Welcome to the Corporate Office Properties Trust Second Quarter 2015 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Krewson-Kelly, COPT's Vice President of Investor Relations. Ms. Krewson-Kelly, please go ahead.

Thank you, Attlee. Good afternoon and welcome to COPT's conference call to discuss the company's second quarter 2015 results and our guidance for the remaining quarters of 2015. With me today are Roger Waesche, President and CEO; Steve Budorick, Executive Vice President and COO; Wayne Lingafelter, EVP of Development & Construction; and Anthony Mifsud, EVP and CFO. In addition to our supplemental package and press release related to the second quarter results, please note we have posted three additional items to the Investors section of our website. First, there is a flipbook that accompanies management’s remarks this morning, which you will need to download before management delivers their prepared remarks. Second, there is a flipbook and press release related to our intent to acquire 100 Light Street, a 549,000 square foot Class-A Office Tower in Baltimore’s Pratt Street Corridor submarket. Third, we have posted a study on the Baltimore office market, just published by the SAGE Policy Group, an economic and policy consulting firm in Baltimore, Maryland founded by Anirban Basu. 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 on the Investors section of our website. At the conclusion of management's remarks, the call will be opened up for your questions. We remind you that statements made during this call may be forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and that actual results may differ materially due to a variety of risks, uncertainties and other factors. Please refer to today's press release and our SEC filings for a detailed discussion of forward-looking statements. With that, I will now turn the call over to Roger.

Thank you, Stephanie. Good afternoon, everyone. The company has generated solid results in the second quarter. As you can see on slide three, our FFO per share as adjusted for comparability of $0.52, was $0.03 above the mid-point of our expected range. Favorable NOI growth and the later issuance of our senior notes supported the higher results. Most operating metrics were in line with our expectations, including the occupancy gains in our same-office and total portfolios, and solid economics when renewing leases. The stronger-than-expected renewal rate and lowering recurring Capex also supported the quarter’s results. Based on these strong results, we are increasing our guidance for FFO per share as adjusted for comparability for the year by $0.01. The revised mid-point of $2.02 implies 7.5% growth over 2014 results. Slide 4 provides the assumptions underlying our revised guidance. Please turn to slide 6 for more color on our same-office cash NOI growth. If you exclude five assets that represent temporary leasing challenges, the remaining 96% of our same-office portfolio generated 4.4% growth in the second quarter. Even though we expect total same-office cash NOI to grow modestly for the year. Excluding the five assets, the remaining same-office portfolio is on track to achieve 2.5% growth. Slide 8 addresses our renewal forecast for the next few years. Now that we have sold the MITRE Building in Northern Virginia, Booz Allen’s 400,000 square foot lease in One Dulles Tower is the only large parking space we expect to get back between now and the end of 2017. We are aggressively marketing One Dulles to perspective new tenants and also considering other alternatives. The lack of significant non-renewals in our portfolios is an improvement point, so let me review it in more detail. Setting aside the Booz Allen non-renewal for the next two…

[Operator Instructions] Our first question comes from the line of Gabriel Hilmoe with Evercore ISI. Please proceed.

I guess, Steve, just on the $200 million, $225 million of development spends, how much of the 1.2 million square feet of just shallow development pipeline needs to get converted to a prelease or built-to-suit to hit that number? It looks like you only have about $100 million left to spend on the current pipeline.

It's about right. I'd say maybe a third.

Okay. And I guess, Roger, just on the Booz Allen space and the move-out next year, is that a building you would consider selling or I know you mentioned you are looking to actively market right now, but just given what you did with MITRE Building, is that -- is the plan to try to re-tenant that or is that something you would potentially sell near term?

We are trying to re-tenant the building both from a commercial standpoint and a GSA point. And then secondly, we would consider selling the building as long as we could receive an attractive price. Fortunately, we paid $71 million for the building back in 2003, or just $180 a square foot and has had significant cash flow for the last 12 years. So we are in good shape with respect to how we've done on that building. And we would consider selling it, but only for an attractive price.

Okay. And then, just maybe one last quick one just for Anthony or Steve. Can you just give a sense of what the mix is on the sales I guess, land versus operating assets that's embedded into the $350 million to $400 million and just maybe what the broad assumed cap rate is on the operating assets just given kind of the mid-teens cap rate on the MITRE deal?

Virtually all of the assumed dispositions are forecasted for the remainder of 2015 as well as 2016 are operating assets. And we have an assumption that the average of the dispositions would be an 8% cap.

Thank you.

Your next question comes from the line of Jamie Feldman with Bank of America. Please proceed.

Thanks, good morning. I guess just focusing on Baltimore a little bit more, first of all, I think you gave a blended cap rate or yield for the assets, do you mind breaking them out in terms of what the cash and GAAP yields are, especially for 100 Light.

For 250 West Pratt Street, the approximate going-in yield was about 8%, and that was a on a GAAP basis because there was some free rent that rolled off by the end of 2015. So once we get to 2016, the GAAP and cash were pretty close. On the MITRE Building, we were just a little over 8%, and then on 100 Light, the going-in yield is about 7.5%.

You said, MITRE, but you meant Metro Place.

Metro Place -- I am sorry, the Metro Place, yeah was 8%.

Okay. And you said 100 Light is 7.5% GAAP or cash?

Cash.

Okay. And then bigger picture, I know you said you wanted to keep some non-strategic assets in the portfolio for some diversification, risk diversification. Can you talk about what you think about the long-term growth rates of your businesses, the Strategic Niche versus what you’re buying here in Baltimore?

When we had our Investor conference back last September, we suggested that our same-store NOI growth once we got finished with our cyclical challenges, which we’re nearby them now, would be in the 2.5% to 3% growth standpoint, and we still expect that both in our Strategic Tenant Niche and in our Regional Office portfolio.

Okay. And then I guess incremental growth from development?

That’s correct.

And then I think you guys previously gave 2016 guidance in terms of what or at least occupancy outlook in terms of you expect a hit from Booz, but then think you could get back to higher number by year-end. Can you update us on how you guys are thinking about the occupancy outlook going into over the next year and half?

Well, I think Jamie, what we have put out was that we would have a 60% renewal rate for a 24-month period. That renewal rate will go up somewhat now because the MITRE non-renewal is no longer in the portfolio. And so what we said few minutes ago was that if you except out Booz Allen, we expect renewal rate in the 70% or even greater percent even beginning almost immediately.

Okay. But in terms of the occupancy pickup in 2016, any thoughts there?

Yeah, we haven’t provided that number yet, but we – our expectation is that occupancy at the end of 2016 will be higher than it was going into 2015.

Okay. And then I think on the last call, Anthony gave same-store outlook for this year of 50 basis points to 150 basis points of cash same-store growth. Can you update that? That’s my last question.

Sure, what we are highlighting in our current assumptions is that the same-office cash NOI for the entire same-office portfolio is at 50 basis points, so at the lower-end of that range. But we also broke out those five assets that Roger referred to in his comments and absenting out those assets, the 96% of the same-office pool is growing at 2.5%. So those five assets continue to be the ones that we are focused on with respect to the leasing challenges for the same-office portfolio.

What if you gave a full year outlook, like for all of 2015?

For all of 2015, it’s at – it’s 50 base, so we were 50 basis points to 150 basis points in our original guidance, but currently we are at 50 basis points.

And that’s your outlook for the rest of the year.

Right, so Jamie, we started the year in the whole if you remember, because we had a seasonally challenged winter and so were over 1% minus in the first quarter. So we’ve recovered in the second quarter to 0.6% bringing the year-to-date to still a little bit negative, and so we have got to go positive in the last two quarters in order to get to the 0.5% for the year.

Okay, all right. Thank you.

Thank you.

Your next question comes from the line of Manny Korchman with Citi. Please proceed.

Hey, Roger. If we can just stay on the same topic for a second, I'm more curious what sort of a change in the last three months that your assumption would come in 100 basis points, you were negative in the first quarter, but that's when you reiterated the 50 to 150, so what changed in this quarter that could have gone better that didn't?

I think it's just timing of lease-up getting some tenants in. We had good leasing in the second quarter. We had a positive replacement ratio that is what we lease was greater than what is non-renewed, but it's just getting the tenants in place and getting them renting.

Got it. And can you give us an update on Canton Crossing if anything, any progress there?

This is Wayne. We will be going in front of the Baltimore planning by -- here in a couple of weeks to make our first presentation publicly on our plans for the site. And so we continue to work through that entitlement process and at this point, I don't have any immediate plans to be starting construction.

Great, thanks.

Your next question comes from the line of Craig Mailman with KeyBanc. Please proceed.

Hey, guys. Just curious on Baltimore, you guys have made the two acquisitions this year. Is there anything else in that market that you guys are currently looking at, kind of what's the upper threshold of your concentration you want there?

Right now, we’re very much on hold. We’re focused on selling assets, so that we can fund both the acquisitions that we've made so far this year plus the strategic tenant niche investments that we've committed to and those that we think we will commit to over the next several months or a couple of quarters. So there are no current plans to add any additional assets from downtown Baltimore. We’re comfortable with the three assets we think, they are great assets, but where we want to be in terms of exposure at this point.

Okay. And then as we look at the asset sale you guys put out there, I noticed that about half of the Shadow pipeline is the Shell data centers, any thoughts about recycling some of the ones you guys have already done to redeploy into that product type?

Right. So if you look at what we have in the queue to sell, number one are some assets in suburban Baltimore. Number two is a few assets in Northern Virginia and number three are some data centers that are in the company's portfolio. So there are three primary targeted groupings in terms of asset sales for now and into 2016.

Okay. And then just on the Booz building, looking at the IRR you guys got on the MITRE asset, would it be similar to that type of kind of low-single digit IRR to that building you guys would accept, kind of thoughts there on what the floor would be and even how you’re thinking of it versus sell versus relet?

Well, we think about a sale in the context of what we can sell it for as rebuying the property and what our IRR would be going forward. And so that's how we looked at the MITRE situation and that's why we decided to sell the building. In terms of the Booz building, we bought it again at a very favorable price point, $71 million or under $180 a square foot and we've had cash flow from day one through the end of ’15, so 12 plus years and the building would sell empty for an amount greater than what we acquired the building for. So we would have a very positive IRR on that asset.

Okay. And then just the last one, thoughts on DT6 here [ph], how close are you guys to either seriously considering joint venturing or selling outright?

Well, Craig, we've got another, we’re just about ready to put the final space in the place for our last tenant that we signed back in February and then we've got some other leasing that is a possibility and a possible expansion inside of the envelope that exists now for our large tenant and so we want to see that play out for the next couple of quarters and then we will give some serious focus to monetizing potentially part of that asset.

Great. Thank you guys.

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed.

Thanks. Hey, Roger, can you describe your strategy to diversify from the company’s Strategic Niche, on what markets are you focusing on? And do you want to grow this portfolio further, or are you happy with the current size?

Yeah, we are very happy because there are niches largely located in the Greater Baltimore, Washington, Northern Virginia region, we are a local sharpshooter in that market because of our operating platform, both our property management and development, re-development, tenant improvements, customer relationships, broker relationships et cetera, et cetera. And so the focus has been on for the Regional Office portfolio to stay within that envelop. And I should say that the company has never been a 100% Strategic Tenant Niche, but today we’ve never been more Niche than we ever had. We’re more Niche today than we’ve ever been. So today we’re 75% Niche, back when we started the strategic re-allocation plan back in April 2011, we were 60% Niche and 40% Regional Office portfolio, so we’ve grown to 60% to 75% and that’s a comfortable number for us.

Okay. And then out of the $400 million of planned sales, is there anything within the portfolio outside of that that you’re going to sell currently or just the $400 million is all you’re expecting?

Well, when we created the list we got well over $500 million and then we paired it down to in terms of hierarchy or priority for $400 million, but over time there are more assets that we are willing to sell. It really gets down to – with our stock price where it is, it has to do with choices, with trade-offs and we will sell assets identified for those that we can get to identification.

And are all those sales outside of your Strategic Niche?

They are, yes.

Okay, great. Thank you.

Your next question comes from the line Dave Rogers with Baird. Please proceed.

Yeah, good afternoon. Steve Budorick, maybe a question for you. It looked like leasing economics in the quarter were pretty weak despite seeing some better velocity in the leasing. So can you a talk a little bit about maybe what drove the weaker leasing economics, was it a particular product type, mix, location that drove that or should we expect to see that bounce back, what are your thoughts?

Well, they are actually stronger in the second quarter than they were in the first quarter, if you look at the last supplement. We did a lot of real activity in sub-urban Baltimore that was a little bit more negative on our cash rent rolldown than expected than we would hope. But it’s the quarter as a whole is about in-line with what we have guided to for the year.

In early here in the third quarter, what would leasing velocity look like, are you feeling better, similar trends, any thoughts there?

We waited for that question. Yeah, we are feeling really good about the third and fourth quarter, particularly in the context of some of the larger buildings that we have identified as leasing challenges. On page 7, we identified five buildings that are kind of pulling back our same-office cash NOI growth. Started to tap at 310 The Bridge, we’re in lease activity right now that will bring us over 90% on that building by year-end. At 3120 Fairview Park, we’re currently leased 80 plus and we’re working on one of two deals to put that building away. In Maritime Plaza, our activities picked up, we’ve got 87,000 square feet of leasing activity against 101,000 square feet of vacancy. So on coming quarters, we’re expecting improvement. The aerospace building that we got back late last year, we identify [indiscernible] we’ve got a 150,000 square feet to lease and about 120,000 square feet of active prospects right now. And then again at Patriot Ridge, we had better activity this year than we have had in a long period of time with about a 100,000 square foot of tenants working against 116,000 square feet of vacancy, all of that is contract driven work with demand drivers in the area and as those contracts get awarded we are optimistic, we are going to put leases away in the second half.

Maybe a last question on the Booz space, I guess taking a sale of that building aside, what’s the activity or the traction on that space?

It’s a little preliminary, it’s hard to show the building right now because it has cure elements in it. Our strategy on that building is focused on large tenants, that’s where the real value creation can come from. It’s one of the few large blocks of that size in all of Northern Virginia and it’s certainly the best or among the best building quality for that size. We’re tracking three large consolidation opportunities, they’re in very early stages but we’ve shown the buildings several times, all those are 300,000 square feet or bigger and then with the little further out timeline there are several large GSA requirements that -- could be getting through Congress funding approval, all of those over 300,000 square feet, so we’re working for big tenants.

Okay, great thanks for the update Steve.

Your next question comes from the line of Brendan Maiorana with Wells Fargo, please proceed.

Thanks, good afternoon. Steve, in response to I think it was Jamie’s question about the occupancy, I think you mentioned that ‘16 occupancy you expected to be higher than the beginning of the year, I was just wondering or the end of ’15, is that inclusive of the vacancy with Booz or you’re saying if you include Booz at a 100% occupied or the 400,000 square feet, you still think given by the ’16, you get to a number that’s higher than that occupied number?

It presumes that we address some of the buildings that I just spoke in detail significantly by the end of ’16. And then, capture some additional occupancy around the portfolio and absorb the hit from Booz.

Okay. So it would be your -- to take your statements there, you’d have net pick up of more than 400,000 square feet of net absorption ex-Booz?

That’s what contemplated.

Great, okay thank you. So Roger, just with the Booz building that’s there, maybe you can kind of highlight how you guys thought about the sale of MITRE and the return outlook relative to $28 million purchase price and is that illustrative to think about the returns that you thought about for that building if you were to hold it versus how you’re thinking about the Booz building as well?

Right, so, well, we try to look at the MITRE building in isolation but also put it in the broader context of the company, the fact that we don’t have our share price, overall risk profile and take a hard look at the Northern Virginia operating environment, so it was an off-market deal, the tenant in our view had a very low probability of renewing and so then, we started to look at the building from a regional office standpoint and looked at its characteristics in terms of metro and amenities and looked at the Northern Virginia leasing situation in terms of downtime, free rent, the amount of TI that was going to be required to invest in the building and plus the likelihood of multi-tenanted and so when we took – looked at the offer and added the costs, we determined that our capital was better invested in our existing development portfolio than it was in -- we investing into the MITRE building. Now obviously there is a buyer on the other side and they probably have a different perspective in us and maybe around where the rent ultimately is, but in the broader context, we think we made a good transaction, it was the right value decision for our shareholders.

And do you feel like just looking at sort of the exit cap rate and even -- maybe rents were a little bit above market and maybe there is lots of downtime and bunch of other assumptions that I can go into it. But are the challenges that were present at the MITRE building also – do they also exist in the Booz building or do you feel like an empty Booz building is better positioned in the market versus the MITRE building?

I’ll take that one and I think the Booz building is far better positioned; it’s a fantastic building with great visibility right off the Tollway, very close to Dulles. It’s in a submarket that tends to compete for large tenants; conversely the MITRE building is in a submarket that competes for smaller tenants, so re-tenanting 150,000 square foot building in Tysons Corner without metro access was nowhere near as predictable or likely for quick successes I think that are ultimate outcome that you can achieve on the Booz building.

Okay, great. And then just last one for Anthony. $300 million on security issuance, it seem like the spread was maybe a little bit wider than what we would have expected. Was there consideration to -- or could you maybe give us some thoughts as to -- did you think about a term loan swapping it to fixed and would pricing there have been more attractive if you chose to go down that route?

Yeah. I think the expectation on our end was that it also was a bit wider than what we had thought, but the fixed -- just to give you a little bit of context on a fixed income market, it has been [indiscernible] throughout 2015 and based on our desire to go long on our maturity schedule, we chose to execute the transaction and eliminate that risk. We are considered in the fixed income market to be infrequent issuer and because we’re infrequent and because we’re going to be seen as an issuer that’s going to come in at the index eligible size or something just over that, we’re penalized for that because investors have the option of going to much larger, much more liquid transactions and when a smaller issuer comes, they have been demanding additional spread to compensate for that illiquidity. We thought it was the right transaction -- we thought it was the right move for the Company to put the tenure money sort of away and to extend our debt maturity latter. I think if we have chosen to go for a bank deal or bank term loan, which we did do one this quarter as well, we could have upsized that transaction, but I think we believed the rate was the right decision for the extra five years of term because in the bank market, we probably would have been locked in at a five-year term. So, we thought that long-term was the right capital for the Company.

Sure. Okay. Thanks for the time.

Your next question comes from the line of John Bejjani from Green Street Advisors. Please proceed.

Hi guys. Steve, on the leasing front, is there any reason for the slower than expected development pipeline leasing velocity and then on the -- the average of lease term on renewals this quarter seem fairly short. Is this reflective of any change in the defense leasing environment or is there anything to read into this?

No, I think -- let me address the term, just think of it as a statistical coincidence this quarter. It’s not representative of overall change. With regard to development leasing, it’s lumpy. It has been in the past and it is, it continues to be. We’ve got a lot of good activity on existing buildings in our development pipeline right now and we’re expecting some pretty positive results in the next two quarters.

You guys have any thoughts toward slowing the growth of the development pipeline, given your current share valuation and sub-60% pre-leasing out today?

Right now, we’re going to -- well, we will do as much development as we can as long it is highly pre-leased and we’ll again be selling assets to fund development pipeline and so, we think will be selling shorter maturity leases for longer-term leases with the development pipeline and that’s really our goal.

And John, if you look at page 11 of the flipbook, the first two, which are the two largest subset of ours -- of our shadow development pipeline, the data center sales and the campus in Huntsville, all of those would be pre-leased transactions in order for us to put the shovel on the ground.

Okay, great. And I guess, Roger, a related question. You guys have been a meaningful non-external grower this year and expect to continue to be so through 2016. How do you guys justify or how do you think about non-external growth when you’re trading at a 20% plus discount NAV? Or just more broadly, how do you think about your cost of capital?

Clearly, our cost of capital has increased and we’re not -- we have no appetite to issue equity and so, that means we’ve got to look at our existing portfolio and make choices and that’s what we’re currently doing, but we still think even with our elevated cost of capital that we have a positive favorable spread on development that we can accrete both from an earnings standpoint and more importantly from an NAV standpoint for our shareholders. So we will keep doing that. Now, acquisitions on the other hand will take a very backward step to where we were when were entered the year.

Alright, thanks.

Thank you, John.

Your next question comes from the line of John Guinee with Stifel. Please proceed.

Great. Thank you. We are rooting for the home team, but it feels a little bit like the Baltimore Orioles right now. Let me ask, Roger, sort of the I think, the million dollar question that no one is asking. If I look at page 11, which is your core portfolio in your sub and I look at the secondary defense industry market, so excluding NDP Columbia Gateway which are obviously great sub markets, you got airport square, a bunch of tire products about 88% leased, Westfields 770,000 square feet, 78% leased despite giving back two buildings that are now 25% leased. Patriot Ridge, I think that's been stabilized for two or three years now, that's 50% leased. Merrifield sounds like from your footnote maybe it's got some traction, that's been a full year lease up. Capitol Riverfront 70% leased. St. Mary’s, King George County, these assets are 80% leased with a ton of role as it shows up on page 17. North Gate Business Park at Aberdeen proven ground, 46% leased. And now I flip to the development pipe and National Business Park 310 Centennial Way finished, that's vacant. NOVA Office B that's Westfields, that's just finished this quarter, that's vacant. Is maybe this strategic niche long in the tooth?

No, we are very confident in the strategic tenant niche. You got to remember, we are just cyclically challenged. After 9/11 the business took off like a rocket and then as things do, it overshot and the Budget Control Act of 2011 kicked in and the contractor saw that coming, so they started to rationalize their business models and right-size their space. And unlike a hotel company, we get our occupancy back over an extended period of time. So it's been painful, but we do think that the majority of the tenants in our portfolio have now had a role since the Budget Control Act and what we said for the last couple of quarters is that it would be finalized by the end of 2016. But most of the locations have durable demand drivers. You mentioned Westfields, for instance, with the NRO there and now the FBI has moved in with their cyber operations and then there's another government anchor that's moving into that park. So we are very bullish long-term on Westfields. We are very bullish long term on Pax River and its growth. The only one that where we are concerned about is Aberdeen and the company has $51 million invested in three buildings there and we are doing the best we can there trying to create niche product to satisfy the base there. But I think long-term we are where we want to be. It's just that in any business there is a cycle and we've been on the downside of that cycle, but we think we are at the bottom and we will be bouncing back imminently.

Okay. And then the second question, obviously I am looking out the window and you put together a great slide deck on Baltimore, but you can put together that slide deck on 15, 20 markets throughout the country. How did you pick Baltimore to double down in your own backyard as opposed to any of 20 or 30 other markets in the Southeast or the Southwest?

Actually we did look at a number of markets and what we determined was that while there is growth in many of the Southeast markets, we determined that from an employment situation, again healthcare, education, technology those industries -- biotech, those things that we thought that were going to grow, Baltimore really showed up very well on all the statistics. Plus, there is the concept that we’re a local sharpshooter, we’ve got the platform to operate locally, we don't have that elsewhere and we don't need to create a second or third market. We like our strategic tenant niche. We think it will grow and supplement it with a modest 20% to 25% regional office portfolio housed in the Baltimore-Washington-Northern Virginia region will give this company great stability long-term and great growth prospects.

Great. Alright, thank you very much.

Your next question comes from the line of Tom Catherwood with Cowen and Company. Please proceed.

Yes, thank you. Just a couple of quick cleanup items. In the presentation about 100 Light Street, you talk about, about 2.5% to 3% internal growth. Is that the contractual lease bumps on what you have in place or is that kind of an expectation of what you’ll get from lease-ups?

No, the average in place lease maturity is eight years and actually with the big three tenants, it's 11 years and so that's really locked in and so the risk on the portfolio is, we actually say the variability and the opportunity on the portfolio is to grow the rents on the three big – non big -- three big tenants and so our forecast shows a very stable 2.5% to 3% internal growth rate on that asset for the next 10 years.

Got you. And also in the presentation, you mentioned lease up of current and future retail space, is that alluding to that, maybe there is potential there for a retail expansion similar to what you had at 250 West Pratt Street?

Well, Tom, the garage came with retail space embedded along the main streets in front of it and so the opportunities to lease up that space, there is probably a second retail opportunity, surrounding the building itself, but we’re not factoring that in when we said with a near-term upside for the asset.

Got you. Okay. And then… Sorry, go ahead.

I was going to say the same potential exists long-term.

Okay, thank you, Steve. And then one more last one, just going back to the debt issuance, Anthony, we heard that one of the things, pushing up some of the spreads for issuers this past quarter was change in control, kind of items being pushed by lenders. Was that something that you had to pay up to avoid in your issuance or was that not a concern from lenders?

That was not a concern for the investor base. That was looking at our transactions. So we don't believe there was any spread increment that we paid as a result of not having to change our indenture for that.

Got it. That's it from me. Thank you.

Your next question comes from the line of Tayo Okusanya with Jefferies. Please proceed.

Yes, good afternoon, everyone. Just a quick question on guidance, again when you look at 1Q, you were originally guiding to $0.48 to $0.50, midpoint $0.49. You come in at $0.52, which is a nice consensus [ph] to beat, but then you only raised full-year guidance by a penny, I’m just wondering what all the offsets are in the back half of the year that resulted in that guidance just being raised by a penny at the midpoint?

Tayo, thanks for the question. The answer is very simply, it's the variability and the timing of selling assets and so we want to leave ourselves room in the expectation that we could sell assets faster and that’s why we would go away sooner.

Okay. And are you making any assumptions about variability and asset pricing as well? Is that part of what’s also driving that or no?

No, I think we've got a pretty strong bid for suburban assets in the market. So I don't think that's going to be the issue. It really gets down to timing and I think we would be more sensitive to faster rather than slower to the extent that we can get that done.

Okay, that's helpful. And then just the MITRE building, we’ve all taken a shot that -- estimating the cap rate somewhere in the low double-digits, but I don't think you guys have explicitly said what cap rate you sold it at, is that something you could provide?

We sold it at about 14% cap rate. Obviously, it's going to go to minus 3% cap rate in a year. So that's probably not the right way to look at it, but in the short run, the investor is getting a very high return on that asset.

Okay. Thank you very much.

Your next question comes from the line of Rich Anderson with Mizuho Securities. Please proceed.

Thanks for sticking around. I don’t know if anyone exclusively mentioned the word buyback, is it something that’s on your plate right now, selling assets more than maybe 400 and buying back your stock?

We would consider a buyback if our share price remained depressed for an extended period of time. In the short run, we are focused on customer oriented development and really getting the portfolio shaped to where we wanted, that’s why we are trading the sub-urban assets for the in-fill assets. Obviously, there is a lot of considerations if you go down the buyback path. Number one, we are a REIT and structurally retain a little cash and we would want it to be real and able to execute not just a price signaling exercise. And we are long-term investors, not short-term traders and so we have a development franchise and we have a customer franchise and we want to protect them, number one and so I think that’s really where the focus of our capital is currently.

Okay. And then, I think it was last quarter when the question was asked, it might have been from me or somebody, what the pipeline was for additional so called urbanization of the regional portfolio. And the answer was I sought [ph] no pipeline, and then 100 Light happens. So I am just curious how faster this kind of happen come full circle of Lexington?

Well, the asset was in the market and we had no view on whether or not we were going to be a buyer or not, we made a bid and ultimately we’re the successful bidder, and ultimately buyer, but back at the time, there were no other assets we were focused on that are urbanizing, currently that is also the case. I can assure you that when have this call in October, we won’t be announcing another acquisition, there is no acquisitions at this point.

And how much of the 25% of the Regional Office portfolio that makes up your portfolio is a long-term hold for you now or do you – I know you’re not going to do – you don’t plan to change that number meaningfully in the short-term, but how much of it is something you would like to have five years from now as well?

I think we are -- about a third now of our portfolio is what we call of our Regional Office portfolio, now is what we call in-fill. We would like to grow that to two-thirds or three-quarters and so whatever those assets that we have to sell to fund the further densification of the portfolio is what it would be, I don’t have an exact number in front of it.

But that’s a several year plan, right, that’s a five-ish, five-year plan type thing?

That’s correct.

Okay, great. Thank you.

Your next question comes from the line of Bill Crow with Raymond James Associates. Please proceed.

Good morning. Hey, Roger, if we go back a few questions, the subject of the cost of capital came up and certainly, it’s not like you’re frustrated by the stock price. But answer how does buying an asset in a market, which you admit is contrary and how is that designed to change your cost of capital for the better? And the follow-up to that would be, you talked about the resurgence in the growth on Baltimore and pointed to kind of new industries, biotech, tech, healthcare, industries of the future, but 100 Light is to all firms and financial services firm. So is the asset designed to exploit any of those changes within that marketplace?

Well, to answer your second question first, we weren’t looking at 100 Light as a user necessarily of healthcare and education, and tech, we were looking at it that the marketplace because of the demand from those new industries was going to tighten up and therefore, the supply and demand equation was going to get more favorable for existing landlords and we would be able to take advantage of that in renewals going forward and letting the whole macro trend of urbanization play itself out in Baltimore. To answer your first question, the asset that we bought we’re about to buy in August is not meant to be an incremental asset, it’s meant to be a replacement asset that is we will sell sub-urban assets to fund the incremental urban asset and by so doing and extending our lease maturity schedule and showing that we’re going to have steady same office growth for an extended period of time without asset, we ultimately believe that that will generate a lower cost of capital because our same office situation will be much more positive going forward.

All right. I’m just trying to think about how it risk adjust your sub-markets and see where from today you have the best growth potential and total return potential. So, is that asset more compelling than putting the money into the development program? I understand you’re selling existing assets to fund it, but I’m still looking at what the best opportunity is for you for your capital today and this is I guess compelling enough and provides diversification, et cetera, is that the way you’re thinking about it?

Well, our number one priority is development because it deals with customers and it deals with NAV accretion immediately, et cetera. And so, if we didn’t think we could sell suburban assets, we would not be buying an asset like 100 Light Street to add to our portfolio. Unfortunately, the sequence is a little out of order here. It would be preferable if we could have sold suburban to buy this urban asset but you can’t pick and choose when opportunities come about. And so, that’s what the sequence is but we’re confident we’re going to be able to sell assets to fund 100 Light Street.

Okay, thank you.

Thank you.

Your next question comes from the line of Christopher Lucas with Capital One Securities. Please proceed.

Good afternoon everyone. Just a couple of quick follow-ups. Roger, on the buyback question, is there an authorization in place right now or would you have to go to the board and get one?

There is not an authorization in place.

Okay. And then on the Booz building to go back to that for a second, is it relates to sort of the thought process just in terms of making a decision about timing on what to do, i.e., sale or lease? It seems like if you marketed the building today, you would have probably a decision pretty quickly as to whether or not that would happen relative to waiting for your ability to get the building back and then having to go through the process of leasing such a large space. How should we be thinking about how you guys are thinking about the actual decision-making process on what to do with that building?

Well, we’ve gone to the market to get some indications of value and so, we think we know what the building would sell for in its current state and so, we look at that number as our rebuying number if you will and so then, we add towards the downtime and the free rent and the building improvements and the tenant improvements and we look at where we think rents will be and cap them in the future and look at what kind of return we would get by staying in the building and reinvesting in it versus letting another buyer to may have a different set of circumstances acquire the asset. And so, that’s how we did with MITRE, it was real simple. We said, we had an offer in hand and we said that’s our new basis and so, what are the costs that we have to add to that basis and what kind of rental we get and yield and decided to sell the building and we’ll do the same analysis for Booz.

Okay. And then you’ve talked about being the local sharpshooter and putting capital work in Baltimore. Did you guys look at anything that’s been available in DC over the last six months or so and is that a market that you’re looking at at all?

We looked at DC for about a year and a half and obviously concluded that we could not be a core buyer in DC, the cap rates and costs of buildings relative to replacement costs were significantly above where we thought we could create value and so, we have not looked at acquisitions in DC for an extended period of time.

Okay. And then the last question, just on the supplement on the redevelopment schedule. Airport Square 5 went from buying a just sort of a defined program to sort of to be determined I guess, I’m just curious from first quarter to this second quarter. What’s going on there?

There is a high probability that it will get converted to retail, retail tide and some small retail, which is good because it’s in the middle of a grouping of buildings that will satisfy the needs of those buildings it surrounded.

Great. Thank you very much.

Thank you. Thank you all for joining us today. If your question did not get answered, we all are available to speak with you later today. Good day.

Thank you for your participation today in the Corporate Office Properties Trust second quarter 2015 earnings conference call. This concludes the presentation, you may now disconnect. Good day.