<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 0-20047
Corporate Office Properties Trust
(Exact name of registrant as specified in its charter)
Maryland 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Logan Square, Suite 1105, Philadelphia, PA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 567-1800
----------------------------------------
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 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
At May 7, 1998, 9,771,083 shares of the Company's Common Shares of Beneficial
Interest, $.01 par value, were outstanding.
<PAGE>
Table of Contents
Form 10-Q
<TABLE>
<CAPTION>
PAGE
PART I: FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and March 31,
1998 (unaudited) 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 4
1998 (unaudited)
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 5
1998 (unaudited)
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 12
Item 3: Defaults Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 5: Other Information 13
Item 6: Exhibits and Reports on Form 8-K 13
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Corporate Office Properties Trust
Consolidated Balance Sheet
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------------- ---------------------
Assets (unaudited)
<S> <C> <C>
Assets:
Land $ 38,764 $ 38,764
Buildings and improvements 152,945 152,945
Furniture, fixtures and equipment 140 222
Less accumulated depreciation (3,224) (4,201)
- ---------------------------------------------------------------------- -------------------- ---------------------
Net investments in real estate 188,625 187,730
Cash and cash equivalents 3,395 2,346
Tenant accounts receivable 78 41
Deferred rent receivable 479 837
Deferred financing costs, net 857 793
Deposit on acquisitions - 600
Prepaid and other assets, net 100 309
- ---------------------------------------------------------------------- -------------------- ---------------------
Total assets $ 193,534 $ 192,656
- ---------------------------------------------------------------------- -------------------- ---------------------
Liabilities and shareholders' equity
Liabilities:
Mortgage loans payable $ 114,375 $ 114,301
Accounts payable and accrued expenses 932 1,018
Rents received in advance and security deposits 425 294
Dividends/distributions payable 1,276 1,581
- ---------------------------------------------------------------------- -------------------- ---------------------
Total liabilities 117,008 117,194
- ---------------------------------------------------------------------- -------------------- ---------------------
Minority interests:
Preferred Units 52,500 52,500
Partnership Units 12,362 12,111
- ---------------------------------------------------------------------- -------------------- ---------------------
Total minority interests 64,862 64,611
- ---------------------------------------------------------------------- -------------------- ---------------------
Commitments and contingencies - -
Shareholders' equity:
Common Shares of beneficial interest ($.01 par value;
45,000,000 authorized 2,266,083 and 2,271,083 shares,
issued and outstanding at December 31, 1997 and
March 31, 1998, respectively) 23 23
Additional paid-in capital 16,620 16,647
Accumulated deficit (4,979) (5,819)
- ---------------------------------------------------------------------- -------------------- ---------------------
Total shareholders' equity 11,664 10,851
- ---------------------------------------------------------------------- -------------------- ---------------------
Total liabilities and shareholders' equity $ 193,534 $ 192,656
- ---------------------------------------------------------------------- -------------------- ---------------------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
Corporate Office Properties Trust
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------------
1997 1998
----------------- ----------------
<S> <C> <C>
Revenues
Rental income $ 626 $ 4,919
Tenant recoveries and other income 7 606
- ----------------------------------------------------------------- ----------------- ----------------
Total revenues 633 5,525
- ----------------------------------------------------------------- ----------------- ----------------
Expenses
Property operating 6 899
General and administrative 86 299
Interest expense 308 2,159
Amortization of deferred financing costs 3 64
Depreciation 139 977
Reformation costs - 637
- ----------------------------------------------------------------- ----------------- ----------------
Total expenses 542 5,035
- ----------------------------------------------------------------- ----------------- ----------------
Income before minority interests 91 490
Minority interests
Preferred Units - (853)
Partnership Units - (136)
- ----------------------------------------------------------------- ----------------- ----------------
Net income (loss) $ 91 $ (499)
- ----------------------------------------------------------------- ----------------- ----------------
Earnings (loss) per Share
Basic and Diluted $ .06 $ (.22)
- ----------------------------------------------------------------- ----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Corporate Office Properties Trust
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------
1997 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 91 $ (499)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interests - 989
Depreciation 139 977
Amortization of deferred financing costs 3 64
Other amortization (6) -
Increase in deferred rent receivable (17) (358)
Decrease (increase) in other assets 1 (172)
(Decrease) increase in accounts payable, accrued expenses, rents
received in advance and security deposits 12 (45)
- ---------------------------------------------------------------------- ------------- --------------
Net cash provided by operating activities 223 956
- ---------------------------------------------------------------------- ------------- --------------
Cash flows from investing activities:
Increase in deposit on acquisitions - (600)
Purchase of furniture and equipment - (82)
- ---------------------------------------------------------------------- ------------- --------------
Net cash used in investing activities - (682)
- ---------------------------------------------------------------------- ------------- --------------
Cash flows from financing activities:
Proceeds from exercise of stock options - 27
Dividends/distributions paid (177) (1,276)
Repayments of mortgage loans payable (79) (74)
- ---------------------------------------------------------------------- ------------- --------------
Net cash used in financing activities (256) (1,323)
- ---------------------------------------------------------------------- ------------- --------------
Net decrease in cash and cash equivalents (33) (1,049)
Cash and cash equivalents
Beginning of period 258 3,395
- ---------------------------------------------------------------------- ------------- --------------
End of period $ 225 $ 2,346
- ---------------------------------------------------------------------- ------------- --------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Corporate Office Properties Trust
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(unaudited)
1. Organization and Formation of Company
Corporate Office Properties Trust (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").
As of March 31, 1998, the Company's portfolio included 17 commercial real estate
properties leased for office and retail purposes.
On October 14, 1997, the Company acquired 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 entering into a
new management contract with Glacier Realty LLC ("Glacier") for the existing
retail properties. The Company accounted for the acquisition of the Office
Properties under purchase accounting requirements; therefore, the operating
results of the Company for the three months ended March 31, 1998 are not
directly comparable to the three months ended March 31, 1997.
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 (the "Reformation"). In connection with the Reformation, 45,000,000 common
shares and 5,000,000 preferred shares were authorized and each share of common
stock was exchanged for one common share of beneficial interest, par $.01
("Common Share") in Corporate Office Properties Trust. All common stock
references in the financial statements have been restated as Common Shares. This
restatement had no effect on net operations or the amounts presented as
shareholders' equity.
On April 23, 1998, the Company completed the sale of 7,500,000 Common
Shares to the public at a price of $10.50 per share ("the Offering").
On April 30, 1998, the Company acquired 12 office properties
aggregating approximately 815,000 net rentable square feet, using the proceeds
from the Offering.
2. Summary of Significant Accounting Policies
The financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. In order to conform with
generally accepted accounting principles, management, in preparation of the
Company's financial statements, is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of December 31, 1997 and March 31, 1998,
and the reported amounts of revenues
6
<PAGE>
and expenses for the three months ended March 31, 1997 and 1998. Actual results
could differ from those estimates.
In the opinion of the Company, all adjustments (consisting solely of
normal recurring matters, except for $637 of costs associated with the
Reformation) necessary to fairly present the financial position of the Company
as of March 31, 1998 and the results of its operations and its cash flows for
the three months ended March 31, 1997 and 1998 have been included. The results
of operations for such interim periods are not necessarily indicative of the
results for a full year. For further information, refer to the Company's
financial statements and footnotes thereto included in the Annual Report on Form
10-K for the year ended December 31, 1997.
Basis of Presentation
The consolidated financial statements of the Company at December 31,
1997 and March 31, 1998 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 effect on net operations or shareholders' equity.
The Company, as general partner, controls the Operating Partnership;
therefore consolidated financial reporting and accounting have been applied. As
of December 31, 1997 and March 31, 1998, minority interests represent 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").
Summary of Significant Accounting Policies
Earnings Per Share ("EPS")
Pursuant to SFAS No. 128, the Company has computed basic and diluted
EPS for the three months ended March 31, 1997 and 1998.
The numerator utilized to calculate basic and diluted EPS is the same. The
weighted average common shares outstanding for purposes of basic and diluted EPS
calculations are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1998
<S> <C> <C>
Weighted average common shares-basic 1,420 2,268
Assumed conversion of stock options - 26
--
Weighted average common shares-diluted 1,420 2,294
===== =====
</TABLE>
Convertible Preferred Units and convertible Partnership Units could
potentially dilute EPS in the future.
3. Issuance of Shares and Options
On March 12, 1998, options to purchase an aggregate of 45,000 shares
were granted to an officer and four independent Trustees at a grant price of
$12.25 per share. Options relating to 20,000 Common Shares vest one year
after the date of grant and options relating to 25,000 Common Shares vest
ratably over 3 years following the date of grant. The options expire ten
years after the date of grant.
7
<PAGE>
4. Related Party Transactions
The Company had employee advances on the balance sheet in the amount of
$14 as of December 31, 1997. All advances were repaid in the quarter ended March
31, 1998.
An officer and director of the Company is the director of a company
that received management fees of $20 in the quarter ended March 31, 1998.
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, which term began in 1997, with a
minimum fee of $250 per annum. Through March 31, 1998 the Company has paid $63
in connection with this agreement.
5. Distributions
On March 16, 1998 the Company declared a distribution of $.15 per
Common Share which was paid on April 15, 1998 to shareholders of record as of
March 31, 1998.
6. Subsequent Events
On April 23, 1998 the Company completed the sale of 7,500,000
Common Shares to the public at a price of $10.50 per share ("the Offering"). The
Company used the proceeds to acquire 7,500,000 Partnership Units and increase
its percentage interest in the Operating Partnership to approximately 75.8%. As
discussed below, the majority of the net proceeds of the Offering were used by
the Company for investment purposes. Although not exercised as of May 7, 1998,
the underwriters have the right to exercise their over-allotment options, which
(if exercised) would result in the Company issuing up to an additional 1,125,000
Common Shares at a price of $10.50 per share.
On April 30, 1998, the Company acquired 12 office properties for an
aggregate cash purchase price of approximately $72 million. The properties
aggregate approximately 815,000 net rentable square feet.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. The words "believe", "expect", "anticipate", "intend",
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: real estate investment
considerations, such as the effect of economic and other conditions in the
market area on cash flows and values; the need to renew leases or release space
upon the expiration of current leases, and the ability of a property to generate
revenues sufficient to meet debt service payments and other operating expenses;
and risks associated with borrowings, such as the possibility that the Company
will not have sufficient funds available to make principal payments on
outstanding debt or outstanding debt may be refinanced at higher interest rates
or otherwise on terms less favorable to the Company.
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the accompanying
financial statements and notes thereto.
Results of Operations
Comparison of the Three Months Ended March 31, 1998 and 1997: Total
revenues increased from $.6 million for the quarter ended March 31, 1997 to $5.5
million for the quarter ended March 31, 1998, an increase of $4.9 million or
773%. Of this increase, $4.3 million results from an increase in base rents,
substantially all of which is attributable to the acquisition of the Office
Properties. Tenant recoveries totaled $.6 million in the first quarter of 1998
as compared to none in the first quarter of 1997 due wholly to tenant recoveries
attributable to leases on the Office Properties.
Total expenses increased from $.54 million for the quarter ended March
31, 1997 to $5.0 million for the quarter ended March 31, 1998, an increase of
829%. Of the total increase of $4.5 million, approximately $3.9 million is
attributable to increased interest expense ($1.9 million), increased
depreciation and amortization ($.9 million), increased property expenses ($.9
million), and increased general and administrative expenses ($.2 million),
primarily as a result of the acquisition of the Office Properties. Further, $.6
million represents costs associated with the Reformation on March 16, 1998.
Depreciation and amortization increased from $142 for the quarter ended
March 31, 1997 to $1.0 million for the quarter ended March 31, 1998, an increase
of 633%, as a result of the acquisition of the Office Properties. Interest
expense increased from $.3 million in 1997 to $2.2 million in 1998, an increase
of 601%, primarily as a result of borrowings associated with the acquisition of
the Office Properties, offset slightly by decreased interest expense on the
retail properties' mortgages.
General and administrative expenses increased from $86 for the quarter
ended March 31, 1997 to $299 for the quarter ended March 31, 1998 resulting from
the conversion of the Company from an externally-advised REIT to a
self-administered REIT. During the first quarter of 1998, the Company incurred
$637 of costs associated with the Reformation on March 16, 1998. During the
fourth quarter of 1997, the Company commenced administrative operations. The
Company incurred administrative payroll expenses of $172 and office overhead
expenses of $31 during the quarter ended March 31, 1998 not incurred prior to
the fourth quarter of 1997.
As a result of the above factors, income before minority interests
increased from $91, for the quarter ended March 31, 1997 to $490 for the quarter
ended March 31, 1998. Net income decreased from $91 for the quarter ended March
31, 1997 to a net loss of $499 for the quarter ended March 31, 1998,
attributable primarily to the existence of minority interests resulting from the
new structure of the Company following the acquisition of the Office Properties
and the costs associated with Reformation.
9
<PAGE>
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.
For the three months ended March 31, 1998, the Company declared
distributions totaling $.15 per Common Share amounting to approximately $341. In
addition, during this same period the Company's distributions declared to
minority interests holding Partnership Units and Preferred Units amounted to
$388 and $853, respectively.
On April 23, 1998, the Company completed the sale of 7,500,000 Common
Shares to the Public at a price of $10.50 per share. The Company used the
proceeds to acquire 7,500,000 Partnership Units and increase its percentage
interest in the Operating Partnership to approximately 75.8%. As discussed
below, the majority of the net proceeds of the Offering were used by the Company
for investment purposes. Although not exercised as of May 7, 1998, the
underwriters have the right to exercise their over-allotment options, which (if
exercised), would result in the Company issuing up to an additional 1,125,000
Common Shares at a price of $10.50 per share. Simultaneously with the
Offering, the Company became listed on the New York Stock Exchange and began
trading under the symbol "OFC".
On April 30, 1998, the Company acquired 12 office properties for an
aggregate cash purchase price of approximately $72 million. The properties
aggregate approximately 815,000 net rentable square feet.
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 $100 million
collateralized credit facility, which the Company intends to utilize for
acquisitions, renovations, tenant improvements and leasing commissions ("Credit
Facility"). 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 the Company's acquisition and capital program.
The Company expects to meet its long term liquidity requirements, such
as property acquisitions, scheduled debt maturities, major renovations,
expansions, and other non-recurring capital improvements through long-term
collateralized indebtedness and the issuance of additional equity securities.
The Company intends to finance the acquisition of additional properties through
borrowings under the proposed Credit Facility.
As of March 31, 1998, the Company posted a nonrefundable deposit with
an unrelated party totaling $600 in connection with a future acquisition.
Statement of Cash Flows
During the three months ended March 31, 1998, the Company generated
$956 in cash flow from operating activities (net of nonrecurring Reformation
costs of $637), which together with initial cash balances of $3.4 million were
used, in part, for (i) deposits on potential acquisitions of $600, (ii)
furniture and equipment costs of $82, (iii) distributions to holders of Common
Shares, Partnership Units and Preferred Units totaling $1.3 million and (iv)
repayments of mortgage loans of $74. As a result, the cash balances decreased by
$1.0 million to $2.3 million.
Funds From Operations
The Company considers Funds From Operation ("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 in-
10
<PAGE>
come (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 and extraordinary and nonrecurring items. 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 three months
ended March 31, 1997 and 1998, as calculated in accordance with the NAREIT
definition published in March 1995, are summarized in the following table (in
thousands).
<TABLE>
<CAPTION>
Historical
Three Months Ended March 31,
-------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Income before minority interests............ $ 91 $ 490
Add: Nonrecurring charge - 637
Reformation costs...........................
Add: Real estate related depreciation and
amortization................................ 138 972
Less: Preferred Unit distributions......... - (853)
-------------- --------------
Funds from operations....................... $ 229 $ 1,246
Add: Preferred Unit distributions.......... - 853
-------------- --------------
Funds from operations assuming conversion
of Preferred Units.......................... 229 $ 2,099
-------------- --------------
Weighted average Common Shares/Units
outstanding(1).............................. 1,420 4,850
-------------- --------------
-------------- --------------
Weighted average Common Shares/Units
outstanding diluted(2)...................... 1,420 12,376
-------------- --------------
-------------- --------------
</TABLE>
- ----------------
(1) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Includes 282,508 Common Shares
issuable upon redemption of Partnership Units issuable upon the
conversion of the Retained Interests. Excludes the weighted average
effect of the conversion of 186,455 Retained Interests into 186,455
Preferred Units and 1,913,545 Preferred Units, both convertible into an
aggregate of 7,499,940 Partnership Units which are, in turn, redeemable
for 7,499,940 Common Shares.
(2) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Includes 282,508 Common Shares
issuable upon redemption of Partnership Units issuable upon the
conversion of the Retained Interests. Includes the weighted average
effect of the conversion of 186,455 Retained Interests into 186,455
Preferred Units and 1,913,545 Preferred Units, both convertible into an
aggregate of 7,499,940 Partnership Units which are, in turn, redeemable
for 7,499,940 Common Shares, and 25,913 shares for the assumed
conversion of stock options (using the Treasury stock method).
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. 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 2. Changes In Securities
Reformation
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. The Reformation was
accomplished by merging Corporate Office Properties Trust, Inc. into a newly
formed Maryland subsidiary corporation (the "Maryland Company") which was the
surviving corporation of the merger and immediately thereafter merged the
Maryland Company into the Company, a newly formed Maryland subsidiary trust, in
each case, pursuant to the merger agreement. The Maryland Company was
incorporated in Maryland on January 21, 1998 and the Company was formed in
Maryland on January 21, 1998, specifically for purposes of the Reformation, and
each had conducted no business and had no material assets or liabilities. The
Reformation had been accomplished through the Company merger followed by the
Trust merger because Minnesota law did not permit the direct merger of a
Minnesota corporation into a Maryland real estate investment trust. The Maryland
Company's and the Company's principal executive offices are each located at One
Logan Square, Suite 1105, Philadelphia, Pennsylvania. The Reformation did not
result in any change in the Company's business, assets or liabilities and did
not result in any relocation of management or other employees.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission Of Matters To A Vote Of Security Holders
The following matters were submitted to a vote of security holders
during the Company's first quarter.
<TABLE>
<S> <C> <C>
(a) Meeting type and date Special Meeting of Shareholders held on
March 12, 1998
(b) Directors elected at meeting Not applicable
(c) Description of each matter voted
on at meeting
Resolution to approve the Reformation, Results of votes
in which the Company was reformed as a For 1,492,272.912
Maryland real estate investment trust, Against or withheld 7,699.115
which will be named Corporate Office Abstentions and broker non-votes 9,185.000
Properties Trust.
Resolution to adopt the 1998 long-term Results of votes
incentive plan. For 1,422,037.547
Against or withheld 66,037.480
Abstentions and broker non-votes 21,089.000
</TABLE>
12
<PAGE>
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
99.1 Audited balance sheets of the Company as of December 31,
1996 and 1995, and the related statements of income,
changes in stockholders' equity and cash flow for each
of the years in the three-year period ended December 31,
1996 (filed with the Company's Current Report on Form
8-K on January 20, 1998 and incorporated herein by
reference).
99.2 Press release dated March 6, 1998 (filed with the
Company's Current Report on Form 8-K on March 6, 1998
and incorporated herein by reference).
2.1 Agreement and Plan of merger, dated January 31, 1998,
among Corporate Office Properties, Inc, COPT, Inc. and
the Company (filed with the Company's Registration
statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference).
3(i).1 Articles of Amendment to Articles of Incorporation dated
December 23, 1997 (filed with the Company's Current
Report on Form 8-K on January 5, 1998 and incorporated
herein by reference).
4.1 Form of certificate for the Company's Common Shares of
Beneficial Interest, $0.01 par value per share (filed
with the Company's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein
by references).
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).
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
During the three months ended March 31, 1998 and through May 7, 1998 the Company
filed the following:
i. a Current Report of Form 8-K dated January 5, 1998 (Reporting under Items
5 and 7) regarding the Shareholders' approval of the Company's name to
Corporate Office Properties Trust Inc.
ii.a Current Report of Form 8-K dated January 20, 1998 (Reporting under
Items 5 and 7) regarding the re-audit of the Company's historical
financial statements as of December 31, 1996 and 1995 and for the years
ended December 31, 1996, 1995 and 1994 by Coopers and Lybrand, L.L.P. The
report of Coopers
13
<PAGE>
and Lybrand , L.L.P. was not qualified or modified as
to any matter and, except for disclosures of certain subsequent events,
there were no changes to the Company's filed report under Part II Item 7
in the 1996 Form 10-KSB.
iii. a Current Report of Form 8-K dated January 20, 1998 (Reporting under
Items 5 and 7) regarding the Company's earnings for the year ended
December 31, 1997 and certain other financial information.
iv.a Current Report of Form 8-K dated January 20, 1998 (Reporting under
Items 5 and 7) regarding the Reformation of the Company effective March
16, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date May 7, 1998 By: /s/ Clay W. Hamlin, III
-----------------------
Clay W. Hamlin, III
President and Chief Executive Officer
(Principal Executive Officer)
Date May 7, 1998 By: /s/ Thomas D. Cassel
--------------------
Thomas D. Cassel
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,346
<SECURITIES> 0
<RECEIVABLES> 41
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,539
<PP&E> 191,931
<DEPRECIATION> (4,201)
<TOTAL-ASSETS> 192,656
<CURRENT-LIABILITIES> 2,893
<BONDS> 114,301
0
0
<COMMON> 0
<OTHER-SE> 75,462
<TOTAL-LIABILITY-AND-EQUITY> 192,656
<SALES> 0
<TOTAL-REVENUES> 5,525
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,865<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,159
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
<FN>
<F1>Reflects nonrecurring Reformation costs of $637 associated with the Reformation
of the Company as a Maryland Trust.
</FN>
</TABLE>
