PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

	September 30,			December 31,
	2011			2010
Assets
Properties, net:
Operating properties, net	$	2,772,303		$	2,802,773
Properties under construction or development	696,914			642,682
Total properties, net	3,469,217			3,445,455
Assets held for sale, net	72,767			—
Cash and cash equivalents	11,504			10,102
Restricted cash and marketable securities	39,232			22,582
Accounts receivable (net of allowance for doubtful accounts of $3,404 and $2,796, respectively)	20,991			18,938
Deferred rent receivable	87,148			79,160
Intangible assets on real estate acquisitions, net	97,954			113,735
Deferred leasing and financing costs, net	70,791			60,649
Prepaid expenses and other assets	95,788			93,896
Total assets	$	3,965,392		$	3,844,517

Liabilities and equity
Liabilities:
Debt, net	$	2,420,073		$	2,323,681
Accounts payable and accrued expenses	114,834			99,699
Rents received in advance and security deposits	28,241			31,603
Dividends and distributions payable	35,029			32,986
Deferred revenue associated with operating leases	15,621			14,802
Distributions received in excess of investment in unconsolidated real estate joint venture	5,953			5,545
Interest rate derivatives	30,629			4,226
Other liabilities	7,389			8,837
Total liabilities	2,657,769			2,521,379
Commitments and contingencies (Note 16)	—			—
Equity:
Corporate Office Properties Trust’s shareholders’ equity:
Preferred Shares of beneficial interest with an aggregate liquidation preference of $216,333 ($0.01 par value; 15,000,000 shares authorized and 8,121,667 shares issued and outstanding at September 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 71,986,936 at September 30, 2011 and 66,931,582 at December 31, 2010)	720			669
Additional paid-in capital	1,663,850			1,511,844
Cumulative distributions in excess of net income	(416,342		)	(281,794		)
Accumulated other comprehensive loss	(28,618		)	(4,163		)
Total Corporate Office Properties Trust’s shareholders’ equity	1,219,691			1,226,637
Noncontrolling interests in subsidiaries:
Common units in the Operating Partnership	60,583			69,337
Preferred units in the Operating Partnership	8,800			8,800
Other consolidated entities	18,549			18,364
Noncontrolling interests in subsidiaries	87,932			96,501
Total equity	1,307,623			1,323,138
Total liabilities and equity	$	3,965,392		$	3,844,517

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Revenues
Rental revenue	$	99,068		$	90,264		$	293,547		$	266,334
Tenant recoveries and other real estate operations revenue	22,825			20,810			65,395			59,337
Construction contract and other service revenues	18,729			13,608			67,854			77,038
Total revenues	140,622			124,682			426,796			402,709
Expenses
Property operating expenses	47,655			43,013			141,287			128,331
Depreciation and amortization associated with real estate operations	35,719			29,503			97,720			84,368
Construction contract and other service expenses	18,171			13,347			65,698			75,148
Impairment losses	—			—			57,824			—
General and administrative expenses	6,154			6,079			19,251			17,905
Business development expenses	1,050			2,886			2,126			3,506
Total operating expenses	108,749			94,828			383,906			309,258
Operating income	31,873			29,854			42,890			93,451
Interest expense	(25,381		)	(26,174		)	(78,412		)	(74,042		)
Interest and other (loss) income	(242		)	395			3,682			1,942
Loss on early extinguishment of debt	(1,655		)	—			(1,680		)	—
Income (loss) from continuing operations before equity in (loss) income of unconsolidated entities and income taxes	4,595			4,075			(33,520		)	21,351
Equity in (loss) income of unconsolidated entities	(159		)	648			(223		)	371
Income tax benefit (expense)	457			(27		)	6,043			(75		)
Income (loss) from continuing operations	4,893			4,696			(27,700		)	21,647
Discontinued operations	2,577			1,753			(12,120		)	4,276
Income (loss) before gain on sales of real estate	7,470			6,449			(39,820		)	25,923
Gain on sales of real estate, net of income taxes	—			2,477			2,717			2,829
Net income (loss)	7,470			8,926			(37,103		)	28,752
Net (income) loss attributable to noncontrolling interests:
Common units in the Operating Partnership	(178		)	(363		)	3,188			(1,254		)
Preferred units in the Operating Partnership	(165		)	(165		)	(495		)	(495		)
Other consolidated entities	(561		)	434			(1,038		)	233
Net income (loss) attributable to Corporate Office Properties Trust	6,566			8,832			(35,448		)	27,236
Preferred share dividends	(4,025		)	(4,025		)	(12,076		)	(12,076		)
Net income (loss) attributable to Corporate Office Properties Trust common shareholders	$	2,541		$	4,807		$	(47,524	)	$	15,160
Net income (loss) attributable to Corporate Office Properties Trust:
Income (loss) from continuing operations	$	4,138		$	7,206		$	(24,106	)	$	23,284
Discontinued operations, net	2,428			1,626			(11,342		)	3,952
Net income (loss) attributable to Corporate Office Properties Trust	$	6,566		$	8,832		$	(35,448	)	$	27,236
Basic earnings per common share (1)
Income (loss) from continuing operations	$	—		$	0.05		$	(0.54	)	$	0.18
Discontinued operations	0.03			0.03			(0.16		)	0.07
Net income (loss) attributable to COPT common shareholders	$	0.03		$	0.08		$	(0.70	)	$	0.25
Diluted earnings per common share (1)
Income (loss) from continuing operations	$	—		$	0.05		$	(0.54	)	$	0.17
Discontinued operations	0.03			0.03			(0.16		)	0.07
Net income (loss) attributable to COPT common shareholders	$	0.03		$	0.08		$	(0.70	)	$	0.24

(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

(in thousands, except share data)

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

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 (83,506 shares)	—		1		1,275			—			—			(1,276		)	—
Common shares issued to the public (4,600,000 shares)	—		46		145,315			—			—			—			145,361
Exercise of share options (185,714 shares)	—		2		2,393			—			—			—			2,395
Share-based compensation	—		2		9,536			—			—			—			9,538
Restricted common share redemptions (112,683 shares)	—		—		(3,948		)	—			—			—			(3,948		)
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	—		—		(2,542		)	—			—			2,542			—
Adjustments related to derivatives designated as cash flow hedges	—		—		—			—			(24,455		)	(2,562		)	(27,017		)
Net loss	—		—		—			(35,448		)	—			(1,655		)	(37,103		)
Dividends	—		—		—			(99,100		)	—			—			(99,100		)
Distributions to owners of common and preferred units in the Operating Partnership	—		—		—			—			—			(5,894		)	(5,894		)
Contributions from noncontrolling interests in other consolidated entities	—		—		(23		)	—			—			284			261
Distributions to noncontrolling interests in other consolidated entities	—		—		—			—			—			(8		)	(8		)
Balance at September 30, 2011 (71,986,936 common shares outstanding)	$	81	$	720	$	1,663,850		$	(416,342	)	$	(28,618	)	$	87,932		$	1,307,623

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities
Revenues from real estate operations received	$	350,593		$	324,445
Construction contract and other service revenues received	73,382			92,817
Property operating expenses paid	(143,481		)	(138,379		)
Construction contract and other service expenses paid	(73,009		)	(107,016		)
General and administrative and business development expenses paid	(15,921		)	(13,726		)
Interest expense paid	(69,237		)	(63,298		)
Previously accreted interest expense paid	(17,314		)	—
Interest and other income received	377			709
Payments in connection with early extinguishment of debt	(350		)	—
Income taxes paid	(174		)	—
Net cash provided by operating activities	104,866			95,552
Cash flows from investing activities
Purchases of and additions to properties
Construction, development and redevelopment	(169,873		)	(240,092		)
Acquisitions of operating properties	(32,806		)	(103,277		)
Tenant improvements on operating properties	(27,421		)	(11,259		)
Other capital improvements on operating properties	(11,575		)	(5,870		)
Proceeds from sales of properties	27,312			27,580
Proceeds from sale of equity method investment	5,773			—
Mortgage and other loan receivables funded or acquired	(20,401		)	(1,729		)
Mortgage and other loan receivables payments received	5,203			—
Leasing costs paid	(10,357		)	(7,717		)
Investment in unconsolidated entities	(250		)	(4,500		)
Other	(3,330		)	(2,241		)
Net cash used in investing activities	(237,725		)	(349,105		)
Cash flows from financing activities
Proceeds from debt, including issuance of exchangeable senior notes	1,548,619			825,475
Repayments of debt
Scheduled principal amortization	(10,647		)	(10,389		)
Other repayments	(1,432,050		)	(459,614		)
Deferred financing costs paid	(12,771		)	(7,086		)
Net proceeds from issuance of common shares	147,781			4,378
Acquisition of noncontrolling interests in consolidated entities	—			(4,462		)
Dividends paid	(97,047		)	(81,376		)
Distributions paid	(5,937		)	(6,100		)
Restricted share redemptions	(3,948		)	(3,862		)
Other	261			60
Net cash provided by financing activities	134,261			257,024

Net increase in cash and cash equivalents	1,402			3,471
Cash and cash equivalents
Beginning of period	10,102			8,262
End of period	$	11,504		$	11,733

See accompanying notes to consolidated financial statements.

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Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the Nine Months Ended
	September 30,
	2011			2010
Reconciliation of net (loss) income to net cash provided by operating activities:
Net (loss) income	$	(37,103	)	$	28,752
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and other amortization	102,963			89,830
Impairment losses	72,347			—
Settlement of previously accreted interest expense	(17,314		)	—
Amortization of deferred financing costs	5,090			4,175
Increase in deferred rent receivable	(7,587		)	(3,295		)
Amortization of net debt discounts	4,778			4,360
Gain on sales of real estate	(4,166		)	(3,921		)
Gain on equity method investment	(2,452		)	—
Share-based compensation	8,156			8,726
Loss on early extinguishment of debt	1,670			—
Other	18			(2,194		)
Changes in operating assets and liabilities:
Increase in accounts receivable	(1,311		)	(1,648		)
(Increase) decrease in restricted cash and marketable securities and prepaid expenses and other assets	(5,162		)	8,165
Decrease in accounts payable, accrued expenses and other liabilities	(11,699		)	(31,696		)
Decrease in rents received in advance and security deposits	(3,362		)	(5,702		)
Net cash provided by operating activities	104,866			95,552

Supplemental schedule of non-cash investing and financing activities:
Increase in accrued capital improvements, leasing and other investing activity costs	$	25,314		$	4,308
Increase in property, debt and other liabilities in connection with acquisitions	$	3,040		$	74,244
Increase in property and noncontrolling interests in connection with property contribution by a noncontrolling interest in a joint venture	$	—		$	9,000
Decrease in fair value of derivatives applied to AOCL and noncontrolling interests	$	27,064		$	3,206
Dividends/distribution payable	$	35,029		$	29,899
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	1,276		$	8,970
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT	$	2,542		$	1,347

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

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

· 16 wholly owned office properties under construction, development or redevelopment that we estimate will total approximately 2.1 million square feet upon completion, including three partially operational properties included above;

· wholly owned land parcels totaling 1,520 acres that we believe are potentially developable into approximately 13.1 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 September 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 September 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	$	5,393	$	—	$	—	$	5,393
Common stocks	845		—		—		845
Preferred stocks	314		—		—		314
Cash and cash equivalents	271		—		—		271
Other	200		—		—		200
Common stock (1)	18,450		—		—		18,450
Warrants to purchase common shares in KEYW (2)	—		121		—		121
Assets	$	25,473	$	121	$	—	$	25,594

Liabilities:
Deferred compensation plan liability (3)	$	7,023	$	—	$	—	$	7,023
Interest rate derivatives	—		30,629		—		30,629
Liabilities	$	7,023	$	30,629	$	—	$	37,652

(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”).
(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 7 for mortgage loans receivable, Note 8 for debt and Note 9 for interest rate derivatives.

4. Properties, net

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

	September 30,			December 31,
	2011			2010
Land	$	486,538		$	501,210
Buildings and improvements	2,839,071			2,804,595
Less: accumulated depreciation	(553,306		)	(503,032		)
Operating properties, net	$	2,772,303		$	2,802,773

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

	September 30,		December 31,
	2011		2010
Land	$	248,945	$	256,487
Construction in progress, excluding land	447,969		386,195
Properties under construction or development	$	696,914	$	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 additional properties 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 second quarter of 2011, we recognized aggregate non-cash impairment losses of $44.6 million (including $14.5 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 office properties in certain submarkets in the Greater Baltimore, Suburban Maryland and St. Mary’s County regions that no longer fit our strategic focus. 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. We completed the sale of the following properties under the Strategic Reallocation Plan during the nine months ended September 30, 2011 (dollars in thousands):

			Number	Total
		Date of	of	Rentable			Gain on
Project Name	Location	Sale	Buildings	Square Feet	Sale Price		Sale
1344 & 1348 Ashton Road and 1350 Dorsey Road	Hanover, Maryland	5/24/2011	3	39,000	$	3,800	$	150
216 Schilling Circle	Hunt Valley, Maryland	8/23/2011	1	36,000	4,700		175
Towson Portfolio	Towson, Maryland	9/29/2011	4	179,000	16,000		1,124
			8	254,000	$	24,500	$	1,449

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 Acquisition

On August 9, 2011, we acquired 310 The Bridge Street, a 138,000 square foot office property in Huntsville, Alabama that was 100% leased, for $33.4 million. The table below sets forth the allocation of the acquisition costs of this property (in thousands):

Land, operating properties	$	251
Building and improvements	26,824
Intangible assets on real estate acquisitions	6,338
Total assets	$	33,413

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

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			Weighted
			Average
			Amortization
			Period
			(in Years)
Tenant relationship value	$	3,072	8
In-place lease value	2,800		3
Above-market leases	466		3
	$	6,338	6

We expensed $152,000 in the nine months ended September 30, 2011 in connection with acquisitions of operating properties that are included in business development expenses on our consolidated statements of operations.

2011 Construction and Redevelopment Activities

During the nine months ended September 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) and placed into service 61,000 square feet in one partially operational office property in the Baltimore/Washington Corridor.

As of September 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 redevelopment underway on two office properties totaling 297,000 square feet, including one in Northern Virginia and one in Greater Philadelphia.

5. Real Estate Joint Ventures

During the nine months ended September 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 (dollars in thousands):

										Maximum
Investment Balance at (1)						Date			Nature of	Exposure
September 30, 2011			December 31, 2010			Acquired	Ownership		Activity	to Loss (2)
$	(5,953	)	$	(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 September 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 16).

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

	September 30,			December 31,
	2011			2010
Properties, net	$	60,332		$	61,521
Other assets	3,645			4,174
Total assets	$	63,977		$	65,695

Liabilities (primarily debt)	$	67,780		$	67,454
Owners’ equity	(3,803		)	(1,759		)
Total liabilities and owners’ equity	$	63,977		$	65,695

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

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Revenues	$	1,905		$	2,094		$	5,719		$	6,283
Property operating expenses	(904		)	(902		)	(2,869		)	(2,728		)
Interest expense	(984		)	(899		)	(2,983		)	(2,846		)
Depreciation and amortization expense	(578		)	(826		)	(1,753		)	(2,561		)
Net loss	$	(561	)	$	(533	)	$	(1,886	)	$	(1,852	)

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

		Ownership			September 30, 2011 (1)
	Date	% at		Nature of	Total		Pledged		Total
	Acquired	9/30/2011		Activity	Assets		Assets		Liabilities
M Square Associates, LLC	6/26/2007	50	%	Operating two buildings and developing others (2)	$	60,190	$	48,435	$	44,735
LW Redstone Company, LLC	3/23/2010	85	%	Developing business park (3)	38,854		—		2,453
Arundel Preserve #5, LLC	7/2/2007	50	%	Operating one building (4)	29,552		28,590		16,908
COPT-FD Indian Head, LLC	10/23/2006	75	%	Developing land parcel (5)	6,524		—		—
MOR Forbes 2 LLC	12/24/2002	50	%	Operating one building (6)	3,988		—		44
					$	139,108	$	77,025	$	64,140

(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 16.

6. Intangible Assets on Real Estate Acquisitions

Intangible assets on real estate acquisitions consisted of the following (in thousands):

	September 30, 2011						December 31, 2010
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
In-place lease value	$	156,477	$	97,818	$	58,659	$	162,708	$	92,380	$	70,328
Tenant relationship value	48,556		22,569		25,987		50,320		21,603		28,717
Above-market cost arrangements	12,415		2,489		9,926		12,415		1,387		11,028
Above-market leases	10,909		8,555		2,354		10,802		8,193		2,609
Market concentration premium	1,333		305		1,028		1,333		280		1,053
	$	229,690	$	131,736	$	97,954	$	237,578	$	123,843	$	113,735

Amortization of the intangible asset categories set forth above totaled $20.7 million in the nine months ended September 30, 2011 and $18.8 million in the nine months ended September 30, 2010. The approximate weighted average amortization periods of the categories set forth above follow: in-place lease value: seven years; tenant relationship value: eight years; above-market cost arrangements: 26 years; above-market leases: five years; and market concentration premium: 31 years. The approximate weighted average amortization period for all of the categories combined is ten years. Estimated amortization expense associated with the intangible asset categories set forth above for the next five years is: $5.7 million for the three months ending December 31, 2011; $18.5 million for 2012; $14.3 million for 2013; $12.0 million for 2014; $10.0 million for 2015; and $8.6 million for 2016.

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7. Prepaid Expenses and Other Assets

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

	September 30,		December 31,
	2011		2010
Mortgage and other investing receivables	$	35,830	$	18,870
Prepaid expenses	24,769		19,995
Furniture, fixtures and equipment, net	10,181		11,504
Construction contract costs incurred in excess of billings	6,579		9,372
Deferred tax asset	5,676		276
Investment in KEYW	121		22,779
Other assets	12,632		11,100
Prepaid expenses and other assets	$	95,788	$	93,896

Investment in The KEYW Holding Corporation

Our investment in KEYW 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 September 30, 2011 and 3.1 million shares, or approximately 12%, at December 31, 2010. The carrying value of our equity method investment in these common shares was $22.3 million at December 31, 2010, which was included in prepaid expenses and other assets on our consolidated balance sheet as of such 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 months ended June 30, 2011, resulting in $2.1 million in gain recognized. We subsequently suspended this plan effective June 30, 2011. We used the equity method of accounting for our investment in the common stock until the resignation of our Chief Executive Officer 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. Our investment in these common shares had a fair value of $18.3 million at September 30, 2011 based on the closing price of KEYW’s common stock on the NASDAQ Stock Market on that date and is included in the line entitled “restricted cash and marketable securities” on our consolidated balance sheet. We recognized an unrealized loss on our investment in KEYW’s common stock of $883,000 during the three months ended September 30, 2011.

At September 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 $121,000, or $2.42 per warrant, at September 30, 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):

	September 30,		December 31,
	2011		2010
Mortgage loans receivable	$	21,065	$	14,227
Notes receivable from City of Huntsville	14,765		4,643
	$	35,830	$	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 did not have an allowance for credit losses in connection with these receivables at September 30, 2011 or December 31, 2010. The fair value of our mortgage and other investing receivables totaled $36.0 million at September 30, 2011 and $18.8 million at December 31, 2010.

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Operating Notes Receivable

We had operating notes receivable due from tenants with terms exceeding one year totaling $628,000 at September 30, 2011 and $655,000 at December 31, 2010. We carried allowances for estimated losses for most of these balances.

8. Debt

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

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

Mortgage and Other Secured Loans:
Fixed rate mortgage loans (1)	N/A		$	1,055,540	$	1,173,358	5.20% - 7.87% (2)	2012 - 2034 (3)
Revolving Construction Facility (4)	N/A		—		142,339		N/A	N/A
Variable rate secured loans	N/A		39,397		310,555		LIBOR + 2.25% (5)	2015
Other construction loan facilities	104,900		22,710		16,753		LIBOR + 2.75% (6)	2012 - 2013
Total mortgage and other secured loans			1,117,647		1,643,005

Revolving Credit Facility (7)	$	1,000,000	671,000		295,000		LIBOR + 1.75% to 2.50% (8)	September 1, 2014 (9)
Term Loan Facility (10)	500,000		400,000		—		LIBOR + 1.65% to 2.40% (11)	September 1, 2015 (9)
Unsecured notes payable	N/A		5,022		1,947		0% (12)	2015 - 2026
Exchangeable Senior Notes:
4.25% Exchangeable Senior Notes	N/A		226,404		223,846		4.25%	April 2030 (13)
3.5% Exchangeable Senior Notes (14)	N/A		—		159,883		N/A	N/A
Total debt			$	2,420,073	$	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 $2.6 million at September 30, 2011 and $3.2 million at December 31, 2010.

(2) The weighted average interest rate on these loans was 6.01% at September 30, 2011.

(3) A loan with a balance of $4.5 million at September 30, 2011 that matures in 2034 may be repaid in March 2014, subject to certain conditions.

(4) As described further below, this facility was extinguished on September 1, 2011.

(5) The interest rate on the loan outstanding at September 30, 2011 was 2.47%.

(6) The weighted average interest rate on these loans was 2.92% at September 30, 2011.

(7) As described further below, we entered into a credit agreement providing for a new unsecured revolving credit facility effective on September 1, 2011, after which our previously existing facility was extinguished.

(8) The weighted average interest rate on the Revolving Credit Facility was 2.2% at September 30, 2011.

(9) This loan may be extended for a one-year period at our option, subject to certain conditions.

(10) As described further below, this loan was entered into effective on September 1, 2011.

(11) The interest rate on this loan was 2.13% at September 30, 2011.

(12) 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 $1.9 million at September 30, 2011 and $1.1 million at December 31, 2010.

(13) 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 20.8318 shares per one thousand dollar principal amount of the notes (exchange rate is as of September 30, 2011 and is equivalent to an exchange price of $48.00 per common share). The carrying value of these notes included a principal amount of $240.0 million and an unamortized discount totaling $13.6 million at September 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 September 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):

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	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
Interest expense at stated interest rate	$	2,550	$	2,550	$	7,650	$	4,930
Interest expense associated with amortization of discount	866		815		2,558		1,618
Total	$	3,416	$	3,365	$	10,208	$	6,548

(14) On September 15, 2011, we repurchased these notes at 100% of the principal amount of $162.5 million after the holders of such notes surrendered them for repurchase pursuant to the terms of the notes and the related Indenture. As described further in our 2010 Annual Report on Form 10-K, these notes had an exchange settlement feature that provided that the notes were, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, were exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares. The carrying value of these notes at December 31, 2010 included a principal amount of $162.5 million and an unamortized discount totaling $2.6 million. The effective interest rate under the notes, including amortization of the issuance costs, was 5.97%. Because the closing price of our common shares at September 30, 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 Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
Interest expense at stated interest rate	$	1,169	$	1,421	$	4,013	$	4,265
Interest expense associated with amortization of discount	664		941		2,617		2,781
Total	$	1,833	$	2,362	$	6,630	$	7,046

Effective September 1, 2011, we entered into a credit agreement providing for an unsecured revolving credit facility (the “Revolving Credit Facility”) with a group of lenders for which J.P. Morgan Securities LLC and KeyBanc Capital Markets acted as joint lead arrangers and joint book runners, KeyBank National Association acted as administrative agent and JPMorgan Chase Bank, N.A. and Bank of America, N.A. acted as co-syndication agents. The lenders’ aggregate commitment under the facility is $1.0 billion, including a $100.0 million letter of credit subfacility and a $100.0 million swingline facility (same-day draw requests), with a right for us to increase the lenders’ aggregate commitment to $1.5 billion, provided that there is no default under the facility. Amounts available under the facility are computed based on 60% of our unencumbered asset value, as defined in the agreement. The facility matures on September 1, 2014, and may be extended by one year at our option, provided that there is no default under the facility and we pay an extension fee of 0.20% of the total availability of the facility. The variable interest rate on the facility is based on one of the following, to be selected by us: (1) the LIBOR rate for the interest period designated by us (customarily the 30-day rate) plus 1.75% to 2.50%, as determined by our leverage levels at different points in time; or (2)(a) the greater of: (i) the prime rate of the lender then acting as the administrative agent, (ii) the Federal Funds Rate, as defined in the Credit Agreement, plus 0.50% or (iii) the LIBOR rate for a one-month interest period plus 1.0%; plus (b) 0.75% to 1.50%, as determined by our leverage levels at different points in time. The facility also carries a quarterly fee that is based on the unused amount of the facility multiplied by a per annum rate of 0.25% to 0.35%. As of September 30, 2011, the maximum amount of borrowing capacity under this facility totaled $1.0 billion, of which $323.1 million was available.

Effective September 1, 2011, we entered into an unsecured term loan agreement (“Term Loan Agreement”) with the same group of lenders as the Revolving Credit Facility under which we borrowed $400.0 million, with a right for us to borrow an additional $100.0 million, provided that there is no default under the agreement. The term loan matures on September 1, 2015, and may be extended by one year at our option, provided that there is no default and we pay an extension fee of 0.20% of the total availability of the agreement. The variable interest rate on the term loan is based on one of the following, to be selected by us: (1) the LIBOR rate for the interest period designated by us (customarily the 30-day rate) plus 1.65% to 2.40%, as determined by our leverage levels at different points in time; or (2)(a) the greater of: (i) the prime rate of the lender then acting as the administrative agent, (ii) the Federal Funds Rate, as defined in the Term Loan Agreement, plus 0.50% or (iii) the LIBOR rate for a one-month interest period plus 1.0%; plus (b) 0.65% to 1.40%, as determined by our leverage levels at different points in time. The term loan also carries a quarterly fee that is based on the unused amount of the facility multiplied by a per annum rate of 0.25% to 0.35%.

Upon entry into the Revolving Credit Facility and Term Loan Agreement on September 1, 2011, we repaid and extinguished our previously existing revolving credit facility and Revolving Construction Facility and used most of the remaining proceeds to repay two variable rate secured loans totaling $270.3 million. Upon the early extinguishment of this debt, we recognized a loss of $1.7 million, representing unamortized issuance costs.

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We capitalized interest costs of $4.5 million in the three months ended September 30, 2011, $3.9 million in the three months ended September 30, 2010, $13.1 million in the nine months ended September 30, 2011 and $12.0 million in the nine months ended September 30, 2010.

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

	September 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Fixed-rate debt	$	1,286,966	$	1,290,506	$	1,559,034	$	1,579,022
Variable-rate debt	1,133,107		1,132,081		764,647		769,247
	$	2,420,073	$	2,422,587	$	2,323,681	$	2,348,269

9. 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	September 30,			December 31,
Amount			Rate		Index	Date	Date	2011			2010
$	120,000		1.7600	%	One-Month LIBOR	1/2/2009	5/1/2012	$	(981	)	$	(2,062	)
100,000			1.9750	%	One-Month LIBOR	1/1/2010	5/1/2012	(943		)	(2,002		)
100,000		(1)	3.8415	%	Three-Month LIBOR	9/30/2011	9/30/2021	(15,766		)	N/A
75,000		(1)	3.8450	%	Three-Month LIBOR	9/30/2011	9/30/2021	(11,847		)	N/A
50,000			0.5025	%	One-Month LIBOR	1/3/2011	1/3/2012	(26		)	(64		)
50,000			0.5025	%	One-Month LIBOR	1/3/2011	1/3/2012	(26		)	(64		)
50,000			0.4400	%	One-Month LIBOR	1/4/2011	1/3/2012	(18		)	(34		)
40,000		(2)	3.8300	%	One-Month LIBOR	11/2/2010	11/2/2015	(1,022		)	644
								$	(30,629	)	$	(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	September 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	$	—		Prepaid expenses and other assets	$	644
Interest rate swaps	Interest rate derivatives	(30,629		)	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 Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Amount of loss recognized in AOCL (effective portion)	$	(21,869	)	$	(1,530	)	$	(30,463	)	$	(5,844	)
Amount of loss reclassified from AOCL into interest expense (effective portion)	(1,179		)	(887		)	(3,446		)	(2,684		)

Over the next 12 months, we estimate that approximately $3.7 million will be reclassified from AOCL as an increase to interest expense.

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We have agreements with each of our interest rate derivative counterparties that contain provisions under which if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of September 30, 2011, the fair value of interest rate derivatives in a liability position related to these agreements was $30.6 million, excluding the effects of accrued interest. As of September 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 $31.8 million.

10. 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 nine months ended September 30, 2011, holders of 83,506 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 September 30, 2011 and September 30, 2010, $1.2375 in the nine months ended September 30, 2011 and $1.1975 in the nine months ended September 30, 2010.

See Note 12 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 Nine Months
	Ended September 30,
	2011			2010
Beginning balance	$	(4,163	)	$	(1,907	)
Amount of loss recognized in AOCL (effective portion)	(30,463		)	(5,844		)
Amount of loss reclassified from AOCL to income (effective portion)	3,446			2,684
Adjustment to AOCL attributable to noncontrolling interests	2,562			206
Ending balance	$	(28,618	)	$	(4,861	)

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

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2011			2010			2011			2010
Net income (loss)	$	7,470		$	8,926		$	(37,103	)	$	28,752
Amount of loss recognized in AOCL	(21,869		)	(1,530		)	(30,463		)	(5,844		)
Amount of loss reclassified from AOCL to income

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

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

Large accelerated filer x		Accelerated filer o

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

		PAGE
PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (unaudited)	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)	4
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 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	28
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		49