COPT DEFENSE PROPERTIES — Interim / Quarterly Report 2016

May 3, 2016

10-Q 1 copt10q03312016document.htm 10-Q html PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd" Document created using Wdesk 1 Copyright 2016 Workiva 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2016

or

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

For the transition period from to

Commission file number 1-14023 (Corporate Office Properties Trust)

Commission file number 333-189188 (Corporate Office Properties, L.P.)

Corporate Office Properties Trust

Corporate Office Properties, L.P.

(Exact name of registrant as specified in its charter)

Corporate Office Properties Trust	Maryland	23-2947217
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)
Corporate Office Properties, L.P.	Delaware	23-2930022
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)

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

Registrant’s telephone number, including area code: (443) 285-5400

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Corporate Office Properties Trust ý Yes o No

Corporate Office Properties, L.P. ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Corporate Office Properties Trust

Large accelerated filer ý
(Do not check if a smaller reporting company)

Corporate Office Properties, L.P.

Large accelerated filer o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Corporate Office Properties Trust o Yes ý No

Corporate Office Properties, L.P. o Yes ý No

As of April 20, 2016 , 94,650,659 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2016 of Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) and Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” refer collectively to COPT, COPLP and their subsidiaries.

COPT is a real estate investment trust, or REIT, and the sole general partner of COPLP. As of March 31, 2016 , COPT owned approximately 96.3% of the outstanding common units and approximately 95.5% of the outstanding preferred units in COPLP; the remaining common and preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT controls COPLP and can cause it to enter into major transactions including acquisitions, dispositions and refinancings and cause changes in its line of business, capital structure and distribution policies.

There are a few differences between the Company and the Operating Partnership which are reflected in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. COPT is a real estate investment trust, whose only material asset is its ownership of partnership interests of COPLP. As a result, COPT does not conduct business itself, other than acting as the sole general partner of COPLP, issuing public equity from time to time and guaranteeing certain debt of COPLP. COPT itself is not directly obligated under any indebtedness but guarantees some of the debt of COPLP. COPLP owns substantially all of the assets of COPT either directly or through its subsidiaries, conducts almost all of the operations of the business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from public equity issuances by COPT, which are contributed to COPLP in exchange for partnership units, COPLP generates the capital required by COPT’s business through COPLP’s operations, by COPLP’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests and shareholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of COPT and those of COPLP. The common limited partnership interests in COPLP not owned by COPT are accounted for as partners’ capital in COPLP’s consolidated financial statements and as noncontrolling interests in COPT’s consolidated financial statements. COPLP’s consolidated financial statements also reflect COPT’s noncontrolling interests in certain real estate partnerships, limited liability companies (“LLCs”), business trusts and corporations; the differences between shareholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued at the COPT and COPLP levels and in COPT’s noncontrolling interests in these real estate partnerships, LLCs, business trusts and corporations. The only other significant differences between the consolidated financial statements of COPT and those of COPLP are assets in connection with a non-qualified elective deferred compensation plan

(comprised primarily of mutual funds and equity securities) and the corresponding liability to the plan’s participants that are held directly by COPT.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:

• combined reports better reflect how management and the analyst community view the business as a single operating unit;

• combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

• combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

• combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

• consolidated financial statements;

• the following notes to the consolidated financial statements:

• Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries; and

• Note 13, Earnings per Share of COPT and subsidiaries and Earnings per Unit of COPLP and subsidiaries;

• “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPT”; and

• “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPLP.”

This report also includes separate sections under Part I, Item 4. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of COPT and COPLP to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that COPT and COPLP are compliant with Rule 13a-15 and Rule 15d-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

TABLE OF CONTENTS

FORM 10-Q

		PAGE
PART I: FINANCIAL INFORMATION
Item 1:	Financial Statements:
Consolidated Financial Statements of Corporate Office Properties Trust
	Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	5
	Consolidated Statements of Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	7
Consolidated Financial Statements of Corporate Office Properties, L.P.
	Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (unaudited)	9
	Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (unaudited)	10
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	11
	Consolidated Statements of Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	12
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	13
Notes to Consolidated Financial Statements (unaudited)		15
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4:	Controls and Procedures	46
PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	46
Item 1A:	Risk Factors	46
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3:	Defaults Upon Senior Securities	47
Item 4:	Mine Safety Disclosures	47
Item 5:	Other Information	47
Item 6:	Exhibits	47
SIGNATURES		49

2

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

	March 31, 2016		December 31, 2015
Assets
Properties, net:
Operating properties, net	$ 2,863,262		$ 2,920,529
Projects in development or held for future development	416,169		429,219
Total properties, net	3,279,431		3,349,748
Assets held for sale, net	225,897		96,782
Cash and cash equivalents	62,489		60,310
Restricted cash and marketable securities	7,763		7,716
Accounts receivable (net of allowance for doubtful accounts of $1,789 and $1,525, respectively)	28,776		29,167
Deferred rent receivable (net of allowance of $881 and $1,962, respectively)	96,936		105,484
Intangible assets on real estate acquisitions, net	93,526		98,338
Deferred leasing costs (net of accumulated amortization of $66,237 and $66,364, respectively)	44,768		53,868
Investing receivables	48,998		47,875
Prepaid expenses and other assets, net	49,324		60,024
Total assets	$ 3,937,908		$ 3,909,312
Liabilities and equity
Liabilities:
Debt, net	$ 2,140,212		$ 2,077,752
Accounts payable and accrued expenses	78,597		91,755
Rents received in advance and security deposits	33,457		37,148
Dividends and distributions payable	30,217		30,178
Deferred revenue associated with operating leases	19,093		19,758
Interest rate derivatives	15,072		3,160
Other liabilities	15,046		13,779
Total liabilities	2,331,694		2,273,530
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests	22,333		19,218
Equity:
Corporate Office Properties Trust’s shareholders’ equity:
Preferred Shares of beneficial interest at liquidation preference ($0.01 par value; 25,000,000 shares authorized, shares issued and outstanding of 7,431,667 at March 31, 2016 and December 31, 2015)	199,083		199,083
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 94,661,381 at March 31, 2016 and 94,531,512 at December 31, 2015)	947		945
Additional paid-in capital	2,005,523		2,004,507
Cumulative distributions in excess of net income	(679,935	)	(657,172	)
Accumulated other comprehensive loss	(12,862	)	(2,838	)
Total Corporate Office Properties Trust’s shareholders’ equity	1,512,756		1,544,525
Noncontrolling interests in subsidiaries:
Common units in COPLP	51,031		52,359
Preferred units in COPLP	8,800		8,800
Other consolidated entities	11,294		10,880
Noncontrolling interests in subsidiaries	71,125		72,039
Total equity	1,583,881		1,616,564
Total liabilities, redeemable noncontrolling interest and equity	$ 3,937,908		$ 3,909,312

See accompanying notes to consolidated financial statements.

3

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Revenues
Rental revenue	$ 105,382		$ 98,238
Tenant recoveries and other real estate operations revenue	27,705		24,472
Construction contract and other service revenues	11,220		38,324
Total revenues	144,307		161,034
Expenses
Property operating expenses	51,875		50,681
Depreciation and amortization associated with real estate operations	34,527		31,599
Construction contract and other service expenses	10,694		37,498
Impairment losses	2,446		—
General, administrative and leasing expenses	11,883		7,891
Business development expenses and land carry costs	2,418		2,790
Total operating expenses	113,843		130,459
Operating income	30,464		30,575
Interest expense	(23,559	)	(20,838	)
Interest and other income	1,156		1,283
Gain (loss) on early extinguishment of debt	17		(3	)
Income from continuing operations before equity in income of unconsolidated entities and income taxes	8,078		11,017
Equity in income of unconsolidated entities	10		25
Income tax benefit (expense)	8		(55	)
Income from continuing operations	8,096		10,987
Discontinued operations	—		(238	)
Income before gain on sales of real estate	8,096		10,749
Gain on sales of real estate	—		3,986
Net income	8,096		14,735
Net income attributable to noncontrolling interests:
Common units in COPLP	(127	)	(398	)
Preferred units in COPLP	(165	)	(165	)
Other consolidated entities	(978	)	(817	)
Net income attributable to COPT	6,826		13,355
Preferred share dividends	(3,552	)	(3,552	)
Net income attributable to COPT common shareholders	$ 3,274		$ 9,803
Net income attributable to COPT:
Income from continuing operations	$ 6,826		$ 13,581
Discontinued operations, net	—		(226	)
Net income attributable to COPT	$ 6,826		$ 13,355
Basic earnings per common share (1)
Income from continuing operations	$ 0.03		$ 0.10
Discontinued operations	0.00		0.00
Net income attributable to COPT common shareholders	$ 0.03		$ 0.10
Diluted earnings per common share (1)
Income from continuing operations	$ 0.03		$ 0.10
Discontinued operations	0.00		0.00
Net income attributable to COPT common shareholders	$ 0.03		$ 0.10
Dividends declared per common share	$ 0.275		$ 0.275

(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.

See accompanying notes to consolidated financial statements.

4

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Net income	$ 8,096		$ 14,735
Other comprehensive loss
Unrealized losses on interest rate derivatives	(11,284	)	(3,474	)
Losses on interest rate derivatives included in interest expense	870		773
Other comprehensive loss	(10,414	)	(2,701	)
Comprehensive (loss) income	(2,318	)	12,034
Comprehensive income attributable to noncontrolling interests	(880	)	(1,329	)
Comprehensive (loss) income attributable to COPT	$ (3,198	)	$ 10,705

See accompanying notes to consolidated financial statements.

5

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)

Balance at December 31, 2014 (93,255,284 common shares outstanding)	Preferred Shares — $ 199,083	Common Shares — $ 933	Additional Paid-in Capital — $ 1,969,968		Cumulative Distributions in Excess of Net Income — $ (717,264	)	Accumulated Other Comprehensive Loss — $ (1,297	)	Noncontrolling Interests — $ 69,461		Total — $ 1,520,884
Conversion of common units to common shares (158,000 shares)	—	2	2,120		—		—		(2,122	)	—
Common shares issued under at-the-market program (890,241 shares)	—	9	26,526		—		—		—		26,535
Exercise of share options (70,374 shares)	—	—	1,845		—		—		—		1,845
Share-based compensation (162,370 shares issued, net of redemptions)	—	1	1,828		—		—		—		1,829
Redemption of vested equity awards	—	—	(2,031	)	—		—		—		(2,031	)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—	—	(475	)	—		—		475		—
Comprehensive income	—	—	—		13,355		(2,650	)	767		11,472
Dividends	—	—	—		(29,550	)	—		—		(29,550	)
Distributions to owners of common and preferred units in COPLP	—	—	—		—		—		(1,177	)	(1,177	)
Distributions to noncontrolling interests in other consolidated entities	—	—	—		—		—		(4	)	(4	)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—	(73	)	—		—		—		(73	)
Balance at March 31, 2015 (94,536,269 common shares outstanding)	$ 199,083	$ 945	$ 1,999,708		$ (733,459	)	$ (3,947	)	$ 67,400		$ 1,529,730
Balance at December 31, 2015 (94,531,512 common shares outstanding)	$ 199,083	$ 945	$ 2,004,507		$ (657,172	)	$ (2,838	)	$ 72,039		$ 1,616,564
Costs associated with common shares issued to the public	—	—	(5	)	—		—		—		(5	)
Share-based compensation (129,869 shares issued, net of redemptions)	—	2	2,423		—		—		—		2,425
Redemption of vested equity awards	—	—	(1,154	)	—		—		—		(1,154	)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—	—	54		—		—		(54	)	—
Comprehensive loss	—	—	—		6,826		(10,024	)	320		(2,878	)
Dividends	—	—	—		(29,589	)	—		—		(29,589	)
Distributions to owners of common and preferred units in COPLP	—	—	—		—		—		(1,176	)	(1,176	)
Distributions to noncontrolling interests in other consolidated entities	—	—	—		—		—		(4	)	(4	)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—	(302	)	—		—		—		(302	)
Balance at March 31, 2016 (94,661,381common shares outstanding)	$ 199,083	$ 947	$ 2,005,523		$ (679,935	)	$ (12,862	)	$ 71,125		$ 1,583,881

See accompanying notes to consolidated financial statements.

6

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Cash flows from operating activities
Revenues from real estate operations received	$ 130,059		$ 117,521
Construction contract and other service revenues received	7,747		19,968
Property operating expenses paid	(46,084	)	(42,768	)
Construction contract and other service expenses paid	(10,765	)	(27,853	)
General, administrative, leasing, business development and land carry costs paid	(12,175	)	(12,728	)
Interest expense paid	(21,386	)	(12,795	)
Other	43		545
Net cash provided by operating activities	47,439		41,890
Cash flows from investing activities
Construction, development and redevelopment	(45,146	)	(62,057	)
Acquisitions of operating properties and related intangible assets	—		(56,622	)
Tenant improvements on operating properties	(6,388	)	(5,520	)
Other capital improvements on operating properties	(9,505	)	(3,720	)
Proceeds from dispositions of properties	5,452		17,424
Leasing costs paid	(1,593	)	(1,935	)
Other	1,121		(5,956	)
Net cash used in investing activities	(56,059	)	(118,386	)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	88,500		150,000
Repayments of debt
Revolving Credit Facility	(25,000	)	(69,000	)
Scheduled principal amortization	(1,800	)	(1,649	)
Other debt repayments	(50	)	(50	)
Net proceeds from issuance of common shares	(5	)	28,404
Common share dividends paid	(26,002	)	(25,646	)
Preferred share dividends paid	(3,552	)	(3,552	)
Distributions paid to noncontrolling interests in COPLP	(1,171	)	(1,217	)
Distributions paid to redeemable noncontrolling interests	(13,848	)	(122	)
Redemption of vested equity awards	(1,154	)	(2,031	)
Other	(5,119	)	(289	)
Net cash provided by financing activities	10,799		74,848
Net increase (decrease) in cash and cash equivalents	2,179		(1,648	)
Cash and cash equivalents
Beginning of period	60,310		6,077
End of period	$ 62,489		$ 4,429

See accompanying notes to consolidated financial statements.

7

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Reconciliation of net income to net cash provided by operating activities:
Net income	$ 8,096		$ 14,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	35,129		32,091
Impairment losses	2,446		233
Losses on interest rate derivatives	1,551		—
Amortization of deferred financing costs and net debt discounts	1,495		1,254
Increase in deferred rent receivable	(1,456	)	(1,746	)
Gain on sales of real estate	—		(3,986	)
Share-based compensation	2,108		1,552
Other	(802	)	(640	)
Operating changes in assets and liabilities:
Decrease (increase) in accounts receivable	409		(6,918	)
Decrease (increase) in restricted cash and marketable securities	15		(1,577	)
Decrease (increase) in prepaid expenses and other assets, net	5,941		(6,352	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(3,802	)	12,704
(Decrease) increase in rents received in advance and security deposits	(3,691	)	540
Net cash provided by operating activities	$ 47,439		$ 41,890
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$ (9,420	)	$ (3,897	)
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture	$ 22,600		$ —
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest	$ 6,675		$ —
Other liabilities assumed on acquisition of operating properties	$ —		$ 5,265
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$ (10,414	)	$ (2,701	)
Dividends/distribution payable	$ 30,217		$ 30,174
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$ —		$ 2,122
Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$ (54	)	$ 475
Increase in redeemable noncontrolling interest and decrease in equity to carry redeemable noncontrolling interest at fair value	$ 302		$ 73

See accompanying notes to consolidated financial statements.

8

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except unit data)

(unaudited)

	March 31, 2016		December 31, 2015
Assets
Properties, net:
Operating properties, net	$ 2,863,262		$ 2,920,529
Projects in development or held for future development	416,169		429,219
Total properties, net	3,279,431		3,349,748
Assets held for sale, net	225,897		96,782
Cash and cash equivalents	62,489		60,310
Restricted cash and marketable securities	2,092		1,953
Accounts receivable (net of allowance for doubtful accounts of $1,789 and $1,525, respectively)	28,776		29,167
Deferred rent receivable (net of allowance of $881 and $1,962, respectively)	96,936		105,484
Intangible assets on real estate acquisitions, net	93,526		98,338
Deferred leasing costs (net of accumulated amortization of $66,237 and $66,364, respectively)	44,768		53,868
Investing receivables	48,998		47,875
Prepaid expenses and other assets, net	49,324		60,024
Total assets	$ 3,932,237		$ 3,903,549
Liabilities and equity
Liabilities:
Debt, net	$ 2,140,212		$ 2,077,752
Accounts payable and accrued expenses	78,597		91,755
Rents received in advance and security deposits	33,457		37,148
Distributions payable	30,217		30,178
Deferred revenue associated with operating leases	19,093		19,758
Interest rate derivatives	15,072		3,160
Other liabilities	9,375		8,016
Total liabilities	2,326,023		2,267,767
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests	22,333		19,218
Equity:
Corporate Office Properties, L.P.’s equity:
Preferred units
General partner, preferred units outstanding of 7,431,667 at March 31, 2016 and December 31, 2015	199,083		199,083
Limited partner, 352,000 preferred units outstanding at March 31, 2016 and December 31, 2015	8,800		8,800
Common units, 94,661,381 and 94,531,512 held by the general partner and 3,677,391 held by limited partners at March 31, 2016 and December 31, 2015, respectively	1,378,061		1,400,745
Accumulated other comprehensive loss	(13,399	)	(2,985	)
Total Corporate Office Properties, L.P.’s equity	1,572,545		1,605,643
Noncontrolling interests in subsidiaries	11,336		10,921
Total equity	1,583,881		1,616,564
Total liabilities, redeemable noncontrolling interest and equity	$ 3,932,237		$ 3,903,549

See accompanying notes to consolidated financial statements.

9

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per unit data)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Revenues
Rental revenue	$ 105,382		$ 98,238
Tenant recoveries and other real estate operations revenue	27,705		24,472
Construction contract and other service revenues	11,220		38,324
Total revenues	144,307		161,034
Expenses
Property operating expenses	51,875		50,681
Depreciation and amortization associated with real estate operations	34,527		31,599
Construction contract and other service expenses	10,694		37,498
Impairment losses	2,446		—
General, administrative and leasing expenses	11,883		7,891
Business development expenses and land carry costs	2,418		2,790
Total operating expenses	113,843		130,459
Operating income	30,464		30,575
Interest expense	(23,559	)	(20,838	)
Interest and other income	1,156		1,283
Gain (loss) on early extinguishment of debt	17		(3	)
Income from continuing operations before equity in income of unconsolidated entities and income taxes	8,078		11,017
Equity in income of unconsolidated entities	10		25
Income tax benefit (expense)	8		(55	)
Income from continuing operations	8,096		10,987
Discontinued operations	—		(238	)
Income before gain on sales of real estate	8,096		10,749
Gain on sales of real estate	—		3,986
Net income	8,096		14,735
Net income attributable to noncontrolling interests in consolidated entities	(979	)	(818	)
Net income attributable to COPLP	7,117		13,917
Preferred unit distributions	(3,717	)	(3,717	)
Net income attributable to COPLP common unitholders	$ 3,400		$ 10,200
Net income attributable to COPLP:
Income from continuing operations	$ 7,117		$ 14,152
Discontinued operations, net	—		(235	)
Net income attributable to COPLP	$ 7,117		$ 13,917
Basic earnings per common unit (1)
Income from continuing operations	$ 0.03		$ 0.10
Discontinued operations	0.00		0.00
Net income attributable to COPLP common unitholders	$ 0.03		$ 0.10
Diluted earnings per common unit (1)
Income from continuing operations	$ 0.03		$ 0.10
Discontinued operations	0.00		0.00
Net income attributable to COPLP common unitholders	$ 0.03		$ 0.10
Distributions declared per common unit	$ 0.275		$ 0.275

(1) Basic and diluted earnings per common unit are calculated based on amounts attributable to common unitholders of Corporate Office Properties, L.P.

See accompanying notes to consolidated financial statements.

10

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Net income	$ 8,096		$ 14,735
Other comprehensive loss
Unrealized losses on interest rate derivatives	(11,284	)	(3,474	)
Losses on interest rate derivatives included in interest expense	870		773
Other comprehensive loss	(10,414	)	(2,701	)
Comprehensive (loss) income	(2,318	)	12,034
Comprehensive income attributable to noncontrolling interests	(979	)	(873	)
Comprehensive (loss) income attributable to COPLP	$ (3,297	)	$ 11,161

See accompanying notes to consolidated financial statements.

11

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)

	Limited Partner Preferred Units			General Partner Preferred Units			Common Units			Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests in Subsidiaries
	Units	Amount		Units	Amount		Units	Amount						Total Equity
Balance at December 31, 2014	352,000	$ 8,800		7,431,667	$ 199,083		97,092,835	$ 1,305,219		$ (1,381	)	$ 9,163		$ 1,520,884
Issuance of common units resulting from common shares issued under at-the-market program	—	—		—	—		890,241	26,535		—		—		26,535
Issuance of common units resulting from exercise of share options	—	—		—	—		70,374	1,845		—		—		1,845
Share-based compensation (units net of redemption)	—	—		—	—		162,370	1,829		—		—		1,829
Redemptions of vested equity awards	—	—		—	—		—	(2,031	)	—		—		(2,031	)
Comprehensive income	—	165		—	3,552		—	10,200		(2,756	)	311		11,472
Distributions to owners of common and preferred units	—	(165	)	—	(3,552	)	—	(27,010	)	—		—		(30,727	)
Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—	—		—		(4	)	(4	)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—		—	—		—	(73	)	—		—		(73	)
Balance at March 31, 2015	352,000	$ 8,800		7,431,667	$ 199,083		98,215,820	$ 1,316,514		$ (4,137	)	$ 9,470		$ 1,529,730
Balance at December 31, 2015	352,000	$ 8,800		7,431,667	$ 199,083		98,208,903	$ 1,400,745		$ (2,985	)	$ 10,921		$ 1,616,564
Costs associated with common shares issued to the public	—	—		—	—		—	(5	)	—		—		(5	)
Share-based compensation (units net of redemption)	—	—		—	—		129,869	2,425		—		—		2,425
Redemptions of vested equity awards	—	—		—	—		—	(1,154	)	—		—		(1,154	)
Comprehensive loss	—	165		—	3,552		—	3,400		(10,414	)	419		(2,878	)
Distributions to owners of common and preferred units	—	(165	)	—	(3,552	)	—	(27,048	)	—		—		(30,765	)
Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—	—		—		(4	)	(4	)
Adjustment to arrive at fair value of redeemable noncontrolling interest	—	—		—	—		—	(302	)	—		—		(302	)
Balance at March 31, 2016	352,000	$ 8,800		7,431,667	$ 199,083		98,338,772	$ 1,378,061		$ (13,399	)	$ 11,336		$ 1,583,881

See accompanying notes to consolidated financial statements.

12

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Cash flows from operating activities
Revenues from real estate operations received	$ 130,059		$ 117,521
Construction contract and other service revenues received	7,747		19,968
Property operating expenses paid	(46,084	)	(42,768	)
Construction contract and other service expenses paid	(10,765	)	(27,853	)
General, administrative, leasing, business development and land carry costs paid	(12,175	)	(12,728	)
Interest expense paid	(21,386	)	(12,795	)
Other	43		545
Net cash provided by operating activities	47,439		41,890
Cash flows from investing activities
Construction, development and redevelopment	(45,146	)	(62,057	)
Acquisitions of operating properties and related intangible assets	—		(56,622	)
Tenant improvements on operating properties	(6,388	)	(5,520	)
Other capital improvements on operating properties	(9,505	)	(3,720	)
Proceeds from dispositions of properties	5,452		17,424
Leasing costs paid	(1,593	)	(1,935	)
Other	1,121		(5,956	)
Net cash used in investing activities	(56,059	)	(118,386	)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	88,500		150,000
Repayments of debt
Revolving Credit Facility	(25,000	)	(69,000	)
Scheduled principal amortization	(1,800	)	(1,649	)
Other debt repayments	(50	)	(50	)
Net proceeds from issuance of common units	(5	)	28,404
Common unit distributions paid	(27,008	)	(26,698	)
Preferred unit distributions paid	(3,717	)	(3,717	)
Redemption of vested equity awards	(1,154	)	(2,031	)
Distributions paid to redeemable noncontrolling interests	(13,848	)	(122	)
Other	(5,119	)	(289	)
Net cash provided by financing activities	10,799		74,848
Net increase (decrease) in cash and cash equivalents	2,179		(1,648	)
Cash and cash equivalents
Beginning of period	60,310		6,077
End of period	$ 62,489		$ 4,429

See accompanying notes to consolidated financial statements.

13

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)

	For the Three Months Ended March 31, — 2016		2015
Reconciliation of net income to net cash provided by operating activities:
Net income	$ 8,096		$ 14,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	35,129		32,091
Impairment losses	2,446		233
Losses on interest rate derivatives	1,551		—
Amortization of deferred financing costs and net debt discounts	1,495		1,254
Increase in deferred rent receivable	(1,456	)	(1,746	)
Gain on sales of real estate	—		(3,986	)
Share-based compensation	2,108		1,552
Other	(802	)	(640	)
Operating changes in assets and liabilities:
Decrease (increase) in accounts receivable	409		(6,918	)
Increase in restricted cash and marketable securities	(77	)	(1,523	)
Decrease (increase) in prepaid expenses and other assets, net	5,941		(6,352	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(3,710	)	12,650
(Decrease) increase in rents received in advance and security deposits	(3,691	)	540
Net cash provided by operating activities	$ 47,439		$ 41,890
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$ (9,420	)	$ (3,897	)
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture	$ 22,600		$ —
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest	$ 6,675		$ —
Other liabilities assumed on acquisition of operating properties	$ —		$ 5,265
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$ (10,414	)	$ (2,701	)
Distributions payable	$ 30,217		$ 30,174
Increase in redeemable noncontrolling interest and decrease in equity to carry redeemable noncontrolling interest at fair value	$ 302		$ 73

See accompanying notes to consolidated financial statements.

14

Corporate Office Properties Trust and Subsidiaries and Corporate Office Properties, L.P. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Organization

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”). Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”) is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. Unless otherwise expressly stated or the context otherwise requires, “we”, “us” and “our” as used herein refer to each of the Company and the Operating Partnership. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support United States Government agencies and their contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable priority missions (“Defense/IT Locations”). We also own a complementary portfolio of traditional office properties located in select urban/urban-like submarkets within our regional footprint with durable Class-A office fundamentals and characteristics, as well as other properties supporting general commercial office tenants (“Regional Office”). As of March 31, 2016 , our properties included the following:

• 179 operating office properties totaling 18.3 million square feet, including ten triple-net leased, single-tenant data center properties;

• 11 office properties under, or contractually committed for, construction or redevelopment that we estimate will total approximately 1.3 million square feet upon completion, including one partially operational property included above and a property completed but held for future lease to the United States Government;

• 1,358 acres of land we control that we believe could be developed into approximately 16.5 million square feet; and

• a wholesale data center with a critical load of 19.25 megawatts.

COPLP owns real estate both directly and through subsidiary partnerships and limited liability companies (“LLCs”). In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management and construction and development services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).

Equity interests in COPLP are in the form of common and preferred units. As of March 31, 2016 , COPT owned 96.3% of the outstanding COPLP common units (“common units”) and 95.5% of the outstanding COPLP preferred units (“preferred units”); the remaining common and preferred units in COPLP were owned by third parties. Common units in COPLP not owned by COPT carry certain redemption rights. The number of common units in COPLP owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of all COPLP common units to quarterly distributions and payments in liquidation is substantially the same as those of COPT common shareholders. Similarly, in the case of each series of preferred units in COPLP held by COPT, there is a series of preferred shares of beneficial interest (“preferred shares”) in COPT that is equivalent in number and carries substantially the same terms as such series of COPLP preferred units. COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.

Because COPLP is managed by COPT, and COPT conducts substantially all of its operations through COPLP, we refer to COPT’s executive officers as COPLP’s executive officers, and although, as a partnership, COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.

2. Summary of Significant Accounting Policies

Basis of Presentation

The COPT consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which COPT has a majority voting interest and control. The COPLP consolidated financial statements include the accounts of COPLP, its subsidiaries and other entities in which COPLP has a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities. We eliminate all intercompany balances and transactions in consolidation.

We use the equity method of accounting when we own an interest in an entity and can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net

15

advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.

These interim financial statements should be read together with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2015 included in our 2015 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in our 2015 Annual Report on Form 10-K.

Recent Accounting Pronouncements

We adopted guidance issued by the Financial Accounting Standards Board (“FASB”) effective January 1, 2016 regarding the presentation of extraordinary and unusual items in statements of operations. This guidance eliminates the concept of extraordinary items. However, the presentation and disclosure requirements for items that are either unusual in nature or infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. Our adoption of this guidance did not affect on our reported consolidated financial statements.

We adopted guidance issued by the FASB effective January 1, 2016 modifying the analysis that must be performed by us in determining whether we should consolidate certain types of legal entities. The guidance did not amend the existing disclosure requirements for VIEs or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, COPLP is considered a variable interest entity of COPT. As COPLP was already consolidated in the balance sheets of COPT, the identification of COPLP as a variable interest entity had no impact on the consolidated financial statements. There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. In addition, there were no voting interest entities under prior existing guidance determined to be variable interest entities under the revised guidance.

We adopted effective January 1, 2016 guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. The guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior period impact of the adjustment should be either presented separately on the face of the statement of operations or disclosed in the notes. Our adoption of this guidance did not affect our reported consolidated financial statements.

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We are required to adopt this guidance for our annual and interim periods beginning January 1, 2018 using one of two methods: retrospective restatement for each reporting period presented at the time of adoption, or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

In February 2016, the FASB issued guidance that sets forth principles for the recognition, measurement, presentation and disclosure of leases. This guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. The resulting classification determines whether the lease expense is recognized based on an effective interest method or straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The guidance requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued guidance intended to simplify certain aspects of the accounting for employee based share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the consolidated statement of cash flows. This guidance is effective for annual periods beginning after

16

December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

3. Fair Value Measurements

Recurring Fair Value Measurements

COPT has a non-qualified elective deferred compensation plan for certain members of our management team that permits participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The assets held in the plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on COPT’s consolidated balance sheet using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded, totaled $5.7 million as of March 31, 2016 , and is included in the accompanying COPT consolidated balance sheets in the line entitled restricted cash and marketable securities. The offsetting liability associated with the plan is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in other liabilities on COPT’s consolidated balance sheets. The assets of the plan and other marketable securities that we hold are classified in Level 1 of the fair value hierarchy. The liability associated with the plan is classified in Level 2 of the fair value hierarchy.

The fair values of our interest rate derivatives are determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of March 31, 2016 , we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

As discussed further in Note 5, our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, have the right to require us to acquire their respective interests at fair value; accordingly, we classify the fair value of our partners’ interests as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. We determine the fair value of the interests based on unobservable inputs after considering the assumptions that market participants would make in pricing the interest. We apply a discount rate to the estimated future cash flows allocable to our partners from the properties underlying the respective joint ventures. Estimated cash flows used in such analyses are based on our plans for the properties and our views of market and economic conditions, and consider items such as current and future rental rates, occupancies for the properties and comparable properties and estimated operating and capital expenditures.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding investing receivables) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments. As discussed in Note 6, we estimated the fair values of our investing receivables based on the discounted estimated future cash flows of the loans (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans with similar maturities and credit quality, and the estimated cash payments include scheduled principal and interest payments. For our disclosure of debt fair values in Note 8, we estimated the fair value of our unsecured senior notes based on quoted market rates for publicly-traded debt (categorized within Level 2 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible and may not be a prudent management decision.

For additional fair value information, please refer to Note 6 for investing receivables, Note 8 for debt and Note 9 for interest rate derivatives.

17

COPT and Subsidiaries

The table below sets forth financial assets and liabilities of COPT and its subsidiaries that are accounted for at fair value on a recurring basis as of March 31, 2016 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):

Description	Quoted Prices in Active Markets for Identical Assets(Level 1)	Significant Other Observable Inputs(Level 2)	Significant Unobservable Inputs(Level 3)	Total
Assets:
Marketable securities in deferred compensation plan (1)
Mutual funds	$ 5,580	$ —	$ —	$ 5,580
Other	91	—	—	91
Total assets	$ 5,671	$ —	$ —	$ 5,671
Liabilities:
Deferred compensation plan liability (2)	$ —	$ 5,671	$ —	$ 5,671
Interest rate derivatives	—	15,072	—	15,072
Total liabilities	$ —	$ 20,743	$ —	$ 20,743

(1) Included in the line entitled “restricted cash and marketable securities” on COPT’s consolidated balance sheet.

(2) Included in the line entitled “other liabilities” on COPT’s consolidated balance sheet.

COPLP and Subsidiaries

The table below sets forth financial assets and liabilities of COPLP and its subsidiaries that are accounted for at fair value on a recurring basis as of March 31, 2016 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):

Description	Quoted Prices in Active Markets for Identical Assets(Level 1)	Significant Other Observable Inputs(Level 2)	Significant Unobservable Inputs(Level 3)	Total
Liabilities:
Interest rate derivatives	$ —	$ 15,072	$ —	$ 15,072

Nonrecurring Fair Value Measurements

During the three months ended March 31, 2016 , we recognized the following impairment losses resulting from nonrecurring fair value measurements:

• $1.6 million on land in Colorado Springs, Colorado, the carrying amount of which exceeded the estimated fair value less costs to sell. Most of these losses pertained to land we decided to sell during the quarter that was reclassified as held for sale, and the remainder was attributable to further decreases in fair value of properties previously classified as held for sale based on recent bids from and negotiations with prospective buyers; and

• $847,000 on operating properties in White Marsh, Maryland (included in our Regional Office segment) classified as held for sale whose carrying amounts exceeded their estimated fair values less costs to sell based on recent negotiations with prospective buyers.

The table below sets forth the fair value hierarchy of the valuation technique we used to determine nonrecurring fair value measurements of these assets as of March 31, 2016 (dollars in thousands):

	Fair Values as of March 31, 2016 — Quoted Prices in		Significant
	Active Markets for	Significant Other	Unobservable
	Identical Assets	Observable Inputs	Inputs
Description	(Level 1)	(Level 2)	(Level 3)	Total
Assets:
Assets held for sale, net (1)	$ —	$ —	$ 14,886	$ 14,886

(1) Represents estimated fair values less costs to sell. Fair values were derived from bids for the properties that were deemed to be indicative of value.

18

4. Properties, Net

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

Land	March 31, 2016 — $ 464,674		December 31, 2015 — $ 463,305
Buildings and improvements	3,111,871		3,157,587
Less: Accumulated depreciation	(713,283	)	(700,363	)
Operating properties, net	$ 2,863,262		$ 2,920,529

Projects in development or held for future development consisted of the following (in thousands):

	March 31, 2016	December 31, 2015
Land	$ 220,834	$ 207,774
Development in progress, excluding land	195,335	221,445
Projects in development or held for future development	$ 416,169	$ 429,219

Our properties held for sale included:

• as of March 31, 2016: 13 operating properties in White Marsh, Maryland (included in our Regional Office segment); four operating properties in Greater Philadelphia (included in our Regional Office segment); two operating properties in Hanover, Maryland (included in our Fort Meade/BW Corridor sub-segment); two operating properties in San Antonio (included in our Other segment); and land in Northern Virginia, Colorado Springs and Greater Philadelphia; and

• as of December 31, 2015: 13 operating properties in White Marsh, Maryland (included in our Regional Office segment); two operating properties in San Antonio (included in our Other segment); and land in Northern Virginia and Colorado Springs.

The table below sets forth the components of assets held for sale on our consolidated balance sheet for these properties (in thousands):

	March 31, 2016	December 31, 2015
Properties, net	$ 199,481	$ 90,188
Deferred rent receivable	12,542	2,891
Intangible assets on real estate acquisitions, net	1,591	1,591
Deferred leasing costs, net	9,228	1,391
Lease incentives, net	3,055	721
Assets held for sale, net	$ 225,897	$ 96,782

Acquisitions

We acquired the following operating properties in 2015:

• 250 W. Pratt Street, a 367,000 square foot office property in Baltimore, Maryland that was 96.2% leased, for $61.8 million on March 19, 2015;

• 2600 Park Tower Drive, a 237,000 square foot office property in Vienna, Virginia (in the Northern Virginia region) that was 100% leased, for $80.5 million on April 15, 2015; and

• 100 Light Street, a 558,000 square foot office property in Baltimore, Maryland that was 93.5% leased, and its structured parking garage, 30 Light Street, for $121.2 million on August 7, 2015. In connection with that acquisition, we assumed a $55.0 million mortgage loan with a fair value at assumption of $55.5 million .

These properties contributed revenues of $9.2 million for the three months ended March 31, 2016 and $332,000 for the three months ended March 31, 2015, and net income from continuing operations of $942,000 for the three months ended March 31, 2016 and $170,000 for the three months ended March 31, 2015.

19

We accounted for these acquisitions as business combinations. We included the results of operations for the acquisitions in our consolidated statements of operations from their respective purchase dates through March 31, 2016 . The following table presents pro forma information for COPT and subsidiaries as if these acquisitions had occurred on January 1, 2014. This pro forma information also includes adjustments to reclassify operating property acquisition costs to the three months ended March 31, 2014 from the 2015 periods in which they were actually incurred. The pro forma financial information was prepared for comparative purposes only and is not necessarily indicative of what would have occurred had these acquisitions been made at that time or of results which may occur in the future (in thousands, except per share amounts).

	For the Three Months Ended March 31, 2015
	(Unaudited)
Pro forma total revenues	$ 169,925
Pro forma net income attributable to COPT common shareholders	$ 10,847
Pro forma EPS:
Basic	$ 0.11
Diluted	$ 0.11

2016 Dispositions

We sold land in the three months ended March 31, 2016 for $5.7 million , with no gain recognized.

2016 Construction Activities

During the three months ended March 31, 2016 , we placed into service 149,000 square feet in one newly constructed office property and 51,000 square feet in a redeveloped property. As of March 31, 2016 , we had eight office properties under construction, or for which we were contractually committed to construct, that we estimate will total 1.2 million square feet upon completion (including a property completed but held for future lease to the United States Government) and three office properties under redevelopment that we estimate will total 104,000 square feet upon completion.

5. Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of March 31, 2016 (dollars in thousands):

		Nominal — Ownership		March 31, 2016		(1)
	Date	% as of		Total	Encumbered	Total
	Acquired	3/31/2016	Nature of Activity	Assets	Assets	Liabilities
LW Redstone Company, LLC	3/23/2010	85%	Development and operation of real estate (2)	$ 149,301	$ 82,018	$ 53,356
M Square Associates, LLC	6/26/2007	50%	Development and operation of real estate (3)	56,333	47,820	37,462
Stevens Investors, LLC	8/11/2015	95%	Development of real estate (4)	37,724	—	6,937
				$ 243,358	$ 129,838	$ 97,755

(1) Excludes amounts eliminated in consolidation.

(2) This joint venture’s properties are in Huntsville, Alabama.

(3) This joint venture’s properties are in College Park, Maryland.

(4) This joint venture’s property is in Washington, DC.

In January 2016, our partner in Stevens Investors, LLC contributed to the joint venture, for a value of $22.6 million , interests in contracts controlling land to be developed (including a purchase agreement and a ground lease). Our partner subsequently received a cash distribution from the joint venture of $13.4 million , which was funded by us. Our partner is also entitled to receive an additional distribution from the joint venture of $6.7 million to be funded by us (expected later in 2016 or 2017) that was reported in other liabilities on our consolidated balance sheet as of March 31, 2016.

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6. Investing Receivables

Investing receivables, including accrued interest thereon, consisted of the following (in thousands):

	March 31, 2016	December 31, 2015
Notes receivable from the City of Huntsville	$ 45,998	$ 44,875
Other investing loans receivable	3,000	3,000
	$ 48,998	$ 47,875

Our notes receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 5) and carry an interest rate of 9.95% .

We did not have an allowance for credit losses in connection with our investing receivables as of March 31, 2016 or December 31, 2015 . The fair value of these receivables approximated their carrying amounts as of March 31, 2016 and December 31, 2015 .

7. Prepaid Expenses and Other Assets, Net

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

	March 31, 2016	December 31, 2015
Prepaid expenses	$ 15,516	$ 23,009
Lease incentives, net	8,375	11,133
Furniture, fixtures and equipment, net	5,669	6,004
Construction contract costs incurred in excess of billings	5,232	3,261
Deferred financing costs, net (1)	5,182	5,867
Deferred tax asset, net (2)	3,474	3,467
Equity method investments	1,646	1,636
Other assets	4,230	5,647
Prepaid expenses and other assets, net	$ 49,324	$ 60,024

(1) Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.

(2) Includes a valuation allowance of $2.1 million .

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8. Debt, Net

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

	Carrying Value (1) as of — March 31, 2016	December 31, 2015	Stated Interest Rates as of	Scheduled Maturity — as of
			March 31, 2016	March 31, 2016
Mortgage and Other Secured Loans:
Fixed rate mortgage loans (2)	$ 279,782	$ 281,208	3.96% - 7.87% (3)	2016-2024
Variable rate secured loans	49,488	49,792	LIBOR + 1.85% - 2.00% (4)	2016-2020
Total mortgage and other secured loans	329,270	331,000
Revolving Credit Facility	107,000	43,500	LIBOR + 0.875% to 1.60% (5)	May 2019
Term Loan Facilities (6)	516,205	515,902	LIBOR + 0.90% to 2.60% (7)	2019-2022
Unsecured Senior Notes
3.600%, $350,000 aggregate principal	346,817	346,714	3.60% (8)	May 2023
5.250%, $250,000 aggregate principal	245,840	245,731	5.25% (9)	February 2024
3.700%, $300,000 aggregate principal	297,493	297,378	3.70% (10)	June 2021
5.000%, $300,000 aggregate principal	296,105	296,019	5.00% (11)	July 2025
Unsecured notes payable	1,482	1,508	0% (12)	2026
Total debt, net	$ 2,140,212	$ 2,077,752

(1) The carrying values of our loans other than the Revolving Credit Facility reflect net deferred financing costs of $7.5 million as of March 31, 2016 and $8.0 million as of December 31, 2015 .

(2) Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling $489,000 as of March 31, 2016 and $514,000 as of December 31, 2015 .

(3) The weighted average interest rate on our fixed rate mortgage loans was 6.08% as of March 31, 2016 .

(4) The weighted average interest rate on our variable rate secured loans was 2.40% as of March 31, 2016 .

(5) The weighted average interest rate on the Revolving Credit Facility was 1.60% as of March 31, 2016 .

(6) An additional $150 million in borrowings is available to be drawn under a term loan. In addition, we have the ability to borrow an additional $430.0 million in the aggregate under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders.

(7) The weighted average interest rate on these loans was 2.08% as of March 31, 2016 .

(8) The carrying value of these notes reflects an unamortized discount totaling $2.2 million as of March 31, 2016 and December 31, 2015 . The effective interest rate under the notes, including amortization of the issuance costs, was 3.70% .

(9) The carrying value of these notes reflects an unamortized discount totaling $3.7 million as of March 31, 2016 and $3.8 million as of December 31, 2015 . The effective interest rate under the notes, including amortization of the issuance costs, was 5.49% .

(10) The carrying value of these notes reflects an unamortized discount totaling $2.0 million as of March 31, 2016 and $2.1 million as of December 31, 2015 . The effective interest rate under the notes, including amortization of the issuance costs, was 3.85% .

(11) The carrying value of these notes reflects an unamortized discount totaling $3.2 million as of March 31, 2016 and $3.3 million as of December 31, 2015 . The effective interest rate under the notes, including amortization of the issuance costs, was 5.15% .

(12) These notes carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling $530,000 as of March 31, 2016 and $554,000 as of December 31, 2015 .

All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed the Operating Partnership’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants. As of March 31, 2016 , we were within the compliance requirements of these financial covenants.

We capitalized interest costs of $1.8 million in the three months ended March 31, 2016 and $2.1 million in the three months ended March 31, 2015 .

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

	March 31, 2016 — Carrying	Estimated	December 31, 2015 — Carrying	Estimated
	Amount	Fair Value	Amount	Fair Value
Fixed-rate debt
Unsecured Senior Notes	$ 1,186,255	$ 1,216,295	$ 1,185,842	$ 1,211,658
Other fixed-rate debt	281,264	289,254	282,716	291,991
Variable-rate debt	672,693	677,203	609,194	610,987
	$ 2,140,212	$ 2,182,752	$ 2,077,752	$ 2,114,636

9. Interest Rate Derivatives

The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):

Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	Fair Value at — March 31, 2016		December 31, 2015
$ 100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$ (137	)	$ (148	)
100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(139	)	(151	)
100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(2,738	)	(1,217	)
100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(2,929	)	(1,429	)
13,853	(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(242	)	53
100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(3,601	)	(138	)
100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(3,511	)	(45	)
50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(1,775	)	(32	)
						$ (15,072	)	$ (3,107	)

(1) The notional amount of this instrument is scheduled to amortize to $12.1 million .

Each of the interest rate swaps set forth in the table above was designated as a cash flow hedge of interest rate risk.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):

Derivatives	Balance Sheet Location	Fair Value at — March 31, 2016		December 31, 2015
Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets	$ —		$ 53
Interest rate swaps designated as cash flow hedges	Interest rate derivatives	(15,072	)	(3,160	)

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):

	For the Three Months Ended March 31, — 2016		2015
Amount of (loss) gain recognized in accumulated other comprehensive loss (“AOCL”) (effective portion)	$ (11,284	)	$ (3,474	)
Amount of losses reclassified from AOCL into interest expense (effective portion)	870		773
Amount of loss recognized in interest expense (ineffective portion)	1,551		—

Over the next 12 months, we estimate that approximately $4.5 million of losses will be reclassified from AOCL as an increase to interest expense.

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We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of March 31, 2016 , the fair value of interest rate derivatives in a liability position related to these agreements was $15.8 million , excluding the effects of accrued interest and credit valuation adjustments. As of March 31, 2016 , we had not posted any collateral related to these agreements. We are not in default with any of these provisions. If we breached any of these provisions, we could be required to settle our obligations under the agreements at their termination value of $16.1 million .

10. Redeemable Noncontrolling Interests

The table below sets forth the activity for redeemable noncontrolling interests in our LW Redstone, LLC and Stevens Investors, LLC joint ventures described in Note 5 (in thousands):

	For the Three Months Ended March 31, — 2016		2015
Beginning balance	$ 19,218		$ 18,417
Contributions from noncontrolling interests	22,779		—
Distributions to noncontrolling interests	(20,526	)	(157	)
Net income attributable to noncontrolling interests	560		562
Adjustment to arrive at fair value of interests	302		73
Ending balance	$ 22,333		$ 18,895

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11. Information by Business Segment

Our segment reporting includes the following segments: Defense/IT Locations; Regional Office; our operating wholesale data center; and other. Our segment reporting also includes reporting for Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (referred to herein as “Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure). The table below reports segment financial information for our reportable segments (in thousands). We measure the performance of our segments through the measure we define as NOI from real estate operations, which is derived by subtracting property operating expenses from revenues from real estate operations.

	Operating Office Property Segments
	Defense/Information Technology Locations
	Fort Meade/BW Corridor	Northern Virginia Defense/IT		Lackland Air Force Base	Navy Support Locations	Redstone Arsenal	Data Center Shells	Total Defense/IT Locations	Regional Office	Operating Wholesale Data Center	Other		Total
Three Months Ended March 31, 2016
Revenues from real estate operations	$ 62,509	$ 12,116		$ 10,225	$ 6,934	$ 3,116	$ 6,330	$ 101,230	$ 23,502	$ 6,493	$ 1,862		$ 133,087
Property operating expenses	23,246	4,541		5,420	3,524	978	810	38,519	9,831	2,661	864		51,875
NOI from real estate operations	$ 39,263	$ 7,575		$ 4,805	$ 3,410	$ 2,138	$ 5,520	$ 62,711	$ 13,671	$ 3,832	$ 998		$ 81,212
Additions to long-lived assets	$ 6,519	$ 3,078		$ —	$ 1,270	$ 618	$ —	$ 11,485	$ 2,759	$ —	$ 157		$ 14,401
Transfers from non-operating properties	$ 35,751	$ (94	)	$ 6	$ —	$ 211	$ 26,097	$ 61,971	$ 82	$ 51	$ (11	)	$ 62,093
Segment assets at March 31, 2016	$ 1,319,444	$ 407,199		$ 133,757	$ 195,306	$ 107,693	$ 227,808	$ 2,391,207	$ 603,662	$ 240,484	$ 70,039		$ 3,305,392
Three Months Ended March 31, 2015
Revenues from real estate operations	$ 61,184	$ 11,046		$ 8,665	$ 7,265	$ 2,446	$ 5,114	$ 95,720	$ 21,960	$ 3,035	$ 1,995		$ 122,710
Property operating expenses	23,516	5,616		4,763	3,398	829	695	38,817	8,748	2,212	909		50,686
NOI from real estate operations	$ 37,668	$ 5,430		$ 3,902	$ 3,867	$ 1,617	$ 4,419	$ 56,903	$ 13,212	$ 823	$ 1,086		$ 72,024
Additions to long-lived assets	$ 3,445	$ 787		$ —	$ 1,593	$ 83	$ —	$ 5,908	$ 65,934	$ 30	$ 99		$ 71,971
Transfers from non-operating properties	$ 12,930	$ 43,473		$ 31,091	$ —	$ 2,997	$ 15,097	$ 105,588	$ 11,507	$ 177	$ —		$ 117,272
Segment assets at March 31, 2015	$ 1,267,663	$ 412,410		$ 133,197	$ 195,249	$ 99,335	$ 170,209	$ 2,278,063	$ 597,389	$ 162,170	$ 72,758		$ 3,110,380

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The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):

	For the Three Months Ended March 31, — 2016	2015
Segment revenues from real estate operations	$ 133,087	$ 122,710
Construction contract and other service revenues	11,220	38,324
Total revenues	$ 144,307	$ 161,034

The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):

	For the Three Months Ended March 31, — 2016	2015
Segment property operating expenses	$ 51,875	$ 50,686
Less: Property operating expenses from discontinued operations	—	(5	)
Total property operating expenses	$ 51,875	$ 50,681

As previously discussed, we provide real estate services such as property management and construction and development services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):

	For the Three Months Ended March 31, — 2016		2015
Construction contract and other service revenues	$ 11,220		$ 38,324
Construction contract and other service expenses	(10,694	)	(37,498	)
NOI from service operations	$ 526		$ 826

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The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from continuing operations as reported on our consolidated statements of operations (in thousands):

	For the Three Months Ended March 31, — 2016		2015
NOI from real estate operations	$ 81,212		$ 72,024
NOI from service operations	526		826
Interest and other income	1,156		1,283
Equity in income of unconsolidated entities	10		25
Income tax benefit (expense)	8		(55	)
Other adjustments:	—
Depreciation and other amortization associated with real estate operations	(34,527	)	(31,599	)
Impairment losses	(2,446	)	—
General, administrative and leasing expenses	(11,883	)	(7,891	)
Business development expenses and land carry costs	(2,418	)	(2,790	)
Interest expense	(23,559	)	(20,838	)
NOI from discontinued operations	—		5
Gain (loss) on early extinguishment of debt	17		(3	)
Income from continuing operations	$ 8,096		$ 10,987

The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):

	March 31, 2016	March 31, 2015
Segment assets	$ 3,305,392	$ 3,110,380
Non-operating property assets	444,334	496,930
Other assets	188,182	164,341
Total COPT consolidated assets	$ 3,937,908	$ 3,771,651

The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations are not presented separately for segment purposes. In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment losses, loss on early extinguishment of debt and gain on sales of real estate to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, equity in income of unconsolidated entities, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.

12. Share-Based Compensation and Other Compensation Matters

Performance Share Units (“PSUs”)

On March 1, 2016, our Board of Trustees granted 26,299 PSUs with an aggregate grant date fair value of $1.0 million to executives. The PSUs have a performance period beginning on January 1, 2016 and concluding on the earlier of December 31, 2018 or the date of: (1) termination by us without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event. The number of PSUs earned (“earned PSUs”) at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return relative to a peer group of companies, as set forth in the following schedule:

Percentile Rank	Earned PSUs Payout %
75th or greater	200% of PSUs granted
50th or greater	100% of PSUs granted
25th	50% of PSUs granted
Below 25th	0% of PSUs granted

If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned PSUs will be interpolated between the ranges set forth in the table above to reflect any performance

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between the listed percentiles. At the end of the performance period, we, in settlement of the award, will issue a number of fully-vested COPT common shares equal to the sum of:

• the number of earned PSUs in settlement of the award plan; plus

• the aggregate dividends that would have been paid with respect to the common shares issued in settlement of the earned PSUs through the date of settlement had such shares been issued on the grant date, divided by the share price on such settlement date, as defined under the terms of the agreement.

If a performance period ends due to a sale event or qualified termination, the number of earned PSUs is prorated based on the portion of the three -year performance period that has elapsed. If employment is terminated by the employee or by us for cause, all PSUs are forfeited. PSUs do not carry voting rights.

We computed a grant date fair value of $38.21 per PSU using a Monte Carlo model, which included assumptions of, among other things, the following: baseline common share value of $23.90 ; expected volatility for COPT common shares of 20.4% ; and a risk-free interest rate of 0.96% . We are recognizing the grant date fair value in connection with these PSU awards over the period commencing on March 1, 2016 and ending on December 31, 2018.

Restricted Shares

During the three months ended March 31, 2016 , certain employees were granted a total of 184,237 restricted common shares with an aggregate grant date fair value of $4.4 million (weighted average of $23.90 per share). Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employees remain employed by us. During the three months ended March 31, 2016 , forfeiture restrictions lapsed on 137,593 previously issued common shares; these shares had a weighted average grant date fair value of $27.47 per share, and the aggregate intrinsic value of the shares on the vesting dates was $3.3 million .

Executive Transition Costs

Our Board of Trustees appointed Stephen E. Budorick, our Executive Vice President and Chief Operating Officer since September 2011, to become our President and Chief Executive Officer effective May 12, 2016, the date of the Company’s 2016 Annual Meeting of Shareholders. On that date, Roger A. Waesche, Jr., our current President and Chief Executive Officer, will leave the Company to pursue other interests, and he was not nominated for reelection as a Trustee. The Board expects to appoint Mr. Budorick to our Board of Trustees after the 2016 Annual Meeting of Shareholders. In addition, our Executive Vice President, Development & Construction Services, Wayne H. Lingafelter, departed the Company to pursue other interests effective March 31, 2016. We recognized executive transition costs of approximately $4.1 million in the three months ended March 31, 2016 primarily in connection with the departure of Mr. Waesche and Mr. Lingafelter.

13. Earnings Per Share (“EPS”) and Earnings Per Unit (“EPU”)

COPT and Subsidiaries EPS

We present both basic and diluted EPS. We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted common shares outstanding during the period. Our computation of diluted EPS is similar except that:

• the denominator is increased to include: (1) the weighted average number of potential additional common shares that would have been outstanding if securities that are convertible into COPT common shares were converted; and (2) the effect of dilutive potential common shares outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and

• the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common shares that we added to the denominator.

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Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):

	For the Three Months Ended March 31, — 2016		2015
Numerator:
Income from continuing operations	$ 8,096		$ 10,987
Gain on sales of real estate, net	—		3,986
Preferred share dividends	(3,552	)	(3,552	)
Income from continuing operations attributable to noncontrolling interests	(1,270	)	(1,392	)
Income from continuing operations attributable to share-based compensation awards	(118	)	(122	)
Numerator for basic and diluted EPS from continuing operations attributable to COPT common shareholders	$ 3,156		$ 9,907
Discontinued operations	—		(238	)
Discontinued operations attributable to noncontrolling interests	—		12
Numerator for basic and diluted EPS on net income attributable to COPT common shareholders	$ 3,156		$ 9,681
Denominator (all weighted averages):
Denominator for basic EPS (common shares)	94,203		93,199
Dilutive effect of share-based compensation awards	95		198
Denominator for diluted EPS (common shares)	94,298		93,397
Basic EPS:
Income from continuing operations attributable to COPT common shareholders	$ 0.03		$ 0.10
Discontinued operations attributable to COPT common shareholders	0.00		0.00
Net income attributable to COPT common shareholders	$ 0.03		$ 0.10
Diluted EPS:
Income from continuing operations attributable to COPT common shareholders	$ 0.03		$ 0.10
Discontinued operations attributable to COPT common shareholders	0.00		0.00
Net income attributable to COPT common shareholders	$ 0.03		$ 0.10

Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods (in thousands):

	For the Three Months Ended March 31,
	2016	2015
Conversion of common units	3,677	3,732
Conversion of Series I Preferred Units	176	176
Conversion of Series K Preferred Shares	434	434

The following share-based compensation securities were excluded from the computation of diluted EPS because their effects were antidilutive:

• weighted average restricted shares and deferred share awards for the three months ended March 31, 2016 and 2015 of 405,000 and 400,000 , respectively; and

• weighted average options for the three months ended March 31, 2016 and 2015 of 379,000 and 474,000 , respectively.

We had outstanding senior notes, which we redeemed in April 2015, with an exchange settlement feature, but such notes did not affect our diluted EPS reported above since the weighted average closing price of COPT’s common shares during each of the periods was less than the exchange prices per common share applicable for such periods.

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COPLP and Subsidiaries EPU

We present both basic and diluted EPU. We compute basic EPU by dividing net income available to common unitholders allocable to unrestricted common units under the two-class method by the weighted average number of unrestricted common units outstanding during the period. Our computation of diluted EPU is similar except that:

• the denominator is increased to include: (1) the weighted average number of potential additional common units that would have been outstanding if securities that are convertible into our common units were converted; and (2) the effect of dilutive potential common units outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and

• the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common units that we added to the denominator.

Summaries of the numerator and denominator for purposes of basic and diluted EPU calculations are set forth below (in thousands, except per unit data):

	For the Three Months Ended March 31, — 2016		2015
Numerator:
Income from continuing operations	$ 8,096		$ 10,987
Gain on sales of real estate, net	—		3,986
Preferred unit distributions	(3,717	)	(3,717	)
Income from continuing operations attributable to noncontrolling interests	(979	)	(821	)
Income from continuing operations attributable to share-based compensation awards	(118	)	(122	)
Numerator for basic and diluted EPU from continuing operations attributable to COPLP common unitholders	$ 3,282		$ 10,313
Discontinued operations	—		(238	)
Discontinued operations attributable to noncontrolling interests	—		3
Numerator for basic and diluted EPU on net income attributable to COPLP common unitholders	$ 3,282		$ 10,078
Denominator (all weighted averages):
Denominator for basic EPU (common units)	97,880		96,931
Dilutive effect of share-based compensation awards	95		198
Denominator for diluted EPU (common units)	97,975		97,129
Basic EPU:
Income from continuing operations attributable to COPLP common unitholders	$ 0.03		$ 0.10
Discontinued operations attributable to COPLP common unitholders	0.00		0.00
Net income attributable to COPLP common unitholders	$ 0.03		$ 0.10
Diluted EPU:
Income from continuing operations attributable to COPLP common unitholders	$ 0.03		$ 0.10
Discontinued operations attributable to COPLP common unitholders	0.00		0.00
Net income attributable to COPLP common unitholders	$ 0.03		$ 0.10

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Our diluted EPU computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPU for the respective periods (in thousands):

	For the Three Months Ended March 31,
	2016	2015
Conversion of Series I preferred units	176	176
Conversion of Series K preferred units	434	434

The following share-based compensation securities were excluded from the computation of diluted EPU because their effects were antidilutive:

• weighted average restricted units and deferred share awards for the three months ended March 31, 2016 and 2015 of 405,000 and 400,000 , respectively; and

• weighted average options for the three months ended March 31, 2016 and 2015 of 379,000 and 474,000 , respectively.

We had outstanding senior notes, which we redeemed in April 2015, with an exchange settlement feature, but such notes did not affect our diluted EPU reported above since the weighted average closing price of COPT’s common shares during each of the periods was less than the exchange prices per common share applicable for such periods.

14. Commitments and Contingencies

Litigation

In the normal course of business, we are involved in legal actions arising from our ownership and administration of properties. We establish reserves for specific legal proceedings when we determine that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management does not anticipate that any liabilities that may result from such proceedings will have a materially adverse effect on our financial position, operations or liquidity. Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.

Environmental

We are subject to various Federal, state and local environmental regulations related to our property ownership and operation. We have performed environmental assessments of our properties, the results of which have not revealed any environmental liability that we believe would have a materially adverse effect on our financial position, operations or liquidity.

Tax Incremental Financing Obligation

In August 2010, Anne Arundel County, Maryland issued $30 million in tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as National Business Park North. The real estate taxes on increases in assessed value of a development district encompassing National Business Park North are to be transferred to a special fund pledged to the repayment of the bonds. We recognized a $1.9 million liability through March 31, 2016 representing our estimated obligation to fund through a special tax any future shortfalls between debt service on the bonds and real estate taxes available to repay the bonds.

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Operating Leases

We are obligated as lessee under operating leases (mostly ground leases) with various expiration dates extending to the year 2100. Future minimum rental payments due under the terms of these operating leases as of March 31, 2016 follow (in thousands):

Year Ending December 31,
2016 (1)	$ 896
2017	1,123
2018	1,076
2019	1,051
2020	1,067
Thereafter	86,800
	$ 92,013

(1) Represents nine months ending December 31, 2016.

Contractual Obligations

We had amounts remaining to be incurred under various contractual obligations as of March 31, 2016 that included the following:

• new development and redevelopment obligations of $60.1 million ;

• capital expenditures for operating properties of $44.9 million ;

• third party construction and development of $17.7 million ; and

• purchase obligations of $3.0 million .

Environmental Indemnity Agreement

In connection with a lease and subsequent sale in 2008 and 2010 of three properties in Dayton, New Jersey, we agreed to provide certain environmental indemnifications. The prior owner of the properties, a Fortune 100 company that is responsible for groundwater contamination at such properties, previously agreed to indemnify us for (1) direct losses incurred in connection with the contamination and (2) its failure to perform remediation activities required by the State of New Jersey, up to the point that the state declares the remediation to be complete. Under the environmental indemnification agreement, we agreed to the following:

• to indemnify the tenant against losses covered under the prior owner’s indemnity agreement if the prior owner fails to indemnify the tenant for such losses. This indemnification is capped at $5.0 million in perpetuity after the State of New Jersey declares the remediation to be complete;

• to indemnify the tenant for consequential damages (e.g., business interruption) at one of the buildings in perpetuity and another of the buildings through 2025. This indemnification is limited to $12.5 million ; and

• to pay 50% of additional costs related to construction and environmental regulatory activities incurred by the tenant as a result of the indemnified environmental condition of the properties. This indemnification is limited to $300,000 annually and $1.5 million in the aggregate.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

During the three months ended March 31, 2016 :

• we finished the period with occupancy of our portfolio of operating office properties at 90.7% ;

• we placed into service an aggregate of 200,000 square feet in newly constructed and redeveloped properties that were 74.5% leased as of March 31, 2016 ;

• we classified additional properties as held for sale with aggregate carrying amounts of $138 million after related impairments. We continue to evaluate properties for sale, and decisions to sell certain additional properties could result in additional impairment losses;

• our Board of Trustees appointed Stephen E. Budorick, our Executive Vice President and Chief Operating Officer since September 2011, to become our President and Chief Executive Officer effective May 12, 2016, the date of the Company’s 2016 Annual Meeting of Shareholders. On that date, Roger A. Waesche, Jr., our current President and Chief Executive Officer, will leave the Company to pursue other interests, and he was not nominated for reelection as a Trustee. The Board expects to appoint Mr. Budorick to our Board of Trustees after the 2016 Annual Meeting of Shareholders; and

• our Executive Vice President, Development & Construction Services, Wayne H. Lingafelter, departed the Company to pursue other interests effective March 31, 2016.

We discuss significant factors contributing to changes in our net income in the section below entitled “Results of Operations.” The results of operations discussion is combined for COPT and COPLP because there are no material differences in the results of operations between the two reporting entities.

In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

• how we expect to generate cash for short and long-term capital needs; and

• our commitments and contingencies.

You should refer to our consolidated financial statements and the notes thereto as you read this section.

This section contains “forward-looking” statements, as defined in the Private Securities Litigation Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:

• general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;

• adverse changes in the real estate markets, including, among other things, increased competition with other companies;

• governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers;

• our ability to borrow on favorable terms;

• risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;

• risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;

• changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;

• our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;

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• the dilutive effects of issuing additional common shares;

• our ability to achieve projected results; and

• environmental requirements.

We undertake no obligation to update or supplement forward-looking statements.

Occupancy and Leasing

Office Properties

The tables below set forth occupancy information pertaining to our portfolio of operating office properties:

	March 31, 2016	December 31, 2015
Occupancy rates at period end
Total	90.7 %	91.6 %
Defense/IT Locations:
Fort Meade/BW Corridor	92.4 %	94.5 %
Northern Virginia Defense/IT	81.1 %	81.9 %
Lackland Air Force Base	100.0 %	100.0 %
Navy Support Locations	71.8 %	72.1 %
Redstone Arsenal	98.9 %	97.0 %
Data Center Shells	100.0 %	100.0 %
Regional Office	96.1 %	95.4 %
Other	53.8 %	57.3 %
Average contractual annual rental rate per square foot at period end (1)	$ 29.72	$ 29.55

(1) Includes estimated expense reimbursements.

	Rentable Square Feet		Occupied Square Feet
	(in thousands)
December 31, 2015	18,053		16,535
Square feet vacated upon lease expiration (1)	—		(213	)
Occupancy of previously vacated space in connection with new leases (2)	—		72
Square feet constructed or redeveloped	200		159
Other changes	(3	)	(1	)
March 31, 2016	18,250		16,552

(1) Includes lease terminations and space reductions occurring in connection with lease renewals.

(2) Excludes occupancy of vacant square feet acquired or developed.

During the three months ended March 31, 2016 , we completed 545,000 square feet of leasing, including 163,000 of construction and redevelopment space, and renewed 64.3% of the square footage of our lease expirations (including the effect of early renewals).

Occupancy of our Same Office Properties decreased from 90.9% as of December 31, 2015 to 90.1% as of March 31, 2016 .

Wholesale Data Center Property

The leased portion of our 19.25 megawatt wholesale data center property decreased from 17.8 megawatts as of December 31, 2015 to 16.8 megawatts as of March 31, 2016 due to a tenant departure.

Results of Operations

We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure derived by subtracting property operating expenses from revenues from real estate operations. We view our NOI from real estate operations as comprising the following primary categories of operating properties:

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• office properties owned and 100% operational throughout the current and prior year reporting periods, excluding properties held for future disposition. We define these as changes from “Same Office Properties”;

• office properties acquired during the current and prior year reporting periods;

• constructed or redeveloped office properties placed into service that were not 100% operational throughout the current and prior year reporting periods;

• our wholesale data center;

• properties held for sale as of March 31, 2016 ; and

• property dispositions.

In addition to owning properties, we provide construction management and other services. The primary manner in which we evaluate the operating performance of our construction management and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities. The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.

We believe that operating income, as reported on our consolidated statements of operations, is the most directly comparable generally accepted accounting principles (“GAAP”) measure for both NOI from real estate operations and NOI from service operations. Since both of these measures exclude certain items includable in operating income, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures.

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The table below reconciles NOI from real estate operations and NOI from service operations to operating income reported on the consolidated statements of operations of COPT and subsidiaries:

	For the Three Months Ended March 31, — 2016		2015
	(in thousands)
NOI from real estate operations	$ 81,212		$ 72,024
NOI from service operations	526		826
Less: NOI from discontinued operations	—		5
Depreciation and amortization associated with real estate operations	(34,527	)	(31,599	)
Impairment losses	(2,446	)	—
General, administrative and leasing expenses	(11,883	)	(7,891	)
Business development expenses and land carry costs	(2,418	)	(2,790	)
Operating income	$ 30,464		$ 30,575

Comparison of Statements of Operations for the Three Months Ended March 31, 2016 and 2015

	For the Three Months Ended March 31, — 2016		2015		Variance
	(in thousands)
Revenues
Revenues from real estate operations	$ 133,087		$ 122,710		$ 10,377
Construction contract and other service revenues	11,220		38,324		(27,104	)
Total revenues	144,307		161,034		(16,727	)
Expenses
Property operating expenses	51,875		50,681		1,194
Depreciation and amortization associated with real estate operations	34,527		31,599		2,928
Construction contract and other service expenses	10,694		37,498		(26,804	)
Impairment losses	2,446		—		2,446
General, administrative and leasing expenses	11,883		7,891		3,992
Business development expenses and land carry costs	2,418		2,790		(372	)
Total operating expenses	113,843		130,459		(16,616	)
Operating income	30,464		30,575		(111	)
Interest expense	(23,559	)	(20,838	)	(2,721	)
Interest and other income	1,156		1,283		(127	)
Gain (loss) on early extinguishment of debt	17		(3	)	20
Equity in income of unconsolidated entities	10		25		(15	)
Income tax expense	8		(55	)	63
Income from continuing operations	8,096		10,987		(2,891	)
Discontinued operations	—		(238	)	238
Gain on sales of real estate	—		3,986		(3,986	)
Net income	$ 8,096		$ 14,735		$ (6,639	)

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NOI from Real Estate Operations
	For the Three Months Ended March 31,
	2016		2015		Variance
	(Dollars in thousands, except per square foot data)
Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue	$ 80,317		$ 80,760		$ (443	)
Lease termination revenue	980		753		227
Tenant recoveries and other real estate operations revenue	22,559		21,522		1,037
Same Office Properties total revenues	103,856		103,035		821
Constructed and developed office properties placed in service	5,671		1,191		4,480
Acquired office properties	9,210		332		6,921
Wholesale data center	6,493		3,035		3,458
Properties held for sale	7,666		6,670		996
Dispositions	72		8,324		(8,252	)
Other	119		123		(4	)
	133,087		122,710		10,377
Property operating expenses
Same Office Properties	40,311		40,722		(411	)
Constructed and developed office properties placed in service	1,539		380		1,159
Acquired office properties	3,868		162		2,750
Wholesale data center	2,661		2,212		449
Properties held for sale	3,355		2,844		511
Dispositions	(4	)	4,198		(4,202	)
Other	145		168		(23	)
	51,875		50,686		1,189
NOI from real estate operations
Same Office Properties	63,545		62,313		1,232
Constructed and developed office properties placed in service	4,132		811		3,321
Acquired office properties	5,342		170		5,172
Wholesale data center	3,832		823		3,009
Properties held for sale	4,311		3,826		485
Dispositions	76		4,126		(4,050	)
Other	(26	)	(45	)	19
	$ 81,212		$ 72,024		$ 9,188
Same Office Properties rent statistics
Average occupancy rate	90.1	%	90.3	%	-0.2	%
Average straight-line rent per occupied square foot (1)	$ 6.09		$ 6.11		$ (0.02	)

(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the three-month periods set forth above.

Our Same Office Properties pool consisted of 145 office properties, comprising 80.2% of our total operating office square footage as of March 31, 2016 ( 86.5% excluding the effect of properties held for sale). This pool of properties changed from the pool used for purposes of comparing 2015 and 2014 in our 2015 Annual Report on Form 10-K due to the addition of four properties placed in service and 100% operational by January 1, 2015 and the removal of four same office properties reclassified to held for sale in 2016.

Our NOI from constructed office properties placed in service included ten properties placed in service in 2015 and 2016, and our NOI from acquired office properties included our 2015 acquisitions of 250 W. Pratt Street, 2600 Park Tower Drive and 100 and 30 Light Street.

The increase in NOI from our wholesale data center was attributable to higher occupancy in the current period.

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NOI from Service Operations

	For the Three Months Ended March 31, — 2016	2015	Variance
	(in thousands)
Construction contract and other service revenues	$ 11,220	$ 38,324	$ (27,104	)
Construction contract and other service expenses	10,694	37,498	(26,804	)
NOI from service operations	$ 526	$ 826	$ (300	)

Construction contract and other service revenue and expenses decreased due primarily to a lower volume of construction activity in connection with several of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us (primarily on behalf of tenants). Service operations are an ancillary component of our overall operations that typically contribute little operating income relative to our real estate operations.

Depreciation and Amortization Expense

The increase in depreciation and amortization expense was attributable primarily to additional expense of $4.4 million from our office property acquisitions, partially offset by a decrease of $2.6 million attributable to disposed properties.

Impairment Losses

We recognized the following impairment losses in the current period:

• $1.6 million on land in Colorado Springs, the carrying amount of which exceeded the estimated fair value less costs to sell. Most of these losses pertained to land we decided to sell during the quarter that was reclassified as held for sale, and the remainder was attributable to further decreases in fair value of properties previously classified as held for sale based on recent bids from and negotiations with prospective buyers; and

• $847,000 on operating properties in White Marsh, Maryland classified as held for sale whose carrying amounts exceeded their estimated fair values less costs to sell based on recent negotiations with prospective buyers.

General, administrative and leasing expenses

The increase in general, administrative and leasing expenses was attributable to $4.1 million in executive transition costs incurred in the current period, mostly in connection with the departures of Mr. Waesche and Mr. Lingafelter.

Interest Expense

The increase in interest expense was due primarily to: a $1.6 million in hedge ineffectiveness on our interest rate swaps recognized in interest expense in the current period; and a 10% increase in our average outstanding debt in the current period.

Gain on Sales of Real Estate

We recognized gain on sales of real estate of $4.0 million in the prior period in connection with land sales.

Funds from Operations

Funds from operations (“FFO”) is defined as net income computed using GAAP, excluding gains on sales of, and impairment losses on, previously depreciated operating properties, plus real estate-related depreciation and amortization. When multiple properties consisting of both operating and non-operating properties exist on a single tax parcel, we classify all of the gains on sales of, and impairment losses on, the tax parcel as all being for previously depreciated operating properties when most of the value of the parcel is associated with operating properties on the parcel. We believe that we use the National Association of Real Estate Investment Trusts (“NAREIT”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs. We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related to sales of, and impairment losses on, previously depreciated operating properties, net of related tax benefit, and excluding real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods. In addition, since most equity REITs provide FFO information to the investment community, we believe that FFO is useful to investors as a

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supplemental measure for comparing our results to those of other equity REITs. We believe that net income is the most directly comparable GAAP measure to FFO.

Since FFO excludes certain items includable in net income, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

Basic FFO available to common share and common unit holders (“Basic FFO”) is FFO adjusted to subtract (1) preferred share dividends, (2) issuance costs associated with redeemed preferred shares, (3) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (4) depreciation and amortization allocable to noncontrolling interests in other consolidated entities and (5) Basic FFO allocable to restricted shares. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions. We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares. We believe that net income is the most directly comparable GAAP measure to Basic FFO. Basic FFO has essentially the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.

Diluted FFO available to common share and common unit holders (“Diluted FFO”) is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below. We believe that the numerator for diluted EPS is the most directly comparable GAAP measure to Diluted FFO. Since Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. Diluted FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude operating property acquisition costs; gains on sales of, and impairment losses on, properties other than previously depreciated operating properties, net of associated income tax; gain or loss on early extinguishment of debt; FFO associated with properties securing non-recourse debt on which we have defaulted and which we have extinguished, or expect to extinguish, via conveyance of such properties, including property NOI and interest expense (discussed further below); loss on interest rate derivatives; demolition costs on redevelopment properties; executive transition costs; and issuance costs associated with redeemed preferred shares. We believe that the excluded items are not reflective of normal operations and, as a result, we believe that a measure that excludes these items is a useful supplemental measure in evaluating our operating performance. The adjustment for FFO associated with properties securing non-recourse debt on which we have defaulted pertains to the periods subsequent to our default on one loan’s payment terms, which was the result of our decision to not support payments on the loan since the estimated fair value of the properties was less than the loan balance. While we continued as the legal owner of the properties during this period up until the transfer of ownership, all cash flows produced by them went directly to the lender and we did not fund any debt service shortfalls, which included incremental additional interest under the default rate of $2.0 million in the three months ended March 31, 2015. We believe that the numerator to diluted EPS is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share (“EPS”) in evaluating net income available to common shareholders. In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable

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GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.

Diluted FFO per share, as adjusted for comparability is (1) Diluted FFO, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results. We believe that diluted EPS is the most directly comparable GAAP measure to this per share measure. This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

The computations for all of the above measures on a diluted basis assume the conversion of common units in COPLP but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.

We use measures called payout ratios as supplemental measures of our ability to make distributions to investors based on each of the following: FFO; Diluted FFO; and Diluted FFO, adjusted for comparability. These measures are defined as (1) the sum of (a) dividends on common shares and (b) distributions to holders of interests in COPLP and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by either (2) FFO, Diluted FFO or Diluted FFO, adjusted for comparability.

The table appearing on the following page sets forth the computation of the above stated measures for the three months ended March 31, 2016 and 2015 , and provides reconciliations to the GAAP measures of COPT and subsidiaries associated with such measures:

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	For the Three Months Ended March 31, — 2016		2015
	(Dollars and shares in thousands, except per share data)
Net income	$ 8,096		$ 14,735
Add Real estate-related depreciation and amortization	34,527		31,599
Add: Impairment losses on previously depreciated operating properties	847		233
FFO	43,470		46,567
Less: Noncontrolling interests-preferred units in the Operating Partnership	(165	)	(165	)
Less: FFO allocable to other noncontrolling interests	(1,027	)	(670	)
Less: Preferred share dividends	(3,552	)	(3,552	)
Basic and diluted FFO allocable to share-based compensation awards	(166	)	(183	)
Basic and diluted FFO available to common share and common unit holders	$ 38,560		$ 41,997
Add: Operating property acquisition costs	—		1,046
Less: Gain on sales of non-operating properties	—		(3,986	)
Impairment losses on non-operating properties	1,599		—
Losses on interest rate derivatives	1,551		—
Add: (Gain) loss on early extinguishment of debt	(17	)	3
Executive transition costs	4,137		—
Add: Negative FFO of properties conveyed to extinguish debt in default	—		4,271
Add: Demolition costs on redevelopment properties	208		175
Less: Diluted FFO comparability adjustments allocable to share-based compensation awards	(31	)	(7	)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	$ 46,007		$ 43,499
Weighted average common shares	94,203		93,199
Conversion of weighted average common units	3,677		3,732
Weighted average common shares/units - Basic FFO	97,880		96,931
Dilutive effect of share-based compensation awards	95		198
Weighted average common shares/units - Diluted FFO	97,975		97,129
Diluted FFO per share	$ 0.39		$ 0.43
Diluted FFO per share, as adjusted for comparability	$ 0.47		$ 0.45
Numerator for diluted EPS	$ 3,156		$ 9,681
Add: Income allocable to noncontrolling interests-common units in the Operating Partnership	127		398
Add: Real estate-related depreciation and amortization	34,527		31,599
Add: Impairment losses on previously depreciated operating properties	847		233
Add: Numerator for diluted EPS allocable to share-based compensation awards	118		122
Less: Depreciation and amortization allocable to noncontrolling interests in other consolidated entities	(197	)	(187	)
Add: Increase in noncontrolling interests unrelated to earnings	148		334
Less: Basic and diluted FFO allocable to share-based compensation awards	(166	)	(183	)
Basic FFO available to common share and common unit holders	$ 38,560		$ 41,997
Add: Operating property acquisition costs	—		1,046
Less: Gain on sales of non-operating properties	—		(3,986	)
Impairment losses on non-operating properties	1,599		—
Losses on interest rate derivatives	1,551		—
Add: (Gain) loss on early extinguishment of debt	(17	)	3
Executive transition costs	4,137		—
Add: Negative FFO on properties conveyed to extinguish debt in default	—		4,271
Add: Demolition costs on redevelopment properties	208		175
Less: Diluted FFO comparability adjustments allocable to share-based compensation awards	(31	)	(7	)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	$ 46,007		$ 43,499
Denominator for diluted EPS	94,298		93,397
Weighted average common units	3,677		3,732
Denominator for diluted FFO per share measures	97,975		97,129

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Property Additions

The table below sets forth the major components of our additions to properties for the three months ended March 31, 2016 (in thousands):

Construction, development and redevelopment	$
Tenant improvements on operating properties	8,732	(1)
Capital improvements on operating properties	3,862
	$ 74,551

(1) Tenant improvement costs incurred on newly-constructed properties are classified in this table as construction, development and redevelopment.

Cash Flows

Net cash flow provided by operating activities increased $5.5 million when comparing the three months ended March 31, 2016 and 2015 due primarily to:

• a $9.2 million increase in cash flow from real estate operations due primarily to properties acquired and placed in service since the prior period; and

• a $ 4.9 million increase in cash flow from construction contract and other services from the prior to the current period due in large part to the timing of cash payments and collections on third party construction projects; offset in part by

• an $8.6 million increase in interest expense paid from the prior to the current period due primarily to a $7.6 million increase due to the timing of interest payments resulting from new debt requiring interest payments semi-annually rather than monthly.

Net cash flow used in investing activities decreased $62.3 million when comparing the three months ended March 31, 2016 and 2015 due primarily to cash paid for operating property acquisitions in the prior period.

Net cash flow provided by financing activities in the three months ended March 31, 2016 was $10.8 million , and included the following:

• net proceeds from debt borrowings of $61.7 million ; offset in part by

• dividends and/or distributions to equity holders of $30.7 million and

• distributions to redeemable noncontrolling interests of $13.8 million related primarily to distributions to our partner in Stevens Investors, LLC, as discussed in Note 5 to the consolidated financial statements.

Net cash flow provided by financing activities in the three months ended March 31, 2015 was $74.8 million , and included the following:

• net proceeds from debt borrowings of $79.3 million ; offset in part by

• net proceeds from the issuance of common shares (or units) of $28.4 million ; and

• dividends and/or distributions to equity holders of $30.4 million .

Liquidity and Capital Resources of COPT

COPLP is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. COPT issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by COPLP. COPT itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of COPLP. COPT’s principal funding requirement is the payment of dividends on its common and preferred shares. COPT’s principal source of funding for its dividend payments is distributions it receives from COPLP.

As of March 31, 2016 , COPT owned 96.3% of the outstanding common units and 95.5% of the outstanding preferred units in COPLP; the remaining common and preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT has the full, exclusive and complete responsibility for COPLP’s day-to-day management and control.

The liquidity of COPT is dependent on COPLP’s ability to make sufficient distributions to COPT. The primary cash requirement of COPT is its payment of dividends to its shareholders. COPT also guarantees some of the Operating Partnership’s debt, as discussed further in Note 8 of the notes to consolidated financial statements included elsewhere herein. If

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the Operating Partnership fails to fulfill certain of its debt requirements, which trigger COPT’s guarantee obligations, then COPT will be required to fulfill its cash payment commitments under such guarantees. However, COPT’s only significant asset is its investment in COPLP.

As discussed further below, we believe the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit, are adequate for it to make its distribution payments to COPT and, in turn, for COPT to make its dividend payments to its shareholders.

COPT’s short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to its shareholders. COPT periodically accesses the public equity markets to raise capital by issuing common and/or preferred shares.

For COPT to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its ordinary taxable income. As a result of this distribution requirement, it cannot rely on retained earnings to fund its ongoing operations to the same extent that some other companies can. COPT may need to continue to raise capital in the equity markets to fund COPLP’s working capital needs, acquisitions and developments.

Liquidity and Capital Resources of COPLP

Our primary cash requirements are for operating expenses, debt service, development of new properties, improvements to existing properties and acquisitions. We expect to continue to use cash flow provided by operations as the primary source to meet our short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, distributions to our security holders and improvements to existing properties. As of March 31, 2016 , we had $62.5 million in cash and cash equivalents.

Our senior unsecured debt is currently rated investment grade by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks, when appropriate. In addition, we periodically access the public equity markets to raise capital by issuing common and/or preferred shares.

We use our Revolving Credit Facility to initially finance much of our investing activities. We subsequently pay down the facility using proceeds from long-term borrowings, equity issuances and property sales. The lenders’ aggregate commitment under the facility is $800.0 million , with the ability for us to increase the lenders’ aggregate commitment to $1.3 billion , provided that there is no default under the facility and subject to the approval of the lenders. Amounts available under the facility are computed based on 60% of our unencumbered asset value, as defined in the loan agreement. The Revolving Credit Facility matures in May 2019, and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability of the facility. As of March 31, 2016 , the maximum borrowing capacity under this facility totaled $800.0 million , of which $678.2 million was available.

In addition, as of March 31, 2016, we have $150.0 million available to be drawn upon under an unsecured term loan.

We believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements without necessitating property sales. We do, however, expect to raise at least $440 million from sales of interests in properties in 2016 and use the proceeds to repay borrowings and fund development costs.

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The following table summarizes our contractual obligations as of March 31, 2016 (in thousands):

	For the Periods Ending December 31, — 2016	2017	2018	2019	2020	Thereafter	Total
Contractual obligations (1)
Debt (2)
Balloon payments due upon maturity	$ 201,711	$ —	$ —	$ 227,000	$ 312,132	$ 1,391,229	$ 2,132,072
Scheduled principal payments	4,548	3,252	3,400	3,514	3,120	8,974	26,808
Interest on debt (3)	58,341	69,496	69,355	66,778	60,522	157,283	481,775
New development and redevelopment obligations (4)(5)	41,278	16,611	2,198	—	—	—	60,087
Third-party construction and development obligations (5)(6)	13,890	3,764	—	—	—	—	17,654
Capital expenditures for operating properties (5)(7)	30,808	9,028	5,060	—	—	—	44,896
Operating leases (8)	896	1,123	1,076	1,051	1,067	86,800	92,013
Other obligations	1,140	852	451	371	134	5	2,953
Total contractual cash obligations	$ 352,612	$ 104,126	$ 81,540	$ 298,714	$ 376,975	$ 1,644,291	$ 2,858,258

(1) The contractual obligations set forth in this table exclude property operations contracts that may be terminated with notice of one month or less.

(2) Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $18.7 million . We expect to repay most of our debt maturing in 2016 using proceeds from an unsecured term loan with $150.0 million in available capacity. As of March 31, 2016 , maturities include $107.0 million in 2019 that may be extended to 2020, subject to certain conditions.

(3) Represents interest costs for our outstanding debt as of March 31, 2016 for the terms of such debt. For variable rate debt, the amounts reflected above used March 31, 2016 interest rates on variable rate debt in computing interest costs for the terms of such debt.

(4) Represents contractual obligations pertaining to new development and redevelopment activities.

(5) Due to the long-term nature of certain construction and development contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.

(6) Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients. We expect to be reimbursed in full for these costs by our clients.

(7) Represents contractual obligations pertaining to recurring and nonrecurring capital expenditures for our operating properties. We expect to finance these costs primarily using cash flow from operations.

(8) We expect to pay these items using cash flow from operations.

We expect to spend approximately $170 million on construction and development costs and approximately $50 million on improvements to operating properties (including the commitments set forth in the table above) during the remainder of 2016. We expect to fund the construction and development costs using primarily cash on hand and borrowings under our Revolving Credit Facility. We expect to use proceeds from the disposition of properties to repay borrowings under our Revolving Credit Facility. We expect to fund improvements to existing operating properties using cash flow from operations.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. As of March 31, 2016 , we were in compliance with these financial covenants.

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Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements during the three months ended March 31, 2016 .

Inflation

Most of our tenants are obligated to pay their share of a building’s operating expenses to the extent such expenses exceed amounts established in their leases, which are based on historical expense levels. Some of our tenants are obligated to pay their full share of a building’s operating expenses. These arrangements somewhat reduce our exposure to increases in such costs resulting from inflation.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements for information regarding recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced.

The following table sets forth as of March 31, 2016 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):

	For the Periods Ending December 31, — 2016	2017	2018	2019	2020	Thereafter	Total
Debt:
Fixed rate debt (1)	$ 170,191	$ 2,883	$ 3,017	$ 3,118	$ 2,814	$ 1,300,203	$ 1,482,226
Weighted average interest rate	7.19 %	4.49 %	4.52 %	4.51 %	4.01 %	4.31 %	4.65 %
Variable rate debt (2)	$ 36,068	$ 369	$ 383	$ 227,396	$ 312,438	$ 100,000	$ 676,654
Weighted average interest rate (3)	2.44 %	2.29 %	2.29 %	2.10 %	1.86 %	2.24 %	2.03 %

(1) Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $18.7 million .

(2) As of March 31, 2016 , maturities include $107.0 million in 2019 that may be extended to 2020, subject to certain conditions.

(3) The amounts reflected above used March 31, 2016 interest rates on variable rate debt.

The fair value of our debt was $2.2 billion as of March 31, 2016 . If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $110 million as of March 31, 2016 .

The following table sets forth information pertaining to interest rate swap contracts in place as of March 31, 2016 and December 31, 2015 and their respective fair values (dollars in thousands):

Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	Fair Value at — March 31, 2016		December 31, 2015
$ 100,000		0.8055%	One-Month LIBOR	9/2/2014	9/1/2016	$ (137	)	$ (148	)
100,000		0.8100%	One-Month LIBOR	9/2/2014	9/1/2016	(139	)	(151	)
100,000		1.6730%	One-Month LIBOR	9/1/2015	8/1/2019	(2,738	)	(1,217	)
100,000		1.7300%	One-Month LIBOR	9/1/2015	8/1/2019	(2,929	)	(1,429	)
13,853	(1)	1.3900%	One-Month LIBOR	10/13/2015	10/1/2020	(242	)	53
100,000		1.9013%	One-Month LIBOR	9/1/2016	12/1/2022	(3,601	)	(138	)
100,000		1.9050%	One-Month LIBOR	9/1/2016	12/1/2022	(3,511	)	(45	)
50,000		1.9079%	One-Month LIBOR	9/1/2016	12/1/2022	(1,775	)	(32	)
						$ (15,072	)	$ (3,107	)

(1) The notional amount of this instrument is scheduled to amortize to $12.1 million .

Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $673,000 in the three months ended March 31, 2016 if the one-month LIBOR rate was 1% higher.

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Item 4. Controls and Procedures

COPT

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2016 . Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, 2016 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

COPLP

(a) Evaluation of Disclosure Controls and Procedures

The Operating Partnership’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of March 31, 2016 . Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Operating Partnership’s disclosure controls and procedures as of March 31, 2016 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Operating Partnership in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Operating Partnership’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in the Operating Partnership’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II

Item 1. Legal Proceedings

We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against the Company or the Operating Partnership (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).

Item 1A. Risk Factors

There have been no material changes to the risk factors included in our 2014 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

(c) Not applicable

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Item 3. Defaults Upon Senior Securities

(a) Not applicable

(b) Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits:

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EXHIBIT NO.	DESCRIPTION
10.1	Separation Agreement, dated February 11, 2016, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and Roger A. Waesche, Jr. (filed with the Company’s Current Report on Form 8-K dated February 12, 2016 and incorporated herein by reference).
10.2	Separation Agreement, dated February 26, 2016, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and Wayne H. Lingafelter (filed with the Company’s Current Report on Form 8-K dated March 3, 2016 and incorporated herein by reference).
12.1	COPT’s Statement regarding Computation of Earnings to Combined Fixed Charges and Preferred Share Dividends (filed herewith).
12.2	COPLP’s Statement regarding Computation of Consolidated Ratio of Earnings to Fixed Charges (filed herewith).
31.1	Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2	Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.3	Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.4	Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1	Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).
32.2	Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).
32.3	Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).
32.4	Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).
101.INS	XBRL Instance Document (filed herewith).
101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.LAB	XBRL Extension Labels Linkbase (filed herewith).
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned Registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CORPORATE OFFICE PROPERTIES TRUST		CORPORATE OFFICE PROPERTIES, L.P.
			By: Corporate Office Properties Trust,
			its General Partner
	/s/ Roger A. Waesche, Jr.		/s/ Roger A. Waesche, Jr.
	Roger A. Waesche, Jr.		Roger A. Waesche, Jr.
	President and Chief Executive Officer		President and Chief Executive Officer
	/s/ Anthony Mifsud		/s/ Anthony Mifsud
	Anthony Mifsud		Anthony Mifsud
	Executive Vice President and Chief Financial Officer		Executive Vice President and Chief Financial Officer
Dated:	May 3, 2016	Dated:	May 3, 2016

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