UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2011

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 July 18, 2011, 71,912,302 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)

	June 30,			December 31,
	2011			2010
Assets
Properties, net:
Operating properties, net	$	2,741,433		$	2,802,773
Properties under construction or development	656,321			642,682
Properties held for sale, net	75,107			—
Total properties, net	3,472,861			3,445,455
Cash and cash equivalents	11,703			10,102
Restricted cash and marketable securities	22,909			22,582
Accounts receivable (net of allowance for doubtful accounts of $3,360 and $2,796, respectively)	13,083			18,938
Deferred rent receivable	85,190			79,160
Intangible assets on real estate acquisitions, net	99,917			113,735
Deferred leasing and financing costs, net	60,988			60,649
Prepaid expenses and other assets	101,579			93,896
Total assets	$	3,868,230		$	3,844,517

Liabilities and equity
Liabilities:
Debt, net	$	2,299,416		$	2,323,681
Accounts payable and accrued expenses	115,154			99,699
Rents received in advance and security deposits	26,779			31,603
Dividends and distributions payable	35,021			32,986
Deferred revenue associated with operating leases	12,883			14,802
Distributions received in excess of investment in unconsolidated real estate joint venture	5,841			5,545
Interest rate derivatives	10,020			4,226
Other liabilities	9,744			8,837
Total liabilities	2,514,858			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 June 30, 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 71,891,631 at June 30, 2011 and 66,931,582 at December 31, 2010)	719			669
Additional paid-in capital	1,657,536			1,511,844
Cumulative distributions in excess of net income	(389,195		)	(281,794		)
Accumulated other comprehensive loss	(9,624		)	(4,163		)
Total Corporate Office Properties Trust’s shareholders’ equity	1,259,517			1,226,637
Noncontrolling interests in subsidiaries:
Common units in the Operating Partnership	66,482			69,337
Preferred units in the Operating Partnership	8,800			8,800
Other consolidated entities	18,573			18,364
Noncontrolling interests in subsidiaries	93,855			96,501
Total equity	1,353,372			1,323,138
Total liabilities and equity	$	3,868,230		$	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						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Revenues
Rental revenue	$	98,589		$	88,779		$	195,864		$	177,423
Tenant recoveries and other real estate operations revenue	19,954			17,950			42,837			38,937
Construction contract and other service revenues	28,097			26,065			49,125			63,430
Total revenues	146,640			132,794			287,826			279,790
Expenses
Property operating expenses	44,721			39,260			94,431			86,206
Depreciation and amortization associated with real estate operations	31,440			28,720			62,830			55,531
Construction contract and other service expenses	26,909			25,402			47,527			61,801
Impairment losses	38,290			—			66,032			—
General and administrative expenses	6,320			5,926			13,097			11,826
Business development expenses	588			465			1,076			620
Total operating expenses	148,268			99,773			284,993			215,984
Operating (loss) income	(1,628		)	33,021			2,833			63,806
Interest expense	(26,607		)	(25,576		)	(53,246		)	(48,068		)
Interest and other income	2,756			245			3,924			1,547
Loss on early extinguishment of debt	(25		)	—			(25		)	—
(Loss) income from continuing operations before equity in loss of unconsolidated entities and income taxes	(25,504		)	7,690			(46,514		)	17,285
Equity in loss of unconsolidated entities	(94		)	(72		)	(64		)	(277		)
Income tax benefit (expense)	5,042			(7		)	5,586			(48		)
(Loss) income from continuing operations	(20,556		)	7,611			(40,992		)	16,960
Discontinued operations	(5,467		)	1,205			(6,298		)	2,514
(Loss) income before gain on sales of real estate	(26,023		)	8,816			(47,290		)	19,474
Gain on sales of real estate, net of income taxes	16			335			2,717			352
Net (loss) income	(26,007		)	9,151			(44,573		)	19,826
Net loss (income) attributable to noncontrolling interests:
Common units in the Operating Partnership	1,887			(364		)	3,366			(891		)
Preferred units in the Operating Partnership	(165		)	(165		)	(330		)	(330		)
Other consolidated entities	61			(156		)	(477		)	(201		)
Net (loss) income attributable to Corporate Office Properties Trust	(24,224		)	8,466			(42,014		)	18,404
Preferred share dividends	(4,026		)	(4,026		)	(8,051		)	(8,051		)
Net (loss) income attributable to Corporate Office Properties Trust common shareholders	$	(28,250	)	$	4,440		$	(50,065	)	$	10,353
Net (loss) income attributable to Corporate Office Properties Trust:
(Loss) income from continuing operations	$	(19,102	)	$	7,351		$	(36,114	)	$	16,087
Discontinued operations, net	(5,122		)	1,115			(5,900		)	2,317
Net (loss) income attributable to Corporate Office Properties Trust	$	(24,224	)	$	8,466		$	(42,014	)	$	18,404
Basic earnings per common share (1)
(Loss) income from continuing operations	$	(0.34	)	$	0.05		$	(0.66	)	$	0.13
Discontinued operations	(0.08		)	0.02			(0.09		)	0.04
Net (loss) income attributable to COPT common shareholders	$	(0.42	)	$	0.07		$	(0.75	)	$	0.17
Diluted earnings per common share (1)
(Loss) income from continuing operations	$	(0.34	)	$	0.05		$	(0.66	)	$	0.13
Discontinued operations	(0.08		)	0.02			(0.09		)	0.04
Net (loss) income attributable to COPT common shareholders	$	(0.42	)	$	0.07		$	(0.75	)	$	0.17

(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 (Loss)			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
Issuance of 4.25% Exchangeable Senior Notes	—		—		18,149			—			—			—			18,149
Conversion of common units to common shares (610,598 shares)	—		6		8,821			—			—			(8,827		)	—
Costs associated with common shares issued to the public	—		—		(19		)	—			—			—			(19		)
Exercise of share options (175,443 shares)	—		2		3,082			—			—			—			3,084
Share-based compensation	—		2		5,640			—			—			—			5,642
Restricted common share redemptions (99,692 shares)	—		—		(3,713		)	—			—			—			(3,713		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(1,496		)	—			—			1,496			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			(2,356		)	(161		)	(2,517		)
Net income	—		—					18,404			—			1,422			19,826
Dividends	—		—		—			(54,471		)	—			—			(54,471		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(3,946		)	(3,946		)
Contributions from noncontrolling interests in other consolidated entities	—		—		—			—			—			9,260			9,260
Acquisition of noncontrolling interests in other consolidated entities	—		—		(26		)	—			—			(335		)	(361		)
Balance at June 30, 2010 (59,287,761 common shares outstanding)	$	81	$	593	$	1,269,142		$	(246,008	)	$	(4,263	)	$	92,021		$	1,111,566

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 (21,045 shares)	—		—		328			—			—			(328		)	—
Common shares issued to the public (4,600,000 shares)	—		46		145,315			—			—			—			145,361
Exercise of share options (180,464 shares)	—		2		2,307			—			—			—			2,309
Share-based compensation	—		2		6,356			—			—			—			6,358
Restricted common share redemptions (107,442 shares)	—		—		(3,813		)	—			—			—			(3,813		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(4,778		)	—			—			4,778			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			(5,461		)	(866		)	(6,327		)
Net loss	—		—		—			(42,014		)	—			(2,559		)	(44,573		)
Dividends	—		—		—			(65,387		)	—			—			(65,387		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(3,947		)	(3,947		)
Contributions from noncontrolling interests in other consolidated entities	—		—		(23		)	—			—			284			261
Distributions to noncontrolling interests in other consolidated entities	—		—		—			—			—			(8		)	(8		)
Balance at June 30, 2011 (71,891,631 common shares outstanding)	$	81	$	719	$	1,657,536		$	(389,195	)	$	(9,624	)	$	93,855		$	1,353,372

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 Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities
Revenues from real estate operations received	$	233,541		$	216,789
Construction contract and other service revenues received	49,441			81,275
Property operating expenses paid	(81,173		)	(82,158		)
Construction contract and other service expenses paid	(51,538		)	(87,253		)
General and administrative and business development expenses paid	(10,429		)	(9,800		)
Interest expense paid	(47,425		)	(40,861		)
Interest and other income received	250			563
Income taxes paid	(170		)	—
Net cash provided by operating activities	92,497			78,555
Cash flows from investing activities
Purchases of and additions to properties
Construction, development and redevelopment	(99,152		)	(94,071		)
Acquisitions of operating properties	—			(40,000		)
Tenant improvements on operating properties	(20,721		)	(7,623		)
Other capital improvements on operating properties	(6,009		)	(4,256		)
Proceeds from sales of properties	6,943			3,947
Proceeds from sale of equity method investment	5,773			—
Mortgage and other loan receivables funded or acquired	(15,796		)	(603		)
Leasing costs paid	(6,802		)	(5,297		)
Investment in unconsolidated entities	(250		)	(4,500		)
Other	(1,295		)	(3,278		)
Net cash used in investing activities	(137,309		)	(155,681		)
Cash flows from financing activities
Proceeds from debt, including issuance of exchangeable senior notes	284,662			500,459
Repayments of debt
Scheduled principal amortization	(7,421		)	(6,969		)
Other repayments	(307,913		)	(349,006		)
Deferred financing costs paid	(557		)	(6,252		)
Net proceeds from issuance of common shares	145,361			3,065
Dividends paid	(63,466		)	(54,091		)
Distributions paid	(3,964		)	(4,186		)
Restricted share redemptions	(3,813		)	(3,713		)
Other	3,524			(564		)
Net cash provided by financing activities	46,413			78,743

Net increase in cash and cash equivalents	1,601			1,617
Cash and cash equivalents
Beginning of period	10,102			8,262
End of period	$	11,703		$	9,879

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 Six Months Ended
	June 30,
	2011			2010
Reconciliation of net (loss) income to net cash provided by operating activities:
Net (loss) income	$	(44,573	)	$	19,826
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and other amortization	66,317			58,433
Impairment losses	72,347			—
Amortization of deferred financing costs	3,461			2,621
Increase in deferred rent receivable	(7,213		)	(4,289		)
Amortization of above or below market leases	(348		)	(1,037		)
Amortization of net debt discounts	3,367			2,649
Gain on sales of real estate	(2,867		)	(660		)
Gain on equity method investment	(2,442		)	(367		)
Share-based compensation	5,734			5,642
Other	(376		)	275
Changes in operating assets and liabilities:
Decrease in accounts receivable	6,044			4,704
Decrease in restricted cash and marketable securities and prepaid expenses and other assets	5,392			21,820
Decrease in accounts payable, accrued expenses and other liabilities	(7,522		)	(27,213		)
Decrease in rents received in advance and security deposits	(4,824		)	(3,849		)
Net cash provided by operating activities	92,497			78,555

Supplemental schedule of non-cash investing and financing activities:
Increase (decrease) in accrued capital improvements, leasing and other investing activity costs	$	23,053		$	(2,064	)
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
(Decrease) increase in fair value of derivatives applied to AOCL and noncontrolling interests	$	(6,358	)	$	2,547
Dividends/distribution payable	$	35,021		$	28,580
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	328		$	8,827
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	$	4,778		$	1,496

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 June 30, 2011, our investments in real estate included the following:

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

· 17 wholly owned office properties under construction, development or redevelopment that we estimate will total approximately 2.2 million square feet upon completion, including two partially operational properties included above;

· wholly owned land parcels totaling 1,516 acres that we believe are potentially developable into approximately 13.0 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 June 30, 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 June 30, 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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	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	$	6,380	$	—	$	—	$	6,380
Common stocks	1,175		—		—		1,175
Preferred stocks	324		—		—		324
Cash and cash equivalents	418		—		—		418
Other	200		—		—		200
Common stock (1)	520		—		—		520
Interest rate derivative (2)	—		80		—		80
Warrants to purchase common shares in KEYW (2)	—		327		—		327
Assets	$	9,017	$	407	$	—	$	9,424

Liabilities:
Deferred compensation plan liability (3)	$	8,497	$	—	$	—	$	8,497
Interest rate derivatives	—		10,020		—		10,020
Liabilities	$	8,497	$	10,020	$	—	$	18,517

(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.

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):

	June 30,			December 31,
	2011			2010
Land	$	491,188		$	501,210
Buildings and improvements	2,777,861			2,804,595
Less: accumulated depreciation	(527,616		)	(503,032		)
Operating properties, net	$	2,741,433		$	2,802,773

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

	June 30,		December 31,
	2011		2010
Land	$	248,647	$	256,487
Construction in progress, excluding land	407,674		386,195
Properties under construction or development	$	656,321	$	642,682

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Strategic Reallocation Plan and Impairment Losses

In April 2011, we completed a review of our portfolio and identified a number of properties that are no longer closely aligned with our strategy, and our Board of Trustees approved a plan by management to dispose of some of these properties during the next three years (the “Strategic Reallocation Plan”). We subsequently identified an additional property with an increased likelihood of a shortened holding period. While we expect to recognize gains on the dispositions of some of these properties, we also determined that the carrying amounts of certain of these properties (the “Impaired Properties”) will not likely be recovered from the cash flows from the operations and sales of such properties over the shorter holding periods. Accordingly, during the three months ended June 30, 2011, we recognized aggregate non-cash impairment losses of $44.6 million (including $6.3 million classified as discontinued operations and excluding $4.6 million in related income tax benefit) for the amounts by which the carrying values of the Impaired Properties exceeded their respective estimated fair values.

The properties to be disposed of pursuant to the Strategic Reallocation Plan consist primarily of smaller, non-strategic office properties in certain submarkets in the Greater Baltimore, Suburban Maryland and St. Mary’s County regions. We expect that net proceeds from the execution of the Strategic Reallocation Plan after the repayment of debt secured by the properties will approximate $200 million. We expect to invest the proceeds in properties that will serve customers in the United States Government, defense information technology and related data sectors. In May 2011, we completed the sale of three properties under the Strategic Reallocation Plan totaling 39,000 square feet for $3.8 million and recognized a gain of $150,000. As of June 30, 2011, we had 17 operating properties and a recently redeveloped property included in the Strategic Reallocation Plan classified as held for sale that consisted of the following (in thousands):

Land, operating properties	$	10,343
Land, development	5,599		(1)
Buildings and improvements	43,022
Construction in progress, excluding land	22,934		(1)
Less: accumulated depreciation	(6,791		)
Properties held for sale, net	$	75,107

(1) Pertains to a property nearing completion of redevelopment.

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, 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 March 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 six months ended June 30, 2011, we had two newly constructed office properties totaling 228,000 square feet, including one in the Baltimore/Washington Corridor and one in Greater Baltimore, become fully operational (79,000 of these square feet were placed into service in 2010).

As of June 30, 2011, we had construction underway on ten office properties totaling 1.2 million square feet, including four in the Baltimore/Washington Corridor, two in Greater Baltimore, one in San Antonio, one in Northern Virginia, one in Huntsville, Alabama and one in St. Mary’s County. We also had development activities underway on eight office properties totaling 1.0 million square feet, including three in the Baltimore/Washington Corridor, two in San Antonio, two in Huntsville and one in Northern Virginia. In addition, we had redevelopment underway on two office properties totaling 297,000 square feet, including one in Greater Philadelphia and one in Northern Virginia.

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5. Real Estate Joint Ventures

During the six months ended June 30, 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):

										Maximum
Investment Balance at (1)						Date			Nature of	Exposure
June 30, 2011			December 31, 2010			Acquired	Ownership		Activity	to Loss (2)
$	(5,841	)	$	(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 June 30, 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):

	June 30,			December 31,
	2011			2010
Properties, net	$	60,745		$	61,521
Other assets	3,435			4,174
Total assets	$	64,180		$	65,695

Liabilities (primarily debt)	$	67,422		$	67,454
Owners’ equity	(3,242		)	(1,759		)
Total liabilities and owners’ equity	$	64,180		$	65,695

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

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Revenues	$	1,890		$	2,089		$	3,814		$	4,189
Property operating expenses	(979		)	(832		)	(1,965		)	(1,826		)
Interest expense	(988		)	(966		)	(1,999		)	(1,947		)
Depreciation and amortization expense	(567		)	(857		)	(1,175		)	(1,735		)
Net loss	$	(644	)	$	(566	)	$	(1,325	)	$	(1,319	)

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The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at June 30, 2011 (dollars in thousands):

		Ownership			June 30, 2011 (1)
	Date	% at		Nature of	Total		Pledged		Total
	Acquired	6/30/2011		Activity	Assets		Assets		Liabilities
M Square Associates, LLC	6/26/2007	50	%	Operating two buildings and developing others (2)	$	59,363	$	48,749	$	43,896
LW Redstone Company, LLC	3/23/2010	85	%	Developing land parcel (3)	30,065		—		3,028
Arundel Preserve #5, LLC	7/2/2007	50	%	Operating one building (4)	29,711		28,699		17,038
COPT-FD Indian Head, LLC	10/23/2006	75	%	Developing land parcel (5)	6,492		—		—
MOR Forbes 2 LLC	12/24/2002	50	%	Operating one building (6)	4,002		—		46
					$	129,633	$	77,448	$	64,008

(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 Huntsville, Alabama.

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

(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.

6. Prepaid Expenses and Other Assets

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

	June 30,		December 31,
	2011		2010
Mortgage and other investing receivables	$	35,649	$	18,870
Investment in KEYW	19,456		22,779
Furniture, fixtures and equipment, net	10,578		11,504
Construction contract costs incurred in excess of billings	9,657		9,372
Prepaid expenses	8,758		19,995
Deferred tax asset	5,676		276
Other assets	11,805		11,100
Prepaid expenses and other assets	$	101,579	$	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. We owned 2.6 million shares, or approximately 10%, of KEYW’s common stock at June 30, 2011 and 3.1 million shares, or approximately 12%, at December 31, 2010. 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 $19.1 million at June 30, 2011 and $22.3 million at December 31, 2010. Our investment in these common shares had a fair value of $31.8 million at June 30, 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 that 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; we completed the sale of 500,000 shares under this plan in the three and six months ended June 30, 2011, resulting in $2.1 million in gain recognized. We subsequently suspended this plan effective June 30, 2011. Our Chief Executive Officer resigned from the Board of Directors of KEYW effective July 1, 2011, at which time we began accounting for our investment in KEYW’s common stock as a trading marketable equity security to be reported at fair value, with unrealized gains and losses recognized through earnings.

At June 30, 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 $327,000, or $6.55 per warrant, at June 30, 2011 and $466,000, or $9.32 per warrant, at December 31, 2010.

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Mortgage and Other Investing Receivables

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

	June 30,		December 31,
	2011		2010
Mortgage loans receivable	$	25,473	$	14,227
Notes receivable from City of Huntsville	10,176		4,643
	$	35,649	$	18,870

Our mortgage loans receivable reflected above consists of three loans secured by properties in the Baltimore/Washington Corridor and Greater Baltimore. Our notes receivable from the City of Huntsville funded 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 June 30, 2011 or December 31, 2010. The fair value of our mortgage and other investing receivables totaled $35.9 million at June 30, 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 $595,000 at June 30, 2011 and $655,000 at December 31, 2010. We carried allowances for estimated losses for most of these balances.

7. Debt

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

								Scheduled
	Maximum		Carrying Value at					Maturity
	Availability at		June 30,		December 31,		Stated Interest Rates	Dates at
	June 30, 2011		2011		2010		at June 30, 2011	June 30, 2011

Mortgage and Other Secured Loans:
Fixed rate mortgage loans (1)	N/A		$	1,063,369	$	1,173,358	5.20% - 7.87% (2)	2012 - 2034 (3)
Revolving Construction Facility	$	225,000	175,001		142,339		LIBOR + 1.60% to 2.00% (4)	May 2012
Variable rate secured loans	N/A		309,923		310,555		LIBOR + 2.25% to 3.00% (5)	2012 - 2015 (6)
Other construction loan facility	23,400		16,753		16,753		LIBOR + 2.75% (7)	2012
Total mortgage and other secured loans			1,565,046		1,643,005

Revolving Credit Facility	800,000		342,000		295,000		LIBOR + 0.75% to 1.25% (8)	September 30, 2011 (9)
Unsecured notes payable	N/A		4,995		1,947		0% (10)	2015 - 2026
Exchangeable Senior Notes:
4.25% Exchangeable Senior Notes	N/A		225,539		223,846		4.25%	April 2030 (11)
3.5% Exchangeable Senior Notes	N/A		161,836		159,883		3.50%	September 2026 (12)
Total debt			$	2,299,416	$	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 $2.8 million at June 30, 2011 and $3.2 million at December 31, 2010.
(2)		The weighted average interest rate on these loans was 6.01% at June 30, 2011.
(3)		A loan with a balance of $4.5 million at June 30, 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 1.95% at June 30, 2011.
(5)		Certain of the loans in this category at June 30, 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 2.95% at June 30, 2011.
(8)		The weighted average interest rate on the Revolving Credit Facility was 1.14% at June 30, 2011.
(9)		This loan may be extended for a one-year period at our option, subject to certain conditions.
(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 June 30, 2011 and $1.1 million at December 31, 2010.

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(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 20.8145 shares per one thousand dollar principal amount of the notes (exchange rate is as of June 30, 2011 and is equivalent to an exchange price of $48.04 per common share). The carrying value of these notes included a principal amount of $240.0 million and an unamortized discount totaling $14.5 million at June 30, 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 June 30, 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				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Interest expense at stated interest rate	$	2,550	$	2,380	$	5,100	$	2,380
Interest expense associated with amortization of discount	852		803		1,692		803
Total	$	3,402	$	3,183	$	6,792	$	3,183

(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 19.3470 shares per one thousand dollar principal amount of the notes (exchange rate is as of June 30, 2011 and is equivalent to an exchange price of $51.69 per common share). The carrying value of these notes included a principal amount of $162.5 million and an unamortized discount totaling $664,000 at June 30, 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 June 30, 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				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Interest expense at stated interest rate	$	1,422	$	1,422	$	2,844	$	2,844
Interest expense associated with amortization of discount	984		927		1,953		1,840
Total	$	2,406	$	2,349	$	4,797	$	4,684

We capitalized interest costs of $4.3 million in the three months ended June 30, 2011, $4.2 million in the three months ended June 30, 2010, $8.6 million in the six months ended June 30, 2011 and $8.1 million in the six months ended June 30, 2010.

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

	June 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Fixed-rate debt	$	1,455,739	$	1,464,754	$	1,559,034	$	1,579,022
Variable-rate debt	843,677		849,935		764,647		769,247
	$	2,299,416	$	2,314,689	$	2,323,681	$	2,348,269

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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			Fixed		Floating Rate	Effective	Expiration	June 30,			December 31,
Amount			Rate		Index	Date	Date	2011			2010
$	120,000		1.7600	%	One-Month LIBOR	1/2/2009	5/1/2012	$	(1,465	)	$	(2,062	)
100,000			1.9750	%	One-Month LIBOR	1/1/2010	5/1/2012	(1,402		)	(2,002		)
100,000		(1)	3.8415	%	Three-Month LIBOR	9/30/2011	9/30/2021	(3,974		)	N/A
75,000		(1)	3.8450	%	Three-Month LIBOR	9/30/2011	9/30/2021	(3,003		)	N/A
50,000			0.5025	%	One-Month LIBOR	1/3/2011	1/3/2012	(64		)	(64		)
50,000			0.5025	%	One-Month LIBOR	1/3/2011	1/3/2012	(64		)	(64		)
50,000			0.4400	%	One-Month LIBOR	1/4/2011	1/3/2012	(48		)	(34		)
40,000		(2)	3.8300	%	One-Month LIBOR	11/2/2010	11/2/2015	80			644
								$	(9,940	)	$	(3,582	)

(1) These instruments have a cash settlement date of March 30, 2012.

(2) 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):

Derivatives Designated as	June 30, 2011				December 31, 2010
Hedging Instruments	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest rate swaps	Prepaid expenses and other assets	$	80		Prepaid expenses and other assets	$	644
Interest rate swaps	Interest rate derivatives	(10,020		)	Interest rate derivatives	(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						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Amount of loss recognized in AOCL (effective portion)	$	(8,458	)	$	(1,929	)	$	(8,594	)	$	(4,314	)
Amount of loss reclassified from AOCL into interest expense (effective portion)	(1,163		)	(886		)	(2,267		)	(1,797		)

Over the next 12 months, we estimate that approximately $8.1 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 June 30, 2011, the fair value of interest rate derivatives in a liability position related to these agreements was $10.0 million, excluding the effects of accrued interest. As of June 30, 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 $10.5 million.

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9. Shareholders’ Equity

Common Shares

We completed a public offering of 4.6 million common shares in May 2011 at a price of $33.00 per share for net proceeds of $145.7 million after underwriter discounts but before offering expenses.

During the six months ended June 30, 2011, holders of 21,045 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 June 30, 2011, $0.3925 in the three months ended June 30, 2010, $0.825 in the six months ended June 30, 2011 and $0.785 in the six months ended June 30, 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 Six Months
	Ended June 30,
	2011			2010
Beginning balance	$	(4,163	)	$	(1,907	)
Amount of loss recognized in AOCL (effective portion)	(8,594		)	(4,314		)
Amount of loss reclassified from AOCL to income (effective portion)	2,267			1,797
Adjustment to AOCL attributable to noncontrolling interests	866			161
Ending balance	$	(9,624	)	$	(4,263	)

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

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Net (loss) income	$	(26,007	)	$	9,151		$	(44,573	)	$	19,826
Amount of loss recognized in AOCL	(8,458		)	(1,929		)	(8,594		)	(4,314		)
Amount of loss reclassified from AOCL to income	1,163			886			2,267			1,797
Total comprehensive (loss) income	(33,302		)	8,108			(50,900		)	17,309
Net loss (income) attributable to noncontrolling interests	1,783			(685		)	2,559			(1,422		)
Other comprehensive loss attributable to noncontrolling interests	450			77			388			198
Total comprehensive (loss) income attributable to COPT	$	(31,069	)	$	7,500		$	(47,953	)	$	16,085

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10. Information by Business Segment

As of June 30, 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, impairment losses, 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 June 30, 2011
Revenues from real estate operations	$	52,860	$	17,846	$	18,445	$	5,912	$	5,325	$	7,089	$	4,252	$	1,675	$	3,564	$	1,276	$	2,562	$	120,806
Property operating expenses	18,325		7,269		7,374		2,077		2,234		3,208		1,657		375		970		831		1,134		45,454
NOI from real estate operations	$	34,535	$	10,577	$	11,071	$	3,835	$	3,091	$	3,881	$	2,595	$	1,300	$	2,594	$	445	$	1,428	$	75,352
Additions to properties, net	$	18,588	$	5,858	$	17,177	$	998	$	2,388	$	2,399	$	632	$	3,800	$	3,894	$	15,311	$	4,951	$	75,996

Three Months Ended June 30, 2010
Revenues from real estate operations	$	50,623	$	16,827	$	18,172	$	6,154	$	5,452

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PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements:
	Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (unaudited)	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	27
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4:	Controls and Procedures	45

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	45
Item 1A:	Risk Factors	45
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3:	Defaults Upon Senior Securities	46
Item 4:	Removed and Reserved	46
Item 5:	Other Information	46
Item 6:	Exhibits	47


SIGNATURES		48