T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | March 31, 2013 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to |
Maryland | 23-2947217 | |
(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) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
PAGE | ||
March 31, 2013 | December 31, 2012 | ||||||
Assets | |||||||
Properties, net: | |||||||
Operating properties, net | $ | 2,705,335 | $ | 2,597,666 | |||
Projects in development or held for future development | 484,638 | 565,378 | |||||
Total properties, net | 3,189,973 | 3,163,044 | |||||
Assets held for sale, net | 142,404 | 140,229 | |||||
Cash and cash equivalents | 23,509 | 10,594 | |||||
Restricted cash and marketable securities | 17,040 | 21,557 | |||||
Accounts receivable (net of allowance for doubtful accounts of $5,351 and $4,694, respectively) | 10,768 | 19,247 | |||||
Deferred rent receivable | 88,716 | 85,802 | |||||
Intangible assets on real estate acquisitions, net | 72,035 | 75,879 | |||||
Deferred leasing and financing costs, net | 59,856 | 59,952 | |||||
Prepaid expenses and other assets | 80,798 | 77,455 | |||||
Total assets | $ | 3,685,099 | $ | 3,653,759 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Debt, net | $ | 1,957,360 | $ | 2,019,168 | |||
Accounts payable and accrued expenses | 90,645 | 97,922 | |||||
Rents received in advance and security deposits | 26,024 | 27,632 | |||||
Dividends and distributions payable | 29,947 | 28,698 | |||||
Deferred revenue associated with operating leases | 10,833 | 11,995 | |||||
Distributions received in excess of investment in unconsolidated real estate joint venture | 6,420 | 6,420 | |||||
Interest rate derivatives | 5,340 | 6,185 | |||||
Other liabilities | 7,631 | 8,942 | |||||
Total liabilities | 2,134,200 | 2,206,962 | |||||
Commitments and contingencies (Note 16) | |||||||
Redeemable noncontrolling interest | 10,356 | 10,298 | |||||
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; 12,821,667 shares issued and outstanding) | 333,833 | 333,833 | |||||
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 85,758,438 at March 31, 2013 and 80,952,986 at December 31, 2012) | 858 | 809 | |||||
Additional paid-in capital | 1,772,255 | 1,653,672 | |||||
Cumulative distributions in excess of net income | (632,134 | ) | (617,455 | ) | |||
Accumulated other comprehensive loss | (4,410 | ) | (5,435 | ) | |||
Total Corporate Office Properties Trust’s shareholders’ equity | 1,470,402 | 1,365,424 | |||||
Noncontrolling interests in subsidiaries: | |||||||
Common units in the Operating Partnership | 50,604 | 52,122 | |||||
Preferred units in the Operating Partnership | 8,800 | 8,800 | |||||
Other consolidated entities | 10,737 | 10,153 | |||||
Noncontrolling interests in subsidiaries | 70,141 | 71,075 | |||||
Total equity | 1,540,543 | 1,436,499 | |||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 3,685,099 | $ | 3,653,759 |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Revenues | |||||||
Rental revenue | $ | 95,295 | $ | 89,859 | |||
Tenant recoveries and other real estate operations revenue | 21,440 | 20,802 | |||||
Construction contract and other service revenues | 14,262 | 21,534 | |||||
Total revenues | 130,997 | 132,195 | |||||
Expenses | |||||||
Property operating expenses | 42,575 | 41,253 | |||||
Depreciation and amortization associated with real estate operations | 28,252 | 27,834 | |||||
Construction contract and other service expenses | 13,477 | 20,607 | |||||
Impairment losses (recoveries) | 1,857 | (4,836 | ) | ||||
General, administrative and leasing expenses | 7,820 | 9,569 | |||||
Business development expenses and land carry costs | 1,359 | 1,576 | |||||
Total operating expenses | 95,340 | 96,003 | |||||
Operating income | 35,657 | 36,192 | |||||
Interest expense | (22,307 | ) | (24,431 | ) | |||
Interest and other income | 946 | 1,217 | |||||
Loss on early extinguishment of debt | (5,184 | ) | — | ||||
Income from continuing operations before equity in income (loss) of unconsolidated entities and income taxes | 9,112 | 12,978 | |||||
Equity in income (loss) of unconsolidated entities | 41 | (89 | ) | ||||
Income tax expense | (16 | ) | (204 | ) | |||
Income from continuing operations | 9,137 | 12,685 | |||||
Discontinued operations | 3,786 | (2,450 | ) | ||||
Income before gain on sales of real estate | 12,923 | 10,235 | |||||
Gain on sales of real estate | 2,354 | — | |||||
Net income | 15,277 | 10,235 | |||||
Net (income) loss attributable to noncontrolling interests: | |||||||
Common units in the Operating Partnership | (429 | ) | (373 | ) | |||
Preferred units in the Operating Partnership | (165 | ) | (165 | ) | |||
Other consolidated entities | 337 | 598 | |||||
Net income attributable to Corporate Office Properties Trust | 15,020 | 10,295 | |||||
Preferred share dividends | (6,106 | ) | (4,025 | ) | |||
Net income attributable to Corporate Office Properties Trust common shareholders | $ | 8,914 | $ | 6,270 | |||
Net income attributable to Corporate Office Properties Trust: | |||||||
Income from continuing operations | $ | 11,437 | $ | 12,588 | |||
Discontinued operations, net | 3,583 | (2,293 | ) | ||||
Net income attributable to Corporate Office Properties Trust | $ | 15,020 | $ | 10,295 | |||
Basic earnings per common share (1) | |||||||
Income from continuing operations | $ | 0.06 | $ | 0.12 | |||
Discontinued operations | 0.05 | (0.03 | ) | ||||
Net income attributable to COPT common shareholders | $ | 0.11 | $ | 0.09 | |||
Diluted earnings per common share (1) | |||||||
Income from continuing operations | $ | 0.06 | $ | 0.12 | |||
Discontinued operations | 0.05 | (0.03 | ) | ||||
Net income attributable to COPT common shareholders | $ | 0.11 | $ | 0.09 | |||
Dividends declared per common share | $ | 0.275 | $ | 0.275 |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Net income | $ | 15,277 | $ | 10,235 | |||
Other comprehensive income (loss) | |||||||
Unrealized gains (losses) on interest rate derivatives | 462 | (1,987 | ) | ||||
Losses on interest rate derivatives included in net income | 658 | 1,474 | |||||
Other comprehensive income (loss) | 1,120 | (513 | ) | ||||
Comprehensive income | 16,397 | 9,722 | |||||
Comprehensive (income) loss attributable to noncontrolling interests | (352 | ) | 105 | ||||
Comprehensive income attributable to Corporate Office Properties Trust | $ | 16,045 | $ | 9,827 |
Preferred Shares | Common Shares | Additional Paid-in Capital | Cumulative Distributions in Excess of Net Income | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total | |||||||||||||||||||||
Balance at December 31, 2011 (72,011,324 common shares outstanding) | $ | 216,333 | $ | 720 | $ | 1,451,078 | $ | (534,041 | ) | $ | (1,733 | ) | $ | 73,542 | $ | 1,205,899 | |||||||||||
Conversion of common units to common shares (34,550 shares) | — | — | 444 | — | — | (444 | ) | — | |||||||||||||||||||
Costs associated with common shares issued to the public | — | — | (5 | ) | — | — | — | (5 | ) | ||||||||||||||||||
Exercise of share options (5,667 shares) | — | — | 82 | — | — | — | 82 | ||||||||||||||||||||
Share-based compensation | — | — | 3,746 | — | — | — | 3,746 | ||||||||||||||||||||
Restricted common share redemptions (97,094 shares) | — | — | (2,373 | ) | — | — | — | (2,373 | ) | ||||||||||||||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership | — | — | (88 | ) | — | — | 88 | — | |||||||||||||||||||
Comprehensive income | — | — | — | 10,295 | (468 | ) | 469 | 10,296 | |||||||||||||||||||
Dividends | — | — | — | (23,845 | ) | — | — | (23,845 | ) | ||||||||||||||||||
Distributions to owners of common and preferred units in the Operating Partnership | — | — | — | — | — | (1,338 | ) | (1,338 | ) | ||||||||||||||||||
Adjustment to arrive at fair value of noncontrolling interest | — | — | (903 | ) | — | — | — | (903 | ) | ||||||||||||||||||
Balance at March 31, 2012 (72,037,627 common shares outstanding) | $ | 216,333 | $ | 720 | $ | 1,451,981 | $ | (547,591 | ) | $ | (2,201 | ) | $ | 72,317 | $ | 1,191,559 | |||||||||||
Balance at December 31, 2012 (80,952,986 common shares outstanding) | $ | 333,833 | $ | 809 | $ | 1,653,672 | $ | (617,455 | ) | $ | (5,435 | ) | $ | 71,075 | $ | 1,436,499 | |||||||||||
Conversion of common units to common shares (248,644 shares) | — | 3 | 3,172 | — | — | (3,175 | ) | — | |||||||||||||||||||
Common shares issued to the public (4,485,000 shares) | — | 45 | 117,868 | — | — | — | 117,913 | ||||||||||||||||||||
Exercise of share options (16,453 shares) | — | — | 301 | — | — | — | 301 | ||||||||||||||||||||
Share-based compensation | — | 1 | 1,999 | — | — | — | 2,000 | ||||||||||||||||||||
Restricted common share redemptions (60,960 shares) | — | — | (1,576 | ) | — | — | — | (1,576 | ) | ||||||||||||||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership | — | — | (2,229 | ) | — | — | 2,229 | — | |||||||||||||||||||
Comprehensive income | — | — | — | 15,020 | 1,025 | 1,142 | 17,187 | ||||||||||||||||||||
Dividends | — | — | — | (29,699 | ) | — | — | (29,699 | ) | ||||||||||||||||||
Distributions to owners of common and preferred units in the Operating Partnership | — | — | — | — | — | (1,215 | ) | (1,215 | ) | ||||||||||||||||||
Contributions from noncontrolling interests in other consolidated entities | — | — | — | — | — | 85 | 85 | ||||||||||||||||||||
Adjustment to arrive at fair value of noncontrolling interest | — | — | (848 | ) | — | — | — | (848 | ) | ||||||||||||||||||
Increase in tax benefit from share-based compensation | — | — | (104 | ) | — | — | — | (104 | ) | ||||||||||||||||||
Balance at March 31, 2013 (85,758,438 common shares outstanding) | $ | 333,833 | $ | 858 | $ | 1,772,255 | $ | (632,134 | ) | $ | (4,410 | ) | $ | 70,141 | $ | 1,540,543 |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities | |||||||
Revenues from real estate operations received | $ | 119,348 | $ | 129,184 | |||
Construction contract and other service revenues received | 15,695 | 18,170 | |||||
Property operating expenses paid | (38,865 | ) | (39,659 | ) | |||
Construction contract and other service expenses paid | (15,588 | ) | (12,454 | ) | |||
General, administrative, leasing, business development and land carry costs paid | (8,521 | ) | (7,997 | ) | |||
Interest expense paid | (18,018 | ) | (19,896 | ) | |||
Previously accreted interest expense paid | (2,263 | ) | — | ||||
Settlement of interest rate derivatives | — | (29,738 | ) | ||||
Proceeds from sale of trading marketable securities | — | 7,041 | |||||
Exit costs on property dispositions | — | (1,108 | ) | ||||
Payments in connection with early extinguishment of debt | (4,803 | ) | — | ||||
Interest and other income received | 320 | 252 | |||||
Income taxes paid | 6 | (8 | ) | ||||
Net cash provided by operating activities | 47,311 | 43,787 | |||||
Cash flows from investing activities | |||||||
Purchases of and additions to properties | |||||||
Construction, development and redevelopment | (44,361 | ) | (35,476 | ) | |||
Tenant improvements on operating properties | (5,263 | ) | (7,934 | ) | |||
Other capital improvements on operating properties | (9,327 | ) | (3,360 | ) | |||
Proceeds from sales of properties | — | 61,230 | |||||
Mortgage and other loan receivables funded or acquired | (2,231 | ) | (3,506 | ) | |||
Leasing costs paid | (3,436 | ) | (2,853 | ) | |||
Other | 4,442 | (310 | ) | ||||
Net cash (used in) provided by investing activities | (60,176 | ) | 7,791 | ||||
Cash flows from financing activities | |||||||
Proceeds from debt | |||||||
Revolving Credit Facility | 99,000 | 71,000 | |||||
Other debt proceeds | 68,132 | 260,097 | |||||
Repayments of debt | |||||||
Revolving Credit Facility | (99,000 | ) | (337,000 | ) | |||
Scheduled principal amortization | (2,512 | ) | (3,207 | ) | |||
Other debt repayments | (125,877 | ) | (50 | ) | |||
Deferred financing costs paid | (1,109 | ) | (2,044 | ) | |||
Net proceeds from issuance of common shares | 118,389 | 77 | |||||
Common share dividends paid | (22,276 | ) | (29,686 | ) | |||
Preferred share dividends paid | (6,106 | ) | (4,025 | ) | |||
Distributions paid to noncontrolling interests in the Operating Partnership | (1,370 | ) | (1,939 | ) | |||
Restricted share redemptions | (1,576 | ) | (2,373 | ) | |||
Other | 85 | — | |||||
Net cash provided by (used in) financing activities | 25,780 | (49,150 | ) | ||||
Net increase in cash and cash equivalents | 12,915 | 2,428 | |||||
Cash and cash equivalents | |||||||
Beginning of period | 10,594 | 5,559 | |||||
End of period | $ | 23,509 | $ | 7,987 |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Net income | $ | 15,277 | $ | 10,235 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and other amortization | 28,782 | 31,705 | |||||
Impairment losses | 1,857 | 5,479 | |||||
Settlement of previously accreted interest expense | (2,263 | ) | — | ||||
Amortization of deferred financing costs | 1,528 | 1,572 | |||||
Increase in deferred rent receivable | (4,236 | ) | (2,559 | ) | |||
Amortization of net debt discounts | 710 | 775 | |||||
Gain on sales of real estate | (2,354 | ) | (4,138 | ) | |||
Share-based compensation | 1,649 | 3,402 | |||||
Loss on early extinguishment of debt | 381 | — | |||||
Other | (2,717 | ) | (1,423 | ) | |||
Changes in operating assets and liabilities: | |||||||
Decrease in accounts receivable | 8,479 | 14,792 | |||||
Decrease in restricted cash and marketable securities | 201 | 15,091 | |||||
Decrease (increase) in prepaid expenses and other assets | 4,180 | (9,612 | ) | ||||
(Decrease) increase in accounts payable, accrued expenses and other liabilities | (2,555 | ) | 8,372 | ||||
Decrease in rents received in advance and security deposits | (1,608 | ) | (1,901 | ) | |||
Decrease in interest rate derivatives in connection with cash settlement | — | (28,003 | ) | ||||
Net cash provided by operating activities | $ | 47,311 | $ | 43,787 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs | $ | (5,353 | ) | $ | 11,828 | ||
Increase (decrease) in fair value of derivatives applied to AOCL and noncontrolling interests | $ | 1,105 | $ | (528 | ) | ||
Dividends/distribution payable | $ | 29,947 | $ | 24,544 | |||
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares | $ | 3,175 | $ | 444 | |||
Adjustments to noncontrolling interests resulting from changes in Operating Partnership ownership | $ | 2,229 | $ | 88 | |||
Increase in redeemable noncontrolling interest and decrease in shareholders’ equity in connection with adjustment to arrive at fair value of noncontrolling interest | $ | 848 | $ | 903 |
• | 210 operating office properties totaling 19.1 million square feet; |
• | 10 office properties under construction or redevelopment, or for which we were contractually committed to construct, that we estimate will total approximately 1.3 million square feet upon completion, including one partially operational property included above; |
• | land held or under pre-construction totaling 1,703 acres (including 561 controlled but not owned) that we believe are potentially developable into approximately 19.7 million square feet; and |
• | a partially operational, wholesale data center which upon completion and stabilization is expected to have a critical load of 18 megawatts. |
Common Units | 96 | % |
Series H Preferred Units | 100 | % |
Series I Preferred Units | 0 | % |
Series J Preferred Units | 100 | % |
Series K Preferred Units | 100 | % |
Series L Preferred Units | 100 | % |
• | the misapplication of accounting guidance related to the recognition of a deferred tax asset resulting from an impairment of assets in the fourth quarter of 2011 that failed to consider a partial reversal of that asset that would result from a cancellation of related inter-company debt in the first quarter of 2012. The effect of this error was an overstatement of our income tax benefit and an understatement of our net loss for the year ended December 31, 2011 of $4.0 million. Based on an evaluation against our projected annual net income at that time, this error was previously reported as an out-of-period adjustment in the three months ended March 31, 2012; |
• | an over-accrual of incentive compensation cost, the effect of which was an overstatement of general and administrative expenses and an overstatement of net loss for the calendar quarter and year ended December 31, 2011 of $711,000. Based on an evaluation against our projected annual net income at that time, this error was previously reported as an out-of-period adjustment in the three months ended March 31, 2012; |
• | the misapplication of accounting guidance requiring that we recognize loss allocations to a noncontrolling interest holder in a consolidated real estate joint venture associated with decreases in such holder's claim on the book value of the joint venture’s assets, despite the fact that the real estate held by the joint venture was under development and the joint venture had no underlying losses. The effect of this error was an understatement of losses attributable to noncontrolling interests in other consolidated entities of $1.8 million for the nine months ended September 30, 2012 and $1.4 million for the year ended December 31, 2011; and |
• | the misapplication of accounting guidance pertaining to our reporting for a noncontrolling interest in a consolidated real estate joint venture formed in March 2010 for which the holder of such interest has the right to require us to acquire the interest at fair value. Accounting guidance requires that this noncontrolling interest be classified outside of permanent equity and reported at fair value as of the end of each reporting period, with changes in such fair value reported as equity transactions with no impact to net income or comprehensive income. This error resulted in an overstatement of equity and offsetting understatement of the line entitled “redeemable noncontrolling interest” in the mezzanine section of our consolidated balance sheet of $8.9 million as of December 31, 2011. This error had no effect on our consolidated statements of operations, including our reported net income (losses) or earnings per share. |
Consolidated Balance Sheet as of March 31, 2012 | |||||||||||||||||||
Per March 31, 2012 10-Q | As Revised | Change | Reclassifications | Revisions | |||||||||||||||
Redeemable noncontrolling interest | $ | — | $ | 9,237 | $ | 9,237 | $ | — | $ | 9,237 | |||||||||
Preferred Shares, reported at par value | $ | 81 | $ | — | $ | (81 | ) | $ | (81 | ) | $ | — | |||||||
Preferred Shares, reported at liquidation value | $ | — | $ | 216,333 | $ | 216,333 | $ | 216,333 | $ | — | |||||||||
Additional paid-in capital | $ | 1,670,451 | $ | 1,451,981 | $ | (218,470 | ) | $ | (216,252 | ) | $ | (2,218 | ) | ||||||
Cumulative distributions in excess of net income | $ | (549,456 | ) | $ | (547,591 | ) | $ | 1,865 | $ | — | $ | 1,865 | |||||||
Noncontrolling interests in common units in the Operating Partnership | $ | 53,883 | $ | 53,999 | $ | 116 | $ | — | $ | 116 | |||||||||
Noncontrolling interests in other consolidated entities | $ | 18,518 | $ | 9,518 | $ | (9,000 | ) | $ | — | $ | (9,000 | ) | |||||||
Total equity | $ | 1,200,796 | $ | 1,191,559 | $ | (9,237 | ) | $ | — | $ | (9,237 | ) | |||||||
Total liabilities, redeemable noncontrolling interest and equity | $ | 3,797,368 | $ | 3,797,368 | $ | — | $ | — | $ | — |
Consolidated Statements of Operations for the | |||||||||||||||||||||||
Three Months Ended March 31, 2012 | |||||||||||||||||||||||
Per March 31, 2012 10-Q | Per March 31, 2013 10-Q | Change | Discontinued Operations | Other Reclassifications | Revisions | ||||||||||||||||||
Total revenues | $ | 143,473 | $ | 132,195 | $ | (11,278 | ) | $ | (11,278 | ) | $ | — | $ | — | |||||||||
Expenses | |||||||||||||||||||||||
Property operating expenses | $ | 47,202 | $ | 41,253 | $ | (5,949 | ) | $ | (4,108 | ) | $ | (1,841 | ) | $ | — | ||||||||
Depreciation and amortization associated with real estate operations | 31,066 | 27,834 | (3,232 | ) | (3,232 | ) | — | — | |||||||||||||||
Construction contract and other service expenses | 20,607 | 20,607 | — | — | — | — | |||||||||||||||||
Impairment losses (recoveries) | 5,126 | (4,836 | ) | (9,962 | ) | (9,962 | ) | — | — | ||||||||||||||
General, administrative and leasing expenses | 7,017 | 9,569 | 2,552 | — | 1,841 | 711 | |||||||||||||||||
Business development expenses and land carry costs | 1,594 | 1,576 | (18 | ) | (18 | ) | — | — | |||||||||||||||
Total operating expenses | $ | 112,612 | $ | 96,003 | $ | (16,609 | ) | $ | (17,320 | ) | $ | — | $ | 711 | |||||||||
Operating income | $ | 30,861 | $ | 36,192 | $ | 5,331 | $ | 6,042 | $ | — | $ | (711 | ) | ||||||||||
Interest expense | $ | (25,224 | ) | $ | (24,431 | ) | $ | 793 | $ | 793 | $ | — | $ | — | |||||||||
Income tax (expense) benefit | $ | (4,173 | ) | $ | (204 | ) | $ | 3,969 | $ | — | $ | — | $ | 3,969 | |||||||||
Income from continuing operations | $ | 2,592 | $ | 12,685 | $ | 10,093 | $ | 6,835 | $ | — | $ | 3,258 | |||||||||||
Discontinued operations | $ | 4,385 | $ | (2,450 | ) | $ | (6,835 | ) | $ | (6,835 | ) | $ | — | $ | — | ||||||||
Net income | $ | 6,977 | $ | 10,235 | $ | 3,258 | $ | — | $ | — | $ | 3,258 | |||||||||||
Net income attributable to noncontrolling interests in common units in the Operating Partnership | $ | (159 | ) | $ | (373 | ) | $ | (214 | ) | $ | — | $ | — | $ | (214 | ) | |||||||
Net income attributable to noncontrolling interests in other consolidated entities | $ | 24 | $ | 598 | $ | 574 | $ | — | $ | — | $ | 574 | |||||||||||
Net income attributable to Corporate Office Properties Trust | $ | 6,677 | $ | 10,295 | $ | 3,618 | $ | — | $ | — | $ | 3,618 | |||||||||||
Basic and diluted earnings per common share: | |||||||||||||||||||||||
Income from continuing operations | $ | (0.02 | ) | $ | 0.12 | $ | 0.14 | $ | 0.09 | $ | — | $ | 0.05 | ||||||||||
Discontinued operations | 0.06 | (0.03 | ) | (0.09 | ) | (0.09 | ) | — | — | ||||||||||||||
Net income attributable to COPT common shareholders | $ | 0.04 | $ | 0.09 | $ | 0.05 | $ | — | $ | — | $ | 0.05 |
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 | $ | 6,606 | $ | — | $ | — | $ | 6,606 | ||||||||
Common stocks | 239 | — | — | 239 | ||||||||||||
Other | 213 | — | — | 213 | ||||||||||||
Common stock (1) | 743 | — | — | 743 | ||||||||||||
Interest rate derivatives (2) | — | 260 | — | 260 | ||||||||||||
Warrants to purchase common stock (2) | — | 420 | — | 420 | ||||||||||||
Assets | $ | 7,801 | $ | 680 | $ | — | $ | 8,481 | ||||||||
Liabilities: | ||||||||||||||||
Deferred compensation plan liability (3) | $ | 7,058 | $ | — | $ | — | $ | 7,058 | ||||||||
Interest rate derivatives | — | 5,340 | — | 5,340 | ||||||||||||
Liabilities | $ | 7,058 | $ | 5,340 | $ | — | $ | 12,398 | ||||||||
Redeemable noncontrolling interest | $ | — | $ | — | $ | 10,356 | $ | 10,356 |
Quoted Prices in | Significant | |||||||||||||||||||
Active Markets for | Significant Other | Unobservable | Impairment | |||||||||||||||||
Identical Assets | Observable Inputs | Inputs | Losses | |||||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | Recognized | |||||||||||||||
Assets (1): | ||||||||||||||||||||
Properties, net | $ | — | $ | — | $ | 7,250 | $ | 7,250 | $ | 1,857 |
Description | Fair Value on Measurement Date | Valuation Technique | Unobservable Input | Range (Weighted Average) | ||||||
Property on which impairment loss was recognized | $ | 7,250 | Bid for property indicative of value | Indicative bid (1) | (1) |
Quoted Prices in | Significant | |||||||||||||||||||
Active Markets for | Significant Other | Unobservable | Impairment | |||||||||||||||||
Identical Assets | Observable Inputs | Inputs | Losses | |||||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | Recognized (1) | |||||||||||||||
Assets (2): | ||||||||||||||||||||
Properties, net | $ | — | $ | — | $ | 92,176 | $ | 92,176 | $ | 5,479 |
Description | Fair Value on Measurement Date | Valuation Technique | Unobservable Input | Range (Weighted Average) | ||||||
Properties on which impairment losses were recognized | $ | 92,176 | Bid for properties indicative of value | Indicative bid (1) | (1) | |||||
Contract of sale | Contract price (1) | (1) | ||||||||
Discounted cash flow | Discount rate | 11.0% (2) | ||||||||
Terminal capitalization rate | 9.0% (2) | |||||||||
Market rent growth rate | 3.0% (2) | |||||||||
Expense growth rate | 3.0% (2) | |||||||||
Yield Analysis | Yield | 12% (2) | ||||||||
Market rent rate | $8.50 per square foot (2) | |||||||||
Leasing costs | $20.00 per square foot (2) |
March 31, 2013 | December 31, 2012 | ||||||
Land | $ | 431,152 | $ | 427,766 | |||
Buildings and improvements | 2,850,482 | 2,725,875 | |||||
Less: accumulated depreciation | (576,299 | ) | (555,975 | ) | |||
Operating properties, net | $ | 2,705,335 | $ | 2,597,666 |
March 31, 2013 | December 31, 2012 | ||||||
Land | $ | 234,357 | $ | 236,324 | |||
Construction in progress, excluding land | 250,281 | 329,054 | |||||
Projects in development or held for future development | $ | 484,638 | $ | 565,378 |
Investment Balance at (1) | Date | Nature of | Maximum Exposure | |||||||||||||
March 31, 2013 | December 31, 2012 | Acquired | Ownership | Activity | to Loss (2) | |||||||||||
$ | (6,420 | ) | $ | (6,420 | ) | 9/29/2005 | 20% | Operates 16 Buildings | $ | — |
March 31, 2013 | December 31, 2012 | ||||||
Properties, net | $ | 58,130 | $ | 58,460 | |||
Other assets | 5,120 | 4,376 | |||||
Total assets | $ | 63,250 | $ | 62,836 | |||
Liabilities (primarily debt) | $ | 75,417 | $ | 72,693 | |||
Owners’ equity | (12,167 | ) | (9,857 | ) | |||
Total liabilities and owners’ equity | $ | 63,250 | $ | 62,836 |
For the Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Revenues | $ | 1,792 | $ | 1,894 | ||||
Property operating expenses | (786 | ) | (737 | ) | ||||
Interest expense | (2,774 | ) | (1,125 | ) | ||||
Depreciation and amortization expense | (542 | ) | (570 | ) | ||||
Net loss | $ | (2,310 | ) | $ | (538 | ) |
Ownership | March 31, 2013 | (1) | ||||||||||||||||
Date | % at | Total | Pledged | Total | ||||||||||||||
Acquired | 3/31/2013 | Nature of Activity | Assets | Assets | Liabilities | |||||||||||||
LW Redstone Company, LLC | 3/23/2010 | 85% | Developing business park (2) | $ | 95,447 | $ | 23,199 | $ | 23,973 | |||||||||
M Square Associates, LLC | 6/26/2007 | 50% | Operating two buildings and developing others (3) | 61,059 | 47,361 | 42,675 | ||||||||||||
Arundel Preserve #5, LLC | 7/2/2007 | 50% | Operating one building (4) | 39,462 | 35,114 | 20,177 | ||||||||||||
COPT-FD Indian Head, LLC | 10/23/2006 | 75% | Holding land parcel (5) | 6,447 | — | — | ||||||||||||
MOR Forbes 2 LLC | 12/24/2002 | 50% | Operating one building (6) | 3,926 | — | 95 | ||||||||||||
$ | 206,341 | $ | 105,674 | $ | 86,920 |
March 31, 2013 | December 31, 2012 | ||||||
Mortgage and other investing receivables | $ | 38,441 | $ | 33,396 | |||
Prepaid expenses | 14,023 | 19,270 | |||||
Furniture, fixtures and equipment, net | 7,616 | 7,991 | |||||
Deferred tax asset | 6,493 | 6,612 | |||||
Lease incentives | 5,366 | 5,578 | |||||
Other assets | 8,859 | 4,608 | |||||
Prepaid expenses and other assets | $ | 80,798 | $ | 77,455 |
March 31, 2013 | December 31, 2012 | ||||||
Notes receivable from City of Huntsville | $ | 38,441 | $ | 33,252 | |||
Mortgage loan receivable | — | 144 | |||||
$ | 38,441 | $ | 33,396 |
Maximum | |||||||||||||||
Availability at | Carrying Value at | Scheduled Maturity | |||||||||||||
March 31, 2013 | March 31, 2013 | December 31, 2012 | Stated Interest Rates at | Dates at | |||||||||||
March 31, 2013 | March 31, 2013 | ||||||||||||||
Mortgage and Other Secured Loans: | |||||||||||||||
Fixed rate mortgage loans (1) | N/A | $ | 931,952 | $ | 948,414 | 3.96% - 7.87% (2) | 2013-2034 | ||||||||
Variable rate secured loans | N/A | 38,270 | 38,475 | LIBOR + 2.25% (3) | 2015 | ||||||||||
Other construction loan facilities | $ | 70,800 | 35,400 | 29,557 | LIBOR + 1.95% to 2.75% (4) | 2013-2015 | |||||||||
Total mortgage and other secured loans | 1,005,622 | 1,016,446 | |||||||||||||
Revolving Credit Facility | 800,000 | — | — | LIBOR + 1.75% to 2.50% | September 1, 2014 | ||||||||||
Term Loan Facilities (5) | 770,000 | 770,000 | 770,000 | LIBOR + 1.65% to 2.60% (6) | 2015-2019 | ||||||||||
Unsecured notes payable | N/A | 1,766 | 1,788 | 0% (7) | 2026 | ||||||||||
4.25% Exchangeable Senior Notes (8) | N/A | 179,972 | 230,934 | 4.25% | April 2030 | ||||||||||
Total debt | $ | 1,957,360 | $ | 2,019,168 |
(1) | 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 $877,000 at March 31, 2013 and $1.3 million at December 31, 2012. |
(2) | The weighted average interest rate on these loans was 5.97% at March 31, 2013. |
(3) | The interest rate on the loan outstanding was 2.45% at March 31, 2013. |
(4) | The weighted average interest rate on these loans was 2.51% at March 31, 2013. |
(5) | We have the ability to borrow an aggregate of an additional $180.0 million under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders. |
(6) | The weighted average interest rate on these loans was 1.93% at March 31, 2013. |
(7) | 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 $845,000 at March 31, 2013 and $873,000 at December 31, 2012. |
(8) | As described further in our 2012 Annual Report on Form 10-K, these notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and, at the Operating Partnership’s discretion, our common shares at an exchange rate (subject to adjustment) of 20.8513 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2013 and is equivalent to an exchange price of $47.96 per common share). During the three months ended March 31, 2013, we repaid $53.7 million principal amount of these notes and recognized a $5.3 million loss on early extinguishment of debt. The carrying value of these notes included a principal amount of $186.3 million and an unamortized discount totaling $6.3 million at March 31, 2013 and a principal amount of $240.0 million and an unamortized discount totaling $9.1 million at December 31, 2012. The effective interest rate under the notes, including amortization of the issuance costs, was 6.05%. Because the closing price of our common shares at March 31, 2013 and December 31, 2012 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized (in thousands): |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Interest expense at stated interest rate | $ | 2,304 | $ | 2,550 | |||
Interest expense associated with amortization of discount | 864 | 892 | |||||
Total | $ | 3,168 | $ | 3,442 |
March 31, 2013 | December 31, 2012 | ||||||||||||||
Carrying | Estimated | Carrying | Estimated | ||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||||
Fixed-rate debt | |||||||||||||||
4.25% Exchangeable Senior Notes | $ | 179,972 | $ | 187,150 | $ | 230,934 | $ | 240,282 | |||||||
Other fixed-rate debt | 933,718 | 947,263 | 950,202 | 968,180 | |||||||||||
Variable-rate debt | 843,670 | 849,555 | 838,032 | 845,558 | |||||||||||
$ | 1,957,360 | $ | 1,983,968 | $ | 2,019,168 | $ | 2,054,020 |
Fair Value at | ||||||||||||||||||
Notional Amount | Fixed Rate | Floating Rate Index | Effective Date | Expiration Date | March 31, 2013 | December 31, 2012 | ||||||||||||
$ | 100,000 | 0.6123% | One-Month LIBOR | 1/3/2012 | 9/1/2014 | $ | (495 | ) | $ | (594 | ) | |||||||
100,000 | 0.6100% | One-Month LIBOR | 1/3/2012 | 9/1/2014 | (492 | ) | (591 | ) | ||||||||||
100,000 | 0.8320% | One-Month LIBOR | 1/3/2012 | 9/1/2015 | (1,238 | ) | (1,313 | ) | ||||||||||
100,000 | 0.8320% | One-Month LIBOR | 1/3/2012 | 9/1/2015 | (1,238 | ) | (1,313 | ) | ||||||||||
38,270 | (1) | 3.8300% | One-Month LIBOR + 2.25% | 11/2/2010 | 11/2/2015 | (1,176 | ) | (1,268 | ) | |||||||||
100,000 | 0.8055% | One-Month LIBOR | 9/2/2014 | 9/1/2016 | (329 | ) | (263 | ) | ||||||||||
100,000 | 0.8100% | One-Month LIBOR | 9/2/2014 | 9/1/2016 | (339 | ) | (272 | ) | ||||||||||
100,000 | 1.6730% | One-Month LIBOR | 9/1/2015 | 8/1/2019 | 260 | (154 | ) | |||||||||||
100,000 | 1.7300% | One-Month LIBOR | 9/1/2015 | 8/1/2019 | (33 | ) | (417 | ) | ||||||||||
$ | (5,080 | ) | $ | (6,185 | ) |
(1) | The notional amount of this instrument is scheduled to amortize to $36.2 million. |
March 31, 2013 | December 31, 2012 | |||||||||||
Derivatives | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swaps designated as cash flow hedges | Prepaid expenses and other assets | $ | 260 | Prepaid expenses and other assets | $ | — | ||||||
Interest rate swaps designated as cash flow hedges | Interest rate derivatives | (5,340 | ) | Interest rate derivatives | (6,185 | ) |
For the Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Amount of gain (loss) recognized in accumulated other comprehensive loss (“AOCL”) (effective portion) | $ | 462 | $ | (1,987 | ) | ||
Amount of loss reclassified from AOCL into interest expense (effective portion) | 658 | 1,474 |
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Beginning balance | $ | 10,298 | $ | 8,908 | ||||
Net loss attributable to noncontrolling interest | (790 | ) | (574 | ) | ||||
Adjustment to arrive at fair value of interest | 848 | 903 | ||||||
Ending balance | $ | 10,356 | $ | 9,237 |
Operating Office Property Segments | |||||||||||||||||||||||||||||||||||||||||||||||
Baltimore/ Washington Corridor | Northern Virginia | San Antonio | Washington, DC - Capitol Riverfront | St. Mary’s & King George Counties | Greater Baltimore | Suburban Maryland | Colorado Springs | Greater Philadelphia | Other | Operating Wholesale Data Center | Total | ||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2013 |