COLUMBIA, MD-All in all, Corporate Office Property Trust posted a strong second quarter and, as CEO Roger A. Waesche, Jr., pointed out, the REIT is on track to exceed its leasing objectives for the year. Still, it is clear that it will continue to grapple with the fallout from sequestration and budget cuts in Washington for some time.

On the immediate horizon is a potential 50,000 square feet to 100,000 square feet of space that it may be taking back from tenants.

Steve Riffee, EVP and CFO, said during the earnings call that one is a 150,000 square foot lease of which 103,000 will be extended and roughly 50,000 is up in the air. Another lease could produce about 30,000 square feet over the next two quarters, he said.

Waesche also pointed to the new vacancy the REIT expects to realize in its operating portfolio during his comments. Many defense contractors are still in the process of rightsizing, he said—and the onset of sequestration accelerated this process. "As a result, we are forecasting a modest uptick in our portfolio of vacancy over the next few quarters from June 30th levels," he said, noting that "…some customers are likely to give back a bit more space than we originally forecasted… At the same time, Waesche continued, other tenants "are beginning to expand operations or are looking to capture operating efficiencies by consolidating into one of our newly developed buildings."

Bottom line, he concluded, "the modest increase in near-term vacancy spurred by sequestration is very manageable, especially when weighed against the long-term value creating events that have been taking place in our development pipeline." (Quotes provided by Seeking Alpha transcript).

COPT completed a total of 1.1 million square feet of leasing for the second quarter. Its renewal rate was 80%, which is above the REIT's historical average of 65% to 70%.