ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | March 31, 2019 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to |
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) |
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý | Smaller reporting company o | Emerging growth company o |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares of beneficial interest, $0.01 par value | OFC | New York Stock Exchange |
• | combined reports better reflect how management, investors 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. |
• | consolidated financial statements; |
• | the following notes to the consolidated financial statements: |
• | Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries; |
• | Note 8, Prepaid Expenses and Other Assets, Net of COPT and subsidiaries and COPLP and subsidiaries; and |
• | Note 16, 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.” |
PAGE | ||
March 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Properties, net: | |||||||
Operating properties, net | $ | 2,865,829 | $ | 2,847,265 | |||
Projects in development or held for future development | 437,173 | 403,361 | |||||
Total properties, net | 3,303,002 | 3,250,626 | |||||
Property - operating right-of-use assets | 27,569 | — | |||||
Property - finance right-of-use assets | 40,488 | — | |||||
Cash and cash equivalents | 7,780 | 8,066 | |||||
Investment in unconsolidated real estate joint venture | 39,359 | 39,845 | |||||
Accounts receivable | 25,261 | 26,277 | |||||
Deferred rent receivable | 91,304 | 89,350 | |||||
Intangible assets on real estate acquisitions, net | 33,172 | 43,470 | |||||
Deferred leasing costs (net of accumulated amortization of $34,666 and $31,994, respectively) | 51,736 | 50,191 | |||||
Investing receivables | 69,390 | 56,982 | |||||
Interest rate derivatives | 2,602 | 5,617 | |||||
Prepaid expenses and other assets, net | 84,196 | 85,581 | |||||
Total assets | $ | 3,775,859 | $ | 3,656,005 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Debt, net | $ | 1,876,149 | $ | 1,823,909 | |||
Accounts payable and accrued expenses | 112,076 | 92,855 | |||||
Rents received in advance and security deposits | 25,635 | 30,079 | |||||
Dividends and distributions payable | 31,346 | 30,856 | |||||
Deferred revenue associated with operating leases | 8,415 | 9,125 | |||||
Property - operating lease liabilities | 16,619 | — | |||||
Interest rate derivatives | 11,894 | 5,459 | |||||
Other liabilities | 10,162 | 10,414 | |||||
Total liabilities | 2,092,296 | 2,002,697 | |||||
Commitments and contingencies (Note 17) | |||||||
Redeemable noncontrolling interests | 27,385 | 26,260 | |||||
Equity: | |||||||
Corporate Office Properties Trust’s shareholders’ equity: | |||||||
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 111,939,790 at March 31, 2019 and 110,241,868 at December 31, 2018) | 1,119 | 1,102 | |||||
Additional paid-in capital | 2,475,497 | 2,431,355 | |||||
Cumulative distributions in excess of net income | (856,703 | ) | (846,808 | ) | |||
Accumulated other comprehensive loss | (9,538 | ) | (238 | ) | |||
Total Corporate Office Properties Trust’s shareholders’ equity | 1,610,375 | 1,585,411 | |||||
Noncontrolling interests in subsidiaries: | |||||||
Common units in COPLP | 20,167 | 19,168 | |||||
Preferred units in COPLP | 8,800 | 8,800 | |||||
Other consolidated entities | 16,836 | 13,669 | |||||
Noncontrolling interests in subsidiaries | 45,803 | 41,637 | |||||
Total equity | 1,656,178 | 1,627,048 | |||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 3,775,859 | $ | 3,656,005 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Revenues | |||||||
Lease revenue | $ | 130,903 | $ | 127,133 | |||
Other property revenue | 1,087 | 1,145 | |||||
Construction contract and other service revenues | 16,950 | 27,198 | |||||
Total revenues | 148,940 | 155,476 | |||||
Operating expenses | |||||||
Property operating expenses | 49,445 | 50,951 | |||||
Depreciation and amortization associated with real estate operations | 34,796 | 33,512 | |||||
Construction contract and other service expenses | 16,326 | 26,216 | |||||
General, administrative and leasing expenses | 8,751 | 7,292 | |||||
Business development expenses and land carry costs | 1,113 | 1,614 | |||||
Total operating expenses | 110,431 | 119,585 | |||||
Interest expense | (18,674 | ) | (18,784 | ) | |||
Interest and other income | 2,286 | 1,359 | |||||
Gain on sales of real estate | — | (4 | ) | ||||
Income before equity in income of unconsolidated entities and income taxes | 22,121 | 18,462 | |||||
Equity in income of unconsolidated entities | 391 | 373 | |||||
Income tax expense | (194 | ) | (55 | ) | |||
Net income | 22,318 | 18,780 | |||||
Net income attributable to noncontrolling interests: | |||||||
Common units in COPLP | (257 | ) | (544 | ) | |||
Preferred units in COPLP | (165 | ) | (165 | ) | |||
Other consolidated entities | (1,037 | ) | (921 | ) | |||
Net income attributable to COPT common shareholders | $ | 20,859 | $ | 17,150 | |||
Earnings per common share: (1) | |||||||
Net income attributable to COPT common shareholders - basic | $ | 0.19 | $ | 0.17 | |||
Net income attributable to COPT common shareholders - diluted | $ | 0.19 | $ | 0.17 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net income | $ | 22,318 | $ | 18,780 | |||
Other comprehensive (loss) income | |||||||
Unrealized (loss) gain on interest rate derivatives | (8,845 | ) | 4,676 | ||||
(Gain) loss on interest rate derivatives recognized in interest expense | (570 | ) | 245 | ||||
Other comprehensive (loss) income | (9,415 | ) | 4,921 | ||||
Comprehensive income | 12,903 | 23,701 | |||||
Comprehensive income attributable to noncontrolling interests | (1,344 | ) | (1,790 | ) | |||
Comprehensive income attributable to COPT | $ | 11,559 | $ | 21,911 |
Common Shares | Additional Paid-in Capital | Cumulative Distributions in Excess of Net Income | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests | Total | ||||||||||||||||||
Balance at December 31, 2017 (101,292,299 common shares outstanding) | $ | 1,013 | $ | 2,201,047 | $ | (802,085 | ) | $ | 2,167 | $ | 66,165 | $ | 1,468,307 | ||||||||||
Cumulative effect of accounting change for adoption of hedge accounting guidance | — | — | (276 | ) | 276 | — | — | ||||||||||||||||
Balance at December 31, 2017, as adjusted | 1,013 | 2,201,047 | (802,361 | ) | 2,443 | 66,165 | 1,468,307 | ||||||||||||||||
Conversion of common units to common shares (53,817 shares) | 1 | 760 | — | — | (761 | ) | — | ||||||||||||||||
Common shares issued under forward equity sale agreements (677,000 shares) | 7 | 19,969 | — | — | — | 19,976 | |||||||||||||||||
Share-based compensation (127,242 shares issued, net of redemptions) | 1 | 1,679 | — | — | — | 1,680 | |||||||||||||||||
Redemption of vested equity awards | — | (1,327 | ) | — | — | — | (1,327 | ) | |||||||||||||||
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP | — | (164 | ) | — | — | 164 | — | ||||||||||||||||
Comprehensive income | — | — | 17,150 | 4,761 | 1,152 | 23,063 | |||||||||||||||||
Dividends | — | — | (28,091 | ) | — | — | (28,091 | ) | |||||||||||||||
Distributions to owners of common and preferred units in COPLP | — | — | — | — | (1,044 | ) | (1,044 | ) | |||||||||||||||
Distributions to noncontrolling interests in other consolidated entities | — | — | — | — | (3 | ) | (3 | ) | |||||||||||||||
Adjustment to arrive at fair value of redeemable noncontrolling interests | — | (537 | ) | — | — | — | (537 | ) | |||||||||||||||
Balance at March 31, 2018 (102,150,358 common shares outstanding) | $ | 1,022 | $ | 2,221,427 | $ | (813,302 | ) | $ | 7,204 | $ | 65,673 | $ | 1,482,024 | ||||||||||
Balance at December 31, 2018 (110,241,868 common shares outstanding) | $ | 1,102 | $ | 2,431,355 | $ | (846,808 | ) | $ | (238 | ) | $ | 41,637 | $ | 1,627,048 | |||||||||
Conversion of common units to common shares (5,500 shares) | — | 80 | — | — | (80 | ) | — | ||||||||||||||||
Common shares issued under forward equity sale agreements (1,614,087 shares) | 16 | 46,438 | — | — | — | 46,454 | |||||||||||||||||
Share-based compensation (78,335 shares issued, net of redemptions) | 1 | 1,562 | — | — | 239 | 1,802 | |||||||||||||||||
Redemption of vested equity awards | — | (1,817 | ) | — | — | — | (1,817 | ) | |||||||||||||||
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP | — | (1,322 | ) | — | — | 1,322 | — | ||||||||||||||||
Comprehensive income | — | — | 20,859 | (9,300 | ) | 669 | 12,228 | ||||||||||||||||
Dividends | — | — | (30,754 | ) | — | — | (30,754 | ) | |||||||||||||||
Distributions to owners of common and preferred units in COPLP | — | — | — | — | (550 | ) | (550 | ) | |||||||||||||||
Contributions from noncontrolling interests in other consolidated entities | — | — | — | — | 2,570 | 2,570 | |||||||||||||||||
Distributions to noncontrolling interests in other consolidated entities | — | — | — | — | (4 | ) | (4 | ) | |||||||||||||||
Adjustment to arrive at fair value of redeemable noncontrolling interests | — | (799 | ) | — | — | — | (799 | ) | |||||||||||||||
Balance at March 31, 2019 (111,939,790 common shares outstanding) | $ | 1,119 | $ | 2,475,497 | $ | (856,703 | ) | $ | (9,538 | ) | $ | 45,803 | $ | 1,656,178 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities | |||||||
Revenues from real estate operations received | $ | 126,569 | $ | 135,027 | |||
Construction contract and other service revenues received | 5,904 | 9,268 | |||||
Property operating expenses paid | (42,974 | ) | (43,212 | ) | |||
Construction contract and other service expenses paid | (4,614 | ) | (41,128 | ) | |||
General, administrative, leasing, business development and land carry costs paid | (11,703 | ) | (10,900 | ) | |||
Interest expense paid | (18,282 | ) | (19,092 | ) | |||
Lease incentives paid | (1,158 | ) | (4,204 | ) | |||
Other | 910 | 436 | |||||
Net cash provided by operating activities | 54,652 | 26,195 | |||||
Cash flows from investing activities | |||||||
Construction, development and redevelopment | (100,212 | ) | (17,540 | ) | |||
Tenant improvements on operating properties | (4,174 | ) | (9,077 | ) | |||
Other capital improvements on operating properties | (4,476 | ) | (5,198 | ) | |||
Investing receivables funded | (11,051 | ) | — | ||||
Leasing costs paid | (2,539 | ) | (2,015 | ) | |||
Other | 1,297 | (974 | ) | ||||
Net cash used in investing activities | (121,155 | ) | (34,804 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from debt | |||||||
Revolving Credit Facility | 123,000 | 82,000 | |||||
Other debt proceeds | 3,350 | — | |||||
Repayments of debt | |||||||
Revolving Credit Facility | (74,000 | ) | (55,000 | ) | |||
Scheduled principal amortization | (1,098 | ) | (1,052 | ) | |||
Payments on finance lease liabilities | (52 | ) | (4,202 | ) | |||
Net proceeds from issuance of common shares | 46,415 | 19,989 | |||||
Common share dividends paid | (30,287 | ) | (27,855 | ) | |||
Distributions paid to noncontrolling interests in COPLP | (553 | ) | (1,059 | ) | |||
Redemption of vested equity awards | (1,817 | ) | (1,327 | ) | |||
Other | 1,370 | (5,183 | ) | ||||
Net cash provided by financing activities | 66,328 | 6,311 | |||||
Net decrease in cash and cash equivalents and restricted cash | (175 | ) | (2,298 | ) | |||
Cash and cash equivalents and restricted cash | |||||||
Beginning of period | 11,950 | 14,831 | |||||
End of period | $ | 11,775 | $ | 12,533 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Net income | $ | 22,318 | $ | 18,780 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and other amortization | 35,229 | 34,035 | |||||
Amortization of deferred financing costs and net debt discounts | 898 | 822 | |||||
Increase in deferred rent receivable | (2,539 | ) | (1,512 | ) | |||
Gain on sales of real estate | — | 4 | |||||
Share-based compensation | 1,659 | 1,545 | |||||
Other | (1,572 | ) | (907 | ) | |||
Changes in operating assets and liabilities: | |||||||
Decrease in accounts receivable | 1,033 | 7,877 | |||||
(Increase) decrease in prepaid expenses and other assets, net | (6,752 | ) | 8,533 | ||||
Increase (decrease) in accounts payable, accrued expenses and other liabilities | 8,822 | (43,903 | ) | ||||
(Decrease) increase in rents received in advance and security deposits | (4,444 | ) | 921 | ||||
Net cash provided by operating activities | $ | 54,652 | $ | 26,195 | |||
Reconciliation of cash and cash equivalents and restricted cash: | |||||||
Cash and cash equivalents at beginning of period | $ | 8,066 | $ | 12,261 | |||
Restricted cash at beginning of period | 3,884 | 2,570 | |||||
Cash and cash equivalents and restricted cash at beginning of period | $ | 11,950 | $ | 14,831 | |||
Cash and cash equivalents at end of period | $ | 7,780 | $ | 8,888 | |||
Restricted cash at end of period | 3,995 | 3,645 | |||||
Cash and cash equivalents and restricted cash at end of period | $ | 11,775 | $ | 12,533 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Increase in accrued capital improvements, leasing and other investing activity costs | $ | 11,329 | $ | 12,232 | |||
Finance right-of-use asset contributed by noncontrolling interest in joint venture | $ | 2,570 | $ | — | |||
Operating right-of-use assets obtained in exchange for operating lease liabilities | $ | 276 | $ | — | |||
(Decrease) increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests | $ | (9,450 | ) | $ | 4,887 | ||
Dividends/distributions payable | $ | 31,346 | $ | 29,146 | |||
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares | $ | 80 | $ | 761 | |||
Adjustments to noncontrolling interests resulting from changes in COPLP ownership | $ | 1,322 | $ | 164 | |||
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value | $ | 799 | $ | 537 |
March 31, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Properties, net: | |||||||
Operating properties, net | $ | 2,865,829 | $ | 2,847,265 | |||
Projects in development or held for future development | 437,173 | 403,361 | |||||
Total properties, net | 3,303,002 | 3,250,626 | |||||
Property - operating right-of-use assets | 27,569 | — | |||||
Property - finance right-of-use assets | 40,488 | — | |||||
Cash and cash equivalents | 7,780 | 8,066 | |||||
Investment in unconsolidated real estate joint venture | 39,359 | 39,845 | |||||
Accounts receivable | 25,261 | 26,277 | |||||
Deferred rent receivable | 91,304 | 89,350 | |||||
Intangible assets on real estate acquisitions, net | 33,172 | 43,470 | |||||
Deferred leasing costs (net of accumulated amortization of $34,666 and $31,994, respectively) | 51,736 | 50,191 | |||||
Investing receivables | 69,390 | 56,982 | |||||
Interest rate derivatives | 2,602 | 5,617 | |||||
Prepaid expenses and other assets, net | 79,982 | 81,713 | |||||
Total assets | $ | 3,771,645 | $ | 3,652,137 | |||
Liabilities and equity | |||||||
Liabilities: | |||||||
Debt, net | $ | 1,876,149 | $ | 1,823,909 | |||
Accounts payable and accrued expenses | 112,076 | 92,855 | |||||
Rents received in advance and security deposits | 25,635 | 30,079 | |||||
Distributions payable | 31,346 | 30,856 | |||||
Deferred revenue associated with operating leases | 8,415 | 9,125 | |||||
Property - operating lease liabilities | 16,619 | — | |||||
Interest rate derivatives | 11,894 | 5,459 | |||||
Other liabilities | 5,948 | 6,546 | |||||
Total liabilities | 2,088,082 | 1,998,829 | |||||
Commitments and contingencies (Note 17) | |||||||
Redeemable noncontrolling interests | 27,385 | 26,260 | |||||
Equity: | |||||||
Corporate Office Properties, L.P.’s equity: | |||||||
Preferred units held by limited partner, 352,000 preferred units outstanding at March 31, 2019 and December 31, 2018 | 8,800 | 8,800 | |||||
Common units, 111,939,790 and 110,241,868 held by the general partner and 1,576,024 and 1,332,886 held by limited partners at March 31, 2019 and December 31, 2018, respectively | 1,640,272 | 1,604,655 | |||||
Accumulated other comprehensive loss | (9,536 | ) | (121 | ) | |||
Total Corporate Office Properties, L.P.’s equity | 1,639,536 | 1,613,334 | |||||
Noncontrolling interests in subsidiaries | 16,642 | 13,714 | |||||
Total equity | 1,656,178 | 1,627,048 | |||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 3,771,645 | $ | 3,652,137 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Revenues | |||||||
Lease revenue | $ | 130,903 | $ | 127,133 | |||
Other property revenue | 1,087 | 1,145 | |||||
Construction contract and other service revenues | 16,950 | 27,198 | |||||
Total revenues | 148,940 | 155,476 | |||||
Operating expenses | |||||||
Property operating expenses | 49,445 | 50,951 | |||||
Depreciation and amortization associated with real estate operations | 34,796 | 33,512 | |||||
Construction contract and other service expenses | 16,326 | 26,216 | |||||
General, administrative and leasing expenses | 8,751 | 7,292 | |||||
Business development expenses and land carry costs | 1,113 | 1,614 | |||||
Total operating expenses | 110,431 | 119,585 | |||||
Interest expense | (18,674 | ) | (18,784 | ) | |||
Interest and other income | 2,286 | 1,359 | |||||
Gain on sales of real estate | — | (4 | ) | ||||
Income before equity in income of unconsolidated entities and income taxes | 22,121 | 18,462 | |||||
Equity in income of unconsolidated entities | 391 | 373 | |||||
Income tax expense | (194 | ) | (55 | ) | |||
Net income | 22,318 | 18,780 | |||||
Net income attributable to noncontrolling interests in consolidated entities | (1,037 | ) | (921 | ) | |||
Net income attributable to COPLP | 21,281 | 17,859 | |||||
Preferred unit distributions | (165 | ) | (165 | ) | |||
Net income attributable to COPLP common unitholders | $ | 21,116 | $ | 17,694 | |||
Earnings per common unit: (1) | |||||||
Net income attributable to COPLP common unitholders - basic | $ | 0.19 | $ | 0.17 | |||
Net income attributable to COPLP common unitholders - diluted | $ | 0.19 | $ | 0.17 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net income | $ | 22,318 | $ | 18,780 | |||
Other comprehensive (loss) income | |||||||
Unrealized (loss) gain on interest rate derivatives | (8,845 | ) | 4,676 | ||||
(Gain) loss on interest rate derivatives recognized in interest expense | (570 | ) | 245 | ||||
Other comprehensive (loss) income | (9,415 | ) | 4,921 | ||||
Comprehensive income | 12,903 | 23,701 | |||||
Comprehensive income attributable to noncontrolling interests | (1,037 | ) | (921 | ) | |||
Comprehensive income attributable to COPLP | $ | 11,866 | $ | 22,780 |
Limited Partner Preferred Units | Common Units | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests in Subsidiaries | ||||||||||||||||||||||
Units | Amount | Units | Amount | Total Equity | |||||||||||||||||||||
Balance at December 31, 2017 | 352,000 | $ | 8,800 | 104,543,177 | $ | 1,445,022 | $ | 2,173 | $ | 12,312 | $ | 1,468,307 | |||||||||||||
Cumulative effect of accounting change for adoption of hedge accounting guidance | — | — | — | (276 | ) | 276 | — | — | |||||||||||||||||
Balance at December 31, 2017, as adjusted | 352,000 | 8,800 | 104,543,177 | 1,444,746 | 2,449 | 12,312 | 1,468,307 | ||||||||||||||||||
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements | — | — | 677,000 | 19,976 | — | — | 19,976 | ||||||||||||||||||
Share-based compensation (units net of redemption) | — | — | 127,242 | 1,680 | — | — | 1,680 | ||||||||||||||||||
Redemptions of vested equity awards | — | — | — | (1,327 | ) | — | — | (1,327 | ) | ||||||||||||||||
Comprehensive income | — | 165 | — | 17,694 | 4,921 | 283 | 23,063 | ||||||||||||||||||
Distributions to owners of common and preferred units | — | (165 | ) | — | (28,970 | ) | — | — | (29,135 | ) | |||||||||||||||
Distributions to noncontrolling interests in subsidiaries | — | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||
Adjustment to arrive at fair value of redeemable noncontrolling interests | — | — | — | (537 | ) | — | — | (537 | ) | ||||||||||||||||
Balance at March 31, 2018 | 352,000 | $ | 8,800 | 105,347,419 | $ | 1,453,262 | $ | 7,370 | $ | 12,592 | $ | 1,482,024 | |||||||||||||
Balance at December 31, 2018 | 352,000 | $ | 8,800 | 111,574,754 | $ | 1,604,655 | $ | (121 | ) | $ | 13,714 | $ | 1,627,048 | ||||||||||||
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements | — | — | 1,614,087 | 46,454 | — | — | 46,454 | ||||||||||||||||||
Share-based compensation (units net of redemption) | — | — | 326,973 | 1,802 | — | — | 1,802 | ||||||||||||||||||
Redemptions of vested equity awards | — | — | — | (1,817 | ) | — | — | (1,817 | ) | ||||||||||||||||
Comprehensive income | — | 165 | — | 21,116 | (9,415 | ) | 362 | 12,228 | |||||||||||||||||
Distributions to owners of common and preferred units | — | (165 | ) | — | (31,139 | ) | — | — | (31,304 | ) | |||||||||||||||
Contributions from noncontrolling interests in subsidiaries | — | — | — | — | — | 2,570 | 2,570 | ||||||||||||||||||
Distributions to noncontrolling interests in subsidiaries | — | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||
Adjustment to arrive at fair value of redeemable noncontrolling interests | — | — | — | (799 | ) | — | — | (799 | ) | ||||||||||||||||
Balance at March 31, 2019 | 352,000 | $ | 8,800 | 113,515,814 | $ | 1,640,272 | $ | (9,536 | ) | $ | 16,642 | $ | 1,656,178 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities | |||||||
Revenues from real estate operations received | $ | 126,569 | $ | 135,027 | |||
Construction contract and other service revenues received | 5,904 | 9,268 | |||||
Property operating expenses paid | (42,974 | ) | (43,212 | ) | |||
Construction contract and other service expenses paid | (4,614 | ) | (41,128 | ) | |||
General, administrative, leasing, business development and land carry costs paid | (11,703 | ) | (10,900 | ) | |||
Interest expense paid | (18,282 | ) | (19,092 | ) | |||
Lease incentives paid | (1,158 | ) | (4,204 | ) | |||
Other | 910 | 436 | |||||
Net cash provided by operating activities | 54,652 | 26,195 | |||||
Cash flows from investing activities | |||||||
Construction, development and redevelopment | (100,212 | ) | (17,540 | ) | |||
Tenant improvements on operating properties | (4,174 | ) | (9,077 | ) | |||
Other capital improvements on operating properties | (4,476 | ) | (5,198 | ) | |||
Investing receivables funded | (11,051 | ) | — | ||||
Leasing costs paid | (2,539 | ) | (2,015 | ) | |||
Other | 1,297 | (974 | ) | ||||
Net cash used in investing activities | (121,155 | ) | (34,804 | ) | |||
Cash flows from financing activities | |||||||
Proceeds from debt | |||||||
Revolving Credit Facility | 123,000 | 82,000 | |||||
Other debt proceeds | 3,350 | — | |||||
Repayments of debt | |||||||
Revolving Credit Facility | (74,000 | ) | (55,000 | ) | |||
Scheduled principal amortization | (1,098 | ) | (1,052 | ) | |||
Payments on finance lease liabilities | (52 | ) | (4,202 | ) | |||
Net proceeds from issuance of common units | 46,415 | 19,989 | |||||
Common unit distributions paid | (30,675 | ) | (28,749 | ) | |||
Preferred unit distributions paid | (165 | ) | (165 | ) | |||
Redemption of vested equity awards | (1,817 | ) | (1,327 | ) | |||
Other | 1,370 | (5,183 | ) | ||||
Net cash provided by financing activities | 66,328 | 6,311 | |||||
Net decrease in cash and cash equivalents and restricted cash | (175 | ) | (2,298 | ) | |||
Cash and cash equivalents and restricted cash | |||||||
Beginning of period | 11,950 | 14,831 | |||||
End of period | $ | 11,775 | $ | 12,533 |
For the Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Net income | $ | 22,318 | $ | 18,780 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and other amortization | 35,229 | 34,035 | |||||
Amortization of deferred financing costs and net debt discounts | 898 | 822 | |||||
Increase in deferred rent receivable | (2,539 | ) | (1,512 | ) | |||
Gain on sales of real estate | — | 4 | |||||
Share-based compensation | 1,659 | 1,545 | |||||
Other | (1,572 | ) | (907 | ) | |||
Changes in operating assets and liabilities: | |||||||
Decrease in accounts receivable | 1,033 | 7,877 | |||||
(Increase) decrease in prepaid expenses and other assets, net | (6,406 | ) | 8,398 | ||||
Increase (decrease) in accounts payable, accrued expenses and other liabilities | 8,476 | (43,768 | ) | ||||
(Decrease) increase in rents received in advance and security deposits | (4,444 | ) | 921 | ||||
Net cash provided by operating activities | $ | 54,652 | $ | 26,195 | |||
Reconciliation of cash and cash equivalents and restricted cash: | |||||||
Cash and cash equivalents at beginning of period | $ | 8,066 | $ | 12,261 | |||
Restricted cash at beginning of period | 3,884 | 2,570 | |||||
Cash and cash equivalents and restricted cash at beginning of period | $ | 11,950 | $ | 14,831 | |||
Cash and cash equivalents at end of period | $ | 7,780 | $ | 8,888 | |||
Restricted cash at end of period | 3,995 | 3,645 | |||||
Cash and cash equivalents and restricted cash at end of period | $ | 11,775 | $ | 12,533 | |||
Supplemental schedule of non-cash investing and financing activities: | |||||||
Increase in accrued capital improvements, leasing and other investing activity costs | $ | 11,329 | $ | 12,232 | |||
Finance right-of-use asset contributed by noncontrolling interest in joint venture | $ | 2,570 | $ | — | |||
Operating right-of-use assets obtained in exchange for operating lease liabilities | $ | 276 | $ | — | |||
(Decrease) increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests | $ | (9,450 | ) | $ | 4,887 | ||
Distributions payable | $ | 31,346 | $ | 29,146 | |||
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value | $ | 799 | $ | 537 |
• | 165 properties totaling 18.3 million square feet comprised of 15.2 million square feet in 146 office properties and 3.1 million square feet in 19 single-tenant data center shell properties (“data center shells”). We owned six of these data center shells through an unconsolidated real estate joint venture; |
• | a wholesale data center with a critical load of 19.25 megawatts; |
• | 15 properties under construction or redevelopment (ten office properties and five data center shells) that we estimate will total approximately 2.0 million square feet upon completion, including two partially-operational properties; and |
• | approximately 900 acres of land controlled for future development that we believe could be developed into approximately 11.6 million square feet and 150 acres of other land. |
• | Property leases in which we are the lessor: |
◦ | Deferral of non-incremental leasing costs: For new or extended tenant leases, we no longer defer recognition of non-incremental leasing costs that we would have deferred under prior accounting guidance (refer to our 2018 Annual Report on Form 10-K in which we reported amounts deferred in 2018, 2017 and 2016). |
◦ | Change in presentation of revenue: Due to our adoption of the practical expedient discussed above to not separate non-lease component revenue from the associated lease component, we are aggregating revenue from our lease components and non-lease components (comprised predominantly of tenant operating expense reimbursements) into the line entitled “lease revenue.” We are reporting other revenue from our properties in the line entitled “other property revenue.” We recast prior periods for these changes in presentation. |
◦ | Changes in assessment of lease revenue collectability: Changes in our assessment of lease revenue collectability that previously would have resulted in charges to bad debt expense under prior guidance are being recognized as an |
◦ | Operating expenses paid directly by tenants to third parties: Operating expenses paid directly by tenants to third parties (primarily for real estate taxes) and revenue associated with such tenant payments that would have been recognized under prior guidance will no longer be reported on our Statement of Operations. Such amounts recognized by us in prior periods were not significant. |
• | Leases (the most significant of which are ground leases) in which we are the lessee: |
◦ | Balance sheet presentation of property operating lease right-of-use assets: Upon adoption on January 1, 2019, we recognized property right-of-use assets and offsetting lease liabilities for existing operating leases totaling $16 million for the present value of minimum lease payments under these leases, and also reclassified an additional $11 million in amounts previously presented elsewhere on our balance sheet in connection with these leases to the right-of-use assets. We will recognize additional right-of-use assets and lease liabilities as we enter into new operating leases. |
◦ | Balance sheet presentation of property finance lease right-of-use assets: Property right-of-use assets of finance leases that previously were presented as properties under prior guidance are being presented as property finance right-of-use assets under the new guidance. As a result, we reclassified $38 million in assets from properties to property finance right-of-use assets upon adoption on January 1, 2019. |
◦ | Segment assets: We changed our definition of segment assets used for our reportable segments to include property right-of-use assets associated with operating properties, net of related lease liabilities. |
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 | $ | 4,171 | $ | — | $ | — | $ | 4,171 | ||||||||
Other | 43 | — | — | 43 | ||||||||||||
Interest rate derivatives | — | 2,602 | — | 2,602 | ||||||||||||
Total assets | $ | 4,214 | $ | 2,602 | $ | — | $ | 6,816 | ||||||||
Liabilities: | ||||||||||||||||
Deferred compensation plan liability (2) | $ | — | $ | 4,214 | $ | — | $ | 4,214 | ||||||||
Interest rate derivatives | — | 11,894 | — | 11,894 | ||||||||||||
Total liabilities | $ | — | $ | 16,108 | $ | — | $ | 16,108 |
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs(Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Assets: | ||||||||||||||||
Interest rate derivatives | $ | — | $ | 2,602 | $ | — | $ | 2,602 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate derivatives | $ | — | $ | 11,894 | $ | — | $ | 11,894 |
March 31, 2019 | December 31, 2018 | ||||||
Land | $ | 505,062 | $ | 503,274 | |||
Buildings and improvements | 3,288,033 | 3,241,894 | |||||
Less: Accumulated depreciation | (927,266 | ) | (897,903 | ) | |||
Operating properties, net | $ | 2,865,829 | $ | 2,847,265 |
March 31, 2019 | December 31, 2018 | ||||||
Land | $ | 227,852 | $ | 207,760 | |||
Development in progress, excluding land | 209,321 | 195,601 | |||||
Projects in development or held for future development | $ | 437,173 | $ | 403,361 |
Lease revenue | For the Three Months Ended March 31, 2019 | |||
Fixed contractual payments | $ | 105,335 | ||
Variable lease payments | 25,568 | |||
$ | 130,903 |
Year Ending December 31, | March 31, 2019 | December 31, 2018 | ||||||
2019 (1) | $ | 305,864 | $ | 400,617 | ||||
2020 | 347,477 | 337,646 | ||||||
2021 | 293,546 | 280,369 | ||||||
2022 | 258,502 | 246,329 | ||||||
2023 | 206,833 | 194,888 | ||||||
Thereafter | 562,614 | 523,932 | ||||||
$ | 1,974,836 | $ | 1,983,781 |
• | $37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 97-year remaining lease term, and we possess a bargain purchase option that we expect to exercise in 2020; |
• | $10.4 million for land underlying office properties in Washington, DC under two leases with remaining terms of approximately 80 years; |
• | $6.5 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 30 years and an option to renew for an additional 49 years that was included in the lease term used in determining the asset balance; |
• | $6.7 million for land in a research park in College Park, Maryland under four leases through our M Square Associates, LLC joint venture all of the rent on which was previously paid. These leases had remaining terms ranging from 64 to 75 years; |
• | $4.3 million for land in a business park in Huntsville, Alabama under nine leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 44 to 50 years and options to renew for an additional 25 years that were not included in the lease term used in determining the asset balance; and |
• | $2.3 million for other land in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 49 years all of the rent on which was previously paid. |
Leases | Balance Sheet Location | March 31, 2019 | ||||
Right-of-use assets | ||||||
Operating leases - Property | Property - operating right-of-use assets | $ | 27,569 | |||
Finance leases | ||||||
Property | Property - finance right-of-use assets | 40,488 | ||||
Vehicles and office equipment | Prepaid expenses and other assets, net | 1,197 | ||||
Total finance lease right-of-use assets | 41,685 | |||||
Total right-of-use assets | $ | 69,254 |
Leases | Balance Sheet Location | March 31, 2019 | ||||
Lease liabilities | ||||||
Operating leases - Property | Property - operating lease liabilities | $ | 16,619 | |||
Finance leases | Other liabilities | 1,275 | ||||
Total lease liabilities | $ | 17,894 |
Weighted average remaining lease term | |||
Operating leases | 70 years | ||
Finance leases | 2 years | ||
Weighted average discount rate | |||
Operating leases | 7.35 | % | |
Finance leases | 3.10 | % |
Lease cost | Statement of Operations Location | For the Three Months Ended March 31, 2019 | ||||
Operating lease cost | ||||||
Property leases | Property operating expense | $ | 413 | |||
Vehicles and office equipment | General, administrative and leasing expense | 17 | ||||
Finance lease cost | ||||||
Amortization of vehicles and office equipment right-of-use assets | General, administrative and leasing expense | 113 | ||||
Interest on lease liabilities | Interest expense | 4 | ||||
$ | 547 |
Supplemental cash flow information | For the Three Months Ended March 31, 2019 | |||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows for operating leases | $ | 228 | ||
Operating cash flows for financing leases | $ | 4 | ||
Financing cash flows for financing leases | $ | 52 |
Year Ending December 31, | Operating leases | Finance leases | Total | |||||||||
2019 (1) | $ | 830 | $ | 179 | $ | 1,009 | ||||||
2020 | 1,128 | 862 | 1,990 | |||||||||
2021 | 1,111 | 202 | 1,313 | |||||||||
2022 | 1,129 | 64 | 1,193 | |||||||||
2023 | 1,135 | — | 1,135 | |||||||||
Thereafter | 99,185 | — | 99,185 | |||||||||
Total lease payments | 104,518 | 1,307 | 105,825 | |||||||||
Less: Amount representing interest | (87,899 | ) | (32 | ) | (87,931 | ) | ||||||
Lease liability | $ | 16,619 | $ | 1,275 | $ | 17,894 |
Year Ending December 31, | Operating leases | Finance leases | Total | |||||||||
2019 | $ | 1,101 | $ | 219 | $ | 1,320 | ||||||
2020 | 1,110 | 844 | 1,954 | |||||||||
2021 | 1,094 | 184 | 1,278 | |||||||||
2022 | 1,115 | 49 | 1,164 | |||||||||
2023 | 1,119 | — | 1,119 | |||||||||
Thereafter | 83,373 | — | 83,373 | |||||||||
Total lease payments | $ | 88,912 | 1,296 | 90,208 | ||||||||
Less: Amount representing interest | N/A | (24 | ) | (24 | ) | |||||||
Total | N/A | $ | 1,272 | $ | 90,184 |
Nominal ownership % as of 3/31/19 | March 31, 2019 (1) | |||||||||||||||||
Date Acquired | Total Assets | Encumbered Assets | Total Liabilities | |||||||||||||||
Nature of Activity | ||||||||||||||||||
LW Redstone Company, LLC | 3/23/2010 | 85% | Development and operation of real estate (2) | $ | 178,227 | $ | 75,542 | $ | 55,472 | |||||||||
M Square Associates, LLC | 6/26/2007 | 50% | Development and operation of real estate (3) | 79,257 | 46,180 | 44,554 | ||||||||||||
Stevens Investors, LLC | 8/11/2015 | 95% | Development of real estate (4) | 88,628 | 88,073 | 20,742 | ||||||||||||
$ | 346,112 | $ | 209,795 | $ | 120,768 |
(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. |
March 31, 2019 | December 31, 2018 | ||||||
Notes receivable from the City of Huntsville | $ | 55,293 |