COPT Defense Properties (CDP) 2010 Q4 法說會逐字稿

Welcome to the Corporate Office Properties Trust year-end 2010 earnings conference call.

As a reminder, today's call is being recorded.

At this time, I will turn the call over to Rand Griffin, the Company's CEO.

Mr.

Griffin, please go ahead.

Thank you, Peggy, and good morning, everyone.

Today, we will be discussing our fourth-quarter and 2010 annual results.

With me today are Roger Waesche, our President and COO; Steve Riffee, our Executive Vice President and CFO; Wayne Lingafelter, Executive Vice President of Development and Construction; and Stephanie Krewson, our new Vice President of Investor Relations.

Many of you know Stephanie from her prior life as a REIT analyst.

Her tenure in the industry dates back to 1994, and we're pleased that Stephanie has joined the team, and we'll ask her to cover certain matters before we get started.

Stephanie?

Thank you, Rand.

I'm glad to be part of the COPT team, and wish everyone listening a good morning.

As Rand, Roger, Steve, and Wayne review our financial results, they will refer to our quarterly supplemental information package and associated press release, both of which can be found in 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 2011 annual and quarterly guidance.

At the conclusion of this discussion, 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 acquisitions and development projects, changes in interest rates, and other risks associated with commercial real estate business as detailed in our filings with the SEC.

With that, I'll turn the call back over to Rand.

Thank you, Stephanie.

I'm pleased to report that we had a solid quarter to conclude a challenging year for the Company.

In 2010, we leased a record 4.3 million square feet, 1.1 million square feet more than our previous best year in 2008.

Leasing volume in the fourth quarter alone totaled 1.5 million square feet, also a record.

Roger will provide details later about this strong leasing momentum continuing into 2011.

2010 was also a year in which we stayed focused on our super-core niche of government, defense IT, and data tenants.

We acquired $317 million of strategic high-quality assets totaling 930,000 square feet, which included Power Loft, our strategic entree into the wholesale data market.

Equally as important, we resisted the temptation to stray from our core and simply bulk up by spread investing.

This discipline will benefit us long term by improving NAV and the overall quality of the Company.

In 2010, we started 732,000 square feet of office space, reacting to BRAC demand, and placed 816,000 square feet of development into service at strong yields.

We also entered two new submarkets that were BRAC-related and should provide excellent long-term growth for the Company.

We are starting buildings this quarter in both locations and are seeing strong leasing activity.

Last but not least, continuing our 13-year history of raising the dividend, we increased our cash quarterly dividend by 5.1%.

Our annual compound dividend growth of 9.4% is the highest among all public REITs for that timeframe.

We believe that consistency counts, and we remain focused on providing strong long-term growth for our shareholders with excellent financial results.

Despite these achievements, 2010 was a year of disappointment.

Excluding acquisition costs, our diluted FFO per share of $2.36 exceeded consensus, but was towards the low end of our guidance and 5% below our 2009 results.

In fact, 2010 was the first time in COPT's history as a publicly-traded company that we experienced a year-over-year decline in FFO per share.

In 2010, our total shareholder return was essentially flat, lagging the NAREIT office sector and the RMS, a real anomaly versus our history of outperformance.

While the economy is beginning to show signs of recovery, office sector fundamentals remain challenging, and we expect the average office landlord to lack pricing power this year, despite an increase in demand for space.

As for COPT, we believe that we are seeing occupancies bottom this quarter and expect our same-office occupancy to trend positively for the balance of 2011.

We do not expect 2011 to be an easy year, but we see enough signs of improvement, both in the broader economy and within our portfolio, to affirm our prior 2011 FFO per-share guidance at $2.35 to $2.57.

Before turning the call over to Steve to discuss the financial details, I'd like to spend a few minutes discussing a question that is on most investors' minds and one that we believe has been affecting our stock price, namely the impact of potential cuts in defense spending on demand for our office space.

The Pentagon's base budget has doubled since the 9/11 terrorist attacks.

As I discussed on our last earnings call, cuts to the defense budget have been the historical norm after periods of such rapid buildup.

Similar to what this country has witnessed and experienced after conflicts ranging from World War II to the Gulf War, we now expect another period during which the Department of Defense, or DOD, strives to be more efficient with its existing resources.

Specifically on January 6, Secretary of Defense Robert Gates briefed Congressional leaders on his proposed defense budget of approximately $553 billion.

Even though the rate of growth is expected to decline modestly in 2013 and 2014, and to be flat for 2015 and 2016, the $553 billion for 2012 still represents a 3% increase over fiscal-year 2011.

Net net, Secretary Gates has committed to reducing overhead and inefficiencies by about $100 billion from 2012 through 2016.

These savings will result from reducing legacy weapons systems and non-critical missions, which will be reallocated to modernize and enhance high-priority missions.

For example, cyber security currently is 15% of federal agency IT budgets.

Some researchers expect cyber security to grow by 9.1% per year over the next five years.

So the proposed DOD budget is not really a reduction, but rather a reallocation.

With that background, the real question is what impact do we expect the proposed 2012 defense budget will have on COPT's portfolio.

You undoubtedly have read about the planned reduction of government contractors.

There are two types of contractors -- program contractors and support contractors.

The latter of these, support contractors, augment government staffs and are more likely to face spending cuts.

On the margin, we expect to see a slight decrease in demand for some of our space as a result of belt-tightening by these support contractors.

On balance, however, the vast majority of our core tenants are program contractors who work on defense programs that are critically important to national security.

Not only has there been no indication by Secretary Gates or the White House of cuts in these programs, but the diverse nature of threats to our nation make our tenants' programs more critical than ever.

The latest Quadrennial Defense Review, or QDR report, sets the nation's near-term defense strategy.

This latest report describes the challenges our nation faces, and I quote, as a complex and uncertain security landscape in which the pace of change continues to accelerate, unquote.

The DOD expects to reinvest the saved $100 billion into key missions and capabilities required to defeat current and emerging threats.

The key missions identified in this latest QDR report, reinforced in the just-released yesterday by the National Military Strategy of the United States of America, include counterinsurgency, stability, and counterterrorism operations.

Secondly, building the security capacity of partner states.

Thirdly, deferring and defeating aggression and anti-access environments.

And finally, operating effectively in cyber space with the continued development of offensive and defensive capabilities.

In other words, we expect strong support for missions that deal with intelligence, cyber, mapping and imagery, surveillance and reconnaissance, rotary-wing and unmanned aircraft, and space and missiles.

Our portfolio is adjacent to key mission locations that support these critical priorities, as follows.

Fort Meade includes the National Security Agency, Defense Intelligence Systems Agency, DISA; U.S.

Cyber Command and cyber service command components.

San Antonio includes cyber and Air Force intelligence, surveillance, and reconnaissance ISR capabilities.

Redstone Arsenal includes rotary-wing aircraft, manned and unmanned aircraft systems for ISR, R&D of new technologies for space and missile Defense, and Army logistics.

Fort Belvoir includes the National Geospatial Intelligence Agency, NGA, imagery analysis and geospatial information.

Aberdeen Proving Ground includes command, control, communications, computers, intelligence, surveillance, and reconnaissance, known as C4ISR.

And finally, Peterson Air Force Base in Colorado Springs, which includes space research and operations.

What all this simply illustrates is how well positioned our portfolio is to withstand current pending cuts at the DOD.

There is also up to 10 million square feet of office space demand from contractors that will result from BRAC agency moves.

For example, we anticipate up to 4 million square feet in NBP, up to 2.5 million to 3 million square feet at Aberdeen, and a couple of million square feet of BRAC-related demand, both at Fort Belvoir and at Huntsville.

We expect to see this BRAC-driven demand translate into leasing over the next three to five years.

And in short, we believe our existing portfolio and development pipeline position COPT to benefit both from the shift in priorities within the DOD and from new demand related to BRAC agency moves.

Our super-core tenant programs are likely to receive increased, not decreased, funding, which will bode well for our Company in the future.

And with that, I'll turn the call over to Steve to discuss our results and guidance in detail.

Thanks, Rand, and good morning, everyone.

Turning to our results, for the fourth quarter of 2010, FFO excluding $470,000, or $0.01 per diluted share, of acquisition costs totaled $52.7 million, or $0.70 per diluted share.

These results represent a 27% increase on a per-share basis from the $0.55 per diluted share, or $39.1 million of FFO for the fourth quarter of 2009.

The increase in FFO primarily resulted from increased NOI in acquisitions and development placed into service, as well as gains recognized from our investment in KEYW, partially offset by an increase in interest expense.

FFO for the full-year 2010 excluding $3.4 million, or $0.06 per diluted share of acquisition costs, was $171.7 million, or $2.36 per diluted share, representing a 5% decrease on a per-share basis from the $2.49 per diluted share or $173.3 million of FFO for 2009.

We attribute the decrease in FFO year over year primarily to an increase in interest expense, lower same-office property results, and a decrease in NOI from properties in greater Philadelphia.

These decreases were partially offset by NOI from acquired properties and development placed in service and by gains recognized on our investment in KEYW.

For the fourth quarter of 2010, net income attributable to common shareholders was $11.5 million and diluted earnings per share was $0.18, compared to $5.1 million and $0.08 per share for the fourth quarter of 2009.

For the full year, we reported net income attributable to common shareholders for 2010 of $26.7 million and diluted earnings per share of $0.43, compared to $40.2 million and $0.70 per share for 2009.

Turning to AFFO, our adjusted funds from operations for the full-year 2010 of $112.7 million represents a decrease of 6% from $119.8 million in 2009.

Our diluted FFO payout ratio, excluding property acquisition costs, was 70% and our diluted AFFO payout ratio was 94% for 2010.

As for our same-office cash NOI, results were in line with our expectations.

As of December 31, 2010, our same-office portfolio consisted of 230 properties, representing 85% of the consolidated portfolio square footage.

For the year, and excluding gross lease termination fees, same-office cash NOI decreased by $3.1 million, or 1%, over 2009.

Including gross lease termination fees, same-office property cash NOI decreased by $5 million, or 2%, over 2009.

For the year, we renewed 68% of the square footage of our lease expirations, including the effects of early renewals, and our wholly-owned portfolio extended into the year at 88.2% occupied and 89.5% leased.

Turning to the balance sheet, at December 31 the Company had a total market cap of $5 billion with $2.3 billion of debt outstanding, which equates to a debt to market cap ratio of 46%.

Our weighted average cost of debt for 2010 was 5%, up from 4.9% for 2009, and at year-end, 78% of our total debt was at fixed interest rates.

Taking into account swaps that went into effect after 2010, our pro forma fixed debt ratio at year-end was 84.5%.

For the year, our 2010 EBITDA to interest expense coverage ratio was three times.

And our 2010 fixed charge coverage ratio was 2.5 times.

Our debt to EBITDA ratio, adjusted for construction in progress, was 6.1 times at year-end.

We added this ratio to our disclosures on page 14 of the supplement.

In November, we issued 7.5 million common shares at a public offering price of $34.25 per share, and the Company realized nearly $250 million of net proceeds.

And during the fourth quarter, we expanded our revolving line of credit to $800 million through its accordion feature.

While the line has a maturity date of September 2011, we have the option to extend the line to September 2012.

We are currently evaluating whether we will exercise the extension option or renegotiate and amend the line for a new multiyear term.

Since year-end, we extended the maturity of our $225 million construction revolver to May of 2012.

The remaining debt maturities include a $102 million loan, which matures in the third quarter of 2011, and the first put date on the 3.5% and $162.5 million of exchangeable notes, which is in September.

We have several options available to refinance these obligations, as well as fund acquisitions if they become available, and we have adequate capacity to continue to fund the development pipeline using the line of credit and construction revolver, but we will also seek additional construction financing for specific projects.

Turning to our diluted FFO per share guidance for 2011, as Rand said, we are confirming the range of $2.35 to $2.57 per diluted share, which is essentially flat on the low end versus 2010 results and reflects growth of 9% at the high end.

This guidance excludes any initial property acquisition costs.

Those acquisition costs vary significantly by tax jurisdiction and are no longer capitalized under accounting rules.

So here is the current update regarding the guidance assumptions that we are refining at this point in the year.

First, for our 2011 same-office portfolio, we expect the occupancy to bottom during the first quarter of 2011, then grow steadily during the second, third, and fourth quarters to end 2011 up one percentage point to three percentage points at the very top end of the guidance range versus December 31, 2010 levels.

We are projecting our retention rate for 2011 to average 65%, which is slightly below our 10-year historical average.

Second, same-office cash NOI, excluding termination fees, is projected to be between negative 2% to flat for the year, declining during the first quarter as occupancy bottoms, and improving sequentially each quarter thereafter as the impact of leasing generates anticipated NOI growth.

Third, lease termination fees for the year are expected to be approximately $3 million.

And fourth, excluding the Power Loft data center, we estimate NOI from development placed in service during 2010 and 2011 to contribute between $13 million and $14 million of NOI for the year, most of which is in place as a result of the 2010 leasing accomplishments.

Fifth, we assume that the development and lease-up of the Power Loft data center will contribute NOI of approximately $4 million at the low end and up to $7 million at the high end of guidance.

Most of this NOI growth is weighted towards the later months of 2011.

Sixth, our guidance assumes no acquisitions at the bottom end of the range and up to $225 million at the top end, and we have adjusted the timing and now assume they occur on average later during the year than in our previous guidance.

Seventh, in other income we are estimating a range of approximately $6 million to $13.5 million coming from the combined gains of land sales and on our investments, including our investment in KEYW.

Eighth, fee income, primarily for third-party development fees, is expected to average approximately $600,000 for each of the first two quarters and then decline for the rest of the year.

Ninth, capitalized interest is assumed to average approximately $6 million per quarter, which is greater than 2010 levels, primarily due to ramping up development and construction at Power Loft and Patriot Ridge.

Tenth, G&A costs are expected to exceed $7 million in the first quarter, and then average approximately $6 million for each of the remaining quarters.

Finally, our 2011 guidance assumes that we maintain our balance sheet and our capital to meet our coverage and our target levels.

Now, our quarterly results may fluctuate, based upon the anticipated timing of certain transactions, and therefore, in an attempt to better guide expectations for the first quarter of 2011, we are announcing a guidance range for the first quarter of $0.51 to $0.54 of FFO per diluted share.

Now this first-quarter range excludes acquisition costs and is based on the expected quarterly leasing and related occupancy and same-office NOI.

It is also based on the weighting of G&A to the first quarter and the timing of gains expected during the year.

And conversely, later quarters are expected to be higher, based upon the timing of occupancy increases and the related NOI in leasing, lower G&A costs, and anticipated gains.

So this is our updated look for 2011, and we expect to further refine the details throughout the year.

And with that, I'll turn the call over to Roger.

Thanks, Steve.

At year-end, our wholly-owned portfolio consisted of 252 properties totaling 20 million square feet that were 88.2% occupied and 89.5% leased.

We increased both our occupancy and our percentage leased by 0.8% over September 30, 2010, levels.

We forecast that same-office occupancy will bottom in the first quarter of 2011 and slowly improve thereafter.

Minimal new supply in our markets, combined with modest employment growth and increased BRAC and cyber security activity, should gradually translate into demand for space, driving our occupancy higher.

As Rand highlighted in his earlier remarks, 2010 was a record leasing year for COPT.

During the fourth quarter, we leased a little over 1.5 million square feet, of which just under 1.1 million square feet were renewals, 373,000 square feet was re-tenanting, 75,000 square feet was first-time lease-up of previously-acquired space, and 11,000 square feet was development.

This represented record leasing for the Company, surpassing our previous quarterly high of just under 1.2 million square feet, and comparing favorably to a five-year quarterly average of about 700,000 square feet.

For the quarter, we had a renewal rate of 84% at an average capital cost of $8 per square foot.

Rents on renewals increased 3.3% on a straight-line basis and decreased 4.6% on a cash basis.

Total rent from renewed and re-tenanted space increased 3.7% on a straight-line basis and decreased 4.5% on a cash basis.

For all renewed and re-tenanted space, the average capital cost was $14 per square foot.

The fourth-quarter leasing capital was skewed by a 113,000-square-foot re-tenanting in Montgomery County, Maryland, that will cost the Company $58 per square foot for an 11.25-year lease.

Excepting this lease, average capital costs were $9.50 per square foot, consistent with our historical capital cost.

Recall going into 2010, we had 15.8% of our revenues and 3 million square feet of our leased square feet scheduled to expire.

During the year, we leased 4.3 million square feet, surpassing our previous high of 3.2 million square feet in 2008.

Of the 4.3 million square feet of leasing, 2.54 million square feet was renewals, 654,000 square feet was re-tenanting, 808,000 square feet was development, and 265,000 square feet was first-time lease-up of acquired space.

For renewed and re-tenanted space, rents increased by 2.3% on a GAAP basis and declined 5.6% on a cash basis.

We experienced a renewal rate of 68% for the year.

CapEx averaged $11.72 for renewed and re-tenanted space.

Leasing at our developments is progressing.

For the year, we signed development leasing totaling 808,000 square feet in eight different buildings in our Fort Meade, San Antonio, Colorado Springs, and Aberdeen markets.

Looking at our lease expiration schedule across the portfolio for 2011, we had 10.4% of our revenues expiring, representing just over 1.9 million square feet.

Within those 1.9 million square feet, we have 23 leases of 25,000 or more square feet.

Of these, we expect 11 to renew, five to leave, three to re-tenant immediately, and we are uncertain on the four remaining leases.

As Rand also mentioned, we entered 2011 with strong leasing momentum, but certain challenges remain.

First is the uncertainty the market is experiencing because the federal government failed to pass a fiscal-year 2011 budget and is currently operating under a continuing resolution.

Continuing resolutions present challenges, as they limit new contract starts and push back programs and spending opportunities, which defer leasing decisions by tenants.

We are experiencing this firsthand.

Second, we expect rental rates to remain under pressure, despite the improvement in our overall business sentiment and the associated increase in leasing volumes.

For example, although we have either signed or have under negotiation over 1 million square feet of leases so far in the first quarter, if we exclude BRAC locations, we have yet to see an overall improvement in leasing economics.

Also, we continued to see some top-down pressure from corporations to lower operating expenses, which includes occupancy costs, and some renewals have accompanied this space downsizing, which has pressured both our rents and our occupancies so far in 2011.

Third, although our leasing capital costs per square foot have been low in the last few years during the economic downturn, it is likely they will increase as we build occupancy in 2011 and 2012.

Especially since the economic downturn, we have worked hard to maintain operating cash flow and have largely bypassed on lease opportunities that required significant CapEx.

With that said, we also have many growth initiatives in our government defense sector niche, which accounted for 59% of our annualized rental revenue at December 31, 2010.

In general, we continue to expect government jobs to generate incremental demand for space.

We expect the bulk of demand to come from contractors who will need proximity to serve their government customers.

Timing is difficult to predict, however, as leasing demand varies across submarkets based upon contracts or obligations to relocate.

Here is a quick snapshot of our four highest-growth business parks.

First is the National Business Park.

We have four buildings under construction at NBP in support of the move of Defense Information Systems Agency, known as DISA, from northern Virginia to Fort Meade, and the stand-up of Cyber Command at Fort Meade, along with many of the cyber service commands located nearby.

DISA has partially moved into its completed headquarters at Fort Meade, with a full move-in expected in the third quarter of this year.

Approximately 5,600 people will move to Fort Meade.

Cyber Command was initially stood up with approximately 1,100 people.

Second is Patriot Ridge.

We are going under construction on the first of five buildings at Patriot Ridge, which is adjacent to Fort Belvoir, where NGA expects to open its new headquarters and house 8,500 personnel before year-end.

We have leasing proposals out for our entire first building.

We believe Patriot Ridge is the office park with the best proximity to the NGA.

Third is our San Antonio project.

We are under construction on our first building in a contractor park named Century Gateway, opposite a government campus in San Antonio.

The adjacent COPT-owned campus will become operational in 2012.

We have interest from government contractors to support the government operation and we would expect to get leasing traction in 2011.

Fourth is our project in Aberdeen, Maryland.

We are building Northgate Business Park outside Aberdeen Proving Grounds to support the new move of C4ISR from New Jersey.

There will be about 8,200 government jobs at the newly-constructed campus.

Part of the move has already occurred.

We have three buildings underway to support the contractors who ultimately may represent 2.5 million to 3 million square feet of demand for space.

Our first building is 100% leased, the second is one-third leased, and the third is under construction.

We expect additional leasing in 2011 as the move to Aberdeen is complete and new contracts are awarded.

Wayne will speak to our other tenant niche-related development in a moment.

First, I'd like to touch on our external growth activity in 2010.

In the current capital markets environment, we continue to look for opportunities to strategically grow our portfolio by adding high-quality assets in our existing submarkets and selectively entering new submarkets that we believe will consistently outperform the region.

We also continue to look for opportunities to sell mature assets whose long-term growth prospects no longer match up with our cost of capital objectives.

With regard to acquisitions, during the latter part of 2010, we saw increased activity and competition from institutional investors, which translated into sharply lower cap rates for best-in-market properties, particularly in top-tier metropolitan areas such as Washington DC.

We also saw increased interest in and pricing for core-plus and even value-added properties in submarkets where office supply and demand are more in balance.

With interest rates remaining low and cap rate spreads over treasury still well above historic norms, we could see further yield compression this year.

Distressed opportunities have been limited, with many situations being resolved among the existing participants.

In the fourth quarter, the Company bought a 183,000-square-foot building in Fairview Park in northern Virginia for $43 million.

Fairview Park is the headquarters for General Dynamics, the CFC, DynCorp, and most recently, Northrop Grumman.

The park is also located adjacent to the new Joint Military Medical Command headquarters, totaling 660,000 square feet.

At acquisition, the building we acquired was 4% leased.

Since then, we have signed a 62,000-square-foot lease with an existing defense contractor and have good leasing prospects on the remaining vacancy.

For the year, the Company made $317 million of acquisitions, including the Rappahannock building in Tysons Corner, the Maritime Plaza assets adjacent to the Washington Navy Yard in Washington DC, the Power Loft data center in Manassas, and the property in Fairview Park I just mentioned.

All acquisitions were high quality, new vintage, strategic assets.

The Power Loft data center is 17% leased in terms of megawatts.

We are currently building out an additional 3 megawatts in anticipation of leasing in the second half in the year.

On the disposition side, we sold two office properties in Dayton, New Jersey, totaling 201,000 square feet, and a contiguous land parcel for $23.9 million, which completed our exit from the New Jersey market.

And with that, I will turn the call over to Wayne.

Thanks, Roger.

Before discussing some of our development projects, I want to touch on one of our redevelopments.

We continue to make progress in Blue Bell, Pennsylvania, where we have renamed the Unisys campus to Arborcrest.

If you recall, we have four existing buildings in this market.

The first building, totaling 219,000 square feet, is 100% leased to Merck.

The second building, totaling 218,000 square feet, has been redeveloped with Unisys leasing 156,000 square feet, and subsequent to year-end, we signed one lease for 43,000 square feet and have a second lease out for the remaining space in the building.

We have started renovating the former Unisys headquarters building, totaling 114,000 square feet, with availability for tenants by year-end 2011.

The final building is undergoing redevelopment and will be ready for renovation likely in late 2011 or early 2012, depending upon leasing activity.

The latter two buildings are reflected in our supplemental information as under redevelopment.

We also have excess land for about 250,000 to 350,000 square feet of new construction.

Turning to our construction pipeline, at quarter-end we had 10 buildings under construction for a total of 1,040,000 square feet at a projected cost of $224 million.

This total is after placing 816,000 square feet of construction into service in 2010.

This increase in construction activity over last quarter's report is the result of starting construction on one building in each of our government and defense IT sectors.

Our development pipeline has nine buildings under development, containing approximately 1.3 million square feet at a projected total cost of $326 million.

All nine of these buildings are targeted for either government or defense contractor customers, and most are expected to start this year.

With regard to leasing, our construction pipeline ended the quarter at 32% leased.

As shown on page 34 of the supplement, the buildings with space placed into service in 2009 or 2010 are 77% leased at year-end.

As we mentioned last quarter, leasing interest from our core customers at the National Business Park continues to be strong.

As a result of this leasing activity, we started construction last quarter on our second building, NBP 410, in the next phase of the park.

This represents a strategic decision to prioritize the development in this expansion phase of NBP ahead of the remaining building sites in the existing portion of the park.

This building is a mirror image of NBP 430, and the 110,000 square feet will be delivered in the fourth quarter of 2011.

As a result of this building beginning construction, we have added NBP 420, the final building in this initial three-building complex, to our development pipeline, to be positioned to capture future contractor demand for office space in the National Business Park.

During the fourth quarter, we also began construction on an 86,000-square-foot building, which is being constructed to antiterrorism force protection standards to be attractive to certain government tenants who may be seeking office space in the Howard County submarket.

I'm also pleased to report that construction of COPT's two newest projects is going very well.

Our Patriot Ridge project is located south of Washington DC along the I-95 corridor and is adjacent to both Fort Belvoir and the new 2.4 million-square-foot headquarters for NGA.

Patriot Ridge has received its approvals from Fairfax County, Virginia, such that we recently began construction work on this site.

It will house an eight-story, 240,000-square-foot office building and associated parking garage.

The Patriot Ridge complex ultimately will contain approximately 1 million square feet of development.

This first building is projected to be delivered for tenant occupancy in the second quarter of 2012 to meet demand from the contractors serving the NGA.

Leasing demand is very robust and exceeds the building size, all from super-core tenants.

In Huntsville, Alabama, we began our infrastructure construction last quarter on the first phase of Redstone Gateway.

This phase of the park is master planned for approximately 2 million square feet, and the city of Huntsville is under contract for the work associated with the mass grading of the site, road construction, utilities, and certain security-related work.

We expect to start construction on the first 115,000-square-foot office building this quarter and a second building mid-year.

We believe our progress on both the infrastructure construction and the office building approvals would allow our first delivery of the office space at Redstone Gateway to occur late in 2011.

With that, I will turn to call back to Rand.

Thanks, Wayne.

We appreciate your continued confidence and support of COPT, and look forward to a challenging but very successful 2011.

And with that, we'd be happy to answer any questions that you may have.

(Operator Instructions).

Bill Crow, Raymond James & Associates.

A couple of questions.

First of all, on the guidance for this year, is there any assumed dilution from equity raises within those numbers?

In terms of -- obviously, the equity offering that we just did at the end of the year is in there.

At this point, Bill, we've assumed that our main capital activities are going to be issuing debt.

Although if we get additional opportunities that get to the very high end or even exceed the high end for acquisitions, then we do believe that we have access to additional capital that we could invest accretively.

Got you.

And then, Rand, could you talk about your appetite for further data center investments, whether that's changed at all over the last six months or nine months?

It has not changed.

If anything, it has picked up.

We feel very comfortable with the demand we are seeing at Power Loft.

It is a little bit affected by the continuing resolution impasse that Roger has talked about with not approving the budget.

But we do feel comfortable still with our projections for leasing, and most of that occurring in the second half.

We are seeing additional trends from the government.

Interestingly, the government is really stepping up.

They've tasked three specific agencies over the next 18 months to actually be on the cloud first, the overall computer network, and they are looking for eliminating 800 data centers over the next five years.

So there is a fairly massive consolidation and revamping of data space from the government side going on, and we anticipate participating in some of that.

And I think as a result of our expertise, we are seeing other, larger data users interested in talking to us about further investment in data.

So, we believe this will be an increasingly important component of our future growth.

Okay.

And then, finally for me, if you were to take Huntsville out of the equation and go back a couple of years to your development pipeline timeframe, has that changed because of the budgetary process, because of the shifting budgets?

Are you slowing down, as you start to get out to your out years, the amount of development you had originally considered a year or two ago?

Or -- how has that changed?

I think, Bill, if you look at the strategy that we've gradually evolved to, it really relates to the 2005 BRAC announcements.

And when that came out in early 2006, we had one location, which was the National Business Park adjacent to Fort Meade.

We strategically have gone out to look for other key BRAC growth areas, and picked up the Aberdeen site and last year picked up, very importantly, as we said, the Patriot Ridge site next to NGA at Fort Belvoir, and then Huntsville.

So I think that that is an important component because that's sort of immune to any of the looming potential defense cuts, as I said.

It's immune from that.

It's fully funded.

It's got an urgency, and there is a lot of demand that's proceeding with that.

So I think the development starts that we have had have really picked up since that timeframe here to BRAC, and that has been strong for us.

If you note, consistently the last two years, we've had no other, what I would call, conventional demand.

We do have ground for that, and that will come back as jobs increase and firms need to relocate and continue to grow.

But we're very unique in the country, I think, to have this kind of development underway with this kind of demand.

I mean, there aren't very many office developers that I know in the whole country that leased over 800,000 square feet of development space last year at very strong yields.

So, you'll see that that has been continuing and will continue, I think, to accelerate, based on our leasing success.

So you're still intending to get up 2 million square feet a year for starts?

I think it's -- right now, it's about 1.3 million.

That does not have in it, as Wayne said, the second building at Patriot Ridge.

If we do the leasing that we think is in front of us, that is going to necessitate starting that second building.

That pops you up to 1.5 million of starts right there.

And I think then it is dependent on leasing.

But over the next few years, we do see it in that 1.5 million to 2 million on the upside range (multiple speakers) based on demand.

Thanks.

Jordan Sadler, KeyBanc Capital Markets.

It's Craig Mailman here with Jordan.

Rand, I know you had characterized the potential defense budget cuts as more of a reallocation of resources.

But it seems from Roger's comments that maybe more so the government impasse.

But it seems like the defense contractors are a little bit more shy about taking more space.

Is that a good characterization or are they still intent on leasing up some more of your development space?

I think it varies by several things.

I think in some instances, like, say, at Aberdeen, the move is occurring of the BRAC personnel.

It is a very major move.

Unfortunately, some of the processing officers who would normally be awarding the contracts have retired or chosen not to relocate, and that has delayed some of the actual activity, as well as the continuing resolution.

So, I think there are select instances where contractors are sitting there talking to (multiple speakers), waiting for the resolution to get passed, the actual budget to get passed, so that the contracts can be awarded so they can take space.

In other instances where you have the cyber security, they're going ahead and taking that risk and see the demand there, and so we have very strong leasing activity, as Wayne said, at National Business Park, and the same occurring at other locations.

So, I think Roger was trying to be conservative, and at the same time, we're very comfortable with the demand that we see occurring on the development.

And even though the fourth quarter was sort of slow, it was really, when you look at the whole year, [800,000] (multiple speakers) square feet, and a lot of -- we were sort of mentioning some of the leasing that has already occurred so far this year.

I think you are going to see a pretty robust year of leasing and development.

And just a follow-up, the 1 million square feet that Roger discussed, is that stuff you have out for LOI or is that leases that are already signed, quarter to date?

So far, we have signed about 500,000 square feet of leases and we have about 700,000 square feet of leases that are out under negotiation.

And then, I guess, just lastly, is there any way you can provide us with a pro forma so far of what the under construction pipeline, where the lease percentage is now versus year-end?

I think, then, if you look on the page 34 that Wayne mentioned, I think that is our attempt to sort of do the equivalent of same-store on construction.

Because as several of the analysts pointed out, it looks like we're not making progress, but it's because we keep adding new building starts that, of course, are relatively empty until you get the buildings up and enclosed.

Over half of them -- about half of our building starts really occurred in the second half of the year, and it takes a while for those lease-ups to occur.

So, 77% of what we have put in place is leased over the last two years, and we'll just continue to try and update that as we go along each quarter.

Okay.

Of the 500,000 square feet that has been signed, how much of that is in the development pipeline versus your operating portfolio?

Some of it is in the redevelopment category.

Wayne mentioned one lease for 43,000 square feet.

I mentioned another one for 62,000 square feet.

And then beyond that, the leasing on the development side is more in the proposal and leases under negotiation stage.

We've had a small amount of leasing signed on the development, but nothing significant since quarter-end.

Dave Rodgers, RBC Capital Markets.

With regard to the support versus program initiatives on the contractor side, you did say the impact would be modest.

Can you give a little bit of color as to whether that has been in your guidance, whether that is going to be a 2011 impact to you, and whether that would be in the development pipeline or in the operating portfolio?

I think, Dave, the point we're trying to get to is that we think if you're a big corporation and you see the budget situation facing you, you are naturally going to push down to the different sectors and programs within the company to try to get more efficient.

And so, what we are seeing is people trying to get more efficient, not necessarily, in our buildings, programs being cut.

So I think what we are going to see is the secondary effects of overall budget cuts, as opposed to the primary effects of them where our -- the programs in our buildings would actually be eliminated and therefore we would lose total tenancy.

So as renewals come up, tenants are being more judicious in the amount of space they use per square foot, and so we are seeing downsizing still as part of renewals.

And that is still reflected in the guidance and consistent with what you gave previously?

Correct.

And then, I guess your tone overall was good about the long-term demand for space, and I appreciate the additional color by market in terms of the per square foot demand longer term.

Again, I guess, going along the same lines of more timing issues, and Rand, you commented on maybe a slower pace of development starts this year, is that primarily again -- sorry to ask if it's been asked in different ways, but is that still a part of the continuing resolution at a budget issue, or is that really just a slower demand in maybe certain subsets of the market, whether it be Patterson or other components of the portfolio?

I think it is several factors, Dave.

The first is that as the government agencies have relocated, their tenants have started to come back and put some pressure, both politically and directly, to say, look, we have existing leases there and those leases, if we have to terminate those leases, are somewhat of a burden.

And so, the agencies have extended the time that those firms need to relocate.

All of them do have to relocate.

In some instances, they have said you will get your contract re-authorized or rebid, and when it is rebid, you need to assume that you are going to be at the new location going forward.

And so, what we -- and again, this is new territory for a lot of us.

You don't see this kind of historic relocation, historic demand going on very often.

Certainly, we've never seen it.

And so, it's a little bit of unchartered waters.

And so, whereas we would have thought that a lot of the moves would have been finished in 2011 and 2012, now it's occurring 2011, 2012, 2013, and need to be completed and in place by the beginning of 2014.

And so, that is why we've said that it will extend over that timeframe.

I don't think I would characterize this as a slowdown, Dave.

I would correct that because I think we are just trying to be a little cautious.

You'll see immediately when the leasing occurs at Patriot Ridge, you'll start the next building, and boom, you're right up to the 1.5 million starts.

So, I think we're just trying to do it logically as leasing occurs.

Great.

And last question for Roger.

You talked about submarkets and potential expansion with the acquisitions.

Is this a balanced approach between government contractor and market-based demand, and how do you feel about changing up the mix here throughout the course of the year?

I think it is a logical extension of our strategy.

It is not -- we are not at this point looking at any new markets in terms of taking market exposure.

We're looking at submarkets that have government and government contractor placeholders that we think we can have a good impact by buying space there and being successful.

Like we did at (multiple speakers) Belvoir.

Brendan Maiorana, Wells Fargo Securities.

So I just wanted to -- I had a question, I guess, on the development pipeline and the NOI that you guys expect for 2011.

I think the $13 million to $14 million for the deliveries in 2010 and the 2011 deliveries, which I gather is -- most of that is related to the 2010 deliveries.

So if I look at that page 34 that you mentioned, Rand, how much of that -- what does that NOI number, $13 million to $14 million this year, trend to as you get out next year, just for kind of the stuff that delivers in 2010?

Because $13 million to $14 million, it seems like that is a number a fair bit below the stated yields of 10% to 11% that you guys expect to get on the development projects that you put into service last year.

I think, because some of it is a cycling of when they go into service, the $13 million to $14 million would grow to as you said stabilized, full would be $16 million to $17 million, or an apples-to-apples equivalency.

So, that is the important thing.

As you can continue to put on the square footage and once you get it stabilized, it really has an accelerator effect on NOI.

And that is stable at $16 million to $17 million -- I guess -- I don't have the numbers right in front of me, your costs were around $160 million to $170 million of what you delivered last year?

A little lower than that, yes.

A little lower?

Okay, so that is how you get above the 10.

Okay.

All right, that is helpful.

And then, on the data center commentary that you made, Rand, I think it was 800 data centers that the government may cut.

Is any of that at risk in your portfolio because I know you've got a lot of data space and some of it is with the government?

No, it is not a risk at all.

I mean, what the government is really looking at is trying to consolidate into more regional, cost-effective operations whereas they do have an awful lot of very small, inefficient, scattered locations.

So we don't have risk at all on the downside.

I say our opportunities are on the upside.

And it sounded like, I think from the difference in Power Loft, that the NOI is now $4 million to $7 million for this year.

I think the previous expectation was $8 million.

What sort of -- given the delay there?

We do have proposals out that we believe will benefit leasing and NOI in the second half, Brendan, but some of our defense contractor requirements that we think could be met at Power Loft are also impacted by the continuing resolution.

So we have taken that into account in terms of the guidance range.

Okay, so just a little bit slower on that there.

And then, for 3120 Fairview, how much -- I mean, it's in redevelopment.

How much of additional costs do you expect to put into that building and what is the return that you expect on a stabilized basis?

At this point, what we need to do is TI and commission, so we're probably in the range of $70 per square foot, and we think the yield will be a very high single-digit number when we're complete.

Okay.

That is helpful.

Thank you.

Jamie Feldman, BofA Merrill Lynch.

Rand, I appreciate your commentary on the description of program versus support contractors.

I know in the press over the last week and a half or so, there has been a lot of talk over the President's budget looking to cut professional and technical services by 10% to 15%.

Can you just give us a sense of, within that piece of the budget, how that breaks out in terms of program versus support and how we should be thinking about that?

Most of it is in support.

It is literally no cuts on the program side of things.

So, and that is where -- a lot of it is just trying to get efficiency.

Most of the cuts, by the way, when they say the 10% to 15%, still relate back to soft support like the joint command down in Newport News and areas like that, as opposed to what we would call the hard and the intelligence support that we tend to operate in.

So we don't see exposure at all in that area.

Okay.

And then, the continuing resolution situation, can you talk about in the past when you've had that, how has it worked out?

Do you typically get paid and what is the delay?

We had the same situation last year (multiple speakers), if you recall.

It is a little bit of a tuggle between the Republicans and the Democrats, and there is a lot of behind-the-scenes negotiating going on right now.

I think the expectation is that there would be a resolution signed by March 4, but I think on the downside, there is a lot of sort of behind-the-scenes discussion that the Republicans are continuing to play some game and holding up that for other cuts that they're trying to accomplish.

On the downside, you could go literally until October 1 before you get that resolved, which would mean you're really wrapping it all into the 2012 budget.

So, I think there is just -- we will just have to wait and see.

But when they -- when it does get passed, then there is a flurry of activity and very substantial ramp-up of spending that goes on, and that is why I think the Congress is recognizing that if they continue to do this too long, it does affect the overall economy.

There is a lot of pressure politically on them, and so that is why we are hopeful that that will get resolved relatively soon.

Okay, and I guess, has there been a time in the past when -- where they did not make the full payment?

No.

What is the downside risk?

This is always related to new activities, new Title X leases, and so on, and always they've been able to resolve that and then proceed with their expected commitments.

So, we don't see any downside issue.

It's just timing.

Okay, and then, Steve, a couple of questions on the guidance.

I just want to make sure I heard you correctly.

You said a 65% retention rate or 55%?

65%.

65%.

Okay, and then I noticed when you compare the other income including KEYW to what you introduced on the third-quarter call, it looks like the high end of your range is up $2 million.

Can you talk about what is in there?

I don't think I have changed that since the third-quarter call in terms of the gain guidance.

So other income, including KEYW, is 6 to 13.5?

Yes.

Okay.

I thought on the last call, it was 6 to 11.5.

I guess I'm wrong.

If you are -- if I did, I apologize.

That is just our -- what we have in that, categorically, would be just estimated gains on the KEYW stock and also land sales.

And what we talked about the quarterly guidance, one of the things that fluctuates in quarter to quarter, that's going to happen.

So, we've assumed our gains on our investments happen a little later in the year.

There were some -- there is some land-sale gains that happened in the first quarter, but they're not as big as the investment gains, in the range.

George Auerbach, ISI Group.

Rand, I guess just thinking through the 1.3 million square feet of new starts, plus the projects under construction, what do you think your development CapEx spend will be in 2011?

Well, again, it's a sequencing of a little bit based on leasing activity, George, because if you -- for example, if we get the leases that we see in front of us, you would by mid-year start the second building at Patriot Ridge and so on like that.

But right now, we are at plus or minus $300 million of new capital for starts this year (multiple speakers) and finishing up what we have going on, too.

What does that do to your leverage ratios if you fund all of that with debt and the acquisitions all with debt?

I don't think it really changes.

I mean, that is what is built into the numbers.

I mean, it is funded through the commitment of the -- primarily funded through our construction revolver that we just extended for three years.

So our -- when we do our capital planning, as I think we have said in the past, from a leverage standpoint we try to keep our debt to gross assets to 50% or below and our fixed-charge coverage ratio at two times.

And I think I said earlier that if we got to the very top or even exceeded on the acquisitions, then we believe we'd have access to additional capital that we could invest accretively.

Okay.

And I guess, Steve, what are you seeing in terms of secured debt rates today, and where were those maybe six months ago?

Well, I think they have improved.

It depends on how far you go out, but we think we can get done five or somewhere in that area.

John Guinee, Stifel Nicolaus.

A handful of questions here.

First, Rand, I might have missed it, but have you announced a retirement date yet or is that just open-ended?

We have not.

Okay.

What was the last proxy?

I can't remember.

I think we only have talked about that my contract is up at the end of March of 2012.

It is up to the Board the action we take from there.

Well, we hope you stick around.

Second question, capitalized interest, Steve, $24 million in 2011.

What was it in 2010?

It was $4 million a quarter, around $16 million for the year.

Okay, so essentially $24 million is about $0.33 a share.

Okay.

Roger, you had pointed out, by our numbers, and first correct me if these are wrong, I have a second-generation TIs and leasing commissions of about $30 million for 2010 and then base-building capital of about $9 million.

What do you expect that to be in 2011?

First of all, those numbers you mention are correct.

And for 2011, we think the total spend will be in the low $40 million range.

So really not maybe 10% above 2010?

About that, and obviously that's situational, depending on how fast leases come in and how fast tenants spend the money that we give them or we otherwise spend it on their behalf.

So, it is hard to be exactly precise about the CapEx number.

Okay, and then, just out of curiosity, when you're dealing with defense contractors as tenants, are they represented by tenant rep brokers or do you have to pay that full commission or are you doing direct deals with these customers?

The big prime contractors are all represented by one of the big brokerage firms.

And then, as you go down further, there are some that don't, but I would still say that 75% to 80% are represented by brokers.

Rich Anderson, BMO Capital Markets.

First question for me is I took note of your occupancy -- portfolio-wide occupancy declining about 500 basis points over the past two years.

And that has coincided with an uptick in a greater exposure to super-core, core-plus type of assets.

I wondered if you would be able to say how much you protected the overall occupancy decline by moving into your niche more and more over the past couple of years, and how bad it could have been had you not done that?

First of all, that is a good question.

You are right.

Our occupancy has gone down 5% from 93.2% at the end of 2008 to 88.2% at the end of 2010.

And I think what we're trying to do is continue to focus the Company on our strategy, which is our niche in the government, defense IT, and data sectors.

As we look for new opportunities to grow the Company, whether they be development or acquisitions, that is the primary focus on growing because we've had the best experience in that side of the portfolio with respect to the imbalances that can happen in a portfolio when the economy turns down.

And so, the tenants tend to be more sticky in that portfolio and the volatility is much lower, and so that is where the focus of the Company in terms of its growth is.

Right.

So, would you say you could have been another 100 or 200 basis points lower if you were -- kind of you stayed put -- stayed at the ratio that you are at two years ago?

I mean, I'm trying to get a sense of how much of a bubble you guys actually play in relative to the rest of the office market, given your niche?

I think a fair number there would be about 200 basis points, or 2%.

We would have been worse had we had a conventional suburban office portfolio.

Regarding demand, you talked about a lot of -- you know, the reallocation movements, Rand.

Would you say, likewise, you have seen the same amount of demand, one for one, so to speak, for SCIF buildings or has that kind of tailed off and there is less need for secure type of assets?

You did not mention that, so I wanted to ask.

I think it varies by the type of firms moving.

If they're supporting DISA, for example, they don't need as much SCIF.

If they're supporting C4ISR, they do.

And so on down the line.

Obviously with cyber security, it will all be SCIF.

But I think it just varies.

We haven't seen a change in our percentage.

Certainly, we are still building a lot of that and don't have any empty SCIF space and continue to see that as a very valuable part of the asset, which goes unrecognized, I might say, on our NAV calculations.

It still costs about $30 more for -- to build a SCIF building?

It goes $30 on up to $200 a foot, depending on the particular specs.

You mentioned that you thought that occupancy would bottom in this quarter, the first quarter of 2011.

But you also talked about rising capital expenditures out of your pocket.

How much do you think that the occupancy bottoming idea is a function of the market, or is it just a function of landlords like yourself spending more money to get people into space?

Rich, I think our portfolio bottoming is somewhat circumstantial.

It just depends on when your leases happen to mature.

So in that case of us, we have for leases maturing in the first quarter that total about 250,000 square feet where tenants are leaving now.

Two of those are where -- one of them where we took a termination because we have one of our customers wants a building.

And then, the second, same thing.

We are going to be expanding a customer in a building, and two others were just the fact that the tenants were downsizing and could find other space it was easier to downsize into.

So I think that part is circumstantial.

In terms of -- I guess what we are saying in terms of absolute dollars, whether it is on a per square foot basis or not, if your portfolio eventually is going to go from 88% back up to 94% occupancy, during those years you are going to have a higher spend than you would if you were just maintaining your occupancy at the same level.

Okay, thank you.

And then, lastly, more of a conceptual type of question for Rand or anyone.

You have undertaken some massive projects and acquisitions over the past couple of years.

Has there any been that you have looked back upon and said, maybe we are biting -- ended up a bit more than we could chew on this one or that one, and that you had wished that maybe you conserved the balance sheet a little bit at some point along the way?

Or are you legitimately happy with every single one of the large deals that you have done over the past couple of years?

I think that our strategy has been to have large office parks adjacent to government demand drivers.

And I think that that has worked very well for us historically.

It certainly positions us to capture an ever-greater percentage of that demand.

And so, when you look at parks like National Business Park that in the beginning struggled and took a while to get going, and now you look at that momentum and we have a very strong position in the marketplace, and I think that is what will happen with these other locations.

So, we're very happy with what we have accomplished.

We don't tend to go into one-offs.

It is a little different with data because data clearly, because of its size of investment, could be one-offs there as you're serving the right location for the right tenants, and that is a slightly different strategy.

But on the office component, we're very comfortable with what our strategy is.

And it gives us a very strong position that yields will improve and leasing will accelerate on those parks.

Christopher Lucas, Robert W.

Baird & Company, Inc..

Just a couple of detailed questions.

I know the call has gone on pretty long.

So just, Steve, on the KEYW gain for the fourth quarter, what was that number?

$5.6 million.

Okay.

And then, on the fourth-quarter lease termination fee income, I guess if I'm listening to Roger's comments, some of the lost NOI seems to have some backfill already associated with it.

I'm just wondering what the net NOI number is that is coming off of that lease term fee in terms of lost space and lost NOI?

What is the net negative, then?

Well, there were actually two sizable lease terminations in the quarter that made up the $2 million fee, one of which was voluntary on our part because we had a tenant who moved in, and that is 80,000 square feet.

And then, the second tenant actually had the right in their lease to terminate early, and they did that.

And so, that was an involuntary from our standpoint, and so we took the fee.

In each case, we do have tenants, we think, to backfill both of those spaces, but it may take a little while to get them in.

That is why we are not sure, by the end of the first quarter, that they will be in and paying rent.

And so, our occupancy will likely dip at the end of the first quarter.

Okay.

And then, Wayne, on the demand side, what kind of demand are you seeing down at Redstone?

I guess more importantly, maybe, how should we think about what the sales cycle will look like down there since you are really sort of at the very beginning stages of entering that market?

As you know, Chris, we made our announcement on Redstone just about a year ago, last March.

And we have been actively in the market down there and we have had very good response from the existing tenant base that, of course, is largely in place.

So I think we feel optimistic that as we start this first building, which is a start we expect this quarter and deliver by the end of the year, that that first building will -- it will be a multi-tenant building because you'll remember that that's one of the areas we can compete uniquely in.

The competing park across from ours is not in a position to offer and deliver multi-tenant space.

So I think we feel pretty good about the activity.

There has been strong interest.

Most of that has been from our core customer base, which is where we have reached out over the last six to 8 months, in particular, to.

So, I think we feel good about that.

We have got that building plus one more in the pipeline, which was looking at a mid-year start, all of which is, again, as Rand said, anticipating a response to the ramp up of the BRAC that will be in line there.

That arsenal has actually done quite well in terms of meeting their 2011 deadline.

So we are optimistic.

I think, Chris, what happens is there is two types of demand.

You have, as Wayne said, existing tenants who are looking to consolidate.

We have two or three that are looking at -- are full-building users, each of them, and are trying to look at growth and consolidation.

The other demand, which is about 2 million square feet anticipated of the BRAC relocation, the contractors that will be relocating with that, and as they start to rebid their contracts for the relocation, they need to specify where they're going to be located and the price associated with that.

And those will tend to be smaller square footages.

They might be large tenants, but smaller presence initially.

And that has not yet occurred.

That will start to occur here in the mid-year timeframe, and we'll be topped off on the first building by May.

And we'll start to see some of that components of leasing as well, as well as in the marketplace, larger ones.

So we are very optimistic about the demand we're seeing so far.

Okay, and then, just a broader question and the last question for me.

Are you seeing a change at all in just the sales cycle for leasing right now?

In other words, are you finding that tenants are making decisions any faster than they were six months or a year ago, or is it still pretty drawn out?

Chris, I think, in general, it is pretty drawn out.

There are some BRAC-related leasing that goes a little quicker when people feel the strong need to be close to their customer.

But beyond that, if it is traditional leasing, we are seeing it still taking longer than it did two or three years ago.

Michael Bilerman, Citigroup.

Thanks.

It's Josh Attie with Michael.

It sounds like most of your contracts business is program, but is there any way to quantify your exposure to the support side of the business, either as a percentage of occupancy or NOI?

I think, Josh, we would have to do a really detailed study of that, space by space.

But based on the knowledge we have of the people that are closest to those customers, we have very, very little support space, and it is all program driven because our locations happen to be adjacent to where the bigger programs are coming from.

So, I would say that we have 5% or less (multiple speakers)

Yes, that's what I would have said, it is less than 5% exposed to support.

And do some of your program tenants, do they also operate on the support side, or are they -- and could they be impacted by some of these changes or are the tenants specific to either program or support?

They may elsewhere in the company have support activities, but where they have contracts in our buildings, those activities primarily are program activities.

And you see that even when somebody has purchased -- like there is a lot of M&A going on, and you might think about some efficiencies that would go on there.

Those firms have contracts that are supporting very critical agencies, and those tend to be very sticky and do not get eliminated or reduced.

Steve Benyik, Jefferies & Company.

Given the potential cap rate compression that you guys mentioned earlier in the call for properties, also coupled with the Company's future liquidity needs, can you talk about how you're looking at dispositions in 2011?

I know you mentioned on the last call that you were sort of firming up plans on that front to how we can think about quantifying both property and land sales in 2011.

We don't have a dollar amount at this point that we would place on dispositions.

We do realize that the Company's portfolio has been constructed over many years, and some of it at a time when the Company's size was different and the Company's strategy was different, so we do have some assets that we feel are nonstrategic or do not benefit or enhance the franchise that we have.

So we are still in the stages of firming that up.

But you should start to expect over the next year or two, us having a reasonably significant selling of assets.

But not so much to fund our growth plans, but more just to prune our portfolio, make it more strategic and allow those assets with the higher yields and the higher NAV push to have a bigger benefit by not having as many assets with it.

Okay, and on page 36 of the [supplement], you guys have your land bank, how much of that would you consider non-core, and can you parcel out which buckets may be not part of the strategy going forward?

We have gone through that, Steve, and I think literally 99% of it is core and strategic to us.

I mean, we are very fortunate from that perspective.

Okay, and then just, lastly, in terms of the new construction loans you mention potentially putting in place this year.

What is the dollar value you think you can pull from there?

And of the $571 million of debt maturities in 2011, I'm just wondering -- making sure that that is inclusive of the $162.5 million of the 3.5% exchangeable notes that are puttable in 2011?

We're looking at project loans of about -- up to $125 million, and getting close on that at this point in time.

And in terms of just assumed rates and all, we are not giving guidance beyond 2011 at the current time.

We have extended the construction line through May of 2012.

On the other revolver, we do have the option of extending it, but we made sure that our guidance assumes that we actually amended it and got a new three-year term at what we think would be current market prices in the guidance range, so that if we choose that option, it won't affect our guidance.

I will now turn to call back to Mr.

Griffin for closing remarks.

Okay, similar to our leasing efforts last year, this has been a record-long earnings call, which I apologize for, but there was a lot to talk about, and -- as you typically see at the year-end.

So we thank you for joining us, and we appreciate your support and participation, and we're certainly available to answer other questions that you might have.

So thank you, and have a good day and a good afternoon.

Thank you for your participation in the Corporate Office Properties Trust year-end 2010 earnings conference call.

This concludes the presentation.

You may now disconnect.

Have a good day.