UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
----------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 30, 2001
CORPORATE OFFICE PROPERTIES TRUST
---------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 0-20047 23-2947217
-------- ------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
8815 CENTRE PARK DRIVE, SUITE 400
COLUMBIA, MARYLAND 21045
----------------------------
(Address of principal executive offices)
(410) 730-9092
--------------
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
On November 30, 2001, Corporate Office Properties Trust (the "Company"),
through an affiliate of Corporate Office Properties, L.P. (the "Operating
Partnership"), acquired a 470,406 square foot office building and contiguous 17
acre land parcel located in Chantilly, Virginia (the "Washington Technology
Park").
The Washington Technology Park was acquired for an aggregate cost of $59.0
million, including transaction costs. The Company paid the purchase price and
transaction costs using $32.1 million in borrowings under its existing secured
revolving credit facility with Deutsche Banc Alex. Brown, proceeds from a new
$25.0 million mortgage loan and cash reserves for the balance.
The following schedule sets forth certain information relating to the
Washington Technology Park as of December 31, 2001:
Total
Rental
Rentable Total Revenue per Major Tenants
Year Square Rental Occupied (10% or more of
Property Locations Built Feet Occupancy(1) Revenue(2) Square Foot(3) Rentable Square Feet)
- -----------------------------------------------------------------------------------------------------------------------------------
15000 Conference 1989 470,406 99.56% $9,427,044 $20.13 Dyncorp Information Systems, LLC (52.2%)
Center Drive General Dynamics Government Corp. (12.8%)
Genuity, Inc. (12.6%)
(1) This percentage is based on all leases in effect as of December 31, 2001.
(2) Total rental revenue is the monthly contractual base rent as of December
31, 2001 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(3) This represents the property's total rental revenue divided by its occupied
square feet as of December 31, 2001.
2
The following schedule sets forth annual lease expirations for the
Washington Technology Park as of December 31, 2001 assuming that none of the
tenants exercise renewal options:
Total Rental Revenue
Year of Number of Percentage of Total Rental Percentage of Total of Expiring Leases
Lease Leases Square Footage of Total Occupied Revenue of Expiring Office Rental Revenue Per Occupied
Expiration Expiring Leases Expiring Square Feet Office Leases(1) Expiring(1) Square Foot(1)
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Other(2) -- 41,143 8.8% $ -- --% $ --
2002 1 21,081 4.5% 590 6.3% 28.00
2003 1 843 0.2% 11 0.1% 13.00
2004 2 100,983 21.5% 2,564 27.2% 25.39
2005 -- -- 0.0% -- --% --
2006 1 59,767 12.8% 1,230 13.0% 20.58
2007 -- -- 0.0% -- --% --
2008 -- -- 0.0% -- --% --
2009 -- -- 0.0% -- --% --
2010 1 244,522 52.2% 5,032 53.4% 20.58
--- -------- ----- ------ -----
TOTAL/WEIGHTED
AVERAGE 6 468,339 100.0% $9,427 100.0% $22.34
=== ======= ===== ====== ===== ======
- ----------------
(1) Total rental revenue is the monthly contractual base rent as of December
31, 2001 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(2) Other consists of amenities, including cafeteria, conference space and
fitness center.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements of the Washington Technology Park are
included herein. See pages F-13 through F-17.
(b) Pro Forma Financial Information
The pro forma condensed consolidating financial statements of the
Company are included herein. See pages F-1 through F-12.
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
99.1 Sale and Purchase Agreement, dated October 16, 2001,
between VZ Chantilly Corporation and COPT
Acquisitions, Inc.
3
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
99.2 First Amendment to Sale and Purchase
Agreement, dated November 15, 2001, between
VZ Chantilly Corporation and COPT
Acquisitions, Inc.
99.3 Second Amendment to Sale and Purchase
Agreement, dated November 16, 2001, between
VZ Chantilly Corporation and COPT
Acquisitions, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 13, 2002
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ RANDALL M. GRIFFIN
------------------------
Name: Randall M. Griffin
Title: President and Chief
Operating Officer
By: /s/ ROGER A. WAESCHE, JR.
-------------------------
Name: Roger A. Waesche, Jr.
Title: Chief Financial Officer
4
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE
COMPANY
Pro Forma Condensed Consolidating Balance Sheet
as of September 30, 2001 (unaudited) F-4
Pro Forma Condensed Consolidating Statement of Operations
for the Year Ended December 31, 2000 (unaudited) F-5
Pro Forma Condensed Consolidating Statement of Operations
for the Nine Month Period Ended September 30, 2001 (unaudited) F-6
Notes and Management's Assumptions to Pro Forma Condensed
Consolidating Financial Information F-7
II. WASHINGTON TECHNOLOGY PARK
Report of Independent Accountants F-13
Statement of Revenue and Certain Expenses
for the Year Ended December 31, 2000 F-14
Statement of Revenue and Certain Expenses
for the Nine Months Ended September 30, 2001 (unaudited) F-15
Notes to Combined Statement of Revenue and Certain Expenses F-16
F-1
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Set forth below are the unaudited pro forma condensed consolidating balance
sheet as of September 30, 2001, and the unaudited pro forma condensed
consolidating statements of operations for the year ended December 31, 2000 and
the nine month period ended September 30, 2001, of Corporate Office Properties
Trust and its consolidated affiliates, including Corporate Office Properties,
L.P. (the "Operating Partnership"). Corporate Office Properties Trust and its
consolidated affiliates, including the Operating Partnership, are collectively
referred to herein as the "Company."
The pro forma condensed consolidating financial information is presented as if
the following transactions had been consummated on the earlier of the actual
date of consummation or September 30, 2001, for balance sheet purposes, and at
January 1, 2000, for purposes of the statements of operations:
2000 TRANSACTIONS:
o The acquisition of an office building on April 18, 2000 ("7240 Parkway
Drive") for $7,464,000 using $7,285,000 in borrowings from the Company's
revolving credit facility with Deutsche Banc Alex. Brown (the "Revolving
Credit Facility") and cash reserves for the balance.
o The disposition of a retail property on June 19, 2000 ("Minot Retail") for
$2,970,000, of which $2,432,000 was used to pay off a mortgage loan payable
on the property and the balance applied to cash reserves.
o The disposition of a retail property on November 10, 2000 ("Tred Avon") for
$5,800,000, of which $2,756,000 was used to pay off a mortgage loan payable
on the property, $2,000,000 to pay down the Revolving Credit Facility and
the balance applied to cash reserves.
o The disposition of an office building on December 28, 2000 ("3 Center
Drive") for $2,790,000, of which $1,755,000 was used to pay off a mortgage
loan payable on the property and the balance applied to cash reserves.
The above transactions are collectively referred to herein as the "2000
Transactions."
2001 TRANSACTIONS:
o On January 1, 2001, the Company acquired all of the stock in Corporate
Office Management, Inc. ("COMI") that it did not previously own for
$26,000. The Company accounted for this acquisition using the purchase
method of accounting. Prior to January 1, 2001, the Company accounted for
its investment in COMI and its subsidiaries using the equity method of
accounting. Since the Company owns all of the voting interests in COMI and
controls its operations effective January 1, 2001, it began consolidating
the accounts of COMI and its subsidiaries with the Company's accounts on
that date.
o The acquisition of two office buildings in Columbia, Maryland on May 14,
2001 (the "State Farm Properties") for $13,259,000 using $12,915,000 in
proceeds from the Revolving Credit Facility and cash reserves for the
balance.
F-2
o The disposition of an office building located in Cranbury, New Jersey on
June 18, 2001 ("19 Commerce Drive") for $11,525,000, of which $7,000,000
was used to pay off a mortgage loan payable on the property, $728,000 to
pay other settlement and sales costs and the balance applied to cash
reserves.
o The acquisition of six office buildings in Linthicum, Maryland during 2001
(the "Airport Square Properties") for $45,337,000 using $24,077,000 in
proceeds from two mortgage loans payable, $13,200,000 in proceeds from the
Revolving Credit Facility and cash reserves for the balance.
o The acquisition of four office buildings in Columbia, Maryland on August
30, 2001 (the "Gateway 63 Properties") for $23,866,000 using $15,750,000 in
proceeds from an assumed mortgage payable, $4,295,000 in proceeds from the
Revolving Credit Facility, issuing 310,342 common units in the Operating
Partnership valued at $3,259,000 to the seller and cash reserves for the
balance.
o The acquisition of an office building and contiguous 17 acre land parcel
located in Chantilly, Virginia on November 30, 2001 (the "Washington
Technology Park") for $58,968,000 using $32,078,000 in borrowings under the
Revolving Credit Facility, proceeds from a new $25,000,000 mortgage loan
payable and cash reserves for the balance.
o The issuance of 544,000 Series D Cumulative Convertible Redeemable
Preferred Shares of beneficial interest ("Series D Preferred Shares") on
January 25, 2001 for net proceeds of $11,892,000, of which $8,245,000 was
used to pay down the Revolving Credit Facility.
o The issuance of 1,150,000 Series E Cumulative Redeemable Preferred Shares
of beneficial interest ("Series E Preferred Shares") on April 6, 2001 for
net proceeds of $26,905,000, all of which was used to pay down the
Revolving Credit Facility.
o The issuance of 1,425,000 Series F Cumulative Redeemable Preferred Shares
of beneficial interest ("Series F Preferred Shares") on September 13, 2001
for net proceeds of $33,562,000, of which $31,200,000 was used to pay down
the Revolving Credit Facility.
The above transactions are collectively referred to herein as the "2001
Transactions."
This pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those of
the Airport Square Properties and the Gateway 63 Properties, both of which were
filed as exhibits to the Company's 8-K filed September 5, 2001, and the
historical financial statements of the Washington Technology Park. In
management's opinion, all adjustments necessary to reflect the effects of the
above transactions have been made. This pro forma condensed consolidating
financial information is unaudited and is not necessarily indicative of what the
Company's actual financial position would have been at September 30, 2001 or
what the results of operations would have been for the year ended December 31,
2000 or the nine months ended September 30, 2001. The pro forma condensed
consolidating financial information also does not purport to represent the
future financial position and results of operations of the Company.
F-3
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Washington
Historical Technology Pro Forma Pro Forma
Consolidated Park Adjustments Consolidated
(A) (B)
ASSETS
Net investments in real estate $ 859,274 $ 58,968 $ -- $ 918,242
Cash and cash equivalents 7,881 (1,890) -- 5,991
Other assets 47,691 -- -- 47,691
--------- --------- --------- ---------
Total assets $ 914,846 $ 57,078 $ -- $ 971,924
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 508,715 $ 57,078 $ -- $ 565,793
Other liabilities 36,564 -- -- 36,564
--------- --------- --------- ---------
Total liabilities 545,279 57,078 -- 602,357
--------- --------- --------- ---------
Minority interests 105,318 -- -- 105,318
--------- --------- --------- ---------
Shareholders' equity
Preferred shares of beneficial
interest 43 -- -- 43
Common shares of beneficial interest 208 -- -- 208
Additional paid-in capital 284,834 -- -- 284,834
Other (20,836) -- -- (20,836)
--------- --------- --------- ---------
Total shareholders' equity 264,249 -- -- 264,249
--------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 914,846 $ 57,078 $ -- $ 971,924
========= ========= ========= =========
See accompanying notes and management's assumptions to pro forma
financial statements.
F-4
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Airport
Historical 2000 State Farm 19 Commerce Square Gateway 63
Consolidated Transactions COMI Properties Drive Properties Properties
(A) (B) (C) (D) (E) (F) (G)
REVENUES:
Rental revenue $ 93,309 $ (638) $ -- $ 1,698 $ (1,401) $ 4,748 $ 1,004
Tenant recoveries
and other revenue 15,684 (232) -- 558 (27) 374 83
Service operation
revenue -- -- 4,040 -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Total revenues 108,993 (870) 4,040 2,256 (1,428) 5,122 1,087
-------- --------- --------- --------- --------- --------- ---------
EXPENSES:
Property operating 31,235 (189) -- 898 (413) 1,800 153
General and
administrative 4,867 (5) -- -- -- -- --
Interest 30,454 -- -- -- -- -- --
Depreciation and
amortization 18,359 -- -- -- -- -- --
Service operation
expenses -- -- 4,254 -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Total expenses 84,915 (194) 4,254 898 (413) 1,800 153
-------- --------- --------- --------- --------- --------- ---------
Gain (loss) on sale of
properties 107 (107) -- -- -- -- --
Equity in loss of
unconsolidated
subsidiary (310) -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Income (loss) before
minority interests
and income taxes 23,875 (783) (214) 1,358 (1,015) 3,322 934
Minority interests
Preferred Units (2,240) -- -- -- -- -- --
Other partnerships (26) -- (51) -- -- -- --
Common Units (6,362) -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net income (loss)
from continuing
operations before
income taxes 15,247 (783) (265) 1,358 (1,015) 3,322 934
Income taxes -- -- (61) -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net income (loss) from
continuing operations 15,247 (783) (326) 1,358 (1,015) 3,322 934
Preferred share dividends (3,802) -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net income (loss) from
continuing operations
available to Common
Shareholders $ 11,445 $ (783) $ (326) $ 1,358 $ (1,015) $ 3,322 $ 934
======== ========= ========= ========= ========= ========= =========
Earnings per share:
Basic $ 0.61
========
Earnings per share:
Diluted $ 0.60
========
Weighted average number
of shares: Basic 18,818
========
Diluted 19,213
========
Washington
Technology Preferred
Park Offerings Pro Forma Pro Forma
(H) (I) Adjustments Consolidated
REVENUES:
Rental revenue $ 6,077 $ -- $ -- $ 104,797
Tenant recoveries
and other revenue 4,452 -- (217)(J) 20,675
Service operation
revenue -- -- -- 4,040
--------- --------- --------- ---------
Total revenues 10,529 -- (217) 129,512
--------- --------- --------- ---------
EXPENSES:
Property operating 4,458 -- -- 37,942
General and
administrative -- -- -- 4,862
Interest -- (5,495) 8,660 (K) 33,619
Depreciation and
amortization -- -- 2,477 (L) 20,836
Service operation
expenses -- -- (217)(J) 4,037
--------- --------- --------- ---------
Total expenses 4,458 (5,495) 10,920 101,296
--------- --------- --------- ---------
Gain (loss) on sale of
properties -- -- -- --
Equity in loss of
unconsolidated
subsidiary -- -- 310 (M) --
--------- --------- --------- ---------
Income (loss) before
minority interests
and income taxes 6,071 5,495 (10,827) 28,216
Minority interests
Preferred Units -- -- (48)(N) (2,288)
Other partnerships -- -- -- (77)
Common Units -- -- 1,027 (O) (5,335)
--------- --------- --------- ---------
Net income (loss)
from continuing
operations before
income taxes 6,071 5,495 (9,848) 20,516
Income taxes -- -- -- (61)
--------- --------- --------- ---------
Net income (loss) from
continuing operations 6,071 5,495 (9,848) 20,455
Preferred share dividends -- (7,009) -- (10,811)
--------- --------- --------- ---------
Net income (loss) from
continuing operations
available to Common
Shareholders $ 6,071 $ (1,514) $ (9,848) $ 9,644
========= ========= ========= =========
Earnings per share:
Basic $ 0.51
=========
Earnings per share:
Diluted $ 0.50
=========
Weighted average number
of shares: Basic 18,818
=========
Diluted 20,410
=========
See accompanying notes and management's assumptions to pro forma
financial statements.
F-5
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Airport Washington
Historical State Farm 19 Commerce Square Gateway 63 Technology Preferred
Consolidated Properties Drive Properties Properties Park Offerings Pro Forma
(A) (D) (E) (F) (G) (H) (I) Adjustments Total
------------ ---------- ----------- ---------- ---------- ---------- --------- ----------- -----
REVENUES:
Rental revenue $80,590 $611 $ (779) $3,266 $2,112 $4,418 $ -- $ -- $ 90,218
Tenant recoveries
and other revenue 10,787 (50) (4) 237 261 3,236 -- -- 14,467
Service operation
revenues 3,038 -- -- -- -- -- -- -- 3,038
------- ---- ------- ------ ------- ------ ----- ------- -------
Total revenues 94,415 561 (783) 3,503 2,373 7,654 -- -- 107,723
------- ---- ------- ------ ------- ------ ----- ------- -------
EXPENSES:
Property operating 26,680 322 (207) 949 337 3,350 -- -- 31,431
General and
administrative 4,122 -- -- -- -- -- -- -- 4,122
Interest 24,298 -- -- -- -- -- (1,948) 5,189 (K) 27,539
Depreciation and
amortization 16,435 -- -- -- -- -- -- 1,640 (L) 18,075
Service operation
expenses 3,382 -- -- -- -- -- -- -- 3,382
------- ---- ------- ------ ------- ------ ----- ------- -------
Total expenses 74,917 322 (207) 949 337 3,350 (1,948) 6,829 84,549
------- ---- ------- ------ ------- ------ ----- ------- -------
Gain (loss) on
sale of
properties 1,596 -- (1,596) -- -- -- -- -- --
Equity in loss
of unconsolidated
subsidiaries (39) -- -- -- -- -- -- (117)(P) (156)
------- ---- ------- ------ ------- ------ ----- ------- -------
Income (loss) before
minority interests
and income taxes 21,055 239 (2,172) 2,554 2,036 4,304 1,948 (6,946) 23,018
Minority interests
Preferred Units (1,716) -- -- -- -- -- -- -- (1,716)
Other partnerships (61) -- -- -- -- -- -- -- (61)
Common Units (5,141) -- -- -- -- -- -- 452 (O) (4,689)
------- ---- ------- ------ ------- ------ ----- ------- -------
Income (loss)
from continuing
operations before
income taxes 14,137 239 (2,172) 2,554 2,036 4,304 1,948 (6,494) 16,552
Income tax benefit 202 -- -- -- -- -- -- -- 202
------- ---- ------- ------ ------- ------ ----- ------- -------
Net income (loss)
from continuing
operations 14,339 239 (2,172) 2,554 2,036 4,304 1,948 (6,494) 16,754
Preferred share
dividends (4,324) -- -- -- -- -- (3,276) -- (7,600)
------- ---- ------- ------ ------- ------ ----- ------- -------
Net income (loss)
from continuing
operations
available to
Common
Shareholders $10,015 $239 $(2,172) $2,554 $2,036 $4,304 $(1,328) $(6,494) $ 9,154
======= ==== ======= ====== ====== ====== ======= ======== =======
Earnings per share:
Basic $ 0.50 $ 0.46
======= =======
Earnings per share:
Diluted $ 0.48 $ 0.44
======= =======
Weighted average
number of shares:
Basic 20,070 20,070
======= =======
Diluted 21,505 21,610
======= =======
See accompanying notes and management's assumptions
to proforma financial statements.
F-6
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Corporate Office Properties Trust (the "Company") is a self-administered
Maryland real estate investment trust. As of September 30, 2001, the Company's
portfolio included 97 properties, including one owned through a joint venture.
These pro forma condensed consolidating financial statements should be read in
conjunction with the historical financial statements and notes thereto of the
Company, the Airport Square Properties, the Gateway 63 Properties and the
Washington Technology Park. In management's opinion, all adjustments necessary
to reflect the effects of the 2000 Transactions and the 2001 Transactions have
been made. This pro forma condensed consolidating financial information is
unaudited and is not necessarily indicative of what the Company's actual
financial position would have been at September 30, 2001, nor does it purport to
represent the future financial position and results of operations of the
Company.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the historical consolidated balance sheet of the Company as of
September 30, 2001.
(B) Reflects the acquisition of the Washington Technology Park from an
unrelated party using: (i) $32,078 in proceeds from the Company's Revolving
Credit Facility with Deutsche Banc Alex. Brown (the "Revolving Credit
Facility"); (ii) $25,000 in proceeds from a new mortgage loan payable; and
(iii) $1,890 in cash payments.
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
F-7
(B) The pro forma adjustments associated with the 2000 Transactions are set
forth in the table below.
7240 Parkway Minot Tred Avon 3 Center
Drive (i) Retail (ii) (iii) Drive (iv) Total
Revenues
Rental income $ 361 $(149) $(600) $(250) $(638)
Tenant recoveries and other revenue 4 -- (145) (91) (232)
----- ----- ----- ----- -----
Total revenues 365 (149) (745) (341) (870)
----- ----- ----- ----- -----
Expenses
Property operating 116 (2) (215) (88) (189)
General and administrative -- (1) (4) -- (5)
Interest -- -- -- -- --
Depreciation and amortization -- -- -- -- --
----- ----- ----- ----- -----
Total expenses 116 (3) (219) (88) (194)
----- ----- ----- ----- -----
Gain (loss) on sale of properties -- (57) 94 (144) (107)
----- ----- ----- ----- -----
Income (loss) before minority
interests and income taxes $ 249 $(203) $(432) $(397) $(783)
===== ===== ===== ===== =====
(i) Reflects the effects of the historical operations of 7240 Parkway
Drive prior to its acquisition on April 18, 2000.
(ii) Reflects the effects of the historical operations of Minot Retail
prior to its disposition on June 19, 2000.
(iii) Reflects the effects of the historical operations of Tred Avon
prior to its disposition on November 10, 2000.
(iv) Reflects the effects of the historical operations of 3 Center
Drive prior to its disposition on December 28, 2000.
(C) Reflects the effects of the historical operations of COMI and its
subsidiaries, net of relevant elimination entries, prior to our
purchase of the interests that we did not previously own on January 1,
2001.
(D) Reflects the effects of the historical operations of the State Farm
Properties prior to their acquisition on May 14, 2001.
(E) Reflects the effects of the historical operations of 19 Commerce Drive
prior to its disposition on June 18, 2001.
(F) Reflects the effects of the historical operations of the Airport Square
Properties prior to their acquisition in July and August 2001.
(G) Reflects the effects of the historical operations of the Gateway 63
Properties prior to their acquisition on August 30, 2001.
(H) Reflects the effects of the historical operations of the Washington
Technology Park for the periods presented. These historical operations
include net income of $451 for the year ended December 31, 2000 and
$230 for the nine months ended September 30, 2001 associated with a
tenant contract service agreement that was terminated in January 2002.
F-8
(I) Reflects the effects of the issuance of the Series D Preferred Shares,
Series E Preferred Shares and Series F Preferred Shares as if such
issuances and the resulting repayments of debt occurred at the
beginning of the respective reporting periods.
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001
---- ----
INTEREST EXPENSE:
Series D Preferred Share issuance - $8,245 of proceeds used to
pay down the Revolving Credit Facility, bearing interest on the
outstanding balance at LIBOR plus 175 basis points, assuming a
LIBOR rate of 6.4% per annum for 2000 and 4.75% per annum for
the nine months ended September 30, 2001. $ (683) $ (46)
Series E Preferred Share issuance - $26,905 of the proceeds used
to pay down the Revolving Credit Facility, bearing interest on
the outstanding balance at LIBOR plus 175 basis points, assuming
a LIBOR rate of 6.4% per annum for 2000 and 4.75% per annum for
the nine months ended September 30, 2001. (2,228) (461)
Series F Preferred Share issuance - $31,200 of the proceeds used
to pay down the Revolving Credit Facility, bearing interest on
the outstanding balance at LIBOR plus 175 basis points, assuming
a LIBOR rate of 6.4% per annum for 2000 and 4.75% per annum for
the nine months ended September 30, 2001. (2,584) (1,441)
-------- --------
Total $ (5,495) $ (1,948)
======== ========
The pro forma adjustments above reflect an aggregate decrease to
interest expense; this decrease to interest expense would
decrease by a total of $84 for the year ended December 31, 2000
and $37 for the nine months ended September 30, 2001 if interest
rates on variable rate debt were 1/8th of a percentage point higher.
F-9
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001
---- ----
PREFERRED SHARE DIVIDENDS:
Series D Preferred Share issuance - 544,000
shares issued with an aggregate liquidation
preference of $13,600, paying dividends
at a yearly rate of 4% of such liquidation
preference. $ 544 $ 36
Series E Preferred Share issuance - 1,150,000
shares issued with an aggregate liquidation
preference of $28,750, paying dividends
at a yearly rate of 10.25% of such liquidation
preference. 2,947 778
Series F Preferred Share issuance - 1,425,000
shares issued with an aggregate liquidation
preference of $35,625, paying dividends
at a yearly rate of 9.875% of such liquidation
preference. 3,518 2,462
------- -------
Total $ 7,009 $ 3,276
======= =======
(J) Adjustment to reverse interest income recognized by the Company from
COMI and the associated expense recognized by COMI due to COMI being a
consolidated subsidiary effective January 1, 2001.
(K) Pro forma adjustments are reflected below for additional interest
expense resulting from acquisitions activity. Pro forma adjustments are
also reflected below for decreases in historical interest expense
resulting from property dispositions. Pro forma adjustments below
associated with the Revolving Credit Facility and certain other loans,
which bear interest at LIBOR plus 175 basis points, assume a LIBOR rate
of 6.4% per annum for the year ended December 31, 2000 and 4.75% per
annum for the nine months ended September 30, 2001.
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
ADJUSTMENT TO INTEREST EXPENSE, NET OF DECEMBER 31, SEPTEMBER 30,
RELATED HISTORICAL AMOUNTS, AS A RESULT OF: 2000 2001
------------------------------------------- ---- ----
Borrowings under the Revolving Credit
Facility of $7,285 in connection with
the acquisition of 7240 Parkway Drive. $ 175 $ -
Debt repaid in connection with the sale of
Minot Retail in the amount of $2,432, bearing
interest at 8% per annum. (93) -
Debt repaid in connection with the sale of
Tred Avon consisting of: (i) $2,756 mortgage
loan payable on the property with an
interest rate of LIBOR plus 175 basis
points and (ii) $2,000 under the Revolving
Credit Facility. (337) -
F-10
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
ADJUSTMENT TO INTEREST EXPENSE, NET OF DECEMBER 31, SEPTEMBER 30,
RELATED HISTORICAL AMOUNTS, AS A RESULT OF: 2000 2001
------------------------------------------- ---- ----
Debt repaid under the Revolving Credit Facility
in connection with the sale of 3 Center Drive
in the amount of $1,755. (144) -
Proceeds borrowed under the Revolving Credit
Facility of $12,915 in connection with the
acquisition of the State Farm Properties. 1,070 312
Debt repaid in connection with the sale of 19
Commerce Drive consisting of: (i) a $7,000
mortgage loan payable on the property with an
interest rate of LIBOR plus 175 basis points
and (ii) $4,550 on the Revolving Credit Facility. (387) (224)
Proceeds from debt in connection with the
acquisition of the Airport Square Properties
consisting of: (i) $16,215 borrowed under a
mortgage loan payable bearing interest at LIBOR
plus 175 basis points; (ii) $13,200 borrowed
under the Revolving Credit Facility; and
(iii) $7,862 borrowed under a mortgage loan
payable bearing interest at 7.18% per annum. 3,000 1,289
Proceeds from debt in connection with the
acquisition of the Gateway 63 Properties
consisting of: (i) $15,750 mortgage loan
payable assumed bearing interest at the
Prime rate; and (ii) $4,295 borrowed under
the Revolving Credit Facility. 649 1,001
Proceeds from debt in connection with the
acquisition of the Washington Technology Park
consisting of: (i) $32,078 borrowed under the
Revolving Credit Facility; and (ii) $25,000
borrowed under a mortgage loan payable bearing
interest at LIBOR plus 175 basis points. 4,727 2,811
------ ------
$8,660 $5,189
====== ======
The pro forma adjustments above reflect an aggregate increase to
interest expense; this increase would increase by an additional $125
for the year ended December 31, 2000 and $92 for the nine months ended
September 30, 2001 if interest rates on variable rate debt were 1/8th
of a percentage point higher.
(L) Pro forma depreciation expense adjustments are reflected on
acquisitions based on a useful life of 40 years on the portion of the
acquisition attributable to the building. Pro forma amortization
expense adjustments are reflected assuming pro forma deferred financing
fees are amortized over the life of the related loans. Pro forma
depreciation and amortization expense adjustments on dispositions are
reflected based on historical amounts.
F-11
FOR THE NINE
FOR THE YEAR MONTH PERIOD
ADJUSTMENT TO DEPRECIATION AND ENDED ENDED
AMORTIZATION EXPENSE, NET OF RELATED DECEMBER 31, SEPTEMBER 30,
HISTORICAL AMOUNTS, AS A RESULT OF: 2000 2001
------------------------------------ ---- ----
DEPRECIATION EXPENSE:
7240 Parkway Drive $ 44 $ --
Minot Retail (31) --
Tred Avon (105) --
3 Center Drive (51) --
State Farm Properties 265 110
19 Commerce Drive (158) (109)
Airport Square Properties 907 472
Gateway 63 Properties 165 319
Washington Technology Park 1,238 928
AMORTIZATION OF DEFERRED FINANCING FEES RELATED TO:
Minot Retail (1) --
Tred Avon (31) --
19 Commerce Drive -- (48)
Airport Square Properties 163 5
Washington Technology Park 109 --
AMORTIZATION OF DEFERRED LEASING COSTS RELATED TO:
19 Commerce Drive (37) (37)
------- -------
$ 2,477 $ 1,640
======= =======
(M) Adjustment to reverse income recorded for the Operating Partnership's
investment in COMI under the equity method of accounting during 2000.
(N) Adjustment for distributions on additional Preferred Units issued in 2000
in connection with a 1999 property acquisition.
(O) Adjustment for minority interests' share of pro forma adjustments made to
the Operating Partnership.
(P) Adjustment to reverse income recorded for our investment in certain of the
Airport Square Properties under the equity method of accounting during
2001.
F-12
REPORT OF INDEPENDENT ACCOUNTANTS
To Washington Technology Park
We have audited the accompanying statement of revenue and certain expenses of
the Washington Technology Park (the "Property") as described in Note 1 for the
year ended December 31, 2000. This historical statement is the responsibility of
the Property management; our responsibility is to express an opinion on this
historical statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the historical
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the historical
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
historical statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying historical statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion on Form 8-K of Corporate Office Properties Trust) as described in Note
2, and is not intended to be a complete presentation of the Properties' revenue
and expenses.
In our opinion, the historical statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of the Washington
Technology Park for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America as
described in Note 2.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 8, 2002
F-13
WASHINGTON TECHNOLOGY PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
- ------------------------------------------------------------------------------
Revenue
Base rents $ 6,077,188
Tenant reimbursements 3,858,756
Tenant service contract revenue 592,233
Miscellaneous income 808
-----------
Total revenue 10,528,985
-----------
Certain expenses
Property operating expenses
Property taxes 1,036,011
Administrative expenses 406,418
Tenant service contract expenses 141,656
Utilities 1,416,294
Other operating expenses 205,996
-----------
Total property operating 3,206,375
Repairs and maintenance 1,251,512
-----------
Total certain expenses 4,457,887
-----------
Revenue in excess of certain expenses $ 6,071,098
===========
The accompanying notes are an integral part of these financial statements.
F-14
WASHINGTON TECHNOLOGY PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
- -------------------------------------------------------------------------------
Revenue
Base rents $4,418,135
Tenant reimbursements 2,900,168
Tenant service contract revenue 331,119
Miscellaneous income 4,310
----------
Total revenue 7,653,732
----------
Certain expenses
Property operating expenses
Property taxes 887,906
Administrative expenses 351,789
Tenant service contract expenses 100,779
Utilities 1,210,973
Other operating expenses 43,963
----------
Total property operating 2,595,410
Repairs and maintenance 754,653
----------
Total certain expenses 3,350,063
----------
Revenue in excess of certain expenses $4,303,669
==========
The accompanying notes are an integral part of these financial statements.
F-15
WASHINGTON TECHNOLOGY PARK
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. BUSINESS
The accompanying statement of revenue and certain expenses relates to the
operations of Washington Technology Park (the "Property"), consisting of
the revenue and certain expenses of the building totaling 470,406 rentable
square feet located in Chantilly, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses was prepared
for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission in contemplation of Corporate Office
Properties Trust acquiring the Property. The statement is not
representative of the actual operations of the Property for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization, and interest expense, which may not
be comparable to the expenses expected to be incurred by Corporate Office
Properties Trust in future operations of the Property, have been excluded.
REVENUE AND EXPENSE RECOGNITION
Revenue is recognized on a straight-line basis over the terms of the
related lease. Expenses are recognized in the period in which they are
incurred.
USED OF ESTIMATES
The preparation of this historical statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from these
estimates.
MAJOR TENANTS
During 2000, 73% of the Property's total base rents was earned from 2
major tenants, each of which amounted to over 10% of total base rents.
Base rents earned from these 2 tenants for the year ended December 31,
2000 was approximately $3,403,140 and $1,032,030, respectively.
3. RENTALS
The Property has entered into non-cancelable tenant leases, with
expiration dates ranging from 2003 to 2004. Such leases provide that
tenants will share in operating expenses and real estate taxes on a pro
rata basis, as defined in the leases. Future minimum rentals as of
December 31, 2000, to be received under these tenant leases are as
follows:
2001 $ 5,734,619
2002 4,446,129
2003 4,446,129
2004 430,012
2005 --
Thereafter --
-----------
$15,056,889
===========
F-16
WASHINGTON TECHNOLOGY PARK
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. MANAGEMENT FEE AGREEMENT AND TENANT SERVICE CONTRACT
Certain management services for the first four months of the year ended
December 31, 2000 were performed by the owner of the Property at the rate
of $12,160 per month. Subsequent to April 2000, management services were
provided by a third party management company for a monthly rate of $6,250.
The Property entered into a tenant service contract with a tenant to
provide routine services, as defined by the contract, for a monthly fee.
The monthly fee was approximately $51,000 and $33,000 for the year ended
December 31, 2000 and the 9 months ended September 31, 2001, respectively.
The tenant service contract was terminated at the option of the tenant on
January 1, 2002.
5. UNAUDITED INTERIM STATEMENT
The statement of revenue and certain expenses for the nine months ended
September 30, 2001 is unaudited. As a result, this interim statement
should be read in conjunction with the statement and notes included in the
December 31, 2000 statement of revenue and certain expenses. The interim
statement reflects all adjustments which management believes are necessary
for the fair presentation of the statement of revenue and certain expenses
for the interim period presented. These adjustments are of a normal
recurring nature. The statement of revenue and certain expenses for such
interim period is not necessarily indicative of the results for a full
year.
F-17