After Difficult 2011, COPT Looks Ahead

(Mark Your Calendars: RealShare Apartments East, February 15th in Washington, DC).

COLUMBIA, MD-Corporate Office Properties Trust’s outgoing CEO Rand Griffin began his last earnings call this week with a preface that he probably would have preferred not to have made for his final call: “The ongoing difficult operating environment, caused by the weak economic recovery and uncertainty surrounding federal budget cuts, made 2011 a challenging year for COPT,” he said.

For the fourth quarter ended December 31, 2011, COTP posted a diluted earnings per share loss of $1.21, compared with an earnings per share of $0.18 in the fourth quarter of 2010. Diluted funds from operations per share, a key metric for REITs, was $0.56 for the fourth quarter ended December 31, 2011—a 20% decrease from the $0.70 reported for the fourth quarter of 2010.

Griffin noted that the REIT’s “unique tenant mix” of government contractors is currently out of favor in Washington, but that eventually this will change as their missions are critical to the nation’s safety. “So although the Department of Defense is facing budgetary cuts, we’re confident that agencies and contractors focused on the cyber security and intelligence aspects of national security will emerge relatively unscathed,” he said.

Some difficult decisions were made during the year, president Roger Waesche, who was also on the call, noted. These included curtailing its development pipeline until demand for new space picks up. In the meantime, the development team is making sure that entitlements and permits remain intact, he said.

Also, as shareholders well know, COPT has cut its dividend by 33% beginning with the first quarter of 2012. This was a capital allocation decision that enables the REIT to retain over $40 million of free cash flow each year, Waesche said.

On a more positive note, Griffin noted that during 2011, COPT leased a total of 3.85 million square feet, of which 544,000 square feet was at development and redevelopment properties. It also leased a total of 729,000 square feet for the quarter. During these same periods, the company's respective renewal rates were 75% and 64%.

At year end the company had six properties totaling 789,000 square feet under construction for a total projected cost of $196.2 million, of which $126.3 million had been incurred. Also last year, as part of its strategic reallocation plan, COPT sold 23 buildings aggregating 894,000 square feet for $76.7 million.