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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 28, 1998
CORPORATE OFFICE PROPERTIES TRUST
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(Exact name of registrant as specified in its charter)
Maryland 0-20047 23-2947217
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(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004
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(Address of principal executive offices)
One Logan Square, Suite 1105
Philadelphia, PA 19103
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(Former address of principal executive offices)
(610) 538-1800
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(Registrant's telephone number, including area code)
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Item 1. Changes in Control of Registrant
On September 28, 1998, Corporate Office Properties Trust (the
"Company"), through affiliates of Corporate Office Properties, L.P. (the
"Operating Partnership"), completed a number of transactions (collectively, the
"Completed Transactions") pursuant to agreements with affiliates of
Constellation Real Estate Group, Inc. (collectively, "Constellation"), a
wholly-owned indirect subsidiary of Baltimore Gas and Electric Company ("BGE"),
to acquire certain real property, a mortgage and certain other assets owned by
Constellation. Consideration for the Completed Transactions consisted of a
combination of cash, assumption of debt, Common Shares of Beneficial Interest,
par value $.01 per share ("Common Shares") and non-voting Series A Convertible
Preferred Shares of Beneficial Interest ("Preferred Shares"). Upon consummation
of the Completed Transactions, Constellation became holder of approximately 39%
of the Company's outstanding Common Shares. Constellation also was able to
designate two new trustees to the Company's Board of Trustees as a right set
forth under the terms of the Preferred Shares. Given its position as the largest
common shareholder in the Company along with its presence on the Board of
Trustees, Constellation will have a significant influence on the Company.
The Completed Transactions are discussed in greater detail in Item 2.
Item 2. Acquisition or Disposition of Assets
On September 28, 1998, the Company, through affiliates of the Operating
Partnership, and pursuant to agreements with Constellation to acquire real
estate properties and service businesses, settled on the Completed Transactions.
Pursuant to the Completed Transactions, the Company acquired from Constellation
the following:
(i) Title to one operating office property;
(ii) 100% of the ownership interests in entities which own a total
of ten operating properties (nine office properties and one
retail property);
(iii) A 75% ownership interest in one entity which holds a mortgage
on a retail property owned by persons not affiliated with
either the Company or Constellation;
(iv) A 75% ownership interest in Corporate Realty Management, LLC
(CRM), formerly Constellation Realty Management, LLC, a real
estate management services entity; and
(v) Certain equipment, furniture and other assets related to
Constellation Real Estate, Inc. (CRE).
Items (i)-(iii) above are referred to herein as the "Constellation
Properties," and items (iv) and (v) are referred to herein as the "Constellation
Service Companies." The Constellation Properties comprise, in the aggregate,
approximately one million rentable square feet of office space and approximately
250,000 rentable square feet of retail space in a total of ten office properties
and two retail properties.
2
Terms of the mortgage referred to in (iii) above are such that the mortgagee has
virtually the same economic risks and rewards as if it owned the land and
improvements directly.
Ownership in items (iv) and (v) above were transferred from the Company
to Corporate Office Management, Inc. ("COMI"), a newly formed corporation, in
exchange for indebtedness and 95% of the capital stock consisting of 1% of the
voting common stock in COMI and all of the non-voting common stock in COMI.
The following table sets forth certain historical information relating to
each of the Constellation Properties as of September 30, 1998:
3
CONSTELLATION PROPERTIES
Percentage of
Percentage Total Rental Total Rental Major Tenants
Year Built/ Rentable Leased as of Total Rental Revenue of Revenue per (10% or more
Property Locations (all in Maryland) Renovated Sq. Ft Sept. 30, 1998 Revenue Occupied Sq.Ft. Occupied Sq.Ft.Rentable Sq.Ft.)
(1) (2) (3) (4)
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OFFICE PROPERTIES:
One National Business Park 1990 240,336 100.00% $4,523,256 23.15% $18.82 U.S. Department of
Defense (100%)
131 National Business Parkway 1990 68,900 100.00% 1,189,305 6.09% 17.26 e.spire
Communications
(35%)
TASC, Inc. (28%)
Lockheed Martin
Technical (23%)
Intel Corporation
(14%)
133 National Business Parkway 1996 88,666 90.60% 1,413,399 7.23% 17.60 e.spire
Communications
(67%)
Applied Signal
Technology (23%)
141 National Business Parkway 1990 86,964 98.42% 1,419,603 7.27% 16.59 Stanford
Telecommunications
(46%)
J.G. Van Dyke &
Associates (20%)
Harris Data
Services(14%)(6)
Electronic Data
Systems (10%)
One Constellation Centre 1988-1989 181,236 100.00% 3,508,818 17.96% 19.36 U.S. Department of
Treasury (47%)
Constellation
Properties, Inc.
(27%)
NRL Federal Credit
Union (10%)
Lakeview at the Greens I 1986 69,194 91.29% 1,029,846 5.27% 16.30 Great West Life &
Annuity (17%)
Laurel Consulting
Group (15%)
Moore USA, Inc.
(11%)
Lakeview at the Greens II 1988 71,870 88.70% 1,101,908 5.64% 17.29 Sky Alland
Research, Inc.
(22%)
Greenman-Pedersen,
Inc. (15%)
Three Centre Park 1987 53,635 100.00% 954,035 4.88% 15.10 COMI (25%)
National
Association of
Credit Management
(20%)
Reap/REMAX, Inc.
(16%)
H.C. Copeland
Associates (11%)
Brandon I 1982 38,513 97.42% 210,643 1.08% 5.61 Rapid Response
(50%)
BGE (19%)
Brown's Wharf (5) 1989 103,670 98.26% 1,562,031 8.00% 15.33 JHIEPGO
Corporation (27%)
Lista's (14%)
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TOTAL OFFICE PROPERTIES 1,002,984 97.34% $16,912,844 86.57% $17.32
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RETAIL PROPERTIES:
Cranberry Square 1991 119,609 100.00% 1,865,010 9.54% 15.59 Giant Food (47%)
Staples, Inc.(20%)
Toy Works (10%)
Tred Avon 1977/1997 129,140 92.09% 759,704 3.89% 6.39 Peebles (27%)
Acme Markets (22%)
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TOTAL RETAIL PROPERTIES 248,749 95.89% $2,624,714 13.43% $11.00
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TOTAL CONSTELLATION
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PROPERTIES 1,251,733 97.05% $19,537,558 100.00% $16.08
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(1) The percentage is based on all leases in effect as of September 30, 1998.
(2) Total Rental Revenue is the monthly contractual base rent as of Sept. 30,
1998 multiplied by 12 plus the estimated annualized expense reimbursements under
existing leases.
(3) This percentage is based on the property's rental revenue to Constellation
Properties' Total Rental Revenue.
(4) This represents the property's annualized base rent divided by the
respective property's leased square feet as of September 30, 1998.
(5) This predominately office property contains 75,998 square feet of office
space and 27,672 square feet of retail space.
(6) Harris Data Services Corp. is a subtenant for GTE Government Systems.
4
The following schedule sets forth lease expirations for the
Constellation Properties for the period October 1, 1998 to December 31, 1998 and
annually thereafter, assuming that none of the tenants exercise renewal options:
CONSTELLATION PROPERTIES
SCHEDULE OF LEASE EXPIRATIONS
Total Rental
Rentable Revenue of Percentage
Square Percentage Total Rental Expiring Of Total
Number of Footage Of Total Revenue of Leases Per Rental
Year of Leases Of Leases Leased Expiring Rentable Revenue
Expiration Expiring Expiring Square Feet Leases (1) Square Feet (1) Expiring (1)
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October 1, 1998 -
December 31, 1998 7 37,330 3.07% $ 535,608 $ 14.35 2.74%
1999 28 72,690 5.98% 1,034,920 14.24 5.30%
2000 25 159,554 13.14% 2,499,523 15.67 12.79%
2001 26 157,960 13.00% 2,351,618 14.89 12.05%
2002 10 68,273 5.62% 725,833 10.63 3.72%
2003 25 285,367 23.49% 4,967,179 17.41 25.42%
2004 5 42,415 3.49% 707,835 16.69 3.62%
2005 1 24,255 2.00% 414,423 17.09 2.12%
2006 1 12,330 1.01% 150,934 12.24 0.77%
2007 - - 0.00% - - 0.00%
2008 (2) 3 269,341 22.18% 4,934,084 18.32 25.25%
2009 and Thereafter 4 85,343 7.02% 1,215,601 14.24 6.22%
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TOTALS 135 1,214,858 100.00% $ 19,537,558 $ 16.08 100.00%
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(1) Total Rental Revenue is the monthly contractual base rent as of
September 30, 1998 multiplied by 12, plus the estimated
annualized expense reimbursements under existing leases.
(2) One tenant with 240,336 square feet and remitting $4,523,256 of
annualized September 30, 1998 total rental revenue leases space
under a one year lease with 14 consecutive automatic one year
renewals. This lease has been presented as expiring in the year
2008 in the above table.
Constellation also granted to the Company certain options and rights of
first refusal to purchase undeveloped land totaling 91 acres in three locations
adjacent to certain of the Constellation Properties with aggregate office
development potential of approximately 1.7 million square feet at September 30,
1998. In addition, a significant number of those persons previously employed by
CRE engaged in the operation of the Constellation Properties became employees of
affiliates of the Company.
The Constellation Properties and the Constellation Service Companies
were acquired for aggregate values of $143.6 million and $2.5 million,
respectively. The total consideration of the Completed Transactions consisted of
(i) $59.6 million in debt of the Constellation Properties assumed, (ii)
6,182,634 Common Shares in the Company (issued at $10.50 per share) and (iii)
865,566 Preferred Shares in the Company (issued at $25.00 per share). Of the
Constellation Properties debt assumed, $1.5 million was paid down at the closing
of the Completed Transactions using proceeds from the Company's secured
revolving credit facility. In addition, the Company expects to pay down an
additional $27.7 million of the assumed debt with the proceeds of an $85
million, 10 year loan from Teachers Insurance and Annuity Association of America
(the "TIAA Loan"), a loan anticipated to close by October 21, 1998. The TIAA
Loan is expected to bear interest at a fixed-rate of 6.89% and provide for
monthly payments of
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principal and interest based on a 25-year amortization schedule. The TIAA Loan
is expected to be cross-collateralized by seven of the Constellation Properties
acquired in the Completed Transactions and two additional Properties to be
acquired by the Company from Constellation at a later date (see Item 5). The
Company can provide no assurance that financing under the TIAA Loan will be
available at the terms disclosed above.
The following schedule presents the material terms of the assumed debt
which will not be repaid from the TIAA Loan proceeds:
Lender Amount Interest Maturity
------ Assumed Rate Terms Date
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Security Life of Denver Insurance Co. $ 9,555,574 7.5% Monthly Principal and 10/31/05
Interest of $73,899
NationsBank, N.A. 9,514,066 LIBOR + Monthly Principal of 1/15/99
2% $35,253 Plus Interest
Mercantile-Safe Deposit and Trust Co. 8,437,989 Prime + Monthly Principal and 7/01/99
1/2% Interest of $65,922
Provident Bank of Maryland 2,927,680 LIBOR + Monthly Principal of 9/01/00
----------- 1.75% $6,780 Plus Interest
$30,435,309
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The material terms of the Preferred Shares follow:
The Preferred Shares are convertible after the Standstill Period
described below into Common Shares on the basis of 1.8748 Common Shares for each
Preferred Share (subject to adjustment upon certain events, such as dividends
paid in Common Shares). The "Standstill Period" is defined as the period ending
on the earliest of (i) two years after the issuance of the Preferred Shares,
(ii) a change of control or liquidation of the Trust or (iii) a date established
by the Board of Trustees. Upon conversion, the holders of Preferred Shares are
entitled to all accrued and unpaid dividends. Notwithstanding the foregoing,
Preferred Shares held by Constellation may not be converted into Common Shares
if after such conversion Constellation and its affiliates would own 45% or more
of the Company's outstanding Common Shares but Constellation may tender its
Preferred Shares (for conversion at a later date when that ownership test is
satisfied) and upon such tender begin to receive dividends on Common Shares into
which the Preferred Shares would have been converted but for that ownership
test.
Except as set forth below and as required by applicable law, the
Preferred Shares do not entitle the holder thereof to any vote. If an amendment
to the Company's Declaration of Trust or a reclassification of Preferred Shares
would amend, alter or repeal any of the rights, preferences or powers of the
Preferred Shares or create a class of shares senior to the Preferred Shares,
then the affirmative vote of holders of two-thirds of the outstanding Preferred
Shares, voting as a separate class, would be required for its adoption. During
the Standstill Period described above, the affirmative vote of two-thirds of the
outstanding Preferred Shares will also be required prior to consummation of any
transaction where the Trust would issue its Common Shares with an aggregate
market price in excess of $50 million at a price per share less than $9.50,
subject to adjustment upon the occurrence of certain events. Constellation has
the right to designate up to two members of the Board of Trustees depending on
Constellation's ownership percentage of outstanding Shares. This right is set
forth as a term of the Preferred Shares, such that so long as Constellation
holds any Preferred Shares (and it owns the requisite amount of
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Common Shares), Constellation will have the right to designate up to two
Trustees. If the Trust fails to pay two consecutive quarterly dividends payments
on the Preferred Shares, then the holders of the Preferred Shares would be
entitled to elect two additional members to the Board of Trustees.
Holders of Preferred Shares are entitled to cumulative dividends,
payable quarterly and in preference to dividends payable on Common Shares,
accruing from the date of issue, when, as and if declared by the Board of
Trustees out of funds legally available therefor, at the annual rate of $1.375
per share, which is 5.5% of the $25.00 liquidation preference of the Preferred
Shares.
In the event of any liquidation, dissolution or winding up of the
Company's affairs, voluntary or otherwise, holders of Preferred Shares will be
entitled to receive, out of the assets of the Company legally available for
distribution to its shareholders, the sum of $25.00 for each Preferred Share,
plus an amount equal to all dividends accrued and unpaid on each such Preferred
Share up to the date fixed for distribution, before any distribution may be made
to holders of the Company's Common Shares.
In connection with the Completed Transactions, the Company's Board of
Trustees was expanded from a composition of seven to nine Trustees. The two new
Trustees, designated by Constellation pursuant to its right as the holder of
Preferred Shares, are Edward A. Crooke, Chairman of Constellation Enterprises,
Inc. and Vice Chairman of BGE and Steven D. Kesler, President of Constellation
Investments, Inc. and new President of Constellation Real Estate Group, Inc. Mr.
Crooke will be a Class III Trustee whose term expires in 2001, and Mr. Kesler
will be a Class II Trustee whose term expires in 2000. If any member of the
Board of Trustees designated by Constellation shall withdraw for any reason,
Constellation shall have the right to designate such withdrawing Trustee's
replacement. Thereafter, Constellation shall be entitled to designate two
Trustees as long as it owns any Preferred Shares and at least 30% of the
Company's outstanding Common Shares, and shall be entitled to designate one
Trustee as long as it owns any Preferred Shares and less than 30% but more than
15% of the outstanding Common Shares. The foregoing calculations are to include
as outstanding the Common Shares owned by Constellation as well as the Common
Shares issuable upon conversion of Preferred Shares owned by Constellation.
Jay H. Shidler remains as Chairman and Clay W. Hamlin, III remains as
Chief Executive Officer of the Company. Randall M. Griffin, formerly President
of Constellation Real Estate Group, Inc. ("CREG"), has become President and
Chief Operating Officer of the Company. In addition, Roger A. Waesche, Jr.,
formerly Senior Vice President of Finance of CRE and John H. Gurley, formerly
Vice President and General Counsel of CRE, as well as certain other officers of
CRE, have assumed positions with the Company similar to those held by them with
CRE.
The Company's headquarters remains in Pennsylvania. Acquisition and
capital market activities will be conducted out of the suburban Philadelphia
office. The Company also occupies a portion of the space previously occupied by
CRE in Columbia, Maryland (in a building which was acquired by the Company),
where the CRE personnel who became employees of affiliates of the Company will
perform the Company's operations, asset management, property management,
development, construction and accounting functions.
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Item 5. Other Events
On September 28, 1998, the Company through affiliates of the Operating
Partnership, closed on the Completed Transactions pursuant to agreements with
Constellation to acquire real estate properties and service businesses. Certain
property acquisitions covered under the agreements between the Company and
Constellation as approved by shareholders of the Company pursuant to its July
22, 1998 proxy statement and related special meeting of shareholders were not
completed on September 28, 1998 (collectively, the "Pending Transactions"). The
Pending Transactions include the following:
(i) Acquisition of 100% of the ownership interests in entities which
own two newly-constructed operating office properties;
(ii) Acquisition of 100% ownership interest in an entity which owns a
retail property (on which construction is nearing completion); and
(iii)Acquisition of 100% ownership interests in entities which own two
office properties currently under construction.
The acquisitions in Items (i) and (iii) above are anticipated to occur
by the end of 1998. The acquisition described in Item (ii) above is anticipated
to occur in early 1999.
The property covered under the acquisition agreements between the
Company and Constellation as approved by shareholders of the Company pursuant to
its July 22, 1998 proxy statement also included a 60% ownership interest in an
entity which owns a retail property currently under construction. The agreement
to acquire this property was terminated at the election of the Company by mutual
agreement with Constellation; therefore, this acquisition will not occur.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The combined financial statements of the businesses acquired will
be filed by amendment.
(b) Pro Forma Financial Information
The pro forma condensed consolidated financial statements of the
Company will be filed by amendment.
(c) Exhibits
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Exhibits
Exhibit Number Description
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2.1 Contribution Agreement, dated May 14, 1998, between the Company, the
Operating Partnership and certain Constellation affiliates (filed as Exhibit
A of the Company's Schedule 14A Information on June 26, 1998, and
incorporated herein by reference).
2.2 Service Company Contribution Agreement, dated May 14, 1998, between the
Company, the Operating Partnership and certain Constellation affiliates
(filed as Exhibit B of the Company's Schedule 14A Information on June 26,
1998, and incorporated herein by reference).
2.3 First Amendment to Contribution Agreement, dated July 16, 1998, between
Constellation Properties, Inc. and certain entities controlled by
Constellation Properties, Inc.
2.4 Second Amendment to Contribution Agreement, dated September 28, 1998, between
Constellation Properties, Inc. and certain entities controlled by
Constellation Properties, Inc.
2.5 First Amendment to Amended and Restated
Limited Partnership Agreement of Corporate
Office Properties Limited Partnership, dated
September 28, 1998.
4.1 Articles Supplementary of Corporate Office Properties Trust Series A
Convertible Preferred Shares, dated September 28, 1998.
10.1 Option Agreement, dated May 14, 1998, between the Operating Partnership and
NBP-III, LLC (a Constellation affiliate) (filed as Exhibit C of the Company's
Schedule 14 A Information on June 26, 1998, and incorporated herein by
reference).
10.2 Option Agreement, dated May 14, 1998, between the Operating Partnership and
Constellation Gatespring II, LLC (a Constellation affiliate) (filed as
Exhibit D of the Company's Schedule 14 A Information on June 26, 1998 and
incorporated herein by reference).
10.3 First Amendment to Option Agreement, dated June 22, 1998, between the
Operating Partnership and NBP-III, LLC (a Constellation affiliate) (filed as
Exhibit E of the Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
10.4 First Amendment to Option Agreement, dated June 22, 1998, between the
Operating Partnership and Constellation Gatespring II, LLC (a Constellation
affiliate) (filed as Exhibit F of the Company's Schedule 14 A Information on
June 26, 1998 and incorporated herein by reference).
10.5 Development Property Acquisition Agreement, dated May 14, 1998, between the
Operating Partnership and CPI Piney Orchard Village Center, Inc. (a
Constellation affiliate) (filed as Exhibit H of the Company's Schedule 14A
Information on June 26, 1998, and incorporated herein by reference).
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Exhibit Number Description
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10.6 Amended and Restated Deed of Trust Note, dated October 6, 1995, between
Cranberry-140 Limited Partnership and Security Life of Denver Insurance
Company.
10.7 Loan Modification Agreement, dated September
28, 1998, between Cranberry-140 Limited
Partnership and Security Life of Denver
Insurance Company.
10.8 Promissory Note, dated September 15, 1995, between Tred Lightly Limited
Liability Company and Provident Bank of Maryland.
10.9 Allonge to Promissory Note, dated September 28, 1998, between Tred Lightly
Limited Liability Company and Provident Bank of Maryland.
10.10 Third Loan Modification and Extension Agreeement, dated November 12, 1997,
between St. Barnabus Limited Partnership, Constellation Properties, Inc. and
NationsBank, N.A.
10.11 Fourth Loan Modification Agreement dated September 28, 1998 between St.
Barnabus Limited Partnership, Constellation Properties, Inc. and NationsBank,
N.A.
10.12 Deed of Trust Note, dated September 20, 1988,
between Brown's Wharf Limited Partnership and
Mercantile-Safe Deposit and Trust Company.
10.13 Extension Agreement and Allonge to Deed of Trust Note, dated July 1, 1994,
between Brown's Wharf Limited Partnership and Mercantile-Safe Deposit and
Trust Company.
10.14 Employment Agreement, dated September 28, 1998 between Corporate Office
Management, Inc. and Randall M. Griffin.
10.15 Employment Agreement, dated September 28, 1998 between Corporate Office
Management, Inc. and Roger A. Waesche, Jr.
10.16 Employment Agreement, dated September 28, 1998 between Corporate Realty
Management, LLC and Michael D. Kaiser.
10.17 Consulting Services Agreement, dated April 28,
1998 between the Company and Net Lease Finance
Corp., doing business as Corporate Office
Services.
10.18 Project Consulting and Management Agreement, dated September 28, 1998,
between Constellation Properties, Inc. and COMI.
10.19 Option Agreement, dated September 28, 1998,
between Jolly Acres Limited Partnership and Arbitrage Land Limited Partnership
and the Operating Partnership.
10.20 Right of First Refusal Agreement, dated September 28, 1998, between Constellation
Properties, Inc. and the Operating Partnership.
10.21 Right of First Refusal Agreement, dated September 28, 1998, between 257 Oxon,
LLC and the Operating Partnership.
99.1 Press Release dated May 15, 1998 regarding the Company's entrance into a
series of agreements through affiliates of the Operating Partnership with
Constellation and certain Constellation affiliates to acquire real estate
properties and service businesses (filed with the Company's Current report on
Form 8-K on May 29, 1998, and incorporated herein by reference).
99.2 Press Release, dated July 22, 1998, regarding
the Company establishing a date for a special
shareholders meeting to consider Constellation
transaction.
10
Exhibit Number Description
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99.3 Press release, dated August 21, 1998, announcing the shareholders approval of
the Constellation transaction.
99.4 Definitive Proxy Statement for August 21, 1998 Special Meeting of
Shareholders.
99.5 Press Release dated September 29, 1998 regarding the Company's closing of the
Constellation Transaction.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 13, 1998
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Clay W. Hamlin, III
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Name: Clay W. Hamlin, III
Title: Chief Executive Officer
By: /s/ Randall M. Griffin
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Name: Randall M. Griffin
Title: President and
Chief Operating Officer
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