UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K



(Mark one)    

ý

 

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

For the fiscal year ended December 31, 2009

or

o

 

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

For the transition period from                                    to                                   

Commission file number 1-14023

GRAPHIC

Corporate Office Properties Trust
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)
  23-2947217
(IRS Employer Identification No.)

6711 Columbia Gateway Drive, Suite 300
Columbia, MD

(Address of principal executive offices)

 

21046
(Zip Code)

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



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

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

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

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý Yes    o No

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes    ý No

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes    o No

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes    o No

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

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

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) o Yes    ý No

          The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was approximately $1.7 billion, as calculated using the closing price of the common shares of beneficial interest on the New York Stock Exchange and our outstanding shares as of June 30, 2009. For purposes of calculating this amount only, affiliates are defined as Trustees, executive owners and beneficial owners of more than 10% of the registrant's outstanding common shares of beneficial interest, $0.01 par value. At January 29, 2010, 58,385,958 of the registrant's common shares of beneficial interest were outstanding.

          Portions of the annual shareholders' report of the registrant for the year ended December 31, 2009 are incorporated by reference into Parts I and II of this Form 10-K and portions of the proxy statement of the registrant for its 2010 Annual Meeting of Shareholders to be filed within 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10-K.


Table of Contents

Table of Contents
Form 10-K

PART I

       
 

ITEM 1.

 

BUSINESS

  4
 

ITEM 1A.

 

RISK FACTORS

  9
 

ITEM 1B.

 

UNRESOLVED STAFF COMMENTS

  20
 

ITEM 2.

 

PROPERTIES

  21
 

ITEM 3.

 

LEGAL PROCEEDINGS

  36
 

ITEM 4.

 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  37

PART II

       
 

ITEM 5.

 

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 
38
 

ITEM 6.

 

SELECTED FINANCIAL DATA

  40
 

ITEM 7.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  42
 

ITEM 7A.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  73
 

ITEM 8.

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  74
 

ITEM 9.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  74
 

ITEM 9A.

 

CONTROLS AND PROCEDURES

  74
 

ITEM 9B.

 

OTHER INFORMATION

  75

PART III

       
 

ITEM 10.

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 
76
 

ITEM 11.

 

EXECUTIVE COMPENSATION

  76
 

ITEM 12.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  76
 

ITEM 13.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  76
 

ITEM 14.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

  76

PART IV

       
 

ITEM 15.

 

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 
76

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FORWARD-LOOKING STATEMENTS

        This Form 10-K 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 and operations of our business. Forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "estimate," "plan" or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:

        For further information on factors that could affect the company and the statements contained herein, you should refer to the section below entitled "Item 1A. Risk Factors." We undertake no obligation to update or supplement forward-looking statements.

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PART I

Item 1.    Business

OUR COMPANY

        General.    We are a specialty office real estate investment trust ("REIT") that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of December 31, 2009, our investments in real estate included the following:

        We conduct almost all of our operations through our operating partnership, Corporate Office Properties, L.P. (the "Operating Partnership"), a Delaware limited partnership, of which we are the managing general partner. The Operating Partnership owns real estate both directly and through subsidiaries. The Operating Partnership also owns 100% of a number of entities that provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties, but also for third parties.

        Interests in our Operating Partnership are in the form of common and preferred units. As of December 31, 2009, we owned 91.7% of the outstanding common units and 95.8% of the outstanding preferred units in our Operating Partnership. The remaining common and preferred units in our Operating Partnership were owned by third parties, which included certain of our Trustees.

        We believe that we are organized and have operated in a manner that permits us to satisfy the requirements for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and we intend to continue to operate in such a manner. If we qualify for taxation as a REIT, we generally will not be subject to Federal income tax on our taxable income that is distributed to our shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute to its shareholders at least 90% of its annual taxable income (excluding net capital gains).

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

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        Our Internet address is www.copt.com. We make available on our Internet website free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably possible after we file such material with the Securities and Exchange Commission (the "SEC"). In addition, we have made available on our Internet website under the heading "Corporate Governance" the charters for our Board of Trustees' Audit, Nominating and Corporate Governance and Compensation Committees, as well as our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics for Financial Officers. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics and Code of Ethics for Financial Officers within four business days after any such amendments or waivers. The information on our Internet site is not part of this report.

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

Significant 2009 Developments

        During 2009, we:

Business and Growth Strategies

        Our primary objectives are to achieve sustainable long-term growth in results of operations and to maximize long-term shareholder value. This section sets forth key components of our business and growth strategies that we have in place to support these objectives.

Business Strategies

        Customer Strategy:    We believe that we differentiate ourselves by being a real estate company that does not view space in properties as its primary commodity. Rather, we focus our operations on serving the needs of our customers and enabling them to be successful. This strategy includes a focus on establishing and nurturing long-term relationships with quality tenants and accommodating their multi-

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locational needs. It also includes a focus on providing a level of service that exceeds customer expectations both in terms of the quality of the space we provide and our level of responsiveness to their needs. In 2009, we won the CEL & Associates, Inc. award for quality service and tenant satisfaction among nationwide office operators in the large owner category for the sixth consecutive year. We believe that operating with such a consistent emphasis on service enables us to be the landlord of choice with high quality customers and contributes to high levels of customer loyalty and retention.

        Our focus on tenants in the United States Government, defense information technology and data sectors is another key aspect of our customer strategy. A high percentage of our revenue is derived from these customers, and we believe that we are well positioned for future growth through such customers for reasons that include the following:

        Market Strategy:    We focus on owning properties where our tenants want to be, which in the case of the United States Government and defense information technology customers is mostly near government demand drivers. We also concentrate our operations in markets and submarkets that are located where we believe we already possess, or can effectively achieve, the critical mass necessary to maximize management efficiencies, operating synergies and competitive advantages through our acquisition, property management, leasing and development activities. The attributes we look for in selecting markets and submarkets include, among others: (1) proximity to large demand drivers; (2) strong demographics; (3) attractiveness to high quality tenants; (4) potential for growth and stability in economic down cycles; (5) future acquisition and development opportunities; and (6) minimal competition from other long-term office property owners. We typically focus on owning and operating properties in large business parks located outside of central business districts. We believe that such parks generally attract long-term, high-quality tenants seeking to attract and retain quality work forces because they are typically situated along major transportation routes with easy access to support services, amenities and residential communities.

        Capital Strategy:    Our capital strategy is aimed at maintaining a flexible capital structure in order to facilitate growth and performance in the face of differing market conditions in the most cost-effective manner by:

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        Environmentally Responsible Development and Management Strategy:    We are focused on developing and operating our properties in a manner that minimizes global impact and have been committed to this effort since 2003. This strategy includes:

We believe that our commitment to this strategy is evident in the fact that as of December 31, 2009, we had seven buildings certified LEED Gold, nine buildings certified LEED Silver, one building certified LEED and 36 other buildings registered for LEED Silver or Gold certification, and we had 16 professionals on staff who hold the LEED Accredited Professional designation. We also have established an internal goal to have 50% of our portfolio be "Green" buildings by 2015. We believe that this strategy is important not just because our customers will demand it, but also because it is simply the right thing to do.

Growth Strategies

        Acquisition and Property Development Strategy:    We pursue acquisition and property development opportunities for properties that support our customer and market strategies discussed above. As a result, the focus of our acquisition and development activities generally include properties that:

        We typically seek to make acquisitions at attractive yields and below replacement cost. We also seek to increase operating cash flow of certain acquisitions by repositioning the properties and capitalizing on existing below market leases and expansion opportunities. We pursue development activities as market conditions and leasing opportunities support favorable risk-adjusted returns.

        Internal Growth Strategy:    We aggressively manage our portfolio to maximize the operating performance of each property through: (1) proactive property management and leasing; (2) achieving operating efficiencies through increasing economies of scale and, where possible, aggregating vendor contracts to achieve volume pricing discounts; and (3) renewing tenant leases and re-tenanting at increased rents where market conditions permit.

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Industry Segments

        We operate in one primary industry: commercial office real estate. At December 31, 2009, our commercial office real estate operations had nine primary geographical segments, as set forth below:

        As of December 31, 2009, 147 of our wholly owned properties were located in what is widely known as the Greater Washington, D.C. region, which includes the first four regions set forth above, and 64 were located in neighboring Greater Baltimore. At December 31, 2009, we also owned 21 wholly owned properties in Colorado Springs and six in San Antonio. In addition, we owned five properties in total as of December 31, 2009 in the last two locations set forth above that are considered non-core to the Company. For information relating to these geographic segments, you should refer to Note 15 to our Consolidated Financial Statements, which is included in a separate section at the end of this Annual Report on Form 10-K beginning on page F-1.

Employees

        As of December 31, 2009, we had 382 employees, none of whom were parties to collective bargaining agreements. We believe that our relations with our employees are good.

Competition

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

        We also compete for the acquisition of commercial properties with many entities, including other publicly-traded commercial REITs. Many of our competitors for such acquisitions have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If our competitors prevent us from buying properties that we have targeted for acquisition, we may not be able to meet our property acquisition goals.

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Item 1A.    Risk Factors

        Set forth below are risks and uncertainties relating to our business and the ownership of our securities. You should carefully consider each of these risks and uncertainties and all of the information in this Annual Report on Form 10-K and its Exhibits, including our Consolidated Financial Statements and notes thereto for the year ended December 31, 2009, which are included in a separate section at the end of this report beginning on page F-1.

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

        We may suffer adverse consequences as a result of recent and future economic events.    Since the latter part of 2007, the United States and world economies have struggled through difficult conditions, including a significant recession. This slowdown has had devastating effects on the capital markets, with tightening credit availability. The commercial real estate industry was affected by these events over the last three years and, we believe, will likely continue to be affected at least through 2010. These events could adversely affect us in numerous ways discussed throughout this Annual Report on Form 10-K. The real estate industry in general has encountered increased difficulty in obtaining capital to fund growth activities, such as acquisitions and development costs, debt repayments and other capital requirements. As a result, the level of risk that we may not be able to obtain new financing for acquisitions, development activities, refinancing of existing debt or other capital requirements at reasonable terms, if at all, has increased. We believe that there is an increased likelihood in the current economic climate of tenants encountering financial difficulties, including bankruptcy, insolvency or general downturn of business, and as a result there is an increased likelihood of such tenants defaulting in their lease obligations to us. We also expect that our leasing activities will be adversely affected, with an increasing likelihood of our being unsuccessful in renewing tenants, renewing tenants on terms less

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favorable to us or being unable to lease newly constructed space. As a result, the conditions brought about by these economic events could collectively have an adverse effect on our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

        We are dependent on external sources of capital for future growth.    Because we are a REIT, we must distribute at least 90% of our annual taxable income to our shareholders. Due to this requirement, we are not permitted to significantly fund our acquisition, construction and development activities using cash flow from operations. Therefore, our ability to fund these activities is dependent on our ability to access capital funded by third parties. Such capital could be in the form of new debt, equity issuances of common shares, preferred shares, common and preferred units in our Operating Partnership or joint venture funding. These capital sources may not be available on favorable terms or at all. Since the United States financial markets have recently experienced extreme volatility and, as a result, credit markets have tightened considerably, the level of risk that we may not be able to obtain new financing for acquisitions, development activities or other capital requirements at reasonable terms, if at all, in the near future has increased. Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management's flexibility in directing our operations, and additional equity offerings may result in substantial dilution of our shareholders' interests. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.

        We use our Revolving Credit Facility to initially finance much of our investing and financing activities. We also use our Revolving Construction Facility and other credit facilities to fund a significant portion of our construction activities. Our lenders under these and other facilities could, for financial hardship or other reasons, fail to honor their commitments to fund our requests for borrowings under these facilities. In the event that one or more lenders under these facilities are not able or willing to fund a borrowing request, it would adversely affect our ability to access borrowing capacity under these facilities, which would in turn adversely affect our financial condition, cash flows and ability to make expected distributions to our shareholders.

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

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

        If our properties do not generate revenue sufficient to meeting our operating expenses and capital costs, we may have to borrow additional amounts to cover these costs. In such circumstances, we would likely have lower profits or possibly incur losses. We may also find in such circumstances that we are unable to borrow to cover such costs, in which case our operations could be adversely affected. Moreover, there may be less or no cash available for distributions to our shareholders.

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

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

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of business, there could be an adverse effect on financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

        Adverse developments concerning some of our major tenants and sector concentrations could have a negative impact on our revenue.    As of December 31, 2009, our 20 largest tenants accounted for 55.4% of the total annualized rental revenue of our wholly owned properties, and our three largest of these tenants accounted for 31.5% of that total. We compute the annualized rental revenue by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases in our portfolio of wholly owned properties as of December 31, 2009. Information regarding our three largest tenants is set forth below:

Tenant
  Annualized
Rental Revenue at
December 31, 2009
  Percentage of
Total Annualized
Rental Revenue of
Wholly Owned Properties
  Number
of Leases
 
 
  (in thousands)
   
   
 

United States of America

  $ 79,268     18.6 %   69  

Northrop Grumman Corporation(1)

    33,676     7.9 %   17  

Booz Allen Hamilton, Inc. 

    21,626     5.0 %   10  

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

        Most of our leases with the United States Government provide for a series of one-year terms or provide for early termination rights. The United States Government may terminate its leases if, among other reasons, the United States Congress fails to provide funding. If any of our three largest tenants fail to make rental payments to us or if the United States Government elects to terminate several of its leases and the space cannot be re-leased on satisfactory terms, there would be an adverse effect on our financial performance and ability to make distributions to our shareholders.

        As of December 31, 2009, our properties that were occupied primarily by tenants in the United States Government, defense information technology and data sectors accounted for 54.9% of the total annualized rental revenue of our wholly owned properties. We expect to increase our reliance on these sectors for revenue. A reduction in government spending targeting these sectors could affect the ability of these tenants to fulfill lease obligations or decrease the likelihood that these tenants will renew their leases. Such occurrences could have an adverse effect on our results of operations, financial condition, cash flows and ability to make distributions to our shareholders. We classified the revenue from our leases into this sector grouping based solely on management's knowledge of the tenants' operations in leased space. Occasionally, classifications require subjective and complex judgments. We do not use independent sources such as Standard Industrial Classification codes for classifying our revenue into sector groupings and if we did, the resulting groupings would be materially different.

        Most of our properties are geographically concentrated in the Mid-Atlantic region, particularly in the Greater Washington, D.C. region and neighboring Greater Baltimore, or in particular office parks. We may suffer economic harm in the event of a decline in the real estate market or general economic conditions in those regions or parks.    Most of our properties are located in the Mid-Atlantic region of the United States and, as of December 31, 2009, our properties located in the Greater Washington, D.C. region and neighboring Greater Baltimore accounted for a combined 86.2% of our total annualized rental revenue from wholly owned properties. Our properties are also typically concentrated in office parks in which we own most of the properties. Consequently, we do not have a broad geographic distribution of our properties. As a result, a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, D.C. region or the office parks in which our properties are located could have an adverse effect on our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

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        We would suffer economic harm if we were unable to renew our leases on favorable terms.    When leases expire, our tenants may not renew or may renew on terms less favorable to us than the terms of their original leases. If a tenant vacates a property, we can expect to experience a vacancy for some period of time, as well as incur higher leasing costs than we would likely incur if a tenant renews. As a result, our financial performance and ability to make expected distributions to our shareholders could be adversely affected if we experience a high volume of tenant departures at the end of their lease terms. We expect that the effects of the global downturn on our real estate operations will make our leasing activities increasingly challenging throughout most of 2010 and perhaps beyond and, as a result, there could be an increasing likelihood of our being unsuccessful in renewing tenants or renewing on terms less favorable to us than the terms of the original leases. Set forth below are the percentages of total annualized rental revenue from wholly owned properties as of December 31, 2009 that are subject to scheduled lease expirations in each of the next five years:

2010

    15.8 %

2011

    9.3 %

2012

    14.2 %

2013

    12.0 %

2014

    8.9 %

        As noted above, most of the leases with our largest tenant, the United States Government, provide for consecutive one-year terms or provide for early termination rights. All of the leasing statistics set forth above assume that the United States Government will remain in the space that it leases through the end of the respective arrangements, without ending consecutive one-year leases prematurely or exercising early termination rights.

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

        We may not be able to compete successfully with other entities that operate in our industry.    The commercial real estate market is highly competitive. We compete for the purchase of commercial property with many entities, including other publicly traded commercial REITs. Many of our competitors have substantially greater financial resources than we do. If our competitors prevent us from buying properties that we target for acquisition, we may not be able to meet our property acquisition goals. Moreover, numerous commercial properties compete for tenants with our properties. Some of the properties competing with ours may be newer or in more desirable locations, or the competing properties' owners may be willing to accept lower rates than are acceptable to us. Competition for property acquisitions, or for tenants in properties that we own, could have an adverse effect on our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

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        We may be unable to successfully execute our plans to acquire existing commercial real estate properties.    We intend to acquire existing commercial real estate properties to the extent that suitable acquisitions can be made on advantageous terms. Acquisitions of commercial properties entail risks, such as the risks that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions will fail to perform as expected. The failure of our acquisitions to perform as expected could adversely affect our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

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

        We may suffer economic harm as a result of making unsuccessful acquisitions in new markets.    We may pursue selective acquisitions of properties in regions where we have not previously owned properties. These acquisitions may entail risks in addition to those we face in other acquisitions where we are familiar with the regions, such as the risk that we do not correctly anticipate conditions or trends in a new region and are therefore not able to operate the acquired property profitably. If this occurs, it could adversely affect our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

        We may be unable to execute our plans to develop and construct additional properties.    Although the majority of our investments are in currently leased properties, we also develop, construct and renovate properties, including some that are not fully pre-leased. When we develop, construct and renovate properties, we assume the risk that actual costs will exceed our budgets, that we will experience delays and that projected leasing will not occur, any of which could adversely affect our financial performance and our ability to make distributions to our shareholders; the risk of projected leasing not occurring has increased as a result of the current economic conditions. In addition, we generally do not obtain construction financing commitments until the development stage of a project is complete and construction is about to commence. We may find that we are unable to obtain financing needed to continue with the construction activities for such projects.

        Certain of our properties containing data centers contain space not suitable for lease other than as data centers, which could make it difficult to reposition them for alternative use.    Certain of our properties contain data center space, which is highly specialized space containing extensive electrical and mechanical systems that are designed uniquely to run and maintain banks of computer servers. As a result, in the event we needed to reposition such data center space for another use, major renovations and expenditures could be required.

        We may suffer adverse effects as a result of the indebtedness that we carry and the terms and covenants that relate to this debt.    Many of our properties are pledged by us to support repayment on indebtedness. In addition, we rely on borrowings to fund some or all of the costs of new property

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acquisitions, construction and development activities and other items. Our organizational documents do not limit the amount of indebtedness that we may incur.

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

        Some of our debt is cross-defaulted, which means that failure to pay interest or principal on a loan above a threshold value will create a default on certain of our other loans. In addition, some of our debt which is cross-defaulted also contains cross-collateralization provisions. Any foreclosure of our properties could result in loss of income and asset value that would negatively affect our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders. In addition, if we are in default and the value of the properties securing a loan is less than the loan balance, we may be required to pay the resulting shortfall to the lender using other assets.

        As of December 31, 2009, 24.8% of our debt had variable interest rates, including the effect of interest rate swaps. If short-term interest rates were to rise, our debt service payments on debt with variable interest rates would increase, which would lower our net income and could decrease our distributions to our shareholders. We use interest rate swap agreements from time to time to reduce the impact of changes in interest rates. Decreases in interest rates would result in increased interest payments due under interest rate swap agreements in place and, in the event we decided to unwind such agreements, could result in our recognizing a loss and remitting a payment.

        We must refinance our debt in the future. As of December 31, 2009, our scheduled debt payments over the next five years, including maturities, were as follows:

Year
  Amount(1)  
 
  (in thousands)
 

2010

  $ 66,342  

2011

    735,585 (2)

2012

    269,158  

2013

    143,676  

2014

    144,188  

(1)
Represents principal maturities only and therefore excludes premiums and discounts.

(2)
Includes maturities totaling $458.1 million that may be extended for a one-year period, subject to certain conditions.

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

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default on our existing debt, which would have an adverse effect on our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

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

        We may be unable to continue to make shareholder distributions at expected levels.    We intend to make regular quarterly cash distributions to our shareholders. However, distribution levels depend on a number of factors, some of which are beyond our control. Some of our loan agreements contain provisions that could restrict future distributions. Our ability to sustain our current distribution level will also be dependent, in part, on other matters, including, but not limited to:

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

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

        We may incur additional indebtedness, which may harm our financial position and cash flow and potentially impact our ability to pay dividends on any series of preferred shares.    Our governing documents do not limit us from incurring additional indebtedness and other liabilities. As of December 31, 2009, we had $2.1 billion of consolidated indebtedness outstanding. We may incur additional indebtedness and become more highly leveraged, which could harm our financial position and potentially limit our cash available to pay dividends. As a result, we may not have sufficient funds remaining to satisfy our dividend obligations relating to any series of preferred shares if we incur additional indebtedness.

        Our ability to pay dividends may be limited, and we cannot provide assurance that we will be able to pay dividends regularly.    Because we conduct substantially all of our operations through our Operating Partnership, our ability to pay dividends will depend almost entirely on payments and dividends received on our interests in our Operating Partnership, the payment of which depends in turn on our ability to operate profitably and generate cash flow from our operations. We cannot guarantee that we will be able to pay dividends on a regular quarterly basis in the future. Additionally, the terms

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of some of the debt to which our Operating Partnership is a party limit its ability to make some types of payments and other dividends to us. This in turn limits our ability to make some types of payments, including payment of dividends on common or preferred shares, unless we meet certain financial tests or such payments or dividends are required to maintain our qualification as a REIT. As a result, if we are unable to meet the applicable financial tests, we may not be able to pay dividends on our shares in one or more periods. Furthermore, any new shares of beneficial interest issued will substantially increase the cash required to continue to pay cash dividends at current levels. Any common or preferred shares that may in the future be issued for financing acquisitions, share-based compensation arrangements or otherwise would have a similar effect.

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

        Real estate investments are illiquid, and we may not be able to sell our properties on a timely basis when we determine it is appropriate to do so.    Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions are not favorable, and we may find that to be increasingly the case under the current economic conditions due to a lack of credit availability for potential buyers. Such illiquidity could limit our ability to quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, under certain circumstances, the Internal Revenue Code imposes certain penalties on a REIT that sells property held for less than two years and limits the number of properties it can sell in a given year. In addition, for certain of our properties that we acquired by issuing units in our Operating Partnership, we are restricted by agreements with the sellers of the properties for a certain period of time from entering into transactions (such as the sale or refinancing of the acquired property) that will result in a taxable gain to the sellers without the seller's consent. Due to these factors, we may be unable to sell a property at an advantageous time.

        We may suffer economic harm as a result of the actions of our joint venture partners.    We invest in certain entities in which we are not the exclusive investor or principal decision maker. As of December 31, 2009, we owned 20 operational properties and one property under redevelopment, and control land for future development, through joint ventures. We also may continue to pursue new investments in real estate through joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in joint ventures may have economic, tax or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also lead to impasses, for example, as to whether to sell a property, because neither we nor the other parties to these investments would have full control over the joint venture. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments. Each of these factors could have an adverse effect on our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders.

        We may need to make additional cash outlays to protect our investment in loans we make that are subordinate to other loans.    We have and may in the future make loans under which we have a

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secured interest in the ownership of a property that is subordinate to other loans on the property. If a default were to occur under the terms of any such loans with us or under the first mortgage loans related to the properties on such loans, we may be in a position where, in order to protect our investment, we would need to either (1) purchase the other loan or (2) foreclose on the ownership interest in the property and repay the first mortgage loan, either of which could have an adverse effect on our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders.

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

        Although most of our properties have been subject to varying degrees of environmental assessment, many of these assessments are limited in scope and may not include or identify all potential environmental liabilities or risks associated with the property. Identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to us that could have an adverse effect on our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders.

        Terrorist attacks, such as those of September 11, 2001, may adversely affect the value of our properties financial position, and cash flows.    We have significant investments in properties located in large metropolitan areas and near military installations. Future terrorist attacks could directly or indirectly damage our properties or cause losses that materially exceed our insurance coverage. After such an attack, tenants in these areas may choose to relocate their businesses to areas of the United States that may be perceived to be less likely targets of future terrorist activity and fewer customers may choose to patronize businesses in these areas. This in turn would trigger a decrease in the demand for space in these areas, which could increase vacancies in our properties and force us to lease space on less favorable terms. As a result, the occurrence of terrorist attacks could adversely affect our financial position, results of operations, cash flows and ability to make expected distributions to our shareholders.

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

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on our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders.

        We may be subject to increased costs of insurance and limitations on coverage, particularly regarding acts of terrorism.    Our portfolio of properties is insured for losses under our property, casualty and umbrella insurance policies through September 30, 2010. These policies include coverage for acts of terrorism. Future changes in the insurance industry's risk assessment approach and pricing structure may increase the cost of insuring our properties and decrease the scope of insurance coverage, either of which could adversely affect our financial position and operating results. Most of our loan agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs, or at all, in the future. In addition, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance and/or refinance our properties and execute our growth strategies, which, in turn, would have an adverse effect on our financial condition, results of operations, cash flows and ability to make expected distributions to our shareholders.

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

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

        Our Declaration of Trust includes other provisions that may prevent or delay a change of control.    Subject to the requirements of the New York Stock Exchange, our Board of Trustees has the authority, without shareholder approval, to issue additional securities on terms that could delay or prevent a change in control. In addition, our Board of Trustees has the authority to reclassify any of our unissued common shares into preferred shares. Our Board of Trustees may issue preferred shares with such preferences, rights, powers and restrictions as our Board of Trustees may determine, which could also delay or prevent a change in control.

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

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

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

        We could face possible adverse changes in tax laws, which may result in an increase in our tax liability.    From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income. These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends.

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

        We may experience significant losses and harm to our financial condition if financial institutions holding our cash and cash equivalents file for bankruptcy protection.    We believe that we maintain our cash and cash equivalents with high quality financial institutions. We have not experienced any

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losses to date on our deposited cash. However, we may incur significant losses and harm to our financial condition in the future if any of these financial institutions files for bankruptcy protection.

        Certain of our Trustees have potential conflicts of interest.    Certain members of our Board of Trustees own partnership units in our Operating Partnership. These individuals may have personal interests that conflict with the interests of our shareholders. For example, if our Operating Partnership sells or refinances certain of the properties that these Trustees contributed to the Operating Partnership, the Trustees could suffer adverse tax consequences. Their personal interests could conflict with our interests if such a sale or refinancing would be advantageous to us. We have certain policies in place that are designed to minimize conflicts of interest. We cannot, however, provide assurance that these policies will be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of all of our shareholders.

        We are dependent on our key personnel, and the loss of any key personnel could have an adverse effect on our operations.    We are dependent on our executive officers. The loss of any of their services could have an adverse effect on our operations. Although certain of our officers have entered into employment agreements with us, we cannot assure you that they will remain employed with us.

        We may change our policies without shareholder approval, which could adversely affect our financial condition, results of operations, market price of our common shares or ability to pay distributions. Our Board of Trustees determines all of our policies, including our investment, financing and distribution policies. Although our Board of Trustees has no current plans to do so, it may amend or revise these policies at any time without a vote of our shareholders. Policy changes could adversely affect our financial condition, results of operations, the market price of our securities or distributions.

Item 1B.    Unresolved Staff Comments

        None

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Item 2.    Properties

        The following table provides certain information about our wholly owned office properties as of December 31, 2009:

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 

B/W Corridor:

                                   
 

2730 Hercules Road

  BWI Airport     1990     240,336     100.0 % $ 7,725,913   $ 32.15  
   

Annapolis Junction, MD

                                   
 

300 Sentinel Drive

  BWI Airport     2009     45,422     100.0 %   1,385,371     30.50  
   

Annapolis Junction, MD

                                   
 

304 Sentinel Drive

  BWI Airport     2005     162,647     100.0 %   4,767,015     29.31  
   

Annapolis Junction, MD

                                   
 

306 Sentinel Drive

  BWI Airport     2006     155,883     100.0 %   4,678,071     30.01  
   

Annapolis Junction, MD

                                   
 

2720 Technology Drive

  BWI Airport     2004     156,730     100.0 %   5,093,751     32.50  
   

Annapolis Junction, MD

                                   
 

2711 Technology Drive

  BWI Airport     2002     152,196     100.0 %   4,582,120     30.11  
   

Annapolis Junction, MD

                                   
 

320 Sentinel Way

  BWI Airport     2007     125,681     100.0 %   4,469,570     35.56  
   

Annapolis Junction, MD

                                   
 

318 Sentinel Way

  BWI Airport     2005     125,681     100.0 %   5,635,731     44.84  
   

Annapolis Junction, MD

                                   
 

322 Sentinel Way

  BWI Airport     2006     125,568     100.0 %   4,311,377     34.33  
   

Annapolis Junction, MD

                                   
 

140 National Business Parkway

  BWI Airport     2003     119,904     100.0 %   5,804,741     48.41  
   

Annapolis Junction, MD

                                   
 

132 National Business Parkway

  BWI Airport     2000     118,598     100.0 %   3,688,454     31.10  
   

Annapolis Junction, MD

                                   
 

2721 Technology Drive

  BWI Airport     2000     118,093     100.0 %   3,689,934     31.25  
   

Annapolis Junction, MD

                                   
 

2701 Technology Drive

  BWI Airport     2001     117,450     100.0 %   3,628,431     30.89  
   

Annapolis Junction, MD

                                   
 

1550 West Nursery Road

  BWI Airport     2009     162,101     100.0 %   3,278,953     20.23  
   

Linthicum, MD

                                   
 

1306 Concourse Drive

  BWI Airport     1990     116,190     79.5 %   2,183,798     23.63  
   

Linthicum, MD

                                   
 

870 Elkridge Landing Road

  BWI Airport     1981     5,627     100.0 %   202,038     35.91  
   

Linthicum, MD

                                   
 

880 Elkridge Landing Road

  BWI Airport     1981     99,524     100.0 %   2,248,501     22.59  
   

Linthicum, MD

                                   
 

2691 Technology Drive

  BWI Airport     2005     103,683     100.0 %   3,261,096     31.45  
   

Annapolis Junction, MD

                                   
 

1304 Concourse Drive

  BWI Airport     2002     101,792     82.8 %   2,335,606     27.71  
   

Linthicum, MD

                                   
 

900 Elkridge Landing Road

  BWI Airport     1982     100,824     100.0 %   2,672,252     26.50  
   

Linthicum, MD

                                   
 

1199 Winterson Road

  BWI Airport     1988     96,636     100.0 %   2,602,169     26.93  
   

Linthicum, MD

                                   
 

920 Elkridge Landing Road

  BWI Airport     1982     96,566     100.0 %   1,872,487     19.39  
   

Linthicum, MD

                                   
 

134 National Business Parkway

  BWI Airport     1999     93,482     100.0 %   2,642,695     28.27  
   

Annapolis Junction, MD

                                   
 

135 National Business Parkway

  BWI Airport     1998     87,422     100.0 %   2,875,863     32.90  
   

Annapolis Junction, MD

                                   
 

133 National Business Parkway

  BWI Airport     1997     87,401     100.0 %   2,699,287     30.88  
   

Annapolis Junction, MD

                                   

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Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

141 National Business Parkway

  BWI Airport     1990     87,206     100.0 %   2,768,867     31.75  
   

Annapolis Junction, MD

                                   
 

1302 Concourse Drive

  BWI Airport     1996     84,053     79.2 %   1,739,739     26.12  
   

Linthicum, MD

                                   
 

7467 Ridge Road

  BWI Airport     1990     74,136     77.6 %   1,320,994     22.96  
   

Hanover, MD

                                   
 

7240 Parkway Drive

  BWI Airport     1985     74,153     97.6 %   1,570,548     21.70  
   

Hanover, MD

                                   
 

881 Elkridge Landing Road

  BWI Airport     1986     73,572     100.0 %   1,750,880     23.80  
   

Linthicum, MD

                                   
 

1099 Winterson Road

  BWI Airport     1988     70,583     29.3 %   509,762     24.67  
   

Linthicum, MD

                                   
 

1190 Winterson Road

  BWI Airport     1987     68,899     93.5 %   1,880,134     29.19  
   

Linthicum, MD

                                   
 

131 National Business Parkway

  BWI Airport     1990     69,336     100.0 %   2,083,063     30.04  
   

Annapolis Junction, MD

                                   
 

849 International Drive

  BWI Airport     1988     68,768     87.8 %   1,636,024     27.10  
   

Linthicum, MD

                                   
 

911 Elkridge Landing Road

  BWI Airport     1985     68,296     100.0 %   1,573,540     23.04  
   

Linthicum, MD

                                   
 

1201 Winterson Road

  BWI Airport     1985     67,903     100.0 %   1,398,271     20.59  
   

Linthicum, MD

                                   
 

999 Corporate Boulevard

  BWI Airport     2000     66,889     91.7 %   1,882,720     30.69  
   

Linthicum, MD

                                   
 

7272 Park Circle Drive

  BWI Airport     1991/1996     59,888     74.3 %   1,012,397     22.76  
   

Hanover, MD

                                   
 

7318 Parkway Drive

  BWI Airport     1984     59,204     100.0 %   1,176,733     19.88  
   

Hanover, MD

                                   
 

891 Elkridge Landing Road

  BWI Airport     1984     57,955     91.0 %   1,408,078     26.69  
   

Linthicum, MD

                                   
 

7320 Parkway Drive

  BWI Airport     1983     56,964     0.0 %        
   

Hanover, MD

                                   
 

901 Elkridge Landing Road

  BWI Airport     1984     58,035     87.4 %   1,259,498     24.84  
   

Linthicum, MD

                                   
 

930 International Drive

  BWI Airport     1986     57,272     40.6 %   548,775     23.57  
   

Linthicum, MD

                                   
 

800 International Drive

  BWI Airport     1988     57,379     100.0 %   1,192,485     20.78  
   

Linthicum, MD

                                   
 

900 International Drive

  BWI Airport     1986     57,140     100.0 %   924,514     16.18  
   

Linthicum, MD

                                   
 

921 Elkridge Landing Road

  BWI Airport     1983     54,175     100.0 %   1,159,577     21.40  
   

Linthicum, MD

                                   
 

939 Elkridge Landing Road

  BWI Airport     1983     54,211     86.9 %   900,373     19.12  
   

Linthicum, MD

                                   
 

938 Elkridge Landing Road

  BWI Airport     1984     52,988     100.0 %   1,220,706     23.04  
   

Linthicum, MD

                                   
 

302 Sentinel Drive

  BWI Airport     2007     155,669     78.9 %   4,002,125     32.58  
   

Annapolis Junction, MD

                                   
 

1340 Ashton Road

  BWI Airport     1989     46,400     100.0 %   910,096     19.61  
   

Hanover, MD

                                   
 

1334 Ashton Road

  BWI Airport     1989     37,317     76.0 %   673,541     23.73  
   

Hanover, MD

                                   
 

1331 Ashton Road

  BWI Airport     1989     28,998     100.0 %   547,631     18.89  
   

Hanover, MD

                                   
 

5520 Research Park Drive

  BWI Airport     2009     105,363     29.4 %   779,722     25.15  
   

Catonsville, MD

                                   

22


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

5522 Research Park Drive

  BWI Airport     2007     23,500     100.0 %   880,774     37.48  
   

Catonsville, MD

                                   
 

1350 Dorsey Road

  BWI Airport     1989     19,718     47.4 %   208,591     22.33  
   

Hanover, MD

                                   
 

1344 Ashton Road

  BWI Airport     1989     16,964     100.0 %   507,522     29.92  
   

Hanover, MD

                                   
 

1341 Ashton Road

  BWI Airport     1989     15,947     100.0 %   340,531     21.35  
   

Hanover, MD

                                   
 

1343 Ashton Road

  BWI Airport     1989     9,962     0.0 %        
   

Hanover, MD

                                   
 

1362 Mellon Road

  BWI Airport     2006     43,283     0.0 %        
   

Hanover, MD

                                   
 

114 National Business Parkway

  BWI Airport     2002     9,908     100.0 %   234,860     23.70  
   

Annapolis Junction, MD

                                   
 

314 Sentinel Way

  BWI Airport     2008     4,462     100.0 %   189,404     42.45  
   

Annapolis Junction, MD

                                   
 

1348 Ashton Road

  BWI Airport     1988     3,108     100.0 %   77,430     24.91  
   

Hanover, MD

                                   
 

7125 Columbia Gateway Drive

  Howard County     1973/1999     611,379     89.6 %   8,325,783     15.20  
   

Columbia, MD

  Perimeter                                
 

Old Annapolis Road

  Howard County     1974/1985     171,436     100.0 %   6,560,854     38.27  
   

Columbia, MD

  Perimeter                                
 

7200 Riverwood Drive

  Howard County     1986     160,000     100.0 %   4,319,200     27.00  
   

Columbia, MD

  Perimeter                                
 

7000 Columbia Gateway Drive

  Howard County     1999     145,806     100.0 %   1,643,053     11.27  
   

Columbia, MD

  Perimeter                                
 

6721 Columbia Gateway Drive

  Howard County     2009     131,451     100.0 %   3,680,628     28.00  
   

Columbia, MD

  Perimeter                                
 

6731 Columbia Gateway Drive

  Howard County     2002     123,847     85.5 %   3,017,115     28.50  
   

Columbia, MD

  Perimeter                                
 

6711 Columbia Gateway Drive

  Howard County     2006-2007     123,599     91.7 %   3,249,420     28.68  
   

Columbia, MD

  Perimeter                                
 

6940 Columbia Gateway Drive

  Howard County     1999     108,822     100.0 %   2,688,772     24.71  
   

Columbia, MD

  Perimeter                                
 

6950 Columbia Gateway Drive

  Howard County     1998     112,861     100.0 %   2,557,127     22.66  
   

Columbia, MD

  Perimeter                                
 

8621 Robert Fulton Drive

  Howard County     2005-2006     86,033     100.0 %   1,840,876     21.40  
   

Columbia, MD

  Perimeter                                
 

7067 Columbia Gateway Drive

  Howard County     2001     86,027     84.4 %   1,689,419     23.26  
   

Columbia, MD

  Perimeter                                
 

6750 Alexander Bell Drive

  Howard County     2001     76,134     98.3 %   1,972,744     26.36  
   

Columbia, MD

  Perimeter                                
 

6700 Alexander Bell Drive

  Howard County     1988     75,555     93.8 %   1,831,175     25.83  
   

Columbia, MD

  Perimeter                                
 

6740 Alexander Bell Drive

  Howard County     1992     63,480     100.0 %   1,788,771     28.18  
   

Columbia, MD

  Perimeter                                
 

7160 Riverwood Drive

  Howard County     2000     61,984     100.0 %   1,776,941     28.67  
   

Columbia, MD

  Perimeter                                
 

7015 Albert Einstein Drive

  Howard County     1999     61,203     100.0 %   1,142,415     18.67  
   

Columbia, MD

  Perimeter                                
 

8671 Robert Fulton Drive

  Howard County     2002     56,350     100.0 %   1,143,029     20.28  
   

Columbia, MD

  Perimeter                                
 

6716 Alexander Bell Drive

  Howard County     1990     52,131     93.6 %   1,188,477     24.36  
   

Columbia, MD

  Perimeter                                
 

8661 Robert Fulton Drive

  Howard County     2002     49,307     100.0 %   918,532     18.63  
   

Columbia, MD

  Perimeter                                

23


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

9020 Mendenhall Court

  Howard County     1982/2005     49,217     88.6 %   634,202     14.55  
   

Columbia, MD

  Perimeter                                
 

7130 Columbia Gateway Drive

  Howard County     1989     46,460     40.9 %   372,682     19.64  
   

Columbia, MD

  Perimeter                                
 

7142 Columbia Gateway Drive

  Howard County     1994     47,668     100.0 %   741,042     15.55  
   

Columbia, MD

  Perimeter                                
 

9140 Guilford Road

  Howard County     1983     41,180     56.1 %   435,781     18.85  
   

Columbia, MD

  Perimeter                                
 

7150 Riverwood Drive

  Howard County     2000     39,496     100.0 %   792,394     20.06  
   

Columbia, MD

  Perimeter                                
 

9720 Patuxent Woods Drive

  Howard County     1986/2001     40,004     12.4 %   49,588     10.01  
   

Columbia, MD

  Perimeter                                
 

6708 Alexander Bell Drive

  Howard County     1988     39,203     100.0 %   910,138     23.22  
   

Columbia, MD

  Perimeter                                
 

7065 Columbia Gateway Drive

  Howard County     2000     38,560     100.0 %   771,683     20.01  
   

Columbia, MD

  Perimeter                                
 

9740 Patuxent Woods Drive

  Howard County     1986/2001     38,292     100.0 %   472,141     12.33  
   

Columbia, MD

  Perimeter                                
 

7138 Columbia Gateway Drive

  Howard County     1990     38,225     100.0 %   865,965     22.65  
   

Columbia, MD

  Perimeter                                
 

9160 Guilford Road

  Howard County     1984     37,034     100.0 %   935,214     25.25  
   

Columbia, MD

  Perimeter                                
 

7063 Columbia Gateway Drive

  Howard County     2000     36,472     100.0 %   1,010,296     27.70  
   

Columbia, MD

  Perimeter                                
 

6760 Alexander Bell Drive

  Howard County     1991     36,440     93.0 %   879,864     25.95  
   

Columbia, MD

  Perimeter                                
 

7150 Columbia Gateway Drive

  Howard County     1991     35,812     100.0 %   656,309     18.33  
   

Columbia, MD

  Perimeter                                
 

9700 Patuxent Woods Drive

  Howard County     1986/2001     31,220     93.0 %   698,750     24.05  
   

Columbia, MD

  Perimeter                                
 

9730 Patuxent Woods Drive

  Howard County     1986/2001     30,485     100.0 %   532,319     17.46  
   

Columbia, MD

  Perimeter                                
 

7061 Columbia Gateway Drive

  Howard County     2000     29,910     100.0 %   691,008     23.10  
   

Columbia, MD

  Perimeter                                
 

7170 Riverwood Drive

  Howard County     2000     29,162     100.0 %   562,018     19.27  
   

Columbia, MD

  Perimeter                                
 

6724 Alexander Bell Drive

  Howard County     2001     28,420     100.0 %   762,345     26.82  
   

Columbia, MD

  Perimeter                                
 

7134 Columbia Gateway Drive

  Howard County     1990     21,991     100.0 %   455,858     20.73  
   

Columbia, MD

  Perimeter                                
 

9150 Guilford Drive

  Howard County     1984     18,592     100.0 %   393,266     21.15  
   

Columbia, MD

  Perimeter                                
 

10280 Old Columbia Road

  Howard County     1988/2001     16,195     100.0 %   289,547     17.88  
   

Columbia, MD

  Perimeter                                
 

10270 Old Columbia Road

  Howard County     1988/2001     15,910     100.0 %   258,453     16.24  
   

Columbia, MD

  Perimeter                                
 

9710 Patuxent Woods Drive

  Howard County     1986/2001     15,229     28.2 %   91,541     21.33  
   

Columbia, MD

  Perimeter                                
 

9130 Guilford Drive

  Howard County     1984     13,700     0.0 %        
   

Columbia, MD

  Perimeter                                
 

10290 Old Columbia Road

  Howard County     1988/2001     10,263     43.3 %   100,787     22.68  
   

Columbia, MD

  Perimeter                                
 

6741 Columbia Gateway Drive

  Howard County     2008     4,592     0.0 %        
   

Columbia, MD

  Perimeter                                
 

2500 Riva Road

  Annapolis     2000     155,000     100.0 %   2,174,228     14.03  
                                 
   

Annapolis, MD

                                   
 

Subtotal/Average

              8,277,178     91.6 % $ 196,476,879   $ 25.90  
                                 

                                   

24


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 

Northern Virginia:

                                   
 

15000 Conference Center Drive

  Dulles South     1989     471,440     100.0 % $ 12,264,956   $ 26.02  
   

Chantilly, VA

                                   
 

15010 Conference Center Drive

  Dulles South     2006     223,610     100.0 %   7,118,976     31.84  
   

Chantilly, VA

                                   
 

15059 Conference Center Drive

  Dulles South     2000     145,224     100.0 %   4,882,414     33.62  
   

Chantilly, VA

                                   
 

15049 Conference Center Drive

  Dulles South     1997     145,706     99.8 %   4,623,631     31.81  
   

Chantilly, VA

                                   
 

14900 Conference Center Drive

  Dulles South     1999     127,329     99.4 %   3,672,192     29.01  
   

Chantilly, VA

                                   
 

14280 Park Meadow Drive

  Dulles South     1999     114,126     88.3 %   2,899,614     28.77  
   

Chantilly, VA

                                   
 

4851 Stonecroft Boulevard

  Dulles South     2004     88,094     100.0 %   2,650,104     30.08  
   

Chantilly, VA

                                   
 

14850 Conference Center Drive

  Dulles South     2000     69,711     50.6 %   1,184,598     33.56  
   

Chantilly, VA

                                   
 

14840 Conference Center Drive

  Dulles South     2000     69,710     100.0 %   2,157,033     30.94  
   

Chantilly, VA

                                   
 

13200 Woodland Park Drive

  Herndon     2002     404,665     100.0 %   12,307,717     30.41  
   

Herndon, VA

                                   
 

2900 Towerview Road

  Herndon     1982     139,877     100.0 %   2,290,846     16.38  
   

Herndon, VA

                                   
 

13454 Sunrise Valley Road

  Herndon     1998     112,633     72.4 %   2,057,901     25.22  
   

Herndon, VA

                                   
 

13450 Sunrise Valley Road

  Herndon     1998     53,776     98.5 %   1,388,101     26.20  
   

Herndon, VA

                                   
 

1751 Pinnacle Drive

  Tysons Corner     1989/1995     260,469     96.9 %   8,967,936     35.54  
   

McLean, VA

                                   
 

1753 Pinnacle Drive

  Tysons Corner     1976/2004     186,707     100.0 %   7,008,307     37.54  
                                 
   

McLean, VA

                                   
 

Subtotal/Average

              2,613,077     96.6 % $ 75,474,326   $ 29.90  
                                 

Suburban Maryland

                                   
 

11800 Tech Road

  North Silver Spring     1969/1989     228,179     98.6 % $ 4,079,153   $ 18.12  
   

Silver Spring, MD

                                   
 

400 Professional Drive

  Gaithersburg     2000     129,355     71.0 %   2,796,539     30.46  
   

Gaithersburg, MD

                                   
 

110 Thomas Johnson Drive

  Frederick     1987/1999     122,491     87.1 %   2,812,361     26.37  
   

Frederick, MD

                                   
 

45 West Gude Drive

  Rockville     1987     108,588     100.0 %   2,210,784     20.36  
   

Rockville, MD

                                   
 

15 West Gude Drive

  Rockville     1986     106,694     100.0 %   2,621,230     24.57  
                                 
   

Rockville, MD

                                   
 

Subtotal/Average

              695,307     91.9 % $ 14,520,067   $ 22.73  
                                 

St. Mary's & King George Counties:

                                   
 

22309 Exploration Drive

  St. Mary's County     1984/1997     98,860     100.0 % $ 1,462,393   $ 14.79  
   

Lexington Park, MD

                                   
 

46579 Expedition Drive

  St. Mary's County     2002     61,156     100.0 %   1,363,610     22.30  
   

Lexington Park, MD

                                   
 

22289 Exploration Drive

  St. Mary's County     2000     58,676     100.0 %   1,267,080     21.59  
   

Lexington Park, MD

                                   
 

46591 Expedition Drive

  St. Mary's County     2005-2006     59,483     100.0 %   1,256,313     21.12  
   

Lexington Park, MD

                                   
 

44425 Pecan Court

  St. Mary's County     1997     58,981     91.1 %   1,081,440     20.13  
   

California, MD

                                   

25


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

22299 Exploration Drive

  St. Mary's County     1998     58,363     93.8 %   1,334,393     24.36  
   

Lexington Park, MD

                                   
 

44408 Pecan Court

  St. Mary's County     1986     50,532     100.0 %   621,234     12.29  
   

California, MD

                                   
 

23535 Cottonwood Parkway

  St. Mary's County     1984     46,656     100.0 %   559,465     11.99  
   

California, MD

                                   
 

22300 Exploration Drive

  St. Mary's County     1997     44,830     100.0 %   726,078     16.20  
   

Lexington Park, MD

                                   
 

44417 Pecan Court

  St. Mary's County     1989     29,053     100.0 %   295,894     10.18  
   

California, MD

                                   
 

44414 Pecan Court

  St. Mary's County     1986     25,444     100.0 %   258,390     10.16  
   

California, MD

                                   
 

44420 Pecan Court

  St. Mary's County     1989     25,200     100.0 %   197,378     7.83  
   

California, MD

                                   
 

16480 Commerce Drive

  King George     2000     70,728     100.0 %   1,271,063     17.97  
   

Dahlgren, VA

  County                                
 

16541 Commerce Drive

  King George     1996     36,053     100.0 %   704,971     19.55  
   

King George, VA

  County                                
 

16539 Commerce Drive

  King George     1990     32,076     70.9 %   326,292     14.34  
   

King George, VA

  County                                
 

16442 Commerce Drive

  King George     2002     25,518     100.0 %   520,207     20.39  
   

Dahlgren, VA

  County                                
 

16501 Commerce Drive

  King George     2002     22,833     100.0 %   473,436     20.73  
   

Dahlgren, VA

  County                                
 

16543 Commerce Drive

  King George     2002     17,370     100.0 %   419,115     24.13  
                                 
   

Dahlgren, VA

  County                                
 

Subtotal/Average

              821,812     97.8 % $ 14,138,752   $ 17.59  
                                 

Greater Baltimore:

                                   
 

11311 McCormick Road

  Hunt Valley/Rte 83     1984/1994     216,127     88.8 % $ 4,347,885   $ 22.66  
   

Hunt Valley, MD

  Corridor                                
 

10150 York Road

  Hunt Valley/Rte 83     1985     178,286     100.0 %   3,465,488     19.44  
   

Hunt Valley, MD

  Corridor                                
 

9690 Deereco Road

  Hunt Valley/Rte 83     1988     134,268     96.2 %   3,484,027     26.97  
   

Timonium, MD

  Corridor                                
 

200 International Circle

  Hunt Valley/Rte 83     1987     127,196     95.9 %   2,660,966     21.81  
   

Hunt Valley, MD

  Corridor                                
 

375 W. Padonia Road

  Hunt Valley/Rte 83     1986     110,378     99.6 %   1,904,204     17.32  
   

Timonium, MD

  Corridor                                
 

226 Schilling Circle

  Hunt Valley/Rte 83     1980     98,640     100.0 %   2,404,889     24.38  
   

Hunt Valley, MD

  Corridor                                
 

201 International Circle

  Hunt Valley/Rte 83     1982     78,461     84.1 %   1,569,454     23.78  
   

Hunt Valley, MD

  Corridor                                
 

11011 McCormick Road

  Hunt Valley/Rte 83     1974     57,550     24.7 %   262,996     18.50  
   

Hunt Valley, MD

  Corridor                                
 

216 Schilling Circle

  Hunt Valley/Rte 83     1988/2001     36,273     77.1 %   606,207     21.66  
   

Hunt Valley, MD

  Corridor                                
 

222 Schilling Circle

  Hunt Valley/Rte 83     1978/1997     28,747     73.7 %   435,487     20.55  
   

Hunt Valley, MD

  Corridor                                
 

224 Schilling Circle

  Hunt Valley/Rte 83     1978/1997     27,574     64.3 %   342,504     19.32  
   

Hunt Valley, MD

  Corridor                                
 

11101 McCormick Road

  Hunt Valley/Rte 83     1976     23,844     89.8 %   409,433     19.12  
   

Hunt Valley, MD

  Corridor                                
 

7210 Ambassador Road

  Baltimore County     1972     83,435     100.0 %   938,586     11.25  
   

Woodlawn, MD

  Westside                                
 

7152 Windsor Boulevard

  Baltimore County     1986     57,855     100.0 %   968,980     16.75  
   

Woodlawn, MD

  Westside                                

26


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

21 Governor's Court

  Baltimore County     1981/1995     56,383     59.2 %   615,805     18.46  
   

Woodlawn, MD

  Westside                                
 

7125 Ambassador Road

  Baltimore County     1985     50,604     84.9 %   868,270     20.20  
   

Woodlawn, MD

  Westside                                
 

7104 Ambassador Road

  Baltimore County     1988     30,081     100.0 %   550,697     18.31  
   

Woodlawn, MD

  Westside                                
 

17 Governor's Court

  Baltimore County     1981     14,454     100.0 %   278,227     19.25  
   

Woodlawn, MD

  Westside                                
 

15 Governor's Court

  Baltimore County     1981     14,568     100.0 %   240,213     16.49  
   

Woodlawn, MD

  Westside                                
 

7127 Ambassador Road

  Baltimore County     1985     11,630     62.2 %   105,096     14.53  
   

Woodlawn, MD

  Westside                                
 

7129 Ambassador Road

  Baltimore County     1985     11,075     100.0 %   191,417     17.28  
   

Woodlawn, MD

  Westside                                
 

7108 Ambassador Road

  Baltimore County     1988     8,811     86.7 %   137,523     18.00  
   

Woodlawn, MD

  Westside                                
 

7102 Ambassador Road

  Baltimore County     1988     8,879     49.6 %   77,035     17.50  
   

Woodlawn, MD

  Westside                                
 

7106 Ambassador Road

  Baltimore County     1988     8,899     47.2 %   66,528     15.86  
   

Woodlawn, MD

  Westside                                
 

7131 Ambassador Road

  Baltimore County     1985     7,734     45.0 %   30,004     8.62  
   

Woodlawn, MD

  Westside                                
 

502 Washington Avenue

  Towson     1984     91,004     83.9 %   3,941,071     51.62  
   

Towson, MD

                                   
 

102 West Pennsylvania Avenue

  Towson     1968/2001     48,808     89.0 %   952,751     21.93  
   

Towson, MD

                                   
 

100 West Pennsylvania Avenue

  Towson     1952/1989     18,715     66.9 %   230,760     18.44  
   

Towson, MD

                                   
 

109-111 Allegheny Avenue

  Towson     1971     18,431     45.7 %   147,126     17.45  
   

Towson, MD

                                   
 

1501 South Clinton Street

  Baltimore     2006     474,237     87.61 %   13,502,085     32.50  
   

Baltimore, MD

                                   
 

10001 Franklin Square Drive

  White Marsh     1997     218,215     24.6 %   456,808     8.51  
   

White Marsh, MD

                                   
 

8140 Corporate Drive

  White Marsh     2003     76,149     92.6 %   1,941,111     27.52  
   

White Marsh, MD

                                   
 

8110 Corporate Drive

  White Marsh     2001     75,687     100.0 %   1,666,055     22.01  
   

White Marsh, MD

                                   
 

8031 Corporate Drive

  White Marsh     1988/2004     66,000     100.0 %   1,219,428     18.48  
   

White Marsh, MD

                                   
 

7941-7949 Corporate Drive

  White Marsh     1996     58,287     0.0 %        
   

White Marsh, MD

                                   
 

9910 Franklin Square Drive

  White Marsh     2005     56,271     100.0 %   1,266,300     22.50  
   

White Marsh, MD

                                   
 

8020 Corporate Drive

  White Marsh     1997     50,089     0.0 %        
   

White Marsh, MD

                                   
 

8094 Sandpiper Circle

  White Marsh     1998     49,478     88.7 %   834,615     19.01  
   

White Marsh, MD

                                   
 

4979 Mercantile Road

  White Marsh     1985     51,198     100.0 %   733,998     14.34  
   

White Marsh, MD

                                   
 

4940 Campbell Boulevard

  White Marsh     1990     50,393     85.5 %   1,010,065     23.45  
   

White Marsh, MD

                                   
 

8098 Sandpiper Circle

  White Marsh     1998     47,680     100.0 %   832,871     17.47  
   

White Marsh, MD

                                   
 

4969 Mercantile Road

  White Marsh     1983     47,132     100.0 %   848,406     18.00  
   

White Marsh, MD

                                   

27


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

8114 Sandpiper Circle

  White Marsh     1986     45,806     77.3 %   923,213     26.07  
   

White Marsh, MD

                                   
 

5020 Campbell Boulevard

  White Marsh     1986-1988     43,791     76.3 %   481,386     14.40  
   

White Marsh, MD

                                   
 

9920 Franklin Square Drive

  White Marsh     2006     42,767     85.4 %   859,038     23.51  
   

White Marsh, MD

                                   
 

8007 Corporate Drive

  White Marsh     1995     41,810     84.8 %   644,152     18.16  
   

White Marsh, MD

                                   
 

9930 Franklin Square Drive

  White Marsh     2001     39,750     100.0 %   885,499     22.28  
   

White Marsh, MD

                                   
 

8010 Corporate Drive

  White Marsh     1998     38,487     18.9 %   150,027     20.65  
   

White Marsh, MD

                                   
 

8615 Ridgely's Choice Drive

  White Marsh     2005     37,764     62.5 %   513,216     21.74  
   

White Marsh, MD

                                   
 

5325 Nottingham Ridge Road

  White Marsh     2002     35,678     76.3 %   608,140     22.33  
   

White Marsh, MD

                                   
 

8013 Corporate Drive

  White Marsh     1990     30,003     27.6 %   135,034     16.30  
   

White Marsh, MD

                                   
 

9900 Franklin Square Drive

  White Marsh     1999     33,801     100.0 %   600,516     17.77  
   

White Marsh, MD

                                   
 

5024 Campbell Boulevard

  White Marsh     1986-1988     33,710     100.0 %   537,650     15.95  
   

White Marsh, MD

                                   
 

9940 Franklin Square Drive

  White Marsh     2000     32,242     81.9 %   548,109     20.76  
   

White Marsh, MD

                                   
 

5026 Campbell Boulevard

  White Marsh     1986-1988     30,163     0.0 %        
   

White Marsh, MD

                                   
 

7939 Honeygo Boulevard

  White Marsh     1984     28,206     83.9 %   554,312     23.43  
   

White Marsh, MD

                                   
 

8133 Perry Hall Boulevard

  White Marsh     1988     27,995     90.1 %   513,343     20.36  
   

White Marsh, MD

                                   
 

5022 Campbell Boulevard

  White Marsh     1986-1988     26,747     74.7 %   340,690     17.05  
   

White Marsh, MD

                                   
 

8019 Corporate Drive

  White Marsh     1990     33,274     76.5 %   496,333     19.49  
   

White Marsh, MD

                                   
 

8029 Corporate Drive

  White Marsh     1988/2004     25,000     100.0 %   464,903     18.60  
   

White Marsh, MD

                                   
 

7923 Honeygo Boulevard

  White Marsh     1985     23,482     86.2 %   424,381     20.98  
   

White Marsh, MD

                                   
 

8003 Corporate Drive

  White Marsh     1999     17,599     100.0 %   385,976     21.93  
   

White Marsh, MD

                                   
 

8015 Corporate Drive

  White Marsh     1990     15,669     100.0 %   328,663     20.98  
   

White Marsh, MD

                                   
 

8023 Corporate Drive

  White Marsh     1990     9,486     100.0 %   178,449     18.81  
                                 
   

White Marsh, MD

                                   
 

Subtotal/Average

              3,672,756     80.3 % $ 67,118,401   $ 22.77  
                                 

Colorado Springs:

                                   
 

3535 Northrop Grumman Point

  Colorado Springs     2008     124,305     100.0 % $ 2,236,953   $ 18.00  
   

Colorado Springs, CO

  East                                
 

655 Space Center Drive

  Colorado Springs     2008     103,970     100.0 %   1,904,884     18.32  
   

Colorado Springs, CO

  East                                
 

985 Space Center Drive

  Colorado Springs     1989     104,028     88.5 %   2,149,653     23.36  
   

Colorado Springs, CO

  East                                
 

565 Space Center Drive

  Colorado Springs     2009     1,949     100.0 %   35,751     18.34  
   

Colorado Springs, CO

  East                                
 

1670 North Newport Road

  Colorado Springs     1986-1987     67,500     54.7 %   802,933     21.75  
   

Colorado Springs, CO

  East                                

28


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 
 

1055 North Newport Road

  Colorado Springs     2007-2008     59,763     100.0 %   1,214,386     20.32  
   

Colorado Springs, CO

  East                                
 

745 Space Center Drive

  Colorado Springs     2006     51,500     100.0 %   1,375,260     26.70  
   

Colorado Springs, CO

  East                                
 

1915 Aerotech Drive

  Colorado Springs     1985     37,946     32.3 %   188,700     15.41  
   

Colorado Springs, CO

  East                                
 

1925 Aerotech Drive

  Colorado Springs     1985     37,946     60.1 %   522,267     22.89  
   

Colorado Springs, CO

  East                                
 

980 Technology Court

  Colorado Springs     1995     33,190     100.0 %   620,019     18.68  
   

Colorado Springs, CO

  East                                
 

525 Babcock Road

  Colorado Springs     1967     14,000     100.0 %   176,182     12.58  
   

Colorado Springs, CO

  East                                
 

9945 Federal Drive

  I-25 North Corridor     2009     74,005     0.0 %        
   

Colorado Springs, CO

                                   
 

9950 Federal Drive

  I-25 North Corridor     2001     66,222     83.6 %   865,582     15.64  
   

Colorado Springs, CO

                                   
 

9960 Federal Drive

  I-25 North Corridor     2001     46,948     78.3 %   850,082     23.11  
   

Colorado Springs, CO

                                   
 

10807 New Allegiance Drive

  I-25 North Corridor     2009     46,765     100.0 %   3,197,275     68.37  
   

Colorado Springs, CO

                                   
 

12515 Academy Ridge View

  I-25 North Corridor     2006     61,372     100.0 %   1,404,656     22.89  
   

Colorado Springs, CO

                                   
 

9965 Federal Drive

  I-25 North Corridor     1983/2007     74,749     100.0 %   1,217,594     16.29  
   

Colorado Springs, CO

                                   
 

9925 Federal Drive

  I-25 North Corridor     2008     53,745     90.8 %   575,213     11.79  
   

Colorado Springs, CO

                                   
 

5775 Mark Dabling Boulevard

  Colorado Springs     1984     109,678     100.0 %   1,941,231     17.70  
   

Colorado Springs, CO

  Northwest                                
 

5725 Mark Dabling Boulevard

  Colorado Springs     1984     108,976     100.0 %   2,206,482     20.25  
   

Colorado Springs, CO

  Northwest                                
 

5755 Mark Dabling Boulevard

  Colorado Springs     1989     105,997     88.1 %   1,968,174     21.07  
                                 
   

Colorado Springs, CO

  Northwest                                
 

Subtotal/Average

              1,384,554     85.8 % $ 25,453,277   $ 21.41  
                                 

San Antonio, Texas:

                                   
 

7700 Potranco Road

  San Antonio     1982/1985     508,412     100.0 % $ 12,327,935   $ 24.25  
   

San Antonio, TX

                                   
 

7700-1 Potranco Road

  San Antonio     2007     8,674     100.0 %   286,233     33.00  
   

San Antonio, TX

                                   
 

7700-5 Potranco Road

  San Antonio     2009     25,056     100.0 %   197,942     7.90  
   

San Antonio, TX

                                   
 

1560 A Cable Ranch Road

  San Antonio     1985/2007     45,935     100.0 %   776,725     16.91  
   

San Antonio, TX

                                   
 

1560 B Cable Ranch Road

  San Antonio     1985/2006     77,040     100.0 %   1,707,145     22.16  
                                 
   

San Antonio, TX

                                   
 

Subtotal/Average

              665,117     100.0 % $ 15,295,980   $ 23.00  
                                 

Blue Bell/Philadelphia:

                                   
 

753 Jolly Road

  Blue Bell     1960/92-94     125,637     100.0 % $ 2,138,423   $ 17.02  
   

Blue Bell, PA

                                   
 

785 Jolly Road

  Blue Bell     1970/1996     219,065     100.0 %   2,615,636     11.94  
   

Blue Bell, PA

                                   
 

751 Jolly Road

  Blue Bell     1966/1991     114,000     99.1 %   1,940,354     17.18  
                                 
   

Blue Bell, PA

                                   
 

Subtotal/Average

              458,702     100.0 % $ 6,694,413   $ 14.59  
                                 

29


Table of Contents

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 

Central New Jersey:

                                   
 

431 Ridge Road

  Exit 8A—Cranbury     1958/1998     171,200     100.0 % $ 2,028,524   $ 11.85  
   

Dayton, NJ

                                   
 

437 Ridge Road

  Exit 8A—Cranbury     1962/1996     30,000     100.0 %   321,024     10.70  
                                 
   

Dayton, NJ

                                   
 

Subtotal/Average

              201,200     100.0 % $ 2,349,548   $ 11.68  
                                 

Other:

                                   
 

11751 Meadowville Lane

  Richmond     2007     193,000     100.0 % $ 5,494,348   $ 28.47  
   

Chester, VA

  Southwest                                
 

201 Technology Park Drive

  Southwest Virginia     2007     102,842     100.0 %   3,368,232     32.75  
   

Lebanon, VA

                                   
 

14303 Lake Royer Drive

  Fort Ritchie     1990/2007     9,829     86.5 %   145,772     17.14  
   

Cascade, MD

                                   
 

14310 Castle Drive

  Fort Ritchie     1993/2008     3,014     100.0 %   45,210     15.00  
   

Cascade, MD

                                   
 

14316 Lake Royer Drive

  Fort Ritchie     1953     864     0.0 %        
   

Cascade, MD

                                   
 

24949 Lake Wastler Drive

  Fort Ritchie     2009     1,521     100.0 %   22,815     15.00  
                                 
   

Cascade, MD

                                   
 

Subtotal/Average

              311,070     99.3 % $ 9,076,377   $ 29.38  
                                 
 

Total/Average

              19,100,773     90.7 % $ 426,598,020   $ 24.63  
                                 

(1)
This percentage is based upon all rentable square feet under lease terms that were in effect at December 31, 2009.

(2)
Annualized rental revenue is the monthly contractual base rent as of December 31, 2009 multiplied by 12, plus the estimated annualized expense reimbursements under existing leases. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under GAAP does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis.

(3)
Annualized rental revenue per occupied square foot is the property's annualized rental revenue divided by that property's occupied square feet as of December 31, 2009.

30


Table of Contents

        The following table provides certain information about our wholly owned properties that were under construction, development or redevelopment as of December 31, 2009:

Property and Location
  Submarket   Estimated Rentable
Square Feet Upon
Completion
  Percentage Leased at
February 5, 2010
 

Under Construction

                 

Baltimore/Washington Corridor:

                 
 

300 Sentinel Way (300 NBP)

  BWI Airport     192,754     57 %
   

Annapolis Junction, MD

                 
 

308 Sentinel Drive (308 NBP)

  BWI Airport     150,843     0 %
   

Annapolis Junction, MD

                 
 

324 Sentinel Drive (324 NBP)

  BWI Airport     125,129     100 %
                 
   

Annapolis Junction, MD

                 
 

Subtotal/Average

        468,726        
                 

Colorado Springs:

                 
 

10807 New Allegiance Drive (Epic One)

  I-25 North Corridor     145,723     41 %
   

Colorado Springs, CO

                 
 

565 Space Center Drive (Patriot Park 7)

  Colorado Springs East     89,773     2 %
                 
   

Colorado Springs, CO

                 
 

Subtotal/Average

        235,496        
                 

Greater Baltimore:

                 
 

209 Research Boulevard

  Harford County     78,220     69 %
   

Aberdeen, Maryland

                 
 

210 Research Boulevard

  Harford County     78,856     0 %
                 
   

Aberdeen, Maryland

                 
 

Subtotal/Average

        157,076        
                 

San Antonio:

                 
 

8000 Potranco Road

  San Antonio     125,005     100 %
   

San Antonio, TX

  Northwest              
 

8030 Potranco Road

  San Antonio     125,005     100 %
                 
   

San Antonio, TX

  Northwest              
 

Subtotal/Average

        250,010        
                 
 

Total Under Construction

        1,111,308     54 %
                 

Under Development

                 

Baltimore/Washington Corridor:

                 
 

316 Sentinel Drive (316 NBP)

  BWI Airport     125,044     N/A  
   

Annapolis Junction, MD

                 
 

430 National Business Parkway

  BWI Airport     110,000     N/A  
                 
   

Annapolis Junction, MD

                 
 

Subtotal/Average

        235,044        
                 

Greater Baltimore:

                 
 

Northgate Business Park (Lot D)

  Harford County     127,530     N/A  
   

Aberdeen, MD

                 
 

Northgate Business Park (Lot 1)

  Harford County     127,530     N/A  
                 
   

Aberdeen, MD

                 
 

Subtotal/Average

        255,060        
                 

St. Mary's & King George Counties:

                 
 

Expedition Drive

  St. Mary's County     45,975     N/A  
                 
   

Lexington Park, MD

                 

                 

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Table of Contents

Property and Location
  Submarket   Estimated Rentable
Square Feet Upon
Completion
  Percentage Leased at
February 5, 2010
 
San Antonio:                  
 

Sentry Gateway (Building 100)

 

San Antonio Northwest

    94,550     N/A  
   

San Antonio, TX

                 
 

8100 Potranco Road

 

San Antonio Northwest

   
125,000
   
N/A
 
                 
   

San Antonio, TX

                 
 

Subtotal/Average

        219,550        
                 
 

Total Under Development

        755,629        
                 

Under Redevelopment

                 

Blue Bell/Philadelphia:

                 
 

760 Jolly Road

  Blue Bell     208,854     75 %
                 
   

Blue Bell, PA

                 

        The following table provides certain information about our wholly owned developable land holdings not under construction or development as of December 31, 2009:

Land Location
  Submarket   Acres   Estimated Developable
Square Feet
 

Baltimore/Washington Corridor:

                 
 

National Business Park (Phase II)

  BWI Airport     16     250,000  
   

Annapolis Junction, MD

                 
 

National Business Park (Phase III)

  BWI Airport     173     1,367,000  
   

Annapolis Junction, MD

                 
 

1243 Winterson Road (AS 22)

  BWI Airport     2     30,000  
   

Linthicum, MD

                 
 

940 Elkridge Landing Road (AS 7)

  BWI Airport     3     53,940  
   

Linthicum, MD

                 
 

West Nursery

  BWI Airport     1     4,800  
   

Linthicum, MD

                 
 

1460 Dorsey Road

  BWI Airport     6     60,000  
   

Hanover, MD

                 
 

Columbia Gateway Parcel T-11

  Howard Co. Perimeter     14     220,000  
   

Columbia, MD

                 
 

7125 Columbia Gateway Drive

  Howard Co. Perimeter     5     120,000  
               
   

Columbia, MD

                 
 

Subtotal

        220     2,105,740  
               

Northern Virginia:

                 
 

Westfields Corporate Center

  Dulles South     23     400,460  
   

Chantilly, VA

                 
 

Westfields—Park Center

  Dulles South     33     674,170  
   

Chantilly, VA

                 
 

Woodland Park

  Herndon     5     225,000  
               
   

Herndon, VA

                 
 

Subtotal

        61     1,299,630  
               

Suburban Maryland:

                 
 

Thomas Johnson Drive

  Frederick     6     170,000  
   

Frederick, MD

                 
 

Route 15 / Biggs Ford Road

  Frederick     107     1,000,000  
   

Frederick, MD

                 
 

Rockville Corporate Center

  Rockville     10     220,000  
               
   

Rockville, MD

                 
 

Subtotal

        123     1,390,000  
               

                 

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Table of Contents

Land Location
  Submarket   Acres   Estimated Developable
Square Feet
 
Greater Baltimore:                  
 

Canton Crossing

  Baltimore     10     773,000  
   

Baltimore, MD

                 
 

White Marsh

  White Marsh     152     1,692,000  
   

White Marsh, MD

                 
 

37 Allegheny Avenue(1)

  Towson     0     40,000  
   

Towson, MD

                 
 

Northgate Business Park

  Harford County     34     439,000  
               
   

Aberdeen, MD

                 
 

Subtotal

        196     2,944,000  
               

St. Mary's & King George Counties:

                 
 

Dahlgren Technology Center

  King George County     39     122,000  
   

Dahlgren, MD

                 

Colorado Springs:

                 
 

InterQuest

  I-25 North Corridor     117     1,656,600  
   

Colorado Springs, CO

                 
 

Patriot Park

  Colorado Springs East     71     756,250  
   

Colorado Springs, CO

                 
 

Aerotech Commerce

  Colorado Springs East     6     90,000  
               
   

Colorado Springs, CO

                 
 

Subtotal

        194     2,502,850  
               

San Antonio:

                 
 

Northwest Crossroads

  San Antonio Northwest     31     375,000  
   

San Antonio, TX

                 
 

Military Drive

  San Antonio Northwest     40     660,000  
               
   

San Antonio, TX

                 
 

Subtotal

        71     1,035,000  
               

Greater Philadelphia:

                 
 

Arborcrest

  Blue Bell     8     160,000  
               
   

Blue Bell, PA

                 

Northern/Central New Jersey:

                 
 

Princeton Technology Center

  Exit 8A—Cranbury     19     250,000  
               
   

Cranbury, NJ

                 

Other:

                 
 

Fort Ritchie(2)

  Fort Ritchie     591     1,700,000  
               
   

Cascade, MD

                 
 

Total Land

       
1,521
   
13,509,220
 
               

(1)
This property contains 0.3 of an acre.

(2)
The Fort Ritchie acquisition includes 284,000 square feet of existing office space targeted for future development (of which 10,248 square feet were leased as of December 31, 2009) and 110 existing usable residential units.

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        The following table provides certain information about our joint venture office properties as of December 31, 2009:

Property and Location
  Submarket   Year
Built/
Renovated
  Rentable
Square
Feet
  Occupancy(1)   Annualized
Rental
Revenue(2)
  Annualized Rental
Revenue per
Occupied
Square Foot(2)(3)
 

B/W Corridor:

                                   
 

7740 Milestone Parkway

  BWI Airport     2007     143,939     6.0 % $ 267,400   $ 30.88  
                                 
   

Hanover, MD

                                   
 

Subtotal/Average

              143,939     6.0 % $ 267,400   $ 30.88  
                                 

Suburban Maryland

                                   
 

4230 Forbes Boulevard

  Lanham     2003     55,883     90.9 % $ 824,673   $ 16.23  
   

Prince Georges, MD

                                   
 

5825 University Research Drive

  College Park     2008     118,519     64.4 %   1,968,712     25.79  
   

College Park, MD

                                   
 

5850 University Research Drive

  College Park     2009     123,464     100.0 %   2,901,404     23.50  
                                 
   

College Park, MD

                                   
 

Subtotal/Average

              297,866     84.1 % $ 5,694,789   $ 22.72  
                                 

Greater Harrisburg:

                                   
 

2605 Interstate Drive

  East Shore     1990     79,456     100.0 % $ 1,466,758   $ 18.46  
   

Harrisburg, PA

                                   
 

6345 Flank Drive

  East Shore     1989     69,443     70.6 %   686,650     14.00  
   

Harrisburg, PA

                                   
 

6340 Flank Drive

  East Shore     1988     68,200     100.0 %   809,126     11.86  
   

Harrisburg, PA

                                   
 

2601 Market Place

  East Shore     1989     65,411     92.1 %   1,175,351     19.51  
   

Harrisburg, PA

                                   
 

6400 Flank Drive

  East Shore     1992     52,439     75.5 %   535,059     13.51  
   

Harrisburg, PA

                                   
 

6360 Flank Drive

  East Shore     1988     46,589     73.1 %   430,665     12.64  
   

Harrisburg, PA

                                   
 

6385 Flank Drive

  East Shore     1995     32,671     62.6 %   289,863     14.16  
   

Harrisburg, PA

                                   
 

6380 Flank Drive

  East Shore     1991     32,668     80.6 %   399,926     15.19  
   

Harrisburg, PA

                                   
 

6405 Flank Drive

  East Shore     1991     32,000     0.0 %        
   

Harrisburg, PA

                                   
 

95 Shannon Road

  East Shore     1999     21,976     100.0 %   398,226     18.12  
   

Harrisburg, PA

                                   
 

75 Shannon Road

  East Shore     1999     20,887     0.0 %        
   

Harrisburg, PA

                                   
 

6375 Flank Drive

  East Shore     2000     19,783     71.3 %   232,745     16.50  
   

Harrisburg, PA

                                   
 

85 Shannon Road

  East Shore     1999     12,863     100.0 %   233,090     18.12  
   

Harrisburg, PA

                                   
 

5035 Ritter Road

  West Shore     1988     56,556     100.0 %   920,243     16.27  
   

Mechanicsburg, PA

                                   
 

5070 Ritter Road—Building A

  West Shore     1989     31,710     75.7 %   352,290     14.67  
   

Mechanicsburg, PA

                                   
 

5070 Ritter Road—Building B

  West Shore     1989     28,347     82.0 %   322,747     13.89  
                                 
   

Mechanicsburg, PA

                                   
 

Subtotal/Average

              670,999     79.0 % $ 8,252,739   $ 15.57  
                                 
 

Total/Average

              1,112,804     70.9 % $ 14,214,928   $ 18.01  
                                 

(1)
This percentage is based upon all rentable square feet under lease terms that were in effect at December 31, 2009.

(2)
Annualized rental revenue is the monthly contractual base rent as of December 31, 2009 multiplied by 12, plus the estimated annualized expense reimbursements under existing leases.

(3)
Annualized rental revenue per occupied square foot is the property's annualized rental revenue divided by that property's occupied square feet as of December 31, 2009.

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        The following table provides certain information about an office property owned through a joint venture that was under redevelopment as of December 31, 2009:

Property and Location
  Submarket   Estimated Rentable
Square Feet Upon
Completion
  Percentage
Leased/
Committed

Baltimore/Washington Corridor:

             
 

7468 Candlewood Road

  BWI Airport     356,000   N/A
             
   

Hanover, MD

             

        The following table provides certain information about our developable land holdings through joint ventures that were not under construction or development as of December 31, 2009:

Land Location
  Submarket   Acres   Estimated
Developable
Square
Feet
 

Baltimore/Washington Corridor:

                 
 

Arundel Preserve(1)

  BWI Airport     56     1,651,870  
   

Hanover, MD

                 
 

M Square Research Park

  College Park     49     510,453  
               
   

College Park, MD

        105     2,162,323  

Other:

                 
 

Indian Head

  Charles County     192     967,250  
               
   

Charles County, MD

                 
 

Total Land

        297     3,129,573  
               

(1)
This land was not owned at December 31, 2009 but was under contract.

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Table of Contents

Lease Expirations

        The following table provides a summary schedule of the lease expirations for leases in place for our wholly owned properties as of December 31, 2009, assuming that none of the tenants exercise renewal options. This analysis includes the effect of early renewals completed on existing leases but excludes the effect of new tenant leases on 112,203 square feet yet to commence as of December 31, 2009.

Year of Lease Expiration(1)
  Number of
Leases
Expiring
  Square Footage
of Leases
Expiring
  Percentage of
Total Occupied
Square Feet
  Annualized
Rental of
Expiring
Leases(2)
  Percentage of
Total Annualized
Rental Revenue
Expiring(2)
  Total Annualized
Rental Revenue of
Expiring Leases
Per Occupied
Square Foot
 
 
   
   
   
  (in thousands)
   
   
 

2010

    248     2,954,757     17.1 % $ 67,304     15.8 % $ 22.78  

2011

    199     1,782,359     10.3 %   39,679     9.3 %   22.26  

2012

    196     2,638,449     15.3 %   60,376     14.2 %   22.88  

2013

    165     1,865,203     10.8 %   50,966     12.0 %   27.32  

2014

    155     1,545,309     8.9 %   38,009     8.9 %   24.60  

2015

    115     1,960,836     11.3 %   50,889     11.9 %   25.95  

2016

    52     732,289     4.2 %   20,460     4.8 %   27.94  

2017

    63     1,111,004     6.4 %   34,045     8.0 %   30.64  

2018

    48     832,407     4.8 %   20,521     4.8 %   24.65  

2019

    25     431,907     2.5 %   9,246     2.2 %   21.41  

2020

    10     384,354     2.2 %   8,091     1.9 %   21.05  

2021

    8     166,067     1.0 %   3,970     0.9 %   23.91  

2022

    3     295,842     1.7 %   8,863     2.1 %   29.96  

2023

    1     44,616     0.2 %   944     0.2 %   21.15  

2025

    3     542,142     3.1 %   12,812     3.0 %   23.63  

Other(3)

    12     35,103     0.2 %   423     0.0 %   12.05  
                             

Total/Weighted Average

    1,303     17,322,644     100.0 % $ 426,598     100.0 % $ 24.63  
                             

(1)
Most of our leases with the United States Government provide for consecutive one-year terms or provide for early termination rights. All of the leasing statistics set forth above assumed that the United States Government will remain in the space that it leases through the end of the respective arrangements, without ending consecutive one-year leases prematurely or exercising early termination rights. We reported the statistics in this manner because we manage our leasing activities using these same assumptions and believe these assumptions to be probable.

(2)
Annualized rental revenue is the monthly contractual base rent as of December 31, 2009 multiplied by 12, plus the estimated annualized expense reimbursements under existing office leases.

(3)
Other consists primarily of amenities, including cafeterias, concierge offices and property management space. In addition, month-to-month leases and leases that have expired but the tenant remains in holdover are included in this line item as the exact expiration date is unknown.

Item 3.   Legal Proceedings

        Jim Lemon and Robin Biser, as plaintiffs, initiated a suit on May 12, 2005, in The United States District Court for the District of Columbia (Case No. 1:05CV00949), against The Secretary of the United States Army, PenMar Development Corporation ("PMDC") and the Company, as defendants, in connection with the then pending acquisition by the Company of the former army base known as Fort Ritchie located in Cascade, Maryland. The case was dismissed by the United States District Court on September 28, 2006, due to the plaintiffs' lack of standing. The plaintiffs filed an appeal in the case in the United States Court of Appeals for the District of Columbia Circuit and the Court of Appeals reversed the findings of the District Court and remanded the case to the District Court for further proceedings. The plaintiffs were unsuccessful in their request for an emergency injunction pending appeal. The Company acquired from PMDC fee simple title to 500 acres of the 591 acres comprising Fort Ritchie on October 5, 2006 and the remaining 91 acres on November 29, 2007.

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        On November 10, 2009, the District Court issued an Order, together with a Memorandum Opinion, which precludes the Company from proceeding with the implementation of its development plan until the Army either re-issues an amended Record of Environmental Consideration ("REC") or a Supplemental Environmental Impact Statement ("SEIS") that complies with the District Court's Memorandum Opinion. The Memorandum Opinion highlights various areas of the existing REC which could be revised to include greater detail on the Army's deliberative process, whereby the Army determined that a SEIS was not necessary. We are working with both the Army's counsel and the Army representative to expedite re-submission of the amended REC to the Court, in order to lift the restrictions imposed by the Court.

        On January 8, 2010, the Army filed an appeal in the United States Court of Appeals for the D.C. Circuit, and, on January 14, 2010, the plaintiffs filed a cross-appeal. The appeals are pending at this time. No schedule has been set for briefing or oral argument. We have been advised by the Army that it is considering withdrawing its appeal shortly to allow the District Court to consider an amended REC and that, if it does withdraw the appeal, then the plaintiffs have agreed to withdraw their cross-appeal.

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

Item 4.    Submission of Matters to a Vote of Security Holders

        Not applicable.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Market Information

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

 
  Price Range    
 
 
  Dividends
Per Share
 
2008
  Low   High  

First Quarter

  $ 25.43   $ 36.16   $ 0.3400  

Second Quarter

  $ 33.65   $ 40.00   $ 0.3400  

Third Quarter

  $ 32.00   $ 43.50   $ 0.3725  

Fourth Quarter

  $ 20.39   $ 39.84   $ 0.3725  

 

 

 

 

 

 

 

 

 

 

 
 
  Price Range    
 
 
  Dividends
Per Share
 
2009
  Low   High  

First Quarter

  $ 20.49   $ 30.92   $ 0.3725  

Second Quarter

  $ 23.13   $ 33.14   $ 0.3725  

Third Quarter

  $ 26.87   $ 40.59   $ 0.3925  

Fourth Quarter

  $ 31.77   $ 38.29   $ 0.3925  

        The number of holders of record of our common shares was 651 as of December 31, 2009. This number does not include shareholders whose shares are held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder.

        We will pay dividends at the discretion of our Board of Trustees. Our ability to pay cash dividends will be dependent upon: (i) the income and cash flow generated from our operations; (ii) cash generated or used by our financing and investing activities; and (iii) the annual distribution requirements under the REIT provisions of the Code described above and such other factors as the Board of Trustees deems relevant. Our ability to make cash dividends will also be limited by the terms of our Operating Partnership Agreement and our financing arrangements, as well as limitations imposed by state law and the agreements governing any future indebtedness.

Unregistered Sales of Equity Securities and Use of Proceeds

        During the three months ended December 31, 2009, 17,394 of the Operating Partnership's common units were exchanged for 17,394 common shares in accordance with the Operating Partnership's Second Amended and Restated Limited Partnership Agreement, as amended. The issuance of these common shares was effected in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.

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Table of Contents

Common Shares Performance Graph

        The graph and the table set forth below assume $100 was invested on December 31, 2004 in the common shares of Corporate Office Properties Trust. The graph and the table compare the cumulative return (assuming reinvestment of dividends) of this investment with a $100 investment at that time in the S&P 500 Index or the All Equity REIT Index of the National Association of Real Estate Investment Trusts ("NAREIT"):

GRAPHIC

 
  Period Ended  
Index
  12/31/04   12/31/05   12/31/06   12/31/07   12/31/08   12/31/09  

Corporate Office Properties Trust

    100.00     125.36     182.74     117.89     119.98     150.32  

S&P 500

    100.00     104.91     121.48     128.16     80.74     102.11  

NAREIT All Equity REIT Index

    100.00     112.16     151.49     127.72     79.53     101.79  

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Item 6.    Selected Financial Data

        The following table sets forth summary financial data as of and for each of the years ended December 31, 2005 through 2009. The table illustrates the significant growth our Company experienced over the periods reported. Most of this growth, particularly pertaining to revenues, operating income and total assets, was attributable to our addition of properties through acquisition and development activities. We financed most of the acquisition and development activities by incurring debt and issuing preferred and common equity, as indicated by the growth in our interest expense, preferred share dividends and weighted average common shares outstanding. The growth in our general and administrative expenses reflects, in large part, the growth in management resources required to support the increased size of our portfolio. Since this information is only a summary, you should refer to our Consolidated Financial Statements and notes thereto and the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.

Corporate Office Properties Trust and Subsidiaries
(in thousands, except per share data and number of properties)

 
  2009   2008   2007   2006   2005  

Revenues

                               
 

Revenues from real estate operations(1)

  $ 424,432   $ 397,220   $ 363,241   $ 288,270   $ 233,244  
 

Construction contract and other service operations revenues

    343,087     188,385     41,225     60,084     79,234  
                       
   

Total revenues

    767,519     585,605     404,466     348,354     312,478  
                       

Expenses

                               
 

Property operating expenses(1)

    157,314     141,052     122,961     92,328     69,306  
 

Depreciation and amortization associated with real estate operations(1)

    108,609     101,937     103,916     75,560     59,465  
 

Construction contract and other service operations expenses

    336,519     184,142     39,793     57,345     77,287  
 

General and administrative expenses

    23,240     24,096     20,227     17,441     12,877  
 

Business development expenses

    3,699     1,233     1,477     607     656  
                       
   

Total operating expenses

    629,381     452,460     288,374     243,281     219,591  
                       

Operating income

    138,138     133,145     116,092     105,073     92,887  

Interest expense

    (82,208 )   (86,414 )   (88,130 )   (73,442 )   (55,077 )

Interest and other income

    5,164     2,070     3,030     1,077     304  

Gain on early extinguishment of debt

        8,101              
                       

Income from continuing operations before equity in loss of unconsolidated entities and income taxes

    61,094     56,902     30,992     32,708     38,114  

Equity in loss of unconsolidated entities

    (941 )   (147 )   (224 )   (92 )   (88 )

Income tax expense

    (196 )   (201 )   (569 )   (887 )   (668 )
                       

Income from continuing operations

    59,957     56,554     30,199     31,729     37,358  

Discontinued operations, net of income taxes(1)(2)

    1,342     3,658     3,706     23,370     7,803  
                       

Income before gain on sales of real estate, net of income taxes

    61,299     60,212     33,905     55,099     45,161  

Gain on sales of real estate, net of income taxes(1)(3)

        1,104     2,037     889     334  
                       

Net income

    61,299     61,316     35,942     55,988     45,495  

Net income attributable to noncontrolling interests

    (4,970 )   (7,351 )   (3,741 )   (7,621 )   (6,464 )
                       

Net income attributable to Corporate Office Properties Trust

    56,329     53,965     32,201     48,367     39,031  

Preferred share dividends

    (16,102 )   (16,102 )   (16,068 )   (15,404 )   (14,615 )

Issuance costs associated with redeemed preferred shares(4)

                (3,896 )    
                       

Net income attributable to Corporate Office Properties Trust common shareholders

  $ 40,227   $ 37,863   $ 16,133   $ 29,067   $ 24,416  
                       

                               

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  2009   2008   2007   2006   2005  
Basic earnings per common share(5)                                
 

Income from continuing operations

  $ 0.68   $ 0.71   $ 0.27   $ 0.23   $ 0.49  
 

Net income

  $ 0.70   $ 0.77   $ 0.34   $ 0.69   $ 0.65  

Diluted earnings per common share(5)

                               
 

Income from continuing operations

  $ 0.68   $ 0.70   $ 0.26   $ 0.22   $ 0.47  
 

Net income

  $ 0.70   $ 0.76   $ 0.33   $ 0.67   $ 0.63  

Weighted average common shares outstanding—basic

    55,930     48,132     46,527     41,463     37,371  

Weighted average common shares outstanding—diluted

    56,407     48,820     47,518     43,031     38,997  

Balance Sheet Data (as of year end):

                               

Investment in real estate

  $ 3,029,900   $ 2,778,466   $ 2,604,836   $ 2,111,517   $ 1,888,106  

Total assets

  $ 3,380,022   $ 3,114,239   $ 2,932,364   $ 2,419,329   $ 2,129,759  

Debt

  $ 2,053,841   $ 1,856,751   $ 1,809,610   $ 1,478,460   $ 1,348,351  

Total liabilities

  $ 2,259,390   $ 2,031,816   $ 1,962,884   $ 1,609,034   $ 1,442,036  

Total equity

  $ 1,120,632   $ 1,082,423   $ 969,480   $ 810,295   $ 687,723  

Other Financial Data (for the year ended):

                               

Cash flows provided by (used in):

                               
 

Operating activities

  $ 194,817   $ 180,892   $ 138,391   $ 113,358   $ 95,944  
 

Investing activities

  $ (349,076 ) $ (290,822 ) $ (328,404 ) $ (254,041 ) $ (420,301 )
 

Financing activities

  $ 155,746   $ 92,067   $ 206,728   $ 137,822   $ 321,320  

Numerator for diluted EPS

  $ 39,217   $ 37,135   $ 15,616   $ 28,618   $ 24,416  

Diluted funds from operations(6)

  $ 152,626   $ 143,592   $ 121,371   $ 97,165   $ 88,490  

Diluted funds from operations per share(6)

  $ 2.46   $ 2.52   $ 2.17   $ 1.89   $ 1.86  

Cash dividends declared per common share

  $ 1.53   $ 1.425   $ 1.30   $ 1.18   $ 1.07  

Property Data (as of year end):

                               

Number of properties owned(1)(7)

    249     238     228     170     165  

Total rentable square feet owned(1)(7)

    19,101     18,462     17,832     15,050     13,708  

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

(2)
Includes income derived from three operating properties we sold in 2005, seven operating real estate properties we sold in 2006, four operating real estate properties we sold in 2007, three operating real estate properties we sold in 2008 and two operating real estate properties that we reclassified to held for sale in 2009 (see Note 17 to our Consolidated Financial Statements).

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

(4)
Reflects a decrease to net income available to common shareholders pertaining to the original issuance costs recognized upon the redemption of the Series E and Series F preferred shares of beneficial interest in 2006.

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

(6)
For definitions of diluted funds from operations per share and diluted funds from operations and reconciliations of these measures to their comparable measures under generally accepted accounting principles, you should refer to the section entitled "Funds from Operations" within the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(7)
Amounts reported reflect only wholly owned properties.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        You should refer to our Consolidated Financial Statements and the notes thereto and our Selected Financial Data table as you read this section.

        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 and operations of our business. Forward-looking statements can be identified by the use of words such as "may," "will," "should," "could," "expect," "estimate" or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:

        We undertake no obligation to update or supplement forward-looking statements.

Overview

        We are a specialty office real estate investment trust ("REIT") that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of December 31, 2009, our investments in real estate included the following:

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        Most of our revenues relating to real estate operations are derived from rents and property operating expense reimbursements earned from tenants leasing space in our properties. Most of our expenses relating to our real estate operations take the form of: (1) property operating costs, such as real estate taxes, utilities and repairs and maintenance; (2) interest costs; and (3) depreciation and amortization associated with our operating properties. Much of our profitability from real estate operations depends on our ability to maintain high levels of occupancy and increase rents, which is affected by a number of factors, including, among other things, our tenants' ability to fulfill their lease obligations and their continuing space needs based on, among other things, employment levels, business confidence and competition and general economic conditions of the markets in which we operate.

        At December 31, 2009, our wholly owned properties were located in the following geographic regions, which also represent our reportable segments:

 
  As of December 31, 2009  
Region
  Operational
Square
Feet
  Number of
Properties
  Occupancy
Rate
 
 
  (in thousands)
   
   
 

Baltimore/Washington Corridor (generally the Maryland counties of Howard and Anne Arundel)

    8,277     109     91.6 %

Greater Baltimore, Maryland (generally the Maryland counties of Baltimore and Harford and Baltimore City)

    3,673     64     80.3 %

Northern Virginia

    2,613     15     96.6 %

Colorado Springs, Colorado

    1,385     21     85.8 %

St. Mary's and King George Counties (in Maryland and Virginia)

    822     18     97.8 %

Suburban Maryland (defined as the Maryland counties of Montgomery, Prince George's and Frederick)

    695     5     91.9 %

San Antonio, Texas

    665     6     100.0 %

Greater Philadelphia, Pennsylvania

    459     3     100.0 %

Central New Jersery

    201     2     100.0 %

Other

    311     6     99.3 %
                 
 

Total

    19,101     249     90.7 %
                 

        During 2009, we expanded our portfolio of operating properties by:

        Our strategy for operations and growth focuses on establishing and nurturing long-term relationships with quality tenants and accommodating their multi-locational needs, particularly tenants

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in the United States Government, defense information technology and data sectors. As a result of this strategy, a large concentration of our revenue is derived from several large tenants. At December 31, 2009, 55.4% of our annualized rental revenue (as defined in the section entitled "Concentration of Operations") from wholly owned properties was from our 20 largest tenants, 31.5% from our three largest tenants, 18.6% from our largest tenant, the United States Government, and 54.9% from properties occupied primarily by tenants in the United States Government, defense information technology and data sectors.

        Since the latter part of 2007, the United States and world economies have struggled through difficult conditions, including a significant recession. This slowdown has had devastating effects on the capital markets, with tightening credit availability. The commercial real estate industry was affected by these events, the most uniform and immediate effect being an increased difficulty in obtaining capital to fund debt repayments and growth activities, such as acquisitions and development costs. We believe that there was a natural lag in time before the changes in the overall economy began to significantly affect the operations of the office real estate sector since the sector's core operations tend to be structured as long-term leases, with revenue streams generally remaining in place until leases expire or tenants fail to satisfy lease terms. Due in large part to this reason, we do not believe that the economic downturn began to significantly affect the operating performance of our real estate properties until 2009, when we faced significantly increased leasing challenges. While we ended the year with occupancy at our wholly owned properties of 90.7%, a strong percentage relative to many of our competitors both nationally and in our regions, this percentage represented a decrease from 93.2% at the beginning of the year. We also experienced slower than expected leasing on a number of our newly constructed properties. We expect these leasing challenges to continue throughout most of 2010 and perhaps longer, as discussed in greater detail in the section below entitled "Occupancy and Leasing."

        Our net income attributable to common shareholders increased $2.4 million, or 6.2%, from 2008 to 2009, significant drivers of which included growth in operating income from our operating properties and a decrease in interest expense resulting primarily from decreased interest rates on variable rate debt, as offset by a decrease in gains on early debt extinguishments.

        One manner in which we evaluate the operating performance of our properties is through a measure we define as net operating income ("NOI") from real estate operations, which is derived by subtracting property operating expenses from revenues from real estate operations (please refer to the section below entitled "Results of Operations" for additional information pertaining to this measure). The amount of NOI from real estate operations included in income from continuing operations is referred to herein as NOI from continuing real estate operations. We experienced growth of $11.0 million, or 4.3%, in our NOI from continuing real estate operations from 2008 to 2009, most of which was attributable to the growth of our portfolio from construction and acquisition activities. We experienced growth of $4.5 million, or 1.9%, in our NOI from continuing operations attributable to properties that were owned and 100% operational in 2008 and 2009 (properties that we refer to collectively as "Same-Office Properties"), most of which was attributable to an increase in net revenue from the early termination of leases.

        In addition to owning real estate properties, we provide real estate-related services that include: (1) construction and development management; (2) property management; and (3) heating and air conditioning services and controls. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities (please refer to the section below entitled "Results of Operations" for additional information pertaining to this measure). We experienced growth of $2.3 million, or 54.8%, in our NOI from service operations from 2008 to 2009, most of which was attributable to a high volume of construction activity in the current year in connection with one large construction contract.

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        We believe that we have sufficient capacity under our Revolving Credit Facility and Revolving Construction Facility to satisfy our debt maturities occurring through 2010 and to fund the construction of properties under construction at year end, as well as projects expected to be started during 2010. Despite the challenges faced by us in the broader capital markets, we increased borrowing availability under these credit facilities and repaid maturing debt in 2009 by:

        We discuss significant factors contributing to changes in our net income attributable to our common shareholders and diluted earnings per share over the last three years in the section below entitled "Results of Operations." We discuss our 2009 investing and financing activities further in the section below entitled "Investing and Financing Activities During 2009." In addition, the section below entitled "Liquidity and Capital Resources" includes discussions of, among other things:

Critical Accounting Policies and Estimates

        Our Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"), which require us to make certain estimates and assumptions. A summary of our significant accounting policies is provided in Note 2 to our Consolidated Financial Statements. The following section is a summary of certain aspects of those accounting policies involving estimates and assumptions that (1) require our most difficult, subjective or complex judgments in accounting for highly uncertain matters or matters that are susceptible to change and (2) materially affect our reported operating performance or financial condition. It is possible that the use of different reasonable estimates or assumptions in making these judgments could result in materially different amounts being reported in our Consolidated Financial Statements. While reviewing this section, you should refer to Note 2 to our Consolidated Financial Statements, including terms defined therein.

Acquisitions of Real Estate

        When we acquire real estate properties, we allocate the acquisition to numerous tangible and intangible components. Most of the terms in this bullet section are discussed in further detail in Note 2 to the Consolidated Financial Statements entitled "Acquisitions of Real Estate." Our process for determining the allocation to these components requires many estimates and assumptions. Included among these estimates and assumptions are the following: (1) determination of market rental rates; (2) estimation of leasing and tenant improvement costs associated with the remaining term of acquired leases; (3) leasing assumptions used in determining the in-place lease value, if-vacant value and tenant relationship value, including the rental rates, period of time that it will take to lease vacant space and estimated tenant improvement and leasing costs; (4) estimation of the property's future value in determining the if-vacant value; (5) estimation of value attributable to assets such as tenant relationship values; and (6) allocation of the if-vacant value between land and building. A change in any of the

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above key assumptions, most of which are extremely subjective, can materially change not only the presentation of acquired properties in our Consolidated Financial Statements but also our reported results of operations. The allocation to different components affects the following:

Impairment of Long-Lived Assets

        If events or changes in circumstances indicate that the carrying values of operating properties, properties in development or land held for future development may be impaired, we perform a recovery analysis based on the estimated undiscounted future cash flows to be generated from the operations and eventual disposition of such properties. If the analysis indicates that the carrying value of a tested property is not recoverable from estimated future cash flows, it is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount and capitalization rates or third-party valuations or appraisals. The estimated cash flows used for the impairment analysis and determining the fair values are based on our plans for the tested property and our views of market and economic conditions. The estimates consider matters such as current and future rental rates, occupancies for the tested property and comparable properties, estimated operating and capital expenditures and recent sales data for comparable properties. Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality and location of the properties. Changes in the estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses which, under the applicable accounting guidance, could be substantial.

        Properties held for sale are carried at the lower of their carrying values (i.e., cost less accumulated depreciation and any impairment loss recognized, where applicable) or estimated fair values less costs to sell. Accordingly, decisions to sell certain operating properties, properties in development or land held for development will result in impairment losses if carrying values of the specific properties exceed their estimated fair values less costs to sell. The estimates of fair value consider matters such as recent

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sales data for comparable properties and, where applicable, contracts or the results of negotiations with prospective purchasers. These estimates are subject to revision as market conditions, and our assessment of such conditions, change.

Assessment of Lease Term

        As discussed above, a significant portion of our portfolio is leased to the United States Government, and the majority of those leases consist of a series of one-year renewal options. Applicable accounting guidance requires us to recognize minimum rental payments on a straight-line basis over the terms of each lease and to assess the lease terms as including all periods for which failure to renew the lease imposes a penalty on the lessee in such amounts that a renewal appears, at the inception of the lease, to be reasonably assured. Factors to consider when determining whether a penalty is significant include the uniqueness of the purpose or location of the property, the availability of a comparable replacement property, the relative importance or significance of the property to the continuation of the lessee's line of business and the existence of leasehold improvements or other assets whose value would be impaired by the lessee vacating or discontinuing use of the leased property. We have concluded, based on the factors above, that the United States Government's exercise of all of those renewal options is reasonably assured. Changes in these assessments could result in the write-off of any recorded assets associated with straight-line rental revenue and acceleration of depreciation and amortization expense associated with costs we have incurred related to these leases.

Revenue Recognition on Tenant Improvements

        Most of our leases involve some form of improvements to leased space. When we are required to provide improvements under the terms of a lease, we need to determine whether the improvements constitute landlord assets or tenant assets. If the improvements are landlord assets, we capitalize the cost of the improvements and recognize depreciation expense associated with such improvements over the shorter of the useful life of the assets or the term of the lease and recognize any payments from the tenant as rental revenue over the term of the lease. If the improvements are tenant assets, we defer the cost of improvements funded by us as a lease incentive asset and amortize as a reduction of rental revenue over the term of the lease. Our determination of whether improvements are landlord assets or tenant assets also may affect when we commence revenue recognition in connection with a lease.

        In determining whether improvements constitute landlord or tenant assets, we consider numerous factors, including: whether the improvements are unique to the tenant or reusable by other tenants; whether the tenant is permitted to alter or remove the improvements without our consent or without compensating us for any lost fair value; and whether the ownership of the improvements remains with us or remains with the tenant at the end of the lease term.

Collectibility of Accounts and Deferred Rent Receivable

        Allowances for doubtful accounts and deferred rent receivable are established based on quarterly analyses of the risk of loss on specific accounts. The analyses place particular emphasis on past-due accounts and consider information such as the nature and age of the receivables, the payment history of the tenants, the financial condition of the tenants and our assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things. Our estimate of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants.

Accounting Method for Investments

        We use three different accounting methods to report our investments in entities: the consolidation method; the equity method; and the cost method (see Note 2 to our Consolidated Financial

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Statements). We use the consolidation method when we own most of the outstanding voting interests in an entity and can control its operations. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights ("variable interest entities" or "VIEs") if we are deemed to be the primary beneficiary. Generally, this applies when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve, or are conducted on behalf of, an investor with a disproportionately small voting interest. We use the equity method of accounting when we own an interest in an entity and can exert significant influence over, but cannot control, the entity's operations.

        In making these determinations, we need to make subjective estimates and judgments regarding the entity's future operating performance, financial condition, future valuation and other variables that may affect the cash flows of the entity. We must consider both our and our partner's ability to participate in the management of the entity's operations and make decisions that allow the parties to manage their economic risks. We may also need to estimate the probability of different scenarios taking place over time and project the effect that each of those scenarios would have on variables affecting the partners' cash flows. The conclusion reached as a result of this process affects whether or not we use the consolidation method in accounting for our investment or the equity method. Whether or not we consolidate an investment can materially affect our Consolidated Financial Statements.

Concentration of Operations

        We refer to the measure "annualized rental revenue" in various sections of the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report. Annualized rental revenue is a measure that we use to evaluate the source of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under GAAP does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis.

Customer Concentration of Property Operations

        Our customer strategy focuses on establishing and nurturing long-term relationships with quality tenants and accommodating their multi-locational needs. A result of this strategy is that the source of

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our revenue is highly concentrated with certain tenants. The following schedule lists our 20 largest tenants in our portfolio of wholly owned properties based on percentage of annualized rental revenue:

 
  Percentage of Annualized Rental
Revenue of Wholly Owned Properties for
20 Largest Tenants as of December 31,
 
Tenant
  2009   2008   2007  

United States Government

    18.6 %   17.3 %   16.3 %

Northrop Grumman Corporation(1)

    7.9 %   7.4 %   7.4 %

Booz Allen Hamilton, Inc. 

    5.0 %   5.2 %   5.6 %

Computer Sciences Corporation(1)

    2.9 %   3.1 %   3.2 %

General Dynamics Corporation(1)

    2.0 %   2.0 %   2.1 %

L-3 Communications Holdings, Inc.(1)

    1.8 %   2.5 %   2.5 %

Wells Fargo & Company(1)

    1.8 %   1.7 %   1.9 %

The Aerospace Corporation(1)

    1.8 %   1.9 %   1.9 %

ITT Corporation(1)

    1.7 %   1.8 %   1.1 %

CareFirst, Inc. 

    1.6 %   N/A     N/A  

Comcast Corporation(1)

    1.4 %   1.7 %   1.7 %

Integral Systems, Inc.(1)

    1.4 %   N/A     N/A  

AT&T Corporation(1)

    1.4 %   1.4 %   1.7 %

The Boeing Company(1)

    1.1 %   1.1 %   1.2 %

Unisys Corporation

    1.1 %   2.3 %   2.5 %

Ciena Corporation

    1.0 %   1.1 %   1.0 %

The Johns Hopkins Institutions(1)

    0.8 %   0.8 %   0.8 %

BAE Systems PLC(1)

    0.8 %   0.8 %   0.8 %

Merck & Co., Inc.(1)

    0.7 %   0.7 %   0.8 %

Lockheed Martin Corporation

    0.6 %   N/A     N/A  

Science Applications International Corporation

    N/A     0.8 %   0.9 %

Magellan Health Services, Inc. 

    N/A     0.7 %   0.7 %

AARP

    N/A     0.7 %   N/A  

Wyle Laboratories, Inc. 

    N/A     N/A     0.7 %
               

Subtotal of 20 largest tenants

    55.4 %   55.0 %   54.8 %

All remaining tenants

    44.6 %   45.0 %   45.2 %
               

Total

    100.0 %   100.0 %   100.0 %
               

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

        We had no significant changes in these concentrations from December 31, 2007 to December 31, 2009. The United States Government increased in large part due to it taking occupancy of most of our newly-constructed square feet placed in service, and Northrop Grumman Corporation increased slightly despite our growth in large part due to its occupancy of properties that we acquired.

        Our customer strategy focuses in particular on tenants in the United States Government, defense information technology and data sectors. As of December 31, 2009, 54.9% of our annualized rental revenue was from properties that were leased primarily to tenants in these sectors. We believe that we are well positioned for future growth from these sectors for reasons that include the following:

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        We classify the revenue from our leases into sector groupings based solely on our knowledge of the tenants' operations in leased space. We do not use independent sources such as Standard Industrial Classification codes for classifying our revenue into industry groupings and if we did, the resulting groupings would be materially different.

        There is a certain level of risk inherent in concentrating such a large portion of our operations with any one tenant. For example, our cash flow from operations and financial condition would be adversely affected if our larger tenants fail to make rental payments to us or experience financial difficulties, including bankruptcy, insolvency or general downturn of business, or if the United States Government elects to terminate several of its leases and the affected space cannot be re-leased on satisfactory terms. There is also a certain level of risk that is inherent in concentrating such a large portion of our operations with tenants whose businesses are in the same economic sector. For example, a reduction in government spending for defense information technology activities could affect the ability of a large number of our tenants to fulfill lease obligations or decrease the likelihood that these tenants would renew their leases, and, in the case of the United States Government, a reduction in government spending could result in the early termination of leases.

        As discussed above, most of our leases with the United States Government provide for a series of one-year terms or provide for early termination rights. The government may terminate its leases if, among other reasons, the United States Congress fails to provide funding.

Geographic Concentration of Property Operations

        Our market strategy is to concentrate our operations in select markets and submarkets where we believe we already possess or can achieve the critical mass necessary to maximize management efficiencies, operating synergies and competitive advantages through our acquisition, property management, leasing and development programs. A result of this strategy is that our properties are concentrated in a small number of geographic regions. The table below sets forth the regional allocation of our annualized rental revenue as of the end of the last three calendar years:

 
  Percentage of Annualized Rental
Revenue of Wholly Owned
Properties as of December 31,
  Number of
Wholly Owned Properties
as of December 31,
 
Region
  2009   2008   2007   2009   2008   2007  

Baltimore/Washington Corridor

    46.1 %   46.7 %   46.2 %   109     104     101  

Northern Virginia

    17.7 %   18.8 %   19.4 %   15     15     14  

Greater Baltimore

    15.7 %   13.1 %   14.1 %   64     63     64  

Colorado Springs

    6.0 %   5.7 %   4.0 %   21     17     13  

Suburban Maryland

    3.4 %   4.0 %   4.3 %   5     5     5  

St. Mary's and King George Counties

    3.3 %   3.4 %   3.5 %   18     18     18  

Greater Philadelphia

    1.6 %   2.9 %   3.1 %   3     4     4  

San Antonio

    3.6 %   2.6 %   2.1 %   6     5     2  

Central New Jersey

    0.5 %   0.6 %   1.0 %   2     2     4  

Other

    2.1 %   2.2 %   2.3 %   6     5     3  
                           

    100.0 %   100.0 %   100.0 %   249     238     228  
                           

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        The most significant changes in our regional allocations set forth above was due to newly-constructed properties placed into service and acquisitions of operating properties in 2008 and 2009.

        There is a certain level of risk that is inherent in concentrating such large portions of our operations in any one geographic region. For example, a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, D.C. region or the office parks in which our properties are located could have an adverse effect on our financial position, results of operations and cash flows.

Occupancy and Leasing

        The table below sets forth leasing information pertaining to our portfolio of wholly owned operating properties:

 
  December 31,  
 
  2009   2008   2007  

Occupancy rates at year end

                   
 

Total

    90.7 %   93.2 %   92.6 %
 

Baltimore/Washington Corridor

    91.6 %   93.4 %   92.6 %
 

Northern Virginia

    96.6 %   97.4 %   98.6 %
 

Greater Baltimore

    80.3 %   83.1 %   84.8 %
 

Colorado Springs

    85.8 %   94.3 %   96.7 %
 

Suburban Maryland

    91.9 %   97.7 %   97.8 %
 

St. Mary's and King George Counties

    97.8 %   95.2 %   91.6 %
 

Greater Philadelphia

    100.0 %   100.0 %   100.0 %
 

San Antonio

    100.0 %   100.0 %   100.0 %
 

Central New Jersey

    100.0 %   100.0 %   70.8 %
 

Other

    99.3 %   100.0 %   100.0 %
   

Renewal rate of square footage for scheduled lease expirations during year(1)

    73.3 %   78.1 %   69.1 %
   

Average contractual annual rental rate per square foot at year end(2)

  $ 24.63   $ 22.40   $ 21.36  

(1)
Includes the effects of early renewals and early lease terminations.

(2)
Includes estimated expense reimbursements.

        We faced an increasingly challenging lease environment in 2009 that we believe was attributable primarily to the economic downturn that started in late 2007. Most of our regions experienced job losses to varying extents. The demand for space in these regions diminished as businesses downsized their space requirements or cancelled or delayed expansion plans. Competition for tenants from owners of other properties willing to offer aggressively lower rental rates or higher cost tenant improvement terms intensified, resulting in downward pressure on regional occupancy and rental rates. We expect the leasing environment to continue to be under stress from these conditions throughout 2010 and perhaps beyond.

        The decrease in our year end occupancy rates from 2008 to 2009 included the effects of 153,000 square feet of newly constructed space placed in service that was not occupied by December 31, 2009 and slower leasing relative to recent years on space not renewed.

        Given the challenging leasing conditions we faced in 2009, we believe that our 73.3% renewal rate of square footage for scheduled lease expirations compared favorably to previous calendar years dating back to 2000, when the annual renewal rates ranged from 55% to 76%, and averaged 70%. In addition, our year end average contractual annual rent per square foot increased 10.0% from 2008 to 2009,

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which was primarily the result of higher rates on newly constructed space placed in service and acquired operating properties. However, we achieved lower increases in rent per square foot on lease renewals and retenanted space in 2009 compared to recent years.

        We believe that our continuing exposure to the challenging leasing environment is cushioned to a certain extent by the generally long-term nature of our leases and the staggered timing of our future lease expirations. While leases expire on 16% of our 2009 year end total annualized rental revenue of wholly owned properties in 2010, our weighted average lease term for wholly owned properties at December 31, 2009 was approximately five years, and no more than 15% of our annualized rental revenues at December 31, 2009 were scheduled to expire in any one calendar year between 2011 and 2014.

        At December 31, 2009, we had 1.1 million square feet under construction that was 54% leased at February 5, 2010. We are constructing this space in anticipation of demand from the United States Government and defense information technology sectors. We believe that we need to commence construction on properties that are not pre-leased to a certain extent to enable us to meet demand from these sectors in a short timeframe. In these situations, we are bearing the risk of our lease expectations not being met on such properties, which could adversely affect our financial position, results of operations and cash flows.

        We believe that our customer and market strategies serve as advantages over our competitors in the current lease environment. We believe that the United States Government, defense information technology and data sectors could still fuel growth during these tough economic times. Much of this growth for us could be driven by the relocation of military personnel to government installations in many of the regions in which our properties are located in connection with mandates by the Base Realignment and Closure Commission of the United States Congress ("BRAC"); we observed an increase in the momentum of these relocation activities in late 2009 and expect to see greater activities in 2010 and 2011. We also believe that demand in most of our markets and submarkets will be sustained, at least to a certain extent, based on their close proximity to government demand drivers such as Washington, D.C. and military installations.

        Set forth below is some additional information pertaining to our four largest regions (in terms of annualized rental revenue) (Reports compiled by CB Richard Ellis, Inc. are the source of the overall market occupancy rate information for the first three regions set forth below and a report compiled by Turner Commercial Research is the source for Colorado Springs):

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        As noted above, most of the leases with our largest tenant, the United States Government, provide for consecutive one-year terms or provide for early termination rights; all of the leasing statistics set forth above assume that the United States Government will remain in the space that they lease through the end of the respective arrangements, without ending consecutive one-year leases prematurely or exercising early termination rights. We report the statistics in this manner since we manage our leasing activities using these same assumptions and believe these assumptions to be probable.

        The table below sets forth occupancy information pertaining to operating properties in which we have a partial ownership interest:

 
   
  Occupancy Rates at
December 31,
 
 
  Ownership
Interest
 
Geographic Region
  2009   2008   2007  

Greater Harrisburg, Pennsylvania(1)

    20.0 %   79.0 %   89.4 %   90.5 %

Suburban Maryland(2)

    (2 )   84.1 %   94.8 %   76.2 %

Baltimore/Washington Corridor(3)

    50.0 %   6.0 %   N/A     N/A  

Northern Virginia(4)

    N/A     N/A     N/A     100.0 %

(1)
Includes 16 properties totaling 672,000 square feet.

(2)
Includes three properties totaling 298,000 operational square feet at December 31, 2009 (we had a 45% interest in 242,000 square feet and a 50% interest in 56,000 square feet). Includes two properties totaling 97,000 operational square feet at December 31, 2008 (we had a 50% interest in 56,000 square feet and a 45% interest in 41,000 square feet). Includes one property with 56,000 square feet in which we had a 50% interest at December 31, 2007.

(3)
Includes one property with 144,000 operational square feet at December 31, 2009.

(4)
Includes one property with 78,000 operational square feet at December 31, 2007. This property became wholly owned in December 2008.

Results of Operations

        As discussed above, one manner in which we evaluate the operating performance of our properties is through a measure we define as NOI from real estate operations, which is derived by subtracting property operating expenses from revenues from real estate operations. We believe that NOI from real

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estate operations is an important supplemental measure of performance for a REIT's operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties. The amount of NOI from real estate operations included in income from continuing operations is referred to herein as NOI from continuing real estate operations. We view our NOI from continuing real estate operations as being comprised of the following primary categories:

        As discussed above, the primary manner in which we evaluate the operating performance of our construction contract and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities. The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee. The operating margins from these activities are small relative to the revenue. As a result, we believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.

        We believe that operating income, as reported on our Consolidated Statements of Operations, is the most directly comparable GAAP measure for both NOI from continuing real estate operations and NOI from service operations. Since both of these measures exclude certain items includable in operating income, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures.

        The table below reconciles NOI from continuing real estate operations and NOI from service operations to operating income reported on our Consolidated Statement of Operations (in thousands):

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

NOI from continuing real estate operations

  $ 267,118   $ 256,168   $ 240,280  

NOI from service operations

    6,568     4,243     1,432  

Depreciation and amortization associated with real estate operations

    (108,609 )   (101,937 )   (103,916 )

General and administrative expense

    (23,240 )   (24,096 )   (20,227 )

Business development expenses

    (3,699 )   (1,233 )   (1,477 )
               

Operating income

  $ 138,138   $ 133,145   $ 116,092  
               

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Comparison of the Year Ended December 31, 2009 to the Year Ended December 31, 2008

 
  For the Years Ended December 31,  
 
  2009   2008   Variance   % Change  
 
  (Dollars in thousands)
 

Revenues

                         
 

Revenues from real estate operations

  $ 424,432   $ 397,220   $ 27,212     6.9 %
 

Construction contract and other service revenues

    343,087     188,385     154,702     82.1 %
                     
   

Total revenues

    767,519     585,605     181,914     31.1 %
                     

Expenses

                         
 

Property operating

    157,314     141,052     16,262     11.5 %
 

Depreciation and amortization associated with real estate operations

    108,609     101,937     6,672     6.5 %
 

Construction contract and other service expenses

    336,519     184,142     152,377     82.7 %
 

General and administrative expense

    23,240     24,096     (856 )   (3.6 )%
 

Business development expenses

    3,699     1,233     2,466     200.0 %
                     
   

Total operating expenses

    629,381     452,460     176,921     39.1 %
                     

Operating income

    138,138     133,145     4,993     3.8 %

Interest expense

    (82,208 )   (86,414 )   4,206     (4.9 )%

Interest and other income

    5,164     2,070     3,094     149.5 %

Gain on early extinguishment of debt

        8,101     (8,101 )   (100.0 )%

Equity in loss of unconsolidated entities

    (941 )   (147 )   (794 )   540.1 %

Income tax expense

    (196 )   (201 )   5     (2.5 )%
                     

Income from continuing operations

    59,957     56,554     3,403     6.0 %

Discontinued operations, net of income taxes

    1,342     3,658     (2,316 )   (63.3 )%

Gain on sales of real estate, net of income taxes

        1,104     (1,104 )   (100.0 )%
                     

Net income

    61,299     61,316     (17 )   0.0 %

Net income attributable to noncontrolling interests

    (4,970 )   (7,351 )   2,381     (32.4 )%

Preferred share dividends

    (16,102 )   (16,102 )       0.0 %
                     

Net income attributable to COPT common shareholders

  $ 40,227   $ 37,863   $ 2,364     6.2 %
                     

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NOI from Continuing Real Estate Operations

 
  For the Years Ended December 31,  
 
  2009   2008   Variance   % Change  
 
  (Dollars in thousands)
 

Revenues

                         
 

Same office properties

  $ 378,832   $ 367,910   $ 10,922     3.0 %
 

Constructed properties placed in service

    29,293     17,465     11,828     67.7 %
 

Acquired properties

    9,919     2,939     6,980     237.5 %
 

Other

    6,388     8,906     (2,518 )   (28.3 )%
                     

    424,432     397,220     27,212     6.9 %
                     

Property operating expenses

                         
 

Same office properties

    139,762     133,331     6,431     4.8 %
 

Constructed properties placed in service

    9,680     5,021     4,659     92.8 %
 

Acquired properties

    2,999     905     2,094     231.4 %
 

Other

    4,873     1,795     3,078     171.5 %
                     

    157,314     141,052     16,262     11.5 %
                     

NOI from continuing real estate operations

                         
 

Same office properties

    239,070     234,579     4,491     1.9 %
 

Constructed properties placed in service

    19,613     12,444     7,169     57.6 %
 

Acquired properties

    6,920     2,034     4,886     240.2 %
 

Other

    1,515     7,111     (5,596 )   (78.7 )%
                     

  $ 267,118   $ 256,168   $ 10,950     4.3 %
                     

        As the table above indicates, most of our increase in NOI from continuing real estate operations was attributable to the addition of properties through construction and acquisition activities. In addition, the lines in the table above entitled "Other" include the effects of approximately 500,000 square feet of vacancy at three properties in Greater Philadelphia that we expect to redevelop; we recognized a $3.4 million decrease in NOI from real estate operations attributable to these properties.

        With regard to changes in NOI from continuing real estate operations attributable to Same-Office Properties:

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NOI from Service Operations

 
  For the Years Ended December 31,  
 
  2009   2008   Variance   % Change  
 
  (Dollars in thousands)
 

Construction contract and other service revenues

  $ 343,087   $ 188,385   $ 154,702     82.1 %

Construction contract and other service expenses

    336,519     184,142     152,377     82.7 %
                     

NOI from service operations

  $ 6,568   $ 4,243   $ 2,325     54.8 %
                     

        NOI from service operations increased due primarily to a high volume of construction activity in connection with one large construction contract. As evidenced in the changes set forth above, our volume of construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us (primarily on behalf of tenants), and therefore the increase in activity should not be considered to be a trend that will continue. We view our service operations as an ancillary component of our overall operations that should generally be a small contributor to our operating income relative to our real estate operations.

Depreciation and Amortization associated with Real Estate Operations

        Depreciation and amortization expense associated with real estate operations increased due primarily to expense attributable to properties added into operations through construction and acquisition activities.

Interest Expense

        Interest expense decreased primarily due to a decrease in the weighted average interest rates of debt from 5.2% to 4.9%. The events in the economy have contributed towards significant reductions in interest rates on our variable debt. We expect interest expense to increase in 2010 primarily as a result of higher levels of borrowings.

Gain on Early Extinguishment of Debt

        Gain on early extinguishment of debt recognized in 2008 was attributable to the repurchase in that year of a $37.5 million aggregate principal amount of our 3.5% Exchangeable Senior Notes for $26.7 million.

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Interest and Other Income

        Interest and other income increased due primarily to:

Discontinued Operations, Net of Income Taxes

        Discontinued operations decreased due primarily to gain from sales of real estate recognized in 2008. See Note 17 to the Consolidated Financial Statements for a summary of the income components of discontinued operations.

Net Income Attributable to Noncontrolling Interests

        Interests in our Operating Partnership are in the form of preferred and common units. The line entitled net income attributable to noncontrolling interests includes primarily income allocated to preferred and common units not owned by us. Income is allocated to noncontrolling preferred unitholders in an amount equal to the priority return from the Operating Partnership to which they are entitled. Income is allocated to noncontrolling common unitholders based on income earned by the Operating Partnership, after allocation to preferred unitholders, multiplied by the percentage of the common units in the Operating Partnership owned by those common unitholders.

        Net income attributable to noncontrolling interests decreased due primarily to a decrease in the percentage of the Operating Partnership owned by noncontrolling interests resulting primarily from:

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Comparison of the Year Ended December 31, 2008 to the Year Ended December 31, 2007

 
  For the Years Ended December 31,  
 
  2008   2007   Variance   % Change  
 
  (Dollars in thousands)
 

Revenues

                         
 

Revenues from real estate operations

  $ 397,220   $ 363,241   $ 33,979     9.4 %
 

Construction contract and other service revenues

    188,385     41,225     147,160     357.0 %
                     
   

Total revenues

    585,605     404,466     181,139     44.8 %
                     

Expenses

                         
 

Property operating

    141,052     122,961     18,091     14.7 %
 

Depreciation and amortization associated with real estate operations

    101,937     103,916     (1,979 )   (1.9 )%
 

Construction contract and other service expenses

    184,142     39,793     144,349     362.7 %
 

General and administrative expense

    24,096     20,227     3,869     19.1 %
 

Business development expenses

    1,233     1,477     (244 )   (16.5 )%
                     
   

Total operating expenses

    452,460     288,374     164,086     56.9 %
                     

Operating income

    133,145     116,092     17,053     14.7 %

Interest expense

    (86,414 )   (88,130 )   1,716     (1.9 )%

Interest and other income

    2,070     3,030     (960 )   (31.7 )%

Gain on early extinguishment of debt

    8,101         8,101     N/A  

Equity in loss of unconsolidated entities

    (147 )   (224 )   77     (34.4 )%

Income tax expense

    (201 )   (569 )   368     (64.7 )%
                     

Income from continuing operations

    56,554     30,199     26,355     87.3 %

Discontinued operations, net of income taxes

    3,658     3,706     (48 )   (1.3 )%

Gain on sales of real estate, net of income taxes

    1,104     2,037     (933 )   (45.8 )%
                     

Net income

    61,316     35,942     25,374     70.6 %

Net income attributable to noncontrolling interests

    (7,351 )   (3,741 )   (3,610 )   96.5 %

Preferred share dividends

    (16,102 )   (16,068 )   (34 )   0.2 %
                     

Net income attributable to COPT common shareholders

  $ 37,863   $ 16,133   $ 21,730     134.7 %
                     

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NOI from Real Estate Operations

 
  For the Years Ended December 31,  
 
  2008   2007   Variance   % Change  
 
  (Dollars in thousands)
 

Revenues

                         
 

Same office properties

  $ 321,900   $ 308,552   $ 13,348     4.3 %
 

Constructed properties placed in service

    33,548     16,179     17,369     107.4 %
 

Acquired properties

    40,951     36,524     4,427     12.1 %
 

Other

    821     1,986     (1,165 )   (58.7 )%
                     

    397,220     363,241     33,979     9.4 %
                     

Property operating expenses

                         
 

Same office properties

    115,254     105,083     10,171     9.7 %
 

Constructed properties placed in service

    8,361     3,806     4,555     119.7 %
 

Acquired properties

    15,791     12,632     3,159     25.0 %
 

Other

    1,646     1,440     206     14.3 %
                     

    141,052     122,961     18,091     14.7 %
                     

NOI from real estate operations

                         
 

Same office properties

    206,646     203,469     3,177     1.6 %
 

Constructed properties placed in service

    25,187     12,373     12,814     103.6 %
 

Acquired properties

    25,160     23,892     1,268     5.3 %
 

Other

    (825 )   546     (1,371 )   (251.1 )%
                     

  $ 256,168   $ 240,280   $ 15,888     6.6 %
                     

        As the table above indicates, most of our increase in NOI from continuing real estate operations was attributable to the addition of properties through construction activities.

        With regard to changes in NOI from continuing real estate operations attributable to Same-Office Properties:

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NOI from Service Operations

 
  For the Years Ended December 31,  
 
  2008   2007   Variance   % Change  
 
  (Dollars in thousands)
 

Construction contract and other service revenues

  $ 188,385   $ 41,225   $ 147,160     357.0 %

Construction contract and other service expenses

    184,142     39,793     144,349     362.7 %
                     

NOI from service operations

  $ 4,243   $ 1,432   $ 2,811     196.3 %
                     

        The increase in NOI from service operations was due primarily to a high volume of construction activity in connection with three large construction contracts.

Depreciation and Amortization associated with Real Estate Operations

        Depreciation and amortization associated with real estate operations decreased due primarily to a number of shorter lived assets becoming fully amortized during or prior to 2008. The effect of these decreases more than offset additional depreciation and amortization associated with properties added into operations through construction and acquisition activities.

General and Administrative Expense

        Much of the increase in general and administrative expenses was attributable to an increase in the size of our employee base in response to our continued growth. A portion of the increase can also be attributed to costs associated with a number of information technology initiatives pursued during the year, the largest of which was for the implementation of an Enterprise Resource Planning software package.

Interest Expense

        Interest expense decreased primarily due to a decrease in the weighted average interest rates of debt from 5.8% to 5.2%, which was offset in part by an increase in our average outstanding debt balance of 7.4% due primarily to debt incurred to fund our 2007 and 2008 construction activities.

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Net Income Attributable to Noncontrolling Interests

        Net income attributable to noncontrolling interests increased due primarily to an increase in net income available to allocate to noncontrolling holders of common units in the Operating Partnership primarily resulting from the reasons set forth above, the effect of which was partially offset by a decrease in the percentage of the Operating Partnership owned by such holders.

Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") interest coverage ratio and EBITDA fixed charge coverage ratio

        EBITDA is net income adjusted for the effects of interest expense, depreciation and amortization and income taxes. We believe that EBITDA is a useful supplemental measure for assessing our un-levered performance. We believe that net income, as reported on our Consolidated Statements of Operations, is the most directly comparable GAAP measure to EBITDA. EBITDA excludes items that are included in net income, including some that require cash outlays; we compensate for this limitation by using the measure simply as a supplemental measure that is considered alongside other GAAP and non-GAAP measures. 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 activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

        We use EBITDA to calculate EBITDA Interest Coverage Ratio and EBITDA Fixed Charge Coverage Ratio. We calculate EBITDA interest coverage by dividing EBITDA by interest expense on continuing and discontinued operations (excluding amortization of deferred financing costs). We calculate EBITDA fixed charge coverage ratio by dividing EBITDA by the sum of (1) interest expense on continuing and discontinued operations (excluding amortization of deferred financing costs); (2) dividends on preferred shares; and (3) distributions on preferred units in the Operating Partnership not owned by us.

        The tables below sets forth the computation of our EBITDA interest and fixed charge coverage ratios and reconciliations of EBITDA to net income reported on our Consolidated Statements of Operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  
 
  (Dollars in thousands)
 

Net income

  $ 61,299   $ 61,316   $ 35,942  

Interest expense(1)

    82,420     86,921     90,020  

Income tax expense(2)

    196     779     1,684  

Depreciation and amortization

    111,811     104,968     108,181  
               

EBITDA

  $ 255,726   $ 253,984   $ 235,827  
               

Interest expense(1)

 
$

82,420
 
$

86,921
 
$

90,020
 

Less: Amortization of deferred financing costs

    (4,214 )   (3,843 )   (3,385 )
               

Denominator for interest coverage

  $ 78,206   $ 83,078   $ 86,635  

Preferred share dividends

    16,102     16,102     16,068  

Preferred distributions

    660     660     660  
               

Denominator for fixed charge coverage

  $ 94,968   $ 99,840   $ 103,363  
               

EBITDA interest coverage ratio

   
3.27x
   
3.06x
   
2.72x
 

EBITDA fixed charge coverage ratio

    2.69x     2.54x     2.28x  

(1)
Includes interest from continuing operations and discontinued operations.

(2)
Includes income taxes from continuing operations, discontinued operations and gains on sales of real estate.

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Funds From Operations

        Funds from operations ("FFO") is defined as net income computed using GAAP, excluding gains on sales of operating properties, plus real estate-related depreciation and amortization. Gains from sales of newly-developed properties less accumulated depreciation, if any, required under GAAP are included in FFO on the basis that development services are the primary revenue generating activity; we believe that inclusion of these development gains is in accordance with the National Association of Real Estate Investment Trusts ("NAREIT") definition of FFO, although others may interpret the definition differently. We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related to sales of previously depreciated operating real estate properties and excluding real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods. In addition, since most equity REITs provide FFO information to the investment community, we believe that FFO is useful to investors as a supplemental measure for comparing our results to those of other equity REITs. We believe that net income is the most directly comparable GAAP measure to FFO.

        Since FFO excludes certain items includable in net income, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non GAAP measures. 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 activities when evaluating our liquidity or ability to make cash distributions or pay debt service. The FFO we present may not be comparable to the FFO presented by other REITs since they may interpret the current NAREIT definition of FFO differently or they may not use the current NAREIT definition of FFO.

        Basic FFO available to common share and common unit holders ("Basic FFO") is FFO adjusted to subtract (1) preferred share dividends, (2) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (3) depreciation and amortization allocable to noncontrolling interests in other consolidated entities, (4) Basic FFO allocable to restricted shares and (5) issuance costs associated with redeemed preferred shares. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions. We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares. We believe that net income is the most directly comparable GAAP measure to Basic FFO. Basic FFO has essentially the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.

        Diluted FFO available to common share and common unit holders ("Diluted FFO") is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below. We believe that the numerator for diluted EPS is the most directly comparable GAAP measure to Diluted FFO. Since Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. Diluted 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 activities when evaluating our liquidity or ability to make cash distributions or pay debt service. The Diluted FFO that we present may not be comparable to the Diluted FFO presented by other REITs.

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        Diluted FFO, excluding operating property acquisition costs and gain on early extinguishment of debt is defined as Diluted FFO adjusted to exclude these items. We believe that operating property acquisition costs and gain on early extinguishment of debt are not reflective of normal operations and, as a result, we believe that a measure that excludes these items is a useful supplemental measure in evaluating our operating performance. We believe that the numerator to diluted EPS is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

        Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share ("EPS") in evaluating net income available to common shareholders. In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.

        Diluted FFO per share, excluding operating property acquisition costs and gain on early extinguishment of debt is (1) Diluted FFO, excluding operating property acquisition costs and gain on early extinguishment of debt divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results. We believe that diluted EPS is the most directly comparable GAAP measure to this per share measure. This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

        The computations for all of the above measures on a diluted basis assume the conversion of common units in our Operating Partnership but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.

        We use a measure called diluted FFO payout ratio as a supplemental measure of our ability to make distributions to investors. Diluted FFO payout ratio is defined as (1) the sum of (a) dividends on common shares and (b) distributions to holders of interests in the Operating Partnership and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by (2) Diluted FFO.

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        The table below sets forth the computation of the above stated measures for the years ended December 31, 2005 through 2009 and provides reconciliations to the GAAP measures associated with such measures:

 
  For the Years Ended December 31,  
 
  2009   2008   2007   2006   2005  
 
  (Dollars and shares in thousands, except per share data)
 

Net income

  $ 61,299   $ 61,316   $ 35,942   $ 55,988   $ 45,495  

Add: Real estate-related depreciation and amortization

    109,386     102,772     106,260     78,631     62,850  

Add: Depreciation and amortization on unconsolidated real estate entities

    640     648     666     910     182  

Less: Gain on sales of operating properties, net of income taxes

        (2,630 )   (3,827 )   (17,644 )   (4,422 )
                       

FFO

    171,325     162,106     139,041     117,885     104,105  

Less: Noncontrolling interests—preferred units in the Operating Partnership

    (660 )   (660 )   (660 )   (660 )   (660 )

Less: Noncontrolling interests-other consolidated entities

    185     (172 )   122     136     85  

Less: Preferred share dividends

    (16,102 )   (16,102 )   (16,068 )   (15,404 )   (14,615 )

Less: Issuance costs associated with redeemed preferred shares

                (3,896 )    

Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities

    (493 )   (270 )   (188 )   (163 )   (114 )

Less: basic and diluted FFO allocable to restricted shares

    (1,629 )   (1,310 )   (876 )   (733 )   (311 )
                       

Basic and diluted FFO

  $ 152,626   $ 143,592   $ 121,371   $ 97,165   $ 88,490  

Operating property acquisition costs

    1,967                  

Gain on early extinguishment of debt

        (8,101 )            

Gain on early extinguishment of debt allocable to restricted shares

        75              
                       

Diluted FFO, excluding operating property acquisition costs and gain on early extinguishment of debt

  $ 154,593   $ 135,566   $ 121,371   $ 97,165   $ 88,490  
                       

Weighted average common shares

    55,930     48,132     46,527     41,463     37,371  

Conversion of weighted average common units

    5,717     8,107     8,296     8,511     8,702  
                       

Weighted average common shares/units—Basic FFO

    61,647     56,239     54,823     49,974     46,073  

Dilutive effect of share-based compensation awards

    477     688     991     1,568     1,626  
                       

Weighted average common shares/units—Diluted FFO

    62,124     56,927     55,814     51,542     47,699  
                       

Diluted FFO per share

  $ 2.46   $ 2.52   $ 2.17   $ 1.89   $ 1.86  
                       

Diluted FFO per share, excluding operating property acquisition costs and gain on early extinguishment of debt

  $ 2.49   $ 2.38   $ 2.17   $ 1.89   $ 1.86  
                       

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  For the Years Ended December 31,  
 
  2009   2008   2007   2006   2005  
 
  (Dollars and shares in thousands, except per share data)
 

Numerator for diluted EPS

  $ 39,217   $ 37,135   $ 15,616   $ 28,618   $ 24,416  

Add: Income allocable to noncontrolling interests-common units in the Operating Partnership

    4,495     6,519     3,203     7,097     5,889  

Add: Real estate-related depreciation and amortization

    109,386     102,772     106,260     78,631     62,850  

Add: Depreciation and amortization of unconsolidated real estate entities

    640     648     666     910     182  

Add: Numerator for diluted EPS allocable to restricted shares

    1,010     728     517     449      

Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities

    (493 )   (270 )   (188 )   (163 )   (114 )

Less: Basic and diluted FFO allocable to restricted shares

    (1,629 )   (1,310 )   (876 )   (733 )   (311 )

Less: Gain on sales of operating properties, net of income taxes

        (2,630 )   (3,827 )   (17,644 )   (4,422 )
                       

Diluted FFO

  $ 152,626   $ 143,592   $ 121,371   $ 97,165   $ 88,490  

Operating property acquisition costs

    1,967                  

Gain on early extinguishment of debt

        (8,101 )            

Gain on early extinguishment of debt allocable to restricted shares

        75              
                       

Diluted FFO per share, excluding operating property acquisition costs and gain on early extinguishment of debt

  $ 154,593   $ 135,566   $ 121,371   $ 97,165   $ 88,490  
                       

Denominator for diluted EPS

    56,407     48,820     47,518     43,031     38,997  

Weighted average common units

    5,717     8,107     8,296     8,511     8,702  
                       

Denominator for diluted FFO per share

    62,124     56,927     55,814     51,542     47,699  
                       

Dividends on common shares

    87,596     70,836     61,331     49,670     40,755  

Common unit distributions

    7,962     11,510     10,682     9,996     9,222  
                       

Numerator for diluted FFO payout ratio

    95,558     82,346     72,013     59,666     49,977  
                       

Diluted FFO payout ratio

    62.6 %   57.3 %   59.3 %   61.4 %   56.5 %
                       

(1)
Gains from the sale of real estate, net of taxes, that are attributable to sales of non-operating properties are included in FFO. Gains from newly-developed or re-developed properties less accumulated depreciation, if any, required under GAAP are also included in FFO on the basis that development services are the primary revenue generating activity; we believe that inclusion of these development gains is in compliance with the NAREIT definition of FFO, although others may interpret the definition differently.

Investing and Financing Activities During 2009

        Through a series of transactions in October 2009, we acquired a 474,000 square foot office tower, a parking lot, a utility distribution center, four waterfront lots and riparian rights, all of which are part of the Canton Crossing planned unit development in Baltimore, Maryland, for $123.2 million. These properties are referred to collectively herein as the "Canton Properties." The office building was 89.6% leased at December 31, 2009. Beginning in August 2008, we entered into a loan arrangement with the owner of the Canton Properties and, through these loans, had a secured interest in the ownership of the entity that owned the property that was subordinate to that of a first mortgage on the property. Immediately prior to acquiring the Canton Properties, we acquired the first mortgage loan on the property along with accrued interest thereon and cash escrows held by the first mortgage lender for $72.5 million using proceeds from our Revolving Credit Facility. We then completed the acquisition of the Canton Properties in exchange for: (1) our cancellation of the amounts due under the first mortgage loan to the seller; (2) our cancellation of the subordinate mortgage loan to the seller and interest thereon totaling $30.0 million; (3) our assumption of $3.3 million in other liabilities (valued at

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$2.0 million); and (4) cash payments from us for the balance (which were financed primarily using borrowings from our Revolving Credit Facility).

        We also acquired two recently constructed office properties totaling 223,000 square feet and land that we believe can support approximately 95,000 developable square feet for $50.5 million. Both of these office buildings were 100% leased at December 31, 2009. These acquisitions were financed primarily using proceeds from our Revolving Credit Facility.

        We had seven newly-constructed properties totaling 750,000 square feet (three located in the Baltimore/Washington Corridor, two in Colorado Springs and two in Suburban Maryland) become fully operational in 2009 (85,000 of these square feet were placed into service in 2008) (includes three properties owned through joint ventures). These properties were 61% leased as of February 5, 2010. Costs incurred on these properties through December 31, 2009 totaled $142.8 million, of which $28.7 million was incurred in 2009. We financed the 2009 costs using primarily borrowings from our Revolving Credit Facility and Revolving Construction Facility.

        As of December 31, 2009, we had construction activities underway on nine office properties totaling 1.1 million square feet that were 54% leased at February 5, 2010 (94,000 of these square feet were placed into service in 2009). Costs incurred on these properties through December 31, 2009 totaled approximately $158.5 million, of which approximately $83.2 million was incurred in 2009. The costs incurred in 2009 were funded using borrowings from our Revolving Construction Facility and Revolving Credit Facility.

        The table below sets forth the major components of our additions to the line entitled "Total Properties, net" on our Consolidated Balance Sheet for 2009 and 2008 (in thousands):

 
  For the Years Ended December 31,  
 
  2009   2008  

Construction, development and redevelopment

  $ 157,135   $ 189,140  

Acquisitions

    144,100     55,286  

Capital improvements on operating properties

    16,269     11,261  

Tenant improvements on operating properties(1)

    13,497     20,280  
           

  $ 331,001   $ 275,967  
           

(1)
Tenant improvement costs incurred on newly-constructed properties are classified in this table as construction, development and redevelopment.

        In 2009, we closed on the following borrowings, using the proceeds primarily to repay maturing debt and pay down our revolving credit facilities:

        In April 2009, we issued 2.99 million common shares in an underwritten public offering made in conjunction with our inclusion in the S&P MidCap 400 Index effective April 1, 2009. The shares were issued at a public offering price of $24.35 per share for net proceeds of $72.1 million after underwriting discounts but before offering expenses. The net proceeds were used to pay down our Revolving Credit Facility and for general corporate purposes.

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Liquidity and Capital Resources

        Our primary cash requirements are for operating expenses, debt service, development of new properties, improvements to existing properties and acquisitions. While we may experience increasing challenges discussed elsewhere herein due to the current economic environment, we believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements. We had cash and cash equivalents of $8.2 million and $6.8 million at December 31, 2009 and 2008, respectively. We maintain sufficient cash and cash equivalents to meet our operating cash requirements and short-term investing and financing cash requirements. When we determine that the amount of cash and cash equivalents on hand is more than we need to meet such requirements, we may pay down our Revolving Credit Facility (defined below) or forgo borrowing under construction credit facilities to fund development activities.

        We rely primarily on fixed-rate, non-recourse mortgage loans from banks and institutional lenders to finance most of our operating properties. We have also made use of the public equity and debt markets to meet our capital needs, principally to repay or refinance corporate and property secured debt and to provide funds for project development and acquisitions.

        We have an unsecured revolving credit facility (the "Revolving Credit Facility") with a group of lenders that provides for borrowings of up to $600 million, $235 million of which was available at December 31, 2009; this facility is available through September 2011 and may be extended by one year at our option, subject to certain conditions. We often use our Revolving Credit Facility initially to finance much of our investing activities. We then pay down our Revolving Credit Facility using proceeds from long-term borrowings as attractive financing conditions arise and equity issuances as attractive equity market conditions arise. Amounts available under the facility are computed based on 65% of our unencumbered asset value, as defined in the agreement. In addition, we have a Revolving Construction Facility, which provides for borrowings of up to $225.0 million, $148.7 million of which was available at December 31, 2009 to fund future construction costs; this facility is available until May 2011 and may be extended by one year at our option, subject to certain conditions.

        We believe that we have sufficient capacity under our Revolving Credit Facility and Revolving Construction Facility to satisfy our 2010 debt maturities and to fund construction of properties that were under construction at year end or expected to be started in 2010. We expect to pursue new long- and medium-term debt in 2010, the proceeds of which we expect to use to pay down our Revolving Credit Facility and Revolving Construction Facility to create additional borrowing capacity. We expect to make use of any such additional borrowing capacity to fund future investment opportunities and repay debt maturities.

        Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. As of December 31, 2009, we were in compliance with these financial covenants.

        Selective dispositions of operating and other properties may also provide capital resources in 2010 and in future years. We are continually evaluating sources of capital and believe that there are satisfactory sources available to meet our capital requirements without necessitating property sales.

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Contractual Obligations

        The following table summarizes our contractual obligations as of December 31, 2009 (in thousands):

 
  For the Years Ended December 31,    
 
 
  2010   2011   2012   2013   2014   Thereafter   Total  

Contractual obligations(1)

                                           

Debt(2)

                                           
 

Balloon payments due upon maturity

  $ 52,177   $ 722,850   $ 257,523   $ 134,843   $ 137,736   $ 689,823   $ 1,994,952  
 

Scheduled principal payments

    14,165     12,735     11,635     8,833     6,452     12,293     66,113  

Interest on debt(3)

    93,679     85,044     67,689     53,050     46,071     73,557     419,090  

New construction and development contracts and obligations(4)(5)

    46,783                     4,000     50,783  

Third-party construction and development contracts(5)(6)

    123,243                         123,243  

Capital expenditures for operating properties(5)(7)

    2,604                         2,604  

Operating leases(8)

    477     314     146     95     24         1,056  

Other purchase obligations(9)

    2,647     2,624     2,535     2,338     2,008     3,231     15,383  
                               

Total contractual cash obligations

  $ 335,775   $ 823,567   $ 339,528   $ 199,159   $ 192,291   $ 782,904   $ 2,673,224  
                               

(1)
The contractual obligations set forth in this table generally exclude individual contracts that had a value of less than $20,000. Also excluded are contracts associated with the operations of our properties that may be terminated with notice of one month or less, which is the arrangement that applies to most of our property operations contracts.

(2)
Represents scheduled principal amortization payments and maturities only and therefore excludes a net discount of $7,224. We expect to refinance the balloon payments that are due in 2010 and 2011 using primarily a combination of borrowings from our Revolving Credit Facility and proceeds from debt refinancings. The principal maturities occurring in 2011 include $458.1 million that may be extended for one-year, subject to certain conditions.

(3)
Represents interest costs for debt at December 31, 2009 for the terms of such debt. For variable rate debt, the amounts reflected above used December 31, 2009 interest rates on variable rate debt in computing interest costs for the terms of such debt.

(4)
Represents contractual obligations pertaining to new construction, development and redevelopment activities. We expect to finance these costs primarily using proceeds from our Revolving Construction Facility and Revolving Credit Facility. Construction, development and redevelopment activities underway at December 31, 2009 included the following:

Activity
  Number of
Properties
  Square
Feet
  Estimated
Remaining Costs
(in millions)
  Expected Year
For Costs to be
Incurred Through
 

Construction of new properties

    9     1,111,000   $ 86.7     2011  

Development of new properties

    7     756,000     137.3     2012  

Redevelopment of existing properties

    2     565,000     37.2     2011  
(5)
Because of the long-term nature of certain construction and development contracts, some of these costs will be incurred beyond 2010.

(6)
Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients. We expect to be reimbursed in full for these costs by our clients.

(7)
Represents contractual obligations pertaining to capital expenditures for our operating properties. We expect to finance all of these costs using cash flow from operations.

(8)
We expect to pay these items using cash flow from operations.

(9)
Primarily represents contractual obligations pertaining to managed-energy service contracts in place for certain of our operating properties. We expect to pay these items using cash flow from operations.

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Cash Flows

        Our cash flow from operations increased $13.9 million, or 7.7%, from 2008 to 2009. We expect to continue to use cash flow provided by operations as the primary source to meeting our short-term capital needs, including all property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, dividends to our shareholders, distributions to our noncontrolling interest holders of preferred and common units in the Operating Partnership and capital improvements and leasing costs.

        As described previously, we expect that the effects of the global downturn on our real estate operations will make our leasing activities increasingly challenging in 2010 and perhaps beyond. As a result, there could be an increasing likelihood as leases expire of our being unsuccessful in renewing tenants or renewing on terms less favorable to us than the terms of the original leases. If a tenant leaves, we can expect to experience a vacancy for some period of time as well as higher tenant improvement and leasing costs than if a tenant renews. As a result, our cash flow from operations would be adversely affected if we experience a high volume of tenant departures at the end of their lease terms. While we believe that our largest tenants represent favorable credit risk, we believe that there may be an increased likelihood in the current economic climate of tenants encountering financial hardships; if one of our major tenants or a number of our smaller tenants were to experience financial difficulties, including bankruptcy, insolvency or general downturn of business, and as a result default in their lease obligations to us, our cash flow from operations would be adversely affected. During 2009, our cash flow from operations benefitted from a decrease in short-term interest rates; if short-term interest rates were to increase, the interest payments on our variable-rate debt would increase, which would have a decreasing effect on our cash flow from operations. These and other factors that could negatively affect our ability to generate cash flow from operations in the future are discussed in further detail in Item 1A of our 2009 Annual Report on Form 10-K.

        Our net cash flow used in investing activities increased $58.3 million from 2008 to 2009 due primarily to an increase in cash outlays for mortgage loans receivable in connection with our purchase of the first mortgage loan on the Canton Properties. Our cash flow provided by financing activities increased $63.7 million from 2008 to 2009 due primarily to a $125.7 million decrease in balloon payments on debt due in large part to a higher level of debt refinancing and repayments in 2008, offset in part by a $64.7 million decrease in net proceeds from our issuance of common shares.

Off-Balance Sheet Arrangements

        During 2009, we owned an investment in an unconsolidated joint venture for which we accounted using the equity method of accounting. This joint venture was entered into in 2005 to enable us to contribute office properties that were previously wholly owned by us into the joint venture in order to partially dispose of our interest in the properties. We managed the joint venture's property operations and any required construction projects and earned fees for these services in 2009. This joint venture has a two-member management committee that is responsible for making major decisions (as defined in the joint venture agreement) and we control one of the management committee positions.

        We and our partner receive returns in proportion to our investments in the joint venture. As part of our obligations under the joint venture arrangement, we entered into standard nonrecourse loan guarantees (environmental indemnifications and guarantees against fraud and misrepresentation, including springing guarantees of partnership debt in the event of a voluntary bankruptcy of the partnership). The maximum amount we could be required to pay under the guarantees is approximately $67 million. So long as we continue to be the property manager for the properties, 20% of any amounts paid under the guarantees are recoverable from an affiliate of the general partner pursuant to an indemnity agreement. In the event that we no longer manage the properties, the percentage recoverable under the indemnity agreement is increased to 80%. Management estimates that the

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aggregate fair value of the guarantees is not material and would not exceed the amounts included in distributions in excess of investment in unconsolidated real estate joint venture reported on the Consolidated Balance Sheets.

        We have distributions in excess of our investment in this unconsolidated joint venture of $5.1 million at December 31, 2009 due to our not recognizing gain on the contribution of properties into the joint venture; we did not recognize a gain on the contribution since we have the contingent obligations described above. We recognized equity on the losses of this joint venture of $317,000 in 2009. We earned fees totaling $119,000 from the joint venture in 2009 for construction, asset management and property management services.

        We had no other material off-balance sheet arrangements during 2009.

Inflation

        Most of our tenants are obligated to pay their share of a building's operating expenses to the extent such expenses exceed amounts established in their leases, based on historical expense levels. Some of our tenants are obligated to pay their full share of a building's operating expenses. These arrangements somewhat reduce our exposure to increases in such costs resulting from inflation. In addition, since our average lease life is approximately five years, we generally expect to be able to compensate for increased operating expenses through increased rental rates upon lease renewal or expiration.

Recent Accounting Pronouncements

        As discussed further below, we retrospectively adopted newly issued accounting standards issued by the Financial Accounting Standards Board ("FASB") that affected our accounting for noncontrolling interests and convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and our determination of whether instruments granted in share-based payment transactions should be included in the calculation of earnings per share. This resulted in certain adjustments to amounts previously reported, including changes that affected our previously reported net income attributable to our common shareholders and earnings per common share. The changes to our net income and balance sheet for the periods included herein resulting from our adoption of these standards is presented in Note 2 to the Consolidated Financial Statements.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our accounting for noncontrolling interests. The standard establishes accounting and reporting standards for noncontrolling interests in subsidiaries and for deconsolidation of subsidiaries. It requires all entities to report noncontrolling (previously known as minority) interests in subsidiaries that meet certain criteria as equity in the Consolidated Financial Statements. The standard also requires that consolidated net income be adjusted to include net income attributable to noncontrolling interests. In addition, the standard requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions. The presentation and disclosure requirements under the standard are being applied retrospectively for all periods presented. The standard primarily affected how we present noncontrolling interests on our Consolidated Balance Sheets, statements of operations and cash flows but did not otherwise have a material effect on our financial position, results of operations or cash flows.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our accounting for convertible debt instruments. The standard requires that the initial proceeds from convertible debt instruments that may be settled in cash, including partial cash settlements, be allocated between a liability component and an equity component associated with the embedded conversion option. This pronouncement's objective is to require the liability and equity components of convertible debt to be separately accounted for in order to enable interest expense to be recorded at a rate that

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would reflect the issuer's conventional debt borrowing rate (previously, interest expense on such debt was recorded based on the contractual rate of interest under the debt). Under this pronouncement, the liability component is recorded at its fair value, as calculated based on the present value of its cash flows discounted using the issuer's conventional debt borrowing rate. The equity component is recorded based on the difference between the debt proceeds and the fair value of the liability. The difference between the liability's principal amount and fair value is reported as a debt discount and amortized as interest expense over the debt's expected life using the effective interest method. The provisions of the standard are being applied retrospectively to all periods presented. The standard affected the accounting for our 3.5% Exchangeable Senior Notes (the "Exchangeable Notes"), resulting in our retroactive reclassification from debt to equity of $21.3 million, representing the debt discount, effective upon the origination of the Exchangeable Notes in September 2006. We also commenced amortization of this debt discount effective September 2006. In addition, we reclassified $465,000 of the original finance fees incurred in relation to the Exchangeable Notes to equity effective September 2006. We expect to amortize the remaining unamortized discount as of December 31, 2009 of $6.4 million into interest expense through September 2011.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our determination of whether instruments granted in share-based payment transactions should be included in the calculation of earnings per share. The standard requires that all unvested share-based payment awards that contain nonforfeitable rights to dividends be considered participating securities and therefore shall be included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The standard was effective for us beginning January 1, 2009 and interim periods within that year, and the EPS of prior periods was adjusted retrospectively. Our adoption of the standard had a decreasing effect on our EPS in the current and in prior periods at a level that was not material.

        The FASB issued an accounting standard that defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The standard does not require or permit any new fair value measurements but does apply under other accounting pronouncements that require or permit fair value measurements. The changes to practice resulting from the standard relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. An amendment to this standard deferred the effective date of the standard for all non-financial assets and non-financial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. Effective January 1, 2009, we adopted the standard for our non-financial assets and non-financial liabilities; this adoption did not have a material effect on our financial position, results of operations or cash flows.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed in the transactions; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The standard requires us now to expense transaction costs associated with property acquisitions occurring subsequent to the pronouncement's effective date. We expensed $2.0 million in costs in connection with acquisitions in 2009 that we would have capitalized under our practice prior to the effective date of the standard. Other than the effect this change had in 2009 and will have in connection with future acquisitions, our adoption of this standard did not have a material effect on our financial position, results of operations or cash flows.

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        In June 2009, the FASB issued amended guidance related to the accounting and disclosure requirements for the consolidation of entities when control of such entities can be achieved through means other than voting rights ("variable interest entities" or "VIEs"). This guidance requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE based primarily on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The standard also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the standard requires enhanced disclosures about an enterprise's involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise's financial statements. The standard will become effective on January 1, 2010. We do not believe that our adoption of this standard will have a material effect on our financial position, results of operations or cash flows.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to certain market risks, the most predominant of which is change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced. Our capital strategy favors long-term, fixed-rate, secured debt over variable-rate debt to minimize the risk of short-term increases in interest rates.

        The following table sets forth as of December 31, 2009 our debt obligations and weighted average interest rates for fixed rate debt by expected maturity date (dollars in thousands):

 
  For the Years Ending December 31,    
 
 
  2010   2011(1)   2012   2013   2014   Thereafter   Total  

Long term debt:

                                           
 

Fixed rate(2)

  $ 65,816   $ 276,935   $ 47,153   $ 143,027   $ 96,786   $ 702,116   $ 1,331,833  
 

Weighted average interest rate

    5.85 %   4.35 %   6.39 %   5.63 %   7.11 %   5.96 %   5.68 %
 

Variable rate

  $ 526   $ 458,650   $ 222,005   $ 649   $ 47,402   $   $ 729,232  

(1)
Includes amounts outstanding at December 31, 2009 of $365.0 million under our Revolving Credit Facility, $76.3 million under our Revolving Construction Facility and $16.8 million under another construction loan facility that may be extended for a one-year period, subject to certain conditions.

(2)
Represents principal maturities only and therefore excludes net discount of $7.2 million.

        The fair market value of our debt was $2.0 billion at December 31, 2009 and $1.7 billion at December 31, 2008. If interest rates on our fixed-rate debt had been 1% lower, the fair value of this debt would have increased by $62.6 million at December 31, 2009 and $56.2 million at December 31, 2008.

        We occasionally use derivative instruments such as interest rate swaps to further reduce our exposure to changes in interest rates. The following table sets forth information pertaining to our

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interest rate swap contracts in place as of December 31, 2009 and 2008, and their respective fair values (dollars in thousands):

 
   
   
   
  Fair Value at
December 31,
 
Notional
Amount
  One-Month
LIBOR base
  Effective
Date
  Expiration
Date
 
  2009   2008  
$100,000     1.9750 %   1/1/2010     5/1/2012   $ (1,068 ) $ (209 )
  120,000     1.7600 %   1/2/2009     5/1/2012     (669 )   (478 )
  100,000     2.5100 %   11/3/2008     12/31/2009         (1,656 )
    50,000     4.3300 %   10/23/2007     10/23/2009     N/A     (1,449 )
    50,000     5.0360 %   3/28/2006     3/30/2009     N/A     (540 )
    25,000     5.2320 %   5/1/2006     5/1/2009     N/A     (385 )
    25,000     5.2320 %   5/1/2006     5/1/2009     N/A     (385 )
                             
                      $ (1,737 ) $ (5,102 )
                             

        Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $4.1 million in 2009 and $4.6 million in 2008 if short-term interest rates were 1% higher. Interest expense in 2008 was more sensitive to a change in interest rates than 2009 due primarily to our having a higher average variable-rate debt balance in 2008 and a higher proportion of interest on variable rate loans that was capitalized in 2009.

Item 8.    Financial Statements and Supplementary Data

        The response to this item is included in a separate section at the end of this report beginning on page F-1.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Controls and Procedures

        Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2009. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of December 31, 2009 were functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

II.
Internal Control Over Financial Reporting

(a)
Management's Annual Report on Internal Control Over Financial Reporting

        Management's Annual Report on Internal Control Over Financial Reporting is included in a separate section at the end of this report on page F-2.

        The Report of Independent Registered Public Accounting Firm is included in a separate section at the end of this report on page F-3.

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        No change in our internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.

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PART III

        

Items 10, 11, 12, 13 & 14.    Directors, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions, and Director Independence; and Principal Accountant Fees and Services

        For the information required by Item 10, Item 11, Item 12, Item 13 and Item 14, you should refer to our definitive proxy statement relating to the 2010 Annual Meeting of our Shareholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K.


PART IV

Item 15.    Exhibits and Financial Statement Schedules

EXHIBIT
NO.
  DESCRIPTION
  3.1.1   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).

 

3.1.2

 

Articles of Amendment of Amended and Restated Declaration of Trust (filed on March 22, 2002 with the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference).

 

3.1.3

 

Articles of Amendment of Amended and Restated Declaration of Trust (filed with the Company's Current Report on Form 8-K on December 29, 2004 and incorporated herein by reference).

 

3.1.4

 

Articles Supplementary of Corporate Office Properties Trust Series B Cumulative Redeemable 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).

 

3.1.5

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series B Cumulative Redeemable Preferred Shares (filed with the Company's Current Report on Form 8-K on December 29, 2004 and incorporated herein by reference).

 

3.1.6

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series D Convertible Preferred Shares (filed with the Company's Current Report on Form 8-K on December 29, 2004 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  3.1.7   Articles Supplementary of Corporate Office Properties Trust relating to the Series E Cumulative Redeemable Preferred Shares, dated April 3, 2001 (filed with the Registrant's Current Report on Form 8-K on April 4, 2001 and incorporated herein by reference).

 

3.1.8

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series F Cumulative Redeemable Preferred Shares, dated September 13, 2001 (filed with the Registrant's Amended Current Report on Form 8-K on September 14, 2001 and incorporated herein by reference).

 

3.1.9

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series G Cumulative Redeemable Preferred Shares, dated August 6, 2003 (filed with the Registrant's Registration Statement on Form 8-A on August 7, 2003 and incorporated herein by reference).

 

3.1.10

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series H Cumulative Redeemable Preferred Shares, dated December 11, 2003 (filed with the Current Report on Form 8-K on December 12, 2003 and incorporated herein by reference).

 

3.1.11

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series J Cumulative Redeemable Preferred Shares of Beneficial Interest (filed with the Company's Current Report on Form 8-K dated July 19, 2006 and incorporated herein by reference).

 

3.1.12

 

Articles Supplementary of Corporate Office Properties Trust relating to the Series K Cumulative Redeemable Convertible Preferred Shares of Beneficial Interest (filed with the Company's Current Report on Form 8-K dated January 16, 2007 and incorporated herein by reference).

 

3.1.13

 

Articles of Amendment of Amended and Restated Declaration of Trust (filed with the Company's Current Report on Form 8-K dated May 28, 2008 and incorporated herein by reference).

 

3.2

 

Bylaws of the Registrant, as amended and restated on December 3, 2009 (filed with the Company's Current Report on Form 8-K dated December 9, 2009 and incorporated herein by reference).

 

3.3

 

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).

 

4.1

 

Indenture, dated as of September 18, 2006, among Corporate Office Properties, L.P., as issuer, Corporate Office Properties Trust, as guarantor, and Wells Fargo Bank, National Association, as trustee (filed with the Company's Current Report on Form 8-K dated September 22, 2006 and incorporated herein by reference).

 

4.2

 

3.50% Exchangeable Senior Note due 2026 of Corporate Office Properties, L.P. (filed with the Company's Current Report on Form 8-K dated September 22, 2006 and incorporated herein by reference).

 

10.1.1

 

Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated December 7, 1999 (filed on March 16, 2000 with the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.1.2   First Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated December 21, 1999 (filed on March 16, 2000 with the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

 

10.1.3

 

Second Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated December 21, 1999 (filed with the Company's Post Effective Amendment No. 2 to Form S-3 dated November 1, 2000 (Registration Statement No. 333-71807) and incorporated herein by reference).

 

10.1.4

 

Third Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated September 29, 2000 (filed with the Company's Post Effective Amendment No. 2 to Form S-3 dated November 1, 2000 (Registration Statement No. 333-71807) and incorporated herein by reference).

 

10.1.5

 

Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated November 27, 2000 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.6

 

Fifth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated January 25, 2001 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.7

 

Sixth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated April 3, 2001 (filed with the Company's Current Report on Form 8-K dated April 4, 2001 and incorporated herein by reference).

 

10.1.8

 

Seventh Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated August 30, 2001 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.9

 

Eighth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated September 14, 2001 (filed with the Company's Amended Current Report on Form 8-K dated September 14, 2001 and incorporated herein by reference).

 

10.1.10

 

Ninth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated October 6, 2001 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.11

 

Tenth Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated December 29, 2001 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.12

 

Eleventh Amendment to Second Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated December 15, 2002 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.1.13   Twelfth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated June 2, 2003 (filed on August 12, 2003 with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

 

10.1.14

 

Thirteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated August 11, 2003 (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.1.15

 

Fourteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated December 18, 2003 (filed on March 11, 2004 with the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference).

 

10.1.16

 

Fifteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated January 31, 2004 (filed on March 11, 2004 with the Company's Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference).

 

10.1.17

 

Sixteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated April 15, 2004 (filed on May 7, 2004 with the Company's Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference).

 

10.1.18

 

Seventeenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated September 23, 2004 (filed with the Company's Current Report on Form 8-K dated September 23, 2004 and incorporated herein by reference).

 

10.1.19

 

Eighteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated April 18, 2005 (filed with the Company's Form 8-K on April 22, 2005 and incorporated herein by reference).

 

10.1.20

 

Nineteenth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated July 8, 2005 (filed with the Company's Current Report on Form 8-K on July 14, 2005 and incorporated herein by reference).

 

10.1.21

 

Twentieth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated June 29, 2006 (filed with the Company's Current Report on Form 8-K dated July 6, 2006 and incorporated herein by reference).

 

10.1.22

 

Twenty-First Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated July 20, 2006 (filed with the Company's Current Report on Form 8-K dated July 26, 2006 and incorporated herein by reference).

 

10.1.23

 

Twenty-Second Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated January 9, 2007 (filed with the Company's Current Report on Form 8-K dated January 16, 2007 and incorporated herein by reference).

 

10.1.24

 

Twenty-Third Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated April 6, 2007 (filed with the Company's Current Report on Form 8-K dated April 12, 2007 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.1.25   Twenty-Fourth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated November 2, 2007 (filed with the Company's Current Report on Form 8-K dated November 5, 2007 and incorporated herein by reference).

 

10.1.26

 

Twenty-Fifth Amendment to Second Amended and Restated Limited Partnership Agreement of Corporate Office Properties, L.P., dated December 31, 2008 (filed with the Company's Current Report on Form 8-K dated January 5, 2009 and incorporated herein by reference).

 

10.2

 

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).

 

10.3.1*

 

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).

 

10.3.2*

 

Amendment No. 1 to Corporate Office Properties Trust 1998 Long Term Incentive Plan (filed on August 13, 1999 with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference).

 

10.3.3*

 

Amendment No. 2 to Corporate Office Properties Trust 1998 Long Term Incentive Plan (filed on March 22, 2002 with the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference).

 

10.4*

 

Corporate Office Properties Trust Supplemental Nonqualified Deferred Compensation Plan (filed with the Registrant's Registration Statement on Form S-8 (Commission File No. 333-87384) and incorporated herein by reference).

 

10.5.1*

 

Employment Agreement, dated July 13, 2005, between Corporate Office Properties, L.P. Corporate Office Properties Trust and Randall M. Griffin (filed with the Company's Current Report on Form 8-K dated July 19, 2005 and incorporated herein by reference).

 

10.5.2*

 

Amendment to Employment Agreement, dated May 30, 2006, between Corporate Office Properties, L.P., Corporate Office Properties Trust and Randall M. Griffin (filed with the Company's Current Report on Form 8-K dated June 1, 2006 and incorporated herein by reference).

 

10.5.3*

 

Second Amendment to Employment Agreement, dated December 31, 2008, between Corporate Office Properties, L.P., Corporate Office Properties Trust and Randall M. Griffin (filed with the Company's Current Report on Form 8-K dated January 5, 2009 and incorporated herein by reference).

 

10.6.1*

 

Employment Agreement, dated September 12, 2002, between the Operating Partnership, COPT and Roger A. Waesche, Jr. (filed on March 27, 2003 with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

 

10.6.2*

 

Amendment to Employment Agreement, dated March 4, 2005, between the Operating Partnership, COPT and Roger A. Waesche, Jr. (filed on March 16, 2005 with the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.6.3*   Second Amendment to Employment Agreement, dated May 30, 2006, between Corporate Office Properties, L.P., Corporate Office Properties Trust, and Roger A. Waesche, Jr. (filed with the Company's Current Report on Form 8-K dated June 1, 2006 and incorporated herein by reference).

 

10.6.4*

 

Third Amendment to Employment Agreement, dated July 31, 2006, between Corporate Office Properties, L.P., Corporate Office Properties Trust, and Roger A. Waesche, Jr. (filed with the Company's Current Report on Form 8-K dated August 1, 2006 and incorporated herein by reference).

 

10.6.5*

 

Fourth Amendment to Employment Agreement, dated March 2, 2007, between Corporate Office Properties, L.P., Corporate Office Properties Trust, and Roger A. Waesche, Jr. (filed with the Company's Annual Report on Form 10-K dated February 29, 2008 and incorporated herein by reference).

 

10.7.1*

 

Employment Agreement, dated May 15, 2003, between Corporate Development Services, LLC, Corporate Office Properties Trust and Dwight Taylor (filed on August 12, 2003 with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

 

10.7.2*

 

Amendment to Employment Agreement, dated March 4, 2005, between Corporate Development Services, LLC, Corporate Office Properties Trust and Dwight Taylor (filed on March 16, 2005 with the Company's Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference).

 

10.7.3*

 

Second Amendment to Employment Agreement, dated March 2, 2007, between Corporate Development Services, LLC, Corporate Office Properties Trust and Dwight S. Taylor (filed with the Company's Annual Report on Form 10-K dated February 29, 2008 and incorporated herein by reference).

 

10.8*

 

Employment Agreement, dated November 18, 2005, between Corporate Office Properties, L.P. Corporate Office Properties Trust and Karen M. Singer (filed with the Company's Current Report on Form 8-K on December 1, 2005 and incorporated herein by reference).

 

10.9.1*

 

Employment Agreement, dated July 31, 2006, between Corporate Office Properties, L.P., Corporate Office Properties Trust and Stephen E. Riffee (filed with the Company's Current Report on Form 8-K dated August 1, 2006 and incorporated herein by reference).

 

10.9.2*

 

First Amendment to Employment Agreement, dated December 31, 2008, between Corporate Office Properties, L.P., Corporate Office Properties Trust and Stephen E. Riffee (filed with the Company's Current Report on Form 8-K dated January 5, 2009 and incorporated herein by reference).

 

10.10

 

Employment Agreement, dated December 31, 2008, between Corporate Development Services, LLC, Corporate Office Properties Trust and Wayne Lingafelter (filed with the Company's Annual Report on Form 8-K dated January 5, 2009 and incorporated herein by reference).

 

10.11

 

Promissory Note, dated October 22, 1998, between Teachers Insurance and Annuity Association of America and the Operating Partnership (filed on November 13, 1998 with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.12   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 on November 13, 1998 with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference).

 

10.13

 

Promissory Note, dated September 30, 1999, between Teachers Insurance and Annuity Association of America and the Operating Partnership (filed on November 8, 1999 with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).

 

10.14

 

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 (filed on November 8, 1999 with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference).

 

10.15

 

Amended and Restated Registration Rights Agreement, dated March 16, 1998, for the benefit of certain shareholders of the Company (filed on August 12, 1998 with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference).

 

10.16

 

Registration Rights Agreement, dated January 25, 2001, for the benefit of Barony Trust Limited (filed on March 22, 2001 with the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference).

 

10.17

 

Registration Rights Agreement, dated September 18, 2006, among Corporate Office Properties, L.P., Corporate Office Properties Trust, Banc of America Securities LLC and J.P. Morgan Securities Inc. (filed with the Company's Current Report on Form 8-K dated September 22, 2006 and incorporated herein by reference).

 

10.18

 

Option Agreement, dated March 1998, between the Operating Partnership and Blue Bell Land, L.P. (filed on March 16, 2000 with the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference).

 

10.19

 

Second Amended and Restated Credit Agreement, dated October 1, 2007, among Corporate Office Properties, L.P.; Corporate Office Properties Trust; KeyBanc Capital Markets; Wachovia Capital Markets, LLC; KeyBank National Association; Wachovia Bank, National Association; Bank of America, N.A.; Manufacturers and Traders Trust Company; and Citizens Bank of Pennsylvania (filed with the Company's Annual Report on Form 10-K dated February 29, 2008 and incorporated herein by reference).

 

10.20

 

Retirement and Consulting Agreement, dated April 12, 2005, between Corporate Office Properties, L.P. and Clay W. Hamlin, III (filed with the Company's Form 8-K on April 15, 2005 and incorporated herein by reference).

 

10.21.1

 

Corporate Office Properties Trust Supplemental Nonqualified Deferred Compensation Plan (filed with the Company's Current Report on Form 8-K dated December 10, 2008 and incorporated herein by reference).

 

10.21.2

 

First Amendment to the Corporate Office Properties Trust Supplemental Nonqualified Deferred Compensation Plan dated December 4, 2008 (filed with the Company's Current Report on Form 8-K dated December 10, 2008 and incorporated herein by reference).

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EXHIBIT
NO.
  DESCRIPTION
  10.22   Common Stock Delivery Agreement dated as of September 18, 2006, between Corporate Office Properties, L.P. and Corporate Office Properties Trust (filed with the Company's Current Report on Form 8-K dated September 22, 2006 and incorporated herein by reference).

 

10.23

 

Purchase Agreement and Agreement and Plan of Merger, dated December 21, 2006, by and among the Corporate Office Properties Trust; Corporate Office Properties, L.P.; W&M Business Trust; and Nottingham Village, Inc. (filed on March 1, 2007 with the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference).

 

10.24

 

Purchase and Sale Agreement of Ownership Interests, dated December 21, 2006, by and between Corporate Office Properties, L.P. and Nottingham Properties, Inc. (filed on March 1, 2007 with the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference).

 

10.25

 

Construction Loan Agreement dated as of May 2, 2008 by and among Corporate Office Properties, L.P., as borrower, Corporate Office Properties Trust, as parent, Keybanc Capital Markets, Inc. as arranger, Keybank National Association, as administrative agent, Bank of America, N.A., as syndication agent, Manufacturers and Traders Trust Company, as documentation agent, and the financial institutions initially signatory thereto and their assignees pursuant to Section 12.5 thereof, as lenders (filed on August 8, 2008 with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and incorporated herein by reference).

 

10.26

 

Corporate Office Properties Trust 2008 Omnibus Equity and Incentive Plan (included in Appendix B to the Company's Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 9, 2008 and incorporated herein by reference).

 

12.1

 

Statement regarding Computation of Earnings to Combined Fixed Charges and Preferred Share Dividends (filed herewith).

 

21.1

 

Subsidiaries of Registrant (filed herewith).

 

23.1

 

Consent of Independent Registered Public Accounting Firm (filed herewith).

 

31.1

 

Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

 

31.2

 

Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

 

32.1

 

Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith.).

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EXHIBIT
NO.
  DESCRIPTION
  32.2   Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).

*—Indicates a compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 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: February 19, 2010

 

By:

 

/s/ RANDALL M. GRIFFIN

Randall M. Griffin
President and Chief Executive Officer

Date: February 19, 2010

 

By:

 

/s/ STEPHEN E. RIFFEE

Stephen E. Riffee
Executive Vice President and Chief Financial Officer

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Table of Contents

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signatures
 
Title
 
Date

 

 

 

 

 

 

 
/s/ JAY H. SHIDLER

(Jay H. Shidler)
  Chairman of the Board and Trustee   February 19, 2010

/s/ CLAY W. HAMLIN, III

(Clay W. Hamlin, III)

 

Vice Chairman of the Board and Trustee

 

February 19, 2010

/s/ RANDALL M. GRIFFIN

(Randall M. Griffin)

 

President, Chief Executive Officer and Trustee

 

February 19, 2010

/s/ STEPHEN E. RIFFEE

(Stephen E. Riffee)

 

Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

February 19, 2010

/s/ GREGORY J. THOR

(Gregory J. Thor)

 

Vice President and Controller (Principal Accounting Officer)

 

February 19, 2010

/s/ THOMAS F. BRADY

(Thomas F. Brady)

 

Trustee

 

February 19, 2010

/s/ ROBERT L. DENTON

(Robert L. Denton)

 

Trustee

 

February 19, 2010

/s/ DOUGLAS M. FIRSTENBERG

(Douglas M. Firstenberg)

 

Trustee

 

February 19, 2010

/s/ DAVID M. JACOBSTEIN

(David M. Jacobstein)

 

Trustee

 

February 19, 2010

/s/ STEVEN D. KESLER

(Steven D. Kesler)

 

Trustee

 

February 19, 2010

/s/ KENNETH S. SWEET, JR.

(Kenneth S. Sweet, Jr.)

 

Trustee

 

February 19, 2010

/s/ RICHARD SZAFRANSKI

(Richard Szafranski)

 

Trustee

 

February 19, 2010

/s/ KENNETH D. WETHE

(Kenneth D. Wethe)

 

Trustee

 

February 19, 2010

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CORPORATE OFFICE PROPERTIES TRUST AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

   
 

Management's Report of Internal Control Over Financial Reporting

 
F-2
 

Report of Independent Registered Public Accounting Firm

  F-3
 

Consolidated Balance Sheets as of December 31, 2009 and 2008

  F-4
 

Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007

  F-5
 

Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2009, 2008 and 2007

  F-6
 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007

  F-7
 

Notes to Consolidated Financial Statements

  F-8

FINANCIAL STATEMENT SCHEDULE

   

Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2009

 
F-53

F-1


Table of Contents


Management's Report On Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2009. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and trustees; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009 based upon criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management determined that our internal control over financial reporting was effective as of December 31, 2009 based on the criteria in Internal Control-Integrated Framework issued by the COSO.

        The effectiveness of the Company's internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

F-2


Table of Contents


Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Corporate Office Properties Trust:

        In our opinion, the consolidated financial statements listed in the accompanying index 15(a)(1) present fairly, in all material respects, the financial position of Corporate Office Properties Trust and its subsidiaries at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management's Report on Internal Control over Financial Reporting". Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for certain convertible debt instruments, the manner in which it accounts for noncontrolling interests, and the manner in which it computes earnings per share effective January 1, 2009.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Baltimore, MD
February 19, 2010

F-3


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

 
  December 31,  
 
  2009   2008  

Assets

             

Properties, net:

             
 

Operating properties, net

  $ 2,510,277   $ 2,283,870  
 

Properties held for sale, net

    18,533      
 

Projects under construction or development

    501,090     494,596  
           
 

Total properties, net

    3,029,900     2,778,466  

Cash and cash equivalents

    8,262     6,775  

Restricted cash and marketable securities

    16,549     13,745  

Accounts receivable, net

    17,459     13,684  

Deferred rent receivable

    71,805     64,131  

Intangible assets on real estate acquisitions, net

    100,671     91,848  

Deferred charges, net

    53,421     51,801  

Prepaid expenses and other assets

    81,955     93,789  
           

Total assets

  $ 3,380,022   $ 3,114,239  
           

Liabilities and equity

             

Liabilities:

             
 

Mortgage and other loans payable, net

  $ 1,897,694   $ 1,704,123  
 

3.5% Exchangeable Senior Notes, net

    156,147     152,628  
 

Accounts payable and accrued expenses

    116,455     93,625  
 

Rents received in advance and security deposits

    32,177     30,464  
 

Dividends and distributions payable

    28,440     25,794  
 

Deferred revenue associated with operating leases

    14,938     10,816  
 

Distributions in excess of investment in unconsolidated real estate joint venture

    5,088     4,770  
 

Other liabilities

    8,451     9,596  
           

Total liabilities

    2,259,390     2,031,816  
           

Commitments and contingencies (Note 18)

         

Equity:

             

Corporate Office Properties Trust's shareholders' equity:

             
 

Preferred Shares of beneficial interest with an aggregate liquidation preference of $216,333 at December 31, 2009 and 2008 (Note 11)

    81     81  
 

Common Shares of beneficial interest ($0.01 par value; 75,000,000 shares authorized, shares issued and outstanding of 58,342,673 at December 31, 2009 and 51,790,442 at December 31, 2008)

    583     518  
 

Additional paid-in capital

    1,238,704     1,112,734  
 

Cumulative distributions in excess of net income

    (209,941 )   (162,572 )
 

Accumulated other comprehensive loss

    (1,907 )   (4,749 )
           

Total Corporate Office Properties Trust's shareholders' equity

    1,027,520     946,012  
           

Noncontrolling interests in subsidiaries:

             
 

Common units in the Operating Partnership

    73,892     117,356  
 

Preferred units in the Operating Partnership

    8,800     8,800  
 

Other consolidated real estate joint ventures

    10,420     10,255  
           
 

Noncontrolling interests in subsidiaries

    93,112     136,411  
           

Total equity

    1,120,632     1,082,423  
           

Total liabilities and equity

  $ 3,380,022   $ 3,114,239  
           

See accompanying notes to consolidated financial statements.

F-4


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Revenues

                   
 

Rental revenue

  $ 353,233   $ 334,654   $ 312,336  
 

Tenant recoveries and other real estate operations revenue

    71,199     62,566     50,905  
 

Construction contract and other service revenues

    343,087     188,385     41,225  
               
   

Total revenues

    767,519     585,605     404,466  
               

Expenses

                   
 

Property operating expenses

    157,314     141,052     122,961  
 

Depreciation and amortization associated with real estate operations

    108,609     101,937     103,916  
 

Construction contract and other service expenses

    336,519     184,142     39,793  
 

General and administrative expenses

    23,240     24,096     20,227  
 

Business development expenses

    3,699     1,233     1,477  
               
   

Total operating expenses

    629,381     452,460     288,374  
               

Operating income

    138,138     133,145     116,092  

Interest expense

    (82,208 )   (86,414 )   (88,130 )

Interest and other income

    5,164     2,070     3,030  

Gain on early extinguishment of debt

        8,101      
               

Income from continuing operations before equity in loss of unconsolidated entities and income taxes

    61,094     56,902     30,992  

Equity in loss of unconsolidated entities

    (941 )   (147 )   (224 )

Income tax expense

    (196 )   (201 )   (569 )
               

Income from continuing operations

    59,957     56,554     30,199  

Discontinued operations, net of income taxes

    1,342     3,658     3,706  
               

Income before gain on sales of real estate

    61,299     60,212     33,905  

Gain on sales of real estate, net of income taxes

        1,104     2,037  
               

Net income

    61,299     61,316     35,942  

Net income attributable to noncontrolling interests:

                   
 

Common units in the Operating Partnership

    (4,495 )   (6,519 )   (3,203 )
 

Preferred units in the Operating Partnership

    (660 )   (660 )   (660 )
 

Other

    185     (172 )   122  
               

Net income attributable to Corporate Office Properties Trust

    56,329     53,965     32,201  

Preferred share dividends

    (16,102 )   (16,102 )   (16,068 )
               

Net income attributable to Corporate Office Properties Trust common shareholders

  $ 40,227   $ 37,863   $ 16,133  
               

Net income attributable to Corporate Office Properties Trust

                   
 

Income from continuing operations

  $ 55,118   $ 50,859   $ 29,076  
 

Discontinued operations, net

    1,211     3,106     3,125  
               
 

Net income attributable to Corporate Office Properties Trust

  $ 56,329   $ 53,965   $ 32,201  
               

Basic earnings per common share(1)

                   
 

Income from continuing operations

  $ 0.68   $ 0.71   $ 0.27  
 

Discontinued operations

    0.02     0.06     0.07  
               
 

Net income attributable to COPT common shareholders

  $ 0.70   $ 0.77   $ 0.34  
               

Diluted earnings per common share(1)

                   
 

Income from continuing operations

  $ 0.68   $ 0.70   $ 0.26  
 

Discontinued operations

    0.02     0.06     0.07  
               
 

Net income attributable to COPT common shareholders

  $ 0.70   $ 0.76   $ 0.33  
               

(1)
Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.

See accompanying notes to consolidated financial statements.

F-5


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Dollars in thousands)

 
  Preferred
Shares
  Common
Shares
  Additional
Paid-in
Capital
  Cumulative
Distributions in
Excess of Net
Income
  Accumulated
Other
Comprehensive
Loss
  Non-
controlling
Interests
  Total  

Balance at December 31, 2006 (42,897,639 common shares outstanding)

  $ 76   $ 429   $ 778,876   $ (84,401 ) $ (693 ) $ 116,008   $ 810,295  

Conversion of common units to common shares (554,221 shares)

        6     25,402             (25,408 )    

Common shares issued in connection with acquisition of properties (3,161,000 shares)

        32     156,619                 156,651  

Series K Preferred Shares issued in connection with acquisition of properties, net of transaction costs (531,667 shares)

    5         26,562                 26,567  

Issuance of common units in the Operating Partnership in connection with acquisition of properties

                        12,125     12,125  

Exercise of share options (620,858 shares)

        6     7,470                 7,476  

Share-based compensation

        1     6,642                 6,643  

Restricted common share redemptions (6,685 shares)

            (351 )               (351 )

Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT

            (29,761 )           29,761      

Decrease in fair value of derivatives

                    (1,679 )   (284 )   (1,963 )

Net income attributable to Corporate Office Properties Trust

                32,201         3,741     35,942  

Dividends

                (77,399 )           (77,399 )

Distributions to owners of common and preferred units in the Operating Partnership

                        (11,342 )   (11,342 )

Net contributions from noncontrolling interests in other consolidated real estate joint ventures

                        5,982     5,982  

Net distributions to noncontrolling interests in other consolidated real estate joint ventures

                        (1,146 )   (1,146 )
                               

Balance at December 31, 2007 (47,366,475 common shares outstanding)

    81     474     971,459     (129,599 )   (2,372 )   129,437     969,480  

Conversion of common units to common shares (258,917 shares)

        3     7,505             (7,508 )    

Common shares issued to the public (3,737,500 shares)

        37     138,886                 138,923  

Exercise of share options (180,239 shares)

        2     2,833                 2,835  

Share-based compensation

        2     9,034                 9,036  

Restricted common share redemptions (61,258 shares)

            (1,320 )               (1,320 )

Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT

            (16,716 )           16,716      

Decrease in fair value of derivatives

                    (2,377 )   (330 )   (2,707 )

Tax benefit from share-based compensation

            1,053                 1,053  

Net income attributable to Corporate Office Properties Trust

                53,965         7,351     61,316  

Dividends

                (86,938 )           (86,938 )

Distributions to owners of common and preferred units in the Operating Partnership

                        (12,170 )   (12,170 )

Net contributions from noncontrolling interests in other consolidated real estate joint ventures

                        3,349     3,349  

Net distributions to noncontrolling interests in other consolidated real estate joint ventures

                        (434 )   (434 )
                               

Balance at December 31, 2008 (51,790,442 common shares outstanding)

    81     518     1,112,734     (162,572 )   (4,749 )   136,411     1,082,423  

Conversion of common units to common shares (2,841,394 shares)

        28     61,627             (61,655 )    

Common shares issued to the public (2,990,000 shares)

        30     71,795                 71,825  

Exercise of share options (464,601 shares)

        4     5,222                 5,226  

Share-based compensation

        3     10,599                 10,602  

Restricted common share redemptions (79,343 shares)

            (2,049 )               (2,049 )

Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT

            (21,072 )           21,072      

Adjustments related to derivatives designated as cash flow hedges

                      2,842     585     3,427  

Decrease in tax benefit from share-based compensation

            (152 )                 (152 )

Net income attributable to Corporate Office Properties Trust

                  56,329         4,970     61,299  

Dividends

                (103,698 )             (103,698 )

Distributions to owners of common and preferred units in the Operating Partnership

                        (8,622 )   (8,622 )

Net contributions from noncontrolling interests in other consolidated real estate joint ventures

                        786     786  

Net distributions to noncontrolling interests in other consolidated real estate joint ventures

                        (435 )   (435 )
                               

Balance at December 31, 2009 (58,342,673 common shares outstanding)

  $ 81   $ 583   $ 1,238,704   $ (209,941 ) $ (1,907 ) $ 93,112   $ 1,120,632  
                               

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Cash flows from operating activities

                   
 

Net income

  $ 61,299   $ 61,316   $ 35,942  
 

Adjustments to reconcile net income to net cash provided by operating activities:

                   
   

Depreciation and other amortization

    111,811     104,968     108,181  
   

Amortization of deferred financing costs

    4,214     3,843     3,583  
   

Amortization of above or below market leases

    (2,126 )   (2,064 )   (1,985 )
   

Gain on sales of real estate

        (4,208 )   (6,979 )
   

Other gain on sales

    (442 )   (49 )   (1,033 )
   

Amortization of debt discounts

    3,412     3,873     3,400  
   

Share-based compensation

    10,602     9,036     6,643  
   

Gain on redemption of 3.5% Exchangeable Senior Notes

        (8,101 )    
   

Settlement of previously accreted interest expense

        (1,652 )    
   

Other

    (3,567 )   (1,909 )   (657 )
 

Changes in operating assets and liabilities:

                   
   

Increase in deferred rent receivable

    (1,296 )   (10,594 )   (11,988 )
   

(Increase) decrease in accounts receivable

    (3,634 )   11,128     1,544  
   

Increase in restricted cash and marketable securities and prepaid and other assets

    (2,745 )   (15,061 )   (5,040 )
   

Increase (decrease) in accounts payable, accrued expenses, and other liabilities

    15,787     31,136     (3,250 )
   

Increase (decrease) in rents received in advance and security deposits

    1,502     (770 )   10,030  
               
     

Net cash provided by operating activities

    194,817     180,892     138,391  
               

Cash flows from investing activities

                   
 

Purchases of and additions to properties

    (251,565 )   (280,639 )   (353,117 )
 

Proceeds from sales of properties

    65     33,412     21,684  
 

Proceeds from sale of non-real estate investment

        91     2,526  
 

Mortgage loans receivable funded or acquired

    (82,413 )   (25,251 )    
 

Leasing costs paid

    (8,786 )   (7,670 )   (12,182 )
 

(Increase) decrease in restricted cash associated with investing activities

    (768 )   (842 )   16,018  
 

Purchases of furniture, fixtures and equipment

    (2,287 )   (3,581 )   (1,663 )
 

Other

    (3,322 )   (6,342 )   (1,670 )
               
     

Net cash used in investing activities

    (349,076 )   (290,822 )   (328,404 )
               

Cash flows from financing activities

                   
 

Proceeds from mortgage and other loans payable

    1,066,413     1,080,999     867,842  
 

Repayments of debt

                   
   

Balloon payments

    (863,243 )   (988,945 )   (559,467 )
   

Scheduled principal amortization

    (11,489 )   (13,668 )   (19,928 )
 

Repurchase of 3.5% Exchangeable Senior Notes

        (25,238 )    
 

Deferred financing costs paid

    (3,388 )   (6,461 )   (4,171 )
 

Net proceeds from issuance of common shares

    77,052     141,758     7,446  
 

Dividends paid

    (100,095 )   (83,753 )   (74,277 )
 

Distributions paid

    (9,579 )   (12,002 )   (11,188 )
 

Restricted share redemptions

    (2,049 )   (1,320 )   (351 )
 

Other

    2,124     697     822  
               
     

Net cash provided by financing activities

    155,746     92,067     206,728  
               

Net increase (decrease) in cash and cash equivalents

    1,487     (17,863 )   16,715  

Cash and cash equivalents

                   
 

Beginning of period

    6,775     24,638     7,923  
               
 

End of period

  $ 8,262   $ 6,775   $ 24,638  
               

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share and per unit data)

1. Organization and Business

        Corporate Office Properties Trust ("COPT") and subsidiaries (collectively, the "Company") is a fully-integrated and self-managed real estate investment trust ("REIT") that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of December 31, 2009, our investments in real estate included the following:

        We conduct almost all of our operations 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"). A summary of our Operating Partnership's forms of ownership and the percentage of those ownership forms owned by COPT as of December 31, 2009 and 2008 follows:

 
  December 31,  
 
  2009   2008  

Common Units

    92 %   86 %

Series G Preferred Units

    100 %   100 %

Series H Preferred Units

    100 %   100 %

Series I Preferred Units

    0 %   0 %

Series J Preferred Units

    100 %   100 %

Series K Preferred Units

    100 %   100 %

        Three of our trustees controlled, either directly or through ownership by other entities or family members, an additional 7% of the Operating Partnership's common units.

        In addition to owning real estate, the Operating Partnership also owns entities that provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties.

2. Summary of Significant Accounting Policies

Basis of Presentation

        The Consolidated Financial Statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which we have a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


voting rights ("variable interest entities" or "VIEs") if we are deemed to be the primary beneficiary of such entities. We eliminate all significant intercompany balances and transactions in consolidation.

        We use the equity method of accounting when we own an interest in an entity and can exert significant influence over the entity's operations but cannot control the entity's operations. We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.

        In preparing the Consolidated Financial Statements, we evaluated subsequent events occurring through February 19, 2010, the date the financial statements were issued.

Reclassification

        We reclassified certain amounts from prior periods to conform to the current period presentation of our Consolidated Financial Statements. As discussed further below, we retrospectively adopted newly issued accounting standards issued by the Financial Accounting Standards Board ("FASB") that affected our accounting for noncontrolling interests and convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and our determination of whether instruments granted in share-based payment transactions should be included in the calculation of earnings per share. This resulted in certain adjustments to amounts previously reported, including changes that affected our previously reported net income attributable to our common shareholders and earnings per common share.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our accounting for noncontrolling interests (the "NI Standard"). The standard establishes accounting and reporting standards for noncontrolling interests in subsidiaries and for deconsolidation of subsidiaries. It requires all entities to report noncontrolling (previously known as minority) interests in subsidiaries that meet certain criteria as equity in the Consolidated Financial Statements. The standard also requires that consolidated net income be adjusted to include net income attributable to noncontrolling interests. In addition, the standard requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions. The presentation and disclosure requirements under the standard are being applied retrospectively for all periods presented. The standard primarily affected how we present noncontrolling interests on our consolidated balance sheets, statements of operations and cash flows but did not otherwise have a material effect on our financial position, results of operations or cash flows.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our accounting for convertible debt instruments (the "CD Standard"). The standard requires that the initial proceeds from convertible debt instruments that may be settled in cash, including partial cash settlements, be allocated between a liability component and an equity component associated with the embedded conversion option. This pronouncement's objective is to require the liability and equity components of convertible debt to be separately accounted for in order to enable interest expense to be recorded at a rate that would reflect the issuer's conventional debt borrowing rate (previously, interest expense on such debt was recorded based on the contractual rate of interest under the debt). Under this pronouncement, the liability component is recorded at its fair value, as calculated based on the present value of its cash flows discounted using the issuer's conventional debt borrowing rate. The

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


equity component is recorded based on the difference between the debt proceeds and the fair value of the liability. The difference between the liability's principal amount and fair value is reported as a debt discount and amortized as interest expense over the debt's expected life using the effective interest method. The provisions of the standard are being applied retrospectively to all periods presented. The standard affected the accounting for our 3.5% Exchangeable Senior Notes (the "Exchangeable Notes"), resulting in our retroactive reclassification from debt to equity of $21,309, representing the debt discount, effective upon the origination of the Exchangeable Notes in September 2006. We also commenced amortization of this debt discount effective September 2006. In addition, we reclassified $465 of the original finance fees incurred in relation to the Exchangeable Notes to equity effective September 2006. We expect to amortize the remaining unamortized discount as of December 31, 2009 of $6,353 into interest expense through September 2011.

        The tables below set forth the changes to our net income and balance sheet for the periods included herein resulting from our adoption of the NI Standard and CD Standard:

 
  For the Years Ended
December 31,
 
 
  2008   2007  

Net income as previously reported

  $ 58,668   $ 34,784  

Net income attributable to noncontrolling interests related to NI Standard

    8,147     4,220  

Adjustment to interest expense related to CD Standard

    (3,224 )   (3,062 )

Adjustment to gain on early extinguishment of debt related to CD Standard

    (2,275 )    
           

Net income, as adjusted

  $ 61,316   $ 35,942  
           

 

Balance Sheet line item
  December 31,
2008, as
Previously
Reported
  Adjustments
Related to CD
Standard
  Adjustments
Related to NI
Standard
  December 31,
2008, as
Adjusted
 

Properties, net

  $ 2,776,889   $ 1,577   $   $ 2,778,466  

Deferred charges, net

    52,006     (205 )       51,801  

3.5% Exchangeable Senior Notes

    162,500     (9,872 )       152,628  

Minority interest

    137,865     (1,454 )   (136,411 )    

Equity

    933,314     12,698     136,411     1,082,423  

Use of Estimates in the Preparation of Financial Statements

        We make estimates and assumptions when preparing financial statements under generally accepted accounting principles ("GAAP"). These estimates and assumptions affect various matters, including:

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

        Significant estimates are inherent in the presentation of our financial statements in a number of areas, including the evaluation of the collectability of accounts and notes receivable, the allocation of real estate acquisition costs, the determination of estimated useful lives of assets, the evaluation of impairment of long-lived assets, the amount of revenue recognized relating to tenant improvements and the level of expense recognized in connection with share-based compensation. Actual results could differ from these and other estimates.

Acquisitions of Real Estate

        We allocate the purchase price of acquired properties to tangible and identified intangible assets based on their fair values at the date of acquisition. In making estimates of fair values for purposes of allocating a purchase price, we use a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We allocate the costs of real estate acquisitions to the following components:

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

Properties

        We report properties to be developed or held and used in operations at our depreciated cost, reduced for impairment losses, where appropriate. We capitalize interest expense, real estate taxes, direct and indirect project costs and other costs associated with real estate undergoing construction and development activities. The preconstruction stage of development of an operating property (or an expansion of an existing property) includes efforts and related costs to secure land control and zoning, evaluate feasibility and complete other initial tasks which are essential to development. We continue to capitalize these costs while construction and development activities are underway until a property becomes "operational," which occurs upon the earlier of when leases commence on space or one year after the cessation of major construction activities. When leases commence on portions of a newly-constructed property's space in the period prior to one year from the cessation of major construction activities, we consider that property to be "partially operational." When a property is partially operational, we allocate the costs associated with the property between the portion that is operational and the portion under construction. We start depreciating newly-constructed properties as they become operational.

        We depreciate our assets using the straight-line method over their estimated useful lives as follows:

 

•       Buildings and building improvements

  10-40 years
 

•       Land improvements

  10-20 years
 

•       Tenant improvements on operating properties

  Related lease terms
 

•       Equipment and personal property

  3-10 years

        If events or circumstances indicate that a property to be held and used may be impaired, we perform a recoverability analysis based on the estimated undiscounted cash flows to be generated by the property. If the analysis indicates that the carrying value of the property is not recoverable from future cash flows, the property is written down to fair value and an impairment loss is recognized. Fair values are determined based on appraisals and/or estimated future cash flows using market-based discount and capitalization rates.

        When we determine that a real estate asset is held for sale, we discontinue the recording of depreciation expense of the asset and estimate the sales price, net of selling costs; if we then determine that the estimated sales price, net of selling costs, is less than the net book value of the asset, we recognize an impairment loss equal to the difference and reduce the carrying amounts of assets.

        When we sell an operating property, or determine that an operating property is held for sale, and determine that we have no significant continuing involvement in such property, we classify the results of operations for such property as discontinued operations. Interest expense that is specifically identifiable to properties included in discontinued operations is used in the computation of interest expense attributable to discontinued operations. When properties classified as discontinued operations are included in computations that determine the amount of our borrowing capacity under certain debt instruments (including our Revolving Credit Facility), we allocate a portion of such debt instruments' interest expense to discontinued operations; we compute this allocation based on the percentage that the related properties represent of all properties included in determining the amount of our borrowing capacity under such debt instruments.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

        We expense property maintenance and repair costs when incurred.

Sales of Interests in Real Estate

        We recognize gains from sales of interests in real estate using the full accrual method, provided that various criteria relating to the terms of sale and any subsequent involvement by us with the real estate sold are met. We recognize gains relating to transactions that do not meet the requirements of the full accrual method of accounting when the full accrual method of accounting criteria are met.

Cash and Cash Equivalents

        Cash and cash equivalents include all cash and liquid investments that mature three months or less from when they are purchased. Cash equivalents are reported at cost, which approximates fair value. We maintain our cash in bank accounts in amounts that may exceed Federally insured limits at times. We have not experienced any losses in these accounts in the past and believe that we are not exposed to significant credit risk because our accounts are deposited with major financial institutions.

Accounts Receivable

        Accounts receivable are reported net of an allowance for bad debts of $2,516 at December 31, 2009 and $1,455 at December 31, 2008. We use judgment in estimating the uncollectability of our accounts receivable based primarily upon the payment history and credit status of the entities associated with the individual accounts.

Revenue Recognition

        We recognize minimum rental revenue on a straight-line basis over the non-cancelable term of tenant leases. The non-cancelable term of a lease includes periods when a tenant: (1) may not terminate its lease obligation early; or (2) may terminate its lease obligation early in exchange for a fee or penalty that we consider material enough such that termination would not be probable. We report the amount by which our minimum rental revenue recognized on a straight-line basis under leases exceeds the contractual rent billings associated with such leases as deferred rent receivable on our Consolidated Balance Sheets.

        We recognize tenant recovery revenue in the same periods in which we incur the related expenses. Tenant recovery revenue includes payments from tenants as reimbursement for property taxes, utilities and other property operating expenses.

        We recognize fees received for lease terminations as revenue and write off against such revenue any (1) deferred rents receivable and (2) deferred revenue and intangible assets that are amortizable into rental revenue associated with the leases; the resulting net amount is the net revenue from the early termination of the leases. When a tenant's lease for space in a property is terminated early but the tenant continues to lease such space under a new or modified lease in the property, the net revenue from the early termination of the lease is generally recognized evenly over the remaining life of the new or modified lease in place on that property.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

        We recognize fees for services provided by us once services are rendered, fees are determinable and collectability is assured. We recognize revenue under construction contracts using the percentage of completion method when the revenue and costs for such contracts can be estimated with reasonable accuracy; when these criteria do not apply to a contract, we recognize revenue on that contract using the completed contract method. Under the percentage of completion method, we recognize a percentage of the total estimated revenue on a contract based on the cost of services provided on the contract as of a point in time relative to the total estimated costs on the contract.

Intangible Assets and Deferred Revenue on Real Estate Acquisitions

        We capitalize intangible assets and deferred revenue on real estate acquisitions as described in the section above entitled "Acquisitions of Real Estate." We amortize the intangible assets and deferred revenue as follows:

 

•       Above- and below-market leases

  Related lease terms
 

•       In-place lease assets

  Related lease terms
 

•       Tenant relationship value

  Estimated period of time that tenant will lease space in property
 

•       In-place real estate tax credits

  Term of credit arrangement
 

•       Market concentration premium

  40 years

        We recognize the amortization of acquired above-market and below-market leases as adjustments to rental revenue; we refer to this amortization as amortization of deferred market rental revenue. We recognize the amortization of in-place real estate tax credits as adjustments to property operating expenses. We recognize the amortization of other intangible assets on real estate acquisitions as amortization expense.

Deferred Charges

        We defer costs that we incur to obtain new tenant leases or extend existing tenant leases. We amortize these costs evenly over the lease terms. When tenant leases are terminated early, we expense any unamortized deferred leasing costs associated with those leases over the remaining life of the lease.

        We also defer costs for long-term financing arrangements and recognize these costs as interest expense over the related loan terms on a straight-line basis, which approximates the amortization that would occur under the effective interest method of amortization. We expense any unamortized loan costs when loans are retired early.

        When the costs of acquisitions exceed the fair value of tangible and identifiable intangible assets and liabilities, we record goodwill in connection with such acquisitions. We test goodwill annually for impairment and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired. We recognize an impairment loss when the discounted expected future cash flows associated with the related reporting unit are less than its unamortized cost.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

Derivatives

        Our primary objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Derivatives are used to hedge the variable cash flows associated with existing as well as future variable-rate debt. We recognize all derivatives as assets or liabilities in the balance sheet at fair value. We defer the effective portion of changes in fair value of the designated cash flow hedges to accumulated other comprehensive loss ("AOCL") and reclassify such deferrals to interest expense as interest expense is recognized on the hedged forecasted transactions. We recognize the ineffective portion of the change in fair value of interest rate derivatives directly in interest expense. We do not use interest rate derivatives for trading or speculative purposes. We manage counter-party risk by only entering into contracts with major financial institutions based upon their credit ratings and other risk factors.

        We use standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost in computing the fair value of derivatives at each balance sheet date.

        Please refer to Note 10 for additional information pertaining to interest rate derivatives.

Noncontrolling Interests

        As discussed previously, we consolidate the accounts of our Operating Partnership and its subsidiaries into our financial statements. However, we do not own 100% of the Operating Partnership. We also do not own 100% of certain consolidated real estate joint ventures. The amounts reported for noncontrolling interests on our Consolidated Balance Sheets represent the portion of these consolidated entities' equity that we do not own. The amounts reported for noncontrolling 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 ("common units") are substantially similar economically to our common shares of beneficial interest ("common shares"). Common units not owned by us are also exchangeable into our common shares, subject to certain conditions.

        The Operating Partnership has 352,000 Series I Preferred Units issued to an unrelated party that have an aggregate liquidation preference of $8,800 ($25.00 per unit), plus any accrued and unpaid distributions of return thereon (as described below), and may be redeemed for cash by the Operating Partnership at our option any time after September 22, 2019. The owner of these units is entitled to a priority annual cumulative return equal to 7.5% of their liquidation preference through September 22, 2019; the annual cumulative preferred return increases for each subsequent five-year period, subject to certain maximum limits. These units are convertible into common units on the basis of 0.5 common units for each Series I Preferred Unit; the resulting common units would then be exchangeable for common shares in accordance with the terms of the Operating Partnership's agreement of limited partnership.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

Earnings Per Share ("EPS")

        We present both basic and diluted EPS. We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted common shares outstanding during the year. Our computation of diluted EPS is similar except that:

Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):

 
  For the Years
Ended December 31,
 
 
  2009   2008   2007  

Numerator:

                   

Income from continuing operations

  $ 59,957   $ 56,554   $ 30,199  

Add: Gain on sales of real estate, net

        1,104     2,037  

Less: Preferred share dividends

    (16,102 )   (16,102 )   (16,068 )

Less: Income from continuing operations attributable to noncontrolling interests

    (4,839 )   (6,799 )   (3,160 )

Less: Income from continuing operations attributable to restricted shares

    (1,010 )   (728 )   (517 )
               

Numerator for basic and diluted EPS from continuing operations attributable to COPT common shareholders

    38,006     34,029     12,491  

Add: Discontinued operations, net

    1,342     3,658     3,706  

Less: Discontinued operations, net attributable to noncontrolling interests

    (131 )   (552 )   (581 )
               

Numerator for basic and diluted EPS on net income attributable to COPT common shareholders

  $ 39,217   $ 37,135   $ 15,616  
               

Denominator (all weighted averages):

                   

Denominator for basic EPS (common shares)

    55,930     48,132     46,527  

Dilutive effect of stock option awards

    477     688     991  
               

Denominator for diluted EPS

    56,407     48,820     47,518  
               

Basic EPS:

                   
 

Income from continuing operations attributable to COPT common shareholders

  $ 0.68   $ 0.71   $ 0.27  
 

Discontinued operations attributable to COPT common shareholders

    0.02     0.06     0.07  
               
 

Net income attributable to COPT common shareholders

  $ 0.70   $ 0.77   $ 0.34  
               

Diluted EPS:

                   
 

Income from continuing operations attributable to COPT common shareholders

  $ 0.68   $ 0.70   $ 0.26  
 

Discontinued operations attributable to COPT common shareholders

    0.02     0.06     0.07  
               
 

Net income attributable to COPT common shareholders

  $ 0.70   $ 0.76   $ 0.33  
               

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

        Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods:

 
  Weighted Average Shares Excluded
from Denominator for the
Years Ended December 31,
 
 
  2009   2008   2007  

Conversion of common units

    5,717     8,107     8,296  

Conversion of convertible preferred units

    176     176     176  

Conversion of convertible preferred shares

    434     434     425  

Anti-dilutive share-based compensation awards

    494     1,142     695  

        As discussed in Note 9, the Operating Partnership has outstanding 3.50% Exchangeable Senior Notes that are due in 2026. The notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, may be exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares at an exchange rate of 18.9413 shares per one thousand dollar principal amount of the notes (exchange rate is as of December 31, 2009 and is equivalent to an exchange price of $52.79 per common share). The Exchangeable Senior Notes did not affect our diluted EPS reported above since the weighted average closing price of our common shares during each of the periods was less than the exchange price per common share applicable for such periods.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that affected our determination of whether instruments granted in share-based payment transactions should be included in the calculation of earnings per share. The standard requires that all unvested share-based payment awards that contain nonforfeitable rights to dividends be considered participating securities and therefore shall be included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common shares and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. The standard was effective for us beginning January 1, 2009 and interim periods within that year, and the EPS of prior periods was adjusted retrospectively. Our adoption of the standard had a decreasing effect on our EPS in the current and in prior periods at a level that was not material.

Share-Based Compensation

        We have historically issued two forms of share-based compensation: options to purchase common shares ("options") and restricted common shares ("restricted shares"). We account for our share-based compensation in accordance with authoritative guidance provided by the FASB that establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The guidance requires us to measure the cost of employee services received in exchange for an award of equity instruments based generally on the fair value of the award on the grant date; such cost is then recognized over the period during which the employee is required to provide service in exchange for the award (generally the vesting period). No

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


compensation cost is recognized for equity instruments for which employees do not render the requisite service. The guidance also requires that share-based compensation be computed based on awards that are ultimately expected to vest; as a result, future forfeitures of awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We capitalize costs associated with share-based compensation attributable to employees engaged in construction and development activities.

        When we adopted the authoritative guidance on accounting for share-based compensation, we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation. The alternative transition method enabled us to use a simplified method to establishing the beginning balance of the additional paid-in capital pool related to the tax effects of employee share-based compensation, which was available to absorb tax deficiencies recognized subsequent to the adoption of this guidance.

        We compute the fair value of share options using the Black-Scholes option-pricing model. Under that model, the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected option life is based on our historical experience of employee exercise behavior. Expected volatility is based on historical volatility of our common shares. Expected dividend yield is based on the average historical dividend yield on our common shares over a period of time ending on the grant date of the options.

Fair Value of Financial Instruments

        Accounting standards define fair value as the exit price, or the amount that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standards also establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy of these inputs is broken down into three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active and (3) inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is most significant to the fair value measurement.

        The assets held in connection with our non-qualified elective deferred compensation plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on our Consolidated Balance Sheet using quoted market prices. The assets are treated as trading securities for accounting purposes and included in the line entitled restricted cash and marketable securities on our Consolidated Balance Sheet. The offsetting liability is adjusted to fair value at the end of each accounting period based on the fair value

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


of the plan assets and reported in other liabilities on our consolidated balance sheet. The assets and corresponding liability of our non-qualified elective deferred compensation plan are classified in Level 1 of the fair value hierarchy.

        The valuation of our interest rate derivatives is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of December 31, 2009, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

        The table below sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2009 and 2008:

Description
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable Inputs
(Level 3)
  Total  

December 31, 2009:

                         

Assets:

                         
 

Deferred compensation plan assets(1)

  $ 6,685   $   $   $ 6,685  
                   

Liabilities:

                         
 

Deferred compensation plan liability(2)

  $ 6,685   $   $   $ 6,685  
 

Interest rate derivatives(2)

        1,737         1,737  
                   

Liabilities

  $ 6,685   $ 1,737   $   $ 8,422  
                   

December 31, 2008:

                         

Assets:

                         
 

Deferred compensation plan assets(1)

  $ 4,549   $   $   $ 4,549  
                   

Liabilities:

                         
 

Deferred compensation plan liability(2)

  $ 4,549   $   $   $ 4,549  
 

Interest rate derivatives(2)

        5,102         5,102  
                   

Liabilities

  $ 4,549   $ 5,102   $   $ 9,651  
                   

(1)
Included in the line entitled "restricted cash and marketable securities" on our Consolidated Balance Sheet.

(2)
Included in the line entitled "other liabilities" on our Consolidated Balance Sheet.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)

        The carrying values of cash and cash equivalents, restricted cash, accounts receivables, other assets (excluding mortgage loans receivable) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments. We estimated the fair values of our mortgage loans receivable by using discounted cash flow analyses based on an appropriate market rate for a similar type of instrument. We estimated fair values of our debt based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt; the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments. Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision.

        As discussed in Note 8, we own warrants to purchase common shares in an equity method investee that we accounted for as derivatives in 2009 until December 2009 when the terms of the warrants were amended. The valuation of these warrants was determined using the Flexible Monte Carlo valuation technique. This technique factors in the price and volatility of the underlying common stock, the exercise price of the warrant agreements, the risk-free rate of return, the probability of exercise and the effect of sub-optimal exercise behaviors. The various inputs used in the valuation of the warrants fall within each of the three levels of the fair value hierarchy. After considering the weighted effect of the various inputs on the valuations of the warrants, we determined that these valuations in their entirety are classified in Level 3 of the fair value hierarchy. The table below sets forth the changes in the warrants during the portion of 2009 in which they were accounted for as derivatives and classified as Level 3 financial instruments:

 
  For the Year Ended
December 31,
2009
 

Beginning balance

  $  

Purchases

    636  

Net realized gain included in interest and other income

    587  

Transfers in and out of Level 3

    (1,223 )
       

Ending balance

  $  
       

For additional fair value information, please refer to Note 8 for mortgage loans receivable, Note 9 for debt and Note 10 for derivatives.

Other Recent Accounting Pronouncements

        The FASB issued an accounting standard that defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The standard does not require or permit any new fair value measurements but does apply under other accounting pronouncements that require or permit fair value measurements. The changes to practice resulting from the standard relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. An amendment to this standard deferred the effective date of the standard for all non-financial assets and

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


non-financial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. Effective January 1, 2009, we adopted the standard for our non-financial assets and non-financial liabilities; this adoption did not have a material effect on our financial position, results of operations or cash flows.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed in the transactions; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The standard requires us now to expense transaction costs associated with property acquisitions occurring subsequent to the pronouncement's effective date. We expensed $1,967 in costs in connection with acquisitions in 2009 that we would have capitalized under our practice prior to the effective date of the standard. Other than the effect this change had in 2009 and will have in connection with future acquisitions, our adoption of this standard did not have a material effect on our financial position, results of operations or cash flows.

        We adopted an accounting standard issued by the FASB effective January 1, 2009 that expanded the disclosure requirements for derivative instruments and for hedging activities in order to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under applicable accounting standards; and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The standard required additional disclosure regarding derivatives in our notes to financial statements but did not otherwise affect our financial position, results of operations or cash flows.

        In June 2009, the FASB issued guidance which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles for nongovernmental entities. The guidance explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission ("SEC") under federal securities laws as authoritative Generally Accepted Accounting Principles for SEC registrants. The guidance became effective for us on July 1, 2009 and did not have a material effect on our Consolidated Financial Statements.

        In June 2009, the FASB issued amended guidance related to the accounting and disclosure requirements for the consolidation of entities when control of such entities can be achieved through means other than voting rights ("variable interest entities" or "VIEs"). This guidance requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE based primarily on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The standard also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the standard requires enhanced disclosures about an enterprise's involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise's financial statements. The standard will become effective on January 1, 2010. We do not believe that our

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

2. Summary of Significant Accounting Policies (Continued)


adoption of this standard will have a material effect on our financial position, results of operations or cash flows.

3. Concentration of Rental Revenue

        We derived large concentrations of our revenue from real estate operation from certain tenants during the periods set forth in our Consolidated Statements of Operations. The following table summarizes the percentage of our rental revenue (which excludes tenant recoveries and other real estate operations revenue) earned from (1) individual tenants that accounted for at least 5% of our rental revenue from continuing and discontinued operations and (2) the aggregate of the five tenants from which we recognized the most rental revenue in the respective years:

 
  For the Years Ended
December 31,
 
 
  2009   2008   2007  

United States Government

    15 %   15 %   13 %

Northrop Grumman Corporation(1)

    8 %   8 %   9 %

Booz Allen Hamilton, Inc. 

    6 %   6 %   7 %

Five largest tenants

    34 %   35 %   32 %

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

        We also derived in excess of 80% of our construction contract revenue from the United States Government in each of the years set forth on the Consolidated Statements of Operations.

        In addition, we derived large concentrations of our total revenue from real estate operations (defined as the sum of rental revenue and tenant recoveries and other real estate operations revenue) from certain geographic regions. These concentrations are set forth in the segment information provided in Note 15. Several of these regions, including the Baltimore/Washington Corridor, Northern Virginia, Greater Baltimore, Maryland ("Greater Baltimore"), Suburban Maryland and St. Mary's & King George Counties, are within close proximity to each other, and all but two of our regions (Colorado Springs, Colorado ("Colorado Springs") and San Antonio, Texas ("San Antonio")) are located in the Mid-Atlantic region of the United States.

4. Commercial Real Estate Properties

        Operating properties, net consisted of the following:

 
  December 31,  
 
  2009   2008  

Land

  $ 479,545   $ 423,985  

Buildings and improvements

    2,445,775     2,202,995  
           

    2,925,320     2,626,980  

Less: accumulated depreciation

    (415,043 )   (343,110 )
           

  $ 2,510,277   $ 2,283,870  
           

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

4. Commercial Real Estate Properties (Continued)

        As of December 31, 2009, 431 and 437 Ridge Road, two office properties located in Dayton, New Jersey that we were under contract to sell along with a contiguous land parcel for $23,920, were classified as held for sale (Dayton, New Jersey is in the Central New Jersey Region). The components associated with these properties as of December 31, 2009 included the following:

 
  December 31, 2009  

Land, operating properties

  $ 3,498  

Land, development

    512  

Buildings and improvements

    21,509  

Construction in progress

    583  
       

    26,102  

Less: accumulated depreciation

    (7,569 )
       

  $ 18,533  
       

        Projects we had under construction or development consisted of the following:

 
  December 31,  
 
  2009   2008  

Land

  $ 231,297   $ 220,863  

Construction in progress

    269,793     273,733  
           

  $ 501,090   $ 494,596  
           

2009 Acquisitions

        Through a series of transactions in October 2009, we acquired a 474,000 square foot office tower, a parking lot, a utility distribution center, four waterfront lots and riparian rights, all of which are part of the Canton Crossing planned unit development in Baltimore, Maryland for $123,211. These properties are referred to collectively herein as the "Canton Properties." The office building was 89.6% leased on the date of acquisition.

        Other acquisitions in 2009 included:

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

4. Commercial Real Estate Properties (Continued)

        The table below sets forth the allocation of the acquisition costs of these properties:

Land, operating properties

  $ 50,747  

Land, development

    17,941  

Building and improvements

    68,502  

Construction in progress

    5,100  

Intangible assets on real estate acquisitions

    32,883  
       

Total assets

    175,173  

Below-market leases

    (1,462 )
       

Total acquisition cost

  $ 173,711  
       

        Intangible assets recorded in connection with the above acquisitions included the following:

 
   
  Weighted
Average
Amortization
Period
(in Years)
 

In-place lease value

  $ 23,172     9  

Tenant relationship value

    2,141     13  

Above-market leases

    1,348     8  

Acquired real estate tax credit

    6,222     7  
             

  $ 32,883     9  
             

        We expensed $1,967 in costs in connection with the above acquistions in 2009 that are included in business development expenses on our Consolidated Statements of Operations.

2009 Construction and Development Activities

        During 2009, we had seven newly-constructed buildings totaling 750,000 square feet (three in the Baltimore/Washington Corridor, two in Colorado Springs and two in Suburban Maryland) become fully operational (85,000 of these square feet were placed into service in 2008) and placed into service 94,000 square feet in three partially operational properties (two in Colorado Springs and one in the Baltimore/Washington Corridor).

        As of December 31, 2009, we had construction underway on nine new buildings totaling 1.1 million square feet (three in the Baltimore/Washington Corridor, two in Greater Baltimore, two in Colorado Springs and two in San Antonio, Texas) (including the 94,000 square feet in operational properties described above). We also had development activities underway on seven new buildings totaling 756,000 square feet (two in the Baltimore/Washington Corridor, two in Greater Baltimore, two in San Antonio and one in St. Mary's County, Maryland). In addition, we had redevelopment underway on two properties totaling 565,000 square feet, including one through a consolidated joint venture (one in the Baltimore/Washington Corridor and one in Greater Philadelphia).

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

4. Commercial Real Estate Properties (Continued)

2008 Acquisitions

        We acquired the following office properties in 2008:

Project Name
  Location   Date of
Acquisition
  Number of
Buildings
  Total
Rentable
Square Feet
  Acquisition
Cost
 

3535 Northrop Grumman Point

  Colorado Springs     6/10/2008     1     124,305   $ 23,240  

1560 Cable Ranch Road (Buildings A and B)

  San Antonio     6/19/2008     2     122,975     17,317  
                         

              3     247,280   $ 40,557  
                         

        The table below sets forth the allocation of the acquisition costs of these properties:

Land, operating properties

  $ 3,396  

Building and improvements

    32,478  

Intangible assets on real estate acquisitions

    7,631  
       

Total assets

    43,505  

Below-market leases

    (2,948 )
       

Total acquisition cost

  $ 40,557  
       

        Intangible assets recorded in connection with the above acquisitions included the following:

 
   
  Weighted
Average
Amortization
Period
(in Years)
 

In-place lease value

  $ 6,094     10  

Tenant relationship value

    1,537     12  
             

  $ 7,631     11  
             

        We also completed the following land acquisitions in 2008:

2008 Construction and Development Activities

        During 2008, we had seven newly-constructed buildings totaling 528,000 square feet (three in Colorado Springs, two in the Baltimore/Washington Corridor and two in San Antonio) become fully operational (89,000 of these square feet were placed into service in 2007) and placed into service 85,000 square feet in two partially operational properties (one in Suburban Maryland and one in

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

4. Commercial Real Estate Properties (Continued)


Colorado Springs). We also placed into service 59,000 redeveloped square feet in a property located in Northern Virginia.

2008 Dispositions

        We sold the following operating properties in 2008:

Project Name
  Location   Date of
Sale
  Number
of
Buildings
  Total
Rentable
Square Feet
  Sale Price   Gain on
Sale
 

429 Ridge Road

  Dayton, New Jersey     1/31/2008     1     142,385   $ 17,000   $ 1,365  

7253 Ambassador Road

  Woodlawn, Maryland     6/2/2008     1     38,930     5,100     1,278  

47 Commerce Road

  Cranbury, New Jersey     4/1/2008     1     41,398     3,150      
                             

              3     222,713   $ 25,250   $ 2,643  
                             

        The gain from these sales is included on the line of our Consolidated Statements of Operations entitled "discontinued operations, net of income taxes."

        During 2008, we also completed the sale of six recently constructed office condominiums located in Herndon, Virginia (in our Northern Virginia region) for sale prices totaling $8,388 in the aggregate. We recognized an aggregate gain before income taxes of $1,368 on these sales, which is included on the line of our Consolidated Statements of Operations entitled "gain on sales of real estate, net of income taxes."

5. Real Estate Joint Ventures

        During the periods included herein, we had an investment in one unconsolidated real estate joint venture accounted for using the equity method of accounting. Information pertaining to this joint venture investment is set forth below:

 
  Investment Balance at    
   
   
   
   
 
 
December 31,
2009
  December 31, 2008   Date Acquired   Ownership   Nature of Activity   Maximum
Exposure
to Loss(1)
   
    $ (5,088 )(2) $ (4,770 )(2)   9/29/2005     20 % Operates 16 buildings   $    

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

5. Real Estate Joint Ventures (Continued)

        A two-member management committee is responsible for making major decisions (as defined in the joint venture agreement) and we control one of its management committee positions. Net cash flows of the joint venture are distributed to the partners in proportion to their respective ownership interests. We earned fees from the joint venture totaling $119 in 2009, $268 in 2008 and $458 in 2007 for property management, construction and leasing services. We believe that this entity is a VIE under applicable accounting standards, but we do not believe that we are the primary beneficiary of the VIE due primarily to our partner's: (1) greater exposure to economic risks as a result of the magnitude of its investment in comparison to ours; and (2) rights to control the activities of the entity.

        The following table sets forth condensed balance sheets for this unconsolidated joint venture:

 
  December 31,  
 
  2009   2008  

Operating properties, net

  $ 62,990   $ 62,308  

Other assets

    5,148     7,530  
           
 

Total assets

  $ 68,138   $ 69,838  
           

Liabilities

  $ 67,611   $ 67,725  

Owners' equity

    527     2,113  
           
 

Total liabilities and owners' equity

  $ 68,138   $ 69,838  
           

        The following table sets forth condensed statements of operations for this unconsolidated joint venture:

 
  For the Years
Ended December 31,
 
 
  2009   2008   2007  

Revenues

  $ 9,031   $ 9,593   $ 9,795  

Property operating expenses

    (3,438 )   (3,371 )   (3,467 )

Interest expense

    (3,981 )   (3,992 )   (4,162 )

Depreciation and amortization expense

    (3,198 )   (3,242 )   (3,334 )
               

Net loss

  $ (1,586 ) $ (1,012 ) $ (1,168 )
               

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

5. Real Estate Joint Ventures (Continued)

        The table below sets forth information pertaining to our investments in consolidated joint ventures at December 31, 2009:

 
   
   
   
  December 31, 2009(1)  
 
  Date
Acquired
  Ownership
% at
Assets
  Nature of
Activity
  Total
Assets
  Pledged
Assets
  Total
Liabilities
 

M Square Associates, LLC

    6/26/2007     45.0 % Developing and operating buildings(2)   $ 56,085   $   $ 12,460  

Arundel Preserve #5, LLC

    7/2/2007     50.0 % Operates one building(3)     29,825     29,396     16,848  

COPT Opportunity Invest I, LLC

    12/20/2005     92.5 % Redeveloping one property(4)     29,233         4  

COPT-FD Indian Head, LLC

    10/23/2006     75.0 % Developing land parcel(5)     7,212          

MOR Forbes 2 LLC

    12/24/2002     50.0 % Operates one building(6)     3,920         91  
                               

                  $ 126,275   $ 29,396   $ 29,403  
                               

(1)
Excluding amounts eliminated in consolidation.

(2)
This joint venture is developing and operating properties located in College Park, Maryland. We own a 90% interest in Enterprise Campus Developer, LLC, which in turn owns a 50% interest in M Square Associates, LLC.

(3)
This joint venture's property is in Hanover, Maryland (located in the Baltimore/Washington Corridor).

(4)
This joint venture's property is in Hanover, Maryland.

(5)
This joint venture's property is in Charles County, Maryland (located in our "Other" business segment).

(6)
This joint venture's property is in Lanham, Maryland (located in the Suburban Maryland region).

        We acquired our 45% economic interest in M Square Associates, LLC ("M Square") on January 29, 2008. We acquired this interest through our 90% ownership interest in Enterprise Campus Developer, LLC ("Enterprise Campus"), which in turn owns a 50% interest in M Square. M Square was created to ground lease, develop and manage office properties, approved for up to approximately 750,000 square feet, located in M Square Research Park in College Park, Maryland (in our Suburban Maryland region). Enterprise Campus's partner in M Square received a capital credit for the value of the land that it leased to the joint venture. Enterprise Campus is responsible for funding and obtaining financing for all development and construction activities; its members expect to fund a portion of the costs through capital contributions in proportion to their respective ownership interests, and the remaining costs for which third party financing cannot be obtained will be funded through loans from us. Net cash flows of M Square will be distributed to the partners as follows: (1) member loans and accrued interest; (2) Enterprise Campus's preferred return and capital contributions used to fund infrastructure costs; (3) the partners' preferred returns and capital contributions used to fund all other costs, including the base land value credit, in proportion to the accrued returns and capital accounts; and (4) residual amounts distributed 50% to each member. Net cash flows of Enterprise Campus will then be distributed to its members as follows: (1) a $250 priority preferred return to us representing a return on a deposit we paid in lieu of a development bond on behalf of the joint venture; (2) the partners' preferred returns and capital investments in proportion to the partners' respective ownership interests; and (3) residual amounts according to a waterfall distribution schedule defined in the joint venture agreement under which our partner, who is acting as manager of day-to-day construction

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

5. Real Estate Joint Ventures (Continued)


activities of the project, receives returns incrementally higher than its ownership percentage as net cash flows to the joint venture increase.

        For Arundel Preserve #5, LLC, net cash flows will be distributed to the partners as follows: (1) member loans and accrued interest; (2) preferred returns in proportion to the partners' respective capital accounts; (3) repayment of any building operating reserves funded by us; and (4) residual cash flows in proportion to the partners' respective ownership interests. For COPT Opportunity Invest I, LLC and MOR Forbes 2 LLC, net cash flows will be distributed to the partners in proportion to and to the extent of (1) their preferred returns (as defined in the joint venture agreements) and (2) their capital accounts, and any residual amounts according to a waterfall distribution schedule defined in the joint venture agreements under which our partners, who are acting as managers of day-to-day construction activities of the projects, receive returns incrementally higher than their ownership percentages as net cash flows to the joint venture increase. For COPT-FD Indian Head, LLC, net cash flows will be distributed to the partners in proportion to their respective ownership interests.

        We determined that all of our consolidated joint ventures were VIEs under applicable accounting standards and that we are the primary beneficiary of each VIE because of factors relating to our exposure to the potential economic risks of the ventures due primarily to: (1) the magnitude of our investment in comparison to our partners'; and/or (2) our responsibility to obtain financing and/or fund the activities of the ventures.

        Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 18.

6. Intangible Assets on Real Estate Acquisitions

        Intangible assets on real estate acquisitions consisted of the following:

 
  December 31, 2009   December 31, 2008  
 
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
  Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
 

In-place lease value

  $ 141,408   $ 70,659   $ 70,749   $ 118,235   $ 53,213   $ 65,022  

Tenant relationship value

    35,909     16,322     19,587     33,768     11,336     22,432  

Above-market leases

    10,165     7,138     3,027     8,817     5,542     3,275  

Acquired real estate tax credit

    6,222         6,222              

Market concentration premium

    1,333     247     1,086     1,333     214     1,119  
                           

  $ 195,037   $ 94,366   $ 100,671   $ 162,153   $ 70,305   $ 91,848  
                           

        Amortization of the intangible asset categories set forth above totaled $24,060 in 2009, $24,030 in 2008 and $32,157 in 2007. The approximate weighted average amortization periods of the categories set forth above follow: in-place lease value: nine years; tenant relationship value: seven years; above-market leases: six years; acquired real estate tax credit: seven years; and market concentration premium: 33 years. The approximate weighted average amortization period for all of the categories combined is nine years. Estimated amortization expense associated with the intangible asset categories set forth above for the next five years is: $17,595 for 2010; $15,199 for 2011; $13,006 for 2012; $10,574 for 2013 and $9,550 for 2014.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

7.    Deferred Charges

        Deferred charges consisted of the following:

 
  December 31,  
 
  2009   2008  

Deferred leasing costs

  $ 79,370   $ 69,529  

Deferred financing costs

    23,255     21,027  

Goodwill

    1,853     1,853  

Deferred other

    46     131  
           

    104,524     92,540  

Accumulated amortization

    (51,103 )   (40,739 )
           

Deferred charges, net

  $ 53,421   $ 51,801  
           

8.    Prepaid Expenses and Other Assets

        Prepaid expenses and other assets consisted of the following:

 
  December 31,  
 
  2009   2008  

Prepaid expenses

  $ 19,769   $ 18,357  

Construction contract costs incurred in excess of billings

    19,556     21,934  

Mortgage loans receivable(1)

    12,773     29,380  

Furniture, fixtures and equipment, net

    12,633     12,819  

Investment in unconsolidated entity

    9,461     6,055  

Other assets

    7,763     5,244  
           

Prepaid expenses and other assets

  $ 81,955   $ 93,789  
           

        Included in mortgage loans receivable at December 31, 2008 are amounts loaned to the party which later sold us the Canton Properties. We had a secured interest in the ownership of the entity that owned the property that was subordinate to that of a first mortgage on the property. Immediately prior to acquiring the Canton Properties, we acquired the first mortgage loan on the property along with accrued interest thereon for $72,461. In connection with our acquisition of the Canton Properties, we cancelled the subordinate mortgage loan and interest thereon due to us from the seller totaling $30,014 and also cancelled amounts due from the seller under the first mortgage loan.

        Our investment in unconsolidated entity reflected above consists of common stock (14.8% of the common stock outstanding at December 31, 2009) and warrants to purchase additional common shares. This entity supports the intelligence community's operations and transformation to Cyber Age mission by providing engineering services and integrated platforms that support the intelligence process. We use the equity method of accounting for this investment. We accounted for the warrants as derivatives until December 2009 when the terms of the warrants were amended. During the period of time in 2009 in which we accounted for these warrants as derivatives, we recognized increases in the warrants' fair value of $587 as interest and other income on our Consolidated Statements of Operations. In

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

8.    Prepaid Expenses and Other Assets (Continued)


connection with our equity method investment in this unconsolidated entity, which recognized expense in connection with the warrants, we recognized a loss of $623 in 2009 and income of $55 in 2008. We also recognized $315 in revenue from a lease with this unconsolidated entity in one of our properties.

9.    Debt

        Our debt consisted of the following:

 
   
  Carrying Value at
December 31,
   
   
 
 
  Maximum
Availability at
December 31,
2009
   
  Scheduled
Maturity
Dates at
December 31, 2009
 
 
  Stated Interest Rates
at December 31, 2009
 
 
  2009   2008  

Mortgage and other loans payable:

                           
 

Revolving Credit Facility

  $600,000   $ 365,000   $ 392,500   LIBOR + 0.75% to 1.25%(1)     September 30, 2011(2)  
                         
 

Mortgage and Other Secured Loans

                           
 

Fixed rate mortgage loans(3)

 

N/A

   
1,166,443
   
967,617
 

5.20%-7.94%(4)

   

2010-2034(5)

 
 

Revolving Construction Facility

  225,000     76,333     81,267   LIBOR + 1.60% to 2.00%(6)     May 2, 2011(2)  
 

Other variable rate secured loans

  N/A     271,146     221,400   LIBOR + 2.25% to 3.00%(7)     2012-2014(2)  
 

Other construction loan facilities

  23,400     16,753     40,589   LIBOR + 2.75%(8)     2011(2)  
                         
   

Total mortgage and other secured loans

        1,530,675     1,310,873            
                         
 

Unsecured notes payable(9)

  N/A     2,019     750   0%     2026  
                         
   

Total mortgage and other loans payable

        1,897,694     1,704,123            

3.5% Exchangeable Senior Notes

  N/A     156,147     152,628   3.50%     September 2026(10)  
                         
   

Total debt

      $ 2,053,841   $ 1,856,751            
                         

(1)
The weighted average interest rate on the Revolving Credit Facility was 1.03% at December 31, 2009.

(2)
Includes loans that may be extended for a one-year period at our option, subject to certain conditions.

(3)
Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling $371 at December 31, 2009 and $501 at December 31, 2008.

(4)
The weighted average interest rate on these loans was 6.00% at December 31, 2009.

(5)
A loan with a balance of $4,660 at December 31, 2009 that matures in 2034 may be repaid in March 2014, subject to certain conditions.

(6)
This loan is described in further detail below. The weighted average interest rate on this loan was 1.84% at December 31, 2009

(7)
The loans in this category at December 31, 2009 are subject to floor interest rates ranging from 4.25% to 5.50%.

(8)
The interest rate on this loan was 3.00% at December 31, 2009.

(9)
The carrying value of these notes reflects unamortized discounts totaling $1,242 at December 31, 2009.

(10)
Refer to the paragraph below for descriptions of provisions for early redemption and repurchase of these notes.

        Our Revolving Credit Facility is with a group of lenders for which KeyBanc Capital Markets and Wachovia Capital Markets, LLC act as co-lead arrangers, KeyBank National Association as

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

9.    Debt (Continued)

administrative agent and Wachovia Bank, National Association as syndication agent. The lenders' aggregate commitment under the facility is $600,000, which includes a $50,000 letter of credit subfacility and a $50,000 swingline facility (same-day draw requests), with a right for us to further increase the lenders' aggregate commitment during the term to a maximum of $800,000, subject to certain conditions. Amounts available under the facility are computed based on 65% of our unencumbered asset value, as defined in the agreement. The facility matures on September 30, 2011, and may be extended by one year at our option, subject to certain conditions. As of December 31, 2009, the maximum amount of borrowing capacity under this facility totaled $600,000, of which $235,000 was available.

        On May 2, 2008, we entered into a construction loan agreement with a group of lenders for which KeyBanc Capital Markets, Inc. acted as arranger, KeyBank National Association acted as administrative agent, Bank of America, N.A. acted as syndication agent and Manufacturers and Traders Trust Company acted as documentation agent; this loan is referred to in the table above as the "Revolving Construction Facility." The construction loan agreement provides for an aggregate commitment by the lenders of $225,000, with a right for us to further increase the lenders' aggregate commitment during the term to a maximum of $325,000, subject to certain conditions. Ownership interests in the properties for which construction costs are being financed through loans under the agreement are pledged as collateral. Borrowings are generally available for properties included in this construction loan agreement based on 85% of the total budgeted costs of construction of the applicable improvements for such properties as set forth in the properties' construction budgets, subject to certain other loan-to-value and debt coverage requirements. As loans for properties under the construction loan agreement are repaid in full and the ownership interests in such properties are no longer pledged as collateral, capacity under the construction loan agreement's aggregate commitment will be restored, giving us the ability to obtain new loans for other construction properties in which we pledge the ownership interests as collateral. The construction loan agreement matures on May 2, 2011 and may be extended by one year at our option, subject to certain conditions. The variable interest rate on each loan is based on one of the following, to be selected by us: (1) subject to certain conditions, the LIBOR rate for the interest period designated by us (customarily the one-month rate) plus 1.6% to 2.0%, as determined by our leverage levels at different points in time; or (2) the greater of (a) the prime rate of the lender then acting as agent or (b) the Federal Funds Rate, as defined in the construction loan agreement, plus 0.50%. Interest is payable at the end of each interest period (as defined in the agreement), and principal outstanding under each loan under the agreement is payable on the maturity date. The construction loan agreement also carries a quarterly fee that is based on the unused amount of the commitment multiplied by a per annum rate of 0.125% to 0.20%.

        On July 18, 2008, we borrowed $221,400 under a mortgage loan requiring interest only payments for the term at a variable rate of LIBOR plus 225 basis points, subject to a floor of 4.25%. This loan facility has a four-year term with an option to extend by an additional year.

        In 2006, our Operating Partnership issued a $200,000 aggregate principal amount of 3.50% Exchangeable Senior Notes due 2026. Interest on the notes is payable on March 15 and September 15 of each year. The notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, may be exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares at an exchange rate (subject to adjustment) of

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

9.    Debt (Continued)

18.9413 shares per one thousand dollar principal amount of the notes (exchange rate is as of December 31, 2009 and is equivalent to an exchange price of $52.79 per common share). On or after September 20, 2011, the Operating Partnership may redeem the notes in cash in whole or in part. The holders of the notes have the right to require us to repurchase the notes in cash in whole or in part on each of September 15, 2011, September 15, 2016 and September 15, 2021, or in the event of a "fundamental change," as defined under the terms of the notes, for a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. Prior to September 11, 2011, subject to certain exceptions, if (1) a "fundamental change" occurs as a result of certain forms of transactions or series of transactions and (2) a holder elects to exchange its notes in connection with such "fundamental change," we will increase the applicable exchange rate for the notes surrendered for exchange by a number of additional shares of our common shares as a "make whole premium." The notes are general unsecured senior obligations of the Operating Partnership and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership. The Operating Partnership's obligations under the notes are fully and unconditionally guaranteed by us. In November 2008, we repurchased a $37,500 aggregate principal amount of our 3.5% Exchangeable Senior Notes for $26,654 from which we recognized a gain of $8,101, net of unamortized loan issuance costs. The carrying value of these notes included an unamortized discount totaling $6,353 at December 31, 2009 and $9,872 at December 31, 2008. The effective interest rate under the notes, including amortization of the discount, was 5.97%. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized:

 
  2009   2008   2007  

Interest expense at stated interest rate

  $ 5,687   $ 6,850   $ 7,000  

Interest expense associated with amortization of discount

    3,520     4,016     3,845  
               

Total

  $ 9,207   $ 10,866   $ 10,845  
               

        In the case of each of our mortgage loans, we have pledged certain of our real estate assets as collateral. Many of our real estate properties were pledged on loan obligations as of December 31, 2009. Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. As of December 31, 2009, we were in compliance with these financial covenants.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

9.    Debt (Continued)

        Our debt matures on the following schedule:

2010

  $ 66,342  

2011

    735,585  

2012

    269,158  

2013

    143,676  

2014

    144,188  

Thereafter

    702,116  
       

Total

  $ 2,061,065 (1)
       

        Weighted average borrowings under our Revolving Credit Facility totaled $384,716 in 2009 and $412,753 in 2008. The weighted average interest rate on this credit facility was 2.75% in 2009 and 4.38% in 2008.

        We capitalized interest costs of $15,461 in 2009, $18,312 in 2008 and $19,964 in 2007.

        The following table sets forth information pertaining to the fair value of our debt:

 
  December 31, 2009   December 31, 2008  
 
  Carrying
Amount
  Estimated
Fair Value
  Carrying
Amount
  Estimated
Fair Value
 

Fixed-rate debt

  $ 1,324,609   $ 1,252,126   $ 1,120,995   $ 1,010,127  

Variable-rate debt

    729,232     704,508     735,756     702,092  
                   

  $ 2,053,841   $ 1,956,634   $ 1,856,751   $ 1,712,219  
                   

10.    Interest Rate Derivatives

        The following table sets forth the key terms and fair values of our interest rate swap derivatives at December 31, 2009 and 2008, all of which are interest rate swaps:

 
   
   
   
  Fair Value at
December 31,
 
Notional
Amount
  One-Month
LIBOR base
  Effective
Date
  Expiration
Date
 
  2009   2008  
$ 100,000     1.9750 %   1/1/2010     5/1/2012   $ (1,068 ) $ (209 )
  120,000     1.7600 %   1/2/2009     5/1/2012     (669 )   (478 )
  100,000     2.5100 %   11/3/2008     12/31/2009         (1,656 )
  50,000     4.3300 %   10/23/2007     10/23/2009     N/A     (1,449 )
  50,000     5.0360 %   3/28/2006     3/30/2009     N/A     (540 )
  25,000     5.2320 %   5/1/2006     5/1/2009     N/A     (385 )
  25,000     5.2320 %   5/1/2006     5/1/2009     N/A     (385 )
                               
                        $ (1,737 ) $ (5,102 )
                               

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

10.    Interest Rate Derivatives (Continued)

        Each of these interest rate swaps were designated as cash flow hedges of interest rate risk. The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet as of December 31, 2009:

Derivatives Designated as
Hedging Instruments
  Balance Sheet Location   Fair Value  
Interest Rate Swaps   Other liabilities   $ (1,737 )

        The table below presents the effect of our interest rate derivatives on our Consolidated Statements of Operations and comprehensive income in 2009:

Amount of loss recognized in AOCL (effective portion)

  $ (3,253 )

Amount of loss reclassified from AOCL into interest expense (effective portion)

    (6,680 )

Amount of loss recognized in interest expense (ineffective portion and amount excluded from effectiveness testing)

    (261 )

        Over the next 12 months, we estimate that approximately $2,928 will be reclassified from AOCL as an increase to interest expense.

        We have agreements with each of our interest rate derivative counterparties that contain provisions under which if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreements. As of December 31, 2009, the fair value of interest rate derivatives in a liability position related to these agreements was $1,737, excluding the effects of accrued interest. As of December 31, 2009, we had not posted any collateral related to these agreements. We are not in default with any of these provisions. If we breached any of these provisions, we would be required to settle our obligations under the agreements at their termination value of $1,898.

11.    Shareholders' Equity

Preferred Shares

        At December 31, 2009, we had 15.0 million preferred shares of beneficial interest ("preferred shares") authorized at $0.01 par value. The table below sets forth additional information pertaining to our preferred shares:

Series
  # of Shares
Issued
  Aggregate
Liquidation
Preference
  Month of
Issuance
  Annual
Dividend
Yield
  Annual
Dividend
Per Share
  Earliest
Redemption
Date
 
  Series G     2,200,000   $ 55,000   August 2003     8.000 % $ 2.00000     8/11/2008  
  Series H     2,000,000     50,000   December 2003     7.500 % $ 1.87500     12/18/2008  
  Series J     3,390,000     84,750   July 2006     7.625 % $ 1.90625     7/20/2011  
  Series K     531,667     26,583   January 2007     5.600 % $ 2.80000     1/9/2017  
                                   
        8,121,667   $ 216,333                        
                                   

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

11.    Shareholders' Equity (Continued)

        Each series of preferred shares is nonvoting and redeemable for cash in the amount of its liquidation preference at our option on or after the earliest redemption date. The Series K Cumulative Redeemable Preferred Shares are also convertible, subject to certain conditions, into common shares on the basis of 0.8163 common shares for each preferred share, in accordance with the terms of the Articles Supplementary describing the Series K Preferred Shares. Holders of all preferred shares are entitled to cumulative dividends, payable quarterly (as and if declared by the Board of Trustees). In the case of each series of preferred shares, there is a series of preferred units in the Operating Partnership owned by us that carries substantially the same terms.

Common Shares

        In September 2008, we issued 3.7 million common shares at a public offering price of $39 per share. We contributed the net proceeds after underwriting discount but before offering costs totaling $139,203 to our Operating Partnership in exchange for 3.7 million common units.

        In April 2009, we issued 2.99 million common shares in an underwritten public offering made in conjunction with our inclusion in the S&P MidCap 400 Index effective April 1, 2009. The shares were issued at a public offering price of $24.35 per share for net proceeds of $72,078 after underwriting discounts but before offering expenses. The net proceeds were used to pay down our Revolving Credit Facility and for general corporate purposes.

        Common units in our Operating Partnership were converted into common shares on the basis of one common share for each common unit in the amount of 2,841,394 in 2009, 258,917 in 2008 and 554,221 in 2007.

        We declared dividends per common share of $1.53 in 2009, $1.425 in 2008 and $1.30 in 2007.

        See Note 12 for disclosure of common share activity pertaining to our share-based compensation plans.

Accumulated Other Comprehensive Loss

        The table below sets forth activity in the accumulated other comprehensive loss component of shareholders' equity:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Beginning balance

  $ (4,749 ) $ (2,372 ) $ (693 )

Amount of loss recognized in AOCL (effective portion)

    (3,253 )   (2,769 )   (2,025 )

Amount of loss reclassified from AOCL to income

    6,680     62     62  

Adjustment to AOCL attributable to noncontrolling interests

    (585 )   330     284  
               

Ending balance

  $ (1,907 ) $ (4,749 ) $ (2,372 )
               

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

11.    Shareholders' Equity (Continued)

        The table below sets forth total comprehensive income and total comprehensive income attributable to COPT:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Net income

  $ 61,299   $ 61,316   $ 35,942  

Amount of loss recognized in AOCL (effective portion)

    (3,253 )   (2,769 )   (2,025 )

Amount of loss reclassified from AOCL to income

    6,680     62     62  
               

Total comprehensive income

    64,726     58,609     33,979  

Net income attributable to noncontrolling interests

    (4,970 )   (7,351 )   (3,741 )

Other comprehensive loss (income) attributable to noncontrolling interests

    (349 )   403     303  
               

Total comprehensive income attributable to COPT

  $ 59,407   $ 51,661   $ 30,541  
               

12.    Share-Based Compensation and Employee Benefit Plans

Share-Based Compensation Plans

        On May 2008, we adopted the 2008 Omnibus Equity and Incentive Plan, under which we may issue equity-based awards to officers, employees, non-employee trustees and any other key persons of us and our subsidiaries, as defined in the plan. The plan provides for a maximum of 2,900,000 common shares of beneficial interest to be issued in the form of share options, share appreciation rights, deferred share awards, restricted share awards, unrestricted share awards, performance shares, dividend equivalent rights and other equity-based awards and for the granting of cash-based awards. This plan expires on May 22, 2018.

        In March 1998, we adopted a long-term incentive plan for our Trustees and employees. This plan, which expired in March 2008, provided for the award of options, restricted shares and dividend equivalents. We were authorized to issue awards under the plan amounting to no more than 13% of the total of (1) our common shares outstanding plus (2) the number of shares that would be outstanding upon redemption of all units of the Operating Partnership or other securities that are convertible into our common shares.

        Trustee options under these plans become exercisable beginning on the first anniversary of their grant. The vesting periods for employees' options under this plan vary from award to award. Options expire ten years after the date of grant. Restricted shares vest based on increments and over periods of time set forth under the terms of the respective awards. Shares for each of our share-based compensation plans are issued under registration statements on Form S-8 that became effective upon filing with the Securities and Exchange Commission.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

12. Share-Based Compensation and Employee Benefit Plans (Continued)

        The following table summarizes option transactions under the plans described above:

 
  Shares   Range of
Exercise Price
per Share
  Weighted
Average
Exercise
Price per
Share
  Weighted
Average
Remaining
Contractual
Term
(in Years)
  Aggregate
Intrinsic
Value
 

Outstanding at December 31, 2006

    2,556,519   $7.38-$50.59   $ 20.18              

Granted—2007

    297,691   $42.40-$57.00   $ 47.87              

Forfeited/Expired—2007

    (99,177 ) $20.34-$53.16   $ 42.31              

Exercised—2007

    (613,689 ) $5.25-$44.73   $ 12.18              
                             

Outstanding at December 31, 2007

    2,141,344   $7.38-$57.00   $ 25.29     6   $ 22,639  

Granted—2008

    40,000   $37.81   $ 37.81              

Forfeited/Expired—2008

    (51,786 ) $8.00-$53.16   $ 43.07              

Exercised—2008

    (180,239 ) $7.63-$34.76   $ 15.72              
                             

Outstanding at December 31, 2008

    1,949,319   $7.38-$57.00   $ 25.96     5   $ 18,744  

Granted—2009

    50,000   $29.98-$37.61   $ 31.51              

Forfeited/Expired—2009

    (32,812 ) $25.52-$53.16   $ 44.33              

Exercised—2009

    (464,601 ) $7.38-$35.87   $ 11.25              
                             

Outstanding at December 31, 2009

    1,501,906   $8.63-$57.00   $ 30.29     5   $ 14,579  
                             

Exercisable at December 31, 2007

    1,507,876   (1)   $ 18.05              
                             

Exercisable at December 31, 2008

    1,657,956   (2)   $ 22.60              
                             

Exercisable at December 31, 2009

    1,389,141   (3)   $ 29.42     5   $ 14,313  
                             

Options expected to vest

    1,501,151       $ 30.28     5   $ 14,579  
                             

(1)
232,982 of these options had an exercise price ranging from $7.38 to $7.99; 291,762 had an exercise price ranging from $8.00 to $10.99; 406,211 had an exercise price ranging from $11.00 to $16.99; 237,382 had an exercise price ranging from $17.00 to $25.99; 163,648 had an exercise price ranging from $26.00 to $34.99; 130,265 had an exercise price ranging from $35.00 to $43.99; and 45,626 had an exercise price ranging from $44.00 to $52.99.

(2)
228,732 of these options had an exercise price ranging from $7.38 to $7.99; 195,950 had an exercise price ranging from $8.00 to $10.99; 395,217 had an exercise price ranging from $11.00 to $16.99; 226,805 had an exercise price ranging from $17.00 to $25.99; 210,373 had an exercise price ranging from $26.00 to $34.99; 242,082 had an exercise price ranging from $35.00 to $43.99; and 158,797 had an exercise price ranging from $44.00 to $57.00.

(3)
83,441 of these options had an exercise price ranging from $8.63 to $10.99; 345,792 had an exercise price ranging from $11.00 to $16.99; 172,914 had an exercise price ranging from $17.00 to $25.99; 190,287 had an exercise price ranging from $26.00 to $34.99; 343,040 had an exercise price ranging from $35.00 to $43.99; and 253,667 had an exercise price ranging from $44.00 to $57.00.

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

12. Share-Based Compensation and Employee Benefit Plans (Continued)

        The aggregate intrinsic value of options exercised was $10,378 in 2009, $3,682 in 2008 and $23,627 in 2007.

        We computed share-based compensation expense under the fair value method using the Black-Scholes option-pricing model; the weight average assumptions we used in that model are set forth below:

 
  For the Years Ended December 31,  
 
  2009   2008(4)   2007  

Weighted average fair value of grants on grant date

  $ 10.15   $ 8.00   $ 9.58  

Risk-free interest rate(1)

    2.20 %   3.62 %   4.64 %

Expected life-years

    5.32     6.52     6.15  

Expected volatility(2)

    47.71 %   24.22 %   21.46 %

Expected dividend yield(3)

    3.77 %   3.07 %   3.24 %

(1)
Ranged from 2.08% to 2.70% in 2009 and 4.53% to 4.91% in 2007.

(2)
Ranged from 47.60% to 48.17% in 2009 and 21.28% to 21.75% in 2007.

(3)
Ranged from 3.73% to 3.93% in 2009 and 3.12% to 3.35% in 2007.

(4)
Since one group of grants sharing the same terms took place in 2008, the assumptions used for such grants were uniform.

        The following table summarizes restricted share transactions under the plans described above:

 
  Shares   Weighted
Average
Grant Date
Fair Value
 

Unvested at December 31, 2006

    413,690   $ 29.51  

Granted

    141,359     49.50  

Forfeited

    (1,917 )   50.57  

Vested

    (137,227 )   22.54  
             

Unvested at December 31, 2007

    415,905     38.50  

Granted

    308,569     31.76  

Forfeited

    (19,851 )   36.07  

Vested

    (142,195 )   35.32  
             

Unvested at December 31, 2008

    562,428     35.69  

Granted

    340,660     25.30  

Forfeited

    (5,081 )   29.83  

Vested

    (229,017 )   35.74  
             

Unvested at December 31, 2009

    668,990   $ 30.43  
             

Restricted shares expected to vest

    637,522        
             

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

12. Share-Based Compensation and Employee Benefit Plans (Continued)

        The aggregate intrinsic value of restricted shares that vested was $5,926 in 2009, $4,358 in 2008 and $2,649 in 2007.

        We own a taxable REIT subsidiary that is subject to Federal and state income taxes. We realized windfall tax shortfall of $152 in 2009 and benefit of $1,053 in 2008 on options exercised and vesting restricted shares in connection with employees of our subsidiaries that are subject to income tax. We did not realize a windfall tax benefit in 2007 because our taxable REIT subsidiary had a net operating loss carryforward for tax purposes; had our taxable REIT subsidiary not had a net operating loss carryforward in 2007, we would have recognized a windfall tax benefit of $1,691 in 2007.

        The table below sets forth information relating to expenses from share-based compensation included in our Consolidated Statements of Operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Increase in general and administrative expenses

  $ 8,173   $ 6,324   $ 4,461  

Increase in construction contract and other service operations expenses

    2,429     2,712     2,182  
               

Share-based compensation expense

  $ 10,602   $ 9,036   $ 6,643  
               

        We capitalized share-based compensation costs of approximately $620 in 2009, $769 in 2008 and $433 in 2007.

        The amounts included in our Consolidated Statements of Operations for share-based compensation reflected an estimate of pre-vesting forfeitures of 0% to 7% for options and 2% to 5% for restricted shares for 2009 and 7% for options and a range of 2% to 5% for restricted shares for 2008 and 2007.

        As of December 31, 2009, there was $314 of unrecognized compensation cost related to unvested options that is expected to be recognized over a weighted average period of less than one year. As of December 31, 2009, there was $12,078 of unrecognized compensation cost related to unvested restricted shares that is expected to be recognized over a weighted average period of approximately two years.

401(k) Plan

        We have a 401(k) defined contribution plan covering substantially all of our employees that permits participants to defer up to a maximum of 15% of their compensation. For contributions to the plan occurring subsequent to December 31, 2008, we match 100% of the first 1% of pre-tax and/or after-tax contributions that participants contribute to the Plan and 50% of the next 5% in participant contributions to the Plan (representing an aggregate match of 3.5% on the first 6% of participant pre-tax and/or after-tax contributions to the Plan). For contributions to the plan occurring through December 31, 2008, we matched 50% of the first 6% of pre-tax and/or after-tax contributions that participants contributed to the plan. Participants' contributions are fully vested. For matching contributions made subsequent to December 31, 2008, a participant is 50% vested in matching contributions after one year of credited service and 100% vested after two years of credited service. For matching contributions made through December 31, 2008, a participant is 30% vested in matching contributions after one year of credited service, 60% vested after two years of credited service and

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

12. Share-Based Compensation and Employee Benefit Plans (Continued)


100% vested after three years of credited service. We fund all contributions with cash. Our matching contributions under the plan totaled approximately $969 in 2009, $641 in 2008 and $442 in 2007. The 401(k) plan is fully funded at December 31, 2009.

Deferred Compensation Plan

        We have a non-qualified elective deferred compensation plan for certain members of our management team that permits participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. We match the participant's contribution in an amount equal to 50% of the participant's elective deferral for the plan year up to a maximum of 6% of a participant's annual compensation after deducting contributions, if any, made under our 401(k) plan. Deferred compensation related to an employee contribution is charged to expense and is fully vested. Deferred compensation related to the Company's matching contribution is charged to expense and vests in annual one-third increments. Once an employee has been with us for three years, all matching contributions are fully vested. The balance of the plan, which was fully funded, totaled $6,685 at December 31, 2009 and $4,549 at December 31, 2008, and is included in the accompanying Consolidated Balance Sheets.

13. Operating Leases

        We lease our properties to tenants under operating leases with various expiration dates extending to the year 2025. Gross minimum future rentals on noncancelable leases in our consolidated properties at December 31, 2009 were as follows:

For the Years Ending December 31,
   
 

2010

  $ 329,574  

2011

    285,007  

2012

    250,741  

2013

    203,556  

2014

    173,151  

Thereafter

    530,721  
       
 

Total

  $ 1,772,750  
       

        We consider a lease to be noncancelable when a tenant (1) may not terminate its lease obligation early or (2) may terminate its lease obligation early in exchange for a fee or penalty that we consider material enough such that termination would be highly unlikely.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

14. Supplemental Information to Statements of Cash Flows

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Interest paid, net of capitalized interest

  $ 73,389   $ 81,335   $ 83,588  
               

Income taxes paid

  $ 317   $ 1,115   $ 123  
               

Supplemental schedule of non-cash investing and financing activities:

                   

Cancellation of mortgage loans receivable in connection with acquisition of properties

  $ 102,575   $   $  
               

Debt and other liabilities assumed in connection with acquisitions

  $ 3,085   $   $ 38,996  
               

Issuance of common shares in connection with acquisition of properties

  $   $   $ 156,691  
               

Issuance of preferred shares in connection with acquisition of properties

  $   $   $ 26,583  
               

Proceeds from sales of properties invested in restricted cash account

  $   $   $ 701  
               

Restricted cash used in connection with acquisitions of properties

  $   $   $ 20,827  
               

Issuance of common units in the Operating Partnership in connection with acquisition of properties

  $   $   $ 12,125  
               

Note receivable assumed upon sale of real estate property

  $   $   $ 3,582  
               

Increase (decrease) in accrued capital improvements and leasing costs

  $ 6,256   $ (14,799 ) $ 8,638  
               

Consolidation of real estate joint ventures:

                   
 

Real estate assets

  $   $ 14,208   $ 3,864  
 

Prepaid and other assets

        (10,859 )   1,021  
 

Noncontrolling interest

        (3,349 )   (4,885 )
               
 

Net adjustment

  $   $   $  
               

Reclassification of operating assets to investment assets in connection with consolidation of real estate joint ventures

  $   $   $ 16,725  
               

Property acquired through lease arrangement included in rents received in advance and security deposits

  $   $   $ 711  
               

Increase (decrease) in fair value of derivatives applied to AOCL and noncontrolling interests

  $ 3,365   $ (2,769 ) $ (2,025 )
               

Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT

  $ 21,072   $ 16,716   $ 29,761  
               

Dividends/distribution payable

  $ 28,440   $ 25,794   $ 22,441  
               

Decrease in noncontrolling interests and increase in shareholders' equity in connection with the conversion of common units into common shares

  $ 61,654   $ 7,508   $ 25,408  
               

15. Information by Business Segment

        As of December 31, 2009, we had nine primary office property segments: Baltimore/Washington Corridor; Northern Virginia; Greater Baltimore; Colorado Springs; Suburban Maryland; Greater Philadelphia; St. Mary's & King George Counties; San Antonio; and Central New Jersey.

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Corporate Office Properties Trust and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share and per unit data)

15. Information by Business Segment (Continued)

        The table below reports segment financial information for our real estate operations. Our segment entitled "Other" includes assets and operations not specifically associated with the other defined segments, including corporate assets and investments in unconsolidated entities. We measure the performance of our segments through a measure we define as net operating income from real estate operations ("NOI from real estate operations"), which is derived by subtracting property operating expenses from revenues from real estate operations. We believe that NOI from real estate operations is an important supplemental measure of operating performance for a REIT's operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.

 
  Baltimore/
Washington
Corridor
  Northern
Virginia
  Greater
Baltimore
  Colorado
Springs
  Suburban
Maryland
  Greater
Philadelphia
  St. Mary's &
King George
Counties
  San Antonio   Central
New Jersey
  Other   Intersegment
Eliminations
  Total  

Year Ended December 31, 2009

                                                                         

Revenues from real estate operations

  $ 197,610   $ 79,132   $ 58,275   $ 23,125   $ 19,620   $ 7,983   $ 13,960   $ 13,566   $ 2,423   $ 11,161   $   $ 426,855  

Property operating expenses

    73,049     30,406     25,319     7,337     8,389     1,329     3,445     4,482     167     3,512     (29 )   157,406  
                                                   

NOI from real estate operations

  $ 124,561   $ 48,726   $ 32,956   $ 15,788   $ 11,231   $ 6,654   $ 10,515   $ 9,084   $ 2,256   $ 7,649   $ 29   $ 269,449  
                                                   

Additions to properties, net

  $ 100,089   $ 7,673   $ 124,637   $ 22,593   $ 24,331   $ 9,126   $ 2,200   $ 38,353   $ 17   $ 2,003   $ (21 ) $ 331,001  
                                                   

Segment assets at December 31, 2009

  $ 1,337,694   $ 452,990   $ 569,590   $ 270,358   $ 181,841   $ 105,372   $ 94,732   $ 134,986   $ 20,404   $ 213,019   $ (964 ) $ 3,380,022  
                                                   

Year Ended December 31, 2008

                                                                         

Revenues from real estate operations

  $ 184,250   $ 75,974   $ 54,626   $ 20,343   $ 19,294   $ 10,025   $ 12,894   $ 9,311   $ 2,567   $ 10,707   $   $ 399,991  

Property operating expenses

    65,474     29,520     23,978     7,284     7,102     202     3,245     2,425     344     3,296     (1,521 )   141,349  
                                                   

NOI from real estate operations

  $ 118,776   $ 46,454   $ 30,648   $ 13,059   $ 12,192   $ 9,823   $ 9,649   $ 6,886   $ 2,223   $ 7,411   $ 1,521   $ 258,642  
                                                   

Additions to properties, net

  $ 87,678   $ 5,449   $ 17,132   $ 73,683   $ 39,468   $ 1,575   $ 2,801   $ 34,973   $ 43   $ 13,237   $ (72 ) $ 275,967  
                                                   

Segment assets at December 31, 2008

  $ 1,267,362   $ 465,247   $ 439,114   $ 252,559   $ 155,487   $ 95,783   $ 95,288   $ 96,643   $ 21,179   $ 226,572   $ (995 ) $ 3,114,239  
                                                   

Year Ended December 31, 2007

                                                                         

Revenues from real estate operations

  $ 171,339   $ 71,423   $ 54,418   $ 15,303   $ 16,624   $ 10,025   $ 12,618   $ 7,370   $ 4,846   $ 5,556   $   $ 369,522  

Property operating expenses

    56,871     25,893     22,034     5,912     6,681     131     3,064     1,578     2,053     2,057     (1,145 )   125,129  
                                                   

NOI from real estate operations

  $ 114,468   $ 45,530   $ 32,384   $ 9,391   $ 9,943   $ 9,894   $ 9,554   $ 5,792   $ 2,793   $ 3,499   $ 1,145   $ 244,393  
                                                   

Additions to properties, net

  $ 160,147   $ 23,645   $ 280,359   $ 50,101   $ 2,927   $ 1,236   $ 1,040   $ 3,204   $ 647   $ 61,046   $ (1,955 ) $ 582,397  
                                                   

Segment assets at December 31, 2007

  $ 1,218,216   $ 483,549   $ 448,370   $ 181,861   $ 116,863   $ 96,051   $ 95,255   $ 59,295   $ 40,672   $ 193,220   $ (988 ) $ 2,932,364  
                                                   

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

15. Information by Business Segment (Continued)

        The following table reconciles our segment revenues from real estate operations to total revenues as reported on our Consolidated Statements of Operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Segment revenues from real estate operations

  $ 426,855   $ 399,991   $ 369,522  

Construction contract and other service revenues

    343,087     188,385     41,225  

Less: Revenues from discontinued operations (Note 17)

    (2,423 )   (2,771 )   (6,281 )
               

Total revenues

  $ 767,519   $ 585,605   $ 404,466  
               

        The following table reconciles our segment property operating expenses to property operating expenses as reported on our Consolidated Statements of Operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Segment property operating expenses

  $ 157,406   $ 141,349   $ 125,129  

Less: Property expenses from discontinued operations (Note 17)

    (92 )   (297 )   (2,168 )
               

Total property operating expenses

  $ 157,314   $ 141,052   $ 122,961  
               

        As previously discussed, we provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations ("NOI from service operations"), which is based on the net of the revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. As a result, we believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

Construction contract and other service revenues

  $ 343,087   $ 188,385   $ 41,225  

Construction contract and other service expenses

    (336,519 )   (184,142 )   (39,793 )
               

NOI from service operations

  $ 6,568   $ 4,243   $ 1,432  
               

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

15. Information by Business Segment (Continued)

        The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from continuing operations as reported on our Consolidated Statements of Operations:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  

NOI from real estate operations

  $ 269,449   $ 258,642   $ 244,393  

NOI from service operations

    6,568     4,243     1,432  

Interest and other income

    5,164     2,070     3,030  

Gain on early extinguishment of debt

        8,101      

Equity in loss of unconsolidated entities

    (941 )   (147 )   (224 )

Income tax expense

    (196 )   (201 )   (569 )

Other adjustments:

                   
 

Depreciation and amortization associated with real estate operations

    (108,609 )   (101,937 )   (103,916 )
 

General and administrative expenses

    (23,240 )   (24,096 )   (20,227 )
 

Business development expenses

    (3,699 )   (1,233 )   (1,477 )
 

Interest expense on continuing operations

    (82,208 )   (86,414 )   (88,130 )
 

NOI from discontinued operations

    (2,331 )   (2,474 )   (4,113 )
               

Income from continuing operations

  $ 59,957   $ 56,554   $ 30,199  
               

        The accounting policies of the segments are the same as those previously disclosed for Corporate Office Properties Trust and subsidiaries, where applicable. We did not allocate interest expense, amortization of deferred financing costs and depreciation and amortization to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general and administrative expense, business development expenses, interest and other income, equity in loss of unconsolidated entities, income taxes, gain on early extinguishment of debt and noncontrolling interests because these items represent general corporate items not attributable to segments.

16. Income Taxes

        We elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our adjusted taxable income to our shareholders. As a REIT, we generally will not be subject to Federal income tax on taxable income that we distribute to our shareholders. If we fail to qualify as a REIT in any tax year, we will be subject to Federal income tax on our taxable income at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years.

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

16. Income Taxes (Continued)

        The differences between taxable income reported on our income tax return (estimated 2009 and actual 2008 and 2007) and net income as reported on our Consolidated Statements of Operations are set forth below:

 
  For the Years Ended December 31,  
 
  2009   2008   2007  
 
  (Estimated)
   
   
 

Net income

  $ 56,328   $ 58,668   $ 35,942  

Adjustments:

                   
 

Rental revenue recognition

    (1,646 )   (12,681 )   (6,128 )
 

Compensation expense recognition

    (5,240 )   1,600     (18,685 )
 

Operating expense recognition

    1,061     965     194  
 

Gain on sales of properties

        (4,358 )   6,451  
 

Losses from service operations

    303     (1,867 )   (1,476 )
 

Income tax expense

    196     779     572  
 

Depreciation and amortization

    37,442     36,181     44,215  
 

Income from unconsolidated entities

    (12 )   82     342  
 

Noncontrolling interests, gross

    (1,147 )   (1,568 )   (5,339 )
 

Other

    1,181     1,347     1,829  
               

Taxable income

  $ 88,466   $ 79,148   $ 57,917  
               

        For Federal income tax purposes, dividends to shareholders may be characterized as ordinary income, capital gains or return of capital. The characterization of dividends declared on our common and preferred shares during each of the last three years was as follows:

 
  Common Shares   Preferred Shares  
 
  For the Years Ended
December 31,
  For the Years Ended
December 31,
 
 
  2009   2008   2007   2009   2008   2007  

Ordinary income

    87.5 %   94.0 %   59.5 %   100.0 %   98.4 %   78.4 %

Long term capital gain

    0.0 %   1.5 %   16.4 %   0.0 %   1.6 %   21.6 %

Return of capital

    12.5 %   4.5 %   24.1 %   0.0 %   0.0 %   0.0 %

        We distributed all of our REIT taxable income in 2009, 2008 and 2007 and, as a result, did not incur Federal income tax in those years on such income. However, we did incur income tax totaling $1,112 in 2007 on built-in gain on properties, which is included in the Consolidated Statements of Operations as follows: $1,068 in gain in sales of real estate, net of income taxes; and $44 in discontinued operations, net of income taxes.

        The net basis of our assets and liabilities for tax reporting purposes is approximately $370,000 lower than the amount reported on our Consolidated Balance Sheet at December 31, 2009, which is primarily related to differences in basis for net properties, intangible assets on real estate acquisitions and deferred rent receivable.

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

16. Income Taxes (Continued)

        We own a taxable REIT subsidiary ("TRS") that is subject to Federal and state income taxes. Our TRS had income before income taxes under GAAP of $506 in 2009, $2,015 in 2008 and $1,476 in 2007. Our TRS' provision for income tax consisted of the following:

 
  For the Years Ended
December 31,
 
 
  2009   2008   2007  

Deferred

                   
 

Federal

  $ 115   $ 352   $ 468  
 

State

    25     26     104  
               

    140     378     572  
               

Current

                   
 

Federal

    46     328      
 

State

    10     73      
               

    56     401      
               

Total income tax expense

  $ 196   $ 779   $ 572  
               

Reported on line entitled income taxes

  $ 196   $ 201   $ 569  

Reported on line entitled gain on sales of real estate, net

        578     3  
               

Total income tax expense

  $ 196   $ 779   $ 572  
               

        A reconciliation of our TRS' Federal statutory rate to the effective tax rate for income tax reported on our Statements of Operations is set forth below:

 
  For the Years Ended
December 31,
 
 
  2009   2008   2007  

Income taxes at U.S. statutory rate

    34.0 %   34.0 %   34.0 %

State and local, net of U.S. Federal tax benefit

    4.6 %   4.6 %   4.6 %

Other

    0.1 %   0.1 %   0.1 %
               

Effective tax rate

    38.7 %   38.7 %   38.7 %
               

        Items in our TRS contributing to temporary differences that lead to deferred taxes include net operating losses that are not deductible until future periods, depreciation and amortization, share-based compensation, certain accrued compensation and compensation paid in the form of contributions to a deferred nonqualified compensation plan.

        We are subject to certain state and local income and franchise taxes. The expense associated with these state and local taxes is included in general and administrative expense on our Consolidated Statements of Operations. We did not separately state these amounts on our Consolidated Statements of Operations because they are insignificant.

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

17. Discontinued Operations

        Income from discontinued operations includes revenues and expenses associated with the following:

        Certain reclassifications have been made in prior periods to reflect discontinued operations consistent with the current period presentation. The table below sets forth the components of income from discontinued operations:

 
  For the Years Ended
December 31,
 
 
  2009   2008   2007  

Revenue from real estate operations

  $ 2,423   $ 2,771   $ 6,281  
               

Expenses from real estate operations:

                   
 

Property operating expenses

    92     297     2,168  
 

Depreciation and amortization

    777     835     2,344  
 

Interest expense

    212     507     1,890  
               
   

Expenses from real estate operations

    1,081     1,639     6,402  
               

Discontinued operations before gain on sales of real estate

    1,342     1,132     (121 )

Gain on sales of real estate

        2,526     3,871  

Income taxes

            (44 )
               

Discontinued operations

  $ 1,342   $ 3,658   $ 3,706  
               

18. Commitments and Contingencies

        In the normal course of business, we are involved in legal actions arising from our ownership and administration of properties. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management does not anticipate that any liabilities that may result from such proceedings will have a materially adverse effect on our financial position, operations or liquidity. Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.

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Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

18. Commitments and Contingencies (Continued)

        We are subject to various Federal, state and local environmental regulations related to our property ownership and operation. We have performed environmental 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.

Acquisitions

        At December 31, 2009, we were obligated to make an additional cash payment of up to $4,000 in a future year in connection with our acquisition of the land at the former Fort Ritchie United States Army base in Cascade, Washington County, Maryland. This payment could be reduced by a range of $750 to the full $4,000 depending on (1) defined levels of job creation resulting from the future development of the property taking place and (2) future real estate taxes generated by the property.

Joint Ventures

        In connection with our 2005 contribution of properties to an unconsolidated partnership in which we hold a limited partnership interest, we entered into standard nonrecourse loan guarantees (environmental indemnifications and guarantees against fraud and misrepresentation, including springing guarantees of partnership debt in the event of a voluntary bankruptcy of the partnership). The maximum amount we could be required to pay under the guarantees is approximately $67,000. So long as we continue to be the property manager for the properties, 20% of any amounts paid under the guarantees are recoverable from an affiliate of the general partner pursuant to an indemnity agreement. In the event that we no longer manage the properties, the percentage recoverable under the indemnity agreement is increased to 80%. Management estimates that the aggregate fair value of the guarantees is not material and would not exceed the amounts included in distributions in excess of investment in unconsolidated real estate joint venture reported on the consolidated balance sheets.

        We are party to a contribution agreement that formed a joint venture relationship with a limited partnership to develop up to 1.8 million square feet of office space on 63 acres of land located in Hanover, Maryland. Under the contribution agreement, we agreed to fund up to $2,200 in pre-construction costs associated with the property. As we and the joint venture partner agree to proceed with the construction of buildings in the future, our joint venture partner would contribute land into newly-formed entities and we would make additional cash capital contributions into such entities to fund development and construction activities for which financing is not obtained. We owned a 50% interest in one such joint venture as of December 31, 2009.

        We may be required to make our pro rata share of additional investments in our real estate joint ventures (generally based on our percentage ownership) in the event that additional funds are needed. In the event that the other members of these joint ventures do not pay their share of investments when additional funds are needed, we may then deem it appropriate to make even larger investments in these joint ventures.

F-49


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

18. Commitments and Contingencies (Continued)

Office Space Operating Leases

        We are obligated as lessee under two operating leases for office space. Future minimum rental payments due under the terms of these leases as of December 31, 2009 follow:

Year Ended December 31,
   
 

2010

  $ 169  

2011

    92  

2012

    36  

2013

    36  

2014

    12  
       

  $ 345  
       

Other Operating Leases

        We are obligated under various leases for vehicles and office equipment. Future minimum rental payments due under the terms of these leases as of December 31, 2009 follow:

Year Ended December 31,
   
 

2010

  $ 308  

2011

    222  

2012

    110  

2013

    59  

2014

    12  
       

  $ 711  
       

Environmental Indemnity Agreement

        We agreed to provide certain environmental indemnifications in connection with a lease of three properties in our New Jersey region. The prior owner of the properties, a Fortune 100 company which is responsible for groundwater contamination at such properties, previously agreed to indemnify us for (1) direct losses incurred in connection with the contamination and (2) its failure to perform remediation activities required by the State of New Jersey, up to the point that the state declares the remediation to be complete. Under the lease agreement, we agreed to the following:

F-50


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

18. Commitments and Contingencies (Continued)

19. Quarterly data (Unaudited)

        The tables below set forth selected quarterly information for the years ended December 31, 2009 and 2008. Certain of the amounts below have been reclassified to conform to the current period presentation of our Consolidated Financial Statements. As discussed previously, we retrospectively adopted recent accounting standards that affected our accounting for noncontrolling interests and convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) and our determination of whether instruments granted in share-based payment transactions should be included in the calculation of earnings per share. This resulted in certain adjustments to amounts previously reported in our 2008 Annual Report on Form 10-K, including changes that affected

F-51


Table of Contents


Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share and per unit data)

19. Quarterly data (Unaudited) (Continued)


our previously reported net income attributable to our common shareholders and earnings per common share.

 
  For the Year Ended December 31, 2009  
 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

Revenues

  $ 181,111   $ 208,441   $ 199,564   $ 178,403  
                   

Operating income

  $ 36,286   $ 35,352   $ 34,326   $ 32,174  
                   

Income from continuing operations

  $ 17,810   $ 17,725   $ 15,204   $ 9,218  
                   

Discontinued operations

  $ 356   $ 326   $ 332   $ 328  
                   

Net income

  $ 18,166   $ 18,051   $ 15,536   $ 9,546  

Net income attributable to noncontrolling interests

    (2,019 )   (1,412 )   (1,081 )   (458 )
                   

Net income attributable to COPT

    16,147     16,639     14,455     9,088  

Preferred share dividends

    (4,025 )   (4,026 )   (4,025 )   (4,026 )
                   

Net income attributable to COPT common shareholders

  $ 12,122   $ 12,613   $ 10,430   $ 5,062  
                   

Basic earnings per share:

                         
 

Income from continuing operations

  $ 0.22   $ 0.21   $ 0.17   $ 0.08  
                   
 

Net income attributable to COPT common shareholders

  $ 0.23   $ 0.22   $ 0.18   $ 0.08  
                   

Diluted earnings per share:

                         
 

Income from continuing operations

  $ 0.22   $ 0.21   $ 0.17   $ 0.08  
                   
 

Net income attributable to COPT common shareholders

  $ 0.23   $ 0.22   $ 0.18   $ 0.08  
                   

 

For the Year Ended December 31, 2008  

 

Revenues

 
$

107,018
 
$

119,783
 
$

190,498
 
$

168,306
 
                   

Operating income

  $ 31,357   $ 33,120   $ 35,531   $ 33,137  
                   

Income from continuing operations

  $ 9,603   $ 12,302   $ 13,545   $ 21,104  
                   

Discontinued operations

  $ 1,519   $ 1,567   $ 239   $ 333  
                   

Net income

  $ 12,181   $ 13,910   $ 13,788   $ 21,437  

Net income attributable to noncontrolling interests

    (1,467 )   (1,748 )   (1,542 )   (2,594 )
                   

Net income attributable to COPT

    10,714     12,162     12,246     18,843  

Preferred share dividends

    (4,025 )   (4,026 )   (4,025 )   (4,026 )
                   

Net income attributable to COPT common shareholders

  $ 6,689   $ 8,136   $ 8,221   $ 14,817  
                   

Basic earnings per share:

                         
 

Income from continuing operations

  $ 0.11   $ 0.14   $ 0.17   $ 0.28  
                   
 

Net income attributable to COPT common shareholders

  $ 0.14   $ 0.17   $ 0.17   $ 0.29  
                   

Diluted earnings per share:

                         
 

Income from continuing operations

  $ 0.11   $ 0.14   $ 0.16   $ 0.28  
                   
 

Net income attributable to COPT common shareholders

  $ 0.14   $ 0.17   $ 0.17   $ 0.28  
                   

F-52



Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

751, 753, 760, 785 Jolly Road (O)

  Blue Bell, PA   $   $ 22,080   $ 104,532   $ 748   $ 22,080   $ 105,280   $ 127,360   $ (26,969 ) 1960/1994   10/14/1997

1501 S Clinton Street (O)

  Baltimore, MD         50,564     49,411         50,564     49,411     99,975     (338 ) 2006   10/27/2009

7125 Columbia Gateway Drive (O)

  Columbia, MD     35,937     20,487     47,051     2,202     20,487     49,253     69,740     (5,552 ) 1973/1999   6/29/2006

13200 Woodland Park Road (O)

  Herndon, VA     64,932     10,428     41,711     13,757     10,428     55,468     65,896     (12,480 ) 2002   6/2/2003

1751 Pinnacle Drive (O)

  McLean, VA     32,496     10,486     42,340     10,405     10,486     52,745     63,231     (9,321 ) 1989/1995   9/23/2004

15000 Conference Center Drive (O)

  Chantilly, VA     54,000     5,193     47,500     8,815     5,193     56,315     61,508     (14,764 ) 1989   11/30/2001

11751 Meadowville Lane (O)

  Richmond, VA     50,972     1,305     52,098     112     1,305     52,210     53,515     (3,362 ) 2007   9/15/2006

7700 Potranco Road (O)

  San Antonio, TX         14,020     38,667     7     14,020     38,674     52,694     (2,802 ) 1982/1985   3/30/2005

1753 Pinnacle Drive (O)

  McLean, VA     26,223     8,275     34,353     8,306     8,275     42,659     50,934     (6,309 ) 1976/2004   9/23/2004

300 Sentinel Drive (O)

  Annapolis Junction, MD     22,506     1,517     47,741         1,517     47,741     49,258     (365 ) 2009   11/14/2003

15010 Conference Center Drive (O)

  Chantilly, VA     96,000     3,500     41,921     140     3,500     42,061     45,561     (3,339 ) 2006   11/30/2001

2730 Hercules Road (O)

  Annapolis Junction, MD     34,393     8,737     31,612     1,152     8,737     32,764     41,501     (8,935 ) 1990   9/28/1998

6721 Columbia Gateway Drive (O)

  Columbia, MD     30,734     1,753     34,304     (1 )   1,753     34,303     36,056     (520 ) 2009   9/28/2000

Clarks 100 (O)

  Annapolis Junction, MD         25,184     10,458     (1 )   25,184     10,457     35,641       (6)   6/29/2003

2720 Technology Drive (O)

  Annapolis Junction, MD     25,307     3,863     29,272     36     3,863     29,308     33,171     (3,903 ) 2004   1/31/2002

1550 West Nursery Road (O)

  Linthicium, MD         15,512     16,931         15,512     16,931     32,443     (98 ) 2009   10/28/2009

201 Technology Drive (O)

  Lebanon, VA     30,370     726     31,092     60     726     31,152     31,878     (1,685 ) 2007   10/5/2007

302 Sentinel Drive (O)

  Annapolis Junction, MD     23,861     2,648     28,594     29     2,648     28,623     31,271     (1,420 ) 2007   11/14/2003

318 Sentinel Way (O)

  Annapolis Junction, MD     23,385     2,185     28,433         2,185     28,433     30,618     (2,719 ) 2005   11/14/2003

7468 Candlewood Road (O)

  Hanover, MD         5,599     23,462     4     5,599     23,466     29,065     (1 ) 1979/1982(5)   12/20/2005

7740 Milestone Parkway (O)

  Hanover, MD     16,753     3,825     25,139     1     3,825     25,140     28,965     (281 ) 2007   7/2/2007

11311 McCormick Road (O)

  Hunt Valley, MD         2,308     21,310     5,335     2,308     26,645     28,953     (3,490 ) 1984/1994   12/22/2005

Interquest land parcel (O)

  Colorado Springs, CO         19,400     9,258     (1 )   19,400     9,257     28,657       (6)   9/30/2005

304 Sentinel Drive (O)

  Annapolis Junction, MD     37,280     3,411     24,917     67     3,411     24,984     28,395     (2,430 ) 2005   11/14/2003

5850 University Research Ct (O)

  College Park, MD             28,319             28,319     28,319       2009   1/29/2008

140 National Business Parkway (O)

  Annapolis Junction, MD         3,407     24,167     631     3,407     24,798     28,205     (3,696 ) 2003   12/31/2003

322 Sentinel Way (O)

  Annapolis Junction, MD     23,023     2,605     24,405         2,605     24,405     27,010     (1,803 ) 2006   11/14/2003

11800 Tech Road (O)

  Silver Spring, MD     16,561     4,574     19,703     2,297     4,574     22,000     26,574     (5,615 ) 1969/1989   8/1/2002

Fort Ritchie (M)

  Washington County, MD         4,798     21,429     320     4,798     21,749     26,547     (59 ) Various(5)(8)   10/5/2006

10807 New Allegiance Drive (O)

  Colorado Springs, CO         1,840     24,021     54     1,840     24,075     25,915     (133 ) 2009   9/30/2005

306 Sentinel Drive (O)

  Annapolis Junction, MD     22,037     3,260     22,592     46     3,260     22,638     25,898     (1,836 ) 2006   11/14/2003

6711 Columbia Gateway Drive (O)

  Columbia, MD     24,008     2,683     22,469     315     2,683     22,784     25,467     (1,724 ) 2006-2007   9/28/2000

15049 Conference Center Drive (O)

  Chantilly, VA         4,415     20,365     589     4,415     20,954     25,369     (4,998 ) 1997   8/14/2002

320 Sentinel Way (O)

  Annapolis Junction, MD     19,414     2,067     22,377         2,067     22,377     24,444     (1,103 ) 2007   11/14/2003

2711 Technology Drive (O)

  Annapolis Junction, MD     20,339     2,251     21,611     70     2,251     21,681     23,932     (5,496 ) 2002   11/13/2000

7200 Riverwood Drive (O)

  Columbia, MD         4,089     16,356     2,348     4,089     18,704     22,793     (5,032 ) 1986   10/13/1998

6731 Columbia Gateway Drive (O)

  Columbia, MD     20,907     2,807     19,098     604     2,807     19,702     22,509     (4,292 ) 2002   3/29/2000

3535 Northrop Grumman Point (O)

  Colorado Springs, CO     18,893         22,165     76         22,241     22,241     (1,201 ) 2008   6/10/2008

400 Professional Drive (O)

  Gaithersburg, MD     15,423     3,673     16,826     1,003     3,673     17,829     21,502     (4,670 ) 2000   3/5/2004

9690 Deereco Road (O)

  Timonium, MD         3,415     13,723     4,310     3,415     18,033     21,448     (5,947 ) 1988   12/21/1999

324 Sentinel Drive (O)

  Annapolis Junction, MD     13,705     1,656     19,706         1,656     19,706     21,362       (5)   6/29/2003

F-53


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

431 Ridge Road (O)

  Dayton, NJ         2,782     11,128     7,340     2,782     18,468     21,250     (6,655 ) 1958/1998   10/14/1997

2900 Towerview Road (O)

  Herndon, VA         3,207     16,372     1,408     3,207     17,780     20,987     (1,813 ) 1982/2008   12/20/2005

14280 Park Meadow Drive (O)

  Chantilly, VA     8,681     3,731     15,953     318     3,731     16,271     20,002     (2,940 ) 1999   9/29/2004

15059 Conference Center Drive (O)

  Chantilly, VA     24,121     5,753     13,615     588     5,753     14,203     19,956     (3,633 ) 2000   8/14/2002

10150 York Road (O)

  Hunt Valley, MD         2,700     11,623     5,563     2,700     17,186     19,886     (4,796 ) 1985   4/15/2004

14900 Conference Center Drive (O)

  Chantilly, VA     13,426     3,436     14,402     1,972     3,436     16,374     19,810     (3,663 ) 1999   7/25/2003

15 West Gude Drive (O)

  Rockville, MD         3,120     13,626     2,891     3,120     16,517     19,637     (2,423 ) 1986   4/7/2005

2691 Technology Drive (O)

  Annapolis Junction, MD     24,000     2,098     17,334     51     2,098     17,385     19,483     (1,846 ) 2005   11/14/2003

5825 University Research Court (O)

  College Park, MD             19,257             19,257     19,257     (535 ) 2008   1/29/2008

2721 Technology Drive (O)

  Annapolis Junction, MD     18,334     4,611     14,597     18     4,611     14,615     19,226     (3,657 ) 2000   10/21/1999

6950 Columbia Gateway Drive (O)

  Columbia, MD     14,189     3,596     14,269     936     3,596     15,205     18,801     (4,634 ) 1998   10/21/1998

45 West Gude Drive (O)

  Rockville, MD         3,102     15,267     366     3,102     15,633     18,735     (2,694 ) 1987   4/7/2005

655 Space Center Drive (O)

  Colorado Springs, CO     17,581     745     17,674     8     745     17,682     18,427     (741 ) 2008   7/8/2005

8000 Potranco Road (O)

  San Antonio, TX     12,833     1,964     16,058         1,964     16,058     18,022       (5)   1/20/2006

8030 Potranco Road (O)

  San Antonio, TX     13,383     1,964     15,990     1     1,964     15,991     17,955       (5)   1/20/2006

5520 Research Park Drive (O)

  Catonsville, MD     13,906         17,696             17,696     17,696     (265 ) 2009   1/9/2007

132 National Business Parkway (O)

  Annapolis Junction, MD     14,485     2,917     12,259     2,285     2,917     14,544     17,461     (4,689 ) 2000   5/28/1997

880 Elkridge Landing Road (O)

  Linthicum, MD     13,509     1,866     8,896     6,473     1,866     15,369     17,235     (5,649 ) 1981   8/3/2001

2701 Technology Drive (O)

  Annapolis Junction, MD     14,493     1,737     15,266     18     1,737     15,284     17,021     (4,050 ) 2001   5/26/2000

133 National Business Parkway (O)

  Annapolis Junction, MD     9,739     2,517     10,234     4,237     2,517     14,471     16,988     (4,233 ) 1997   9/28/1998

13454 Sunrise Valley Road (O)

  Herndon, VA     10,801     2,899     11,986     1,256     2,899     13,242     16,141     (2,938 ) 1998   7/25/2003

10001 Franklin Square Drive (O)

  White Marsh, MD         4,033     11,483     550     4,033     12,033     16,066     (1,339 ) 1997   1/9/2007

200 International Circle (O)

  Hunt Valley, MD         2,016     10,851     2,932     2,016     13,783     15,799     (1,851 ) 1987   12/22/2005

Patriot Park (O)

  Colorado Springs, CO         6,882     8,580     1     6,882     8,581     15,463       (5)   7/8/2005

7000 Columbia Gateway Drive (O)

  Columbia, MD     19,125     3,131     12,103     153     3,131     12,256     15,387     (2,258 ) 1999   5/31/2002

6940 Columbia Gateway Drive (O)

  Columbia, MD     16,899     3,545     9,916     1,892     3,545     11,808     15,353     (3,855 ) 1999   11/13/1998

1306 Concourse Drive (O)

  Linthicum, MD         2,796     11,186     1,330     2,796     12,516     15,312     (3,646 ) 1990   11/18/1999

110 Thomas Johnson Drive (O)

  Frederick, MD         2,810     12,075     394     2,810     12,469     15,279     (1,354 ) 1987/1999   10/21/2005

1304 Concourse Drive (O)

  Linthicum, MD     9,949     1,999     12,934     300     1,999     13,234     15,233     (3,201 ) 2002   11/18/1999

7067 Columbia Gateway Drive (O)

  Columbia, MD     8,261     1,829     11,823     1,527     1,829     13,350     15,179     (2,671 ) 2001   8/30/2001

8621 Robert Fulton Drive (O)

  Columbia, MD     18,780     2,317     12,642     200     2,317     12,842     15,159     (1,277 ) 2005-2006   6/10/2005

2500 Riva Road (O)

  Annapolis, MD         2,791     12,145     1     2,791     12,146     14,937     (2,352 ) 2000   3/4/2003

6750 Alexander Bell Drive (O)

  Columbia, MD         1,263     12,461     1,152     1,263     13,613     14,876     (4,260 ) 2001   12/31/1998

375 West Padonia Road (O)

  Timonium, MD         2,483     10,415     1,817     2,483     12,232     14,715     (3,229 ) 1986   12/21/1999

5725 Mark Dabling Boulevard (O)

  Colorado Springs, CO     12,882     900     11,397     2,343     900     13,740     14,640     (2,390 ) 1984   5/18/2006

Campbell Boulevard & Franklin Square (O)

  White Marsh, MD         12,017     2,488         12,017     2,488     14,505       (6)   1/9/2007

5775 Mark Dabling Boulevard (O)

  Colorado Springs, CO     12,477     1,035     12,440     605     1,035     13,045     14,080     (2,474 ) 1984   5/18/2006

985 Space Center Drive (O)

  Colorado Springs, CO         777     12,300     833     777     13,133     13,910     (1,661 ) 1989   9/28/2005

135 National Business Parkway (O)

  Annapolis Junction, MD     10,428     2,484     9,750     1,485     2,484     11,235     13,719     (4,029 ) 1998   12/30/1998

141 National Business Parkway (O)

  Annapolis Junction, MD     10,218     2,398     9,590     1,457     2,398     11,047     13,445     (3,138 ) 1990   9/28/1998

4851 Stonecroft Boulevard (O)

  Chantilly, VA     16,734     1,878     11,558     5     1,878     11,563     13,441     (1,510 ) 2004   8/14/2002

F-54


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

565 Space Center Drive (O)

  Colorado Springs, CO         644     12,480         644     12,480     13,124     (2 ) 2009   7/8/2005

5755 Mark Dabling Boulevard (O)

  Colorado Springs, CO     10,208     799     10,324     1,773     799     12,097     12,896     (1,701 ) 1989   5/18/2006

22309 Exploration Drive (O)

  Lexington Park, MD         2,243     10,419     192     2,243     10,611     12,854     (2,260 ) 1984/1997   3/24/2004

920 Elkridge Landing Road (O)

  Linthicum, MD     7,535     2,101     9,765     687     2,101     10,452     12,553     (3,249 ) 1982   7/2/2001

1302 Concourse Drive (O)

  Linthicum, MD         2,078     8,313     2,074     2,078     10,387     12,465     (3,324 ) 1996   11/18/1999

8110 Corporate Drive (O)

  White Marsh, MD     11,837     2,285     10,117     21     2,285     10,138     12,423     (1,097 ) 2001   1/9/2007

8140 Corporate Drive (O)

  White Marsh, MD     10,131     2,158     8,457     1,715     2,158     10,172     12,330     (1,502 ) 2003   1/9/2007

Military Drive Business Park (O)

  San Antonio, TX         10,570     1,726         10,570     1,726     12,296       (6)   3/30/2005

Nottingham Ridge (O)

  White Marsh, MD         8,861     3,297         8,861     3,297     12,158       (6)   1/9/2007

134 National Business Parkway (O)

  Annapolis Junction, MD     14,062     3,684     7,517     834     3,684     8,351     12,035     (2,661 ) 1999   11/13/1998

226 Schilling Circle (O)

  Hunt Valley, MD         1,877     9,891     232     1,877     10,123     12,000     (1,497 ) 1980   12/22/2005

900 Elkridge Landing Road (O)

  Linthicum, MD         1,993     7,972     2,006     1,993     9,978     11,971     (3,341 ) 1982   4/30/1998

6700 Alexander Bell Drive (O)

  Columbia, MD     4,000     1,755     7,019     2,738     1,755     9,757     11,512     (3,320 ) 1988   5/14/2001

131 National Business Parkway (O)

  Annapolis Junction, MD     7,277     1,906     7,623     1,562     1,906     9,185     11,091     (3,001 ) 1990   9/28/1998

308 Sentinel Way (O)

  Annapolis Junction, MD         1,386     9,663         1,386     9,663     11,049       (5)   11/14/2003

1055 North Newport Road (O)

  Colorado Springs, CO         972     9,992         972     9,992     10,964     (457 ) 2007-2008   5/19/2006

7160 Riverwood Drive (O)

  Columbia, MD     7,734     2,732     7,006     1,027     2,732     8,033     10,765     (1,392 ) 2000   1/10/2007

1199 Winterson Road (O)

  Linthicum, MD     18,578     1,599     6,395     2,679     1,599     9,074     10,673     (3,398 ) 1988   4/30/1998

745 Space Center Drive (O)

  Colorado Springs, CO     10,172     654     10,003     3     654     10,006     10,660     (837 ) 2006   7/8/2005

1190 Winterson Road (O)

  Linthicum, MD     11,291     1,335     5,340     3,742     1,335     9,082     10,417     (4,000 ) 1987   4/30/1998

7240 Parkway Drive (O)

  Hanover, MD         1,496     5,985     2,625     1,496     8,610     10,106     (2,546 ) 1985   4/18/2000

999 Corporate Boulevard (O)

  Linthicum, MD     13,533     1,187     8,332     475     1,187     8,807     9,994     (2,333 ) 2000   8/1/1999

14850 Conference Center Drive (O)

  Chantilly, VA     7,638     1,615     8,358     15     1,615     8,373     9,988     (2,817 ) 2000   7/25/2003

6740 Alexander Bell Drive (O)

  Columbia, MD         1,424     5,696     2,850     1,424     8,546     9,970     (2,922 ) 1992   12/31/1998

209 Research Boulevard (O)

  Aberdeen, MD         1,045     8,910         1,045     8,910     9,955       (5)   9/14/2007

12515 Academy Ridge View (O)

  Colorado Springs, CO         2,612     7,260         2,612     7,260     9,872     (127 ) 2006   6/26/2009

14840 Conference Center Drive (O)

  Chantilly, VA     7,757     1,572     8,175     27     1,572     8,202     9,774     (2,648 ) 2000   7/25/2003

Waterview III (O)

  Herndon, VA         9,614     81         9,614     81     9,695       (6)   4/29/2004

201 International Circle (O)

  Hunt Valley, MD         1,552     6,071     2,072     1,552     8,143     9,695     (1,311 ) 1982   12/22/2005

7467 Ridge Road (O)

  Hanover, MD         1,629     6,517     1,480     1,629     7,997     9,626     (2,514 ) 1990   4/28/1999

8031 Corporate Drive (O)

  White Marsh, MD     9,090     2,548     6,975     1     2,548     6,976     9,524     (735 ) 1988/2004   1/9/2007

849 International Drive (O)

  Linthicum, MD     11,692     1,356     5,426     2,659     1,356     8,085     9,441     (2,991 ) 1988   2/23/1999

16480 Commerce Drive (O)

  Dahlgren, VA         1,856     7,425     139     1,856     7,564     9,420     (980 ) 2000   12/28/2004

502 Washington Avenue (O)

  Towson, MD     5,033     826     7,023     1,488     826     8,511     9,337     (1,105 ) 1984   1/9/2007

Columbia Gtwy T11 Lot 1 (O)

  Columbia, MD         6,387     2,885     (1 )   6,387     2,884     9,271       (6)   9/20/2004

Old Annapolis Road (O)

  Columbia, MD         1,637     5,500     2,103     1,637     7,603     9,240     (1,672 ) 1974/1985   12/14/2000

Route 15/Biggs Ford Road Land (O)

  Frederick, MD         8,703     424     (1 )   8,703     423     9,126       (6)   8/28/2008

7015 Albert Einstein Drive (O)

  Columbia, MD     3,209     2,058     6,093     826     2,058     6,919     8,977     (1,445 ) 1999   12/1/2005

1560B Cable Ranch Road (O)

  San Antonio, TX         2,299     6,545         2,299     6,545     8,844     (390 ) 2008   6/19/2008

13450 Sunrise Valley Road (O)

  Herndon, VA     5,371     1,386     5,576     1,786     1,386     7,362     8,748     (1,879 ) 1998   7/25/2003

9945 Federal Drive (O)

  Colorado Springs, CO         1,854     6,864     1     1,854     6,865     8,719     (85 ) 2009   9/30/2005

F-55


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

1099 Winterson Road (O)

  Linthicum, MD     12,012     1,323     5,293     2,071     1,323     7,364     8,687     (2,379 ) 1988   4/30/1998

7272 Park Circle Drive (O)

  Hanover, MD     5,634     1,479     6,300     870     1,479     7,170     8,649     (712 ) 1991/1996   1/10/2007

46591 Expedition Drive (O)

  Lexington Park, MD         1,200     7,199     106     1,200     7,305     8,505     (530 ) 2005-2006   3/24/2004

5180 Parkstone (O)

  Chantilly, VA         7,141     1,306         7,141     1,306     8,447       (6)   1/27/2005

1362 Mellon Road (O)

  Hanover, MD         1,706     6,629         1,706     6,629     8,335     (290 ) 2006   2/10/2006

9925 Federal Drive (O)

  Colorado Springs, CO         1,129     7,052     16     1,129     7,068     8,197     (236 ) 2008   9/30/2005

Northwest Crossroads Business Park (O)

  San Antonio, TX         7,430     705         7,430     705     8,135       (6)   1/20/2006

1670 North Newport Road (O)

  Colorado Springs, CO     4,659     853     7,010     208     853     7,218     8,071     (1,010 ) 1986/1987   9/30/2005

46579 Expedition Drive (O)

  Lexington Park, MD         1,406     5,796     847     1,406     6,643     8,049     (1,282 ) 2002   3/24/2004

6716 Alexander Bell Drive (O)

  Columbia, MD         1,242     4,969     1,838     1,242     6,807     8,049     (2,616 ) 1990   12/31/1998

9965 Federal Drive (O)

  Colorado Springs, CO         1,401     6,061     513     1,401     6,574     7,975     (429 ) 1983/2007   1/19/2006

911 Elkridge Landing Road (O)

  Linthicum, MD         1,215     4,861     1,883     1,215     6,744     7,959     (2,123 ) 1985   4/30/1998

7210 Ambassador Road (O)

  Woodlawn, MD         1,481     6,257     123     1,481     6,380     7,861     (976 ) 1972   12/22/2005

7152 Windsor Boulevard (O)

  Woodlawn, MD         879     6,764     173     879     6,937     7,816     (870 ) 1986   12/22/2005

9910 Franklin Square Drive (O)

  White Marsh, MD     5,496     1,219     6,590     6     1,219     6,596     7,815     (727 ) 2005   1/9/2007

22289 Exploration Drive (O)

  Lexington Park, MD         1,422     5,719     600     1,422     6,319     7,741     (1,135 ) 2000   3/24/2004

891 Elkridge Landing Road (O)

  Linthicum, MD         1,160     4,750     1,706     1,160     6,456     7,616     (1,770 ) 1984   7/2/2001

22299 Exploration Drive (O)

  Lexington Park, MD         1,362     5,791     410     1,362     6,201     7,563     (1,321 ) 1998   3/24/2004

109-111 Allegheny Avenue (O)

  Towson, MD         1,688     5,620     75     1,688     5,695     7,383     (512 ) 1971   1/9/2007

9920 Franklin Square Drive (O)

  White Marsh, MD         1,058     5,293     977     1,058     6,270     7,328     (554 ) 2006   1/9/2007

COPT-FD Indian Head, LLC (O)

  Charles County, MD         5,822     1,378         5,822     1,378     7,200       (6)   10/23/2006

44425 Pecan Court (O)

  California, MD         1,309     5,234     650     1,309     5,884     7,193     (917 ) 1997   5/5/2004

1201 Winterson Road (O)

  Linthicum, MD         1,288     5,154     461     1,288     5,615     6,903     (1,586 ) 1985   4/30/1998

8671 Robert Fulton Drive (O)

  Columbia, MD     7,530     1,718     4,280     881     1,718     5,161     6,879     (1,274 ) 2002   12/30/2003

8114 Sandpiper Circle (O)

  White Marsh, MD         1,634     4,277     896     1,634     5,173     6,807     (551 ) 1986   1/9/2007

901 Elkridge Landing Road (O)

  Linthicum, MD         1,151     4,416     1,191     1,151     5,607     6,758     (1,530 ) 1984   7/2/2001

7138 Columbia Gateway Drive (O)

  Columbia, MD     5,406     1,104     3,518     1,962     1,104     5,480     6,584     (1,209 ) 1990   9/19/2005

9950 Federal Drive (O)

  Colorado Springs, CO         877     5,045     636     877     5,681     6,558     (1,111 ) 2001   12/22/2005

7142 Columbia Gateway Drive (O)

  Columbia, MD     6,280     1,342     3,978     1,172     1,342     5,150     6,492     (636 ) 1994   9/19/2005

22300 Exploration Drive (O)

  Lexington Park, MD         1,094     5,038     160     1,094     5,198     6,292     (970 ) 1997   11/9/2004

938 Elkridge Landing Road (O)

  Linthicum, MD     4,182     1,204     4,727     346     1,204     5,073     6,277     (1,049 ) 1984   7/2/2001

7130 Columbia Gateway Drive (O)

  Columbia, MD     6,519     1,350     4,359     563     1,350     4,922     6,272     (679 ) 1989   9/19/2005

7150 Riverwood Drive (O)

  Columbia, MD     4,931     1,821     4,388         1,821     4,388     6,209     (481 ) 2000   1/10/2007

9020 Mendenhall Court (O)

  Columbia, MD         1,233     4,571     393     1,233     4,964     6,197     (581 ) 1982/2005   1/9/2007

939 Elkridge Landing Road (O)

  Linthicum, MD         939     3,756     1,377     939     5,133     6,072     (1,903 ) 1983   4/30/1998

8020 Corporate Drive (O)

  White Marsh, MD         2,184     3,767     114     2,184     3,881     6,065     (285 ) 1997   1/9/2007

6708 Alexander Bell Drive (O)

  Columbia, MD     6,320     897     3,588     1,579     897     5,167     6,064     (1,674 ) 1988   5/14/2001

4979 Mercantile Road (O)

  White Marsh, MD         1,299     4,686     70     1,299     4,756     6,055     (362 ) 1985   1/9/2007

881 Elkridge Landing Road (O)

  Linthicum, MD     11,812     1,034     4,137     820     1,034     4,957     5,991     (1,486 ) 1986   4/30/1998

940 Elkridge Landing Road (O)

  Linthicum, MD     3,175     1,100     4,705     170     1,100     4,875     5,975     (951 ) 1984(6)   7/2/2001

11011 McCormick Road (O)

  Hunt Valley, MD         875     3,474     1,620     875     5,094     5,969     (1,086 ) 1974   12/22/2005

F-56


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

7941-7949 Corporate Drive (O)

  White Marsh, MD         2,087     3,782     12     2,087     3,794     5,881     (405 ) 1996   1/9/2007

921 Elkridge Landing Road (O)

  Linthicum, MD         1,044     4,176     639     1,044     4,815     5,859     (1,615 ) 1983   4/30/1998

8661 Robert Fulton Drive (O)

  Columbia, MD     6,621     1,510     3,764     562     1,510     4,326     5,836     (996 ) 2002   12/30/2003

6760 Alexander Bell Drive (O)

  Columbia, MD         890     3,561     1,381     890     4,942     5,832     (2,056 ) 1991   12/31/1998

4969 Mercantile Road (O)

  White Marsh, MD         1,308     4,456     62     1,308     4,518     5,826     (334 ) 1983   1/9/2007

316 Sentinel Drive (O)

  Annapolis Junction, MD         2,769     2,988     1     2,769     2,989     5,758       (6)   11/14/2003

8094 Sandpiper Circle (O)

  White Marsh, MD         1,960     3,716     77     1,960     3,793     5,753     (433 ) 1998   1/9/2007

900 International Drive (O)

  Linthicum, MD     8,008     981     3,922     834     981     4,756     5,737     (1,363 ) 1986   4/30/1998

7318 Parkway Drive (O)

  Hanover, MD         972     3,888     786     972     4,674     5,646     (1,183 ) 1984   4/16/1999

7063 Columbia Gateway Drive (O)

  Columbia, MD     2,921     902     3,684     1,036     902     4,720     5,622     (1,615 ) 2000   8/30/2001

7320 Parkway Drive (O)

  Hanover, MD     5,617     905     3,570     1,140     905     4,710     5,615     (1,080 ) 1983   4/4/2002

930 International Drive (O)

  Linthicum, MD     8,488     1,013     4,053     545     1,013     4,598     5,611     (1,442 ) 1986   4/30/1998

6724 Alexander Bell Drive (O)

  Columbia, MD     10,939     449     5,039     121     449     5,160     5,609     (1,270 ) 2001   5/14/2001

7065 Columbia Gateway Drive (O)

  Columbia, MD     2,833     919     3,763     926     919     4,689     5,608     (1,341 ) 2000   8/30/2001

9740 Patuxent Woods Drive (O)

  Columbia, MD     2,579     1,628     3,201     756     1,628     3,957     5,585     (479 ) 1986/2001   1/9/2007

Gude Drive Land Building 1 (O)

  Rockville, MD         3,122     2,459         3,122     2,459     5,581       (6)   4/7/2005

8098 Sandpiper Circle (O)

  White Marsh, MD         1,797     3,651     41     1,797     3,692     5,489     (276 ) 1998   1/9/2007

Westfields International Corporate Center Land (O)

  Chantilly, VA         3,609     1,841         3,609     1,841     5,450       (6)   7/31/2002

4940 Campbell Boulevard (O)

  White Marsh, MD         1,379     3,858     175     1,379     4,033     5,412     (426 ) 1990   1/9/2007

1334 Ashton Road (O)

  Hanover, MD         736     2,946     1,720     736     4,666     5,402     (942 ) 1989   4/28/1999

1340 Ashton Road (O)

  Hanover, MD         905     3,620     863     905     4,483     5,388     (1,524 ) 1989   4/28/1999

8615 Ridgely's Choice Drive (O)

  White Marsh, MD         1,078     3,613     605     1,078     4,218     5,296     (457 ) 2005   1/9/2007

9720 Patuxent Woods Drive (O)

  Columbia, MD     2,782     1,701     3,508     1     1,701     3,509     5,210     (594 ) 1986/2001   1/9/2007

9930 Franklin Square Drive (O)

  White Marsh, MD         1,137     3,921         1,137     3,921     5,058     (428 ) 2001   1/9/2007

8007 Corporate Drive (O)

  White Marsh, MD         1,434     3,336     168     1,434     3,504     4,938     (441 ) 1995   1/9/2007

102 West Pennsylvania Ave (O)

  Towson, MD         1,090     3,182     666     1,090     3,848     4,938     (478 ) 1968/2001   1/10/2007

5325 Nottingham Ridge Road (O)

  White Marsh, MD         816     3,976     123     816     4,099     4,915     (337 ) 2002   1/9/2007

1560A Cable Ranch Road (O)

  San Antonio, TX         1,097     3,770         1,097     3,770     4,867     (230 ) 2008   6/19/2008

4230 Forbes Boulevard (O)

  Lanham, MD         511     4,346     (1 )   511     4,345     4,856     (1,332 ) 2003   12/24/2002

21 Governor's Court (O)

  Woodlawn, MD         771     3,341     738     771     4,079     4,850     (550 ) 1981/1995   12/22/2005

800 International Drive (O)

  Linthicum, MD     8,408     775     3,099     909     775     4,008     4,783     (1,268 ) 1988   4/30/1998

16539 Commerce Drive (O)

  Dahlgren, VA         688     2,860     1,208     688     4,068     4,756     (673 ) 1990   12/21/2004

16541 Commerce Drive (O)

  Dahlgren, VA         773     3,094     850     773     3,944     4,717     (541 ) 1996   12/21/2004

9940 Franklin Square Drive (O)

  White Marsh, MD         1,052     3,382     269     1,052     3,651     4,703     (304 ) 2000   1/9/2007

8010 Corporate Drive (O)

  White Marsh, MD         1,349     3,262     38     1,349     3,300     4,649     (304 ) 1998   1/9/2007

9960 Federal Drive (O)

  Colorado Springs, CO         695     3,830     113     695     3,943     4,638     (484 ) 2001   12/22/2005

7150 Columbia Gateway Drive (O)

  Columbia, MD     4,850     1,032     3,429     168     1,032     3,597     4,629     (567 ) 1991   9/19/2005

North Gate Business Park (Lot D) (O)

  Aberdeen, MD         1,862     2,752         1,862     2,752     4,614       (5)   9/14/2007

9160 Guilford Road (O)

  Columbia, MD     2,361     665     2,686     1,203     665     3,889     4,554     (1,346 ) 1984   4/4/2002

5522 Research Pk Drive (O)

  Catonsville, MD             4,550             4,550     4,550     (273 ) 2007   3/8/2006

216 Schilling Circle (O)

  Hunt Valley, MD         825     3,684     24     825     3,708     4,533     (335 ) 1988/2001   1/10/2007

9140 Guilford Road (O)

  Columbia, MD     2,821     794     3,209     503     794     3,712     4,506     (937 ) 1983   4/4/2002

F-57


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

9900 Franklin Square Drive (O)

  White Marsh, MD         979     3,466     6     979     3,472     4,451     (376 ) 1999   1/9/2007

7170 Riverwood Drive (O)

  Columbia, MD     3,478     1,283     3,096     22     1,283     3,118     4,401     (329 ) 2000   1/10/2007

7061 Columbia Gateway Drive (O)

  Columbia, MD     2,435     729     3,094     560     729     3,654     4,383     (961 ) 2000   8/30/2001

5355 Nottingham Ridge Road (O)

  White Marsh, MD         761     3,562         761     3,562     4,323     (267 ) 2005   1/9/2007

North Gate Business Park (Lot H) (O)

  Aberdeen, MD         1,862     2,447         1,862     2,447     4,309       (5)   9/14/2007

8130 Corporate Drive (O)

  White Marsh, MD         2,017     2,255         2,017     2,255     4,272       (6)   1/9/2007

9700 Patuxent Woods Drive (O)

  Columbia, MD     2,110     1,329     2,621     294     1,329     2,915     4,244     (371 ) 1986/2001   1/9/2007

North Gate Business Park (Lot I) (O)

  Aberdeen, MD         1,862     2,377         1,862     2,377     4,239       (5)   9/14/2007

5020 Campbell Boulevard (O)

  White Marsh, MD         1,014     3,136     88     1,014     3,224     4,238     (351 ) 1986-1988   1/9/2007

312 Sentinel Drive (O)

  Annapolis Junction, MD         3,160     1,070     (1 )   3,160     1,069     4,229       (6)   11/14/2003

Gude Drive Land (O)

  Rockville, MD         3,122     1,082         3,122     1,082     4,204       (6)   4/7/2005

44408 Pecan Court (O)

  California, MD         817     3,269     104     817     3,373     4,190     (483 ) 1986   3/24/2004

9730 Patuxent Woods Drive (O)

  Columbia, MD     2,149     1,318     2,707     116     1,318     2,823     4,141     (418 ) 1986/2001   1/9/2007

1915 Aerotech Drive (O)

  Colorado Springs, CO     3,394     556     3,102     400     556     3,502     4,058     (691 ) 1985   6/8/2006

23535 Cottonwood Parkway (O)

  California, MD         763     3,051     116     763     3,167     3,930     (447 ) 1984   3/24/2004

Nottingham Road & Philadelphia Avenue (O)

  White Marsh, MD         3,226     653         3,226     653     3,879       (6)   1/9/2007

224 Schilling Circle (O)

  Hunt Valley, MD         734     2,423     642     734     3,065     3,799     (354 ) 1978/1997   1/10/2007

437 Ridge Road (O)

  Dayton, NJ         717     2,866     175     717     3,041     3,758     (915 ) 1962/1996   10/14/1997

210 Research Boulevard (O)

  Aberdeen, MD         1,065     2,684         1,065     2,684     3,749       (5)   9/14/2007

7939 Honeygo Boulevard (O)

  White Marsh, MD         869     2,716     116     869     2,832     3,701     (343 ) 1984   1/10/2007

8029 Corporate Drive (O)

  White Marsh, MD     3,513     962     2,719         962     2,719     3,681     (314 ) 1988/2004   1/9/2007

1925 Aerotech Drive (O)

  Colorado Springs, CO     3,717     556     3,067     45     556     3,112     3,668     (405 ) 1985   6/8/2006

8133 Perry Hall Boulevard (O)

  White Marsh, MD         850     2,429     285     850     2,714     3,564     (329 ) 1988   1/10/2007

222 Schilling Circle (O)

  Hunt Valley, MD         754     2,465     304     754     2,769     3,523     (273 ) 1978/1997   1/10/2007

114 National Business Parkway (R)

  Annapolis Junction, MD         364     3,109     3     364     3,112     3,476     (646 ) 2002   6/30/2000

5024 Campbell Boulevard (O)

  White Marsh, MD         767     2,420     217     767     2,637     3,404     (364 ) 1986-1988   1/9/2007

1331 Ashton Road (O)

  Hanover, MD         587     2,347     305     587     2,652     3,239     (674 ) 1989   4/28/1999

16442 Commerce Drive (O)

  Dahlgren, VA     2,437     613     2,582         613     2,582     3,195     (438 ) 2002   12/21/2004

310 Sentinel Drive (O)

  Annapolis Junction, MD         2,393     587         2,393     587     2,980       (6)   11/14/2003

7125 Ambassador Road (O)

  Woodlawn, MD         844     1,896     223     844     2,119     2,963     (466 ) 1985   12/22/2005

M Square Associates LLC (O)

  College Park, MD             2,939             2,939     2,939       (5)   1/29/2008

Clarks Hundred II (O)

  Annapolis Junction, MD         2,409     523         2,409     523     2,932       (6)   3/14/2007

5026 Campbell Boulevard (O)

  White Marsh, MD         700     2,138     7     700     2,145     2,845     (241 ) 1986-1988   1/9/2007

16501 Commerce Drive (O)

  Dahlgren, VA     1,993     522     2,090     201     522     2,291     2,813     (363 ) 2002   12/21/2004

7175 Riverwood Drive (O)

  Columbia, MD         1,788     956         1,788     956     2,744     (84 ) 1996(6)   7/27/2005

980 Technology Court (O)

  Colorado Springs, CO         526     2,046     168     526     2,214     2,740     (377 ) 1995   9/28/2005

7923 Honeygo Boulevard (O)

  White Marsh, MD         715     1,906     101     715     2,007     2,722     (243 ) 1985   1/10/2007

7134 Columbia Gateway Drive (O)

  Columbia, MD     2,949     704     1,971     7     704     1,978     2,682     (350 ) 1990   9/19/2005

5022 Campbell Boulevard (O)

  White Marsh, MD         624     1,924     131     624     2,055     2,679     (231 ) 1986-1988   1/9/2007

8019 Corporate Drive (O)

  White Marsh, MD     1,669     680     1,898     62     680     1,960     2,640     (298 ) 1990   1/9/2007

314 Sentinel Way (O)

  Annapolis Junction, MD         1,254     1,329     1     1,254     1,330     2,584     (50 ) 2008   11/14/2003

F-58


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

8120 Corporate Drive (O)

  White Marsh, MD         2,017     541         2,017     541     2,558       (6)   1/9/2007

Arundel Preserve (O)

  Hanover, MD             2,417             2,417     2,417       (5)   (7)

44417 Pecan Court (O)

  California, MD         434     1,939     18     434     1,957     2,391     (457 ) 1989   3/24/2004

6741 Columbia Gateway Drive (O)

  Columbia, MD         675     1,712     (1 )   675     1,711     2,386     (45 ) 2008   9/28/2000

1350 Dorsey Road (O)

  Hanover, MD         393     1,573     414     393     1,987     2,380     (642 ) 1989   4/28/1999

10270 Old Columbia Road (O)

  Columbia, MD     1,150     751     1,402     190     751     1,592     2,343     (214 ) 1988/2001   1/9/2007

8013 Corporate Drive (O)

  White Marsh, MD     1,410     642     1,536     160     642     1,696     2,338     (228 ) 1990   1/9/2007

Thomas Johnson Drive Land (O)

  Frederick, MD         1,092     1,201         1,092     1,201     2,293       (6)   10/21/2005

100 West Pennsylvania Ave (O)

  Towson, MD         698     950     644     698     1,594     2,292     (109 ) 1952/1989   1/9/2007

Riverwood II (O)

  Columbia, MD         1,367     907     1     1,367     908     2,275       (5)   7/27/2005

8100 Potranco Road (O)

  San Antonio, TX         1,964     294     1     1,964     295     2,259       (5)   6/14/2005

8003 Corporate Drive (O)

  White Marsh, MD         611     1,611     36     611     1,647     2,258     (170 ) 1999   1/9/2007

10280 Old Columbia Road (O)

  Columbia, MD     1,168     756     1,431     68     756     1,499     2,255     (199 ) 1988/2001   1/9/2007

8023 Corporate Drive (O)

  White Marsh, MD     1,459     651     1,603         651     1,603     2,254     (133 ) 1990   1/9/2007

1460 Dorsey Road (O)

  Hanover, MD         2,141     45         2,141     45     2,186       (6)   2/28/2006

44414 Pecan Court (O)

  California, MD         405     1,619     155     405     1,774     2,179     (281 ) 1986   3/24/2004

16543 Commerce Drive (O)

  Dahlgren, VA     1,661     436     1,742         436     1,742     2,178     (218 ) 2002   12/21/2004

1344 Ashton Road (O)

  Hanover, MD         355     1,421     384     355     1,805     2,160     (620 ) 1989   4/28/1999

11101 McCormick Road (O)

  Hunt Valley, MD         991     1,080     21     991     1,101     2,092     (191 ) 1976   12/22/2005

9710 Patuxent Woods Drive (O)

  Columbia, MD     1,019     648     1,260     136     648     1,396     2,044     (190 ) 1986/2001   1/9/2007

1341 Ashton Road (O)

  Hanover, MD         306     1,223     421     306     1,644     1,950     (512 ) 1989   4/28/1999

9150 Guilford Road (O)

  Columbia, MD     1,135     319     1,291     235     319     1,526     1,845     (443 ) 1984   4/4/2002

44420 Pecan Court (O)

  California, MD         344     1,374     126     344     1,500     1,844     (193 ) 1989   11/9/2004

7700-5 Potranco Road-Warehouse (O)

  San Antonio, TX             1,827             1,827     1,827     (14 ) 2007   3/30/2005

White Marsh Commerce Center II (O)

  White Marsh, MD         1,613     62         1,613     62     1,675       (6)   1/9/2007

8015 Corporate Drive (O)

  White Marsh, MD     1,011     446     1,116     111     446     1,227     1,673     (135 ) 1990   1/9/2007

7104 Ambassador Road (O)

  Woodlawn, MD         572     613     407     572     1,020     1,592     (284 ) 1988   12/22/2005

Philadelphia Road & Route 43 (O)

  White Marsh, MD         1,008     555     1     1,008     556     1,564       (6)   1/9/2007

15 Governor's Court (O)

  Woodlawn, MD         383     1,168         383     1,168     1,551     (190 ) 1981   12/22/2005

10290 Old Columbia Road (O)

  Columbia, MD     739     490     895     161     490     1,056     1,546     (151 ) 1988/2001   1/9/2007

525 Babcock Road (O)

  Colorado Springs, CO         355     974     (1 )   355     973     1,328     (95 ) 1967   7/12/2007

Aerotech 2 (O)

  Colorado Springs, CO         1,291     1         1,291     1     1,292       (6)   5/19/2006

9130 Guilford Road (O)

  Columbia, MD     824     230     939     101     230     1,040     1,270     (273 ) 1984   4/4/2002

Lot 401-White Marsh (O)

  White Marsh, MD         1,177     11     (1 )   1,177     10     1,187       (6)   1/9/2007

Cedar Knolls (O)

  Annapolis Junction, MD             1,134             1,134     1,134       (5)   11/14/2003

Dahlgren Land Parcel (O)

  Dahlgren, VA         910     196         910     196     1,106       (6)   3/16/2005

1343 Ashton Road (O)

  Hanover, MD         193     774     105     193     879     1,072     (212 ) 1989   4/28/1999

7700-1 Potranco Road (O)

  San Antonio, TX             1,066             1,066     1,066     (28 ) 2007   1/29/2008

0 Galley Road (O)

  Colorado Springs, CO         1,060             1,060         1,060       (6)   4/21/2006

7129 Ambassador Road (O)

  Woodlawn, MD         129     610     293     129     903     1,032     (226 ) 1985   12/22/2005

16442A Commerce Drive (O)

  Dahlgren, VA         317     669         317     669     986       (6)   12/21/2004

Expedition VII (O)

  Lexington Park, MD         705     205         705     205     910       (6)   3/24/2004

F-59


Corporate Office Properties Trust
Schedule III—Real Estate and Accumulated Depreciation (Continued)
December 31, 2009
(Dollars in thousands)

 
   
   
  Initial Cost    
  Gross Amounts Carried at Close of Period    
   
   
Property (Type)(1)
  Location   Encumbrances(2)   Land   Building and
Land
Improvements
  Costs Capitalized
Subsequent to
Acquisition
  Land   Building and
Land
Improvements
  Total(3)   Accumulated
Depreciation(4)
  Year Built or
Renovated
  Date Acquired

870 Elkridge Landing Road (O)

  Linthicum, MD     858     137     546     216     137     762     899     (126 ) 1981   8/3/2001

17 Governor's Court (O)

  Woodlawn, MD         170     530     182     170     712     882     (100 ) 1981   12/22/2005

Babcock Development Land (O)

  Colorado Springs, CO         825     1         825     1     826       (6)   7/1/2007

7127 Ambassador Road (O)

  Woodlawn, MD         142     455     207     142     662     804     (133 ) 1985   12/22/2005

Westfields—Park Center Land (O)

  Chantilly, VA             801             801     801       (6)   7/18/2002

7131 Ambassador Road (O)

  Woodlawn, MD         105     368     282     105     650     755     (209 ) 1985   12/22/2005

1243 Winterson Road (O)

  Linthicum, MD         630         1     630     1     631       (6)   12/19/2001

7102 Ambassador Road (O)

  Woodlawn, MD         277     203     107     277     310     587     (20 ) 1988   12/22/2005

South Brunswick LP (O)

  Dayton, NJ             583             583     583       (6)   10/14/1997

7800 Milestone Parkway (O)

  Hanover, MD             567             567     567       (6)   (7)

13849 Park Center Road (O)

  Herndon, VA         96     456         96     456     552       2008   12/20/2005

Northgate Business Park (O)

  Aberdeen, MD         2,713     (2,170 )       2,713     (2,170 )   543       (5)   9/14/2007

7106 Ambassador Road (O)

  Woodlawn, MD         229     306         229     306     535     (46 ) 1988   12/22/2005

7108 Ambassador Road (O)

  Woodlawn, MD         171     252     108     171     360     531     (29 ) 1988   12/22/2005

7865 Brock Bridge Road (O)

  Annapolis Junction, MD         441     85     (1 )   441     84     525       (6)   4/2/2007

COPT Princeton South (O)

  Dayton, NJ         512             512         512       (6)   9/29/2004

Patriot Park IV (O)

  Colorado Springs, CO             506             506     506       (6)   7/8/2005

37 Allegheny Avenue (O)

  Towson, MD         504             504         504       (6)   1/9/2007

9965 Federal Drive Land (O)

  Colorado Springs, CO         466             466         466       (6)   12/22/2005

COPT Pennlyn LLC (O)

  Blue Bell, PA         401     11         401     11     412       (6)   7/14/2004

7873 Brock Bridge Road (O)

  Annapolis Junction, MD         309     77         309     77     386       (6)   3/30/2007

1348 Ashton Road (R)

  Hanover, MD         50         40     50     40     90     (17 ) 1988   4/28/1999

Potranco Road Business Park (O)

  San Antonio, TX             35             35     35       (6)   6/14/2005

North Gate Business Park (Lot B) (O)

  Aberdeen, MD             14             14     14       (5)   9/14/2007

Westpointe Business Center Land (O)

  San Antonio, TX                                   (6)   11/13/2008

Other Developments, including intercompany eliminations (V)

  Various         (58 )   957     202     (58 )   1,159     1,101     1   Various   Various
                                             

      $ 1,530,303   $ 714,852   $ 2,522,315   $ 215,345   $ 714,852   $ 2,737,660   $ 3,452,512   $ (422,612 )      
                                             

(1)
A legend for the Property Type follows: (O) = Office Property; (R) = Retail Property; (M) = Mixed-Use Property; and (V) = Various.

(2)
Excludes our unsecured Revolving Credit Facility of $365,000, unsecured notes payable of $2,019, and net premiums on the remaining loans of $371.

(3)
The aggregate cost of these assets for Federal income tax purposes was approximately $2.9 billion at December 31, 2009.

(4)
The estimated lives over which depreciation is recognized follow: Buildings improvements: 10-40 years; and tenant improvements: related lease terms.

(5)
Under construction, development or redevelopment at December 31, 2009.

(6)
Held for future development at December 31, 2009.

(7)
Development in progress in anticipation of acquisition.

(8)
Includes residential housing units and commercial buildings, as well as commercial assets under development.

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        The following table summarizes our changes in cost of properties for the years ended December 31, 2009, 2008 and 2007 (in thousands):

 
  2009   2008   2007  

Beginning balance

  $ 3,121,576   $ 2,893,583   $ 2,331,091  

Property acquisitions

    144,100     55,286     354,972  

Building and land improvements

    186,901     220,681     227,308  

Sales

    (65 )   (32,071 )   (21,079 )

Retirements/disposals

        (15,903 )    

Other

            1,291  
               

Ending balance

  $ 3,452,512   $ 3,121,576   $ 2,893,583  
               

        The following table summarizes our changes in accumulated depreciation for the same time periods (in thousands):

 
  2009   2008   2007  

Beginning balance

  $ 343,110   $ 288,747   $ 219,574  

Depreciation expense

    79,650     74,158     70,537  

Sales

        (3,892 )   (2,162 )

Retirements/disposals

    (2 )   (15,903 )    

Other

    (146 )       798  
               

Ending balance

  $ 422,612   $ 343,110   $ 288,747  
               

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