<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A No. 1
----------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 30, 1998
CORPORATE OFFICE PROPERTIES TRUST
-----------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Maryland 0-20047 23-2947217
---------- --------- ------------
<S> <C> <C>
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
</TABLE>
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)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 30, 1998, Corporate Office Properties Trust (the "Company") through
affiliates of Corporate Office Properties, L.P. (the "Operating Partnership"),
acquired nine multistory office buildings and three office/flex buildings (the
"Acquired Properties") located in the Baltimore/Washington corridor adjacent to
the BWI Airport in Linthicum, Anne Arundel County, Maryland from unrelated
parties.
The purchase price of the Acquired Properties totaled approximately $72 million,
paid in cash. The acquisition was accomplished through a combination of (i) the
purchase of the debt encumbering the Acquired Properties from the former
mortgage lender, Aetna Life Insurance Company and (ii) the purchase of all the
partnership interests in the partnerships that owned the Acquired Properties.
These partnership interests were owned by Airport Square Limited Partnership, a
Maryland limited partnership, Airport Square Corporation, a Maryland corporation
and Camp Meade Corporation, a Maryland corporation. In connection with the
acquisition, the Company obtained the right to purchase the Acquired
Properties for $250,000 from Constellation Real Estate, Inc. The Company has
executed various agreements to purchase substantially all of the operating
real estate activities and assets of affiliates of Constellation Real Estate,
Inc.
The Acquired Properties, located in the Airport Square Office Park and the
Airport Square Technology Park, total approximately 813,000 square feet. As of
June 1, 1998, the Acquired Properties were 97% leased to 28 tenants. Major
tenants include the government of the United States of America and Ciena
Corporation, under several leases aggregating approximately 210,000 and 182,000
square feet, respectively, representing 26% and 22% of the Acquired Properties'
aggregate square feet.
The following table sets forth a summary schedule of the lease expirations for
the Acquired Properties, for leases in place as of June 1, 1998, assuming that
none of the tenants exercise renewal options.
2
<PAGE>
<TABLE>
<CAPTION>
Year of Lease Number of Square Percentage of Total Rental Total Rental Percentage of
Expiration Leases Footage of Total Leased Revenue of Revenue of Total Rental
Expiring Expiring Square Feet Expiring Expiring Leases Revenue
Leases Leases ($000) per Rentable Expiring (1)
(1) Square Foot (1)
<S> <C> <C> <C> <C> <C> <C>
5/1/98 - 7 117,178 14.84% $ 1,117,009 $ 9.53 10.98%
12/31/98 (2)
1999 7 206,386 26.13 2,769,888 13.42 27.22
2000 5 16,573 2.10 259,076 15.63 2.55
2001 5 84,905 10.75 1,459,834 17.19 14.35
2002 8 211,431 26.77 2,590,329 12.25 25.46
2003 - - - - - -
2004 - - - - - -
2005 2 61,779 7.82 967,272 15.66 9.50
2006 - - - - - -
2007 - - - - - -
2008 2 91,589 11.59 1,012,376 11.05 9.94
2009 and - - - - - -
thereafter
---- --------- --------- ------------- -------- ----------
Total/Average 36 789,841 100.00% $10,175,784 $12.88 100.00%
---- --------- --------- ------------- -------- ----------
---- --------- --------- ------------- -------- ----------
</TABLE>
(1) Total Rental Revenue is the monthly contractual charge as of June 1, 1998
multiplied by 12 including any operating expense reimbursements
(2) Excludes 22,775 vacant square feet as of June 1, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
The combined financial statements of the Acquired Properties are
included herein. See pages F-15 through F-19.
(b) Pro Forma Financial Information
The pro forma condensed consolidated financial statements of the
Company are included herein. See pages F-2 through F-14.
3
<PAGE>
(c) Exhibits
Exhibit Number Description
- -------------- -----------
2.1* Assignment of Partnership Interests dated as of April
30, 1998 between Airport Square Limited Partnership, Airport
Square Corporation, Camp Meade Corporation and COPT Airport
Square One LLC and COPT Airport Square Two LLC.
10.1* Assignment of Purchase and Sale Agreement dated as of April
30, 1998 between Aetna Life Insurance Company and the
Operating Partnership.
10.2* Assignment of Loan Purchase and Sale Agreement dated as of
April 30, 1998 between Constellation Real Estate, Inc. and
the Operating Partnership.
10.3* Purchase and Sale Agreement dated as of April 1, 1998
between Aetna Life Insurance Company and Airport Square
Limited Partnership
10.4* Loan Purchase and Sale Agreement dated as of March 13, 1998
between Aetna Life Insurance Company and Constellation Real
Estate, Inc.
10.5* Amendment to Loan Purchase and Sale Agreement dated as of
April 16, 1998 between Aetna Life Insurance Company and
Constellation Real Estate, Inc.
Exhibits and Schedules have been omitted based on rule 601 (b) (2). Such
exhibits and schedules are described in the agreements. The registrant hereby
agrees to furnish to the Commission upon its request any or all such omitted
exhibits or schedules.
*As previously filed with the Current Report on Form 8-K filed May 14, 1998.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 6, 1998
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Clay W. Hamlin, III
-----------------------
Name: Clay W. Hamlin, III
Title: President and
Chief Executive Officer
By: /s/ Thomas D. Cassel
--------------------
Name: Thomas D. Cassel
Title: Vice President Finance
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL STATEMENTS OF THE COMPANY
Pro forma Condensed Consolidating Balance Sheet as of March 31, 1998 F-4
Pro forma Condensed Consolidating Statements of Operations for the Three Months
Ended March 31, 1998 and for the Year Ended December 31, 1997 F-5
Notes and Management's Assumptions to Pro Forma Condensed Consolidating
Financial Information F-7
II. AIRPORT SQUARE ACQUISITION PROPERTIES
Report of Independent Accountants F-15
Combined Statement of Revenue and Certain Expenses for the Year
Ended December 31, 1997 F-16
Notes to Combined Statement of Revenue and Certain Expenses F-17
Combined Statement of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (unaudited) F-19
</TABLE>
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the unaudited pro forma condensed consolidating balance
sheet of Corporate Office Properties Trust and its consolidated affiliates,
including Corporate Office Properties, L.P. (the "Operating Partnership") as of
March 31, 1998, and the unaudited pro forma condensed consolidating statements
of operations for the year ended December 31, 1997 and the three-month period
ended March 31, 1998 of the Company (as defined below). Corporate Office
Properties Trust and its consolidated affiliates, including the Operating
Partnership, are collectively referred to herein as the "Company."
In October 1997, the Operating Partnership acquired partnership interests in a
portfolio of ten properties (the "Initial Office Properties"), representing the
Mid-Atlantic suburban office operations of The Shidler Group, subject to $100
million of indebtedness (the "Term Credit Facility"). At that time, the Company
became the sole general partner of the Operating Partnership, which was formed
to acquire and hold the Initial Office Properties. In connection with the
acquisition of the Initial Office Properties, the Company issued 600,000 of its
common shares of beneficial interest ("Common Shares") and the Operating
Partnership issued (or committed to issue) 3,181,818 common partnership units
("Partnership Units") and 2.1 million preferred partnership units ("Preferred
Units").
The acquisition of the Initial Office Properties is reflected in the Company's
historical consolidated balance sheet as of December 31, 1997, and is included
in the pro forma condensed consolidating statements of operations as if it
occurred on January 1, 1997.
The pro forma condensed consolidating financial information is presented as if
the following transactions had been consummated on March 31, 1998 for balance
sheet purposes, and at the beginning of the period presented for purposes of the
statements of operations:
o The completion of a public offering (the "Offering") in which the
Company issued 7,500,000 Common Shares at $10.50 per share and
contributed all of the net proceeds to the Operating Partnership in
exchange for 7,500,000 Partnership Units.
o The acquisition of nine multistory office buildings and three
office/flex buildings (the "Airport Square Properties"). As reported in
the Company's Current Report on Form 8-K filed May 14, 1998 and as
amended on this Current Report on Form 8-K/A filed July 7, 1998, the
Company closed on this acquisition on April 30, 1998 and the purchase
price totaled approximately $72 million.
o The acquisition of two office properties (the "Fairfield Properties").
As reported in the Company's Current Report on Form 8-K filed June 10,
1998 and as amended on Current Report on Form 8-K/A filed July 7, 1998,
the Company closed on this acquisition on May 28, 1998 and the purchase
price totaled $28.8 million, including $6.5 million of assumed debt
with the balance paid in cash.
o The closing of a $100 million, two-year-senior revolving credit
facility (the "Revolving Credit Facility") and the borrowing of
$23,750,000 under the Revolving Credit Facility to pay a portion of the
consideration for the Fairfield Properties.
F-2
<PAGE>
o The acquisition by the Company from various parties (collectively,
"Constellation") of interests in (i) 14 office and 2 retail properties
(the "Constellation Properties"); (ii) a 75% ownership interest in a
real estate management services entity; and (iii) certain equipment,
furniture and other assets related to management operations ((ii) and
(iii) collectively, the "Constellation Service Companies") in exchange
for: (a) issuance by the Company of 969,900 non-voting Series A
Convertible Preferred Shares of Beneficial Interest, $0.01 par value,
$25.00 liquidation preference ("Preferred Shares") and 6,928,000
Common Shares; (b) the assumption of debt aggregating $12,990,000; and
(c) the payment of $69,038,000 in cash. The foregoing is reported in
the Company's Preliminary Proxy Statement filed on Schedule 14A on
June 26, 1998 and is referred to herein as the "Transaction."
o The borrowing of $73,143,000 under the Revolving Credit Facility to
pay for certain of the cash requirements of the Transaction.
o The contribution by the Company of all the assets acquired in the
Transaction to the Operating Partnership in exchange for Partnership
Units and Preferred Units.
The accompanying pro forma condensed consolidating financial information does
not include the effects of the acquisition of two retail properties (the
"Development Properties") in connection with the Transaction, as the Company's
obligation to complete such acquisitions is contingent on the occurrence of
certain events.
This pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those of
the Initial Office Properties, the Airport Square Properties, the Fairfield
Properties, the Constellation Properties and the Constellation Service
Companies. In management's opinion, all adjustments necessary to reflect the
effects of the foregoing transactions have been made. This pro forma condensed
consolidating financial information is unaudited and is not necessarily
indicative of what the actual financial position would have been at March 31,
1998, nor does it purport to represent the future financial position and the
results of operations of the Company.
F-3
<PAGE>
Corporate Office Properties Trust
Pro Forma Condensed Consolidating Balance Sheet
As of March 31, 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Offering,
Company Airport Square
Historical and Fairfield Pro Forma Pro Forma
(A) Properties (B) Adjustments (C) Consolidated
--------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Assets
Net investments in real estate $ 187,730 $ 102,073 $ 180,047 (D) $ 469,850
Cash and cash equivalents 2,346 386 -- 2,732
Deferred costs, net 793 505 -- 1,298
Investment in management company -- -- 2,500 (D) 2,500
Other assets 1,787 -- -- 1,787
--------- --------- --------- ---------
Total assets $ 192,656 $ 102,964 $ 182,547 $ 478,167
--------- --------- --------- ---------
--------- --------- --------- ---------
Liabilities and shareholders' equity
Liabilities
Mortgage loans payable $ 114,301 $ 30,215 $ 86,133 (E) $ 230,649
Other liabilities 2,893 -- -- 2,893
--------- --------- --------- ---------
Total liabilities 117,194 30,215 86,133 233,542
--------- --------- --------- ---------
Minority interests
Preferred Units 52,500 -- -- 52,500
Partnership Units 12,111 -- -- 12,111
--------- --------- --------- ---------
Total minority interests 64,611 -- -- 64,611
--------- --------- --------- ---------
Shareholders' equity
Preferred shares of beneficial interest -- -- 10 (F) 10
Common shares of beneficial interest 23 75 69 (G) 167
Additional paid in capital 16,647 72,674 96,335 (H) 185,656
Accumulated deficit (5,819) -- -- (5,819)
--------- --------- --------- ---------
Total shareholders' equity 10,851 72,749 96,414 180,014
--------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 192,656 $ 102,964 $ 182,547 $ 478,167
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-4
<PAGE>
Corporate Office Properties Trust
Pro Forma Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1997
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Offering,
Initial Office,
Company Airport Square
Historical and Fairfield Pro Forma Pro Forma
(A) Properties (B) Adjustments (C) Consolidated
---------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Base rents $ 6,122 $ 23,129 $ 14,756 (D) $ 44,007
Tenant reimbursements 434 2,795 2,095 (D) 5,324
Other 62 20 213 (D) 295
----------- ----------- ------------- -----------
Total revenues 6,618 25,944 17,064 49,626
----------- ----------- ------------- -----------
Expenses:
Property operating 728 8,029 5,986 (D) 14,743
General and administrative 533 299 526 (D) 1,358
Interest expense 2,855 8,194 6,177 (D) 17,226
Depreciation and amortization 1,331 5,059 3,517 (D) 9,907
Termination of Advisory Agreement 1,353 -- (1,353)(E) --
----------- ----------- ------------- -----------
Total expenses 6,800 21,581 14,853 43,234
----------- ----------- ------------- -----------
Equity in income of management company -- -- 55 (D) 55
----------- ----------- ------------- -----------
Income (loss) before minority interests (182) 4,363 2,266 6,447
Minority interests
Preferred Units (720) -- (2,692)(F) (3,412)
Partnership Units (65) -- (131)(F) (196)
----------- ----------- ------------- -----------
Net income (loss) (967) 4,363 (557) 2,839
Preferred share distributions -- -- (1,334)(F) (1,334)
----------- ----------- ------------- -----------
Net income (loss) available to Common Shareholders $ (967) $ 4,363 $ (1,891) $ 1,505
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Net income (loss) per share: Basic and diluted $ (0.60) $ 0.09
----------- -----------
----------- -----------
Weighted average number of shares 1,600,807 16,699,083
----------- -----------
----------- -----------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-5
<PAGE>
Corporate Office Properties Trust
Pro Forma Condensed Consolidating Statement of Operations
For the Three Month Period Ended March 31, 1998
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Offering,
Historical Airport Square
Consolidated and Fairfield Pro Forma Pro Forma
(A) Properties (B) Adjustments (C) Consolidated
------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Base rents $ 4,919 $ 3,496 $ 3,694(D) $ 12,109
Tenant reimbursements 553 142 426(D) 1,121
Other 53 4 82(D) 139
----------- ----------- ----------- -----------
Total revenues 5,525 3,642 4,202 13,369
----------- ----------- ----------- -----------
Expenses:
Property operating 899 1,088 1,473(D) 3,460
General and administrative 299 29 137(D) 465
Interest expense 2,159 579 1,543(D) 4,281
Depreciation and amortization 1,041 564 879(D) 2,484
Reformation costs 637 -- (637)(E) --
----------- ----------- ----------- -----------
Total expenses 5,035 2,260 3,395 10,690
----------- ----------- ----------- -----------
Equity in income of management company -- -- (159)(D) (159)
----------- ----------- ----------- -----------
Income (loss) before minority interests 490 1,382 648 2,520
Minority interests
Preferred Units (853) -- -- (F) (853)
Partnership Units (136) -- (44)(F) (180)
----------- ----------- ----------- -----------
Net income (loss) (499) 1,382 604 1,487
Preferred share distributions -- -- (333)(F) (333)
----------- ----------- ----------- -----------
Net income (loss) available to Common Shareholders $ (499) $ 1,382 $ 271 $ 1,154
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share: Basic and diluted $ (0.22) $ 0.07
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares 2,268,333 16,699,083
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-6
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(Dollars in thousands, except share and per share amounts)
1. Basis of Presentation:
Corporate Office Properties Trust (the "Company") is a self-administered
Maryland real estate investment trust. As of March 31, 1998, the Company's
portfolio included 17 commercial real estate properties leased for office and
retail purposes.
These pro forma condensed consolidating financial statements should be read
in conjunction with the historical financial statements and notes thereto of
the Company, the Initial Office Properties, the Airport Square Properties,
the Fairfield Properties, the Constellation Properties and the Constellation
Service Companies. In management's opinion, all adjustments necessary to
reflect the effects of the Offering and the acquisitions of the Initial
Office Properties, the Airport Square Properties, the Fairfield Properties,
the Constellation Properties and the Constellation Service Companies by the
Company have been made.
2. Adjustments to Pro Forma Condensed Consolidating Balance Sheet:
(A) Reflects the historical consolidated balance sheet of the Company as of
March 31, 1998.
(B) Reflects the effects of the Offering and the acquisitions of the
Airport Square Properties and the Fairfield Properties.
<TABLE>
<CAPTION>
Airport Square Fairfield
Offering(i) Properties (ii) Properties(iii) Combined
----------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Assets
Net investments in real estate $ -- $ 72,668 $ 29,405 $102,073
Cash and cash equivalents 72,749 (72,668) 305 386
Deferred costs, net -- -- 505 505
-------- -------- -------- --------
Total assets $ 72,749 $ -- $ 30,215 $102,964
-------- -------- -------- --------
-------- -------- -------- --------
Liabilities and shareholders' equity
Liabilities
Mortgage loans payable $ -- $ -- $ 30,215 $ 30,215
-------- -------- -------- --------
Total liabilities -- -- 30,215 30,215
-------- -------- -------- --------
Shareholders' equity
Common shares of beneficial interest 75 -- -- 75
Additional paid in capital 72,674 -- -- 72,674
-------- -------- -------- --------
Total shareholders' equity 72,749 -- -- 72,749
-------- -------- -------- --------
Total liabilities and
shareholders' equity $ 72,749 $ -- $ 30,215 $102,964
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-7
<PAGE>
(i) Reflects the proceeds of the Offering of $78,750 based upon an
offering of 7,500,000 Common Shares at an offering price of
$10.50 per share, net of underwriting discounts and offering
expenses of approximately $6,001.
(ii) Reflects the Company's acquisition of the Airport Square
Properties based upon the purchase price of $71,479 plus
closing costs of $1,189 paid in cash.
(iii) Reflects the Company's acquisition of the Fairfield Properties
based upon the purchase price of $28,800 plus closing costs of
$605 paid through the Company's assumption of debt of $6,465
and initial funding proceeds of $23,750 from the Revolving
Credit Facility, net of loan fees totaling $505 in connection
with the Revolving Credit Facility and the debt assumed.
(C) The accompanying pro forma condensed consolidating financial
information does not include the effects of the acquisition of the
Development Properties (estimated purchase price of $25,594), as the
Company's obligation to complete such acquisitions is contingent on
the occurrence of certain events.
(D) Reflects the contribution of the Constellation Properties and
Constellation Service Companies in exchange for: (i) issuance of
969,900 Preferred Shares at a value equal to a liquidation preference
of $25.00 per share ($24,248); (ii) issuance of 6,928,000 Common
Shares at a value of $10.50 per share ($72,744); (iii) assumption of
debt aggregating $12,990; and (iv) utilization of loan proceeds from
the Revolving Credit Facility of $72,565, including payment of $3,527
of costs associated with the acquisition. The total contribution is
recorded as follows:
<TABLE>
<S> <C>
o Net investments in real estate $ 180,047
o Investment in management company 2,500
-------------
Total investments from Transaction $ 182,547
-------------
-------------
</TABLE>
The Company will be acquiring from Constellation an interest in the
Constellation Service Companies for $2,500 which the Company will
contribute to a newly formed company in exchange for indebtedness and
stock. As this investment will be accounted for under the equity
method of accounting, the pro forma adjustments reflect the income
(loss) from this investment as equity in income of management company.
(E) Reflects the net increase in mortgage loans payable as follows:
<TABLE>
<S> <C>
o Net proceeds from the Revolving Credit Facility
in connection with the Transaction $ 73,143
o Assumption of mortgages in connection with the
Transaction 12,990
-------------
Net increase in mortgage loans payable $ 86,133
-------------
-------------
</TABLE>
(F) Reflects the issuance of 969,900 Preferred Shares,
<TABLE>
<S> <C>
$0.01 par value $ 10
-------------
-------------
</TABLE>
F-8
<PAGE>
(G) Reflects the issuance of 6,928,000 Common Shares,
<TABLE>
<S> <C>
$0.01 par value $ 69
-------------
-------------
</TABLE>
(H) Reflects increase in additional paid in capital as follows:
<TABLE>
<S> <C>
o Issuance of 969,900 Preferred Shares, excess of $ 24,238
$25.00 over par
o Issuance of 6,928,000 Common Shares, excess of
$10.50 over par 72,675
o Less: costs in connection with the Transaction (578)
--------
Net increase in additional paid in capital $ 96,335
--------
--------
</TABLE>
3. Adjustments to Pro Forma Condensed Consolidating Statements of Operations:
(A) Reflects the historical consolidated operations of the Company.
(B) Reflects the effects of the combined adjusted historical operations of
the Initial Office Properties, the Airport Square Properties and the
Fairfield Properties which were acquired on October 14, 1997, April 30,
1998 and May 28, 1998, respectively.
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Initial Office Fairfield
Properties Airport Square Properties
through Properties through Pro Forma
10/13/97 through 12/31/97 12/31/97 Adjustments Combined
-------------- ---------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Base rents $12,216 $ 8,524 $ 2,389 $ -- $23,129
Tenant reimbursements 1,282 275 1,238 -- 2,795
Other -- 20 -- -- 20
------- ------- ------- ------- -------
Total revenues 13,498 8,819 3,627 -- 25,944
------- ------- ------- ------- -------
Expenses
Property operating 2,731 3,367 1,931 -- 8,029
General and administrative 174 41 84 -- 299
Interest expense 7,388 -- -- 806(i) 8,194
Depreciation and amortization 2,580 -- -- 2,479(ii) 5,059
------- ------- ------- ------- -------
Total expenses 12,873 3,408 2,015 3,285 21,581
------- ------- ------- ------- -------
Income (loss) before minority interests $ 625 $ 5,411 $ 1,612 $(3,285) $ 4,363
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
F-9
<PAGE>
For the Three-Month Period Ended March 31, 1998
<TABLE>
<CAPTION>
Fairfield
Airport Square Properties
Initial Office Properties Historical
Properties Historical through Pro Forma
Historical through 3/31/98 3/31/98 Adjustments Combined
-------------- --------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Base rents $ -- $ 2,528 $ 968 $ -- $ 3,496
Tenant reimbursements -- 64 78 -- 142
Other -- 4 -- -- 4
------------ ------- ------- ------- -------
Total revenues -- 2,596 1,046 -- 3,642
------------ ------- ------- ------- -------
Expenses
Property operating -- 805 283 -- 1,088
General and administrative -- 6 23 -- 29
Interest expense -- -- -- 579(i) 579
Depreciation and amortization -- -- -- 564(ii) 564
------------ ------- ------- ------- -------
Total expenses -- 811 306 1,143 2,260
------------ ------- ------- ------- -------
Income (loss) before minority interests $ -- $ 1,785 $ 740 $(1,143) $ 1,382
------------ ------- ------- ------- -------
------------ ------- ------- ------- -------
</TABLE>
(i) Reflects the net increase in interest expense resulting from:
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
o The Term Credit Facility, for the period January 1, 1997
through October 13, 1997, the date on which the loan
originated, which debt bears interest at 7.5% per
annum, net of historical interest expense
of the Initial Office Properties $(1,511) $ --
o The debt assumed in connection with the
acquisition of the Fairfield Properties
which debt bears interest at 8.29% per 536 134
annum
o The borrowing on the Revolving Credit Facility of $23,750
in connection with the acquisition of the Fairfield
Properties (which debt bears interest at
LIBOR plus 175 basis points) assuming a
LIBOR rate of 5.75% 1,781 445
------- -------
$ 806 $ 579
------- -------
------- -------
</TABLE>
(ii) Reflects the net increase in depreciation and amortization expense
resulting from:
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
o Depreciation of buildings acquired over
a 40-year useful life $ 2,588 $ 511
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
o Reduction in amortization of deferred
financing fees related to loans held by
previous owners of the Initial Office
Properties ($515), net of amortization of
deferred financing debt related to Term
Credit Facility held by the Company on
Initial Office Properties ($192) (323) -
o Amortization of deferred financing fees
related to debt assumed in connection
with the Fairfield Properties 10 2
o Amortization of deferred financing fees
related to the Revolving Credit Facility 204 51
----------------- -------------
$ 2,479 $ 564
----------------- -------------
----------------- -------------
</TABLE>
(C) Consistent with the pro forma condensed consolidating balance sheet,
the pro forma statements of operations do not reflect the operations of
the Development Properties.
(D) Reflects the effects of the combined adjusted historical operations of
the Constellation Properties and Constellation Service Companies.
For the Year ended December 31, 1997
<TABLE>
<CAPTION>
Constellation Constellation Pro Forma
Properties Service Companies Constellation
Historical Historical Adjustments Combined
------------- ----------------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 14,756 $ -- $ -- $ 14,756
Tenant reimbursements 2,095 -- -- 2,095
Other 213 11,226 (11,226)(i) 213
-------- -------- -------- --------
Total revenues 17,064 11,226 (11,226) 17,064
-------- -------- -------- --------
Expenses
Property operating 5,986 -- -- 5,986
General and administrative 526 10,242 (10,242)(ii) 526
Interest expense -- 18 6,159(iii) 6,177
Depreciation and amortization -- 225 3,292(iv) 3,517
-------- -------- -------- --------
Total expenses 6,512 10,485 (791) 16,206
-------- -------- -------- --------
Equity in income of management company -- -- 55(v) 55
-------- -------- -------- --------
Income before income taxes
and minority interests $ 10,552 $ 741 $(10,380) $ 913
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-11
<PAGE>
For the Three-Month Period Ended March 31, 1998
<TABLE>
<CAPTION>
Constellation Constellation Pro Forma
Properties Service Companies Constellation
Historical Historical Adjustments Combined
------------- ----------------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues
Base rents $ 3,694 $ -- $ -- $ 3,694
Tenant reimbursements 426 -- -- 426
Other 82 3,717 (3,717)(i) 82
------- ------- ------- -------
Total revenues 4,202 3,717 (3,717) 4,202
------- ------- ------- -------
Expenses
Property operating 1,473 -- -- 1,473
General and administrative 137 3,685 (3,685)(ii) 137
Interest expense -- 3 1,540(iii) 1,543
Depreciation and amortization -- 67 812(iv) 879
------- ------- ------- -------
Total expenses 1,610 3,755 (1,333) 4,032
------- ------- ------- -------
Equity in income of management company -- -- (159)(v) (159)
------- ------- ------- -------
Income (loss) before income taxes and
minority interests $ 2,592 $ (38) $(2,543) $ 11
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
<S> <C> <C>
(i) Reflects the reclassification of Constellation
Service Companies' historical revenue to equity in
income of management company. $(11,226) $(3,717)
-------- -------
-------- -------
(ii) Reflects the reclassification of Constellation Service
Companies' historical operating expenses to
equity in income of management company. $(10,242) $(3,685)
-------- -------
-------- -------
(iii) Reflects the net changes in interest expense as follows:
o The borrowing on the Revolving Credit Facility of
$73,143 in connection with the Transaction (which debt
bears interest at LIBOR plus 175 basis points) assuming
a LIBOR rate of 5.75%, net of interest on $4,217 in
debt associated with properties under
construction $ 5,168 $ 1,291
o The fee of 25 basis points per annum on the
unused portion of the Revolving Credit
Facility of $3,107 8 2
o The debt of $9,581 assumed in connection with
the acquisition of the Constellation
Properties which debt bears interest at a
fixed rate of 7.5% per annum 720 180
o The debt of $3,409 assumed in connection with
the acquisition of the Constellation
Properties which debt bears interest at a
fixed rate of 8.25% per annum 281 70
o Reclassification of Constellation Service Companies'
historical interest expense to equity in income
of management company (18) (3)
-------- -------
$6,159 $1,540
-------- -------
-------- -------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
(iv) Reflects the net change in depreciation and amortization
expense as follows:
o Depreciation of buildings acquired from
Constellation over a 40-year useful life $ 3,517 $ 879
o Reclassification of Constellation Service
Companies' historical depreciation and
amortization to equity in income of management
company (225) (67)
------------- ------------
$ 3,292 $ 812
------------- ------------
------------- ------------
(v) Reflects the net change in equity in income of management
company as follows:
o Reclassification of Constellation Service
Companies' historical income and expenses $ 741 ($ 38)
o Elimination of construction contract revenue
earned by Constellation Service Companies in
connection with operations that are not
expected to have a continuing impact on the
Company (4,122) (1,889)
o Elimination of construction contract costs
incurred by Constellation Service Companies in
connection with operations that are not
expected to have a continuing impact on the
Company 3,768 1,852
o Addition of net overhead costs not included
in historical costs and expected to have a
continuing impact on the Company (122) (177)
o Depreciation expense on personal property of
$405 over a 5-year useful life (81) (20)
o Adjustment to Constellation Service
Companies' historical depreciation and
amortization 122 42
o To reflect income tax (expense) benefit at an
assumed rate of 40% (42) 111
o To reflect minority interest in management
company (124) (19)
o To reflect adjustment for purchase price of
management company to pro forma net income
over 20 years (85) (21)
------------- ------------
$ 55 $ (159)
------------- ------------
------------- ------------
</TABLE>
(E) Costs relating to termination of the advisory agreement and the
reformation of the Company aggregating $1,353 and $637 for the year
ended December 31, 1997 and the three-month period ended March 31,
1998, respectively, have been excluded since such costs are not
expected to have a continuing impact on the Company.
(F) Reflects the effects of contribution of the net assets received from
the Offering and the Transaction to the Operating Partnership in
exchange for 7,500,000 Partnership Units as a result of the Offering
and for 969,900 Preferred Units and 6,928,000 Partnership Units as a
result of the Transaction.
F-13
<PAGE>
The following table presents the calculation of the post closing
percentage ownership of Partnership Units in the Operating Partnership
(i.e. not including Preferred Units):
<TABLE>
<CAPTION>
Company Others Total
--------------------- ------------------- -----------------
<S> <C> <C> <C>
Partnership Units - pre closing 600,000 2,581,818 3,181,818
Offering 7,500,000 - 7,500,000
Transaction 6,928,000 - 6,928,000
--------------- ---------------- ---------------
Partnership Units - post closing 15,028,000 2,581,818 17,609,818
--------------- ---------------- ---------------
--------------- ---------------- ---------------
Percentage ownership 85.3% 14.7% 100.0%
--------------- ---------------- ---------------
--------------- ---------------- ---------------
</TABLE>
Minority interest in income (loss) has been reflected, on a pro forma
basis, in accordance with the Operating Partnership Agreement. The
holders of Preferred Units are allocated income up to 6.5% or 5.5% of
their investment on a pari passu basis with remaining income, if any,
or loss allocated between the Company (85.3%) and the remaining
partners (14.7%). The adjustments to record the income (loss) effect of
the minority interest share of income (loss) in the pro forma
statements of operations were computed as follows:
<TABLE>
<CAPTION>
For the Three
For the Year Month Period
Ended Ended
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
Income before minority interests $ 6,447 $ 2,520
Less: income from the retail properties directly
owned by the Company
(368) (104)
-------------- ---------------
Income before minority interest
- Operating Partnership 6,079 2,416
Preferred Unitholders
- $52,500 @ 6.5% 3,412 853
Preferred Unitholders/Shareholders
- $24,248 @ 5.5% 1,334 333
------------- --------------
Remaining Operating Partnership allocation 1,333 1,230
------------- --------------
------------- --------------
Pro forma minority share
- Partnership Units (14.7%) 196 180
------------- --------------
------------- --------------
Remaining Operating Partnership allocation (85.3%) 1,137 1,050
Add back: income from retail properties directly
owned by the Company 368 104
------------- --------------
Net income allocated to Common Shareholders $ 1,505 $ 1,154
------------- --------------
------------- --------------
</TABLE>
F-14
<PAGE>
Coopers & Lybrand L.L.P.
Coopers
&Lybrand
a professional services firm
Report of Independent Accountants
To Corporate Office Properties Trust:
We have audited the accompanying combined statement of revenue and certain
expenses of Airport Square Acquisition Properties (the "Properties") as
described in Note 1 for the year ended December 31, 1997. This financial
statement is the responsibility of the Properties' management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenue and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission as described in Note 2, and is not intended to be a
complete presentation of the Properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenues and certain expenses as described
in Note 2, of the Properties for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 20, 1998
F-15
<PAGE>
AIRPORT SQUARE ACQUISITION PROPERTIES
Combined Statement of Revenue and Certain Expenses
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Revenue:
<S> <C>
Base rents $ 8,524,068
Tenant reimbursements 275,238
Interest income 19,664
-------------
Total revenue 8,818,970
-------------
Certain expenses:
Property operating 1,996,238
Maintenance 905,206
Real estate taxes 465,002
General and administrative 41,325
-------------
Total certain expenses 3,407,771
-------------
Revenue in excess of certain expenses $ 5,411,199
-------------
-------------
</TABLE>
See accompanying notes to this financial statement.
F-16
<PAGE>
AIRPORT SQUARE ACQUISITION PROPERTIES
Notes to Combined Statement of Revenue and Certain Expenses
1. Business:
The accompanying combined statement of revenue and certain expenses
relates to the operations of Airport Square Acquisition Properties (the
"Properties"), consisting of the revenues and certain expenses of the
following: Airport Square II Company, Airport Square IV Company,
Airport Square V Company, Airport Square X Company, Airport Square XI
Company, Airport Square XIII Company, Airport Square XIV Company,
Airport Square XIX Company, Airport Square XX Company, Tech Park I,
Tech Park II and Tech Park IV office buildings.
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission. The statement is not
representative of the actual operations of the Company for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization, interest expense and management
fees, which may not be comparable to the expenses expected to be
incurred by Corporate Office Properties Trust in future operations of
the Properties, have been excluded.
Revenue and Expense Recognition:
Revenue is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.
Interest Income:
Interest income represents interest earned on a note receivable due in
June 2000 related to tenant improvements.
Use of Estimates:
The preparation of the financial statement in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
these estimates.
F-17
<PAGE>
Notes to Combined Statement of Revenue and Certain Expenses, Continued
3. Rentals:
The Properties have entered into tenant leases that provide for tenants
to share in the operating and real estate taxes on a pro rata basis, as
defined in the leases, with expiration dates ranging from 1998 to 2008.
Future minimum rentals to be received under tenant leases in effect at
December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 $ 9,389,349
1999 6,871,643
2000 6,015,054
2001 4,795,611
2002 3,038,196
2003 and thereafter 9,217,579
-------------
Total $ 39,327,432
-------------
-------------
</TABLE>
F-18
<PAGE>
AIRPORT SQUARE ACQUISITION PROPERTIES
Combined Statement of Revenue and Certain Expenses
for the three months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Revenue:
<S> <C>
Base rents $ 2,528,119
Tenant reimbursements 64,232
Interest income 4,016
-------------
Total revenue 2,596,367
Certain expenses:
Property operating 390,854
Maintenance 295,038
Real estate taxes 118,971
General and administrative 5,931
-------------
Total certain expenses 810,794
-------------
Revenue in excess of certain expenses $ 1,785,573
-------------
-------------
</TABLE>
F-19
