UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 8-K ---------------- CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 28, 1999 CORPORATE OFFICE PROPERTIES TRUST --------------------------------- (Exact name of registrant as specified in its charter)
Maryland 0-20047 23-2947217 -------- ------- ---------- (State or other jurisdiction of (Commission (IRS Employer incorporation) File Number) Identification Number)
401 City Avenue, Suite 615 Bala Cynwyd, PA 19004 --------------------- (Address of principal executive offices) (610) 538-1800 -------------- (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS COMMONS CORPORATE PORTFOLIO On April 28, 1999, Corporate Office Properties Trust (the "Company"), through affiliates of Corporate Office Properties, L.P. (the "Operating Partnership"), acquired eight office buildings and a contiguous parcel of developed land located in Hanover, Maryland (the "Commons Corporate Portfolio"). The Commons Corporate Portfolio was acquired at an aggregate price of $25.9 million, including transaction costs. The purchase price was determined through arms-length negotiation with the sellers, Copley Investors L.P. and M.O.R. Commons L.P. The Company paid the purchase price and transaction costs using $24.8 million in borrowings under its existing secured revolving credit facility with Bankers Trust Company and cash reserves for the balance. The Commons Corporate Portfolio is located in the Commons Corporate Business Park in Hanover, Maryland. The office buildings comprising this portfolio total approximately 250,000 square feet. The following schedule sets forth certain information relating to each of the buildings as of April 30, 1999: COMMONS CORPORATE PORTFOLIO OFFICE BUILDINGS
Percentage of Percentage Total Rental Total Rental Occupied as of Total Revenue of Revenue Major Property Year Built/ Rentable April 30, Rental Occupied Sq. per Occupied Tenants (10% of more of Locations Renovated Sq. Ft. 1999 (1) Revenue (2) Ft. (3) Sq. Ft. (4) Rentable Square Feet) - ----------------------------------------------------------------------------------------------------------------------- 1331 Ashton Road 1989 29,936 100.00% $ 377,602 10% $ 12.61 Booz.Allen Hamilton (71%); Aerosol Monitoring (29%) 1334 Ashton Road 1989 37,631 96.60% 559,065 14% 15.38 Science Applications (62%); Merrill Corporation (28%) 1340 Ashton Road 1989 46,400 100.00% 586,999 15% 12.65 Lockheed Martin (100%) 1341 Ashton Road 1989 15,825 100.00% 156,344 4% 9.88 Supertots Childcare (71%); Preston Trucking, Inc. (29%) 1343 Ashton Road 1989 9,962 100.00% 121,829 3% 12.23 Meridian Sciences (100%) 1344 Ashton Road 1989 16,865 100.00% 321,376 8% 19.06 Titan Systems (28%); Student Travel Services (23%); AMP Corporation (16%); Dazer / MD Corporation (14%); Citizens National Bank (12%) 7467 Ridge Road 1990 73,773 100.00% 1,522,766 40% 20.64 Travelers Casualty and Surety (55%); Pepsi-Cola (17%) 1350 Dorsey Road 1989 19,706 83.41% 243,045 6% 14.79 Aerotek, Inc. (28%); Noodles, Inc. (15%);Hunan Pagoda (15%); Electronic System (13%) --------- -------------------------- Total/Average 250,098 98.18% $3,889,026 100% $ 15.84 --------- -------------------------- --------- --------------------------
(1) The percentage is based on all leases in effect as of April 30, 1999. (2) Total rental revenue is the monthly contractual base rent as of April 30,1999 multiplied by 12 plus the estimated annualized expense reimbursements under existing leases. (3) This percentage is based on the property's rental revenue to the total rental revenue of the Commons Corporate Portfolio office buildings. (4) This represents the property's total rental revenue divided by the respective property's occupied square feet as of April 30, 1999. 2 The following schedule sets forth annual lease expirations for the Commons Corporate Portfolio office buildings assuming that none of the tenants exercise renewal options: COMMONS CORPORATE PORTFOLIO OFFICE BUILDINGS SCHEDULE OF LEASE EXPIRATIONS
Total Rental Revenue of Number of Square Footage Percentage of Total Rental Percentage of Expiring Leases Year of Leases of Leases Total Leased Revenue of Total Rental Per Rentable Expiration Expiring Expiring Square Feet Expiring Leases(1) Revenue Expiring(1) Square Foot(1) - ------------------------------------------------------------------------------------------------------------------------- May 1, 1999 - December 31, 1999 6 10,887 4% $ 164,588 4% $ 15.12 2000 10 94,661 39% 1,800,111 46% 19.02 2001 6 62,409 25% 844,294 22% 13.53 2002 5 20,170 8% 301,295 8% 14.94 2003 4 24,144 10% 302,213 8% 12.52 2004 1 21,331 9% 278,796 7% 13.07 2005 0 - 0% - 0% - 2006 0 - 0% - 0% - 2007 1 9,962 4% 121,829 3% - 2008 1 1,987 1% 75,900 2% 38.20 --------------------------------------------------------------------------------------- 34 245,551 100% $ 3,889,026 100% $ 15.84 --------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------
(1) Total rental revenue is the monthly contractual base rent as of April 30, 1999 multiplied by 12 plus the estimated annualized expense reimbursements under existing leases. UNITED PROPERTIES GROUP The Company, through affiliates of the Operating Partnership, is negotiating a contract with United Properties Group ("UPG") under which the Company would sell a 104,000 square foot office property located in Baltimore, Maryland ("Brown's Wharf") and assign its rights under a contract to acquire two office buildings in Timonium, Maryland totaling 230,000 square feet (the "Timonium Properties") for total consideration of approximately $11.9 million. After acquiring Brown's Wharf and the Timonium Properties, UPG would have the right to transfer Brown's Wharf and the Timonium Properties back to the Company for total consideration of approximately $40.5 million on or before March 31, 2000. The Company would pay up to $25.0 million (but in no event less than $23.9 million) of the acquisition price in Preferred Units (the "Preferred Units") in the Operating Partnership and the balance in cash or debt assumption. The Company would also issue to UPG ten-year detachable warrants exercisable for an additional number of Common Units in the Operating Partnership to be determined based upon the share price of the Company's Common Shares over the first five years following the acquisition. The Preferred Units will be entitled to a 9% priority annual return for the first ten years following issuance, 10.5% for the five following years and 12% thereafter. The Preferred Units are convertible, subject to certain restrictions, commencing one year after their issuance into Common Units in the Operating Partnership on the basis of 2.381 Common Units for each Preferred Unit, plus any accrued return. The Common Units are exchangeable for Common Shares, subject to certain conditions. The Preferred Units also carry a liquidation preference of $25.00 per unit, plus any accrued return, and may be redeemed for cash by the Operating Partnership at any time after the tenth anniversary of their issuance. 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired or to be Acquired The financial statements of the Commons Corporate Properties and the Timonium Properties are included herein. See pages F-17 through F-26. (b) Pro Forma Financial Information The pro forma condensed consolidating financial statements of the Company are included herein. See pages F-5 through F-16. (c) Exhibits
Exhibit Number Description - -------------- ----------- 2.1.1 Purchase and Sale Agreement, dated February 26, 1999, between Copley Investors L.P., M.O.R. Commons L.P. and Corporate Acquisitions, Inc. 2.1.2 Amendment to Purchase and Sale Agreement, dated March 29, 1999, between Copley Investors L.P., M.O.R. Commons L.P. and Corporate Acquisitions, Inc. 2.1.3 Third Amendment to Purchase and Sale Agreement (Post-Closing Agreement), dated April 28, 1999, between Copley Investors L.P., Corporate Office Properties, L.P., COPT Commons LLC and Anchor Title Company.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: June 14, 1999 CORPORATE OFFICE PROPERTIES TRUST By: /s/ Randall M. Griffin ---------------------- Name: Randall M. Griffin Title: President and Chief Operating Officer By: /s/ Roger A. Waesche, Jr. ------------------------- Name: Roger A. Waesche, Jr. Title: Chief Financial Officer 4 CORPORATE OFFICE PROPERTIES TRUST INDEX TO FINANCIAL STATEMENTS I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY Pro Forma Condensed Consolidating Balance Sheet as of March 31, 1999 (unaudited) F-5 Pro Forma Condensed Consolidating Statement of Operations for the Year Ended December 31, 1998 (unaudited) F-6 Pro Forma Condensed Consolidating Statement of Operations for the Three Month Period Ended March 31, 1999 (unaudited) F-7 Notes and Management's Assumptions to Pro Forma Condensed Consolidating Financial Information F-8 II. COMMONS CORPORATE PROPERTIES Report of Independent Accountants F-17 Combined Statement of Revenue and Certain Expenses for the Year Ended December 31, 1998 F-18 Notes to Combined Statement of Revenue and Certain Expenses F-19 Combined Statement of Revenue and Certain Expenses for the Three Month Period Ended March 31, 1999 (unaudited) F-21 III. TIMONIUM PROPERTIES Report of Independent Accountants F-22 Combined Statement of Revenue and Certain Expenses for the Year Ended December 31, 1998 F-23 Notes to Combined Statement of Revenue and Certain Expenses F-24 Combined Statement of Revenue and Certain Expenses for the Three Month Period Ended March 31, 1999 (unaudited) F-26
F-1 CORPORATE OFFICE PROPERTIES TRUST PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following sets forth the unaudited pro forma condensed consolidating balance sheet of Corporate Office Properties Trust and its consolidated affiliates, including Corporate Office Properties, L.P. (the "Operating Partnership") as of March 31, 1999, and the unaudited pro forma condensed consolidating statements of operations for the year ended December 31, 1998 and the three month period ended March 31, 1999, of the Company (as defined below). Corporate Office Properties Trust and its consolidated affiliates, including the Operating Partnership, are collectively referred to herein as the "Company." The pro forma condensed consolidating financial information is presented as if the following transactions had been consummated on the earlier of the actual date of consummation or March 31, 1999, for balance sheet purposes, and at January 1, 1998, for purposes of the statements of operations: 1998 TRANSACTIONS: - - The consummation of a public offering (the "Offering") on April 27, 1998, in which the Company issued 7,500,000 Common Shares at $10.50 per share and contributed all of the net proceeds to the Operating Partnership in exchange for 7,500,000 Common Units. - - The acquisition of nine multistory office buildings and three office/flex buildings (the "Airport Square Properties") on April 30, 1998 using cash made available from the Offering. - - The acquisition of two office properties (the "Fairfield Properties") on May 28, 1998. - - The closing of a $100 million, two-year secured revolving credit facility (the "Revolving Credit Facility") on May 28, 1998, and the borrowing of $23,750,000 under the Revolving Credit Facility to pay a portion of the consideration for the Fairfield Properties. - - The acquisition by the Company on September 28, 1998, from various parties (collectively, "Constellation") of interests in (i) 10 office and 2 retail properties (the "Constellation Properties"); (ii) a 75% ownership interest in a real estate management services entity; and (iii) certain equipment, furniture and other assets related to management operations ((ii) and (iii) collectively, the "Constellation Service Companies") for: (a) issuance by the Company of 865,566 non-voting Series A Convertible Preferred Shares of Beneficial Interest, $0.01 par value, $25.00 liquidation preference ("Preferred Shares") and 6,182,634 Common Shares; (b) the assumption of debt aggregating $58,085,000 (net of $1,475,000 in debt repaid at settlement); (c) utilization of loan proceeds from the Revolving Credit Facility of $2,100,000, and (d) the payment of $2,485,000 in cash (including $1,475,000 of debt repaid at settlement). The foregoing is referred to herein as the "Constellation Transaction." - - The acquisition by the Company from Constellation of an interest in a newly-constructed office building (the "Woodlands One Property") on October 22, 1998, for: (a) issuance by the Company of 72,509 Preferred Shares and 517,923 Common Shares; (b) the assumption of debt aggregating $9,533,000; and (c) the payment of $1,144,000 in cash. F-2 - - The acquisition of an interest in an office property on October 13, 1998 (the "Riverwood Property"), for: (a) issuance by the Company of 148,381 Common Units; and (b) the utilization of loan proceeds from the Revolving Credit Facility of $18,798,000. - - The closing of an $85,000,000, ten-year nonrecourse loan (the "TIAA Loan") on October 22, 1998, the borrowing of $76,200,000 under this loan on October 22, 1998, and the borrowing of $8,800,000 under this loan on December 30, 1998. - - The acquisition of six office buildings and two office/flex buildings on October 30, 1998, (the "Centerpoint Properties") for: (a) the payment of $700,000 in cash; and (b) the utilization of loan proceeds from the Revolving Credit Facility of $31,000,000. - - The acquisition of interests in entities which own two office properties currently under construction from Constellation (the "Constellation Construction Properties") on November 13, 1998, for: (a) the assumption of debt aggregating $2,000,000; and (b) the utilization of loan proceeds from the Revolving Credit Facility of $5,200,000. - - The acquisition by the Company from Constellation of a newly-constructed office building ("NBP 135") (NBP 135, the Woodlands One Property and the Constellation Construction Properties are collectively referred to herein as the "Additional Constellation Properties") on December 30, 1998, for: (a) issuance by the Company of 46,233 Preferred Shares and 330,236 Common Shares; (b) the assumption of debt aggregating $7,125,000; and (c) the payment of $652,000 in cash. - - The acquisition of three office buildings (the "Gateway Properties") and a contiguous parcel of developed land (the "Gateway Land") (collectively, the "Gateway Acquisitions") on December 31, 1998, using loan proceeds from the Revolving Credit Facility of $19,100,000. - - The contribution by the Company of all the assets acquired in the Constellation Transaction, including the Woodlands One Property and NBP 135, to the Operating Partnership in exchange for 7,030,793 Common Units and 984,308 preferred partnership units ("Preferred Units" or "Preferred 1998 Units"). The above transactions are collectively referred to herein as the "1998 Transactions." 1999 TRANSACTIONS: - - The disposition of one retail property (the "Maryland Retail Property") on January 22, 1999 for $18,900,000. - - The acquisition of an office building (the "Airport XXI Property") on February 23, 1999, using loan proceeds from the Revolving Credit Facility of $6,650,000 and cash payments of $101,000. - - The disposition of four retail properties (the "Midwest Retail Properties") for a total of $16,403,000. These property sales occurred on February 26, 1999, March 9, 1999 and May 4, 1999. F-3 - - The acquisition of all of the ownership interests in Glacier Realty LLC (the "Glacier Acquisition") on March 19, 1999 in exchange for the issuance of 200,000 Common Units in the Operating Partnership. - - The acquisition of two office buildings (the "Parkway Crossing Properties") on April 16, 1999, for: (a) the issuance by the Operating Partnership of 326,768 Common Units; (b) the assumption of debt aggregating $4,974,000 (with a fair value of $5,097,000); and (c) the payment of $1,000,000 using loan proceeds from the Revolving Credit Facility. - - The acquisition of eight office buildings and a contiguous parcel of land (the "Commons Corporate Properties") on April 28, 1999, using loan proceeds from the Revolving Credit Facility of $24,750,000 and cash payments of $1,142,000. - - The future acquisition of two office buildings (the "Timonium Properties") for: (a) the issuance by the Operating Partnership of 1,000,000 Preferred Units (bearing a $25.00 per unit liquidation preference and an annual preferred return of 9% for years one through ten) ("Preferred Units" or " Preferred 1999 Units"); and (b) the payment of $3,986,000 using loan proceeds from the Revolving Credit Facility. This pro forma condensed consolidating financial information should be read in conjunction with the historical financial statements of the Company and those of the Airport Square Properties, the Fairfield Properties, the Riverwood Property, the Constellation Properties, the Constellation Service Companies, the Centerpoint Properties, the Gateway Properties, the Commons Corporate Properties and the Timonium Properties. In management's opinion, all adjustments necessary to reflect the effects of the above transactions have been made. This pro forma condensed consolidating financial information is unaudited and is not necessarily indicative of what the actual financial position would have been at March 31, 1999, nor does it purport to represent the future financial position and the results of operations of the Company. F-4 Corporate Office Properties Trust Pro Forma Condensed Consolidating Balance Sheet As of March 31, 1999 (Unaudited) (Dollars in thousands, except per share data)
Sale of Parkway Commons Midwest Historical Crossing Corporate Retail Timonium Consolidated Properties Properties Property in Properties (A) (B) (C) Glendale, WI (E) (D) Assets Net investments in real estate $ 528,029 $ 9,524 $ 25,892 $ (1,605) $ 28,986 Cash and cash equivalents 3,615 4 (1,142) 791 - Investment in and advances to Service Companies 4,701 - - - - Other assets 13,858 - - (74) - ------------ ---------- ---------- --------- ---------- Total assets $ 550,203 $ 9,528 $ 24,750 $ (888) $ 28,986 ------------ ---------- ---------- --------- ---------- ------------ ---------- ---------- --------- ---------- Liabilities and shareholders' equity Liabilities Mortgage loans payable $ 290,836 $ 6,097 $ 24,750 $ (988) $ 3,986 Other liabilities 11,752 - - - - ------------ ---------- ---------- --------- ---------- Total liabilities 302,588 6,097 24,750 (988) 3,986 ------------ ---------- ---------- --------- ---------- - Minority interests Preferred Units 52,500 - - - 25,000 Common Units 26,422 3,431 - - - ------------ ---------- ---------- --------- ---------- Total minority interests 78,922 3,431 - - 25,000 ------------ ---------- ---------- --------- ---------- Shareholders' equity Preferred shares of beneficial interest 10 - - - - Common shares of beneficial interest 168 - - - - Additional paid in capital 175,532 - - - - Accumulated deficit (7,017) - - 100 - ------------ ---------- ---------- --------- ---------- Total shareholders' equity 168,693 - - 100 - ------------ ---------- ---------- --------- ---------- Total liabilities and shareholders' equity $ 550,203 $ 9,528 $ 24,750 $ (888) $ 28,986 ------------ ---------- ---------- --------- ---------- ------------ ---------- ---------- --------- ----------
Pro Forma Adjustments Pro Forma (F) Consolidated Assets Net investments in real estate $ - $ 590,826 Cash and cash equivalents - 3,268 Investment in and advances to Service Companies - 4,701 Other assets - 13,784 --------- ---------- Total assets $ - $ 612,579 --------- ---------- --------- ---------- Liabilities and shareholders' equity Liabilities Mortgage loans payable $ - $ 324,681 Other liabilities - 11,752 --------- ---------- Total liabilities 336,433 --------- ---------- Minority interests Preferred Units - 77,500 Common Units (399) 29,454 --------- ---------- Total minority interests (399) 106,954 --------- ---------- Shareholders' equity Preferred shares of beneficial interest - 10 Common shares of beneficial interest - 168 Additional paid in capital 399 175,931 Accumulated deficit - (6,917) --------- ---------- Total shareholders' equity 399 169,192 --------- ---------- Total liabilities and shareholders' equity $ - $ 612,579 --------- ---------- --------- ----------
See accompanying notes and management's assumptions to pro forma financial statements. F-5 Corporate Office Properties Trust Pro Forma Condensed Consolidating Statement of Operations For the Year Ended December 31, 1998 (Unaudited) (Dollars in thousands, except per share data)
Maryland Retail and Parkway Commons Midwest Historical 1998 Airport XXI Crossing Corporate Retail Timonium Consolidated Transactions Property Properties Properties Properties Properties (A) (B) (C) (D) (E) (F) (G) Revenues: Base rents $ 35,676 $ 23,768 $ 996 $ 1,159 $ 3,382 $ (3,107) $ 4,192 Tenant reimbursements and other 4,538 3,474 24 - 273 (500) 104 ---------- ---------- ---------- --------- ---------- --------- --------- Total revenues 40,214 27,242 1,020 1,159 3,655 (3,607) 4,296 ---------- ---------- ---------- --------- ---------- --------- --------- Expenses: Property operating 9,632 9,350 312 399 843 (461) 1,176 General and administrative 1,890 46 - - - - - Interest 12,207 - - - - - - Depreciation and amortization 6,708 - - - - - - Reformation costs 637 - - - - - - ---------- ---------- ---------- --------- ---------- --------- --------- Total expenses 31,074 9,396 312 399 843 (461) 1,176 ---------- ---------- ---------- --------- ---------- --------- --------- Equity in income (loss) of Service Companies 139 (293) - - - - - ---------- ---------- ---------- --------- ---------- --------- --------- Income (loss) before minority interests 9,279 17,553 708 760 2,812 (3,146) 3,120 Minority interests Preferred Units (3,412) - - - - - - Common Units (1,171) - - - - - - ---------- ---------- ---------- --------- ---------- --------- --------- Net income (loss) 4,696 17,553 708 760 2,812 (3,146) 3,120 Preferred share distributions (327) - - - - - - ---------- ---------- ---------- --------- ---------- --------- --------- Net income (loss) available to Common Shareholders $ 4,369 $ 17,553 $ 708 $ 760 $ 2,812 $ (3,146) $ 3,120 ---------- ---------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------- --------- ---------- --------- --------- Earnings per share: Basic $ 0.48 ---------- ---------- Earnings per share: Diluted $ 0.47 ---------- ---------- Weighted average number of shares: Basic 9,099,000 --------- --------- Diluted 19,237,000 ---------- ----------
Pro Forma Pro Forma Adjustments Consolidated Revenues: Base rents $ - $ 66,066 Tenant reimbursements and other 150 (H) 8,063 ---------- ----------- Total revenues 150 74,129 ---------- ----------- Expenses: Property operating (250)(I) 21,001 General and administrative 1,000 (J) 2,936 Interest 10,365 (K) 22,572 Depreciation and amortization 5,620 (L) 12,328 Reformation costs (637)(M) - --------- ---------- Total expenses 16,098 58,837 ---------- ---------- Equity in income (loss) of Service Companies - (154) ---------- ---------- Income (loss) before minority (15,948) 15,138 interests Minority interests Preferred Units (2,250)(N) (5,662) Common Units (287)(N) (1,458) ---------- ---------- Net income (loss) (18,485) 8,018 Preferred share distributions (1,026)(N) (1,353) ---------- ---------- Net income (loss) available to Common Shareholders $ (19,511) $ 6,665 ---------- ---------- ---------- ---------- Earnings per share: Basic $ 0.40 ---------- ---------- Earnings per share: Diluted $ 0.40 ---------- Weighted average number of ---------- shares: Basic 16,802,000 ----------- ----------- Diluted 16,825,000 ----------- -----------
See accompanying notes and management's assumptions to pro forma financial statements. F-6 Corporate Office Properties Trust Pro Forma Condensed Consolidating Statement of Operations For the Three Month Period Ended March 31, 1999 (Unaudited) (Dollars in thousands, except per share data)
Maryland Parkway Commons Retail and Historical Airport XXI Crossing Corporate Midwest Timonium Consolidated Property Properties Properties Retail Properties (A) (C) (D) (E) Properties (G) (F) Revenues: Base rents $ 16,179 $ 151 $ 290 $ 904 $ (393) $ 1,041 Tenant reimbursements and other 2,344 1 - 78 86 34 ---------- ---------- ---------- ---------- --------- ---------- Total revenues 18,523 152 290 982 (307) 1,075 ---------- ---------- ---------- ---------- --------- ---------- Expenses: Property operating 5,003 47 100 228 (42) 307 General and administrative 889 - - - - - Interest 5,193 - - - - - Depreciation and amortization 3,017 - - - - - ---------- ---------- ---------- ---------- --------- ---------- Total expenses 14,102 47 100 228 (42) 307 ---------- ---------- ---------- ---------- --------- ---------- Equity in income of Service Companies 181 - - - - - Gain on sale of retail properties 986 - - - - - ---------- ---------- ---------- ---------- --------- ---------- Income (loss) before minority interests and extraordinary item 5,588 105 190 754 (265) 768 Minority interests Preferred Units (853) - - - - - Common Units (496) - - - - - ---------- ---------- ---------- ---------- --------- ---------- Income (loss) before extraordinary item 4,239 105 190 754 (265) 768 Extraordinary item: loss on early retirement of debt (694) - - - - - ---------- ---------- ---------- ---------- --------- ---------- Net income (loss) 3,545 105 190 754 (265) 768 Preferred share distributions (338) - - - - - ---------- ---------- ---------- ---------- --------- ---------- Net income (loss) available to Common Shareholders $ 3,207 $ 105 $ 190 $ 754 $ (265) $ 768 ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- --------- ---------- Earnings per share: Basic $ 0.19 ----------- ----------- Earnings per share: Diluted $ 0.17 ----------- ----------- Weighted average number of shares: Basic 16,802,000 ----------- ----------- Diluted 24,310,000 ----------- -----------
Pro Forma Adjustments Total Revenues: Base rents $ - $ 18,172 Tenant reimbursements and other - 2,543 --------- ----------- Total revenues - 20,715 --------- ----------- Expenses: Property operating (63) (I) 5,580 General and administrative - 889 Interest 481 (K) 5,674 Depreciation and amortization 267 (L) 3,284 --------- ----------- Total expenses 685 15,427 --------- ----------- Equity in income of Service Companies - 181 Gain on sale of retail properties (986) (M) - --------- ----------- Income (loss) before minority interests and extraordinary item (1,671) 5,469 Minority interests Preferred Units (563) (N) (1,416) Common Units (154) (N) (650) --------- ----------- Income (loss) before extraordinary item (2,388) 3,403 Extraordinary item: loss on early retirement of debt 694 (M) - --------- ----------- Net income (loss) (1,694) 3,403 Preferred share distributions - (338) --------- ----------- Net income (loss) available to Common Shareholders $ (1,694) $ 3,065 --------- ----------- --------- ----------- Earnings per share: Basic $ 0.18 ----------- ----------- Earnings per share: Diluted $ 0.17 ----------- ----------- Weighted average number of shares: Basic 16,802,000 ----------- ----------- Diluted 26,683,000 ----------- -----------
See accompanying notes and management's assumptions to pro forma financial statements. F-7 CORPORATE OFFICE PROPERTIES TRUST NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Dollars in thousands, except share and per share amounts) 1. BASIS OF PRESENTATION: Corporate Office Properties Trust (the "Company") is a self-administered Maryland real estate investment trust. As of March 31, 1999, the Company's portfolio included 54 commercial real estate properties leased for office and retail purposes. These pro forma condensed consolidating financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company, the Airport Square Properties, the Fairfield Properties, the Riverwood Property, the Constellation Properties, the Constellation Service Companies, the Centerpoint Properties, the Gateway Properties, the Commons Corporate Properties and the Timonium Properties. In management's opinion, all adjustments necessary to reflect the effects of (i) the 1998 Transactions, (ii) the acquisitions of the Airport XXI Property, the Parkway Crossing Properties and the Commons Corporate Properties; (iii) the future acquisition of the Timonium Properties; (iv) the disposition of the Maryland Retail Property; (v) the disposition of the Midwest Retail Properties and (vi) the Glacier Acquisition have been made. 2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET: (A) Reflects the historical consolidated balance sheet of the Company as of March 31, 1999. (B) Reflects the acquisition of the Parkway Crossing Properties from an unrelated party in exchange for: (i) the issuance of 326,768 Common Units at a value of $10.50 per unit ($3,431); (ii) the assumption of debt aggregating $4,974 with a fair value of $5,097 and (iii) the utilization of loan proceeds from the Revolving Credit Facility of $1,000. (C) Reflects the acquisition of the Commons Corporate Properties in exchange for: (a) the utilization of loan proceeds from the Revolving Credit Facility of $24,750; and (b) cash payments of $1,142. (D) Reflects the sale of one of the Midwest Retail Properties for $1,900, of which $988 was used to pay off the mortgage loan payable on the property. (E) Reflects the future acquisition of the Timonium Properties in exchange for: (a) the issuance of 1,000,000 Preferred 1999Units at a value of $25.00 per unit ($25,000); and (b) the utilization of loan proceeds from the Revolving Credit Facility of $3,986. F-8 (F) Reflects the adjustment to minority interests as a result of changes in ownership of the Operating Partnership. On a pro forma basis, the Company holds a total of 15,130,793 Common Units or an 82.3% interest in the Operating Partnership.
Company Operating Partnership Consolidated ------------- ------------------------- ------------ Minority interests Common Units $ - $ 29,454 17.7% $ 29,454 Shareholders' equity (1) Common Shares 7,640 136,944 82.3% 144,584 ------------- ------------- ----- ------------- $ 7,640 $ 166,398 100.0% $ 174,038 ------------- ------------- ----- ------------- ------------- ------------- ----- -------------
(1) Excluding $24,608 related to the Company's Preferred Shares 3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS: (A) Reflects the historical consolidated operations of the Company. (B) Reflects the effects of the combined historical operations of the 1998 Transactions prior to the actual acquisition date. For the Year Ended December 31, 1998
Offering, Centerpoint Gateway Airport Riverwood Office Acquisition Square and Constellation Property Properties Properties Fairfield Transaction through through through Properties (ii) 10/12/98 10/30/98 12/30/98 Combined (i) Revenues Base rents $ 4,984 $ 11,706 $ 1,514 $ 3,192 $ 2,372 $ 23,768 Tenant reimbursements and other 220 1,535 560 612 547 3,474 ---------- --------- ---------- ---------- --------- --------- Total revenues 5,204 13,241 2,074 3,804 2,919 27,242 ---------- --------- ---------- ---------- --------- --------- Expenses Property operating 1,545 5,228 528 1,153 896 9,350 General and administrative 46 - - - - 46 Interest - - - - - - Depreciation and amortization - - - - - - ---------- --------- ---------- ---------- --------- --------- Total expenses 1,591 5,228 528 1,153 896 9,396 ---------- --------- ---------- ---------- --------- --------- Equity in loss of Service Companies - (293) - - - (293) ---------- --------- ---------- ---------- --------- --------- Income before minority interests $ 3,613 $ 7,720 $ 1,546 $ 2,651 $ 2,023 $ 17,553 ---------- --------- ---------- ---------- --------- --------- ---------- --------- ---------- ---------- --------- ---------
F-9 (i) Reflects the effects of the combined historical operations of the Airport Square Properties and the Fairfield Properties prior to their acquisitions on April 30, 1998 and May 28, 1998, respectively. For the Year Ended December 31, 1998
Airport Square Fairfield Properties Properties through 4/29/98 through 5/27/98 Combined Revenues Base rents $ 3,371 $ 1,613 $ 4,984 Tenant reimbursements and other 90 130 220 ----------- ---------- ---------- Total revenues 3,461 1,743 5,204 ----------- ---------- ---------- Expenses Property operating 1,073 472 1,545 General and administrative 8 38 46 Interest - - - Depreciation and amortization - - - ----------- ---------- ---------- Total expenses 1,081 510 1,591 ----------- ---------- ---------- Income before minority interests $ 2,380 $ 1,233 $ 3,613 ----------- ---------- ---------- ----------- ---------- ----------
(ii) Reflects the effects of the adjusted combined historical operations of the Constellation Properties and the Constellation Service Companies prior to their acquisition on September 28, 1998. Historical operations for the Additional Constellation Properties are not reflected as those properties were not operational as of September 28, 1998. For the Year Ended December 31, 1998
Constellation Constellation Service Properties Companies Pro Forma through through Constellation 9/27/98 9/27/98 Adjustments Combined Revenues Base rents $ 11,706 $ - $ - $ 11,706 Tenant reimbursements and other 1,535 9,111 (9,111) (i) 1,535 ----------- ------------- ---------- ---------- Total revenues 13,241 9,111 (9,111) 13,241 ----------- ------------- ---------- ---------- Expenses Property operating 5,228 - - 5,228 General and administrative - 8,765 (8,765) (ii) - Interest - 10 (10) (iii) - Depreciation and amortization - 235 (235) (iv) - ----------- ------------- ---------- ---------- Total expenses 5,228 9,010 (9,010) 5,228 ----------- ------------- ---------- ---------- Equity in loss of Service Companies - - (293) (v) (293) ----------- ------------- ---------- ---------- Income (loss) before minority interests $ 8,013 $ 101 $ (394) $ 7,720 ----------- ------------- ---------- ---------- ----------- ------------- ---------- ----------
F-10
For the Year Ended December 31, 1998 (i) Reflects the reclassification of Constellation Service Companies' historical revenue to equity in (loss) of Service Companies. $ (9,111) ----------- ----------- (ii) Reflects the reclassification of Constellation Service Companies' historical general and administrative expenses to equity in (loss) of Service Companies. $ (8,765) ----------- ----------- (iii) Reflects the reclassification of Constellation Service Companies' historical interest expense to equity in (loss) of Service Companies. $ (10) ----------- ----------- (iv) Reflects the reclassification of Constellation Service Companies' historical depreciation and amortization to equity in (loss) of Service Companies. $ (235) ----------- ----------- (v) Reflects the net change in equity in income (loss) of Service Companies as follows: - Reclassification of Constellation Service Companies' historical income and expenses $ 101 - Elimination of construction contract revenue earned by Constellation Service Companies in connection with operations that are not expected to have a continuing impact on the Company (3,084) - Elimination of construction contract costs incurred by Constellation Service Companies in connection with operations that are not expected to have a continuing impact on the Company 2,997 - Addition of net overhead costs not included in historical costs and expected to have a continuing impact on the Company (255) - Addition of interest expense on indebtedness issued by one of the Service Companies to the Company at a rate of 10.0% per annum (150) - Depreciation expense on personal property of $583 over a 5-year useful life (87) - Adjustment to Constellation Service Companies' historical depreciation and amortization 131 - To reflect income tax benefit at an assumed rate of 40% 176 - To reflect minority interest in Service Companies (82) - To reflect adjustment for purchase price of Service Companies to pro forma net income over 20 years (40) ----------- $ (293) ----------- -----------
(C) Reflects the effects of the historical operations of the Airport XXI Property prior to its acquisition on February 23, 1999. (D) Reflects the effects of the historical operations of the Parkway Crossing Properties prior to their acquisition on April 16, 1999. F-11 (E) Reflects the effects of the historical operations of the Commons Corporate Properties prior to their acquisition on April 28, 1999. (F) Reflects the effects of the historical operations of the Maryland Retail Property and the Midwest Retail Properties. For the Year Ended December 31, 1998
Maryland Maryland Midwest Retail Retail Retail Property Property Properties 1/1/98 through 9/28/98 through 1/1/98 through 9/27/98 12/31/98 12/31/98 Combined Revenues Base rents $ (1,118) $ (438) $ (1,551) $ (3,107) Tenant reimbursements and other (250) (222) (28) (500) ---------- ---------- --------- --------- Total revenues (1,368) (660) (1,579) (3,607) ---------- ---------- --------- --------- Expenses Property operating (349) (112) - (461) General and administrative - - - - Interest - - - - Depreciation and amortization - - - - ---------- ---------- --------- --------- Total expenses (349) (112) - (461) ---------- ---------- --------- --------- Income before minority interests $ (1,019) $ (548) $ (1,579) $ (3,146) ---------- ---------- --------- --------- ---------- ---------- --------- ---------
For the Three Month Period Ended March 31, 1999
Maryland Midwest Retail Retail Property Properties 1/1/99 through 1/1/99 through 1/22/99 date of sale Combined Revenues Base rents $ (101) $ (292) $ (393) Tenant reimbursements and other 91 (5) 86 ----------- --------- --------- Total revenues (10) (297) (307) ----------- --------- --------- Expenses Property operating (42) - (42) General and administrative - - - Interest - - - Depreciation and amortization - - - ----------- --------- --------- Total expenses (42) - (42) ----------- --------- --------- Income before minority interests $ 32 $ (297) $ (265) ----------- --------- --------- ----------- --------- ---------
(G) Reflects the effects of the historical operations of the Timonium Properties. (H) Reflects interest income on the Company's $2,005 note receivable from one of the Service Companies at a rate of 10.0% per annum. (I) Reflects the reduction in management fees as a result of the Glacier Acquisition. (J) Reflects additional general and administrative costs as a result of the Constellation Transaction. Such costs are expected to have a continuing impact on the Company. F-12 (K) Represents net additional pro forma interest expense as a result of the Company's net additional borrowings as follows:
For the Year For the Three Ended Month Period Adjustment to interest expense, net of related December 31, Ended historical amounts, as a result of: 1998 March 31, 1999 ----------------------------------- ---- -------------- Revolving Credit Facility based upon a pro forma balance of $99,200, bearing interest on the outstanding balance at LIBOR plus 175 basis points, assuming a LIBOR rate of 4.95% per annum, net of capitalized interest on the Company's construction properties and subject to a fee of 25 basis points per annum on the unused balance. $ 4,897 $ 546 Debt assumed in connection with the acquisition of the Fairfield Properties, which debt bears interest at a rate of 8.29% per annum. Such debt is amortized in accordance with the loan terms. 215 - Debt assumed in connection with the Constellation Transaction, based upon an initial pro forma aggregate balance of $30,904, which debt bears interest at average effective rate of 7.39% per annum, assuming a LIBOR rate of 4.95% per annum and a Prime rate of 7.75% per annum. Such debt is amortized in accordance with each loan's respective terms. 1,481 - Debt assumed in connection with the Parkway Crossing Properties, based upon a pro forma aggregate balance, recorded at fair value aggregating $5,097, which debt bears interest at average effective rate of 7.66% per annum, assuming a Prime rate of 7.75% per annum. Such debt is amortized in accordance with each loan's respective terms. 390 97 Debt pay downs aggregating $7,387 in connection with the disposition of the Midwest Retail Properties, which debt bears interest at fixed rates ranging from 7.75% per annum to 9.50 % per annum. Such debt is amortized in accordance with the loan terms. (671) (121)
F-13
For the Year For the Three Ended Month Period December 31, Ended 1998 March 31, 1999 ---- -------------- Debt pay down of $9,513 in connection with the disposition of the Maryland Retail Property, which debt bears interest at a fixed rate of 7.50% per annum. Such debt is amortized in accordance with the loan terms. (697) (41) TIAA Loan based upon a pro forma balance of $85,000, amortized in accordance with the loan terms, and which debt bears interest at 6.89% per annum. 4,750 - --------- ------------ $ 10,365 $ 481 --------- ------------ --------- ------------ (L) Pro forma depreciation expense is reflected assuming an 80% building and 20% land allocation of the purchase price and capitalized costs over a useful life of 40 years. Pro forma amortization expense is reflected assuming pro forma deferred financing fees are amortized over the life of the related loan.
For the Three For the Year Month Period Adjustment to depreciation and Ended Ended amortization expense, net of related historical December 31, March 31, amounts, as a result of: 1998 1999 ---- ---- Depreciation expense: Airport Square Properties $ 464 $ - Fairfield Properties 240 - Constellation Transaction, including the Additional Constellation Properties 2,731 - Riverwood Property 322 - Centerpoint Properties 529 - Gateway Acquisition Properties 347 - Airport XXI Property 135 22 Parkway Crossing Properties 190 48 Commons Corporate Properties 518 129 Timonium Properties 580 145
F-14
For the Three For the Year Month Period Ended Ended December 31, March 31, 1998 1999 ------------ ------------ Midwest Retail Properties (342) (60) Maryland Retail Property (337) (16) Amortization of deferred financing fees related to: Revolving Credit Facility 183 - TIAA Loan 64 - Assumed debt in connection with Fairfield Properties 1 - Retired debt in connection with Midwest Retail Properties (4) (1) Retired debt in connection with Maryland Retail Property (1) - ------------ ------------ $ 5,620 $ 267 ------------ ------------ ------------ ------------
(M) Costs (i) relating to the reformation of the Company aggregating $637 for the year ended December 31, 1998 and (ii) relating to the gain on sale of real estate properties and the extraordinary item due to loss on early extinquishment of debt aggregating $986 and $694, respectively, for the three month period ended March 31, 1999, have been excluded since such costs are not expected to have a continuing impact on the Company. (N) Reflects the effects of contribution of net assets received in exchange for Units in the Operating Partnership. The following table presents the calculation of the post closing percentage ownership of Common Units in the Operating Partnership (i.e. not including Preferred Units):
Company Others Total --------------------- ------------------- ----------------- Common Units - pre closing 600,000 2,581,818 3,181,818 Offering 7,500,000 - 7,500,000 Constellation Transaction, including the Additional Constellation Properties 7,030,793 - 7,030,793 Riverwood Property - 148,381 148,381 Gateway Acquisitions - 1 1 Glacier Acquisition - 200,000 200,000 Parkway Crossing Properties - 326,768 326,768 Commons Corporate Properties - 7 7 ---------- --------- ---------- Common Units - post closing 15,130,793 3,256,975 18,387,768 ---------- --------- ---------- ---------- --------- ---------- Percentage ownership 82.3% 17.7% 100.0% ---------- --------- ---------- ---------- --------- ----------
F-15 Minority interest in income (loss) has been reflected, on a pro forma basis, in accordance with the Operating Partnership Agreement. The holders of Preferred Units are allocated income up to (i) 6.5% (Preferred 1997 Units); (ii) 5.5% (Preferred 1998 Units) and (iii) 9.0% (Preferred 1999 Units) of their investment on a pari passu basis with remaining income, if any, or loss allocated between the Company (82.3%) and the remaining partners (17.7%). The net income allocated to common shareholders in the pro forma statements of operations was computed as follows:
For the Three For the Year Month Period Ended Ended December 31, March 31, 1998 1999 ---- ---- Income before minority interests $ 15,138 $ 5,469 Less: pro forma income (loss) from the retail properties directly owned by the Company 107 (46) ------------- -------------- Income before minority interest - Operating Partnership 15,245 5,423 Less: Preferred 1997 Unitholders - $52,500 @ 6.5% (3,412) (853) Less: Preferred 1998 Unitholders/Shareholders - $24,608 @ 5.5% (1,353) (338) Less: Preferred 1999 Unitholders/Shareholders - $25,000 @ 9.0% (2,250) (563) ------------- -------------- Remaining Operating Partnership allocation 8,230 3,669 Less: Pro forma minority share - Common Units (17.7%) (1,458) (650) ------------- -------------- Remaining Operating Partnership allocation (82.3%) 6,772 3,019 Add back: pro forma income (loss) from retail properties directly owned by the Company (107) 46 ------------- -------------- Net income allocated to Common Shareholders $ 6,665 $ 3,065 ------------- -------------- ------------- --------------
F-16 REPORT OF INDEPENDENT ACCOUNTANTS To Corporate Office Properties Trust We have audited the accompanying combined statement of revenue and certain expenses of the Commons Corporate Properties (the "Properties") as described in Note 1 for the year ended December 31, 1998. This historical statement is the responsibility of the Properties' management; our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of the Properties' revenue and expenses. In our opinion, the historical statement referred to above presents fairly, in all material respects, the combined revenue and certain expenses described in Note 2, of the Commons Corporate Properties for the year ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP 1301 K Street NW, 800W Washington, DC May 28, 1999 F-17 COMMONS CORPORATE PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 ------- Revenue: Base rents $3,381,713 Tenant reimbursements 264,207 Interest income 9,451 ---------- Total revenue 3,655,371 ---------- Certain expenses: Property operating 518,543 Repairs and maintenance 324,527 ---------- Total certain expenses 843,070 ---------- Revenue in excess of certain expenses $2,812,301 ---------- ----------
F-18 COMMONS CORPORATE PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 ------- 1. BUSINESS: The accompanying combined statement of revenue and certain expenses relates to the operations of Commons Corporate Properties (the "Properties"), consisting of the revenue and certain expenses of eight office buildings totaling approximately 250,000 square feet, located in Linthicum, Maryland. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: The accompanying combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission in contemplation of Corporate Office Properties Trust acquiring the Properties. The statement is not representative of the actual operations of the Properties for the period presented nor indicative of future operations as certain expenses, primarily depreciation, amortization, interest expense, and management fees, which may not be comparable to the expenses expected to be incurred by Corporate Office Properties Trust in future operations of the Properties, have been excluded. REVENUE AND EXPENSE RECOGNITION: Revenue is recognized on a straight-line basis over the terms of the related lease. Expenses are recognized in the period in which they are incurred. USE OF ESTIMATES: The preparation of this historical statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates. MAJOR TENANT: During 1998, 56% of the Properties' total rental revenue was earned from three major tenants, each of which amounted to over 10% of total rental revenue. Rental revenue earned from these three tenants for the year ended December 31, 1998 was approximately $955,000, $586,000 and $361,000, respectively. F-19 COMMONS CORPORATE PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 3. RENTALS: The Properties have entered into non-cancelable tenant leases, with expiration dates ranging from 1999 to 2008. Such leases provide that tenants will share in operating expenses and real estate taxes on a prorata basis, as defined in the leases. Future minimum rentals to be received under these tenant leases are as follows: 1999 $3,668,619 2000 3,218,982 2001 1,695,114 2002 1,398,945 2003 615,861 2004 and thereafter 1,157,695 ----------- $11,755,216 ----------- -----------
F-20 COMMONS CORPORATE PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Three Months Ended March 31, 1999 ------- Revenue: Base rents $904,472 Tenant reimbursements 76,228 Interest income 1,915 -------- Total revenue 982,615 -------- Certain expenses: Property operating 123,361 Repairs and maintenance 104,673 -------- Total certain expenses 228,034 -------- Revenue in excess of certain expenses $754,581 -------- --------
F-21 REPORT OF INDEPENDENT ACCOUNTANTS To Corporate Office Properties Trust We have audited the accompanying combined statement of revenue and certain expenses of the Timonium Properties (the "Properties") as described in Note 1 for the year ended December 31, 1998. This historical statement is the responsibility of the Properties' management; our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 2, and is not intended to be a complete presentation of the Properties' revenue and expenses. In our opinion, the historical statement referred to above presents fairly, in all material respects, the combined revenue and certain expenses described in Note 2, of the Timonium Properties for the year ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP 1301 K Street NW, 800W Washington, DC June 4, 1999 F-22 TIMONIUM PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 ------- Revenue: Base rents $4,191,578 Tenant reimbursements 102,185 Miscellaneous income 2,491 ---------- Total revenue 4,296,254 ---------- Certain expenses: Property operating 371,873 Repairs and maintenance 803,753 ---------- Total certain expenses 1,175,626 ---------- Revenue in excess of certain expenses $3,120,628 ---------- ----------
F-23 TIMONIUM PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 ------- 1. BUSINESS: The accompanying statement of revenue and certain expenses relates to the operations of the Timonium Properties (the "Properties"), consisting of the revenue and certain expenses of two buildings totaling approximately 230,000 square feet, located in Timonium, Maryland. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: The accompanying combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission in contemplation of Corporate Office Properties Trust acquiring the Properties. The statement is not representative of the actual operations of the Properties for the period presented nor indicative of future operations as certain expenses, primarily depreciation, amortization, interest expense and management fees, which may not be comparable to the expenses expected to be incurred by Corporate Office Properties Trust in future operations of the Properties, have been excluded. REVENUE AND EXPENSE RECOGNITION: Revenue is recognized on a straight-line basis over the terms of the related lease. Expenses are recognized in the period in which they are incurred. USE OF ESTIMATES: The preparation of this historical statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates. MAJOR TENANTS: During 1998, 39% of the Properties' total rental revenue was earned from two major tenants, each of which amounted to over 10% of total rental revenue. Rental revenue earned from these two tenants for the year ended December 31, 1998 was approximately $1,107,000 and $515,000, respectively. F-24 TIMONIUM PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Year Ended December 31, 1998 ------- 3. RENTALS: The Properties have entered into non-cancelable tenant leases, with expiration dates ranging from 1999 to 2004. Such leases provide that tenants will share in operating expenses and real estate taxes on a prorata basis, as defined in the leases. Future minimum rentals to be received under these tenant leases are as follows: 1999 $ 4,091,267 2000 3,116,018 2001 2,239,122 2002 1,940,328 2003 1,573,682 2004 737,365 ----------- $13,697,782 ----------- -----------
F-25 TIMONIUM PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES For the Three Months Ended March 31, 1999 ------- Revenue: Base rents $1,041,042 Tenant reimbursements 33,886 Miscellaneous income 190 ---------- Total revenue 1,075,118 ---------- Certain expenses: Property operating 88,576 Repairs and maintenance 218,035 ---------- Total certain expenses 306,611 ---------- Revenue in excess of certain expenses $768,507 ---------- ----------
F-26