Despite a recessionary economy, exacerbated by the events of September 11, Corporate Office Properties Trust had another year of exceptional achievements. Our accomplishments for 2001 include:

How did we achieve such excellent performance?
First, the strength of our markets results in stronger real estate performance. Primarily focused in the Baltimore/Washington Corridor and suburban Washington, D.C., we now generate 72% of our annualized rents from this region—recognized as one of the best real estate markets in the United States. Despite last year’s economic slowdown and rising office vacancies, the region continued to see positive job growth. Our markets contain a high component of defense and government contractors and government agencies, which are especially advantageous to us given the anticipated increase in defense spending after the tragic events of September 11.

Second, our focus on large, strong corporate-credit tenants has protected us from the severe credit problems affecting some of our peers. In fact, our bad debt write-offs have been among the lowest in the industry.

Third, our commitment to our tenants and their needs has been unwavering. We have improved our buildings, their systems and tenant finishes from top to bottom. Our management team has worked hard to enhance the quality and efficiency of our tenant services. According to an independent survey, our Company has improved its year-over-year performance, and now our ratings are among the highest in the country. All this has engendered tenant loyalty, helped us attract new tenants and retain 73% of our tenants whose leases rolled in 2001, among the highest in our industry. The fact that, at December 31, 2001, our markets averaged 89% occupancy, while our buildings were over 96% occupied, demonstrates the superior performance of our team.

Finally, as a small, regionally focused company, we have many advantages. We have proven to be nimble and opportunistic, able to uncover and quickly seize opportunities. Whether we are completing an offering in record time, working all night to deliver a lease, accelerating construction of a new building or closing an acquisition ahead of schedule, our culture is to work together to be the best.

Looking back
We are very proud of our five-year record of achievement. In 2001, we realized one of the goals we established in 1997, the year we transformed into a suburban office REIT. That goal was owning $1 billion of suburban office properties. Looking back, in 1997 we wanted to be known not just as a REIT, but as a growth company that also happens to be a REIT. At the time, we owned $194 million of real estate, had nine employees, earned FFO per share of $0.29 and paid a dividend of $0.50 per share.

By December 31, 2001, our deep and talented management team numbered 157, and we had become listed on the New York Stock Exchange. We owned 98 buildings, of which 65 are located in the B/W Corridor and suburban Washington, D.C. The strength of our franchise and our Greater Washington regional focus have enabled us to achieve consistent and superior performance. Our $1.29 FFO per share for 2001 represents an increase of 345% over our 1997 FFO per share of $0.29, and our dividend per share has increased 68% from $0.50 to a current payout of $0.84. We also completed three issuances of perpetual preferred stock. Importantly, we were one of the few REITs that did not downsize earnings projections as a result of the unfolding events in 2001.

In 1997, we did not own any property in the B/W Corridor. Today, we are the dominant owner in the Corridor, owning almost five million square feet—26% of the total Class A square footage. Our portfolio has grown by over 321% in four years. Our occupancy level has consistently been among the highest in the industry. Best of all, we ended the year 2001 very well positioned for the future.

Subsequent events
As this annual report goes to press, we have just completed a follow-on offering totaling 10,961,000 common shares that eliminated the entire ownership position of Constellation Real Estate, Inc., our largest shareholder. As part of this offering, we issued 2,084,828 of new common shares, raising over $25 million of gross proceeds. This milestone event for the Company enabled us to eliminate any overhang concerns, increase our liquidity and add an excellent group of individual and institutional investors.

The future
We cannot guarantee our performance over the next five years, but we can promise to maintain our focus and diligent efforts to profitably grow our Company. We expect our growth to remain concentrated in the B/W Corridor, the I-270 Maryland Corridor and Northern Virginia. These local markets offer tremendous opportunity and long-term growth. We have recently entered the Northern Virginia market with the acquisition of the Washington Technology Park, discussed in the following pages. This is an important first step for the Company, reminiscent of our initial move in 1998 into the B/W Corridor.

We expect to continue to grow through a mix of opportunistic, accretive acquisitions and development. We anticipate that the overall economy will remain in a recessionary climate through 2002 and that real estate will rebound a little more slowly due to its lagging effect. But that does not mean that we will not seek out attractive opportunities, just as we have done in the past. With our large development pipeline, we are well positioned to take advantage of tenant expansions and market demand, but we will not commence speculative developments until market conditions warrant. We will, however, strive to acquire corporate surplus properties where we have demonstrated a competitive advantage and achieved excellent returns.

We expect to sustain strong portfolio returns by significantly outperforming our markets in terms of occupancy, rent increases and low retention costs. The average rent on our expiring leases in 2002 is 15–20% below the current market. This should prove advantageous as we mark up rolling leases to market.

In 2001, we continued to follow our strategy of refinancing our stabilized properties with long-term, fixed-rate, non-recourse mortgage loans, locking in the favorable spread between property cash flow and the cost of debt. We refinanced $129 million in this manner in 2001. As we foresee long-term interest rates remaining attractive, we will continue to obtain this type of financing in 2002.

We intend to raise capital by issuing preferred equity, retaining a portion of our earnings, refinancing properties, selectively selling properties and utilizing UPREIT unit transactions. And we will adhere to our long-standing policy of minimizing the issuance of common shares, except in connection with a specific acquisition or opportunity.

We also will continue to be a leader in full, complete and transparent accounting disclosures, as we have always been.

Conclusion
We are proud of our record of sustained growth and our ability to deliver on our promises. We would like to take this opportunity to thank all of the members of our team for their dedication and hard work—including our employees and our Board of Trustees. A special note of gratitude to Ed Crooke, former Vice Chairman of Constellation Energy Group, who resigned from our Board at the end of 2001, for his friendship, wisdom and guidance. And we want to offer a special thanks to our building personnel, property managers and leasing folks, all of whom did an exceptional job. We thank our shareholders for their continued support as we seek to meet the challenges and take advantage of the opportunities that lie ahead.

Sincerely,

Clay W. Hamlin, III Chief Executive Officer

Randall M. Griffin President and Chief Operating Officer