<Page>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from_____________________to___________________________
Commission file number 0-20047
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8815 CENTRE PARK DRIVE, SUITE 400, COLUMBIA MD 21045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 730-9092
-----------------------------------
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.
/X/ Yes / / No
On May 9, 2002, 23,353,823 of the Company's Common Shares of Beneficial
Interest, $0.01 par value, were issued.
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<Page>
TABLE OF CONTENTS
FORM 10-Q
<Table>
<Caption>
PAGE
------
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001 3
Consolidated Statements of Operations for the three months ended March 31, 2002 and
2001 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and
2001 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3: Quantitative and Qualitative Disclosures About Market Risk 29
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 29
Item 2: Changes in Securities 30
Item 3: Defaults Upon Senior Securities 30
Item 4: Submission of Matters to a Vote of Security Holders 30
Item 5: Other Information 30
Item 6: Exhibits and Reports on Form 8-K 30
SIGNATURES 31
</Table>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORPORATE OFFICE PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
March 31, December 31,
2002 2001
--------------- ---------------
(unaudited)
ASSETS
Investment in real estate:
Operating properties, net $ 858,048 $ 851,762
Property held for sale, net 5,990 --
Projects under construction or development 67,683 64,244
- -------------------------------------------------------------------------------- --------------- ---------------
Total commercial real estate properties, net 931,721 916,006
Investments in and advances to unconsolidated real estate joint ventures 10,740 11,047
- -------------------------------------------------------------------------------- --------------- ---------------
Investment in real estate, net 942,461 927,053
Cash and cash equivalents 4,250 6,640
Restricted cash 6,977 4,947
Accounts receivable, net 4,909 3,805
Investments in and advances to other unconsolidated entities 2,105 2,112
Deferred rent receivable 11,651 11,447
Deferred charges, net 18,175 16,884
Prepaid and other assets 10,991 9,551
Furniture, fixtures and equipment, net 1,717 1,771
- -------------------------------------------------------------------------------- --------------- ---------------
TOTAL ASSETS $ 1,003,236 $ 984,210
- -------------------------------------------------------------------------------- --------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 573,821 $ 573,327
Accounts payable and accrued expenses 11,355 10,674
Rents received in advance and security deposits 6,805 6,567
Dividends and distributions payable 9,426 8,965
Fair value of derivatives 2,720 3,781
Other liabilities 7,171 12,193
- -------------------------------------------------------------------------------- --------------- ---------------
Total liabilities $ 611,298 $ 615,507
- -------------------------------------------------------------------------------- --------------- ---------------
Minority interests:
Preferred Units in the Operating Partnership 24,367 24,367
Common Units in the Operating Partnership 81,905 80,158
Other consolidated entities 286 257
- -------------------------------------------------------------------------------- --------------- ---------------
Total minority interests 106,558 104,782
- -------------------------------------------------------------------------------- --------------- ---------------
Commitments and contingencies (Note 16)
Shareholders' equity:
Preferred Shares ($0.01 par value; 10,000,000 shares authorized;
40,693 designated as Series A Convertible Preferred Shares of -- --
beneficial interest (shares issued of 0 at March 31, 2002 and 1 at
December 31, 2001)
1,725,000 designated as Series B Cumulative Redeemable Preferred Shares of
beneficial interest (1,250,000 shares issued with an aggregate
liquidation preference of $31,250) 13 13
544,000 designated as Series D Cumulative Convertible Redeemable Preferred
Shares of beneficial interest (544,000 shares issued with an aggregate
liquidation preference of $13,600 ) 5 5
1,265,000 designated as Series E Cumulative Redeemable Preferred Shares of
beneficial interest (1,150,000 shares issued with an aggregate
liquidation preference of $28,750 ) 11 11
1,425,000 designated as Series F Cumulative Redeemable Preferred Shares of
beneficial interest (1,425,000 shares issued with an
aggregate liquidation preference of $35,625) 14 14
Common Shares of beneficial interest ($0.01 par value; 45,000,000 shares
authorized, shares issued of 22,938,151 at March 31, 2002 and
20,814,701 at December 31, 2001) 229 208
Additional paid-in capital 307,500 285,362
Cumulative distributions in excess of net income (16,446) (14,502)
Value of unearned restricted Common Share grants (2,739) (3,275)
Treasury Shares, at cost (166,600 shares) (1,415) (1,415)
Accumulated other comprehensive loss (1,792) (2,500)
- -------------------------------------------------------------------------------- --------------- ---------------
Total shareholders' equity 285,380 263,921
- -------------------------------------------------------------------------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,003,236 $ 984,210
- -------------------------------------------------------------------------------- --------------- ---------------
</Table>
See accompanying notes to financial statements.
3
<Page>
CORPORATE OFFICE PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
For the three months ended March 31,
--------------------------------------
2002 2001
--------------- --------------
Real Estate Operations:
Revenues
Rental revenue $ 30,240 $ 25,345
Tenant recoveries and other revenue 3,993 4,049
- -------------------------------------------------------------------------------- --------------- ---------------
Revenue from real estate operations 34,233 29,394
- -------------------------------------------------------------------------------- --------------- ---------------
Expenses
Property operating 10,100 8,376
Interest 8,567 8,112
Amortization of deferred financing costs 486 383
Depreciation and other amortization 6,641 4,841
- -------------------------------------------------------------------------------- --------------- ---------------
Expenses from real estate operations 25,794 21,712
- -------------------------------------------------------------------------------- --------------- ---------------
Earnings from real estate operations before equity in (loss) income of 8,439 7,682
of unconsolidated real estate joint ventures
Equity in (loss) income of unconsolidated real estate joint ventures (12) 30
- -------------------------------------------------------------------------------- --------------- ---------------
Earnings from real estate operations 8,427 7,712
- -------------------------------------------------------------------------------- --------------- ---------------
Service operations
Revenues 1,011 1,040
Expenses (1,094) (1,369)
Equity in loss of unconsolidated Service Companies (7) --
- -------------------------------------------------------------------------------- --------------- ---------------
Losses from service operations (90) (329)
- -------------------------------------------------------------------------------- --------------- ---------------
General and administrative expense (2,170) (1,446)
- -------------------------------------------------------------------------------- --------------- ---------------
Income before minority interests, income taxes, discontinued operations,
extraordinary item and cumulative effect of accounting change 6,167 5,937
Minority interests
Common Units in the Operating Partnership (988) (1,530)
Preferred Units in the Operating Partnership (572) (572)
Other consolidated entities (31) 4
- -------------------------------------------------------------------------------- --------------- ---------------
Income before income taxes, discontinued operations, extraordinary item and
cumulative effect of accounting change 4,576 3,839
Income tax benefit, net of minority interests 27 81
- -------------------------------------------------------------------------------- --------------- ---------------
Income before discontinued operations, extraordinary item and
cumulative effect of accounting change 4,603 3,920
- -------------------------------------------------------------------------------- --------------- ---------------
Discontinued operations
Earnings from operations, net of minority interests 84 50
Gain on sales of real estate, net of minority interests 636 --
- -------------------------------------------------------------------------------- --------------- ---------------
Income from discontinued operations, net of minority interests 720 50
- -------------------------------------------------------------------------------- --------------- ---------------
Income before extraordinary item and cumulative effect of accounting change 5,323 3,970
Extraordinary item-loss on early retirement of debt, net of minority interests (28) (70)
- -------------------------------------------------------------------------------- --------------- ---------------
Income before cumulative effect of accounting change 5,295 3,900
Cumulative effect of accounting change, net of minority interests -- (174)
- -------------------------------------------------------------------------------- --------------- ---------------
NET INCOME 5,295 3,726
Preferred Share dividends (2,533) (881)
- -------------------------------------------------------------------------------- --------------- ---------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,762 $ 2,845
- -------------------------------------------------------------------------------- --------------- ---------------
BASIC EARNINGS PER COMMON SHARE
Income before discontinued operations, extraordinary item and cumulative
effect of accounting change $ 0.10 $ 0.15
Discontinued operations 0.03 --
Extraordinary item -- --
Cumulative effect of accounting change -- (0.01)
- -------------------------------------------------------------------------------- --------------- ---------------
Net income available to Common Shareholders $ 0.13 $ 0.14
- -------------------------------------------------------------------------------- --------------- ---------------
DILUTED EARNINGS PER COMMON SHARE
Income before discontinued operations, extraordinary item and cumulative
effect of accounting change $ 0.10 $ 0.15
Discontinued operations 0.03 --
Extraordinary item -- --
Cumulative effect of accounting change -- (0.01)
- -------------------------------------------------------------------------------- --------------- ---------------
Net income available to Common Shareholders $ 0.13 $ 0.14
- -------------------------------------------------------------------------------- --------------- ---------------
</Table>
See accompanying notes to financial statements.
4
<Page>
CORPORATE OFFICE PROPERTIES TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
For the three months ended March 31,
------------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,295 $ 3,726
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 1,940 2,040
Depreciation and other amortization 6,641 4,841
Amortization of deferred financing costs 486 383
Equity in income of unconsolidated entities (11) (30)
Gain on sales of real estate (946) --
Extraordinary item - loss on early retirement of debt 42 106
Cumulative effect of accounting change -- 263
Increase in deferred rent receivable (204) (691)
Increase in accounts receivable, restricted cash and prepaid and other
assets (3,619) (2,358)
Increase (decrease) in accounts payable, accrued expenses, rents received
in advance and security deposits 1,327 (960)
Other 1,123 828
- -------------------------------------------------------------------------------- --------------- ---------------
Net cash provided by operating activities 12,074 8,148
- -------------------------------------------------------------------------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and additions to commercial real estate properties (19,509) (12,623)
Proceeds from sales of real estate 1,345 --
Investments in and advances to unconsolidated real estate joint ventures (421) (3,231)
Cash from acquisition of Service Companies -- 568
Investments in and advances to other unconsolidated entities -- (564)
Leasing commissions paid (1,901) (1,328)
Decrease (increase) in advances to certain real estate joint ventures 91 (776)
Other (62) (335)
- -------------------------------------------------------------------------------- --------------- ---------------
Net cash used in investing activities (20,457) (18,289)
- -------------------------------------------------------------------------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage and other loans payable 21,857 46,090
Repayments of mortgage and other loans payable (24,363) (41,566)
Deferred financing costs paid (772) (1,013)
(Decrease) increase in other liabilities (5,022) 633
Net proceeds from issuance of Preferred Shares -- 11,894
Net proceeds from issuance of Common Shares 23,660 148
Dividends paid (6,777) (4,771)
Distributions paid (2,590) (2,449)
- -------------------------------------------------------------------------------- --------------- ---------------
Net cash provided by financing activities 5,993 8,966
- -------------------------------------------------------------------------------- --------------- ---------------
Net decrease in cash and cash equivalents (2,390) (1,175)
CASH AND CASH EQUIVALENTS
Beginning of period 6,640 4,981
- -------------------------------------------------------------------------------- --------------- ---------------
End of period $ 4,250 $ 3,806
- -------------------------------------------------------------------------------- --------------- ---------------
</Table>
See accompanying notes to financial statements.
5
<Page>
CORPORATE OFFICE PROPERTIES TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(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"). We focus principally on the ownership, management, leasing,
acquisition and development of suburban office properties located in select
submarkets in the Mid-Atlantic region of the United States. COPT is qualified as
a REIT as defined in the Internal Revenue Code and is the successor to a
corporation organized in 1988. As of March 31, 2002, our portfolio included 99
office properties.
We conduct almost all of our operations principally through our operating
partnership, Corporate Office Properties, L.P. (the "Operating Partnership"),
for which we are the managing general partner. The Operating Partnership owns
real estate both directly and through subsidiary partnerships and limited
liability companies ("LLCs"). The Operating Partnership also owns Corporate
Office Management, Inc. ("COMI") (together with its subsidiaries defined as the
"Service Companies"). A summary of our Operating Partnership's classes of
securities and the percentage of the outstanding units of each class owned by
COPT as of March 31, 2002 follows:
<Table>
<Caption>
% Owned by
COPT
----------
Common Units 68%
Series B Preferred Units 100%
Series C Preferred Units 0%
Series D Preferred Units 100%
Series E Preferred Units 100%
Series F Preferred Units 100%
</Table>
2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures required by accounting
principles generally accepted in the United States for complete consolidated
financial statements are not included herein. These interim financial statements
should be read together with the financial statements and notes thereto included
in our 2001 Annual Report on Form 10-K. The interim financial statements on the
previous pages reflect all adjustments which we believe are necessary for the
fair presentation of our financial position and results of operations for the
interim periods presented. These adjustments are of a normal recurring nature.
The results of operations for such interim periods are not necessarily
indicative of the results for a full year.
We use three different accounting methods to report our investments in
entities: the consolidation method, the equity method and the cost method.
CONSOLIDATION METHOD
We use the consolidation method when we own most of the outstanding voting
interests in an entity and can control its operations. This means the accounts
of the entity are combined with our accounts. We eliminate balances and
transactions between companies when we consolidate these accounts. Our
consolidated financial statements include the accounts of:
- - COPT;
- - the Operating Partnership and its subsidiary partnerships and LLCs; and
- - Corporate Office Properties Holdings, Inc. (of which we own 100%).
6
<Page>
EQUITY METHOD
We use the equity method of accounting when we own an interest in an entity
and can exert significant influence over the entity's operations but cannot
control the entity's operations. Under the equity method, we report:
- our ownership interest in the entity's capital as an investment on our
Consolidated Balance Sheets and
- our percentage share of the earnings or losses from the entity in our
Consolidated Statements of Operations.
COST METHOD
We use the cost method of accounting when we own an interest in an entity
and cannot exert significant influence over the entity's operations. Under the
cost method, we report:
- the cost of our investment in the entity as an investment on our
Consolidated Balance Sheets and
- distributions to us of the entity's earnings in our Consolidated
Statements of Operations.
RECLASSIFICATION
We reclassified certain amounts from the prior period to conform to the
current period presentation of our consolidated financial statements. These
reclassifications did not affect consolidated net income or shareholders'
equity.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
We make estimates and assumptions when preparing financial statements under
generally accepted accounting principles. These estimates and assumptions affect
various matters, including:
- our reported amounts of assets and liabilities in our Consolidated
Balance Sheets at the dates of the financial statements;
- our disclosure of contingent assets and liabilities at the dates of
the financial statements; and
- our reported amounts of revenues and expenses in our Consolidated
Statements of Operations during the reporting periods.
These estimates involve judgments with respect to, among other things,
future economic factors that are difficult to predict and are often beyond
management's control. As a result, actual amounts could differ from these
estimates.
MINORITY INTERESTS
As discussed previously, we consolidate the accounts of our Operating
Partnership and its subsidiaries into our financial statements. However, we do
not own 100% of the Operating Partnership. Our Operating Partnership also does
not own 11% of one of its subsidiary partnerships. In addition, COMI does not
own 20% of one of its subsidiaries. The amounts reported for minority interests
on our Consolidated Balance Sheets represent the portion of these consolidated
entities' equity that we do not own. The amounts reported for minority interests
on our Consolidated Statements of Operations represent the portion of these
consolidated entities' net income not allocated to us.
EARNINGS PER SHARE
We present both basic and diluted earnings per Common Share ("EPS"). We
compute basic EPS by dividing income available to common shareholders by the
weighted-average number of Common Shares of beneficial interest ("Common
Shares") outstanding during the period. Our computation of diluted EPS is
similar except that:
7
<Page>
- - the denominator is increased to include the weighted-average number of
potential additional Common Shares that would have been outstanding if
securities that are convertible into our Common Shares were converted; and
- - the numerator is adjusted to add back any convertible preferred dividends
and any other changes in income or loss that would result from the assumed
conversion into Common Shares.
Our computation of diluted EPS does not assume conversion of securities into our
Common Shares if conversion of those securities would increase our diluted EPS
in a given period. A summary of the numerator and denominator for purposes of
basic and diluted EPS calculations is as follows (in thousands, except per share
data):
<Table>
<Caption>
Three months ended March 31,
---------------------------------
2002 2001
--------------- ---------------
Numerator:
Net income available to Common Shareholders $ 2,762 $ 2,845
Add: Cumulative effect of accounting change, net -- 174
Add: Extraordinary item, net 28 70
Less: Income from discontinued operations, net (720) (50)
--------------- ---------------
Numerator for basic EPS before income from discontinued
operations, extraordinary item and cumulative effect
of accounting change 2,070 3,039
Income on share options assumed converted -- (61)
Add: Series D Preferred Share dividends -- 100
--------------- ---------------
Numerator for diluted EPS before income from
discontinued operations, extraordinary item and
cumulative effect of accounting change 2,070 3,078
Add: Income from discontinued operations, net 720 50
--------------- ---------------
Numerator for diluted EPS before extraordinary item and
cumulative effect of accounting change 2,790 3,128
Less: Extraordinary item, net (28) (70)
--------------- ---------------
Numerator for diluted EPS for net income before
cumulative effect of accounting change 2,762 3,058
Less: Cumulative effect of accounting change, net -- (174)
--------------- ---------------
Numerator for diluted EPS on net income available to
Common Shareholders $ 2,762 $ 2,884
=============== ===============
Denominator (all weighted averages):
Common Shares - basic 20,889 19,982
Assumed conversion of share options 765 273
Conversion of Series D Preferred Shares -- 878
--------------- ---------------
Denominator for diluted EPS 21,654 21,133
=============== ===============
Basic EPS
Income before discontinued operations, extraordinary item and
cumulative effect of accounting change $ 0.10 $ 0.15
Discontinued operations 0.03 --
Extraordinary item -- --
Cumulative effect of accounting change -- (0.01)
--------------- ---------------
Net income available to Common shareholders $ 0.13 $ 0.14
=============== ===============
Diluted EPS
Income before discontinued operations, extraordinary item and
cumulative effect of accounting change $ 0.10 $ 0.15
Discontinued operations 0.03 --
Extraordinary item -- --
Cumulative affect of accounting change -- (0.01)
--------------- ---------------
Net income available to Common Shareholders $ 0.13 $ 0.14
=============== ===============
</Table>
Our diluted EPS computation for the three months ended March 31, 2002
assumes only conversion of share options because conversions of Series D
Cumulative Convertible Redeemable Preferred Shares of beneficial interest (the
"Series D Preferred Shares"), Preferred Units, Series A Convertible Preferred
Shares of beneficial interest (the "Series A Preferred Shares") and Common Units
would increase diluted EPS in those periods. Our diluted EPS computation for the
three months ended March 31, 2001 assumes only conversion of share options
8
<Page>
and Series D Preferred Shares because conversions of Preferred Units, Series A
Preferred Shares and Common Units would increase diluted EPS in those periods.
RECENT ACCOUNTING PRONOUNCEMENTS
On July 1, 2001 and January 1, 2002, we adopted Statement of Financial
Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142"), respectively. SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The provisions of SFAS 142 require
that (1) amortization of goodwill, including goodwill recorded in past business
combinations, be discontinued upon adoption of this standard and (2) goodwill be
tested annually for impairment and in interim periods if certain events occur
indicating that the carrying value of goodwill may be impaired. After completing
an evaluation of our unamortized goodwill under the provisions of SFAS 142, we
concluded that our carrying value of goodwill was not impaired as of January 1,
2002 and March 31, 2002. The following table summarizes our goodwill
amortization and operating results as if such goodwill amortization did not
occur:
<Table>
<Caption>
Three months ended March 31,
--------------------------------
2002 2001
--------------- ---------------
Amortization of goodwill $ -- $ 40
Amortization of goodwill, net of minority interests and income taxes $ -- $ 16
Income before extraordinary item and cumulative effect of accounting change,
as reported $ 5,323 $ 3,970
Income before extraordinary item and cumulative effect of accounting change,
exclusive of goodwill amortization $ 5,323 $ 3,986
Net income available to Common Shareholders, as reported $ 2,762 $ 2,845
Net income available to Common Shareholders, exclusive of goodwill amortization $ 2,762 $ 2,861
Basic earnings per Common Share, as reported $ 0.13 $ 0.14
Basic earnings per Common Share, exclusive of goodwill amortization $ 0.13 $ 0.14
Diluted earnings per Common Share, as reported $ 0.13 $ 0.14
Diluted earnings per Common Share, exclusive of goodwill amortization $ 0.13 $ 0.14
</Table>
In January 1, 2002, we adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 provides new guidance on recognition of impairment losses on
long-lived assets to be held and used and broadens the definition of what
constitutes a discontinued operation and how the results of discontinued
operations are to be measured. The primary impact of our adoption of this
standard is that revenues and expenses associated with real estate investments
that we sold in 2002 or held for sale at March 31, 2002 are classified as
discontinued operations on our Consolidated Statements of Operations for the
periods reported.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
No. 145"). SFAS 145 generally eliminates the requirement that gains and losses
from the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. SFAS 145 also
eliminates previously existing inconsistencies between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects similar to that of sale-leaseback transactions. The amendment requires
that lease modifications result in recognition of a gain or loss in the
financial statements and, where applicable, be subject to existing accounting
standards governing sales of real estate and sale-leaseback transactions. SFAS
145 is generally effective for transactions occurring after May 15, 2002;
however, the standard generally requires that gains or losses from
extinguishment of debt reported as an extraordinary item in prior periods
presented be reclassified. We are currently reviewing the provisions of this
standard and assessing the impact of adoption.
9
<Page>
4. COMMERCIAL REAL ESTATE PROPERTIES
Operating properties consist of the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
--------------- ---------------
Land $ 164,436 $ 164,994
Buildings and improvements 750,350 738,320
--------------- ---------------
914,786 903,314
Less: accumulated depreciation (56,738) (51,552)
--------------- ---------------
$ 858,048 $ 851,762
--------------- ---------------
</Table>
We are under contract to sell our property located at 8815 Centre Park
Drive in Columbia, Maryland. As a result, this property is classified as held
for sale. The components associated with this property at March 31, 2002 include
the following:
<Table>
<Caption>
March 31,
2002
----------
Land $ 1,249
Buildings and improvements 5,247
----------
6,496
Less: accumulated depreciation (506)
----------
$ 5,990
----------
</Table>
Our contract to sell the property expired subsequent to March 31, 2002 but the
potential purchaser has expressed continued interest in acquiring the property
at the originally agreed upon purchase price of $7,300.
Projects we had under construction or development consist of the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
--------------- ---------------
Land $ 29,543 $ 26,751
Construction in progress 38,140 37,493
--------------- ---------------
$ 67,683 $ 64,244
--------------- ---------------
</Table>
ACQUISITION
On January 31, 2002, we acquired a parcel of land located in Annapolis
Junction, Maryland for $3,757 from an affiliate of Constellation Real Estate,
Inc. ("Constellation"). On the date of this transaction, Constellation owned 43%
of our Common Shares and had the right to designate nominees for two of the
eight positions on our Board of Trustees (see Note 10).
2002 CONSTRUCTION/DEVELOPMENT
During the three months ended March 31, 2002, we completed the construction
of two office buildings totaling 127,167 square feet. The buildings are located
in the Baltimore/Washington Corridor.
As of March 31, 2002, we also had construction underway on four new
buildings.
2002 DISPOSITION
We sold a land parcel located in Hanover, Maryland for $1,300 on March 29,
2002. We realized a gain of $597 on the sale of this property.
10
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ACCOUNTING FOR CERTAIN REAL ESTATE JOINT VENTURES
Prior to 2002, we contributed parcels of land into two real estate joint
ventures. In exchange for the contributions of land, we received joint venture
interests and $9.6 million in cash. Each of these joint ventures constructed
office buildings on the land parcels. Each of the joint ventures' operating
agreements provide us with the option to acquire the joint venture partners'
interests for a pre-determined purchase price over a limited period of time. We
account for our interests in these joint ventures as follows:
- - the costs associated with these land parcels at the time of their
respective contributions are reported as commercial real estate properties
on our Consolidated Balance Sheets;
- - the cash received from these joint ventures in connection with the land
contributions is reported as other liabilities on our Consolidated Balance
Sheets. These liabilities are accreted towards the pre-determined purchase
price over the life of our option to acquire the joint venture partners'
interests. We also report interest expense in connection with the accretion
of these liabilities; and
- - as construction of the buildings on these land parcels is completed and
operations commence, we report 100% of the revenues and expenses associated
with these properties on our Consolidated Statements of Operations.
- - construction costs and debt activity for these projects relating to periods
after the respective land contributions are not reported by us.
In February 2002, we acquired the joint venture partner's interest in one
of these joint ventures for the pre-determined purchase price of $5,448. Upon
completion of this acquisition, we began consolidating the accounts of the
entity with our accounts.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED REAL ESTATE JOINT
VENTURES
On February 21, 2002, we acquired the remaining 20% interest in MOR
Montpelier LLC not previously owned by us and simultaneously sold the 43,785
square foot building owned by that entity, realizing a gain of $352.
On February 21, 2002, we also acquired a 50% interest in MOR Montpelier 3
LLC, an entity developing a parcel of land located in Columbia, Maryland.
Our investments in and advances to unconsolidated real estate joint
ventures are accounted for using the equity method of accounting and include the
following:
<Table>
<Caption>
March 31, December 31,
2002 2001
------------ -------------
Gateway 67, LLC $ 3,972 $ 3,904
NBP 140, LLC 3,184(1) 2,885(1)
Gateway 70 LLC 2,366 2,326
MOR Forbes LLC 920 924
MOR Montpelier 3 LLC 298 --
MOR Montpelier LLC -- 1,008
------------ -------------
$ 10,740 $ 11,047
------------ -------------
</Table>
(1) Includes a mortgage loan receivable of $2,690 at March 31, 2002
and $2,640 at December 31, 2001 carrying an annual interest rate
of Prime through its maturity on December 27, 2002.
We have additional commitments pertaining to our real estate joint ventures
that are disclosed in Note 16.
6. ACCOUNTS RECEIVABLE
Our accounts receivable are reported net of an allowance for bad debts of
$783 at March 31, 2002 and $723 at December 31, 2001.
11
<Page>
7. INVESTMENTS IN AND ADVANCES TO OTHER UNCONSOLIDATED ENTITIES
Our investments in and advances to other unconsolidated entities include
the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
--------------- ---------------
Investment in MediTract, LLC $ 1,621 $ 1,621
Investment in Paragon Smart Technologies, LLC (1) 484 491
--------------- ---------------
Total $ 2,105 $ 2,112
=============== ===============
</Table>
(1) Investment includes $245 in notes receivable carrying an interest rate
of 12% per annum that are payable on demand.
8. DEFERRED CHARGES
Deferred charges consist of the following:
<Table>
<Caption>
March 31, December 31,
2002 2001
--------------- ---------------
Leasing costs $ 15,199 $ 13,298
Financing costs 10,302 9,599
Goodwill 1,320 1,320
Other intangible costs 154 154
--------------- ---------------
26,975 24,371
Accumulated amortization (1) (8,800) (7,487)
--------------- ---------------
Deferred charges, net $ 18,175 $ 16,884
=============== ===============
</Table>
(1) Includes accumulated amortization associated with other intangibles of
$140 at March 31, 2002 and $132 at December 31, 2001.
12
<Page>
9. DERIVATIVES
The following table sets forth derivative contracts we had in place and
their respective fair market values ("FMV"):
<Table>
<Caption>
FMV
--------------------------
Notional
Nature of Amount One-month Effective Expiration March 31, December 31,
Derivative (In millions) LIBOR base Date Date 2002 2001
- ------------------ ------------- ----------- ---------- ---------- -------- -----------
Interest rate swap $100.0 5.76% 1/2/01 1/2/03 $(2,720) $(3,781)
Interest rate cap 50.0 7.70% 5/25/00 5/31/02 -- --
-------- ---------
Total $(2,720) $(3,781)
-------- ---------
</Table>
We designated each of these derivatives as cash flow hedges. At March
31, 2002, the interest rate swap is effective while the interest rate cap is
not effective. During the three months ended March 31, 2002, we increased the
accumulated other comprehensive loss component of shareholders' equity
("AOCL") and minority interests in total by $1,063 to recognize the increase
in the fair value of the interest rate swap during that period. Over time,
the unrealized loss held in AOCL and minority interests associated with our
interest rate swap will be reclassified to earnings. Within the next nine
months, we expect to reclassify to earnings an estimated $2.7 million of the
balances held in AOCL and minority interests.
10. SHAREHOLDERS' EQUITY
On March 5, 2002, we participated in an offering of 10,961,000 Common
Shares to the public at a price of $12.04 per share; Constellation was the owner
of 8,876,172 of these shares and 2,084,828 of these shares were newly issued by
us. With the completion of this transaction, Constellation, which had been our
largest Common shareholder, is no longer a shareholder. We contributed the net
proceeds from the sale of the newly-issued shares to our Operating Partnership
in exchange for 2,084,828 Common Units.
Also on March 5, 2002, Constellation converted its one remaining series A
Preferred Share into 1.8748 Common Shares. As holder of the Series A Preferred
Share, Constellation had the right to nominate two members for election to our
Board of Trustees; with the conversion of its Series A Preferred Share into
Common Shares, Constellation no longer has that right. Constellation sold one of
these Common Shares and we redeemed the fractional share.
On December 16, 1999, we issued 471,875 Common Shares subject to forfeiture
restrictions to certain officers; we issued an additional 12,500 Common Shares
to an officer in 2000 that were subject to the same restrictions. The forfeiture
restrictions of specified percentages of these shares lapse annually through
2004 as the officers remain employed by us and we attain defined earnings or
shareholder return growth targets. These shares may not be sold, transferred or
encumbered while the forfeiture restrictions are in place. Forfeiture
restrictions lapsed on 72,659 of these shares in 2002.
We issued 38,621 Common Shares in connection with the exercise of share
options in 2002.
A summary of the activity in the accumulated other comprehensive loss
component of shareholders' equity for the three months ended March 31, 2002
follows:
<Table>
Balance, December 31, 2001 $ 2,500
Unrealized loss on interest rate swap for the three months ended March 31,
2002, net of minority interests (708)
--------
Balance, March 31, 2002 $ 1,792
========
</Table>
13
<Page>
11. DIVIDENDS AND DISTRIBUTIONS
The following summarizes our dividends and distributions for the three
months ended March 31, 2002:
<Table>
<Caption>
Dividend/
Distribution Total
Per Dividend/
Record Date Payable Date Share/Unit Distribution
----------------- ---------------- ---------- ------------
Series B Preferred Shares:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $0.625 $ 781
First Quarter 2002 March 29, 2002 April 15, 2002 $0.625 $ 781
Series D Preferred Shares:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $ 0.25 $ 136
First Quarter 2002 March 29, 2002 April 15, 2002 $ 0.25 $ 136
Series E Preferred Shares:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $0.6406 $ 737
First Quarter 2002 March 29, 2002 April 15, 2002 $0.6406 $ 737
Series F Preferred Shares:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $0.6172 $ 880
First Quarter 2002 March 29, 2002 April 15, 2002 $0.6172 $ 880
Common Shares:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $ 0.21 $4,245
First Quarter 2002 March 29, 2002 April 15, 2002 $ 0.21 $4,706
Series C Preferred Units:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $0.5625 $ 572
First Quarter 2002 March 29, 2002 April 15, 2002 $0.5625 $ 572
Common Units:
Fourth Quarter 2001 December 31, 2001 January 15, 2002 $ 0.21 $2,018
First Quarter 2002 March 29, 2002 April 15, 2002 $ 0.21 $2,018
</Table>
14
<Page>
12. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
For the three months ended
March 31,
---------------------------------
2002 2001
--------------- ---------------
Supplemental schedule of non-cash investing and financing activities:
Debt assumed in connection with acquisitions of real estate $ 3,000 $ --
--------------- ---------------
Note receivable assumed upon sale of real estate $ 1,040 $ --
--------------- ---------------
Decrease in accrued capital improvements $ (408) $ (348)
--------------- ---------------
Reclassification of other liabilities from projects under construction or
development $ -- $ 9,600
--------------- ---------------
Acquisition of Service Companies:
Investments in and advances to other unconsolidated entities $ -- $ (4,529)
Restricted cash -- 5
Accounts receivable, net -- 2,005
Deferred costs, net -- 1,537
Prepaid and other assets -- 1,033
Furniture, fixtures and equipment, net -- 1,603
Mortgage and other loans payable -- (40)
Accounts payable and accrued expenses -- (2,106)
Rents received in advance and security deposits -- (20)
Other liabilities -- (10)
Minority interest -- (46)
--------------- ---------------
Cash from acquisition of Service Companies $ -- $ (568)
--------------- ---------------
Dividends/distributions payable $ 9,426 $ 7,203
--------------- ---------------
Book value of derivatives reclassified from deferred
costs, net to fair value of derivatives $ -- $ 268
--------------- ---------------
Increase (decrease) in fair value of derivatives
applied to accumulated other comprehensive loss
and minority interests $ 1,063 $ (1,993)
--------------- ---------------
Adjustments to minority interests resulting from
changes in ownership of Operating Partnership by
COPT $ 2,070 $ (197)
--------------- ---------------
</Table>
15
<Page>
13. INFORMATION BY BUSINESS SEGMENT
We have five office property segments: Baltimore/Washington Corridor,
Greater Philadelphia, Northern/Central New Jersey, Greater Harrisburg and
Northern Virginia.
The table below reports segment financial information. Our segment entitled
"Other" includes other assets and operations not specifically associated with
the other defined segments (including deferred goodwill and other intangible
deferred costs). We measure the performance of our segments based on total
revenues less property operating expenses. Accordingly, we do not report other
expenses by segment in the table below.
<Table>
<Caption>
Baltimore/ Northern/
Washington Greater Central New Greater
Corridor(1) Philadelphia Jersey Harrisburg
------------ ------------ ------------ ------------
Three months ended March 31, 2002:
Revenues from real estate operations $ 21,896 $ 2,506 $ 4,921 $ 2,407
Property operating expenses 6,755 41 1,709 597
------------ ------------ ------------ ------------
Income from real estate operations $ 15,141 $ 2,465 $ 3,212 $ 1,810
============ ============ ============ ============
Commercial real estate property
expenditures $ 20,728 $ 122 $ 204 $ 708
============ ============ ============ ============
Segment assets at March 31, 2002 $ 614,023 $ 104,746 $ 110,236 $ 71,564
============ ============ ============ ============
Three months ended March 31, 2001:
Revenues from real estate operations $ 18,573 $ 2,506 $ 4,922 $ 2,789
Property operating expenses 5,958 20 1,894 594
------------ ------------ ------------ ------------
Income from real estate operations $ 12,615 $ 2,486 $ 3,028 $ 2,195
============ ============ ============ ============
Commercial real estate property
expenditures $ 19,381 $ 141 $ 1,657 $ 696
============ ============ ============ ============
Segment assets at March 31, 2001 $ 493,589 $ 106,070 $ 119,849 $ 71,417
============ ============ ============ ============
<Caption>
Northern
Virginia Other Total
------------ ------------ ------------
Three months ended March 31, 2002:
Revenues from real estate operations $ 2,688 $ 84 $ 34,502
Property operating expenses 1,091 -- 10,193
------------ ------------ ------------
Income from real estate operations $ 1,597 $ 84 $ 24,309
============ ============ ============
Commercial real estate property
expenditures $ 339 $ -- $ 22,101
============ ============ ============
Segment assets at March 31, 2002 $ 58,874 $ 43,793 $ 1,003,236
============ ============ ============
Three months ended March 31, 2001:
Revenues from real estate operations $ -- $ 911 $ 29,701
Property operating expenses -- -- 8,466
------------ ------------ ------------
Income from real estate operations $ -- $ 911 $ 21,235
============ ============ ============
Commercial real estate property
expenditures $ -- $ -- $ 21,875
============ ============ ============
Segment assets at March 31, 2001 $ -- $ 30,787 $ 821,712
============ ============ ============
</Table>
(1) Includes property held for sale at March 31, 2002.
The following table reconciles our income from operations for reportable
segments to income before income taxes, discontinued operations, extraordinary
item and cumulative effect of accounting change as reported in our Consolidated
Statements of Operations.
<Table>
<Caption>
For the three months ended
March 31,
---------------------------------
2002 2001
--------------- ---------------
Income from operations for reportable segments $ 24,309 $ 21,235
Equity in (loss) income of unconsolidated real estate
joint ventures (12) 30
Losses from service operations (90) (329)
Less:
General and administrative (2,170) (1,446)
Interest (8,567) (8,112)
Amortization of deferred financing costs (486) (383)
Depreciation and other amortization (6,641) (4,841)
Minority interests (1,591) (2,098)
Income from real estate operations included in discontinued operations (176) (217)
--------------- ---------------
Income before income taxes, discontinued operations,
extraordinary item and cumulative effect of accounting change $ 4,576 $ 3,839
=============== ===============
</Table>
We did not allocate interest expense, amortization of deferred financing
costs and depreciation and other amortization to segments since they are not
included in the measure of segment profit reviewed by management. We also did
not allocate equity in (loss) income of unconsolidated real estate joint
ventures, losses from service operations, general and administrative expense and
minority interests since these items represent general corporate expenses not
attributable to segments.
16
<Page>
14. INCOME TAXES
COMI's provision for income tax benefit consists of the following:
<Table>
<Caption>
For the three months ended
March 31,
---------------------------------
2002 2001
--------------- ---------------
Current
Federal $ 10 $ 97
State 2 21
--------------- ---------------
12 118
--------------- ---------------
Deferred
Federal 23 3
State 5 1
--------------- ---------------
28 4
--------------- ---------------
Income tax benefit 40 122
Less: minority interests (13) (41)
--------------- ---------------
Income tax benefit, net of minority interests $ 27 $ 81
--------------- ---------------
</Table>
Items contributing to temporary differences that lead to deferred taxes
include depreciation and amortization, certain accrued compensation,
compensation made in the form of contributions to a deferred nonqualified
compensation plan and expenses associated with share options.
COMI's combined Federal and state effective tax rate for the three months
ended March 31, 2002 and 2001 was approximately 40%.
17
<Page>
15. DISCONTINUED OPERATIONS
The table below sets forth the components of income from discontinued
operations:
<Table>
<Caption>
For the three months ended
March 31,
---------------------------------
2002 2001
--------------- ---------------
Earnings from operations: (1)
Revenue from operations $ 299 $ 307
Expenses from operations (174) (232)
--------------- ---------------
Earnings from operations 125 75
--------------- ---------------
Gain on sales:
Gain on sale of MOR Montpelier LLC 349 --
Gain on sale of land parcel 597 --
--------------- ---------------
Gain on sales 946 --
--------------- ---------------
Earnings and gains from discontinued operations before
minority interests 1,071 75
Minority interests in discontinued operations (351) (25)
--------------- ---------------
Earnings and gains from discontinued operations $ 720 $ 50
--------------- ---------------
</Table>
(1) Includes operations from property held for sale.
16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are involved in legal actions arising
from our ownership and administration of properties. Management does not
anticipate that any liabilities that may result will have a materially adverse
effect on our financial position, operations or liquidity. We are subject to
various Federal, state and local environmental regulations related to our
property ownership and operation. We have performed environmental assessments of
all 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.
In the event that the costs to complete construction of a building owned by
one of our joint ventures exceed amounts funded by an existing credit facility
and member investments previously made, we will be responsible for making
additional investments in this joint venture of up to $4,600.
We may need to make our share of additional investments in our real estate
joint ventures (generally based on our percentage ownership) in the event that
additional funds are needed. In the event that the other members of these joint
ventures do not pay their share of investments when additional funds are needed,
we may then need to make even larger investments in these joint ventures.
As of March 31, 2002, we served as guarantor for the repayment of mortgage
loans totaling $21,031 for certain of our unconsolidated real estate joint
ventures.
18
<Page>
In four of our joint ventures, we would be obligated to acquire the
membership interests of those joint ventures not owned by us (20% in the case of
three and 50% in the case of one) in the event that all of the following were to
occur:
(1) an 18-month period passes from the date that 85% of the square feet in
the joint ventures' respective buildings become occupied (the
"18-month period");
(2) at the end of the 18-month period, the joint ventures' respective
buildings are 90% leased and occupied by tenants who are not in
default under their leases; and
(3) six months passes from the end of the 18-month period and either the
buildings are not sold or we have not acquired the other members'
interests.
The amount we would need to pay for those membership interests is computed based
on the amount that the owners of those interests would receive under the joint
venture agreements in the event that the buildings were sold for a capitalized
fair value (as defined in the agreements) on a defined date. At March 31, 2002,
none of the buildings in these joint ventures have occupancy equal to or
exceeding 85%.
As of March 31, 2002, we are under contract to sell our property located at
8815 Centre Park Drive in Columbia, Maryland for $7,300. Our contract to sell
the property expired subsequent to March 31, 2002.
17. PRO FORMA FINANCIAL INFORMATION
We accounted for our 2001 acquisitions using the purchase method of
accounting. We included the results of operations for the acquisitions in our
Consolidated Statements of Operations from their respective purchase dates
through March 31, 2002.
We prepared the pro forma condensed consolidated financial information
presented below as if all of our 2001 and 2002 acquisitions and dispositions
of operating properties had occurred on January 1, 2001. The pro forma
financial information is unaudited and is not necessarily indicative of the
results that actually would have occurred if these acquisitions and
dispositions had occurred on January 1, 2001, nor does it intend to represent
our results of operations for future periods.
<Table>
<Caption>
Three months ended March 31,
----------------------------
2002 2001
---- ----
Pro forma total revenues $35,244 $35,502
Pro forma net income available to Common Shareholders $ 2,762 $ 2,962
Pro forma earnings per Common Share
Basic $ 0.13 $ 0.15
Diluted $ 0.13 $ 0.14
</Table>
18. SUBSEQUENT EVENT
In April 2002, we acquired for a purchase price of $16,250 five office
buildings totaling 166,625 square feet located in the Baltimore/Washington
Corridor.
19
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this section, we discuss our financial condition and results of
operations for the three months ended March 31, 2002. This section includes
discussions on, among other things:
- - why various components of our Consolidated Statements of Operations changed
for the three months ended March 31, 2002 compared to the same period in
2001;
- - what our primary sources and uses of cash were in the three months ended
March 31, 2002;
- - how we raised cash for acquisitions and other capital expenditures during
the three months ended March 31, 2002;
- - how we intend to generate cash for short and long-term capital needs; and
- - the computation of our funds from operations.
You should refer to our consolidated financial statements and the operating
data variance analysis table set forth below as you read this section.
This section contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are based on our current
expectations, estimates and projections about future events and financial trends
affecting the financial condition of our business. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. These statements are not guarantees of future
performance, events or results and involve potential risks and uncertainties.
Accordingly, actual results may differ materially from those addressed in the
forward-looking statements. We undertake no obligation to publicly update
forward-looking statements, whether as a result of new information, future
events or otherwise.
Important factors that may affect these expectations, estimates or
projections include, but are not limited to: our ability to borrow on favorable
terms; general economic and business conditions, which will, among other things,
affect office property demand and rents, tenant creditworthiness, interest rates
and financing availability; adverse changes in the real estate markets
including, among other things, increased competition with other companies; risks
of real estate acquisition and development; governmental actions and initiatives
and environmental requirements.
20
<Page>
CORPORATE OFFICE PROPERTIES TRUST
OPERATING DATA VARIANCE ANALYSIS
(DOLLARS FOR THIS TABLE ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
For The three months ended March 31,
--------------------------------------------------
2002 2001 Variance %Change
---------- ---------- ---------- -------
Real Estate Operations:
Revenues
Rental revenue $ 30,240 $ 25,345 $ 4,895 19%
Tenant recoveries and other revenue 3,993 4,049 (56) (1%)
---------- ---------- ----------
Revenues from real estate operations 34,233 29,394 4,839 16%
---------- ---------- ----------
Expenses
Property operating 10,100 8,376 1,724 21%
Interest and amortization of deferred
financing costs 8,567 8,112 455 6%
Depreciation and other amortization 7,127 5,224 1,903 36%
---------- ---------- ----------
Expenses from real estate operations 25,794 21,712 4,082 19%
---------- ---------- ----------
Earnings from real estate operations
before equity in (loss) income of
unconsolidated real estate joint
ventures 8,439 7,682 757 10%
Equity in (loss) income of unconsolidated
real estate joint ventures (12) 30 (42) (140%)
---------- ---------- ----------
Earnings from real estate operations 8,427 7,712 715 9%
Losses from service operations (90) (329) 239 (73%)
General and administrative expense (2,170) (1,446) (724) 50%
---------- ---------- ----------
Income before minority interests, income
taxes, discontinued operations,
extraordinary item and cumulative
effect of accounting change 6,167 5,937 230 4%
Minority interests (1,591) (2,098) 507 (24%)
Income tax benefit, net 27 81 (54) (67%)
Discontinued operations, net 720 50 670 1,340%
Extraordinary item - loss on early
retirement of debt, net (28) (70) 42 (60%)
Cumulative effect of accounting change, net -- (174) 174 (100%)
---------- ---------- ----------
Net income 5,295 3,726 1,569 42%
Preferred Share dividends (2,533) (881) (1,652) 188%
---------- ---------- ----------
Net income available to Common
Shareholders $ 2,762 $ 2,845 $ (83) (3%)
========== ========== ==========
Basic earnings per Common Share
Income before discontinued operations,
extraordinary item and cumulative
effect of accounting change $ 0.10 $ 0.15 $ (0.05) (33%)
Net income available to Common
Shareholders $ 0.13 $ 0.14 $ (0.01) (7%)
Diluted earnings per Common Share
Income before discontinued operations,
extraordinary item and cumulative
effect of accounting change $ 0.10 $ 0.15 $ (0.05) (33%)
Net income available to Common
Shareholders $ 0.13 $ 0.14 $ (0.01) (7%)
</Table>
21
<Page>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
Our revenues from real estate operations increased $4.8 million or 16%,
which was substantially all attributable to rental revenue. Included in this
change are the following:
- $6.4 million increase attributable to 14 properties acquired and five
newly-constructed properties placed in service during 2001 and 2002;
- $784,000 decrease attributable to lower fees earned for other real
estate services;
- $408,000 decrease attributable to properties sold during 2001; and
- $284,000 decrease attributable to 79 properties owned and operational
throughout both reporting periods due primarily to a decrease in
tenant recoveries.
Our expenses from real estate operations increased $4.1 million or 19% due
to the effects of the increases in property operating expenses, interest expense
and amortization of deferred financing costs and depreciation and other
amortization described below.
Our property operating expenses increased $1.7 million or 21%. Included in
this change are the following:
- $2.2 million increase attributable to 14 properties acquired and five
newly-constructed properties placed in service during 2001 and 2002;
- $337,000 decrease attributable to 79 properties owned and operational
throughout both reporting periods due primarily to decreased snow
removal expense; and
- $117,000 decrease attributable to properties sold during 2001.
Our interest expense and amortization of deferred financing costs increased
$455,000 or 6% due primarily to a 22% increase in our average outstanding debt
balance resulting from our 2001 and 2002 acquisitions and construction activity,
offset by a decrease in our weighted-average interest rates from 7.50% to 6.52%.
Our depreciation and other amortization expense increased $1.9 million or 36%,
$1.1 million of which is attributable to 14 properties acquired and five
newly-constructed properties placed in service during 2001 and 2002.
Our general and administrative expenses increased $724,000 or 50% due
primarily to (i) additional employee bonus expense, including additional
discretionary bonuses awarded to officers in the current period that were
associated with performance in the prior year, (ii) increased expense associated
with vesting of officer Common Share awards due to shares vesting at higher
Common Share prices and (iii) increased expense associated with Common Share
options that were re-priced in prior years and therefore subject to variable
option accounting due to Common Share price appreciation.
As a result of the above factors, income before minority interests, income
taxes, discontinued operations, extraordinary item and cumulative effect of
accounting change increased $230,000 or 4%. The amounts reported for minority
interests on our Consolidated Statements of Operations represent primarily the
portion of the Operating Partnership's net income not allocated to us. Our
income allocation to minority interests before giving effect to income tax
benefit, discontinued operations, extraordinary item and cumulative effect of
accounting change decreased $507,000 or 24%; this decrease is primarily
attributable to the increase in our ownership of the Operating Partnership.
Our net income available to Common Shareholders decreased $83,000 or 3% due
primarily to the factors discussed above, combined with the net effect of the
following:
- $1.7 million increase in Preferred Share dividends resulting from our
issuance of three new series of preferred shares in 2001;
- $670,000 increase in income associated with discontinued operations
due mostly to the gains recognized on our sale of two properties in
the current period; and
22
<Page>
- $174,000 decrease in expense due to the cumulative effect of an
accounting change from our adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations is our primary source of liquidity to fund
dividends and distributions, pay debt service and fund working capital
requirements. We expect to continue to use cash provided by operations to meet
our short-term capital needs, including all property expenses, general and
administrative expenses, debt service, dividend and distribution requirements
and recurring capital improvements and leasing commissions. We do not anticipate
borrowing to meet these requirements. Factors that could negatively affect our
ability to generate cash from operations in the future are discussed in our 2001
Annual Report on Form 10-K.
We historically have financed our long-term capital needs, including
property acquisitions and construction activity, through a combination of the
following:
- cash from operations;
- borrowings from our secured revolving credit facility with Bankers
Trust Company (the "Revolving Credit Facility");
- borrowings from new loans;
- additional equity issuances of Common Shares, Preferred Shares, Common
Units and/or Preferred Units; and
- proceeds from sales of properties.
We often use our Revolving Credit Facility to initially finance much of our
investing and financing activities. We then pay down our Revolving Credit
Facility using proceeds from long-term borrowings collateralized by our
properties as attractive financing conditions arise and equity issuances as
attractive equity market conditions arise. Amounts available under the Revolving
Credit Facility are generally computed based on 65% of the appraised value of
properties pledged as collateral. As of May 2, 2002, the maximum amount
available under our Revolving Credit Facility is $150.0 million, of which $34.5
million is unused. Factors that could negatively affect our ability to finance
our long-term capital needs in the future are discussed in our 2001 Annual
Report on Form 10-K.
23
<Page>
Mortgage and other loans payable at March 31, 2002 consist of the following
(dollars in thousands):
<Table>
Bankers Trust Company, Revolving Credit Facility, LIBOR + 1.75%, maturing March 2004 (1) $ 94,000
Teachers Insurance and Annuity Association of America, 6.89%, maturing November 2008 80,235
Teachers Insurance and Annuity Association of America, 7.72%, maturing October 2006 57,903
KeyBank National Association, LIBOR + 1.75%, maturing November 2003 (1) 36,000
Mutual of New York Life Insurance Company, 7.79%, maturing August 2004 (1) 26,862
Transamerica Life Insurance and Annuity Company, 7.18%, maturing August 2009 26,306
State Farm Life Insurance Company, 7.9%, maturing April 2008 25,654
KeyBank National Association, LIBOR + 1.75%, maturing September 2002 25,000
KeyBank National Association, LIBOR + 1.75%, maturing November 2002 (1) 25,000
Transamerica Occidental Life Insurance Company, 7.3%, maturing May 2008 20,917
Allstate Life Insurance Company, 6.93%, maturing July 2008 20,759
Transamerica Life Insurance and Annuity Company, 8.3%, maturing October 2005 17,313
Allstate Life Insurance Company, 7.14%, maturing September 2007 15,862
Mercantile-Safe Deposit and Trust Company, Prime rate, maturing February 2003 15,750
Teachers Insurance and Annuity Association of America, 7.0%, maturing March 2009 14,699
IDS Life Insurance Company, 7.9%, maturing March 2008 13,419
Allfirst Bank, LIBOR + 1.75%, maturing April 1, 2003 (1)(2) 11,000
Bank of America, LIBOR + 1.75%, maturing December 2002 (1)(3) 10,489
Teachers Insurance and Annuity Association of America, 8.35%, maturing October 2006 7,833
Provident Bank of Maryland, LIBOR + 1.75%, maturing July 2002 (1)(4) 7,045
Allfirst Bank, LIBOR + 1.75%, maturing July 2002 (5) 6,500
Aegon USA Realty Advisors, Inc., 8.29%, maturing May 2007 5,816
Citibank Federal Savings Bank, 6.93%, maturing July 2008 4,943
Constellation Real Estate, Inc., Prime rate, maturing January 2003 3,000
Seller loan, 8.0%, maturing May 2007 1,516
--------
$573,821
========
</Table>
(1) May be extended for a one-year period, subject to certain conditions.
(2) Loan with a total commitment of $12,000.
(3) Construction loan with a total commitment of $15,750.
(4) Construction loan with a total commitment of $11,855.
(5) Option to extend loan for a one-year period to July 2003 was exercised in
April 2002.
24
<Page>
The following table summarizes our material contractual cash obligations at
March 31, 2002 (in thousands):
<Table>
<Caption>
For the Periods Ended December 31,
-----------------------------------------------------------------------------
2003 TO 2005 TO
2002 2004 2006 Thereafter Total
------------ ------------ ------------ ------------ --------------
Contractual cash obligations
- ---------------------------------------------
Mortgage loans payable (1) $ 78,459 $ 198,174 $ 89,343 $ 207,845 $ 573,821
Construction costs on construction projects
underway (2) 11,891 -- -- -- 11,891
Capital lease obligations (3) 26 67 18 -- 111
Operating leases (3) 224 343 67 -- 634
------------ ------------- ------------- ------------ --------------
Total contractual cash obligations $ 90,600 $ 198,584 $ 89,428 $ 207,845 $ 586,457
============ ============= ============= ============ ==============
Other commitments
- ---------------------------------------------
Guarantees of joint venture loans (4) $ -- $ 21,031 $ -- $ -- $ 21,031
============ ============= ============= ============ ==============
</Table>
(1) Our loan maturities in 2002 include $6.5 million for a loan that was
extended subsequent to March 31, 2002 for a one-year period and $17.5
million for two construction loans that may each be extended for a one-year
period, subject to certain conditions; as of March 31, 2002, we were in
compliance with the necessary conditions for us to extend the two
construction loans. We expect to make payments on our amortizing loans
using cash generated from operations. We expect to pay other loan
maturities due primarily by obtaining new loans.
(2) We expect to pay costs on construction projects underway using primarily
existing construction loan facilities in place (see discussion below).
(3) We expect to pay these items using cash generated from operations.
(4) We do not expect to have to fulfill our obligations as guarantor of joint
venture loans.
In addition to the contractual obligations set forth above, we also had the
following commitments at March 31, 2002:
- In the event that the costs to complete construction of a building
owned by one of our joint ventures exceed amounts funded by an
existing construction loan facility and member investments previously
made, we will be responsible for making additional investments in this
joint venture of up to $4.6 million.
- We may need to make our share of additional investments in our real
estate joint ventures (generally based on our percentage ownership) in
the event that additional funds are needed. In the event that the
other members of these joint ventures do not pay their share of
investments when additional funds are needed, we may then need to make
even larger investments in these joint ventures.
- In four of our joint ventures, we would be obligated to acquire the
membership interests of those joint ventures not owned by us (20% in
the case of three and 50% in the case of one) in the event that all of
the following were to occur:
(1) an 18-month period passes from the date that 85% of the square feet in the
joint ventures' respective buildings become occupied (the "18-month
period");
(2) at the end of the 18-month period, the joint ventures' respective buildings
are 90% leased and occupied by tenants who are not in default under their
leases; and
(3) six months passes from the end of the 18-month period and either the
buildings are not sold or we have not acquired the other members'
interests.
The amount we would need to pay for those membership interests is computed
based on the amount that the owners of those interests would receive under
the joint venture agreements in the event that the buildings were sold for
a capitalized fair value (as defined in the agreements) on a defined date.
At March 31, 2002, none of the buildings in these joint ventures have
occupancy equal to or exceeding 85%.
25
<Page>
- At March 31, 2002, we were under contract to acquire for $16.3 million
five buildings in the Baltimore/Washington Corridor that we acquired
in April 2002 (discussed below in investing and financing activities).
- At March 31, 2002, we are under contract to sell our property located
at 8815 Centre Park Drive in Columbia, Maryland for $7.3 million. Our
contract to sell the property expired subsequent to March 31, 2002.
We had no other material contractual obligations as of March 31, 2002
besides the items discussed above and tenant improvements and leasing costs in
the ordinary course of business.
INVESTING AND FINANCING ACTIVITIES FOR THE THREE MONTHS ENDED MARCH 31, 2002.
During the three months ended March 31, 2002, we acquired a parcel of land
for $3.8 million. This acquisition was financed by:
- - using $3.0 million from a new mortgage loan payable; and
- - using cash reserves for the balance.
During the three months ended March 31, 2002, we completed the construction
of two office buildings totaling 127,167 square feet. Costs incurred on these
buildings through March 31, 2002 totaled $20.8 million. These costs were funded
in part using $10.0 million in proceeds from a construction loan facility that
was repaid on February 25, 2002 using proceeds from a new loan. We also used
$4.5 million in contributions from a joint venture partner prior to our
acquisition of that joint venture partner's interest in February 2002; the
acquisition of the joint venture partner's interest was funded primarily using
proceeds from a new loan. The balance of the costs was funded primarily using
proceeds from our Revolving Credit Facility and cash from operations.
As of March 31, 2002 (excluding the construction activities of two joint
ventures), we had construction activities underway on four buildings totaling
405,000 square feet that were 75.0% pre-leased, including one building nearing
completion that commenced operations in March 2002 on 10.4% of the building's
103,000 rentable square feet. Estimated costs upon completion for these projects
total approximately $70.2 million. Costs incurred on these buildings through
March 31, 2002 totaled $58.3 million. We have construction loan facilities in
place totaling $48.2 million to finance the construction of three of these
projects; borrowings under these facilities totaled $31.0 million at March 31,
2002. We also used borrowings from our Revolving Credit Facility and proceeds
from debt refinancings to fund these activities. In addition, we used $5.1
million in contributions from a joint venture partner to finance the
construction of one of these buildings.
During the three months ended March 31, 2002, we acquired the remaining 20%
interest not previously owned by us in one of our unconsolidated real estate
joint ventures, MOR Montpelier LLC, and simultaneously sold the 43,785 square
foot building owned by that entity for net proceeds of $1.1 million. We also
acquired a 50% interest in MOR Montpelier 3 LLC, an entity developing a parcel
of land located in Columbia, Maryland. Due primarily to the net effect of these
transactions, our investments in unconsolidated real estate joint ventures
decreased by $307,000 during the three months ended March 31, 2002.
During the three months ended March 31, 2002, we sold a land parcel for
$1.3 million, providing a $1.0 million mortgage loan to the purchaser. The net
proceeds from this sale after transaction costs and the loan provided by us to
the purchaser totaled $250,000, all of which was applied to our cash reserves.
During the three months ended March 31, 2002, we borrowed $17.9 million
under mortgages and other loans payable other than our Revolving Credit
Facility, the proceeds of which were used as follows:
- - $10.0 million to repay other loans;
- - $7.7 million to finance acquisitions; and
- - $158,000 to finance construction activities.
26
<Page>
On March 5, 2002, we participated in an offering of 10,961,000 Common
Shares to the public at a price of $12.04 per share; Constellation was the owner
of 8,876,172 of these shares and 2,084,828 of these shares were newly issued by
us. With the completion of this transaction, Constellation, which had been our
largest shareholder, is no longer a shareholder. We contributed the net proceeds
from the sale of the newly-issued shares to our Operating Partnership in
exchange for 2,084,828 Common Units. The Operating Partnership used most of the
proceeds to pay down our Revolving Credit Facility.
INVESTING AND FINANCING ACTIVITY SUBSEQUENT TO THE THREE MONTHS ENDED MARCH 31,
2002
In April 2002, we acquired for a purchase price of $16.3 million five
office buildings totaling 166,625 square feet located in the
Baltimore/Washington Corridor. This acquisition was financed primarily by using
proceeds from our Revolving Credit Facility.
STATEMENT OF CASH FLOWS
We generated net cash flow from operating activities of $12.1 million for
the three months ended March 31, 2002, an increase of $3.9 million from the
three months ended March 31, 2001. Our increase in cash flow from operating
activities is due primarily to income generated from our newly-acquired and
newly-constructed properties. Our net cash flow used in investing activities for
the three months ended March 31, 2002 increased $2.2 million from the three
months ended March 31, 2001 due primarily to additional cash outlays of $6.9
million in connection with purchases of and additions to commercial real estate
properties, offset by a $2.8 million decrease in investments and advances to
unconsolidated real estate joint ventures and $1.3 million in proceeds from
sales of real estate in the three months ended March 31, 2002. Our decrease in
net cash flow provided by financing activities for the three months ended
March 31, 2002 of $3.0 million from the three months ended March 31, 2001
includes a $24.2 million decrease in proceeds from mortgage and other loans
payable and a $5.7 million decrease in cash flow associated with other
liabilities, offset by a $17.2 million decrease in repayments of mortgage and
other loans payable and a $11.6 million increase in proceeds from the issuance
of equity instruments.
FUNDS FROM OPERATIONS
We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using GAAP,
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures, although we have included gains
from the sales of properties to the extent such gains related to development
services provided. FFO assuming conversion of share options, Common Unit
warrants, Preferred Units and Preferred Shares adjusts FFO assuming conversion
of securities that are convertible into our Common Shares when such conversion
does not increase our diluted FFO per share in a given year. The FFO we present
may not be comparable to the FFO of other REITs since they may interpret the
current NAREIT definition of FFO differently or they may not use the current
NAREIT definition of FFO. FFO is not the same as cash generated from operating
activities or net income determined in accordance with GAAP. 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. Our FFO for the three months ended March 31,
2002 and 2001 are summarized in the following table:
27
<Page>
(Dollar and shares for this table are in thousands)
<Table>
<Caption>
For the three months
ended March 31,
---------------------------------
2002 2001
--------------- ---------------
Income before minority interests, income taxes, discontinued operations,
extraordinary item and cumulative effect of accounting change ............... $ 6,167 $ 5,937
Add: Real estate related depreciation and amortization ........................ 6,602 4,805
Add: Discontinued operations, gross ........................................... 1,071 76
Less: Preferred Share dividends ................................................ (2,533) (881)
Less: Preferred Unit distributions ............................................. (572) (572)
Less: Minority interests in other consolidated entities ........................ (31) 4
Less: Gain on sales of real estate included in discontinued operations,
excluding development portion (1) ............................................ (93) --
Add: Income tax benefit, gross ................................................ 40 122
--------------- ---------------
Funds from operations .......................................................... 10,651 9,491
Add: Preferred Unit distributions .............................................. 572 572
Add: Convertible Preferred Share dividends ..................................... 136 100
Expense associated with dilutive options ....................................... 14 --
Income on share options assumed converted ...................................... -- (61)
--------------- ---------------
Funds from operations assuming conversion of share options, Preferred
Units and Preferred Shares .................................................. 11,373 10,102
Less: Straight line rent adjustments ........................................... (214) (690)
Less: Recurring capital improvements ........................................... (1,618) (1,116)
--------------- ---------------
Adjusted funds from operations assuming conversion of share options,
Preferred Units and Preferred Shares ........................................ $ 9,541 $ 8,296
=============== ===============
Weighted average Common Shares ................................................. 20,889 19,982
Conversion of weighted average Common Units .................................... 9,607 9,388
--------------- ---------------
Weighted average Common Shares/Units ........................................... 30,496 29,370
Conversion of share options .................................................... 828 273
Conversion of weighted average Preferred Shares ................................ 1,197 878
Conversion of weighted average Preferred Units ................................. 2,421 2,421
--------------- ---------------
Weighted average Common Shares/Units assuming conversion of share
options, Preferred Units and Preferred Shares ............................... 34,942 32,942
=============== ===============
</Table>
(1) A portion of the gain from the sales of rental properties that is
attributable to development services performed on the properties is
included in FFO.
INFLATION
We have not been significantly impacted by inflation during the periods
presented in this report due mostly to the relatively low inflation rates in our
markets. 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, based on historical expense levels. In addition, some of our
tenants are obligated to pay their share of all of a building's operating
expenses. These arrangements reduce our exposure to increases in such costs
resulting from inflation.
28
<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks, the most predominant of which is
change in interest rates. Increases in interest rates can result in increased
interest expense under our Revolving Credit Facility and our other mortgage
loans payable carrying variable interest rate terms. Increases in interest rates
can also result in increased interest expense when our loans payable carrying
fixed interest rate terms mature and need to be refinanced. Our debt strategy
favors long-term, fixed-rate, secured debt over variable-rate debt to minimize
the risk of short-term increases in interest rates. As of March 31, 2002, 59.3%
of our mortgage and other loans payable balance carried fixed interest rates. We
also use interest rate swap and interest rate cap agreements to reduce the
impact of interest rate changes.
The following table sets forth our long-term debt obligations, principal
cash flows by scheduled maturity and weighted average interest rates at
March 31, 2002 (dollars in thousands):
<Table>
<Caption>
For the Periods Ended December 31,
-------------------------------------------------------------------------------------------------
2002(1) 2003(2) 2004(3) 2005 2006 Thereafter Total
------- ------- ------- ------- ------ ----------- ----------
Long term debt:
Fixed rate $ 4,377 $ 6,226 $32,246 $22,922 $66,421 $207,845 $340,037
Average interest rate 7.39% 7.40% 7.42% 7.44% 7.34% 7.21% 7.33%
Variable rate $74,082 $65,702 $94,000 -- -- -- $233,784
Average interest rate 3.66% 4.07% 3.61% -- -- -- 3.80%
</Table>
(1) Includes a $6.5 million maturity in July that was extended subsequent
to March 31, 2002 for a one-year period. Also includes a $7.0 million
maturity in July and a $10.5 million maturity in December that may
each be extended for a one-year period, subject to certain conditions.
(2) Includes a $10.9 million maturity in April that may be extended for a
one-year period, subject to certain conditions. Also includes a $36.0
million maturity in November that may be extended for a one-year
period, subject to certain conditions.
(3) Includes a $94.0 million maturity in March that may be extended for a
one-year period, subject to certain conditions. Also includes a $25.8
million maturity in August that may be extended for a one-year period,
subject to certain conditions.
The fair market value of our mortgage and other loans payable was $573.8
million at March 31, 2002.
The following table sets forth derivative contracts we had in place as of
March 31, 2002 and their respective fair values ("FV"):
<Table>
<Caption>
Notional FV
Nature Amount (in One-Month Effective Expiration March 31,
of Derivative millions) LIBOR base Date Date 2002
- ------------- --------- ---------- --------- ---------- -----------
Interest rate swap $100.0 5.76% 1/2/01 1/2/03 $ (2,720)
Interest rate cap 50.0 7.70% 5/25/00 5/31/02 --
----------
Total $ (2,720)
----------
</Table>
Based on our variable-rate debt balances, our interest expense would have
increased by $320,000 during the three months ended March 31, 2002 if interest
rates were 1% higher.
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable
29
<Page>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not applicable
b. Not applicable
c. Not applicable
d. Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
3.1.1 Amended and Restated Declaration of Trust of Registrant (filed
with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
3.1.2 Articles of Amendment of Amended and Restated Declaration of
Trust (filed with the Registrant's Annual Report on Form 10-K on
March 22, 2002 and incorporated herein by reference).
3.2 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
3.3 Articles Supplementary of Corporate Office Properties Trust
Series A Convertible Preferred Shares, dated September 28, 1998
(filed with the Registrant's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
3.4 Articles Supplementary of Corporate Office Properties Trust
Series B Convertible Preferred Shares, dated July 2, 1999 (filed
with the Registrant's Current Report on Form 8-K on July 7, 1999
and incorporated herein by reference).
3.5 Articles Supplementary of Corporate Office Properties Trust
Series D Cumulative Convertible Redeemable Preferred Shares,
dated January 25, 2001 (filed with the Registrant's Annual Report
on Form 10-K on March 22, 2001 and incorporated herein by
reference).
30
<Page>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------
3.6 Articles Supplementary of Corporate Office Properties Trust
Series E Cumulative Redeemable Preferred Shares, dated April 3,
2001 (filed with the Registrant's Current Report on Form 8-K on
April 4, 2001 and incorporated herein by reference).
3.7 Articles Supplementary of Corporate Office Properties Trust
Series F Cumulative Redeemable Preferred Shares, dated September
13, 2001 (filed with the Registrant's Current Report on Form 8-K
on September 14, 2001 and incorporated herein by reference).
10.1 Corporate Office Properties Trust Supplemental Nonqualified
Deferred Compensation Plan (filed with the Registrant's
Registration Statement on Form S-8 (Commission File No.
333-87384) and incorporated herein by reference).
c. We filed the following Current Reports on Form 8-K in the first quarter of
the year ended December 31, 2002:
Report dated January 30, 2002 containing Item 7 and Item 9 that was filed
in connection with our release of earnings on January 30, 2002. We also
through this filing made available certain additional information
pertaining to our properties and operations as of and for the period ended
December 31, 2001.
Report dated February 13, 2002 containing Item 5 and Item 7 that was filed
in connection with the acquisition of the Washington Technology Park
property. This report contained financial statements for the property
described therein, as well as certain pro forma financial statements of the
Registrant.
Report dated March 4, 2002 containing Item 5 and Item 7 that was filed in
connection with our entry into an underwriting agreement with several firms
for the public offering of Common Shares of beneficial interest.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date: May 14, 2002 By: /s/ Randall M. Griffin
-----------------------------------------
Randall M. Griffin
President and Chief Operating Officer
Date: May 14, 2002 By: /s/ Roger A. Waesche, Jr.
-----------------------------------------
Roger A. Waesche, Jr.
Senior Vice President and Chief Financial
Officer
31