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): April 3, 2006 (December 22, 2005)
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland |
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1-14023 |
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23-2947217 |
(State or other jurisdiction of |
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(Commission |
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(IRS Employer |
incorporation) |
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File Number) |
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Identification Number) |
8815 Centre Park Drive, Suite 400
Columbia, Maryland 21045
(Address of principal executive offices)
(410) 730-9092
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 8.01 Other Events
On December 22, 2005, Corporate Office Properties Trust (the Company), through an affiliate of Corporate Office Properties, L.P. (the Operating Partnership), closed on a transaction to acquire, either directly or through an exchange accomodation title holder, a portfolio of office properties totaling 704,692 square feet located in Hunt Valley, Maryland and a portfolio of office properties totaling 402,174 square feet located in Woodlawn, Maryland (collectively referred to as the Hunt Valley/Rutherford Portfolios).
The Hunt Valley/Rutherford Portfolios were acquired from an unrelated third party for a contract price of $124.5 million and an aggregate cost to the Company of $124.0 million, including transaction costs and credits from the seller for future capital expenditures. The Company paid for this acquisition by using borrowings of $82.0 million under the Companys Revolving Credit Facility, $41.6 million under a new loan from KeyBank, National Association and cash reserves for the balance.
The following schedule sets forth certain information relating to the Hunt Valley/Rutherford Portfolios as of December 31, 2005. In this schedule and the schedule that follows, the term annualized rental revenue is used; annualized rental revenue is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases in the acquired properties as of December 31, 2005.
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Annualized |
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Year |
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Rentable |
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Annualized |
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Rental Revenue |
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Built/ |
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Square |
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Rental |
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per Occupied |
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Property |
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Renovated |
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Feet |
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Occupancy |
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Revenue |
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Square Foot |
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Hunt Valley, Maryland |
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11311 McCormick Road |
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1984/1994 |
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211,931 |
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87.2 |
% |
$ |
4,468,332 |
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$ |
24.19 |
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200 International Circle |
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1987 |
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128,658 |
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72.1 |
% |
2,231,381 |
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24.07 |
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230 Schilling Circle |
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1981 |
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107,348 |
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68.6 |
% |
1,172,587 |
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15.92 |
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226 Schilling Circle |
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1980 |
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98,640 |
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79.5 |
% |
1,689,899 |
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21.54 |
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201 International Circle |
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1982 |
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78,634 |
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75.2 |
% |
1,382,870 |
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23.40 |
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11011 McCormick Road |
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1974 |
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55,249 |
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100.0 |
% |
953,215 |
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17.25 |
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11101 McCormick Road |
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1976 |
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24,232 |
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88.4 |
% |
361,738 |
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16.89 |
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Woodlawn, Maryland |
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7210 Ambassador Road |
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1972 |
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83,435 |
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100.0 |
% |
857,444 |
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10.28 |
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7152 Windsor Boulevard |
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1986 |
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57,855 |
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100.0 |
% |
739,973 |
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12.79 |
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21 Governors Court |
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1981/1995 |
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56,063 |
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85.9 |
% |
772,231 |
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16.03 |
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7125 Ambassador Road |
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1985 |
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50,906 |
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90.1 |
% |
814,045 |
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17.75 |
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7253 Ambassador Road |
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1988 |
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38,930 |
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100.0 |
% |
454,722 |
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11.68 |
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7104 Ambassador Road |
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1988 |
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29,457 |
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100.0 |
% |
515,028 |
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17.48 |
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17 Governors Court |
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1981 |
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14,701 |
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78.6 |
% |
209,637 |
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18.13 |
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15 Governors Court |
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1981 |
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14,568 |
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100.0 |
% |
208,125 |
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14.29 |
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7127 Ambassador Road |
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1985 |
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11,144 |
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77.7 |
% |
162,772 |
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18.80 |
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7129 Ambassador Road |
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1985 |
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10,945 |
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0.0 |
% |
0 |
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0.00 |
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7108 Ambassador Road |
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1988 |
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9,018 |
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47.1 |
% |
79,395 |
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18.71 |
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7102 Ambassador Road |
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1988 |
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8,879 |
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100.0 |
% |
146,415 |
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16.49 |
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7106 Ambassador Road |
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1988 |
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8,820 |
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52.9 |
% |
72,214 |
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15.49 |
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7131 Ambassador Road |
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1985 |
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7,453 |
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50.9 |
% |
62,298 |
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16.41 |
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Total/Weighted Average |
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1,106,866 |
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83.6 |
% |
$ |
17,354,321 |
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$ |
18.75 |
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The following schedule sets forth annual lease expirations for the Hunt Valley/Rutherford Portfolios as of December 31, 2005 assuming that none of the tenants exercise renewal options:
2
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Percentage of |
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Annualized |
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Annualized |
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Total Portfolios |
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Rental |
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Square |
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Rental |
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Annualized |
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Revenue of |
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Year of |
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Number |
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Footage |
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Percentage of |
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Revenue of |
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Rental |
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Expiring Leases |
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Lease |
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of Leases |
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of Leases |
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Total Occupied |
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Expiring |
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Revenue |
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per Occupied |
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Expiration |
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Expiring |
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Expiring |
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Square Feet |
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Leases |
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Expiring |
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Square Foot |
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(in thousands) |
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2006 |
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17 |
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182,723 |
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19.8 |
% |
$ |
4,105 |
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23.7 |
% |
$ |
22.46 |
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2007 |
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8 |
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118,547 |
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12.8 |
% |
2,566 |
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14.8 |
% |
21.65 |
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2008 |
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17 |
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164,564 |
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17.8 |
% |
3,010 |
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17.3 |
% |
18.29 |
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2009 |
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8 |
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73,302 |
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7.9 |
% |
1,498 |
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8.6 |
% |
20.44 |
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2010 |
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6 |
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49,080 |
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5.3 |
% |
901 |
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5.2 |
% |
18.36 |
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2011 |
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7 |
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86,129 |
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9.3 |
% |
1,409 |
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8.1 |
% |
16.36 |
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2012 |
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3 |
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131,523 |
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14.2 |
% |
2,450 |
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14.1 |
% |
18.62 |
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2013 |
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3 |
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100,013 |
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10.8 |
% |
1,097 |
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6.3 |
% |
10.97 |
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2014 |
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0.0 |
% |
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0.0 |
% |
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2015 |
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1 |
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19,553 |
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2.1 |
% |
318 |
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1.9 |
% |
16.25 |
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Total/ Weighted Average |
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70 |
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925,434 |
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100.0 |
% |
$ |
17,354 |
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100.0 |
% |
$ |
18.75 |
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Item 9.01. Financial Statements and Exhibits
The financial statements of the Hunt Valley/Rutherford Portfolios are included herein. See pages F-8 through F-12.
The pro forma condensed consolidated financial statements of the Company are included herein. See pages F-1 through F-7.
Exhibit Number |
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Description |
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23.1 |
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Consent of Independent Registered Public Accounting Firm. |
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 3, 2006 |
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CORPORATE OFFICE PROPERTIES TRUST |
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By: |
/s/ Randall M. Griffin |
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Name: |
Randall M. Griffin |
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Title: |
President and Chief Executive Officer |
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By: |
/s/ Roger A. Waesche, Jr. |
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Name: |
Roger A. Waesche, Jr. |
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Title: |
Executive Vice President and |
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Chief Financial Officer |
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4
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY |
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Notes and Managements Assumptions to Pro Forma Condensed Consolidated Financial Information |
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II. |
Hunt Valley/Rutherford Portfolios |
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F-1
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Set forth below is the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2005 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 consolidated financial information is presented as if the acquisition of a portfolio of office buildings totaling 704,692 square feet located in Hunt Valley, Maryland and a portfolio of office buildings totaling 402,174 square feet located in Woodlawn, Maryland (collectively referred to as the Hunt Valley/Rutherford Portfolios) had been consummated on January 1, 2005.
This pro forma condensed consolidated financial information should be read in conjunction with the following financial statements and notes thereto:
the historical financial statements of Corporate Office Properties Trust and its consolidated subsidiaries, included in the Companys Annual Report filed on Form 10-K for the year ended December 31, 2005; and
the historical summaries of revenue and certain expenses of the Hunt Valley/Rutherford Portfolios, which are included in this Current Report on Form 8-K.
In managements opinion, all adjustments necessary to reflect the effects of this transaction have been made. This pro forma condensed consolidated financial information is unaudited and is not necessarily indicative of what the Companys results of operations would have been for the year ended December 31, 2005. The pro forma condensed consolidated financial information also does not purport to represent the future results of operations of the Company.
F-2
Corporate Office Properties Trust
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2005
(Unaudited)
(Amounts in thousands, except per share data)
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Hunt Valley/ |
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Other |
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Historical |
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Rutherford |
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Pro Forma |
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Pro Forma |
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||||
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Consolidated |
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Portfolios |
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Adjustments |
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Consolidated |
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(A) |
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(B) |
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Revenues |
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||||
Rental revenue |
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$ |
219,062 |
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$ |
17,301 |
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$ |
|
|
$ |
236,363 |
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Tenant recoveries and other revenue |
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30,849 |
|
970 |
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|
|
31,819 |
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||||
Service operations revenues |
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79,234 |
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|
|
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|
79,234 |
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||||
Total revenues |
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329,145 |
|
18,271 |
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|
|
347,416 |
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||||
Expenses |
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||||
Property operating expenses |
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75,258 |
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6,624 |
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|
|
81,882 |
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||||
Depreciation and other amortization associated with real estate operations |
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63,063 |
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|
|
9,009 |
(C) |
72,072 |
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||||
Service operations expenses |
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77,287 |
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|
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|
77,287 |
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||||
General and administrative expenses |
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13,534 |
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|
|
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13,534 |
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||||
Total operating expenses |
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229,142 |
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6,624 |
|
9,009 |
|
244,775 |
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||||
Operating income (loss) |
|
100,003 |
|
11,647 |
|
(9,009 |
) |
102,641 |
|
||||
Interest expense and amortization of deferred financing costs |
|
(58,895 |
) |
|
|
(5,643 |
)(D) |
(64,538 |
) |
||||
Equity in loss of unconsolidated real estate joint ventures |
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(88 |
) |
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(88 |
) |
||||
Income tax expense |
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(668 |
) |
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(668 |
) |
||||
Income (loss) from continuing operations before minority interests |
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40,352 |
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11,647 |
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(14,652 |
) |
37,347 |
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||||
Minority interests |
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Common units |
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(4,869 |
) |
|
|
587 |
(E) |
(4,282 |
) |
||||
Preferred units |
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(660 |
) |
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|
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(660 |
) |
||||
Other consolidated entities |
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85 |
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|
85 |
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Income (loss) from continuing operations |
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34,908 |
|
11,647 |
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(14,065 |
) |
32,490 |
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||||
Preferred share dividends |
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(14,615 |
) |
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|
|
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(14,615 |
) |
||||
Income (loss) from continuing operations available to common shareholders |
|
$ |
20,293 |
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$ |
11,647 |
|
$ |
(14,065 |
) |
$ |
17,875 |
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Earnings per share: Basic (F) |
|
$ |
0.55 |
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$ |
0.49 |
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Earnings per share: Diluted (F) |
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$ |
0.53 |
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$ |
0.47 |
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Weighted average number of shares: |
|
|
|
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||||
Basic (F) |
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37,371 |
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|
37,371 |
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||||
Diluted (F) |
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38,997 |
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|
|
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38,997 |
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See accompanying notes and managements assumptions to pro forma financial statements.
F-3
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENTS 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 (COPT) and subsidiaries (collectively, the Company) is a fully-integrated and self-managed real estate investment trust (REIT) that focuses on the acquisition, development, ownership, management and leasing of primarily Class A suburban office properties in the Greater Washington, D.C. region and other select submarkets. As of December 31, 2005, our investments in real estate included the following:
165 wholly owned operating properties in our portfolio with an average size of 83,000 square feet per property;
14 wholly owned office properties under construction or development that we estimate will total approximately 1.8 million square feet upon completion and one wholly owned office property totaling approximately 52,000 square feet that was under redevelopment;
wholly owned land parcels totaling 311 acres that we believe are potentially developable into approximately 4.7 million square feet; and
partial ownership interests in a number of other real estate projects in operations or under development or redevelopment.
These pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and of the historical summaries of revenue and certain expenses and notes thereto of the Hunt Valley/Rutherford Portfolios. In managements opinion, all adjustments necessary to reflect the effects of the acquisition of the Hunt Valley/Rutherford Portfolios have been made. This pro forma condensed consolidated financial information is unaudited and is not necessarily indicative of what the Companys results of operations would have been for the year ended December 31, 2005, nor does it purport to represent the future results of operations of the Company.
The Company allocates the cost of property acquisitions to the components of those acquisitions based on their respective fair values. The Companys allocation of the acquisition of the Hunt Valley/Rutherford Portfolios included in these consolidated financial statements, excluding deferred finance costs, is set forth below:
F-4
Land, operating properties |
|
$ |
18,715 |
|
Building and improvements |
|
87,933 |
|
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Intangible assets on real estate acquisitions |
|
|
|
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Lease-up value |
|
16,549 |
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Lease cost portion of deemed cost avoidance |
|
1,303 |
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Lease to market value |
|
109 |
|
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Tenant relationship value |
|
2,566 |
|
|
Deferred revenue associated with acquired operating leases |
|
(3,187 |
) |
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Total |
|
$ |
123,988 |
|
The approximate weighted average amortization periods for the intangible assets set forth above is as follows: lease-up value 3 years; lease cost portion of deemed cost avoidance 4 years; lease to market value 2 years; and tenant relationship value 5 years.
2. Adjustments to Pro Forma Condensed Consolidating Statements of Operations:
(A) Reflects the historical consolidated operations of the Company for the period presented.
(B) Reflects the effects of the (i) historical operations of the Hunt Valley/Rutherford Portfolios for the period presented and (ii) increase in rental revenue of $675 for the twelve months ended December 31, 2005 reflecting the amortization for that period of value associated with in-place operating leases to the extent that future cash flows under the contractual leases are above or below market at the time of the acquisition (the lease to market value).
(C) Pro forma depreciation expense adjustments are reflected on the acquisition based on (i) the portion of the acquisition costs attributable to the building depreciated over a useful life of 40 years and (ii) the value of tenant improvements associated with in-place operating leases depreciated over the remaining lives of the leases. Pro forma amortization expense adjustments are reflected on acquisitions based on (i) the value associated with acquiring a built-in revenue stream on leased buildings amortized over the life of the tenants leases (the lease-up value), (ii) the value associated with acquiring properties with particular tenants amortized over the estimated amount of time that the associated tenants are expected to remain in the properties (the tenant relationship value) and (iii) the value of leasing costs associated with in-place operating leases amortized over the remaining lives of the leases (the lease cost portion of deemed cost avoidance).
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For the Year Ended |
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Adjustment to depreciation and other amortization expense related to: |
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|
|
|
Depreciation expense |
|
$ |
2,933 |
|
Amortization of lease-up value |
|
5,539 |
|
|
Amortization of tenant relationship value |
|
286 |
|
|
Amortization of lease cost portion of deemed cost avoidance |
|
251 |
|
|
|
|
$ |
9,009 |
|
F-5
(D) Pro forma adjustments for additional interest expense resulting from the property acquisition are set forth below. The pro forma adjustments below were computed using the weighted average of the rates in effect for the applicable pro forma period. Pro forma deferred financing cost amortization adjustments are reflected assuming such costs are amortized over the lives of the related loans.
|
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For the Year Ended |
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|
|
December 31, 2005 |
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|
Adjustment to interest expense related to: |
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Borrowings in connection with the acquisition consisting of the following: (1) $82,000 in borrowings under the Revolving Credit Facility and (2) $41,600 in borrowings under a new loan, both bearing a variable interest rate of LIBOR plus 125 basis points. |
|
$ |
5,539 |
|
|
|
|
|
|
Amortization of deferred financing costs related to: |
|
|
|
|
Borrowings under the new $41,600 loan |
|
104 |
|
|
|
|
$ |
5,643 |
|
The aggregate pro forma increase to interest expense would increase by an additional $151 for the year ended December 31, 2005 if interest rates on this variable-rate debt were 1/8th of a percentage point higher.
(E) Adjustment for minority interests share of pro forma adjustments made to the Operating Partnership.
F-6
(F) Our computation of historical and pro forma earnings per share (EPS) is set forth below:
|
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For the Year Ended |
|
||||
|
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Historical |
|
Pro Forma |
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||
Numerator: |
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|
||
Income from continuing operations |
|
$ |
34,908 |
|
$ |
32,490 |
|
Add: Gain on sales of real estate, net of minority interests |
|
268 |
|
268 |
|
||
Less: Preferred share dividends |
|
(14,615 |
) |
(14,615 |
) |
||
Numerator for basic and diluted EPS from continuing operations available to common shareholders |
|
$ |
20,561 |
|
$ |
18,143 |
|
Denominator (all weighted averages): |
|
|
|
|
|
||
Denominator for basic EPS (common shares) |
|
37,371 |
|
37,371 |
|
||
Assumed conversion of share options |
|
1,626 |
|
1,626 |
|
||
Denominator for diluted EPS |
|
38,997 |
|
38,997 |
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||
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|
|
|
|
||
EPS on income from continuing operations available to common shareholders: |
|
|
|
|
|
||
Basic |
|
$ |
0.55 |
|
$ |
0.49 |
|
Diluted |
|
$ |
0.53 |
|
$ |
0.47 |
|
F-7
To the Board of Directors and Shareholders of Corporate Office Properties Trust:
We have audited the accompanying Historical Summaries of Revenue and Certain Expenses of Hunt Valley/Rutherford Portfolios (the Properties) for the predecessor period from January 1, 2004 to November 12, 2004 and the successor period from November 13, 2004 to December 31, 2004. These Historical Summaries of Revenue and Certain Expenses are the responsibility of the Properties management. Our responsibility is to express an opinion on these Historical Summaries of Revenue and Certain Expenses 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 Summaries of Revenue and Certain Expenses are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Historical Summaries of Revenue and Certain Expenses. 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 Summaries of Revenue and Certain Expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summaries of Revenue and Certain Expenses were prepared for the purpose of complying with 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 are not intended to be a complete presentation of the Properties revenue and expenses.
In our opinion, the Historical Summaries of Revenue and Certain Expenses referred to above present fairly, in all material respects, the revenue and certain expenses of the Properties for the predecessor period from January 1, 2004 to November 12, 2004 and the successor period from November 13, 2004 to December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP |
|
April 3, 2006
F-8
Hunt Valley/Rutherford Portfolios
Historical Summaries of Revenue and Certain Expenses
January 1, 2004 to November 12, 2004 and November 13, 2004 to
December 31, 2004
|
|
Predecessor |
|
Successor |
|
Total |
|
|||
|
|
(Note 1) |
|
(Note 1) |
|
|
|
|||
Revenue |
|
|
|
|
|
|
|
|||
Rental |
|
$ |
14,076,046 |
|
$ |
1,828,520 |
|
$ |
15,904,566 |
|
Tenant reimbursements |
|
620,631 |
|
34,106 |
|
654,737 |
|
|||
Other income |
|
14,175 |
|
4,716 |
|
18,891 |
|
|||
Total revenue |
|
14,710,852 |
|
1,867,342 |
|
16,578,194 |
|
|||
|
|
|
|
|
|
|
|
|||
Certain Expenses |
|
|
|
|
|
|
|
|||
Property operating expenses |
|
|
|
|
|
|
|
|||
Property taxes and insurance |
|
1,061,823 |
|
153,230 |
|
1,215,053 |
|
|||
Utilities |
|
1,352,752 |
|
168,860 |
|
1,521,612 |
|
|||
Other operating expenses |
|
689,108 |
|
75,192 |
|
764,300 |
|
|||
Repairs and maintenance |
|
2,145,106 |
|
267,350 |
|
2,412,456 |
|
|||
Total Certain Expense |
|
5,248,789 |
|
664,632 |
|
5,913,421 |
|
|||
Revenue in excess of Certain Expenses |
|
$ |
9,462,063 |
|
$ |
1,202,710 |
|
$ |
10,664,773 |
|
F-9
Hunt Valley/Rutherford Portfolios
Historical Summary of Revenue and Certain Expenses
Nine Months Ended September 30, 2005 and 2004 (Unaudited)
|
|
2005 |
|
2004 |
|
||
|
|
(Note 4) |
|
(Note 4) |
|
||
Revenue |
|
|
|
|
|
||
Rental |
|
$ |
12,786,271 |
|
$ |
11,959,518 |
|
Tenant reimbursements |
|
621,897 |
|
602,870 |
|
||
Other income |
|
124,236 |
|
11,566 |
|
||
Total revenue |
|
13,532,404 |
|
12,573,954 |
|
||
|
|
|
|
|
|
||
Certain Expenses |
|
|
|
|
|
||
Property operating expenses |
|
|
|
|
|
||
Property taxes and insurance |
|
959,569 |
|
900,507 |
|
||
Utilities |
|
1,453,646 |
|
1,161,462 |
|
||
Other operating expenses |
|
584,753 |
|
611,114 |
|
||
Repairs and maintenance |
|
2,096,069 |
|
1,857,031 |
|
||
Total Certain Expense |
|
5,094,037 |
|
4,530,114 |
|
||
Revenue in excess of Certain Expenses |
|
$ |
8,438,367 |
|
$ |
8,043,840 |
|
F-10
Hunt Valley/Rutherford Portfolios
Notes to Historical Summaries of Revenue and Certain Expenses
January 1, 2004 to November 12, 2004 and November 13, 2004 to
December 31, 2004
1. Business
The accompanying Historical Summaries of Revenue and Certain Expenses relate to the operations of the Hunt Valley/Rutherford Portfolios (the Properties), consisting of revenue and certain expenses of a portfolio of office properties totaling 704,692 square feet located in Hunt Valley, Maryland and a portfolio of office properties totaling 402,174 square feet located in Woodlawn, Maryland. As the Properties were owned by two different independent third parties in 2004, due to a sale that closed on November 12, 2004, the Historical Summary of Revenue and Certain Expenses for the year ended December 31, 2004 are presented for each period the Properties were owned by the predecessor and successor owners.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Historical Summaries of Revenue and Certain Expenses were 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 Historical Summaries of Revenue and Certain Expenses are 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, may not be comparable to the expenses expected to be incurred by Corporate Office Properties Trust in future operations of the Property, and have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related lease. Tenant reimbursement revenue includes payments from tenants as reimbursement for property operating expenses as stipulated in the leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of these Historical Summaries of Revenue and Certain Expenses are in conformity with generally accepted accounting principles, which require 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 2004, 31% of the Properties base rents were earned from four major tenants: McCormick and Company; First Data Merchant Services; MCI Worldcom Communications; and AT&T Corporation. Base rent earned from these tenants for the year ended December 31, 2004 was approximately $4,915,133.
F-11
3. Rentals
The Properties have entered into non-cancelable tenant leases. The leases provide that tenants will share operating expenses and real estate taxes on a pro rata basis, as defined in the leases. Future minimum rentals as of December 31, 2004 to be received under these tenant leases are as follows:
2005 |
|
$ |
15,913,019 |
|
2006 |
|
15,441,140 |
|
|
2007 |
|
11,981,384 |
|
|
2008 |
|
1,086,625 |
|
|
2009 |
|
200,465 |
|
|
Thereafter |
|
|
|
4. Unaudited Historical Interim Information
The Historical Summaries of Revenue and Certain Expenses for the nine months ended September 30, 2005 and 2004 are unaudited. As a result, the interim Historical Summaries of Revenue and Certain Expenses should be read in conjunction with Historical Summaries of Revenue and Certain Expenses and the accompanying notes for the predecessor period from January 1, 2004 to November 12, 2004 and the successor period from November 13, 2004 to December 31, 2004. The interim Historical Summaries of Revenue and Certain Expenses reflect all adjustments which management believes are necessary for the fair presentation of the Historical Summaries of Revenue and Certain Expenses for the interim period presented. These adjustments are of a normal recurring nature. The Historical Summaries of Revenue and Certain Expenses for such interim periods are not necessarily indicative of the results for a full year. The nine months ended September 30, 2005 relates to ownership by the successor owner while the nine months ended September 30, 2004 relates to the ownership by the predecessor owner as the property sale closed on November 12, 2004.
F-12