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Previous: CORPORATE OFFICE PROPERTIES TRUST, 8-K, 1999-01-14 |
Next: PRUDENTIAL GLOBAL LIMITED MATURITY FUND INC, 24F-2NT, 1999-01-14 |
<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): October 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 November 16, 1998, Corporate Office Properties Trust (the
"Company") reported its acquisition of six office buildings and two office/flex
buildings located in Middlesex County, New Jersey (the "Centerpoint
Properties"). 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 Centerpoint Properties are included
herein. See pages F-15 through F-19.
(b) Pro Forma Financial Information
The pro forma condensed consolidating financial statements of the
Company are included herein. See pages F-1 through F-14.
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: January 14, 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>
I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY
Pro Forma Condensed Consolidating Balance Sheet as of September 30, 1998 F-4
Pro Forma Condensed Consolidating Statement of Operations for the Year
Ended December 31, 1997 F-5
Pro Forma Condensed Consolidating Statement of Operations for the
Nine Month Period Ended September 30, 1998 F-6
Notes and Management's Assumptions to Pro Forma Condensed
Consolidating Financial Information F-7
II. CENTERPOINT 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 Nine
Months Ended September 30, 1998 (unaudited) F-19
</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 property (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, and the borrowing of $76,200,000 under this
loan.
- - The contribution by the Company of all the assets acquired in the
Constellation Transaction, including the Woodlands One Property, to the
Operating Partnership in exchange for 6,700,557 Common Units and
938,075 preferred partnership units ("Preferred Units" or "Preferred
1998 Units").
- - 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 accompanying pro forma condensed consolidating financial information does
not include the effect of the acquisition of one additional office property from
Constellation on December 30, 1998, which will be included in a future filing.
Also excluded is the effect of one retail property under contract to be acquired
from Constellation, which was not consummated as of January 14, 1999.
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 and the Centerpoint 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-3
<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>
Historical Riverwood Woodlands Retirement
Consolidated Property One Property 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 $ 17,928 $ - $ -
Cash and cash equivalents 1,906 - (1,144) 75,555 (75,214)
Investment in unconsolidated
subsidiary, net 2,313 - - - -
Other assets 8,932 - - 645 -
------------ ----------- ----------- ----------- -----------
Total assets $ 447,984 $ 20,356 $ 16,784 $ 76,200 $ (75,214)
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 205,338 $ 18,798 $ 9,533 $ 76,200 $ (75,214)
Other liabilities 9,659 - - - -
------------ ----------- ----------- ----------- -----------
Total liabilities 214,997 18,798 9,533 76,200 (75,214)
------------ ----------- ----------- ----------- -----------
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 - 1 - -
Common shares of beneficial interest 160 - 5 - -
Additional paid in capital 163,918 - 7,245 - -
Accumulated deficit (6,786) - - - -
------------ ----------- ----------- ----------- -----------
Total shareholders' equity 157,301 - 7,251 - -
------------ ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 447,984 $ 20,356 $ 16,784 $ 76,200 $ (75,214)
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Constellation
Construction Centerpoint Pro Forma Pro Forma
Properties Properties Adjustments Consolidated
(F) (G) (H)
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate $ 7,200 $ 31,700 $ - $ 512,017
Cash and cash equivalents - (700) - 403
Investment in unconsolidated
subsidiary, net - - - 2,313
Other assets - - - 9,577
----------- ------------ ----------- -----------
Total assets $ 7,200 $ 31,000 $ - $ 524,310
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 7,200 $ 31,000 $ - $ 272,855
Other liabilities - - - 9,659
----------- ------------ ----------- -----------
Total liabilities 7,200 31,000 - 282,514
----------- ------------ ----------- -----------
Minority interests
Preferred Units - - - 52,500
Common Units - - (12) 24,732
----------- ------------ ----------- -----------
Total minority interests - - (12) 77,232
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Shareholders' equity
Preferred shares of beneficial interest - - - 10
Common shares of beneficial interest - - - 165
Additional paid in capital - - 12 171,175
Accumulated deficit - - - (6,786)
----------- ------------ ----------- -----------
Total shareholders' equity - - 12 164,564
----------- ------------ ----------- -----------
Total liabilities and
shareholders' equity $ 7,200 $ 31,000 $ - $ 524,310
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</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>
Constellation
Transaction,
including
Woodlands One
Initial Office, Property and
Airport Square Constellation
Historical and Fairfield Construction Riverwood
Consolidated (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 Pro Forma Pro Forma
Properties (E) Adjustments Consolidated
<S> <C> <C> <C>
REVENUES:
Base rents $ 3,897 $ - $ 49,816
Tenant reimbursements and other 624 201 (F) 7,146
------------- ------------ -----------
Total revenues 4,521 201 56,962
------------- ------------ -----------
EXPENSES:
Property operating 1,310 - 16,729
General and administrative - - 1,358
Interest expense - 10,197 (G) 20,440
Depreciation and amortization - 6,880 (H) 10,791
Termination of Advisory Agreement - (1,353) (I) -
------------- ------------ -----------
Total expenses 1,310 15,724 49,318
------------- ------------ -----------
Equity in income (loss) of management company - - (80)
------------- ------------ -----------
Income (loss) before minority interests 3,211 (15,523) 7,564
Minority interests
Preferred Units - (2,692) (J) (3,412)
Common Units - (324) (J) (389)
------------- ------------ -----------
Net income (loss) 3,211 (18,539) 3,763
Preferred share distributions - (1,290) (J) (1,290)
------------- ------------ -----------
Net income (loss) available to Common Shareholders $ 3,211 $ (19,829) $ 2,473
------------- ------------ -----------
------------- ------------ -----------
Net income (loss) per share: Basic and diluted $ 0.15
-----------
-----------
Weighted average number of shares-Basic and diluted 16,466,640
-----------
-----------
</TABLE>
F-5
See accompanying notes and management's assumptions to pro forma
financial statements
<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
Transaction,
including Woodlands
Initial Office, One Property and
Airport Square Constellation
Historical and Fairfield Construction Riverwood
Consolidated (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 $ 0.26
-------------
-------------
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 Pro Forma Pro Forma
Properties (E) Adjustments Consolidated
<S> <C> <C> <C>
REVENUES:
Base rents $ 2,873 $ - $ 41,553
Tenant reimbursements and other 551 150 (F) 5,632
------------ ------------ ------------
Total revenues 3,424 150 47,185
------------ ------------ ------------
EXPENSES:
Property operating 1,038 - 13,318
General and administrative - - 1,101
Interest expense - 7,892 (G) 15,316
Depreciation and amortization - 4,095 (H) 8,133
Reformation costs - (637) (I) -
------------ ------------ ------------
Total expenses 1,038 11,350 37,868
------------ ------------ ------------
Equity in income (loss) of management company - - (276)
------------ ------------ ------------
Income (loss) before minority interests 2,386 (11,200) 9,041
Minority interests
Preferred Units - - (J) (2,559)
Common Units - (95) (J) (808)
------------ ------------ ------------
Net income (loss) 2,386 (11,295) 5,674
Preferred share distributions - (957) (J) (967)
------------ ------------ ------------
Net income (loss) available to Common Shareholders $ 2,386 $ (12,252) $ 4,707
------------ ------------ ------------
------------ ------------ ------------
Net income per share:
Basic $ 0.29
------------
------------
Diluted $ 0.28
------------
------------
Weighted average number of shares: Basic 16,470,962
------------
------------
Weighted average number of shares: Diluted 16,557,336
------------
------------
</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 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 and the Centerpoint 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 Woodlands One Property, the
Constellation Construction Properties, the Centerpoint Properties and the
closing of 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.
(C) Reflects the acquisition of the Woodlands One Property from
Constellation in exchange for: (i) issuance of 72,509 Preferred
Shares at a value equal to a liquidation preference of $25.00 per
share ($1,813); (ii) issuance of 517,923 Common Shares at a value of
$10.50 per share ($5,438); (iii) assumption of debt aggregating
$9,533; and (iv) utilization of cash reserves of $1,144, including
payment of $328 of costs associated with the acquisition.
(D) Reflects the proceeds of the first disbursement under the TIAA Loan,
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 and (iii) $38,500 of the balance of the
Revolving Credit Facility.
F-7
<PAGE>
(F) 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.
(G) 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.
(H) Reflects the adjustment to minority interests as a result of the
transactions in connection with the Constellation Transaction, the
Woodlands One Property and the Riverwood Property. After the closings,
the Company holds a total of 14,800,557 Common Units or an 84.4%
interest in the Operating Partnership.
<TABLE>
<CAPTION>
COMPANY OPERATING PARTNERSHIP CONSOLIDATED
---------- ---------------------------- --------------
<S> <C> <C> <C> <C>
Minority interests
Common Units $ - $ 24,732 15.6% $ 24,732
Shareholders' equity (1)
Common Shares 7,303 133,809 84.4% 141,112
-------- --------- -------- --------
$ 7,303 $ 158,541 100.0% $165,844
-------- --------- -------- --------
-------- --------- -------- --------
</TABLE>
- ------------------
(1) Excluding $23,452 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 Office Airport 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-8
<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 Woodlands
One Property and the Constellation Construction 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-9
<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-10
<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-11
<PAGE>
(F) 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.
(G) 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 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 $43,200, which debt bears interest at
LIBOR plus 175 basis points, assuming a LIBOR
rate of 5.75% per annum. 3,240 1,829
Revolving Credit Facility based upon a pro forma
unused balance of $56,800, which unused balance
is subject to a fee of 25 basis points per annum. 142 41
Debt assumed in connection with the acquisition of
the Fairfield Properties, which debt bears interest
at a rate of 8.29% per annum. 536 219
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 7.70% per annum. 2,380 1,745
Debt assumed in connection with the acquisition of
the Constellation Construction Properties, which
debt bears interest at a rate of 8.00% per annum. 160 120
TIAA Loan based upon a pro forma balance of
$76,200, which debt bears interest at 6.89% per
annum. 5,250 3,938
------------- -------------
$ 10,197 $ 7,892
------------- -------------
------------- -------------
</TABLE>
F-12
<PAGE>
(H) 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 Woodlands
One Property 3,293 2,469
Riverwood Property 408 306
Centerpoint Properties 634 476
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
------------- ------------
$ 6,880 $ 4,095
------------- ------------
------------- ------------
</TABLE>
(I) 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.
(J) Reflects the effects of contribution of the net assets received from
the Offering, the Constellation Transaction, including the Woodlands
One Property, and the Riverwood Property to the Operating Partnership
in exchange for (i) 7,500,000 Common Units as a result of the Offering;
(ii) 938,075 Preferred 1998 Units and 6,700,557 Common Units as a
result of the Constellation Transaction, including the Woodlands One
Property; and (iii) 148,381 Common Units as a result of the Riverwood
Property.
F-13
<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 Woodlands One
Property 6,700,557 - 6,700,557
Riverwood Property - 148,381 148,381
--------------- ---------------- ---------------
Common Units - post closing 14,800,557 2,730,199 17,530,756
--------------- ---------------- ---------------
--------------- ---------------- ---------------
Percentage ownership 84.4% 15.6% 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 (84.4%) and the remaining partners (15.6%). 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 $ 7,564 $ 9,041
Less: income from the retail properties directly
owned by the Company (368) (333)
-------------- ---------------
Income before minority interest
- Operating Partnership 7,196 8,708
Less: Preferred 1997 Unitholders
- $52,500 @ 6.5% (3,412) (2,559)
Less: Preferred 1998 Unitholders/Shareholders
- $23,452 @ 5.5% (1,290) (967)
------------- --------------
Remaining Operating Partnership allocation 2,494 5,182
Less: Pro forma minority share
- Common Units (15.6%) (389) (808)
------------- --------------
Remaining Operating Partnership allocation
(84.4%) 2,105 4,374
Add back: income from retail properties directly
owned by the Company 368 333
------------- --------------
Net income allocated to Common Shareholders $ 2,473 $ 4,707
------------- --------------
------------- --------------
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-------
January 6, 1999
To Corporate Office Properties Trust:
We have audited the accompanying combined statement of revenue and certain
expenses of the Centerpoint 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 described in
Note 2, of the Centerpoint Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
F-15
<PAGE>
CENTERPOINT PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
for the year ended December 31, 1997
-------
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Base rents $3,897,554
Tenant reimbursements 617,107
Miscellaneous income 6,709
----------
Total revenue 4,521,370
----------
Certain expenses:
Property operating 1,159,043
Repairs and maintenance 151,341
----------
Total certain expenses 1,310,384
----------
Revenue in excess of certain expenses $3,210,986
----------
----------
</TABLE>
See accompanying notes to this financial statement.
F-16
<PAGE>
CENTERPOINT PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE
AND CERTAIN EXPENSES
for the year ended December 31, 1997
-------
1. BUSINESS:
The accompanying combined statement of revenue and certain expenses
relates to the operation of Centerpoint Properties (the "Properties"),
consisting of the revenues and certain expenses of six office buildings
and two office/flex buildings located in Middlesex County, New Jersey.
The Properties are located at Exit 8A of the New Jersey Turnpike,
adjacent to Princeton, New Jersey, and total approximately 270,000
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 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.
MAJOR TENANT:
During 1997, the Properties' rental revenue included rental income from
one major tenant that comprised 29% of total combined rental revenue.
F-17
<PAGE>
CENTERPOINT PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE
AND CERTAIN EXPENSES
for the year ended December 31, 1997
-------
3. RENTALS:
The Properties have entered into non-cancelable tenant leases, with
expiration dates ranging from 1998 to 2003, 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 (in thousands):
<TABLE>
<S> <C>
1998 $ 3,626
1999 3,175
2000 2,583
2001 1,938
2002 1,385
Thereafter 20
-------
$12,727
-------
-------
</TABLE>
F-18
<PAGE>
CENTERPOINT PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
for the nine months September 30, 1998
-------
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Base rents $2,872,774
Tenant reimbursements 528,919
Miscellaneous income 21,898
----------
Total revenue 3,423,591
----------
Certain expenses:
Property operating 908,283
Repairs and maintenance 129,386
----------
Total certain expenses 1,037,669
----------
Revenue in excess of certain expenses $2,385,922
----------
----------
</TABLE>
F-19
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