<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): December 30, 1998
CORPORATE OFFICE PROPERTIES TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 0-20047 23-2947217
-------- ------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
401 CITY AVENUE, SUITE 615
BALA CYNWYD, PA 19004
---------------------------
(Address of principal executive offices)
(610) 538-1800
--------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Item 7. Financial Statements and Exhibits
In a Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 14, 1999, Corporate Office Properties Trust (the
"Company") reported its acquisition of a newly-constructed office building
located in Anne Arundel County, Maryland ("NBP 135") and its acquisition of
three office buildings (the "Gateway Properties") and a contiguous parcel of
developed land (the "Gateway Land") located in Columbia, Maryland. The Company
is filing this amendment to the Current Report on Form 8-K to include the
financial statements identified in this Item 7.
(a) Financial Statements of Businesses Acquired
The financial statements of the Gateway Properties are included
herein. See pages F-17 through F-21. Financial information is not
available for NBP135 since this building was newly constructed and
as a result has no operating history.
(b) Pro Forma Financial Information
The pro forma condensed consolidating financial statements of the
Company are included herein. See pages F-1 through F-16.
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: February 3, 1999
CORPORATE OFFICE PROPERTIES TRUST
By: /S/ RANDALL M. GRIFFIN
----------------------
Name: Randall M. Griffin
Title: President and
Chief Operating Officer
By: /S/ ROGER A. WAESCHE, JR.
-------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President--Finance
2
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY
Pro Forma Condensed Consolidating Balance Sheet as of
September 30, 1998 (unaudited) F-5
Pro Forma Condensed Consolidating Statement of Operations
for the Year Ended December 31, 1997 (unaudited) F-6
Pro Forma Condensed Consolidating Statement of Operations for
the Nine Month Period Ended September 30, 1998 (unaudited) F-7
Notes and Management's Assumptions to Pro Forma Condensed
Consolidating Financial Information F-8
II. GATEWAY PROPERTIES
Report of Independent Accountants F-17
Combined Statement of Revenue and Certain Expenses
for the Year Ended December 31, 1997 F-18
Notes to Combined Statement of Revenue and Certain Expenses F-19
Combined Statement of Revenue and Certain Expenses for
the Nine Month Period Ended September 30, 1998 (unaudited) F-21
</TABLE>
F-1
<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
September 30, 1998, and the unaudited pro forma condensed consolidating
statements of operations for the year ended December 31, 1997 and the nine month
period ended September 30, 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
("Common Units") and 2.1 million preferred partnership units ("Preferred Units"
or "Preferred 1997 Units").
The acquisition of the Initial Office Properties is reflected in the Company's
historical consolidated balance sheet as of September 30, 1998, 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 the earlier of the actual
date of consummation or September 30, 1998, for balance sheet purposes, and at
January 1, 1997, for purposes of the statements of operations:
- - The consummation of a public offering (the "Offering") on April 27, 1998,
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 Common Units.
- - The acquisition of nine multistory office buildings and three office/flex
buildings (the "Airport Square Properties") on April 30, 1998.
- - The acquisition of two office properties (the "Fairfield Properties") on
May 28, 1998.
- - The closing of a $100 million, two-year-senior revolving credit facility
(the "Revolving Credit Facility") on May 28, 1998, and the borrowing of
$23,750,000 under the Revolving Credit Facility to pay a portion of the
consideration for the Fairfield Properties.
- - The acquisition by the Company on September 28, 1998, from various parties
(collectively, "Constellation") of interests in (i) 10 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") for: (a)
issuance by the Company of
F-2
<PAGE>
865,566 non-voting Series A Convertible Preferred Shares of Beneficial
Interest, $0.01 par value, $25.00 liquidation preference ("Preferred
Shares") and 6,182,634 Common Shares; (b) the assumption of debt
aggregating $58,085,000 (net of $1,475,000 in debt repaid at settlement);
(c) utilization of loan proceeds from the Revolving Credit Facility of
$2,100,000, and (d) the payment of $2,485,000 in cash (including
$1,475,000 of debt repaid at settlement). The foregoing is referred to
herein as the "Constellation Transaction."
- - The acquisition by the Company from Constellation of an interest in a
newly-constructed office building (the "Woodlands One Property") on
October 22, 1998, for: (a) issuance by the Company of 72,509 Preferred
Shares and 517,923 Common Shares; (b) the assumption of debt aggregating
$9,533,000; and (c) the payment of $1,144,000 in cash.
- - The acquisition of an interest in an office property on October 13, 1998
(the "Riverwood Property"), for: (a) issuance by the Company of 148,381
Common Units; and (b) the utilization of loan proceeds from the Revolving
Credit Facility of $18,798,000.
- - The closing of an $85,000,000, ten-year nonrecourse loan (the "TIAA Loan")
on October 22, 1998, the borrowing of $76,200,000 under this loan on
October 22, 1998, and the borrowing of $8,800,000 under this loan on
December 30, 1998.
- - The acquisition of six office buildings and two office/flex buildings on
October 30, 1998, (the "Centerpoint Properties") for: (a) the payment of
$700,000 in cash; and (b) the utilization of loan proceeds from the
Revolving Credit Facility of $31,000,000.
- - The acquisition of interests in entities which own two office properties
currently under construction from Constellation (the "Constellation
Construction Properties") on November 13, 1998, for: (a) the assumption of
debt aggregating $2,000,000; and (b) the utilization of loan proceeds from
the Revolving Credit Facility of $5,200,000.
- - The acquisition by the Company from Constellation of a newly-constructed
office building ("NBP 135") (NBP 135, the Woodlands One Property and the
Constellation Construction Properties are collectively referred to herein
as the "Additional Constellation Properties") on December 30, 1998, for:
(a) issuance by the Company of 46,233 Preferred Shares and 330,236 Common
Shares; (b) the assumption of debt aggregating $7,125,000; and (c) the
payment of $652,000 in cash.
- - The acquisition of three office buildings (the "Gateway Properties") and a
contiguous parcel of developed land (the "Gateway Land") (collectively,
the "Gateway Acquisitions") on December 31, 1998, using loan proceeds from
the Revolving Credit Facility of $19,100,000.
- - The contribution by the Company of all the assets acquired in the
Constellation Transaction, including the Woodlands One Property and NBP
135, to the Operating Partnership in exchange for 7,030,793 Common Units
and 984,308 preferred partnership units ("Preferred Units" or "Preferred
1998 Units").
The accompanying pro forma condensed consolidating financial information does
not include the effect of one retail property under contract to be acquired from
Constellation, which was not consummated as of February 3, 1999.
F-3
<PAGE>
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 Riverwood Property, the Constellation Properties, the
Constellation Service Companies, the Centerpoint Properties and the Gateway
Properties. In management's opinion, all adjustments necessary to reflect the
effects of the consummated 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 September
30, 1998, nor does it purport to represent the future financial position and the
results of operations of the Company.
F-4
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Additional
Historical Riverwood Constellation Retirement
Consolidated Property Properties TIAA Loan of Debt
(A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C>
ASSETS
Net investments in real estate $ 434,833 $ 20,356 $ 37,528 $ -- $ --
Cash and cash equivalents 1,906 -- (1,796) 84,355 (82,339)
Investment in unconsolidated
Subsidiary, net 2,313 -- -- -- --
Other assets 8,932 -- -- 645 --
--------- --------- --------- --------- ---------
Total assets $ 447,984 $ 20,356 $ 35,732 $ 85,000 $ (82,339)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 205,338 $ 18,798 $ 23,858 $ 85,000 $ (82,339)
Other liabilities 9,659 -- -- -- --
--------- --------- --------- --------- ---------
Total liabilities 214,997 18,798 23,858 85,000 (82,339)
--------- --------- --------- --------- ---------
Minority interests
Preferred Units 52,500 -- -- -- --
Common Units 23,186 1,558 -- -- --
--------- --------- --------- --------- ---------
Total minority interests 75,686 1,558 -- -- --
--------- --------- --------- --------- ---------
Shareholders' equity
Preferred shares of beneficial interest 9 -- 2 -- --
Common shares of beneficial interest 160 -- 8 -- --
Additional paid in capital 163,918 -- 11,864 -- --
Accumulated deficit (6,786) -- -- -- --
--------- --------- --------- --------- ---------
Total shareholders' equity 157,301 -- 11,874 -- --
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 447,984 $ 20,356 $ 35,732 $ 85,000 $ (82,339)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Centerpoint Gateway Pro Forma
Properties Acquisitions Adjustments Pro Forma
(F) (G) (H) Consolidated
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate $ 31,700 $ 19,100 $ -- $ 543,517
Cash and cash equivalents (700) -- -- 1,426
Investment in unconsolidated
Subsidiary, net -- -- -- 2,313
Other assets -- -- -- 9,577
--------- --------- --------- ---------
Total assets $ 31,000 $ 19,100 $ -- $ 556,833
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 31,000 $ 19,100 $ -- $ 300,755
Other liabilities -- -- -- 9,659
--------- --------- --------- ---------
Total liabilities 31,000 19,100 -- 310,414
--------- --------- --------- ---------
Minority interests
Preferred Units -- -- -- 52,500
Common Units -- -- 43 24,787
--------- --------- --------- ---------
Total minority interests -- -- 43 77,287
--------- --------- --------- ---------
Shareholders' equity
Preferred shares of beneficial interest -- -- -- 11
Common shares of beneficial interest -- -- -- 168
Additional paid in capital -- -- (43) 175,739
Accumulated deficit -- -- -- (6,786)
--------- --------- --------- ---------
Total shareholders' equity -- -- (43) 169,132
--------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 31,000 $ 19,100 $ -- $ 556,833
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Constellation
Initial Office, Transaction
Historical Airport Square and Additional
Consolidated and Fairfield Constellation Riverwood
(A) Properties (B) Properties (C) Property (D)
<S> <C> <C> <C> <C>
REVENUES:
Base rents $ 6,122 $ 23,129 $ 14,756 $ 1,912
Tenant reimbursements and other 496 2,815 2,308 702
----------- ----------- ----------- -----------
Total revenues 6,618 25,944 17,064 2,614
----------- ----------- ----------- -----------
EXPENSES:
Property operating 728 8,029 5,986 676
General and administrative 533 299 526 --
Interest expense 2,855 7,388 -- --
Depreciation and amortization 1,331 2,580 -- --
Termination of Advisory Agreement 1,353 -- -- --
----------- ----------- ----------- -----------
Total expenses 6,800 18,296 6,512 676
----------- ----------- ----------- -----------
Equity in income (loss) of
management company -- -- (80) --
----------- ----------- ----------- -----------
Income (loss) before minority interests (182) 7,648 10,472 1,938
Minority interests
Preferred Units (720) -- -- --
Common Units (65) -- -- --
----------- ----------- ----------- -----------
Net income (loss) (967) 7,648 10,472 1,938
Preferred share distributions -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) available to Common
Shareholders $ (967) $ 7,648 $ 10,472 $ 1,938
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share:
Basic and diluted $ (0.60)
-----------
-----------
Weighted average number of shares--
Basic and diluted 1,600,807
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
Centerpoint Gateway Pro Forma Pro Forma
Properties (E) Acquisitions (F) Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUES:
Base rents $ 3,897 $ 2,173 $ -- $ 51,989
Tenant reimbursements and other 624 501 201 (G) 7,647
----------- ----------- ------------- -----------
Total revenues 4,521 2,674 201 59,636
----------- ----------- ------------- -----------
EXPENSES:
Property operating 1,310 918 -- 17,647
General and administrative -- -- -- 1,358
Interest expense -- -- 10,844 (H) 21,087
Depreciation and amortization -- -- 7,475 (I) 11,386
Termination of Advisory Agreement -- -- (1,353)(J) --
----------- ----------- ------------- -----------
Total expenses 1,310 918 16,966 51,478
----------- ----------- ------------- -----------
Equity in income (loss) of
management company -- -- -- (80)
----------- ----------- ------------- -----------
Income (loss) before minority interests 3,211 1,756 (16,765) 8,078
Minority interests
Preferred Units -- -- (2,692)(K) (3,412)
Common Units -- -- (385)(K) (450)
----------- ----------- ------------- -----------
Net income (loss) 3,211 1,756 (19,842) 4,216
Preferred share distributions -- -- (1,353)(K) (1,353)
----------- ----------- ------------- -----------
Net income (loss) available to Common
Shareholders $ 3,211 $ 1,756 $ (21,195) $ 2,863
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Net income (loss) per share:
Basic and diluted
$ 0.17
-----------
-----------
Weighted average number of shares--
Basic and diluted 16,796,876
-----------
-----------
</TABLE>
See accompanying notes and management's assumptions to
pro forma financial statements
F-6
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Constellation
Initial Office, Transaction and
Historical Airport Square Additional
Consolidated and Fairfield Constellation Riverwood
(A) Properties (B) Properties (C) Property (D)
----------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Base rents $ 20,539 $ 4,984 $ 11,706 $ 1,451
Tenant reimbursements and other 2,640 220 1,535 536
----------- ----------- ----------- -----------
Total revenues 23,179 5,204 13,241 1,987
----------- ----------- ----------- -----------
EXPENSES:
Property operating 5,001 1,545 5,228 506
General and administrative 1,055 46 -- --
Interest expense 7,424 -- -- --
Depreciation and amortization 4,038 -- -- --
Reformation costs 637 -- -- --
----------- ----------- ----------- -----------
Total expenses 18,155 1,591 5,228 506
----------- ----------- ----------- -----------
Equity in income (loss) of
management company 17 -- (293) --
----------- ----------- ----------- -----------
Income (loss) before minority
interests 5,041 3,613 7,720 1,481
Minority interests
Preferred Units (2,559) -- -- --
Common Units (713) -- -- --
----------- ----------- ----------- -----------
Net income (loss) 1,769 3,613 7,720 1,481
Preferred share distributions (10) -- -- --
----------- ----------- ----------- -----------
Net income (loss) available
to Common Shareholders $ 1,759 $ 3,613 $ 7,720 $ 1,481
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share:
Basic and diluted $ 0.26
-----------
-----------
Weighted average number of shares:
Basic 6,651,533
-----------
-----------
Weighted average number of shares:
Diluted 6,737,907
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
Centerpoint Gateway Pro Forma Pro Forma
Properties (E) Acquisitions(F) Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUES:
Base rents $ 2,873 $ 1,779 $ -- $ 43,332
Tenant reimbursements and other 551 410 150 (G) 6,042
----------- ----------- ------------ -----------
Total revenues 3,424 2,189 150 49,374
----------- ----------- ------------ -----------
EXPENSES:
Property operating 1,038 672 -- 13,990
General and administrative -- -- -- 1,101
Interest expense -- -- 8,266 (H) 15,690
Depreciation and amortization -- -- 4,540 (I) 8,578
Reformation costs -- -- (637)(J) --
----------- ----------- ------------ -----------
Total expenses 1,038 672 12,169 39,359
----------- ----------- ------------ -----------
Equity in income (loss) of
management company -- -- -- (276)
----------- ----------- ------------ -----------
Income (loss) before minority
interests 2,386 1,517 (12,019) 9,739
Minority interests
Preferred Units -- -- -- (K) (2,559)
Common Units -- -- (179)(K) (892)
----------- ----------- ------------ -----------
Net income (loss) 2,386 1,517 (12,198) 6,288
Preferred share distributions -- -- (1,005)(K) (1,015)
----------- ----------- ------------ -----------
Net income (loss) available
to Common Shareholders $ 2,386 $ 1,517 $ (13,203) $ 5,273
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Net income per share:
Basic and diluted $ 0.31
-----------
-----------
Weighted average number of shares:
Basic 16,801,198
-----------
-----------
Weighted average number of shares:
Diluted 16,887,572
-----------
-----------
</TABLE>
See accompanying notes and management's assumptions to
pro forma financial statements
F-7
<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 September 30, 1998, the Company's
portfolio included 43 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 Riverwood Property, the Constellation Properties, the
Constellation Service Companies, the Centerpoint Properties and the Gateway
Properties. In management's opinion, all adjustments necessary to reflect the
effects of the Offering, the acquisitions of the Initial Office Properties, the
Airport Square Properties, the Fairfield Properties, the Riverwood Property, the
Constellation Properties, the Constellation Service Companies, the Additional
Constellation Properties, the Centerpoint Properties, the Gateway Properties and
the closings of the Revolving Credit Facility and the TIAA Loan and utilization
of the proceeds thereof 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
September 30, 1998.
(B) Reflects the contribution of the Riverwood Property from an unrelated
party in exchange for: (i) issuance of 148,381 Common Units at a value of
$10.50 per unit ($1,558); and (ii) the utilization of loan proceeds from
the Revolving Credit Facility of $18,798, including payment of $348 of
costs associated with the acquisition.
F-8
<PAGE>
(C) Reflects the effects of the combined acquisition of the Additional
Constellation Properties as of September 30, 1998.
<TABLE>
<CAPTION>
Additional
Constellation Constellation
Woodlands One Construction Properties
Properties (i) Properties (ii) NBP 135 (iii) Combined
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate $ 17,928 $ 7,200 $ 12,400 $ 37,528
Cash and cash equivalents (1,144) -- (652) (1,796)
-------- -------- -------- --------
Total assets $ 16,784 $ 7,200 $ 11,748 $ 35,732
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 9,533 $ 7,200 $ 7,125 $ 23,858
Other liabilities -- -- -- --
-------- -------- -------- --------
Total liabilities 9,533 7,200 7,125 23,858
-------- -------- -------- --------
Shareholders' equity
Preferred shares of beneficial interest 1 -- 1 2
Common shares of beneficial interest 5 -- 3 8
Additional paid in capital 7,245 -- 4,619 11,864
Accumulated deficit -- -- -- --
-------- -------- -------- --------
Total shareholders' equity 7,251 -- 4,623 11,874
-------- -------- -------- --------
Total liabilities and
shareholders' equity $ 16,784 $ 7,200 $ 11,748 $ 35,732
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(i) Reflects the acquisition of the Woodlands One Property from
Constellation in exchange for: (a) issuance of 72,509 Preferred
Shares at a value equal to a liquidation preference of $25.00 per
share ($1,813); (b) issuance of 517,923 Common Shares at a value of
$10.50 per share ($5,438); (c) assumption of debt aggregating
$9,533; and (d) utilization of cash reserves of $1,144, including
payment of $328 of costs associated with the acquisition.
(ii) Reflects the acquisition of the Constellation Construction
Properties from Constellation in exchange for: (a) the assumption of
debt aggregating $2,000; and (b) the utilization of loan proceeds
from the Revolving Credit Facility of $5,200.
(iii) Reflects the acquisition of NBP 135 from Constellation in exchange
for: (a) issuance of 46,233 Preferred Shares at a value equal to a
liquidation preference of $25.00 per share ($1,156); (b) issuance of
330,236 Common Shares at a value of $10.50 per share ($3,467); (c)
assumption of debt aggregating $7,125; and (d) utilization of cash
reserves of $652, including payment of $250 of costs associated with
the acquisition.
(D) Reflects the proceeds of the two disbursements under the TIAA Loan
aggregating $85,000, net of associated costs of $645.
(E) Reflects the application of the net proceeds of the TIAA Loan where
debt was retired of: (i) $27,181 assumed in connection with the
Constellation Transaction; (ii) $9,533 assumed in connection with the
Woodlands One Property; (iii) $38,500 of the balance of the Revolving
Credit Facility; and (iv) $7,125 assumed in connection with NBP 135.
F-9
<PAGE>
(F) Reflects the acquisition of the Centerpoint Properties in exchange for:
(a) the utilization of loan proceeds from the Revolving Credit Facility of
$31,000; and (b) the utilization of cash reserves of $700.
(G) Reflects the acquisition of the Gateway Acquisitions from an unrelated
party in exchange for the utilization of loan proceeds from the Revolving
Credit Facility of $19,100, including payment of $250 of costs associated
with the acquisition.
(H) Reflects the adjustment to minority interests as a result of the
transactions in connection with the Constellation Transaction, the
Woodlands One Property, the Riverwood Property and NBP 135. After the
closings, the Company holds a total of 15,130,793 Common Units or an 84.7%
interest in the Operating Partnership.
<TABLE>
<CAPTION>
COMPANY OPERATING PARTNERSHIP CONSOLIDATED
------- --------------------- ------------
<S> <C> <C> <C> <C>
Minority interests
Common Units $ -- $ 24,787 15.3% $ 24,787
Shareholders' equity (1)
Common Shares 7,303 137,221 84.7% 144,524
-------- ---------- ----- ----------
$ 7,303 $ 162,008 100.0% $ 169,311
-------- ---------- ----- ----------
-------- ---------- ----- ----------
</TABLE>
(1) Excluding $24,608 related to the Company's Preferred Shares
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 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 Airport
Office Square Fairfield
Properties Properties Properties
through Through through
10/13/97 12/31/97 12/31/97 Combined
<S> <C> <C> <C> <C>
REVENUES
Base rents $12,216 $ 8,524 $ 2,389 $23,129
Tenant reimbursements and other 1,282 295 1,238 2,815
------- ------- ------- -------
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 -- -- 7,388
Depreciation and amortization 2,580 -- -- 2,580
------- ------- ------- -------
TOTAL EXPENSES 12,873 3,408 2,015 18,296
------- ------- ------- -------
INCOME BEFORE MINORITY INTERESTS $ 625 $ 5,411 $ 1,612 $ 7,648
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
F-10
<PAGE>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Fairfield
Airport Square Properties
Initial Office Properties Historical
Properties Historical through
Historical through 4/29/98 5/27/98 Combined
<S> <C> <C> <C> <C>
REVENUES
Base rents $ -- $ 3,371 $ 1,613 $ 4,984
Tenant reimbursements and other -- 90 130 220
----------- ----------- ---------- ----------
TOTAL REVENUES -- 3,461 1,743 5,204
----------- ----------- ---------- ----------
EXPENSES
Property operating -- 1,073 472 1,545
General and administrative -- 8 38 46
Interest expense -- -- -- --
Depreciation and amortization -- -- -- --
----------- ----------- ---------- ----------
TOTAL EXPENSES -- 1,081 510 1,591
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS $ -- $ 2,380 $ 1,233 $ 3,613
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
(C) Reflects the effects of the adjusted combined historical operations of the
Constellation Properties and the Constellation Service Companies acquired
on September 28, 1998. Historical operations for the Additional
Constellation Properties are not reflected as those properties were not
operational as of September 30, 1998.
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Constellation
Constellation Service Pro Forma
Properties Companies Constellation
Historical Historical Adjustments Combined
<S> <C> <C> <C> <C>
REVENUES
Base rents $ 14,756 $ -- $ -- $ 14,756
Tenant reimbursements and other 2,308 11,226 (11,226)(i) 2,308
----------- ------------ ---------- ----------
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 (18)(iii) --
Depreciation and amortization -- 225 (225)(iv) --
----------- ------------ ---------- ----------
TOTAL EXPENSES 6,512 10,485 (10,485) 6,512
----------- ------------ ---------- ----------
Equity in income (loss) of
management company -- -- (80)(v) (80)
----------- ------------ ---------- ----------
Income (loss) before income taxes and
minority interests $ 10,552 $ 741 $ (821) $ 10,472
----------- ------------ ---------- ----------
----------- ------------ ---------- ----------
</TABLE>
F-11
<PAGE>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Constellation
Constellation Service
Properties Companies
Historical Historical Pro Forma
through Through Constellation
9/27/98 9/27/98 Adjustments Combined
<S> <C> <C> <C> <C>
REVENUES
Base rents $ 11,706 $ -- $ -- $ 11,706
Tenant reimbursements and other 1,535 9,111 (9,111) (i) 1,535
----------- ------------- ---------- ----------
TOTAL REVENUES 13,241 9,111 (9,111) 13,241
----------- ------------- ---------- ----------
EXPENSES
Property operating 5,228 -- -- 5,228
General and administrative -- 8,765 (8,765) (ii) --
Interest expense -- 10 (10) (iii) --
Depreciation and amortization -- 235 (235) (iv) --
----------- ------------- ---------- ----------
TOTAL EXPENSES 5,228 9,010 (9,010) 5,228
----------- ------------- ---------- ----------
Equity in income (loss)
of management company -- -- (293) (v) (293)
----------- ------------- ---------- ----------
Income (loss) before income taxes
and minority interests $ 8,013 $ 101 $ (394) $ 7,720
----------- ------------- ---------- ----------
----------- ------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
(i) Reflects the reclassification of Constellation
Service Companies' historical revenue to equity in
income (loss) of management company. $ (11,226) $ (9,111)
------------ -----------
------------ -----------
(ii) Reflects the reclassification of Constellation
Service Companies' historical operating expenses
to equity in income (loss) of management company. $ (10,242) $ (8,765)
------------ -----------
------------ -----------
(iii) Reflects the reclassification of Constellation
Service Companies' historical interest expense to
equity in income (loss) of management company. $ (18) $ (10)
------------ -----------
------------ -----------
(iv) Reflects the reclassification of Constellation
Service Companies' historical depreciation and
amortization to equity in income (loss) of
management company. $ (225) $ (235)
------------ -----------
------------ -----------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------- -------
<S> <C> <C>
(v) Reflects the net change in equity in income (loss) of
management company as follows:
- Reclassification of Constellation Service
Companies' historical income and expenses $ 741 $ 101
- 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) (3,084)
- 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 2,997
- Addition of net overhead costs not included in
historical costs and expected to have a continuing
impact on the Company (122) (255)
- Addition of interest expense on indebtedness
issued by an affiliate of the management company
to the Company at a rate of 10.0% per annum (201) (150)
- Depreciation expense on personal property of $583
over a 5-year useful life (116) (87)
- Adjustment to Constellation Service Companies'
historical depreciation and amortization 122 131
- To reflect income tax benefit at an assumed rate
of 40% 19 176
- To reflect minority interest in management company (116) (82)
- To reflect adjustment for purchase price of
management company to pro forma net income over 20
years (53) (40)
-------- -------
$ (80) $ (293)
-------- -------
-------- -------
</TABLE>
(D) Reflects the effects of the historical operations of the Riverwood
Property acquired on October 13, 1998.
(E) Reflects the effects of the historical operations of the Centerpoint
Properties acquired on October 30, 1998.
(F) Reflects the effects of the historical operations of the Gateway
Acquisitions acquired on December 31, 1998.
(G) Reflects interest income on the Company's $2,005 note receivable from an
affiliate of the management company at a rate of 10.0% per annum.
F-13
<PAGE>
(H) Represents net additional pro forma interest expense as a result of
borrowings under the Term Credit Facility, the Revolving Credit Facility,
the debt assumed in connection with the Fairfield Properties, the debt
assumed in connection with the Constellation Transaction, including the
Additional Constellation Properties, and the TIAA Loan.
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
ADJUSTMENT TO INTEREST EXPENSE, NET OF DECEMBER 31, SEPTEMBER 30,
RELATED HISTORICAL AMOUNTS, AS A RESULT OF: 1997 1998
------------------------------------------- -------- -------
<S> <C> <C>
Term Credit Facility, which debt bears interest
at 7.5% per annum. $ (1,511) $ --
Revolving Credit Facility based upon a pro forma
balance of $62,300, bearing interest at LIBOR
plus 175 basis points, assuming a LIBOR rate of
4.97219% per annum, net of capitalized interest
on Constellation Construction Properties and
Gateway Land. 3,721 2,188
Revolving Credit Facility based upon a pro forma
unused balance of $37,700, which unused balance
is subject to a fee of 25 basis points per annum. 94 7
Debt assumed in connection with the acquisition
of the Fairfield Properties, which debt bears
interest at a rate of 8.29% per annum. Such debt
is amortized in accordance with the loan terms. 530 207
Debt assumed in connection with the
Constellation Transaction, based upon a pro
forma aggregate balance of $30,904, which debt
bears interest at average effective rate of
7.39% per annum, assuming a LIBOR rate of
4.97219% per annum and a Prime rate of 7.75% per
annum. Such debt is amortized in accordance with
each loan's respective terms. 2,254 1,575
Debt assumed in connection with the acquisition
of the Constellation Construction Properties,
bearing interest at a rate of 8.00%, all of
which is capitalized to construction costs, and
providing for no principal amortization. -- --
TIAA Loan based upon a pro forma balance of
$85,000, amortized in accordance with the loan
terms, and which debt bears interest at 6.89%
per annum. 5,756 4,289
-------- -------
$ 10,844 $ 8,266
-------- -------
-------- -------
</TABLE>
F-14
<PAGE>
(I) Pro forma depreciation expense is reflected assuming an 80% building and
20% land allocation of the purchase price and capitalized costs over a
useful life of 40 years. Pro forma amortization expense is reflected
assuming pro forma deferred financing fees are amortized over the life of
the related loan.
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ADJUSTMENT TO DEPRECIATION AND ENDED ENDED
AMORTIZATION EXPENSE, NET OF RELATED DECEMBER 31, SEPTEMBER 30,
HISTORICAL AMOUNTS, AS A RESULT OF: 1997 1998
----------------------------------- ------- -------
<S> <C> <C>
DEPRECIATION EXPENSE:
Initial Office Properties $ 548 $ --
Airport Square Properties 1,452 462
Fairfield Properties 588 245
Constellation Transaction, including the Additional
Constellation Properties 3,541 2,654
Riverwood Property 408 306
Centerpoint Properties 634 476
Gateway Acquisition Properties 347 260
AMORTIZATION OF DEFERRED FINANCING FEES RELATED TO:
Term Credit Facility in connection with Initial Office
Properties (323) --
Revolving Credit Facility 209 87
Assumed debt in connection with Fairfield Properties 10 3
TIAA Loan 61 47
------- -------
$ 7,475 $ 4,540
------- -------
------- -------
</TABLE>
(J) 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 nine month period ended September 30, 1998,
respectively, have been excluded since such costs are not expected to have
a continuing impact on the Company.
(K) Reflects the effects of contribution of the net assets received from the
Offering, the Constellation Transaction, including the Additional
Constellation Properties, and the Riverwood Property to the Operating
Partnership in exchange for (i) 7,500,000 Common Units as a result of the
Offering; (ii) 984,308 Preferred 1998 Units and 7,030,793 Common Units as
a result of the Constellation Transaction, including the Additional
Constellation Properties; (iii) 148,381 Common Units as a result of the
Riverwood Property; and (iv) one Common Unit as a result of the Gateway
Acquisitions.
F-15
<PAGE>
The following table presents the calculation of the post closing percentage
ownership of Common Units in the Operating Partnership (i.e. not including
Preferred Units):
<TABLE>
<CAPTION>
Company Others Total
---------- --------- ----------
<S> <C> <C> <C>
Common Units - pre closing 600,000 2,581,818 3,181,818
Offering 7,500,000 -- 7,500,000
Constellation Transaction,
including the Additional
Constellation Properties 7,030,793 -- 7,030,793
Riverwood Property -- 148,381 148,381
Gateway Acquisitions -- 1 1
---------- --------- ----------
Common Units - post closing 15,130,793 2,730,200 17,860,993
---------- --------- ----------
---------- --------- ----------
Percentage ownership 84.7% 15.3% 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%
(Preferred 1997 Units) or 5.5% (Preferred 1998 Units) of their
investment on a PARI PASSU basis with remaining income, if any, or
loss allocated between the Company (84.7%) and the remaining
partners (15.3%). 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 NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------- -------
<S> <C> <C>
Income before minority interests $ 8,078 $ 9,739
Less: income from the retail properties directly
owned by the Company (368) (333)
------- -------
Income before minority interest
- Operating Partnership 7,710 9,406
Less: Preferred 1997 Unitholders
- $52,500 @ 6.5% (3,412) (2,559)
Less: Preferred 1998 Unitholders/Shareholders
- $24,608 @ 5.5% (1,353) (1,015)
------- -------
Remaining Operating Partnership allocation 2,945 5,832
Less: Pro forma minority share
- Common Units (15.3%) (450) (892)
------- -------
Remaining Operating Partnership allocation
(84.7%) 2,495 4,940
Add back: income from retail properties directly
owned by the Company 368 333
------- -------
Net income allocated to Common Shareholders $ 2,863 $ 5,273
------- -------
------- -------
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-------
January 18, 1999
To Corporate Office Properties Trust:
We have audited the accompanying combined statement of revenue and certain
expenses of the Gateway Properties (the "Properties") as described in Note 1 for
the year ended December 31, 1997. This historical statement is the
responsibility of the Properties' management. Our responsibility is to express
an opinion on this historical 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 historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. 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 historical statement referred to above presents fairly, in
all material respects, the combined revenues and certain expenses as described
in Note 2 of the Gateway Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
F-17
<PAGE>
GATEWAY PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
for the year ended December
31, 1997
-------
<TABLE>
<S> <C>
Revenue:
Base rents $2,173,396
Tenant reimbursements 453,673
Miscellaneous income 23,616
Interest income 23,732
----------
Total revenue 2,674,417
----------
Certain expenses:
Property operating 596,305
Repairs and maintenance 321,552
----------
Total certain expenses 917,857
----------
Revenue in excess of certain expenses $1,756,560
----------
----------
</TABLE>
F-18
<PAGE>
GATEWAY PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
-------
1. BUSINESS:
The accompanying combined statement of revenue and certain expenses
relates to the operation of Gateway Properties (the "Properties"),
consisting of the revenues and certain expenses of three buildings located
at 6716, 6740 and 6760 Alexander Graham Bell Drive, which contains 149,394
total square feet.
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 Properties for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization, interest expense and ground rent,
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 lease. Expenses are recognized in the period in which they are
incurred.
USE OF ESTIMATES:
The preparation of this historical 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.
MAJOR TENANT:
During 1997, the Properties' rental revenue included rental income from
three major tenants that comprised approximately 55% of total combined
rental revenue.
F-19
<PAGE>
GATEWAY PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES, Continued
-------
3. RENTALS:
The Properties have entered into non-cancelable tenant leases, with
expiration dates ranging from 1998 to 2002, that provide for the tenants
to share in the operating and real estate taxes on a prorata basis, as
defined in the leases. Future minimum rentals to be received under these
tenant leases are as follows:
<TABLE>
<S> <C>
1998 $1,855,092
1999 1,278,288
2000 868,748
2001 559,305
2002 615,252
----------
$5,176,685
----------
----------
</TABLE>
F-20
<PAGE>
GATEWAY PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES for the nine month period
ended September 30, 1998
-------
(unaudited)
<TABLE>
<S> <C>
Revenue:
Base rents $1,779,381
Tenant reimbursements 370,106
Miscellaneous income 24,117
Interest income 15,476
----------
Total revenue 2,189,080
----------
Certain expenses:
Property operating 442,947
Repairs and maintenance 229,094
----------
Total certain expenses 672,041
----------
Revenue in excess of certain expenses $1,517,039
----------
----------
</TABLE>
F-21
