- The Washington Times - Tuesday, February 19, 2008

Corporate Office Properties Trust last week reported higher earnings for the fourth quarter of last year, despite a slowdown in the commercial real estate market.

“The company is fortunate to begin 2008 with strong financial flexibility, a healthy capital position and a development pipeline heavily concentrated in the U.S. government and defense information technology sector,” said Randall M. Griffin, Corporate Office Property Trust’s chief executive officer.

The Columbia, Md.-based real estate investment trust is among the largest owners of suburban office properties in the Washington region. The company owns 246 office properties totaling 18.6 million rentable square feet, primarily in the Mid-Atlantic.

It is a preferred real estate developer and manager for the federal government and its defense contractors, which has given it stability while the private real estate market struggles.

The company reported funds from operations in the fourth-quarter of last year of $32.8 million, or 59 cents a share, compared with $25.1 million, or 48 cents a share, in the same quarter of 2006.

Its net income in the last three months of 2007 was $9.9 million, or 12 cents a share, compared with $9.59 million, or 8 cents a share, one year earlier. Its revenue rose to $103.3 million from $92.3 million a year earlier.

Its stock, OFC on the New York Stock Exchange, closed Friday at $30.70 a share, up 50 cents, or just under 2 percent. The stock market was closed yesterday for the Presidents Day holiday.

Financial analysts are generally upbeat about Corporate Office Properties Trust, but only if it can navigate well through current economic strains on the real estate industry and fluctuations in defense spending.

“Overall quarterly results were decent, but deteriorating leasing stats raises a bit of a red flag given the leasing progress required in ‘08 in suburban Baltimore and across the development pipeline,” Wachovia Capital Markets analyst Christopher Haley wrote in a research note.

Friedman Billings Ramsey analyst Wilkes Graham gave Corporate Office Properties Trust’s stock an “outperform” rating, based largely on its increased earnings in the fourth quarter.

Analysts were encouraged by the company’s “pipeline,” or plans for new projects.

At the end of 2007, it had 2.6 million square feet of property under construction, valued at $467.4 million.

However, others said the fast pace of construction bears risks.

“The risk of overbuilding is real given the amount of developments occurring in [Corporate Office Property Trust’s] markets,” wrote Citigroup Global Markets analyst Jonathan Litt. “There is a risk should the Democrats come into power and lower defense spending.”

Among its projects is the redevelopment of former Fort Ritchie, Md., where Corporate Office Properties Trust plans to lease 1.7 million square feet of commercial and office space near the Pennsylvania border. The project is planned to take 15 to 20 years to complete and provide space for about 4,500 workers.

However, falling expectations for real estate are touching Corporate Office Properties Trust.

The company recently put aside its plans to start construction this year on two office buildings in Rockville as market conditions become more turbulent and approval from the city has been slow in coming.

The project would include two 100,000-square-foot buildings at the northwest corner of Gude Drive and Frederick Road.

The company bought the land for $43 million in 2005 under an assumption that Rockville city officials approved of the project. Since then, the city has refused to issue construction permits until a dispute is resolved over clearing trees for a parking lot.

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