UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended	~~March 31,~~June 30, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from		to

Commission file number 1-14023 (Corporate Office Properties Trust)

Commission file number 333-189188 (Corporate Office Properties, L.P.)

Corporate Office Properties Trust

Corporate Office Properties, L.P.

(Exact name of registrant as specified in its charter)



Corporate Office Properties Trust	Maryland	23-2947217
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)

Corporate Office Properties, L.P.	Delaware	23-2930022
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)



6711 Columbia Gateway Drive, Suite 300, Columbia, MD		21046
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (443) 285-5400

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Corporate Office Properties Trust

Corporate Office Properties, L.P.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Corporate Office Properties Trust o Yes ý No

Corporate Office Properties, L.P. o Yes ý No

As of ~~April 20,~~July 22, 2016, ~~94,650,659~~94,759,023 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended ~~March 31,~~June 30, 2016 of Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) and Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” refer collectively to COPT, COPLP and their subsidiaries.

COPT is a real estate investment trust, or REIT, and the sole general partner of COPLP. As of ~~March 31,~~June 30, 2016, COPT owned approximately 96.3% of the outstanding common units and approximately 95.5% of the outstanding preferred units in COPLP; the remaining common and preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT controls COPLP and can cause it to enter into major transactions including acquisitions, dispositions and refinancings and cause changes in its line of business, capital structure and distribution policies.

There are a few differences between the Company and the Operating Partnership which are reflected in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. COPT is a real estate investment trust, whose only material asset is its ownership of partnership interests of COPLP. As a result, COPT does not conduct business itself, other than acting as the sole general partner of COPLP, issuing public equity from time to time and guaranteeing certain debt of COPLP. COPT itself is not directly obligated under any indebtedness but guarantees some of the debt of COPLP. COPLP owns substantially all of the assets of COPT either directly or through its subsidiaries, conducts almost all of the operations of the business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from public equity issuances by COPT, which are contributed to COPLP in exchange for partnership units, COPLP generates the capital required by COPT’s business through COPLP’s operations, by COPLP’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests and shareholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of COPT and those of COPLP. The common limited partnership interests in COPLP not owned by COPT are accounted for as partners’ capital in COPLP’s consolidated financial statements and as noncontrolling interests in COPT’s consolidated financial statements. COPLP’s consolidated financial statements also reflect COPT’s noncontrolling interests in certain real estate partnerships, limited liability companies (“LLCs”), business trusts and corporations; the differences between shareholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued at the COPT and COPLP levels and in COPT’s noncontrolling interests in these real estate partnerships, LLCs, business trusts and corporations. The only other significant differences between the consolidated financial statements of COPT and those of COPLP are assets in connection with a non-qualified elective deferred compensation plan

(comprised primarily of mutual funds and equity securities) and the corresponding liability to the plan’s participants that are held directly by COPT.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:

combined reports better reflect how management and the analyst community view the business as a single operating unit;

combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

consolidated financial statements;

the following notes to the consolidated financial statements:

Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries; and

Note ~~13,~~14, Earnings per Share of COPT and subsidiaries and Earnings per Unit of COPLP and subsidiaries;

“Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPT”; and

“Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPLP.”

This report also includes separate sections under Part I, Item 4. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of COPT and COPLP to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that COPT and COPLP are compliant with Rule 13a-15 and Rule 15d-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

TABLE OF CONTENTS

FORM 10-Q



		PAGE
PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements:
Consolidated Financial Statements of Corporate Office Properties Trust
	Consolidated Balance Sheets as of ~~March 31,~~June 30, 2016 and December 31, 2015 (unaudited)	3
	Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	5
	Consolidated Statements of Equity for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	6
	Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	7
Consolidated Financial Statements of Corporate Office Properties, L.P.
	Consolidated Balance Sheets as of ~~March 31,~~June 30, 2016 and December 31, 2015 (unaudited)	9
	Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	10
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	11
	Consolidated Statements of Equity for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	12
	Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2016 and 2015 (unaudited)	13
Notes to Consolidated Financial Statements (unaudited)		15
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3334
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	4548
Item 4:	Controls and Procedures	4649

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	4649
Item 1A:	Risk Factors	4649
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4649
Item 3:	Defaults Upon Senior Securities	4750
Item 4:	Mine Safety Disclosures	4750
Item 5:	Other Information	4750
Item 6:	Exhibits	4751

SIGNATURES		4952

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)


	March 31, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Assets
Properties, net:
Operating properties, net	$	2,863,262		$	2,920,529		$	2,782,330		$	2,920,529
Projects in development or held for future development	416,169			429,219			387,397			429,219
Total properties, net	3,279,431			3,349,748			3,169,727			3,349,748
Assets held for sale, net	225,897			96,782			300,584			96,782
Cash and cash equivalents	62,489			60,310			13,317			60,310
Restricted cash and marketable securities	7,763			7,716			8,302			7,716
Accounts receivable (net of allowance for doubtful accounts of $1,789 and $1,525, respectively)	28,776			29,167
Deferred rent receivable (net of allowance of $881 and $1,962, respectively)	96,936			105,484
Accounts receivable (net of allowance for doubtful accounts of $745 and $1,525, respectively)							32,505			29,167
Deferred rent receivable (net of allowance of $422 and $1,962, respectively)							92,316			105,484
Intangible assets on real estate acquisitions, net	93,526			98,338			88,788			98,338
Deferred leasing costs (net of accumulated amortization of $66,237 and $66,364, respectively)	44,768			53,868
Deferred leasing costs (net of accumulated amortization of $63,768 and $66,364, respectively)							42,632			53,868
Investing receivables	48,998			47,875			50,162			47,875
Prepaid expenses and other assets, net	49,324			60,024			43,359			60,024
Total assets	$	3,937,908		$	3,909,312		$	3,841,692		$	3,909,312
Liabilities and equity
Liabilities:
Debt, net	$	2,140,212		$	2,077,752		$	2,094,486		$	2,077,752
Accounts payable and accrued expenses	78,597			91,755			92,848			91,755
Rents received in advance and security deposits	33,457			37,148			32,035			37,148
Dividends and distributions payable	30,217			30,178			30,219			30,178
Deferred revenue associated with operating leases	19,093			19,758			17,560			19,758
Interest rate derivatives	15,072			3,160			20,245			3,160
Other liabilities	15,046			13,779			31,123			13,779
Total liabilities	2,331,694			2,273,530			2,318,516			2,273,530
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests	22,333			19,218			22,473			19,218
Equity:
Corporate Office Properties Trust’s shareholders’ equity:
Preferred Shares of beneficial interest at liquidation preference ($0.01 par value; 25,000,000 shares authorized, shares issued and outstanding of 7,431,667 at March 31, 2016 and December 31, 2015)	199,083			199,083
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 94,661,381 at March 31, 2016 and 94,531,512 at December 31, 2015)	947			945
Preferred Shares of beneficial interest at liquidation preference ($0.01 par value; 25,000,000 shares authorized, shares issued and outstanding of 7,431,667 at June 30, 2016 and December 31, 2015)							199,083			199,083
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 94,699,359 at June 30, 2016 and 94,531,512 at December 31, 2015)							947			945
Additional paid-in capital	2,005,523			2,004,507			2,007,328			2,004,507
Cumulative distributions in excess of net income	(679,935		)	(657,172		)	(756,940		)	(657,172		)
Accumulated other comprehensive loss	(12,862		)	(2,838		)	(17,712		)	(2,838		)
Total Corporate Office Properties Trust’s shareholders’ equity	1,512,756			1,544,525			1,432,706			1,544,525
Noncontrolling interests in subsidiaries:
Common units in COPLP	51,031			52,359			47,550			52,359
Preferred units in COPLP	8,800			8,800			8,800			8,800
Other consolidated entities	11,294			10,880			11,647			10,880
Noncontrolling interests in subsidiaries	71,125			72,039			67,997			72,039
Total equity	1,583,881			1,616,564			1,500,703			1,616,564
Total liabilities, redeemable noncontrolling interest and equity	$	3,937,908		$	3,909,312		$	3,841,692		$	3,909,312

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Revenues
Rental revenue	$	105,382		$	98,238		$	107,524		$	105,508		$	212,906		$	203,746
Tenant recoveries and other real estate operations revenue	27,705			24,472			26,400			22,683			54,105			47,155
Construction contract and other service revenues	11,220			38,324			12,003			42,172			23,223			80,496
Total revenues	144,307			161,034			145,927			170,363			290,234			331,397
Expenses
Property operating expenses	51,875			50,681			48,141			46,418			100,016			97,099
Depreciation and amortization associated with real estate operations	34,527			31,599			33,248			33,786			67,775			65,385
Construction contract and other service expenses	10,694			37,498			11,478			41,293			22,172			78,791
Impairment losses	2,446			—			69,692			1,238			72,138			1,238
General, administrative and leasing expenses	11,883			7,891			8,026			7,534			19,909			15,425
Business development expenses and land carry costs	2,418			2,790			2,363			2,623			4,781			5,413
Total operating expenses	113,843			130,459			172,948			132,892			286,791			263,351
Operating income	30,464			30,575
Operating (loss) income							(27,021		)	37,471			3,443			68,046
Interest expense	(23,559		)	(20,838		)	(22,639		)	(21,768		)	(46,198		)	(42,606		)
Interest and other income	1,156			1,283			1,330			1,242			2,486			2,525
Gain (loss) on early extinguishment of debt	17			(3		)	5			(65		)	22			(68		)
Income from continuing operations before equity in income of unconsolidated entities and income taxes	8,078			11,017
(Loss) income from continuing operations before equity in income of unconsolidated entities and income taxes							(48,325		)	16,880			(40,247		)	27,897
Equity in income of unconsolidated entities	10			25			10			9			20			34
Income tax benefit (expense)	8			(55		)
Income from continuing operations	8,096			10,987
Income tax (expense) benefit							(1		)	(50		)	7			(105		)
(Loss) income from continuing operations							(48,316		)	16,839			(40,220		)	27,826
Discontinued operations	—			(238		)	—			394			—			156
Income before gain on sales of real estate	8,096			10,749
(Loss) income before gain on sales of real estate							(48,316		)	17,233			(40,220		)	27,982
Gain on sales of real estate	—			3,986			—			(1		)	—			3,985
Net income	8,096			14,735
Net income attributable to noncontrolling interests:
Net (loss) income							(48,316		)	17,232			(40,220		)	31,967
Net loss (income) attributable to noncontrolling interests:
Common units in COPLP	(127		)	(398		)	1,976			(476		)	1,849			(874		)
Preferred units in COPLP	(165		)	(165		)	(165		)	(165		)	(330		)	(330		)
Other consolidated entities	(978		)	(817		)	(914		)	(810		)	(1,892		)	(1,627		)
Net income attributable to COPT	6,826			13,355
Net (loss) income attributable to COPT							(47,419		)	15,781			(40,593		)	29,136
Preferred share dividends	(3,552		)	(3,552		)	(3,553		)	(3,553		)	(7,105		)	(7,105		)
Net income attributable to COPT common shareholders	$	3,274		$	9,803
Net income attributable to COPT:
Income from continuing operations	$	6,826		$	13,581
Net (loss) income attributable to COPT common shareholders							$	(50,972	)	$	12,228		$	(47,698	)	$	22,031
Net (loss) income attributable to COPT:
(Loss) income from continuing operations							$	(47,419	)	$	15,402		$	(40,593	)	$	28,983
Discontinued operations, net	—			(226		)	—			379			—			153
Net income attributable to COPT	$	6,826		$	13,355
Net (loss) income attributable to COPT							$	(47,419	)	$	15,781		$	(40,593	)	$	29,136
Basic earnings per common share (1)
Income from continuing operations	$	0.03		$	0.10
(Loss) income from continuing operations							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPT common shareholders	$	0.03		$	0.10
Net (loss) income attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Diluted earnings per common share (1)
Income from continuing operations	$	0.03		$	0.10
(Loss) income from continuing operations							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPT common shareholders	$	0.03		$	0.10
Net (loss) income attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Dividends declared per common share	$	0.275		$	0.275		$	0.275		$	0.275		$	0.550		$	0.550

(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

For the Three Months Ended March 31,
2016 2015
Net income $ 8,096
$ 14,735
Other comprehensive loss

Unrealized losses on interest rate derivatives (11,284 ) (3,474 )
Losses on interest rate derivatives included in interest expense 870
773
Other comprehensive loss (10,414 ) (2,701 )
Comprehensive (loss) income (2,318 ) 12,034
Comprehensive income attributable to noncontrolling interests (880 ) (1,329 )
Comprehensive (loss) income attributable to COPT $ (3,198 ) $ 10,705



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net (loss) income	$	(48,316	)	$	17,232		$	(40,220	)	$	31,967
Other comprehensive (loss) income
Unrealized (loss) gain on interest rate derivatives	(5,704		)	392			(16,988		)	(3,082		)
Losses on interest rate derivatives included in interest expense	850			769			1,720			1,542
Equity in other comprehensive loss of equity method investee	(184		)	(264		)	(184		)	(264		)
Other comprehensive (loss) income	(5,038		)	897			(15,452		)	(1,804		)
Comprehensive (loss) income	(53,354		)	18,129			(55,672		)	30,163
Comprehensive loss (income) attributable to noncontrolling interests	1,085			(1,542		)	205			(2,871		)
Comprehensive (loss) income attributable to COPT	$	(52,269	)	$	16,587		$	(55,467	)	$	27,292

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


	Preferred Shares		Common Shares		Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total			Preferred Shares		Common Shares		Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance at December 31, 2014 (93,255,284 common shares outstanding)	$	199,083	$	933	$	1,969,968		$	(717,264	)	$	(1,297	)	$	69,461		$	1,520,884		$	199,083	$	933	$	1,969,968		$	(717,264	)	$	(1,297	)	$	69,461		$	1,520,884
Conversion of common units to common shares (158,000 shares)	—		2		2,120			—			—			(2,122		)	—			—		2		2,120			—			—			(2,122		)	—
Common shares issued under at-the-market program (890,241 shares)	—		9		26,526			—			—			—			26,535			—		9		26,526			—			—			—			26,535
Exercise of share options (70,374 shares)	—		—		1,845			—			—			—			1,845
Share-based compensation (162,370 shares issued, net of redemptions)	—		1		1,828			—			—			—			1,829
Exercise of share options (76,474 shares)																				—		—		2,008			—			—			—			2,008
Share-based compensation (149,619 shares issued, net of redemptions)																				—		2		3,656			—			—			—			3,658
Redemption of vested equity awards	—		—		(2,031		)	—			—			—			(2,031		)	—		—		(2,245		)	—			—			—			(2,245		)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		—		(475		)	—			—			475			—			—		—		(519		)	—			—			519			—
Comprehensive income	—		—		—			13,355			(2,650		)	767			11,472			—		—		—			29,136			(1,844		)	1,728			29,020
Dividends	—		—		—			(29,550		)	—			—			(29,550		)	—		—		—			(59,106		)	—			—			(59,106		)
Distributions to owners of common and preferred units in COPLP	—		—		—			—			—			(1,177		)	(1,177		)	—		—		—			—			—			(2,354		)	(2,354		)
Distributions to noncontrolling interests in other consolidated entities	—		—		—			—			—			(4		)	(4		)	—		—		—			—			—			(28		)	(28		)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—		—		(73		)	—			—			—			(73		)	—		—		(739		)	—			—			—			(739		)
Balance at March 31, 2015 (94,536,269 common shares outstanding)	$	199,083	$	945	$	1,999,708		$	(733,459	)	$	(3,947	)	$	67,400		$	1,529,730
Balance at June 30, 2015 (94,529,618 common shares outstanding)																				$	199,083	$	946	$	2,000,775		$	(747,234	)	$	(3,141	)	$	67,204		$	1,517,633

Balance at December 31, 2015 (94,531,512 common shares outstanding)	$	199,083	$	945	$	2,004,507		$	(657,172	)	$	(2,838	)	$	72,039		$	1,616,564		$	199,083	$	945	$	2,004,507		$	(657,172	)	$	(2,838	)	$	72,039		$	1,616,564
Conversion of common units to common shares (26,758 shares)																				—		—		371			—			—			(371		)	—
Costs associated with common shares issued to the public	—		—		(5		)	—			—			—			(5		)	—		—		(5		)	—			—			—			(5		)
Share-based compensation (129,869 shares issued, net of redemptions)	—		2		2,423			—			—			—			2,425
Share-based compensation (141,089 shares issued, net of redemptions)																				—		2		4,301			—			—			—			4,303
Redemption of vested equity awards	—		—		(1,154		)	—			—			—			(1,154		)	—		—		(1,492		)	—			—			—			(1,492		)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		—		54			—			—			(54		)	—			—		—		(5		)	—			—			5			—
Comprehensive loss	—		—		—			6,826			(10,024		)	320			(2,878		)	—		—		—			(40,593		)	(14,874		)	(1,322		)	(56,789		)
Dividends	—		—		—			(29,589		)	—			—			(29,589		)	—		—		—			(59,175		)	—			—			(59,175		)
Distributions to owners of common and preferred units in COPLP	—		—		—			—			—			(1,176		)	(1,176		)	—		—		—			—			—			(2,346		)	(2,346		)
Distributions to noncontrolling interests in other consolidated entities	—		—		—			—			—			(4		)	(4		)	—		—		—			—			—			(8		)	(8		)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—		—		(302		)	—			—			—			(302		)	—		—		(349		)	—			—			—			(349		)
Balance at March 31, 2016 (94,661,381common shares outstanding)	$	199,083	$	947	$	2,005,523		$	(679,935	)	$	(12,862	)	$	71,125		$	1,583,881
Balance at June 30, 2016 (94,699,359 common shares outstanding)																				$	199,083	$	947	$	2,007,328		$	(756,940	)	$	(17,712	)	$	67,997		$	1,500,703

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Cash flows from operating activities
Revenues from real estate operations received	$	130,059		$	117,521		$	260,984		$	240,538
Construction contract and other service revenues received	7,747			19,968			34,992			86,790
Property operating expenses paid	(46,084		)	(42,768		)	(87,005		)	(79,667		)
Construction contract and other service expenses paid	(10,765		)	(27,853		)	(24,303		)	(76,355		)
General, administrative, leasing, business development and land carry costs paid	(12,175		)	(12,728		)	(19,212		)	(20,121		)
Interest expense paid	(21,386		)	(12,795		)	(41,179		)	(32,375		)
Interest and other income received							128			4,055
Other	43			545			(5		)	(26		)
Net cash provided by operating activities	47,439			41,890			124,400			122,839
Cash flows from investing activities
Construction, development and redevelopment	(45,146		)	(62,057		)	(75,339		)	(117,498		)
Acquisitions of operating properties and related intangible assets	—			(56,622		)	—			(137,125		)
Tenant improvements on operating properties	(6,388		)	(5,520		)	(14,862		)	(10,314		)
Other capital improvements on operating properties	(9,505		)	(3,720		)	(16,007		)	(8,372		)
Proceeds from dispositions of properties	5,452			17,424			5,448			17,424
Investing receivables payments received							—			5,114
Leasing costs paid	(1,593		)	(1,935		)	(3,434		)	(6,732		)
Other	1,121			(5,956		)	(13		)	(3,538		)
Net cash used in investing activities	(56,059		)	(118,386		)	(104,207		)	(261,041		)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	88,500			150,000			133,500			294,000
Unsecured senior notes							—			296,580
Other debt proceeds							45,000			50,000
Repayments of debt
Revolving Credit Facility	(25,000		)	(69,000		)	(119,000		)	(377,000		)
Scheduled principal amortization	(1,800		)	(1,649		)	(3,532		)	(3,319		)
Other debt repayments	(50		)	(50		)	(40,498		)	(50,630		)
Deferred financing costs paid							(528		)	(4,693		)
Net proceeds from issuance of common shares	(5		)	28,404			(5		)	28,567
Common share dividends paid	(26,002		)	(25,646		)	(52,021		)	(51,642		)
Preferred share dividends paid	(3,552		)	(3,552		)	(7,105		)	(7,105		)
Distributions paid to noncontrolling interests in COPLP	(1,171		)	(1,217		)	(2,362		)	(2,461		)
Distributions paid to redeemable noncontrolling interests	(13,848		)	(122		)	(14,306		)	—
Redemption of vested equity awards	(1,154		)	(2,031		)	(1,492		)	(2,245		)
Other	(5,119		)	(289		)	(4,837		)	(853		)
Net cash provided by financing activities	10,799			74,848
Net increase (decrease) in cash and cash equivalents	2,179			(1,648		)
Net cash (used in) provided by financing activities							(67,186		)	169,199
Net (decrease) increase in cash and cash equivalents							(46,993		)	30,997
Cash and cash equivalents
Beginning of period	60,310			6,077			60,310			6,077
End of period	$	62,489		$	4,429		$	13,317		$	37,074

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Reconciliation of net income to net cash provided by operating activities:
Net income	$	8,096		$	14,735
Adjustments to reconcile net income to net cash provided by operating activities:
Reconciliation of net (loss) income to net cash provided by operating activities:
Net (loss) income							$	(40,220	)	$	31,967
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and other amortization	35,129			32,091			68,901			66,404
Impairment losses	2,446			233			72,138			1,472
Losses on interest rate derivatives	1,551			—			1,870			—
Amortization of deferred financing costs and net debt discounts	1,495			1,254			2,998			2,618
Increase in deferred rent receivable	(1,456		)	(1,746		)	(1,276		)	(5,956		)
Gain on sales of real estate	—			(3,986		)	—			(3,985		)
Share-based compensation	2,108			1,552			3,839			3,210
Other	(802		)	(640		)	(1,725		)	1,754
Operating changes in assets and liabilities:
Decrease (increase) in accounts receivable	409			(6,918		)
Decrease (increase) in restricted cash and marketable securities	15			(1,577		)
Decrease (increase) in prepaid expenses and other assets, net	5,941			(6,352		)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(3,802		)	12,704
(Decrease) increase in rents received in advance and security deposits	(3,691		)	540
(Increase) decrease in accounts receivable							(3,320		)	10,655
Increase in restricted cash and marketable securities							(389		)	(735		)
Decrease in prepaid expenses and other assets, net							11,303			6,518
Increase in accounts payable, accrued expenses and other liabilities							15,394			12,557
Decrease in rents received in advance and security deposits							(5,113		)	(3,640		)
Net cash provided by operating activities	$	47,439		$	41,890		$	124,400		$	122,839
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$	(9,420	)	$	(3,897	)
Increase in accrued capital improvements, leasing and other investing activity costs							$	1,604		$	15,927
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture	$	22,600		$	—		$	22,600		$	—
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest	$	6,675		$	—		$	6,675		$	—
Other liabilities assumed on acquisition of operating properties	$	—		$	5,265		$	—		$	5,265
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	(10,414	)	$	(2,701	)	$	(15,268	)	$	(1,540	)
Equity in other comprehensive loss of an equity method investee							$	(184	)	$	(264	)
Dividends/distribution payable	$	30,217		$	30,174		$	30,219		$	30,178
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	—		$	2,122		$	371		$	2,122
Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$	(54	)	$	475		$	5		$	519
Increase in redeemable noncontrolling interest and decrease in equity to carry redeemable noncontrolling interest at fair value	$	302		$	73		$	349		$	739

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except unit data)

(unaudited)


	March 31, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Assets
Properties, net:
Operating properties, net	$	2,863,262		$	2,920,529		$	2,782,330		$	2,920,529
Projects in development or held for future development	416,169			429,219			387,397			429,219
Total properties, net	3,279,431			3,349,748			3,169,727			3,349,748
Assets held for sale, net	225,897			96,782			300,584			96,782
Cash and cash equivalents	62,489			60,310			13,317			60,310
Restricted cash and marketable securities	2,092			1,953			3,256			1,953
Accounts receivable (net of allowance for doubtful accounts of $1,789 and $1,525, respectively)	28,776			29,167
Deferred rent receivable (net of allowance of $881 and $1,962, respectively)	96,936			105,484
Accounts receivable (net of allowance for doubtful accounts of $745 and $1,525, respectively)							32,505			29,167
Deferred rent receivable (net of allowance of $422 and $1,962, respectively)							92,316			105,484
Intangible assets on real estate acquisitions, net	93,526			98,338			88,788			98,338
Deferred leasing costs (net of accumulated amortization of $66,237 and $66,364, respectively)	44,768			53,868
Deferred leasing costs (net of accumulated amortization of $63,768 and $66,364, respectively)							42,632			53,868
Investing receivables	48,998			47,875			50,162			47,875
Prepaid expenses and other assets, net	49,324			60,024			43,359			60,024
Total assets	$	3,932,237		$	3,903,549		$	3,836,646		$	3,903,549
Liabilities and equity
Liabilities:
Debt, net	$	2,140,212		$	2,077,752		$	2,094,486		$	2,077,752
Accounts payable and accrued expenses	78,597			91,755			92,848			91,755
Rents received in advance and security deposits	33,457			37,148			32,035			37,148
Distributions payable	30,217			30,178			30,219			30,178
Deferred revenue associated with operating leases	19,093			19,758			17,560			19,758
Interest rate derivatives	15,072			3,160			20,245			3,160
Other liabilities	9,375			8,016			26,077			8,016
Total liabilities	2,326,023			2,267,767			2,313,470			2,267,767
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests	22,333			19,218			22,473			19,218
Equity:
Corporate Office Properties, L.P.’s equity:
Preferred units
General partner, preferred units outstanding of 7,431,667 at March 31, 2016 and December 31, 2015	199,083			199,083
Limited partner, 352,000 preferred units outstanding at March 31, 2016 and December 31, 2015	8,800			8,800
Common units, 94,661,381 and 94,531,512 held by the general partner and 3,677,391 held by limited partners at March 31, 2016 and December 31, 2015, respectively	1,378,061			1,400,745
General partner, preferred units outstanding of 7,431,667 at June 30, 2016 and December 31, 2015							199,083			199,083
Limited partner, 352,000 preferred units outstanding at June 30, 2016 and December 31, 2015							8,800			8,800
Common units, 94,699,359 and 94,531,512 held by the general partner and 3,650,633 and 3,677,391 held by limited partners at June 30, 2016 and December 31, 2015, respectively							1,299,571			1,400,745
Accumulated other comprehensive loss	(13,399		)	(2,985		)	(18,437		)	(2,985		)
Total Corporate Office Properties, L.P.’s equity	1,572,545			1,605,643			1,489,017			1,605,643
Noncontrolling interests in subsidiaries	11,336			10,921			11,686			10,921
Total equity	1,583,881			1,616,564			1,500,703			1,616,564
Total liabilities, redeemable noncontrolling interest and equity	$	3,932,237		$	3,903,549		$	3,836,646		$	3,903,549

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per unit data)

(unaudited)


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Revenues
Rental revenue	$	105,382		$	98,238		$	107,524		$	105,508		$	212,906		$	203,746
Tenant recoveries and other real estate operations revenue	27,705			24,472			26,400			22,683			54,105			47,155
Construction contract and other service revenues	11,220			38,324			12,003			42,172			23,223			80,496
Total revenues	144,307			161,034			145,927			170,363			290,234			331,397
Expenses
Property operating expenses	51,875			50,681			48,141			46,418			100,016			97,099
Depreciation and amortization associated with real estate operations	34,527			31,599			33,248			33,786			67,775			65,385
Construction contract and other service expenses	10,694			37,498			11,478			41,293			22,172			78,791
Impairment losses	2,446			—			69,692			1,238			72,138			1,238
General, administrative and leasing expenses	11,883			7,891			8,026			7,534			19,909			15,425
Business development expenses and land carry costs	2,418			2,790			2,363			2,623			4,781			5,413
Total operating expenses	113,843			130,459			172,948			132,892			286,791			263,351
Operating income	30,464			30,575
Operating (loss) income							(27,021		)	37,471			3,443			68,046
Interest expense	(23,559		)	(20,838		)	(22,639		)	(21,768		)	(46,198		)	(42,606		)
Interest and other income	1,156			1,283			1,330			1,242			2,486			2,525
Gain (loss) on early extinguishment of debt	17			(3		)	5			(65		)	22			(68		)
Income from continuing operations before equity in income of unconsolidated entities and income taxes	8,078			11,017
(Loss) income from continuing operations before equity in income of unconsolidated entities and income taxes							(48,325		)	16,880			(40,247		)	27,897
Equity in income of unconsolidated entities	10			25			10			9			20			34
Income tax benefit (expense)	8			(55		)
Income from continuing operations	8,096			10,987
Income tax (expense) benefit							(1		)	(50		)	7			(105		)
(Loss) income from continuing operations							(48,316		)	16,839			(40,220		)	27,826
Discontinued operations	—			(238		)	—			394			—			156
Income before gain on sales of real estate	8,096			10,749
(Loss) income before gain on sales of real estate							(48,316		)	17,233			(40,220		)	27,982
Gain on sales of real estate	—			3,986			—			(1		)	—			3,985
Net income	8,096			14,735
Net (loss) income							(48,316		)	17,232			(40,220		)	31,967
Net income attributable to noncontrolling interests in consolidated entities	(979		)	(818		)	(911		)	(812		)	(1,890		)	(1,630		)
Net income attributable to COPLP	7,117			13,917
Net (loss) income attributable to COPLP							(49,227		)	16,420			(42,110		)	30,337
Preferred unit distributions	(3,717		)	(3,717		)	(3,718		)	(3,718		)	(7,435		)	(7,435		)
Net income attributable to COPLP common unitholders	$	3,400		$	10,200
Net income attributable to COPLP:
Income from continuing operations	$	7,117		$	14,152
Net (loss) income attributable to COPLP common unitholders							$	(52,945	)	$	12,702		$	(49,545	)	$	22,902
Net (loss) income attributable to COPLP:
(Loss) income from continuing operations							$	(49,227	)	$	16,026		$	(42,110	)	$	30,178
Discontinued operations, net	—			(235		)	—			394			—			159
Net income attributable to COPLP	$	7,117		$	13,917
Net (loss) income attributable to COPLP							$	(49,227	)	$	16,420		$	(42,110	)	$	30,337
Basic earnings per common unit (1)
Income from continuing operations	$	0.03		$	0.10
(Loss) income from continuing operations							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPLP common unitholders	$	0.03		$	0.10
Net (loss) income attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Diluted earnings per common unit (1)
Income from continuing operations	$	0.03		$	0.10
(Loss) income from continuing operations							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPLP common unitholders	$	0.03		$	0.10
Net (loss) income attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Distributions declared per common unit	$	0.275		$	0.275		$	0.275		$	0.275		$	0.550		$	0.550

(1) Basic and diluted earnings per common unit are calculated based on amounts attributable to common unitholders of Corporate Office Properties, L.P.

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Net income	$	8,096		$	14,735
Other comprehensive loss
Unrealized losses on interest rate derivatives	(11,284		)	(3,474		)
Net (loss) income							$	(48,316	)	$	17,232		$	(40,220	)	$	31,967
Other comprehensive (loss) income
Unrealized (loss) gain on interest rate derivatives							(5,704		)	392			(16,988		)	(3,082		)
Losses on interest rate derivatives included in interest expense	870			773			850			769			1,720			1,542
Other comprehensive loss	(10,414		)	(2,701		)
Equity in other comprehensive loss of equity method investee							(184		)	(264		)	(184		)	(264		)
Other comprehensive (loss) income							(5,038		)	897			(15,452		)	(1,804		)
Comprehensive (loss) income	(2,318		)	12,034			(53,354		)	18,129			(55,672		)	30,163
Comprehensive income attributable to noncontrolling interests	(979		)	(873		)	(911		)	(872		)	(1,890		)	(1,745		)
Comprehensive (loss) income attributable to COPLP	$	(3,297	)	$	11,161		$	(54,265	)	$	17,257		$	(57,562	)	$	28,418

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


	Limited Partner Preferred Units				General Partner Preferred Units				Common Units				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interests in Subsidiaries							Limited Partner Preferred Units							General Partner Preferred Units						Common Units					Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Subsidiaries
	Units	Amount			Units	Amount			Units	Amount						Total Equity				Units			Amount				Units			Amount			Units			Amount					Total Equity				Noncontrolling Interests in Subsidiaries
Balance at December 31, 2014	352,000	$	8,800		7,431,667	$	199,083		97,092,835	$	1,305,219		Accumulated Other Comprehensive Income (Loss)		$	(1,381	Noncontrolling Interests in Subsidiaries		)		$	9,163			$	1,520,884		352,000			$	8,800		7,431,667			$	199,083		97,092,835		Accumulated Other Comprehensive Income (Loss)	$	1,305,219		$	(1,381	)		$	9,163	$	1,520,884
Issuance of common units resulting from common shares issued under at-the-market program	—	—			—	—			890,241	26,535			—				—				26,535			—			—				—		—				890,241		26,535			—			—				26,535
Issuance of common units resulting from exercise of share options	—	—			—	—			70,374	1,845			—				—				1,845			—			—				—		—				76,474		2,008			—			—				2,008
Share-based compensation (units net of redemption)	—	—			—	—			162,370	1,829			—				—				1,829			—			—				—		—				149,619		3,658			—			—				3,658
Redemptions of vested equity awards	—	—			—	—			—	(2,031		)	—				—				(2,031		)	—			—				—		—				—		(2,245		)	—			—				(2,245		)
Comprehensive income	—	165			—	3,552			—	10,200			(2,756		)		311				11,472			—			330				—		7,105				—		22,902			(1,919		)	602				29,020
Distributions to owners of common and preferred units	—	(165		)	—	(3,552		)	—	(27,010		)	—				—				(30,727		)	—			(330		)		—		(7,105		)		—		(54,025		)	—			—				(61,460		)
Distributions to noncontrolling interests in subsidiaries	—	—			—	—			—	—			—				(4		)		(4		)	—			—				—		—				—		—			—			(28		)		(28		)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—			—	—			—	(73		)	—				—				(73		)	—			—				—		—				—		(739		)	—			—				(739		)
Balance at March 31, 2015	352,000	$	8,800		7,431,667	$	199,083		98,215,820	$	1,316,514		$	(4,137	)		$	9,470			$	1,529,730
Balance at June 30, 2015																								352,000			$	8,800			7,431,667		$	199,083			98,209,169		$	1,303,313		$	(3,300	)	$	9,737			$	1,517,633

Balance at December 31, 2015	352,000	$	8,800		7,431,667	$	199,083		98,208,903	$	1,400,745		$	(2,985	)		$	10,921			$	1,616,564		352,000			$	8,800			7,431,667		$	199,083			98,208,903		$	1,400,745		$	(2,985	)	$	10,921			$	1,616,564
Costs associated with common shares issued to the public	—	—			—	—			—	(5		)	—				—				(5		)	—			—				—		—				—		(5		)	—			—				(5		)
Share-based compensation (units net of redemption)	—	—			—	—			129,869	2,425			—				—				2,425			—			—				—		—				141,089		4,303			—			—				4,303
Redemptions of vested equity awards	—	—			—	—			—	(1,154		)	—				—				(1,154		)	—			—				—		—				—		(1,492		)	—			—				(1,492		)
Comprehensive loss	—	165			—	3,552			—	3,400			(10,414		)		419				(2,878		)	—			330				—		7,105				—		(49,545		)	(15,452		)	773				(56,789		)
Distributions to owners of common and preferred units	—	(165		)	—	(3,552		)	—	(27,048		)	—				—				(30,765		)	—			(330		)		—		(7,105		)		—		(54,086		)	—			—				(61,521		)
Distributions to noncontrolling interests in subsidiaries	—	—			—	—			—	—			—				(4		)		(4		)	—			—				—		—				—		—			—			(8		)		(8		)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—			—	—			—	(302		)	—				—				(302		)	—			—				—		—				—		(349		)	—			—				(349		)
Balance at March 31, 2016	352,000	$	8,800		7,431,667	$	199,083		98,338,772	$	1,378,061		$	(13,399	)		$	11,336			$	1,583,881
Balance at June 30, 2016																								352,000			$	8,800			7,431,667		$	199,083			98,349,992		$	1,299,571		$	(18,437	)	$	11,686			$	1,500,703

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Cash flows from operating activities
Revenues from real estate operations received	$	130,059		$	117,521		$	260,984		$	240,538
Construction contract and other service revenues received	7,747			19,968			34,992			86,790
Property operating expenses paid	(46,084		)	(42,768		)	(87,005		)	(79,667		)
Construction contract and other service expenses paid	(10,765		)	(27,853		)	(24,303		)	(76,355		)
General, administrative, leasing, business development and land carry costs paid	(12,175		)	(12,728		)	(19,212		)	(20,121		)
Interest expense paid	(21,386		)	(12,795		)	(41,179		)	(32,375		)
Interest and other income received							128			4,055
Other	43			545			(5		)	(26		)
Net cash provided by operating activities	47,439			41,890			124,400			122,839
Cash flows from investing activities
Construction, development and redevelopment	(45,146		)	(62,057		)	(75,339		)	(117,498		)
Acquisitions of operating properties and related intangible assets	—			(56,622		)	—			(137,125		)
Tenant improvements on operating properties	(6,388		)	(5,520		)	(14,862		)	(10,314		)
Other capital improvements on operating properties	(9,505		)	(3,720		)	(16,007		)	(8,372		)
Proceeds from dispositions of properties	5,452			17,424			5,448			17,424
Investing receivables payments received							—			5,114
Leasing costs paid	(1,593		)	(1,935		)	(3,434		)	(6,732		)
Other	1,121			(5,956		)	(13		)	(3,538		)
Net cash used in investing activities	(56,059		)	(118,386		)	(104,207		)	(261,041		)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	88,500			150,000			133,500			294,000
Unsecured senior notes							—			296,580
Other debt proceeds							45,000			50,000
Repayments of debt
Revolving Credit Facility	(25,000		)	(69,000		)	(119,000		)	(377,000		)
Scheduled principal amortization	(1,800		)	(1,649		)	(3,532		)	(3,319		)
Other debt repayments	(50		)	(50		)	(40,498		)	(50,630		)
Deferred financing costs paid							(528		)	(4,693		)
Net proceeds from issuance of common units	(5		)	28,404			(5		)	28,567
Common unit distributions paid	(27,008		)	(26,698		)	(54,053		)	(53,773		)
Preferred unit distributions paid	(3,717		)	(3,717		)	(7,435		)	(7,435		)
Redemption of vested equity awards	(1,154		)	(2,031		)	(1,492		)	(2,245		)
Distributions paid to redeemable noncontrolling interests	(13,848		)	(122		)	(14,306		)	—
Other	(5,119		)	(289		)	(4,837		)	(853		)
Net cash provided by financing activities	10,799			74,848
Net increase (decrease) in cash and cash equivalents	2,179			(1,648		)
Net cash (used in) provided by financing activities							(67,186		)	169,199
Net (decrease) increase in cash and cash equivalents							(46,993		)	30,997
Cash and cash equivalents
Beginning of period	60,310			6,077			60,310			6,077
End of period	$	62,489		$	4,429		$	13,317		$	37,074

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)


	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Reconciliation of net income to net cash provided by operating activities:
Net income	$	8,096		$	14,735
Adjustments to reconcile net income to net cash provided by operating activities:
Reconciliation of net (loss) income to net cash provided by operating activities:
Net (loss) income							$	(40,220	)	$	31,967
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and other amortization	35,129			32,091			68,901			66,404
Impairment losses	2,446			233			72,138			1,472
Losses on interest rate derivatives	1,551			—			1,870			—
Amortization of deferred financing costs and net debt discounts	1,495			1,254			2,998			2,618
Increase in deferred rent receivable	(1,456		)	(1,746		)	(1,276		)	(5,956		)
Gain on sales of real estate	—			(3,986		)	—			(3,985		)
Share-based compensation	2,108			1,552			3,839			3,210
Other	(802		)	(640		)	(1,725		)	1,754
Operating changes in assets and liabilities:
Decrease (increase) in accounts receivable	409			(6,918		)
(Increase) decrease in accounts receivable							(3,320		)	10,655
Increase in restricted cash and marketable securities	(77		)	(1,523		)	(1,106		)	(744		)
Decrease (increase) in prepaid expenses and other assets, net	5,941			(6,352		)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(3,710		)	12,650
(Decrease) increase in rents received in advance and security deposits	(3,691		)	540
Decrease in prepaid expenses and other assets, net							11,303			6,518
Increase in accounts payable, accrued expenses and other liabilities							16,111			12,566
Decrease in rents received in advance and security deposits							(5,113		)	(3,640		)
Net cash provided by operating activities	$	47,439		$	41,890		$	124,400		$	122,839
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$	(9,420	)	$	(3,897	)
Increase in accrued capital improvements, leasing and other investing activity costs							$	1,604		$	15,927
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture	$	22,600		$	—		$	22,600		$	—
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest	$	6,675		$	—		$	6,675		$	—
Other liabilities assumed on acquisition of operating properties	$	—		$	5,265		$	—		$	5,265
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	(10,414	)	$	(2,701	)	$	(15,268	)	$	(1,540	)
Equity in other comprehensive loss of an equity method investee							$	(184	)	$	(264	)
Distributions payable	$	30,217		$	30,174		$	30,219		$	30,178
Increase in redeemable noncontrolling interest and decrease in equity to carry redeemable noncontrolling interest at fair value	$	302		$	73		$	349		$	739

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries and Corporate Office Properties, L.P. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Organization

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”). Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”) is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. Unless otherwise expressly stated or the context otherwise requires, “we”, “us” and “our” as used herein refer to each of the Company and the Operating Partnership. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support United States Government agencies and their contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable priority missions (“Defense/IT Locations”). We also own a complementary portfolio of traditional office properties located in select urban/urban-like submarkets within our regional footprint with durable Class-A office fundamentals and characteristics, as well as other properties supporting general commercial office tenants (“Regional Office”). As of ~~March 31,~~June 30, 2016, our properties included the following:

~~179~~181 operating office properties totaling ~~18.3~~18.4 million square feet, including ~~ten~~11 triple-net leased, single-tenant data center properties;

1112 office properties under, or contractually committed for, construction or redevelopment that we estimate will total approximately ~~1.3~~1.5 million square feet upon completion, including ~~one~~two partially operational ~~property~~ properties

included above and ~~a property~~two properties completed but held for future lease to the United States Government;

~~1,358~~1,379 acres of land we control that we believe could be developed into approximately ~~16.5~~16.7 million square feet; and

a wholesale data center with a critical load of 19.25 megawatts.

COPLP owns real estate both directly and through subsidiary partnerships and limited liability companies (“LLCs”). In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management and construction and development services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).

Equity interests in COPLP are in the form of common and preferred units. As of ~~March 31,~~June 30, 2016, COPT owned 96.3% of the outstanding COPLP common units (“common units”) and 95.5% of the outstanding COPLP preferred units (“preferred units”); the remaining common and preferred units in COPLP were owned by third parties. Common units in COPLP not owned by COPT carry certain redemption rights. The number of common units in COPLP owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of all COPLP common units to quarterly distributions and payments in liquidation is substantially the same as those of COPT common shareholders. Similarly, in the case of each series of preferred units in COPLP held by COPT, there is a series of preferred shares of beneficial interest (“preferred shares”) in COPT that is equivalent in number and carries substantially the same terms as such series of COPLP preferred units. COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.

Because COPLP is managed by COPT, and COPT conducts substantially all of its operations through COPLP, we refer to COPT’s executive officers as COPLP’s executive officers, and although, as a partnership, COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.

2. Summary of Significant Accounting Policies

Basis of Presentation

The COPT consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which COPT has a majority voting interest and control. The COPLP consolidated financial statements include the accounts of COPLP, its subsidiaries and other entities in which COPLP has a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities. We eliminate all intercompany balances and transactions in consolidation.

We use the equity method of accounting when we own an interest in an entity and can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net

advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.

These interim financial statements should be read together with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2015 included in our 2015 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in our 2015 Annual Report on Form 10-K.

Recent Accounting Pronouncements

We adopted guidance issued by the Financial Accounting Standards Board (“FASB”) effective January 1, 2016 regarding the presentation of extraordinary and unusual items in statements of operations. This guidance eliminates the concept of extraordinary items. However, the presentation and disclosure requirements for items that are either unusual in nature or infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. Our adoption of this guidance did not affect on our reported consolidated financial statements.

We adopted guidance issued by the FASB effective January 1, 2016 modifying the analysis that must be performed by us in determining whether we should consolidate certain types of legal entities. The guidance did not amend the existing disclosure requirements for VIEs or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, COPLP is considered a variable interest entity of COPT. As COPLP was already consolidated in the balance sheets of COPT, the identification of COPLP as a variable interest entity had no impact on the consolidated financial statements. There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. In addition, there were no voting interest entities under prior existing guidance determined to be variable interest entities under the revised guidance.

We adopted effective January 1, 2016 guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. The guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior period impact of the adjustment should be either presented separately on the face of the statement of operations or disclosed in the notes. Our adoption of this guidance did not affect our reported consolidated financial statements.

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We are required to adopt this guidance for our annual and interim periods beginning January 1, 2018 using one of two methods: retrospective restatement for each reporting period presented at the time of adoption, or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

In February 2016, the FASB issued guidance that sets forth principles for the recognition, measurement, presentation and disclosure of leases. This guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. The resulting classification determines whether the lease expense is recognized based on an effective interest method or straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The guidance requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued guidance intended to simplify certain aspects of the accounting for employee based share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the consolidated statement of cash flows. This guidance is effective for annual periods beginning after

December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

3. Fair Value Measurements

Recurring Fair Value Measurements

COPT has a non-qualified elective deferred compensation plan for certain members of our management team that permits participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The assets held in the plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on COPT’s consolidated balance sheet using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded, totaled ~~$5.7~~$5.0 million as of ~~March 31,~~June 30, 2016, and is included in the accompanying COPT consolidated balance sheets in the line entitled restricted cash and marketable securities. The offsetting liability associated with the plan is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in other liabilities on COPT’s consolidated balance sheets. The assets of the plan and other marketable securities that we hold are classified in Level 1 of the fair value hierarchy. The liability associated with the plan is classified in Level 2 of the fair value hierarchy.

The fair values of our interest rate derivatives are determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of ~~March 31,~~June 30, 2016, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

As discussed further in Note 5, our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, have the right to require us to acquire their respective interests at fair value; accordingly, we classify the fair value of our partners’ interests as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. We determine the fair value of the interests based on unobservable inputs after considering the assumptions that market participants would make in pricing the interest. We apply a discount rate to the estimated future cash flows allocable to our partners from the properties underlying the respective joint ventures. Estimated cash flows used in such analyses are based on our plans for the properties and our views of market and economic conditions, and consider items such as current and future rental rates, occupancies for the properties and comparable properties and estimated operating and capital expenditures.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding investing receivables) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments. As discussed in Note 6, we estimated the fair values of our investing receivables based on the discounted estimated future cash flows of the loans (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans with similar maturities and credit quality, and the estimated cash payments include scheduled principal and interest payments. For our disclosure of debt fair values in Note 8, we estimated the fair value of our unsecured senior notes based on quoted market rates for publicly-traded debt (categorized within Level 2 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible and may not be a prudent management decision.

For additional fair value information, please refer to Note 6 for investing receivables, Note 8 for debt and Note 9 for interest rate derivatives.

COPT and Subsidiaries

The table below sets forth financial assets and liabilities of COPT and its subsidiaries that are accounted for at fair value on a recurring basis as of ~~March 31,~~June 30, 2016 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):


Description	Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)		Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)		Total
Assets:
Marketable securities in deferred compensation plan (1)
Mutual funds	$	5,580	$	—	$	—	$	5,580	$	4,954	$	—	$	—	$	4,954
Other	91		—		—		91		92		—		—		92
Total assets	$	5,671	$	—	$	—	$	5,671	$	5,046	$	—	$	—	$	5,046
Liabilities:
Deferred compensation plan liability (2)	$	—	$	5,671	$	—	$	5,671	$	—	$	5,046	$	—	$	5,046
Interest rate derivatives	—		15,072		—		15,072		—		20,245		—		20,245
Total liabilities	$	—	$	20,743	$	—	$	20,743	$	—	$	25,291	$	—	$	25,291

(1) Included in the line entitled “restricted cash and marketable securities” on COPT’s consolidated balance sheet.

(2) Included in the line entitled “other liabilities” on COPT’s consolidated balance sheet.

COPLP and Subsidiaries

The table below sets forth financial assets and liabilities of COPLP and its subsidiaries that are accounted for at fair value on a recurring basis as of ~~March 31,~~June 30, 2016 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):


Description	Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)		Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)		Total
Liabilities:
Interest rate derivatives	$	—	$	15,072	$	—	$	15,072	$	—	$	20,245	$	—	$	20,245

Nonrecurring Fair Value Measurements

During the ~~three~~second quarter of 2016, as part of our closing process, we conducted our quarterly review of our portfolio for indicators of impairment considering the refined investment strategy of our newly-appointed Chief Executive Officer and concluded that we would: (1) not hold our operating properties in Aberdeen, Maryland for the long-term; (2) sell specific properties in our Northern Virginia Defense/IT and Fort Meade/BW Corridor sub-segments; (3) not develop commercial properties on land in Frederick, Maryland; and (4) sell the remaining operating property in Greater Philadelphia that had not previously been classified as held for sale. Accordingly, we performed recoverability analyses for each of these properties and recorded the following impairment losses resulting from nonrecurring fair value measurements:

$34.4 million on operating properties in Aberdeen, Maryland (included in our Other segment). After shortening our estimated holding period for these properties, we determined that the carrying amount of the properties would not likely be recovered from the operation and eventual dispositions of the properties during the shortened holding period. Accordingly, we adjusted the properties to their estimated fair value;

$14.1 million on operating properties in our Northern Virginia Defense/IT and Fort Meade/BW Corridor sub-segments that we reclassified to held for sale during the period whose carrying amounts exceeded their estimated fair values less cost to sell;

$8.2 million on land in Frederick, Maryland. We determined that the carrying amount of the land would not likely be recovered from the sale of this property. Accordingly, we adjusted the land to its estimated fair value;

$6.2 million on a property in Greater Philadelphia (included in our Regional Office segment) that we reclassified to held for sale during the period whose carrying amounts exceeded its estimated fair value less cost to sell; and

$4.4 million on land in Aberdeen, Maryland. In performing our analysis related to the operating properties in Aberdeen, we determined that the weakening leasing and overall commercial real estate conditions in that market indicated that our land holdings in the market may be impaired. As a result, we determined that the carrying amount of the land was not recoverable and, accordingly, adjusted the land to its estimated fair value.

During the six months ended ~~March 31,~~June 30, 2016, we also recognized the following impairment losses resulting from nonrecurring fair value measurements:

$~~1.6~~3.4 million (primarily in the three months ended March 31, 2016) on land in Colorado Springs, Colorado, the carrying amount of which exceeded the estimated fair value less costs to sell. Most of these losses pertained to land we decided to sell during the ~~quarter~~three months ended March 31, 2016 that was reclassified as held for sale, and the remainder was attributable to further decreases in fair value of properties previously classified as held for sale based on recent bids from and negotiations with prospective buyers; and

$~~847,000~~1.4 million (primarily in the three months ended March 31, 2016) primarily on operating properties in White Marsh, Maryland (included in our Regional Office segment) classified as held for sale whose carrying amounts exceeded their estimated fair values less costs to sell based on recent negotiations with prospective buyers.

The table below sets forth the fair value hierarchy of the valuation technique we used to determine nonrecurring fair value measurements of these assets as of ~~March 31,~~June 30, 2016 (dollars in thousands):


	Fair Values as of March 31, 2016								Fair Values as of June 30, 2016
	Quoted Prices in				Significant				Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable				Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs				Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Assets held for sale, net (1)	$	—	$	—	$	14,886	$	14,886
Operating properties, net (1)									$	—	$	—	$	13,700	$	13,700
Projects in development or held for future development (2)									—		—		9,117		9,117
Assets held for sale, net (3)									—		—		55,322		55,322


(1)	~~Represents estimated fair values less costs~~Valuations were determined using a discounted cash flow model. Refer to ~~sell. Fair values were derived from bids~~table below for quantitative information about significant unobservable inputs used in the ~~properties that were deemed to be indicative of value.~~model.

(2) Valuation was determined using the comparable sales approach.

(3) Represents fair value less estimated costs to sell using contract prices or bids that were deemed indicative of fair value.

The table below sets forth quantitative information about significant unobservable inputs used for the Level 3 fair value measurements reported above for operating properties as of June 30, 2016:



Unobservable Input		Range (Weighted Average)
Discount rate		11.0% to 12.0% (11.6%)
Capitalization rate		9.0% to 10.0% (9.5%)

4. Properties, Net

Operating properties, net consisted of the following (in thousands):


	March 31, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Land	$	464,674		$	463,305		$	455,355		$	463,305
Buildings and improvements	3,111,871			3,157,587			3,005,802			3,157,587
Less: Accumulated depreciation	(713,283		)	(700,363		)	(678,827		)	(700,363		)
Operating properties, net	$	2,863,262		$	2,920,529		$	2,782,330		$	2,920,529

Projects in development or held for future development consisted of the following (in thousands):


	March 31, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Land	$	220,834	$	207,774	$	209,202	$	207,774
Development in progress, excluding land	195,335		221,445		178,195		221,445
Projects in development or held for future development	$	416,169	$	429,219	$	387,397	$	429,219

Our properties held for sale included:

as of ~~March 31,~~June 30, 2016: 13 operating properties in White Marsh, Maryland (included in our Regional Office segment); four operating properties in Greater Philadelphia (included in our Regional Office segment); ~~two~~ten operating properties ~~in Hanover, Maryland (included~~ in our Fort Meade/BW Corridor ~~sub-segment);~~sub-segment; two operating properties in San Antonio (included in our Other segment); one operating property in our Northern Virginia Defense/IT sub-segment; and land in Northern Virginia, Colorado Springs and Greater Philadelphia; and

as of December 31, 2015: 13 operating properties in White Marsh, Maryland (included in our Regional Office segment); two operating properties in San Antonio (included in our Other segment); and land in Northern Virginia and Colorado Springs.

The table below sets forth the components of assets held for sale on our consolidated balance sheet for these properties (in thousands):


	March 31, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Properties, net	$	199,481	$	90,188	$	269,008	$	90,188
Deferred rent receivable	12,542		2,891		15,765		2,891
Intangible assets on real estate acquisitions, net	1,591		1,591		1,591		1,591
Deferred leasing costs, net	9,228		1,391		10,869		1,391
Lease incentives, net	3,055		721		3,351		721
Assets held for sale, net	$	225,897	$	96,782	$	300,584	$	96,782

Acquisitions

We acquired the following operating properties in 2015:

250 W. Pratt Street, a 367,000 square foot office property in Baltimore, Maryland that was 96.2% leased, for $61.8 million on March 19, 2015;

2600 Park Tower Drive, a 237,000 square foot office property in Vienna, Virginia (in the Northern Virginia region) that was 100% leased, for $80.5 million on April 15, 2015; and

100 Light Street, a 558,000 square foot office property in Baltimore, Maryland that was 93.5% leased, and its structured parking garage, 30 Light Street, for $121.2 million on August 7, 2015. In connection with that acquisition, we assumed a $55.0 million mortgage loan with a fair value at assumption of $55.5 million.

These properties ~~contributed~~ contributed:

revenues of $9.2 million for the three months ended ~~March 31,~~June 30, 2016, ~~and $332,000~~$4.0 million for the three months ended ~~March 31,~~June 30, 2015, $18.4 million for the six months ended June 30, 2016 and $4.3 million for the six months ended June 30, 2015; and

net income from continuing operations of ~~$942,000~~$1.1 million for the three months ended ~~March 31,~~June 30, 2016, ~~and $170,000~~$40,000 for the three months ended ~~March 31,~~June 30, 2015, $2.0 million for the six months ended June 30, 2016 and $210,000 for the six months ended June 30, 2015.

We accounted for these acquisitions as business combinations. We included the results of operations for the acquisitions in our consolidated statements of operations from their respective purchase dates through ~~March 31,~~June 30, 2016. The following table presents pro forma information for COPT and subsidiaries as if these acquisitions had occurred on January 1, 2014. This pro forma information also includes adjustments to reclassify operating property acquisition costs to the ~~three~~six months ended ~~March 31,~~June 30, 2014 from the 2015 periods in which they were actually incurred. The pro forma financial information was prepared for comparative purposes only and is not necessarily indicative of what would have occurred had these acquisitions been made at that time or of results which may occur in the future (in thousands, except per share amounts).


	For the Three Months Ended March 31, 2015
	For the Three Months Ended March 31, 2015		For the Three Months Ended June 30, 2015		For the Six Months Ended June 30, 2015
	(Unaudited)		(Unaudited)
Pro forma total revenues	$	169,925	$	175,996	$	345,921
Pro forma net income attributable to COPT common shareholders	$	10,847	$	13,259	$	24,106
Pro forma EPS:
Basic	$	0.11	$	0.14	$	0.25
Diluted	$	0.11	$	0.14	$	0.25

2016 Dispositions

We sold land in the ~~three~~six months ended ~~March 31,~~June 30, 2016 for $5.7 million, with no gain recognized.

2016 Construction Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2016, we placed into service ~~149,000~~298,000 square feet in ~~one~~two newly constructed office ~~property~~properties and ~~51,000~~55,000 square feet in two redeveloped properties (including a ~~redeveloped property.~~partially operational property). As of ~~March 31,~~June 30, 2016, we had ~~eight~~nine office properties under construction, or for which we were contractually committed to construct, that we estimate will total ~~1.2~~1.4 million square feet upon completion (including ~~a property~~two properties completed but held for future lease to the United States Government) and three office properties under redevelopment that we estimate will total 104,000 square feet upon completion.

5. Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of ~~March 31,~~June 30, 2016 (dollars in thousands):


		Nominal									Nominal
		Ownership		March 31, 2016				(1)			Ownership		June 30, 2016				(1)
	Date	% as of		Total		Encumbered		Total		Date	% as of		Total		Encumbered		Total
	Acquired	3/31/2016	Nature of Activity	Assets		Assets		Liabilities		Acquired	6/30/2016	Nature of Activity	Assets		Assets		Liabilities
LW Redstone Company, LLC	3/23/2010	85%	Development and operation of real estate (2)	$	149,301	$	82,018	$	53,356	3/23/2010	85%	Development and operation of real estate (2)	$	151,416	$	81,094	$	52,362
M Square Associates, LLC	6/26/2007	50%	Development and operation of real estate (3)	56,333		47,820		37,462		6/26/2007	50%	Development and operation of real estate (3)	65,788		47,399		46,205
Stevens Investors, LLC	8/11/2015	95%	Development of real estate (4)	37,724		—		6,937		8/11/2015	95%	Development of real estate (4)	38,859		—		7,446
				$	243,358	$	129,838	$	97,755				$	256,063	$	128,493	$	106,013

(1) Excludes amounts eliminated in consolidation.

(2) This joint venture’s properties are in Huntsville, Alabama.

(3) This joint venture’s properties are in College Park, Maryland.

(4) This joint venture’s property is in Washington, DC.

In January 2016, our partner in Stevens Investors, LLC contributed to the joint venture, for a value of $22.6 million, interests in contracts controlling land to be developed (including a purchase agreement and a ground lease). Our partner subsequently received a cash distribution from the joint venture of $13.4 million, which was funded by us. Our partner is also entitled to receive an additional distribution from the joint venture of $6.7 million to be funded by us (expected later in 2016 or 2017) that was reported in other liabilities on our consolidated balance sheet as of ~~March 31,~~June 30, 2016.

6. Investing Receivables

Investing receivables, including accrued interest thereon, consisted of the following (in thousands):


	March 31, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Notes receivable from the City of Huntsville	$	45,998	$	44,875	$	47,142	$	44,875
Other investing loans receivable	3,000		3,000		3,020		3,000
	$	48,998	$	47,875	$	50,162	$	47,875

Our notes receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 5) and carry an interest rate of 9.95%.

We did not have an allowance for credit losses in connection with our investing receivables as of ~~March 31,~~June 30, 2016 or December 31, 2015. The fair value of these receivables approximated their carrying amounts as of ~~March 31,~~June 30, 2016 and December 31, 2015.

7. Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets consisted of the following (in thousands):


	March 31, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Prepaid expenses	$	15,516	$	23,009	$	10,301	$	23,009
Lease incentives, net	8,375		11,133		7,873		11,133
Furniture, fixtures and equipment, net	5,669		6,004		5,686		6,004
Construction contract costs incurred in excess of billings	5,232		3,261		5,281		3,261
Deferred financing costs, net (1)	5,182		5,867		4,497		5,867
Deferred tax asset, net (2)	3,474		3,467		3,589		3,467
Equity method investments	1,646		1,636
Other assets	4,230		5,647		6,132		7,283
Prepaid expenses and other assets, net	$	49,324	$	60,024	$	43,359	$	60,024

(1) Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.

(2) Includes a valuation allowance of $2.1 million.

8. Debt, Net

Our debt consisted of the following (dollars in thousands):



	Carrying Value (1) as of						Scheduled Maturity	Carrying Value (1) as of						Scheduled Maturity
	March 31, 2016			December 31, 2015		Stated Interest Rates as of	as of	June 30, 2016			December 31, 2015		Stated Interest Rates as of	as of
			March 31, 2016	December 31, 2015		March 31, 2016		June 30, 2016		June 30, 2016	December 31, 2015		June 30, 2016
Mortgage and Other Secured Loans:	March 31, 2016
Fixed rate mortgage loans (2)	$	279,782		$	281,208	3.96% - 7.87% (3)	2016-2024	$	318,243		$	281,208	3.82% - 7.87% (3)	2016-2026
Variable rate secured loans	49,488			49,792		LIBOR + 1.85% - 2.00% (4)	2016-2020	13,608			49,792		LIBOR + 1.85% (4)	2016-2020
Total mortgage and other secured loans	329,270			331,000				331,851			331,000
Revolving Credit Facility	107,000			43,500		LIBOR + 0.875% to 1.60% (5)	May 2019	58,000			43,500		LIBOR + 0.875% to 1.60% (5)	May 2019
Term Loan Facilities (6)	516,205			515,902		LIBOR + 0.90% to 2.60% (7)	2019-2022	516,508			515,902		LIBOR + 0.90% to 2.60% (7)	2019-2022
Unsecured Senior Notes
3.600%, $350,000 aggregate principal	346,817			346,714		3.60% (8)	May 2023	346,920			346,714		3.60% (8)	May 2023
5.250%, $250,000 aggregate principal	245,840			245,731		5.25% (9)	February 2024	245,951			245,731		5.25% (9)	February 2024
3.700%, $300,000 aggregate principal	297,493			297,378		3.70% (10)	June 2021	297,609			297,378		3.70% (10)	June 2021
5.000%, $300,000 aggregate principal	296,105			296,019		5.00% (11)	July 2025	296,192			296,019		5.00% (11)	July 2025
Unsecured notes payable	1,482			1,508		0% (12)	2026	1,455			1,508		0% (12)	2026
Total debt, net	$	2,140,212		$	2,077,752			$	2,094,486		$	2,077,752


(1)	The carrying values of our loans other than the Revolving Credit Facility reflect net deferred financing costs of ~~$7.5~~$7.4 million as of ~~March 31,~~June 30, 2016 and ~~$8.0~~$8.0 million as of December 31, 2015.


(2)	Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling ~~$489,000~~$459,000 as of ~~March 31,~~June 30, 2016 and $514,000 as of December 31, 2015.


(3)	The weighted average interest rate on our fixed rate mortgage loans was ~~6.08%~~5.75% as of ~~March 31,~~June 30, 2016.


(4)	The ~~weighted average~~ interest rate on our variable rate secured ~~loans was 2.40%~~loan as of ~~March 31,~~June 30, 2016 was 2.31%.


(5)	The weighted average interest rate on the Revolving Credit Facility was ~~1.60%~~1.62% as of ~~March 31,~~June 30, 2016.


(6)	An additional $150 million in borrowings is available to be drawn under a term loan. In addition, we have the ability to borrow an additional $430.0 million in the aggregate under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders.


(7)	The weighted average interest rate on these loans was ~~2.08%~~2.10% as of ~~March 31,~~June 30, 2016.


(8)	The carrying value of these notes reflects an unamortized discount totaling ~~$2.2~~$2.1 million as of ~~March 31,~~June 30, 2016 and $2.2 million as of December 31, 2015. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.


(9)	The carrying value of these notes reflects an unamortized discount totaling ~~$3.7~~$3.6 million as of ~~March 31,~~June 30, 2016 and $3.8 million as of December 31, 2015. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.


(10)	The carrying value of these notes reflects an unamortized discount totaling ~~$2.0~~$1.9 million as of ~~March 31,~~June 30, 2016 and $2.1 million as of December 31, 2015. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.

(11) The carrying value of these notes reflects an unamortized discount totaling $3.2 million as of ~~March 31,~~June 30, 2016 and ~~$3.3~~$3.3 million as of December 31, 2015. The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.


(12)	These notes carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling $~~530,000~~506,000 as of ~~March 31,~~June 30, 2016 and $554,000 as of December 31, 2015.

All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed the Operating Partnership’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants. As of ~~March 31,~~June 30, 2016, we were within the compliance requirements of these financial covenants.

We capitalized interest costs of ~~$1.8~~$1.3 million in the three months ended ~~March 31,~~June 30, 2016, ~~and $2.1~~$2.0 million in the three months ended ~~March 31,~~June 30, 2015, $3.1 million in the six months ended June 30, 2016 and $4.1 million in the six months ended June 30, 2015.

The following table sets forth information pertaining to the fair value of our debt (in thousands):


	March 31, 2016				December 31, 2015				June 30, 2016				December 31, 2015
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Fixed-rate debt
Unsecured Senior Notes	$	1,186,255	$	1,216,295	$	1,185,842	$	1,211,658	$	1,186,672	$	1,227,235	$	1,185,842	$	1,211,658
Other fixed-rate debt	281,264		289,254		282,716		291,991		319,698		329,066		282,716		291,991
Variable-rate debt	672,693		677,203		609,194		610,987		588,116		592,032		609,194		610,987
	$	2,140,212	$	2,182,752	$	2,077,752	$	2,114,636	$	2,094,486	$	2,148,333	$	2,077,752	$	2,114,636

9. Interest Rate Derivatives

The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):


							Fair Value at												Fair Value at
Notional Amount	Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	March 31, 2016			December 31, 2015			Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	June 30, 2016			December 31, 2015
$	100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$	(137	)	$	(148	)	100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$	(58	)	$	(148	)
100,000	100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(139		)	(151		)	100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(59		)	(151		)
100,000	100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(2,738		)	(1,217		)	100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(3,117		)	(1,217		)
100,000	100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(2,929		)	(1,429		)	100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(3,293		)	(1,429		)
13,853		(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(242		)	53
13,765													13,765	(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(337		)	53
100,000	100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(3,601		)	(138		)	100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(5,367		)	(138		)
100,000	100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(3,511		)	(45		)	100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(5,336		)	(45		)
50,000	50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(1,775		)	(32		)	50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(2,678		)	(32		)
							$	(15,072	)	$	(3,107	)							$	(20,245	)	$	(3,107	)


(1)	The notional amount of this instrument is scheduled to amortize to $12.1 million.

Each of the interest rate swaps set forth in the table above was designated as a cash flow hedge of interest rate risk.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):


		Fair Value at							Fair Value at
Derivatives	Balance Sheet Location	March 31, 2016			December 31, 2015			Balance Sheet Location	June 30, 2016			December 31, 2015
Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets	$	—		$	53		Prepaid expenses and other assets	$	—		$	53
Interest rate swaps designated as cash flow hedges	Interest rate derivatives	(15,072		)	(3,160		)	Interest rate derivatives	(20,245		)	(3,160		)

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):


	For the Three Months Ended March 31,						For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016			2015			2016			2015		2016			2015
Amount of (loss) gain recognized in accumulated other comprehensive loss (“AOCL”) (effective portion)	$	(11,284	)	$	(3,474	)	$	(5,704	)	$	392	$	(16,988	)	$	(3,082	)
Amount of losses reclassified from AOCL into interest expense (effective portion)	870			773			850			769		1,720			1,542
Amount of loss recognized in interest expense (ineffective portion)	1,551			—			319			—		1,870			—

Over the next 12 months, we estimate that approximately $~~4.5~~5.6 million of losses will be reclassified from AOCL as an increase to interest expense.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of ~~March 31,~~June 30, 2016, the fair value of interest rate derivatives in a liability position related to these agreements was $~~15.8~~21.1 million, excluding the effects of accrued interest and credit valuation adjustments. As of ~~March 31,~~June 30, 2016, we had not posted any collateral related to these agreements. We are not in default with any of these provisions. If we breached any of these provisions, we could be required to settle our obligations under the agreements at their termination value of $~~16.1~~21.4 million.

10. Redeemable Noncontrolling Interests

Our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC (discussed further in Note 5), have the right to require us to acquire their respective interests at fair value; accordingly, we classify the fair value of our partners’ interests as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. We determine the fair value of the interests based on unobservable inputs after considering the assumptions that market participants would make in pricing the interest. We apply a discount rate to the estimated future cash flows allocable to our partners from the properties underlying the respective joint ventures. Estimated cash flows used in such analyses are based on our plans for the properties and our views of market and economic conditions, and consider items such as current and future rental rates, occupancies for the properties and comparable properties and estimated operating and capital expenditures. The table below sets forth the activity for these redeemable noncontrolling interests ~~in our LW Redstone, LLC and Stevens Investors, LLC joint ventures described in Note 5~~ (in thousands):


		For the Three Months Ended March 31,						For the Six Months Ended June 30,
	��	2016			2015			2016			2015
Beginning balance		$	19,218		$	18,417		$	19,218		$	18,417
Contributions from noncontrolling interests		22,779			—			22,778			—
Distributions to noncontrolling interests		(20,526		)	(157		)	(20,989		)	(885		)
Net income attributable to noncontrolling interests		560			562			1,117			1,143
Adjustment to arrive at fair value of interests		302			73			349			739
Ending balance		$	22,333		$	18,895		$	22,473		$	19,414

11. Equity

During the six months ended June 30, 2016, certain COPLP limited partners redeemed 26,758 common units in COPLP for an equal number of common shares in COPT.

See Note 13 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.

~~11.~~12. Information by Business Segment

Our segment reporting includes the following segments: Defense/IT Locations; Regional Office; our operating wholesale data center; and other. Our segment reporting also includes reporting for Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (referred to herein as “Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure). The table below reports segment financial information for our reportable segments (in thousands). We measure the performance of our segments through the measure we define as NOI from real estate operations, which is derived by subtracting property operating expenses from revenues from real estate operations.


	Operating Office Property Segments																								Operating Office Property Segments
	Defense/Information Technology Locations																								Defense/Information Technology Locations
	Fort Meade/BW Corridor		Northern Virginia Defense/IT			Lackland Air Force Base		Navy Support Locations		Redstone Arsenal		Data Center Shells		Total Defense/IT Locations		Regional Office		Operating Wholesale Data Center		Other			Total		Fort Meade/BW Corridor		Northern Virginia Defense/IT		Lackland Air Force Base		Navy Support Locations		Redstone Arsenal		Data Center Shells		Total Defense/IT Locations		Regional Office		Operating Wholesale Data Center			Other			Total
Three Months Ended March 31, 2016
Three Months Ended June 30, 2016
Revenues from real estate operations	$	62,509	$	12,116		$	10,225	$	6,934	$	3,116	$	6,330	$	101,230	$	23,502	$	6,493	$	1,862		$	133,087	$	60,912	$	12,057	$	11,651	$	6,998	$	3,191	$	7,288	$	102,097	$	23,283	$	6,804		$	1,740		$	133,924
Property operating expenses	23,246		4,541			5,420		3,524		978		810		38,519		9,831		2,661		864			51,875		20,378		4,307		6,844		2,675		960		826		35,990		8,721		2,651			779			48,141
NOI from real estate operations	$	39,263	$	7,575		$	4,805	$	3,410	$	2,138	$	5,520	$	62,711	$	13,671	$	3,832	$	998		$	81,212	$	40,534	$	7,750	$	4,807	$	4,323	$	2,231	$	6,462	$	66,107	$	14,562	$	4,153		$	961		$	85,783
Additions to long-lived assets	$	6,519	$	3,078		$	—	$	1,270	$	618	$	—	$	11,485	$	2,759	$	—	$	157		$	14,401	$	7,096	$	3,059	$	—	$	2,233	$	301	$	—	$	12,689	$	2,180	$	—		$	153		$	15,022
Transfers from non-operating properties	$	35,751	$	(94	)	$	6	$	—	$	211	$	26,097	$	61,971	$	82	$	51	$	(11	)	$	62,093	$	768	$	27,944	$	231	$	—	$	4	$	29,857	$	58,804	$	26	$	(482	)	$	—		$	58,348
Segment assets at March 31, 2016	$	1,319,444	$	407,199		$	133,757	$	195,306	$	107,693	$	227,808	$	2,391,207	$	603,662	$	240,484	$	70,039		$	3,305,392
Three Months Ended March 31, 2015
Three Months Ended June 30, 2015																															—
Revenues from real estate operations	$	61,184	$	11,046		$	8,665	$	7,265	$	2,446	$	5,114	$	95,720	$	21,960	$	3,035	$	1,995		$	122,710	$	60,007	$	13,462	$	9,743	$	7,186	$	2,658	$	5,037	$	98,093	$	24,400	$	3,820		$	1,882		$	128,195
Property operating expenses	23,516		5,616			4,763		3,398		829		695		38,817		8,748		2,212		909			50,686		19,480		5,354		5,349		3,390		888		499		34,960		8,406		2,221			820			46,407
NOI from real estate operations	$	37,668	$	5,430		$	3,902	$	3,867	$	1,617	$	4,419	$	56,903	$	13,212	$	823	$	1,086		$	72,024	$	40,527	$	8,108	$	4,394	$	3,796	$	1,770	$	4,538	$	63,133	$	15,994	$	1,599		$	1,062		$	81,788
Additions to long-lived assets	$	3,445	$	787		$	—	$	1,593	$	83	$	—	$	5,908	$	65,934	$	30	$	99		$	71,971	$	5,141	$	83,913	$	—	$	1,769	$	208	$	—	$	91,031	$	3,396	$	78		$	210		$	94,715
Transfers from non-operating properties	$	12,930	$	43,473		$	31,091	$	—	$	2,997	$	15,097	$	105,588	$	11,507	$	177	$	—		$	117,272	$	6,098	$	7,735	$	468	$	—	$	8,980	$	911	$	24,192	$	5,218	$	15,202		$	12		$	44,624
Segment assets at March 31, 2015	$	1,267,663	$	412,410		$	133,197	$	195,249	$	99,335	$	170,209	$	2,278,063	$	597,389	$	162,170	$	72,758		$	3,110,380
Six Months Ended June 30, 2016
Revenues from real estate operations																									$	123,421	$	24,173	$	21,876	$	13,932	$	6,307	$	13,618	$	203,327	$	46,785	$	13,297		$	3,602		$	267,011
Property operating expenses																									43,624		8,848		12,264		6,199		1,938		1,636		74,509		18,552		5,312			1,643			100,016
NOI from real estate operations																									$	79,797	$	15,325	$	9,612	$	7,733	$	4,369	$	11,982	$	128,818	$	28,233	$	7,985		$	1,959		$	166,995
Additions to long-lived assets																									$	13,615	$	6,137	$	—	$	3,503	$	919	$	—	$	24,174	$	4,939	$	—		$	310		$	29,423
Transfers from non-operating properties																									$	36,519	$	27,850	$	237	$	—	$	215	$	55,954	$	120,775	$	108	$	(431	)	$	(11	)	$	120,441
Segment assets at June 30, 2016																									$	1,305,769	$	424,441	$	133,359	$	195,195	$	106,810	$	256,276	$	2,421,850	$	594,750	$	237,226		$	35,291		$	3,289,117
Six Months Ended June 30, 2015
Revenues from real estate operations																									$	121,191	$	24,508	$	18,408	$	14,451	$	5,104	$	10,151	$	193,813	$	46,360	$	6,855		$	3,877		$	250,905
Property operating expenses																									42,996		10,970		10,112		6,788		1,717		1,194		73,777		17,154		4,433			1,729			97,093
NOI from real estate operations																									$	78,195	$	13,538	$	8,296	$	7,663	$	3,387	$	8,957	$	120,036	$	29,206	$	2,422		$	2,148		$	153,812
Additions to long-lived assets																									$	8,586	$	84,700	$	—	$	3,362	$	291	$	—	$	96,939	$	69,330	$	108		$	309		$	166,686
Transfers from non-operating properties																									$	19,028	$	51,208	$	31,559	$	—	$	11,977	$	16,008	$	129,780	$	16,725	$	15,379		$	12		$	161,896
Segment assets at June 30, 2015																									$	1,266,632	$	499,601	$	134,127	$	194,764	$	107,677	$	170,006	$	2,372,807	$	598,030	$	175,563		$	72,257		$	3,218,657

The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):


	For the Three Months Ended March 31,				For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016		2015		2016		2015			2016		2015
Segment revenues from real estate operations	$	133,087	$	122,710	$	133,924	$	128,195		$	267,011	$	250,905
Construction contract and other service revenues	11,220		38,324		12,003		42,172			23,223		80,496
Less: Revenues from discontinued operations					—		(4		)	—		(4		)
Total revenues	$	144,307	$	161,034	$	145,927	$	170,363		$	290,234	$	331,397

The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):


	For the Three Months Ended March 31,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015			2016		2015		2016		2015
Segment property operating expenses	$	51,875	$	50,686		$	48,141	$	46,407	$	100,016	$	97,093
Less: Property operating expenses from discontinued operations	—		(5		)	—		11		—		6
Total property operating expenses	$	51,875	$	50,681		$	48,141	$	46,418	$	100,016	$	97,099

As previously discussed, we provide real estate services such as property management and construction and development services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Construction contract and other service revenues	$	11,220		$	38,324		$	12,003		$	42,172		$	23,223		$	80,496
Construction contract and other service expenses	(10,694		)	(37,498		)	(11,478		)	(41,293		)	(22,172		)	(78,791		)
NOI from service operations	$	526		$	826		$	525		$	879		$	1,051		$	1,705

The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from continuing operations as reported on our consolidated statements of operations (in thousands):


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
NOI from real estate operations	$	81,212		$	72,024		$	85,783		$	81,788		$	166,995		$	153,812
NOI from service operations	526			826			525			879			1,051			1,705
Interest and other income	1,156			1,283			1,330			1,242			2,486			2,525
Equity in income of unconsolidated entities	10			25			10			9			20			34
Income tax benefit (expense)	8			(55		)
Income tax (expense) benefit							(1		)	(50		)	7			(105		)
Other adjustments:	—						—						—
Depreciation and other amortization associated with real estate operations	(34,527		)	(31,599		)	(33,248		)	(33,786		)	(67,775		)	(65,385		)
Impairment losses	(2,446		)	—			(69,692		)	(1,238		)	(72,138		)	(1,238		)
General, administrative and leasing expenses	(11,883		)	(7,891		)	(8,026		)	(7,534		)	(19,909		)	(15,425		)
Business development expenses and land carry costs	(2,418		)	(2,790		)	(2,363		)	(2,623		)	(4,781		)	(5,413		)
Interest expense	(23,559		)	(20,838		)	(22,639		)	(21,768		)	(46,198		)	(42,606		)
NOI from discontinued operations	—			5			—			(15		)	—			(10		)
Gain (loss) on early extinguishment of debt	17			(3		)	5			(65		)	22			(68		)
Income from continuing operations	$	8,096		$	10,987
(Loss) income from continuing operations							$	(48,316	)	$	16,839		$	(40,220	)	$	27,826

The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):


	March 31, 2016		March 31, 2015		June 30, 2016		June 30, 2015
Segment assets	$	3,305,392	$	3,110,380	$	3,289,117	$	3,218,657
Non-operating property assets	444,334		496,930		413,597		527,742
Other assets	188,182		164,341		138,978		157,660
Total COPT consolidated assets	$	3,937,908	$	3,771,651	$	3,841,692	$	3,904,059

The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations are not presented separately for segment purposes. In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment losses, ~~loss~~gain (loss) on early extinguishment of debt and gain on sales of real estate to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, equity in income of unconsolidated entities, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.

~~12.~~13. Share-Based Compensation and Other Compensation Matters

Performance Share Units (“PSUs”)

On March 1, 2016, our Board of Trustees granted 26,299 PSUs with an aggregate grant date fair value of $1.0 million to executives. The PSUs have a performance period beginning on January 1, 2016 and concluding on the earlier of December 31, 2018 or the date of: (1) termination by us without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event. The number of PSUs earned (“earned PSUs”) at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return relative to a peer group of companies, as set forth in the following schedule:



Percentile Rank		Earned PSUs Payout %
75th or greater		200% of PSUs granted
50th or greater		100% of PSUs granted
25th		50% of PSUs granted
Below 25th		0% of PSUs granted

If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned PSUs will be interpolated between the ranges set forth in the table above to reflect any performance

between the listed percentiles. At the end of the performance period, we, in settlement of the award, will issue a number of fully-vested COPT common shares equal to the sum of:

the number of earned PSUs in settlement of the award plan; plus

the aggregate dividends that would have been paid with respect to the common shares issued in settlement of the earned PSUs through the date of settlement had such shares been issued on the grant date, divided by the share price on such settlement date, as defined under the terms of the agreement.

If a performance period ends due to a sale event or qualified termination, the number of earned PSUs is prorated based on the portion of the three-year performance period that has elapsed. If employment is terminated by the employee or by us for cause, all PSUs are forfeited. PSUs do not carry voting rights.

We computed a grant date fair value of $38.21 per PSU using a Monte Carlo model, which included assumptions of, among other things, the following: baseline common share value of $23.90; expected volatility for COPT common shares of 20.4%; and a risk-free interest rate of 0.96%. We are recognizing the grant date fair value in connection with these PSU awards over the period commencing on March 1, 2016 and ending on December 31, 2018.

Based on COPT’s total shareholder return relative to its peer group of companies, for PSUs issued in 2014 and 2015 to Mr. Wayne H. Lingafelter, our former Executive Vice President, Development & Construction Services, who departed on March 31, 2016, we issued 10,326 common shares on May 30, 2016 in settlement of such PSUs.

Restricted Shares

During the ~~three~~six months ended ~~March 31,~~June 30, 2016, certain employees were granted a total of ~~184,237~~197,087 restricted common shares with an aggregate grant date fair value of $~~4.4~~4.8 million (weighted average of $~~23.90~~24.11 per share). Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employees remain employed by us. During the ~~three~~six months ended ~~March 31,~~June 30, 2016, forfeiture restrictions lapsed on ~~137,593~~159,171 previously issued common shares; these shares had a weighted average grant date fair value of $~~27.47~~27.62 per share, and the aggregate intrinsic value of the shares on the vesting dates was $~~3.3~~3.8 million.

Deferred Share Awards

During the six months ended June 30, 2016, nonemployee members of our Board of Trustees were granted a total of 24,944 deferred share awards with an aggregate grant date fair value of $671,000 ($26.89 per share). Deferred share awards vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. We settle deferred share awards by issuing an equivalent number of common shares upon vesting of the awards or a later date elected by the Trustee (generally upon cessation of being a Trustee). During the six months ended June 30, 2016, we issued 12,028 common shares in settlement of deferred share awards granted in 2015; these shares had a grant date fair value of $26.70 per share, and the aggregate intrinsic value of the shares on the settlement date was $322,000.

Executive Transition Costs

Our Board of Trustees appointed Stephen E. Budorick, our Executive Vice President and Chief Operating Officer since September 2011, to become our President and Chief Executive Officer effective May 12, 2016, the date of the Company’s 2016 Annual Meeting of Shareholders. On that date, Roger A. Waesche, Jr., our current President and Chief Executive Officer, ~~will leave~~left the Company to pursue other interests, and he was not nominated for reelection as a Trustee. The Board ~~expects to appoint~~appointed Mr. Budorick to our Board of Trustees after the 2016 Annual Meeting of Shareholders. In addition, our Executive Vice President, Development & Construction Services, Wayne H. Lingafelter, departed the Company to pursue other interests effective March 31, 2016. We recognized executive transition costs of approximately ~~$4.1~~$4.4 million in the ~~three~~six months ended ~~March 31,~~June 30, 2016 primarily in connection with the departure of Mr. Waesche and Mr. Lingafelter.

~~13.~~14. Earnings Per Share (“EPS”) and Earnings Per Unit (“EPU”)

COPT and Subsidiaries EPS

We present both basic and diluted EPS. We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted common shares outstanding during the period. Our computation of diluted EPS is similar except that:

the denominator is increased to include: (1) the weighted average number of potential additional common shares that would have been outstanding if securities that are convertible into COPT common shares were converted; and (2) the effect of dilutive potential common shares outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and

the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common shares that we added to the denominator.

Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Numerator:
Income from continuing operations	$	8,096		$	10,987
(Loss) income from continuing operations							$	(48,316	)	$	16,839		$	(40,220	)	$	27,826
Gain on sales of real estate, net	—			3,986			—			(1		)	—			3,985
Preferred share dividends	(3,552		)	(3,552		)	(3,553		)	(3,553		)	(7,105		)	(7,105		)
Income from continuing operations attributable to noncontrolling interests	(1,270		)	(1,392		)
Loss (income) from continuing operations attributable to noncontrolling interests							897			(1,436		)	(373		)	(2,828		)
Income from continuing operations attributable to share-based compensation awards	(118		)	(122		)	(96		)	(113		)	(214		)	(235		)
Numerator for basic and diluted EPS from continuing operations attributable to COPT common shareholders	$	3,156		$	9,907		$	(51,068	)	$	11,736		$	(47,912	)	$	21,643
Discontinued operations	—			(238		)	—			394			—			156
Discontinued operations attributable to noncontrolling interests	—			12			—			(15		)	—			(3		)
Numerator for basic and diluted EPS on net income attributable to COPT common shareholders	$	3,156		$	9,681		$	(51,068	)	$	12,115		$	(47,912	)	$	21,796
Denominator (all weighted averages):
Denominator for basic EPS (common shares)	94,203			93,199			94,300			94,128			94,251			93,666
Dilutive effect of share-based compensation awards	95			198			—			35			—			114
Denominator for diluted EPS (common shares)	94,298			93,397			94,300			94,163			94,251			93,780
Basic EPS:
Income from continuing operations attributable to COPT common shareholders	$	0.03		$	0.10
(Loss) income from continuing operations attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations attributable to COPT common shareholders	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPT common shareholders	$	0.03		$	0.10
Net (loss) income attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Diluted EPS:
Income from continuing operations attributable to COPT common shareholders	$	0.03		$	0.10
(Loss) income from continuing operations attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations attributable to COPT common shareholders	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPT common shareholders	$	0.03		$	0.10
Net (loss) income attributable to COPT common shareholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23

Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods (in thousands):


	Weighted Average Shares Excluded from Denominator			Weighted Average Shares Excluded from Denominator
		For the Three Months Ended March 31,		For the Three Months Ended June 30,		For the Six Months Ended June 30,
		2016	2015	2016	2015	2016	2015
Conversion of common units		3,677	3,732	3,676	3,680	3,676	3,706
Conversion of Series I Preferred Units		176	176	176	176	176	176
Conversion of Series K Preferred Shares		434	434	434	434	434	434

The following share-based compensation securities were excluded from the computation of diluted EPS because their effects were antidilutive:

weighted average restricted shares and deferred share awards for the three months ended ~~March 31,~~June 30, 2016 and 2015 of ~~405,000~~403,000 and ~~400,000~~426,000, respectively, and for the six months ended June 30, 2016 and 2015 of 404,000 and 413,000, respectively; and

weighted average options for the three months ended ~~March 31,~~June 30, 2016 and 2015 of ~~379,000~~309,000 and ~~474,000~~473,000, respectively, and for the six months ended June 30, 2016 and 2015 of 344,000 and 472,000, respectively.

We had outstanding senior notes, which we redeemed in April 2015, with an exchange settlement feature, but such notes did not affect our diluted EPS reported above since the weighted average closing price of COPT’s common shares during each of the periods was less than the exchange prices per common share applicable for such periods.

COPLP and Subsidiaries EPU

We present both basic and diluted EPU. We compute basic EPU by dividing net income available to common unitholders allocable to unrestricted common units under the two-class method by the weighted average number of unrestricted common units outstanding during the period. Our computation of diluted EPU is similar except that:

the denominator is increased to include: (1) the weighted average number of potential additional common units that would have been outstanding if securities that are convertible into our common units were converted; and (2) the effect of dilutive potential common units outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and

the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common units that we added to the denominator.

Summaries of the numerator and denominator for purposes of basic and diluted EPU calculations are set forth below (in thousands, except per unit data):


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
Numerator:
Income from continuing operations	$	8,096		$	10,987
(Loss) income from continuing operations							$	(48,316	)	$	16,839		$	(40,220	)	$	27,826
Gain on sales of real estate, net	—			3,986			—			(1		)	—			3,985
Preferred unit distributions	(3,717		)	(3,717		)	(3,718		)	(3,718		)	(7,435		)	(7,435		)
Income from continuing operations attributable to noncontrolling interests	(979		)	(821		)	(911		)	(812		)	(1,890		)	(1,633		)
Income from continuing operations attributable to share-based compensation awards	(118		)	(122		)	(96		)	(113		)	(214		)	(235		)
Numerator for basic and diluted EPU from continuing operations attributable to COPLP common unitholders	$	3,282		$	10,313		$	(53,041	)	$	12,195		$	(49,759	)	$	22,508
Discontinued operations	—			(238		)	—			394			—			156
Discontinued operations attributable to noncontrolling interests	—			3			—			—			—			3
Numerator for basic and diluted EPU on net income attributable to COPLP common unitholders	$	3,282		$	10,078		$	(53,041	)	$	12,589		$	(49,759	)	$	22,667
Denominator (all weighted averages):
Denominator for basic EPU (common units)	97,880			96,931			97,976			97,808			97,927			97,372
Dilutive effect of share-based compensation awards	95			198			—			35			—			114
Denominator for diluted EPU (common units)	97,975			97,129			97,976			97,843			97,927			97,486
Basic EPU:
Income from continuing operations attributable to COPLP common unitholders	$	0.03		$	0.10
(Loss) income from continuing operations attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations attributable to COPLP common unitholders	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPLP common unitholders	$	0.03		$	0.10
Net (loss) income attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Diluted EPU:
Income from continuing operations attributable to COPLP common unitholders	$	0.03		$	0.10
(Loss) income from continuing operations attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23
Discontinued operations attributable to COPLP common unitholders	0.00			0.00			0.00			0.00			0.00			0.00
Net income attributable to COPLP common unitholders	$	0.03		$	0.10
Net (loss) income attributable to COPLP common unitholders							$	(0.54	)	$	0.13		$	(0.51	)	$	0.23

Our diluted EPU computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPU for the respective periods (in thousands):


	Weighted Average Units Excluded from Denominator			Weighted Average Units Excluded from Denominator
		For the Three Months Ended March 31,		For the Three Months Ended June 30,		For the Six Months Ended June 30,
		2016	2015	2016	2015	2016	2015
Conversion of Series I preferred units		176	176	176	176	176	176
Conversion of Series K preferred units		434	434	434	434	434	434

The following share-based compensation securities were excluded from the computation of diluted EPU because their effects were antidilutive:

weighted average restricted units and deferred share awards for the three months ended ~~March 31,~~June 30, 2016 and 2015 of ~~405,000~~403,000 and ~~400,000,~~426,000, respectively, and for the six months ended June 30, 2016 and 2015 of 404,000 and 413,000, respectively; and

We had outstanding senior notes, which we redeemed in April 2015, with an exchange settlement feature, but such notes did not affect our diluted EPU reported above since the weighted average closing price of COPT’s common shares during each of the periods was less than the exchange prices per common share applicable for such periods.

~~14.~~15. Commitments and Contingencies

Litigation

In the normal course of business, we are involved in legal actions arising from our ownership and administration of properties. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management does not anticipate that any liabilities that may result from such proceedings will have a materially adverse effect on our financial position, operations or liquidity. Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.

Environmental

We are subject to various Federal, state and local environmental regulations related to our property ownership and operation. We have performed environmental assessments of our properties, the results of which have not revealed any environmental liability that we believe would have a materially adverse effect on our financial position, operations or liquidity.

Tax Incremental Financing Obligation

In August 2010, Anne Arundel County, Maryland issued $30 million in tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as National Business Park North. The real estate taxes on increases in assessed value of a development district encompassing National Business Park North are to be transferred to a special fund pledged to the repayment of the bonds. We recognized a $1.9 million liability through ~~March 31,~~June 30, 2016 representing our estimated obligation to fund through a special tax any future shortfalls between debt service on the bonds and real estate taxes available to repay the bonds.

Operating Leases

We are obligated as lessee under operating leases (mostly ground leases) with various expiration dates extending to the year 2100. Future minimum rental payments due under the terms of these operating leases as of ~~March 31,~~June 30, 2016 follow (in thousands):


Year Ending December 31,
2016 (1)	$	896	$	603
2017	1,123		1,139
2018	1,076		1,092
2019	1,051		1,067
2020	1,067		1,084
Thereafter	86,800		86,805
	$	92,013	$	91,790

(1) Represents ~~nine~~six months ending December 31, 2016.

Contractual Obligations

We had amounts remaining to be incurred under various contractual obligations as of ~~March 31,~~June 30, 2016 that included the following:

new development and redevelopment obligations of ~~$60.1~~$78.8 million;

capital expenditures for operating properties of ~~$44.9~~$48.7 million;

third party construction and development of ~~$17.7~~$17.3 million; and

purchase obligations of ~~$3.0~~$2.5 million.

Environmental Indemnity Agreement

In connection with a lease and subsequent sale in 2008 and 2010 of three properties in Dayton, New Jersey, we agreed to provide certain environmental indemnifications. The prior owner of the properties, a Fortune 100 company that is responsible for groundwater contamination at such properties, previously agreed to indemnify us for (1) direct losses incurred in connection with the contamination and (2) its failure to perform remediation activities required by the State of New Jersey, up to the point that the state declares the remediation to be complete. Under the environmental indemnification agreement, we agreed to the following:

to indemnify the tenant against losses covered under the prior owner’s indemnity agreement if the prior owner fails to indemnify the tenant for such losses. This indemnification is capped at $5.0 million in perpetuity after the State of New Jersey declares the remediation to be complete;

to indemnify the tenant for consequential damages (e.g., business interruption) at one of the buildings in perpetuity and another of the buildings through 2025. This indemnification is limited to $12.5 million; and

to pay 50% of additional costs related to construction and environmental regulatory activities incurred by the tenant as a result of the indemnified environmental condition of the properties. This indemnification is limited to $300,000 annually and $1.5 million in the aggregate.

16. Subsequent Event

On July 21, 2016, we sold a 50% interest in six triple-net leased, single-tenant data center properties by contributing them into a newly-formed joint venture for a property value of $147.6 million. We obtained $60 million in non-recourse mortgage loans on the properties through the joint venture immediately prior to the sale of our interest and received the net proceeds. Our partner in the joint venture acquired the 50% interest in the joint venture from us for $44 million. We will account for our 50% interest in the joint venture using the equity method of accounting. Due to our continuing involvement in the properties through the joint venture, we recognized a partial gain on the sale of our interest of approximately $18 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

During the ~~three~~six months ended ~~March 31,~~June 30, 2016:

we finished the period with occupancy of our portfolio of operating office properties at ~~90.7%~~91.2%;

we placed into service an aggregate of ~~200,000~~353,000 square feet in newly constructed and redeveloped properties that were ~~74.5%~~85.6% leased as of ~~March 31,~~June 30, 2016;

we classified additional properties as held for sale with aggregate carrying amounts of ~~$138~~$211 million after related impairments. We continue to evaluate properties for sale, and decisions to sell certain additional properties could result in additional impairment losses;

our Board of Trustees appointed Stephen E. Budorick, our Executive Vice President and Chief Operating Officer since September 2011, to become our President and Chief Executive Officer effective May 12, 2016, the date of the Company’s 2016 Annual Meeting of Shareholders. On that date, Roger A. Waesche, Jr., our current President and Chief Executive Officer, ~~will leave~~departed the Company to pursue other interests, and he was not nominated for reelection as a Trustee. The Board ~~expects to appoint~~appointed Mr. Budorick to our Board of Trustees after the 2016 Annual Meeting of Shareholders; and

our Executive Vice President, Development & Construction Services, Wayne H. Lingafelter, departed the Company to pursue other interests effective March 31, 2016.

We discuss significant factors contributing to changes in our net income in the section below entitled “Results of Operations.” The results of operations discussion is combined for COPT and COPLP because there are no material differences in the results of operations between the two reporting entities.

In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

how we expect to generate cash for short and long-term capital needs; and

our commitments and contingencies.

You should refer to our consolidated financial statements and the notes thereto as you read this section.

This section contains “forward-looking” statements, as defined in the Private Securities Litigation Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:

general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;

adverse changes in the real estate markets, including, among other things, increased competition with other companies;

governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers;

our ability to borrow on favorable terms;

risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;

risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;

changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;

our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;

the dilutive effects of issuing additional common shares;

our ability to achieve projected results; and

environmental requirements.

We undertake no obligation to update or supplement forward-looking statements.

Occupancy and Leasing

Office Properties

The tables below set forth occupancy information pertaining to our portfolio of operating office properties:


	March 31, 2016			December 31, 2015			June 30, 2016			December 31, 2015
Occupancy rates at period end
Total	90.7		%	91.6		%	91.2		%	91.6		%
Defense/IT Locations:
Fort Meade/BW Corridor	92.4		%	94.5		%	92.6		%	94.5		%
Northern Virginia Defense/IT	81.1		%	81.9		%	82.0		%	81.9		%
Lackland Air Force Base	100.0		%	100.0		%	100.0		%	100.0		%
Navy Support Locations	71.8		%	72.1		%	74.7		%	72.1		%
Redstone Arsenal	98.9		%	97.0		%	98.9		%	97.0		%
Data Center Shells	100.0		%	100.0		%	100.0		%	100.0		%
Regional Office	96.1		%	95.4		%	96.5		%	95.4		%
Other	53.8		%	57.3		%	54.8		%	57.3		%
Average contractual annual rental rate per square foot at period end (1)	$	29.72		$	29.55		$	29.61		$	29.55


(1)	Includes estimated expense reimbursements.


	Rentable Square Feet		Occupied Square Feet		Rentable Square Feet		Occupied Square Feet
	(in thousands)				(in thousands)
December 31, 2015	18,053		16,535		18,053		16,535
Square feet vacated upon lease expiration (1)	—		(213	)	—		(342	)
Occupancy of previously vacated space in connection with new leases (2)	—		72		—		262
Square feet constructed or redeveloped	200		159		353		335
Other changes	(3	)	(1	)	(4	)	(2	)
March 31, 2016	18,250		16,552
June 30, 2016					18,402		16,788


(1)	Includes lease terminations and space reductions occurring in connection with lease renewals.


(2)	Excludes occupancy of vacant square feet acquired or developed.

During the ~~three~~six months ended ~~March 31,~~June 30, 2016, we completed ~~545,000~~1.6 million square feet of leasing, including ~~163,000~~546,000 of construction and redevelopment space, and renewed ~~64.3%~~75.3% of the square footage of our lease expirations (including the effect of early renewals).

Occupancy of our Same Office Properties decreased from ~~90.9%~~91.1% as of December 31, 2015 to ~~90.1%~~90.8% as of ~~March 31,~~June 30, 2016.

Wholesale Data Center Property

The leased portion of our 19.25 megawatt wholesale data center property decreased from 17.8 megawatts as of December 31, 2015 to ~~16.8~~15.8 megawatts as of ~~March 31,~~June 30, 2016 due to a tenant departure.

Results of Operations

We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure derived by subtracting property operating expenses from revenues from real estate operations. We view our NOI from real estate operations as comprising the following primary categories of operating properties:

office properties owned and 100% operational throughout the current and prior year reporting periods, excluding properties held for future disposition. We define these as changes from “Same Office Properties”;

office properties acquired during the current and prior year reporting periods;

constructed or redeveloped office properties placed into service that were not 100% operational throughout the current and prior year reporting periods;

our wholesale data center;

properties held for sale as of ~~March 31,~~June 30, 2016; and

property dispositions.

In addition to owning properties, we provide construction management and other services. The primary manner in which we evaluate the operating performance of our construction management and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities. The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.

We believe that operating income, as reported on our consolidated statements of operations, is the most directly comparable generally accepted accounting principles (“GAAP”) measure for both NOI from real estate operations and NOI from service operations. Since both of these measures exclude certain items includable in operating income, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures.

The table below reconciles NOI from real estate operations and NOI from service operations to operating income reported on the consolidated statements of operations of COPT and subsidiaries:


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
	(in thousands)						(in thousands)
NOI from real estate operations	$	81,212		$	72,024		$	85,783		$	81,788		$	166,995		$	153,812
NOI from service operations	526			826			525			879			1,051			1,705
Less: NOI from discontinued operations	—			5			—			(15		)	—			(10		)
Depreciation and amortization associated with real estate operations	(34,527		)	(31,599		)	(33,248		)	(33,786		)	(67,775		)	(65,385		)
Impairment losses	(2,446		)	—			(69,692		)	(1,238		)	(72,138		)	(1,238		)
General, administrative and leasing expenses	(11,883		)	(7,891		)	(8,026		)	(7,534		)	(19,909		)	(15,425		)
Business development expenses and land carry costs	(2,418		)	(2,790		)	(2,363		)	(2,623		)	(4,781		)	(5,413		)
Operating income	$	30,464		$	30,575
Operating (loss) income							$	(27,021	)	$	37,471		$	3,443		$	68,046

Comparison of Statements of Operations for the Three Months Ended ~~March 31,~~June 30, 2016 and 2015


	For the Three Months Ended March 31,									For the Three Months Ended June 30,
	2016			2015			Variance			2016			2015			Variance
	(in thousands)									(in thousands)
Revenues
Revenues from real estate operations	$	133,087		$	122,710		$	10,377		$	133,924		$	128,191		$	5,733
Construction contract and other service revenues	11,220			38,324			(27,104		)	12,003			42,172			(30,169		)
Total revenues	144,307			161,034			(16,727		)	145,927			170,363			(24,436		)
Expenses
Property operating expenses	51,875			50,681			1,194			48,141			46,418			1,723
Depreciation and amortization associated with real estate operations	34,527			31,599			2,928			33,248			33,786			(538		)
Construction contract and other service expenses	10,694			37,498			(26,804		)	11,478			41,293			(29,815		)
Impairment losses	2,446			—			2,446			69,692			1,238			68,454
General, administrative and leasing expenses	11,883			7,891			3,992			8,026			7,534			492
Business development expenses and land carry costs	2,418			2,790			(372		)	2,363			2,623			(260		)
Total operating expenses	113,843			130,459			(16,616		)	172,948			132,892			40,056
Operating income	30,464			30,575			(111		)
Operating (loss) income										(27,021		)	37,471			(64,492		)
Interest expense	(23,559		)	(20,838		)	(2,721		)	(22,639		)	(21,768		)	(871		)
Interest and other income	1,156			1,283			(127		)	1,330			1,242			88
Gain (loss) on early extinguishment of debt	17			(3		)	20			5			(65		)	70
Equity in income of unconsolidated entities	10			25			(15		)	10			9			1
Income tax expense	8			(55		)	63			(1		)	(50		)	49
Income from continuing operations	8,096			10,987			(2,891		)
(Loss) income from continuing operations										(48,316		)	16,839			(65,155		)
Discontinued operations	��			(238		)	238			—			394			(394		)
Gain on sales of real estate	—			3,986			(3,986		)	—			(1		)	1
Net income	$	8,096		$	14,735		$	(6,639	)
Net (loss) income										$	(48,316	)	$	17,232		$	(65,548	)

NOI from Real Estate Operations
	For the Three Months Ended March 31,									For the Three Months Ended June 30,
	2016			2015			Variance			2016			2015			Variance
	(Dollars in thousands, except per square foot data)									(Dollars in thousands, except per square foot data)
Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue	$	80,317		$	80,760		$	(443	)	$	79,072		$	78,352		$	720
Lease termination revenue	980			753			227			336			1,012			(676		)
Tenant recoveries and other real estate operations revenue	22,559			21,522			1,037			21,010			19,023			1,987
Same Office Properties total revenues	103,856			103,035			821			100,418			98,387			2,031
Constructed and developed office properties placed in service	5,671			1,191			4,480			6,675			2,696			3,979
Acquired office properties	9,210			332			6,921			9,208			3,950			5,258
Wholesale data center	6,493			3,035			3,458			6,804			3,820			2,984
Properties held for sale	7,666			6,670			996			10,665			10,484			181
Dispositions	72			8,324			(8,252		)	22			8,743			(8,721		)
Other	119			123			(4		)	132			115			17
	133,087			122,710			10,377			133,924			128,195			5,729
Property operating expenses
Same Office Properties	40,311			40,722			(411		)	36,358			35,705			653
Constructed and developed office properties placed in service	1,539			380			1,159			1,649			725			924
Acquired office properties	3,868			162			2,750			3,686			1,385			2,301
Wholesale data center	2,661			2,212			449			2,651			2,221			430
Properties held for sale	3,355			2,844			511			3,640			3,259			381
Dispositions	(4		)	4,198			(4,202		)	(14		)	3,182			(3,196		)
Other	145			168			(23		)	171			(70		)	241
	51,875			50,686			1,189			48,141			46,407			1,734
NOI from real estate operations
Same Office Properties	63,545			62,313			1,232			64,060			62,682			1,378
Constructed and developed office properties placed in service	4,132			811			3,321			5,026			1,971			3,055
Acquired office properties	5,342			170			5,172			5,522			2,565			2,957
Wholesale data center	3,832			823			3,009			4,153			1,599			2,554
Properties held for sale	4,311			3,826			485			7,025			7,225			(200		)
Dispositions	76			4,126			(4,050		)	36			5,561			(5,525		)
Other	(26		)	(45		)	19			(39		)	185			(224		)
	$	81,212		$	72,024		$	9,188		$	85,783		$	81,788		$	3,995
Same Office Properties rent statistics
Average occupancy rate	90.1		%	90.3		%	-0.2		%	90.7		%	91.0		%	-0.3		%
Average straight-line rent per occupied square foot (1)	$	6.09		$	6.11		$	(0.02	)	$	6.26		$	6.18		$	0.08


(1)	Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the three-month periods set forth above.

Our Same Office Properties pool consisted of ~~145~~136 office properties, comprising ~~80.2%~~75.7% of our total operating office square footage as of ~~March 31,~~June 30, 2016 ~~(86.5%~~(85.1% excluding the effect of properties held for sale). This pool of properties changed from the pool used for purposes of comparing 2015 and 2014 in our 2015 Annual Report on Form 10-K due to the addition of four properties placed in service and 100% operational by January 1, 2015 and the removal of ~~four~~13 same office properties reclassified to held for sale in 2016.

Our NOI from constructed office properties placed in service included ~~ten~~12 properties placed in service in 2015 and 2016, and our NOI from acquired office properties included our 2015 acquisitions of 250 W. Pratt Street, 2600 Park Tower Drive and 100 and 30 Light Street.

The increase in NOI from our wholesale data center was attributable to higher occupancy in the current period.

NOI from Service Operations


	For the Three Months Ended March 31,							For the Three Months Ended June 30,
	2016		2015		Variance			2016		2015		Variance
	(in thousands)							(in thousands)
Construction contract and other service revenues	$	11,220	$	38,324	$	(27,104	)	$	12,003	$	42,172	$	(30,169	)
Construction contract and other service expenses	10,694		37,498		(26,804		)	11,478		41,293		(29,815		)
NOI from service operations	$	526	$	826	$	(300	)	$	525	$	879	$	(354	)

Construction contract and other service revenue and expenses decreased due primarily to a lower volume of construction activity in connection with several of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us (primarily on behalf of tenants). Service operations are an ancillary component of our overall operations that typically contribute little operating income relative to our real estate operations.

~~Depreciation and Amortization Expense~~

The increase in depreciation and amortization expense was attributable primarily to additional expense of $4.4 million from our office property acquisitions, partially offset by a decrease of $2.6 million attributable to disposed properties.

Impairment Losses

~~We recognized~~During the second quarter of 2016, as part of our closing process, we conducted our quarterly review of our portfolio for indicators of impairment considering the refined investment strategy of our newly-appointed Chief Executive Officer and concluded that we would: (1) not hold our operating properties in Aberdeen, Maryland for the long-term; (2) sell specific properties in our Northern Virginia Defense/IT and Fort Meade/BW Corridor sub-segments; (3) not develop commercial properties on land in Frederick, Maryland; and (4) sell the remaining operating property in Greater Philadelphia that had not previously been classified as held for sale. Accordingly, we performed recoverability analyses for each of these properties and recorded the following impairment losses ~~in the current period:~~resulting from nonrecurring fair value measurements:

$~~1.6~~34.4 million on ~~land~~operating properties in ~~Colorado Springs,~~Aberdeen, Maryland (included in our Other segment). After shortening our estimated holding period for these properties, we determined that the carrying amount of ~~which exceeded~~ the properties would not likely be recovered from the operation and eventual dispositions of the properties during the shortened holding period. Accordingly, we adjusted the properties to their estimated fair value less costs to sell. Most of these losses pertained to land we decided to sell during the quarter that was reclassified as held for sale, and the remainder was attributable to further decreases in fair value of properties previously classified as held for sale based on recent bids from and negotiations with prospective buyers; andvalue;

$~~847,000~~14.1 million on operating properties in ~~White Marsh, Maryland classified as~~our Northern Virginia Defense/IT and Fort Meade/BW Corridor sub-segments that we reclassified to held for sale during the period whose carrying amounts exceeded their estimated fair values less ~~costs~~cost to ~~sell based~~sell;

$8.2 million on ~~recent negotiations~~land in Frederick, Maryland. We determined that the carrying amount of the land would not likely be recovered from the sale of this property. Accordingly, we adjusted the land to its estimated fair value;

$2.4 million primarily on land in Colorado Springs, Colorado and operating properties in White Marsh, Maryland.

Comparison of Statements of Operations for the Six Months Ended June 30, 2016 and 2015



	For the Six Months Ended June 30,
	2016			2015			Variance
	(in thousands)
Revenues
Revenues from real estate operations	$	267,011		$	250,901		$	16,110
Construction contract and other service revenues	23,223			80,496			(57,273		)
Total revenues	290,234			331,397			(41,163		)
Expenses
Property operating expenses	100,016			97,099			2,917
Depreciation and amortization associated with real estate operations	67,775			65,385			2,390
Construction contract and other service expenses	22,172			78,791			(56,619		)
Impairment losses	72,138			1,238			70,900
General, administrative and leasing expenses	19,909			15,425			4,484
Business development expenses and land carry costs	4,781			5,413			(632		)
Total operating expenses	286,791			263,351			23,440
Operating income	3,443			68,046			(64,603		)
Interest expense	(46,198		)	(42,606		)	(3,592		)
Interest and other income	2,486			2,525			(39		)
Gain (loss) on early extinguishment of debt	22			(68		)	90
Equity in income of unconsolidated entities	20			34			(14		)
Income tax benefit (expense)	7			(105		)	112
(Loss) income from continuing operations	(40,220		)	27,826			(68,046		)
Discontinued operations	—			156			(156		)
Gain on sales of real estate	—			3,985			(3,985		)
Net (loss) income	$	(40,220	)	$	31,967		$	(72,187	)

NOI from Real Estate Operations

	For the Six Months Ended June 30,
	2016			2015			Variance
	(Dollars in thousands, except per square foot data)
Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue	$	156,662		$	156,228		$	434
Lease termination revenue	1,289			1,765			(476		)
Tenant recoveries and other real estate operations revenue	43,072			40,132			2,940
Same Office Properties total revenues	201,023			198,125			2,898
Constructed and developed office properties placed in service	12,347			3,886			8,461
Acquired office properties	18,418			4,282			14,136
Wholesale data center	13,297			6,855			6,442
Properties held for sale	21,581			20,452			1,129
Dispositions	94			17,067			(16,973		)
Other	251			238			13
	267,011			250,905			16,106
Property operating expenses
Same Office Properties	75,280			74,940			340
Constructed and developed office properties placed in service	3,189			1,131			2,058
Acquired office properties	7,554			1,547			6,007
Wholesale data center	5,312			4,433			879
Properties held for sale	8,383			7,682			701
Dispositions	(18		)	7,380			(7,398		)
Other	316			(20		)	336
	100,016			97,093			2,923
NOI from real estate operations
Same Office Properties	125,743			123,185			2,558
Constructed and developed office properties placed in service	9,158			2,755			6,403
Acquired office properties	10,864			2,735			8,129
Wholesale data center	7,985			2,422			5,563
Properties held for sale	13,198			12,770			428
Dispositions	112			9,687			(9,575		)
Other	(65		)	258			(323		)
	$	166,995		$	153,812		$	13,183
Same Office Properties rent statistics
Average occupancy rate	90.5		%	90.8		%	-0.3		%
Average straight-line rent per occupied square foot (1)	$	12.42		$	12.34		$	0.08


(1)	Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the six-month periods set forth above.

Our NOI from constructed office properties placed in service included 12 properties placed in service in 2015 and 2016, and our NOI from acquired office properties included our 2015 acquisitions of 250 W. Pratt Street, 2600 Park Tower Drive and 100 and 30 Light Street.

The increase in NOI from our wholesale data center was attributable to higher occupancy in the current period.

NOI from Service Operations



	For the Six Months Ended June 30,
	2016		2015		Variance
	(in thousands)
Construction contract and other service revenues	$	23,223	$	80,496	$	(57,273	)
Construction contract and other service expenses	22,172		78,791		(56,619		)
NOI from service operations	$	1,051	$	1,705	$	(654	)

Construction contract and other service revenue and expenses decreased due primarily to a lower volume of construction activity in connection with ~~prospective buyers.~~several of our tenants.

Impairment Losses

The increase in impairment losses recognized in the current period was attributable primarily to the losses described for the three-month period ended June 30, 2016.

General, ~~administrative~~Administrative and ~~leasing expenses~~Leasing Expenses

The increase in general, administrative and leasing expenses was attributable to ~~$4.1~~$4.4 million in executive transition costs incurred in the current period, mostly in connection with the departures of Mr. Waesche and Mr. Lingafelter.

Interest Expense

The increase in interest expense ~~was due primarily to: a $1.6~~in the current period included $1.9 million in hedge ineffectiveness on our interest rate swaps recognized in ~~interest expense in~~ the current ~~period;~~period and the effect of a ~~10%~~5% increase in our average outstanding debt in the current period relative to the prior period.

Gain on Sales of Real Estate

We recognized gain on sales of real estate of $4.0 million in the prior period in connection with land sales.

Funds from Operations

Funds from operations (“FFO”) is defined as net income computed using GAAP, excluding gains on sales of, and impairment losses on, previously depreciated operating properties, plus real estate-related depreciation and amortization. When multiple properties consisting of both operating and non-operating properties exist on a single tax parcel, we classify all of the gains on sales of, and impairment losses on, the tax parcel as all being for previously depreciated operating properties when most of the value of the parcel is associated with operating properties on the parcel. We believe that we use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs. We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related to sales of, and impairment losses on, previously depreciated operating properties, net of related tax benefit, and excluding real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods. In addition, since most equity REITs provide FFO information to the investment community, we believe that FFO is useful to investors as a

supplemental measure for comparing our results to those of other equity REITs. We believe that net income is the most directly comparable GAAP measure to FFO.

Since FFO excludes certain items includable in net income, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

Basic FFO available to common share and common unit holders (“Basic FFO”) is FFO adjusted to subtract (1) preferred share dividends, (2) issuance costs associated with redeemed preferred shares, (3) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (4) depreciation and amortization allocable to noncontrolling interests in other consolidated entities and (5) Basic FFO allocable to restricted shares. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions. We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares. We believe that net income is the most directly comparable GAAP measure to Basic FFO. Basic FFO has essentially the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.

Diluted FFO available to common share and common unit holders (“Diluted FFO”) is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below. We believe that ~~the numerator for diluted EPS~~net income is the most directly comparable GAAP measure to Diluted FFO. Since Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. Diluted FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude operating property acquisition costs; gains on sales of, and impairment losses on, properties other than previously depreciated operating properties, net of associated income tax; gain or loss on early extinguishment of debt; FFO associated with properties securing non-recourse debt on which we have defaulted and which we have extinguished, or expect to extinguish, via conveyance of such properties, including property NOI and interest expense (discussed further below); loss on interest rate derivatives; demolition costs on redevelopment properties; executive transition costs; and issuance costs associated with redeemed preferred shares. We believe ~~that the excluded items are not reflective of normal operations and, as a result, we believe that a measure that excludes these items is~~this to be a useful supplemental measure ~~in evaluating~~alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. The adjustment for FFO associated with properties securing non-recourse debt on which we have defaulted pertains to the periods subsequent to our default on one loan’s payment terms, which was the result of our decision to not support payments on the loan since the estimated fair value of the properties was less than the loan balance. While we continued as the legal owner of the properties during this period up until the transfer of ownership, all cash flows produced by them went directly to the lender and we did not fund any debt service shortfalls, which included incremental additional interest under the default rate of $2.0 million in the three months ended ~~March 31,~~June 30, 2015 and $4.0 million in the six months ended June 30, 2015. We believe that ~~the numerator to diluted EPS~~net income is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share (“EPS”) in evaluating net income available to common shareholders. In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable

GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.

Diluted FFO per share, as adjusted for comparability is (1) Diluted FFO, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results. We believe this to be a useful supplemental measure alongside Diluted FFO per share as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that diluted EPS is the most directly comparable GAAP measure to this per share measure. This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

The computations for all of the above measures on a diluted basis assume the conversion of common units in COPLP but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.

We use measures called payout ratios as supplemental measures of our ability to make distributions to investors based on each of the following: FFO; Diluted FFO; and Diluted FFO, adjusted for comparability. These measures are defined as (1) the

sum of (a) dividends on common shares and (b) distributions to holders of interests in COPLP and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by either (2) FFO, Diluted FFO or Diluted FFO, adjusted for comparability.

The table appearing on the following page sets forth the computation of the above stated measures for the three and six months ended ~~March 31,~~June 30, 2016 and 2015, and provides reconciliations to the GAAP measures of COPT and subsidiaries associated with such measures:


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015			2016			2015
	(Dollars and shares in thousands, except per share data)						(Dollars and shares in thousands, except per share data)
Net income	$	8,096		$	14,735
Net (loss) income							$	(48,316	)	$	17,232		$	(40,220	)	$	31,967
Add Real estate-related depreciation and amortization	34,527			31,599			33,248			33,786			67,775			65,385
Add: Impairment losses on previously depreciated operating properties	847			233			55,124			1,239			55,971			1,472
FFO	43,470			46,567			40,056			52,257			83,526			98,824
Less: Noncontrolling interests-preferred units in the Operating Partnership	(165		)	(165		)	(165		)	(165		)	(330		)	(330		)
Less: FFO allocable to other noncontrolling interests	(1,027		)	(670		)	(1,014		)	(1,072		)	(2,041		)	(1,742		)
Less: Preferred share dividends	(3,552		)	(3,552		)	(3,553		)	(3,553		)	(7,105		)	(7,105		)
Basic and diluted FFO allocable to share-based compensation awards	(166		)	(183		)	(130		)	(202		)	(296		)	(385		)
Basic and diluted FFO available to common share and common unit holders	$	38,560		$	41,997		$	35,194		$	47,265		$	73,754		$	89,262
Add: Operating property acquisition costs	—			1,046			—			361			—			1,407
Less: Gain on sales of non-operating properties	—			(3,986		)	—			1			—			(3,985		)
Impairment losses on non-operating properties	1,599			—			14,568			—			16,167			—
Losses on interest rate derivatives	1,551			—			319			—			1,870			—
Add: (Gain) loss on early extinguishment of debt	(17		)	3
Executive transition costs	4,137			—
Less: Gain on early extinguishment of debt							(5		)	(315		)	(22		)	(312		)
Add: Executive transition costs							247			—			4,384			—
Add: Negative FFO of properties conveyed to extinguish debt in default	—			4,271			—			3,419			—			7,690
Add: Demolition costs on redevelopment properties	208			175			370			66			578			241
Less: Diluted FFO comparability adjustments allocable to share-based compensation awards	(31		)	(7		)	(63		)	(14		)	(94		)	(21		)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	$	46,007		$	43,499		$	50,630		$	50,783		$	96,637		$	94,282

Weighted average common shares	94,203			93,199			94,300			94,128			94,251			93,666
Conversion of weighted average common units	3,677			3,732			3,676			3,680			3,676			3,706
Weighted average common shares/units - Basic FFO	97,880			96,931			97,976			97,808			97,927			97,372
Dilutive effect of share-based compensation awards	95			198			117			35			107			114
Weighted average common shares/units - Diluted FFO	97,975			97,129
Weighted average common shares/units - Diluted FFO and Diluted FFO, as adj. for comparability							98,093			97,843			98,034			97,486
Diluted FFO per share	$	0.39		$	0.43		$	0.36		$	0.48		$	0.75		$	0.92
Diluted FFO per share, as adjusted for comparability	$	0.47		$	0.45		$	0.52		$	0.52		$	0.99		$	0.97

Numerator for diluted EPS	$	3,156		$	9,681
Add: Income allocable to noncontrolling interests-common units in the Operating Partnership	127			398
Add: Real estate-related depreciation and amortization	34,527			31,599
Add: Impairment losses on previously depreciated operating properties	847			233
Add: Numerator for diluted EPS allocable to share-based compensation awards	118			122
Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities	(197		)	(187		)
Add: Increase in noncontrolling interests unrelated to earnings	148			334
Less: Basic and diluted FFO allocable to share-based compensation awards	(166		)	(183		)
Basic FFO available to common share and common unit holders	$	38,560		$	41,997
Add: Operating property acquisition costs	—			1,046
Less: Gain on sales of non-operating properties	—			(3,986		)
Impairment losses on non-operating properties	1,599			—
Losses on interest rate derivatives	1,551			—
Add: (Gain) loss on early extinguishment of debt	(17		)	3
Executive transition costs	4,137			—
Add: Negative FFO on properties conveyed to extinguish debt in default	—			4,271
Add: Demolition costs on redevelopment properties	208			175
Less: Diluted FFO comparability adjustments allocable to share-based compensation awards	(31		)	(7		)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	$	46,007		$	43,499

Denominator for diluted EPS	94,298			93,397			94,300			94,163			94,251			93,780
Weighted average common units	3,677			3,732			3,676			3,680			3,676			3,706
Anti-dilutive EPS effect of share-based compensation awards							117			—			107			—
Denominator for diluted FFO per share measures	97,975			97,129			98,093			97,843			98,034			97,486

Property Additions

The table below sets forth the major components of our additions to properties for the ~~three~~six months ended ~~March 31,~~June 30, 2016 (in thousands):


Construction, development and redevelopment	$	61,957		$	105,657
Tenant improvements on operating properties	8,732		(1)	16,172		(1)
Capital improvements on operating properties	3,862			9,099
	$	74,551		$	130,928

(1) Tenant improvement costs incurred on newly-constructed properties are classified in this table as construction, development and redevelopment.

Cash Flows

Net cash flow provided by operating activities increased $~~5.5~~1.6 million when comparing the ~~three~~six months ended ~~March 31,~~June 30, 2016 and ~~2015 due primarily to:~~

2015. This increase included: a ~~$9.2~~$13.1 million increase in cash flow from real estate operations due primarily to properties acquired and placed in service since the prior period; ~~and~~

a $4.9 million increase in cash flow from construction contract and other services from the prior to the current period due in large part to the timing of cash payments and collections on third party construction projects; offset in part by

an ~~$8.6~~$8.8 million increase in interest expense paid from the prior to the current period due primarily to ~~a $7.6 million~~an increase ~~due to~~resulting from the timing of interest payments ~~resulting~~ from new debt requiring interest payments semi-annually rather than monthly.

Net cash flow used in investing activities decreased $~~62.3~~156.8 million when comparing the ~~three~~six months ended ~~March 31,~~June 30, 2016 and 2015 due primarily to ~~cash paid for~~ operating property acquisitions in ~~the prior period.~~2015 when none occurred in 2016 and lower development expenditures in 2016.

Net cash flow ~~provided by~~used in financing activities in the ~~three~~six months ended ~~March 31,~~June 30, 2016 was $~~10.8~~67.2 million, and included the following:

~~net proceeds from debt borrowings of $61.7 million; offset in part by~~

dividends and/or distributions to equity holders of ~~$30.7 million~~$61.5 million; and

distributions to redeemable noncontrolling interests of ~~$13.8~~$14.3 million related primarily to distributions to our partner in Stevens Investors, LLC, as discussed in Note 5 to the consolidated financial ~~statements.~~statements; offset in part by

net proceeds from debt borrowings of $15.5 million.

Net cash flow provided by financing activities in the ~~three~~six months ended ~~March 31,~~June 30, 2015 was $~~74.8~~169.2 million, and included the following:

net proceeds from debt borrowings of $~~79.3~~209.6 million; ~~offset in part by~~and

net proceeds from the issuance of common shares (or units) of ~~$28.4~~$28.6 million; ~~and~~offset in part by

dividends and/or distributions to equity holders of $~~30.4~~61.2 million.

Liquidity and Capital Resources of COPT

COPLP is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. COPT issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by COPLP. COPT itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of COPLP. COPT’s principal funding requirement is the payment of dividends on its common and preferred shares. COPT’s principal source of funding for its dividend payments is distributions it receives from COPLP.

As of ~~March 31,~~June 30, 2016, COPT owned 96.3% of the outstanding common units and 95.5% of the outstanding preferred units in COPLP; the remaining common and preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT has the full, exclusive and complete responsibility for COPLP’s day-to-day management and control.

The liquidity of COPT is dependent on COPLP’s ability to make sufficient distributions to COPT. The primary cash requirement of COPT is its payment of dividends to its shareholders. COPT also guarantees some of the Operating Partnership’s debt, as discussed further in Note 8 of the notes to consolidated financial statements included elsewhere herein. If

the Operating Partnership fails to fulfill certain of its debt requirements, which trigger COPT’s guarantee obligations, then COPT will be required to fulfill its cash payment commitments under such guarantees. However, COPT’s only significant asset is its investment in COPLP.

As discussed further below, we believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to COPT and, in turn, for COPT to make its dividend payments to its shareholders.

COPT’s short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to its shareholders. COPT periodically accesses the public equity markets to raise capital by issuing common and/or preferred shares.

For COPT to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its ordinary taxable income. As a result of this distribution requirement, it cannot rely on retained earnings to fund its ongoing operations to the same extent that some other companies can. COPT may need to continue to raise capital in the equity markets to fund COPLP’s working capital needs, acquisitions and developments.

Liquidity and Capital Resources of COPLP

Our primary cash requirements are for operating expenses, debt service, development of new properties, improvements to existing properties and acquisitions. We expect to continue to use cash flow provided by operations as the primary source to meet our short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, distributions to our security holders and improvements to existing properties. As of ~~March 31,~~June 30, 2016, we had ~~$62.5~~$13.3 million in cash and cash equivalents.

Our senior unsecured debt is currently rated investment grade by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks, when appropriate. In addition, we periodically access the public equity markets to raise capital by issuing common and/or preferred shares.

We use our Revolving Credit Facility to initially finance much of our investing activities. We subsequently pay down the facility using proceeds from long-term borrowings, equity issuances and property sales. The lenders’ aggregate commitment under the facility is $800.0 million, with the ability for us to increase the lenders’ aggregate commitment to $1.3 billion, provided that there is no default under the facility and subject to the approval of the lenders. Amounts available under the facility are computed based on 60% of our unencumbered asset value, as defined in the loan agreement. The Revolving Credit Facility matures in May 2019, and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability of the facility. As of ~~March 31,~~June 30, 2016, the maximum borrowing capacity under this facility totaled $800.0 million, of which $~~678.2~~727.2 million was available.

In addition, as of ~~March 31,~~June 30, 2016, we have $150.0 million available to be drawn upon under an unsecured term ~~loan.~~loan that we expect to use to repay borrowings under our Revolving Credit Facility.

We believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements without necessitating property sales. We do, however, expect to raise ~~at least~~approximately $440 million from sales of interests in properties in 2016 and use the proceeds to repay borrowings and fund development costs.

The following table summarizes our contractual obligations as of ~~March 31,~~June 30, 2016 (in thousands):


	For the Periods Ending December 31,														For the Periods Ending December 31,
	2016		2017		2018		2019		2020		Thereafter		Total		2016		2017		2018		2019		2020		Thereafter		Total
Contractual obligations (1)
Debt (2)
Balloon payments due upon maturity	$	201,711	$	—	$	—	$	227,000	$	312,132	$	1,391,229	$	2,132,072	$	161,435	$	—	$	—	$	178,000	$	312,132	$	1,426,832	$	2,078,399
Scheduled principal payments	4,548		3,252		3,400		3,514		3,120		8,974		26,808		3,035		4,061		4,241		4,387		4,024		14,553		34,301
Interest on debt (3)	58,341		69,496		69,355		66,778		60,522		157,283		481,775		38,347		70,585		70,411		68,306		62,236		165,577		475,462
New development and redevelopment obligations (4)(5)	41,278		16,611		2,198		—		—		—		60,087		50,967		25,380		2,492		—		—		—		78,839
Third-party construction and development obligations (5)(6)	13,890		3,764		—		—		—		—		17,654		13,673		3,649		—		—		—		—		17,322
Capital expenditures for operating properties (5)(7)	30,808		9,028		5,060		—		—		—		44,896		27,212		16,882		4,580		—		—		—		48,674
Operating leases (8)	896		1,123		1,076		1,051		1,067		86,800		92,013		603		1,139		1,092		1,067		1,084		86,805		91,790
Other obligations	1,140		852		451		371		134		5		2,953		655		851		458		379		136		5		2,484
Total contractual cash obligations	$	352,612	$	104,126	$	81,540	$	298,714	$	376,975	$	1,644,291	$	2,858,258	$	295,927	$	122,547	$	83,274	$	252,139	$	379,612	$	1,693,772	$	2,827,271


(1)	The contractual obligations set forth in this table exclude property operations contracts that may be terminated with notice of one month or less.

(2)

Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of ~~$18.7 million. We expect to repay most of~~$18.2 million. On July 1, 2016, we repaid our ~~debt maturing~~balloon payments due upon maturity in 2016 using ~~proceeds~~borrowings from ~~an unsecured term loan with $150.0 million in available capacity.~~our Revolving Credit Facility. As of ~~March 31,~~June 30, 2016, maturities include ~~$107.0~~$58.0 million in 2019 that may be extended to 2020, subject to certain conditions.


(3)	Represents interest costs for our outstanding debt as of ~~March 31,~~June 30, 2016 for the terms of such debt. For variable rate debt, the amounts reflected above used ~~March 31,~~June 30, 2016 interest rates on variable rate debt in computing interest costs for the terms of such debt.


(4)	Represents contractual obligations pertaining to new development and redevelopment activities.


(5)	Due to the long-term nature of certain construction and development contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.


(6)	Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients. We expect to be reimbursed in full for these costs by our clients.


(7)	Represents contractual obligations pertaining to recurring and nonrecurring capital expenditures for our operating properties. We expect to finance these costs primarily using cash flow from operations.


(8)	We expect to pay these items using cash flow from operations.

We expect to spend approximately ~~$170~~$95 million on construction and development costs and approximately ~~$50~~$35 million on improvements to operating properties (including the commitments set forth in the table above) during the remainder of 2016. We expect to fund the construction and development costs using primarily cash on hand and borrowings under our Revolving Credit Facility. We expect to use proceeds from the disposition of properties to repay borrowings under our Revolving Credit Facility. We expect to fund improvements to existing operating properties using cash flow from operations.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. As of ~~March 31,~~June 30, 2016, we were in compliance with these financial covenants.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements during the ~~three~~six months ended ~~March 31,~~June 30, 2016.

Inflation

Most of our tenants are obligated to pay their share of a building’s operating expenses to the extent such expenses exceed amounts established in their leases, which are based on historical expense levels. Some of our tenants are obligated to pay their full share of a building’s operating expenses. These arrangements somewhat reduce our exposure to increases in such costs resulting from inflation.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements for information regarding recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced.

The following table sets forth as of ~~March 31,~~June 30, 2016 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):


	For the Periods Ending December 31,																					For the Periods Ending December 31,
	2016			2017			2018			2019			2020			Thereafter			Total			2016			2017			2018			2019			2020			Thereafter			Total
Debt:
Fixed rate debt (1)	$	170,191		$	2,883		$	3,017		$	3,118		$	2,814		$	1,300,203		$	1,482,226		$	164,291		$	3,692		$	3,858		$	3,991		$	3,718		$	1,341,385		$	1,520,935
Weighted average interest rate	7.19		%	4.49		%	4.52		%	4.51		%	4.01		%	4.31		%	4.65		%	7.22		%	4.34		%	4.37		%	4.36		%	3.96		%	4.30		%	4.61		%
Variable rate debt (2)	$	36,068		$	369		$	383		$	227,396		$	312,438		$	100,000		$	676,654		$	179		$	369		$	383		$	178,396		$	312,438		$	100,000		$	591,765
Weighted average interest rate (3)	2.44		%	2.29		%	2.29		%	2.10		%	1.86		%	2.24		%	2.03		%	2.31		%	2.31		%	2.31		%	2.25		%	1.88		%	2.26		%	2.06		%


(1)	Represents principal maturities only and therefore excludes net discounts and deferred financing costs of ~~$18.7~~$18.2 million. On July 1, 2016, we repaid $162.5 million in debt maturing in 2016 using borrowings from our Revolving Credit Facility.


(2)	As of ~~March 31,~~June 30, 2016, maturities include ~~$107.0~~$58.0 million in 2019 that may be extended to 2020, subject to certain conditions.


(3)	The amounts reflected above used ~~March 31,~~June 30, 2016 interest rates on variable rate debt.

The fair value of our debt was $~~2.2~~2.1 billion as of ~~March 31,~~June 30, 2016. If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $~~110~~105 million as of ~~March 31,~~June 30, 2016.

The following table sets forth information pertaining to interest rate swap contracts in place as of ~~March 31,~~June 30, 2016 and December 31, 2015 and their respective fair values (dollars in thousands):


							Fair Value at												Fair Value at
Notional Amount	Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	March 31, 2016			December 31, 2015			Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	June 30, 2016			December 31, 2015
$	100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$	(137	)	$	(148	)	100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$	(58	)	$	(148	)
100,000	100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(139		)	(151		)	100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(59		)	(151		)
100,000	100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(2,738		)	(1,217		)	100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(3,117		)	(1,217		)
100,000	100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(2,929		)	(1,429		)	100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(3,293		)	(1,429		)
13,853		(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(242		)	53
13,765													13,765	(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(337		)	53
100,000	100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(3,601		)	(138		)	100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(5,367		)	(138		)
100,000	100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(3,511		)	(45		)	100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(5,336		)	(45		)
50,000	50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(1,775		)	(32		)	50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(2,678		)	(32		)
							$	(15,072	)	$	(3,107	)							$	(20,245	)	$	(3,107	)


(1)	The notional amount of this instrument is scheduled to amortize to $12.1 million.

Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $~~673,000~~1.2 million in the ~~three~~six months ended ~~March 31,~~June 30, 2016 if the one-month LIBOR rate was 1% higher.

Item 4. Controls and Procedures

COPT

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of ~~March 31,~~June 30, 2016. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of ~~March 31,~~June 30, 2016 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

COPLP

(a) Evaluation of Disclosure Controls and Procedures

The Operating Partnership’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of ~~March 31,~~June 30, 2016. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Operating Partnership’s disclosure controls and procedures as of ~~March 31,~~June 30, 2016 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Operating Partnership in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Operating Partnership’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in the Operating Partnership’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II

Item 1. Legal Proceedings

We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against the Company or the Operating Partnership (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).

Item 1A. Risk Factors

There have been no material changes to the risk factors included in our ~~2014~~2015 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

~~Not applicable~~During the three months ended June 30, 2016, 26,758 of COPLP’s common units were exchanged for 26,758 COPT common shares in accordance with COPLP’s Second Amended and Restated Limited Partnership Agreement, as amended. The issuance of these common shares was effected in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

(b) Not applicable

Item 3. Defaults Upon Senior Securities

(a) Not applicable

(b) Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits:



EXHIBIT NO.		DESCRIPTION
10.1		~~Separation~~Letter Agreement, dated ~~February 11,~~May 12, 2016, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and ~~Roger A. Waesche, Jr.~~Stephen E. Budorick (filed with the Company’s Current Report on Form 8-K dated ~~February 12, 2016 and incorporated herein by reference).~~

~~10.2~~		Separation Agreement, dated February 26, 2016, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and Wayne H. Lingafelter (filed with the Company’s Current Report on Form 8-K dated March 3,May 17, 2016 and incorporated herein by reference).

12.1		COPT’s Statement regarding Computation of Earnings to Combined Fixed Charges and Preferred Share Dividends (filed herewith).

12.2		COPLP’s Statement regarding Computation of Consolidated Ratio of Earnings to Fixed Charges (filed herewith).

31.1		Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

31.2		Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

31.3		Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

31.4		Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

32.1		Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).

32.2		Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).

32.3		Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).

32.4		Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).

101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.LAB		XBRL Extension Labels Linkbase (filed herewith).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned Registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	CORPORATE OFFICE PROPERTIES TRUST		CORPORATE OFFICE PROPERTIES, L.P.
			By: Corporate Office Properties Trust,
			its General Partner

	/s/ ~~Roger A. Waesche, Jr.~~Stephen E. Budorick		/s/ ~~Roger A. Waesche, Jr.~~Stephen E. Budorick
	~~Roger A. Waesche, Jr.~~Stephen E. Budorick		~~Roger A. Waesche, Jr.~~Stephen E. Budorick
	President and Chief Executive Officer		President and Chief Executive Officer


	/s/ Anthony Mifsud		/s/ Anthony Mifsud
	Anthony Mifsud		Anthony Mifsud
	Executive Vice President and Chief Financial Officer		Executive Vice President and Chief Financial Officer

Dated:	~~May 3,~~August 2, 2016	Dated:	~~May 3,~~August 2, 2016

4952

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)