10-K

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark one)



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended	December 31, 2015



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from		to

Commission file number 1-14023 (Corporate Office Properties Trust)

Commission file number 333-189188 (Corporate Office Properties, L.P.)

Corporate Office Properties Trust

Corporate Office Properties, L.P.

(Exact name of registrant as specified in its charter)



Corporate Office Properties Trust	Maryland	23-2947217
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)
Corporate Office Properties, L.P.	Delaware	23-2930022
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)



6711 Columbia Gateway Drive, Suite 300, Columbia, MD		21046
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (443) 285-5400

________________________________________

Securities registered pursuant to Section 12(b) of the Act:



(Title of Each Class)		(Name of Exchange on Which Registered
Common Shares of beneficial interest, $0.01 par value		New York Stock Exchange
Series L Cumulative Redeemable Preferred Shares of beneficial interest, $0.01 par value		New York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Corporate Office Properties Trust o Yes ý No

Corporate Office Properties, L.P. o Yes ý No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Corporate Office Properties Trust

Corporate Office Properties, L.P.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Corporate Office Properties Trust o Yes ý No

Corporate Office Properties, L.P. o Yes ý No

The aggregate market value of the voting and nonvoting shares of common stock held by non-affiliates of Corporate Office Properties Trust was approximately $2.2 billion, as calculated using the closing price of such shares on the New York Stock Exchange and the number of outstanding shares as of June 30, 2015. For purposes of calculating this amount only, affiliates are defined as Trustees, executive owners and beneficial owners of more than 10% of Corporate Office Properties Trust’s outstanding common shares, $0.01 par value. At February 16, 2016, 94,528,118 of Corporate Office Properties Trust’s common shares were outstanding.

The aggregate market value of the voting and nonvoting common units of limited partnership interest held by non-affiliates of Corporate Office Properties, L.P. was approximately $79.4 million, as calculated using the closing price of the common shares of Corporate Office Properties Trust (into which common units not held by Corporate Office Properties Trust are exchangeable) on the New York Stock Exchange and the number of outstanding units as of June 30, 2015.

Portions of the proxy statement of Corporate Office Properties Trust for its 2016 Annual Meeting of Shareholders to be filed within 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10-K.

EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2015 of Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) and Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” refer collectively to COPT, COPLP and their subsidiaries.

COPT is a real estate investment trust, or REIT, and the sole general partner of COPLP. As of December 31, 2015, COPT owned approximately 96.3% of the outstanding common units and approximately 95.5% of the outstanding preferred units in COPLP. The remaining common and preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT controls COPLP and can cause it to enter into major transactions including acquisitions, dispositions and refinancings and cause changes in its line of business, capital structure and distribution policies.

There are a few differences between the Company and the Operating Partnership which are reflected in this Form 10-K. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. COPT is a real estate investment trust, whose only material asset is its ownership of partnership interests of COPLP. As a result, COPT does not conduct business itself, other than acting as the sole general partner of COPLP, issuing public equity from time to time and guaranteeing certain debt of COPLP. COPT itself is not directly obligated under any indebtedness but guarantees some of the debt of COPLP. COPLP owns substantially all of the assets of COPT either directly or through its subsidiaries, conducts almost all of the operations of the business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from public equity issuances by COPT, which are contributed to COPLP in exchange for partnership units, COPLP generates the capital required by COPT’s business through COPLP’s operations, by COPLP’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests and shareholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of COPT and those of COPLP. The common limited partnership interests in COPLP not owned by COPT are accounted for as partners’ capital in COPLP’s consolidated financial statements and as noncontrolling interests in COPT’s consolidated financial statements. COPLP’s consolidated financial statements also reflect COPT’s noncontrolling interests in certain real estate partnerships, limited liability companies (“LLCs”), business trusts and corporations; the differences between shareholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued at the COPT and COPLP levels and in COPT’s noncontrolling interests in these real estate partnerships, LLCs, business trusts and corporations. The only other significant differences between the consolidated financial statements of COPT and those of COPLP are assets in connection with a non-qualified elective deferred compensation plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the plan’s participants that are held directly by COPT.

We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report results in the following benefits:


•	combined reports better reflect how management and the analyst community view the business as a single operating unit;


•	combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;


•	combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and


•	combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:


•	consolidated financial statements;


•	the following notes to the consolidated financial statements:


•	Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries;


•	Note 13, Equity of COPT and subsidiaries;


•	Note 14, Equity of COPLP and subsidiaries;


•	Note 19, Earnings per Share of COPT and subsidiaries and Earnings per Unit of COPLP and subsidiaries; and


•	Note 22, Quarterly Data of COPT and subsidiaries and COPLP and subsidiaries.


•	“Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPT”; and


•	“Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPLP.”

This report also includes separate sections under Part II, Item 9A. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of COPT and COPLP to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that COPT and COPLP are compliant with Rule 13a-15 and Rule 15d-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

Table of Contents

Form 10-K



		PAGE
PART I

ITEM 1.	BUSINESS	6
ITEM 1A	RISK FACTORS	10
ITEM 1B.	UNRESOLVED STAFF COMMENTS	17
ITEM 2.	PROPERTIES	18
ITEM 3.	LEGAL PROCEEDINGS	22
ITEM 4.	MINE SAFETY DISCLOSURES	22

PART II

ITEM 5.	MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	22
ITEM 6.	SELECTED FINANCIAL DATA	24
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	56
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	56
ITEM 9A.	CONTROLS AND PROCEDURES	56
ITEM 9B	OTHER INFORMATION	57

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	57
ITEM 11.	EXECUTIVE COMPENSATION	57
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	57
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	57
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	57

PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	58

	SIGNATURES	64

FORWARD-LOOKING STATEMENTS

This Form 10-K contains “forward-looking” statements, as defined in the Private Securities Litigation Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Additionally, documents we subsequently file with the SEC and incorporated by reference will contain forward-looking statements.

Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. We caution readers that forward-looking statements reflect our opinion only as of the date on which they were made. You should not place undue reliance on forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:


•	general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;


•	adverse changes in the real estate markets, including, among other things, increased competition with other companies;


•	governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers;


•	our ability to borrow on favorable terms;


•	risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;


•	risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;


•	changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;


•	our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;


•	the dilutive effects of issuing additional common shares;


•	our ability to achieve projected results; and


•	environmental requirements.

We undertake no obligation to publicly update or supplement forward-looking statements, whether as a result of new information, future events or otherwise. For further information on these and other factors that could affect us and the statements contained herein, you should refer to the section below entitled “Item 1A. Risk Factors.”

PART I

Item 1. Business

OUR COMPANY

General. Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”). Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”) is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. Unless otherwise expressly stated or the context otherwise requires, “we”, “us” and “our” as used herein refer to each of the Company and the Operating Partnership. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support United States Government agencies and their contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable priority missions (“Defense/IT Locations”). We also own a complementary portfolio of traditional office properties located in select urban/urban-like submarkets within our regional footprint with durable Class-A office fundamentals and characteristics, as well as other properties supporting general commercial office tenants (“Regional Office”). As of December 31, 2015, our properties included the following:


•	177 operating office properties totaling 18.1 million square feet that were 92% occupied, including nine triple-net leased, single-tenant data center properties;


•	13 office properties under, or contractually committed for, construction or redevelopment that we estimate will total approximately 1.5 million square feet upon completion, including one partially operational property included above;


•	1,439 acres of land we control that we believe are potentially developable into approximately 17.6 million square feet; and


•	a wholesale data center with a critical load of 19.25 megawatts.

COPLP owns real estate both directly and through subsidiary partnerships and limited liability companies (“LLCs”). In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management and construction and development services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).

Equity interests in COPLP are in the form of common and preferred units. As of December 31, 2015, COPT owned 96.3% of the outstanding COPLP common units (“common units”) and 95.5% of the outstanding COPLP preferred units (“preferred units”); the remaining common and preferred units in COPLP were owned by third parties. Common units in COPLP not owned by COPT carry certain redemption rights. The number of common units in COPLP owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of all COPLP common units to quarterly distributions and payments in liquidation is substantially the same as those of COPT common shareholders. Similarly, in the case of each series of preferred units in COPLP held by COPT, there is a series of preferred shares of beneficial interest (“preferred shares”) in COPT that is equivalent in number and carries substantially the same terms as such series of COPLP preferred units. COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.

Because COPLP is managed by COPT, and COPT conducts substantially all of its operations through COPLP, we refer to COPT’s executive officers as COPLP’s executive officers, and although, as a partnership, COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.

We believe that COPT is organized and has operated in a manner that satisfies the requirements for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and we intend to continue to operate COPT in such a manner. If COPT continues to qualify for taxation as a REIT, it generally will not be subject to Federal income tax on its taxable income (other than that of its TRS) that is distributed to its shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute to its shareholders at least 90% of its annual taxable income.

Our executive offices are located at 6711 Columbia Gateway Drive, Suite 300, Columbia, Maryland 21046 and our telephone number is (443) 285-5400.

Our Internet address is www.copt.com. We make available on our Internet website free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably possible after we file such material with the Securities and Exchange Commission (the “SEC”). In addition, we have made available on our Internet website under the heading “Corporate Governance” the charters for our Board of Trustees’ Audit, Nominating and Corporate Governance, Compensation and Investment Committees, as well as our Corporate

Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics for Financial Officers. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics and Code of Ethics for Financial Officers within four business days after any such amendments or waivers. The information on our Internet site is not part of this report.

The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This Internet website can be accessed at www.sec.gov. The public may also read and copy paper filings that we have made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

Significant Developments

In 2015, we:


•	finished the period with occupancy of our portfolio of operating office properties of 91.6%;


•	leased 11.25 megawatts in our wholesale data center. The center became 100% operational during the period and was 92.5% leased as of year end;


•	placed into service an aggregate of 1.1 million square feet in seven newly constructed properties and two redeveloped properties that were 97.1% leased as of December 31, 2015;


•	acquired:


◦	250 W. Pratt Street, a 367,000 square foot property in Baltimore, Maryland that was 96.2% leased, for $61.8 million on March 19, 2015;


◦	2600 Park Tower Drive, a 237,000 square foot property in Northern Virginia that was 100% leased, for $80.5 million on April 15, 2015; and


◦	100 Light Street, a 558,000 square foot office property in Baltimore, Maryland that was 93.5% leased, and its structured parking garage, 30 Light Street, for $121.2 million on August 7, 2015. In connection with that acquisition, we assumed a $55.0 million mortgage loan;


•	disposed of nine office properties totaling 1.6 million square feet and land for transaction values totaling $365.9 million, including:


◦	seven office properties (five in Baltimore County, Maryland and two in Northern Virginia) and land sold for $198.5 million; and


◦	two office properties in Northern Virgina totaling 665,000 square feet that secured a $150.0 million nonrecourse mortgage loan. On August 28, 2015, ownership in these properties was transferred to the mortgage lender and we removed the debt obligation and accrued interest from our balance sheet;


•	issued $300.0 million of 5.00% Senior Notes on June 29, 2015 at an initial offering price of 99.51% of their face value. The proceeds from the issuance, after deducting underwriting discounts but before other offering expenses, were approximately $296.6 million;


•	entered into an unsecured term loan agreement on December 17, 2015 with an initial commitment of $250.0 million of which we borrowed $100.0 million; and


•	issued 890,241 COPT common shares at a weighted average price of $30.29 per share under our at-the-market stock offering program established in October 2012. Net proceeds from the shares issued totaled $26.6 million. The net proceeds were contributed to COPLP in exchange for 890,241 common units.

On February 10, 2016, our Board of Trustees appointed Stephen E. Budorick, our Executive Vice President and Chief Operating Officer since September 2011, to become our President and Chief Executive Officer effective May 12, 2016, the date of the Company’s 2016 Annual Meeting of Shareholders. On that date, Roger A. Waesche, Jr., our current President and Chief Executive Officer, will leave the Company to pursue other interests and he will not be nominated for reelection as a Trustee. The Board expects to appoint Mr. Budorick to our Board of Trustees after the 2016 Annual Meeting of Shareholders.

Business and Growth Strategies

Our primary goal is to deliver attractive and competitive total returns to our shareholders. This section sets forth key components of our business and growth strategies that we have in place to support this goal.

Defense/ IT Locations Strategy: We specialize in serving the unique requirements of tenants of our Defense/IT Locations. The majority of our properties are located adjacent to, or houses, United States Government agencies. Our customers in these properties are primarily United States Government agencies and their contractors engaged in activities servicing what we believe are high priority security, defense and IT missions. These tenants’ missions generally pertain to knowledge-based

activities (such as cyber security, research and development and other highly technical defense and security areas) rather than to force structure (troops) and weapon system production. A high percentage of our revenue (80.8% as of December 31, 2015) is concentrated in Defense/IT Locations, and we expect to maintain a high concentration through our:


•	properties’ (existing buildings and developable land we control) proximity to defense installations and other knowledge-based government demand drivers, and our willingness to expand to new locations with similar proximities;


•	extensive experience in developing secured, specialized space, with the ability to satisfy the United States Government’s unique needs, including Sensitive Compartmented Information Facility (“SCIF”) and Anti-Terrorism Force Protection (“ATFP”) requirements;


•	depth of knowledge, specialized skills and credentialed personnel in operating highly specialized space with security-oriented needs;


•	well-established relationships with United States Government agencies and their contractors; and


•	track record of providing service that exceeds customer expectations both in terms of the quality of the space we provide and our level of responsiveness to their needs. We believe that operating with such an emphasis on service enables us to be a landlord of choice with high quality tenants of these properties and contributes to high levels of customer loyalty and retention.

Regional Office Strategy: While our primary focus pertains to Defense/IT Locations, we also own a portfolio of traditional office properties located in select urban/urban-like submarkets within our regional footprint with durable Class-A office fundamentals and characteristics, as well as other properties supporting general commercial office tenants. We believe that our Regional Office portfolio enables us to leverage our local expertise in a region into a second growth platform in a way that is complementary to our Defense/IT Locations strategy. Characteristics that we seek in Regional Office submarkets include: (1) mixed-use, lifestyle oriented locations with a robust high-end residential and retail base; (2) proximity to public transportation and major transportation routes; (3) educated workforce; and (4) diverse and growing employment base. We believe that these types of submarkets provide better overall quality and opportunity for long-term, sustained growth than other commercial office submarkets.

Asset Management Strategy: We aggressively manage our portfolio to maximize the value and operating performance of each property through: (1) proactive property management and leasing; (2) achievement of operating efficiencies by increasing economies of scale and, where possible, aggregating vendor contracts to achieve volume pricing discounts; (3) renewing tenant leases and re-tenanting at increased rents where market conditions permit; and (4) redevelopment when we believe property conditions and market demand warrant. We may also seek to dispose of properties when they no longer meet our strategic objectives, or when capital markets and the circumstances pertaining to such holdings otherwise warrant, in order to maximize our return on invested capital and be better positioned for long-term growth.

We also aim to develop and operate our properties in a manner that minimizes adverse impact on the environment by: (1) constructing new buildings designed to use resources with a high level of efficiency and low impact on human health and the environment during their life cycles through our participation in the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) program; (2) investing in energy systems and other equipment that reduce energy consumption and property operating costs; and (3) adopting select LEED Existing Building (“EB”) prerequisites for much of our portfolio, including guidelines pertaining to cleaning and recycling practices and energy reduction. In 2015, we participated for the first time in the GRESB (or Global Real Estate Sustainability Benchmark) survey, which is widely recognized for measuring the sustainability performance of real estate companies and funds, and earned an overall score of “Green Star,” which represents the highest quadrant of achievement from the survey.

Property Development and Acquisition Strategy: We pursue property development and acquisition opportunities for properties that fit our Defense/IT Locations and Regional Office strategies and, as discussed above, have significant land holdings that we believe can help fuel future development of Defense/IT Locations in particular. We pursue development activities as market conditions and leasing opportunities support favorable risk-adjusted returns on investment, and therefore typically prefer properties to be significantly leased prior to commencing construction. We typically seek to make acquisitions at attractive yields and below replacement cost, or that otherwise meet our strategic objectives. We also seek to increase operating cash flow of certain acquisitions by repositioning the properties and capitalizing on existing below market leases and expansion opportunities.

Capital Strategy: Our capital strategy is aimed at maintaining access to capital in the face of differing market conditions in the most cost-effective manner by:


•	maintaining an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks;


•	using secured nonrecourse debt from institutional lenders and banks;

•

managing our debt by monitoring, among other things: (1) our total and secured debt levels relative to our overall capital structure; (2) the relationship of certain measures of earnings to our debt level and to certain capital costs; (3) the timing of debt maturities to ensure that maturities in any year do not exceed levels that we believe we can refinance; and (4) the relationship of our variable-rate debt to our total debt;


•	using equity raised through issuances of common and preferred shares, issuances of common and preferred units in COPLP and, to a lesser extent, joint venture structures for certain investments;


•	paying dividends at a level that at least enables us to maintain our REIT status;


•	recycling proceeds from property sales under our asset management strategy (discussed above) to fund our investment activities and to reduce overall debt; and


•	continuously evaluating the ability of our capital resources to accommodate our plans for future growth.

Industry Segments

We operate in two primary industries: commercial office properties and our wholesale data center. Effective in the quarter ended December 31, 2015, we changed the reportable segments that we use to review operating results and make decisions regarding segment performance and resource allocation. Given the changes in our portfolio resulting from development, acquisition and disposition activities, we made this change to better align our segments with our business strategy by contemplating the market characteristics of our properties. As of December 31, 2015, our commercial office real estate operations included the following: Defense/IT Locations and Regional Office. Our segment reporting also included reporting for Defense/IT Locations sub-segments, which included the following:


•	Fort George G. Meade and the Baltimore/Washington Corridor (referred to herein as “Fort Meade/BW Corridor”);


•	Northern Virginia Defense I/T Locations;


•	Lackland Air Force Base in San Antonio, Texas;


•	locations serving the U.S. Navy (referred to herein as “Navy Support Locations”). Properties in this segment as of December 31, 2015 were proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia;


•	Redstone Arsenal in Huntsville, Alabama; and


•	data center shells, which are properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure. Most of our data center shells as of December 31, 2015 were proximate to the MAE-East Corridor, a major center in the United States for interconnecting traffic between Internet service providers.

As of December 31, 2015, Defense/IT Locations comprised 146 of our office properties, or 79.6% of our square feet in operations, while Regional Office comprised 24 of our office properties, or 17.7% of our square feet in operations. Our wholesale data center, which is comprised of one property in Manassas, Virginia, is reported as a separate segment.

For information relating to our segments, you should refer to Note 17 to our consolidated financial statements, which is included in a separate section at the end of this Annual Report on Form 10-K beginning on page F-1.

Employees

As of December 31, 2015, we had 383 employees, none of whom were parties to collective bargaining agreements. We believe that our relations with our employees are good.

Competition

The commercial real estate market is highly competitive. Numerous commercial properties compete with us for tenants. Some of the properties competing with ours may be newer or in more desirable locations, or the competing properties’ owners may be willing to accept lower rents than we are. We also compete with our own tenants, many of whom have the right to sublease their space. The competitive environment for leasing is affected considerably by a number of factors including, among other things, changes in economic conditions and supply of and demand for space. These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to meeting our short-term capital needs.

We compete for the acquisition of commercial properties with many entities, including other publicly-traded commercial REITs. Competitors for such acquisitions may have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments or may be willing to incur higher leverage. If our

competitors prevent us from buying properties that we have targeted for acquisition, we may not be able to meet our property acquisition goals.

We also compete with many entities, including other publicly-traded commercial REITs, for capital. This competition could adversely affect our ability to raise capital we may need to fulfill our capital strategy.

Item 1A. Risk Factors

Set forth below are risks and uncertainties relating to our business and the ownership of our securities. These risks and uncertainties may lead to outcomes that could adversely affect our financial position, results of operations, cash flows and ability to make expected distributions to our equityholders. You should carefully consider each of these risks and uncertainties and all of the information in this Annual Report on Form 10-K and its Exhibits, including our consolidated financial statements and notes thereto for the year ended December 31, 2015, which are included in a separate section at the end of this report beginning on page F-1.

Our performance and value are subject to risks associated with our properties and with the real estate industry. Real estate investments are subject to various risks and fluctuations in value and demand, many of which are beyond our control. Our economic performance and the value of our real estate assets may decline due to conditions in the general economy and the real estate business which, in turn, could have an adverse effect on our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders. These conditions include, but are not limited to:


•	downturns in national, regional and local economic environments, including increases in the unemployment rate and inflation or deflation;


•	competition from other properties;


•	deteriorating local real estate market conditions, such as oversupply, reduction in demand and decreasing rental rates;


•	unavailability of financing for potential purchasers of our properties;


•	declining real estate valuations;


•	increasing vacancies and the need to periodically repair, renovate and re-lease space;


•	adverse developments concerning our tenants, which could affect our ability to collect rents and execute lease renewals;


•	government actions and initiatives, including risks associated with the impact of prolonged government shutdowns and budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers;


•	increasing operating costs, including insurance expenses, utilities, real estate taxes and other expenses, much of which we may not be able to pass through to tenants;


•	increasing interest rates and unavailability of financing on acceptable terms or at all;


•	trends in office real estate that may adversely affect future demand, including telecommuting and flexible workplaces that increase the population density per square foot;


•	adverse changes in taxation or zoning laws;


•	potential inability to secure adequate insurance;


•	adverse consequences resulting from civil disturbances, natural disasters, terrorist acts or acts of war; and


•	potential liability under environmental or other laws or regulations.

We may suffer adverse consequences as a result of adverse economic conditions. Our business may be affected by adverse economic conditions in the United States economy or real estate industry as a whole or by the local economic conditions in the markets in which our properties are located, including the impact of high unemployment and constrained credit. Adverse economic conditions could increase the likelihood of tenants encountering financial difficulties, including bankruptcy, insolvency or general downturn of business, and as a result could increase the likelihood of tenants defaulting on their lease obligations to us. Such conditions also could increase the likelihood of our being unsuccessful in renewing tenants, renewing tenants on terms less favorable to us or being unable to lease newly constructed properties. In addition, such conditions could increase the level of risk that we may not be able to obtain new financing for development activities, acquisitions, refinancing of existing debt or other capital requirements at reasonable terms, if at all.

We may suffer adverse consequences as a result of our reliance on rental revenues for our income. We earn revenue from renting our properties. Our operating costs do not necessarily fluctuate in relation to changes in our rental revenue. This means that our costs will not necessarily decline and may increase even if our revenues decline.

For new tenants or upon lease expiration for existing tenants, we generally must make improvements and pay other leasing costs for which we may not receive increased rents. We also make building-related capital improvements for which tenants may not reimburse us.

If our properties do not generate revenue sufficient to meet our operating expenses and capital costs, we may have to borrow additional amounts to cover these costs. In such circumstances, we would likely have lower profits or possibly incur losses. We may also find in such circumstances that we are unable to borrow to cover such costs, in which case our operations could be adversely affected.

In addition, the competitive environment for leasing is affected considerably by a number of factors including, among other things, changes due to economic factors such as supply and demand. These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to meet our short-term capital needs.

We rely on the ability of our tenants to pay rent and would be harmed by their inability to do so. Our performance depends on the ability of our tenants to fulfill their lease obligations by paying their rental payments in a timely manner. As a result, we would be harmed if one or more of our major tenants, or a number of our smaller tenants, were to experience financial difficulties, including bankruptcy, insolvency, government shutdown, or general downturn of business.

We may be adversely affected by developments concerning some of our major tenants and sector concentrations, including prolonged shutdowns of the United States Government and actual, or potential, reductions in government spending targeting United States Government agencies and defense contractors engaged in knowledge-based activities. As of December 31, 2015, our 20 largest tenants accounted for 63.8% of the total annualized rental revenue of our office properties, and the four largest of these tenants accounted for 41.9%. We calculated the annualized rental revenue by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases in our portfolio of office properties as of December 31, 2015. Information regarding our four largest tenants is set forth below:



Tenant	Annualized Rental Revenue as of December 31, 2015		Percentage of Total Annualized Rental Revenue of Office Properties	Number of Leases
	(in thousands)
United States of America	$	141,497	29.0%	63
Northrop Grumman Corporation (1)	22,403		4.6%	9
The Boeing Company (1)	21,842		4.5%	12
General Dynamics Corporation (1)	19,163		3.9%	7


(1)	Includes affiliated organizations and agencies and predecessor companies.

Most of our leases with the United States Government provide for a series of one-year terms or provide for early termination rights. The United States Government may terminate its leases if, among other reasons, the United States Congress fails to provide funding. We would be harmed if any of our four largest tenants fail to make rental payments to us, including as a result of a prolonged government shutdown, or if the United States Government elects to terminate some or all of its leases and the space cannot be re-leased on satisfactory terms.

As of December 31, 2015, 80.8% of the total annualized rental revenue of our office properties was from Defense/IT Locations, and we expect to maintain a similarly high revenue concentration in these types of properties. A reduction in government spending targeting the activities of these agencies and contractors (such as knowledge-based defense and security activities) could affect the ability of these tenants to fulfill lease obligations, decrease the likelihood that these tenants will renew their leases or enter into new leases and limit our future growth from these sectors. Moreover, uncertainty regarding the potential for future reduction in government spending targeting such activities could also decrease or delay leasing activity from tenants engaged in these activities.

Most of our properties are geographically concentrated in the Mid-Atlantic region, particularly in the Greater Washington, DC/Baltimore region, or in particular office parks. We may suffer economic harm in the event of a decline in the real estate market or general economic conditions in those regions or parks. Most of our properties are located in the Mid-Atlantic region of the United States, particularly in the Greater Washington, DC/Baltimore region. Our properties are also often concentrated in office parks in which we own most of the properties. Consequently, our portfolio of properties is not

broadly distributed geographically. As a result, we would be harmed by a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, DC/Baltimore region or the office parks in which our properties are located.

We would suffer economic harm if we were unable to renew our leases on favorable terms. When leases expire, our tenants may not renew or may renew on terms less favorable to us than the terms of their original leases. If a tenant vacates a property, we can expect to experience a vacancy for some period of time, as well as incur higher leasing costs than we would likely incur if a tenant renews. As a result, we may be harmed if we experience a high volume of tenant departures at the end of their lease terms.

We may be adversely affected by trends in the office real estate industry. Some businesses increasingly permit employee telecommuting, flexible work schedules, open workplaces and teleconferencing. These practices enable businesses to reduce their space requirements. These trends could over time erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations.

We may encounter a decline in the value of our real estate. The value of our real estate could be adversely affected by general economic and market conditions connected to a specific property, a market or submarket, a broader economic region or the office real estate industry. Examples of such conditions include a broader economic recession, declining demand and decreases in market rental rates and/or market values of real estate assets. If our real estate assets decline in value, it could result in our recognition of impairment losses. Moreover, a decline in the value of our real estate could adversely affect the amount of borrowings available to us under future credit facilities and other loans.

We may not be able to compete successfully with other entities that operate in our industry. The commercial real estate market is highly competitive. We compete for the purchase of commercial property with many entities, including other publicly traded commercial REITs. Many of our competitors have substantially greater financial resources than we do. If our competitors prevent us from buying properties that we target for acquisition, we may not be able to meet our property acquisition goals. Moreover, numerous commercial properties compete with our properties for tenants. Some of the properties competing with ours may be newer or in more desirable locations, or the competing properties’ owners may be willing to accept lower rates than are acceptable to us.

Real estate investments are illiquid, and we may not be able to dispose of properties on a timely basis when we determine it is appropriate to do so. We intend to sell properties to fund our development plans and reduce debt. Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions, including real estate lending conditions, are not favorable. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Our failure to successfully execute dispositions could adversely affect our ability to effectively execute our business strategy. Moreover, under certain circumstances, the Internal Revenue Code imposes certain penalties on a REIT that sells property held for less than two years and limits the number of properties it can sell in a given year. In addition, for certain of our properties that we acquired by issuing units in COPLP, we are restricted by agreements with the sellers of the properties for a certain period of time from entering into transactions (such as the sale or refinancing of the acquired property) that will result in a taxable gain to the sellers without the seller’s consent.

We are dependent on external sources of capital for future growth. Because COPT is a REIT, it must distribute at least 90% of its annual taxable income to its shareholders. Due to this requirement, we are not able to significantly fund our acquisition, construction and development activities using retained cash flow from operations. Therefore, our ability to fund these activities is dependent on our ability to access debt or equity capital. Such capital could be in the form of new debt, common shares, preferred shares, common and preferred units in COPLP or joint venture funding. These capital sources may not be available on favorable terms or at all. Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management’s flexibility in directing our operations, and additional equity offerings may result in substantial dilution of our equityholders’ interests. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.

We often use our Revolving Credit Facility to initially finance much of our investing activities and certain financing activities. We also use other credit facilities to fund a significant portion of our construction activities. Our lenders under these and other facilities could, for financial hardship or other reasons, fail to honor their commitments to fund our requests for borrowings under these facilities. If lenders default under these facilities by not being able or willing to fund a borrowing request, it would adversely affect our ability to access borrowing capacity under these facilities.

We may be unable to successfully execute plans to acquire existing commercial real estate properties. We may acquire existing commercial real estate properties to the extent that suitable acquisitions can be made on advantageous terms.

Acquisitions of commercial properties entail risks, such as the risks that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions will fail to perform as expected.

We may be exposed to unknown liabilities from acquired properties. We may acquire properties that are subject to liabilities in situations where we have no recourse, or only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flow. Examples of unknown liabilities with respect to acquired properties include, but are not limited to:


•	liabilities for clean-up of disclosed or undisclosed environmental contamination;


•	claims by tenants, vendors or other persons dealing with the former owners of the properties;


•	liabilities incurred in the ordinary course of business; and


•	claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

We may suffer economic harm as a result of making unsuccessful acquisitions in new markets. We may pursue selective acquisitions of properties in regions where we have not previously owned properties. These acquisitions may entail risks in addition to those we face in other acquisitions where we are familiar with the regions, such as the risk that we do not correctly anticipate conditions or trends in a new market and are therefore not able to operate the acquired property profitably.

We may be unable to execute our plans to develop and construct additional properties. Although the majority of our investments are in currently leased properties, we also develop, construct and redevelop properties, including some that are not fully pre-leased. When we develop, construct and redevelop properties, we assume the risk that actual costs will exceed our budgets, that we will experience conditions which delay or preclude project completion and that projected leasing will not occur. In addition, we generally do not obtain construction financing commitments until the development stage of a project is complete and construction is about to commence. We may find that we are unable to obtain financing needed to continue with the construction activities for such projects.

Our data centers may become obsolete. Data centers are much more expensive investments on a per square foot basis than office properties due to the level of infrastructure required to operate the centers. At the same time, technology, industry standards and service requirements for data centers are rapidly evolving and, as a result, the risk of investments we make in data centers becoming obsolete is higher than office properties. Our data centers may become obsolete due to the development of new systems to deliver power to, or eliminate heat from, the servers housed in the properties, or due to other technological advances. In addition, we may not be able to efficiently upgrade or change power and cooling systems to meet new demands or industry standards without incurring significant costs that we may not be able to pass on to our tenants.

Certain of our properties containing data centers contain space not suitable for lease other than as data centers, which could make it difficult to reposition them for alternative use. Certain of our properties contain data center space, which is highly specialized space containing extensive electrical and mechanical systems that are designed uniquely to run and maintain banks of computer servers. As discussed above, our data centers are subject to obsolescence risks. In the event that we needed to reposition data center space for another use, the renovations required to do so could be difficult and costly, and we may, as a result, deem such renovations to be impractical.

We may suffer adverse effects as a result of the indebtedness that we carry and the terms and covenants that relate to this debt. Some of our properties are pledged by us to support repayment of indebtedness. Any foreclosure on our properties could result in loss of income and asset value. In addition, we rely on borrowings to fund some or all of the costs of construction and development activities, new property acquisitions and other items. Our organizational documents do not limit the amount of indebtedness that we may incur.

Payments of principal and interest on our debt may leave us with insufficient cash to operate our properties or pay distributions to COPT’s shareholders required to maintain its qualification as a REIT. We are also subject to the risks that:


•	we may not be able to refinance our existing indebtedness, or may refinance on terms that are less favorable to us than the terms of our existing indebtedness;


•	in the event of our default under the terms of our Revolving Credit Facility, COPLP could be restricted from making cash distributions to COPT, which could result in reduced distributions to our equityholders or the need for us to incur additional debt to fund these distributions; and


•	if we are unable to pay our debt service on time or are unable to comply with restrictive financial covenants in certain of our debt, our lenders could foreclose on our properties securing such debt and, in some cases, other properties and assets that we own.

Some of our unsecured debt is cross-defaulted, which means that failure to pay interest or principal on the debt above a threshold value will create a default on certain of our other debt.

If interest rates were to rise, our debt service payments on debt with variable interest rates would increase.

As of December 31, 2015, our scheduled debt maturities over the next five years were as follows:



Year	Amount (1)
	(in thousands)
2016	$	208,109
2017	3,252
2018	3,400
2019	167,014
2020	315,252


(1)	Represents principal maturities only and therefore excludes net debt discounts and deferred financing costs. As of December 31, 2015, maturities include $43.5 million in 2019 that may be extended to 2020, subject to certain conditions.

Our operations likely will not generate enough cash flow to repay some or all of this debt without additional borrowings, equity issuances and/or property sales. If we cannot refinance our debt, extend the repayment dates, or raise additional equity prior to the dates when our debt matures, we would default on our existing debt.

A downgrade in our credit ratings would materially adversely affect our business and financial condition. COPLP’s Senior Notes are currently rated investment grade by the three major rating agencies. These credit ratings are subject to ongoing evaluation by the credit rating agencies and can change. Any downgrades in terms of ratings or outlook by the credit rating agencies would have a material adverse impact on our cost and availability of capital and also have a material adverse effect on the market price of COPT’s common shares.

We have certain distribution requirements that reduce cash available for other business purposes. Since COPT is a REIT, it must distribute at least 90% of its annual taxable income, which limits the amount of cash that can be retained for other business purposes, including amounts to fund acquisitions and development activity. Also, it is possible that because of the differences between the time we actually receive revenue or pay expenses and the period during which we report those items for distribution purposes, we may have to borrow funds for COPT to meet the 90% distribution requirement.

We may be unable to continue to make equityholders distributions at expected levels. We expect to make regular quarterly cash distributions to our equityholders. However, our ability to make such distributions depends on a number of factors, some of which are beyond our control. Some of our loan agreements contain provisions that could, in the event of default, restrict future distributions. Our ability to make distributions at expected levels will also be dependent, in part, on other matters, including, but not limited to:


•	continued property occupancy and timely receipt of rent obligations;


•	the amount of future capital expenditures and expenses relating to our properties;


•	the level of leasing activity and future rental rates;


•	the strength of the commercial real estate market;


•	our ability to compete;


•	governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses;


•	our costs of compliance with environmental and other laws;


•	our corporate overhead levels;


•	our amount of uninsured losses; and


•	our decision to reinvest in operations rather than distribute available cash.

In addition, we can make distributions to the holders of our common shares/units only after we make preferential distributions to holders of our preferred shares/units.

Our ability to pay distributions may be limited, and we cannot provide assurance that we will be able to pay distributions regularly. Our ability to pay distributions will depend on a number of things discussed elsewhere herein, including our ability to operate profitably and generate cash flow from our operations. We cannot guarantee that we will be able to pay distributions on a regular quarterly basis in the future. Additionally, the terms of some of COPLP’s debt may limit its ability to make some types of payments and other distributions to COPT in the event of certain default situations. This in turn may limit our ability to make some types of payments, including payment of distributions on common or preferred shares/units, unless we meet certain financial tests or such payments or distributions are required to maintain COPT’s qualification as a REIT. As a result, if we are unable to meet the applicable financial tests, we may not be able to pay distributions in one or more periods. Furthermore, any new common or preferred shares/units that may in the future be issued for raising capital, financing acquisitions, share-based compensation arrangements or otherwise will increase the cash required to continue to pay cash distributions at current levels.

We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay distributions to equityholders. Our governing documents do not limit us from incurring additional indebtedness and other liabilities. As of December 31, 2015, we had $2.1 billion of indebtedness outstanding. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position.

Our ability to pay distributions is further limited by the requirements of Maryland law. As a Maryland REIT, COPT may not under applicable Maryland law make a distribution if either of the following conditions exists after giving effect to the distribution: (1) the REIT would not be able to pay its debts as the debts become due in the usual course of business; or (2) the REIT’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the REIT were dissolved at the time of the distribution, to satisfy upon dissolution the rights of equityholders whose preferential rights are superior to those receiving the distribution. Therefore, we may not be able to make expected distributions to our equityholders if either of the above described conditions exists for COPT after giving effect to the distribution.

We may issue additional common or preferred shares/units that dilute our equityholders’ interests. We may issue additional common and preferred shares/units without shareholder approval. Similarly, COPT may cause COPLP to issue its common or preferred units for contributions of cash or property without approval by the limited partners of COPLP or COPT’s shareholders. Our existing equityholders’ interests could be diluted if such additional issuances were to occur.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments. We may invest in certain entities in which we are not the exclusive investor or principal decision maker. Investments in such entities may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in these entities may have economic, tax or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments may have full control over the entity. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments.

We may be subject to possible environmental liabilities. We are subject to various Federal, state and local environmental laws, including air and water quality, hazardous or toxic substances and health and safety. These laws can impose liability on current and prior property owners or operators for the costs of removal or remediation of hazardous substances released on a property, even if the property owner was not responsible for, or even aware of, the release of the hazardous substances. Costs resulting from environmental liability could be substantial. The presence of hazardous substances on our properties may also adversely affect occupancy and our ability to sell or borrow against those properties. In addition to the costs of government claims under environmental laws, private plaintiffs may bring claims for personal injury or other reasons. Additionally, various laws impose liability for the costs of removal or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances at such a facility is potentially liable under such laws. These laws often impose liability on an entity even if the facility was not owned or operated by the entity.

Although most of our properties have been subject to varying degrees of environmental assessment, many of these assessments are limited in scope and may not include or identify all potential environmental liabilities or risks associated with the property. Identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to us.

Terrorist attacks may adversely affect the value of our properties, our financial position and cash flows. We have significant investments in properties located in large metropolitan areas and near military installations. Future terrorist attacks could directly or indirectly damage our properties or cause losses that materially exceed our insurance coverage. After such an attack, tenants in these areas may choose to relocate their businesses to areas of the United States that may be perceived to be less likely targets of future terrorist activity, and fewer customers may choose to patronize businesses in these areas. This in turn would trigger a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease space on less favorable terms.

We may be subject to other possible liabilities that would adversely affect our financial position and cash flows. Our properties may be subject to other risks related to current or future laws, including laws benefiting disabled persons, state or local laws relating to zoning, construction, fire and life safety requirements and other matters. These laws may require significant property modifications in the future and could result in the levy of fines against us. In addition, although we believe that we adequately insure our properties, we are subject to the risk that our insurance may not cover all of the costs to restore a property that is damaged by a fire or other catastrophic events, including acts of war or, as mentioned above, terrorism.

We may be subject to increased costs of insurance and limitations on coverage, particularly regarding acts of terrorism. Our portfolio of properties is insured for losses under our property, casualty and umbrella insurance policies through September 30, 2016. These policies include coverage for acts of terrorism. Future changes in the insurance industry’s risk assessment approach and pricing structure may increase the cost of insuring our properties and decrease the scope of insurance coverage. Most of our loan agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs, or at all, in the future. In addition, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance and/or refinance our properties and execute our growth strategies.

Our business could be adversely affected by a negative audit by the United States Government. Agencies of the United States, including the Defense Contract Audit Agency and various agency Inspectors General, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations, and standards. The United States Government also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies. Any costs found to be misclassified may be subject to repayment. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition from doing business with the United States Government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

Our business could be adversely affected by security breaches through cyber attacks, cyber intrusions or otherwise. We face risks associated with security breaches and other significant disruptions of our information technology networks and related systems, which are essential to our business operations. Such breaches and disruptions may occur through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization. Because of our concentration on serving United States Government agencies and their contractors with a general focus on national security and information technology, we may be especially likely to be targeted by cyber attacks, including by governments, organizations or persons hostile to our government. Despite our activities to maintain the security and integrity of our networks and related systems, as well as purchasing available insurance coverage, there can be no absolute assurance that these activities will be effective in mitigating these risks. A security breach involving our networks and related systems could disrupt our operations in numerous ways, including by creating difficulties for our tenants that may reflect poorly on us.

COPT’s ownership limits are important factors. COPT’s Declaration of Trust limits ownership of its common shares by any single shareholder to 9.8% of the number of the outstanding common shares or 9.8% of the value of the outstanding common shares, whichever is more restrictive. COPT’s Declaration of Trust also limits ownership by any single shareholder of our common and preferred shares in the aggregate to 9.8% of the aggregate value of the outstanding common and preferred shares. We call these restrictions the “Ownership Limit.” COPT’s Declaration of Trust allows our Board of Trustees to exempt shareholders from the Ownership Limit. The Ownership Limit and the restrictions on ownership of our common shares may delay or prevent a transaction or a change of control that might involve a premium price for our common shares/units or otherwise be in the best interest of our equityholders.

COPT’s Declaration of Trust includes other provisions that may prevent or delay a change of control. Subject to the requirements of the New York Stock Exchange, our Board of Trustees has the authority, without shareholder approval, to issue additional securities on terms that could delay or prevent a change in control. In addition, our Board of Trustees has the

authority to reclassify any of our unissued common shares into preferred shares. Our Board of Trustees may issue preferred shares with such preferences, rights, powers and restrictions as our Board of Trustees may determine, which could also delay or prevent a change in control.

The Maryland business statutes impose potential restrictions that may discourage a change of control of our company. Various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to equityholders. Resolutions adopted by our Board of Trustees and/or provisions of our bylaws exempt us from such laws, but our Board of Trustees can alter its resolutions or change our bylaws at any time to make these provisions applicable to us.

COPT’s failure to qualify as a REIT would have adverse tax consequences, which would substantially reduce funds available to make distributions to our equityholders. We believe that COPT has qualified for taxation as a REIT for Federal income tax purposes since 1992. We plan for COPT to continue to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of COPT’s gross income must come from certain sources that are specified in the REIT tax laws. COPT is also required to distribute to shareholders at least 90% of its REIT taxable income (excluding capital gains). The fact that COPT holds most of its assets through COPLP and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize COPT’s REIT status. Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations and the courts might issue new rulings that make it more difficult or impossible for COPT to remain qualified as a REIT.

If COPT fails to qualify as a REIT, it would be subject to Federal income tax at regular corporate rates. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, COPT would remain disqualified as a REIT for four years following the year it first fails to qualify. If COPT fails to qualify as a REIT, it would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our equityholders. In addition, if COPT fails to qualify as a REIT, it will no longer be required to pay distributions to shareholders. As a result of all these factors, COPT’s failure to qualify as a REIT could impair our ability to expand our business and raise capital and would likely have a significant adverse effect on the value of our shares/units.

We could face possible adverse changes in tax laws, which may result in an increase in our tax liability. From time to time, changes in state and local tax laws or regulations are enacted that may result in an increase in our tax liability. The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income.

A number of factors could cause our security prices to decline. As is the case with any publicly-traded securities, certain factors outside of our control could influence the value of COPT’s common and preferred shares. These conditions include, but are not limited to:


•	market perception of REITs in general and office REITs in particular;


•	market perception regarding our major tenants and sector concentrations;


•	the level of institutional investor interest in COPT;


•	general economic and business conditions;


•	prevailing interest rates;


•	our financial performance;


•	our underlying asset value;


•	market perception of our financial condition, performance, dividends and growth potential; and


•	adverse changes in tax laws.

We may experience significant losses and harm to our financial condition if financial institutions holding our cash and cash equivalents file for bankruptcy protection. We believe that we maintain our cash and cash equivalents with high quality financial institutions. We have not experienced any losses to date on our deposited cash. However, we may incur significant losses and harm to our financial condition in the future if any of these financial institutions files for bankruptcy protection.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The following table provides certain information about our office property segments as of December 31, 2015 (dollars and square feet in thousands, except per square foot amounts):



Segment	Number of Buildings	Rentable Square Feet	Occupancy (1)		Annualized Rental Revenue (2)		Annualized Rental Revenue per Occupied Square Foot (2)(3)
Defense/IT Locations:
Fort Meade/BW Corridor:
National Business Park (Annapolis Junction, MD)	29	3,485	97.4	%	$	126,271	$37.19
Howard County, MD	33	2,695	94.6	%	68,916		27.04
Other	28	1,998	89.5	%	47,149		26.37
Subtotal / Average	90	8,178	94.5	%	242,336		31.35
Northern Virginia Defense/IT	13	1,934	81.9	%	50,567		31.91
Lackland Air Force Base	7	953	100.0	%	40,672		42.68
Navy Support Locations	21	1,262	72.1	%	25,333		27.85
Redstone Arsenal	6	632	97.0	%	13,262		21.63
Data Center Shells	9	1,415	100.0	%	22,805		16.11
Defense/IT Locations Subtotal / Average	146	14,374	91.9	%	394,975		29.91
Regional Office (4)	24	3,202	95.4	%	86,996		28.48
Other Properties (5)	7	477	57.3	%	6,691		24.45
Total Portfolio	177	18,053	91.6	%	$	488,662	$29.55

(1) This percentage is based upon all rentable square feet under lease terms that were in effect as of December 31, 2015.

(2)

Annualized rental revenue is the monthly contractual base rent as of December 31, 2015 (ignoring free rent then in effect) multiplied by 12, plus the estimated annualized expense reimbursements under existing leases. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis.

(3)

Annualized rental revenue per occupied square foot is a property’s annualized rental revenue divided by that property’s occupied square feet as of December 31, 2015. Our computation of annualized rental revenue excludes the effect of lease incentives. The annualized rent per occupied square foot, including the effect of lease incentives, was $29.37 for our total office portfolio, $31.26 for Fort Meade/BW Corridor (our largest Defense/IT Location subsector) and $28.29 for our Regional Office portfolio.


(4)	Includes 13 properties classified as held for sale as of December 31, 2015.


(5)	Includes two properties classified as held for sale as of December 31, 2015.

The following table provides certain information about our office properties that were under, or contractually committed for, construction, or had redevelopment underway, or otherwise approved, as of December 31, 2015 (dollars and square feet in thousands):



Property and Location	Submarket	Estimated Rentable Square Feet Upon Completion	Percentage Leased		Calendar Quarter of Anticipated Completion	Costs Incurred to Date (1)		Estimated Costs to Complete (1)
Under Construction
Fort Meade/Baltimore/Washington Corridor:
310 Sentinel Way	National	191	0	%	1Q 2016	$	38,838	$	15,514
Annapolis Junction, Maryland	Business Park
7880 Milestone Parkway	Arundel	120	74	%	3Q 2016	29,356		2,179
Hanover, Maryland	Preserve
540 National Business Parkway	National	145	49	%	4Q 2017	12,636		31,076
Annapolis Junction, Maryland	Business Park
Subtotal / Average		456	35	%		80,830		48,769

Data Center Shells:
Patriot Point - DC 15	Ashburn	149	100	%	1Q 2016	19,482		10,268
Ashburn, Virginia	Crossing
Patriot Point - DC 16	Ashburn	149	100	%	2Q 2016	16,478		13,362
Ashburn, Virginia	Crossing
Patriot Point - DC 17 (2)	Ashburn	149	100	%	3Q 2016	6,550		16,120
Ashburn, Virginia	Crossing
Subtotal / Average		447	100	%		42,510		39,750

Northern Virginia Defense/IT:
NOVA Office B	Other	161	0	%	2Q 2016	30,336		11,164
Northern Virginia	Virginia
NOVA Office D	Other	240	100	%	1Q 2018	8,473		38,052
Northern Virginia	Virginia
Subtotal / Average		401	60	%		38,809		49,216

Redstone Arsenal:
2100 Redstone Gateway	Redstone	19	58	%	2Q 2017	2,677		2,356
Huntsville, Alabama	Gateway
Total Under Construction		1,323	65	%		$	164,826	$	140,091

Under Redevelopment
Fort Meade/Baltimore/Washington Corridor:
6708 Alexander Bell Drive	Howard County	52	0	%	1Q 2016	$	7,918	$	3,390
Columbia, MD	Perimeter
7134 Columbia Gateway Drive	Howard County	22	0	%	1Q 2017	1,923		2,226
Columbia, MD	Perimeter
1201 Winterson Road (AS 13)	Airport	68	0	%	1Q 2017	10,100		5,751
Linthicum, MD	Square
Airport Landing - Retail Buildings	Airport	14	56	%	3Q 2017	1,488		4,895
Linthicum, MD	Square
Airport Landing - Pad Site	Airport	N/A	100	%	4Q 2016	259		405
Linthicum, MD	Square
Total Under Redevelopment		156	8	%		$	21,688	$	16,667

(1) Includes land, construction, leasing costs and allocated portion of structured parking and other shared infrastructure, if applicable.

(2) This property became 100% leased on January 8, 2016.

The following table provides certain information about our land held or under pre-construction as of December 31, 2015, including properties under ground lease to us (square feet in thousands):



Segment	Acres	Estimated Developable Square Feet
Defense IT Locations:
Fort Meade/BW Corridor:
National Business Park	233	1,956
Howard County	27	590
Other	143	1,629
Total Fort Meade/BW Corridor	403	4,175
NoVA Defense/IT	64	1,614
Lackland AFB	68	1,033
Navy Support Locations	44	109
Redstone Arsenal (1)	428	4,084
Total Defense/IT Locations	1,007	11,015
Regional Office	52	1,613
Total land owned/controlled for future development	1,059	12,628
Other land owned/controlled	282	3,278
Land held for sale	98	1,675
Total land owned/controlled	1,439	17,581

(1) This land is owned by the Unites States Government and is under a long term enhanced-use lease to us. We are not required to pay rent on the individual land sites included in this lease until tenants of properties completed on such land sites begin paying rent.

The following table provides certain information about our wholesale data center property as of December 31, 2015 (square feet in thousands):

Lease Expirations

The following table provides a summary schedule of the lease expirations for leases in place at our office properties as of December 31, 2015, assuming that none of the tenants exercise any early termination rights. This analysis includes the effect of early renewals completed on existing leases but excludes the effect of new tenant leases on 209,000 square feet executed but yet to commence as of December 31, 2015 (dollars and square feet in thousands, except per square foot amounts):



Year of Lease Expiration (1)	Number of Leases Expiring	Square Footage of Leases Expiring	Percentage of Total Occupied Square Feet		Annualized Rental Revenue of Expiring Leases (2)		Percentage of Total Annualized Rental Revenue Expiring (2)		Total Annualized Rental Revenue of Expiring Leases Per Occupied Square Foot
					(in thousands)
2016	105	1,368	8.3	%	$	40,830	8.4	%		$29.86
2017	85	1,858	11.2	%	57,284		11.7	%	30.83
2018	98	2,361	14.3	%	73,200		15.0	%	31.00
2019	94	2,221	13.4	%	69,194		14.2	%	31.15
2020	100	2,395	14.5	%	71,797		14.7	%	29.98
2021	51	1,198	7.2	%	34,950		7.1	%	29.18
2022	24	989	6.0	%	31,004		6.3	%	31.34
2023	27	884	5.3	%	19,810		4.0	%	22.41
2024	16	772	4.7	%	17,879		3.6	%	23.15
2025	26	1,752	10.6	%	53,571		11.0	%	30.58
2026	9	379	2.3	%	9,660		2.0	%	25.46
2027	1	32	0.2	%	900		0.2	%	27.78
2028	1	127	0.8	%	3,765		0.8	%	29.70
2030	3	199	1.2	%	4,818		1.0	%	24.22
Total/Weighted Average	640	16,535	100.0	%	$	488,662	100.0	%		$29.55

With regard to leases expiring in 2016, we believe that the weighted average annualized rental revenue per occupied square foot for such leases as of December 31, 2015 was, on average, approximately 2% to 3% higher than estimated current market rents for the related space, with specific results varying by market.

The following table provides a summary schedule of the lease expirations for leases in place at our wholesale data center property as of December 31, 2015 (dollars and square feet in thousands):



Year of Lease Expiration (1)	Number of Leases Expiring	Raised Floor Square Footage Expiring	Critical Load Leased (in megawatts)	Critical Load Used (in megawatts)	Annualized Rental Revenue of Expiring Leases (2)
2016	2	22	4.00	2.00	$	4,320
2018	2	1	0.26	0.26	527
2019	1	6	1.00	1.00	2,228
2020	2	19	11.55	13.38	13,343
2022	1	6	1.00	1.00	1,521
Total/Weighted Average	8	54	17.81	17.64	$	21,939

(1)

The leasing statistics set forth above assume no exercise of any existing early termination rights. Most of the leases with our largest tenant, the United States Government, provide for consecutive one-year terms; all of the leasing statistics set forth above assume that the United States Government will remain in the space that they lease through the end of the respective arrangements, without ending consecutive one-year leases prematurely.


(2)	Annualized rental revenue is the monthly contractual base rent as of December 31, 2015 multiplied by 12, plus the estimated annualized expense reimbursements under existing office leases. Our computation of annualized rental revenue excludes the effect of lease incentives, although the effect of this exclusion is generally not material.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

COPT’s common shares trade on the New York Stock Exchange (“NYSE”) under the symbol “OFC.” The table below shows the range of the high and low sale prices for COPT’s common shares as reported on the NYSE, as well as the quarterly common share dividends per share declared:



	Price Range		Dividends
2014	Low	High	Per Share
First Quarter	$23.55	$27.28	$0.2750
Second Quarter	$26.18	$29.09	$0.2750
Third Quarter	$25.53	$29.44	$0.2750
Fourth Quarter	$25.29	$29.24	$0.2750

	Price Range		Dividends
2015	Low	High	Per Share
First Quarter	$28.26	$30.94	$0.2750
Second Quarter	$23.47	$29.87	$0.2750
Third Quarter	$20.13	$24.81	$0.2750
Fourth Quarter	$20.82	$23.96	$0.2750

The number of holders of record of COPT’s common shares was 489 as of December 31, 2015. This number does not include shareholders whose shares are held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder.

COPT pays dividends at the discretion of its Board of Trustees. COPT’s ability to pay cash dividends will be dependent upon: (1) the cash flow generated from our operations; (2) cash generated or used by our financing and investing activities; and (3) the annual distribution requirements under the REIT provisions of the Code described above and such other factors as the Board of Trustees deems relevant. COPT’s ability to make cash dividends will also be limited by the terms of COPLP’s Partnership Agreement, as well as by limitations imposed by state law. In addition, COPT is prohibited from paying cash dividends in excess of the amount necessary for it to qualify for taxation as a REIT if a default or event of default exists pursuant to the terms of our Revolving Credit Facility; this restriction does not currently limit COPT’s ability to pay dividends, and COPT does not believe that this restriction is reasonably likely to limit its ability to pay future dividends because it expects to comply with the terms of our Revolving Credit Facility.

There is no established public trading market for COPLP’s partnership units. Quarterly common unit distributions per unit were the same as quarterly common dividends per share declared by COPT. As of December 31, 2015, there were 36 holders of record of COPLP’s common units.

COPT’s Common Shares Performance Graph

The graph and the table set forth below assume $100 was invested on December 31, 2010 in COPT’s common shares. The graph and the table compare the cumulative return (assuming reinvestment of dividends) of this investment with a $100 investment at that time in the S&P 500 Index or the All Equity REIT Index of the National Association of Real Estate Investment Trusts (“NAREIT”):



	Period Ended
Index	12/31/10		12/31/11		12/31/12		12/31/13		12/31/14		12/31/15
Corporate Office Properties Trust	$	100.00	$	64.79	$	79.78	$	79.07	$	98.59	$	79.45
S&P 500	100.00		102.11		118.45		156.82		178.28		180.75
NAREIT All Equity REIT Index	100.00		108.28		129.62		133.32		170.68		175.51

Item 6. Selected Financial Data

The following tables set forth summary historical consolidated financial data and operating data for COPT and COPLP and their respective subsidiaries as of and for each of the years ended December 31, 2011 through 2015. You should read the following summary historical financial data in conjunction with the consolidated historical financial statements and notes thereto of COPT and its subsidiaries and COPLP and its subsidiaries and the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.



Corporate Office Properties Trust and Subsidiaries
(in thousands, except per share data and number of properties)
	2015			2014			2013			2012			2011
Revenues
Revenues from real estate operations (1)	$	519,064		$	479,725		$	460,997		$	434,299		$	408,611
Construction contract and other service revenues	106,402			106,748			62,363			73,836			84,345
Total revenues	625,466			586,473			523,360			508,135			492,956
Expenses
Property operating expenses (1)	194,494			179,934			167,199			159,206			154,375
Depreciation and amortization associated with real estate operations (1)	140,025			136,086			113,214			107,998			107,003
Construction contract and other service expenses	102,696			100,058			58,875			70,576			81,639
Impairment losses (1)	23,289			1,416			5,857			43,678			83,213
General, administrative and leasing expenses (1)	31,361			31,794			30,869			31,900			30,306
Business development expenses and land carry costs	13,507			5,573			5,436			5,711			6,122
Total operating expenses	505,372			454,861			381,450			419,069			462,658
Operating income	120,094			131,612			141,910			89,066			30,298
Interest expense (1)	(89,074		)	(92,393		)	(82,010		)	(86,401		)	(90,037		)
Interest and other income	4,517			4,923			3,834			7,172			5,603
Gain (loss) on early extinguishment of debt	85,275			(9,552		)	(27,030		)	(943		)	(1,639		)
Loss on interest rate derivatives	—			—			—			—			(29,805		)
Income (loss) from continuing operations before equity in income (loss) of unconsolidated entities and income taxes	120,812			34,590			36,704			8,894			(85,580		)
Equity in income (loss) of unconsolidated entities	62			229			2,110			(546		)	(331		)
Income tax (expense) benefit	(199		)	(310		)	(1,978		)	(381		)	6,710
Income (loss) from continuing operations	120,675			34,509			36,836			7,967			(79,201		)
Discontinued operations (1)(2)	156			26			55,692			12,353			(51,107		)
Income (loss) before gain on sales of real estate	120,831			34,535			92,528			20,320			(130,308		)
Gain on sales of real estate, net of income taxes (3)	68,047			10,671			9,016			21			2,732
Net income (loss)	188,878			45,206			101,544			20,341			(127,576		)
Net (income) loss attributable to noncontrolling interests	(10,578		)	(4,951		)	(7,837		)	636			8,148
Net income (loss) attributable to COPT	178,300			40,255			93,707			20,977			(119,428		)
Preferred share dividends	(14,210		)	(15,939		)	(19,971		)	(20,844		)	(16,102		)
Issuance costs associated with redeemed preferred shares (4)	—			(1,769		)	(2,904		)	(1,827		)	—
Net income (loss) attributable to COPT common shareholders	$	164,090		$	22,547		$	70,832		$	(1,694	)	$	(135,530	)
Basic earnings per common share (5)
Income (loss) from continuing operations	$	1.74		$	0.25		$	0.21		$	(0.19	)	$	(1.28	)
Net income (loss)	$	1.74		$	0.25		$	0.83		$	(0.03	)	$	(1.97	)
Diluted earnings per common share (5)
Income (loss) from continuing operations	$	1.74		$	0.25		$	0.21		$	(0.19	)	$	(1.28	)
Net income (loss)	$	1.74		$	0.25		$	0.83		$	(0.03	)	$	(1.97	)

Weighted average common shares outstanding – basic	93,914			88,092			85,167			73,454			69,382
Weighted average common shares outstanding – diluted	97,667			88,263			85,224			73,454			69,382



	2015			2014			2013			2012			2011
Balance Sheet Data (as of year end):
Total properties, net	$	3,349,748		$	3,296,914		$	3,214,301		$	3,163,044		$	3,352,975
Total assets (6)	$	3,909,312		$	3,664,236		$	3,621,251		$	3,641,935		$	3,850,133
Debt (6)	$	2,077,752		$	1,914,036		$	1,919,002		$	2,007,344		$	2,412,881
Total liabilities (6)	$	2,273,530		$	2,124,935		$	2,106,244		$	2,195,138		$	2,635,326
Redeemable noncontrolling interests	$	19,218		$	18,417		$	17,758		$	10,298		$	8,908
Total equity	$	1,616,564		$	1,520,884		$	1,497,249		$	1,436,499		$	1,205,899
Other Financial Data (for the year ended):
Cash flows provided by (used in):
Operating activities	$	204,008		$	193,885		$	158,979		$	191,838		$	152,143
Investing activities	$	(307,532	)	$	(209,689	)	$	(119,790	)	$	13,744		$	(260,387	)
Financing activities	$	157,757		$	(32,492	)	$	4,590		$	(200,547	)	$	103,701
Numerator for diluted EPS	$	169,787		$	22,115		$	70,418		$	(2,163	)	$	(136,567	)
Diluted funds from operations (7)	$	249,454		$	155,296		$	214,149		$	165,720		$	53,062
Diluted funds from operations per share (7)	$	2.55		$	1.69		$	2.40		$	2.13		$	0.72
Cash dividends declared per common share	$	1.10		$	1.10		$	1.10		$	1.10		$	1.65
Property Data (as of year end):
Number of properties owned (8)	177			173			183			208			238
Total rentable square feet owned (8)	18,053			16,790			17,370			18,831			20,514


(1)	Certain prior period amounts pertaining to properties included in discontinued operations have been reclassified to conform with the current presentation. These reclassifications did not affect consolidated net income or shareholders’ equity.


(2)	Includes income derived from 23 operating properties disposed in 2011, 35 operating properties disposed in 2012 and 31 operating properties disposed in 2013 (see Note 18 to our consolidated financial statements).


(3)	Reflects gain from sales of properties and unconsolidated real estate joint ventures not associated with discontinued operations.


(4)	Reflects a decrease to net income available to common shareholders pertaining to the original issuance costs recognized upon the redemption of the Series G Preferred Shares in 2012, Series J Preferred Shares in 2013 and Series H Preferred Shares in 2014.


(5)	Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of COPT.


(6)	Prior period amounts include retrospective adjustments to reclassify net deferred financing costs in connection with recent accounting guidance adopted in 2015.


(7)	For definitions of diluted funds from operations per share and diluted funds from operations and reconciliations of these measures to their comparable measures under generally accepted accounting principles, you should refer to the section entitled “Funds from Operations” within the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations.”


(8)	Amounts reported reflect only operating office properties.



Corporate Office Properties, L.P. and Subsidiaries
(in thousands, except per share data and number of properties)
	2015			2014			2013			2012			2011
Revenues
Revenues from real estate operations (1)	$	519,064		$	479,725		$	460,997		$	434,299		$	408,611
Construction contract and other service revenues	106,402			106,748			62,363			73,836			84,345
Total revenues	625,466			586,473			523,360			508,135			492,956
Expenses
Property operating expenses (1)	194,494			179,934			167,199			159,206			154,375
Depreciation and amortization associated with real estate operations (1)	140,025			136,086			113,214			107,998			107,003
Construction contract and other service expenses	102,696			100,058			58,875			70,576			81,639
Impairment losses (1)	23,289			1,416			5,857			43,678			83,213
General, administrative and leasing expenses (1)	31,361			31,794			30,869			31,900			30,300
Business development expenses and land carry costs	13,507			5,573			5,436			5,711			6,122
Total operating expenses	505,372			454,861			381,450			419,069			462,652
Operating income	120,094			131,612			141,910			89,066			30,304
Interest expense (1)	(89,074		)	(92,393		)	(82,010		)	(86,401		)	(90,037		)
Interest and other income	4,517			4,923			3,834			7,172			5,603
Gain (loss) on early extinguishment of debt	85,275			(9,552		)	(27,030		)	(943		)	(1,639		)
Loss on interest rate derivatives	—			—			—			—			(29,805		)
Income (loss) from continuing operations before equity in income (loss) of unconsolidated entities and income taxes	120,812			34,590			36,704			8,894			(85,574		)
Equity in income (loss) of unconsolidated entities	62			229			2,110			(546		)	(331		)
Income tax (expense) benefit	(199		)	(310		)	(1,978		)	(381		)	6,710
Income (loss) from continuing operations	120,675			34,509			36,836			7,967			(79,195		)
Discontinued operations (1)(2)	156			26			55,692			12,353			(51,107		)
Income (loss) before gain on sales of real estate	120,831			34,535			92,528			20,320			(130,302		)
Gain on sales of real estate, net of income taxes (3)	68,047			10,671			9,016			21			2,732
Net income (loss)	188,878			45,206			101,544			20,341			(127,570		)
Net (income) loss attributable to noncontrolling interests	(3,520		)	(3,276		)	(3,907		)	507			244
Net income (loss) attributable to COPLP	185,358			41,930			97,637			20,848			(127,326		)
Preferred unit distributions	(14,870		)	(16,599		)	(20,631		)	(21,504		)	(16,762		)
Issuance costs associated with redeemed preferred units (4)	—			(1,769		)	(2,904		)	(1,827		)	—
Net income (loss) attributable to COPLP common unitholders	$	170,488		$	23,562		$	74,102		$	(2,483	)	$	(144,088	)
Basic earnings per common unit (5)
Income (loss) from continuing operations	$	1.74		$	0.25		$	0.21		$	(0.19	)	$	(1.29	)
Net income (loss)	$	1.74		$	0.25		$	0.83		$	(0.04	)	$	(2.00	)
Diluted earnings per common unit (5)
Income (loss) from continuing operations	$	1.74		$	0.25		$	0.21		$	(0.19	)	$	(1.29	)
Net income (loss)	$	1.74		$	0.25		$	0.83		$	(0.04	)	$	(2.00	)

Weighted average common units outstanding – basic	97,606			91,989			89,036			77,689			72,564
Weighted average common units outstanding – diluted	97,667			92,160			89,093			77,689			72,564



	2015		2014		2013		2012		2011
Balance Sheet Data (as of year end):
Total properties, net	$	3,349,748	$	3,296,914	$	3,214,301	$	3,163,044	$	3,352,975
Total assets (6)	$	3,903,549	$	3,658,354	$	3,613,784	$	3,635,159	$	3,842,545
Debt (6)	$	2,077,752	$	1,914,036	$	1,919,002	$	2,007,344	$	2,412,881
Total liabilities (6)	$	2,267,767	$	2,119,053	$	2,098,777	$	2,188,362	$	2,627,738
Redeemable noncontrolling interests	$	19,218	$	18,417	$	17,758	$	10,298	$	8,908
Total equity	$