CORPORATE OFFICE PROPERTIES TRUST INC, 10-K405, 1998-03-31

CORPORATE OFFICE PROPERTIES TRUST INC
10-K405, 1998-03-31
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to

Commission file number 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.)

One Logan Square, Suite 1105, Philadelphia, PA 19103
(Address of principal executive offices) (Zip Code)

(215) 567-1800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common shares of beneficial interest, .01 par value

Indicate by check mark whether the (1)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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $18,340,000.00 based on the last trade on March 18,
1998 on NASDAQ.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

At March 20, 1998, 2,271,083 shares of the Registrant's Common Shares of
Beneficial Interest, .01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and
the Part of the 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e. g., annual report to
security holders for fiscal year ended December 24, 1980).

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST
TABLE OF CONTENTS
FORM 10-K

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I
Item 1. Business.............................................. 3
Item 2. Properties............................................ 10
Item 3. Legal Proceedings..................................... 16
Item 4. Submissions of Matters to a Vote of Security Holders.. 16

PART II

Item 5. Market Registrant's Common Equity and Related
Stockholder Matters................................. 17
Item 6. Selected Financial Data............................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 20
Item 8. Financial Statements and Supplementary Data........... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 25

PART III

Item 10. Trustees and Executive Officers of the Company........ 26
Item 11. Executive Compensation................................ 30
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................... 34
Item 13. Certain Relationships and Related Transactions........ 36

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8K............................................. 37
</TABLE>

This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of complying with these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of the Company on a consolidated
basis include, but are not limited to, changes in: economic conditions generally
and the real estate market specifically, legislative/regulatory changes
(including changes to laws governing the taxation of REITs), availability of
capital, interest rates, competition, supply and demand for office properties in
the Company's current and proposed market areas and general accounting
principles, policies and guidelines applicable to REITs. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements. Further information
concerning the Company and its business, including additional factors that could
materially affect the Company's financial results, is included herein and in the
Company's other filings with the Securities and Exchange Commission.

<PAGE>

PART I

ITEM 1. BUSINESS

THE COMPANY

The Company is a self-administered REIT, headquartered in Philadelphia,
Pennsylvania, which focuses principally on the ownership, acquisition and
management of suburban office properties in high growth submarkets in the United
States. The Company currently owns interests in ten suburban office buildings in
Pennsylvania and New Jersey containing approximately 1.5 million rentable square
feet (the "Office Properties") and seven retail properties located in the
Midwest containing approximately 370,000 rentable square feet (the "Retail
Properties" and, together with the Office Properties, the "Properties"). As of
December 31, 1997, the Properties were over 99% leased. In addition, the Company
has options to purchase 44.27 acres of land contiguous to certain of the Office
Properties owned by related parties.

The Company was formed in 1988 as Royale Investments, Inc. to own and
acquire retail properties and subsequently became an externally advised REIT. On
October 14, 1997, the Company, as part of a series of transactions, acquired the
Mid-Atlantic suburban office operations of The Shidler Group, a national real
estate firm (the "Transactions"). As a result of the Transactions, the Company
relocated its headquarters from Minneapolis to Philadelphia and became
self-administered. At that time, Jay Shidler became the Company's Chairman of
the Board, and Clay Hamlin became the Company's President and Chief Executive
Officer.

On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a
Maryland real estate investment trust (the "Reformation") and changed its name
to Corporate Office Properties Trust. In connection with the Reformation, each
share of common stock of Corporate Office Properties Trust, Inc. ("Common
Stock") was exchanged for one share of beneficial interest ("Common Share") in
Corporate Office Properties Trust. On March 6, 1998, the Company filed a
preliminary Registration Statement on Form S-11 for the issuance of 7,500,000
Common Shares (the "Offering").

The Company has operated and will continue to operate as a REIT under
Sections 856 through 860 of the Internal Revenue Code. Under such provisions,
the Company must distribute at least 95% of its taxable income to its
shareholders and meet certain other asset and income tests. As a REIT, the
Company generally is not subject to federal income tax.

The Company directly owns the Retail Properties. The Company's interests in
the Office Properties are held through its subsidiary partnership, Corporate
Office Properties, L.P. (formerly FCO, L.P.) (the "Operating Partnership") and
its wholly owned subsidiary Corporate Office Properties Holdings, Inc. (formerly
FCO Holdings, Inc.) ("Holdings"), and four subsidiary partnerships in which
Holdings is the general partner and the Operating Partnership is the majority
limited partnership (the "Properties Partnerships") as described below.

On October 14, 1997, the Company completed the Transactions. For the
purposes of the Transactions, the Properties Partnerships (including the
Retained Interests as defined below) were treated as having a value of $170
million (which includes the $100 million of indebtedness collateralized by the
Properties) (the "Property Financing"). The aggregate consideration issued in
the Transactions by the Company and the Operating Partnership to the former
general and limited partners of the Properties Partnerships consisted of (x)
600,000 shares of Common Stock (issued at a price of

<PAGE>

$5.50 per share), (y) an aggregate of 2,899,310 partnership units that,
subject to certain conditions and beginning on September 1, 1998, are
convertible into Common Shares at a rate of one common share for every one
unit ("Partnership Units") (including 600,000 issued to the Company in
consideration for limited partner interests in the Properties Partnerships
acquired by it for 600,000 shares of Common Stock and subsequently
contributed by it to the Operating Partnership) and (z) 1,913,545 preferred
units that, subject to certain conditions and beginning on October 1, 1999,
are convertible into Partnership Units at a rate of 3.5714 Partnership Units
for every one preferred unit ("Preferred Units"). Partnership Interests
representing 11% of three of the Properties Partnerships ("the Retained
Interests") are required to be contributed to the Operating Partnership in
November 2000 in consideration for the issuance of an aggregate of 282,508
Partnership Units and 186,455 Preferred Units. Concurrently with the closing
of the Transactions, the then existing advisory agreement (the "Advisory
Agreement") between Crown Advisors, Inc. ("Crown") and the Company was
terminated, and the Company entered into a management agreement (the
"Management Agreement") with Glacier Realty LLC, a Minnesota limited
liability company ("Glacier") owned by Messrs. Beck and Parsinen, officers of
the Company. A non-recurring termination expense of $1.4 million, paid in the
form of shares of Common Stock (net of certain shares retired), was incurred
as a result of the termination of the Advisory Agreement. As a result of the
Transactions, the Company became self-administered.

BUSINESS OBJECTIVES AND GROWTH STRATEGIES

The Company has filed a registration statement on Form S-11 which, if
completed, will result in the issuance of a significant
amount of Common Shares. In addition, the Company is likely to issue
directly, or through the issuance of Partnership Units and Preferred Units
(together "Units") by the Operating Partnership, a substantial number of
Common Shares or Units redeemable or exchangeable for Common Shares, in
connection with acquisitions. The Company is presently exploring a number of
potential acquisitions, some of which could be material and a number of which
could be effected in the near term in the event the Company's explorations
are successful.

INDUSTRY SEGMENTS

The Company operates in only one industry segment.

EMPLOYEES

As of December 31, 1997, the Company employed nine persons.

COMPETITION

Numerous commercial properties compete with the Company's properties in
attracting tenants to lease space, and additional properties can be expected to
be built in the markets in which the Company's properties are located. The
number and quality of competitive commercial properties in a particular area
will have a material effect on the rents charged and on the Company's ability to
lease space at its current properties or at newly acquired properties. Some of
these competing properties may be newer or better located than the Company's
properties. In addition, the commercial real estate market is highly
competitive, particularly within the Mid-Atlantic region in which the Company
presently operates. There are a significant number of buyers of commercial
property, including other

<PAGE>

publicly traded commercial REITs, many of which have significant financial
resources. This has resulted in increased competition in acquiring attractive
commercial properties. Accordingly, it is possible that the Company may not
be able to meet its targeted level of property acquisitions and developments
due to such competition or other factors which may have an adverse effect on
the Company's expected growth in operations.

MAJOR TENANTS

During 1997, four major tenants comprised 64% of total rental income, each
individually represented 10% or more of the Company's Total Rental Revenue.
See "Properties -- Major Properties." In the event that one or more of these
tenants experience financial difficulties, or default on their obligation to
make rental payments to the Company, the Company's financial performance and
ability to make expected distributions to shareholders would be materially
adversely affected.

All of the Office Properties are located in the greater Philadelphia and
Harrisburg, Pennsylvania regions and the Princeton, New Jersey region. See
"Properties -- The Office Properties." As a result, the Company does not have
the benefits of portfolio geographic diversity and is subject to any issues
selectively affecting these regions. Therefore, in the long term, based upon the
properties currently owned directly or indirectly by the Company, the Company's
financial performance and ability to make expected distributions to shareholders
is dependent upon the Philadelphia, Harrisburg and Princeton markets. There can
be no assurance as to the stability or growth conditions of the Philadelphia,
Harrisburg and Princeton markets.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow using such real
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of hazardous substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated by such person.
Certain environmental laws and common law principles could be used to impose
liability for release of and exposure to hazardous substances, including
ACMs, into the air, and third parties may seek recovery from owners or
operators of real properties for personal injury or property damage
associated with exposure to release hazardous substances, including ACMs. As
the owner of real properties, the Company may be potentially liable for any
such costs.

Phase I ESAs have been obtained for each of the Properties. The purpose of
Phase I ESAs is to identify potential sources of contamination for which a
company may be responsible and to assess the status of environmental regulatory
compliance. Where recommended in the Phase I ESA, invasive procedures, such as
soil sampling and testing or the installation and monitoring of groundwater
wells, were subsequently performed. The Phase I ESAs including subsequent
procedures where applicable, have not revealed any environmental liability that,
after giving effect to indemnification available to the Company, the Company
believes would have a material adverse effect on the Company's business, assets
or results of operations, nor is the Company aware of any such material
environmental liability.

<PAGE>

Nevertheless, it is possible that the indemnification would be unavailable at
the time the Company sought to make a claim thereunder, the Phase I ESAs
relating to any one of its properties have not revealed all environmental
liabilities or that there are material environmental liabilities of which the
Company is unaware. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Company's
properties will not be affected by tenants, by the condition of land or
operations in the vicinity of such properties (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.

INVESTMENT POLICIES

INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company owns
the net Retail Properties directly but intends to conduct all of its other
investment activities through the Operating Partnership and its subsidiaries
and other affiliates and joint ventures in which the Operating Partnership or
a subsidiary may be a partner. The Company's investment objectives are to
provide quarterly cash distributions and achieve long-term capital
appreciation through increases in the value of the Company's portfolio of
properties and its operations. For a discussion of the Properties, see
"Properties." The Company's policies are to (i) purchase income-producing
suburban office properties primarily for long-term capital appreciation and
rental growth and (ii) expand and improve its current properties or other
properties purchased or sell such properties, in whole or in part, when
circumstances warrant. To a lesser extent, the Company intends to grow through
the selective development, redevelopment and construction of commercial
properties. The Company does not intend to expand its existing investments in
net leased retail properties and, to the extent appropriate opportunities
arise, it may contribute some or all of these properties to the Operating
Partnership in exchange for additional Units or sell or exchange some or all
of these properties and reinvest any net cash proceeds in suburban office
properties.

Equity investments may be subject to existing mortgage financing and other
indebtedness or to such financing or indebtedness as may be incurred in
connection with acquiring or refinancing such equity investments. Debt service
with respect to such financing or indebtedness will have a priority over any
distributions with respect to the Common Shares and Units. Investments are also
subject to the Company's policy not to be treated as an investment company under
the Investment Company Act of 1940.

The Company intends to concentrate on acquiring, owning and operating
suburban office properties, and future investment or development activities will
not be limited to any geographic area or product type or to a specified
percentage of the Company's assets. While the Company intends to seek diversity
in its investments in terms of property locations, size and market, the Company
does not have any limit on the amount or percentage of its assets that may be
invested in any one property or any one geographic area. The Company intends to
engage in such future investment and development activities in a manner which is
consistent with the maintenance of its status as a REIT for federal income tax
purposes.

INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current
portfolio consists of, and the Company's business objectives emphasize,
equity investments in suburban office properties, the Company may, at the
discretion of the Board of Trustees, invest in mortgages and deeds of trust,
consistent with the Company's continued qualification as a REIT for federal
income tax purposes, including participating or convertible mortgages if the
Company concludes that it may benefit from the cash flow or any appreciation
in value of the property secured by such mortgages. Investments in real estate

<PAGE>

mortgages run the risk that one or more borrowers may default under such
mortgages and that the collateral securing such mortgages may not be
sufficient to enable the Company to recoup its full investment.

SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUES. Subject to the limitations on ownership of certain
types of assets and the gross income tests imposed by the Code, the Company also
may invest in the securities of other REITs, other entities engaged in real
estate activities or other issuers, including for the purpose of exercising
control over such entities. The Company may enter into joint ventures or
partnerships for the purpose of obtaining an equity interest in a particular
property in accordance with the Company's investment policies. Such investments
may permit the Company to own interests in larger assets without unduly
restricting diversification and, therefore, add flexibility in structuring its
portfolio. The Company has no plans to enter into a joint venture or partnership
to make an investment that would not otherwise meet its investment policies.

FINANCING POLICIES

In conjunction with its growth strategies, the Company has developed a
two-phase capitalization strategy. The Company intends during the first phase of
this strategy, a period of rapid growth of the Company, to emphasize the
issuance of Units as tax-deferred consideration to sellers in entity and
portfolio acquisitions. To accelerate growth in FFO per share during this
period, the Company will utilize a minimum cash flow to debt service coverage
ratio of approximately 1.6 to 1.0, which is anticipated to equate to a ratio of
debt to total market capitalization of between 40% and 60%. The Company believes
a 1.6 times cash flow coverage ratio is conservative for a seasoned pool of
suburban office buildings and is a more appropriate measure of entity leverage
than the conventional REIT measure of total debt outstanding to total market
capitalization. During the second phase of this strategy, the Company plans to
gradually reduce its debt as a percentage of total market capitalization while
continuing to grow FFO per share. The Company's plan to reduce its debt in the
future is designed to achieve an investment grade rating and provide the Company
access to the corporate unsecured debt market. The Declaration of Trust and the
Bylaws, however, do not limit the amount or percentage of indebtedness that the
Company may incur, and the Company may from time to time modify its debt policy
in light of current economic conditions, relative costs of debt and equity
capital, the market values of its properties, general conditions in the market
for debt and equity securities, fluctuations in the market price of its Common
Shares, growth and acquisition opportunities and other factors. Any increase in
the Company's level of indebtedness results in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company and the Company's ability to make distributions to shareholders. The
Company will consider a number of factors in making decisions regarding the
incurrence of debt, such as the purchase price of properties to be acquired with
debt financing, the estimated market value of properties upon refinancing and
the ability of particular properties and the Company as a whole to generate
sufficient cash flow to cover expected debt service.

The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

To the extent that the Board of Trustees decides to obtain additional
capital, the Company may raise such capital through additional equity offerings
(including offerings of senior securities), debt financings or retention of cash
available for distribution (subject to provisions in the Code concerning
taxability of undistributed REIT income), or a combination of these methods. As
long as the Operating

<PAGE>

Partnership is in existence, the net proceeds of the sale of Common Shares by
the Company will be transferred to the Operating Partnership in exchange for
that number of Partnership Units in the Operating Partnership equal to the
number of Common Shares sold by the Company. The Company presently
anticipates that any additional borrowings would be made through the
Operating Partnership, although the Company may incur indebtedness directly
and loan the proceeds to the Operating Partnership. Borrowings may be
unsecured or may be secured by any or all of the assets of the Company, the
Operating Partnership or any existing or new property owning partnership and
may have full or limited recourse to all or any portion of the assets of the
Company, the Operating Partnership or any existing or new property owning
partnership. Indebtedness incurred by the Company may be in the form of bank
borrowings, purchase money obligations to sellers of properties, publicly or
privately placed debt instruments or financing from institutional investors
or other lenders. The proceeds from any borrowings by the Company may be used
for working capital, to refinance existing indebtedness or to finance
acquisitions, expansions or the development of new properties, and for the
payment of distributions.

MORTGAGE DEBT

The following table sets forth the Company's mortgage indebtedness
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
FACE PRINCIPAL ANNUAL
AMOUNT BALANCE INTEREST DEBT PRE-
OF AS OF ACCUMULATED RATE AT SERVICE MATURITY PAYMENT
PROPERTY/LOCATION MORTGAGE 12/31/97 AMORTIZATION 12/31/97 (1) DATE PREMIUMS
- --------------------------- -------------- -------------- ------------ ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Plymouth, MN and
Indianapolis, IN......... $ 4,800,000 $ 4,660,648 $139,352 9.500% $ 490,684 06/01/02(2) Yld. Maint.
Peru, IL................... 2,650,000 2,429,348 220,652 8.000% 257,868 11/01/13 Yld. Maint.
Minot, ND.................. 2,850,000 2,628,356 221,644 8.000% 277,331 02/01/14 Yld. Maint.
Glendale, WI............... 1,200,000 1,055,731 144,269 7.750% 127,224 04/01/11 (3)
Oconomowac, WI............. 1,800,000 1,737,046 62,954 7.625% 153,000 06/10/14 Yld. Maint.
Delafield, WI.............. 2,000,000 1,864,231 135,769 8.125%(4) 202,617 12/10/04(5) Yld. Maint.
Office Properties.......... 100,000,000 100,000,000 0 7.500% 7,500,000 10/13/00(6) None
------------ ------------ -------- ----------
Total Mortgage
Indebtedness............. $115,300,000 $114,375,360 $924,640 $9,008,724
------------ ------------ -------- ----------
------------ ------------ -------- ----------
</TABLE>

- ------------------------

(1) "Annual Debt Service" is calculated for the twelve-month period ending
December 31, 1997. For loans that bear interest at a variable rate, the
rates in effect at December 31, 1997 have been assumed to remain constant
for the balance of 1997. The debt service has been annualized for the
Property Financing.

(2) A balloon payment of $4,434,000 is due on June 1, 2002.

(3) Until May 1, 1999, there is a prepayment premium of 5.0%. As of May 1, for
each year thereafter, the prepayment premium decreases by 0.5%.

(4) Until November 30, 1999, the interest rate is 8.125%. Thereafter, the
interest rate is the greater of the current 5 year U.S. Treasury Yield plus
1.80% or 8.125%.

(5) A balloon payment of $1,401,000 is due on December 10, 2004.

(6) A balloon payment of any amount then outstanding under the Property
Financing is due on October 13, 2000.

Immediately prior to the Acquisition, each of the Properties Partnerships
jointly and severally entered into the $100 million Property Financing with
Bankers Trust Company. Approximately $96.1 million of the proceeds of the
Property Financing was used by entities other than the Company and the Operating
Partnership to refinance indebtedness of or secured by the assets of the
Properties Partnerships and to pay various costs in connection with the
Transactions. Approximately $3.9 million of the proceeds of the Property
Financing was contributed to the Operating Partnership in connection with the
Transactions. The Operating Partnership used approximately $2.9 million of these
funds to pay

8
<PAGE>

various costs associated with the Transactions and retained approximately
$1.0 million for working capital needs.

The Operating Partnership is a joint and several obligor in respect of the
Property Financing. The Company and Holdings are not obligors with respect to
the Property Financing, but have pledged certain assets described in the
following sentence to secure repayment of the Property Financing. Substantially
all of the assets of the Properties Partnerships and the Operating Partnership's
and Holdings' interests in the Properties Partnerships and the Company's
interests in Holdings and the Operating Partnership have been pledged or
mortgaged to secure the Properties Partnerships' and the Operating Partnership's
joint and several obligations in respect of the Property Financing.

The initial term of the Property Financing is three years with the right
given to the obligors to extend it, subject to the satisfaction of certain
conditions precedent thereto, for two successive one-year extensions. Borrowings
under the Property Financing bear interest at the rate of 7.5% per annum. In the
event that the Property Financing is extended after the third anniversary or
following an event of default during the first three years, the borrowings under
the Property Financing will bear interest at a floating rate based on LIBOR plus
2.5%.

The Property Financing contains, among other things, covenants restricting
the ability of the Operating Partnership to make distributions. The Property
Financing also contains covenants restricting the ability of each Properties
Partnership to incur indebtedness, create liens, make certain investments, enter
into transactions with affiliates and otherwise restrict activities. The
Property Financing also contains the following financial covenants binding upon
the Company and its subsidiaries: maintenance of consolidated net worth, a
minimum consolidated interest coverage ratio, a maximum consolidated unhedged
floating rate debt ratio and a maximum consolidated total indebtedness ratio.
Each Properties Partnership must also maintain a minimum property interest
coverage ratio and a minimum property hedged interest coverage ratio.

Events of default under the Property Financing include, among other things,
default in the payment of principal or interest on borrowings outstanding under
the Property Financing, any payment default in respect of material amounts of
indebtedness of the Company or its subsidiaries, any non-payment default on such
indebtedness, any material breach of the covenants or representations and
warranties included in the Property Financing and related documents, the
institution of any bankruptcy proceedings and the failure of any security
agreement related to the Property Financing or lien granted thereunder to be
valid and enforceable. Upon the occurrence and continuance of an event of
default under the Property Financing, the lender may declare the then
outstanding loans due and payable.

In March 1998, the Company entered into a conditional agreement with
Bankers Trust Company regarding the Property Financing to repay up to $70
million from the proceeds of the Offering pursuant to which the Company has been
granted the right to reborrow, in minimum amounts of $20 million (or the
remaining undrawn amount, if less), the entire $70 million repaid with the net
proceeds of the Offering for the purpose of acquiring commercial office building
real property and paying related fees and expenses. This right must be exercised
within nine months of the date of the Offering. Prior to the end of the nine-
month period, the Company may reborrow the remaining amount of the prepayment
not previously reborrowed and use the proceeds to purchase marketable securities
in which Bankers Trust Company will have a security interest. The Company may
not reborrow the $70 million unless there are no defaults or events of default
under the Property Financing, the Company provides Bankers Trust Company with
satisfactory assurances that Bankers Trust Company has a first priority lien on
the existing Office Properties for the entire amount of the loan outstanding
under the

9
<PAGE>

Property Financing and the Company pays certain draw down fees. The Company
will pay an unused facility fee for the period between prepayment and
reborrowing.

ITEM 2. PROPERTIES

THE OFFICE PROPERTIES

Set forth below is certain information with respect to the Office Properties
for the year ended December 31, 1997.

<TABLE>
<CAPTION>
TOTAL TOTAL
BASE RENT BASE RENT
PERCENTAGE FOR THE PER
YEAR RENTABLE LEASED 12 MONTHS PERCENTAGE RENTABLE MAJOR TENANTS
BUILT/ SQUARE (AS OF ENDED OF TOTAL SQUARE (10% OR MORE OF
PROPERTY LOCATION RENOVATED FEET 12/31/97) 12/31/97 (1) BASE RENT FOOT (1) RENTABLE SQUARE FEET)
- ----------------- --------- --------------- ------------- ------------- ------------ ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Philadelphia Region
Unisys World Hdqtrs
751 Jolly Rd...... 1966/1991 112,958 100.0% $ 1,597,964 8.5% $14.15(2) Unisys(100%)
753 Jolly Rd...... 1960/1992-94 424,380 100.0% 3,287,716 47.5% 7.75 Unisys(100%)
------- ----------- -----
Combined Total.. 537,338 4,885,680 26.0% 9.09
760 Jolly Rd. 1974/1994 199,380 100.0% 2,821,560 15.1% 14.15(2) Unisys(100%)
------- ----------- -----
Combined Total.. 736,718 7,707,240 41.1% 10.46
Merck Building
785 Jolly Rd. 1970/1996 218,219 100.0% 2,318,232 12.3% 10.62 Unisys with 100%
sublease to Merck.
------- ----------- -----
Region Total......... 954,937 10,025,472 53.4% $10.50

Harrisburg Region
Gateway Corporate Ctr.
6385 Flank Dr..... 1995 32,800 100.0% 340,949 1.8% $10.39 Cowles Magazine(35%)
Orion Capital(26%)
Commerce Court
2601 Market Pl.... 1989 67,377 98.2% 985,369 5.2% 14.62 Penn State
Geisinger(38%)
Ernst & Young(26%)
Texas-Eastern Gas
Pipeline Co.(26%)
2605 Interstate Dr. 1990 84,268 100.0% 1,168,119 6.2% 13.86 PA Emergency Mgmt.
Agency(56%)
------- ----------- -----
USF&G(24%)
Health Central(15%)
Region Total......... 184,445 2,494,437 13.2% $13.52

Princeton Region
Teleport National
Hdqtrs.
429 Ridge Rd...... 1966/1996 142,385 100.0% 1,950,810 10.4% $13.70 TCG(100%)(3)

437 Ridge Rd...... 1962/1996 30,000 100.0% 349,500 1.9% 11.65 IBM with 100%
sublease to TCG
IBM Building
431 Ridge Rd. 1958/1967 170,000 100.0% 1,445,000 7.7% 8.50 IBM(100%)
------- ----------- -----
Region Total......... 342,385 3,745,310 20.0% $10.94
------- ----------- -----
Total/Weighted Average 1,481,767 99.9% $16,265,219 86.6% $10.98
------- ----------- -----
------- ----------- -----
</TABLE>

- ------------------------

(1) "Total Base Rent" for the twelve months ended December 31, 1997 represents
base rents received during the period, excluding tenant reimbursements,
calculated in accordance with generally accepted accounting principals
determined on a straight-line basis. Tenant reimbursements generally include
payment of real estate taxes, operating expenses, and escalations and common
area maintenance and utility charges. These amounts reflect the annualized
revenue of the Office Properties acquired by the Company on October 14,
1997.

(2) Property is triple net leased.

(3) On January 8, 1998, TCG announced its intention to merge with a subsidiary
of AT&T Corporation.

10
<PAGE>
THE RETAIL PROPERTIES

Set forth below is certain information with respect to the Company's retail
properties for the year ended December 31, 1997. All of the Retail Properties
are leased on a triple net basis.

<TABLE>
<CAPTION>
TOTAL
BASE RENT
PERCENTAGE PERCENTAGE PER
YEAR RENTABLE LEASED TOTAL OF TOTAL RENTABLE
BUILT/ SQUARE (AS OF BASE BASE SQUARE
PROPERTY LOCATION RENOVATED FEET 12/31/97) RENT (1) RENT (1) FOOT(1)
- ----------------------------- ------------- ----------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SuperValu Stores, Inc.
Indianapolis, IN
5835 West 10th St. 1991 67,541 100.0% $ 548,196 2.90% $ 8.12
Plymouth, MN
3550 Vicksburg Ln. 1991 67,510 100.0% 522,813 2.80% 7.74
Nash-Finch Stores
Minot, ND
2100 S. Broadway 1993 46,134 100.0% 317,040 1.70% 6.87
Peru, IL
1351 38th St. North 1993 60,232 100.0% 347,208 1.80% 5.76
Fleming Companies Stores
Delafield, WI
3265 Golf Rd. 1994 52,800 100.0% 330,564 1.80% 6.26
Glendale, WI
7601 N. Port Washington
Rd. 1992 36,248 100.0% 177,984 1.00% 4.91
Oconomowac, WI
630 E. Wisconsin Ave. 1994 39,272 100.0% 264,799 1.40% 6.74
----------- ----- --------- ----- ---
Total/Weighted Average 369,737 100.0% $2,508,604 13.40% $ 6.78
----------- ----- --------- ----- ---

<CAPTION>
PROPERTY LOCATION TENANTS
- ----------------------------- ----------------------
<S> <C>
SuperValu Stores, Inc.
Indianapolis, IN
5835 West 10th St. SV Ventures
Plymouth, MN
3550 Vicksburg Ln. Innsbruck Investments
Nash-Finch Stores
Minot, ND
2100 S. Broadway Nash-Finch Company
Peru, IL
1351 38th St. North Nash-Finch Company
Fleming Companies Stores
Delafield, WI
3265 Golf Rd. Fleming Companies,
Inc.
Glendale, WI
7601 N. Port Washington Fleming Companies,
Rd. Inc.
Oconomowac, WI
Fleming Companies,
630 E. Wisconsin Ave. Inc.
Total/Weighted Average
</TABLE>
- ------------------------

<PAGE>
Lease Expiration -- Portfolio Total

The following table sets forth a summary schedule of the lease expirations
for the Company's Properties for leases in place as of December 31, 1997,
assuming that none of the tenants exercise renewal options.

<TABLE>
<CAPTION>
TOTAL
TOTAL BASE RENT
SQUARE BASE RENT OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF PERCENTAGE OF OF EXPIRING LEASES
LEASE LEASES EXPIRING TOTAL LEASED LEASES PER RENTABLE
EXPIRATION EXPIRING LEASES SQUARE FEET ($000) (1) SQUARE FOOT (1)
- ---------------------------------------- --------------- ----------- --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
1998.................................... 0 0 0.0% $ 0 $ 0.00
1999.................................... 2 4,420 0.2% 56 12.65
2000.................................... 3 33,766 1.8% 503 14.90
2001.................................... 4 71,263 3.9% 972 13.63
2002.................................... 6 208,632 11.3% 1,940 9.30
2003.................................... 0 0 0.0% 0 0
2004.................................... 0 0 0.0% 0 0
2005.................................... 0 0 0.0% 0 0
2006.................................... 2 97,510 5.3% 1,068 10.96
2007.................................... 2 35,164 1.9% 650 18.50
2008 and beyond......................... 10 1,399,549 75.6% 14,710 10.51
--
----------- ----- ----------- ------
Total................................... 29 1,850,304 100.0% $ 19,900 $ 10.76
--
--
----------- ----- ----------- ------
----------- ----- ----------- ------

PERCENTAGE OF
YEAR OF TOTAL
LEASE BASE RENT
EXPIRATION EXPIRING (1)
- ---------------------------------------- ---------------
<S> <C>
1998.................................... 0.0%
1999.................................... 0.3%
2000.................................... 0.4%
2001.................................... 0.4%
2002.................................... 16.5%
2003.................................... 0.0%
2004.................................... 0.0%
2005.................................... 0.0%
2006.................................... 2.9%
2007.................................... 2.9%
2008 and beyond......................... 69.9%

-----
Total................................... 100.0%

-----
-----
</TABLE>

- ------------------------

(1) "Total Base Rent" represents base rents for expiring leases, excluding
tenant reimbursements, calculated in accordance with generally accepted
accounting principals determined on a straight-line basis. Tenant
reimbursements generally include payment of real estate taxes, operating
expenses, and escalations and common area maintenance and utility charges.

MAJOR PROPERTIES

PHILADELPHIA REGION

The Company owns four properties in the Blue Bell/Plymouth Meeting/Fort
Washington submarket.

The Merck Building: The Merck Building is a 218,219 square foot office
building located on 28 acres at 785 Jolly Road in Blue Bell, Montgomery County,
Pennsylvania. The building has a one-story lobby with a structural steel frame
and brick exterior.

The building is currently 50% occupied by Unisys and 50% occupied by Merck &
Co. Inc. ("Merck"), which has exercised its option to occupy 100% of the
building commencing on January 1, 1999. The building is leased in its entirety
to Unisys on a triple net basis through June 30, 2009 with the tenant
responsible for the payment of all operating and capital improvement expenses of
the property. The lease provides for 2% annual increases in the base rent. Merck
has subleased one-half of the building from Unisys through June 30, 2009, the
remainder of the Unisys lease term. The Merck sublease contains a call
option under which Merck can take the remainder of the space in the building and
a put option under which Unisys can cause Merck to take the remaining space.
Merck has exercised its option to become the sole occupant of the building
commencing on January 1, 1999. Under

<PAGE>

the sublease, Merck has a direct obligation to pay the landlord if Unisys
were to default on its obligations. The two-story brick building was
constructed in 1970 as the Remington Rand Headquarters and was renovated by
Merck in 1996.

The aggregate undepreciated tax basis of depreciable real property for
785 Jolly Road for Federal income tax purposes was $9,987,000 as of December
31, 1997. Depreciation is computed on the straight-line method over 40 years.

The current real estate tax for 785 Jolly Road is $31.622 per $100 of
assessed value. The total annual tax for 785 Jolly Road at this rate for the
1997-1998 tax year is $289,942 (at an assessed value of $916,900). The entire
county was revalued in 1998 and as a result, the real estate assessment
increased to $16,114,020. As a result of the revaluation, the taxing
authorities will adjust downward the real estate tax rates.

Unisys World Headquarters: The Unisys World Headquarters, located on 84
acres in Blue Bell, Montgomery County, Pennsylvania, consists of 736,718
square feet contained in three office buildings in a suburban office campus
setting.

All of the buildings are leased to Unisys under separate leases which
expire June 30, 2009. The buildings are leased on a triple net basis though
June 30, 2009 with the tenant responsible for the payment of all operating
and capital improvement expenses of the property. The leases provide for 2%
annual increases in the base rent.

- 751 Jolly Road: The first building comprising the Unisys World
Headquarters consists of 112,958 square feet in a two-story steel frame
facility. Exterior walls of glass and concrete panels enclose the
executive offices, boardroom, and worldwide telecommunications facilities
of this international corporation. The building was substantially
renovated by Unisys in 1991.

- 753 Jolly Road: The second building comprising the Unisys World
Headquarters is a single story office/flex building with structural steel
frame and brick, block and glass exterior containing 424,380 square feet.
The building possesses the heavy power capabilities, fiber optics,
upgraded HVAC and telecommunications and electronic systems necessary to
support this Fortune 500 technology company. The building contains the
primary software engineering and development divisions for Unisys, as well
as general offices. Renovation of this building has been ongoing since
1993, during which time Unisys has expended over $6 million in capital
improvements on the building.

Both 751 Jolly Road and 753 Jolly Road are leased under a single lease
with Unisys, which has posted a cash security deposit in the amount of
$12.75 million under the lease.

The aggregate undepreciated tax basis of depreciable real property for
751 Jolly Road and 753 Jolly Road for Federal income tax purposes was
$24,592,000 as of December 31, 1997. Depreciation is computed on the
straight-line method over 40 years.

The 1997 real estate tax for 751 Jolly Road and 753 Jolly Road is
$31.622 per $100 of assessed value. The total annual tax for 751 Jolly
Road and 753 Jolly Road at this rate for the 1997-98 tax year is
$389,614 (at an assessed value of $1,232,100). The entire county was
revalued in 1998 and as a result, the real estate assessment increased
to

<PAGE>

$29,050,890. As a result of the revaluation, the taxing authorities
will adjust downward the real estate tax rates.

- 760 Jolly Road: The third building comprising the Unisys World
Headquarters is a 199,380 square foot office building situated on 29.67
acres. This building serves as the headquarters for Unisys' worldwide
marketing operations. The three-story building consists of structural
steel framing with brick and concrete panel exterior walls. This
technologically advanced building contains the latest telecommunications
and electronic systems, a high tech display center and a cafeteria.

The aggregate undepreciated tax basis of depreciable real property for
760 Jolly Road for Federal income tax purposes was $9,125,000 as of
December 31, 1997. Depreciation is computed on the straight-line method
over 40 years.

The current real estate tax for 760 Jolly Road is $31.622 per $100 of
assessed value. The total annual tax for 760 Jolly Road at this rate
for the 1997-1998 tax year is $235,078 (at an assessed value of
$743,400). The entire county was revalued in 1998 and as a result, the
real estate assessment increased to $15,703,760). As a result of the
revaluation, the taxing authorities will adjust downward the real
estate tax rates.

The following table sets forth information for 785 Jolly Road, 751 Jolly
Road, 753 Jolly Road and 760 Jolly Road, collectively:

<TABLE>
<CAPTION>
ANNUALIZED ANNUAL NET
RENT PER EFFECTIVE RENT
PERCENT LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
----------- ----------- ------------- ---------------
<S> <C> <C> <C>
1997 100% $ 9.27 $ 9.27
1996 100% 9.09 9.09
1995 100% 8.91 8.91
1994 100% 8.74 8.74
1993 100% 8.57 8.57
</TABLE>

PRINCETON REGION

The Company owns three properties in the Exit 8A--Cranbury submarket.

Princeton Technology Center: The Princeton Technology Center, a corporate
business park located on 18.8 acres in Dayton, New Jersey, consists of three
parcels and 342,385 rentable square feet contained in three separate buildings
- -- two office buildings and an office/flex building.

- 429 Ridge Road: The first of two buildings leased to TCG is a 142,385
square feet three-story building on 14 acres. TCG is a leading fiber
optic based telecommunications company. In January 1998, AT&T announced
its agreement to acquire TCG. This three-story building has a
structural steel frame with brick, metal panel and glass exterior. TCG
operates a National Monitoring Center and its national training
headquarters at this location and has made a multi-million dollar
investment in the building. The initial term of TCG's lease ends in
2008. The building was totally renovated in 1996 and 1997 and provides
the latest in technologically advanced telecommunications and
electronics capabilities.

<PAGE>

The following table sets forth certain information for 429 Ridge Road:

<TABLE>
<CAPTION>
ANNUALIZED ANNUAL NET
RENT PER EFFECTIVE RENT
PERCENT LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
----------- ----------- ------------- ---------------
<S> <C> <C> <C>
1997 100% $ 17.62 $ 12.62
1996 61% 17.62 12.62
1995 0% 0.00 0.00
</TABLE>

The aggregate undepreciated tax basis of depreciable real property for
429 Ridge Road for Federal income tax purposes was $7,770,000 as of
December 31, 1997. Depreciation is computed on the straight-line method
over 40 years.

The current real estate tax for 429 Ridge Road is $2.48 per $100 of
assessed value. The total annual tax for 429 Ridge Road at this rate
for the 1997-1998 tax year is $119,640 (at an assessed value of
$4,824,200).

- 437 Ridge Road: The second of the buildings leased to TCG consists of a
30,000 square feet single-story building. The building has a glass
exterior along with a glass enclosed landscaped courtyard. TCG occupies
the building under a sublease with IBM through April 2002, and a direct
lease extending its occupancy through December 2006. The Chief
Executive Officer and other executive officers work out of this
facility. TCG totally renovated this building at a cost exceeding $2
million for TCG's initial occupancy beginning November 1, 1996.

- 431 Ridge Road: 431 Ridge Road is a 170,000 square feet single-story
office and research building which is leased in its entirety to IBM
through March 31, 2002. The building has a structural steel frame with
glass, metal panel and block exterior. The large floorplate, ample
parking and ceiling height make the building highly adaptable for
either office or research uses.

The following table sets forth certain information for 431 Ridge Road:

<TABLE>
<CAPTION>
ANNUALIZED ANNUAL NET
RENT PER EFFECTIVE RENT
PERCENT LEASED PER LEASED
YEAR-END LEASED SQUARE FOOT SQUARE FOOT
----------- ----------- ------------- ---------------
<S> <C> <C> <C>
1997 100% $ 16.28 $ 8.50
1996 100% 16.35 8.50
1995 100% 16.68 8.50
</TABLE>

The aggregate undepreciated tax basis of depreciable real property for
431 Ridge Road for Federal income tax purposes was $7,082,000 as of
December 31, 1997. Depreciation is computed on the straight-line method
over 40 years.

The current real estate tax for 431 and 437 Ridge Road is $2.48 per
$100 of assessed value. The total annual tax for 431 and 437 Ridge Road
at this rate for the 1997-1998 tax year is $190,305 (at an assessed
value of $7,673,600).

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following matter was submitted to a vote of security holders during
the Company's fourth quarter:

<TABLE>
<S> <C>
(a) Meeting type and date Special Meeting held on December 22, 1997

(b) Directors elected at meeting Not applicable

<TABLE>
<S> <C> <C>
Resolution to change the Results of votes
name of the Company from For 1,339,185.241
Royale Investments, Inc. to Against or withheld 17,390.559
Corporate Office Properties Trust, Inc. Abstentions and broker non-votes 15,609.826
</TABLE>

<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

The Common Shares are listed for trading on NASDAQ under the symbol "COPT."
Prior to January 1, 1998, the Common Stock was listed on NASDAQ under the symbol
"RLIN." The following table sets forth the range of the high and low last
reported sale prices as reported on NASDAQ, as well as the quarterly
distributions per share of Common Stock declared and paid, prior to the Company
Reformation, and per Common Share thereafter. The quotations shown represent
interdealer prices without adjustment for retail markups, markdowns or
commissions, and may not reflect actual transactions.

<TABLE>
<CAPTION>
LOW HIGH DISTRIBUTION
--------- --------- -----------
<S> <C> <C> <C>
1996
First Quarter................................................................. $ 4.750 $ 5.375 $ 0.125
Second Quarter................................................................ 4.875 5.750 0.125
Third Quarter................................................................. 4.875 5.750 0.125
Fourth Quarter................................................................ 4.750 5.500 0.125

1997
First Quarter................................................................. 4.500 6.000 0.125
Second Quarter................................................................ 4.500 5.625 0.125
Third Quarter................................................................. 5.000 7.875 0.125
Fourth Quarter................................................................ 6.813 11.750 0.125

1998
First Quarter................................................................. 9.750 14.000 0.150
(through March 20, 1998)
</TABLE>

On September 5, 1997, the last trading day before the announcement of the
Transactions, the last sale price for the Common Stock, as reported on NASDAQ,
was $5-9/16. On September 8, 1997, the date on which the Transactions were first
announced, the last sale price for the Common Stock, as reported on NASDAQ, was
$7-7/8 per share. On October 13, 1997, the day before the Transactions were
consummated, the last sale price for the Common Stock, as reported on NASDAQ,
was $7-5/8 per share. On March 20, 1998, the last sale price for the Common
Stock, as reported on NASDAQ, was 13-7/8 share. The approximate number of
holders of record of the shares of Common Stock was approximately 228 as of
March 20, 1998.

During 1997, the Company made regular quarterly cash distributions to its
shareholders based upon a quarterly distribution of $0.125 per Common Share or
$0.50 per Common Share annualized. On March 16, 1998, the Board of Directors
increased its quarterly dividend to $0.15 per Common Share or $0.60 per Common
Share annualized (or an annual distribution rate of approximately 4.3% based on
the last trade price of the Common Shares on NASDAQ on March 20, 1998).

Future distributions by the Company, however, will be at the discretion of
the Board of Trustees. The Company's ability to pay cash distributions in the
future will be dependent upon (i) amounts distributed by the Operating
Partnership from properties or interests held by it, (ii) income from the

<PAGE>
properties held directly by the Company, (iii) cash generated by financing
transactions and (iv) the annual distribution requirements under the REIT
provisions of the Code described above and such other factors as the Board of
Trustees deems relevant. The ability of the Company to make cash distributions
will also be limited by the terms of the Operating Partnership Agreement and the
Property Financing as well as limitations imposed by state law and the
agreements governing any future indebtedness of the Company or the Operating
Partnership.

18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

Corporate Office Properties Trust, Inc.

The following selected financial data as of and for each of the years
ended December 31, 1993 through 1997 has been derived from and should be read
in conjunction with the Company's audited financial statements for those
years. The information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
the consolidated financial statements and the notes thereto of the Company
included eslewhere in this form 10-K.

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------

1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue:
Rental income..................................... $ 6,122 $ 2,477 $ 2,436 $ 2,038 $ 1,073
Tenant recoveries and other income................ 496 32 48 217 70
---------- --------- --------- --------- ---------
Total revenue.................................. 6,618 2,509 2,484 2,255 1,143
Expenses:
Interest.......................................... 2,855 1,246 1,267 1,098 461
Depreciation and amortization..................... 1,331 567 567 476 256
Property expenses................................. 728 31 42 43 63
General and administrative........................ 533 372 336 337 183
Termination of Advisory Agreement(1).............. 1,353
---------- --------- --------- --------- ---------
Total expenses...... .......................... 6,800 2,216 2,212 1,954 963
Income (loss) before minority interests.............. (182) 293 272 301 180
Income allocated to minority interests............... (785) 0 0 0 0
Net income (loss) (1)................................ $ (967) $ 293 $ 272 $ 301 $ 180
---------- --------- --------- --------- ---------
Net income (loss) per common share (1)............... $ (0.60) $ 0.21 $ 0.19 $ 0.21 $ 0.17
---------- --------- --------- --------- ---------
Cash dividends/distributions declared................ $ 816 $ 710 $ 710 $ 1,207 $ 923
---------- --------- --------- --------- ---------
Cash dividends/distributions per share............... $ 0.50 $ 0.50 $ 0.50 $ 0.85 $ 0.88
---------- --------- --------- --------- ---------
Balance Sheet Data (as of period end):
Real estate investments, net of accumulated
depreciation...................................... $ 188,625 $ 23,070 $ 23,624 $ 24,179 $ 15,110
Total assets......................................... 193,534 24,197 24,779 25,647 18,882
Mortgages payable.................................... 114,375 14,658 14,916 15,153 7,450
Total liabilities.................................... 117,008 15,026 15,191 15,620 7,950
Minority interests................................... 64,862
Stockholders' equity................................. 11,664 9,171 9,588 10,026 10,932

Other Data:
Cash flows provided by (used in):
Operating activities.............................. $ 3,216 $ 840 $ 678 $ 690 $ 358
Investing activities.............................. 973 127 (551) (9,511) (5,461)
Financing activities.............................. (1,052) (967) (1,001) 6,357 7,829
Funds from operations (2)............................ 1,718 847 827 768 437
Weighted average shares outstanding (in thousands)... 1,601 1,420 1,420 1,420 1,065

Property Data (as of period end):
Number of properties owned........................... 17 7 7 7 4
Total rentable square feet owned (in thousands)...... 1,852 370 370 370 215
</TABLE>

- ------------------------

(1) Reflects a non-recurring termination expense of $1,353 for the year ending
December 31, 1997 associated with the termination of the Advisory Agreement,
which was paid in the form of Common Stock. See "Part I. Item 1. Business."

19
<PAGE>

(2) The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in March 1995 defines FFO as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is helpful
to investors as a measure of the financial performance of an equity REIT
because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes FFO in accordance with standards established by NAREIT which may
not be comparable to FFO reported by other REITs that do not define the
term in accordance with the current NAREIT definition or that interpret
the current NAREIT definition differently than the Company. FFO does not
represent cash generated from operating activities determined in
accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with Selected
Financial Data and the Consolidated Financial Statements and the Notes
thereto of the Company.

The Company was formed in 1988 to own and acquire net lease retail
properties. The Company did not commence operations until February 1990 and
filed its initial public offering of Common Stock on December 31, 1991. On
June 25, 1992, the Company acquired two net leased retail properties. On June
30, 1993, the Company sold additional shares of Common Stock in a public
offering. During 1993 and 1994, the Company purchased five additional net
leased retail properties.

On October 14, 1997, the Company completed the Transactions. For the
purposes of the Transactions, the Properties Partnerships (including the
Retained Interests) were treated as having a value of $170 million (which
includes the $100 million of indebtedness represented by the Property
Financing). The aggregate consideration issued in the Transactions by the
Company and the Operating Partnership to the former general and limited
partners of the Properties Partnerships consisted of (x) 600,000 shares of
Common Stock (issued at a price of $5.50 per share), (y) an aggregate of
2,899,310 Partnership Units (including 600,000 issued to the Company in
consideration for limited partner interests in the Properties Partnerships
acquired by it for 600,000 shares of Common Stock and subsequently
contributed by it to the Operating Partnership) and (z) 1,913,545 Preferred
Units. Concurrently with the closing of the Transactions, the Advisory
Agreement between Crown Advisors and the Company was terminated, and the
Company entered into the Management Agreement with Glacier. A non-recurring
termination expense of $1.4 million, paid in the form of shares of Common
Stock (net of certain shares retired), was incurred as a result of the
termination of the Advisory Agreement. As a result of the Transactions, the
Company became self-administered.

On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a
Maryland real estate investment trust and changed its name to Corporate
Office Properties Trust. In connection with the Reformation, each share of
Common Stock was exchanged for one Common Share in Corporate Office
Properties Trust. On March 6, 1998, the Company filed a preliminary
Registration Statement on Form S-11 for the issuance of 7,500,000 Common
Shares.

20
<PAGE>

The Company accounted for the acquisition of the Office Properties under
purchase accounting requirements; therefore, the operating results of the
Company for the year ended December 31, 1997 are not directly comparable to
1996.

RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 1997 and 1996: Total revenues
increased from $2.5 million for the year ended December 31, 1996 to $6.6
million for the year ended December 31, 1997, an increase of $4.1 million or
164%. Of this increase, $3.6 million results from an increase in base rents,
substantially all of which is attributable to the acquisition of the Office
Properties. Tenant recoveries totaled $.4 million in 1997 as compared to none
in 1996 due to tenant recoveries attributable to leases on the Office
Properties.

Total expenses increased from $2.2 million for the year ended December
31, 1996 to $6.8 million for the year ended December 31, 1997, an increase of
207%, of which $1.4 million of the change represented a non-recurring charge
related to the termination of the Advisory Agreement. The remaining $3.2
million increase was attributable to increased interest expense ($1.6
million), increased depreciation and amortization ($.7 million), increased
property expenses ($.7 million), and increased general and administrative
expenses ($.2 million), primarily as a result of the acquisition of the
Office Properties.

Depreciation and amortization increased from $567,000 in 1996 to $1.3
million in 1997, an increase of 129%, as a result of the Transactions.
Interest expense increased from $1.2 million in 1996 to $2.9 million in 1997,
an increase of 129%, primarily as a result of borrowings under the Property
Financing, offset slightly by decreased interest expense on the retail
properties' mortgages.

General and administrative expenses increased from $372,000 in 1996 to
$533,000 in 1997 resulting from the conversion of the Company from an
externally-advised REIT to a self-administered REIT. During 1997, the REIT
commenced administrative operations and incurred payroll expenses of $102,000
and office overhead expenses of $34,000 not incurred previously. General and
administrative expenses also increased due to higher professional fees as a
result of the change in corporate structure, partially offset by a reduction
in the advisory fees resulting from the termination of the Advisory Agreement.

As a result of the above factors, net income before minority interests
decreased from income of $293,000 for the year ended December 31, 1996 to a
loss of $182,000 for the year ended December 31, 1997. Net income decreased
from income of $293,000 for 1996 to a loss of $1.0 million for 1997
attributable primarily to the existence of minority interests resulting from
the new structure of the Company following the Transactions, as well as the
factors described above.

Comparison of the Years Ended December 31, 1996 and 1995: Total revenues
were approximately $2.5 million for both the year ended December 31, 1995 and
the year ended December 31, 1996. The increase of $41,000 in total rental
revenue in 1996 resulted from contractual rent increases in two of the Retail
Properties based on increases in the Consumer Price Index partially offset by
a decrease in interest income due to a reduction in cash and marketable
securities.

Total expenses were approximately $2.2 million for both the year ended
December 31, 1995 and the year ended December 31, 1996. Because all of the
properties owned by the Company in 1995 and 1996 were triple net leased, all
operating expenses relating to the Company's properties, such as utilities,
property taxes, repairs and maintenance and insurance, are the responsibility
of the Com-

21
<PAGE>

pany's tenants. The increase of $4,000 in total expense in 1996 consists of
an increase in general and administrative expenses, consisting primarily of
professional fees, travel expense and state income taxes, offset by a
decrease in mortgage interest expense, due to a reduction in mortgage
principal of approximately $257,000 during the year. Operation and management
expenses consisting mainly of fees paid to Crown pursuant to the Advisory
Agreement, and depreciation expense, remained relatively unchanged between
1995 and 1996.

As a result of the above described factors and a charge to operations in
1996 for an unsuccessful attempt to raise capital and acquire additional
properties, net income increased from $272,000 for the year ended December
31, 1995 to $293,000 for the year ended December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

Historically, cash provided from operations represented the primary
source of liquidity to fund distributions, pay debt service and fund working
capital requirements. The Company expects to continue to meet its short-term
capital needs from property cash flow, including all property expenses,
general and administrative expenses, dividend and distribution requirements
and recurring capital improvements and leasing commissions. The Company does
not anticipate borrowing to meet these requirements.

On October 14, 1997, the Company completed the Transactions including the
assumption of $100 million of the Property Financing and the issuance of $70
million of equity consisting of (i) $3.3 million in shares of Common Stock,
(ii) $14.2 million in Partnership Units and (iii) $52.5 million in Preferred
Units, including the Retained Interests. The aggregate purchase price for the
Office Properties was $169 million and $1 million of cash was provided for
working capital to the Operating Partnership.

To meet long-term capital needs, the Company has historically relied
primarily on fixed-rate secured financing for the acquisition, redevelopment
and improvement of the Properties. The Property Financing consists of a $100
million facility bearing interest at an annual rate of 7.5%, and is
prepayable at any time. The loan requires payments of interest only through
its term and matures on October 13, 2000 unless extended for one or two
one-year extensions.

On March 5, 1998, the Company filed a Registration Statement on Form S-11
outlining the Offering for the issuance of 7,500,000 Common Shares. The
Company intends to use the proceeds to acquire 7,500,000 Partnership Units
and increase its percentage interest in the Operating Partnership to
approximately 71.8%. The Operating Partnership intends to use $70 million of
such net proceeds to repay indebtedness outstanding under the Property
Financing, the lender of which is an affiliate of BT Alex. Brown
Incorporated, one of the Underwriters in the Offering. Any remaining net
proceeds will be used by the Operating Partnership for acquisitions and
general business purposes.

In March 1998, the Company has entered into a conditional agreement with
Bankers Trust Company pursuant to which the Company has been granted the
right to reborrow, in minimum amounts of $20 million (or the remaining
undrawn amount, if less), the entire $70 million repaid with the net proceeds
of the Offering for the purpose of acquiring commercial office building real
property and paying related fees and expenses. This right must be exercised
within nine months of the date of the Offering. Prior to the end of the
nine-month period, the Company may reborrow the remaining amount of the
prepayment not previously reborrowed and use the proceeds to purchase
marketable securities in which Bankers Trust Company will have a security
interest. The Company may not re-

22
<PAGE>

borrow the $70 million unless there are no defaults or events of default
under the Property Financing, the Company provides Bankers Trust Company with
satisfactory assurances that Bankers Trust Company has a first priority lien
on the existing Office Properties for the entire amount of the loan
outstanding under the Property Financing and the Company pays certain draw
down fees. The Company will pay an unused facility fee for the period between
prepayment and reborrowing. There is no assurance that the Company will
consummate the Offering, or repay or reborrow the $70 million of Property
Financing.

To further meet long-term capital needs, the Company is presently
negotiating with Bankers Trust Company, an affiliate of BT Alex. Brown
Incorporated, one of the Underwriters in the Offering, regarding a separate
credit facility which is intended to be utilized to facilitate acquisitions,
renovations, tenant improvements and leasing commissions. Acquisitions may
also be financed through net cash provided from operations or equity
issuances. There is no assurance that the Company will be able to obtain such
credit facility or that such credit facility will be adequate to fund its
acquisition and capital program.

The Company has no contractual obligations for property acquisition or
material capital costs, other than tenant improvements in the ordinary course
of business. The Company expects to meet its long-term capital needs through
a combination of cash from operations, additional borrowings, additional
equity issuances of Common Shares, Partnership Units and/or Preferred Units.

STATEMENT OF CASH FLOWS

During the year ended December 31, 1997, the Company generated $3.2
million in cash flow from operating activities which, together with $1.0
million of proceeds from the Transactions, initial cash balances of $0.3
million and marketable securities net proceeds of $0.5 million, were used in
part for (i) property costs in the Transactions of $0.5 million, (ii) costs
relating to Common Stock issued in the Transactions of $0.1 million, (iii)
dividends paid of $0.7 million and (iv) repayments of mortgage loans of $0.3
million. As a result, the cash balances increased to $3.4 million at December
31, 1997 from $0.3 million at December 31, 1996.

23
<PAGE>

FUNDS FROM OPERATIONS

The Company considers FFO to be helpful to investors as a measure of the
financial performance of an equity REIT. In accordance with NAREIT's
definition, FFO is defined as net income (loss) computed in accordance with
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. FFO does not
represent cash generated from operating activities determined in accordance
with GAAP and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions. Other REITs may not define FFO in
accordance with the current NAREIT definition or may interpret the current
NAREIT definition differently from the Company. FFO for the years ended
December 31, 1997 and 1996, as calculated in accordance with the NAREIT
definition published in March 1995, are summarized in the following table (in
thousands).

<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- ---------
<S> <C> <C>
(Loss) income before minority interests......... $(182) $ 293
Add: Nonrecurring charge--
Advisory Agreement termination cost........ 1,353 --

Real estate related depreciation and
Add: amortization............................... 1,267 554
Less: Preferred Unit distributions.............. (720) --
----- -----
Funds from operations........................... $1,718 $ 847
----- -----
----- -----
Weighted average Common Shares/Units
outstanding (1)............................... 2,153 1,420
----- -----
----- -----
</TABLE>

- ------------------------

(1) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Excludes the weighted average effect of
the conversion of 1,913,545 Preferred Units into 6,834,035 Partnership
Units which are, in turn, redeemable for 6,834,035 Common Shares.
Includes 282,508 Common Shares issuable upon redemption of Partnership
Units issuable upon the transfer of the Retained Interests.

INFLATION

Inflation has not generally had a significant impact during the periods
presented on the Company or the Office Properties because of the relatively
low inflation rates in the markets in which they operate. Most of the
Company's or the Office Properties' tenants are contractually obligated to
pay their share of operating expenses, thereby reducing exposure to increases
in such costs resulting from inflation.

24
<PAGE>

PROSPECTIVE ACCOUNTING STANDARDS

In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) Nos. 130, "Reporting
Comprehensive Income," and 131, "Disclosures About Segments of an Enterprise
and Related Information." Both statements are effective for the Company
beginning January 1, 1998. The statements, both of which are
disclosure-related only, are not expected to materially impact the Company's
financial reporting disclosures.

At its March 1998 meeting the Emerging Issues Task Force ("EITF") of the
FASB reached a consensus (EITF 97-11) that internal pre-acquisition of
operating properties should be expensed as incurred. The Company cannot
determine the impact of adopting EITF 97-11 on its future operating results.

Year 2000

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer systems that have date-sensitive software or microprocessors may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar business activities.

The Company has evaluated its systems and determined that the software
currently in use is substantially year 2000 compliant. The software vendor has
agreed to make minor modifications in the software to make it fully year 2000
compliant by December 31, 1998 at no additional cost to the Company. The Company
presently believes that with these modifications, the Year 2000 issue will not
have a material adverse impact on the operations and financial condition of the
Company. However, even if such modifications are not timely completed, the Year
2000 issue is not expected to have a material adverse impact on the operations,
financial condition and cash flows of the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements required by this Item can be found beginning on page
F-2 of this Form 10-K and are deemed incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

After the acquisition of the Office Properties, the Company changed its
certifying accountant from Lurie, Besikof, Lapidus & Co., LLP ("Lurie") to
Coopers & Lybrand L.L.P. ("C&L"). On October 31, 1997, C&L was appointed by the
Board of Directors as the Company's independent public accountant for the year
ending December 31, 1997.

The Company is not aware of any disagreements with Lurie during the
Company's two most recent fiscal years and through October 31, 1997 on any
matters of accounting principles or practices, financial statement disclosures,
or auditing scope and procedures.

<PAGE>
PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE COMPANY

The persons who serve as executive officers and Trustees of the Company
are identified below. Except as noted below, each of the executive officers
will be a full time employee of the Company or the Operating Partnership.

<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- ------------------------------------------------- --- ------------------------------------------------- -----
<S> <C> <C> <C>
Jay H. Shidler................................... 51 Chairman of the Board of Trustees III
Clay W. Hamlin, III.............................. 53 President, Chief Executive Officer and Trustee III
Vice President and Vice Chairman of the Board of
Vernon R. Beck................................... 56 Trustees I
Kenneth D. Wethe................................. 56 Trustee II
Allen C. Gehrke.................................. 63 Trustee I
William H. Walton................................ 45 Trustee II
Kenneth S. Sweet, Jr............................. 65 Trustee III
Antony P. Bernheim............................... 38 Vice President, Chief Investment Officer
Thomas D. Cassel................................. 39 Vice President, Finance and Treasurer
David P. Hartsfield.............................. 46 Vice President, Operations and Development
John Parsinen.................................... 55 Secretary
James K. Davis, Jr............................... 37 Vice President, Acquisitions
Denise J. Liszewski.............................. 41 Vice President, Administration
Stephen S. Fera.................................. 31 Controller
</TABLE>

Jay H. Shidler is Chairman of the Board of Trustees. Mr. Shidler was
appointed Chairman of the Board of Directors upon the closing of the
Transactions. Mr. Shidler is the Founder and Managing Partner of The Shidler
Group. A nationally acknowledged expert in the field of real estate investment
and finance, Mr. Shidler has over 25 years of experience in real estate
investment and has been directly involved in the acquisition and management of
over 1,000 properties in 40 states and Canada totaling over $4 billion in
aggregate value. Mr. Shidler is a founder and current Chairman of the Board of
Directors of First Industrial Realty Trust, Inc. (NYSE: FR) and is a founder and
former director and Co-Chairman of TriNet Corporate Realty Trust, Inc. (NYSE:
TRI). Mr. Shidler is also founder and Chairman of the Board of Directors of CGA
Group, Ltd., a holding company whose subsidiary is a AAA rated financial
guarantor based in Bermuda.

Mr. Shidler serves on the boards of directors of several companies and is
active as a trustee of several charitable organizations, including The Shidler
Family Foundation. Mr. Shidler holds a bachelor's degree in Business
Administration from the University of Hawaii.

Clay W. Hamlin, III is a Trustee and President and Chief Executive Officer
of the Company. Mr. Hamlin was appointed director and President and Chief
Executive Officer of the Company upon the closing of the Transactions. Mr.
Hamlin joined The Shidler Group in May 1989, as Managing Partner of The Shidler
Group's Mid-Atlantic regional office and acquired, managed and leased over four
million square feet of commercial property with a value in excess of $300
million. A resident of Philadelphia for over 30 years, Mr. Hamlin has been
active in the real estate business for 25 years. Mr. Hamlin is an attorney, a
CPA and holds an MBA from The Wharton School of Business and an undergraduate
degree from the University of Pennsylvania. Mr. Hamlin served as a Lieutenant
J.G. in the U.S. Navy, and is active in many professional and charitable
organizations. Mr. Hamlin is a founding shareholder of both TriNet Corporate
Realty Trust, Inc. and First Industrial Realty Trust, Inc. His professional

<PAGE>

affiliations include the Urban Land Institute, NAREIT, the American Institute
of CPAs and the American Bar Association.

Vernon R. Beck is Vice Chairman of the Board of Trustees and is a Vice
President of the Company. Mr. Beck was elected a director of the Company in
January 1990. From 1988 to 1997, Mr. Beck served as President of the Company and
as President of Crown Advisors, Inc., the Company's former external advisors.
Since 1976, Mr. Beck has also been President of Vernon Beck & Associates, Inc.,
a commercial mortgage banking and real estate development firm, which has
developed and financed numerous commercial real estate projects. Mr. Beck is a
former commercial loan officer with IDS Mortgage Corporation and senior analyst
with Northwestern National Life Insurance Company. Mr. Beck, together with John
Parsinen, owns substantially all of the interests in Glacier Realty LLC.

Kenneth D. Wethe is a Trustee of the Company. Mr. Wethe was elected a
director of the Company in January 1990. Since 1990, Mr. Wethe has been the
owner and principal officer of Wethe & Associates, a Dallas-based firm providing
independent risk management, insurance and employee benefit services to school
districts and governmental agencies. Mr. Wethe's background includes over 26
years experience in the group insurance and employee benefits area. He is a
certified public accountant and holds an MBA from Pepperdine University.

Allen C. Gehrke is a Trustee of the Company. Mr. Gehrke was elected a
director of the Company in May 1995. Prior to becoming a private investor in
1995, Mr. Gehrke served for 35 years in various key positions at Fleming
Companies, Inc. As Senior Vice President of Corporate Development, Mr. Gehrke's
responsibilities included management of company physical assets, market
research, lease negotiations and real estate financing. Prior to his employment
with Fleming Companies, Mr. Gehrke spent seven years with Midwest Contractors
and L.A. Construction Co. of Milwaukee. Mr. Gehrke is a former director of
United Cerebral Palsy and several other community organizations.

William H. Walton is a Trustee of the Company. Mr. Walton was appointed a
director of the Company upon the closing of the Transactions. Mr. Walton is a
Managing Principal of Westbrook Partners, L.L.C. ("Westbrook") which he
co-founded in April of 1994. With offices in Dallas, New York, San Francisco and
Florida, Westbrook is a fully integrated real estate investment management
company. Westbrook is the sponsor of Westbrook Real Estate Fund and Westbrook
Real Estate Fund II, which together control approximately $4 billion of real
estate assets including investments in: real estate companies and securities;
offices, retail and industrial properties; apartments; hotels; and residential
developments. Prior to co-founding Westbrook, Mr. Walton was a Managing Director
of Morgan Stanley Realty. Mr. Walton holds an AB from Princeton University and
an MBA from Harvard Business School.

Kenneth S. Sweet, Jr. is a Trustee of the Company. Mr. Sweet was appointed a
director of the Company upon the closing of the Transactions. Mr. Sweet is the
Managing Director of Gordon Stuart Associates, Inc., which he founded in 1991.
In 1971, Mr. Sweet founded K.S. Sweet Associates which specialized in real
estate and venture capital investments. From 1957 to 1971, he served in
increasingly responsible positions at The Fidelity Mutual Life Insurance
Company. Currently the Managing General Partner of fifteen venture capital and
real estate partnership with assets of over $300 million, Mr. Sweet has over 37
years of experience in real estate investment, management, development and
venture capital transactions.

<PAGE>

Mr. Sweet is active in community affairs and serves as a director, chairman
of the real estate committee and a member of the finance committee of the Main
Line Health and the Philadelphia Chapter of the Nature Conservancy and is on the
Advisory Committee of the Arthur Ashe Youth Tennis Center. Mr. Sweet holds a BA
degree from the Lafayette College and attended The Wharton School of Business.

Antony P. Bernheim became Vice President, Chief Investment Officer, of
the Company in November 1997. Prior to joining the Company, Mr. Bernheim
served as Director of Acquisitions for Cali Realty Corp. from September 1994
to May 1997. As Cali's Director of Acquisitions, Mr. Bernheim oversaw the
acquisition program which transformed Cali from a $300 million company with
12 buildings to a 130 building, $2.5 billion company. Prior to his employment
with Cali, Mr. Bernheim had 13 years experience in the real estate industry,
including three years with Oppenheimer & Company from February 1991 to
September 1994. Mr. Bernheim studied international finance at the University
of Southern California.

Thomas D. Cassel has been Vice President, Finance and Treasurer of the
Company since October 1997. Mr. Cassel has over 18 years experience in real
estate accounting, finance, acquisitions and management. From 1995 until he
joined the Company, Mr. Cassel was Vice President and Chief Financial Officer of
Delancey Investment Group, Inc., a Philadelphia-based real estate investment and
management company of commercial and residential properties. Prior to Delancey,
he was a real estate consulting manager for Arthur Andersen, LLP for four years
and Kenneth Leventhal & Co. for two years. As a consultant, he performed
strategic planning, capital markets, valuation and acquisition analyses for a
variety of real estate companies, including REITs. Mr. Cassel is a CPA and
received his bachelor's degree in Finance with a major in Accounting from the
Wharton School at the University of Pennsylvania. He is active in several
professional and charitable organizations.

David P. Hartsfield has been Vice President, Operations and Development of
the Company since October 1997. He joined The Shidler Group in November 1994, as
Vice President with responsibility for management, leasing and development for
The Shidler Group's Mid-Atlantic region. Prior to joining The Shidler Group, he
served as Vice President, Development for the Kevin F. Donohoe Companies, where
he was responsible for the development and management of office, hotel and
retail properties, including the 1.1 million square foot Curtis Center in
Philadelphia. Mr. Hartsfield has over 20 years of experience with commercial
real estate management, leasing and development. He has a degree in architecture
and an MBA from The University of Virginia and is a member of BOMA and other
professional organizations.

John D. Parsinen has been Secretary of the Company since January 1990. Mr.
Parsinen has over 31 years of experience in commercial real estate. Mr. Parsinen
has developed and owns various real estate projects. Mr. Parsinen has been a
senior attorney at Parsinen Kaplan Levy Rosberg & Gotlieb, P.A. (Minneapolis,
Minnesota) since it was formed in 1982. Mr. Parsinen owns 50% of Guaranty Title,
Inc. a Minneapolis-based real estate title insurance company. Mr. Parsinen was a
general partner of Earle Brown Commons Limited Partnership II, which owned and
operated an elderly housing facility in Brooklyn Center, MN. In 1994, the
limited partnership initiated a Chapter 11 bankruptcy reorganization proceeding
to restructure certain tax and debt obligations. The bankruptcy was dismissed in
1995 and the project was sold. Mr. Parsinen, together with Vernon Beck, owns
substantially all of the interests in Glacier Realty LLC.

<PAGE>

James K. Davis, Jr. has been Vice President, Acquisitions of the Company
since October 1997. He joined The Shidler Group in July 1994, as Vice President
with responsibility for acquisitions, financing, and leasing for The Shidler
Group's Mid-Atlantic region. Prior to joining The Shidler Group, Mr. Davis, was
Vice President, Acquisitions for Sandler Securities, Inc. He has 13 years of
real estate experience in acquisitions, financing, development and leasing. Mr.
Davis has an MBA from The Wharton School with a major in finance and an
undergraduate degree from The University of North Carolina. He is active in
several professional and charitable organizations.

Denise J. Liszewski has been Vice President, Administration of the Company
and Assistant Secretary since October l997. She joined The Shidler Group in May
1989 serving in a number of capacities, where she was in charge of personnel,
administration and information systems. Ms. Liszewski has over 20 years of
business experience and has an undergraduate degree from Drexel University.

Stephen S. Fera has been Controller of the Company since December 1997.
Prior to joining the Company, he spent seven years at Pennsylvania Real Estate
Investment Trust ("PREIT"), where he was promoted to the position of Controller.
At PREIT, he was responsible for managing the day-to-day accounting operations
of the REIT including all wholly-owned and joint venture properties. Prior to
PREIT, Mr. Fera was Assistant Controller at Calvanese Corporation, where he was
responsible for all corporate and construction accounting.

CERTAIN INFORMATION REGARDING THE BOARD OF TRUSTEES AND COMMITTEES

THE BOARD OF TRUSTEES. The business and affairs of the Company are
managed under the direction of the Board of Trustees. Pursuant to the terms
of the Declaration of Trust, the Trustees are divided into three classes.
Class I will hold office for a term expiring at the annual meeting of
shareholders to be held in 1999, Class II will hold office for a term
expiring at the annual meeting of shareholders to be held in 2000, and Class
III will hold office for a term expiring at the annual meeting of
shareholders to be held in 2001. At each annual meeting of the shareholders
of the Company, the successors to the class of Trustees whose terms expire at
the meeting will be elected to hold office for a term continuing until the
annual meeting of shareholders held in the third year following the year of
their election and the election and qualification of their successors.

COMMITTEES. The Company has a standing Audit Committee, which currently
consists of Mr. Wethe (Chairman), Mr. Gehrke and Mr. Shidler, and a Compensation
Committee, which currently consists of Mr. Sweet and Mr. Walton. The Audit
Committee reviews, recommends and reports to the Board of Trustees on (1) the
engagement of independent auditors and range of audit fees, (2) the quality and
effectiveness of internal controls, (3) engagement or discharge of the
independent auditors, (4) professional services provided by the independent
auditors and (5) the review and approval of major changes in the Trust's
accounting principles and practices. The Compensation Committee determines all
executive compensation, administers stock option plans and other incentive plans
and approves employment contracts.

The Board of Trustees presently acts as its own Nominating Committee.

<PAGE>

COMPENSATION OF TRUSTEES. Independent Trustees (Messrs. Gehrke, Sweet,
Walton and Wethe) will receive an annual fee of $15,000. Trustees incurring
travel expenses in connection with their duties as trustees of the Company are
reimbursed in full. Each Trustee is eligible to participate in the Incentive
Plan. The Compensation Committee intends to grant to each Trustee who is not an
employee of the Trust, upon initial election or appointment, an option to
purchase 5,000 Common Shares, at the then fair market value of the Common Shares

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, Trustees and persons who own more than 10% of the Stock
to file reports of ownership and changes in ownership with the Securities
Exchange Commission and the NASDAQ Small CAP. Officers, Trustees and greater
than 10% stockholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to the Company,
or written representation that no Annual Statements of Beneficial Ownership of
Securities on Form 5 were required, the Company believes that during the fiscal
year ended December 31, 1997, all Section 16(a) filing requirements applicable
to its officers, Trustees and greater than 10% Stockholders were complied with.

ITEM 11. EXECUTIVE COMPENSATION

Upon completion of the Transactions on October 14, 1997, the Company
converted from an externally advised to a self-administered REIT. Prior to
October 14, 1997, no individual officer of the Company was paid any cash or
other compensation. The following table sets forth the compensation paid from
October 14, 1997 to December 31, 1997 and current base annual compensation
for each of the five most highly compensated officers of the Company.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------
<S> <C> <C> <C>
1997 BASE
ACTUAL ACTUAL
NAME PRINCIPAL POSITION SALARY SALARY
- ----------------------------------------- ----------------------------------------- ------------ ------------
Clay W. Hamlin, III...................... President, Chief Executive Officer $ 18,000 $ 90,000
Antony Bernheim.......................... Vice President, Chief Investment Officer -- 125,000
Thomas D. Cassel......................... Vice President, Finance and Treasurer 22,038 90,000
Vice President, Operations and
David P. Hartsfield...................... Development 16,000 80,000
James K. Davis, Jr....................... Vice President, Acquisitions 13,000 65,000
</TABLE>

30
<PAGE>
Options Grants in Fiscal Year 1997

<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE
COMMON OF ASSUMED ANNUAL RATE
SHARES PERCENT OF EXERCISE OF COMMON PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS PRICE PER FOR OPTION TERM (2)
OPTIONS GRANTED IN COMMON EXPIRATION ----------------------------
NAME GRANTED (1) FISCAL YEAR SHARE DATE 5% 10%
- ------------------------------------ ------------- --------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Clay W. Hamlin, III................. 2,500 14.3% $ 7.59 10/14/2007 $ 11,933 $ 30,241
- ------------------------
</TABLE>

(1) All options are granted at the fair market value of the Common Shares at the
date of grant. Options granted are for a term of ten years from the date of
grant and vest one year after the date of grant.

(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), these amounts are the hypothetical gains or "option spreads"
that would exist for the options based on assumed rates of annual compound
share price appreciation of 5% and 10% from the date the options are granted
over the full option term. No gain to the optionee is possible without an
increase in the market price of the Common Shares, which would benefit all
shareholders.

Other than as set forth above, none of the other officers received options
in connection with their service to the Company during the year ended December
31, 1997. In addition, none of these officers contributed to any 401(k) plan.

In addition to cash compensation in the form of base annual salary, the
Company anticipates that it will have a cash bonus incentive plan pursuant to
which cash bonuses may be awarded to executive officers and other key employees
based on attainment of specified personal and corporate objectives. It is
anticipated that the amounts of such bonuses will be determined by the Board of
Trustees based upon a recommendation of the Compensation Committee.

EMPLOYMENT AGREEMENTS

Mr. Hamlin has entered into an employment agreement with the Company. The
agreement is for a continuous and self-renewing term of two years unless
terminated by either party. The agreement provides for base annual compensation
in the amount set forth above and incentive compensation to be determined by the
Board of Trustees, upon a recommendation of the Compensation Committee. The base
annual compensation may be increased in subsequent years by action of the
Compensation Committee. The employment agreement provides for certain severance
payments in the event of disability or termination by the Company without cause
or by Mr. Hamlin based upon constructive termination. The agreement also
provides for certain payments to be made to Mr. Hamlin in the event of a Change
in Control (as defined in the agreement). Mr. Hamlin is required under the terms
of his employment agreement to devote his full business time to the affairs of
the Company. The agreement also prohibits Mr. Hamlin from engaging, directly or
indirectly, during the term of his employment and for a period thereafter, in
activities that compete with those of the Company.

Mr. Cassel has entered into an employment agreement with the Company. The
agreement is for a term of three years unless terminated by either party. The
agreement provides for base annual compensation in the amount set forth above
and incentive compensation to be determined by the Board of Trustees, upon a
recommendation of the Compensation Committee. The base annual compensation may
be increased in subsequent years by action of the Compensation Committee. The
employment agreement provides for certain severance payments in the event of
disability or termination by the Company without cause or by Mr. Cassel based
upon constructive termination. The agreement

<PAGE>

also provides for certain payments to be made to Mr. Cassel in the event of a
Change in Control (as defined in the agreement). Mr. Cassel is required under
the terms of his employment agreement to devote his full business time to the
affairs of the Company. The agreement also prohibits Mr. Cassel from
engaging, directly or indirectly, during the term of his employment and for a
period thereafter, in activities that compete with those of the Company.

THE PLANS

THE OPTION PLAN. Since 1993, the Company has maintained the Option Plan.
A total of 75,000 shares of Common Stock were reserved for issuance under the
Option Plan. Each director of the Company was eligible to participate in the
Option Plan. The Option Plan provided that each director received, upon
initial election or appointment, an option to purchase 2,500 shares of Common
Stock at the then fair market value of the Common Stock. The Option Plan also
provided for the grant of an option to purchase an additional 2,500 shares of
the Common Stock upon each director's re-election to the Board of Directors
of the Company. The options become exercisable in full one year after date of
grant and expire ten years from the date of grant. Options representing
75,000 shares of Common Stock have been granted under the Option Plan, with
options representing 70,000 Common Shares remaining unexercised as of March
20, 1998. The Company does not intend to issue any more options under the
Option Plan.

THE INCENTIVE PLAN. In connection with the Company Reformation, the Board
of Trustees adopted, and the shareholders of the Company approved, the 1998 Long
Term Incentive Plan for the purpose of attracting, retaining and motivating
employees and trustees of the Company. The Incentive Plan authorizes the
issuance of up to ten percent of the Common Shares outstanding from time to
time, subject to adjustment on the event of certain recapitalization or
reorganization transactions. The Incentive Plan is administered by the
Compensation Committee of the Board of Trustees or, with respect to certain
matters, its delegate. As used in this summary, the term "Administrator" means
the Compensation Committee or its delegate, as appropriate. Trustees, and
employees of the Company, the Operating Partnership and other subsidiaries of
the Company, and designated affiliates of the Company will be eligible for
selection by the Administrator to participate in the Incentive Plan. The maximum
number of Common Shares with respect to which options may be granted during a
calendar year to any participant under the Incentive Plan will be 200,000 Common
Shares, subject to adjustment for certain recapitalization or reorganization
transactions. No awards may be granted under the Incentive Plan after March
2008.

The Incentive Plan provides for the grant of (i) share options intended to
qualify as incentive stock options under Section 422 of the Code, (ii) share
options not intended to qualify as incentive stock options under Section 422 of
the Code ("nonqualified stock options") and (iii) Dividend Equivalents (as
defined in the Incentive Plan) which may be granted alone or in conjunction with
share options (each an "Award"). The Administrator determines the type and
number of Awards granted, the terms and conditions of any Award and may adopt,
amend, waive and rescind the rules and regulations necessary to administer the
Incentive Plan, among other things. In connection with the grant of options
under the Incentive Plan, the Administrator will determine the option exercise
price, the term of the option and the time and method of exercising.

An option granted under the Incentive Plan may be exercised for any number
of whole Common Shares less than the full number of Common Shares for which the
option could be exercised. Unless otherwise agreed by the Administrator, Awards
will not be transferable except by will or the laws of descent and distribution.
A holder of an option will have no rights as a shareholder with

<PAGE>

respect to Common Shares subject to his or her option until the option is
exercised. Any Common Shares subject to options which are forfeited (or
expire without exercise) pursuant to the vesting requirement or other terms
established at the time of grant will again be available for grant under the
Incentive Plan. Payment of the exercise price of an option granted under the
Incentive Plan may be made in cash, or, if permitted by the Administrator, by
exchanging Common Shares having a fair market value equal to the option
exercise price. Unless otherwise provided by the Administrator, all
outstanding Awards will become fully exercisable upon a Change of Control.

Options to purchase an aggregate of 20,000 Common Shares were granted to the
independent Trustees on March 12, 1998 at a purchase price of $12.25 (options to
purchase 5,000 Common Shares granted to each of Messrs. Gehrke, Sweet, Walton
and Wethe) which vest one year after the date of grant. Options to purchase
25,000 Common Shares were granted to Mr. Cassel on March 12, 1998 at a purchase
price of $12.25 which vest proratably over three years following the date of
grant. These options expire ten years after their date of grant.

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains certain information as of March 20, 1998,
regarding the beneficial ownership of the Common Stock by (i) each person known
by the Company to own beneficially more than 5% of the Common Stock, (ii) each
current director and executive officer of the Company and (iii) the current
directors and executive officers as a group, and as to the percentage of the
outstanding shares held by them on such date. Any shares which are subject to an
option or a warrant exercisable within 60 days are reflected in the following
table and are deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by the option or warrant holder but are not
deemed to be outstanding for the purpose of computing the percentage of Common
Stock owned by any other person. Unless otherwise noted, each person identified
below possesses sole voting and investment power with respect to such shares.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
OWNED (1) OF CLASS
----------- -----------
<S> <C> <C>
Clay W. Hamlin, III............................... 300,000 13.21%
Jay H. Shidler.................................... 300,000 13.21%
Vernon R. Beck.................................... 151,793(2) 6.65%
John Parsinen..................................... 151,965(1)(3) 6.66%
Allen C. Gehrke................................... 7,750(4) *
Kenneth S. Sweet, Jr.............................. 10,000(1) *
William H Walton.................................. -- 0.00%
Kenneth D. Wethe.................................. 12,724(2) *
Antony P. Bernheim................................ 7,500 *
Thomas D. Cassel.................................. 660(1) *
All Directors and Executive Officers.............. 942,392(5) 40.73%
as a Group (10 persons)
</TABLE>

- ------------------------
* Represents less than one percent.

(1) Shares Beneficially Owned by a person are determined in accordance with the
definition of "beneficial ownership" as set forth in the regulations of the
Commission and, accordingly, may include securities owned by or for, among
others, the spouse, children or certain other relatives of such person, as
well as other shares as to which the person has or shares voting or
investment power or has the option or right to acquire Common Stock within
60 days.

(2) Includes 12,500 shares of Common Stock issuable upon exercise of presently
exercisable options.

(3) Includes 10,000 shares of Common Stock issuable upon exercise of presently
exercisable options.

(4) Includes 7,500 shares of Common Stock issuable upon exercise of presently
exercisable options.

(5) Includes 42,500 shares of Common Stock issuable upon exercise of presently
exercisable options.

34
<PAGE>

THE OPERATING PARTNERSHIP

The following table sets forth certain information as of December 31, 1997
regarding the ownership of Partnership Units and Preferred Units (before giving
effect to any contribution of Retained Interests):

<TABLE>
<CAPTION>
COMMON PERCENTAGE PREFERRED
UNITS INTEREST UNITS
---------- ----------- ----------
<S> <C> <C> <C>
General Partner
- ---------------
The Company............................................................... 600,000 20.6946%
Limited Partners and Preferred Limited Partners
- -----------------------------------------------
Mr. Shidler............................................................... 2,600 0.0897% 126,079
Shidler Equities, L.P. (1)................................................ 582,103 20.0773% 457,826
Mr. Hamlin................................................................ 5,235 0.1805% 115,334
LBCW Limited Partnership (2).............................................. 875,284 30.1894% 663,808
CHLB Partnership (2)...................................................... 63,243 2.1813% 41,741
Robert L. Denton.......................................................... 129,549 4.4683% 85,502
James K. Davis............................................................ 15,368 0.5300% 10,142
John E. de B. Blockey, Trustee of the John E. de B.
Blockey Living Trust dated 9/12/88...................................... 89,549 3.0886% 59,102
Henry D. Bullock.......................................................... 34,718 1.1975% 22,914
Frederick K. Ito.......................................................... 17,359 0.5987% 11,457
LGR Investment Fund, Ltd.................................................. 80,030 2.7603% 52,820
Tiger South Brunswick, L.L.C.............................................. 2,875 0.0992% 1,898
Westbrook Real Estate Fund L.L.P.......................................... 336,121 11.5931% 221,840
Westbrook Real Estate Co. Investment Partnership L.L.P.................... 33,299 1.1485% 21,977
Denise J. Liszewski....................................................... 10,227 0.3527% 6,750
Samuel Tang............................................................... 6,818 0.2352% 4,500
David P. Hartsfield....................................................... 9,091 0.3136% 6,000
Lawrence J. Taff.......................................................... 4,091 0.1411% 2,700
Kimberly F. Aquino........................................................ 1,750 0.0604% 1,155
---------- ----------- ----------
2,899,310 100.0000% 1,913,545
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

- ------------------------
(1) A limited partnership controlled by Jay H. Shidler and his wife, Wallette
Shidler.

(2) A family partnership controlled by Mr. Hamlin and his wife, Lynn B. Hamlin,
as the sole general partners.

REGISTRATION RIGHTS

The Company has granted to the holders of the Partnership Units and the
Preferred Units certain registration rights. No later than August 1, 1998, the
Company is obligated to file a shelf registration statement with respect to the
shares of Common Stock issuable upon conversion or redemption of the Units (the
"Registerable Securities"). The Company is also required, at the demand of
holders of 6% or more of the Registerable Securities, to register such holders'
Registerable Securities, subject to the right to defer the filing of the
necessary registration statement for a period not to exceed 90 days under
certain limited circumstances. This right to demand registration may be
exercised not more than three times. In addition, the Company has granted to
holders of Registerable Securities certain "piggy-back" rights. The Company has
agreed to indemnify the holders of Registerable Securities against certain
liabilities, including liabilities under the Securities Act. The Company will
pay all fees associated with these registrations, other than underwriting
discounts and commissions. In connection

<PAGE>

with the Reformation, the Trust will assume these obligations with respect to
registering Common Shares issuable upon conversion or redemption of the Units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Options to purchase an aggregate of 17,500 shares of Common Stock were
granted to the Trustees in the year ended December 31, 1997 under the Option
Plan at a purchase price of $7.59 (options to purchase 2,500 Common Shares
granted to each of Messrs. Hamlin, Shidler, Sweet and Walton in October 1997)
and $5.25 (options to purchase 2,500 Common Shares granted to each of Messrs.
Beck, Gehrke and Wethe in May 1997). These options expire ten years after their
issue date.

Subject to the supervision of the Company's Board of Directors, prior to
October 14, 1997 the business of the Company was managed by Crown, which
provided investment advisory and administrative services to the Company pursuant
to the Advisory Agreement. Crown was owned by John Parsinen and Vernon R. Beck,
then officers and directors of the Company and currently Secretary and Vice
President and Vice Chairman of the Board of Trustees, respectively. Under the
Advisory Agreement, the Company paid Crown certain attorney fees, expenses and
performance fees, as defined in the Advisory Agreement, and a 3% fee for each
real estate acquisition or disposition.

Concurrently with the closing of the Transactions and pursuant to the
Formation Agreement, the Advisory Agreement was terminated and the Company
entered into the Management Agreement with Glacier. Substantially all of the
interests in Glacier are owned by Vernon R. Beck and John Parsinen. Under the
Management Agreement, Glacier is responsible for the management of the Retail
Properties of the Company, subject to the approval and direction of the Board of
Trustees. The Management Agreement provides that Glacier will receive an annual
fee of $250,000 plus a percentage of Average Invested Assets (as defined in the
Management Agreement) and will pay third party expenses associated with owning
the Retail Properties. In addition, Glacier will receive a fee of 1% of the
purchase price or the sale price upon the acquisition or disposition by the
Company or any of its affiliates of any net-leased real estate assets. Under the
Management Agreement, this percentage is increased to 3% in the event that all
or substantially all of the net-leased real estate properties are disposed of.
The Management Agreement has a term of five years and is terminable thereafter
on 180 days prior written notice. In the event the Management Agreement is
terminated, including for non-renewal, a fee equal to 3% of the Invested Real
Estate Assets (defined in the Management Agreement to exclude the Company's
current net-leased real estate assets) would be due to Glacier. Crown and
Glacier received combined fees of $250,288 pursuant to the Advisory Agreement
and the Management Agreement in the year ended December 31, 1997.

Parsinen Kaplan Levy Rosberg & Gotlieb, P.A. performed legal services for
the Company. The Company incurred legal fees to them of approximately $69,000 in
the year ended December 31, 1997. John Parsinen, Secretary of the Company, is an
officer, director and shareholder of Parsinen Kaplan Levy Rosberg & Gotlieb,
P.A.

An officer and director of the Company is the director of a company that
received management fees of approximately $22,000 in the year ended December 31,
1997. This fee was paid for property services. The Company believes that this
fee represented a payment for services not in excess of their fair market value.

<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

The following documents are filed as part of this Form 10-K:

(a)

1. Financial Statements. Audited balance sheets as of December 31, 1997
and 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997 are filed as part of this Form
10-K. See Index to Financial Statements on Page F-1.

(b) The Company filed the following Current Reports on Form 8-K in the
last quarter of the year ended December 31,1997.

1. Acquisition of the Shidler Acquisition Properties dated October 29,
1997 and amended December 24, 1997

2. Change of Auditors from Lurie, Besikof, Lapidus & Co., to Coopers &
Lybrand, L.L.P. dated November 6, 1997

EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>

2.1 Agreement and Plan of Merger, dated as of January 31, 1998, among the Registrant, the Maryland Company
and the Company (filed with the Trust's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).

2.2 Formation/Contribution Agreement dated September 7, 1997, as amended, by and among the Company and
certain subsidiary corporations and partnerships regarding the Transactions (filed with the Company's
Current Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

2.3 Agreement and Plan of Reorganization between the Company and Crown Advisors, Inc. (filed with the
Company's Current Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

2.4 Limited Partnership Agreement of the Operating Partnership dated October 14, 1997 (filed with the
Company's Current Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

2.5 Amended and Restated Partnership Agreement of Blue Bell Investment Company, L.P. (filed with the
Company's Current Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

37
<PAGE>

EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------

2.6 Amended and Restated Partnership Agreement of South Brunswick Investors, L.P. (filed with the Company's
Current Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

2.7 Amended and Restated Partnership Agreement of ComCourt Investors, L.P. (filed with the Company's Current
Report on Form 8-K on October 29, 1997 and incorporated herein by reference).

2.8 Amended and Restated Partnership Agreement of 6385 Flank, L.P. (filed with the Company's Current Report
on Form 8-K on October 29, 1997 and incorporated herein by reference).

3.1 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).

3.2 Bylaws of Registrant (filed with the Registrant's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).

4.1 Form of certificate for the Registrant's Common Shares of Beneficial Interest, $0.01 par value per share
(filed with the Registrant's Registration Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).

10.1 Clay W. Hamlin, III Employment Agreement dated October 14, 1997 with the Operating Partnership (filed with
the Company's Current Report on Form 8-K on October 29, 1997, and incorporated herein by reference).

10.2 Registration Rights Agreement dated October 14, 1997, as amended, for the benefit of certain
shareholders of the Registrant (filed with the Company's Current Report on Form 8-K on October 29, 1997,
and incorporated herein by reference).

10.3 Management Agreement between Registrant and Glacier Realty, LLC (filed with the Company's Current Report
on Form 8-K on October 29, 1997, and incorporated herein by reference).

10.4 Senior Secured Credit Agreement dated October 13, 1997 (filed with the Company's Current Report on Form
8-K on October 29, 1997, and incorporated herein by reference).

10.5 Corporate Office Properties Trust 1998 Long Term Incentive Plan (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and incorporated herein by reference).

10.6 Stock Option Plan for Directors (filed with Royale Investments, Inc.'s Form 10-KSB for the year ended
December 31, 1993 (Commission File No. 0-20047) and incorporated herein by reference).

38
<PAGE>

EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------

10.7 Lease Agreement between Blue Bell Investment Company, L.P. and Unisys Corporation dated March 12, 1997
with respect to lot A (filed with the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).

10.8 Lease Agreement between Blue Bell Investment Company, L.P. and Unisys Corporation dated March 12, 1997
with respect to lot B (filed with the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).

10.9 Lease Agreement between Blue Bell Investment Company, L.P. and Unisys Corporation dated March 12, 1997
with respect to lot C (filed with the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).

10.11 Amended and Restated Lease between South Brunswick Investors L.P. and International Business Machines
Corporation dated August 11, 1995, as amended (filed with the Registrant's Registration Statement on Form
S-4 (Commission File No. 333-45649) and incorporated herein by reference).

10.12 Agreement of Lease between South Brunswick Investors L.P. and Teleport Communications Group, Inc. dated
February 20, 1996, as amended (filed with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).

10.13 Agreement of Lease between South Brunswick Investors L.P. and Teleport Communications Group, Inc. dated
August 19, 1996 (filed with the Registrant's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).

10.14 Thomas D. Cassel Employment Agreement dated as of October 20, 1997 with the Operating Partnership.

16.1 Letter to the Commission from Lurie, Besikof, Lapidus & Co., LLP dated November 4, 1997 (filed with
Company's Current Report on Form 8-K on November 6, 1997, and incorporated herein by reference).

21.1 Subsidiaries of Registrant.

24.1 Powers of attorney (included on signature page to the Registration Statement).

39
<PAGE>

EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------

26.1 Published report regarding name change of Registrant filed as proxy materials on Form 14A on
December 4, 1997.

27.1 Financial Data Schedule

</TABLE>

40
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
HISTORICAL
Report of Independent Accountants......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997................ F-4
Consolidated Statements of Stockholders Equity for the years ended December 31, 1995, 1996 and 1997....... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997................ F-6
Notes to Consolidated Financial Statements................................................................ F-7

SCHEDULE III
Report of Independent Accountants......................................................................... F-17
Real Estate and Accumulated Depreciation as of December 31, 1997.......................................... F-18
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS

Corporate Office Properties Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Corporate
Office Properties Trust, Inc. (the "Company") as of December 31, 1996 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows of the Company for each of the years in the three-year period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Corporate
Office Properties Trust, Inc. as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania

February 24, 1998

F-2
<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
ASSETS
Assets
Land...................................................................................... $ 5,428 $ 38,764
Buildings and improvements................................................................ 19,599 152,945
Furniture, fixtures and equipment......................................................... -- 140
Less accumulated depreciation............................................................. (1,957) (3,224)
---------- ----------
Net investment in real estate.......................................................... 23,070 188,625
Cash and cash equivalents................................................................. 258 3,395
Marketable securities..................................................................... 479 --
Tenant accounts receivable................................................................ 16 78
Deferred rent receivable.................................................................. 184 479
Deferred financing costs, net............................................................. 185 857
Prepaid and other assets, net............................................................. 5 100
---------- ----------
Total assets........................................................................... $ 24,197 $ 193,534
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans payable.................................................................... $ 14,658 $ 114,375
Accounts payable and accrued expenses..................................................... 190 932
Rents received in advance and security deposits........................................... -- 425
Dividends/distributions payable........................................................... 178 1,276
---------- ----------
Total liabilities...................................................................... 15,026 117,008
---------- ----------
Minority interests:
Preferred Units........................................................................... -- 52,500
Partnership Units......................................................................... -- 12,362
---------- ----------
Total minority interests............................................................... -- 64,862
---------- ----------

Commitments and contingencies (Note 11)

Stockholders' equity:
Common stock ($.01 par value; 50,000,000 authorized, 1,420,000 and
2,266,083 shares, issued and outstanding at December 31, 1996 and 1997,
respectively)............................................................................ 14 23
Additional paid-in capital................................................................. 12,353 16,620
Accumulated deficit........................................................................ (3,196) (4,979)
---------- ----------
Total stockholders' equity............................................................... 9,171 11,664
---------- ----------
Total liabilities and stockholders' equity............................................... $ 24,197 $ 193,534
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to financial statements.

F-3

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Rental income...................................................................... $ 2,436 $ 2,477 $ 6,122
Tenant recoveries and other income................................................. 48 32 496
--------- --------- ---------
Total revenues................................................................. 2,484 2,509 6,618
--------- --------- ---------

Expenses
Property operating................................................................. 42 31 728
General and administrative......................................................... 336 372 533
Interest expense................................................................... 1,267 1,246 2,855
Amortization of deferred financing costs........................................... 13 13 64
Depreciation....................................................................... 554 554 1,267
Termination of Advisory Agreement.................................................. -- -- 1,353
--------- --------- ---------
Total expenses................................................................. 2,212 2,216 6,800
--------- --------- ---------

Income (loss) before minority interests.............................................. 272 293 (182)

Minority interests
Preferred Units.................................................................... -- -- (720)
Partnership Units.................................................................. -- -- (65)
--------- --------- ---------
Net income (loss).................................................................... $ 272 $ 293 $ (967)
--------- --------- ---------

Basic and diluted earnings (loss) per share.......................................... $ 0.19 $ 0.21 $ (0.60)
--------- --------- ---------
--------- --------- ---------

</TABLE>

See accompanying notes to financial statements.

F-4

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994...................................... $ 14 $ 12,353 $ (2,341) $ 10,026
Net income...................................................... -- -- 272 272
Dividends....................................................... -- -- (710) (710)
----------- ----------- ------------ ---------
Balance at December 31, 1995...................................... 14 12,353 (2,779) 9,588
Net income...................................................... -- -- 293 293
Dividends....................................................... -- -- (710) (710)
----------- ----------- ------------ ---------
Balance at December 31, 1996...................................... 14 12,353 (3,196) 9,171
Issuance of common stock
for property acquisition and
advisory agreement termination................................ 9 4,267 4,276
Net loss........................................................ -- -- (967) (967)
Dividends....................................................... (816) (816)
----------- ----------- ------------ ---------
Balance at December 31, 1997...................................... $ 23 $ 16,620 $ (4,979) $ 11,664
----------- ----------- ------------ ---------
----------- ----------- ------------ ---------
</TABLE>

See accompanying notes to financial statements.

F-5

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)

YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................... $ 272 $ 293 $ (967)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Minority interests................................................................ -- -- 785
Depreciation...................................................................... 554 554 1,267
Amortization of deferred financing costs.......................................... 13 13 64
Advisory contract termination cost................................................ -- -- 1,353
Other amortization................................................................ (29) (26) --
Increase in deferred rent receivable.............................................. (67) (67) (295)
Decrease (increase) in other assets............................................... 2 (19) (158)
(Decrease) increase in accounts payable, accrued expenses,
rents received in advance and security deposits.................................. (67) 92 1,167
--------- --------- ---------
Net cash provided by operating activities........................................ 678 840 3,216
--------- --------- ---------

Cash flows from investing activities:
Proceeds from maturity of marketable securities...................................... 130 1,126 1,854
Purchase of marketable securities.................................................... (681) (999) (1,375)
Purchase of land and buildings....................................................... -- -- (506)
Cash proceeds received from acquisition of properties................................ -- -- 1,000
--------- --------- ---------
Net cash (used in) provided by investing activities.............................. (551) 127 973
--------- --------- ---------

Cash flows from financing activities:
Costs attributable to Common Stock issued............................................ -- -- (59)
Dividends paid....................................................................... (834) (710) (710)
Repayments of mortgage loans payable................................................. (237) (257) (283)
Refund of mortgage costs............................................................. 71 -- --
--------- --------- ---------
Net cash used in financing activities............................................ (1,000) (967) (1,052)
--------- --------- ---------

Net (decrease) increase in cash and cash equivalents................................... (873) -- 3,137

Cash and cash equivalents
Beginning of year.................................................................... 1,131 258 258
--------- --------- ---------
End of year.......................................................................... $ 258 $ 258 $ 3,395
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes to financial statements.

F-6

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

1. ORGANIZATION AND FORMATION OF COMPANY

Corporate Office Properties Trust, Inc. (formerly Royale Investments, Inc.)
(the "Company") is a self-administered REIT which focuses on the ownership,
acquisition and management of suburban office buildings. The Company was formed
in 1988 as a Minnesota corporation. The Company has qualified as a real estate
investment trust ("REIT") as defined in the Internal Revenue Code (the "Code").
During the three years ended December 31, 1997, the Company directly owned seven
net leased retail properties.

On October 14, 1997, the Company acquired (Note 4) a portfolio of 10
properties, representing the Mid-Atlantic suburban office operations of The
Shidler Group, a national real estate investment firm (the "Office Properties").
As result of the acquisition, the Company became the sole general partner of and
obtained a 20.6946% interest in the Common Units ("Partnership Units") of
Corporate Office Properties, L.P. (formerly FCO, L.P.) (the "Operating
Partnership"), a partnership formed to acquire and hold partnership interests in
partnerships which own the Office Properties (the "Properties Partnerships").
The General Partner of the Properties Partnerships is Corporate Office
Properties Holdings, Inc. (formerly FCO Holdings, Inc.) ("COP Holdings"), a
wholly owned subsidiary of the Company. In addition, the Company became
self-administered by terminating its external advisory contract with Crown
Advisors, Inc. ("Crown"), and currently entering into a new management contract
with Glacier Realty LLC ("Glacier") for the existing retail properties. Purchase
accounting was applied to the acquisition of the Office Properties.

As of December 31, 1997, the Company's portfolio included 17 commercial real
estate properties leased for office and retail purposes. The Company changed its
name from Royale Investments, Inc. to Corporate Office Properties Trust, Inc. on
January 1, 1998.

2. BASIS OF PRESENTATION

The consolidated financial statements of the Company at December 31, 1996
and 1997 and for the years ended December 31, 1995, 1996 and 1997 include the
accounts of the Company, the Operating Partnership, and COP Holdings. All
intercompany transactions and balances have been eliminated in consolidation.
Certain amounts from prior periods have been reclassified to conform to current
year presentation. The reclassifications had no affect on net operations or
stockholders' equity.

The Company, as general partner, controls the Operating Partnership;
therefore consolidated financial reporting and accounting have been applied.
Minority interests (Note 5) represents the 81.14% of the Partnership Units of
the Operating Partnership and 100% of the Preferred Units of the Operating
Partnership not owned by the Company, each of which include certain interests in
the Properties Partnerships retained by the Chairman and the President of the
Company ("Retained Interests").

F-7
<PAGE>

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company recognizes rental revenue from tenants on a straight-line basis
under which contractual rent changes are recognized evenly over the lease term.
In the accompanying balance sheets, revenues earned in advance of contractual
rental payments are recorded as deferred rent receivables while rental payments
received in advance of revenue recognition are recorded as rents received in
advance. Tenant recovery income includes payments from tenants for taxes,
insurance and other property operating expenses and is recognized as revenues in
the same period as the related expenses are incurred by the Company.

MAJOR TENANTS

During 1995 and 1996, all of the Company's rental revenue was derived from
four major tenants, each of which contributed 20% or more of the total rental
revenues. During 1997, four major tenants comprised 64% of total rental income,
each individually represented 10% or more of the Company's total rental revenue.

GEOGRAPHICAL DIVERSITY

During 1995 and 1996, all of the Company's rental revenue was derived from
properties located in the mid-west United States. During 1997, 59% of total
rental revenue was derived from the office properties in the Philadelphia,
Princeton and Harrisburg markets and 41% was derived from properties located in
the mid-west United States.

INVESTMENT IN REAL ESTATE AND DEPRECIATION

Real estate investments are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives. The estimated useful
lives are as follows:

<TABLE>

<S> <C>
Building and building improvements..................... 40 years
Land improvements...................................... 20 years
Equipment and personal property........................ 5 years

</TABLE>

Construction expenditures for tenant improvements and leasing commissions
are capitalized and amortized over the terms of each specific lease. Maintenance
and repairs are charged to expense when incurred. Expenditures for building and
other improvements are capitalized.

F-8

<PAGE>

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed of." This statement requires the Company to review its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Adoption
of this statement had no effect on the Company's financial position or results
of operations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all cash and liquid investments with an
initial maturity of three months or less. The carrying amount approximates fair
value due to the short maturity of these investments. The Company maintains its
cash in bank deposit accounts which may exceed federally insured limits at
times. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash.

DEFERRED FINANCING COSTS

The Company has capitalized as deferred costs certain expenditures related
to its long-term financings. These costs are being amortized, over the terms of
the related loans. Accumulated amortization totaled $34 and $98 as of December
31, 1996 and 1997, respectively.

INCOME TAXES

The Company intends to maintain its election to be treated as a REIT under
Sections 856 through 860 of the Code. As a result, the Company generally is not
subject to federal income taxation at the corporate level to the extent it
distributes annually at least 95% of its REIT taxable income and meets the other
conditions for qualification as a REIT under the Code, as defined in the Code,
to its stockholders and satisfies certain other requirements. Accordingly, no
provision has been made for federal income taxes in the accompanying financial
statements.

For federal income tax purposes, the cash distributions paid to
stockholders may be characterized as ordinary income, return of capital
(generally non-taxable) or capital gains. Distributions declared for the year
ended December 31, 1995 totaling $710 or $0.50 per share are characterized
30.0% ($0.15 per share) as ordinary income and 70.0% ($0.35 per share) as
return of capital. Distributions declared for the year ended December 31,
1996 totaling $710 or $0.50 per share are characterized 40.0% ($0.20 per
share) as ordinary income and 60.0% ($0.30 per share) as return of capital.
Distributions declared for the year ended December 31, 1997 totaling $816 or
$0.50 per share are characterized 45.0% ($0.225 per share) as ordinary income
and 55.0% ($0.275 per share) as return of capital.

Earnings and profits, which will determine the taxability of distributions
to shareholders, will differ from net income reported for financial reporting
purposes due to the differences in the cost basis for federal tax purposes,
differences in the useful lives used to compute depreciation, and differences
between the allocation of the Company's net income and loss for financial
reporting purposes and for tax reporting purposes.

The Company is subject to certain state and local income and franchise
taxes. The provision for such state and local taxes has been reflected in
general and administrative expense in the consolidated statements of income and
has not been separately stated due to its insignificance. The Operating
Partnership, a limited partnership, is essentially a pass-through entity;
therefore, taxes, if any, are the obligations of the owners.

F-9
<PAGE>

EARNINGS PER SHARE ("EPS")

The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). Pursuant to SFAS No. 128, the Company has
computed basic and diluted EPS for the years ended December 31, 1995, 1996 and
1997. Adoption of SFAS No. 128 did not impact the amounts of EPS previously
reported.

The numerator utilized to calculate basic EPS and diluted EPS is the same.
The weighted average common shares outstanding for purposes of basic and diluted
EPS calculations are as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares--basic.................. 1,420,000 1,420,000 1,600,807
Assumed conversion of stock options.................... 249 -- --
---------- ---------- ----------
Weighted average common shares diluted................. 1,420,249 1,420,000 1,600,807
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

Convertible Preferred Units and convertible Partnership Units could
potentially dilute EPS in the future.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include short-term investments,
marketable securities, tenant accounts receivable, accounts payable, accrued
expenses and mortgage loans payable. The fair values of these financial
instruments were not materially different from their carrying or contract
values.

4. ACQUISITION OF THE OFFICE PROPERTIES

On October 14, 1997, the Company closed on the acquisition of the Office
Properties. As a result of the acquisition, the Company became the sole general
partner of and obtained a 20.6946% interest in the Operating Partnership, an
operating partnership formed to acquire and hold the Office Properties.

In connection with the acquisition, the Company issued 600,000 shares of
Common Stock (valued at $5.50 per share, or an aggregate of $3,300) and the
Operating Partnership issued approximately 3.2 million Partnership Units (valued
at $5.50 per unit, or an aggregate of $17,500) and 2.1 million preferred
partnership units ("Preferred Units") (valued at $25.00 per unit, or an
aggregate of $52,500). The Office Properties were also subject to $100,000 of
7.5% mortgage financing, payable in 2000. In connection with the acquisition,
acquired assets and liabilities were recorded at fair value pursuant to the
purchase accounting method.

Concurrently with the acquisition, the Company issued 273,729 shares of
Common Stock (valued at $5.50 per share, or an aggregate of $1,506) in exchange
for the assets of Crown, an affiliate of the Company, previously acting as
investment advisor to the Company and assisting in the management operations.
The contract between Crown and the Company was terminated and the Company
entered into a property management agreement with Glacier whose stock is owned
by two current officers of the Company, one of whom is also a current director.
Further, the Company retired 27,646 shares of Common Stock previously held by
Crown at the time it was acquired. The cost of the termination of the contract
was $1,353, which was charged to expense in the accompanying statement of
operations.

F-10
<PAGE>

5. MINORITY INTEREST

As of December 31, 1997, the Operating Partnership, which is 20.6946% owned
by the Company, has outstanding 3.2 million of Partnership Units (of which
600,000 are owned by the Company) and 2.1 million of Preferred Units (none which
are owned by the Company).

The Partnership Units are substantially similar economically (and are
convertible into) shares of common stock of the Company. The Partnership Units
are convertible into shares of Company common stock subject to certain
conditions beginning on September 1, 1998. As of December 31, 1997, the Company
has accrued $272 of distributions related to holders of Partnership Units.

The Preferred Units, for which each holder thereof is entitled to a 6.5%
priority annual return, may be converted on or after October 1, 1999 into
Partnership Units on the basis of 3.5714 Partnership Units for each Preferred
Unit plus any accrued return. Income of the Operating Partnership allocated to
holders of Preferred Units is also based on the aforementioned 6.5% priority
annual return. As of December 31, 1997, the Company has accrued $720 of
distributions related to holders of Preferred Units.

6. MORTGAGE NOTES PAYABLE

At December 31, 1996 and 1997, the Company's mortgage loans totaled $14,658
and $114,375, respectively.

The Office Properties were acquired subject to mortgage indebtedness of
$100,000. The loan is a non-recourse mortgage loan collateralized by the real
estate assets of the Office Properties. The loan provides for monthly payments
of interest only, at a fixed rate of 7.5% per annum. The loan matures on October
13, 2000 and provides for two one-year extension options, subject to certain
conditions. Certain restrictive financial covenants must be complied with, the
most restrictive of which are adjusted consolidated net worth, minimum property
interest coverage, minimum property hedged interest coverage, minimum
consolidated interest coverage, maximum consolidated unhedged floating rate debt
and maximum consolidated total indebtedness.

The Retail Properties collateralize and, in certain cases, cross
collateralize, mortgage loans with maturities ranging from 2004 to 2014
aggregating $14,658 and $14,375 as of December 31, 1996 and 1997, respectively.
The mortgage loans accrue interest at rates ranging from 7.6% to 9.5%. The
weighted average interest rate on these loans is 8.4%.

Aggregate maturities of the mortgage loans outstanding at December 31, 1997
are as follows:

<TABLE>
<S> <C>
1998 $ 307
1999 355
2000 100,391
2001 425
2002 4,816
Thereafter 8,081
---------
Total $ 114,375
---------
---------
</TABLE>

As of December 31, 1997, substantially all of the Company's Properties were
mortgaged or subject to liens, aggregating $188,485 of net book value.

F-11
<PAGE>

The Company has a revolving credit agreement with a bank whereby the
Company can borrow up to $100 at an annual interest rate equal to prime.
Interest is payable monthly with the principal due April 10, 1998. At
December 31, 1997, no amounts were borrowed against the note.

7. STOCK OPTIONS AND COMMON STOCK WARRANTS

In April 1993, the Company adopted a stock option plan ("Plan") for
directors which provides for the grant of an option to purchase 2,500 shares
of common stock to a director upon appointment or election, and upon each
re-election. The purchase price of the stock will be the fair market value at
the time the option is granted. The options are exercisable beginning on the
first anniversary of their grant and expire ten years after the date of
grant. The Company has reserved 75,000 shares of common stock for issuance
pursuant to the Plan.

The following summarizes transactions in the Plan:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
--------- --------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1994.............................. 27,500 $ 9.50--$10.38 $ 9.75
Granted--1995................................................. 15,000 $ 5.38 $ 5.38
---------
Outstanding at December 31, 1995.............................. 42,500 $ 5.38--$10.38 $ 8.21
Granted--1996................................................. 15,000 $ 5.63 $ 5.63
---------
Outstanding at December 31, 1996.............................. 57,500 $ 5.38--$10.38 $ 7.53
Granted--1997................................................. 25,000 $ 5.25--$ 7.59
Forfeited--1997............................................... (7,500) $ 5.25 $ 5.25
---------
Outstanding at December 31, 1997.............................. 75,000 $ 5.25--$10.38 $ 7.31
---------
---------
Exercisable at December 31, 1997.............................. 57,500 $ 5.38--$10.38 $ 7.53
---------
Available for future grant at December 31, 1997............... --
---------
---------
</TABLE>

The weighted average grant-date fair value of options granted in 1995, 1996
and 1997 was $0.76, $0.63 and $1.25, respectively. The weighted average
remaining contractual life of the options at December 31, 1997 was approximately
8 years.

The weighted average assumptions used to price the grant-date fair value of
options were as follows:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate.................. 6.75% 6.25% 6.32%
Expected life -- years................... 8 8 8
Expected volatility...................... 35% 31% 34%
Expected dividend rate................... 9.20% 9.70% 6.70%

</TABLE>

F-12
<PAGE>

If the Company elected to account for its stock options based on Statement
of Financial Accounting Standards No. 123, net income and earnings per average
common share would have been as follows for the years ended December 31, 1995,
1996 and 1997:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net (loss) income, as reported.......................... $ 272 $ 293 $ (967)
Net (loss) income, pro forma............................ 261 284 (998)
(Loss) earnings per share, as reported.................. 0.19 0.21 (0.60)
(Loss) earnings per share, pro forma.................... 0.18 0.19 (0.61)
</TABLE>

Warrants for an aggregate of 30,000 and 34,000 shares of common stock were
issued to officers and directors of the Company and to the underwriter in
December 1991 at exercise prices of $10 and $13 per share, respectively. All of
the warrants expired on December 22, 1996, and none were exercised.

8. RELATED PARTY TRANSACTIONS

Pursuant to the advisory agreement which was terminated on October 14, 1997
(see Note 4), Crown, an affiliate of the Company, acted as investment advisor to
the Company and assisted in the management of the day-to-day operations for a
base annual fee of $250 plus incentives based upon performance. Advisory fees
paid to Crown were $250, $250 and $198 for the years ended December 31, 1995,
1996 and 1997 respectively. No performance fee was paid or earned under this
agreement.

On October 14, 1997, the Company entered into a new management agreement
(the "Management Agreement") with Glacier. Substantially all of the interests in
Glacier are owned by Vernon R. Beck, a Vice President and director of the
Company, and John Parsinen, the Secretary of the Company. Under the Management
Agreement, Glacier is responsible for the management of the Retail Properties of
the Company. The Management Agreement provides that Glacier will receive an
annual fee of $250 plus a percentage of Average Invested Assets (as defined in
the Management Agreement) and will pay third party expenses associated with
owning the Retail Properties. In addition, Glacier will receive a fee of 1% of
the purchase price or the sale price upon the acquisition or disposition by the
Company or any of its affiliates of any net-leased real estate assets. Under the
Management Agreement, this percentage is increased to 3% in the event that all
or substantially all of the net-leased real estate properties are disposed of.
The Management Agreement has a term of five years and is terminable thereafter
on 180 days prior written notice. In the event that the Management Agreement is
terminated, including for non-renewal, a fee equal to 3% of the Invested Real
Estate Assets (defined in the Management Agreement to exclude the Company's
current net-leased real estate assets) would be due to Glacier. Management fees
paid to Glacier were $52 for the year ended December 31, 1997.

An officer and director of the Company is a partner in a law firm which
received fees from the Company relating to legal services totaling $9 and $69
for the years ended December 31, 1996 and 1997, respectively.

The Company has employee advances on the balance sheet in the amount of $14
as of December 31, 1997.

An officer and director of the Company is the director of a company that
received management fees of $22 in 1997.

F-13
<PAGE>

9. OPERATING LEASES

The Company leases its properties to tenants under operating leases with
various expiration dates extending to the year 2014. Gross minimum future
rentals and accrued rental income on noncancelable leases at December 31, 1997
are as follows (in thousands):

<TABLE>

<S> <C>
1998 ......................... $ 18,387
1999 ......................... 18,273
2000 ......................... 18,114
2001 ......................... 17,942
2002 ......................... 16,452
Thereafter ................... 101,514
----------
Total ...................... $ 190,682
----------
----------

</TABLE>

10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- -----------
Interest paid.................................................................... $ 1,266 $ 1,210 $ 2,220
--------- --------- -----------
Supplemental schedule of non-cash investing and financing activities:
Distribution payable on common stock/units..................................... $ 178 $ 178 $ 556
Distribution payable on preferred units........................................ -- -- 720
--------- --------- -----------
$ 178 $ 178 $ 1,276
--------- --------- -----------
--------- --------- -----------
Advisory contract termination fee for common stock:
Advisory contract termination fee.............................................. $ -- $ -- $ (1,353)
Common stock................................................................... -- -- 2
Additional paid in capital..................................................... -- -- 1,351
--------- --------- -----------
$ - $ -- $ --
--------- --------- -----------
--------- --------- -----------
In conjunction with the property acquisition, the following assets and
liabilities were assumed:
Purchase of real estate....................................................... $ -- $ -- $ (166,316)
Mortgage loans................................................................ -- -- 100,000
Deferred financing costs...................................................... -- -- (735)
Common stock.................................................................. -- -- 6
Additional paid in capital.................................................... -- -- 2,975
Partnership Units............................................................. -- -- 12,570
Preferred Units............................................................... -- -- 52,500
--------- --------- -----------
Proceeds from acquisition of properties....................................... $ -- $ -- $ 1,000
--------- --------- -----------
--------- --------- -----------
</TABLE>

F-14
<PAGE>

11. COMMITMENTS AND CONTINGENCIES

In the normal course of business the Company is involved in legal actions
arising from its ownership and administration of its properties. In managementis
opinion, any liabilities which may result, are not expected to have a material
adverse effect on the Companyis financial position, operations or liquidity. The
Company is subject to various federal, state and local environmental regulations
related to its property ownership and operation. The Company has performed
environment assessments of its properties, the results of which have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Companyis financial position, operations or
liquidity.

The Company has a property management agreement with Glacier, a related
party, which provides for Glacier to manage the seven net leased retail
properties of the Company for a five year term with a minimum fee of $250 per
annum.

12. Quarterly data (Unaudited)

<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1997
----------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Revenues...................................................... $ 633 $ 633 $ 633 $ 4,719
---------- ---------- ---------- ----------
Income (loss) before minority interest........................ 91 87 85 (445)
Minority interest............................................. -- -- -- (785)
---------- ---------- ---------- ----------
Net (loss) income............................................. $ 91 $ 87 $ 85 $ (1,230)
---------- ---------- ---------- ----------
Basic and diluted earnings (loss) per share................... $ 0.06 $ 0.06 $ 0.06 $ (0.58)
---------- ---------- ---------- ----------
Weighted average common shares -- basic....................... 1,420,000 1,420,000 1,420,000 2,137,331
---------- ---------- ---------- ----------
Weighted average common shares -- diluted..................... 1,420,000 1,420,000 1,426,558 2,137,331
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1996
----------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Revenues...................................................... $ 620 $ 625 $ 624 $ 640
---------- ---------- ---------- ----------
Net income.................................................... $ 61 $ 64 $ 89 $ 79
---------- ---------- ---------- ----------
Earnings per share............................................ $ 0.04 $ 0.05 $ 0.06 $ 0.06
---------- ---------- ---------- ----------
Weighted average common shares-basic.......................... 1,420,000 1,420,000 1,420,000 1,420,000
---------- ---------- ---------- ----------
Weighted average common shares-diluted........................ 1,420,000 1,420,056 1,420,000 1,420,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

F-15
<PAGE>

13. Pro Forma Financial Information (Unaudited)

The acquisition of the Office Properties on October 14, 1997 was
accounted for by the purchase method. The accompanying financial statements
include the effects of the acquisition from the date of purchase through
December 31, 1997.

The following pro forma condensed financial information for the years
ended December 31, 1996 and 1997 are presented as if the purchase of Office
Properties had occurred at January 1, 1996 and 1997, and therefore include
pro forma adjustments as deemed necessary by management. The pro forma
financial information is unaudited and is not necessarily indicative of the
results which actually would have occurred if the acquisitions had occurred
on January 1, 1996 and 1997, nor does it purport to represent the results of
operations for future periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Total revenues.............................................................. $ 16,202 $ 20,116
----------- -----------
Property expenses........................................................... 2,819 3,459
General and administrative expense.......................................... 278 707
Interest expense............................................................ 8,850 8,724
Depreciation and amortization............................................... 4,143 4,280
----------- -----------
Total expenses.............................................................. 16,090 17,170
----------- -----------
Income (loss) before minority interest...................................... 112 2,946
Income allocated to minority interest:
Preferred Units........................................................... -- (2,578)
Partnership Units......................................................... 147 --
----------- -----------
Net income (loss) available to Common Shareholders.......................... $ 259 $ 368
----------- -----------
Basic and diluted earnings per share........................................ $ 0.11 $ 0.16
----------- -----------
Weighted average number of shares outstanding--basic and diluted........... 2,266,083 2,266,083
----------- -----------
----------- -----------
</TABLE>

14. SUBSEQUENT EVENTS

On February 5, 1998, the Company filed a registration statement with the
Securities and Exchange Commission for the conversion of outstanding shares of
common stock, par value $.01 per share, of the Company into common shares of
beneficial interest, par value $.01 per share, of Corporate Office Properties
Trust ("MD REIT"). This registration has been made to facilitate the Company's
proposed reformation into a Maryland real estate investment trust through a
two-step merger. The first proposed merger will merge the company into a newly
formed Maryland corporation. The newly formed Maryland corporation will then be
merged into the MD REIT in the second proposed merger. The Company intends to
account for the reformation as if it were a pooling of interests with no
adjustment to the carrying value of the underlying assets and liabilities. The
transaction is subject to shareholder approval.

F-16

<PAGE>

The Company intends to file a registration statement with the Securities and
Exchange Commission for the issuance of 7,500,000 common shares of beneficial
interest, par value of $.01 per share, of MD REIT ( the "Offering"). The Company
intends to use the proceeds from the Offering to acquire additional units in the
Operating Partnership which will, in turn, use the proceeds to reduce
outstanding mortgage indebtedness and acquire properties. There is no assurance
the Company will consummate the Offering.

F-17

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Corporate Office Properties Trust, Inc.:

In connection with our audits of the consolidated financial statements of
Corporate Office Properties Trust, Inc. as of December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997, which
financial statements are included in this Form 10-K, we have also audited the
accompanying financial statement schedule.

In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania

February 24, 1998

F-18

<PAGE>

CORPORATE OFFICE PROPERTIES TRUST, INC.

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
IMPROVE- TOTAL
BUILDING MENTS & BUILDING
BUILDING & LAND CARRYING & LAND ACCUMULATED
PROPERTY NAME LOCATION TYPE ENCUMBRANCES IMPROVEMENTS COSTS IMPROVEMENTS DEPRECIATION
- -------------- ------------ -------- -------------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>

429 South Brunswick Dayton, NJ Office $ 8,793,966 $ 11,718,548 $2,000 $ 11,720,548 $ 62,606
431 South Brunswick Dayton, NJ Office 8,351,026 11,128,301 -- 11,128,301 59,453
437 South Brunswick Dayton, NJ Office 2,151,023 2,866,382 -- 2,866,382 15,314
Blue Bell 751/753/760/785
Jolly Rd. Blue Bell, PA Office 66,231,669 88,320,735 -- 88,320,735 471,851
2601 Market Place Harrisburg, PA Office 5,801,595 7,712,693 -- 7,712,693 41,205
2605 Interstate Harrisburg, PA Office 6,241,536 8,355,177 -- 8,355,177 44,637
6385 Flank Drive Harrisburg, PA Office 2,429,185 3,242,272 -- 3,242,272 17,322
Peru Peru, II Retail 2,429,348 3,226,279 -- 3,226,279 353,976
Indianapolis, Indianapolis, IN Retail -- 4,003,155 -- 4,003,155 667,251
Plymouth Plymouth, MN Retail 4,660,648 4,019,547 -- 4,019,547 663,579
Minot Minot, ND Retail 2,628,356 2,503,328 -- 2,503,328 265,394
Delafield Delafield, WI Retail 1,864,231 2,540,375 -- 2,540,375 217,545
Glendale Glendale, WI Retail 1,055,731 1,156,543 -- 1,156,543 135,705
Oconowomac Oconowomac, WI Retail 1,737,046 2,150,000 -- 2,150,000 208,417
$114,375,360 152,943,335 $2,000 $152,945,335 $ 3,224,255
------------ --------------- ---------- ------------- -------------

YEAR BUILT/ DATE DEPRECIATION
PROPERTY NAME RENOVATED ACQUIRED LIFE
- --------------- ----------- --------- -----------
<S> <C> <C> <C>

1966/1996 10/14/97 40 Years
1958/1967 10/14/97 40 Years
1962/1996 10/14/97 40 Years
1960-74/92-96 10/14/97 40 Years
1989 10/14/97 40 Years
1990 10/14/97 40 Years
1995 10/14/97 40 Years
1993 11/30/93 40 Years
1991 11/30/93 40 Years
1991 06/01/92 40 Years
1993 02/01/94 40 Years
1994 11/02/94 40 Years
1992 09/29/93 40 Years
1994 05/17/94 40 Years

---------- --------- -----------
</TABLE>

F-19
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 March 25, 1998 By: /s/ Clay W. Hamlin, III
--------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
(Principal Executive Officer)

Date March 25, 1998 By: /s/ Thomas D. Cassel
--------------------------------
Thomas D. Cassel
Vice President--Finance and Treasurer
(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:

SIGNATURES TITLE DATE
- ------------------------------ --------------------------- ------------------

/s/ JAY H. SHIDLER Chairman of the Board and March 27, 1998
- ------------------------------ Trustee
(Jay H. Shidler)

/s/ CLAY W. HAMLIN, III President and Chief March 27, 1998
- ------------------------------ Executive Officer,
(Clay W. Hamlin, III) Trustee (Principal
Executive Officer)

/s/ THOMAS D. CASSEL Vice President, Finance March 27, 1998
- ------------------------------ (Principal Accounting and
(Thomas D. Cassel) Financial Officer)

/s/ VERNON R. BECK Vice Chairman of the Board March 27, 1998
- ------------------------------ and Trustee
(Vernon R. Beck)

/s/ KENNETH D. WETHE Trustee March 27, 1998
- ------------------------------
(Kenneth D. Wethe)

/s/ ALLEN C. GEHRKE Trustee March 27, 1998
- ------------------------------
(Allen C. Gehrke)

/s/ WILLIAM H. WALTON Trustee March 27, 1998
- ------------------------------
(William H. Walton)

/s/ KENNETH S. SWEET, JR. Trustee March 27, 1998
- ------------------------------
(Kenneth S. Sweet, Jr.)

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ---------------------------------------------------------------------- --------
<S> <C> <C>

2.1 Agreement and Plan of Merger, dated as of January 31, 1998, among
the Registrant, the Maryland Company and the Company (filed with the
Trust's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).

2.2 Formation/Contribution Agreement dated September 7, 1997, as
amended, by and among the Company and certain subsidiary
corporations and partnerships regarding the Transactions (filed with
the Company's Current Report on Form 8-K on October 29, 1997 and
incorporated herein by reference).

2.3 Agreement and Plan of Reorganization between the Company and Crown
Advisors, Inc. (filed with the Company's Current Report on Form 8-K
on October 29, 1997 and incorporated herein by reference).

2.4 Limited Partnership Agreement of the Operating Partnership dated
October 14, 1997 (filed with the Company's Current Report on Form
8-K on October 29, 1997 and incorporated herein by reference).

2.5 Amended and Restated Partnership Agreement of Blue Bell Investment
Company, L.P. (filed with the Company's Current Report on Form 8-K
on October 29, 1997 and incorporated herein by reference).

2.6 Amended and Restated Partnership Agreement of South Brunswick
Investors, L.P. (filed with the Company's Current Report on Form 8-K
on October 29, 1997 and incorporated herein by reference).

2.7 Amended and Restated Partnership Agreement of ComCourt Investors,
L.P. (filed with the Company's Current Report on Form 8-K on October
29, 1997 and incorporated herein by reference).

2.8 Amended and Restated Partnership Agreement of 6385 Flank, L.P.
(filed with the Company's Current Report on Form 8-K on October 29,
1997 and incorporated herein by reference).

3.1 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).

3.2 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ---------------------------------------------------------------------- --------
<S> <C> <C>

4.1 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference).

10.1 Clay W. Hamlin III Employment Agreement dated October 14, 1997 with
the Operating Partnership (filed with the Company's Current Report
on Form 8-K on October 29, 1997, and incorporated herein by
reference).

10.2 Registration Rights Agreement dated October 14, 1997, as amended,
for the benefit of certain shareholders of the Registrant (filed
with the Company's Current Report on Form 8-K on October 29, 1997,
and incorporated herein by reference).

10.3 Management Agreement between Registrant and Glacier Realty, LLC
(filed with the Company's Current Report on Form 8-K on October 29,
1997, and incorporated herein by reference).

10.4 Senior Secured Credit Agreement dated October 13, 1997 (filed with
the Company's Current Report on Form 8-K on October 29, 1997, and
incorporated herein by reference).

10.5 Corporate Office Properties Trust 1998 Long Term Incentive Plan
(filed with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).

10.6 Stock Option Plan for Directors (filed with Royale Investments,
Inc.'s Form 10-KSB for the year ended December 31, 1993 (Commission
File No. 0-20047) and incorporated herein by reference).

10.7 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation dated March 12, 1997 with respect to lot A (filed
with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).

10.8 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation dated March 12, 1997 with respect to lot B (filed
with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).

10.9 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation dated March 12, 1997 with respect to lot C (filed
with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ---------------------------------------------------------------------- --------
<S> <C> <C>

10.11 Amended and Restated Lease between South Brunswick Investors L.P.
and International Business Machines Corporation dated August 11,
1995, as amended (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and incorporated herein
by reference).

10.12 Agreement of Lease between South Brunswick Investors L.P. and
Teleport Communications Group, Inc. dated February 20, 1996, as
amended (filed with the Registrant's Registration Statement on Form
S-4 (Commission File No. 333-45649) and incorporated herein by
reference).

10.13 Agreement of Lease between South Brunswick Investors L.P. and
Teleport Communications Group, Inc. dated August 19, 1996 (filed
with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).

10.14 Thomas D. Cassel Employment Agreement dated as of October 20, 1997
with the Operating Partnership.

16.1 Letter to the Commission from Lurie, Besikof, Lapidus & Co., LLP
dated November 4, 1997 (filed with Company's Current Report on Form
8-K on November 6, 1997, and incorporated herein by reference).

21.1 Subsidiaries of Registrant.

24.1 Powers of attorney (included on signature page to the Registration
Statement).

26.1 Published report regarding name change of Registrant filed as proxy
materials on Form 14A on December 4, 1997.

27.1 Financial Data Schedule

</TABLE>

<PAGE>

Exhibit 10.14

EMPLOYMENT AGREEMENT

THOMAS D. CASSEL

This Employment Agreement (this "Agreement"), is made and entered into as
of the 20 day of October, 1997 (the "Effective Date"), by and between
Corporate Office Properties, L.P., a Delaware limited partnership (the
"Employer"), and Thomas D. Cassel (the "Executive").

RECITALS

A. The Employer desires to employ the Executive as an officer of the Employer
for a specified term, and the Executive is willing to accept such
employment upon the terms and conditions hereinafter set forth.

B. The Employer recognizes that circumstances may arise in which a change of
control of the Employer, through acquisition or otherwise, may occur,
thereby causing uncertainty of employment without regard to the competence
or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the
Executive in the event of any such change of control.

NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter contained, it is covenanted and agreed by
and between the parties hereto as follows:

AGREEMENTS

1. POSITION AND DUTIES. The Employer hereby employs the Executive as the Vice
President - Finance of the Employer, or in such other capacity as shall be
mutually agreed between the Employer and the Executive. During the period of
the Executive's employment hereunder, the Executive shall devote his best
efforts and full business time, energy, skills and attention to the business and
affairs of the Employer. The Executive's duties and authority shall consist of
and include all duties and authority customarily performed and held by persons
holding equivalent positions with business organizations similar in nature and
size to the Employer, as such duties and authority are reasonably defined,
modified and delegated from time to time by the Board of Directors of the
Employer (the "Board"). The Executive shall have the powers necessary to
perform the duties assigned to him, and shall be provided such supporting
services, staff, secretarial and other assistance, office space and
accouterments as shall be reasonably necessary and appropriate in the light of
such assigned duties.

2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:

(a) BASE SALARY. The Executive shall receive an aggregate annual
minimum "Base Salary" at the rate of Ninety Thousand dollars ($90,000) per
annum, payable in periodic installments in accordance with the regular
payroll practices of the Employer. Such Base Salary shall be subject to
review annually by the Compensation Committee of the Board during the term
hereof, in accordance with the Employer's established compensation
policies.

(b) PERFORMANCE BONUS. The Executive shall receive an annual cash
"Performance Bonus," payable within ninety (90) days after the end of the
fiscal year of the Employer, which shall be based upon company-wide and
individual performance criteria mutually agreed upon from time to time by
the Executive

<PAGE>

and the Board, and which shall be determined by the Board based upon the
recommendation of the Compensation Committee thereof.

(c) BENEFITS. The Executive shall be entitled to all perquisites
extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy")
promulgated for the Board by the Compensation Committee of the Board, and
which Perquisite Policy is hereby incorporated by reference, as amended
from time to time. In addition, the Executive shall be entitled to
participate in all plans and benefits generally, from time to time,
accorded to employees of the Employer ("Benefit Plans"), all as determined
by the Board from time to time based upon the input of its Compensation
Committee. In addition, Company agrees that Employee shall be eligible to
participate in any stock option plan effected after the date of this
agreement.

(d) WITHHOLDING. The Employer shall be entitled to withhold, from
amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time
required to withhold. The Employer shall be entitled to rely upon the
opinion of its independent accountants, with regard to any question
concerning the amount or requirement of any such withholding.

3. TERM AND TERMINATION.

(a) BASIC TERM. The Executive's employment hereunder shall be for a
continuous three (3) year term, commencing as of the Effective Date, unless
terminated by either party, with or without cause, effective as of the
first (1st) business day after written notice to that effect is delivered
to the other party.

(b) PREMATURE TERMINATION.

(i) In the event of the termination of the employment of the Executive
under this Agreement by the Employer for any reason other than expiration
of the term hereof or a "for-cause" termination in accordance with the
provisions of paragraph (d) of this Section 3, then notwithstanding any
actual or allegedly available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall be entitled
to a "Lump Sum Payment" equal to one-half the annualized Base Salary plus
one-half most recent annual Performance Bonus that the Executive received.
For purposes of calculating the Lump Sum Payment amount due, the
Executive's employment with the Employer shall be agreed to have commenced
on October 14, 1997. In the event of a termination governed by this
subparagraph (b)(i) of Section 3, the Employer shall also: (y)
notwithstanding the vesting schedule otherwise applicable, fully vest all
of Executive's options outstanding under any option or stock incentive plan
established by Employer or its Parent or General Partner ("Option Plan")
and allow a period of eighteen (18) months following the termination of
employment for the Executive to exercise any such options; and (z) continue
for the Executive (provided that such items are not available to him by
virtue of other employment secured after termination) the perquisites,
plans and benefits provided under the Employer's Perquisite Policy and
Benefit Plans as of and after the date of termination, [all items in (z)
being collectively referred to as "Post-Termination Perquisites and
Benefits"], for six (6) months following such termination. The payments
and benefits provided under (w), (x), (y) and (z) above by the Employer
shall not be offset against or diminish any other compensation or benefits
accrued as of the date of termination.

<PAGE>

(ii) Payment to the Executive under this Section 3(b) will be made
monthly over six (6) months.

(c) CONSTRUCTIVE TERMINATION. If at any time during the term of this
Agreement, except in connection with a "for-cause" termination pursuant to
paragraph (d) of this Section 3, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by
written notice to the Employer given within sixty (60) days of such
Constructive Discharge, to terminate his services hereunder, effective as
of thirty (30) days after such notice, and the Executive shall have no
rights or obligations under this Agreement other than as provided in
Section 5 hereof. The Executive shall in such event be entitled to a Lump
Sum Payment of Base Salary and Performance Bonus compensation as well as
all of the Post-Termination Prerequisites and Benefits, as if such
termination of his employment had been effectuated pursuant to paragraph
(b) of this Section 3.

For purposes of this Agreement, the Executive shall be deemed to have
been "Constructively Discharged" upon the occurrence of any one of the
following events:

(i) The Executive is not re-elected to, or is removed from, the position
with the Employer set forth in Section 1 hereof, other than as a result of
the Executive's election or appointment to positions of equal or superior
scope and responsibility; or

(ii) The Executive shall fail to be vested by the Employer with the
material powers, authority and support services normally attendant to any
of said offices; or

(iii) The Employer shall notify the Executive that the employment of the
Executive will be terminated or materially modified in the future and
during the term hereof or that the Executive will be Constructively
Discharged in the future; or

(iv) The Employer changes the primary employment location of the
Executive to a place that is more than fifty (50) miles from the primary
employment location as of the Effective Date of this Agreement; or

(v) The Employer otherwise commits a material breach of its obligations
under this Agreement.

(d) TERMINATION FOR CAUSE. The employment of the Executive and this
Agreement may be terminated "for-cause" as hereinafter defined.
Termination "for-cause" shall mean the termination of employment on the
basis or as a result of: (i) the Executive's death or his permanent
disability, which latter term shall mean the Executive's inability, as a
result of physical or mental incapacity, substantially to perform his
duties hereunder for a period of either six (6) consecutive months, or one
hundred and twenty (120) business days within a consecutive twelve (12)
month period; (ii) a material violation by the Executive of any applicable
material law or regulation respecting the business of the Employer; (iii)
the Executive being found guilty of, or being publicly associated with, to
the Employer's detriment, a felony or an act of dishonesty in connection
with the performance of his duties as an officer of the Employer, or the
Executive's commission of an act which disqualifies the Executive from
serving as an officer or director of the Employer; or (iv) the willful or
negligent failure of the Executive to perform his duties hereunder in any
material respect. The Executive shall be entitled to at least thirty (30)
days' prior written notice of the

<PAGE>

Employer's intention to terminate his employment for any cause (except the
Executive's death), specifying the grounds for such termination, affording
the Executive a reasonable opportunity to cure any conduct or act (if
curable) alleged as grounds for such termination, and a reasonable
opportunity to present to the Board his position regarding any dispute
relating to the existence of such cause.

(e) TERMINATION UPON DEATH. In the event payments are due and owing
under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have
designated in writing, or failing such designation, to the executor or
administrator of his estate, in full settlement and satisfaction of all
claims and demands on behalf of the Executive. Such payments shall be in
addition to any other death benefits of the Employer made available for the
benefit of the Executive, and in full settlement and satisfaction of all
payments provided for in this Agreement.

(f) TERMINATION UPON DISABILITY. The Employer may terminate the
executive's employment after the Executive is determined to be disabled
under the current Employer program or by a physician engaged by the
Employer. In the event of a dispute regarding the Executive's
"disability," such dispute shall be resolved through arbitration as
provided in paragraph (d) of Section 9 hereof, except that the arbitrator
appointed by the American Arbitration Association shall be a duly licensed
medical doctor. The Executive shall be entitled to the compensation and
benefits provided for under this Agreement during any period of
incapacitation occurring during the term of this Agreement, and occurring
prior to the establishment of the Executive's "disability" during which the
Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until
the date specified in a notice of termination relating to the Executive's
disability, the Executive shall be entitled to return to his positions with
the Employer as set forth in this Agreement, in which event no disability
of the Executive will be deemed to have occurred.

(g) TERMINATION UPON CHANGE OF CONTROL.

(i) In the event of a Change in Control during the term of this
agreement (as defined below) of the Employer and the termination of
the Executive's employment by the Employer under either 1 or 2
below, the Executive shall, be entitled to a Lump Sum Payment equal
to the sum of: (w) his monthly Base Salary then payable, multiplied
by the lesser of the number of full months the Executive has
theretofore been employed by the Employer or twenty four (24); plus
(x) two (2) times the average of the two (2) most recent annual
Performance Bonuses that the Executive received; provided, however,
that if the Executive has been employed by the Employer for fewer
than two (2) years, then the amount set forth in (x) above shall be
equal to two(2) times the annual Performance Bonus that the
Executive has theretofore received from the Employer. The Employer
shall also: (y) notwithstanding the vesting schedule otherwise
applicable, fully vest all of Executive's options outstanding under
any Option Plan and allow a period of eighteen (18) months following
the termination of employment of the Executive for the Executive's
exercise of such options; and (z) continue for the Executive
(provided that such items are not available to him by virtue of
other employment secured after termination) all of the perquisites,
plans and benefits provided under paragraph (c) of Section 2, for
the lesser of the number of full months the Executive has been
employed by the Employer or twenty-four (24) months following such
termination. The payments and benefits provided under (w), (x), (y)
and (z) above by the Employer shall not be offset against or
diminish any other compensation or benefits accrued as of the date
of termination.

The following shall constitute termination under this
paragraph:

<PAGE>

1. The Executive terminates his employment under this
Agreement pursuant to a written notice to that effect
delivered to the Board within three (3) months after the
occurrence of the Change in Control.

2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.

(ii) For purposes of this paragraph, the term "Change in Control" shall
mean the following occurring after the date of this Agreement:

1. The consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of the Employer; or

2. Approval by the stockholders of the Employer of: (1) a
merger or consolidation of the Employer, if the stockholders of
the Employer immediately before such merger or consolidation do
not, as a result of such merger or consolidation, own, directly
or indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as was represented by their
ownership of the combined voting power of the voting securities
of the Employer outstanding immediately before such merger or
consolidation; or (2) a complete or substantial liquidation or
dissolution, or an agreement for the sale or other disposition,
of all or substantially all of the assets of the Employer.

Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined
voting then-outstanding securities is acquired by: (1) a trustee or
other fiduciary holding securities under one or more employee benefit
plans maintained for employees of the entity; or (2) any corporation
or other entity which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Employer in the same
proportion as their ownership of stock in the Employer immediately
prior to such acquisition.

(iii) If it is determined, in the opinion of the Employer's independent
accountants, in consultation with the Employer's independent counsel, that
any amount payable to the Executive by the Employer under this Agreement,
or any other plan or agreement under which the Executive participates or is
a party, would constitute an "Excess Parachute Payment" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") and be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), the Employer shall pay to the Executive a
"grossing-up" amount equal to the amount of such Excise Tax and all federal
and state income or other taxes with respect payment of the amount of such
Excise Tax, including all such taxes with respect to any such grossing-up
amount. If at a later date, the Internal Revenue Service assesses a
deficiency against the Executive for the Excise Tax which is greater than
that which was determined at the time such amounts were paid, the Employer
shall pay to the Executive the amount of such unreimbursed Excise Tax plus
any interest, penalties and professional fees or expenses, incurred by the
Executive as a result of such assessment, including all such taxes with
respect to any such additional amount. The highest marginal tax rate
applicable to individuals at the time of payment of such amounts will be
used for purposes of determining the federal and state income and other
taxes with respect thereto. The Employer shall

<PAGE>

withhold from any amounts paid under this Agreement the amount of any
Excise Tax or other federal, state or local taxes then required to be
withheld. Computations of the amount of any grossing-up supplemental
compensation paid under this subparagraph shall be made by the Employer's
independent accountants, in consultation with the Employer's independent
legal counsel. The Employer shall pay all accountant and legal counsel
fees and expenses.

4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that heretofore or
hereafter during the course of his employment he has produced and received, and
may hereafter produce, receive and otherwise have access to various materials,
records, data, trade secrets and information not generally available to the
public (collectively, "Confidential Information") regarding the Employer and its
subsidiaries and affiliates. Accordingly, during and subsequent to termination
of this Agreement, the Executive shall hold in confidence and not directly or
indirectly disclose, use, copy or make lists of any such Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure is authorized in
writing by the Employer, required by law or by any competent administrative
agency or judicial authority, or otherwise as reasonably necessary or
appropriate in connection with the performance by the Executive of his duties
hereunder. All records, files, documents, computer diskettes, computer programs
and other computer-generated material, as well as all other materials or copies
thereof relating to the Employer's business, which the Executive shall prepare
or use, shall be and remain the sole property of the Employer, shall not be
removed from the Employer's premises without its written consent, and shall be
promptly returned to the Employer upon termination of the Executive's employment
hereunder. The Executive agrees to abide by the Employer's reasonable policies,
as in effect from time to time, respecting confidentiality and the avoidance of
interests conflicting with those of the Employer.

5. NON-COMPETITION COVENANT.

(a) RESTRICTIVE COVENANT. The Employer and the Executive have jointly
reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient
of and in consideration of this Agreement and the payment of the amounts
described in Sections 2 and 3 hereof, the Executive hereby agrees that,
except with the express prior written consent of the Employer, for a period
equal to the lesser of the number of full months the Executive has at any
time been employed by the Employer or three (3) months after the
termination of the Executive's employment with the Employer (the
"Restrictive Period"), he will not directly or indirectly compete with the
business of the Employer, including, but not by way of limitation, by
directly or indirectly owning, managing, operating, controlling, financing,
or by directly or indirectly serving as an employee, officer or director of
or consultant to, or by soliciting or inducing, or attempting to solicit or
induce, any employee or agent of Employer to terminate employment with
Employer and become employed by any person, firm, partnership, corporation,
trust or other entity which owns or operates a business similar to that of
the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership,
operation, management or leasing of office property (i) in any geographic
market or territory in which the Employer owns properties either as of the
date hereof or as of the date of termination of the Executive's employment;
or (ii) in any market in which an acquisition is pending at the time of the
termination of the Executive's employment. If the Executive violates the
Restrictive Covenant and the Employer brings legal action for injunctive or
other relief, the Employer shall not, as a result of the time involved in
obtaining such relief, be deprived of the benefit of the full period of the
Restrictive Covenant. Accordingly, the Restrictive Covenant shall be
deemed to have the duration specified in this paragraph (a) computed from
the date the relief is granted but reduced by the time between the period
when the Restrictive Period began to run and the date of the first
violation of the Restrictive Covenant by the Executive. In the event that
a successor of the Employer assumes and agrees to perform this Agreement or
otherwise acquires the Employer, this Restrictive Covenant shall continue
to apply only to the primary service area of the Employer as it existed
immediately before such assumption or acquisition and shall not apply to
any of the successor's other offices or markets. The foregoing Restrictive
Covenant shall not prohibit the Executive from owning, directly or
indirectly,

<PAGE>

capital stock or similar securities which are listed on a securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotation System which do not represent more than five percent
(5%) of the outstanding capital stock of any corporation.

(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 4 and 5 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such
interests; that the Employer would not have entered into this Agreement
with the Executive without receiving the additional consideration offered
by the Executive in binding himself to these restrictions; and that such
restrictions were a material inducement to the Employer to enter into this
Agreement. In the event of any violation or threatened violation of these
restrictions, the Employer shall be relieved of any further obligations
under this Agreement, shall be entitled to any rights, remedies or damages
available at law, in equity or otherwise under this Agreement, and shall be
entitled to preliminary and temporary injunctive relief granted by a court
of competent jurisdiction to prevent or restrain any such violation by the
Executive and any and all persons directly or indirectly acting for or with
him, as the case may be, while awaiting the decision of the arbitrator
selected in accordance with paragraph (d) of Section 9 of this Agreement,
which decision, if rendered adverse to the Executive, may include permanent
injunctive relief to be granted by the court.

6. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For purposes hereof, an affiliate of the
Employer shall mean any corporation or other entity directly or indirectly
controlling, controlled by, or under common control with the Employer. The
Employer shall be secondarily liable to the Executive for the obligations
hereunder in the event the affiliate of the Employer cannot or refuses to honor
such obligations. For all relevant purposes hereof, the tenure of the Executive
shall be deemed to include the aggregate term of his employment by the Employer
or its affiliate.

7. INTEREST IN ASSETS. Neither the Executive nor his estate shall acquire
hereunder any rights in funds or assets of the Employer, otherwise than by and
through the actual payment of amounts payable hereunder; nor shall the Executive
or his estate have any power to transfer, assign, anticipate, hypothecate or
otherwise encumber in advance any of said payments; nor shall any of such
payments be subject to seizure for the payment of any debt, judgment, alimony,
separate maintenance or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise of the Executive.

8. INDEMNIFICATION.

(a) The Employer shall provide the Executive (including his heirs,
personal representatives, executors and administrators), during the term of
this Agreement and thereafter throughout all applicable limitations
periods, with coverage under the Employer's then-current directors' and
officers' liability insurance policy, at the Employer's expense.

(b) In addition to the insurance coverage provided for in paragraph (a)
of this Section 8, the Employer shall defend, hold harmless and indemnify
the Executive (and his heirs, executors and administrators) to the fullest
extent permitted under applicable law, and subject to the requirements,
limitations and specifications set forth in the Bylaws and other
organizational documents of the Employer, against all expenses and
liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he

<PAGE>

continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited
to, judgments, court costs and attorneys' fees and the cost of reasonable
settlements.

(c) In the event the Executive becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which the Employer has
agreed to provide insurance coverage or indemnification under this Section
8, the Employer shall, to the full extent permitted under applicable law,
advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the
representation of the Executive), judgments, fines and amounts paid in
settlement (collectively "Expenses") incurred by the Executive in
connection with the investigation, defense, settlement, or appeal of any
threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Executive
covenanting: (i) to reimburse the Employer for all Expenses actually paid
by the Employer to or on behalf of the Executive in the event it shall be
ultimately determined that the Executive is not entitled to indemnification
by the Employer for such Expenses; and (ii) to assign to the Employer all
rights of the Executive to insurance proceeds, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of
the amount of Expenses actually paid by the Employer to or on behalf of the
Executive.

9. GENERAL PROVISIONS.

(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any
successor or assign of the Employer shall be deemed the "Employer"
hereunder. The Employer shall require any successor to all or
substantially all of the business and/or assets of the Employer, whether
directly or indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent as the Employer would be required to
perform if no such succession had taken place.

(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof,
and supersedes all prior negotiations, undertakings, agreements and
arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the
Employer.

(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions
shall not be affected thereby. This Agreement shall be construed and the
legal relations of the parties hereto shall be determined in accordance
with the laws of the State of Pennsylvania as it constitutes the situs of
the corporation and the employment hereunder, without reference to the law
regarding conflicts of law.

(d) ARBITRATION. Except as provided in paragraph (b) of Section 5, any
dispute or controversy arising under or in connection with this Agreement
or the Executive's employment by the Employer shall be settled exclusively
by arbitration, conducted by a single arbitrator sitting in Philadelphia,
Pennsylvania in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected
by the parties from a list of eleven (11) arbitrators provided by the AAA,

<PAGE>

provided that no arbitrator shall be related to or affiliated with either
of the parties. No later than ten (10) days after the list of proposed
arbitrators is received by the parties, the parties, or their respective
representatives, shall meet at a mutually convenient location in
Philadelphia, Pennsylvania, or telephonically. At that meeting, the party
who sought arbitration shall eliminate one (1) proposed arbitrator and then
the other party shall eliminate one (1) proposed arbitrator. The parties
shall continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the
dispute. Each party shall submit, in writing, the specific requested
action or decision it wishes to take, or make, with respect to the matter
in dispute, and the arbitrator shall be obligated to choose one (1) party's
specific requested action or decision, without being permitted to
effectuate any compromise or "new" position; provided, however, that the
arbitrator is authorized to award amounts not in dispute during the
pendency of any dispute or controversy arising under or in connection with
this Agreement. The Employer shall bear the cost of all counsel, experts or
other representatives that are retained by both parties, together with all
costs of the arbitration proceeding, including, without limitation, the
fees, costs and expenses imposed or incurred by the arbitrator. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
including, if applicable, entry of a permanent injunction under paragraph
(b) of Section 5.

(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or other
public communication by either the Executive or the Employer with any other
person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to
prior written approval of both the Executive and the Employer, subject to
the proviso that the Employer shall be entitled to make requisite and
appropriate public disclosure of the terms of this Agreement, without the
Executive's consent or approval, as required under applicable statutes, and
the rules and regulations of the Securities and Exchange Commission and the
Stock Exchange on which the shares of Employer may from time to time be
listed.

(f) WAIVER. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any
prior or subsequent time.

(g) NOTICES. Notices given pursuant to this Agreement shall be in
writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt
requested, postage prepaid or a nationally recognized overnight courier
service. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the
Executive shall be sent to the address set forth below the Executive's
signature on this Agreement, or to such other address as the party to be
notified shall have given to the other.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

Corporate Office Properties, L.P., THOMAS D. CASSEL
a Delaware limited partnership
by its general partner, Corporate Office
Properties Trust, Inc.

By: /s/ Clay W. Hamlin III /s/ Thomas D. Cassel
-------------------------------- -----------------------------------
Clay W. Hamlin III Thomas D. Cassel
President

<PAGE>

Exhibit 21.2

SUBSIDIARIES OF REGISTRANT

Corporate Office Properties Holdings, Inc. (Delaware)

Corporate Office Properties, L.P. (Delaware)

COPT Acquisitions, Inc. (Delaware)

Blue Bell Investment Company, L.P. (Pennsylvania)

Comcourt Investors, L.P. (Pennsylvania)

South Brunswick Investors, L.P. (New Jersey)

6385 Flank Drive, L.P. (Pennsylvania)

<PAGE>
<ARTICLE> 5
<CIK> 0000860546
<NAME> CORPORATE OFFICE PROPERTIES TRUST, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,395
<SECURITIES> 0
<RECEIVABLES> 78
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,436
<PP&E> 191,849
<DEPRECIATION> (3,224)
<TOTAL-ASSETS> 193,534
<CURRENT-LIABILITIES> 2,633
<BONDS> 114,315
0
0
<COMMON> 23
<OTHER-SE> 76,503
<TOTAL-LIABILITY-AND-EQUITY> 193,534
<SALES> 0
<TOTAL-REVENUES> 6,618
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,730<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,855
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (967)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
<FN>
<F1>Reflects a non-recurring termination expense of $1,353 for the year ended
December 31, 1997 associated with the termination of the Advisory Agreement,
which was paid in the form of Common Stock.
</FN>

</TABLE>