Welcome to the Corporate Office Properties Trust third quarter 2010 earnings conference call. My name is Luanne and I will be your operator today. As a reminder, today's call is being recorded. At this time I will turn the call over to Mary Ellen Fowler, the company's Senior Vice President and Treasurer. Miss Fowler, please go ahead.

Thank you and good morning everyone. Today we will be discussing our third quarter 2010 results and annual 2010 and 2011 guidance. With me today, are Rand Griffin, CEO; Roger Waesche, President and COO; Steve Riffee, CFO; and Wayne Lingafelter, Executive Vice President of Development and Construction. As they review our financial results, the management team will be referring to our quarterly supplemental information package. You can access our supplemental package as well as our press release on the Investor Relations section of our website at www.copt.com. Within the supplemental package, you will find a reconciliation of GAAP measures to non-GAAP financial measures referenced throughout this call. Also under the Investor Relations section of our website, you will find a reconciliation of our 2010 and 2011 annual guidance. At the conclusion of this discussion, the call will be opened up for your questions. First, I must remind all of you the outset that certain statements made during this call regarding anticipated operating results and future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although such statements and projections are based upon what we believe to be reasonable assumptions, actual results may differ from those projected. These factors that could cause actual results to differ materially, include, without limitation, the ability to renew or release space under favorable terms, regulatory changes, changes in the economy, the successful and timely completion of acquisitions and development projects, changes in interest rates and other risks associated with the commercial real estate business, as detailed in our filings from time-to-time with the Securities and Exchange Commission. Now, I will turn the call over to Rand.

Thank you, Mary Ellen, and good morning, everyone. We're reporting FFO excluding acquisition cost $0.58 per diluted share for the quarter, a 3% decline compared to the same quarter last year. Portions of our existing operating portfolio continue to be challenged where we have seen signs of bottoming and are experiencing heavy leasing volume. Also we have steady BRAC leasing demand for our construction pipeline and that give momentum on acquisitions. As we indicated last quarter, we are starting to see some acquisition opportunities in our markets. We believe we will have a window of opportunity to buy a well leased, Super Core and core product as attractive yields. As Roger will discuss in detail, during the quarter we closed on two wholly-owned acquisitions totaling $238 million. Still far this year we have closed on $275 million in acquisitions and expect to acquire over $300 million for the year. We have the capacity on our line to fund the remaining acquisitions. With regard to dispositions during the quarter we sold the last two buildings and a contiguous land parcel in our New Jersey portfolio for $23.9 million and are now completely out of that market. During the quarter we raised our dividend 5.1%, the 13th year in a row continuing our long history of increasing our dividend each year since being public and continuing to pay our dividend in cash. In fact we have averaged a 9.4% compounded annual dividend increase over that time period totaling 222%, the largest increase among public reach. Also during the quarter as part of the company's ongoing personnel development and succession program the Board of Trustees appointed Roger to President, in addition to his current role as COO. We congratulate Roger on this significant promotion and look forward to his continuing leadership role in…

Thanks Rand and good morning everyone. Turning to our results, FFO excluding acquisition cost for the third quarter of 2010 totaled $41.7 million or $0.58 per diluted share. These results represent a 3% decrease on a per share basis from the $0.60 per diluted share or $42.4 million of FFO for the third quarter of 2009. This decline was primarily a result of an increase in interest expense lower GAAP NOI from our same office portfolio and a decrease in net construction fees partially offset by NOI increases from development placed in service and acquisitions as well as gains from land sales. The development placed in service and land sales were in line with our expectations in previous guidance. The acquisitions occurred later than we assumed in our prior guidance. We reported net income attributable to common shareholders for the third quarter of $4.8 million or $0.08 per diluted share compared to $10.4 million or $0.18 per diluted share for the third quarter of 2009. Turning to AFFO, our adjusted funds from operations up $29.5 million represents an increase of 6% from $27.8 million for the third quarter of 2009. Our third quarter AFFO payout ratio was 89% and diluted FFO payout ratio was 71% excluding property acquisition costs. Our year-to-date AFFO payout ratio was 93% and our diluted FFO payout ratio was 73%. Looking at our same office cash NOI for the third quarter of 2010, for the 230 properties or 85% of a consolidated portfolio rentable square footage, same office cash NOI excluding lease termination fees increased by $2 million or 3% compared to the third quarter of 2009. Same office cash NOI includes the prepayment of approximately $3 million of rent by a large tenant which also impacted the quarter's straight line rent adjustments. Including gross termination…

Thanks Steve. At quarter end our wholly-owned portfolio consisted of 249 properties totaling 19.9 million square feet that were 87.4% occupied and 88.7% leased. We forecast occupancy to bottom at the end of this year to early in the first quarter 2011 with occupancy slowly building from that point. With minimal new supply in our modest employment growth is slowly translating to space demand and along with increased BRAC and cybersecurity activity should increase occupancy. During the third quarter we leased 822,000 square feet of which 428,000 square feet were renewals; 96,000 square feet was re-tenanting; 45,000 square feet was first time lease up of previously acquired space and 253,000 square feet was development. For the quarter we had renewal rate of 54% at an average capital cost of $3.62 per square foot, rent from renewals increased 1% on a straight line basis and decreased 9% on a cash basis. Total rent from renewed and re-tenanted space decreased 2% on a straight line basis and decreased 10% on a cash basis. For all renewed and re-tenanted space the average capital cost was $8 per square foot. Year-to-date we have executed 2.7 million square feet of leasing with rents increasing on renewed and re-tenanted space by 1% on a GAAP basis and declining 7% on a cash basis. CapEx is averaged $9 from renewed and re-tenanted space. Looking at our lease expiration schedule across the portfolio for the balance of 2010, we have 4.7% of our revenues expiring representing 887,000 square feet, we expect the mid 60% 2010 renewal rate which is down modestly from prior expectations but not far off from our 10 year historical average. Although this settlement has somewhat improved, we continue to see top down pressure from corporations to lower operating expenses including occupancy cost. We continue…

Thanks Roger. Looking in our construction pipeline, at quarter end we had eight buildings under construction for a total of 845,000 square feet at a projected cost of $180 million even after placing 751,000 square feet of construction into service this year. The development pipeline has 10 buildings under development with close to 1.4 million square feet at a total projected cost of $340 million. Two buildings under development totaling 211,000 square feet are for our largest tenant and all ten buildings are either for government or defense contractors. With regard to leasing our construction pipelines ended the quarter at 40% lease. As we mentioned last quarter and Roger has discussed leasing at the National Business Park has been strong. 300 NBP that was fully placed into service this quarter is now essentially 100% committed and 308 NBP is now 98% leased. As a result of this leasing activity we started construction last quarter on our next building or 30 NBP in the next phase of the park. This represents a strategic decision to prioritize the development in this new phase of NBP ahead of the remaining building sites in the existing portion of the park. Majority of the infrastructure work will be funded by a $30 million TIP which was closed in early August. During the quarter we also began construction on an 80,000 square foot build-to-suit at Pax River in St. Mary's County, that is 100% leased to SAIC. At Northgate Business Park adjacent Aberdeen Proving Grounds, the 209 Research Boulevard is 100% leased and 210 Research Boulevard is 35% leased. We therefore started construction on a 127,000 square foot building 206 Research Boulevard in the last quarter. As shown on page 34 of the supplement buildings completed in 2009 and completed or anticipated to be completed in…

Thanks Wayne. I hope it's evident from this call that despite a difficult economy the team is very working very hard on positioning the company for future growth. The 2011 guidance provides realistic view of this growth which is primarily coming from development leasing, placed-in service and acquisitions both largely in place by year end 2010. The dividend increase reflects our confidence in this growth. We truly appreciate your continued confidence and support of the company and with that we would be happy to address any questions you may have.

Thank you, Mr. Griffin. (Operator Instructions) And your first question comes from the line of George Auerbach of ISI Group. Mr. Auerbach, please proceed.

I was wondering if you could just reconcile a couple of things. Roger, in your commentary you said the tenants are cautious of taking new space. But at the same time the guidance for next year assumes a pretty healthy ramp up in occupancy. Are there tenants or conversations that you're having that are sort of outside the broader tenant groups that you are seeing better activity from?

George, some of that occupancy obviously will come over the extended period of a year. We are currently in the fourth quarter tracking 400,000 square feet of leases under negotiation or signed for vacant space in our portfolio now. So that translates into 2% of our portfolio but I don't get 100% excited about that because we will not have a 100% renewal rate on next year. But it's on lot of an indication that there is reasonably good activity for space in some of our sub-markets that have been weak, like White Marsh and a little bit in Colorado Springs, but certainly in the BW corridor. We are getting a little better. The other thing we should say that leases are just taking for ever to get done and so we had anticipated a lot more leasing to have gotten done in the third quarter that it slips from the fourth quarter. So we are hopeful that we'll have a big fourth quarter in leasing and then get back on track.

I would add to that, that typically what happens in the recession and we're just about at that point is that tenants all of a sudden recognize that it is has bottomed out and they start to move very aggressively to take space at the lowest rates in the market and move up on the quality chain to the very best quality space. So that's what has happened in the last six recessions that I have been involved and we really expect to see that happening again here.

And your next question comes from the line of Jordan Saddler of KeyBanc Capital Markets. Mr. Saddler, please proceed.

It's Craig Mailman here with Jordan. Roger, in your comments you said there is about 120,000 square feet of leases that got killed by executives at certain tenants. Can you maybe go into the characteristics of those tenants? Was that your Super Core or is that more of the traditional suburban guys?

One of them was the defense contractor and who just got nervous about pulling the trigger at that time hopefully they will pull it in the future. And the other was a commercial tenant that was about to lease part of a development building that we have placed-in service already, it's in our operational statistics but that lease did not go forward.

And the defense contractor is that more in the development pipeline or in the existing?

Yes.

It was development. Then just moving on to the data center in Northern Virginia, you guys expect to be 50% occupied, or at least that is what you are assuming in guidance. Can you maybe talk about the activity level that you are seeing there, any big requirements?

Yes.

There are lots of proposals there. And actually the proposals exceed the total capacity of the data center. But the revenue cycle and data centers as longer than it is for traditional office and so our expectation is that it will take a while longer for those proposals and demand to translate into lease and then into revenue. But we are feeling pretty good about that again. We've showcased this data center to all their key customers and we are getting pretty good response and we are comfortable that we will have good activity on this beginning in 2011.

And your next question comes from the line of Sri Nagarajan of FBR Capital Markets. Please proceed.

I had a question on margins, the expenses. Are there any one-time expenses in the quarter or was it just a matter of sequentially higher expenses?

Generally the third quarter is our highest quarter for operating expenses and it becomes about for two reasons. Number one, it's our cooling season. And so our electric costs are higher and then secondly the third quarter because of the weather tends to be the quarter in which we do than most of the companies discretionary R&M. And so the second quarter tends to be our lightest quarter in terms of OpEx, the fourth quarter of the second, first quarter is a little tough because of the cold weather and snowing and the third quarter is generally our worst quarter again because of electric and discretionary R&M.

I just didn't see the same pattern in '09, which is what my question was. My second question has to do with your renewal or retention rate of 54%. Just following up on the previous question, is the loss of the [mortgage] due to your Super Core tenants or what's the mix of tenants leaving your space? And could you also give us a flavor of what kind of space is it? Is this some of the newer developments as in two, three years of development or these are older buildings?

The majority of the loss in the third quarter came about as a result of the tenant in Northern Virginia that was in the building with another one of our core tenants and both of them were growing in the building and one of them had to leave. So the one tenant did leave and go to another building. So we lost over 100,000 square feet of occupancy, the result of us not being able to fulfill the space needs of this particular tenant. We had one other defense contractor leave that was modest. But the balances of the tenants were commercial tenants. And in terms of renewal percentage we would expect the fourth quarter renewal percentage to be higher and again that's because of other renewal leasing that we had anticipated to be complete by the third quarter we'll get down and the fourth quarter.

And your next question comes from the line of John Guinee of Stifel Nicolaus.

A quick question for you. I am looking at your development pipe. You've got $180 million under construction, 845,000 square feet. That equates to about $212 a square foot. If you get in the 11% cash yield on that, forgetting credit loss and vacancy, that translates to about $23 net. Are these tenants just not very price sensitive or is that the going rate in most of these submarkets?

I would say that your math is working to the average. We have a range of price sensitivities that your math is worked to the average and of course the National Business Park is where we have the strongest tenant demand that allows us to achieve the economics you've outlined.

And your next question comes from the line of Dave Rodgers of RBC. Mr. Rodgers, please proceed.

Could you address the development starts that you are planning in the fourth quarter and then maybe either by quarter or by half in 2011 and what the resulting capitals spend might be on those? I am essentially trying to get at what the acceleration in that pipeline might look like today.

We have several projects and we expect to just go get started yet in 2010 including the Patriot Ridge project which is a fairly sizeable investment for us a 240,000 square feet. And in terms of 2011, we've got a range of properties that are scheduled there. Those are actually back loaded a bit in the year. So we do accelerate as we go through that development pipeline and the projects are across the portfolio.

And your next question comes from the line of Brendan Maiorana of Wells Fargo. Please proceed.

I just wanted to ask a little bit more about the Power Loft deal, and I apologize if this was answered already; I had some difficulties. But it strikes me that a lot of the investment activity that you guys have done over the years has been tenant driven, whether it be some of the market expansions that you've done. But is this deal being done? And the move to doing more of a data center for third parties, is that driven by your tenants asking you to do that or is this driven by your expectations that you see a market opportunity and this is a good investment in a market opportunity that may be underserved and where you can get outsized returns?

I think it's actually both. The tenants that are in our Super Core grouping have seen what we've done for the government and some of the select of the defense contractors and they appreciate our quality and the 24/7 operation of critical mission facilities. So they know our capabilities. So increasingly they have looked at ours as sort of a standard that perhaps could be applied to the more typical wholesale data facilities. At the same time I think we were not getting credit compared to some of our data competitors in the REIT space or having the amount of the data space that we do have and so we saw an opportunity to where to take advantage of our expertise and start to get these larger returns which we do think will be in 12 to 14% cash on cash on leverage levels as we complete the build out of the spaces. We've been in this business for six years. We've been studying for the last several years on the best way to enter and we're very excited about the design that Power Loft represents as state of the art and significant operating efficiencies in one of the strongest markets as Roger mentioned. So, this is not a huge part of what we do certainly, but we think it's an important growth driver. We saw that from the initial NOI coming out of that project next year which will significantly expand in 2012.

And your next question comes from the line of Michael Knott of Green Street Advisors. Mr. Knott, please proceed.

Just to follow-up on your data center comment. It looked like there was a new page in the supplement on page 36. I'm just curious, maybe you could give a little more detail on some of the other data centers, if you can and to the extent you think the market should give you more credit?

I appreciate that Michael but unfortunately the nature of the other data centers that we have kind of precludes us from going in to this sort of detail. Really they don't want it to identify by location or load or so on. So what we try to do on page 36 of the supplement as you noted, we start to identify what will be kind of a future emphasis in this part of the data business, the wholesale data center. And this will provide the updates both in terms of the square footage and the critical load percentages and then the other details and as we add others in the future this will become kind of a page as you can go through and looking at that part of the business.

Your next question comes from the line of Christopher Lucas of Robert W. Baird. Mr. Lucas. Please go ahead.

Just one more follow-up on the data center. What sort of return expectations do you have for that, and how do you get to that range based on the power density?

It's a 12 to 14% on leverage and I think that's up for the 18 megawatt and as you go beyond 18 towards the 30 of those returns can tend to be at the high end and even beyond the 14%. Then I will let Roger go over some details with that.

Obviously with expandability data centers become cheaper. So adding the next megawatt of power is at a lot lower cost than the first one, because you paid for so much of the elements of the data center. So I think that is all we are trying to say that there is some price reduction economies as you expand the data center.

And your next question comes from the line of Michael Bilerman of Citi. Mr. Bilerman, please proceed.

It is Josh Attie with Michael. For the 2011 guidance can you talk more specifically about the refinancing assumptions to turn out the line of credit? And also from a leverage perspective do you feel that should be termed out with permanent debt or with equity?

We have the option on the lines. We will try to take your questions in part. To extend for one extra year for 12.5 basis points in the case of one line and like 15 on the other, we may do that but we are also in discussion with our bank group about what the longer time frame would look like for the lines and have it made a decision at this point which option will choose. With regard to the capital in the line, we will make sure that as we continue to grow, because we have confidence in our growth plans that we can access all the types of capital that we've traditionally used and invested accretively and that we'll maintain our capital stack according to the targets that we've managed to and as I've said on prior calls we really watch our coverage and our leverage and we feel good about our fixed charge coverage ratio. We have always tried to keep it above to, we've performed above that and we watch our leverage as well and we did that on a debt to gross assets basis and we probably get to be around 50% or below and we've been in the high 40s recently for that. So we will access as we get growth opportunities, all types of capital at that appropriate times because fortunately we have growth invested in.

And your next question comes from Steve Benyik of Jefferies. Mr. Benyik, please proceed.

Regarding the 3Q same-store cash NOI, I know it turned positive. Obviously, occupancy a bit lower, negative mark-to-markets on leasing; I know you mentioned the $3 million prepayment of rent in the quarter. I was hoping you can give a little more color on that and whether you'd expect anything similar in 2011?

That had to do with a customer who wanted to for budgeting reasons to pay some of their future rent in advance. We've recognized obviously more cap rent than we had cash rent on a particular tenant and so by paying that amounting cash that had a reversal of straight line rent that we have recognized in the past and we will have also the impact of reducing the cash rent for that particular lease going forward. It's possible that we could have a little bit of that in 2011 but it's not something that we see from rest of our tenants expected to be a regular occurrence.

And your next question is from Brendan Maiorana of Wells Fargo. Please proceed.

Steve, can you just give us an update what you think your capacity for additional mortgage debt is? And then just as it relates to guidance, I think you mentioned that your guidance assumes keeping the capital ratios in check. But I wasn't sure whether or not that may have included a potential equity raise if you have acquisitions towards the top end of your guidance range.

We won't comment specifically on any capital assumptions that we haven't finalized or planned. But our plan does assume that we maintain those capital target ratios that we shoot for. And if we get more growth opportunities than last that means we'll proportionately have to raise more different types of capital. With regard to capacity within those ratios we are not necessarily finished with all of our development. So as development stabilizes and comes down and increases our unencumbered asset pull from time-to-time that increases our capacity to debt on our asset. So as you can see we are delivering more and more lease that moves up over time. And that's basically the guidance that we are giving at this point in time.

And your next question is from Michael Knott from Green Street Advisors. Mr. Knott, please proceed.

Roger, I guess this question is probably for you. Looking on page 25 of your supplemental, and I apologize if someone asked about this earlier, or if you talked about it. But it looked like the Virginia occupancy or percentage leased book fell a fair bit sequentially. And I was just curious if you can remind us what that was attributable to, and if any of that was a surprise or not?

That was tenant in a building in Northern Virginia who had as a co-tenant to another defense contractor and they both had that building a 100% leased. And so they were both still growing and one of them had to leave the building unfortunately and so they left our building and it was over in excess of 100,000 square feet who went to another building and so it's unfortunate. He had nothing to do, not needing the space ahead to do with our inability to grow them in that particular building.

And your next question comes from Christopher Lucas of Robert W. Baird. Mr. Lucas, please proceed.

Just a quick question on the disposition side. There is nothing in guidance, and given capital issues, where do you see dispositions over the next year?

We have as a general guiding principal to try to fill some of our portfolio. Again, those assets that are older or smaller or strategic and those assets that we acquired, maybe when our strategy was a little different as a company. But there is something we are going to do over time and it's something we are going to do whereas the market allows us to execute data and get fair value for those assets. Over the year we will probably firm up some more plans and get out to the investors our intent with respect to that particular program.

Your next question comes from Jordan Saddler of KeyBanc Capital Markets. Mr. Saddler. Please proceed.

Given the delay and the need for some of these contractors to move down for BRAC, is the 1.5 million square feet of development starts per year still a good run rate, or is maybe that going to be scaled back a bit? Then the other one, just on the Power Loft, how much speculative risk are you guys willing to take on building out pods to have it ready for any potential leasing?

It's not necessarily that the defense contractors are delaying. I think that the demand varies by location and then matches up to the specific customer. So the Aberdeen, there the customer is ahead of schedule. The tenants are generally small, 140 companies moving from Fort Monmouth and generally they are smaller and if not had experienced in relocations and so their decision in making process is slightly behind. It's not been the case with certainly the cybersecurity which is ahead of what we would have expected at Fort Meade but there DISA specifically said because of the proximity of Northern Virginia where lot of these tenants are located at, they will give them a little more time to relocate and so we are in discussions with the fair amount of tenants but they have a little bit more time and need to finish that up by the end of 2013. Very strong demand and hence the need for really pushing product that Fort Belvoir and then we are in the same kind of discussions down at the time frame and BRAC addressed on Arsenal. So I think that we are in pretty good shape there. We are not building buildings just to build them; we are building them in anticipation of the demand that is there. And sometimes I might be slightly slower or will accelerate on it. So we have to try to pre-judge the time frame for that demand just because of the lead time on building those buildings. But the good news is that, very strong demand collectively and it's just the question of matching the time frame. On the speculative risk for building out, as soon as we purchased the Power Loft facility we did go ahead and authorized the next three megawatts of ordering equipment and kind of pre-build and we are going to try and stay ahead of that demand where ever possible. The big numbers that we are cautious about it, but we do want to take advantage of that 64 megawatts of demand that's there with the proposals that we have out in front of us. So we are pre-ordering equipment to take advantage of that and try to be first to the market on delivery. We think we are first in that space now in Northern Virginia based on any other starts there. So that should be good for leasing.

And your next question comes from the line of Steve Benyik of Jefferies. Mr. Benyik, please proceed.

Regarding the 2011 guidance when you look at what's underpinning the same-store NOI growth assumption, can you talk a little bit about cash mark-to-market expectations on signed leases in 2011, as well as regarding the development NOI, how much square footage needs to be leased to get to that 13 to $14 million number?

The 13 to 14 million refers to development leasing for buildings that we placed-in service in 2010 and the majority of that leasing has been done. In terms of the same-store NOI we are assuming that our events on average are nominally negative to positive for 2011.

And your next question comes from the line of Dave Rodgers of RBC. Mr. Rodgers, please proceed.

If you didn't address it already, if you could please, on the acquisitions for the fourth quarter and in the 2011 guidance, could you talk about whether that land or buildings, core or opportunistic, contiguous geographies, and whether that's targeted tenant demand or more market-driven, and what the thought is on the outlook there?

As I said in my comments we do see a window there Dave for trying to find core and Super Core properties in our existing locations. So we've been pursuing those, although I must say that pricing is changing pretty rapidly on us. We are starting to look at some building of market share in some of the other locations and so we are trying to move aggressively in that front. It does not include land, but we think we are in pretty good shape with almost 22 million square feet of land capacity in the company that's entitled and ready to go. It's a difficult thing to look at next year and see whether if interest rates stay where they are, the pricing continues to be pretty aggressive and I think I will knock a lot of people out of the market from the acquisition stand point. There are discussions that we've had earlier in the year that are kind of taking the advantage of those different rates and we'll just have to see if those materially can get closed or not.

There are no further questions. I will now turn the call back to Mr. Griffin for closing remarks. Mr. Griffin, please.

Well thank you for joining us today. I am sorry it went a little bit longer with lots of questions and I appreciate your participation and support and certainly are available to answer any other questions that you might have. Thanks and have a great day.