UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2011

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

For the transition period from to

Commission file number 1-14023

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.)

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

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

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.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

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

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

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

As of April 18, 2011, 67,104,034 of the Company’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

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PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

	March 31,			December 31,
	2011			2010
Assets
Properties, net:
Operating properties, net	$	2,819,096		$	2,802,773
Properties under construction or development	649,675			642,682
Total properties, net	3,468,771			3,445,455
Cash and cash equivalents	12,606			10,102
Restricted cash and marketable securities	24,094			22,582
Accounts receivable (net of allowance for doubtful accounts of $2,752 and $2,796, respectively)	19,765			18,938
Deferred rent receivable	82,901			79,160
Intangible assets on real estate acquisitions, net	106,444			113,735
Deferred leasing and financing costs, net	60,479			60,649
Prepaid expenses and other assets	90,749			93,896
Total assets	$	3,865,809		$	3,844,517

Liabilities and equity
Liabilities:
Debt, net	$	2,396,795		$	2,323,681
Accounts payable and accrued expenses	103,043			99,699
Rents received in advance and security deposits	29,427			31,603
Dividends and distributions payable	33,048			32,986
Deferred revenue associated with operating leases	13,897			14,802
Distributions received in excess of investment in unconsolidated real estate joint venture	5,686			5,545
Other liabilities	12,255			13,063
Total liabilities	2,594,151			2,521,379
Commitments and contingencies (Note 15)	—			—
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 shares issued and outstanding at March 31, 2011 and December 31, 2010)	81			81
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 67,103,918 at March 31, 2011 and 66,931,582 at December 31, 2010)	671			669
Additional paid-in capital	1,511,638			1,511,844
Cumulative distributions in excess of net income	(331,313		)	(281,794		)
Accumulated other comprehensive loss	(3,197		)	(4,163		)
Total Corporate Office Properties Trust’s shareholders’ equity	1,177,880			1,226,637
Noncontrolling interests in subsidiaries:
Common units in the Operating Partnership	66,016			69,337
Preferred units in the Operating Partnership	8,800			8,800
Other consolidated entities	18,962			18,364
Noncontrolling interests in subsidiaries	93,778			96,501
Total equity	1,271,658			1,323,138
Total liabilities and equity	$	3,865,809		$	3,844,517

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
	Ended March 31,
	2011			2010
Revenues
Rental revenue	$	99,426		$	91,010
Tenant recoveries and other real estate operations revenue	22,941			21,218
Construction contract and other service revenues	21,028			37,365
Total revenues	143,395			149,593
Expenses
Property operating expenses	50,905			48,135
Depreciation and amortization associated with real estate operations	33,020			27,596
Construction contract and other service expenses	20,618			36,399
Impairment loss	27,742			—
General and administrative expenses	6,777			5,900
Business development expenses	488			155
Total operating expenses	139,550			118,185
Operating income	3,845			31,408
Interest expense	(26,928		)	(22,638		)
Interest and other income	1,168			1,302
(Loss) income from continuing operations before equity in income (loss) of unconsolidated entities and income taxes	(21,915		)	10,072
Equity in income (loss) of unconsolidated entities	30			(205		)
Income tax benefit (expense)	544			(41		)
(Loss) income from continuing operations	(21,341		)	9,826
Discontinued operations	74			832
(Loss) income before gain on sales of real estate	(21,267		)	10,658
Gain on sales of real estate, net of income taxes	2,701			17
Net (loss) income	(18,566		)	10,675
Less net (loss) income attributable to noncontrolling interests:
Common units in the Operating Partnership	1,479			(527		)
Preferred units in the Operating Partnership	(165		)	(165		)
Other consolidated entities	(538		)	(45		)
Net (loss) income attributable to Corporate Office Properties Trust	(17,790		)	9,938
Preferred share dividends	(4,025		)	(4,025		)
Net (loss) income attributable to Corporate Office Properties Trust common shareholders	$	(21,815	)	$	5,913
Net (loss) income attributable to Corporate Office Properties Trust:
(Loss) income from continuing operations	$	(17,859	)	$	9,174
Discontinued operations, net	69			764
Net (loss) income attributable to Corporate Office Properties Trust	$	(17,790	)	$	9,938
Basic earnings per common share (1)
(Loss) income from continuing operations	$	(0.33	)	$	0.08
Discontinued operations	—			0.02
Net (loss) income attributable to COPT common shareholders	$	(0.33	)	$	0.10
Diluted earnings per common share (1)
(Loss) income from continuing operations	$	(0.33	)	$	0.08
Discontinued operations	—			0.02
Net (loss) income attributable to COPT common shareholders	$	(0.33	)	$	0.10

(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, 2009 (58,342,673 common shares outstanding)	$	81	$	583	$	1,238,704		$	(209,941	)	$	(1,907	)	$	93,112		$	1,120,632
Conversion of common units to common shares (309,497 shares)	—		3		4,512			—			—			(4,515		)	—
Costs associated with common shares issued to the public	—		—		(18		)	—			—			—			(18		)
Exercise of share options (128,461 shares)	—		1		2,055			—			—			—			2,056
Share-based compensation	—		2		2,609			—			—			—			2,611
Restricted common share redemptions (96,970 shares)	—		—		(3,610		)	—			—			—			(3,610		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(180		)	—			—			180			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			(1,371		)	(103		)	(1,474		)
Net income	—		—					9,938			—			737			10,675
Dividends	—		—		—			(27,186		)	—			—			(27,186		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(2,032		)	(2,032		)
Contributions from noncontrolling interests in other consolidated entities	—		—		—			—			—			9,247			9,247
Acquisition of noncontrolling interests in other consolidated entities	—		—		(26		)	—			—			(336		)	(362		)
Balance at March 31, 2010 (58,927,117 common shares outstanding)	$	81	$	589	$	1,244,046		$	(227,189	)	$	(3,278	)	$	96,290		$	1,110,539

Balance at December 31, 2010 (66,931,582 common shares outstanding)	$	81	$	669	$	1,511,844		$	(281,794	)	$	(4,163	)	$	96,501		$	1,323,138
Conversion of common units to common shares (16,725 shares)	—		—		263			—			—			(263		)	—
Costs associated with common shares issued to the public	—		—		(117		)	—			—			—			(117		)
Exercise of share options (24,667 shares)	—		—		346			—			—			—			346
Share-based compensation	—		2		3,201			—			—			—			3,203
Restricted common share redemptions (104,592 shares)	—		—		(3,713		)	—			—			—			(3,713		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(163		)	—			—			163			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			966			2			968
Net loss	—		—		—			(17,790		)	—			(776		)	(18,566		)
Dividends	—		—		—			(31,729		)	—			—			(31,729		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(1,974		)	(1,974		)
Contributions from noncontrolling interests in other consolidated entities	—		—		(23		)	—			—			125			102
Balance at March 31, 2011 (67,103,918 common shares outstanding)	$	81	$	671	$	1,511,638		$	(331,313	)	$	(3,197	)	$	93,778		$	1,271,658

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 Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities
Revenues from real estate operations received	$	114,303		$	112,328
Construction contract and other service revenues received	21,405			54,915
Property operating expenses paid	(45,267		)	(46,733		)
Construction contract and other service expenses paid	(28,315		)	(55,834		)
General and administrative and business development expenses paid	(6,860		)	(7,565		)
Interest expense paid	(22,252		)	(21,844		)
Interest and other income received	108			466
Income taxes paid	(170		)	—
Net cash provided by operating activities	32,952			35,733
Cash flows from investing activities
Purchases of and additions to properties
Construction, development and redevelopment	(46,676		)	(44,032		)
Tenant improvements on operating properties	(8,778		)	(2,971		)
Capital improvements on operating properties	(4,064		)	(2,735		)
Proceeds from sales of properties	3,149			2,952
Mortgage and other loan receivables funded or acquired	(1,181		)	(321		)
Leasing costs paid	(2,894		)	(3,038		)
Investment in unconsolidated entities	(250		)	(4,500		)
Other	(670		)	(707		)
Net cash used in investing activities	(61,364		)	(55,352		)
Cash flows from financing activities
Proceeds from debt, including issuance of exchangeable senior notes	97,273			135,892
Repayments of debt
Scheduled principal amortization	(3,798		)	(3,469		)
Other repayments	(25,050		)	(80,050		)
Net proceeds from issuance of common shares	(117		)	2,038
Dividends paid	(31,664		)	(26,948		)
Distributions paid	(1,981		)	(2,154		)
Restricted share redemptions	(3,713		)	(3,610		)
Other	(34		)	(162		)
Net cash provided by financing activities	30,916			21,537

Net increase in cash and cash equivalents	2,504			1,918
Cash and cash equivalents
Beginning of period	10,102			8,262
End of period	$	12,606		$	10,180

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 Three Months Ended
	March 31,
	2011			2010
Reconciliation of net (loss) income to net cash provided by operating activities:
Net (loss) income	$	(18,566	)	$	10,675
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and other amortization	33,645			28,253
Impairment loss	27,742			—
Amortization of deferred financing costs	1,759			1,126
Increase in deferred rent receivable	(4,240		)	(2,555		)
Amortization of above or below market leases	(207		)	(607		)
Amortization of net debt discounts	1,649			917
Gain on sales of real estate	(2,701		)	(325		)
Share-based compensation	2,917			2,611
Other	(719		)	(329		)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(827		)	3,274
Decrease in restricted cash and marketable securities and prepaid expenses and other assets	4,701			16,870
Decrease in accounts payable, accrued expenses and other liabilities	(10,025		)	(24,575		)
(Decrease) increase in rents received in advance and security deposits	(2,176		)	398
Net cash provided by operating activities	32,952			35,733

Supplemental schedule of non-cash investing and financing activities:
Increase (decrease) in accrued capital improvements, leasing and other investing activity costs	$	13,171		$	(1,313	)
Increase in property and debt in connection with loan assumption	$	3,040		$	—
Increase in property and noncontrolling interests in connection with property contribution by a noncontrolling interest in a joint venture	$	—		$	9,000
Increase in fair value of derivatives applied to AOCL and noncontrolling interests	$	662		$	1,490
Dividends/distribution payable	$	33,048		$	28,556
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	263		$	4,515
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	$	163		$	180

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 and defense information technology sectors and data centers serving such 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 strong markets that we believe possess growth opportunities. As of March 31, 2011, our investments in real estate included the following:

· 252 wholly owned operating office properties totaling 20.2 million square feet;

· 20 wholly owned office properties under construction, development or redevelopment that we estimate will total approximately 2.9 million square feet upon completion, including four partially operational properties included above;

· wholly owned land parcels totaling 1,496 acres that we believe are potentially developable into approximately 14.3 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 construction or 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 March 31, 2011 follows:

Common Units	94	%
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 5% of the Operating Partnership’s common units (“common units”) as of March 31, 2011.

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

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which we have a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than 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.

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We use the equity method of accounting when we own an interest in an entity and can exert significant influence over the entity’s operations but cannot control the entity’s operations.

We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.

These interim financial statements should be read together with the financial statements and notes thereto as of and for the year ended December 31, 2010 included in our 2010 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in our 2010 Annual Report on Form 10-K.

3. Fair Value Measurements

For a description on how we estimate fair value, see Note 3 to the consolidated financial statements in our 2010 Annual Report on Form 10-K.

The table below sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2011 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):

	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 in deferred compensation plan (1)
Mutual funds	$	6,248	$	—	$	—	$	6,248
Common stocks	1,141		—		—		1,141
Preferred stocks	322		—		—		322
Cash and cash equivalents	431		—		—		431
Other	200		—		—		200
Common stock (1)	801		—		—		801
Interest rate derivative (2)	—		935		—		935
Warrants to purchase common shares in KEYW (2)	—		337		—		337
Assets	$	9,143	$	1,272	$	—	$	10,415

Liabilities:
Deferred compensation plan liability (3)	$	8,342	$	—	$	—	$	8,342
Interest rate derivatives (3)	—		3,564		—		3,564
Liabilities	$	8,342	$	3,564	$	—	$	11,906

(1) Included in the line entitled “restricted cash and marketable securities” on our consolidated balance sheet.

(2) Included in the line entitled “prepaid expenses and other assets” on our consolidated balance sheet. We own warrants to purchase common shares in The KEYW Holding Corporation (“KEYW”), an equity method investee (see Note 6).

(3) 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.

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For additional fair value information, please refer to Note 6 for mortgage loans receivable, Note 7 for debt and Note 8 for interest rate derivatives.

4. Properties, net

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

	March 31,			December 31,
	2011			2010
Land	$	502,048		$	501,210
Buildings and improvements	2,843,873			2,804,595
	3,345,921			3,305,805
Less: accumulated depreciation	(526,825		)	(503,032		)
	$	2,819,096		$	2,802,773

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

	March 31,		December 31,
	2011		2010
Land	$	253,505	$	256,487
Construction in progress, excluding land	396,170		386,195
	$	649,675	$	642,682

As discussed further in Note 15, on February 15 and 17, 2011, the United States Army (the “Army”) provided us disclosures regarding the past testing and use of tactical defoliants/herbicides at our property in Cascade, Maryland that was formerly an Army base known as Fort Ritchie (“Fort Ritchie”). Upon receipt of these disclosures, we commenced a review of our development plans and prospects for the property. We believe that these disclosures by the Army are likely to cause further delays in the resolution of certain existing litigation related to the property (also discussed in Note 15), and that they also increase the level of uncertainty as to our ultimate development rights at the property and future residential and commercial demand for the property. We analyzed various possible outcomes and resulting cash flows expected from the operations and ultimate disposition of the property. After determining that the carrying amount of the property will not likely be recovered from those cash flows, we recognized a non-cash impairment loss of $27.7 million in the three months ended March 31, 2011 for the amount by which the carrying value of the property exceeded its estimated fair value.

2011 Construction, Development and Redevelopment Activities

During the three months ended March 31, 2011, we had one newly constructed office property in the Baltimore/Washington Corridor totaling 151,000 square feet become fully operational (31,000 of these square feet were placed into service in 2010) and placed into service 6,000 square feet in one partially operational office property.

As of March 31, 2011, we had construction underway on 11 office properties totaling 1.2 million square feet, including four in the Baltimore/Washington Corridor, three in Greater Baltimore, one in San Antonio, one in Northern Virginia, one in Huntsville, Alabama and one in St. Mary’s and King George Counties. We also had development activities underway on seven office properties totaling 991,000 square feet, including three in the Baltimore/Washington Corridor, two in San Antonio, one in Huntsville and one in Greater Baltimore. In addition, we had redevelopment underway on four office properties totaling 868,000 square feet, including two in Greater Philadelphia, one in the Baltimore/Washington Corridor and one in Northern Virginia.

5. Real Estate Joint Ventures

During the three months ended March 31, 2011, 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):

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Investment Balance at (1)

Maximum

March 31,

December 31,

Date

Nature of

Exposure

2011

2010

Acquired

Ownership

Activity

to Loss (2)

(5,686)

(5,545)

9/29/2005

20%

Operates 16 buildings

—

(1) 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 March 31, 2011 and December 31, 2010 due to our deferral of gain on the contribution by us 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.

(2) 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 15).

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

	March 31,			December 31,
	2011			2010
Properties, net	$	61,101		$	61,521
Other assets	4,060			4,174
Total assets	$	65,161		$	65,695

Liabilities (primarily debt)	$	67,626		$	67,454
Owners’ equity	(2,465		)	(1,759		)
Total liabilities and owners’ equity	$	65,161		$	65,695

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

	For the Three Months
	Ended March 31,
	2011			2010
Revenues	$	1,924		$	2,100
Property operating expenses	(986		)	(994		)
Interest expense	(1,011		)	(981		)
Depreciation and amortization expense	(608		)	(878		)
Net loss	$	(681	)	$	(753	)

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at March 31, 2011 (dollars in thousands):

		Ownership		March 31, 2011 (1)
	Date	% at	Nature of	Total		Pledged		Total
	Acquired	3/31/2011	Activity	Assets		Assets		Liabilities
M Square Associates, LLC	6/26/2007	50.0%	Operating two buildings and developing others (2)	$	60,458	$	49,042	$	44,319
Arundel Preserve #5, LLC	7/2/2007	50.0%	Operating one building (3)	29,521		28,735		16,815
LW Redstone Company, LLC	3/23/2010	85.0%	Developing land parcel (4)	21,070		—		46
COPT-FD Indian Head, LLC	10/23/2006	75.0%	Developing land parcel (5)	7,486		—		17
MOR Forbes 2 LLC	12/24/2002	50.0%	Operating one building (6)	4,003		—		60
				$	122,538	$	77,777	$	61,257

(1) Excludes amounts eliminated in consolidation.

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

(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).

Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 15.

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6. Prepaid Expenses and Other Assets

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

	March 31,		December 31,
	2011		2010
Investment in KEYW	$	23,019	$	22,779
Mortgage and other investing receivables	20,573		18,870
Prepaid expenses	14,823		19,995
Furniture, fixtures and equipment, net	11,120		11,504
Construction contract costs incurred in excess of billings	8,247		9,372
Other assets	12,967		11,376
Prepaid expenses and other assets	$	90,749	$	93,896

Investment in The KEYW Holding Corporation

Our investment in KEYW reflected above consists of common stock and warrants to purchase additional shares of common stock of KEYW. At March 31, 2011 and December 31, 2010, we owned 3.1 million shares, or approximately 12%, of KEYW’s common stock. We use the equity method of accounting for our investment in the common stock. The carrying value of our equity method investment in these common shares was $22.7 million at March 31, 2011 and $22.3 million at December 31, 2010. Our investment in these common shares had a fair value of $37.7 million at March 31, 2011 based on the closing price of KEYW’s common stock on the NASDAQ Stock Market on that date. In March 2011, we entered into a sales plan, which complies with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, to sell up to 1.6 million shares of our KEYW common stock in 2011.

At March 31, 2011 and December 31, 2010, we owned warrants to purchase 50,000 additional shares of KEYW common stock at an exercise price of $9.25 per share. We account for these warrants as derivatives reported at fair value using the Black-Scholes option-pricing model. The estimated fair value of these warrants was $337,000, or $6.74 per warrant, at March 31, 2011 and $466,000, or $9.32 per warrant, at December 31, 2010.

Mortgage and Other Investing Receivables

Mortgage and other investing receivables consisted of the following (in thousands):

	March 31,		December 31,
	2011		2010
Mortgage loans receivable	$	14,822	$	14,227
Note receivable from City of Huntsville	5,751		4,643
	$	20,573	$	18,870

Our mortgage loans receivable reflected above consist of two loans secured by properties in the Baltimore/Washington Corridor. Our note receivable from the City of Huntsville was to fund infrastructure costs in connection with our LW Redstone Company, LLC joint venture. We do not have an allowance for credit losses in connection with theses receivables at March 31, 2011 or December 31, 2010. The fair value of our mortgage and other investing receivables totaled $20.6 million at March 31, 2011 and $18.8 million at December 31, 2010.

Operating Notes Receivable

We had operating notes receivables due from tenants with terms exceeding one year totaling $596,000 at March 31, 2011 and $655,000 at December 31, 2010. We carried allowances for estimated losses for most of these balances.

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7. Debt

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

								Scheduled
	Maximum		Carrying Value at					Maturity
	Availability at		March 31,		December 31,		Stated Interest Rates	Dates at
	March 31, 2011		2011		2010		at March 31, 2011	March 31, 2011

Mortgage and Other Secured Loans:
Fixed rate mortgage loans (1)	N/A		$	1,169,688	$	1,173,358	5.20% - 7.87% (2)	2011 - 2034 (3)
Revolving Construction Facility	$	225,000	161,612		142,339		LIBOR + 1.60% to 2.00% (4)	May 2, 2012
Variable rate secured loans	N/A		310,236		310,555		LIBOR + 2.25% to 3.00% (5)	2012-2014 (6)
Other construction loan facility	23,400		16,753		16,753		LIBOR + 2.75% (7)	2011 (8)
Total mortgage and other secured loans			1,658,289		1,643,005
Revolving Credit Facility	800,000		348,000		295,000		LIBOR + 0.75% to 1.25% (9)	September 30, 2011 (8)
Unsecured notes payable	N/A		4,968		1,947		0% (10)	2015-2026
Exchangeable Senior Notes:
4.25% Exchangeable Senior Notes	N/A		224,686		223,846		4.25%	April 2030 (11)
3.5% Exchangeable Senior Notes	N/A		160,852		159,883		3.50%	September 2026 (12)
Total debt			$	2,396,795	$	2,323,681

(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 net unamortized premiums totaling $2.9 million at March 31, 2011 and $3.2 million at December 31, 2010.

(2) The weighted average interest rate on these loans was 5.97% at March 31, 2011.

(3) A loan with a balance of $4.5 million at March 31, 2011 that matures in 2034 may be repaid in March 2014, subject to certain conditions.

(4) The weighted average interest rate on this loan was 1.87% at March 31, 2011.

(5) Certain of the loans in this category at March 31, 2011 were subject to floor interest rates ranging from 4.25% to 5.50%.

(6) Includes $221.4 million maturing in 2012 that may be extended for a one-year period at our option, subject to certain conditions.

(7) The interest rate on this loan was 3.02% at March 31, 2011.

(8) These loans may be extended for a one-year period at our option, subject to certain conditions.

(9) The weighted average interest rate on the Revolving Credit Facility was 1.12% at March 31, 2011.

(10) These notes may carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling $2.0 million at March 31, 2011 and $1.1 million at December 31, 2010.

(11) As described further in our 2010 Annual Report on Form 10-K, these 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 at an exchange rate (subject to adjustment) of 20.8011 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2011 and is equivalent to an exchange price of $48.07 per common share). The carrying value of these notes included a principal amount of $240.0 million and an unamortized discount totaling $15.3 million at March 31, 2011 and $16.2 million at December 31, 2010. The effective interest rate under the notes, including amortization of the issuance costs, was 6.05%. Because the closing price of our common shares at March 31, 2011 and December 31, 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
	Months Ended
	March 31, 2011
Interest expense at stated interest rate	$	2,550
Interest expense associated with amortization of discount	840
Total	$	3,390

(12) As described further in our 2010 Annual Report on Form 10-K, these notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, may be exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares at an exchange rate (subject to adjustment) of 19.2648 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2011 and is equivalent to an exchange price of $51.91 per common share). The carrying value of these notes included a principal amount of $162.5 million and an unamortized discount totaling $1.6 million at March 31, 2011 and $2.6 million at December 31, 2010. 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 March 31, 2011 and December 31, 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):

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	For the Three Months
	Ended March 31,
	2011		2010
Interest expense at stated interest rate	$	1,422	$	1,422
Interest expense associated with amortization of discount	969		913
Total	$	2,391	$	2,335

We capitalized interest costs of $4.3 million in the three months ended March 31, 2011 and $3.9 million in the three months ended March 31, 2010.

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

	March 31, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Fixed-rate debt	$	1,560,194	$	1,574,532	$	1,559,034	$	1,579,022
Variable-rate debt	836,601		840,203		764,647		769,247
	$	2,396,795	$	2,414,735	$	2,323,681	$	2,348,269

8. Interest Rate Derivatives

The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):

						Fair Value at
Notional		One-Month		Effective	Expiration	March 31,			December 31,
Amount		LIBOR Base		Date	Date	2011			2010
$ 120,000		1.7600	%	1/2/2009	5/1/2012	$	(1,730	)	$	(2,062	)
100,000		1.9750	%	1/1/2010	5/1/2012	(1,675		)	(2,002		)
50,000		0.5025	%	1/3/2011	1/3/2012	(61		)	(64		)
50,000		0.5025	%	1/3/2011	1/3/2012	(61		)	(64		)
50,000		0.4400	%	1/4/2011	1/3/2012	(37		)	(34		)
40,000	(1)	3.8300	%	11/2/2010	11/2/2015	935			644
						$	(2,629	)	$	(3,582	)

(1) The notional amount of this instrument is scheduled to amortize to $36.2 million.

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 (in thousands):

	March 31, 2011				December 31, 2010
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest rate swaps	Prepaid expenses and other assets	$	935		Prepaid expenses and other assets	$	644
Interest rate swaps	Other liabilities	(3,564		)	Other liabilities	(4,226		)

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):

	For the Three Months
	Ended March 31,
	2011			2010

Amount of loss recognized in AOCL (effective portion)	$	(136	)	$	(2,385	)
Amount of loss reclassified from AOCL into interest expense (effective portion)	(1,104		)	(911		)

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Over the next 12 months, we estimate that approximately $3.9 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 March 31, 2011, the fair value of interest rate derivatives in a liability position related to these agreements was $3.6 million, excluding the effects of accrued interest. As of March 31, 2011, 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 $3.9 million.

9. Shareholders’ Equity

Common Shares

During the three months ended March 31, 2011, holders of 16,725 common units in our Operating Partnership converted their units into common shares on the basis of one common share for each common unit.

We declared dividends per common share of $0.4125 in the three months ended March 31, 2011 and $0.3925 in the three months ended March 31, 2010.

See Note 11 for disclosure of common share activity pertaining to our share-based compensation plans.

Accumulated Other Comprehensive Loss

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

	For the Three Months
	Ended March 31,
	2011			2010
Beginning balance	$	(4,163	)	$	(1,907	)
Amount of loss recognized in AOCL (effective portion)	(136		)	(2,385		)
Amount of loss reclassified from AOCL to income (effective portion)	1,104			911
Adjustment to AOCL attributable to noncontrolling interests	(2		)	103
Ending balance	$	(3,197	)	$	(3,278	)

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

	For the Three Months
	Ended March 31,
	2011			2010
Net (loss) income	$	(18,566	)	$	10,675
Amount of loss recognized in AOCL	(136		)	(2,385		)
Amount of loss reclassified from AOCL to income	1,104			911
Total comprehensive (loss) income	(17,598		)	9,201
Net loss (income) attributable to noncontrolling interests	776			(737		)
Other comprehensive (loss) income attributable to noncontrolling interests	(62		)	121
Total comprehensive (loss) income attributable to COPT	$	(16,884	)	$	8,585

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10. Information by Business Segment

As of March 31, 2011, 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. We also had 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 March 31, 2011
Revenues from real estate operations	$	53,252	$	17,612	$	18,274	$	5,920	$	5,609	$	7,663	$	4,590	$	1,939	$	3,534	$	1,210	$	2,838	$	122,441
Property operating expenses	21,390		8,540		7,671		2,436		2,718		3,869		1,627		446		1,016		706		486		50,905
NOI from real estate operations	$	31,862	$	9,072	$	10,603	$	3,484	$	2,891	$	3,794	$	2,963	$	1,493	$	2,518	$	504	$	2,352	$	71,536
Additions to properties, net	$	24,755	$	11,826	$	2,137	$	421	$	1,175	$	2,290	$	63	$	2,233	$	3,250	$	24,070	$	3,131	$	75,351
Segment assets at March 31, 2011	$	1,405,746	$	589,750	$	543,677	$	263,548	$	176,866	$	155,928	$	118,407	$	124,971	$	101,370	$	154,245	$	231,301	$	3,865,809

Three Months Ended March 31, 2010
Revenues from real estate operations	$	52,058	$	17,865	$	18,659	$	6,332	$	5,829	$	3,938	$	—	$	1,202	$	3,589	$	—	$	3,524	$	112,996
Property operating expenses	22,155		9,010		7,313		2,309		2,701		1,629		—		763		1,107		—		1,309		48,296
NOI from real estate operations	$	29,903	$	8,855	$	11,346	$	4,023	$	3,128	$	2,309	$	—	$	439	$	2,482	$	—	$	2,215	$	64,700
Additions to properties, net	$	15,959	$	7,240	$	4,910	$	813	$	1,541	$	4,939	$	—	$	10,058	$	411	$	—	$	12,476	$	58,347
Segment assets at March 31, 2010	$	1,339,080	$	568,361	$	452,105	$	269,338	$	172,971	$	139,977	$	—	$	115,023	$	94,033	$	—	$	247,464	$	3,398,352

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The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):

	For the Three Months
	Ended March 31,
	2011			2010
Segment revenues from real estate operations	$	122,441		$	112,996
Construction contract and other service revenues	21,028			37,365
Less: Revenues from discontinued operations (Note 13)	(74		)	(768		)
Total revenues	$	143,395		$	149,593

The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):

	For the Three Months
	Ended March 31,
	2011		2010
Segment property operating expenses	$	50,905	$	48,296
Less: Property operating expenses from discontinued operations (Note 13)	—		(161		)
Total property operating expenses	$	50,905	$	48,135

As previously discussed, we provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):

	For the Three Months
	Ended March 31,
	2011			2010
Construction contract and other service revenues	$	21,028		$	37,365
Construction contract and other service expenses	(20,618		)	(36,399		)
NOI from service operations	$	410		$	966

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The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to (loss) income from continuing operations as reported on our consolidated statements of operations (in thousands):

	For the Three Months
	Ended March 31,
	2011			2010
NOI from real estate operations	$	71,536		$	64,700
NOI from service operations	410			966
Interest and other income	1,168			1,302
Equity in income (loss) of unconsolidated entities	30			(205		)
Income tax benefit (expense)	544			(41		)
Other adjustments:
Depreciation and other amortization associated with real estate operations	(33,020		)	(27,596		)
Impairment loss	(27,742		)	—
General and administrative expenses	(6,777		)	(5,900		)
Business development expenses	(488		)	(155		)
Interest expense on continuing operations	(26,928		)	(22,638		)
NOI from discontinued operations	(74		)	(607		)
(Loss) income from continuing operations	$	(21,341	)	$	9,826

The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations are not presented separately for segment purposes. We did not allocate interest expense, depreciation and amortization and impairment loss to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general and administrative expenses, business development expenses, interest and other income, equity in income (loss) of unconsolidated entities, income taxes and noncontrolling interests because these items represent general corporate items not attributable to segments.

11. Share-Based Compensation

Performance Share Units (“PSUs”)

On March 3, 2011, our Board of Trustees granted 56,883 PSUs to executives. The PSUs have a performance period beginning on the grant date and concluding on the earlier of March 2, 2014 or the date of: (1) termination by the Company without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event. The number of PSUs earned (“earned PSUs”) at the end of the performance period will be determined based on the percentile rank of the Company’s total shareholder return relative to a peer group of companies, as set forth in the following schedule:

Percentile Rank		Earned PSUs Payout %
75th or greater		200% of PSUs granted
50th or greater		100% of PSUs granted
25th		50% of PSUs granted
Below 25th		0% of PSUs granted

If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned PSUs will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles. At the end of the performance period, we, in settlement of the award, will issue a number of fully-vested common shares equal to the sum of:

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PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Equity for the Three Months Ended March 31, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4:	Controls and Procedures	37

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	37
Item 1A:	Risk Factors	38
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3:	Defaults Upon Senior Securities	38
Item 4:	Removed and Reserved	38
Item 5:	Other Information	38
Item 6:	Exhibits	39


SIGNATURES		40