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COLUMBIA, MD-Corporate Office Properties Trust recently reported higher FFO and earnings for the third quarter that ended Sept. 30–a portfolio that was more than 93% occupied and a development pipeline that is leasing up despite the economic forces that are buffeting the office market. The results did not surprise analysts at Milwaukee-based Robert W. Baird & Co., however.

Baird’s latest report on COPT says that while the Milwaukee-based firm is “less bullish on office companies generally,” it believes the Columbia, MD-based REIT’s focus on the federal government and its contractors as its primary tenant base “insulates it from typical landlord concerns such as credit and demand risk.” Those factors might not be remarkable during boom times, but they are serving COPT well during this downturn.

The Baird report–authored by analysts Christopher R. Lucas, Avi Lerner and David S. Nebinski–says the factors underlying COPT’s steadfast performance “position it to be among the industry leaders in earnings growth.” The Baird team also anticipates that development activity will accelerate over the next five years due to BRAC demand from COPT’s tenant base.

COPT already has a number of new projects under way despite a downturn that has throttled new development for many, if not most, in the industry. The REIT ended the quarter with 12 buildings totaling 1.26 million square feet under construction at an estimated cost of $266 million. Those buildings were 41% preleased. COPT has an additional nine buildings under development representing one million square feet at an estimated cost of $203.8 million. It also is working two redevelopment projects, totaling 493,000 square feet, at an estimated cost of $57 million.

Among the new buildings that got under way in Q3 was 5850 University Research Court in College Park, MD. The 123,000-square-foot building is a part of M Square Research Park, a 750,000-square-foot project comprising eight buildings that COPT is developing in a joint venture with the University of Maryland and Manekin LLC. The 124-acre site is owned by the University of Maryland and is its designated official research park.

Baird’s report also notes that COPT is well positioned for other future development as the dominant owner of both existing office buildings and development land in key submarkets. Among these is the area near Fort Meade, located between Washington DC and Baltimore.

Of course, COPT’s strategy and its concentration in certain markets are not without risks, according to Baird’s team. Chief among these are the prospect that the REIT’s property values may decline in the near term as a result of higher long-term interest rates or expectations of weaker economic growth–risks that face all REITs, the analysts point out.

The second major risk factor that COPT faces is “the level of geographic asset concentration,” according to the Baird report. However, the analysts add “we believe that real estate is a local business and that there are significant advantages to being the local sharpshooter with significant market penetration.”

COPT’s properties are concentrated primarily around Washington DC in Virginia and Maryland, but it also owns assets in New Jersey, Pennsylvania and Colorado. At the end of the third quarter, it owned 254 office and data properties totaling 19.1 million rentable square feet, which included 19 properties totaling 847,000 square feet held through joint ventures.

COPT’s latest quarterly results included a year-over-year 10.3% increase to 64 cents per share of diluted funds from operations and a four-cent increase to 19 cents in earnings per share. Randall M. Griffin, president and CEO of the REIT, noted in a prepared statement that the quarterly results indicate that, “despite a deteriorating economy, we are well positioned for the balance of 2008 and into 2009 to deliver strong FFO growth.”

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