COLUMBIA, MD—Last week Corporate Office Properties Trust announced that its diluted earnings per share, or FFOPS, was zero for the quarter ended March 31, 2014, compared to $0.11 in the first quarter of 2013. Its portfolio was 89.8% occupied and 91.1% leased as of March 31. It had completed some 446,000 square feet in total leasing for its core office properties, at a 56% renewal rate. It also had eight properties totaling 1.2 million square feet under development, of which half was pre-leased. COPT also announced it was raising its guidance for its 2014 FFOPS by one penny to a new range of $1.85–$1.92. Said Roger A. Waesche, Jr., COPT's president and CEO: "We are at a positive inflection point, and expect 2014 will be a rewarding year for shareholders."

RBC Capital Markets is inclined to agree. In a research note the firm announced it was maintaining its Sector Perform rating and $28/share price target for the REIT in part because its fundamentals appear to be turning. "We expect 2Q14 will mark the cyclical low point of the earnings trend," it said.

Reasons for RBC's optimism include the stabilization of the Department of Defense's budget and the fact that defense contractors are becoming more active in the leasing market. However, the firm cautioned, this activity is unlikely to translate into signed leases until 2015.

In addition, its financial position is healthy, RBC noted. The REIT has $800 million of dry powder available with an undrawn $800 million credit facility and a modest cash balance of $20 million. It also estimates the net debt to EBITDA ratio at 7.0x currently and projects a modest increase to 7.3x by end of year 2015.

And as for that "cyclical low point of the earnings trend", RBC notes that will be due to the conveyance of the CMBS loan combined with lower development fee income.

Instant Insights /

RBC Capital Markets Maintains COPT Outlook

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