PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

	September 30,			December 31,
	2010			2009
Assets
Properties, net:
Operating properties, net	$	2,762,289		$	2,510,277
Properties held for sale, net	—			18,533
Projects under construction or development	586,861			501,090
Total properties, net	3,349,150			3,029,900
Cash and cash equivalents	11,733			8,262
Restricted cash and marketable securities	21,095			16,549
Accounts receivable, net	18,906			17,459
Deferred rent receivable	76,833			71,805
Intangible assets on real estate acquisitions, net	123,307			100,671
Deferred leasing and financing costs, net	56,568			51,570
Prepaid expenses and other assets	79,780			83,806
Total assets	$	3,737,372		$	3,380,022

Liabilities and equity
Liabilities:
Debt, net	$	2,468,419		$	2,053,841
Accounts payable and accrued expenses	88,461			116,455
Rents received in advance and security deposits	26,919			32,177
Dividends and distributions payable	29,899			28,440
Deferred revenue associated with operating leases	15,790			14,938
Distributions received in excess of investment in unconsolidated real estate joint venture	5,458			5,088
Other liabilities	12,698			8,451
Total liabilities	2,647,644			2,259,390
Commitments and contingencies (Note 16)	—			—
Equity:
Corporate Office Properties Trust’s shareholders’ equity:
Preferred Shares of beneficial interest with an aggregate liquidation preference of $216,333 ($0.01 par value; 15,000,000 shares authorized and 8,121,667 issued and outstanding at September 30, 2010 and December 31, 2009)	81			81
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized and 59,406,247 shares issued and outstanding at September 30, 2010; 75,000,000 shares authorized and 58,342,673 shares issued and outstanding at December 31, 2009)	594			583
Additional paid-in capital	1,271,363			1,238,704
Cumulative distributions in excess of net income	(265,695		)	(209,941		)
Accumulated other comprehensive loss	(4,861		)	(1,907		)
Total Corporate Office Properties Trust’s shareholders’ equity	1,001,482			1,027,520
Noncontrolling interests in subsidiaries:
Common units in the Operating Partnership	61,867			73,892
Preferred units in the Operating Partnership	8,800			8,800
Other consolidated entities	17,579			10,420
Noncontrolling interests in subsidiaries	88,246			93,112
Total equity	1,089,728			1,120,632
Total liabilities and equity	$	3,737,372		$	3,380,022

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
Revenues
Rental revenue	$	93,345		$	86,973		$	275,528		$	263,467
Tenant recoveries and other real estate operations revenue	21,205			17,159			60,507			51,780
Construction contract and other service revenues	13,608			95,321			77,038			273,534
Total revenues	128,158			199,453			413,073			588,781
Expenses
Property operating expenses	44,260			38,523			132,400			114,587
Depreciation and amortization associated with real estate operations	30,745			26,498			87,889			81,268
Construction contract and other service expenses	13,347			93,805			75,148			268,289
General and administrative expenses	6,079			5,898			17,905			17,275
Business development expenses	2,886			458			3,506			1,550
Total operating expenses	97,317			165,182			316,848			482,969
Operating income	30,841			34,271			96,225			105,812
Interest expense	(26,537		)	(20,931		)	(74,987		)	(58,914		)
Interest and other income	395			2,619			1,942			4,949
Income from continuing operations before equity in income (loss) of unconsolidated entities and income taxes	4,699			15,959			23,180			51,847
Equity in income (loss) of unconsolidated entities	648			(758		)	371			(1,075		)
Income tax expense	(27		)	(47		)	(75		)	(169		)
Income from continuing operations	5,320			15,154			23,476			50,603
Discontinued operations	1,129			382			2,447			1,150
Income before gain on sales of real estate	6,449			15,536			25,923			51,753
Gain on sales of real estate, net of income taxes	2,477			—			2,829			—
Net income	8,926			15,536			28,752			51,753
Less net income attributable to noncontrolling interests:
Common units in the Operating Partnership	(363		)	(956		)	(1,254		)	(4,032		)
Preferred units in the Operating Partnership	(165		)	(165		)	(495		)	(495		)
Other consolidated entities	434			40			233			15
Net income attributable to Corporate Office Properties Trust	8,832			14,455			27,236			47,241
Preferred share dividends	(4,025		)	(4,025		)	(12,076		)	(12,076		)
Net income attributable to Corporate Office Properties Trust common shareholders	$	4,807		$	10,430		$	15,160		$	35,165
Net income attributable to Corporate Office Properties Trust:
Income from continuing operations	$	7,785		$	14,106		$	24,975		$	46,207
Discontinued operations, net	1,047			349			2,261			1,034
Net income attributable to Corporate Office Properties Trust	$	8,832		$	14,455		$	27,236		$	47,241
Basic earnings per common share (1)
Income from continuing operations	$	0.06		$	0.17		$	0.21		$	0.60
Discontinued operations	0.02			0.01			0.04			0.02
Net income attributable to COPT common shareholders	$	0.08		$	0.18		$	0.25		$	0.62
Diluted earnings per common share (1)
Income from continuing operations	$	0.06		$	0.17		$	0.20		$	0.60
Discontinued operations	0.02			0.01			0.04			0.02
Net income attributable to COPT common shareholders	$	0.08		$	0.18		$	0.24		$	0.62

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

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)

	Preferred Shares		Common Shares		Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
Balance at December 31, 2008 (51,790,442 common shares outstanding)	$	81	$	518	$	1,112,734		$	(162,572	)	$	(4,749	)	$	136,411		$	1,082,423
Conversion of common units to common shares (2,824,000 shares)	—		28		61,368			—			—			(61,396		)	—
Common shares issued to the public (2,990,000 shares)	—		30		71,795			—			—			—			71,825
Exercise of share options (388,487 common shares)	—		4		4,280			—			—			—			4,284
Share-based compensation	—		3		7,905			—			—			—			7,908
Restricted common share redemptions (76,090 shares)	—		—		(1,930		)	—			—			—			(1,930		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(21,090		)	—			—			21,090			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			2,458			549			3,007
Decrease in tax benefit from share-based compensation	—		—		(152		)	—			—			—			(152		)
Net income	—		—		—			47,241			—			4,512			51,753
Dividends	—		—		—			(76,788		)	—			—			(76,788		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(6,469		)	(6,469		)
Contributions from noncontrolling interests in other consolidated entities	—		—		—			—			—			757			757
Distributions to noncontrolling interests in other consolidated entities	—		—		—			—			—			(435		)	(435		)
Balance at September 30, 2009 (58,250,295 common shares outstanding)	$	81	$	583	$	1,234,910		$	(192,119	)	$	(2,291	)	$	95,019		$	1,136,183

Balance at December 31, 2009 (58,342,673 common shares outstanding)	$	81	$	583	$	1,238,704		$	(209,941	)	$	(1,907	)	$	93,112		$	1,120,632
Issuance of 4.25% Exchangeable Senior Notes	—		—		18,149			—			—			—			18,149
Conversion of common units to common shares (620,598 shares)	—		6		8,964			—			—			(8,970		)	—
Costs associated with common shares issued to the public	—		—		(19		)	—			—			—			(19		)
Exercise of share options (271,242 shares)	—		3		4,394			—			—			—			4,397
Share-based compensation	—		2		8,724			—			—			—			8,726
Restricted common share redemptions (103,721 shares)	—		—		(3,862		)	—			—			—			(3,862		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(1,347		)	—			—			1,347			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			(2,954		)	(206		)	(3,160		)
Net income	—		—		—			27,236			—			1,516			28,752
Dividends	—		—		—			(82,990		)	—			—			(82,990		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(5,945		)	(5,945		)
Contributions from noncontrolling interests in other consolidated entities	—		—		—			—			—			9,510			9,510
Acquisition of nontrolling interests in other consolidated entities	—		—		(2,344		)	—			—			(2,118		)	(4,462		)
Balance at September 30, 2010 (59,406,247 common shares outstanding)	$	81	$	594	$	1,271,363		$	(265,695	)	$	(4,861	)	$	88,246		$	1,089,728

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

(unaudited)

	For the Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities
Net income	$	28,752		$	51,753
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	89,830			83,660
Amortization of deferred financing costs	4,175			3,089
Increase in deferred rent receivable	(3,295		)	(5,685		)
Amortization of above or below market leases	(1,470		)	(1,448		)
Amortization of net debt discounts	4,360			2,520
Gain on sales of real estate	(3,921		)	—
Share-based compensation	8,726			7,908
Other	(724		)	(3,558		)
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,648		)	(320		)
Decrease (increase) in restricted cash and marketable securities and prepaid expenses and other assets	8,165			(18,059		)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(31,696		)	15,311
(Decrease) increase in rents received in advance and security deposits	(5,702		)	2,858
Net cash provided by operating activities	95,552			138,029
Cash flows from investing activities
Purchases of and additions to properties	(360,498		)	(146,120		)
Proceeds from sales of properties	27,580			65
Mortgage and other loan receivables funded	(1,729		)	(1,995		)
Leasing costs paid	(7,717		)	(6,778		)
Investment in unconsolidated entity	(4,500		)	(3,000		)
Other	(2,241		)	(3,118		)
Net cash used in investing activities	(349,105		)	(160,946		)
Cash flows from financing activities
Proceeds from debt, including issuance of exchangeable senior notes	825,475			775,147
Repayments of debt
Scheduled principal amortization	(10,389		)	(8,200		)
Other repayments	(459,614		)	(728,366		)
Deferred financing costs paid	(7,086		)	(1,830		)
Net proceeds from issuance of common shares	4,378			76,109
Acquisition of noncontrolling interests in consolidated entities	(4,462		)	—
Dividends paid	(81,376		)	(73,220		)
Distributions paid	(6,100		)	(7,420		)
Restricted share redemptions	(3,862		)	(1,930		)
Other	60			(4,167		)
Net cash provided by financing activities	257,024			26,123

Net increase in cash and cash equivalents	3,471			3,206
Cash and cash equivalents
Beginning of period	8,262			6,775
End of period	$	11,733		$	9,981
Supplemental schedule of non-cash investing and financing activities:
Debt and other liabilities assumed in connection with acquisitions	$	74,244		$	—
Increase in accrued capital improvements, leasing and other investing activity costs	$	4,308		$	6,297
Increase in property and noncontrolling interests in connection with property contribution to joint venture	$	9,000		$	—
Increase in fair value of derivatives applied to AOCL and noncontrolling interests	$	3,206		$	2,962
Dividends/distribution payable	$	29,899		$	28,411
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	8,970		$	61,396
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	$	1,347		$	21,090

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Organization

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company,” “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”) that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of September 30, 2010, our investments in real estate included the following:

· 249 wholly owned operating office properties totaling 19.9 million square feet;

· 18 wholly owned office properties under construction, development or redevelopment that we estimate will total approximately 2.6 million square feet upon completion, including two partially operational properties included above;

· wholly owned land parcels totaling 1,559 acres that we believe are potentially developable into approximately 14.4 million square feet;

· a wholly owned, partially operational, wholesale data center which upon completion is expected to have an initial stabilization critical load of 18 megawatts; and

· partial ownership interests in a number of other real estate projects in operations, under development or held for future development.

We conduct almost all of our operations through our operating partnership, Corporate Office Properties, L.P. (the “Operating Partnership”), of 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 September 30, 2010 follows:

Common Units	93	%
Series G Preferred Units	100	%
Series H Preferred Units	100	%
Series I Preferred Units	0	%
Series J Preferred Units	100	%
Series K Preferred Units	100	%

Three of our trustees also controlled, either directly or through ownership by other entities or family members, an additional 6% of the Operating Partnership’s common units.

In addition to owning interests in real estate, the Operating Partnership also owns entities that provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which we have a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities. We eliminate all significant intercompany balances and transactions in consolidation. We use the equity method of accounting when we own an interest in an entity and can exert significant influence over the entity’s

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	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total

Assets:
Marketable securities (1)	$	7,996	$	—	$	—	$	7,996

Liabilities:
Deferred compensation plan liability (2)	$	7,377	$	—	$	—	$	7,377
Interest rate derivatives (2)	—		4,943		—		4,943
Liabilities	$	7,377	$	4,943	$	—	$	12,320

(1) Included in the line entitled “restricted cash and marketable securities” on our Consolidated Balance Sheet.

(2) Included in the line entitled “other liabilities” on our Consolidated Balance Sheet.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding mortgage loans receivable) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments. Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision.

For additional fair value information, see Note 7 for mortgage loans receivable, Note 8 for debt and Note 9 for derivatives.

4. Properties, net

Operating properties, net consisted of the following (in thousands):

	September 30,			December 31,
	2010			2009
Land	$	493,979		$	479,545
Buildings and improvements	2,747,528			2,445,775
	3,241,507			2,925,320
Less: accumulated depreciation	(479,218		)	(415,043		)
	$	2,762,289		$	2,510,277

As of December 31, 2009, 431 and 437 Ridge Road, two office properties in Dayton, New Jersey totaling 201,000 square feet, and a contiguous land parcel that we were under contract to sell were classified as held for sale. We completed the sale of the office properties on September 8, 2010 for $20.9 million and recognized a gain of $784,000. We also completed the sale of the contiguous land parcel on September 8, 2010 for $3.0 million and recognized a gain of $2.5 million. The components associated with these properties as of December 31, 2009 included the following (in thousands):

Land, operating properties	$	3,498
Land, development	512
Buildings and improvements	21,509
Construction in progress	583
	26,102
Less: accumulated depreciation	(7,569		)
	$	18,533

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Projects under construction or development consisted of the following (in thousands):

	September 30,		December 31,
	2010		2009
Land	$	241,937	$	231,297
Construction in progress	344,924		269,793
	$	586,861	$	501,090

2010 Acquisitions

Our acquisitions during the nine months ended September 30, 2010 included:

· 1550 Westbranch Drive, a 152,000 square foot office property in McLean, Virginia that was 100% leased, for $40.0 million on June 28, 2010;

· 9651 Hornbaker Road, a 233,000 square foot wholesale data center known as Power Loft @ Innovation in Manassas, Virginia, for $115.5 million on September 14, 2010. Rents for this property are based on the amount of megawatts of power made available for the exclusive use of tenants in the property; we refer to this power as critical load. This property, the shell of which was completed in early 2010, was 17% leased on the date of acquisition to two tenants who have a combined initial critical load of 3 megawatts and further expansion rights of up to a combined 5 megawatts. We expect to complete the development of the property to an initial stabilization critical load of 18 megawatts for additional development costs estimated at $166 million. Full critical load of the property is expected to be up to 30 megawatts; and

· two office properties totaling 362,000 square feet at 1201 M Street SE and 1220 12th Street SE (known as Maritime Plaza I and II) in Washington, DC that were 100% leased for $122.1 million on September 28, 2010. The buildings are subject to ground leases that expire in 2099 and 2100. In connection with this acquisition, we assumed a $70.1 million mortgage loan having a fair value at assumption of $73.3 million with a stated fixed interest rate of 5.35% (effective interest rate of 3.95%) that matures in March 2014.

The table below sets forth the allocation of the acquisition costs of these properties (in thousands):

Land, operating properties	$	6,100
Land, development	5,545
Building and improvements	138,335
Construction in progress	85,525
Intangible assets on real estate acquisitions	42,315
Total assets	277,820
Below-market leases	(231		)
Total acquisition cost	$	277,589

Intangible assets recorded in connection with the above acquisitions included the following (dollars in thousands):

			Weighted
			Average
			Amortization
			Period
			(in Years)
In-place lease value	$	21,289	4
Tenant relationship value	14,309		10
Below-market ground leases	6,193		40
Above-market leases	524		2
	$	42,315	6

2010 Construction, Development and Redevelopment Activities

During the nine months ended September 30, 2010, we had six newly constructed office properties totaling 804,000 square feet (two in the Baltimore/Washington Corridor, two in Colorado Springs, Colorado and two in San Antonio, Texas) become fully operational (94,000 of these square feet were placed into service in 2009) and placed into service 42,000 square feet in one partially operational office property in Greater Baltimore.

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As of September 30, 2010, we had construction underway on eight office properties totaling 845,000 square feet (three in the Baltimore/Washington Corridor, three in Greater Baltimore, one in San Antonio and one in St. Mary’s and King George Counties) (including 42,000 square feet placed into service in one partially operational property). We also had development activities underway on ten office properties totaling 1.4 million square feet, including two through a consolidated real estate joint venture (four in the Baltimore/Washington Corridor, two in San Antonio, two in Huntsville, Alabama, one in Greater Baltimore and one in Northern Virginia). In addition, we had redevelopment underway on two office properties totaling 576,000 square feet (one in the Baltimore/Washington Corridor and one in Greater Philadelphia).

5. Real Estate Joint Ventures

During the nine months ended September 30, 2010, we had an investment in one unconsolidated real estate joint venture accounted for using the equity method of accounting. Information pertaining to this joint venture investment is set forth below (in thousands):

Investment Balance at										Maximum
September 30,			December 31,			Date			Nature of	Exposure
2010			2009			Acquired	Ownership		Activity	to Loss (1)

$	(5,458	)(2)	$	(5,088	)(2)	9/29/2005	20	%	Operates 16 buildings	$	—

(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 respective ownership percentages. Also not reported above are additional unilateral contributions or loans from us, the amounts of which are uncertain, that we would be required to make if certain contingent events occur (see Note 16).

(2) The carrying amount of our investment in this joint venture was lower than our share of the equity in the joint venture by $5.2 million at September 30, 2010 and December 31, 2009 due to our deferral of gain on our contribution of real estate into the joint venture upon its formation. A difference will continue to exist to the extent the nature of our continuing involvement in the joint venture remains the same.

The following table sets forth condensed balance sheets for this unconsolidated real estate joint venture (in thousands):

	September 30,			December 31,
	2010			2009
Properties, net	$	61,652		$	62,990
Other assets	4,374			5,148
Total assets	$	66,026		$	68,138

Liabilities (primarily debt)	$	67,351		$	67,611
Owners’ equity	(1,325		)	527
Total liabilities and owners’ equity	$	66,026		$	68,138

The following table sets forth condensed statements of operations for this unconsolidated real estate joint venture (in thousands):

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
Revenues	$	2,094		$	2,202		$	6,283		$	6,935
Property operating expenses	(902		)	(864		)	(2,728		)	(2,535		)
Interest expense	(899		)	(1,002		)	(2,846		)	(2,976		)
Depreciation and amortization expense	(826		)	(803		)	(2,561		)	(2,405		)
Net loss	$	(533	)	$	(467	)	$	(1,852	)	$	(981	)

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The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at September 30, 2010 (dollars in thousands):

		Ownership			September 30, 2010 (1)
	Date	% at		Nature of	Total		Pledged		Total
	Acquired	9/30/2010		Activity	Assets		Assets		Liabilities
M Square Associates, LLC	6/26/2007	50.0	%	Operating two buildings and developing others (2)	$	58,805	$	—	$	1,085
Arundel Preserve #5, LLC	7/2/2007	50.0	%	Operating one building (3)	29,838		29,481		16,805
LW Redstone Company, LLC	3/23/2010	85.0	%	Developing land parcel (4)	14,430		—		288
COPT-FD Indian Head, LLC	10/23/2006	75.0	%	Developing land parcel (5)	7,444		—		—
MOR Forbes 2 LLC	12/24/2002	50.0	%	Operating one building (6)	3,926		—		69
					$	114,443	$	29,481	$	18,247

(1) Excludes amounts eliminated in consolidation.

(2) This joint venture’s properties are in College Park, Maryland.

(3) This joint venture’s property is in Hanover, Maryland (in the Baltimore/Washington Corridor).

(4) This joint venture’s property is in Huntsville, Alabama.

(5) This joint venture’s property is in Charles County, Maryland.

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

We determined that all of our real estate joint ventures were VIEs under applicable accounting standards. As discussed in Note 2, we adopted amended guidance issued by the FASB effective January 1, 2010 related to the accounting and disclosure requirements for the consolidation of VIEs. Upon adoption of this standard on January 1, 2010, we re-evaluated our existing:

· unconsolidated real estate joint venture and determined that we should continue to account for our investment using the equity method of accounting primarily because our partner has: (1) the power to direct the matters that most significantly impact the activities of the joint venture, including the management and operations of the properties and disposal rights with respect to such properties; and (2) the right to receive benefits and absorb losses that could be significant to the VIE through its proportionately larger investment; and

· consolidated real estate joint ventures and determined that we should continue to consolidate each of them because we have: (1) the power to direct the matters that most significantly impact the activities of the joint ventures, including development, leasing and management of the properties constructed by the VIEs; and (2) both the obligation to fund the activities of the ventures to the extent that third-party financing is not obtained and the right to receive returns on our fundings, which could be potentially significant to the VIEs.

Therefore, the adoption of this guidance did not affect our financial position, results of operations or cash flows.

In March 2010, we completed the formation of LW Redstone Company, LLC (“Redstone”), a joint venture created to develop Redstone Gateway, a 468-acre land parcel adjacent to Redstone Arsenal in Huntsville, Alabama. The land is owned by the U.S. Government and is under a long term master lease to the joint venture. Through this master lease, the joint venture will create a business park that we expect will total approximately 4.6 million square feet of office and retail space when completed, including approximately 4.4 million square feet of Class A office space. In addition, the business park will include hotel and other amenities.

We anticipate funding certain infrastructure costs that we expect will be reimbursed by the City of Huntsville; as of September 30, 2010, we had advanced $834,000 to the City to fund such costs. We also expect to fund additional development and construction costs through equity contributions to the extent that third party financing is not obtained. Our partner is not required to make any future contributions to the joint venture. Net cash flow distributions to the partners of Redstone vary depending on the source of the funds distributed and the nature of the capital fundings outstanding at the time of distribution. In the case of all distribution sources, we are first entitled to repayment of operating deficits funded by us and preferred returns on such fundings. We are also generally entitled to repayment of infrastructure and vertical construction costs funded by us and preferred returns on such fundings before our partner is entitled to receive repayment of its equity contribution of $9.0 million. In addition, we will be entitled to 85% of distributable cash in excess of preferred returns.

We determined that Redstone is a VIE under applicable accounting standards and that we should consolidate it because: (1) we control the activities that are most significant to the VIE (we hold two of three positions on the joint venture’s management committee, and we are responsible for the development, construction, leasing and

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management of the office properties to be constructed by the VIE); and (2) we have both the obligation to provide significant funding for the project, as noted above, and the right to receive returns on our funding.

At December 31, 2009, we had a 92.5% ownership interest in COPT Opportunity Invest I, LLC, an entity that is redeveloping a property in Hanover, Maryland; in February 2010, we acquired the remaining 7.5% ownership interest in this entity. At December 31, 2009, we also had a 90% ownership interest in Enterprise Campus Developer, LLC, an entity that owned a 50% interest in M Square Associates, LLC (included in the table above); in July 2010, we acquired the remaining 10% ownership interest in this entity.

Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 16.

6. Intangible Assets on Real Estate Acquisitions

Intangible assets on real estate acquisitions consisted of the following:

	September 30, 2010						December 31, 2009
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
In-place lease value	$	162,381	$	84,315	$	78,066	$	141,408	$	70,659	$	70,749
Tenant relationship value	50,179		20,196		29,983		35,909		16,322		19,587
Above-market leases	10,689		7,896		2,793		10,165		7,138		3,027
Acquired real estate tax credit	6,222		1,011		5,211		6,222		—		6,222
Below-market ground leases	6,193		—		6,193		—		—		—
Market concentration premium	1,333		272		1,061		1,333		247		1,086
	$	236,997	$	113,690	$	123,307	$	195,037	$	94,366	$	100,671

Amortization of the intangible asset categories set forth above totaled $18.8 million in the nine months ended September 30, 2010 and $19.0 million in the nine months ended September 30, 2009. The approximate weighted average amortization periods of the categories set forth above follow: in-place lease value: seven years; tenant relationship value: eight years; above-market leases: five years; acquired real estate tax credit: six years; below-market ground leases: 40 years; and market concentration premium: 32 years. The approximate weighted average amortization period for all of the categories combined is nine years. Estimated amortization expense associated with the intangible asset categories set forth above is $7.4 million for the three months ending December 31, 2010; $24.3 million for 2011; $18.8 million for 2012; $13.8 million for 2013; $11.4 million for 2014; and $10.2 million for 2015.

7. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consisted of the following (in thousands):

	September 30,		December 31,
	2010		2009
Prepaid expenses	$	24,108	$	19,769
Equity method investment in unconsolidated entity	15,509		9,461
Mortgage loans receivable (1)	14,806		12,773
Furniture, fixtures and equipment, net	12,258		12,633
Construction contract costs incurred in excess of billings	3,022		19,556
Other assets	10,077		9,614
Prepaid expenses and other assets	$	79,780	$	83,806

(1) The fair value of our mortgage loans receivable totaled $16.3 million at September 30, 2010 and $15.1 million at December 31, 2009.

Our investment in unconsolidated entity reflected above consists of common stock and warrants to purchase additional shares of common stock of The KEYW Holding Corporation (“KEYW”), an entity supporting the intelligence community’s operations and transformation to Cyber Age mission by providing engineering services

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and integrated platforms that support the intelligence process. In October 2010, KEYW completed an initial public offering of its common stock.

8. Debt

Our debt consisted of the following (dollars in thousands):

	Maximum							Scheduled
	Availability at		Carrying Value at					Maturity
	September 30,		September 30,		December 31,		Stated Interest Rates	Dates at
	2010		2010		2009		at September 30, 2010	September 30, 2010

Mortgage and Other Secured Loans:
Fixed rate mortgage loans (1)	N/A		$	1,177,095	$	1,166,443	5.20% - 7.87% (2)	2010 - 2034 (3)
Revolving Construction Facility	$	225,000	121,903		76,333		LIBOR+ 1.60% to 2.00% (4)	May 2, 2011 (5)
Variable rate secured loans	N/A		270,756		271,146		LIBOR+ 2.25% to 3.00% (6)	2012-2014 (5)
Other construction loan facilities	23,400		16,753		16,753		LIBOR+ 2.75% (7)	2011 (5)
Total mortgage and other secured loans			1,586,507		1,530,675

Revolving Credit Facility	700,000		498,000		365,000		LIBOR+ 0.75% to 1.25% (8)	September 30, 2011 (5)
Unsecured notes payable (9)	N/A		1,965		2,019		0.00%	2026
Exchangeable Senior Notes:
4.25% Exchangeable Senior Notes	N/A		223,019		—		4.25%	April 2030 (10)
3.5% Exchangeable Senior Notes	N/A		158,928		156,147		3.50%	September 2026 (11)
Total debt			$	2,468,419	$	2,053,841

(1)	Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect unamortized premiums totaling $3.5 million at September 30, 2010 and $371,000 at December 31, 2009.
(2)	The weighted average interest rate on these loans was 6.0% at September 30, 2010.
(3)	A loan with a balance of $4.6 million at September 30, 2010 that matures in 2034 may be repaid in March 2014, subject to certain conditions.
(4)	The weighted average interest rate on this loan was 1.86% at September 30, 2010.
(5)	Includes amounts that may be extended for a one-year period at our option, subject to certain conditions.
(6)	The loans in this category at September 30, 2010 were subject to floor interest rates ranging from 4.25% to 5.5%.
(7)	The interest rate on this loan was 3.1% at September 30, 2010.
(8)	The weighted average interest rate on the Revolving Credit Facility was 1.11% at September 30, 2010.
(9)	The carrying value of these notes reflects unamortized discount totaling $1.1 million at September 30, 2010 and $1.2 million at December 31, 2009.
(10)	Refer to the second paragraph below, which discusses the issuance of these notes, for descriptions of provisions for early redemption and repurchase of these notes.
(11)	As described further in our 2009 Annual Report on Form 10-K, these notes have an exchange settlement feature that provides that they may, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, may be exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares at an exchange rate (subject to adjustment) of 19.1167 shares per one thousand dollar principal amount of the notes (exchange rate is as of September 30, 2010 and is equivalent to an exchange price of $52.31 per common share). The carrying value of these notes included a principal amount of $162.5 million and an unamortized discount totaling $3.6 million at September 30, 2010 and $6.4 million at December 31, 2009. The effective interest rate under the notes, including amortization of the issuance costs, was 5.97%. Because the closing price of our common shares at September 30, 2010 and December 31, 2009 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2010		2009		2010		2009
Interest expense at stated interest rate	$	1,421	$	1,421	$	4,265	$	4,265
Interest expense associated with amortization of discount	941		886		2,781		2,620
Total	$	2,362	$	2,307	$	7,046	$	6,885

In April 2010, we increased the borrowing capacity under our Revolving Credit Facility by $100.0 million, from $600.0 million to $700.0 million.

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On April 7, 2010, the Operating Partnership issued a $240.0 million aggregate principal amount of 4.25% Exchangeable Senior Notes due 2030. Interest on the notes is payable on April 15 and October 15 of each year. The notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and, at the Operating Partnership’s discretion, our common shares of beneficial interest (“common shares”) at an exchange rate (subject to adjustment) of 20.7769 shares per one thousand dollar principal amount of the notes (exchange rate is as of September 30, 2010 and is equivalent to an exchange price of $48.13 per common share) (the initial exchange rate of the notes was based on a 20% premium over the closing price on the NYSE on the transaction pricing date). On or after April 20, 2015, the Operating Partnership may redeem the notes in cash in whole or in part. The holders of the notes have the right to require us to repurchase the notes in cash in whole or in part on each of April 15, 2015, April 15, 2020 and April 15, 2025, or in the event of a “fundamental change,” as defined under the terms of the notes, for a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. Prior to April 20, 2015, subject to certain exceptions, if (1) a “fundamental change” occurs as a result of certain forms of transactions or series of transactions and (2) a holder elects to exchange its notes in connection with such “fundamental change,” we will increase the applicable exchange rate for the notes surrendered for exchange by a number of additional shares of our common shares as a “make whole premium.” The notes are general unsecured senior obligations of the Operating Partnership and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership. The Operating Partnership’s obligations under the notes are fully and unconditionally guaranteed by us. The initial liability component of this debt issuance was $221.4 million and the equity component was $18.6 million. In addition, we recognized $450,000 of the financing fees incurred in relation to these notes in equity. The carrying value of these notes at September 30, 2010 included an unamortized discount totaling $17.0 million at September 30, 2010. The effective interest rate on the liability component, including amortization of the issuance costs, is 6.05%. Because the closing price of our common shares at September 30, 2010 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized (in thousands):

	For the Three		For the Nine
	Months Ended		Months Ended
	September 30, 2010		September 30, 2010
Interest expense at stated interest rate	$	2,550	$	4,930
Interest expense associated with amortization of discount	815		1,618
Total	$	3,365	$	6,548

We capitalized interest costs of $3.9 million in the three months ended September 30, 2010, $3.1 million in the three months ended September 30, 2009, $12.0 million in the nine months ended September 30, 2010 and $11.6 million in the nine months ended September 30, 2009.

The following table sets forth information pertaining to the fair value of our debt (in thousands):

	September 30, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Fixed-rate debt	$	1,561,007	$	1,565,549	$	1,324,609	$	1,252,126
Variable-rate debt	907,412		903,024		729,232		704,508
	$	2,468,419	$	2,468,573	$	2,053,841	$	1,956,634

9. Interest Rate Derivatives

The following table sets forth the key terms and fair values of our interest rate derivatives at September 30, 2010 and December 31, 2009, all of which are interest rate swaps (in thousands):

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						Fair Value at
Notional		One-Month		Effective	Expiration	September 30,			December 31,
Amount		LIBOR base		Date	Date	2010			2009
$	120,000	1.7600	%	1/2/2009	5/1/2012	$	(2,513	)	$	(669	)
100,000		1.9750	%	1/1/2010	5/1/2012	(2,430		)	(1,068		)
						$	(4,943	)	$	(1,737	)

Each of these interest rate swaps was designated as cash flow hedges of interest rate risk. The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet as of September 30, 2010 and December 31, 2009 (in thousands):

Derivatives Designated as	September 30, 2010				December 31, 2009
Hedging Instruments	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest rate swaps	Other liabilities	$	(4,943	)	Other liabilities	$	(1,737	)

The table below presents the effect of our interest rate derivatives on our Consolidated Statements of Operations and comprehensive income for the three and nine months ended September 30, 2010 and 2009 (in thousands):

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009

Amount of loss recognized in AOCL (effective portion)	$	(1,530	)	$	(2,771	)	$	(5,844	)	$	(2,494	)
Amount of loss reclassified from AOCL into interest expense (effective portion)	(887		)	(1,555		)	(2,684		)	(5,501		)
Amount of loss recognized in interest expense (ineffective portion and amount excluded from effectiveness testing)	—			(39		)	—			(267		)

Over the next 12 months, we estimate that approximately $3.5 million will be reclassified from AOCL as an increase to interest expense.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of September 30, 2010, the fair value of interest rate derivatives in a liability position related to these agreements was $4.9 million, excluding the effects of accrued interest. As of September 30, 2010, we had not posted any collateral related to these agreements. We are not in default with any of these provisions. If we breached any of these provisions, we could be required to settle our obligations under the agreements at their termination value of $5.4 million.

10. Shareholders’ Equity

Common Shares

During the nine months ended September 30, 2010, holders of 620,598 common units in our Operating Partnership converted their units into common shares on the basis of one common share for each common unit.

See Note 12 for disclosure of common share activity pertaining to our share-based compensation plans.

We declared dividends per common share of $0.4125 in the three months ended September 30, 2010, $0.3925 in the three months ended September 30, 2009, $1.1975 in the nine months ended September 30, 2010 and $1.1375 in the nine months ended September 30, 2009.

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Accumulated Other Comprehensive Loss

The table below sets forth activity in the accumulated other comprehensive loss component of shareholders’ equity (in thousands):

	For the Nine Months Ended September 30,
	2010			2009
Beginning balance	$	(1,907	)	$	(4,749	)
Amount of loss recognized in AOCL (effective portion)	(5,844		)	(2,494		)
Amount of loss reclassified from AOCL to income (effective portion)	2,684			5,501
Adjustment to AOCL attributable to noncontrolling interest	206			(549		)
Ending balance	$	(4,861	)	$	(2,291	)

The table below sets forth total comprehensive income and total comprehensive income attributable to COPT (in thousands):

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
Net income	$	8,926		$	15,536		$	28,752		$	51,753
Amount of loss recognized in AOCL	(1,530		)	(2,771		)	(5,844		)	(2,494		)
Amount of loss reclassified from AOCL to income	887			1,555			2,684			5,501
Total comprehensive income	8,283			14,320			25,592			54,760
Net income attributable to noncontrolling interests	(94		)	(1,081		)	(1,516		)	(4,512		)
Other comprehensive loss (income) attributable to noncontrolling interests	47			102			245			(314		)
Total comprehensive income attributable to COPT	$	8,236		$	13,341		$	24,321		$	49,934

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11. Information by Business Segment

As of September 30, 2010, we had nine primary office property segments (comprised of: the Baltimore/Washington Corridor; Greater Baltimore; Northern Virginia; Colorado Springs; Suburban Maryland; San Antonio; Washington, DC — Capitol Riverfront; Greater Philadelphia; and St. Mary’s and King George Counties) and a wholesale data center segment.

The table below reports segment financial information for our real estate operations (in thousands). Our segment entitled “Other” includes assets and operations not specifically associated with the other defined segments, including certain properties as well as corporate assets and investments in unconsolidated entities. We measure the performance of our segments through a measure we define as net operating income from real estate operations (“NOI from real estate operations”), which is derived by subtracting property expenses from revenues from real estate operations. We believe that NOI from real estate operations is an important supplemental measure of operating performance for a REIT’s operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.

	Baltimore/ Washington Corridor			Greater Baltimore		Northern Virginia		Colorado Springs		Suburban Maryland		San Antonio		Washington, DC - Capitol Riverfront		Greater Philadelphia		St. Mary’s & King George Counties		Wholesale Data Center			Other		Total
Three Months Ended September 30, 2010

Revenues from real estate operations	$	51,946		$	18,288	$	18,949	$	6,176	$	5,243	$	5,609	$	135	$	1,793	$	3,431	$	162		$	3,296	$	115,028
Property operating expenses	18,945			7,828		7,195		2,380		2,618		2,697		50		232		1,152		251			956		44,304
NOI from real estate operations	$	33,001		$	10,460	$	11,754	$	3,796	$	2,625	$	2,912	$	85	$	1,561	$	2,279	$	(89	)	$	2,340	$	70,724
Additions to properties, net	$	19,097		$	14,578	$	7,302	$	1,028	$	1,373	$	5,701	$	92,816	$	2,187	$	3,445	$	111,510		$	531	$	259,568

Three Months Ended September 30, 2009
			</

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

6711 Columbia Gateway Drive, Suite 300, Columbia, MD		21046
(Address of principal executive offices)		(Zip Code)

Large accelerated filer x		Accelerated filer o

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

		PAGE
PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (unaudited)	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)	4
	Consolidated Statements of Equity for the three and nine months ended September 30, 2010 and 2009 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4:	Controls and Procedures	41

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	42
Item 1A:	Risk Factors	42
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3:	Defaults Upon Senior Securities	42
Item 4:	Removed and Reserved	42
Item 5:	Other Information	42
Item 6:	Exhibits	43

SIGNATURES		45