UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

FORM 10-Q

(Mark one)

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

 

For the quarterly period ended                                       March 31, 2005

 

or

 

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

 

For the transition period from                                         to                                           

 

Commission file number 1-14023

 

Corporate Office Properties Trust

(Exact name of registrant as specified in its charter)

 

Maryland		23-2947217
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
8815 Centre Park Drive, Suite 400, Columbia MD		21045
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code:  (410) 730-9092

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý  Yes   o No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  ýYes   o No

 

On April 30, 2005, 37,066,915 shares of the Company’s Common Shares of Beneficial Interest, $0.01 par value, were issued.

 

 

TABLE OF CONTENTS

 

FORM 10-Q

 

		PAGE
PART I: FINANCIAL INFORMATION
Item 1:	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004	3
	Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)	5
	Notes to Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4:	Controls and Procedures	35
PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	36
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3:	Defaults Upon Senior Securities	36
Item 4:	Submission of Matters to a Vote of Security Holders	36
Item 5:	Other Information	36
Item 6:	Exhibits	36
SIGNATURES		37

 

2

 

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

 

		March 31,			December 31,
		2005			2004
		(unaudited)
Assets
Investment in real estate:
Operating properties, net		$	1,409,637		$	1,407,148
Projects under construction or development		206,430			136,152
Total commercial real estate properties, net		1,616,067			1,543,300
Investments in and advances to unconsolidated real estate joint ventures		1,209			1,201
Investment in real estate, net		1,617,276			1,544,501
Cash and cash equivalents		6,212			13,821
Restricted cash		13,830			12,617
Accounts receivable, net		17,529			16,771
Investment in other unconsolidated entity		1,621			1,621
Deferred rent receivable		27,890			26,282
Intangible assets on real estate acquisitions, net		64,965			67,560
Deferred charges, net		27,168			27,642
Prepaid and other assets		19,658			18,646
Furniture, fixtures and equipment, net		2,771			2,565
Total assets		$	1,798,920		$	1,732,026
Liabilities and shareholders’ equity
Liabilities:
Mortgage and other loans payable		$	1,091,688		$	1,022,688
Accounts payable and accrued expenses		46,400			46,307
Rents received in advance and security deposits		13,298			12,781
Dividends and distributions payable		14,766			14,713
Deferred revenue associated with acquired operating leases		6,612			7,247
Other liabilities		7,661			7,488
Total liabilities		1,180,425			1,111,224
Minority interests:
Common units in the Operating Partnership		87,539			88,355
Preferred units in the Operating Partnership		8,800			8,800
Other consolidated real estate joint ventures		1,699			1,723
Total minority interests		98,038			98,878
Commitments and contingencies (Note 18)
Shareholders’ equity:
Preferred Shares of beneficial interest ($0.01 par value; 15,000,000 shares authorized) (Note 13)		67			67
Common Shares of beneficial interest ($0.01 par value; 75,000,000 shares authorized, shares issued of 37,043,386 at March 31, 2005 and 36,842,108 at December 31, 2004)		370			368
Additional paid-in capital		582,805			578,228
Cumulative distributions in excess of net income		(55,312		)	(51,358		)
Value of unearned restricted common share grants		(7,473		)	(5,381		)
Total shareholders’ equity		520,457			521,924
Total liabilities and shareholders’ equity		$	1,798,920		$	1,732,026

 

See accompanying notes to consolidated financial statements.

 

3

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(unaudited)

 

		For the Three Months Ended March 31,
		2005			2004
Revenues
Rental revenue		$	53,263		$	43,194
Tenant recoveries and other real estate operations revenue		7,364			5,777
Construction contract revenues		15,728			6,137
Other service operations revenues		1,369			1,515
Total revenues		77,724			56,623
Expenses
Property operating		18,918			15,039
Depreciation and other amortization associated with real estate operations		14,666			10,359
Construction contract expenses		14,897			5,818
Other service operations expenses		1,291			1,092
General and administrative expenses		3,276			2,286
Total operating expenses		53,048			34,594
Operating income		24,676			22,029
Interest expense		(13,358		)	(10,262		)
Amortization of deferred financing costs		(396		)	(859		)
Income from continuing operations before gain (loss) on sales of real estate, equity in loss of unconsolidated entities, income taxes and minority interests		10,922			10,908
Gain (loss) on sales of real estate		24			(222		)
Equity in loss of unconsolidated entities		—			(88		)
Income tax expense		(457		)	(200		)
Income from continuing operations before minority interests		10,489			10,398
Minority interests in income from continuing operations
Common units in the Operating Partnership		(1,308		)	(1,405		)
Preferred units in the Operating Partnership		(165		)	—
Other consolidated entities		24			—
Net income		9,040			8,993
Preferred share dividends		(3,654		)	(4,456		)
Net income available to common shareholders		$	5,386		$	4,537
Basic earnings per common share		$	0.15		$	0.15
Diluted earnings per common share		$	0.14		$	0.14

 

See accompanying notes to consolidated financial statements.

 

4

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(unaudited)

 

		For the Three Months Ended March 31,
		2005			2004
Cash flows from operating activities
Net income		$	9,040		$	8,993
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interests		1,449			1,405
Depreciation and other amortization		14,666			10,359
Amortization of deferred financing costs		396			859
Amortization of deferred market rental revenue		(70		)	(309		)
Equity in loss of unconsolidated entities		—			88
(Gain) loss on sales of real estate		(24		)	222
Changes in operating assets and liabilities:
Increase in deferred rent receivable		(1,608		)	(763		)
(Increase) decrease in accounts receivable, restricted cash and prepaid and other assets		(2,678		)	685
Increase (decrease) in accounts payable, accrued expenses, rents received in advance and security deposits		1,898			(5,408		)
Other		1,843			1,317
Net cash provided by operating activities		24,912			17,448
Cash flows from investing activities
Purchases of and additions to commercial real estate properties		(84,955		)	(60,024		)
Investments in and advances to unconsolidated entities		(8		)	(4		)
Leasing costs paid		(1,675		)	(552		)
Increase in advances to certain real estate joint ventures		—			(515		)
Other		(49		)	(3,298		)
Net cash used in investing activities		(86,687		)	(64,393		)
Cash flows from financing activities
Proceeds from mortgage and other loans payable		93,458			189,125
Repayments of mortgage and other loans payable		(24,365		)	(129,549		)
Deferred financing costs paid		(235		)	(1,948		)
Net proceeds from issuance of common shares		593			2,189
Dividends paid		(12,941		)	(10,732		)
Distributions paid		(2,344		)	(2,085		)
Net cash provided by financing activities		54,166			47,000
Net (decrease) increase in cash and cash equivalents		(7,609		)	55
Cash and cash equivalents
Beginning of period		13,821			9,481
End of period		$	6,212		$	9,536

 

See accompanying notes to consolidated financial statements.

 

5

 

Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)

(unaudited)

 

1.             Organization

 

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”).  We focus on the ownership, management, leasing, acquisition and development of suburban office properties.  We typically focus our operations geographically in select submarkets that are attractive to our tenant base and in which we believe we can establish a critical mass of square footage.  At March 31, 2005, all of our operating properties were located in the Mid-Atlantic region of the United States, although in accordance with our strategy of focusing on submarkets that are attractive to our tenants, we may from time to time seek to expand our operations outside of this region.  COPT is qualified as a REIT as defined in the Internal Revenue Code of 1986 and is the successor to a corporation organized in 1988.  As of March 31, 2005, our portfolio included 145 office properties in operations, including two properties owned through joint ventures.

 

We conduct almost all of our operations through our operating partnership, Corporate Office Properties, L.P. (the “Operating Partnership”), for which we are the managing general partner.  The Operating Partnership owns real estate both directly and through subsidiary partnerships and limited liability companies (“LLCs”).  A summary of our Operating Partnership’s forms of ownership and the percentage of those ownership forms owned by COPT as of March 31, 2005 follows:

 

		% Owned by COPT
Common Units		80	%
Series E Preferred Units		100	%
Series F Preferred Units		100	%
Series G Preferred Units		100	%
Series H Preferred Units		100	%
Series I Preferred Units		0	%

 

The Operating Partnership also owns 100% of Corporate Office Management, Inc. (“COMI”) (collectively with its subsidiaries defined as the “Service Companies”).  COMI’s consolidated subsidiaries are set forth below:

 

Entity Name		Type of Service Business
Corporate Realty Management, LLC (“CRM”)		Real Estate Management
Corporate Development Services, LLC (“CDS”)		Construction and Development
Corporate Cooling and Controls, LLC (“CC&C”)		Heating and Air Conditioning

 

COMI owns 100% of these entities.  Most of the services that CRM and CDS provide are for us.

 

2.                                      Basis of Presentation

 

The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q.  Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete Consolidated Financial Statements are not included herein.  These interim financial statements should be read together with the financial statements and notes thereto included in our 2004 Annual Report on Form 10-K.  The interim financial statements on the previous pages reflect all adjustments that we believe are necessary for the fair statement of our financial position and results of operations for the interim periods presented.  These adjustments are of a normal recurring nature.  The results of operations for such interim periods are not necessarily indicative of the results for a full year.

 

6

 

3.             Earnings Per Share (“EPS”)

 

A summary of the numerator and denominator for purposes of our basic and diluted EPS calculations is set forth below (dollars and shares in thousands, except per share data):

 

		For the three months ended March 31,
		2005			2004
Numerator:
Numerator for basic EPS on net income available to common shareholders		$	5,386		$	4,537
Add: Convertible preferred share dividends		—			21
Numerator for diluted EPS on net income available to common shareholders		$	5,386		$	4,558
Denominator (all weighted averages):
Denominator for basic EPS (common shares)		36,555			29,814
Assumed conversion of share options		1,537			1,749
Assumed conversion of convertible preferred shares		—			539
Denominator for diluted EPS		38,092			32,102
Basic EPS		$	0.15		$	0.15
Diluted EPS		$	0.14		$	0.14

 

Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods:

 

		Weighted average
		shares in denominator
		for the three months
		ended March 31,
		2005		2004
Conversion of weighted average common units		8,544		8,863
Conversion of weighted average convertible preferred units		176		—
Restricted common shares		143		149
Conversion of share options		—		5

 

4.             Share-Based Compensation

 

Expenses from share-based compensation are reflected in our Consolidated Statements of Operations as follows:

 

		For the three months ended March 31,
		2005			2004
Increase in general and administrative expenses		$	413		$	359
Increase in construction contract and other service operations expenses		46			139

 

The following table summarizes our operating results as if we elected to account for our share-based compensation under the fair value provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation:”

 

 

7

 

		For the three months
		ended March 31,
		2005			2004
Net income, as reported		$	9,040		$	8,993
Add: Share-based compensation expense, net of related tax effects and minority interests, included in the determination of net income		354			337
Less: Share-based compensation expense determined under the fair value based method, net of related tax effects and minority interests		(339		)	(279		)
Net income, pro forma		$	9,055		$	9,051
Basic EPS on net income available to common shareholders, as reported		$	0.15		$	0.15
Basic EPS on net income available to common shareholders, pro forma		$	0.15		$	0.15
Diluted EPS on net income available to common shareholders, as reported		$	0.14		$	0.14
Diluted EPS on net income available to common shareholders, pro forma		$	0.14		$	0.14

 

The share-based compensation expense under the fair value method, as reported in the above table, was computed using the Black-Scholes option-pricing model.

 

5.             Recent Accounting Pronouncements

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS 153”).  The Accounting Principles Board’s Opinion No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”) is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  However, the guidance in APB 29 included certain exceptions to that principle.  SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance.  Under SFAS 153, a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS 153 will be effective for us for nonmonetary asset exchanges occurring after December 31, 2005.  We are reviewing the provisions of SFAS 153 and assessing the impact it will have on us upon adoption.

 

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143” (“FIN 47”).  FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to an unconditional obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional upon future events that may or may not be within the entity’s control.  The fair value of liabilities related to such obligations should be recognized when incurred and reasonably estimable.  Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation.  This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  FIN 47 is effective no later than December 31, 2005.  We are reviewing the provisions of FIN 47 and assessing the impact it will have on us upon adoption.

 

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  The statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  The statement will require us to measure the cost of employee services received in exchange for an award of equity instruments based generally on the fair value of the award on the grant date; such cost will be recognized over the period during which the employee is required to provide service in exchange for the award (generally the vesting period).  No compensation

 

 

8

 

cost is recognized for equity instruments for which employees do not render the requisite service.  SFAS 123(R) was to be effective for us in June 2005 for applicability to all awards granted, modified, repurchased or cancelled after July 1, 2005; the statement also was to require that we recognize compensation cost on or after July 1, 2005 for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the fair value of those awards on the date of grant.  In April 2005, the Securities and Exchange Commission (the “SEC”) extended the effective date of SFAS 123(R) to the beginning of our next fiscal year (January 1, 2006).  The SEC’s new rule does not change the accounting required by SFAS 123(R); it changes only the dates for compliance with the standard.  We are reviewing the provisions of SFAS 123(R) and assessing the impact it will have on us upon adoption.

 

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”).  SAB 107 expresses the SEC staff’s views regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies.  In particular, it provides guidance in a number of areas, including share-based payment transactions with nonemployees, valuation methods, the classification of compensation expense, non-GAAP measures, capitalization of compensation costs related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123(R), the modification of employee share options prior to adoption of SFAS 123(R) and certain disclosure requirements.  We are reviewing the provisions of SAB 107 and assessing the impact it will have on us upon our adoption of SFAS 123(R).

 

6.             Commercial Real Estate Properties

 

Operating properties consisted of the following:

 

		March 31,			December 31,
		2005			2004
Land		$	268,307		$	268,327
Buildings and improvements		1,294,457			1,280,537
		1,562,764			1,548,864
Less: accumulated depreciation		(153,127		)	(141,716		)
		$	1,409,637		$	1,407,148

 

Projects we had under construction or pre-construction consisted of the following:

 

		March 31,			December 31,
		2005			2004
Land		$	97,085		$		74,190
Construction in progress		109,345			61,962
		$	206,430		$	136,152

 

2005 Acquisitions

 

On March 30, 2005, we acquired for $30,674 two office properties containing an aggregate of 468,994 rentable square feet that are located in San Antonio, Texas.  These buildings are initially undergoing redevelopment that is expected to be completed by the fourth quarter of 2005.  The table below sets forth the allocation of the acquisition cost of these properties:

 

Land		$	10,945
Construction in progress		19,729
Total acquisition costs		$	30,674	(1)

 

(1)     Classified in projects under construction or development on the March 31, 2005 consolidated balance sheet due to the property undergoing redevelopment.

 

We also acquired the following during the three months ended March 31, 2005:

 

 

9

 

 

•                  a 19 acre parcel of land located in Chantilly, Virginia that is adjacent to an office park we own for $7,141 on January 27, 2005 (Chantilly, Virginia is located in the Northern Virginia region).  We expect to develop this land parcel in the future;

•                  a 39 acre parcel of land located in Dahlgren, Virginia that is adjacent to one of our office properties for $1,212 on March 16, 2005 (Dahlgren, Virginia is located in the St. Mary’s and King George Counties region).  We expect to develop this land parcel in the future; and

•                  a 15.7 acre parcel of land adjacent to the two office properties we acquired in San Antonio, Texas for $3,418 on March 30, 2005.  We expect to operate this land parcel as part of the campus that includes the two acquired office properties.

 

2005 Construction and Pre-Construction Activities

 

As of March 31, 2005, we had construction underway on seven new buildings in the Baltimore/Washington Corridor, one in Northern Virginia and one in St. Mary’s County, Maryland.  We also had pre-construction activities underway on two new buildings located in the Baltimore/Washington Corridor and redevelopment underway on two existing buildings in San Antonio, Texas.

 

7.                                      Real Estate Joint Ventures

 

Our investments in and advances to unconsolidated real estate joint ventures accounted for using the equity method of accounting included the following:

 

		Balance at												Total			Maximum
		March 31,			December 31,			Date				Nature of		Assets at			Exposure
		2005			2004			Acquired		Ownership		Activity		3/31/05			to Loss (1)
Route 46 Partners, LLC		$	1,209		$	1,201		3/14/03		20	%	Operating building (2)		$	22,911		$	1,623

 

(1)          Derived from the sum of our investment balance and maximum additional unilateral capital contributions or loans required from us.  Not reported above are additional amounts that we and our partner are required to fund when needed by this joint venture; these funding requirements are proportional to our ownership percentage.

(2)          This joint venture’s property is located in Fairfield, NJ.

The following table sets forth a condensed balance sheet for Route 46 Partners, LLC as of March 31, 2005:

 

Commercial real estate property		$	21,450
Other assets		1,461
Total assets		$	22,911
Liabilities		$	14,752
Owners’ equity		8,159
Total liabilities and owners’ equity		$	22,911

 

Our investments in consolidated real estate joint ventures included the following:

 

				Ownership				Total			Collateralized
		Date		% at		Nature of		Assets at			Assets at
		Acquired		3/31/05		Activity		3/31/2005			3/31/2005
MOR Forbes 2 LLC		12/24/02		50	%	Operating building (1)		$	4,642		$	4,101
Gateway 70 LLC		4/5/01		80	%	Constructing/developing two buildings (2)		5,687			—
MOR Montpelier 3 LLC		2/21/02		50	%	Developing land parcel (3)		950			—
								$	11,279		$	4,101

 

(1) This joint venture’s property is located in Lanham, Maryland (located in the Suburban Maryland region).

(2) This joint venture’s property is located in Columbia, Maryland (located in the Baltimore/Washington Corridor).

(3) This joint venture’s property is located in Laurel, Maryland (located in the Suburban Maryland region).

 

10

 

Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 18.

 

8.             Investment in Other Unconsolidated Entity

 

Our investment in an unconsolidated non-real estate entity is set forth below:

 

Ownership

Investment

March 31,

December 31,

Date

% at

Accounting

2005

2004

Acquired

3/31/05

Method

TractManager, Inc. (1)

$

1,621

$

1,621

Various 2000

5

%

Cost

 

(1) TractManager, Inc. has developed an Internet-based contract imaging and management system for sale to real estate owners and healthcare providers.

 

9.             Intangible Assets on Real Estate Acquisitions

 

Intangible assets on real estate acquisitions consisted of the following:

 

		March 31,			December 31,
		2005			2004
Lease-up value		$	65,638		$	65,638
Lease to market value		9,595			9,595
Lease cost portion of deemed cost avoidance		8,700			8,700
Market concentration premium		1,333			1,333
Subtotal		85,266			85,266
Accumulated amortization		(20,301		)	(17,706		)
Intangible assets on real estate acquisitions, net		$	64,965		$	67,560

 

10.          Deferred Charges

 

Deferred charges consisted of the following:

 

		March 31,			December 31,
		2005			2004
Deferred leasing costs		$	33,995		$	33,302
Deferred financing costs		17,270			16,996
Goodwill		1,853			1,853
Deferred other		155			155
		53,273			52,306
Accumulated amortization		(26,105		)	(24,664		)
Deferred charges, net		$	27,168		$	27,642

 

11.          Accounts Receivable

 

Our accounts receivable are reported net of an allowance for bad debts of $521 at March 31, 2005 and $490 at December 31, 2004.

 

11

 

12.          Derivatives

 

The following table sets forth the one derivative contract that was in effect during part of the three months ended March 31, 2005 and its fair value:

 

Nature of Derivative		Notional Amount in (millions)			One-Month LIBOR base		Effective Date		Expiration Date		Fair Value at March 31, 2005			Fair Value at December 31, 2004
Interest rate swap		$	50.0		2.308	%	1/2/2003		1/3/2005		$	—		$	—

 

We designated this derivative as a cash flow hedge.  This derivative hedged the risk of changes in interest rates on certain of our one-month LIBOR-based variable rate borrowings.  This derivative expired on January 3, 2005.

 

The table below sets forth our accounting application of changes in derivative fair values:

 

		For the Three Months
		Ended March 31,
		2005			2004
(Decrease) in fair value applied to AOCL (1)  and minority interests		$	—		$	(39	)
Increase in fair value recognized as gain (2)		$	—		$	77

 

(1)   AOCL is defined as accumulated other comprehensive loss.

(2)   Represents hedge ineffectiveness and is included in interest expense on our Consolidated Statements of Operations.

13.          Shareholders’ Equity

 

Preferred Shares

 

Preferred shares of beneficial interest (“preferred shares”) consisted of the following:

 

		March 31, 2005			December 31, 2004
1,265,000 designated as Series E Cumulative Redeemable Preferred Shares of beneficial interest (1,150,000 shares issued with an aggregate liquidation preference of $28,750)		11			11
1,425,000 designated as Series F Cumulative Redeemable Preferred Shares of beneficial interest (1,425,000 shares issued with an aggregate liquidation preference of $35,625)		14			14
2,200,000 designated as Series G Cumulative Redeemable Preferred Shares of beneficial interest (2,200,000 shares issued with an aggregate liquidation preference of $55,000)		22			22
2,000,000 designated as Series H Cumulative Redeemable Preferred Shares of beneficial interest (2,000,000 shares issued with an aggregate liquidation preference of $50,000)		20			20
Total preferred shares		$	67		$	67

 

Common Shares

 

During the three months ended March 31, 2005, we issued 130,975 common shares of beneficial interest (“common shares”) to certain employees.  All of these shares are subject to forfeiture restrictions that lapse annually throughout their respective terms provided that the employees remain employed by us.  During the same period, forfeiture restrictions lapsed on 131,304 common shares previously issued to employees.

 

We issued 70,303 common shares upon the exercise of share options during the three months ended March 31, 2005.

 

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Comprehensive Income

 

The table below sets forth our comprehensive income:

 

		For the three months ended March 31,
		2005			2004
Net income		$	9,040		$	8,993
Unrealized loss on interest rate swaps, net of minority interests		—			(34		)
Total comprehensive income		$	9,040		$	8,959

 

14.          Dividends and Distributions

 

The following table summarizes our dividends and distributions when either the payable dates or record dates occurred during the three months ended March 31, 2005:

 

		Record Date		Payable Date		Dividend/ Distribution Per Share/Unit			Total Dividend/ Distribution
Series E Preferred Shares:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.6406		$	737
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.6406		$	737
Series F Preferred Shares:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.6172		$	880
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.6172		$	880
Series G Preferred Shares:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.5000		$	1,100
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.5000		$	1,100
Series H Preferred Shares:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.4688		$	938
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.4688		$	938
Common Shares:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.2550		$	9,288
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.2550		$	9,339
Series I Preferred Units:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.4688		$	165
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.4688		$	165
Common Units:
Fourth Quarter 2004		December 31, 2004		January 14, 2005		$	0.2550		$	2,179
First Quarter 2005		March 31, 2005		April 15, 2005		$	0.2550		$	2,179

 

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15.          Supplemental Information to Statements of Cash Flows

 

		For the Three Months Ended March 31,
		2005			2004
Supplemental schedule of non-cash investing and financing activities:
Consolidation of real estate joint ventures in connection with adoption of FASB Interpretation FIN 46(R), “Consolidation of Variable Interest Entities”:
Operating properties		$	—		$	2,176
Projects under construction or development		—			17,959
Investments in and advances to unconsolidated real estate joint ventures		—			(3,957		)
Restricted cash		—			10
Accounts receivable, net		—			145
Deferred rent receivable		—			7
Deferred charges, net		—			1,026
Prepaid and other assets		—			(3,263		)
Mortgage and other loans payable		—			(10,171		)
Accounts payable and accrued expenses		—			(2,737		)
Rents received in advance and security deposits		—			(347		)
Other liabilities		—			4,650
Minority interests-other consolidated real estate entities		—			(5,498		)
Net adjustment		$	—		$	—
Adjustment to purchase of commercial real estate properties by acquiring joint venture interests:
Operating properties		$	—		$	(83	)
Investments in and advances to unconsolidated real estate joint ventures		—			83
Net adjustment		$	—		$	—
Debt assumed in connection with acquisitions		$	—		$	21,218
(Decrease) increase in accrued capital improvements and leasing costs		$	(1,091	)	$	10,087
Amortization of discounts and premiums on mortgage loans to commercial real estate properties		$	68		$	92
Accretion of other liability to commercial real estate properties		$	—		$	147
Decrease in fair value of derivatives applied to AOCL and minority interests		$	—		$	(39	)
Adjustments to minority interests resulting from changes in ownership of Operating Partnership by COPT		$	55		$	1,129
Dividends/distribution payable		$	14,766		$	12,991
Decrease in minority interests and increase in shareholders’ equity in connection with the conversion of common units into common shares		$	—		$	1,003
Conversion of preferred shares adjusted to common shares and paid in capital		$	—		$	12
Issuance of restricted shares		$	3,481		$	2,271

 

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