UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
----------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 2001
CORPORATE OFFICE PROPERTIES TRUST
---------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 0-20047 23-2947217
-------- ------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
8815 CENTRE PARK DRIVE, SUITE 400
COLUMBIA, MARYLAND 21045
---------------------------------
(Address of principal executive offices)
(410) 730-9092
--------------
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
AIRPORT SQUARE PROPERTIES
Through a series of transactions, the last occurring on August 3, 2001,
Corporate Office Properties Trust (the "Company"), through affiliates of
Corporate Office Properties, L.P. (the "Operating Partnership"), acquired six
office buildings and a contiguous fitness center totaling approximately 412,000
square feet located in the Airport Square Business Park in Linthicum, Maryland
(the "Airport Square Properties").
The Airport Square Properties were acquired for an aggregate cost of
$45.3 million, including transaction costs. The Company paid the purchase price
and transaction costs using $24.1 in borrowings under two mortgage loans
payable, $13.2 million in borrowings under its existing secured revolving credit
facility with Deutsche Banc Alex. Brown and cash reserves for the balance.
The following schedule sets forth certain information relating to each
of the buildings as of August 30, 2001:
Percentage Total
of Rental
Year Rentable Total Total Rental Revenue per Major Tenants
Built/ Square Rental Revenue of Occupied (10% or more of
Property Locations Renovated Feet Occupancy(1) Revenue(2) Occupied Sq.Ft.(3) Square Foot(4) Rentable Square Feet)
-----------------------------------------------------------------------------------------------------------------------------
920 Elkridge Landing Rd. 1982 96,566 100.0% $ 1,346,798 21% $13.95 Ciena Corporation (100.0%)
880 Elkridge Landing Rd. 1981 91,534 100.0% 1,533,195 25% 16.75 Arbros Communications,
Inc. (100%)
901 Elkridge Landing Rd. 1984 56,847 88.2% 752,158 12% 15.00 State of Maryland (59%);
Institute for Operations
Research and Management
Sciences (15%);
Powerize.com, Inc. (10%)
891 Elkridge Landing Rd. 1984 56,489 86.4% 877,341 14% 17.99 Medaphis Services Corp.
(52%);
Metropolitan Life Insur.
Co. (26%)
938 Elkridge Landing Rd. 1984 52,988 100.0% 913,248 14% 17.23 U.S. Department of Defense
(100%)
940 Elkridge Landing Rd. 1984 51,704 100.0% 777,432 12% 15.04 Cadmus Journal Services
(100%)
870 Elkridge Landing Rd. 1981 5,627 100.0% 105,738 2% 18.79 U.S. Dept. of Defense
(100%)
-------- ---------------------------
TOTAL/AVERAGE 411,755 96.5% $ 6,305,910 100% $15.87
======== ===========================
(1) This percentage is based on all leases in effect as of
August 30, 2001.
(2) Total rental revenue is the monthly contractual base rent as of August
30, 2001 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(3) This percentage is based on the property's rental revenue to the total
rental revenue of the Airport Square Properties.
(4) This represents the property's total rental revenue divided by its
occupied square feet as of August 30, 2001.
2
The following schedule sets forth annual lease expirations for the
Airport Square Properties as of August 30, 2001 assuming that none of the
tenants exercise renewal options:
Total Rental Revenue
Year of Number of Square Footage Percentage of Total Rental Percentage of Total of Expiring Leases
Lease Leases of Leases Total Occupied Revenue of Expiring Rental Revenue Per Rentable Square
Expiration(1) Expiring Expiring Square Feet Leases (2) Expiring (2) Foot (2)
----------------------------------------------------------------------------------------------------------------------------
(In thousands)
8/31/01-
12/31/01 1 5,921 1.5% $ 112 1.8% $19.00
2002 3 38,745 9.8% 660 10.4% 17.03
2003 4 15,320 3.9% 256 4.1% 16.70
2004 1 14,724 3.7% 281 4.5% 19.06
2005 2 73,121 18.4% 1,057 16.7% 14.46
2006 - - 0.0% - 0.0% -
2007 1 96,566 24.3% 1,347 21.4% 13.95
2008 - - 0.0% - 0.0% -
2009 1 8,431 2.1% 147 2.3% 17.43
2010 1 52,988 13.3% 913 14.5% 17.24
2011 1 91,534 23.0% 1,533 24.3% 16.75
- -------- ------- -------- ------
TOTAL/WEIGHTED 15 397,350 100.0% $ 6,306 100.0% $16.02
== ======== ======= ======== ======
AVERAGE
(1) The two government leases within this portfolio are subject to certain early
termination provisions which are customary to government leases.
The year of lease expiration was computed assuming such early termination
rights will not be exercised.
(2) Total rental revenue is the monthly contractual base rent as of August 30,
2001 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
GATEWAY 63 PROPERTIES
On August 30, 2001, the Company, through the Operating Partnership,
acquired four office buildings totaling approximately 187,000 square feet
located in the Columbia Gateway Business Park in Columbia, Maryland (the
"Gateway 63 Properties").
The Gateway 63 Properties were acquired for an aggregate cost of $23.8
million, including transaction costs. The Company paid the purchase price and
transaction costs by assuming a $15.8 million mortgage loan payable, using $4.3
million in borrowings under its existing secured revolving credit facility with
Deutsche Banc Alex. Brown, issuing 310,342 common units in the Operating
Partnership valued at $3.3 million and using cash reserves for the balance.
3
The following schedule sets forth certain information relating to each
of the buildings as of August 30, 2001:
Percentage of Total Rental
Year Rentable Total Total Rental Revenue per Major Tenants
Built/ Square Rental Revenue of Occupied (10% or more of
Property Locations Renovated Feet Occupancy(1) Revenue(2) Occupied Sq.Ft.(3) Square Foot(4) Rentable Square Feet)
------------------------------------------------------------------------------------------------------------------------
7067 Columbia Gateway Dr. 2000 82,032 100.0% $1,148,448 39% $14.00 Corvis Corporation (100%)
7065 Columbia Gateway Dr. 2000 38,560 100.0% 612,718 21% 15.89 Corvis Corporation (100%)
7063 Columbia Gateway Dr. 2000 36,936 100.0% 575,832 19% 15.59 Corvis Corporation (100%)
7061 Columbia Gateway Dr. 2000 29,604 100.0% 636,486 21% 21.50 Manekin, LLC (83%)
Visualtek Solutions, Inc. (17%)
-------- ------------------------
TOTAL/AVERAGE 187,132 100.0% $2,973,484 100% $15.89
======== ========================
(1) This percentage is based on all leases in effect as of
August 30, 2001.
(2) Total rental revenue is the monthly contractual base rent as of August
30, 2001 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(3) This percentage is based on the property's rental revenue to the total
rental revenue of the Gateway 63 Properties.
(4) This represents the property's total rental revenue divided by the
respective property's occupied square feet as of August 30, 2001.
4
The following schedule sets forth annual lease expirations as of August
30, 2001 for the Gateway 63 Properties assuming that none of the tenants
exercise renewal options:
Number of Percentage of Percentage of Total Rental Revenue
Year of Leases Square Footage Total Total Rental Total Rental of Expiring Leases
Lease Expiring of Leases Occupied Revenue of Revenue Per Rentable Square
Expiration Expiring Square Feet Expiring Leases(1) Expiring(1) Foot(1)
-------------------------------------------------------------------------------------------------------------------
(in thousands)
8/31/01 -
12/31/01 - - 0.0% $ - 0.0% $ -
2002 - - 0.0% - 0.0% -
2003 - - 0.0% - 0.0% -
2004 - - 0.0% - 0.0% -
2005 2 29,604 15.8% 636 21.4% 21.50
2006 - - 0.0% - 0.0% -
2007 - - 0.0% - 0.0% -
2008 - - 0.0% - 0.0% -
2009 - - 0.0% - 0.0% -
2010 2 75,496 40.3% 1,189 40.0% 15.74
2011 1 82,032 43.9% 1,148 38.6% 14.00
------ ----- ----- -----
TOTAL/WEIGHTED 5 187,132 100.0% $2,973 100.0% $ 16.30
AVERAGE = ======= ====== ====== ======
(1) Total rental revenue is the monthly contractual base rent as of August
30, 2001 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Businesses Acquired
The financial statements of the Airport Square
Properties and the Gateway 63 Properties are included
herein. See pages F-14 through F-23.
(b) Pro Forma Financial Information
The pro forma condensed consolidating financial
statements of the Company are included herein. See
pages F-1 through F-13.
(c) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
99.1 Purchase and Sale Agreement, dated February
28, 2001, between Aetna Life Insurance
Company and COPT Acquisitions, Inc.
99.2 Contribution Agreement, dated June 1, 2001,
between RA & DM, Inc., Manekin Investment
Associates 3 LLC and Corporate Office
Properties, L.P.
99.3 Computation of ratio of earnings to
combined fixed charges and Preferred Share
dividends.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 5, 2001
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Randall M. Griffin
-------------------------
Name: Randall M. Griffin
Title: President and Chief Operating Officer
By: /s/ Roger A. Waesche, Jr.
-------------------------
Name: Roger A. Waesche, Jr.
Title: Chief Financial Officer
6
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY
Pro Forma Condensed Consolidating Balance Sheet
as of June 30, 2001 (unaudited) F-4
Pro Forma Condensed Consolidating Statement of Operations for the Year
Ended December 31, 2000 (unaudited) F-5
Pro Forma Condensed Consolidating Statement of Operations for the
Six Month Period Ended June 30, 2001 (unaudited) F-6
Notes and Management's Assumptions to Pro Forma Condensed
Consolidating Financial Information F-7
II. AIRPORT SQUARE PROPERTIES
Report of Independent Accountants F-14
Statement of Revenue and Certain Expenses
for the Year Ended December 31, 2000 F-15
Statement of Revenue and Certain Expenses
for the Six Months Ended June 30, 2001 F-16
Notes to Financial Statements F-17
III. GATEWAY 63 PROPERTIES
Report of Independent Accountants F-19
Statement of Revenue and Certain Expenses
for the Year Ended December 31, 2000 F-20
Statement of Revenue and Certain Expenses
for the Six Months Ended June 30, 2001 F-21
Notes to Financial Statements F-22
F-1
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Set forth below are the unaudited pro forma condensed consolidating balance
sheet as of June 30, 2001, and the unaudited pro forma condensed
consolidating statements of operations for the year ended December 31, 2000
and the six month period ended June 30, 2001, of Corporate Office Properties
Trust and its consolidated affiliates, including Corporate Office Properties,
L.P. (the "Operating Partnership"). Corporate Office Properties Trust and its
consolidated affiliates, including the Operating Partnership, are
collectively referred to herein as the "Company."
The pro forma condensed consolidating financial information is presented as if
the following transactions had been consummated on the earlier of the actual
date of consummation or June 30, 2001, for balance sheet purposes, and at
January 1, 2000, for purposes of the statements of operations:
2000 TRANSACTIONS:
o The acquisition of an office building on April 18, 2000 ("7240 Parkway
Drive") for $7,464,000 using $7,285,000 in proceeds from our Revolving
Credit Facility with Deutsche Banc Alex. Brown (the "Revolving Credit
Facility") and cash reserves for the balance.
o The disposition of a retail property on June 19, 2000 ("Minot Retail")
for $2,970,000 of which $2,432,000 was used to pay off a mortgage loan
payable on the property and the balance applied to cash reserves.
o The disposition of a retail property on November 10, 2000 ("Tred Avon")
for $5,800,000 of which $2,756,000 was used to pay off a mortgage loan
payable on the property, $2,000,000 to pay down our Revolving Credit
Facility and the balance applied to cash reserves.
o The disposition of an office building on December 28, 2000 ("3 Center
Drive") for $2,790,000 of which $1,755,000 was used to pay off a
mortgage loan payable on the property and the balance applied to cash
reserves.
The above transactions are collectively referred to herein as the "2000
Transactions."
2001 TRANSACTIONS:
o On January 1, 2001, we acquired all of the stock in Corporate Office
Management, Inc. ("COMI") that we did not previously own for $26,000.
We accounted for this acquisition using the purchase method of
accounting. Prior to January 1, 2001, we accounted for our investment
in COMI and its subsidiaries using the equity method of accounting.
Since we own all of the voting interests in COMI and control its
operations effective January 1, 2001, we began consolidating the
accounts of COMI and its subsidiaries with our accounts on that date.
o The acquisition of two office buildings in Columbia, Maryland on May
14, 2001 (the "State Farm Properties") for $13,245,000 using
$12,915,000 in proceeds from our Revolving Credit Facility and cash
reserves for the balance.
o The disposition of an office building located in Cranbury, New Jersey
on June 18, 2001 ("19 Commerce Drive") for $11,525,000 of which
$7,000,000 was used to pay off a mortgage loan
F-2
payable on the property, $728,000 to pay other settlement and sales
costs and the balance applied to cash reserves.
o The acquisition of six office buildings in Linthicum, Maryland during
2001 (the "Airport Square Properties") for $45,301,000, including
$3,551,000 already reflected in the June 30, 2001 historical balances,
using $24,077,000 in proceeds from two mortgage loans payable,
$13,200,000 in proceeds from our Revolving Credit Facility, $3,965,000
in proceeds from the sale of 19 Commerce Drive and cash reserves for
the balance.
o The acquisition of four office buildings in Columbia, Maryland on
August 30, 2001 (the "Gateway 63 Properties") for $23,835,000 using
$15,750,000 in proceeds from an assumed mortgage payable, $4,295,000 in
proceeds from our Revolving Credit Facility, issuing 310,342 common
units in our Operating Partnership valued at $3,259,000 to the seller
and cash reserves for the balance.
o The issuance of 544,000 Series D Cumulative Convertible Redeemable
Preferred Shares of beneficial interest ("Series D Preferred Shares")
on January 25, 2001 for net proceeds of $11,893,000, $8,245,000 of
which was used to pay down the Revolving Credit Facility.
o The issuance of 1,150,000 Series E Cumulative Redeemable Preferred
Shares of beneficial interest ("Series E Preferred Shares") on
April 6, 2001 for net proceeds of $26,950,000, all of which was used
to pay down the Revolving Credit Facility.
o The issuance of 1,000,000 Series F Cumulative Redeemable Preferred
Shares of beneficial interest ("Series F Preferred Shares") expected
to occur in September 2001 for net proceeds of $23,747,000, all of
which is expected to be used to pay down the Revolving Credit Facility.
The above transactions are collectively referred to herein as the "2001
Transactions."
This pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those of
the Airport Square Properties and the Gateway 63 Properties. In management's
opinion, all adjustments necessary to reflect the effects of the above
transactions have been made. This pro forma condensed consolidating financial
information is unaudited and is not necessarily indicative of what the Company's
actual financial position would have been at June 30, 2001, nor does it purport
to represent the future financial position and results of operations of the
Company.
F-3
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical Airport Gateway 63 Preferred Pro Forma
Consolidated Square Properties Offering Adjustments Pro Forma
(A) Properties (C) (D) Consolidated
(B)
ASSETS
Net investments in real estate $ 792,000 $ 41,750 $ 23,835 $ - $ - $ 857,585
Cash and cash equivalents 2,962 (508) (531) - - 1,923
Other assets 53,845 (3,965) - - - 49,880
------------ ---------- ---------- --------- --------- ----------
Total assets $ 848,807 $ 37,277 $ 23,304 $ - $ - $ 909,388
============ ========== ========== ========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 475,999 $ 37,277 $ 20,045 $(23,747) $ - $ 509,574
Other liabilities 38,171 - - - - 38,171
------------ ---------- ---------- --------- --------- ----------
Total liabilities 514,170 37,277 20,045 (23,747) - 547,745
------------ ---------- ---------- --------- --------- ----------
Minority interests 103,491 - 2,847 - - 106,338
------------ ---------- ---------- --------- --------- ----------
Shareholders' equity
Preferred shares of beneficial interest 29 - - 10 - 39
Common shares of beneficial interest 207 - - - - 207
Additional paid-in capital 249,618 - 412 23,737 - 273,767
Other (18,708) - - - - (18,708)
------------ ---------- ---------- --------- --------- ----------
Total shareholders' equity 231,146 - 412 23,747 - 255,305
------------ ---------- ---------- --------- --------- ----------
Total liabilities and
shareholders' equity $ 848,807 $ 37,277 $ 23,304 $ - $ - $ 909,388
============ ========== ========== ========= ========= ==========
See accompanying notes and management's assumptions to pro forma
financial statements.
F-4
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical 2000 State Farm 19 Commerce Airport Gateway 63
Consolidated Transactions COMI Properties Drive Square Properties
(A) (B) (C) (D) (E) Properties (G)
(F)
REVENUES:
Rental revenue $ 93,309 $ (638) $ - $ 1,698 $ (1,401) $ 4,748 $ 1,004
Tenant recoveries
and other revenue 15,684 (232) - 558 (27) 374 83
Service operation
revenue - - 4,040 - - - -
---------- --------- --------- --------- --------- --------- ----------
Total revenues 108,993 (870) 4,040 2,256 (1,428) 5,122 1,087
---------- --------- --------- --------- --------- --------- ----------
EXPENSES:
Property operating 31,235 (189) - 898 (413) 1,800 153
General and
administrative 4,867 (5) - - - - -
Interest 30,454 - - - - - -
Depreciation and
Amortization 18,359 - - - - - -
Service operation
expenses - - 4,254 - - - -
---------- --------- --------- --------- --------- --------- ----------
Total expenses 84,915 (194) 4,254 898 (413) 1,800 153
---------- -------- -------- -------- -------- -------- ---------
Gain (loss) on sale of
Properties 107 (107) - - - - -
Equity in loss of
unconsolidated
subsidiary (310) - - - - - -
---------- --------- --------- --------- --------- --------- ----------
Income (loss) before
minority interests
and income taxes 23,875 (783) (214) 1,358 (1,015) 3,322 934
Minority interests
Preferred Units (2,240) - - - - - -
Other partnerships (26) - (51) - - - -
Common Units (6,322) - - - - - -
---------- --------- --------- --------- --------- --------- ----------
Net income (loss)
from continuing
operations before income
taxes 15,287 (783) (265) 1,358 (1,015) 3,322 934
Income taxes - - (61) - - - -
---------- -------- -------- -------- -------- -------- ---------
Net income (loss) from
continuing operations 15,287 (783) (326) 1,358 (1,015) 3,322 934
Preferred share dividends (3,802) - - - - - -
---------- --------- --------- --------- --------- --------- ----------
Net income (loss) from
continuing operations
available to Common
Shareholders $ 11,485 $ (783) $ (326) $ 1,358 $ (1,015) $ 3,322 $ 934
========== ========= ========= ========= ========= ========= ==========
Earnings per share: Basic $ 0.61
==========
Earnings per share: Diluted $ 0.60
==========
Weighted average number
of shares: Basic 18,818
==========
Diluted 19,213
==========
Preferred
Offerings Pro Forma Pro Forma
(H) Adjustments Consolidated
REVENUES:
Rental revenue $ - $ - $ 98,720
Tenant recoveries
and other revenue - (217)(I) 16,223
Service operation
revenue - - 4,040
--------- --------- ---------
Total revenues - (217) 118,983
--------- --------- ---------
EXPENSES:
Property operating - - 33,484
General and
administrative - - 4,862
Interest (4,805) 3,792 (J) 29,441
Depreciation and
Amortization - 1,380 (K) 19,739
Service operation
expenses - (217)(I) 4,037
--------- --------- -----------
Total expenses (4,805) 4,955 91,563
-------- --------- -----------
Gain (loss) on sale of
Properties - - -
Equity in loss of
unconsolidated
subsidiary - 310 (L) -
--------- --------- ----------
Income (loss) before
minority interests
and income taxes 4,805 (4,862) 27,420
Minority interests
Preferred Units - (48) (M) (2,288)
Other partnerships - - (77)
Common Units - 934 (N) (5,388)
--------- --------- ---------
Net income (loss)
from continuing
operations before income
taxes 4,805 (3,976) 19,667
Income taxes - - (61)
-------- --------- ---------
Net income (loss) from
continuing operations 4,805 (3,976) 19,606
Preferred share dividends (5,991) - (9,793)
--------- --------- ---------
Net income (loss) from
continuing operations
available to Common
Shareholders $ (1,186) $ (3,976) $ 9,813
========= ========= ===========
Earnings per share: Basic $ 0.52
===========
Earnings per share: Diluted $ 0.51
===========
Weighted average number
of shares: Basic 18,818
===========
Diluted 20,410
===========
See accompanying notes and management's assumptions to pro forma
financial statements.
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Historical State Farm 19 Commerce Airport Gateway 63
Consolidated Properties Drive Square Properties
(A) (D) (E) Properties (G)
(F)
REVENUES:
Rental revenue $ 51,579 $ 611 $ (779) $ 3,101 $ 1,584
Tenant recoveries and other revenue 7,033 (50) (4) 235 196
Service operation revenues 2,176 - - - -
------------ ---------- ---------- ---------- ----------
Total revenues 60,788 561 (783) 3,336 1,780
------------ ---------- ---------- ---------- ----------
EXPENSES:
Property operating 17,024 322 (204) 934 253
General and administrative 2,775 - - - -
Interest 15,956 - - - -
Depreciation and amortization 10,786 - - - -
Service operation expenses 2,244 - - - -
------------ ---------- ---------- ---------- ----------
Total expenses 48,785 322 (204) 934 253
------------ ---------- ---------- ---------- ----------
Gain (loss) on sale of properties 1,596 - (1,596) - -
Equity in income of unconsolidated
subsidiaries 36 - - - -
------------ ---------- ---------- ---------- ----------
Income (loss) before minority interests and
income taxes 13,635 239 (2,175) 2,402 1,527
Minority interests
Preferred Units (1,144) - - - -
Other partnerships (54) - - - -
Common Units (3,372) - - - -
------------ ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes 9,065 239 (2,175) 2,402 1,527
Income tax benefit 52 - - - -
------------ ---------- ---------- ---------- ----------
Net income (loss) from continuing operations 9,117 239 (2,175) 2,402 1,527
Preferred share dividends (2,494) - - - -
----------- ---------- ---------- ---------- ----------
Net income (loss) from continuing operations
available to Common Shareholders $ 6,623 $ 239 $ (2,175) $ 2,402 $ 1,527
========== ========== ========== ========== ==========
Earnings per share: Basic $ 0.33
===========
Earnings per share: Diluted $ 0.32
===========
Weighted average number of shares:
Basic 20,034
===========
Diluted 21,359
===========
Preferred
Offerings Pro Forma
(H) Adjustments Total
REVENUES:
Rental revenue $ - $ - $ 56,096
Tenant recoveries and other revenue - - 7,410
Service operation revenues - - 2,176
---------- --------- ---------
Total revenues - - 65,682
---------- --------- ---------
EXPENSES:
Property operating - - 18,329
General and administrative - - 2,775
Interest (1,381) 2,202 (J) 16,777
Depreciation and amortization - 612 (K) 11,398
Service operation expenses - - 2,244
---------- --------- ---------
Total expenses (1,381) 2,814 51,523
---------- --------- ---------
Gain (loss) on sale of properties - - -
Equity in income of unconsolidated
subsidiaries - (133)(O) (97)
---------- --------- ---------
Income (loss) before minority interests and
income taxes 1,381 (2,947) 14,062
Minority interests
Preferred Units - - (1,144)
Other partnerships - - (54)
Common Units - 576(N) (2,796)
---------- --------- ---------
Income (loss) from continuing operations
before income taxes 1,381 (2,371) 10,068
Income tax benefit - - 52
---------- ------------ ---------
Net income (loss) from continuing operations 1,381 (2,371) 10,120
Preferred share distributions (2,064) - (4,558)
---------- --------- ---------
Net income (loss) from continuing operations
available to Common Shareholders $ (683) $ (2,371) $ 5,562
========== ======== =========
Earnings per share: Basic $ 0.28
=========
Earnings per share: Diluted $ 0.27
=========
Weighted average number of shares:
Basic 20,034
==========
Diluted 21,518
==========
See accompanying notes and management's assumptions to pro forma
financial statements.
F-6
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Corporate Office Properties Trust (the "Company") is a self-administered
Maryland real estate investment trust. As of June 30, 2001, the Company's
portfolio included 91 properties, including six owned through joint ventures.
These pro forma condensed consolidating financial statements should be read in
conjunction with the historical financial statements and notes thereto of the
Company, the Airport Square Properties and the Gateway 63 Properties. In
management's opinion, all adjustments necessary to reflect the effects of the
2000 Transactions and the 2001 Transactions have been made. This pro forma
condensed consolidating financial information is unaudited and is not
necessarily indicative of what the Company's actual financial position would
have been at June 30, 2001, nor does it purport to represent the future
financial position and results of operations of the Company.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the historical consolidated balance sheet of the Company
as of June 30, 2001.
(B) Reflects the acquisition of the Airport Square Properties from
unrelated parties using: (i) $24,077 in proceeds from two mortgage
loans payable; (ii) $13,200 in proceeds from our Revolving Credit
Facility; (iii) $3,965 in proceeds from the sale of 19 Commerce
Drive; and (iv) $508 in cash payments.
(C) Reflects the acquisition of the Gateway 63 Properties from an
unrelated party using: (i) a $15,750 mortgage loan payable assumed;
(ii) $4,295 in loan proceeds from our Revolving Credit Facility;
(iii) issuing 310,342 common units in our operating partnership
valued at $3,259; and (iv) $531 in cash payments. This transaction
also resulted in a $412 increase to paid-in capital and a
corresponding decrease to minority interests resulting from the
change in ownership of our Operating Partnership.
(D) Reflects the issuance of 1,000,000 Series F Preferred Shares
expected to occur in September 2001 for net proceeds of $23,747,
all of which is expected to be used to pay down the Revolving
Credit Facility.
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
F-7
(B) The pro forma adjustments associated with the 2000 Transactions are set
forth in the table below.
7240 Minot Tred Avon 3 Center
Parkway Retail (ii) (iii) Drive (iv) Total
Drive (i)
Revenues
Rental income $ 361 $ (149) $ (600) $ (250) $ (638)
Tenant recoveries and other revenue 4 - (145) (91) (232)
---------- --------- ---------- ---------- ---------
Total revenues 365 (149) (745) (341) (870)
---------- --------- ---------- ---------- ---------
Expenses
Property operating 116 (2) (215) (88) (189)
General and administrative - (1) (4) - (5)
Interest - - - - -
Depreciation and amortization - - - - -
---------- --------- ---------- ---------- ---------
Total expenses 116 (3) (219) (88) (194)
---------- --------- ---------- ---------- ---------
Gain (loss) on sale of properties - (57) 94 (144) (107)
---------- --------- ---------- ---------- ---------
Income (loss) before minority
interests and income taxes $ 249 $ (203) $ (432) $ (397) $ (783)
========== ========= ========== ========== =========
(i) Reflects the effects of the historical operations of 7240 Parkway
Drive prior to its acquisition on April 18, 2000.
(ii) Reflects the effects of the historical operations of Minot Retail
prior to its disposition on June 19, 2000.
(iii)Reflects the effects of the historical operations of Tred Avon
prior to its disposition on November 10, 2000.
(iv) Reflects the effects of the historical operations of 3 Center
Drive prior to its disposition on December 28, 2000.
(C) Reflects the effects of the historical operations of COMI and its
subsidiaries, net of relevant elimination entries, prior to our
purchase of the interests that we did not previously own on January 1,
2001.
(D) Reflects the effects of the historical operations of the State Farm
Properties prior to their acquisition on May 14, 2001.
(E) Reflects the effects of the historical operations of 19 Commerce Drive
prior to its disposition on June 18, 2001.
(F) Reflects the effects of the historical operations of the Airport Square
Properties for the periods presented.
(G) Reflects the effects of the historical operations of the Gateway 63
Properties for the periods presented.
F-8
(H) Reflects the effects of the issuance of the Series D Preferred Shares,
Series E Preferred Shares and Series F Preferred Shares as if such
issuances and the resulting repayments of debt occurred at the
beginning of the respective reporting periods.
FOR THE SIX
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, JUNE 30,
2000 2001
---- ----
INTEREST EXPENSE:
Series D Preferred Share issuance - $8,245 of proceeds used to
pay down the Revolving Credit Facility, bearing interest on the
outstanding balance at LIBOR plus 175 basis points, assuming a
LIBOR rate of 6.4% per annum for 2000 and 5.34% per annum for
the six months ended June 30, 2001. $ (672) $ (48)
Series E Preferred Share issuance - $26,950 of the proceeds used
to pay down the Revolving Credit Facility, bearing interest on
the outstanding balance at LIBOR plus 175 basis points, assuming
a LIBOR rate of 6.4% per annum for 2000 and 5.34% per annum for
the six months ended June 30, 2001. (2,199) (498)
Series F Preferred Share issuance - $23,747 of the proceeds used
to pay down the Revolving Credit Facility, bearing interest on
the outstanding balance at LIBOR plus 175 basis points, assuming
a LIBOR rate of 6.4% per annum for 2000 and 5.34% per annum for
the six months ended June 30, 2001. (1,934) (835)
------------ ------------
Total $ (4,805) $ (1,381)
============ ===========
F-9
PREFERRED SHARE DIVIDENDS:
Series D Preferred Share issuance - 544,000 shares issued with
an aggregate liquidation preference of $13,600, paying dividends
at a yearly rate of 4% of such liquidation preference. $ 544 $ 36
Series E Preferred Share issuance- 1,150,000 shares issued with
an aggregate liquidation preference of $28,750, paying dividends
at a yearly rate of 10.25% of such liquidation preference. 2,947 778
Series F Preferred Share issuance- 1,000,000 shares issued with
an aggregate liquidation preference of $25,000, paying dividends
at a yearly rate of 10% of such liquidation preference. 2,500 1,250
------------ ------------
Total $ 5,991 $ 2,064
============ ============
(I) Adjustment to reverse interest income recognized by the Company from
COMI and the associated expense recognized by COMI due to COMI being a
consolidated subsidiary effective January 1, 2001.
(J) Pro forma adjustments are reflected below for additional interest
expense resulting from acquisitions activity. Pro forma adjustments are
also reflected below for decreases in historical interest expense
resulting from property dispositions. Pro forma adjustments below
associated with our Revolving Credit Facility, which bears interest at
LIBOR plus 175 basis points, assumes a LIBOR rate of 6.4% per annum for
the year ended December 31, 2000 and 5.34% per annum for the six months
ended June 30, 2001.
FOR THE SIX
FOR THE YEAR MONTH PERIOD
ENDED ENDED
ADJUSTMENT TO INTEREST EXPENSE, NET OF DECEMBER 31, JUNE 30,
RELATED HISTORICAL AMOUNTS, AS A RESULT OF: 2000 2001
------------------------------------------- ---- ----
Proceeds borrowed under the Revolving Credit Facility
of $7,285 in connection with the acquisition of 7240
Parkway Drive. $ 175 $ -
Debt repaid in connection with the sale of Minot Retail in the
amount of $2,432, bearing interest at 8% per
annum. (93) -
Debt repaid in connection with the sale of Tred Avon consisting
of: (i) $2,756 mortgage loan payable on the property with an
interest rate of LIBOR plus 1.75% and (ii) $2,000 under the
Revolving Credit Facility. (335) -
F-10
Debt repaid under the Revolving Credit Facility in connection
with the sale of 3 Center Drive in the
amount of $1,755. (142) -
Proceeds borrowed under the Revolving Credit Facility
of $12,915 in connection with the acquisition of the
State Farm Properties. 1,051 336
Debt repaid in connection with the sale of 19 Commerce Drive
consisting of: (i) a $7,000 mortgage loan payable on the
property with an interest rate of LIBOR plus 1.75% and (ii)
$4,550 on the Revolving Credit Facility. (382) (224)
Proceeds from debt in connection with the acquisition of the
Airport Square Properties consisting of: (i) $16,215 borrowed
under a mortgage loan payable bearing interest at LIBOR plus
1.75 basis points; (ii) $13,200 borrowed under the Revolving
Credit Facility; and (iii) $7,862 borrowed under a mortgage loan
payable bearing interest at 7.18% per annum. 2,961 1,314
Proceeds from debt in connection with the acquisition of the
Gateway 63 Properties consisting of: (i) $15,750 mortgage loan
payable assumed bearing interest at the Prime rate; and (ii)
$4,295 borrowed under the Revolving Credit Facility. 557 776
------------ ------------
$ 3,792 $ 2,202
========= ============
(K) Pro forma depreciation expense adjustments are reflected on
acquisitions based on a useful life of 40 years on the portion of the
acquisition attributable to the building. Pro forma amortization
expense adjustments are reflected assuming pro forma deferred financing
fees are amortized over the life of the related loans. Pro forma
depreciation and amortization expense adjustments on dispositions are
reflected based on historical amounts.
FOR THE SIX
FOR THE YEAR MONTH PERIOD
ADJUSTMENT TO DEPRECIATION AND ENDED ENDED
AMORTIZATION EXPENSE, NET OF RELATED DECEMBER 31, JUNE 30,
HISTORICAL AMOUNTS, AS A RESULT OF: 2000 2001
----------------------------------- ---- ----
DEPRECIATION EXPENSE:
7240 Parkway Drive $ 44 $ -
Minot Retail (31) -
Tred Avon (105) -
3 Center Drive (51) -
F-11
State Farm Properties 132 110
19 Commerce Drive (158) (109)
Airport Square Properties 905 453
Gateway 63 Properties 471 235
AMORTIZATION OF DEFERRED FINANCING FEES RELATED TO:
Minot Retail (1) -
Tred Avon (31) -
19 Commerce Drive - (85)
Airport Square Properties 205 8
--------------- ------------
$ 1,380 $ 612
============ ============
(L) Adjustment to reverse income recorded for the Operating Partnership's
investment in COMI under the equity method of accounting during 2000.
(M) Adjustment for distributions on additional Preferred Units issued in
connection with a 1999 property acquisition.
(N) Adjustment for minority interests' share of pro forma adjustments made
to the Operating Partnership.
(O) Adjustment to reverse income recorded for our investment in certain of
the Airport Square Properties under the equity method of accounting
during 2001.
4. ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT OF TAXABLE NET OPERATING
INCOME AND OPERATING FUNDS AVAILABLE
The following unaudited statement is a pro forma estimate for a twelve-month
period of taxable income and operating funds available for the Company. The
unaudited pro forma statement is based on the Company's historical operating
results for the year ended December 31, 2000 adjusted as if the following
transactions had occurred on January 1, 2000: (i) the acquisition of 7240
Parkway Drive, (ii) the acquisition of the State Farm Properties, (iii) the
acquistion of the Airport Properties as reported herein, and (iv) the
acquistion of the Gateway 63 Properties as reported herein.
This estimated twelve-month pro forma statement of taxable net operating
income and operating funds available is based upon the historical results of
operations of the Company for the year ended December 31, 2000. This
information should be read in conjunction with the proforma condensed balance
sheet and the pro forma condensed statement of operations of the Company set
forth elsewhere herein and the historical financial statements and notes
thereto of the Company included in the Corporate Office Properties Trust Form
10-K for the year ended December 31, 2000, the Airport Square Properties
Statement of Revenue and Certain Expenses and the Gateway 63 Properties
Statement of Revenue and Certain Expenses included in their Form 8-K.
F-12
Estimate of Taxable Net Operating Income
-----------------------------------------
Historical earnings from operations, exclusive of depreciation
and amortization and Preferred Share dividends (1) $ 33,646
Historical earnings from operations, exclusive of depreciation
and amortization (2)
7240 Parkway Drive 46
State Farm Properties 192
Airport Square Properties 226
Gateway 63 Properties 236
Estimated tax basis depreciation and amortization (3)
Historical tax basis depreciation and amortization (16,671)
7240 Parkway Drive (45)
State Farm Properties (136)
Airport Square Properties (929)
Gateway 63 Properties (483)
Other historical tax adjustments (3,365)
--------
Pro Forma taxable operating income before dividends deduction 12,717
Dividends deduction (4) (18,917)
--------
Excess of dividends over pro forma taxable operating income $ (6,200)
========
Estimate of Pro Forma Operating Funds Available (5)
---------------------------------------------------
Pro Forma taxable operating income before dividends deduction $ 12,717
Add pro forma tax basis depreciation and amortization 18,264
--------
Estimate of pro forma operating funds available $ 30,981
========
(1) The historical earnings from operations represents the Company's net
income from continuing operations as adjusted for depreciation and
amortization for the year ended December 31, 2000 reflected in the historical
financial statements.
(2) The historical earnings from operations represents the pro forma results
of 7240 Parkway Drive, the State Farm Properties, the Airport Square
Properties and the Gateway 63 Properties reported net of related interest and
minority interest expense.
(3) The estimated tax basis depreciation reported is based upon the historic
gross depreciation and amortization as reported in income tax returns filed
by the Company and its consolidated subsidiaries. Adjustments are provided
for 7240 Parkway Drive, the State Farm Properties, the Airport Square
Properties and the Gateway 63 Properties based upon the original purchase
price allocated to the buildings, depreciated on a straight-line basis over
39 year lives.
(4) The dividends deduction is based on the historical dividends reported for
the year ended December 31, 2000.
(5) Operating funds available does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs.
F-13
REPORT OF INDEPENDENT ACCOUNTANTS
To Airport Square Properties
We have audited the accompanying statement of revenue and certain expenses of
the Airport Square Properties (the "Properties") as described in Note 1 for the
year ended December 31, 2000. This historical statement is the responsibility of
the Properties' management; our responsibility is to express an opinion on this
historical statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the historical
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the historical
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the historical statement. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying historical statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion on Form 8-K of Corporate Office Properties Trust as described in Note
2, and is not intended to be a complete presentation of the Properties' revenue
and expenses.
In our opinion, the historical statement referred to above presents fairly, in
all material respects, the revenue and certain expenses described in Note 2, of
the Airport Square Properties for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
September 4, 2001
F-14
AIRPORT SQUARE PROPERTIES
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------------
Revenue
Base rents $4,748,064
Tenant reimbursements 373,916
----------
Total revenue 5,121,980
----------
Certain expenses
Property operating expenses
Utilities 451,701
Property taxes 304,472
Cleaning 198,765
Management fees 139,962
Other operating expenses 178,496
----------
Total property operating 1,273,396
Repairs and maintenance 526,731
----------
Total certain expenses 1,800,127
----------
Revenues in excess of certain expenses $3,321,853
==========
The accompanying notes are an integral part of these financial statements.
F-15
AIRPORT SQUARE PROPERTIES
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
-------------------------------------------------------------------------------
Revenue
Base rents $3,101,017
Tenant reimbursements 235,226
----------
Total revenue 3,336,243
----------
Certain expenses
Property operating expenses
Utilities 209,835
Property taxes 173,083
Cleaning 118,233
Management fees 78,616
Other operating expenses 111,058
----------
Total property operating 690,825
Repairs and maintenance 243,828
----------
Total certain expenses 934,653
----------
Revenues in excess of certain expenses $2,401,590
==========
The accompanying notes are an integral part of these financial statements.
F-16
AIRPORT SQUARE PROPERTIES
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. BUSINESS
The accompanying statement of revenue and certain expenses relates to the
operations of Airport Square Properties (the "Properties"), consisting of
the revenue and certain expenses of six buildings totaling 411,755 square
feet located in Linthicum, Maryland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission in contemplation of Corporate
Office Properties Trust acquiring the Properties. The statement is not
representative of the actual operations of the Properties for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization, and interest expense, which may not
be comparable to the expenses expected to be incurred by Corporate Office
Properties Trust in future operations of the Properties, have been
excluded.
REVENUE AND EXPENSE RECOGNITION
Revenue is recognized on a straight-line basis over the terms of the
relate lease. Expenses are recognized in the period in which they are
incurred.
USED OF ESTIMATES
The preparation of this historical statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from these
estimates.
MAJOR TENANTS
During 2000, 56% of the Properties' total rental revenue was earned from 3
major tenants, each of which amounted to over 10% of total rental revenue.
Rental revenue earned from these 3 tenants for the year ended December 31,
2000 was approximately $1,420,000, $730,000 and $508,000, respectively.
F-17
AIRPORT SQUARE PROPERTIES
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
3. RENTALS
The Properties have entered into non-cancelable tenant leases, with
expiration dates ranging from January 2000 to April 2011. Such leases
provide that tenants will share in operating expenses and real estate
taxes on a pro rata basis, as defined in the leases. Future minimum
rentals as of December 31, 2000, to be received under these tenant leases
are as follows:
2001 $ 5,535,544
2002 5,305,256
2003 4,645,510
2004 4,595,415
2005 3,396,884
Thereafter 11,627,620
-----------
$35,106,229
===========
Amounts in this schedule of future minimum rentals includes $622,500 of
future rents associated with a tenant that declared bankruptcy subsequent
to the year ended December 31, 2000.
4. UNAUDITED INTERIM STATEMENT
The statement of revenue and certain expenses for the six months ended
June 30, 2001 is unaudited. As a result, this interim statement should be
read in conjunction with the statement and notes included in the December
31, 2000 statement of revenue and certain expenses. The interim statement
reflects all adjustments which we believe are necessary for the fair
presentation of our statement of revenue and certain expenses for the
interim period presented. These adjustments are of a normal recurring
nature. The statement of revenue and certain expenses for such interim
period is not necessarily indicative of the results for a full year.
F-18
REPORT OF INDEPENDENT ACCOUNTANTS
To Gateway 63 Properties
We have audited the accompanying statement of revenue and certain expenses of
the Gateway 63 Properties (the "Properties") as described in Note 1 for the year
ended December 31, 2000. This historical statement is the responsibility of the
Properties' management; our responsibility is to express an opinion on this
historical statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the historical
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the historical
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the historical statement. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying historical statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion on Form 8-K of Corporate Office Properties Trust) as described in Note
2, and is not intended to be a complete presentation of the Properties' revenue
and expenses.
In our opinion, the historical statement referred to above presents fairly, in
all material respects, the revenue and certain expenses described in Note 2, of
the Gateway 63 Properties for the year ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
September 4, 2001
F-19
GATEWAY 63 PROPERTIES
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------------
Revenue
Base rents $1,004,400
Tenant reimbursements 82,998
Miscellaneous income --
----------
Total revenue 1,087,398
----------
Certain expenses
Property operating expenses
Property taxes 50,176
Management fees 24,808
Utilities 22,396
Other operating expenses 8,994
----------
Total property operating 106,374
Repairs and maintenance 46,821
----------
Total certain expenses 153,195
----------
Revenue in excess of certain expenses $ 934,203
==========
The accompanying notes are an integral part of these financial statements.
F-20
GATEWAY 63 PROPERTIES
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
-------------------------------------------------------------------------------
Revenue
Base rents $1,583,799
Tenant reimbursements 196,231
Miscellaneous income 60
----------
Total revenue 1,780,090
----------
Certain expenses
Property operating expenses
Property taxes 106,066
Management fees 39,715
Utilities 30,750
Other operating expenses 3,572
----------
Total property operating 180,103
Repairs and maintenance 73,341
----------
Total certain expenses 253,444
----------
Revenue in excess of certain expenses $1,526,646
==========
The accompanying notes are an integral part of these financial statements.
F-21
GATEWAY 63 PROPERTIES
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. BUSINESS
The accompanying statement of revenue and certain expenses relates to the
operations of Gateway 63 Properties (the "Properties"), consisting of the
revenue and certain expenses of four buildings totaling 187,132 square
feet located in Columbia, Maryland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses was
prepared for the purpose of complying with the rules and regulations of
the Securities and Exchange Commission in contemplation of Corporate
Office Properties Trust acquiring the Properties. The statement is not
representative of the actual operations of the Properties for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization, and interest expense, which may not
be comparable to the expenses expected to be incurred by Corporate Office
Properties Trust in future operations of the Properties, have been
excluded.
REVENUE AND EXPENSE RECOGNITION
Revenue is recognized on a straight-line basis over the terms of the
relate lease. Expenses are recognized in the period in which they are
incurred.
USED OF ESTIMATES
The preparation of this historical statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from these
estimates.
MAJOR TENANTS
During 2000, 97% of the Properties' total rental revenue was earned from 2
major tenants, each of which amounted to over 10% of total rental revenue.
Rental revenue earned from these 2 tenants for the year ended December 31,
2000 was approximately $787,011 and $183,478, respectively.
3. RENTALS
The Properties have entered into non-cancelable tenant leases, with
expiration dates ranging from 2005 to 2011. Such leases provide that
tenants will share in operating expenses and real estate taxes on a pro
rata basis, as defined in the leases. Future minimum rentals as of
December 31, 2000, to be received under these tenant leases are as
follows:
2001 $ 2,735,483
2002 3,030,145
2003 3,073,196
2004 3,153,316
2005 3,080,615
Thereafter 14,443,605
-----------
$29,516,360
===========
F-22
GATEWAY 63 PROPERTIES
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
4. UNAUDITED INTERIM STATEMENT
The statement of revenue and certain expenses for the six months ended
June 30, 2001 is unaudited. As a result, this interim statement should be
read in conjunction with the statement and notes included in the December
31, 2000 statement of revenue and certain expenses. The interim statement
reflects all adjustments which we believe are necessary for the fair
presentation of our statement of revenue and certain expenses for the
interim period presented. These adjustments are of a normal recurring
nature. The statement of revenue and certain expenses for such interim
period is not necessarily indicative of the results for a full year.
F-23