Welcome to the Corporate Properties Trust Second Quarter 2013 Earnings Conference Call. As a reminder, today’s call is being recorded. At this time, I will turn the call over to Stephanie Krewson, COPT’s Vice President of Investor Relations. Ms. Krewson, please go ahead.

Thank you, Stephanie. Good afternoon. And welcome to conference call to discuss the company’s second quarter 2013 results. With me today are Roger Waesche, President and CEO; Steve Riffee, our Executive Vice President and CFO; Steve Budorick, EVP and COO; and Wayne Lingafelter, EVP of Development and Construction. As management discusses GAAP and non-GAAP measures, you will find a reconciliation of such financial measures in the press release issued earlier this morning, and under the Investor Relations section of our website. At the conclusion of management’s remarks, the call will be opened up for your questions. Before turning the call over to management, let me remind all of you 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. Factors that could cause actual results to differ materially include, without limitation, the ability to renew or re-lease space under favorable terms, regulatory changes, changes in the economy, the successful and timely completion of dispositions, acquisitions and development projects, changes in interest rates and other risks associated with the commercial real estate business, as detailed in our filings with the SEC. I will now turn the call over to Roger

Thank you, Stephanie, and good afternoon, everyone. Our second quarter was strong along many fronts, development leasing is currently ahead of plan and leasing in our operating portfolio is in line with expectations, despite the lack of clarity on future defense spending levels. We are realizing better NOI margins in our properties and we continue to improve our balance sheet. Therefore, even in light of the uncertainty surrounding defense spending we are increasing our guidance for FFO per share as adjusted for comparability for 2013 to a range of $1.92 to $1.97. The second quarter also presented a few new challenges that we will manage through over the next several quarters. First, it is unlikely that the sale of our portfolio of properties held for sale in Colorado Springs will close in the third quarter. When we made the decision to monetize this portfolio, the buildings were 77.8% occupied and generated about $12 million of annual cash NOI. Today these same buildings are 88.3% leased with additional leasing in process that will increase the annual cash NOI to $15 million, because of our strong leasing success in Colorado Springs over the last 18 months, the delay in the disposition process is an acceptable intermediate outcome. We remain committed to exiting Colorado Springs but we will do so in an orderly rationale fashion that ensures our shareholders receive fair value. The second challenge that emerged during the quarter related to some new vacancy that we now expect to realize in our operating portfolio. Many defense contractors completed their space rationalizations ahead of the anticipated budget cuts, while others were still in the process to rightsizing. The on set of sequestration has clearly accelerated the decision making of this latter group. As a result, we are forecasting a modest uptick in our…

Thanks, Roger and good afternoon everyone. Second quarter diluted FFO per share is adjusted for comparability with $0.52, which equaled the mid-point of our revised and increased guidance range. The $0.05 outperformance over our original guidance was due to $0.02 of higher than normal development fees and modestly lower G&A, and $0.03 of property NOI, of which $0.01 is recurring savings and operating expense resulting from energy saving programs and continued efficient property management practices. Another penny came from one-time savings on items such as property tax refunds and $0.01 related to repair and maintenance expense, we expect to incur in the second half of the year. At June 30th, our same office portfolio represented 86% of total consolidated square feet. Excluding lease termination fees, second quarter 2013 same office cash NOI grew by 1.6% over the second quarter of 2012 which was slightly ahead of our expectations. Including lease termination fees, same office cash NOI was 3.5% over the prior year period. Within the same office pool, strategic buildings namely those that are adjacent to government demand drivers as well as those primarily leased to government and defense IT tenants represented 77% of the total same office cash NOI. During the second quarter of 2013, these strategic buildings were94.8% occupied on average and ended the quarter at 95.4% lease. For these strategic properties, same office cash NOI including lease termination fees increased 2.9% in the second quarter and excluding lease termination fees increased 2.3%. Turning to the balance sheet, we had another active quarter. In April, we redeemed our $85 million of Series J preferred shares that paid a 7.625% dividend. In May, we completed our daily bond offering. We issued $350 million of 10-year unsecured bonds at a yield-to-maturity of 3.6%. With the proceeds, we repaid $100 million…

Thanks, Steve and good afternoon everyone. The Washington Baltimore regional office market continues to experience the effects of a slow economic recovery, our contraction in federal spending and occupancy requirements and uncertainty resulting from the now four-year old environment of continuing resolutions and sequestration spending reductions. Regional suburban vacancies continued to be in the 16% to 17% range and year-to-date net absorption regionally was slightly negative at mid-year. Macro trends continue to include consolidation, extensification, short-term expansions and flight to quality when longer terms decisions are made. Some market results are highly varied across the Greater Washington DC region and roughly half the submarkets experienced positive absorption year-to-date. Of the 73 regional submarkets tracked by CBRE, 18 experienced negative absorption in excess to 50,000 feet, representing a combined total negative absorption of 2.7 million square feet whereas the region as a whole experienced negative 615,000 square feet. The remaining 55 submarkets when isolated from the worst performing submarkets produced almost 2.1 million square feet of positive absorption year-to-date. These facts support the proposition that practice locations are concentrated in a few submarkets and overall, slight de-quality is rewarding the best submarket locations. The Baltimore and B/W Corridor portion of the region is experiencing relatively strong demand, increasing number of tenant’s expansions and longer lease terms. The demand has been stronger than expected in several submarkets, including Colombia, the Fort Meade area and White Marsh. We’re exceeding our leasing objectives in the B/W Corridor and attribute this momentum to growth in cyber, healthcare and professional services. The Northern Virginia submarkets in which we operate are generally well-positioned. Demand has improved in the small commercial and defense contractor tenant segments and our team has executed over 75,000 square feet of new and renewal leases in our same office portfolio commencing in 2013.…

Thanks, Steve. I’ll highlight changes to the construction pipeline which now totals 1.5 million square feet and is 74% leased. I’ll also add color about some of these active projects. First, we completed the base building construction and 139,000 square feet at NBP 420 in April. As Steve mentioned, that building is now 27% pre-leased. Our tenants are scheduled to complete their interior improvements and take occupancy in the fourth quarter of this year. Second, we began development work on a speculative 159,000 square-foot office building in Northern Virginia early in the second quarter. Subsequent to the commencement of these development activities, the project was fully leased to a strategic tenant. Also during the quarter, we announced what essentially is a redevelopment to suite of a building we purchased for a customer in Haymarket Virginia. Finally, three projects in the pipeline, two of which are fully leased, remain on schedule and are expected to deliver in the second half of this year. No projects were transferred to the operating portfolio during the second quarter but two projects, 7175 Riverwood Road in Columbia, Maryland and the first building to Patriot Ridge in Springfield, Virginia, are slated to be transferred to the operating portfolio during the third quarter. Riverwood Road is fully leased to a strategic tenant and Patriot Ridge is about 50% leased. Although the lease up at Patriot Ridge has been delayed, we continue to view it as a promising highly strategic project. And with that, I’ll turn the call back to Roger.

Thanks Wayne. I’ll conclude by highlighting a few points. Yes, sequestration is here and it has further impaired the defense industries’ ability to conduct business, especially in Northern Virginia. However, not every agency and not every submarket in the greater Washington DC market, which includes Northern Virginia, is feeling the effects of sequestration that’s in the B/W Corridor which accounts for over 50% of our NOI and submarkets are stable or they are improving is evident by strongly leasing statistics. In Northern Virginia, which account for 18% of our NOI, the situation is mixed. On the one hand, leasing remains tepid at Patriot Ridge and slower to materialize, but we believe this will change once bargains are forged inside the Beltway. On the other hand, we are seeing robust demand for new development at other locations in Northern Virginia. While Washington is hashing out a long-term budget solution for the country, we’ll continue to aggressively compete for every lease and continue to strengthen our balance sheet. Our portfolio is aligned with programs and missions within the DoD that appear to be slated for only not as budget cuts or in the case of cyber of robust budget increases. We’ve executed over 1.8 million square feet of development leasing in the past six quarters. The positive economics from this expensive value add activity will continue to improve our NOI in 2014 and beyond. With that, Operator, please open up the call for questions.

Thank you, Mr. Waesche. (Operator Instructions) First question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Thank you. Good afternoon. Hi, Roger. Hi, Steve. This is for you on the sequester, your color was helpful. I wanted to, I’m curious about what you’re hearing and seeing from your tenants regarding expectations for next year. I mean it sounds like internally we’re hearing from our analysts that the contractors are suggesting that they would expect next year to be tougher on the sequester? I know we’re focused on ‘13 right now, but just curious on your thoughts on that?

Well, clearly, the sequester kicked in on March 1st, so we’re experiencing it. As I said, $37 billion in this current fiscal year that grows to $52 billion when you have a fully phased in year beginning in fiscal ‘14, October 1, 2013. I would say that we are experiencing, what we have been experiencing for the last three or four years with budget uncertainty, with continuing resolution and now sequestration having been put into effect there. And so people have been rationalizing their business models, adjusting their cost structures and we feel like we are, as we’ve said before in the fifth or sixth any at least of that rationalization. What we are now experiencing a little bit is some people wanting to accelerate their situations, extend leases and give back some space. And so we’ve been entertaining that to try to be proactive and try to preempt further difficulties down the road. But I think, generally speaking, there’s still uncertainty out there. And so until the uncertainty goes away, people are still going to be cautious with their decision-making and space taking, and we just have to live with that, but we have been living with it for a long period of time. It’s all about how you’re positioned in the DoD budget and fortunately, we’ve been, we’re better positioned than the budget as a whole as manifested by our 1.8 million square feet of development leasing over the last six quarters.

Okay. It does sound that way given some of the leasing you -- the development leasing you’ve signed. On the data center on DC-6, the 2-meg, it’s, I think Steve you said, modestly below market rent. What does that mean? Is that below market rent for a wholesale lease or for a co-lo lease?

Yeah. A little aggressive for a wholesale lease, the important point there is that we work very closely with this particular customer to achieve a mutually beneficial configuration and we’re able to move them into our data center in very high density. So all things being equal, they are stacked into about 80% of the space that you would expect the 2-megawatt user to require. And that helps us to achieve a nice yield on that and give them the pricing they needed to deploy that particular use in their business model.

And given sort of that you’ve got north of six -- north of two-thirds of this thing knocked down, I’m curious, one, what your prospects are on that for the remaining third, and then propensity to commission the other half?

Well, as I mentioned in the prepared remarks, we are talking about 10 megawatts of leasing currently and that’s in various stages, okay. We are getting very excited about some of the activity around their co-location leasing which is really targeted at our government vertical, if you will government and defense. And so, reasonably optimistic, we’re going to have some transactions in that vertical that are going to start consuming some additional power. So optimistic about what we can do in the next two quarters and we are planning to be ready to add additional power when we get another meg and a half or so committed.

Okay. Thanks guys.

Thank you. The next question comes from Josh Attie from Citi. Please proceed.

Hi. Thanks. There were three things I heard in the prepared remarks that I thought you could provide more color on. The vacancy that you see coming, Colorado Springs sale and also the ATM issuance, maybe we could start with the vacancy, where in the portfolio is it and how much in terms of square footage do you see as being at risk over the next six or 12 months?

Well, Josh, working with two large customers right now.

Yeah.

And rationalizing and rightsizing their footprint for the new sequestration environment. One of those its 150,000 square foot lease of which 103 will be extended and roughly 50 were considering taking back this year whereas the contract would not obligate us to do that till next year. And then there’s another that will produce about 30,000 square feet over the next two quarters. So they are relatively modest but there are a few. Now having said that, I do want to point out that if you look at our new leasing this year, what we’ve done in the first half, of 327,000 square feet is about 1.7% of our overall 90 million square foot portfolio and we do have good backlog of deals that we’re working on in our existing assets. So we’re not exactly sure where things are going to shake out. We’re just giving you a heads-up that we may be taking some space back with big customers. And then lastly, when you look at occupancy, we’re about to add in the coming quarter, two buildings from our development pipeline into our stabilized portfolio and they will add about 0.7% of additional vacancy as well, that will move that stat down.

So, I guess, should we interpret that as there is, it sounds like maybe 100,000 square feet that you think may come back to you and that’s sort of the issue, or that you feel less comfortable with the defense contractors new portfolio generally and beyond that 100,000 square feet there, there may be more?

I think the former more than the latter.

Okay. And on Colorado Springs, can you just explain to us, A, what happened, why is the sale being delayed? And also from accounting perspective, is Colorado Springs going to remain discontinued operation? And then also lastly, what the impact of the delay in sale was on guidance?

Let me when we start with sort of the transaction itself and then Steve can talk about guidance and discontinued operations. First of all, I want to be clear that we want to exit the market. We’re not retreating the strategy. What we want is reasonable, not optimal value. Our shareholders have already suffered. That portfolio is now stable and it’s actually improving. We do have the newest portfolio in town. No new supply because rents don’t support new construction. Right now, it’s what we would call a capital markets issue and not real estate fundamental issues. The issue is that we are selling into fear. Our investors can’t underwrite sequestration or defense budget segmenting like COPT can. COPT would actually be the naturally buyer of this portfolio because of their ability to underwrite the market and the different nuances of the defense budget but we’re the seller. And also unlike the balance of our SRP where we didn’t say what assets we were selling, we clearly communicated to the market that we wanted to sell this project and we wanted to sell at in this timeframe. And so that really hurt our leverage. So what -- all we’re trying to do now is to take some pressure off the deal for a little bit of time so that we can have an orderly sale of the project.

And with regard to the held for sale accounting, the determining factor is to whether it’s classified as held for sale, as to whether we believe, it will still sell within 12 months. We haven’t changed that assumption. With regard to guidance, when you look at the fourth quarter range, we’re assuming now that the deal wouldn’t close until some point in mid fourth quarter to be at the low end of the range. And if we don’t get it close by the end of the year, we would be at the higher end of the fourth quarter range.

Okay. And obviously keeping it that versus the third quarter that had a positive effect on the guidance versus what it was previously?

Yeah. We’ve increased the overall guidance for the year and try to give you a new set of parameters for the fourth quarter?

Okay. And Roger, if I can just clarify something that you said, you said it was a capital market issue but also kind of selling into fear in the sequester. Was it that treasury yields moved up and impacted cost to capital or is it -- was it more fundamental that buyers are concerned about leasing?

I think it’s both. I think, obviously we were willing to take a discount to exit and then interest rates rose their ugly head in terms of -- and so it gave a buyer a reason to come back and want a different price. And so again we just want to walk away for a little bit of time and let things settle down and then move forward either in a block basis or selling it off in pieces.

Okay. And just lastly on the ATM, I know you mentioned on the call but if you could just repeat. I didn’t catch all the numbers. How much did you issue, at what price and also when?

We issued after June 30. And so we’re still in the month of July. So let me tell you we issued in the month of July 1.5 million shares, common stock to the ATM. The average price was $26.05 and our net proceeds were $38.5 million.

Okay. And what was the -- I know you had the ATM since last November and you haven’t issued it at all and you’ve kind of talked about it as being just kind of an opportunistic source of capital. What was the rationale for using it now?

Well, as we’ve announced a lot of success in the development leasing, we’ve increased our development spending estimates by $50 million above our prior range. We feel really good about our development leasing momentum and opportunities. And so we want to make sure that we keep up with our balance sheet metrics and capitalize our growth. So we use the ATM to get a little bit ahead of it.

Okay. Did any -- did the delay in sale of Colorado Springs impact decision at all to raise more equity?

We have a little extra equity above the increased development spend for the year. So it probably somewhat hedges that if we end up slowing down to sell just a little better or have to sell it in more than one piece?

Okay. Thank you very much.

Thank you. The next question comes from Brendan Maiorana from Wells Fargo. Please proceed.

Thanks. Good afternoon. Steve or Steve Budorick or Roger, so I just wanted to clarify on the vacancy. So you got the two tenants which are 80,000 square feet maybe more that you get back and then it’s also Merck in Metro, Philly and Bluebell. And that’s kind of the change. So that’s about 150 basis points to your overall occupancy or vacancy, maybe that you didn’t expect three or six months ago?

Right. And we also talked about placing Patriot Ridge into service. Back in the beginning of the year, we thought we would have leasing on that project, when the balance of it went into service. So we’re putting 120,000 square feet into service this quarter, which that alone represents 0.6% of their portfolio. It doesn’t look like our occupancy will necessarily go down this quarter but ended a year. First quarter, we could see a reduction, that’s why we wanted to highlight that to our investors.

Yeah. That’s helpful. And just kind of those two tenants that the two tenants in northern Virginia where it sounds like you’re negotiating, you get back some space, but also renew, those were ‘14 expirations. Was the outlook for the expirations in ‘14 likelihood that you renew all of the space and now you’re getting some of it back or is it more just an accelerated timing, you get it back this year versus you previously thought you probably get it back next year?

Yeah. It’s more of an accelerated timing.

Okay.

We expected to get some back from both. And we’re just working with them to solve problems on their side. And the space is good space and we’re being compensated in our negotiations. So we want to get that space to bring it back to market quickly.

Sure. And Steve, is this space in Westfield?

It’s not.

Okay. Can you provide an update on their negotiations with CSC and Northrop and Westfield?

I think we previously disclosed that Northrop has terminated. And they will be vacating a 150,000 square feet from [15 one-off]. CSC is under a lease through March 15 -- March 30th. And we have no further information report about that negotiation.

Brendan, both of those tenants are in one building, Washington Tech Park 1 and 2, which is a complex that we did a financing on $150 million CMBS loan in 2007. And so that works out to be $225 a square foot. So at some point, we’re going to have to work something out with the lender on that particular project.

Okay. And then the new development that was -- that you guys started in Northern Virginia that’s 100% leased. Is that in an existing park. I recognize you’re being sort of probably purposely vague in the supplemental but just wondering if that’s an existing park or somewhere new?

Brendan, it’s Wayne. And we’re going to continue to be somewhat vague about that and it’s really -- we’re going to defer detail largely at the customer’s request at this time. So, I’m not able to offer any additional color to you right now.

Okay. All right. Thank you.

Thank you. The next question comes from John Guinee from Stifel. Please go ahead.

All right. All right. Well, nice quarter guys. Wayne is building up in Blue Bell the Merck building, is that two story brick building kind of in the Woods?

It is John.

Is that going to be a scraper or is there any chance of getting someone else to take that space?

Well, there is always a chance. We’ve just started to look at what our options are and we’re going to consider the full range of options as we look at that. I think Steve’s team is looking closely at a re-lease scenario and our team will consider the redevelopment options.

The famous line from Dumb and Dumber, there is always chance, okay. Second is, I think most people maybe you have your data center DC-6 at about 50% of book? My recollection is that the total development costs, so when you guys bought that just under three years ago was about $14 million or $15 million per megawatt? According to Todd Weller and our data center guys here basically the cost to develop wholesale space right now is about $7 million to $8 million a megawatt? But you guys are doing, I guess, a fairly below market lease to generate some activity is the, is the right value for the DC-6 30% of replacement costs, 40%, I mean 30%, 40%, 50% of original development costs?

Well, John, we still list the ultimate cost of the development around $200 million and that is for the 18 megawatts.

Sure. Okay.

We still say -- and we are still saying that we think we will achieve a 7.5% to 8% yield on that money. And so if you capitalize that ultimately it should be worth more than whatever 30%, 40%, 50% of our book value. But we have a lot of work to do to get that value.

Okay. And then, essentially you have got two CMBS loans, one is Washington Tech Park and then another is $145 million collateral lodge by assets in both Colorado Springs and the Baltimore/Washington Airport market. Effectively, if those goes back to the lender at 145 buck a foot and $225 a foot? Is that a good deal for you or how do you look at that?

It would be a good NAV deal for our shareholders. It really gets down to can we create a loan scenario where it would be even more optimal for our customers and shareholders in the long run. But you are right. The sale -- the put back to the lender at $225 a square foot and $145 a square foot would be a good transaction for our shareholders.

All right. Thank you.

Thank you. The next question comes from the line of Tayo Okusanya from Jefferies. Please proceed.

Yes. Good afternoon. Just going back to Colorado Springs again. Could you talk a little bit in regards to the price differential you are seeing in regard to what you kind of thought you would be, because you have been very public about the number you were looking for versus where bids for the portfolio seem to be coming in?

Yeah. Obviously, it is a difficult discussion to have over the public gear waves, because the deal is in play and our perspective buyer, buyers could be listening or get access to this call. So, I’m really challenged to sort of lay the deal parameters out over the phone. So I have to respectfully hold back from that discussion.

Okay. And then also on a price in DC-6 where you guys are talking about being below market? Could you then give us a sense of how below market you are just to kind of generate interest and start to get traction in that market you work?

A little more than 10% to 15% or so.

It is very helpful. Thank you.

There is another point I want reiterate and a big chunk when you calculate a yield is the cost of the facility. We were able to configure this user in a very dense way. Such that 20% of the infrastructure that you would normally allocate at a market rate we retained to create income with other customers. So we feel on a yield basis this is right in line with our expectation and so we gave a lower rate, but a higher configuration and it was mutually beneficial, just so to be clear.

That’s very helpful. That’s a very helpful context. Thank you.

Thank you. The next question comes from Jamie Feldman from Bank of America Merrill Lynch. Please proceed.

Great. Thank you. How would I - I was just hoping you can discuss the, I think, I missed what you said the gross rate was for Cyber Security in 2014?

20% in the budget, so last year in the DoD Cyber budget was $3.9 billion, this year the budget proposal is $4.7 billion. Now that is not the entire Cyber budget, the entire Cyber budget is about $13 billion. So there is about $8.3 billion in the civilian agencies including Department of Homeland Security, et cetera. So there is a $13 billion total Cyber budget.

So how should we think about that budget when that grows as it relates to your development opportunities and even some of the stronger submarkets that, Steve was referring earlier in the call? As we think about what is the opportunity from here?

Well, we do think that the whole Cyber industry, both the government and the private sector that is helping the government with the government department and then the whole private sector part of Cyber still has a tremendous amount of growth in front of you, you probably read about Cisco’s acquisition of Sourcefire here in Columbia for $2.7 billion this past week. And so we have got a tremendous Cyber opportunity in growth factor that is just really getting itself going and we have obviously benefited from that from the last couple of years in development leasing, but we continue to see tenants. In particular, a lot of small tenants winning contracts to assist the government with their Cyber concerns.

So, I guess, you mean you did a lot of leasing in the quarter? Can you talk more about your leasing backlog and where you are still working on and how that may compare to what you put to bed recently?

I would characterize the backlog in the operating portfolios consistent with the kind of volume that we produced over the first two quarters. I was just thinking over deals that we think we can close by the end of the year and I’m not going to give you a number, but it’s right in line with what we have been achieving. And with regard to development, we are working with several groups. We continue to see good demand for new buildings. We don’t make projections over our baseline target for the year which is $400,000, but we are optimistic we have additional development opportunities brewing that are going to continue for several quarters.

And a certain part of the land or submarkets where you are seeing a shift in demand or is it still consistent with what you have done in the past?

Are you referring to leasing or development?

On the development side, I’m just trying to get my head around, the next couple of years, if we are, obviously, sequester has been rough and continuing resolutions has been rough, but if things are kind of coming, do you feel like business is coming back a little bit here, how should we think about the next couple of years what you can do?

Well, I’m not going to quantify that. But what I can tell you is, we have good activity in and around Columbia, near Fort Meade and NBP and potentially in Virginia with additional work there, and potentially Huntsville or another market. But there is -- there are many prospects we are working with our new development project right now.

Okay. All right. Thanks.

Thank you. The next question comes from Michael Knott from Green Street Advisors. Please proceed, sir.

Hey guys. Just on some of the vacancies you are talking about with some of your bigger customers and from Merck, were those new to you, since I guess just the last call, so sort of the rate of change on what some of your customers have been talking about changed since the last call or NAREIT?

The Merck is new. That was the exercise of a termination right. I would say the magnitude of change, with regard to the space we are talking about taking back, hasn’t accelerated. We knew we were going to get about 50,000 back from a tenant that has a 150-ish. But their request to us accelerated and they asked us to do it earlier than we had otherwise anticipated. So timing moved up, magnitude didn’t change.

Okay. And then Steve Riffee just on, I am not sure if I heard, you mentioned any update or change to the same-store NOI guidance for the year. I think it had been 0 to 2, but can you just -- do you have any update there?

Well, we’ve reported in our two quarters that we’ve done well on the margin focused as much on operating expenses or as opposed to our original revenue assumptions. And the second half of the year assumes that that margin generally continues, although there were some one-time items that I broke up mathematically in terms of the run rate and all. But for any unusual items that come up et cetera, I think we’re comfortable saying that it will be positive for the year, modestly positive. So we just did 1.6% in this quarter. So I think it’s probably somewhere close to 1% but it’s not going to be negative. It’s not going to be zero.

Steve, you’re looking at the midpoint is what you’re saying?

Yeah.

Okay. And then just on the earnings guidance, the FFO guidance, I’m just trying to ascertain what have been with the acceleration of some of this give back combined with the Colorado Springs. So if Colorado Springs had been progressing, as you expected, would guidance have stayed the same?

Yeah. It’s about a penny a month for the entire portfolio of Colorado Springs from give up of FFO. So we probably have assumed that it closes a month later. So that’s probably one penny difference.

Okay. And then on Colorado Springs, if I recall correctly, you talked about initially the cap rate on the sale was maybe going to be somewhere in the 9% range. So it seems like the buyer is probably re-trading for even higher cap rate than that given what happened to interest rates. So my question is given the improved fundamentals there, the improved NOI, the fact that you’re the natural buyer, why not just tell the buyer to get lost and keep Colorado Springs for a while?

Well, we may do that but again we want to exit the market over time. We’re not -- we still -- we’re not going backwards on our strategy. We don’t see the long, long, long-term growth in that market in our niche business. So it’s really just about getting reasonable value for our shareholders.

And can I ask, I think we had read recently I forget where we had seen it but there was mentioned of you acquiring land and I think in Chantilly and Northern Virginia from Duke. Is there any comment on that?

Well, I can’t comment on it, Michael. It’s Wayne, is that we’re not making any comment on the seller but we did acquire 31 acres in Westfields. And we saw it as an opportunity to assemble a 60-acre business park which long term we think is a very nice strategic fit for us. And so as we worked through our capital recycling, we took an opportunity to put ourselves and what we think is a positive position for the future.

Do you have cost per buildable square foot on that?

It’s complicated, Michael, because it’s sort of like we talked about on the last call when we bought land at NBP, the fact that we can merge two parcels together allows us to reduce the amount of setbacks and increase the square footage. Each 30-acre parcel couldn’t have created as much FAR as the combined 62 acres can. So on a FAR basis, it’s a market deal.

We’re still working through the final planning on that as well.

Okay. Thank you.

Thank you. The next question comes from Michael Carroll from RBC Capital. Please go ahead.

Yeah. Thanks. Well, what was the impetus that drove the accelerating leasing activity in the development pipeline this quarter?

Could you ask it again? I am not sure I understood.

Yeah. What drove, I guess, the strong leasing activity in the development pipeline this quarter? I know that there has been -- I mean it seems like it’s accelerated much more over past couple quarters versus what you have been doing.

Well, when you’re doing full building lease, development leasing, it’s lumpy. And we just ended up with two full building leases in the same quarter. But I can tell you we’re working with other prospects for full building leases as well and they’re not correlated. I can tell you that much, two very different demand profiles.

Okay. And then Steve, did you mention that you expected development activity to accelerate in the second half of the year at DC-6, did I hear that correctly?

Well, I’m not -- accelerate is not the word I would use. I’m optimistic that we can achieve additional leasing and that statement was particularly referenced at the co-location segment, not the wholesale but also deals take a long time to develop.

Okay. And that gives you confidence and I think it was just the activity that you’re seeing right now.

Yeah.

Do you expect that to bleed into 2014 too?

The activity?

Yeah.

Yeah. Actually expected to, on the co-location side to continue to build. Remember we just started marketing this property in that way really at the end of 2012. We’re doing a much better job of marketing it and particularly in the vertical that we’re shooting for which is government defense integrator community.

Okay. Great. Thanks.

Thank you. The next question comes from Dave Rodgers from Robert W. Baird. Please proceed, sir.

Hey guys, good afternoon. I missed some of the earlier calls. So I apologize if this is redundant. But in terms of the data center lease, I heard that you had said you done a slightly below market. Is that a deal and I understood the density that you talked about Steve. But I guess is that a deal where you expect to be able to tie another customer in terms of being able to do more base rent, plus power, plus cross-connect type of a deal or is this an isolated customer?

This can be an isolated customer Dave.

Okay. And I guess, I didn’t hear either was, can you talk about kind of how the business has been from a non-government or non-contractor perspective, are you feeling any better about some of the assets that you have that are exposed in those areas?

You’re not talking about data now, are you talking about office?

Sorry, switched. Yeah?

Yeah. All right. I’m trying to hang with you Dave. Yeah, actually demands have been good and what we talk about, again in Virginia, I mentioned on the call that really the small tenant on the commercial basis type of tenant, you see pretty strong activity out. And we find some nice leases. Also with some other smaller defense contractors in and around Columbia, Fort Meade and White Marsh, we actually have pretty good demand from the commercial segment as well as the segment that’s tied to cyber and defense.

Okay. Then I guess the thought about with some of this expansion, I mean, does enough of the activity out there give you enough confidence to maybe branch again away from some of the government contractor and government business that you’ve been doing and re-tilt up the exposure of your portfolio to more of the core DC market given it’s struggled today but the opportunity for it to potentially recover here over the next couple of years?

Yeah, Dave. The answer is yes. We obviously are looking at opportunities that aren’t 100% tied to our niche business, but if we were to entertain them, they wouldn’t be around suburban office, say, would be more in infill locations.

And I guess would that be acquisition and/or development? Do you have any thoughts internally about kind of retargeting what the non-government exposure should be as a percentage of the total when you think of your core, super core and non-government?

No. I think obviously, we are going to invest in as many good strategic opportunities as we can and as many other really good real estate investments that we can. Their percentages will be what they are today at 70-30, may it be goes down to 65-35, or 75-25 but for now, given the land we have in the embedded growth around strategic knowledge-based defense installations, we think that part of the business will continue to grow.

Okay. Great. Thank you for the color.

(Operator Instructions) The next question comes from the line of Josh Attie from Citi. Please proceed.

Hi, thanks. I just had a follow-up question. It seems like you had really good success this quarter and last quarter with new sort of new build-to-suit projects or new projects added to the pipeline that are fully leased. But you’ve had a lot -- it’s been a lot more challenging to lease the unstabilized existing assets in the portfolio and also the existing assets in the development pipeline. Then I guess, maybe what are some of the reasons for that? Is it location driven? I’m just trying to get -- I guess a better understanding of the overall demand environment because it seems like those two things are kind of -- or sort of disconnected?

Well, I would just say that the places where we’ve had some difficulty or delay are associated with different basis on those ones where we’ve having good success. So we’ve had some challenges up in Aberdeen with two, the one on stabilized property there or two of them. We’re actually having some modest success now that we’re hopeful we can announce in the quarter. But I think it has to do with the impact of the budget and the underlying mission and a per-base basis. I can tell you in Springfield, we’re adjacent to a demand driver. At some point, we’re very confident we can lease the building. We’ve planned every square foot in it. We have multiple customers who are at pause waiting for some clarity on spending, coming out of that particular area. But you’ll see that we’ve been regularly putting away space at NBP. We put away 27% of the building that we’re just now finishing. And we see continued demand in and around this area where the funding is more clear and it’s cyber-driven.

So it sounds like its location more than anything else.

Yeah. I think it all goes back to many of the comments that Roger made in the speech about getting some clarity around releasing the funds in the DoD defense area long-term. And when the clarity comes, we think the demand will come.

Okay. Thank you.

Thank you. We have no more questions. I’d now like to turn the call back to Mr. Waesche.

Thank you, all again for joining us today. If your question did not get answered on this call, we’re in the office and available to speak with you later. Thank you very much for participating. Good day.

Thank you for your participation in the Corporate Office Properties Trust second quarter 2013 earnings conference call. This concludes the presentation. You may now disconnect and have a great day.