REITs Things You Should Know

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1 REITs Things You Should Know Corporate Office Properties Trust AAII Investor Conference Las Vegas, NV November 2005

Disclosure This presentation contains forward-looking information based upon the Company s current best judgement and expectations. Actual results could vary from those presented herein.

2 Disclosure This presentation contains forward-looking information based upon the Company s current best judgement and expectations. Actual results could vary from those presented herein. The risks and uncertainties associated with the forward-looking information include the strength of the commercial office real estate market in which the Company operates, competitive market conditions, general economic growth, interest rates and capital market conditions. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information, please refer to the Company s filings with the Securities and Exchange Commission. Defined terms for Non GAAP measurements used throughout may be found in the Disclosure. In addition, a Reconciliation of Non GAAP measures to the most comparable GAAP measure is included in the Disclosure. 1

3 10 Things You Should Know 1. Why Invest in REITs 2. Trading Exchange 3. Performance 4. Product Type 5. Size 6. Geographic Focus 7. Tenant Base 8. Management Team Value Creation Consistent Growth 2

4 #1. Why Invest in REITs? Income generation stable and increasing dividends Annual returns outperform major indices Increases the return in a portfolio Ibbotson Study Investing in hard assets Real estate tends to appreciate not depreciate Strategic Investing Diversify by geographic market & product type 3

5 Compound Annual Total Returns Dow Jones Industrial 8.97% NASDAQ Composite % Equity REITs (publicly traded) 12.58% S&P % 0% 2% 4% 6% 8% 10% 12% 14% Source: National Association of Real Estate Investment Trusts, Ibbotson Associates, NASDAQ. 1. Data from May 1986 May Price appreciation only. 4

6 REITs Improve Portfolio $10,000 Invested in 1992 $30,000 10% 20% $26,413 0% $25,937 $25,000 $25,010 $20,000 22% Stocks 63% Bonds 15% T-Bills 20% Stocks 56% Bonds 14% T-Bills 10% REITs 20% Stocks 51% Bonds 9% T-Bills 20% REITs Source: NAREIT : Stocks-S&P 500, Ibbotson U.S. Small Stock Series, MSCI EAFE Index; Bonds-20 year U.S. Gov t Bond; T-Bills-U.S. 30 day T-Bills. Figures based on average annual return over the period Portfolios re-balanced annually. 5

7 #2. Trading Exchange REITs trade on a public exchange New York Stock Exchange, American Stock Exchange, NASDAQ, OTC File with SEC Self advised and self managed Offer liquidity and stock price appreciation About 200 traded on public exchanges OFC - NYSE 6

8 Trading Exchange (cont.) Public REITs non-exchange traded File with SEC Usually externally advised and managed Shares are less liquid, restrictions on redemption Share prices are fixed (do not fluctuate) 7

9 #3. Performance Total Shareholder Returns 1 Year to Date 1 Year 3 Year 5 Year Oct. 21, 2005 (2004) ( ) ( ) Corporate Office Properties Trust 20% 45% 188% 427% Median for Office Peer Group 7% 22% 75% 146% Morgan Stanley REIT Index 3% 31% 86% 167% Dow Jones Industrial -4% 5% 15% 3% S&P 500-1% 11% 11% -11% NASDAQ -4% 9% 12% -46% 1. Based on total returns including the closing prices as of December 31 each year and the re-investment of dividends on the ex-dividend date for the calendar years , as compiled by the National Association of Real Estate Investment Trusts. Data as of December 31, 2004 compiled by Stifel Nicolaus. NASDAQ data does not include re-investment of dividends. 8

10 Office Sector Comparison 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -1.1% % FFO-Diluted Per Share Growth -4.1% % -1.9% 2005 Projected 6.9% 5.75% HIGH LOW 6.3% 2006 Projected HIGH 7.1% LOW 10.0% Median for Office Peer Group OFC Based on actual FFO-Diluted for 2002, 2003 and 2004 and First Call Estimates for 2005 and 2006 as of October 26, Data provided by Legg Mason Based on actual FFO-Diluted for 2002, 2003 and 2004 of $1.44, $1.56 and $1.74 per share, respectively, and the Company s guidance of $ for 2005 and $ for 2006.

11 Product Type, Size, Geographic Focus #4. Product Type Retail, Multifamily, Industrial, Office, Hotels, Misc. #5. Size Large (>$10 Billion), Medium ($2-5 Billion), Small (<$2 Billion) #6. Geographic Focus National, Regional, or Local Concentrated (Dominate position) or Diverse (Fragmented ownership) 10

12 OFC Overview Class A Suburban Office (158 Properties, 13.3 mm s.f.) Mid-Atlantic Focus (76% of Properties in Greater Washington, D.C. Region) $3.0 Billion in Total Market Capitalization Secure 3.2% Dividend Yield (61% FFO-Diluted and 158% Earnings Payout Ratios) Core Customer Focus 52% of Revenue from Intelligence community and Defense Contractors Tied for 1 st place for the 2004 National Commercial Real Estate Customer Service Award for Excellence for Category I properties, the largest of the categories 1 st National Green Development Award Winner by NAIOP Expansion/growth within existing markets through acquisition and development and outside existing markets by pursuing core tenant driven opportunities 1 1. Data as of October 26,

f. 100% of Park Airport Square 23 Buildings 1,700,000 s.f. 78% of Park Patuxent River Office Portfolio 11 Buildings 560,000 s.

13 Geographic Focus One Dulles Tower & Dulles Tech Center 3 Buildings 571,000 s.f. Westfields Corporate Center 8 Buildings 1,230,000 s.f. 32% of Park Columbia Gateway 22 Buildings 1,340,000 s.f. 34% of Park The National Business Park 13 Office Buildings 1,563,000 s.f. 100% of Park Airport Square 23 Buildings 1,700,000 s.f. 78% of Park Patuxent River Office Portfolio 11 Buildings 560,000 s.f. 34% of Market Data as of September 30, Dahlgren Technology Center 6 Buildings 205,000 s.f. 12

14 OFC Market Fundamentals Strategy: A Greater Washington Suburban Office REIT Growing Regional Economy in the U.S. Grew by 19.6% in past 5 years, compared to national growth rate of 14.5% 1 st in U.S. Job Growth for 2004 Lowest Unemployment Rate in the Country at 3.3% 1 Federal Government Procurement over $42.2 Billion for 2004 (Government is 11% of the workforce) 3 Major Airports (Among Fastest Growing in U.S.) Highest Educated Workforce in U.S. 2 nd Highest U.S. Median Household Income for up 10% since 2000 Strongest and Accelerating Employment Growth (77,000 Net New Jobs in 2004) 1. Ranking based on U.S. Labor Statistics, March Ranking based on Claristas Household Trend Report, Data based on research conducted by the Greater Washington Initiative (an affiliate of The Greater Washington Board of Trade). 13

15 #7. Tenant Base Strength of Tenant Base Tenant Concentrations Ability to maintain and grow Tenant Relationships Cluster around Demand Drivers Large or small tenants 14

16 #7. Tenant Base 1 (cont.) TENANT 2 % OF PORTFOLIO ANNUALIZED REVENUE 3 AVG. REMAINING TERM 4 United States of America 14% 4.5 Booz Allen Hamilton, Inc. 6% 7.3 Northrop Grumman Corporation 5% 3.4 Computer Sciences Corporation 5% 5.7 L-3 Communications Titan Corp. 4% This list represents our top five tenants as of September 30, Includes affiliated organizations or agencies of tenants, where applicable. 3. See Disclosure for definition. 4. The weighting of the lease term was computed using Total Rental Revenue. 15

17 Industry Diversity 1 U.S. Federal Gov t Booz Allen Hamilton Computer Sciences Corp L-3 Communications Titan Corp General Dynamics Northrop Grumman Corporation Aerospace Corporation Boeing Company Wyle Laboratories, Inc. 55% 50% BAE Systems Lockheed Martin Honeywell International Science Applications International Corp 45% VeriSign, Inc. PricewaterhouseCoopers IBM ITT Industries Raytheon Company Praxis Engineering Technologies EVI Technology 40% Harris Corporation 35% 30% 25% AT&T Corporation Qwest Communications Comcast Corporation Magellan Health Services Applera Corporation Unisys Ciena Corp Sun Microsystems USinternetworking, Inc. ADT Security Cadmus Journal Services Carefirst, Inc. Holy Cross Hospital Kaiser Foundation Health Plan Nucletron Corporation Comstor Rohde & Schwarz, Inc. Morgan Franklin Corporation Omniplex World Services Tessco Technologies Rewardsplus of America Hunton & Williams 20% Octagon, Inc. 15% 10% Merck 5% 0% 52% Government Defense/ Defense Contractors % of Wholly Owned Portfolio Annualized Revenue 2 11% Consulting/ Professional Services 11% Health Care/ Pharmaceutical 6% Information/ Communication 4% Computer/ Communications 1. As of September 30, See Disclosure for definition. 16

18 #8. Management Team Look for: Real Estate Operating Experience Public Company Experience (Sarbanes Oxley Compliant) Business Cycle Experience Team Depth 17

19 OFC s Management Team Top Four 20 Average Years Experience in Real Estate Acquisitions, Development and Management Experienced Acquisition Team $677 Million of Real Estate Assets Purchased From 2001 to 2004 Full Service Development Team $195 Million of Real Estate Assets Developed From 2001 to 2004 Providing Construction Expertise for our Tenant Relationships Result is Generating Third Party Fees 18

20 #9. Value Creation Acquisition Strategy Development Strategy 19

21 OFC s Acquisition Strategy Primary Target Markets: B/W Corridor Northern VA Colorado Springs San Antonio Create a Presence and Expand Strategic Fit With Tenant Base / Defense Sector Below Replacement Cost Opportunity to Create Value 20

22 OFC s Acquisition Strategy 2001 Acquisitions $141 Million 2002 Acquisitions $107 Million 2003 Acquisitions $165 Million 2004 Acquisitions $264 Million 2005 Acquisitions YTD $186.2 Million 2005 Goal $200 Million w/$50 million in dispositions 1 Data as of October 24, Represents contractual amount. $46 Million of which is for land. 21

23 OFC s Development Strategy Build to Demand in Market Control Land Adjacent to Existing Properties Capitalize on Expanding Tenant Base Design Build Techniques for Security Target 11+% Unleveraged Cash Yields 22

24 OFC s Development Summary Under Construction $196 Million, 9 Buildings 1.1 Million Square Feet, 51% Leased Under Development $62 Million, 3 Buildings 342,000 Square Feet Under Re-development $7.5 Million, 2 Buildings 469,000 Square Feet, 100% Leased Long-Term Development Pipeline 555 Acres Owned or Optioned 7.8 Million Square Feet in Potential Office Development Data as of September 30,

25 NATIONAL BUSINESS PARK DEVELOPMENT 322 NBP 306 NBP Current Operating Portfolio 13 office buildings, 1,563,000 s.f. 99.5% occupied, 100% leased Under Construction 318 NBP 126,000 s.f. 306 NBP 158,000 s.f. 322 NBP 126,000 s.f. 304 NBP 162,000 s.f. Under Development 320 NBP 126,000 s.f. 302 NBP 160,000 s.f. Land Owned 34 acres or 500,000 s.f. The National Business Park Baltimore/Washington, D.C. Corridor 100% owned by COPT Data as of September 30,

26 National Business Park 191 NBP 104,000 s.f. 100% Leased to Northrop Grumman 318 NBP 126,000 s.f. 100% Leased 304 NBP 162,000 s.f. 100% Leased to Booz Allen Hamilton 25

Westfields Corporate Center Current Operating Portfolio 8 office buildings*, 1,229,000 s.f. 99% leased Under Construction WTP II 213,000 s.f. To Be Built WTP III 247,000 s.

27 Westfields Corporate Center Current Operating Portfolio 8 office buildings*, 1,229,000 s.f. 99% leased Under Construction WTP II 213,000 s.f. To Be Built WTP III 247,000 s.f. Park Center 674,000 s.f. * Park Meadow Dr. (not shown) Westfields Corporate Center Chantilly, VA Data as of September 30,

28 Westfields Corporate Center Park Center First Building 160,000 s.f. (3 Buildings 674,000 s.f.) Washington Technology Park II 213,000 square feet 27

29 #10. Consistent Growth Occupancy Total Assets FFO per Share Increase in Dividends Strong Payout Ratios 28

30 High Occupancy Rate Occupancy/Leasing Rate At Year/Quarter End 100% 96% 97% 93% 94% 91% 93% 94% 95% 92% 93% 93% 94% 94% 95% 75% 50% 25% 0% Q Q Q Occupancy Leased 29

31 237% Growth In Total Assets ($ in millions) $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 $564 $721 $795 $995 $1,139 $1,332 $1,732 $1, Q Total Assets as of Period End $1,890 Q $1,901 Q As of September 30,

32 Earnings Per Share - Diluted $0.80 $0.70 $0.60 $0.50 $0.59 $0.63 $0.56 $0.54 $ $0.60 $0.40 $0.30 $0.20 $0.27 $0.10 $ E EPS-Diluted includes one-time charge due to Series C repurchase. Prior to charge, the Company s 2003 EPS-Diluted was $0.66. See Disclosure for further details. 2. Based on 2005 Company s guidance as of September 30,

33 59% Growth Diluted FFO Per Share 1 $1.80 $1.60 $1.74 $ $1.86 $ $2.05 $1.40 $1.56 $1.20 $1.28 $1.44 $1.00 $1.16 $0.80 $0.60 $0.40 $0.20 $ E* 2006 E** 1. Calculation based on $1.85 for 2005 E. * Based on Company s 2005 guidance. ** Based on Company s 2006 guidance. 32

34 70% Increase In Dividends $1.10 $1.00 $1.12 $0.90 $0.80 $0.70 $0.74 $0.78 $0.82 $0.86 $0.91 $0.98 $0.60 $0.66 $0.50 $0.40 $0.30 $0.20 $0.10 $ Annualized1 1. Dividend increased in September 2005 (paid October 15, 2005) by 9.8% to $.28 per quarter. 33

35 Strong Payout Ratios 100% 75% 50% 63% 79% 58% 74% 57% 81% 56% 83% 54% 78% 53% 68% 61% 84% 25% 0% Q Q Q FFO-Diluted AFFO-Diluted 34

36 Strong Payout Ratios 350% 300% 328% 250% 200% 150% 100% 126% 150% 178% 173% 172% 158% 50% 0% Q Q Q Earnings 35

37 Summary REITs provide safe stable dividends Yields are well protected (FFO & AFFO payout ratios) Increase return in a portfolio Opportunity to invest strategically 36

38 Thank You 37

39 DISCLOSURE Definitions Non-GAAP Measures NAREIT GAAP Funds from Operations (FFO) Basic FFO Diluted FFO National Association of Real Estate Investment Trusts. Generally accepted accounting principles. Under NAREIT's definition, FFO is defined as net income (loss) computed using GAAP, excluding gains (or losses) from sales of real estate, plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Gains from sales of newly-developed properties less accumulated depreciation, if any, required under GAAP are included in FFO on the basis that development services are the primary revenue generating activity; we believe that inclusion of these development gains is in compliance with the NAREIT definition of FFO, although others may interpret the definition differently. Additionally, the repurchase of the Series C preferred units for an amount in excess of recorded book value was a transaction not contemplated in the NAREIT definition of FFO; we believe that the exclusion of such amount is appropriate. FFO adjusted to (1) subtract preferred share dividends and (2) add back GAAP net income allocated to common units in Corporate Office Properties, L.P. (the "Operating Partnership") not owned by the Company. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Basic FFO adjusted to add back any convertible preferred share dividends and any other changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. However, the computation of Diluted FFO does not assume conversion of securities that are convertible into common shares if the conversion of those securities would increase Diluted FFO per share in a given period. Diluted FFO is the numerator used to compute Diluted FFO per share. 38

40 DISCLOSURE Definitions Non-GAAP Measures Diluted Adjusted Funds from Operations (AFFO) Deferred Market Rental Revenue Recurring Capital Expenditures Earnings Payout Ratio Diluted FFO adjusted for the following: (1) the elimination of the effect of (a) noncash rental revenues (comprised of straight-line rental adjustments and deferred market rental revenuedefined below) and (b) accounting charges for original issuance costs associated with redeemed preferred shares; and (2) recurring capital expenditures (defined below). Amortization of the value assigned to in-place operating leases of acquired properties in connection with Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141). Under SFAS 141, when a property is acquired, in-place operating leases carrying rents above or below market are valued as of the date of the acquisition; such value is then amortized into rental revenue over the lives of the related leases. Capital improvements, tenant improvements and incentives and leasing costs associated with our operating properties that are not (1) items contemplated prior to the acquisition of a property, (2) improvements associated with the expansion of a building or its improvements, (3) renovations to a building which change the underlying classification of the building (for example, from industrial to office or Class C office to Class B office) or (4) capital improvements that represent the addition of something new to the property rather than the replacement of something (for example, the addition of a new heating and air conditioning unit that is not replacing one that was previously there). Total dividends on common shares divided by net income available to common shareholders. EPS-diluted as adjusted for the repurchase of preferred units in excess of recorded book value EPS-diluted adjusted to eliminate the one-time accounting charge associated with the repurchase of the Registrant s Series C Preferred Units in Corporate Office Properties, L.P. for an amount in excess of their recorded book value. 39

41 DISCLOSURE Definitions Non-GAAP Measures Diluted FFO Payout Ratio Diluted AFFO Payout Ratio Straight-line rental adjustments Industry Classifications Annualized Rental Revenue Portfolio Annualized Revenue (1) The sum of (A) dividends on common shares and (B) dividends on restricted common and convertible preferred shares and distributions to holders of interests in the Operating Partnership when such dividends and distributions are included in Diluted FFO, divided by (2) Diluted FFO. (1) The sum of (A) dividends on common shares and (B) dividends on restricted common and convertible preferred shares and distributions to holders of interests in the Operating Partnership when such dividends and distributions are included in Diluted AFFO, divided by (2) Diluted AFFO. The amount by which base rent straight-line exceeds contractual base rent under leases as adjusted for the amortization of recurring tenant incentives. We classify the revenue from our leases into industry groupings based solely on our knowledge of the tenant s operations in the leased space. We do not use independent sources such as Standard Industrial Classification codes. The sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases in our portfolio of properties as of a point in time, multiplied by 12. Annualized rental revenue for our entire portfolio of properties as of a point in time, including both consolidated properties and properties owned through unconsolidated real estate joint ventures. 40

42 DISCLOSURE RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES (Dollars and shares in thousands, except per share data) Years ended December 31, Three Months Ended September 30, Low High Estimated (1) Net income available to common shareholders $ 22,450 $ 23,250 $ 18,890 $ 7,650 $ 13,167 $ 13,065 $ 11,332 $ 6,936 $ 4,153 Convertible preferred share dividends Numerator for earnings per share (EPS)-diluted 22,450 23,250 18,911 7,650 13,711 13,573 11,332 6,936 4,153 Real estate-related depreciation and amortization 64,096 64,096 51,391 36,976 30,997 20,702 16,887 17,825 11,644 Restricted common share dividends Minority interests-preferred units ,049 2,287 2,287 2, Minority interests-common units 5,543 5,740 5,659 6,712 5,800 6,592 6,322 1,726 1,595 Convertible preferred share dividends Gain on sales of real estate, excluding development and redevelopment portion (4,432) (4,432) (95) (2,897) (268) (416) (107) (4,360) (24) Expense associated with dilutive options Repurchase of preferred units in excess of recorded book value , Cumulative effect of accounting change Numerator for FFO per share-diluted $ 87,657 $ 88,654 $ 76,248 $ 61,268 $ 52,854 $ 43,001 $ 37,351 $ 22,127 $ 17,368 Denominator for EPS-diluted 38,978 38,978 34,982 28,021 24,547 21,623 19,213 38,580 35,452 Weighted average common units 8,722 8,722 8,726 8,932 9,282 9,437 9,652 8,758 8,690 Restricted common shares Assumed conversion of convertible preferred units ,101 2,421 2,421 2, Assumed conversion of convertible preferred shares , Additional dilutive share options Denominator for FFO per share-diluted 47,700 47,700 43,929 39,294 36,634 33,481 32,154 47,338 44,142 EPS-diluted $ 0.58 $ 0.60 $ 0.54 $ 0.27 $ 0.56 $ 0.63 $ 0.59 $ 0.18 $ 0.12 FFO per share-diluted $ 1.84 $ 1.86 $ 1.74 $ 1.56 $ 1.44 $ 1.28 $ 1.16 $ 0.47 $ 0.39 Numerator for EPS-diluted $ 7,650 Common share dividends Repurchase of preferred units in excess of recorded book value 11,224 for Earnings Payout Ratio $ 10,966 $ 9,235 Convertible preferred share dividends 544 Common unit distributions 2,452 2,202 Expense on dilutive options 10 Dividends and distributions Numerator for EPS-diluted adjusted for repurchase of for FFO payout ratio $ 13,418 $ 11,437 preferred units in excess of recorded book value $ 19,428 Earnings payout ratio 158.1% 222.4% Denominator for EPS-diluted 28,021 FFO payout ratio 60.6% 65.9% Convertible preferred shares 1,197 Assumed conversion of additional share options 43 Denominator for EPS-diluted adjusted for repurchase of preferred units in excess of recorded book value 29,261 EPS-diluted as adjusted for repurchase of preferred units in excess of recorded book value $ 0.66 (1) These estimates are based on Company guidance previously provided. 41

43 DISCLOSURE EPS-Diluted as adjusted for repurchase of preferred units in excess of recorded book value (Dollars and shares in thousands, except per share data) Year ended December 31, 2003 $ Numerator for EPS-diluted 7,650 Repurchase of preferred units in excess of recorded book value 11,224 Convertible preferred share dividends 544 Expense on dilutive options 10 Numerator for EPS-diluted adjusted for repurchase of preferred units in excess of recorded book value $ 19,428 Denominator for EPS-diluted 28,021 Convertible preferred shares 1,197 Assumed conversion of additional share options 43 Denominator for EPS-diluted adjusted for repurchase of preferred units in excess of recorded book value 29,261 EPS-diluted as adjusted for repurchase of preferred units in excess of recorded book value $

44 DISCLOSURE 3Q Q Q Reconciliation of dividends for Earnings Payout Ratio to dividends and distributions for FFO & AFFO Payout Ratio Common share dividends for Earnings Payout Ratio $ 10,966 $ 9,381 $ 9,339 $ 33,579 $ 25,066 Convertible preferred share dividends Common unit distributions 2,452 2,205 2,179 8,512 8,115 Common share dividends on restricted shares Convertible preferred unit distributions ,049 Dividends and distributions for FFO & AFFO Payout Ratio $ 13,418 $ 11,586 $ 11,518 $ 42,494 $ 34,774 See Definitions. 43

45 DISCLOSURE Reconciliation of tenant improvements and incentives, capital improvements and leasing costs for operating properties to recurring capital expenditures (Dollars in thousands) Years ended December 31, 3Q Q Q Total tenant improvements and incentives on operating properties $ 3,484 $ 7,659 $ 13,163 $ 14,067 Total capital improvements on operating properties 2,760 1,973 2,105 10,349 Total leasing costs on operating properties 3, ,718 Less: Nonrecurring tenant improvements and incentives on operating properties (1,199) (5,883) (9,551) (3,993) Less: Nonrecurring capital improvements on operating properties (1,047) (891) (1,630) (7,100) Less: Nonrecurring leasing costs on operating properties (2,070) (532) (21) (7,647) Add: Recurring improvements on operating properties held through joint ventures Recurring capital expenditures $ 4,945 $ 3,293 $ 4,734 $ 17,394 44

The Greater Washington, DC Suburban Office REIT. Annual Shareholders Meeting May 18, 2006

The Greater Washington, DC Suburban Office REIT Annual Shareholders Meeting May 18, 2006 Disclosure This presentation contains forward-looking information based upon the Company s current best judgement