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•	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.”

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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 the United States Government (“USG”) and its 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 portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of June 30, 2020, our properties included the following:

•	174 properties totaling 19.8 million square feet comprised of 15.6 million square feet in 150 office properties and 4.2 million square feet in 24 single-tenant data center shell properties (“data center shells”). We owned 15 of these data center shells through unconsolidated real estate joint ventures;

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

•	11 properties under development (nine office properties and two data center shells), including one partially-operational property, and expansions of three fully-operational properties that we estimate will total approximately 1.9 million square feet upon completion; and

•	approximately 900 acres of land controlled for future development that we believe could be developed into approximately 11.5 million square feet and 43 acres of other land.

 

COPLP owns real estate 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, development and construction 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 June 30, 2020, COPT owned 98.6% of the outstanding COPLP common units (“common units”); the remaining common units and all of the outstanding COPLP preferred units (“preferred units”) were owned by third parties. Common units not owned by COPT carry certain redemption rights. The number of common units owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT common shareholders. In the case of any series of preferred units held by COPT, there would be 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; similarly, although COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.

 

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.

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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 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.

 

When we own an equity investment in an entity and cannot exert significant influence over its operations, we measure the investment at fair value, with changes recognized through net income. For an investment without a readily determinable fair value, we measure the investment at cost, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.

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, 2019 included in our 2019 Annual Report on Form 10-K.  The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly state 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 2019 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.

Reclassifications

We reclassified certain amounts from prior periods to conform to the current period presentation of our consolidated financial statements with no effect on previously reported net income or equity.

Recent Accounting Pronouncements

Effective January 1, 2020, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that changes how entities measure credit losses for most financial assets and certain other instruments not measured at fair value through net income. The guidance replaces the current incurred loss model with an expected loss approach, resulting in a more timely recognition of such losses. The guidance applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables (excluding those arising from operating leases), loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g. loan commitments and guarantees). Under this guidance, we recognize an estimate of our expected credit losses on these asset types as an allowance, as the guidance requires that financial assets be measured on an amortized cost basis and be presented at the net amount expected to be collected. We adopted this guidance effective January 1, 2020 using the modified retrospective transition method under which we recognized a $5.5 million allowance for credit losses by means of a cumulative-effect adjustment to cumulative distributions in excess of net income of the Company (or common units of the Operating Partnership), and did not adjust prior comparative reporting periods. Our consolidated statements of operations reflect adjustments for changes in our expected credit losses occurring subsequent to adoption of this guidance.

Effective January 1, 2020, we adopted guidance issued by the FASB that modifies disclosure requirements for fair value measurements. The resulting changes in disclosure did not have a material impact on our consolidated financial statements.

Effective January 1, 2020, we adopted guidance issued by the FASB that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. FASB guidance did not previously address the accounting for such implementation costs. Our adoption of this guidance did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued guidance containing practical expedients for reference rate reform related activities pertaining to debt, leases, derivatives and other contracts. The guidance is optional and may be adopted over time as reference rate reform activities occur. During the six months ended June 30, 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of this guidance and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB issued a Staff Q&A document that addressed the accounting for lease accounting guidance for lease concessions resulting from the COVID-19 pandemic. Under existing lease guidance, we would normally have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated

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as a lease modification) or if such a concession was implemented pursuant to enforceable rights and obligations within the existing lease agreement (and, therefore, not treated as a lease modification). The Staff Q&A document enabled us to bypass the lease-by-lease analysis for lease concessions resulting from the COVID-19 pandemic, and instead elect to either apply the lease modification accounting framework or not, with such elections applied consistently to leases with similar characteristics and similar circumstances. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (such as deferrals of lease payments or reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We chose to apply the elections available under the Staff Q&A to restructurings of lease payment terms granted by us to tenants, the effect of which did not have a material impact on our consolidated financial statements.

Credit Losses, Financial Assets and Other Instruments

As discussed above, effective January 1, 2020, we adopted guidance issued by the FASB that changed how we measure credit losses for most financial assets and certain other instruments not measured at fair value through net income from an incurred loss model to an expected loss approach. Our items within the scope of this guidance included the following:

•	investing receivables, as disclosed in Note 7;

•	tenant notes receivable;

•	other assets comprised of non-lease revenue related accounts receivable (primarily from construction contract services) and contract assets from unbilled construction contract revenue; and

•	off-balance sheet credit exposures.

Under this guidance, we recognize an estimate of our expected credit losses on these items as an allowance, as the guidance requires that financial assets be measured on an amortized cost basis and be presented at the net amount expected to be collected (or as a separate liability in the case of off-balance sheet credit exposures). The allowance represents the portion of the amortized cost basis that we do not expect to collect (or loss we expect to incur in the case of off-balance sheet credit exposures) due to credit over the contractual life based on available information relevant to assessing the collectability of cash flows, which includes consideration of past events, current conditions and reasonable and supportable forecasts of future economic conditions (including consideration of asset- or borrower-specific factors). The guidance requires the allowance for expected credit losses to reflect the risk of loss, even when that risk is remote. An allowance for credit losses is measured and recorded upon the initial recognition of a financial asset (or off-balance sheet credit exposure), regardless of whether it is originated or purchased. Quarterly, the expected losses are re-estimated, considering any cash receipts and changes in risks or assumptions, with resulting adjustments recognized in the line entitled “credit loss expense” on our consolidated statements of operations.

We estimate expected credit losses for in-scope items using historical loss rate information developed for varying classifications of credit risk and contractual lives. Due to our limited quantity of items within the scope of this guidance and the unique risk characteristics of such items, we individually assign each in-scope item a credit risk classification. The credit risk classifications assigned by us are determined based on credit ratings assigned by ratings agencies (as available) or are internally-developed based on available financial information, historical payment experience, credit documentation, other publicly available information and current economic trends. In addition, for certain items in which the risk of credit loss is affected by the economic performance of a real estate development project, we develop probability weighted scenario analyses for varying levels of performance in estimating our credit loss allowance (applicable to our notes receivable from the City of Huntsville disclosed in Note 7 and a tax incremental financing obligation disclosed in Note 17).

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The table below sets forth the activity for the allowance for credit losses (in thousands):

	For the Six Months Ended June 30, 2020
	Investing Receivables				Tenant Notes Receivable (1)				Other Assets (2)				Off-Balance Sheet Credit Exposures (3)				Total
December 31, 2019	$	—			$	97			$	—			$	—			$	97
Cumulative effect of change for adoption of credit loss guidance	3,732				325				144				1,340				5,541
Credit loss expense	244				719				25				316				1,304
June 30, 2020	$	3,976			$	1,141			$	169			$	1,656			$	6,942

(1)	Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.

(2) The balance as of June 30, 2020 included $104,000 in the line entitled “accounts receivable, net” and $65,000 in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets.

(3) Included in the line entitled “other liabilities” on our consolidated balance sheets.

The following table presents the amortized cost basis of our investing receivables and tenants notes receivable by credit risk classification, by origination year as of June 30, 2020 (in thousands):

	Origination Year
	2015 and Earlier				2016				2017				2018				2019				2020				Total
Investing receivables:
Credit risk classification:
Investment grade	$	61,329			$	—			$	887			$	—			$	—			$	—			$	62,216
Non-investment grade	3,020				—				—				—				11,073				—				14,093
Total	$	64,349			$	—			$	887			$	—			$	11,073			$	—			$	76,309
Tenant notes receivable:
Credit risk classification:
Investment grade	$	—			$	68			$	—			$	1,069			$	95			$	—			$	1,232
Non-investment grade	97				202				—				178				2,067				1,600				4,144
Total	$	97			$	270			$	—			$	1,247			$	2,162			$	1,600			$	5,376

Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd.), meaning that they are considered to have at least an adequate capacity to meet their financial commitments, with credit risk ranging from minimal to moderate. Our non-investment grade credit risk classification represents entities with either no credit agency credit ratings or ratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification. The credit risk classifications of our investing receivables and tenant notes receivable were last updated in June 2020.

An insignificant portion of the investing and tenant notes receivables set forth above was past due, which we define as being delinquent by more than three months from the due date.

When we believe that collection of interest income on an investing or tenant note receivable is not probable, we place the receivable on nonaccrual status, meaning interest income is recognized when payments are received rather than on an accrual basis. Notes receivable on nonaccrual status as of June 30, 2020 and December 31, 2019 were not significant. We did not recognize any interest income during the three and six months ended June 30, 2020 on notes receivable on nonaccrual status.

We write off receivables when we believe the facts and circumstances indicate that continued pursuit of collection is no longer warranted. When cash is received in connection with receivables for which we have previously recognized credit losses, we recognize reductions in our credit loss expense.

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Recurring Fair Value Measurements

COPT has a non-qualified elective deferred compensation plan for Trustees and certain members of our management team that, prior to December 31, 2019, permitted participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The Company froze additional entry into the plan effective December 31, 2019.  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 sheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded and totaled $2.5 million as of June 30, 2020, is included in the line entitled “prepaid expenses and other assets, net” on COPT’s consolidated balance sheets along with an insignificant amount of other 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 are classified in Level 1 of the fair value hierarchy, while the offsetting liability 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 June 30, 2020, 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.

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.  The fair values of our investing receivables, as disclosed in Note 7, were 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 9, 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 7 for investing receivables, Note 9 for debt and Note 10 for interest rate derivatives. 

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COPT and Subsidiaries

The table below sets forth financial assets and liabilities of COPT and subsidiaries that are accounted for at fair value on a recurring basis as of June 30, 2020 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		$	2,512			$	—			$	—			$	2,512
Other		20				—				—				20
Mutual funds (1)		7				—				—				7
Total assets		$	2,539			$	—			$	—			$	2,539
Liabilities:
Deferred compensation plan liability (2)		$	—			$	2,532			$	—			$	2,532
Interest rate derivatives		—				65,612				—				65,612
Total liabilities		$	—			$	68,144			$	—			$	68,144

(1) Included in the line entitled “prepaid expenses and other assets, net” 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 subsidiaries that are accounted for at fair value on a recurring basis as of June 30, 2020 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:
Mutual funds (1)		$	7			$	—			$	—			$	7
Liabilities:
Interest rate derivatives		$	—			$	65,612			$	—			$	65,612

(1) Included in the line entitled “prepaid expenses and other assets, net” on COPLP’s consolidated balance sheet.

 

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

	June 30, 2020				December 31, 2019
Land	$	502,609			$	472,976
Buildings and improvements	3,451,302				3,306,791
Less: Accumulated depreciation	(1,065,094		)		(1,007,120		)
Operating properties, net	$	2,888,817			$	2,772,647

2020 Development Activities

During the six months ended June 30, 2020, we placed into service 621,000 square feet in four newly-developed properties and 21,000 square feet in a redeveloped property. As of June 30, 2020, we had 11 properties under development, including one partially-operational property, and expansions of three fully-operational properties that we estimate will total 1.9 million square feet upon completion.

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Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of June 30, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 15 years and averaging approximately five years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocation of lease revenue recognized between fixed and variable lease revenue (in thousands):

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
Lease revenue		2020				2019				2020				2019
Fixed		$	103,993			$	104,193			$	208,102			$	208,837
Variable		28,154				27,222				55,057				53,481
		$	132,147			$	131,415			$	263,159			$	262,318

Fixed contractual payments due under our property leases were as follows (in thousands):

Year Ending December 31,		June 30, 2020				December 31, 2019
2020 (1)		$	203,627			$	388,310
2021		372,518				336,482
2022		335,187				299,356
2023		281,094				245,661
2024		231,731				195,246
Thereafter		634,608				474,741
		$	2,058,765			$	1,939,796

(1) As of June 30, 2020, represents the six months ending December 31, 2020.

Lessee arrangements

As of June 30, 2020, our balance sheet included $71.5 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating or developing. The land leases have long durations with remaining terms ranging from 29 (excluding extension options) to 96 years, and included:

•	$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 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2021;

•	$10.2 million for land underlying operating office properties in Washington, DC under two leases with remaining terms of approximately 80 years;

•	$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 29 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;

•	$6.6 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 63 to 74 years;

•	$8.1 million for land in a business park in Huntsville, Alabama under 11 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance; and

•	$2.3 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.

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Our property right-of-use assets consisted of the following (in thousands):

Leases		Balance Sheet Location		June 30, 2020				December 31, 2019
Right-of-use assets
Operating leases - Property		Property - operating right-of-use assets		$	31,009			$	27,864
Finance leases - Property		Property - finance right-of-use assets		40,441				40,458
Total right-of-use assets				$	71,450			$	68,322

Property lease liabilities consisted of the following (in thousands):

Leases		Balance Sheet Location		June 30, 2020				December 31, 2019
Lease liabilities
Operating leases - Property		Property - operating lease liabilities		$	20,796			$	17,317
Finance leases - Property		Other liabilities		688				702
Total lease liabilities				$	21,484			$	18,019

The table below sets forth the weighted average terms and discount rates of our property leases as of June 30, 2020:

Weighted average remaining lease term
Operating leases		65 years
Finance leases		< 1 year
Weighted average discount rate
Operating leases		7.22	%
Finance leases		3.62	%

The table below presents our total property lease cost (in thousands):

		Statement of Operations Location		For the Three Months Ended June 30,								For the Six Months Ended June 30,
Lease cost				2020				2019				2020				2019
Operating lease cost
Property leases		Property operating expenses		$	445			$	413			$	876			$	826
Finance lease cost
Amortization of property right-of-use assets		Property operating expenses		9				12				18				12
				$	454			$	425			$	894			$	838

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):

		For the Six Months Ended June 30,
Supplemental cash flow information		2020				2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	541			$	550
Financing cash flows for financing leases		$	14			$	4

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Payments on property leases were due as follows (in thousands):

		As of June 30, 2020												As of December 31, 2019
Year Ending December 31,		Operating leases				Finance leases				Total				Operating leases				Finance leases				Total
2020 (1)		$	636			$	660			$	1,296			$	1,092			$	674			$	1,766
2021		1,328				14				1,342				1,138				14				1,152
2022		1,352				14				1,366				1,162				14				1,176
2023		1,358				—				1,358				1,167				—				1,167
2024		1,363				—				1,363				1,173				—				1,173
Thereafter		113,780				—				113,780				100,609				—				100,609
Total lease payments		119,817				688				120,505				106,341				702				107,043
Less: Amount representing interest		(99,021		)		—				(99,021		)		(89,024		)		—				(89,024		)
Lease liability		$	20,796			$	688			$	21,484			$	17,317			$	702			$	18,019

(1) As of June 30, 2020, represents the six months ending December 31, 2020.

Consolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of June 30, 2020 (dollars in thousands):

								June 30, 2020 (1)
		Date Acquired		Nominal Ownership %				Total Assets				Encumbered Assets				Total Liabilities
Entity						Location
LW Redstone Company, LLC		3/23/2010		85%		Huntsville, Alabama		$	335,040			$	111,380			$	107,223
M Square Associates, LLC		6/26/2007		50%		College Park, Maryland		92,946				62,725				56,153
Stevens Investors, LLC		8/11/2015		95%		Washington, DC		141,952				141,234				69,982
								$	569,938			$	315,339			$	233,358

(1)	Excludes amounts eliminated in consolidation.

In March 2020, the LW Redstone Company, LLC joint venture agreement was amended to change the distribution terms to allow the venture to distribute financing proceeds to satisfy our partner’s cumulative preferred return and to provide our partner a priority preferred return on its invested capital.

Unconsolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):

		Date Acquired		Nominal Ownership %		Number of Properties			Carrying Value of Investment (1)
Entity									June 30, 2020				December 31, 2019
GI-COPT DC Partnership LLC		7/21/2016		50%		6			$	36,720			$	37,816
BREIT COPT DC JV LLC		6/20/2019		10%		9			13,737				14,133
						15			$	50,457			$	51,949

(1) Included in the line entitled “investment in unconsolidated real estate joint ventures” on our consolidated balance sheets.

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Investing receivables consisted of the following (in thousands):

 

	June 30, 2020				December 31, 2019
Notes receivable from the City of Huntsville	$	62,216			$	59,427
Other investing loans receivable	14,093				14,096
Amortized cost basis	76,309				73,523
Allowance for credit losses	(3,976		)		—
Investing receivables, net	$	72,333			$	73,523

 

The balances above include accrued interest receivable, net of allowance for credit losses, of $1.9 million as of June 30, 2020 and $4.7 million as of December 31, 2019.

Our notes receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 6) and carry an interest rate of 9.95%. Our other investing loans receivable carry an interest rate of 8.0%.

The fair value of these receivables was approximately $77 million as of June 30, 2020 and $74 million as of December 31, 2019.

 

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

 

	June 30, 2020				December 31, 2019
Lease incentives, net	$	29,092			$	28,433
Furniture, fixtures and equipment, net	9,015				7,823
Non-real estate equity investments	6,726				6,705
Prepaid expenses	6,600				18,835
Construction contract costs in excess of billings, net	5,508				17,223
Restricted cash	4,270				3,397
Deferred financing costs, net (1)	3,069				3,633
Deferred tax asset, net (2)	2,249				2,328
Other assets	8,998				4,639
Total for COPLP and subsidiaries	75,527				93,016
Marketable securities in deferred compensation plan	2,532				3,060
Total for COPT and subsidiaries	$	78,059			$	96,076

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

(2) Includes a valuation allowance of $533,000 as of June 30, 2020 and $480,000 as of December 31, 2019.

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

		Carrying Value (1) as of
		June 30, 2020				December 31, 2019				June 30, 2020
										Stated Interest Rates		Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt (2)		$	141,729			$	143,430			3.82% - 4.62% (3)		2023-2026
Variable rate secured debt (4)		108,392				68,055				LIBOR + 1.45% to 2.35% (5)		2020-2026
Total mortgage and other secured debt		250,121				211,485
Revolving Credit Facility (6)		169,000				177,000				LIBOR + 0.775% to 1.45% (7)		March 2023 (6)
Term Loan Facility (8)		398,058				248,706				LIBOR + 1.00% to 1.65% (9)		2022
Unsecured Senior Notes
3.60%, $350,000 aggregate principal		348,658				348,431				3.60% (10)		May 2023
5.25%, $250,000 aggregate principal		247,920				247,652				5.25% (11)		February 2024
3.70%, $300,000 aggregate principal		299,585				299,324				3.70% (12)		June 2021
5.00%, $300,000 aggregate principal		297,707				297,503				5.00% (13)		July 2025
Unsecured note payable		970				1,038				0% (14)		May 2026
Total debt, net		$	2,012,019			$	1,831,139

(1)	The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $6.0 million as of June 30, 2020 and $5.8 million as of December 31, 2019.

(2)	Certain of the fixed rate mortgages carry interest rates that, upon assumption, were above or below market rates 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 $186,000 as of June 30, 2020 and $217,000 as of December 31, 2019.

(3)	The weighted average interest rate on our fixed rate mortgage debt was 4.16% as of June 30, 2020.

(4)	Includes a construction loan with $47.6 million in remaining borrowing capacity as of June 30, 2020.

(5)	The weighted average interest rate on our variable rate secured debt was 2.22% as of June 30, 2020.

(6)

The facility matures in March 2023, with the ability for us to further extend such maturity 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 under the facility for each extension period. In connection with this facility, we also have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.

(7)	The weighted average interest rate on the Revolving Credit Facility was 1.20% as of June 30, 2020.

(8)   On March 6, 2020, we amended this loan facility to increase the loan amount by $150.0 million and change the interest terms.

(9)	The interest rate on this loan was 1.17% as of June 30, 2020.

(10)	The carrying value of these notes reflects an unamortized discount totaling $939,000 as of June 30, 2020 and $1.1 million as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.

(11)	The carrying value of these notes reflects an unamortized discount totaling $1.9 million as of June 30, 2020 and $2.1 million as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.

(12)	The carrying value of these notes reflects an unamortized discount totaling $324,000 as of June 30, 2020 and $534,000 as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.

(13) The carrying value of these notes reflects an unamortized discount totaling $1.9 million as of June 30, 2020 and $2.1 million as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.

(14)	This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates.  The carrying value of this note reflects an unamortized discount totaling $191,000 as of June 30, 2020 and $223,000 as of December 31, 2019.

 

All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed COPLP’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 June 30, 2020, we were compliant with these financial covenants.

We capitalized interest costs of $3.2 million in the three months ended June 30, 2020, $2.4 million in the three months ended June 30, 2019, $6.5 million in the six months ended June 30, 2020 and $4.4 million in the six months ended June 30, 2019.

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

 

The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge of interest rate risk (dollars in thousands):

												Fair Value at
Notional Amount				Fixed Rate		Floating Rate Index		Effective Date		Expiration Date		June 30, 2020				December 31, 2019
$	12,234		(1)	1.390%		One-Month LIBOR		10/13/2015		10/1/2020		$	(38	)		$	23
100,000				1.901%		One-Month LIBOR		9/1/2016		12/1/2022		(4,326		)		(1,028		)
100,000				1.905%		One-Month LIBOR		9/1/2016		12/1/2022		(4,336		)		(1,037		)
50,000				1.908%		One-Month LIBOR		9/1/2016		12/1/2022		(2,171		)		(524		)
11,200			(2)	1.678%		One-Month LIBOR		8/1/2019		8/1/2026		(858		)		(20		)
150,000				0.498%		One-Month LIBOR		4/1/2020		12/31/2020		(248		)		—
23,000			(3)	0.573%		One-Month LIBOR		4/1/2020		3/26/2025		(378		)		—
75,000				3.176%		Three-Month LIBOR		6/30/2020		6/30/2030		(18,779		)		(8,640		)
75,000				3.192%		Three-Month LIBOR		6/30/2020		6/30/2030		(18,897		)		(8,749		)
75,000				2.744%		Three-Month LIBOR		6/30/2020		6/30/2030		(15,581		)		(5,684		)
												$	(65,612	)		$	(25,659	)

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

(2)	The notional amount of this instrument is scheduled to amortize to $10.0 million.

(3)	The notional amount of this instrument is scheduled to amortize to $22.1 million.

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):

				Fair Value at
Derivatives		Balance Sheet Location		June 30, 2020				December 31, 2019
Interest rate swaps designated as cash flow hedges		Prepaid expenses and other assets, net		$	—			$	23
Interest rate swaps designated as cash flow hedges		Interest rate derivatives (liabilities)		$	(65,612	)		$	(25,682	)

 

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

		Amount of Loss Recognized in AOCL on Derivatives																Amount of (Loss) Gain Reclassified from AOCL into Interest Expense on Statement of Operations
		For the Three Months Ended June 30,								For the Six Months Ended June 30,								For the Three Months Ended June 30,								For the Six Months Ended June 30,
Derivatives in Hedging Relationships		2020				2019				2020				2019				2020				2019				2020				2019
Interest rate derivatives		$	(3,315	)		$	(13,545	)		$	(41,020	)		$	(22,390	)		$	(935	)		$	557			$	(1,066	)		$	1,127

Based on the fair value of our derivatives as of June 30, 2020, we estimate that approximately $8.1 million of losses will be reclassified from accumulated other comprehensive loss (“AOCL”) as an increase to interest expense over the next 12 months.

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

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our derivative obligations. 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 June 30, 2020, we were not in default with any of these provisions. As of June 30, 2020, the fair value of interest rate derivatives in a liability position related to these agreements was $65.8 million, excluding the effects of accrued interest and credit valuation adjustments. As of June 30, 2020, we had not posted any collateral related to these agreements.  If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $66.2 million as of June 30, 2020.

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 sheets. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):

		For the Six Months Ended June 30,
		2020				2019
Beginning balance		$	29,431			$	26,260
Distributions to noncontrolling interests		(12,695		)		(876		)
Net income attributable to noncontrolling interests		2,075				1,544
Adjustment to arrive at fair value of interests		4,337				2,875
Ending balance		$	23,148			$	29,803

 

Common Shares/Units

As of June 30, 2020, COPT had remaining capacity under its at-the-market stock offering program equal to an aggregate gross sales price of $300 million in common share sales.

During the six months ended June 30, 2020, certain COPLP limited partners converted 12,009 common units in COPLP for an equal number of common shares in COPT.

We declared dividends per COPT common share and distributions per COPLP common unit of $0.275 in the three months ended June 30, 2020 and 2019 and $0.550 in the six months ended June 30, 2020 and 2019.

See Note 15 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.

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We have the following reportable segments: Defense/IT Locations; Regional Office; Wholesale Data Center; and Other. We also report on Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (“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).

We measure the performance of our segments through the measure we define as net operating income from real estate operations (“NOI from real estate operations”), which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to COPT’s ownership interest (“UJV NOI allocable to COPT”). Amounts reported for segment assets represent long-lived assets associated with consolidated operating properties (including the carrying value of properties, right-of-use assets, net of related lease liabilities, intangible assets, deferred leasing costs, deferred rents receivable and lease incentives) and the carrying value of investments in UJVs owning operating properties. Amounts reported as additions to long-lived assets represent additions to existing consolidated operating properties, excluding transfers from non-operating properties, which we report separately.

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The table below reports segment financial information for our reportable segments (in thousands): 

	Operating 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				Wholesale Data Center				Other				Total
Three Months Ended June 30, 2020
Revenues from real estate operations	$	62,698			$	14,447			$	13,257			$	8,119			$	4,647			$	7,076			$	110,244			$	15,162			$	6,455			$	677			$	132,538
Property operating expenses	(20,859		)		(5,335		)		(7,785		)		(3,171		)		(1,612		)		(789		)		(39,551		)		(6,888		)		(3,463		)		(302		)		(50,204		)
UJV NOI allocable to COPT	—				—				—				—				—				1,725				1,725				—				—				—				1,725
NOI from real estate operations	$	41,839			$	9,112			$	5,472			$	4,948			$	3,035			$	8,012			$	72,418			$	8,274			$	2,992			$	375			$	84,059
Additions to long-lived assets	$	6,958			$	3,204			$	—			$	2,110			$	146			$	—			$	12,418			$	4,445			$	7,904			$	103			$	24,870
Transfers from non-operating properties	$	3,975			$	524			$	145			$	—			$	29,171			$	49,964			$	83,779			$	—			$	—			$	—			$	83,779
Three Months Ended June 30, 2019
Revenues from real estate operations	$	61,659			$	13,912			$	12,104			$	8,185			$	3,968			$	8,624			$	108,452			$	15,018			$	8,560			$	741			$	132,771
Property operating expenses	(19,344		)		(4,694		)		(6,648		)		(3,286		)		(1,599		)		(759		)		(36,330		)		(7,590		)		(3,618		)		(348		)		(47,886		)
UJV NOI allocable to COPT	—				—				—				—				—				1,251				1,251				—				—				—				1,251
NOI from real estate operations	$	42,315			$	9,218			$	5,456			$	4,899			$	2,369			$	9,116			$	73,373			$	7,428			$	4,942			$	393			$	86,136
Additions to long-lived assets	$	7,499			$	1,703			$	—			$	928			$	536			$	—			$	10,666			$	4,870			$	95			$	34			$	15,665
Transfers from non-operating properties	$	1,338			$	20			$	1,833			$	—			$	5,576			$	92,844			$	101,611			$	—			$	—			$	—			$	101,611
Six Months Ended June 30, 2020
Revenues from real estate operations	$	127,136			$	28,125			$	25,333			$	16,460			$	9,323			$	12,653			$	219,030			$	30,622			$	13,627			$	1,375			$	264,654
Property operating expenses	(42,081		)		(10,520		)		(14,580		)		(6,456		)		(3,459		)		(1,446		)		(78,542		)		(14,425		)		(6,696		)		(540		)		(100,203		)
UJV NOI allocable to COPT	—				—				—				—				—				3,438				3,438				—				—				—				3,438
NOI from real estate operations	$	85,055			$	17,605			$	10,753			$	10,004			$	5,864			$	14,645			$	143,926			$	16,197			$	6,931			$	835			$	167,889
Additions to long-lived assets	$	14,633			$	5,895			$	—			$	3,868			$	316			$	—			$	24,712			$	7,802			$	8,782			$	168			$	41,464
Transfers from non-operating properties	$	4,513			$	780			$	160			$	—			$	30,307			$	106,196			$	141,956			$	—			$	—			$	—			$	141,956
Segment assets at June 30, 2020	$	1,271,790			$	394,363			$	144,253			$	181,744			$	167,161			$	382,749			$	2,542,060			$	389,058			$	205,711			$	3,710			$	3,140,539
Six Months Ended June 30, 2019
Revenues from real estate operations	$	124,342			$	28,743			$	23,665			$	16,340			$	7,907			$	15,978			$	216,975			$	29,851			$	16,431			$	1,504			$	264,761
Property operating expenses	(41,679		)		(9,986		)		(12,607		)		(6,690		)		(3,138		)		(1,112		)		(75,212		)		(15,006		)		(6,456		)		(657		)		(97,331		)
UJV NOI allocable to COPT	—				—				—				—				—				2,470				2,470				—				—				—				2,470
NOI from real estate operations	$	82,663			$	18,757			$	11,058			$	9,650			$	4,769			$	17,336			$	144,233			$	14,845			$	9,975			$	847			$	169,900
Additions to long-lived assets	$	11,434			$	3,150			$	—			$	5,945			$	836			$	—			$	21,365			$	8,859			$	251			$	44			$	30,519
Transfers from non-operating properties	$	6,378			$	4,529			$	8,336			$	—			$	9,211			$	112,632			$	141,086			$	—			$	—			$	—			$	141,086
Segment assets at June 30, 2019	$	1,274,336			$	398,586			$	146,475			$	187,172			$	115,222			$	307,676			$	2,429,467			$	393,110			$	209,787			$	3,776			$	3,036,140

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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 June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Segment revenues from real estate operations	$	132,538			$	132,771			$	264,654			$	264,761
Construction contract and other service revenues	12,236				42,299				25,917				59,249
Total revenues	$	144,774			$	175,070			$	290,571			$	324,010

 

The following table reconciles UJV NOI allocable to COPT to equity in income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
UJV NOI allocable to COPT	$	1,725			$	1,251			$	3,438			$	2,470
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense	(1,270		)		(830		)		(2,540		)		(1,657		)
Add: Equity in loss of unconsolidated non-real estate entities	(1		)		(1		)		(3		)		(2		)
Equity in income of unconsolidated entities	$	454			$	420			$	895			$	811

 

As previously discussed, we provide real estate services such as property management, development and construction 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 June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Construction contract and other service revenues	$	12,236			$	42,299			$	25,917			$	59,249
Construction contract and other service expenses	(11,711		)		(41,002		)		(24,832		)		(57,328		)
NOI from service operations	$	525			$	1,297			$	1,085			$	1,921

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

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
NOI from real estate operations	$	84,059			$	86,136			$	167,889			$	169,900
NOI from service operations	525				1,297				1,085				1,921
Interest and other income	2,282				1,849				3,487				4,135
Credit loss expense	(615		)		—				(1,304		)		—
Gain on sales of real estate	—				84,469				5				84,469
Equity in income of unconsolidated entities	454				420				895				811
Income tax (expense) benefit	(30		)		176				(79		)		(18		)
Depreciation and other amortization associated with real estate operations	(33,612		)		(34,802		)		(66,208		)		(69,598		)
General, administrative and leasing expenses	(8,158		)		(9,386		)		(15,644		)		(18,137		)
Business development expenses and land carry costs	(1,262		)		(870		)		(2,380		)		(1,983		)
Interest expense	(16,797		)		(18,475		)		(33,637		)		(37,149		)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities	(1,725		)		(1,251		)		(3,438		)		(2,470		)
Net income	$	25,121			$	109,563			$	50,671			$	131,881

 

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

 

	June 30, 2020				June 30, 2019
Segment assets	$	3,140,539			$	3,036,140
Operating properties lease liabilities included in segment assets	19,073				16,502
Non-operating property assets	679,207				523,801
Other assets	172,506				227,026
Total COPT consolidated assets	$	4,011,325			$	3,803,469

 

The accounting policies of the segments are the same as those used to prepare our consolidated financial statements.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, gain on sales of real estate and equity in income of unconsolidated entities not included in NOI 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, credit loss expense, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.

We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Construction contract revenue:
Guaranteed maximum price	$	5,432			$	25,792			$	10,476			$	38,148
Firm fixed price	2,984				1,335				8,056				3,660
Cost-plus fee	3,563				14,969				6,872				17,029
Other	257				203				513				412
	$	12,236			$	42,299			$	25,917			$	59,249

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The table below reports construction contract and other service revenues by service type (in thousands):

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Construction contract revenue:
Construction	$	10,851			$	42,010			$	23,734			$	58,499
Design	1,128				86				1,670				338
Other	257				203				513				412
	$	12,236			$	42,299			$	25,917			$	59,249

We recognized an increase (decrease) in revenue of $74,000 and $(14,000) in the three months ended June 30, 2020 and 2019, respectively, and $74,000 and $18,000 in the six months ended June 30, 2020 and 2019, respectively, from performance obligations satisfied (or partially satisfied) in previous periods.

Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):

	For the Six Months Ended June 30,
	2020				2019
Beginning balance	$	12,378			$	6,701
Ending balance	$	8,898			$	34,837

The increase in the accounts receivable balance reported above for the six months ended June 30, 2019 was due primarily to significant amounts billed near the end of the period.

Contract assets, which we refer to herein as construction contract costs in excess of billings, net are included in prepaid expenses and other assets, net reported on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):

	For the Six Months Ended June 30,
	2020				2019
Beginning balance	$	17,223			$	3,189
Ending balance	$	5,508			$	12,629

Contract liabilities are included in other liabilities reported on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):

	For the Six Months Ended June 30,
	2020				2019
Beginning balance	$	1,184			$	568
Ending balance	$	2,435			$	156
Portion of beginning balance recognized in revenue during:
Three months ended June 30	$	92			$	6
Six months ended June 30	$	738			$	445

Revenue allocated to the remaining performance obligations under existing contracts as of June 30, 2020 that will be recognized as revenue in future periods was $70.5 million, approximately $20 million of which we expect to recognize during the remainder of 2020.

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Restricted Shares

 

During the six months ended June 30, 2020, certain employees and non-employee members of our Board of Trustees (“Trustees”) were granted a total of 152,793 restricted common shares with an aggregate grant date fair value of $3.9 million (weighted average of $25.20 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 employee remains employed by us. Restricted shares granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. During the six months ended June 30, 2020, forfeiture restrictions lapsed on 159,083 previously issued common shares; these shares had a weighted average grant date fair value of $28.16 per share, and the aggregate intrinsic value of the shares on the vesting dates was $4.0 million.

Deferred Share Awards

During the six months ended June 30, 2020, certain non-employee Trustees were granted a total of 7,972 deferred share awards with an aggregate grant date fair value of $187,000 ($23.44 per share). Deferred share awards vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. We settle deferred share awards by issuing an equivalent number of common shares upon vesting of the awards or a later date elected by the Trustee (generally upon cessation of being a Trustee).

Performance Share Awards (“PSUs”)

 

We issued 23,181 common shares on January 13, 2020 to executives in settlement of PSUs granted in 2017, representing 53% of the target awards for those PSUs.

Profit Interest Units (“PIUs”)

For 2020, we offered our executives and Trustees the opportunity to select PIUs as a form of long-term compensation in lieu of, or in combination with, other forms of share-based compensation awards (restricted shares, deferred share awards and PSUs). Our executives and certain of our Trustees selected PIUs as their form of share-based compensation for their 2020 grants. We granted two forms of PIUs: time-based PIUs (“TB-PIUs”); and performance-based PIUs (“PB-PIUs”). TB-PIUs are subject to forfeiture restrictions until the end of the requisite service period, at which time the TB-PIUs automatically convert into vested PIUs. PB-PIUs are subject to a market condition in that the number of earned awards are determined at the end of the performance period (as described further below) and then settled in vested PIUs. Vested PIUs carry substantially the same rights to redemption and distributions as non-PIU common units.

TB-PIUs

During the six months ended June 30, 2020, our executives and certain non-employee Trustees were granted a total of 75,053 TB-PIUs with an aggregate grant date fair value of $1.9 million (weighted average of $25.14 per TB-PIU). TB-PIUs granted to executives vest in equal one-third increments over a three-year period beginning on the first anniversary of the date of grant. TB-PIUs granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the six months ended June 30, 2020, 20,622 TB-PIUs awarded to our former Executive Vice President and Chief Operating Officer were forfeited upon his resignation. During the six months ended June 30, 2020, forfeiture restrictions lapsed on 25,182 previously issued TB-PIUs; these TB-PIUs had a grant date fair value of $26.30 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was $640,000.

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PB-PIUs

On January 1, 2020, we granted our executives 176,758 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 2022 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 earned awards at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return (“TSR”) relative to a peer group of companies, as set forth in the following schedule:

Percentile Rank		Earned Awards Payout %
75th or greater		100% of PB-PIUs granted
50th (target)		50% of PB-PIUs granted
25th		25% of PB-PIUs granted
Below 25th		0% of PB-PIUs 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 awards will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles.  If COPT’s TSR during the measurement period is negative, the maximum number of earned awards will be limited to the target level payout percentage.  During the performance period, PB-PIUs carry rights to distributions equal to 10% of the distribution rights of non-PIU common units but carry no redemption rights.

At the end of the performance period, we will settle the award by issuing vested PIUs equal to the number of earned awards in settlement of the award plan and paying cash equal to the excess, if any, of: the aggregate distributions that would have been paid with respect to vested PIUs issued in settlement of the earned awards through the date of settlement had such vested PIUs been issued on the grant date; over the aggregate distributions made on the PB-PIUs during the performance period. If a performance period ends due to a sale event or qualified termination, the number of earned awards 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 PB-PIUs are forfeited.

These PB-PIU grants had an aggregate grant date fair value of $2.9 million ($16.36 per PB-PIU) which is being recognized over the performance period. The grant date fair value was computed using a Monte Carlo model that included the following assumptions: baseline common share value of $29.38; expected volatility for common shares of 18.0%; and a risk-free interest rate of 1.65%.  

 

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 common shares were converted; and (2) the effect of dilutive potential common shares outstanding during the period attributable to COPT’s forward equity sale agreements, redeemable noncontrolling interests and our 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 add 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 June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Numerator:
Net income attributable to COPT	$	23,497			$	106,791			$	47,551			$	127,650
Income attributable to share-based compensation awards	(115		)		(364		)		(220		)		(413		)
Numerator for basic EPS on net income attributable to COPT common shareholders	23,382				106,427				47,331				127,237
Preferred unit distributions	—				165				—				—
Redeemable noncontrolling interests	—				902				—				66
Common units in the Operating Partnership	—				—				—				1,515
Income attributable to share-based compensation awards	6				18				14				22
Numerator for diluted EPS on net income attributable to COPT common shareholders	$	23,388			$	107,512			$	47,345			$	128,840
Denominator (all weighted averages):
Denominator for basic EPS (common shares)	111,800				111,557				111,762				110,759
Dilutive convertible preferred units	—				176				—				—
Dilutive effect of common units	—				—				—				1,329
Dilutive effect of redeemable noncontrolling interests	—				1,062				—				130
Dilutive effect of share-based compensation awards	321				310				280				289
Denominator for diluted EPS (common shares)	112,121				113,105				112,042				112,507
Basic EPS	$	0.21			$	0.95			$	0.42			$	1.15
Diluted EPS	$	0.21			$	0.95			$	0.42			$	1.15

 

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):

	Weighted Average Shares Excluded from Denominator
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Conversion of common units	1,237			1,327			1,232			—
Conversion of redeemable noncontrolling interests	878			—			944			907
Conversion of Series I preferred units	176			—			176			176

 

The following securities were also excluded from the computation of diluted EPS because their effect was antidilutive:

•	weighted average shares related to COPT’s forward equity sale agreements for the six months ended June 30, 2019 of 758,000;

•	weighted average restricted shares and deferred share awards for the three months ended June 30, 2020 and 2019 of 429,000 and 425,000, respectively, and for the six months ended June 30, 2020 and 2019 of 434,000 and 444,000, respectively;

•	weighted average options for the three and six months ended June 30, 2019 of 17,000 and 23,000, respectively; and

•	weighted average unvested TB-PIUs for the three months ended June 30, 2020 and 2019 of 90,000 and 59,000, respectively, and for the six months ended June 30, 2020 and 2019 of 82,000 and 39,000, respectively.

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

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potential common units outstanding during the period attributable to COPT’s forward equity sale agreements, redeemable noncontrolling interests and our 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 add 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 June 30,								For the Six Months Ended June 30,
	2020				2019				2020				2019
Numerator:
Net income attributable to COPLP	$	23,858			$	108,295			$	48,276			$	129,576
Preferred unit distributions	(77		)		(165		)		(154		)		(330		)
Income attributable to share-based compensation awards	(133		)		(438		)		(254		)		(494		)
Numerator for basic EPU on net income attributable to COPLP common unitholders	23,648				107,692				47,868				128,752
Redeemable noncontrolling interests	—				902				—				66
Income attributable to share-based compensation awards	—				18				—				22
Dilutive effective of preferred units	—				165				—				—
Numerator for diluted EPU on net income attributable to COPLP common unitholders	$	23,648			$	108,777			$	47,868			$	128,840
Denominator (all weighted averages):
Denominator for basic EPU (common units)	113,037				112,884				112,994				112,088
Dilutive convertible preferred units	—				176				—				—
Dilutive effect of redeemable noncontrolling interests	—				1,062				—				130
Dilutive effect of share-based compensation awards	321				310				280				289
Denominator for diluted EPU (common units)	113,358				114,432				113,274				112,507
Basic EPU	$	0.21			$	0.95			$	0.42			$	1.15
Diluted EPU	$	0.21			$	0.95			$	0.42			$	1.15

 

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):

	Weighted Average Shares Excluded from Denominator
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Conversion of redeemable noncontrolling interests	878			—			944			907
Conversion of Series I preferred units	176			—			176			176

The following securities were also excluded from the computation of diluted EPU because their effect was antidilutive:

•	weighted average shares related to COPT’s forward equity sale agreements for the six months ended June 30, 2019 of 758,000;

•	weighted average restricted units and deferred share awards for the three months ended June 30, 2020 and 2019 of 429,000 and 425,000, respectively, and for the six months ended June 30, 2020 and 2019 of 434,000 and 444,000, respectively;

•	weighted average options for the three and six months ended June 30, 2019 of 17,000 and 23,000, respectively; and

•	weighted average unvested TB-PIUs for the three months ended June 30, 2020 and 2019 of 90,000 and 59,000, respectively, and for the six months ended June 30, 2020 and 2019 of 82,000 and 39,000, respectively.

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Litigation and Claims

 

In the normal course of business, we are subject to legal actions and other claims.  We record losses for specific legal proceedings and claims when we determine that a loss is probable and the amount of loss can be reasonably estimated.  As of June 30, 2020, management believes that it is reasonably possible that we could recognize a loss of up to $3.2 million for certain municipal tax claims. While we do not believe this loss would materially affect our financial position or liquidity, it could be material to our results of operations. Management believes that it is also reasonably possible that we could incur losses pursuant to other such claims but do not believe such losses would materially affect our financial position, liquidity or results of operations. 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.

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 limited to $19 million in the aggregate. We have insurance coverage in place to mitigate much of any potential future losses that may result from these indemnification agreements.

 

Tax Incremental Financing Obligation

 

Anne Arundel County, Maryland issued tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as the National Business Park.  These bonds had a remaining principal balance of approximately $34 million as of June 30, 2020. The real estate taxes on increases in assessed values post-bond issuance of properties in development districts encompassing the National Business Park are transferred to a special fund pledged to the repayment of the bonds. While we are obligated to fund, through a special tax, any future shortfalls between debt service of the bonds and real estate taxes available to repay the bonds, as of June 30, 2020, we do not expect any such future fundings will be significant.

Effects of COVID-19

 

Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities have imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong measures were in place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures in late April, as regional COVID-19 case volumes appeared to be decreasing. The pace of the easing of these measures varied regionally, with some state and local governments lifting restrictive measures entirely, and many businesses were able to gradually begin resuming a return to normal operations. As of the date of this filing, case volumes were increasing in much of the country, with certain authorities re-instituting restrictive measures and others contemplating doing so. As a result, there continues to be significant uncertainty regarding the duration of this pandemic and, once it subsides, the potential for it to reoccur on a significant scale in the future. The outbreak has significantly disrupted economic markets worldwide, as well as in the United States at a national, regional and local level, and created significant volatility in financial markets. These conditions could continue or further deteriorate as businesses feel the prolonged effects of stalled or reduced operations and uncertainty regarding the pandemic continues.

COVID-19, and similar pandemics, along with measures instituted to prevent spread, may adversely affect us in many ways, including, but not limited to:

•	disruption of our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;

•	our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;

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•	shortages in supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;

•

access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;

•	our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development; and

•	an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

The extent of the effect on our operations, financial condition and cash flows will be dependent on future developments, including the duration of the pandemic and any future resurgence thereof, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, all of which are uncertain and difficult to predict.

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•	finished the period with our office and data center shell portfolio 93.4% occupied and 94.5% leased;

•	placed into service 642,000 square feet in four newly-developed properties (including two data center shell properties and two office properties in our Redstone Arsenal sub-segment) and one redeveloped property that were 98.6% leased as of June 30, 2020; and

•	amended an existing term loan facility to increase the loan amount by $150.0 million and reduce the LIBOR interest rate spread on the facility. We used the resulting loan proceeds to repay borrowings under our Revolving Credit Facility that funded development costs.

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

•	our commitments and contingencies.

•	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;

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

•	risks and uncertainties regarding the impact of the COVID-19 pandemic, and similar pandemics, along with restrictive measures instituted to prevent spread, on our business, the real estate industry and national, regional and local economic conditions;

•	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 reduced or delayed 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;

•	possible adverse changes in tax laws;

•	the dilutive effects of issuing additional common shares;

•	our ability to achieve projected results;

•	security breaches relating to cyber attacks, cyber intrusions or other factors; and

•	environmental requirements.

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•	for the operations of our properties;

◦	we consulted with medical experts in developing an approach to safely operate our properties during the pandemic;

◦	we used manufacturer recommended OEM heating and air conditioning filters to ensure appropriate outside air distribution;

◦

we proactively engaged our tenants to help them through unknowns as pandemic concerns heightened and restrictive measures were being instituted, and maintained that engagement to ensure communication regarding steps we were taking in our business operations, any changes in tenant operations (such as office closures or revised work schedules) and the existence of any actual or presumed COVID-19 cases in properties;

◦	our on-site property operations staff were required to use personal protective equipment, such as masks, gloves and hand sanitizer, and implement other procedural changes to enhance separation and minimize spread;

◦	we instituted enhanced cleaning measures, particularly for high touch areas and flat surfaces, and conducted special deep cleanings in properties potentially affected by actual or presumed COVID-19 cases;

◦	we provided signage promoting proper social distancing practices and hand sanitizer stations for property common area lobbies; and

◦	for properties not being used by tenants due to office closures or work from home arrangements, we locked down public (non-tenant) access to the properties for security purposes and instituted other measures aimed at managing costs;

•	for our employees:

◦	our staff deemed to be essential, including our executives, select other members of our leadership team and most of our property management team, have continued to report to their normal work locations; and

◦	most of our other staff worked from home from mid-March until the end of May, when they began reporting to their normal work locations on a weekly rotational basis; and

•	for our leasing activities:

◦	we continued active engagement for lease transactions already in progress;

◦	during periods of time in which we were unable to physically show space to prospective tenants (from mid-March until late May to mid-June), we showed space to new prospective tenants using a combination of virtual technology and pre-recorded video tours; and

◦	we implemented new advertising strategies to promote space availability.

•	same property NOI from real estate operations decreased 0.2% for the three months ended June 30, 2020 relative to the comparable 2019 period and increased 1.2% for the six months ended June 30, 2020 relative to the comparable 2019 period. These changes included the effect of a $1.6 million increase in provisions for collectability losses, most of which

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•	other lease revenue collections were not significantly affected by the pandemic. However, we have agreed to deferred payment arrangements for $2.8 million in lease receivables to be repaid in most cases by 2021 with primarily Regional Office tenants and tenants serving as amenities to Defense/IT Location properties whose operations were significantly disrupted;

•

office and data center shell portfolio was 93.4% occupied (compared to 92.9% at year end) and 94.5% leased (compared to 94.4% at year end) and our Same Properties portfolio was 92.3% occupied (compared to 91.8% at year end) and 93.5% leased (unchanged from year end). These percentages reflect decreases of 0.3% to 0.4% since March 31, 2020 attributable primarily to a tenant whose planned vacancy was known prior to the pandemic;

•	operating expenses were not significantly affected by the pandemic. While there were some additional expenses resulting from additional cleaning related costs, personal protective equipment supplies and social distancing measures, those expenses were offset by expense savings from reduced property usage by tenants; and

•

leadership team concluded that the economic disruption resulting from COVID-19 constituted a significant adverse change in the business climate that could affect the value of our Regional Office properties, which are dependent on commercial office tenants and could suffer increased vacancy as a result. Accordingly, we concluded that these circumstances constituted an indicator of impairment. We performed recovery analyses for each Regional Office property’s asset group and concluded that the carrying value of each asset group was recoverable from the respective estimated undiscounted future cash flows. As a result, no impairment loss was recognized.

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(1)	Includes estimated expense reimbursements.

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

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

•	office and data center shell properties:

•	stably owned and 100% operational throughout the current and prior year reporting periods.  We define these as changes from “Same Properties”;

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

•	disposed; and

•	our wholesale data center.

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

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

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•	net proceeds from debt borrowings of $179.3 million; offset in part by

•	dividends and/or distributions to equity holders of $62.5 million.

•	dividends and/or distributions to equity holders of $62.2 million; and

•	net debt repayments of $41.6 million; offset in part by

•	net proceeds from the issuance of common shares (or units) of $46.4 million.

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(1)	The contractual obligations set forth in this table exclude contracts for property operations and certain other contracts entered into in the normal course of business. Also excluded are accruals and payables incurred and interest rate derivative liabilities, which are reflected in our reported liabilities (although debt and lease liabilities are included on the table).

(2)	Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $11.1 million. As of June 30, 2020, maturities included $300 million in 2021 that we expect to refinance; maturities also included $169.0 million in 2023 that may be extended to 2024, subject to certain conditions.

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

(4)	Represents interest costs for our outstanding debt as of June 30, 2020 for the terms of such debt.  For variable rate debt, the amounts reflected above used June 30, 2020 interest rates on variable rate debt in computing interest costs for the terms of such debt. We expect to pay these items using cash flow from operations.

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

(6)	Due to the long-term nature of certain development and construction 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.

(7)	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.

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(1)	Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $11.1 million.

(2)	As of June 30, 2020, maturities included $169.0 million in 2023 that may be extended to 2024, subject to certain conditions.

(3)	The amounts reflected above used interest rates as of June 30, 2020 for variable rate debt.

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•	disruption of our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;

•	our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;

•	shortages in supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;

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•

access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;

•	our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development; and

•	an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

(a)	Not applicable

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