COPT Defense Properties Quarterly report pursuant to Section 13 or 15(d)

As described further in our 2011 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 20.8513 shares per one thousand dollar principal amount of the notes (exchange rate is as of June 30, 2012 and is equivalent to an exchange price of $47.96 per common share). The carrying value of these notes included a principal amount of $240 million and an unamortized discount totaling $10.9 million at June 30, 2012 and $12.7 million at December 31, 2011. 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, 2012 and December 31, 2011 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized (in thousands): For the Three Months Ended June 30, For the Six Months Ended June 30, 2012 2011 2012 2011Interest expense at stated interest rate$2,550 $2,550 $5,100 $5,100Interest expense associated with amortization of discount906 852 1,798 1,692Total$3,456 $3,402 $6,898 $6,792

- Definition

Including current and noncurrent portions, aggregate carrying amount of long-term borrowings as of the balance sheet date. May include notes payable, bonds payable, commercial loans, mortgage loans, convertible debt, subordinated debt and other types of debt, which had initial maturities beyond one year or beyond the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any.

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