Baltimore, Suburban Maryland, St. Mary’s & King George Counties, and the Washington, DC-Capitol Riverfront. As of December 31, 2010, 219 of COPT’s wholly-owned properties, were located within this defined region. Please refer to page 26 of COPT’s Supplemental Information package dated December 31, 2010 for additional detail. Gross Asset Value – when used to calculate COPT's Debt/Gross asset ratio, is calculated as follows: multiply the most recent quarter's cash NOI by four, then divide by a cap rate (currently 7.0%); plus the cost of properties acquired in the current quarter and prior two quarters; plus the GAAP book value of assets under construction, development, and land (with certain limitations); less any JV partners' interests provided that non-controlling interests do not exceed 15% of the total value. Note, in 2005 and 2006, COPT employed an 8.5% cap rate rather than the current 7.0% cap rate.
69 69
II. Definitions & Glossary
GSA – United States General Services Administration. In July 1949, President Harry Truman established the GSA to streamline the administrative work of the federal government. The GSA’s acquisition solutions supplies federal purchasers with cost-effective high-quality products and services from commercial vendors. GSA provides workplaces for federal employees, and oversees the preservation of historic federal properties. Its policies covering travel, property and management practices promote efficient government operations. Market capitalization – sum of (1) carrying value of debt on our consolidated balance sheet, (2) liquidation value of preferred shares and preferred units in our operating partnership and (3) the product of the closing price of our common shares on the NYSE and the sum of (a) common shares outstanding and (b) common units outstanding. Net operating income (NOI) – rental revenues, including tenant recoveries, less property operating expenses. Portfolio – as of December 31, 2010, COPT’s portfolio of class-A office buildings consisted of the following:
Wholly-Owned Portfolio
Operating properties # Properties Square feet % Leased Under Construction # Properties Square feet % Leased Under Redevelopment # Properties Square feet % Leased Under Development # Properties Square feet % Leased Total # Properties Square feet % Leased 252 19,990,288 89.5%
Consolidated JV
Consolidated Portfolio*
256 20,432,085 88.9%
Unconsolidated JV
Total Portfolio*
272 21,103,084 88.5%
4 441,797 62.7%
16 670,999 74.3%
10 1,040,748 32.0%
----
10 1,040,748 32.0%
----
10 1,040,748 32.0%
4 873,293 18.8%
----
4 873,293 18.8%
----
4 873,293 18.8%
7 1,091,360 0%
2 235,000 0%
9 1,326.360 0%
----
9 1,326,360 0%
273 22,995,689 80.0%
6 676,797 40.9%
279 23,672,486 78.8%
16 670,999 74.3%
295 24,343,485 78.7%
*Number of properties and square feet are not pro rated for partner’s share. Instead they are presented as if COPT owned 100% of the consolidated and unconsolidated joint venture properties.
70 70
II. Definitions & Glossary
Redevelopment – properties previously in operations on which activities to substantially renovate such properties are underway. Stabilization – generally defined as properties that are at least 85% occupied. Under construction – properties on which vertical construction activities are underway. Under Development – Properties which work associated with one or more of the following tasks is underway on a regular basis: pursuing entitlements, planning, design and engineering, bidding, permitting and premarketing/preleasing. Typically, these projects, as categorized in the Company’s Supplemental Information package, are targeted to begin construction in 12 months or less. Undepreciated book value of real estate assets – total properties, net presented on our consolidated balance sheet excluding the effect of accumulated depreciation incurred to date on such properties.
71 71
III. Reconciliations
(Dollars and shares in thousands, except per share data) 1998* 1999* 2000* 2001* 2002* 2003*
Years ended December 31, 2004 2005
2006
2007
2008
2009
2010
Numerator for diluted EPS Add: Income allocable to noncontrolling interests-common units in the Operating Partnership Add: Real estate-related depreciation and amortization Add: Depreciation and amortization on unconsolidated real estate entities Add: Numerator for diluted EPS allocable to restricted shares Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities
$
Less: Basic and diluted FFO allocable to restricted shares Less: Gain on sales of previously depreciated operating properties, net of income taxes
Add: Convertible preferred share dividends Add: Preferred unit distributions Add: Expense on dilutive share-based compensation Add: Repurchase of preferred units in excess of recorded book value Add: Cumulative effect of accounting change Numerator for diluted FFO per share Denominator for diluted EPS Weighted average common units Assumed conversion of weighted average convertible preferred shares Assumed conversion of weighted average convertible preferred units Dilutive effect of share-based compensation awards Denominator for diluted FFO per share Diluted EPS Diluted FFO per share $ $
$
8,952 $ 6,238 327 15,517 $ 19,237 449 19,686 0.47 $ 0.79 $
14,788 $ 3,449 11,987 (1,140) 1,353 61 30,498 $ 22,574 4,883 1,845 70 29,372 0.66 $ 1.04 $
11,332 $ 6,322 16,887 (107) 677 2,240 37,351 $ 19,213 9,652 918 2,371 32,154 0.59 $ 1.16 $
13,573 $ 6,592 20,558 144 (416) 2,287 263 43,001 $ 21,623 9,437 2,421 33,481 0.63 $ 1.28 $
13,711 $ 5,800 30,832 165 (268) 2,287 327 52,854 $ 24,547 9,282 2,421 384 36,634 0.56 $ 1.44 $
7,650 $ 6,712 36,681 295 (2,897) 544 1,049 10 11,224 61,268 $ 28,021 8,932 1,197 1,101 43 39,294 0.27 $ 1.56 $
18,911 $ 5,659 51,371 106 (86) (317) (95) 75,549 $ 34,982 8,726 43,708 0.54 $ 1.73 $
24,416 $ 28,618 $ 5,889 7,097 62,850 78,631 182 910 449 (114) (163) (311) (733) (4,422) (17,644) 88,490 $ 97,165 $ 38,997 8,702 47,699 0.63 $ 1.86 $ 43,031 8,511 51,542 0.67 $ 1.89 $
15,616 $ 3,203 106,260 666 517 (188) (876) (3,827) 121,371 $ 47,518 8,296 55,814 0.33 $ 2.17 $
37,135 $ 6,519 102,772 648 728 (270) (1,310) (2,630) 143,592 $ 48,820 8,107 56,927 0.76 $ 2.52 $
39,217 $ 4,495 109,386 640 1,010 (493) (1,629) 152,626 $ 56,407 5,717 62,124 0.70 $ 2.46 $
25,587 2,116 123,243 631 1,071 (1,402) (1,524) (1,077) 148,645 59,944 4,608 64,552 0.43 2.30
Diluted FFO per share as adjusted for operating property acquisition costs, gain on early extinguishment of debt and redemption of preferred shares Diluted FFO Gain on early extinguishment of debt Gain on early extinguishment of debt allocable to restricted shares Operating property acquisition costs Issuance costs associated with redeemed preferred shares Diluted FFO as adjusted Denominator for diluted FFO per share as adjusted Diluted FFO per share as adjusted
* The years ended December 31, 1998 through 2003 do not include the effect of accounting standards adopted January 1, 2009 retrospective to prior periods.
$ 75,549 1,813 $ 77,362 43,708 $ 1.77
$ 97,165 3,896 $ 101,061 51,542 $ 1.96
$ 143,592 $ 152,626 $ 148,645 (8,101) 75 1,967 3,424 $ 135,566 $ 154,593 $ 152,069 56,927 62,124 64,552 $ 2.38 $ 2.49 $ 2.36
72 72
III. Reconciliations
(Dollars in thousands) For the Years Ended December 31, 2010 Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization ("EBITDA") Net income Interest expense on continuing and discontinued operations Total income tax expense Depreciation and amortization EBITDA Reconciliation of interest expense from continuing operations to the denominator for EBITDA fixed charge coverage Interest expense from continuing operations Interest expense from discontinued operations Less: Amortization of deferred financing costs Less: Amortization of discount on Exchangeable Senior Notes, net of amounts capitalized Preferred share dividends Preferred unit distributions Denominator for EBITDA fixed charge coverage EBITDA fixed charge coverage ratio 2009 2008 2007 2006
$
$
45,504 $ 102,128 119 125,819 273,570 $
61,299 $ 82,420 196 111,811 255,726 $
61,316 $ 86,921 779 104,968 253,984 $
35,942 $ 90,020 1,684 108,181 235,827 $
55,988 76,440 887 80,547 213,862
$
$
101,865 $ 263 (5,871) (5,314) 16,102 660 107,705 $ 2.54x
82,187 $ 233 (4,214) (2,955) 16,102 660 92,013 $ 2.78x
86,368 $ 553 (3,843) (3,225) 16,102 660 96,615 $ 2.63x
88,070 $ 1,950 (3,385) (3,062) 16,068 660 100,301 $ 2.35x
73,396 3,044 (2,645) (1,039) 15,404 660 88,820 2.41x
As of December 31, Total Debt Liquidation value of preferred shares/units Market value of common shares/units Total Market Capitalization Total Assets or Denominator for Debt to Total Assets Accumulated depreciation Intangible assets on real estate acquisitions, net Assets other than assets included in properties, net Denominator for Debt to Undepreciated Book Value of Real Estate Assets Debt to Total Market Capitalization Debt to Undepreciated Book Value of Real Estate Assets 2009 2008 2007 2006 2010 $ 2,323,681 $ 2,053,841 $ 1,856,751 $ 1,809,610 $ 1,478,460 225,133 225,133 225,133 225,133 198,550 2,493,134 2,322,672 1,832,729 1,749,290 2,591,988 $ 5,041,948 $ 4,601,646 $ 3,914,613 $ 3,784,033 $ 4,268,998 $ 3,844,517 $ 3,380,022 $ 3,114,239 $ 2,932,364 $ 2,419,329 503,032 422,612 343,110 288,747 219,846 113,735 100,671 91,848 108,661 87,325 (399,062) (350,122) (335,773) (327,528) (307,812) $ 4,062,222 $ 3,553,183 $ 3,213,424 $ 3,002,244 $ 2,418,688 46.1% 57.2% 44.6% 57.8% 47.4% 57.8% 47.8% 60.3% 34.6% 61.1%
73 73
Corporate Office Properties Trust
Disclosure
This presentation contains forward-looking information based upon the Company’s current best judgement and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with the forward-looking information include the strength of the commercial office real estate market in which the Company operates, competitive market conditions, general economic growth, interest rates and capital market conditions. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to the Company’s filings with the Securities and Exchange Commission. Defined terms for Non-GAAP measures used throughout may be found in the Disclosure. In addition, a Reconciliation of Non-GAAP measures to the most comparable GAAP measures is included in the Disclosure.
2
Disclosure
Unless otherwise noted, information in this presentation represents the Company’s wholly-owned portfolio as of or for the year ended December 31, 2010.
3
Overview
1201 M Street SE, Maritime Plaza Washington, DC (Acquired September 2010)
4
Overview
COPT has built its franchise around serving the specialized requirements of our super core office customers:
The US Government, Defense Information Technology (IT) contractors, and Data Centers serving either sector
At December 31, 2010, COPT:
Owned 252 office properties in service (20.0 million SF) Was constructing or developing 21 buildings (3.0 million SF) Derived 59% of annualized rental revenues from office properties occupied primarily by super core customers 84% of our office square footage was located in the Greater Washington/Baltimore region
5
Overview
COPT’s main objective is to maximize returns on invested capital, which ultimately drives shareholder returns. Our daily focus is on:
Expanding relationships with super core tenants, i.e., customers Delivering superior service to existing customers, including the physical maintenance of our buildings Acquiring buildings and land that expand or deepen our strategic footprint Adding value through strategic developments in existing or new office parks to meet super core tenant demand
6
Overview
To achieve our main objective, COPT has:
Created unparalleled teams of asset and property managers, design and development managers with the specialized skills required to handle the complex space and security-oriented needs of our super core tenants • COPT is one of the few REITs with over 100 employees with appropriate government credentials to serve our customer base Developed projects with unique access and proximity to Government demand drivers and/or located in growth corridors • 179 of our 252 operating properties are proximate to Government demand drivers* Acquired existing buildings and projects, both strategically and opportunistically Purchased strategic land positions for future expansions
7
*Excludes Greater Baltimore, Suburban Maryland, and Greater Philadelphia regions.
Overview
Historically, COPT’s niche approach to leasing has enabled our stock to outperform NAREIT’s office REIT index
For the 10 years ended December 31, 2010, OFC delivered a cumulative total return of 456%, ranking #1 among office REITs and #14 among all equity REITs.
500%
456%
400% 300% 200% 100% 0% 1 year -100%
Data for the periods ended December 31, 2010, compiled by NAREIT and SNL Financial. 15% 11%
COPT RMS S&P
174%
Do w Jo ne s
3 years
5 years
10 years
8
Overview
Furthermore, COPT’s diluted FFO/share* has increased 12 out of our 13 years as a publicly-traded office REIT†
$3.00
Diluted FFO / Share*
$2.00
$1.00
$0.00
98 00 99 01 02 05 07 19 19 20 20 20 20 20 20 20 20 20 20 20 10 03 04 06 08 09
* †
Excluding operating property acquisition costs, gain on early extinguishment of debt and issuance costs associated with redeemed preferred shares. The years 1998 through 2003 do not include the effect of accounting standards adopted January 1, 2009 retrospective to prior periods. In October 1997, the Shidler Group contributed office properties to Royale Investments, a midwest shopping center company. In March 1998, the Company reformed as a REIT and changed its name to Corporate Office Properties Trust.
9
Overview
Because office fundamentals lag the economy, 2010 was a difficult year
Even in the tough operating environment in 2010, COPT:
• • Delivered FFO/share that was within our guidance Increased our quarterly dividend by 5.1% to an annualized cash payout of $1.65 per share. This was the 13th annual increase in our 13 year public history Achieved record leasing volumes
•
10
Overview
The seeds of COPT’s future success are planted in the four competitive advantages we believe we have over other office landlords:
1.
Customer relationships within the US Government and Defense IT community Strategic locations of office parks to serve core tenants Balance sheet flexibility Development capacity and capability
COPT’s Competitive Pyramid
2.
3. 4.
11
Customers
209 Research Blvd., North Gate Business Park Aberdeen, MD
12
Customers
COPT’s long-standing relationships with the US Government and Defense IT contractors is our greatest competitive advantage
We have increased our 100% concentration of annualized rental revenues from properties primarily occupied by super core tenants to 59% at year end of 2010. Our goal is to derive 65% of annualized rental revenues from super core customers by year end 2012.
% of Annualized Office Rental Revenues
55%
55%
59%
65%
0%
09 10 08 20 20 20 20 12 Go al
13
Customers
COPT’s super core tenant focus capitalizes on the REITs geographic concentration in the Greater Washington/Baltimore region
Higher renewal rates – In 2010, COPT realized an average renewal rate of 72.1% with super core customers vs. only 50.5% for other office tenants. Better pricing power – Similarly, in 2010 super core tenants renewed at GAAP rents that were 3.4% above prior GAAP rents, whereas other tenants averaged only a 2.5% increase.
14
Customers
38 of the 50 largest Defense Contractors, or 76%, already are COPT tenants
Top 50 Defense Contractors (COPT Tenants are highlighted in Yellow)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Lockheed Martin Northrop Grumman Corp. Boeing Co. Raytheon Co. SAIC General Dynamics Corp. KBR L-3 Communications Corp. Booz Allen Hamilton CSC Dell Computer Corp. Hewlett-Packard Co./EDS Harris Corp. ITT Corporation BAE Systems, Inc. CACI International, Inc. IBM Corporation
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
Deloitte, LLP Verizon Communications, Inc. Jacobs Engineering Group, Inc. United Technologies Corporation Battelle Memorial Institute DynCorp International, LLC URS Corp. DRS Technologies, Inc. Rockwell Collins, Inc. Accenture Honeywell International, Inc. Serco, Inc. SRA International, Inc. ManTech International Corp. Sprint Nextel Corp. General Electric Co. Aerospace Corp.
35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Apptis, Inc. Bechtel Corp. VSE Corp. Unisys Corp. General Atomics QinetiQ North America, Inc. Alion Science and Technology SGT, Inc. Combat Support Associates Stanley, Inc. Wyle Laboratories, Inc. AT&T Fluor Corp. Alliant Techsystems, Inc. Arinc Comtech Telecommunications
Source: Ranked according to aggregate value of contracts recorded in 2010 www.washingtontechnology.com
15
Customers
Top 20 tenants account for 58% of our Annualized Rental Revenues1
Tenant2 United States of America Northrop Grumman Corporation Booz Allen Hamilton, Inc. Computer Sciences Corporation ITT Corporation The MITRE Corporation The Aerospace Corporation CareFirst, Inc. Wells Fargo & Company L-3 Communications Holdings, Inc. Integral Systems, Inc. Comcast Corporation The Boeing Company AT&T Corporation Ciena Corporation General Dynamics Corporation Unisys Corporation The Johns Hopkins Institutions Merck & Co., Inc. First Mariner Bank Total / Weighted Average
1. 2. 3.
% of Portfolio Annualized Revenue 21.1% 7.3% 4.7% 4.2% 1.8% 1.8% 1.7% 1.7% 1.7% 1.7% 1.4% 1.4% 1.3% 1.2% 1.1% 1.0% 0.9% 0.8% 0.7% 0.7% 58.1%
Average Remaining Term3 6.2 6.6 4.5 3.1 4.1 5.8 4.1 5.8 7.4 3.3 9.1 2.8 3.9 7.8 2.2 2.7 9.4 5.9 1.6 5.7 5.5 years
This list represents our top twenty tenants as of December 31, 2010, exclusive of owner occupied leases, based on annualized revenue for wholly owned office properties only. Includes affiliated organizations or agencies of tenants, where applicable. The weighting of the lease term was computed using Annualized Rental Revenue.
16 16
Defense/IT Niche
1550 Westbranch Drive McLean, VA (Acquired June 2010)
17
Defense/IT Niche
COPT’s strategy revolves around our customer relationships and the unique skill set established over 17 years of serving the intelligence community
COPT derives 59% of its annualized rental revenue from super core tenants
As of December 31, 2010, COPT had 883 leases, 74 of which were active leases with the US Government, the majority of which are with agencies using their own leasing entities. Of these 74 Government leases, only 14 are administered by GSA.
18
Defense/IT Niche
Historically, OFC’s stock performance has been highly correlated to Defense Budget “sentiment,” except during the 2007-2008 financial crisis, when all REITs traded down significantly
$800 $700
OFC Closing Prices vs. Defense Spending*
Defense $ OFC
$60.00
Defense Spending ($B)
$50.00
$600 $500 $400 $300 $200 $100 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 $10.00 $40.00
OFC Year End Prices
19
$30.00
$20.00
$0.00
*Source: SNL Financial and Office of Management and Budget (Obama Administration Projections) and Stifel Nicolaus estimates
Defense/IT Niche
COPT’s stock price has stagnated since May 2009 when talk of Defense cuts began
Defense Spending
The Pentagon’s total budget doubled from the 9/11 terrorist attacks until 2009. Base spending levels are not expected to get cut; rather they are projected to increase modestly. Supplemental spending for war efforts are expected to be cut back.
$750 $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $$0 $328 10% $365 11% $377 3% $400 6% $411 3% $432 4% $72 $91 $76 $527 11% $116 $601 14% $169
$667 $658 11% -1% $187 $145
$693 5% $75 $163 $159 $50 $571 $549 3% $531 3% $525 -1% $553 6% $553 1% 3% $586 3% $598 2% $75 $50
$17
$480 11%
$513 7%
FY13-FY15 s pe nding $120b low e r than las t proje ction
FY11E
FY12E
FY13E
FY14E
Co re B udget
Supplem entals (A ppro ved, Requested o r B udgeted)
FY10A
Stifel Supplem entals Estim ate
FY12 growth determined by final passage of FY11 budget. President requested $549b in FY11 but Congress is closer to $525b. In addition, Congress could again trim the FY12 request (prior FY12 projection was $566b).
Source: Office of Management and Budget (Obama Administration Projections) and Stifel Nicolaus estimates
20
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
Defense/IT Niche
However, much of the proposed “cuts” really are reallocations
Secretary of Defense Robert Gates proposed a defense budget of $553 billion for 2012, which would represent a 4% increase over 2010 spending $100 billion of expected savings to be garnered from legacy weapons systems and non-critical missions and reallocated toward priority missions • For example, Cybersecurity is expected to grow by as much as 9% annually over the next 5 years
21
Defense/IT Niche
The majority of COPT’s super core tenants are program contractors whose missions are not likely to be cut and may, in some instances, be augmented
Under Gates’ proposed budget: • Support contractors (who augment government staffs) are likely to face cuts • Program contractors are not likely to face cuts and may see increased funding
22
Defense/IT Niche
COPT’s existing portfolio is well positioned to weather DoD cuts
Key missions identified in latest QDR1 Counterinsurgency Stability Counterterrorism ops Building the security of partner states Deterring & defeating aggression in anti-access environments Cyberspace operations Government Demand-Drivers2 proximate to COPT properties Aberdeen Proving Ground Fort Belvoir Fort Meade/NBP Peterson Air Force Base Redstone Arsenal San Antonio Military Installations
1. QDR = Quadrennial Defense Review, the report that sets the nation’s near-term defense strategy. 2. Armed forces installations that suport these missions. COPT owns projects proximate to these and other installations.
23
Defense/IT Niche
Furthermore, Government agency relocations mandated by the 2005 BRAC are nearly complete
BRAC agency moves were mandated by Congress to be completed by September 15, 2011 • There is no funding or appropriations risk associated with agency BRAC moves • BRAC buildings are 90% complete and move-ins have started • Ultimately, Program and Support contractors will have to follow to keep their contracts
24
Defense/IT Niche
COPT’s portfolio features concentrations of assets around five BRAC locations
25
Defense/IT Niche
Our portfolio is positioned to benefit from up to 10 million square feet of BRAC-related demand over the next 3-5 years
There is up to 10 million square feet of off-base contractor demand related to BRAC agency moves from which COPT could benefit: • 4 million SF supporting Fort Meade • 2.5 – 3 million SF supporting Aberdeen Proving Ground • 1 million SF supporting Fort Belvoir • 2 million SF supporting Redstone Arsenal and the US Army Materiel Command
26
Data Centers
11751 Meadowville Lane, Meadowville Technology Park Richmond, VA
27
Data Centers
COPT entered the data center business in 2003/2004
Existing intelligence community customers needed secure, high density, blast-proof data centers Prior to acquiring Power Loft® @ Innovation in 2010, 1.5 million square feet of COPT’s office portfolio contained data centers and labs dedicated to existing super core tenants’ requirements COPT is an experienced designer, builder and operator 24/7 of stateof-the-art data centers
28
Data Centers
In 2010, COPT acquired Power Loft @ Innovation for $115.5 million, a 233,000 SF state-of-the-art facility in Northern Virginia.
Power Loft features a controlled, secured perimeter, 100,000 SF of raised floor area, with the potential for 30 megawatts of critical load. Power Loft has setbacks sufficient to become ATFP compliant, a feature many Defense/IT tenants would require.
Wholesale data centers, like Power Loft, are a natural extension of the dedicated data centers that COPT has developed over the years for core tenants.
29
Data Centers
COPT expects strong, sustained demand for modern, efficient data centers, as more corporations and government agencies migrate to Cloud computing infrastructure.
At the end of 2010, for example, the US Government finalized plans to consolidate small, inefficient data centers into Cloud computing infrastructure based at off-campus, high density, high efficiency data centers similar to those in COPT’s portfolio.
30
Core Markets
308 Sentinel Drive, The National Business Park Annapolis Junction, MD
31
Core Markets
Many of COPT’s properties are strategically located in close proximity to government installations
VIRGINIA
25 buildings/3.3 Million SF Adjacent to National Geospatial Intelligence Agency & Fort Belvoir - Patriot Ridge Near US Government Facility in Chantilly – Westfields Corporate Center Near Dahlgren Naval Surface Warfare Center Dahlgren Technology Center
MARYLAND
194 buildings/13.5 Million SF Connected to Fort Meade The National Business Park Near Fort Meade – Arundel Preserve At the Contractor Gate of Aberdeen Proving Ground North Gate Business Park Adjacent to BWI Airport & US Government Facility Airport Square Adjacent to PAX River Naval Air Station Expedition & Exploration Office Parks Near Fort Detrick - Frederick Research Park
HUNTSVILLE, AL*
468 ac./4.6 million SF development potential Adjacent to the Main Gate of Redstone Arsenal Redstone Gateway
SAN ANTONIO, TX
8 buildings/915,000 SF
COLORADO SPRINGS, CO
14 buildings/1.0 Million SF Adjacent to Peterson Air Force Base Patriot Park
WASHINGTON D.C.
2 operating properties/362,000 SF Adjacent to Washington Navy Yard - Maritime Plaza
* Consolidated JV property
Near Lackland Air Force Base – Sentry Gateway Near US Government Facility
32
Core Markets
84% of COPT’s square footage is located in its core market, the Greater Washington/Baltimore region*
Asking rents in the Greater Washington/ Baltimore region were $25.83, or 11% above the US average**
* Please see Greater Washington/Baltimore region in ‘Definitions’ at the back of this presentation. ** Data excludes St. Mary’s & King George Counties, which CBRE doesn’t track due to their small size.
33
Core Markets
Office Fundamentals for Greater Washington/Baltimore regiona
Region Submarket SF (000s) Our SF (000s) Our Market Share Submarket VacancyDirect Our Vacancy
1. B/W Corridor 2. Northern Virginia Dulles South Herndon 3. Suburban MD 4. Greater Baltimore
(Excluding White Marsh)
22,223
8,433
37.9%
17.1%b
9.4%
12,532 11,879 30,498 12,840
1,454 570 695 2,171
11.6% 4.8% 2.3% 16.9%
17.7% 16.0% 14.0% 12.6%b
11.3% 2.9% 12.9% 11.6%
a. Data as of December 31, 2010 for all office classes, compiled by CBRE, Newmark Knight Frank, Turner Commercial and Company data. Suburban Maryland contains the submarkets of Gaithersburg, North Rockville, North Silver Spring, and Frederick. The Suburban Baltimore region contains the submarkets of Hunt Valley, Timonium/Towson, West, & East. CBRE does not provide data on Washington DC-Capitol Riverfront and St. Mary’s & King George Counties. b. Vacancy with sublease
34 34
Core Markets
Employment trends in COPT’s core markets has exceeded the National average, even during the Great Recession
12% 10% 8% 6% 4% 2% 0%
2
*
Year End Unemployment Statistics* US ■ Greater Washington/Baltimore region
05 0
2
06 0
2
07 0
2
08 0
2
09 0
2
10 0
Data compiled by Bureau of Labor Statistics, MD and VA state websites, and COPT.
35
Balance Sheet Flexibility
3120 Fairview Park Drive Falls Church, VA (Acquired November 2010)
36
Balance Sheet Flexibility
COPT has managed its operations so that we:
$2.00
Year End Annualized Common Share Dividend
Have raised our annualized dividend every year since our IPO in 1998
• 5.1% increase to quarterly payout in September 2010 • 9.4% compounded annual increase in our dividend since our IPO • 222% increase since our IPO*
$1.50 $1.00 $0.50 $0.00
20 10
10
$300 $250 $200
Avoided having to “re-IPO” during the Great Recession with $100 a dilutive equity offering $50
$0
19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20
$150
*
In October 1997, the Shidler Group contributed office properties to Royale Investments, a midwest shopping center company. In March 1998, the Company reformed as a REIT and changed its name to Corporate Office Properties Trust.
19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09
Gross Proceeds from Common Stock Offerings
37
Balance Sheet Flexibility
Year End Leverage Levels
70% 60% 50% 40% 30% 20% 10% 0%
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
Debt to undepreciated book assets ■ Debt to total market capitalization ▲ Debt/Gross Assets*
57% 46%
*
See ‘Definitions & Glossary’ for calculation.
38
Balance Sheet Flexibility
Year End Debt/EBITDA*
10% 8% 6% 4% 2% 0%
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
Debt/EBITDA ■ Adjusted Debt/EBITDA
*
See ‘Definitions & Glossary’ for calculation.
39
Balance Sheet Flexibility
Year End EBITDA Fixed Charge Coverage Ratio
3.5 3.3 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5
2 06 0 2 07 0 2 08 0 2 09 0 2 10 0
40 40
Balance Sheet Flexibility
Manageable Debt Maturities as of 12-31-10a,b
$700 $600 $500
$591.4
$413.7
$400 $300
$396.5
$210.2
$200 $100 $0 2011a 2012 b 2013 2014 2015
$146.0
a. b.
Maturities in 2011 include: $295.0 million on COPT’s $800 million Revolver which can be extended into 2012. Maturities in 2012 include: $142.3 million under COPT’s $225 million Construction Revolver that was extended to 2012 in January 2011.
41
Development
6711 Columbia Gateway Drive, Columbia Gateway Business Park Columbia, MD
42
Development
In addition to acquiring assets for strategic and opportunistic purposes, COPT’s development capabilities have also fueled external growth.
Roughly $325 million in developments started & stabilized between 2005 – 2010 average unleveraged 10.1% yield on cost Current development pipeline is $504 million across 17 projects ($236 per square foot)* Current average unleveraged yield on cost is ± 11% on projects under construction Strategic land bank necessary to meet future demand
Development: Shell Completions
1,200 SF (000s) 1,000 Cost ($ millions) $200 $250
800 $150 600 $100
400 $50
200
0
$0 2007 2008 2009 2010 2011 2012
* Includes 10 projects ($224 million, 1.0 million square feet) under construction and 7 projects ($280 million, 1.1 million square feet) under development. Does not include four properties under redevelopment or two properties under development in our Huntsville, AL, joint venture.
43 43
Development
“Luck is when opportunity meets preparation.”
Seneca the Younger
COPT frequently builds new properties in advance of anticipated new demand
Many Government agencies will only lease existing buildings (versus build-to-suit) with operating leases, which enables them to avoid classifying their leases in their capital budgets.
•
This speeds the procurement process and our tenant occupancy.
COPT will build “spec” where we believe it is important to be first to market:
• The National Business Park (proven) • Sentry Gateway (in process) • Patriot Ridge (in process) • North Gate Business Park (in process)
44 44
Development
Consistent with our strategy of catering to US Government and Defense IT sectors and data centers serving them, COPT develops properties that are proximate (or even “inside the fence”) to Government demand drivers We currently list the following as our office parks with the highest growth potential:
North Gate Business Park Patriot Ridge Redstone Gateway Sentry Gateway The National Business Park
45 45
Development
North Gate Business Park, Aberdeen, MD
Demand Driver: Aberdeen Proving Ground; C4ISR 3 buildings to support contractors serving C4ISR (~8,200 jobs)
• The first building (77,192 SF) is 100% leased • The second building (79,573 SF) is 35% leased • The third building, second quarter 2011 completion (127,300 SF) is 0% leased
Contractor demand for space: 2.5 to 3 million SF (estimated)
46 46
C4ISR – Aberdeen Proving Grounds
The C4ISR Complex @ APG
New Team C4ISR Buildings
US Army Medical Research Institute of Chemical Defense
The US Army Research Development & Engineering Command
47
North Gate – Aberdeen, MD
48
North Gate – Preliminary Site Plan
206 Un Rese d Con er arch B lv d stru . ctio n
49 49
Development
Patriot Ridge, Springfield, VA
Demand Driver: Fort Belvoir; NGA
• Fort Belvoir is the beneficiary of the largest BRAC gain of any military installation in the US • The NGA is opening its new HQ (8,500 people) in 2011
COPT owns 15 acres adjacent to Fort Belvoir Development started on the 1st of 5 buildings (up to 978,000 SF)
• 240,000 SF • Leasing proposals exceed initial square footage
50 50
Patriot Ridge
51
Patriot Ridge
52
National Geospatial Intelligence Agency
53
Development
Redstone Gateway, Huntsville, AL*
Demand Drivers: Redstone Arsenal; home to NASA- George C. Marshall Space Flight Center, US Army Aviation and Missile Command, major components of the Defense Intelligence Agency plus more commands & agencies moving to Redstone Arsenal due to BRAC Development capacity of ~4.6 million SF to support BRAC workforce gain of ~4,700 DOD directed positions & ~15,000 indirect & induced jobs
• 4.4 million SF of office space to include 1.2 million SF of secured office space • 200,000 SF of retail/amenity space
2 buildings under development totaling 235,000 SF Redstone Gateway is “the next NBP”
* Owned in a consolidated joint venture.
54 54
Redstone Arsenal
Upon completion of the BRAC relocations, Redstone Arsenal becomes the epicenter of all research, development, procurement, logistics & sustainment required to support the modern warfighter on today’s battlefield by becoming the home of the US Army Materiel Command (AMC)
Major Army command responsible for total life-cycle management of the logistics to support the Army & other joint programs Directs one of the largest budgets in the Army Facility under construction, close to completion
Other commands & agencies moving to Redstone Arsenal due to BRAC:
US Army Space & Missile Defense Command (SMDC) (HQ relocated) US Army Security Assistance Command (USASAC) (HQ relocated) 2nd Recruiting Brigade (facility completed & occupied) 2nd Medical Recruiting Battalion (facility completed & occupied) Missile Defense Agency (MDA) (facility completed) Redstone Test Center (RTC) (facility completed)
55 55
Redstone Arsenal
Approximately 38,000 acres; located in the center of the Tennessee Valley in northern Alabama Total current on base working population of over 30,000
Projected 2011 Redstone workforce, according to Redstone Arsenal Garrison Command officials includes:
• 13 general officers, including one 4-star general • 121 senior executive service members (2nd highest in the country) • 1,000 active soldiers • 17,000 government contractor workers • 18,800 government civilian workers
Redstone Arsenal is completing nearly $440 million of military construction in support of the 2005 BRAC relocations that by law must be in place by September 2011
56 56
Redstone Arsenal
U.S. Army Aviation and Missile Command (AMCOM) U.S. Space & Missile Defense Command (SMDC) U.S. Army Security Assistance Command (USASAC) Missile Defense Agency (MDA)
PEO – Missiles and Space
Marshall Space Flight Center (MSFC)
PEO - Aviation
Bureau of Alcohol Tobacco & Firearms (ATF)
Aviation & Missile Research, Development & Engineering Center (AMRDEC)
Federal Bureau of Investigation (FBI)
Army Materiel Command (AMC)
DIA – Missile & Space Intelligence Center
Redstone Test Center (RTC)
U.S. Army Garrison Redstone Arsenal (USAG)
Logistics Support Activity (LOGSA)
57
Redstone Gateway
City of Huntsville
58
Redstone Gateway
Phase I Office Secured Office Education Retail/Restaurant Hotel Phase II Office R&D Office Secured Office Phase III Office R&D Office TOTALS Square Footage 1,843,000 518,000 113,000 164,000 300 Rooms Square Footage 778,000 127,000 835,000 Square Footage 864,000 107,000 5,349,000 # of Buildings 13 2 3 13 2 # of Buildings 7 2 5 # of Buildings 6 2 55
Building 1 Under Development
North
Unless otherwise noted, renderings shown are representative buildings that COPT has developed in other locations and don’t necessarily reflect the architectural style of this project.
59
Development
Sentry Gateway, San Antonio, TX
Demand Drivers: Lackland Air Force Base; a US Government facility 6 operating properties (792,000 SF) 1 building under construction (95,000 SF) 2 buildings under development (219,000 SF)
60 60
COPT in San Antonio
RANDOLPH AFB
SENTRY GATEWAY
FORT SAM HOUSTON
LACKLAND AFB
BROOKS AFB
61
Sentry Gateway
100 Sentry Gateway
100
200
62 62
Development
The National Business Park, Annapolis Junction, MD
Demand Driver: Fort Meade 24 operating properties (2.8 million SF) 4 buildings under construction (496,000 SF) to support the move of:
• Defense Information Systems Agency (DISA) from Northern Virginia to Fort Meade (5,600 federal employees) • The stand up of Cyber Command at Fort Meade (1,100 federal employees) • Contractors who support DISA and Cyber Command (15,000 private sector employees)
63 63
The National Business Park
64
NBP North – Master Plan
Under Construction: 410 NBP (110,000 SF) 430 NBP (110,000 SF)
420 NBP
410 NB P
430 NB P
65 65
March 2011
Thank You
Appendices
I. II. III.
COPT’s Sustainable Building (available upon request) Definitions & Glossary Reconciliations
67 67
II. Definitions & Glossary
Acquisition costs – transaction costs expensed in connection with executed or anticipated acquisitions of operating properties. Adjusted Debt/EBITDA – debt adjusted to subtract construction in progress as of period end divided by EBITDA for the three month period, multiplied by four. BRAC – Base Realignment and Closure Commission of the United States Congress. The Congress established the 2005 BRAC Commission to ensure the integrity of the base closure and realignment process. The Commission provided an objective, non-partisan, and independent review and analysis of the list of military installation recommendations issued by the Department of Defense (DoD) on May 13, 2005. The Commission's mission is to assess whether the DoD recommendations substantially deviated from the Congressional criteria used to evaluate each military base. While giving priority to the criteria of military value, the Commission will also take into account the human impact of the base closures and will consider the possible economic, environmental, and other effects on the surrounding communities. Cloud computing infrastructure – per Wikipedia, Cloud computing is computation, software, data access, and storage services that do not require end-user knowledge of the physical location and configuration of the system that delivers the services. Parallels to this concept can be drawn with the electricity grid where end-users consume power resources without any necessary understanding of the component devices in the grid required to provide the service. Customer – how COPT generally refers to its tenants.
Super core customer – office tenants in the United States Government and defense information technology (“defense IT”) sectors.
Debt/EBITDA – debt divided by EBITDA for the three month period, multiplied by four. Development profit or yield – calculated as cash NOI divided by the estimated total investment, before the impact of cumulative real estate impairment losses. EBITDA – net income adjusted for the effects of interest expense, depreciation and amortization and income taxes.
68 68
II. Definitions & Glossary
Fixed charges – sum of (1) interest expense on continuing and discontinued operations (excluding amortization of deferred financing costs and amortization of the discount on Exchangeable Senior Notes, net of amounts capitalized), (2) dividends on preferred shares and (3) distributions on preferred units in the Operating Partnership not owned by us. Funds from Operation (“FFO”) – defined as net income computed using GAAP, excluding gains on sales of previously depreciated operating properties, plus real estate-related depreciation and amortization. Basic FFO available to common share and common unit holders – FFO adjusted to subtract (1) preferred share dividends, (2) FFO attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (3) Basic FFO allocable to restricted shares and (4) issuance costs associated with redeemed preferred shares. Diluted FFO available to common share and common unit holders – basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares.
FFO per share – (1) diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged and that conversion or exchange would have been dilutive. GAAP – accounting principles generally accepted in the United States.
Greater Washington/Baltimore Region – includes counties that comprise the Baltimore/Washington Corridor, Northern Virginia, Greater Baltimore, Suburban Maryland, St. Mary’s & King George Counties, and the Washington, DC-Capitol Riverfront. As of December 31, 2010, 219 of COPT’s wholly-owned properties, were located within this defined region. Please refer to page 26 of COPT’s Supplemental Information package dated December 31, 2010 for additional detail. Gross Asset Value – when used to calculate COPT's Debt/Gross asset ratio, is calculated as follows: multiply the most recent quarter's cash NOI by four, then divide by a cap rate (currently 7.0%); plus the cost of properties acquired in the current quarter and prior two quarters; plus the GAAP book value of assets under construction, development, and land (with certain limitations); less any JV partners' interests provided that non-controlling interests do not exceed 15% of the total value. Note, in 2005 and 2006, COPT employed an 8.5% cap rate rather than the current 7.0% cap rate.
69 69
II. Definitions & Glossary
GSA – United States General Services Administration. In July 1949, President Harry Truman established the GSA to streamline the administrative work of the federal government. The GSA’s acquisition solutions supplies federal purchasers with cost-effective high-quality products and services from commercial vendors. GSA provides workplaces for federal employees, and oversees the preservation of historic federal properties. Its policies covering travel, property and management practices promote efficient government operations. Market capitalization – sum of (1) carrying value of debt on our consolidated balance sheet, (2) liquidation value of preferred shares and preferred units in our operating partnership and (3) the product of the closing price of our common shares on the NYSE and the sum of (a) common shares outstanding and (b) common units outstanding. Net operating income (NOI) – rental revenues, including tenant recoveries, less property operating expenses. Portfolio – as of December 31, 2010, COPT’s portfolio of class-A office buildings consisted of the following:
Wholly-Owned Portfolio
Operating properties # Properties Square feet % Leased Under Construction # Properties Square feet % Leased Under Redevelopment # Properties Square feet % Leased Under Development # Properties Square feet % Leased Total # Properties Square feet % Leased 252 19,990,288 89.5%
Consolidated JV
Consolidated Portfolio*
256 20,432,085 88.9%
Unconsolidated JV
Total Portfolio*
272 21,103,084 88.5%
4 441,797 62.7%
16 670,999 74.3%
10 1,040,748 32.0%
----
10 1,040,748 32.0%
----
10 1,040,748 32.0%
4 873,293 18.8%
----
4 873,293 18.8%
----
4 873,293 18.8%
7 1,091,360 0%
2 235,000 0%
9 1,326.360 0%
----
9 1,326,360 0%
273 22,995,689 80.0%
6 676,797 40.9%
279 23,672,486 78.8%
16 670,999 74.3%
295 24,343,485 78.7%
*Number of properties and square feet are not pro rated for partner’s share. Instead they are presented as if COPT owned 100% of the consolidated and unconsolidated joint venture properties.
70 70
II. Definitions & Glossary
Redevelopment – properties previously in operations on which activities to substantially renovate such properties are underway. Stabilization – generally defined as properties that are at least 85% occupied. Under construction – properties on which vertical construction activities are underway. Under Development – Properties which work associated with one or more of the following tasks is underway on a regular basis: pursuing entitlements, planning, design and engineering, bidding, permitting and premarketing/preleasing. Typically, these projects, as categorized in the Company’s Supplemental Information package, are targeted to begin construction in 12 months or less. Undepreciated book value of real estate assets – total properties, net presented on our consolidated balance sheet excluding the effect of accumulated depreciation incurred to date on such properties.
71 71
III. Reconciliations
(Dollars and shares in thousands, except per share data) 1998* 1999* 2000* 2001* 2002* 2003*
Years ended December 31, 2004 2005
2006
2007
2008
2009
2010
Numerator for diluted EPS Add: Income allocable to noncontrolling interests-common units in the Operating Partnership Add: Real estate-related depreciation and amortization Add: Depreciation and amortization on unconsolidated real estate entities Add: Numerator for diluted EPS allocable to restricted shares Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities
$
Less: Basic and diluted FFO allocable to restricted shares Less: Gain on sales of previously depreciated operating properties, net of income taxes
Add: Convertible preferred share dividends Add: Preferred unit distributions Add: Expense on dilutive share-based compensation Add: Repurchase of preferred units in excess of recorded book value Add: Cumulative effect of accounting change Numerator for diluted FFO per share Denominator for diluted EPS Weighted average common units Assumed conversion of weighted average convertible preferred shares Assumed conversion of weighted average convertible preferred units Dilutive effect of share-based compensation awards Denominator for diluted FFO per share Diluted EPS Diluted FFO per share $ $
$
8,952 $ 6,238 327 15,517 $ 19,237 449 19,686 0.47 $ 0.79 $
14,788 $ 3,449 11,987 (1,140) 1,353 61 30,498 $ 22,574 4,883 1,845 70 29,372 0.66 $ 1.04 $
11,332 $ 6,322 16,887 (107) 677 2,240 37,351 $ 19,213 9,652 918 2,371 32,154 0.59 $ 1.16 $
13,573 $ 6,592 20,558 144 (416) 2,287 263 43,001 $ 21,623 9,437 2,421 33,481 0.63 $ 1.28 $
13,711 $ 5,800 30,832 165 (268) 2,287 327 52,854 $ 24,547 9,282 2,421 384 36,634 0.56 $ 1.44 $
7,650 $ 6,712 36,681 295 (2,897) 544 1,049 10 11,224 61,268 $ 28,021 8,932 1,197 1,101 43 39,294 0.27 $ 1.56 $
18,911 $ 5,659 51,371 106 (86) (317) (95) 75,549 $ 34,982 8,726 43,708 0.54 $ 1.73 $
24,416 $ 28,618 $ 5,889 7,097 62,850 78,631 182 910 449 (114) (163) (311) (733) (4,422) (17,644) 88,490 $ 97,165 $ 38,997 8,702 47,699 0.63 $ 1.86 $ 43,031 8,511 51,542 0.67 $ 1.89 $
15,616 $ 3,203 106,260 666 517 (188) (876) (3,827) 121,371 $ 47,518 8,296 55,814 0.33 $ 2.17 $
37,135 $ 6,519 102,772 648 728 (270) (1,310) (2,630) 143,592 $ 48,820 8,107 56,927 0.76 $ 2.52 $
39,217 $ 4,495 109,386 640 1,010 (493) (1,629) 152,626 $ 56,407 5,717 62,124 0.70 $ 2.46 $
25,587 2,116 123,243 631 1,071 (1,402) (1,524) (1,077) 148,645 59,944 4,608 64,552 0.43 2.30
Diluted FFO per share as adjusted for operating property acquisition costs, gain on early extinguishment of debt and redemption of preferred shares Diluted FFO Gain on early extinguishment of debt Gain on early extinguishment of debt allocable to restricted shares Operating property acquisition costs Issuance costs associated with redeemed preferred shares Diluted FFO as adjusted Denominator for diluted FFO per share as adjusted Diluted FFO per share as adjusted
* The years ended December 31, 1998 through 2003 do not include the effect of accounting standards adopted January 1, 2009 retrospective to prior periods.
$ 75,549 1,813 $ 77,362 43,708 $ 1.77
$ 97,165 3,896 $ 101,061 51,542 $ 1.96
$ 143,592 $ 152,626 $ 148,645 (8,101) 75 1,967 3,424 $ 135,566 $ 154,593 $ 152,069 56,927 62,124 64,552 $ 2.38 $ 2.49 $ 2.36
72 72
III. Reconciliations
(Dollars in thousands) For the Years Ended December 31, 2010 Reconciliation of GAAP net income to earnings before interest, income taxes, depreciation and amortization ("EBITDA") Net income Interest expense on continuing and discontinued operations Total income tax expense Depreciation and amortization EBITDA Reconciliation of interest expense from continuing operations to the denominator for EBITDA fixed charge coverage Interest expense from continuing operations Interest expense from discontinued operations Less: Amortization of deferred financing costs Less: Amortization of discount on Exchangeable Senior Notes, net of amounts capitalized Preferred share dividends Preferred unit distributions Denominator for EBITDA fixed charge coverage EBITDA fixed charge coverage ratio 2009 2008 2007 2006
$
$
45,504 $ 102,128 119 125,819 273,570 $
61,299 $ 82,420 196 111,811 255,726 $
61,316 $ 86,921 779 104,968 253,984 $
35,942 $ 90,020 1,684 108,181 235,827 $
55,988 76,440 887 80,547 213,862
$
$
101,865 $ 263 (5,871) (5,314) 16,102 660 107,705 $ 2.54x
82,187 $ 233 (4,214) (2,955) 16,102 660 92,013 $ 2.78x
86,368 $ 553 (3,843) (3,225) 16,102 660 96,615 $ 2.63x
88,070 $ 1,950 (3,385) (3,062) 16,068 660 100,301 $ 2.35x
73,396 3,044 (2,645) (1,039) 15,404 660 88,820 2.41x
As of December 31, Total Debt Liquidation value of preferred shares/units Market value of common shares/units Total Market Capitalization Total Assets or Denominator for Debt to Total Assets Accumulated depreciation Intangible assets on real estate acquisitions, net Assets other than assets included in properties, net Denominator for Debt to Undepreciated Book Value of Real Estate Assets Debt to Total Market Capitalization Debt to Undepreciated Book Value of Real Estate Assets 2009 2008 2007 2006 2010 $ 2,323,681 $ 2,053,841 $ 1,856,751 $ 1,809,610 $ 1,478,460 225,133 225,133 225,133 225,133 198,550 2,493,134 2,322,672 1,832,729 1,749,290 2,591,988 $ 5,041,948 $ 4,601,646 $ 3,914,613 $ 3,784,033 $ 4,268,998 $ 3,844,517 $ 3,380,022 $ 3,114,239 $ 2,932,364 $ 2,419,329 503,032 422,612 343,110 288,747 219,846 113,735 100,671 91,848 108,661 87,325 (399,062) (350,122) (335,773) (327,528) (307,812) $ 4,062,222 $ 3,553,183 $ 3,213,424 $ 3,002,244 $ 2,418,688 46.1% 57.2% 44.6% 57.8% 47.4% 57.8% 47.8% 60.3% 34.6% 61.1%
73 73
