===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------------------------------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
------------------------- -----------------
Commission file number 0-20047
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 CITY AVENUE, SUITE 615, BALA CYNWYD, PA 19004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 538-1800
----------------------------------------
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.
/x/ Yes / / No
On November 8, 1999, 17,174,171 shares of the Company's Common Shares of
Beneficial Interest, $0.01 par value, were outstanding.
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1
TABLE OF CONTENTS
FORM 10-Q
PAGE
-----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for
the three and nine months ended September 30, 4
1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 5
1998 (unaudited)
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3: Quantitative and Qualitative Disclosures About Market Risk 29
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 30
Item 2: Changes in Securities 30
Item 3: Defaults Upon Senior Securities 30
Item 4: Submission of Matters to a Vote of Security Holders 31
Item 5: Other Information 31
Item 6: Exhibits and Reports on Form 8-K 31
SIGNATURES 38
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
ASSETS
Commercial real estate properties:
Operating properties, net $ 550,995 $ 536,228
Projects under construction 26,353 10,659
- ------------------------------------------------------------------------------------------------------------------
Total commercial real estate properties, net 577,348 546,887
Investment in and advance to unconsolidated real estate joint venture 37,199 --
- ------------------------------------------------------------------------------------------------------------------
Investment in real estate 614,547 546,887
Cash and cash equivalents 957 2,349
Restricted cash 1,064 293
Accounts receivable, net 1,887 2,986
Investment in and advances to Service Companies 1,697 2,351
Deferred rent receivable 4,000 2,263
Deferred charges, net 5,592 3,542
Prepaid and other assets 3,377 3,006
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 633,121 $ 563,677
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 336,643 $ 306,824
Accounts payable and accrued expenses 5,303 3,395
Rents received in advance and security deposits 2,996 2,789
Dividends/distributions payable 5,732 4,692
Other liabilities 1,393 --
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 352,067 317,700
- ------------------------------------------------------------------------------------------------------------------
Minority interests:
Preferred Units in the Operating Partnership 52,500 52,500
Common Units in the Operating Partnership 26,643 24,696
Other consolidated partnerships 90 --
- ------------------------------------------------------------------------------------------------------------------
Total minority interests 79,233 77,196
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 15)
Shareholders' equity:
Preferred Shares ($0.01 par value; 5,000,000 authorized);
1,025,000 designated as Series A Cumulative Convertible Preferred
Shares of beneficial interest (984,308 shares issued and
outstanding) 10 10
1,725,000 designated as Series B Cumulative Redeemable Preferred
Shares of beneficial interest (1,250,000 issued and outstanding
at September 30, 1999) 12 --
Common Shares of beneficial interest ($0.01 par value; 45,000,000 authorized,
shares issued and outstanding of 17,174,171 at
September 30, 1999 and 16,801,876 at December 31, 1998) 172 168
Additional paid-in capital 208,725 175,802
Accumulated deficit (7,098) (7,199)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 201,821 168,781
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 633,121 $ 563,677
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------- ----------------------------
1999 1998 1999 1998
-------------- ---------------- ------------- --------------
REVENUES
Rental income $ 17,471 $ 8,562 $ 50,879 $ 20,539
Tenant recoveries and other income 2,989 1,250 7,646 2,640
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 20,460 9,812 58,525 23,179
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 6,051 2,457 16,439 5,001
General and administrative 631 397 2,316 1,055
Interest 4,990 2,849 15,409 7,424
Amortization of deferred financing costs 168 119 715 266
Depreciation and other amortization 3,087 1,514 8,766 3,772
Reformation costs -- -- -- 637
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 14,927 7,336 43,645 18,155
- -------------------------------------------------------------------------------------------------------------------------
Income before equity in (loss) income of unconsolidated
entities, gain on sales of rental properties, minority
interests and extraordinary item 5,533 2,476 14,880 5,024
Equity in (loss) income of unconsolidated entities (43) 17 283 17
- -------------------------------------------------------------------------------------------------------------------------
Income before gain on sales of rental properties, minority
interests and extraordinary item 5,490 2,493 15,163 5,041
Gain on sales of rental properties -- -- 1,140 --
- -------------------------------------------------------------------------------------------------------------------------
Income before minority interests and extraordinary item 5,490 2,493 16,303 5,041
Minority interests
Preferred Units (853) (853) (2,559) (2,559)
Common Units (591) (301) (1,757) (713)
- -------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 4,046 1,339 11,987 1,769
Extraordinary item - loss on early retirement of debt -- -- (838) --
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME 4,046 1,339 11,149 1,769
Preferred Share dividends (1,060) (10) (1,736) (10)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,986 $ 1,329 $ 9,413 $ 1,759
- -------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item $ 0.18 $ 0.13 $ 0.61 $ 0.26
Extraordinary item -- -- (0.05) --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 0.18 $ 0.13 $ 0.56 $ 0.26
- -------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary item $ 0.16 $ 0.12 $ 0.53 $ 0.26
Extraordinary item -- -- (0.04) --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 0.16 $ 0.12 $ 0.49 $ 0.26
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
4
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
For the nine months ended September 30,
---------------------------------------
1999 1998
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,149 $ 1,769
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 4,316 3,272
Depreciation and other amortization 8,766 3,772
Amortization of deferred financing costs 715 266
Equity in income of unconsolidated entities (283) (17)
Gain on sales of rental properties (1,140) --
Increase in deferred rent receivable (2,135) (1,083)
Increase in accounts receivable, restricted cash and prepaid
and other assets (1,331) (2,678)
Increase in accounts payable, accrued expenses, rents
received in advance and security deposits 1,204 2,173
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,261 7,474
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and additions to commercial real estate properties (70,618) (96,897)
Proceeds from sales of rental properties 29,970 --
Investment in and advance to unconsolidated real estate joint
venture (37,199) --
Investment in and advances to Service Companies 937 204
Leasing commissions paid (1,859) (151)
Increase in prepaid and other assets (201) (1,465)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (78,970) (98,309)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage and other loans payable 170,991 26,700
Repayments of mortgage and other loans payable (130,145) (1,762)
Increase in other liabilities 1,393 --
Deferred financing costs paid (1,145) (565)
Net proceeds from issuance of Preferred Shares 29,450 --
Net proceeds from issuance of Common Shares -- 72,237
Dividends paid (10,078) (2,089)
Distributions paid (4,149) (3,475)
Increase in prepaid and other assets -- (1,700)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 56,317 89,346
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,392) (1,489)
CASH AND CASH EQUIVALENTS
Beginning of period 2,349 3,395
- ---------------------------------------------------------------------------------------------------------------
End of period $ 957 $ 1,906
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
5
CORPORATE OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 ORGANIZATION
Corporate Office Properties Trust ("COPT") and subsidiaries is a fully
integrated and self-managed real estate investment trust ("REIT"). We focus on
the ownership, management, leasing, acquisition and development of suburban
office properties in select Mid-Atlantic submarkets. COPT is qualified as a REIT
as defined in the Internal Revenue Code and is the successor to a corporation
organized in 1988. As of September 30, 1999, our portfolio included 74
commercial real estate properties leased principally for office purposes,
including nine properties owned through an unconsolidated joint venture (see
Note 5).
We conduct our operations principally through our operating partnership,
Corporate Office Properties, L.P. (the "Operating Partnership"), for which we
are the managing general partner. The Operating Partnership owns real estate
both directly and through subsidiary partnerships and limited liability
companies ("LLCs"). The Operating Partnership also owns the principal economic
interest and, collectively with our Chief Executive Officer and Chief Operating
Officer, 49.5% of the voting stock of Corporate Office Management, Inc. ("COMI")
(together with its subsidiaries defined as the "Service Companies"). A summary
of our Operating Partnership's forms of ownership and the percentage of those
ownership forms owned by COPT as of September 30, 1999 follows:
% Owned by COPT
---------------
Common Units (see Notes 3 and 17) 84%
Series A Preferred Units 100%
Series B Preferred Units 100%
Initial Preferred Units (see Notes 3 and 17) 0%
The Series A Preferred Units and Initial Preferred Units are convertible
into Common Units in the Operating Partnership.
NOTE 2 BASIS OF PRESENTATION
These notes to our interim financial statements highlight significant
changes to the notes to the financial statements included in our 1998 Form 10-K.
As a result, these notes to our interim financial statements should be read
together with the financial statements and notes thereto included in our 1998
Form 10-K. The interim financial statements on the previous pages reflect all
adjustments which we believe are necessary for the fair presentation of our
financial position and results of operations for the interim periods presented.
These adjustments are of a normal recurring nature. The results of operations
for such interim periods are not necessarily indicative of the results for a
full year.
We use two different accounting methods to report our investments in
entities: the consolidation method and the equity method.
CONSOLIDATION METHOD
We use the consolidation method when we own most of the outstanding
voting interests in an entity and can control its operations. This means the
accounts of the entity are combined with our accounts. We eliminate balances and
transactions between companies when we consolidate these accounts. Our
consolidated financial statements include the accounts of:
- - COPT,
6
- - the Operating Partnership and its subsidiary partnerships and LLCs, and
- - Corporate Office Properties Holdings, Inc. (we own 100%).
EQUITY METHOD
We use the equity method of accounting to report our investments in an
unconsolidated real estate joint venture (see Note 5) and the Service Companies.
Under the equity method, we report:
- - our ownership interest in the capital of these entities as an investment on
our Consolidated Balance Sheets and
- - our percentage share of the earnings or losses from these entities in our
Consolidated Statements of Operations.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
We make estimates and assumptions when preparing financial statements under
generally accepted accounting principles. These estimates and assumptions affect
various matters, including:
- - our reported amounts of assets and liabilities in our Consolidated Balance
Sheets at the dates of the financial statements,
- - our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
- - our reported amounts of revenues and expenses in our Consolidated
Statements of Operations during the reporting periods.
These estimates involve judgements with respect to, among other things,
future economic factors that are difficult to predict and are often beyond
management's control. As a result, actual amounts could differ from these
estimates.
MINORITY INTERESTS
As discussed previously, we consolidate the accounts of our Operating
Partnership into our financial statements. However, we do not own 100% of the
Operating Partnership. We also consolidate the accounts of a real estate joint
venture of which we own 89%. The amounts reported for minority interests on our
Consolidated Balance Sheets represent the portion of these entities' equity that
we do not own. The amounts reported for minority interests on our Consolidated
Statements of Operations represent the portion of these entities' net income not
allocated to us.
Common Units of the Operating Partnership are substantially similar
economically to our Common Shares of beneficial interest ("Common Shares"). The
Common Units are also exchangeable into our Common Shares, subject to certain
conditions. We have accrued distributions related to Common Units owned by
minority interests of $557 at September 30, 1999 and $488 at December 31, 1998.
The owners of our Operating Partnership's Initial Preferred Units are
entitled to a 6.5% priority annual return. Income of our Operating Partnership
is also allocated to holders of Initial Preferred Units using the 6.5% priority
annual return. These units are convertible by unitholders at their option on or
after October 1, 1999, into Common Units on the basis of 3.5714 Common Units for
each Initial Preferred Unit, plus any accrued return (see Note 17). We have
accrued distributions related to Initial Preferred Units owned by minority
interests of $853 at September 30, 1999 and December 31, 1998.
INTEREST RATE SWAP ARRANGEMENTS
We recognize the interest rate differential to be paid or received on
interest rate swap agreements as an adjustment to interest expense (see
Note 17).
7
EARNINGS PER SHARE ("EPS")
We present both basic and diluted EPS. We compute basic EPS by dividing
income available to common shareholders by the weighted-average number of Common
Shares outstanding during the period. Our computation of diluted EPS is similar
except that:
- - the denominator is increased to include the weighted average number of
potential additional Common Shares that would have been outstanding if
securities that are convertible now or in the future into our Common Shares
were converted and
- - the numerator is adjusted to add back any convertible preferred dividends
and any other changes in income or loss that would result from the assumed
conversion into Common Shares.
Our computation of diluted EPS does not assume conversion of securities into our
Common Shares if conversion of those securities would increase our diluted EPS
in a given period. A summary of the numerator and denominator for purposes of
our basic and diluted EPS calculations for income before extraordinary item is
as follows (dollars and shares in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
Numerator:
Net income available to Common Shareholders $ 2,986 $ 1,329 $ 9,413 $ 1,759
Extraordinary loss -- -- 838 --
------------ ---------- ---------- ----------
Numerator for basic earnings per share before
extraordinary item 2,986 1,329 10,251 1,759
Minority interests - Initial Preferred Units 853 853 2,559 --
Dividends on Series A Preferred Shares -- -- -- --
Minority interests - Common Units -- 301 -- --
------------ ---------- ---------- ----------
Numerator for diluted earnings per share before
extraordinary item $ 3,839 $ 2,483 $12,810 $ 1,759
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
Denominator:
Weighted average Common Shares - basic 17,037 9,973 16,881 6,652
Assumed conversion of share options 18 10 9 86
Conversion of Initial Preferred Units 7,500 7,500 7,500 --
Conversion of weighted average
Series A Preferred Shares -- -- -- --
Conversion of weighted average
Common Units -- 2,582 -- --
------------ ---------- ---------- ----------
Weighted average Common Shares - diluted 24,555 20,065 24,390 6,738
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
Our diluted EPS computation for the three months ended September 30, 1999
only assumes conversion of Initial Preferred Units because conversions of
Preferred Shares and Common Units would increase diluted EPS in that period. Our
diluted EPS computation for the three months ended September 30, 1998 only
assumes conversion of Initial Preferred Units and Common Units because
conversions of Preferred Shares would increase diluted EPS in that period.
Our diluted EPS computation for the nine months ended September 30, 1999
only assumes conversion of Initial Preferred Units because conversions of
Preferred Shares and Common Units would increase diluted EPS in that period. Our
diluted EPS computation for the nine months ended September 30, 1998 does not
assume conversion of Initial Preferred Units, Preferred Shares or Common Units
since these conversions would increase diluted EPS in that period.
8
NOTE 4 COMMERCIAL REAL ESTATE PROPERTIES
Operating properties consisted of the following:
September 30, December 31,
1999 1998
------------- ------------
Land $ 112,810 $ 108,433
Buildings and improvements 452,810 436,932
Furniture, fixtures and equipment 335 332
---------- ----------
565,955 545,697
Less: accumulated depreciation (14,960) (9,469)
---------- ----------
$ 550,995 $ 536,228
---------- ----------
---------- ----------
Projects we had under development consisted of the following:
September 30, December 31,
1999 1998
------------- ------------
Land $ 10,150 $ 8,941
Construction in progress 16,203 1,718
--------- ---------
$ 26,353 $ 10,659
--------- ---------
--------- ---------
1999 ACQUISITIONS
We acquired the following office properties during the nine months ended
September 30, 1999:
Number
Date of of Total Rentable Initial
Project Name Location Acquisition Buildings Square Feet Cost
- ------------------------------- ----------------------- ----------- --------- -------------- -----------
Airport Square XXI Linthicum, MD 2/23/99 1 67,913 $ 6,751
Parkway Crossing Properties Hanover, MD 4/16/99 2 99,026 9,524
Commons Corporate Portfolio (1) Hanover, MD 4/28/99 8 250,413 25,442
Princeton Executive Center Monmouth Junction, NJ 6/24/99 1 61,300 6,020
Gateway Central (2) Harrisburg, PA 8/12/99 3 55,726 5,960
- -----------------------
(1) Does not include $400 allocated to projects under development and $50
relating to land under a ground lease.
(2) Acquired 89% ownership interest.
We also acquired the following:
- - a parcel of land located in Annapolis Junction, Maryland that is contiguous
to certain of our existing operating properties acquired for $2,908 on
May 28, 1999,
- - a 57,000 square foot warehouse facility for redevelopment into office space
located on 8.5 acres of land contiguous to properties we own in
South Brunswick, New Jersey acquired for $2,172 on July 9, 1999, and
- - a parcel of land located in Linthicum, Maryland that is contiguous to
certain of our existing operating properties acquired for $1,970 on
August 1, 1999.
9
1999 DISPOSITIONS
We sold the following properties during the nine months ended September 30,
1999:
Property Date Total Rentable Sales
Project Name Location Type (1) of Sale Square Feet Price
- ------------------- ----------------- --------- ----------- -------------- ------------
Cranberry Square Westminster, MD R 1/22/99 139,988 $ 18,900
Delafield Retail Delafield, WI R 2/26/99 52,800 3,303
Indianapolis Retail Indianapolis, IN R 3/09/99 67,541 5,735
Plymouth Retail Plymouth, MN R 3/09/99 67,510 5,465
Glendale Retail Glendale, WI R 5/04/99 36,248 1,900
Peru Retail Peru, IL R 6/16/99 60,232 3,750
Browns Wharf Baltimore, MD O 6/24/99 103,670 10,575
Oconomowoc Retail Oconomowoc, WI R 6/25/99 39,272 2,575
- -----------------------
(1) "R" indicates retail property; "O" indicates office property.
1999 CONSTRUCTION IN PROGRESS
We completed the construction of a 93,482 square foot office building
located in Annapolis Junction, Maryland in August 1999. Costs incurred on this
property through September 30, 1999 totaled $9,163. We also completed an
expansion project that increased the rentable square footage of one of our
properties by 6,350 square feet. At September 30, 1999, we had development
underway on three new buildings and redevelopment underway on an existing
building.
NOTE 5 INVESTMENT IN AND ADVANCE TO REAL ESTATE JOINT VENTURE
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership, a newly organized joint venture, for $2,952. On the same
day, the joint venture acquired nine office buildings located in Greater
Harrisburg, Pennsylvania for $39,925 using cash and proceeds from a $34,247 loan
payable to our Operating Partnership. This loan payable is evidenced by notes
that carry an interest rate of 10% through their maturity date of September 14,
2000.
We account for our investment in Corporate Gateway General Partnership
using the equity method of accounting. Our investment in and advance to this
joint venture at September 30, 1999 included the following:
Notes receivable $ 34,247
Investment in joint venture 2,952
---------
Total $ 37,199
---------
---------
NOTE 6 ACCOUNTS RECEIVABLE
Our accounts receivable are reported net of an allowance for bad debts of
$0 at September 30, 1999 and $50 at December 31, 1998.
NOTE 7 INVESTMENT IN AND ADVANCES TO SERVICE COMPANIES
On August 31, 1999, COMI acquired an 80% interest in Martin G. Knott and
Associates, LLC ("MGK"), a limited liability company that provides heating and
air conditioning maintenance and repair services. COMI acquired its interest in
MGK for $160,000.
10
We account for our investment in COMI and its subsidiaries, Corporate
Realty Management, LLC ("CRM"), Corporate Development Services, LLC ("CDS") and
MGK using the equity method of accounting. Our investment in and advances to
these Service Companies included the following:
September 30, December 31,
1999 1998
------------- --------------
Notes receivable $ 2,005 $ 3,205
Equity investment in Service Companies 892 609
Advances payable (1,200) (1,463)
-------- -----------
Total $ 1,697 $ 2,351
-------- -----------
-------- -----------
NOTE 8 DEFERRED CHARGES
Deferred charges consisted of the following:
September 30 December 31,
1999 1998
------------- ------------
Deferred financing costs $ 3,693 $ 2,611
Deferred leasing costs 3,242 1,468
Deferred other 24 24
-------- ---------
6,959 4,103
Accumulated amortization (1,367) (561)
-------- ---------
Deferred charges, net $ 5,592 $ 3,542
-------- ---------
-------- ---------
NOTE 9 MORTGAGE AND OTHER LOANS PAYABLE
This section highlights new borrowing arrangements entered into during the
nine months ended September 30, 1999.
On January 5, 1999, we entered into an interest rate swap agreement with
Deutsche Banc Alex. Brown. This swap agreement fixes our one-month LIBOR base at
5.085% per annum on a notional amount of $30,000 through May 2001 (see Note 17).
On January 13, 1999, we entered into a $9,825 construction loan with
Allfirst Bank to finance the construction of a building at our 134 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.6%.
This loan matures on February 1, 2001 and may be extended for a one-year period,
subject to certain conditions. Borrowings under this loan totaled $6,179 at
September 30, 1999.
On February 8, 1999, we entered into a $10,875 construction loan with
Provident Bank of Maryland to finance the construction of a building at our
Woodlands II property. This loan has an interest rate of LIBOR plus 1.75%. This
loan matures on February 8, 2001 and may be extended for a one-year period,
subject to certain conditions. Borrowings under this loan totaled $7,233 at
September 30, 1999.
On April 8, 1999, we obtained a $12,500 mortgage loan payable from Allfirst
Bank, $9,000 of which is nonrecourse. The loan provides for monthly payments of
interest, at a rate of LIBOR plus 1.75%, and principal of $23 in the loan's
first year, $25 in the second year and $27 in the third year. The loan matures
on May 1, 2002. We pledged three of our operating properties and one parcel of
land as collateral to the lender. We use the term collateralize to describe all
such arrangements.
On April 16, 1999, we assumed three nonrecourse loans in connection with
the acquisition of the Parkway Crossing Properties. We assumed a $3,200 mortgage
loan payable from IDS Life Insurance Company. The loan provides for monthly
payments of principal and interest at a fixed rate of 8.375%. The loan matures
on June 1, 2007. We also assumed two loans with the seller totaling $1,897 that
carry identical terms. These
11
loans provide for monthly payments of interest at a rate equal to the lesser of
prime plus 0.5% or 9.38% plus fixed principal payments of $4. These loans mature
on May 25, 2007.
On May 5, 1999, we obtained a $10,000 loan from Deutsche Banc Alex. Brown.
The loan bears interest at a rate of LIBOR plus 1.75% and provides for monthly
payments of interest only. The loan matures on November 5, 1999 and is
collateralized by the Commons Corporate Portfolio.
On August 12, 1999, we assumed a $4,549 construction loan with Mellon Bank
in connection with the Gateway Central acquisition. The loan bears interest at a
rate equal to the yield on 5-year Treasury Securities plus 2.0%. The loan
provides for monthly payments of interest only through August 2000 and equal
monthly payments of principal and interest based on a 30-year amortization
period commencing September 2000. The loan matures on August 1, 2005. Borrowings
under this loan totaled $4,304 as of September 30, 1999.
On September 9, 1999, we entered into a $7,400 construction loan with Bank
of Maryland to finance the construction of a building at our Airport Square XV
property. This loan has an interest rate of LIBOR plus 1.75%. This loan matures
on October 1, 2001 and may be extended for a one-year period, subject to certain
conditions. Borrowings under this loan totaled $27 at September 30, 1999.
On September 30, 1999, we obtained a $60,000 mortgage loan payable from
Teachers Insurance and Annuity Association of America. This loan carries a fixed
interest rate of 7.72% and provides for monthly payments of principal and
interest of $452. The loan matures on October 1, 2006 and may not be prepaid
prior to April 1, 2003. The loan is collaterized by 13 of our properties.
NOTE 10 SHAREHOLDERS' EQUITY
In July 1999, we completed the sale of 1,250,000 Series B Cumulative
Redeemable Preferred Shares of beneficial interest ("Series B Preferred Shares")
to the public at a price of $25.00 per share. These shares are nonvoting and are
redeemable for cash at $25.00 per share at our option on or after July 15, 2004.
Holders of these shares are entitled to cumulative dividends, payable quarterly
(as and if declared by the Board of Trustees). Dividends accrue from the date of
issue at the annual rate of $2.50 per share, which is equal to 10% of the $25.00
per share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. The Series B
Preferred Units carry terms that are substantially the same as the Series B
Preferred Shares.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares.
12
NOTE 11 DIVIDENDS AND DISTRIBUTIONS
The following summarizes our dividends/distributions for the nine months
ended September 30, 1999:
Dividend/ Total
Distribution Dividend/
Record Date Payable Date Per Share Distribution
----------------- --------------- ------------ -------------
Series A Preferred Shares:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.34375 $327
First Quarter 1999 March 31, 1999 April 15, 1999 $0.34375 $338
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.34375 $338
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.34375 $338
Series B Preferred Shares:
Third Quarter 1999 (1) September 30, 1999 October 15, 1999 $0.68 $850
Common Shares:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.18 $3,025
First Quarter 1999 March 31 ,1999 April 15, 1999 $0.18 $3,025
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.18 $3,025
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.19 $3,263
Initial Preferred Units:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.40625 $853
First Quarter 1999 March 31, 1999 April 15, 1999 $0.40625 $853
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.40625 $853
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.40625 $853
Common Units:
Fourth Quarter 1998 December 31, 1998 January 15, 1999 $0.18 $487
First Quarter 1999 March 31, 1999 April 15, 1999 $0.18 $527
Second Quarter 1999 June 30, 1999 July 15, 1999 $0.18 $576
Third Quarter 1999 September 30, 1999 October 15, 1999 $0.19 $557
- -----------------------
(1) Represents dividend for period commencing on date of issuance through
October 15, 1999.
NOTE 12 RELATED PARTY TRANSACTIONS
MANAGEMENT
We have a contract with COMI under which COMI provides asset management,
managerial, financial and legal support. Under the terms of this contract, we
reimburse COMI for personnel and other overhead-related expenses. During the
nine months ended September 30, 1999, we incurred management fees and related
costs of $2,248 under this contract.
We have a management agreement with CRM under which CRM provides property
management services to most of our properties. Under the terms of this
arrangement, CRM is entitled to a fee equal to 3% of revenue from tenant
billings. CRM is also entitled to reimbursement for direct labor and
out-of-pocket costs. We incurred property management fees and related costs of
$2,745 under this agreement during the nine months ended September 30, 1999.
We had a management agreement with Glacier Realty LLC ("Glacier"), a
company that was partially owned by one of our former Trustees. Under the
management agreement, Glacier was responsible for the management of our retail
properties for a base annual fee of $250 plus a percentage of Average Invested
Assets (as defined in the management agreement). Glacier was also entitled to
fees upon our acquisition or sale of any net-leased retail real estate property,
a fee that increased in the event that all or substantially all of the
net-leased retail real estate properties were sold. The management agreement,
entered into on October 14, 1997, had a term of five years. A fee was also due
in the event that the management agreement was terminated, including for
non-renewal. We incurred fees under this agreement of $63 for the nine months
ended September 30, 1999 and $188 for the nine months ended September 30, 1998.
On March 19, 1999, our Operating Partnership issued 200,000
13
Common Units in exchange for all of the ownership interests in Glacier. For
accounting purposes, we recorded the value of this transaction against the gain
on the sale of our retail properties in the Midwest region of the United States.
We also had a management agreement with a company for which one of our
Trustees serves on the Board of Directors. We incurred management fees and
related costs under this contract of $62 for the nine months ended September 30,
1999 and $60 for the nine months ended September 30, 1998.
CONSTRUCTION COSTS
We have entered into a contract with CDS under which CDS provides
construction and development services. Under the terms of this contract, we
reimburse CDS for these services based on actual time incurred at market rates.
During the nine months ended September 30, 1999, we incurred $922 under this
contract, a substantial portion of which was capitalized into the cost of the
related activities.
RENTAL INCOME
During the nine months ended September 30, 1999, we recognized revenue of
$313 on office space leased to COMI and CRM. During the nine months ended
September 30, 1999, we recognized revenue of $700 on office space leased to
Constellation Real Estate, Inc. ("Constellation"), which owns 41% of our Common
Shares and 100% of our Series A Preferred Shares, and its affiliate, Baltimore
Gas and Electric Company ("BGE").
INTEREST INCOME
During the nine months ended September 30, 1999, we earned interest income
of $202 on notes receivable from the Service Companies. During the nine months
ended September 30, 1999, we also earned interest income of $152 on notes
receivable from Corporate Gateway General Partnership.
CONSTRUCTION FEES
During the nine months ended September 30, 1999, the Service Companies
earned construction management fees of $60 from an entity owned by an officer
and Trustee of ours.
LEASING COMMISSION
During the nine months ended September 30, 1999, the Service Companies
earned a leasing commission of $117 from an entity owned by an officer and
Trustee of ours.
FEES EARNED FROM CONSTELLATION AND BGE
During the nine months ended September 30, 1999, the Service Companies
earned $950 from a project consulting and management agreement with
Constellation. The Service Companies also earned $340 in fees and expense
reimbursements during the nine months ended September 30, 1999 under a property
management agreement with BGE.
FEES EARNED FROM REAL ESTATE JOINT VENTURE
During the nine months ended September 30, 1999, we earned an acquisition
services fee of $213 from Corporate Gateway General Partnership.
UTILITIES EXPENSE
During the nine months ended September 30, 1999, BGE provided utility
services to most of our properties in the Baltimore/Washington Corridor.
14
ACQUISITIONS
On May 28, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland from Constellation for $2,908.
On August 1, 1999, we acquired a parcel of land located in Linthicum,
Maryland from CDS for $1,970.
On August 12, 1999, we acquired an 89% interest in an entity owning three
office buildings located in Harrisburg, Pennsylvania from an officer and Trustee
of ours for $5,960.
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership for $2,952. On the same day, the joint venture acquired nine
office buildings for $39,925 from First Industrial Realty Trust, Inc., a
publicly held real estate investment company where Jay Shidler, the Chairman of
our Board of Trustees, serves as Chairman of the Board of Directors.
15
NOTE 13 SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
--------------------------
1999 1998
-------- ---------
Supplemental schedule of non-cash investing and
financing activities:
Debt repaid in connection with sales of rental properties $ 20,928 $ --
-------- ---------
-------- ---------
Debt assumed in connection with acquisitions $ 9,901 $ 66,025
-------- ---------
-------- ---------
Increase in minority interests resulting from issuance of
Common Units in connection with property acquisitions $ 3,942 $ 11,351
-------- ---------
-------- ---------
Increase in minority interests resulting from issuance of
Common Units in connection with Glacier acquisition $ 1,487 $ --
-------- ---------
-------- ---------
Increase in shareholders' equity resulting from issuance
of Common Shares and Preferred Shares in connection
with acquisitions $ -- $ 75,207
-------- ---------
-------- ---------
Note receivable balance applied to cost of property
acquisition $ 1,575 $ --
-------- ---------
-------- ---------
Increase in accrued capital improvements $ 911 $ 3,042
-------- ---------
-------- ---------
Adjustments to minority interests resulting from changes
in ownership of Operating Partnership by COPT $ (348) $ 11,351
-------- ---------
-------- ---------
Dividends/distributions payable $ 5,732 $ 4,692
-------- ---------
-------- ---------
Decrease in minority interests and increase in
shareholders' equity in connection with conversion of
Common Units into Common Shares $ 3,141 $ --
-------- ---------
-------- ---------
16
NOTE 14 INFORMATION BY BUSINESS SEGMENT
We have five segments: Baltimore/Washington office, Greater Philadelphia
office, Northern/Central New Jersey office, Greater Harrisburg office and
retail. Our office properties represent our core-business. We manage our retail
properties as a single segment since they are considered outside of our
core-business.
The table below reports segment financial information. Our Greater
Harrisburg and retail segments are not separately reported since they do not
meet the reporting thresholds. We measure the performance of our segments based
on total revenues less property operating expenses. Accordingly, we do not
report other expenses by segment in the table below.
Baltimore/ Greater Northern/
Washington Philadelphia Central New
Office Office Jersey Office Other Total
---------------------------------------------------------------
Three Months Ended September 30, 1999:
Revenues $ 11,573 $ 2,506 $ 4,735 $ 1,646 $ 20,460
Property operating expenses 3,814 20 1,916 301 6,051
-------- -------- ------- -------- --------
Income from operations $ 7,759 $ 2,486 $ 2,819 $ 1,345 $ 14,409
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property $ 5,469 $ 17 $ 2,425 $ 12,373 $ 20,284
expenditures -------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Three Months Ended September 30, 1998:
Revenues $ 2,970 $ 2,506 $ 2,710 $ 1,626 $ 9,812
Property operating expenses 1,092 3 1,030 332 2,457
-------- -------- ------- -------- --------
Income from operations $ 1,878 $ 2,503 $ 1,680 $ 1,294 $ 7,355
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $122,952 $ -- $ 915 $ 23,799 $147,666
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Nine Months Ended September 30, 1999:
Revenues $ 33,307 $ 7,519 $12,898 $ 4,801 $ 58,525
Property operating expenses 10,341 62 4,966 1,070 16,439
-------- -------- ------- -------- --------
Income from operations $22,966 $ 7,457 $ 7,932 $ 3,731 $ 42,086
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $49,373 $ 17 $10,336 $ 27,221 $ 86,947
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Segment assets at September 30, 1999 $312,906 $107,887 $107,844 $104,484 $633,121
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Nine Months Ended September 30, 1998:
Revenues $ 4,883 $ 7,519 $ 6,318 $ 4,459 $ 23,179
Property operating expenses 1,723 9 2,310 959 5,001
-------- -------- ------- -------- --------
Income from operations $ 3,160 $ 7,510 $ 4,008 $ 3,500 $ 18,178
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Commercial real estate property
expenditures $195,662 $ -- $30,382 $ 23,923 $249,967
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Segment assets at September 30, 1998 $220,324 $109,221 $62,145 $ 56,294 $447,984
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
17
The following table reconciles our income from operations for reportable
segments to income before extraordinary item as reported in our Consolidated
Statements of Operations.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------
1999 1998 1999 1998
------------- ------------- ----------- ------------
Income from operations for reportable segments $ 14,409 $ 7,355 $ 42,086 $ 18,178
Add:
Equity in (loss) income of unconsolidated
entities (43) 17 283 17
Gain on sales of rental properties -- -- 1,140 --
Less:
General and administrative (631) (397) (2,316) (1,055)
Interest (4,990) (2,849) (15,409) (7,424)
Amortization of deferred financing costs (168) (119) (715) (266)
Depreciation and amortization (3,087) (1,514) (8,766) (3,772)
Reformation costs -- -- -- (637)
Minority interests (1,444) (1,154) (4,316) (3,272)
------- ------- ------- -------
Income before extraordinary item $ 4,046 $ 1,339 $11,987 $ 1,769
------- ------- ------- -------
------- ------- ------- -------
We did not allocate gain on sales of rental properties, interest expense,
amortization of deferred financing costs and depreciation and other amortization
to segments since they are not included in the measure of segment profit
reviewed by management. We also did not allocate equity in (loss) income of
unconsolidated entities, general and administrative and reformation costs and
minority interests since these items represent general corporate items not
attributable to segments.
NOTE 15 COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are involved in legal actions arising
from our ownership and administration of properties. In management's opinion,
any liabilities that may result are not expected to have a materially adverse
effect on our financial position, operations or liquidity. We are subject to
various federal, state and local environmental regulations related to our
property ownership and operation. We have performed environment assessments of
our properties the results of which have not revealed any environmental
liability that we believe would have a materially adverse effect on our
financial position, operations or liquidity.
In June 1999, we sold an office building and assigned our rights to
purchase two office buildings to an unrelated third party. Simultaneously with
these transactions, we entered into a contract with the third party under which
the third party has the right to transfer these three office buildings to us on
or before March 31, 2000 for total consideration of approximately $40.5 million.
Under the terms of the contract, we would pay up to $25.0 million (but in no
event less than $23.9 million) of the acquisition price in convertible Preferred
Units (the "Convertible Preferred Units") in the Operating Partnership and the
balance in cash or debt assumption. We would also issue ten-year detachable
warrants exercisable for an additional number of Common Units in the Operating
Partnership to be determined based upon the share price of the Common Shares
over the first five years following the acquisition. However, if the price of
our Common Shares used to determine the additional number of Common Units equals
or exceeds $14.21, no warrants will be issuable.
The Convertible Preferred Units issuable under the terms of the contract will be
entitled to a 9% priority annual return for the first ten years following
issuance, 10.5% for the five following years and 12% thereafter. The Convertible
Preferred Units are convertible, subject to certain restrictions, commencing one
year after their issuance into Common Units in the Operating Partnership on the
basis of 2.381 Common Units for each Convertible Preferred Unit, plus any
accrued return. The Common Units are exchangeable for Common Shares, subject to
certain conditions. The Convertible Preferred Units also carry a liquidation
preference of $25.00 per unit, plus any accrued return, and may be redeemed for
cash by the Operating Partnership at any time after the tenth anniversary of
their issuance.
18
We are under contract to purchase two office buildings totaling 198,391 square
feet and a parcel of undeveloped land located in Linthicum, Maryland for
$25,825.
NOTE 16 PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
We accounted for most of our 1999 and 1998 acquisitions using the
purchase method of accounting. We included the results of operations for the
acquisitions in our Consolidated Statements of Operations from their
respective purchase dates through September 30, 1999.
We prepared the pro forma condensed consolidated financial information
presented below as if all of our 1999 and 1998 acquisitions accounted for
using the purchase method and dispositions had occurred on January 1, 1998.
Accordingly, we were required to make pro forma adjustments where deemed
necessary. The pro forma financial information is unaudited and is not
necessarily indicative of the results which actually would have occurred if
these acquisitions and dispositions had occurred on January 1, 1998, nor does
it intend to represent our results of operations for future periods.
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- -----------
Pro forma total revenues $ 59,791 $ 49,741
-------- --------
-------- --------
Pro forma net income available to Common Shareholders $ 9,682 $ 5,027
-------- --------
-------- --------
Pro forma earnings per Common Share
Basic $ 0.56 $ 0.29
-------- --------
-------- --------
Diluted $ 0.50 $ 0.29
-------- --------
-------- --------
NOTE 17 SUBSEQUENT EVENTS
On October 1, 1999, the holders of all of the Initial Preferred Units in
our Operating Partnership converted their units into Common Units. Upon
completion of these conversions, COPT owned 60% of the Operating Partnership's
Common Units.
On October 20, 1999, we received $492 from Deutsche Banc Alex. Brown in
exchange for the termination of our interest rate swap agreement.
On October 22, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland. We acquired this land for $2,945.
On October 26, 1999, we entered into a $12,375 construction loan with
Allfirst Bank to finance the construction of a building at our 132 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.75%.
This loan matures on October 1, 2001 and may be extended for a one-year period,
subject to certain conditions.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Over the last six quarters, we completed a significant number of
acquisitions. Our portfolio consisted of seven retail properties and ten office
properties at March 31, 1998. During the last three quarters of 1998, we
acquired 38 office and two retail properties. During the first three quarters of
1999, we acquired 15 office properties, completed construction of a new office
property and sold seven retail properties and one office property. During 1999,
we also acquired nine office properties through an unconsolidated joint venture.
We financed the acquisitions and construction using debt and issuing Common
Shares, Preferred Shares and ownership interests in our Operating Partnership.
To accommodate our growth and changing needs as an organization, we added
significant management capabilities. As of September 30, 1999, our portfolio
included 74 commercial real estate properties leased principally for office
purposes, including the nine properties owned through the unconsolidated joint
venture. Due to these significant changes, our results of operations changed
dramatically.
In this section, we discuss our financial condition and results of
operations for the three and nine months ended September 30, 1999. This section
includes discussions on:
- - why various components of our Consolidated Statements of Operations changed
for the three and nine months ended September 30, 1999 compared to the same
periods in 1998,
- - what our primary sources and uses of cash were for the nine months ended
September 30, 1999,
- - how we raised cash for investing and financing activities during the nine
months ended September 30, 1999,
- - how we intend to generate cash for future capital expenditures, and
- - the computation of our funds from operations.
It may be helpful as you read this section to refer to our consolidated
financial statements and accompanying notes and operating data variance analysis
set forth below.
This section contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995 that are based on our current
expectations, estimates and projections about future events and financial trends
affecting the financial condition of our business. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. These statements are not guarantees of future
performance, events or results and involve potential risks and uncertainties.
Accordingly, actual results may differ materially. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Important facts that may affect these expectations, estimates or
projections include, but are not limited to: our ability to borrow on favorable
terms; general economic and business conditions, which will, among other things,
affect office property demand and rents, tenant creditworthiness and financing
availability; adverse changes in the real estate markets including, among other
things, competition with other companies; risks of real estate acquisition and
development; governmental actions and initiatives and environmental
requirements.
20
CORPORATE OFFICE PROPERTIES TRUST
OPERATING DATA VARIANCE ANALYSIS
(DOLLARS FOR THIS TABLE ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
----------------------------------------------
1999 1998 Variance % Change
------- ------ -------- --------
Revenues
Rental income $17,471 $8,562 $ 8,909 104%
Tenant recoveries and other income 2,989 1,250 1,739 139%
------- ------ -------
Total revenues 20,460 9,812 10,648 109%
------- ------ -------
Expenses
Property operating 6,051 2,457 3,594 146%
General and administrative 631 397 234 59%
Interest and amortization of financing costs 5,158 2,968 2,190 74%
Depreciation and other amortization 3,087 1,514 1,573 104%
Reformation costs -- -- -- --
------- ------ -------
Total expenses 14,927 7,336 7,591 103%
------- ------ -------
Income before equity in (loss) income of
unconsolidated entities, gain on sales of
rental properties, minority
interests and extraordinary item 5,533 2,476 3,057 123%
Equity in (loss) income of unconsolidated entities (43) 17 (60) (353%)
Gain on sales of rental properties -- -- -- --
------- ------ -------
Income before minority interests and extraordinary item 5,490 2,493 2,997 120%
Minority interests (1,444) (1,154) (290) 25%
Extraordinary item -- -- -- --
------- ------ -------
Net income 4,046 1,339 2,707 202%
Preferred Share dividends (1,060) (10) (1,050) 10,500%
------- ------ -------
Net income available to Common Shareholders $ 2,986 $ 1,329 $1,657 125%
------- ------ -------
------- ------ -------
Earnings per Common Share on net income
Basic $ 0.18 $ 0.13 $ 0.05 38%
Diluted $ 0.16 $ 0.12 $ 0.04 33%
Nine Months Ended September 30,
----------------------------------------------
1999 1998 Variance % Change
------ ------ -------- --------
Revenues
Rental income $ 50,879 $20,539 $ 30,340 148%
Tenant recoveries and other income 7,646 2,640 5,006 190%
-------- ------- -------
Total revenues 58,525 23,179 35,346 152%
-------- ------- -------
Expenses
Property operating 16,439 5,001 11,438 229%
General and administrative 2,316 1,055 1,261 120%
Interest and amortization of financing costs 16,124 7,690 8,434 110%
Depreciation and other amortization 8,766 3,772 4,994 132%
Reformation costs -- 637 (637) (100%)
-------- ------- -------
Total expenses 43,645 18,155 25,490 140%
-------- ------- -------
Income before equity in (loss) income of
unconsolidated entities, gain on sales of
rental properties, minority
interests and extraordinary item 14,880 5,024 9,856 196%
Equity in (loss) income of unconsolidated entities 283 17 266 1,565%
Gain on sales of rental properties 1,140 -- 1,140 N/A
-------- ------- -------
Income before minority interests and extraordinary item 16,303 5,041 11,262 223%
Minority interests (4,316) (3,272) (1,044) 32%
Extraordinary item (838) -- (838) N/A
-------- ------- -------
Net income 11,149 1,769 9,380 530%
Preferred Share dividends (1,736) (10) (1,726) 17,260%
-------- ------- -------
Net income available to Common Shareholders $ 9,413 $ 1,759 $ 7,654 435%
-------- ------- -------
-------- ------- -------
Earnings per Common Share on net income
Basic $ 0.56 $ 0.26 $ 0.30 115%
Diluted $ 0.49 $ 0.26 $ 0.23 88%
21
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Our total revenues increased $35.3 million or 152%, of which $30.3 million
was generated by rental income and $5.0 million by tenant recoveries and other
income. Tenant recovery income includes payments from tenants as reimbursement
for property taxes, insurance and other property operating expenses. Our growth
in revenues was due primarily to our property acquisitions in 1998 and 1999,
although revenues increased $607,000 or 4% on the operations of office
properties owned since the beginning of 1998 and $727,000 due to interest and
real estate service income, offset by a $1.0 million decrease due to our Midwest
region retail property sales.
Our total expenses increased $25.5 million or 140% due mostly to the
effects of the increases in property operating, interest expense and
amortization of deferred financing costs, depreciation and other amortization
and general and administrative expenses described below. However, our expenses
for the nine months ended September 30, 1998 also included $637,000 in
nonrecurring costs associated with our reformation into a Maryland REIT in March
1998.
Our property operating expenses increased $11.4 million or 229% due mostly
to our property acquisitions, although property operating expenses increased
$339,000 or 13% at office properties owned since the beginning of 1998. Our
property operating expenses increased as a percentage of total revenue from 22%
to 28% due to more of our leases being written on a gross basis (meaning we
incur operating expenses) versus a net basis (meaning the tenant incurs
operating expenses directly). Our interest expense and amortization of deferred
financing costs increased $8.4 million or 110% due mostly to our borrowings and
assumptions of debt needed to finance property acquisitions, although a decrease
of $474,000 is attributable to our Midwest region retail property sales. Our
depreciation and other amortization expense increased $5.0 million or 132% due
mostly to our property acquisitions, although a decrease of $241,000 is
attributable to our Midwest region retail property sales.
Our general and administrative expenses increased $1.3 million or 120%.
Much of this increase is due to the addition of management and other staffing
functions necessitated by our growing portfolio of properties and the desire to
enhance our organizational infrastructure to more efficiently meet tenant needs
and further the growth of the Company. Approximately $200,000 of this increase
is due to additional professional fees for audit, legal and tax preparation
required to support the increased complexity of our organization resulting from
our growth and the creation of our Operating Partnership and the Service
Companies. In addition, approximately $70,000 of this increase resulted from
external costs we incurred for public relations and marketing. Our general and
administrative expenses decreased as a percentage of total revenue from 4.6% to
4.0%.
Our income before minority interests and extraordinary item for the nine
months ended September 30, 1999 also includes the gain we realized on the sale
of six of our retail properties, a line item that was not present for the nine
months ended September 30, 1998.
As a result of the above factors, income before minority interests and
extraordinary item increased by $11.3 million or 223%. Our income allocation to
minority interests increased $1.0 million or 32%. The amounts reported for
minority interests on our Consolidated Statements of Operations represent the
portion of the Operating Partnership's net income not allocated to us. Ownership
of the Operating Partnership by minority interests averaged 17% during the nine
months ended September 30, 1999 versus 48% during the nine months ended
September 30, 1998. Accordingly, the increase in income allocated to minority
interests is due to the increase in the Operating Partnership's net income,
offset by the decreased percentage of income allocated to minority interests.
Our net income available to Common Shareholders increased $7.7 million due
to the factors discussed above partially offset by an $838,000 loss on the
retirement of debt and a $1.7 million increase in Preferred Share dividends. Our
diluted earnings per Common Share increased $0.23 per share due to the effect of
the increase in net income being proportionately greater than the dilutive
effects of our share offering in April 1998 and the issuance of our Common and
Series A Preferred Shares and Common Units in our Operating Partnership in
connection with acquisitions occurring during the later portion of 1998 and
during 1999.
22
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Our total revenues increased $10.6 million or 109%, of which $8.9 million
was generated by rental income and $1.7 million by tenant recoveries and other
income. Our growth in revenues was due primarily to our property acquisitions
occurring during the later portion of 1998 and in 1999, although revenues
increased $763,000 or 9% on the operations of office properties owned since the
beginning of July 1998 and $430,000 due to interest and real estate service
income, offset by a $548,000 decrease due to our Midwest region retail property
sales.
Our total expenses increased $7.6 million or 103% due mostly to the effects
of the increases in property operating, interest expense and amortization of
deferred financing costs, depreciation and other amortization and general and
administrative expenses described below.
Our property operating expenses increased $3.6 million or 146% due mostly
to our property acquisitions, although property operating expenses increased
$393,000 or 17% at office properties owned since the beginning of July 1998. Our
property operating expenses increased as a percentage of total revenue from 25%
to 30% due to more of our leases being written on a gross basis versus a net
basis. Our interest expense and amortization of deferred financing costs
increased $2.2 million or 74% due mostly to our borrowings and assumptions of
debt needed to finance property acquisitions, although a decrease of $244,000 is
attributable to our Midwest region retail property sales. Our depreciation and
other amortization expense increased $1.6 million or 104% due mostly to our
property acquisitions, although a decrease of $122,000 is attributable to our
Midwest region retail property sales.
Our general and administrative expenses increased $234,000 or 59%. Most of
this increase is due to the addition of management and other staffing functions
necessitated by our growing portfolio of properties and the desire to enhance
our organizational infrastructure to more efficiently meet tenant needs and
further the growth of the Company. Our general and administrative expenses
decreased as a percentage of total revenue from 4.0% to 3.1%.
As a result of the above factors, income before minority interests and
extraordinary item increased by $3.0 million, or 120%. Our income allocation to
minority interests increased $290,000 or 25%. Ownership of the Operating
Partnership by minority interests averaged 17% during the three months ended
September 30, 1999 versus 24% during the three months ended September 30, 1998.
Accordingly, the increase in income allocated to minority interests is due to
the increase in the Operating Partnership's net income, offset by the decreased
percentage of income allocated to minority interests.
Our net income available to Common Shareholders increased $1.7 million due
to the factors discussed above partially offset by a $1.1 million increase in
Preferred Share dividends. Our diluted earnings per Common Share increased $0.04
per share due to the effect of the increase in net income being proportionately
greater than the dilutive effects of the issuance of our Common and Series A
Preferred Shares and Common Units in our Operating Partnership in connection
with acquisitions occurring during the later portion of 1998 and during 1999.
LIQUIDITY AND CAPITAL RESOURCES
CAPITALIZATION AND LIQUIDITY
Cash provided from operations represents our primary source of liquidity to
fund shareholder and unitholder distributions, pay debt service and fund working
capital requirements. We expect to continue to use our property cash flow to
meet our short-term cash requirements, including all property expenses, general
and administrative expenses, debt service, distribution requirements and
recurring capital improvements and leasing commissions. We do not anticipate
borrowing to meet these requirements.
23
We have financed our property acquisitions using a combination of
borrowings secured by our properties and the equity issuances of Common and
Preferred Units in our Operating Partnership and Common and Preferred Shares. We
use our secured revolving credit facility with Deutsche Banc Alex. Brown (the
"Revolving Credit Facility") to finance much of our investing and financing
activities. We pay down our Revolving Credit Facility using proceeds from
long-term borrowings collateralized by our properties as attractive financing
conditions arise and equity issuances as attractive equity market conditions
arise. As of November 5, 1999, the maximum amount available under our Revolving
Credit Facility was $78.1 million, of which $23.4 million was unused.
Our debt strategy favors long-term, fixed-rate, secured debt over
variable-rate debt to minimize the risk of short-term increases in interest
rates. As of September 30, 1999, 85% of our mortgage loans payable balance
carried fixed interest rates.
Mortgage and other loans payable at September 30, 1999 consisted of the
following (dollars in thousands):
Term Credit Facility, 7.50%, maturing October 2000 (1) $ 100,000
TIAA Mortgage, 6.89%, maturing November 2008 83,813
TIAA Mortgage, 7.72%, maturing October 2006 60,000
Revolving Credit Facility, LIBOR + 1.75%, maturing May 2000 (2) 36,200
Allfirst Bank, LIBOR + 1.75%, maturing May 2002 12,360
Deutsche Banc Alex. Brown, LIBOR + 1.75%, maturing November 1999 (3) 10,000
Provident Bank of Maryland, LIBOR + 1.75%, maturing February 2001 (4) 7,233
Aegon USA Realty Advisors, Inc., 8.29%, maturing May 2007 6,255
Allfirst Bank, LIBOR + 1.6%, maturing February 2001 (5) 6,179
Mellon Bank, yield on 5-year Treasury Securities
plus 2%, maturing August 2005 (6) 4,304
IDS Life Insurance Company, 8.375%, maturing June 2007 (3) 3,055
Provident Bank of Maryland, LIBOR + 1.75%, maturing September 2000 2,845
Northern Life Insurance Company, 8%, maturing February 2014 2,497
Seller mortgage, lesser of Prime + 0.5% or 9.38%, maturing May 2007 1,875
Bank of Maryland, LIBOR + 1.75%, maturing October 2001 (7) 27
----------
$ 336,643
----------
----------
- -----------------------
(1) May be extended for two one-year periods, subject to certain conditions.
(2) May be extended for a one-year period, subject to certain conditions.
(3) Balance repaid on November 4, 1999 using proceeds from the Revolving Credit
Facility.
(4) Construction loan with a total commitment of $10,875. Loan may be extended
for a one-year period, subject to certain conditions.
(5) Construction loan with a total commitment of $9,825. Loan may be extended
for a one-year period, subject to certain conditions.
(6) Construction loan with a total commitment of $4,549.
(7) Construction loan with a total commitment of $7,400. Loan may be extended
for a one-year period, subject to certain conditions.
In June 1999, we sold an office building and assigned our rights to
purchase two office buildings to an unrelated third party. Simultaneously with
these transactions, we entered into a contract with the third party under which
the third party has the right to transfer these three office buildings to us on
or before March 31, 2000 for total consideration of approximately $40.5 million.
Under the terms of the contract, we would pay up to $25.0 million (but in no
event less than $23.9 million) of the acquisition price in Convertible Preferred
Units in the Operating Partnership and the balance in cash or debt assumption.
We would also issue ten-year detachable warrants exercisable for an additional
number of Common Units in the Operating Partnership to be determined based upon
the share price of the Common Shares over the first five years following the
acquisition. However, if the price of our Common Shares used to determine the
additional number of Common Units equals or exceeds $14.21, no warrants will be
issuable.
24
The Convertible Preferred Units issuable under the terms of the contract
will be entitled to a 9% priority annual return for the first ten years
following issuance, 10.5% for the five following years and 12% thereafter. The
Convertible Preferred Units are convertible, subject to certain restrictions,
commencing one year after their issuance into Common Units in the Operating
Partnership on the basis of 2.381 Common Units for each Convertible Preferred
Unit, plus any accrued return. The Common Units are exchangeable for Common
Shares, subject to certain conditions. The Convertible Preferred Units also
carry a liquidation preference of $25.00 per unit, plus any accrued return, and
may be redeemed for cash by the Operating Partnership at any time after the
tenth anniversary of their issuance.
We are also under contract to purchase two office buildings totaling
198,391 square feet and a parcel of land located in Linthicum, Maryland for
$25.8 million.
We have no other contractual obligations for property acquisitions or
material capital costs other than the October property acquisitions discussed
below, the completion of the four development projects discussed below and
tenant improvements and leasing costs in the ordinary course of business. We
expect to meet our long-term capital needs through a combination of cash from
operations, additional borrowings and additional equity issuances of Common
Shares, Preferred Shares, Common Units and/or Preferred Units. We have an
effective Form S-3 shelf registration statement on file with the Securities and
Exchange Commission under which we may sell up to $218.8 million in debt or
equity securities depending upon our needs and market conditions.
INVESTING AND FINANCING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
During the nine months ended September 30, 1999, we acquired 15 operating
properties, four parcels of land and a warehouse facility to undergo
redevelopment for an aggregate acquisition cost of $61.2 million. Of the 15
operating properties acquired, 11 are located in the Baltimore/Washington
Corridor, one in New Jersey and three in Pennsylvania. The four land parcels
acquired are located in the Baltimore/Washington Corridor and the warehouse
facility is located in New Jersey. The operating property acquisitions increased
our rentable square footage by 534,000. These acquisitions were financed by:
- using $41.3 million in borrowings under our Revolving Credit Facility,
- assuming $9.9 million in mortgage and other loans,
- issuing 377,251 Common Units in our Operating Partnership,
- applying $1.6 million outstanding receivable balance towards a
purchase, and
- using cash reserves for the balance.
During the nine months ended September 30, 1999, we completed construction
of a 93,482 square foot office building located in Annapolis Junction, Maryland.
Costs incurred on this property through September 30, 1999 totaled $9.2 million.
We entered into a $9.8 million construction loan for this project $6.2 million
of which was borrowed through September 30, 1999. We also completed an expansion
project that increased the rentable square footage of one of our properties by
6,350 square feet.
As of September 30, 1999, we also had construction underway on an aggregate
of 347,745 square feet of new office space that was 87% pre-leased at our
Woodlands II, 132 National Business Parkway, Airport Square 15 and 68 Culver
Road properties. We entered into $18.3 million in construction loans during this
period to finance the construction of two of these projects. Borrowings under
these loans totaled $7.3 million at September 30, 1999.
During the nine months ended September 30, 1999, we sold eight properties
for $52.2 million, of which $20.9 million was used to pay off the mortgage loans
payable on the properties. We realized a gain of $1.1 million on the sales of
these properties, including the value of the transaction involving Glacier (see
Note 12 to the Consolidated Financial Statements). Net proceeds from these sales
totaled $30.0 million, $24.3 million of which was used to repay a portion of our
Revolving Credit Facility and the remainder was applied to working capital.
25
On March 19, 1999, our Operating Partnership issued 200,000 Common Units in
exchange for all of the ownership interests in Glacier. For accounting purposes,
we recorded the value of this transaction against the gain on the sale of our
retail properties in the Midwest region of the United States (see Note 12 to the
Consolidated Financial Statements).
On April 8, 1999, we obtained a $12.5 million mortgage loan payable from
Allfirst Bank, $9.0 million of which is nonrecourse. The loan provides for
monthly payments of interest, at a rate of LIBOR plus 1.75%, and principal of
$23,000 in the loan's first year, $25,000 in the second year and $27,000 in the
third year. The loan matures on May 1, 2002. This loan is collateralized by
three of our operating properties and one parcel of land. The proceeds from this
loan were used to pay down our Revolving Credit Facility.
On April 16, we assumed three nonrecourse mortgage loans payable in
connection with the acquisition of the Parkway Crossing Properties. One of these
loans is with IDS Life Insurance Company. This loan has a balance of $3.2
million, bears interest at a fixed rate of 8.375% and provides for monthly
principal and interest payments of $44,000. This loan was repaid on November 4,
1999 using proceeds from the Revolving Credit Facility. We also assumed two
loans with the seller totaling $1.9 million that carry identical terms. These
loans provide for monthly payments of interest at a rate equal to the lesser of
prime plus 0.5% (currently 8.75%) or 9.38% plus fixed principal payments of
$4,000. These loans mature on May 25, 2007.
On May 5, 1999, we obtained a $10.0 million loan from Deutsche Banc Alex.
Brown. The loan bears interest at a rate of LIBOR plus 1.75% and provides for
monthly payments of interest only. The proceeds from this loan were used to pay
down our Revolving Credit Facility. This loan was repaid on November 4, 1999
using proceeds from our Revolving Credit Facility.
In July 1999, we completed the sale of 1,250,000 Series B Preferred Shares
to the public at a price of $25.00 per share. These shares are nonvoting (except
in limited circumstances) and are redeemable for cash at $25.00 per share plus
accrued and unpaid dividends at our option on or after July 15, 2004. Holders of
these shares are entitled to cumulative dividends, payable quarterly (as and if
declared by the Board of Trustees). Dividends accrue from the date of issue at
the annual rate of $2.50 per share, which is equal to 10% of the $25.00 per
share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. Our Operating
Partnership used most of the proceeds to pay down our Revolving Credit Facility.
The Series B Preferred Units carry terms that are substantially the same as the
Series B Preferred Shares.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares.
On August 12, 1999, we assumed a $4.5 million construction loan with Mellon
Bank in connection with the Gateway Central acquisition. The loan bears interest
at a rate equal to the yield on 5-year Treasury Securities plus 2.0% (currently
7.97%). The loan provides for monthly payments of interest only through August
2000 and equal monthly payments of principal and interest based on a 30-year
amortization period commencing September 2000. The loan matures on August 1,
2005. Borrowings under this loan totaled $4.3 million as of September 30, 1999.
On September 9, 1999, we entered into a $7.4 million construction loan with
Bank of Maryland to finance the construction of a building at our Airport Square
XV property. This loan has an interest rate of LIBOR plus 1.75%. This loan
matures on October 1, 2001 and may be extended for a one-year period, subject to
certain conditions. Borrowings under this loan totaled $27,000 at September 30,
1999.
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership, a newly organized joint venture, for $3.0 million. On the
same day, the joint venture acquired nine office buildings located in Greater
Harrisburg, Pennsylvania for $39.9 million using cash and proceeds from a $34.2
million loan payable to our Operating Partnership. This loan payable is
evidenced by notes that carry an interest rate of 10% through their maturity
date of September 14, 2000. We financed the investment and the loan using $36.2
million in borrowings under our Revolving Credit Facility and cash reserves for
the balance.
26
On September 30, 1999, we obtained a $60.0 million mortgage loan payable
from Teachers Insurance and Annuity Association of America. This loan carries a
fixed interest rate of 7.72% and provides for monthly payments of principal and
interest of $452,000. The loan matures on October 1, 2006 and may not be prepaid
prior to April 1, 2003. The loan is collaterized by 13 of our properties.
INVESTING AND FINANCING ACTIVITIES SUBSEQUENT TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999:
On October 20, 1999, we received $492,000 from Deutsche Banc Alex. Brown in
exchange for the termination of our interest rate swap agreement.
On October 22, 1999, we acquired a parcel of land located in Annapolis
Junction, Maryland. We acquired this land for $2.9 million using borrowings
under our Revolving Credit Facility.
On October 26, 1999, we entered into a $12.4 million construction loan with
Allfirst Bank to finance the construction of a building at our 132 National
Business Parkway property. This loan has an interest rate of LIBOR plus 1.75%.
This loan matures on October 1, 2001 and may be extended for a one-year period,
subject to certain conditions.
STATEMENT OF CASH FLOWS
We generated net cash flow from operating activities of $21.3 million for
the nine months ended September 30, 1999, an increase of $13.8 million from the
nine months ended September 30, 1998. Our increase in cash flows from operating
activities is due mostly to income generated from our newly acquired properties.
Our net cash flow used in investing activities for the nine months ended
September 30, 1999 decreased $19.3 million from the nine months ended September
30, 1998 due mostly to the $26.3 million decrease in cash outlays associated
with purchases of and improvements to real estate properties during the period
and $30.0 million in proceeds generated from sales of our rental properties,
offset by $37.2 million invested in an unconsolidated real estate joint venture.
Our net cash flow provided by financing activities for the nine months ended
September 30, 1999 decreased $33.0 million from the nine months ended September
30, 1998 due primarily to $72.2 million from the issuance of Common Shares in
the prior period, $128.4 million in additional repayments of mortgage and other
loans payable and $8.7 million in additional dividend and distribution payments,
offset by $144.3 million in additional proceeds from mortgage and other loans
payable and $29.5 million from the issuance of our Series B Preferred Shares.
FUNDS FROM OPERATIONS
We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using generally
accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Further, if the conversion of securities into common shares is
dilutive, we exclude any GAAP income allocated to these securities in computing
FFO. The FFO we present may not be comparable to the FFO of other REITs since
they may interpret the current NAREIT definition of FFO differently or they may
not use the current NAREIT definition of FFO. FFO is not the same as cash
generated from operating activities or net income determined in accordance with
GAAP. FFO is not necessarily an indication of our cash flow available to fund
cash needs. Additionally, it should not be used as an alternative to net income
when evaluating our financial performance or to cash flow from operating,
investing and financing when evaluating our liquidity or ability to make cash
distributions or pay debt service. Our FFO for the nine months ended September
30, 1999 and 1998 are summarized in the following table:
27
(Dollars and shares for this table are in thousands)
------------------------------------------------------
For the three months For the nine months ended
ended September 30, September 30,
--------------------- -------------------------
1999 1998 1999 1998
-------- ------- --------- --------
Income before minority interests and extraordinary
item.............................................. $5,490 $ 2,493 $ 16,303 $ 5,041
Add: Real estate related depreciation and
amortization...................................... 3,073 1,502 8,719 3,743
Add: Nonrecurring charges - Reformation costs....... -- -- -- 637
Less: Preferred Unit distributions.................. (853) (853) (2,559) (2,559)
Less: Preferred Share dividends..................... (1,060) (10) (1,736) (10)
Less: Gain on sales of rental properties............ -- -- (1,140) --
------ ------- -------- -------
Funds from operations............................... 6,650 3,132 19,587 6,852
Add: Preferred Unit distributions................... 853 853 2,559 2,559
Add: Preferred Share dividends..................... 339 10 1,015 10
------ ------- -------- -------
Funds from operations assuming conversion of
Preferred Units and Preferred Shares.............. 7,842 3,995 23,161 9,421
Less: Straight line rent adjustments............... (634) (341) (2,134) (1,083)
Less: Recurring capital improvements............... (643) (34) (1,790) (34)
------ ------- -------- -------
Adjusted funds from operations assuming conversion of
Preferred Units and Preferred Shares.............. $6,565 $ 3,620 $ 19,237 $ 8,304
------ ------- -------- -------
------ ------- -------- -------
Weighted average Common Shares...................... 17,037 9,973 16,881 6,651
Conversion of weighted average Common Units......... 3,068 2,582 3,012 2,582
------ ------- -------- -------
Weighted average Common Shares/Units................ 20,105 12,555 19,893 9,233
Assumed conversion of share options................. 18 11 9 86
Conversion of weighted average Preferred Shares..... 1,845 52 1,845 18
Conversion of weighted average Preferred Units...... 7,500 7,500 7,500 7,500
------ ------- -------- -------
Weighted average Common Shares/Units assuming
conversion of Preferred Units and Preferred Shares 29,468 20,118 29,247 16,837
------ ------- -------- -------
------ ------- -------- -------
INFLATION
We have not been significantly impacted by inflation during the periods
presented in this report. This is mostly because of the relatively low inflation
rates in our markets. Most of our tenants are contractually obligated to pay
their share of operating expenses, thereby reducing exposure to increases in
such costs resulting from inflation.
IMPACT OF THE YEAR 2000 ISSUE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, this could result in a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions, prepare financial statements, send invoices
or engage in similar normal business activity.
Our accounting software system was certified as Year 2000 compliant by its
manufacturer. Our information technology and accounting groups also completed an
internal test of our accounting software to ensure compliance. No problems were
noted during this testing process. Accordingly, we do not anticipate problems in
processing the billing and collection of revenue, paying of expenditures,
recording of financial transactions, preparing financial statements and
maintaining and generating system driven managerial information. Our
28
accounting department has developed a plan that will enable a certain amount of
manual processing to take place in the unlikely event that problems arise with
our accounting software.
Our property management team has been continually evaluating the impact of
the Year 2000 Issue on the various facets of property operating systems since
the beginning of 1998, including the telecommunication, security, energy
management, sprinkler and elevator systems. This evaluation process was
completed in the second quarter of 1999. Based on the results of this evaluation
process, we do not anticipate any material adverse consequences on property
operations. Our property management team has alternative plans in place to
address unexpected problems that may arise with the property operating systems.
Additional property management staff will also be on-call to respond to any such
problems beginning January 1, 2000.
We rely on third party suppliers for a number of key services. Interruption
of supplier operations due to the Year 2000 Issue could affect our operations.
After contacting our significant suppliers regarding their Year 2000 readiness,
our property management team does not anticipate any material adverse
consequences relating to these suppliers' abilities to support our properties.
Our property management team plans to continue its efforts to obtain additional
written assurance from material suppliers to support representations provided
regarding their Year 2000 readiness. The team also completed the documentation
of our contingency plans in the unlikely event that certain suppliers are
adversely impacted by the Year 2000 Issue.
We are dependent upon our tenants for revenue and cash flow. Interruptions
in tenant operations due to the Year 2000 Issue could result in reduced revenue,
increased receivable levels and cash flow reductions. To address this concern,
our property management team solicited responses from certain of our significant
tenants regarding their Year 2000 readiness. We also reviewed Year 2000
disclosures provided by certain of our significant tenants required to report to
the Securities and Exchange Commission. All tenants responding to our
solicitation were in the advanced stages of addressing the Year 2000 Issue; this
was also the case with all of the tenants included in our review of Year 2000
disclosures reported in filings by such tenants to the Securities and Exchange
Commission. The tenants included in our analysis represent 58% of our monthly
contractual base rents as of September 30, 1999 multiplied by 12 plus estimated
annualized expense reimbursements.
Despite our efforts described above, given the nature of the Year 2000
Issue, there can be no assurance that we will be able to identify and correct
all possible aspects. However, based on all information available to us, we
believe that we have addressed all areas where the Year 2000 Issue could
materially impact our Company's business. Based on information currently
available from our internal assessment, we do not expect significant incremental
costs associated with our Year 2000 activities during 1999. We will also
continue to evaluate Year 2000 issues for all future property acquisitions and
development.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks associated with our financial
instruments, the most predominant of which is changes in interest rates.
Increases in interest rates can result in increased interest expense under our
Revolving Credit Facility and our other loans payable carrying variable interest
rate terms. Increases in interest rates can also result in increased interest
expense when our loans payable carrying fixed interest rate terms mature and
need to be refinanced.
29
The following table sets forth our long-term debt obligations, principal
cash flows by scheduled maturity, weighted average interest rates and estimated
fair market value ("FMV") at September 30, 1999 (dollars in thousands):
For the Year Ended December 31,
----------------------------------------------------------------
1999 2000 (2) 2001 2002 (3) 2003 Thereafter Total FMV
- ----------------------------------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate (1) $ 526 132,834 $ 3,048 $ 3,279 $ 3,526 $ 142,407 $ 285,620 $278,655
Average interest rate 7.46% 6.95% 7.42% 7.42% 7.42% 7.30% 7.15%
Variable rate $10,075 $ 9,364 $ 389 $25,249 $ 88 $ 5,858 $ 51,023 $ 51,023
Average interest rate 7.13% 7.19% 7.39% 7.09% 8.36% 8.20% 7.25%
- -----------------------
(1) Includes $30.0 million balance governed by a swap agreement that fixes the
LIBOR rate on the underlying loan to 5.085%.
(2) Includes $100.0 million maturity in October that may be extended for
two one-year terms, subject to certain conditions. Also includes
$32.6 million maturity in May that may be extended for a one-year
period, subject to certain conditions.
(3) Includes $13.4 million for 3 construction loans maturing that may be
extended for a one-year period, subject to certain conditions.
Based on our variable rate debt balances during the nine months ended
September 30, 1999, our interest expense would have increased $492,000 if
interest rates were 1% higher.
PART II
ITEM 1. LEGAL PROCEEDINGS
We are not currently involved in any material litigation nor, to the best
of our knowledge, is any material litigation currently threatened against us
(other than routine litigation arising in the ordinary course of business,
substantially all of which is expected to be covered by liability insurance).
ITEM 2. CHANGES IN SECURITIES
a. None
b. None
c. On July 9, 1999, we issued 50,476 Common Units in our Operating
Partnership in connection with the acquisition of a warehouse facility
located in South Brunswick, New Jersey. The issuance of these Common Units is
exempt from registration under Section 4 (2) of the Securities Act of 1933,
as amended. These Common Units are exchangeable into our Common Shares,
subject to certain conditions.
On August 4, 1999, 372,295 of our Common Units were converted to Common
Shares. The issuance of these Common Shares is exempt from registration
under Section 4 (2) of the Securities Act of 1933, as amended.
d. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated January 31, 1998,
among the Registrant, the Maryland Company and the Company
(filed with the Trust's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
2.2 Assignment of Partnership Interests, dated April 30, 1998,
between Airport Square Limited Partnership, Airport Square
Corporation, Camp Meade Corporation and COPT Airport
Square One LLC and COPT Airport Square Two LLC. (filed
with the Company's Current Report on Form 8-K on May 14,
1998 and incorporated herein by reference).
2.3 Assignment of Purchase and Sale Agreement, dated April 30,
1998, between Aetna Life Insurance Company and the
Operating Partnership. (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
2.4 Assignment of Loan Purchase and Sale Agreement, dated
April 30, 1998, between Constellation Real Estate, Inc. and
the Operating Partnership. (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
2.5 Purchase and Sale Agreement, dated April 1, 1998, between
Aetna Life Insurance Company and Airport Square Limited
Partnership (filed with the Company's Current Report on
Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.1 Loan Purchase and Sale Agreement, dated March 13, 1998,
between Aetna Life Insurance Company and Constellation
Real Estate, Inc. (filed with the Company's Current Report
on Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.2 Amendment to Loan Purchase and Sale Agreement, dated April
16, 1998, between Aetna Life Insurance Company and
Constellation Real Estate, Inc. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
2.7.1 Purchase and Sale Agreement, dated March 4, 1998, between
695 Rt. 46 Realty, LLC, 710 Rt. 46 Realty, LLC and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on June 10, 1998 and incorporated
herein by reference).
2.7.2 Letter Amendment to Purchase and Sale Agreement, dated
March 26, 1998, between 695 Rt. 46 Realty, LLC, 710 Rt. 46
Realty, LLC and COPT Acquisitions, Inc. (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
2.8.1 Contribution Agreement between the Company and the
Operating Partnership and certain Constellation affiliates
(filed as Exhibit A of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
31
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
2.8.2 First Amendment to Contribution Agreement, dated July 16,
1998, between Constellation Properties, Inc. and certain
entities controlled by Constellation Properties, Inc.
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.8.3 Second Amendment to Contribution Agreement, dated
September 28, 1998, between Constellation Properties, Inc.
and certain entities controlled by Constellation
Properties, Inc. (filed with the Company's Current Report
on Form 8-K on October 13, 1998 and incorporated herein by
reference).
2.9 Service Company Asset Contribution Agreement between the
Company and the Operating Partnership and certain
Constellation affiliates (filed as Exhibit B of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.10.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and NBP-III, LLC (a Constellation
affiliate) (filed as Exhibit C of the Company's Schedule
14A Information on June 26, 1998 and incorporated herein
by reference).
2.10.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and NBP-III, LLC (a
Constellation affiliate) (filed as Exhibit E of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and Constellation Gatespring II, LLC
(a Constellation affiliate) (filed as Exhibit D of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and Constellation
Gatespring II, LLC (a Constellation affiliate) (filed as
Exhibit F of the Company's Schedule 14A Information on
June 26, 1998 and incorporated herein by reference).
2.12 Option Agreement, dated September 28, 1998, between Jolly
Acres Limited Partnership, Arbitrage Land Limited
Partnership and the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
2.13 Right of First Refusal Agreement, dated September 28,
1998, between Constellation Properties, Inc. and the
Operating Partnership (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
2.14 Right of First Refusal Agreement, dated September 28,
1998, between 257 Oxon, LLC and the Operating Partnership
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.15 Development Property Acquisition Agreement, dated May 14,
1998, between the Operating Partnership and CPI Piney
Orchard Village Center, Inc. (a Constellation affiliate)
(filed as Exhibit H of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
32
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
2.16 Contribution Agreement, dated September 30, 1998, between
COPT Acquisitions, Inc. and M.O.R. XXIX Associates Limited
Partnership (filed with the Company's Current Report on Form
8-K on October 28, 1998 and incorporated herein by
reference).
2.17 Purchase and Sale Agreement, dated September 30, 1998,
between New England Life Pension Properties II: A Real
Estate Limited Partnership and COPT Acquisitions, Inc.
(filed with the Company's Current Report on Form 8-K on
October 28, 1998 and incorporated herein by reference).
2.18.1 Sale-Purchase Agreement, dated August 20, 1998 between
South Middlesex Industrial Park Associates, L.P. and SM
Monroe Associates and COPT Acquisitions, Inc. (filed with
the Company's Current Report on Form 8-K on October 28,
1998 and incorporated herein by reference).
2.18.2 First Amendment to Sale-Purchase Agreement, dated October
30, 1998, between South Middlesex Industrial Park
Associates, L.P. and SM Monroe Associates, L.P. and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on November 16, 1998 and incorporated
herein by reference).
2.19 Contribution Agreement, dated December 31, 1998, between
the Operating Partnership and M.O.R. 44 Gateway Associates
L.P., RA & DM, Inc. and M.R.U. L.P. (filed with the
Company's Current Report on Form 8-K on January 14, 1999 and
incorporated herein by reference).
2.20.1 Purchase and Sale Agreement, dated December 31, 1998,
between Metropolitan Life Insurance Company and Corporate
Office Acquisitions, Inc. (filed with the Company's
Current Report on Form 8-K on January 14, 1999 and
incorporated herein by reference).
2.20.2 Amendment to Purchase and Sale Agreement, dated December
31, 1998, between Metropolitan Life Insurance Company,
DPA/Gateway L.P., Corporate Office Acquisitions, Inc.,
COPT Gateway, LLC and the Operating Partnership (filed
with the Company's Current Report on Form 8-K on January
14, 1999 and incorporated herein by reference).
2.21 Contribution Agreement, dated February 24, 1999, between
the Operating Partnership and John Parsinen, John D.
Parsinen, Jr., Enterprise Nautical, Inc. and Vernon Beck
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
2.22 Agreement to Sell Partnership Interests, dated August 12,
1999, between Gateway Shannon Development Corporation,
Clay W. Hamlin, III and COPT Acquisitions, Inc.
2.23 Agreement of Purchase and Sale, dated July 21, 1999,
between First Industrial Financing Partnership, L.P. and
COPT Acquisitions, Inc.
3.1 Amended and Restated Declaration of Trust of Registrant
(filed with the Registrant's Registration Statement on Form
S-4 (Commission File No. 333-45649) and incorporated herein
by reference).
3.2 Bylaws of Registrant (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).
33
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
4.1 Form of certificate for the Registrant's Common Shares of
Beneficial Interest, $0.01 par value per share (filed with
the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
4.2 Amended and Restated Registration Rights Agreement, dated
March 16, 1998, for the benefit of certain shareholders of
the Company (filed with the Company's Quarterly Report on
Form 10-Q on August 12, 1998 and incorporated herein by
reference).
4.3 Articles Supplementary of Corporate Office Properties
Trust Series A Convertible Preferred Shares, dated September
28, 1998 (filed with the Company's Current Report on Form
8-K on October 13, 1998 and incorporated herein by
reference).
4.4.1 Amended and Restated Limited Partnership Agreement of the
Operating Partnership, dated March 16, 1998 (filed with
the Company's Quarterly Report on Form 10-Q on August 12,
1998 and incorporated herein by reference).
4.4.2 First Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
September 28, 1998 (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
4.4.3 Second Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
October 13, 1998 (filed with the Company's Current Report
on Form 8-K on October 28, 1998 and incorporated herein by
reference).
4.4.4 Third Amendment to Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
December 31, 1998 (filed with the Company's Current Report
on Form 8-K on January 14, 1999 and incorporated herein by
reference).
4.5 Registration Rights Agreement, dated September 28, 1998,
for the benefit of certain shareholders of the Company
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
4.6 Articles Supplementary of Corporate Office Properties
Trust Series B Convertible Preferred Shares, dated July 2,
1999 (filed with the Company's Current Report on Form 8-K on
July 7, 1999 and incorporated herein by reference).
10.1 Clay W. Hamlin III Employment Agreement, dated October 14,
1997, with the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 29, 1997,
and incorporated herein by reference).
10.2 Employment Agreement, dated October 20, 1997, between the
Operating Partnership and Thomas D. Cassel (filed with the
Company's Annual Report on Form 10-K on March 25, 1998 and
incorporated herein by reference).
10.3 Employment Agreement, dated September 28, 1998, between
Corporate Office Management, Inc. and Randall M. Griffin
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
10.4 Employment Agreement, dated September 28, 1998, between
Corporate Office Management, Inc. and Roger A. Waesche, Jr.
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
34
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
10.5 Management Agreement between Registrant and Glacier
Realty, LLC (filed with the Company's Current Report on Form
8-K on October 29, 1997, and incorporated herein by
reference).
10.6 Senior Secured Credit Agreement, dated October 13, 1997,
(filed with the Company's Current Report on Form 8-K on
October 29, 1997, and incorporated herein by reference).
10.7.1 Corporate Office Properties Trust 1998 Long Term Incentive
Plan (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.7.2 Amendment No. 1 to Corporate Office Properties Trust 1998
Long Term Incentive Plan (filed with the Company's
Quarterly Report on Form 10-Q on August 13, 1999 and
incorporated herein by reference).
10.8 Stock Option Plan for Directors (filed with Royale
Investments, Inc.'s Form 10-KSB for the year ended
December 31, 1993 (Commission File No. 0-20047) and
incorporated herein by reference).
10.9 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation dated March 12, 1997 with respect
to lot A (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.10 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot B (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
10.11 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot C (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
10.12 Senior Secured Revolving Credit Agreement, dated May 28,
1998, between the Company, the Operating Partnership, Any
Mortgaged Property Subsidiary and Bankers Trust Company
(filed with the Company's Current Report on Form 8-K on
June 10, 1998 and incorporated herein by reference).
10.13 Secured Promissory Note, dated April 29, 1997, between 710
Rt. 46 Realty, LLC and Life Investors Insurance Company of
America (filed with the Company's Current Report on Form
8-K on June 10, 1998 and incorporated herein by
reference).
10.14 Mortgage and Security Agreement, dated April 29, 1997,
between 710 Rt. 46 Realty, LLC and Life Investors Insurance
Company of America (filed with the Company's Current Report
on Form 8-K on June 10, 1998 and incorporated herein by
reference).
10.15 Amended and Restated Deed of Trust Note, dated October 6,
1995, between Cranberry-140 Limited Partnership and
Security Life of Denver Insurance Company (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
35
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
10.16.1 Promissory Note, dated September 15, 1995, between Tred
Lightly Limited Liability Company and Provident Bank of
Maryland (filed with the Company's Current Report on Form
8-K on October 13, 1998 and incorporated herein by
reference).
10.16.2 Allonge to Promissory Note, dated September 28, 1998,
between Tred Lightly Limited Liability Company and
Provident Bank of Maryland (filed with the Company's
Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.17.1 Third Loan Modification and Extension Agreement, dated
November 12, 1997, between St. Barnabus Limited Partnership,
Constellation Properties, Inc. and NationsBank, N.A. (filed
with the Company's Current Report on Form 8-K on October 13,
1998 and incorporated herein by reference).
10.17.2 Fourth Loan Modification Agreement, dated September 28, 1998,
between St. Barnabus Limited Partnership, Constellation
Properties, Inc. and NationsBank, N.A. (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.18.1 Deed of Trust Note, dated September 20, 1988, between
Brown's Wharf Limited Partnership and Mercantile-Safe
Deposit and Trust Company (filed with the Company's
Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.18.2 Extension Agreement and Allonge to Deed of Trust Note,
dated July 1, 1994, between Brown's Wharf Limited
Partnership and Mercantile-Safe Deposit and Trust Company
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
10.19 Consulting Services Agreement, dated April 28, 1998,
between the Company and Net Lease Finance Corp., doing
business as Corporate Office Services (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.20 Project Consulting and Management Agreement, dated September 28, 1998,
between Constellation Properties, Inc. and COMI (filed with
the Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.21 Promissory Note, dated October 22, 1998, between Teachers Insurance
and Annuity Association of America and the Operating
Partnership (filed with the Company's Quarterly Report on
Form 10-Q on November 13, 1998 and incorporated herein by
reference).
10.22 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated October 22, 1998, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America
(filed with the Company's Quarterly Report on Form 10-Q on
November 13, 1998 and incorporated herein by reference).
10.23 Agreement for Services, dated September 28, 1998, between the
Company and Corporate Office Management, Inc. (filed with
the Company's Quarterly Report on Form 10-Q on May 14, 1999
and incorporated herein by reference).
10.24.1 Lease Agreement, dated September 28,1998, between St.
Barnabus Limited Partnership and Constellation Properties,
Inc. (filed with the Company's Quarterly Report on Form
10-Q on May 14, 1999 and incorporated herein by
reference).
36
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------------------
10.24.2 First Amendment to Lease, dated December 31, 1998, between
St. Barnabus, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.25.1 Lease Agreement, dated August 3, 1998, between Constellation
Real Estate, Inc. and Constellation Properties, Inc. (filed
with the Company's Quarterly Report on Form 10-Q on May 14,
1999 and incorporated herein by reference).
10.25.2 First Amendment to Lease, dated December 30, 1998, between
Three Centre Park, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.26.1 Lease Agreement, dated April 27, 1993, between
Constellation Properties, Inc. and Baltimore Gas and
Electric Company (filed with the Company's Quarterly
Report on Form 10-Q on May 14, 1999 and incorporated
herein by reference).
10.26.2 First Amendment to Lease, dated December 9, 1998, between
COPT Brandon, LLC and Baltimore Gas and Electric Company
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.27 Underwriting Agreement, dated June 29, 1999, between Corporate
Office Properties Trust and the underwriters of the Series B
Preferred Shares (filed with the Company's Current Report on
Form 8-K on July 7, 1999 and incorporated herein by
reference).
10.28 Contribution Rights Agreement, dated June 23, 1999,
between the Operating Partnership and United Properties
Group, Incorporated (filed with the Company's Quarterly
Report on Form 10-Q on August 13, 1999 and incorporated
herein by reference).
10.29 Promissory Note, dated September 30, 1999, between
Teachers Insurance and Annuity Association of America and
the Operating Partnership.
10.30 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated September 30, 1999, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America.
27 Financial Data Schedule.
37
c. Reports on Form 8-K
We filed the following Current Reports on Form 8-K in the three months ended
September 30, 1999:
Item 5 dated July 6, 1999 in connection with our Series B Preferred Share
offering.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date: November 8, 1999 By: /s/ Randall M. Griffin
-------------------------
Randall M. Griffin
President and Chief Operating
Officer
Date: November 8, 1999 By: /s/ Roger A. Waesche, Jr.
----------------------------
Roger A. Waesche, Jr.
Senior Vice President and Chief
Financial Officer
38