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
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34 245,551 100% $ 3,889,026 100% $ 15.84
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---------------------------------------------------------------------------------------
(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