ofc-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


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


For the quarterly period ended			June 30, 2021


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


For the transition period from						to

Commission file number 1-14023

CORPORATE OFFICE PROPERTIES TRUST

(Exact name of registrant as specified in its charter)


Maryland						23-2947217
(State or other jurisdiction of						(IRS Employer
incorporation or organization)						Identification No.)


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

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par value	OFC	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 22, 2021, 112,334,670 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

TABLE OF CONTENTS

FORM 10-Q


		PAGE
PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements
Consolidated Financial Statements
	Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)	8






Notes to Consolidated Financial Statements (unaudited)		10
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4:	Controls and Procedures	44

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	44
Item 1A:	Risk Factors	45
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3:	Defaults Upon Senior Securities	45
Item 4:	Mine Safety Disclosures	45
Item 5:	Other Information	45
Item 6:	Exhibits	46

SIGNATURES		47

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)


	June 30, 2021		December 31, 2020
Assets
Properties, net:
Operating properties, net	$	3,099,182	$	3,115,280
Projects in development or held for future development	431,535		447,269
Total properties, net	3,530,717		3,562,549
Property - operating right-of-use assets	39,333		40,570
Property - finance right-of-use assets	40,082		40,425

Cash and cash equivalents	17,182		18,369
Investment in unconsolidated real estate joint ventures	40,586		29,303
Accounts receivable, net	39,951		41,637
Deferred rent receivable	99,715		92,876
Intangible assets on real estate acquisitions, net	16,959		19,344
Deferred leasing costs (net of accumulated amortization of $30,532 and $30,375, respectively)	62,277		58,613
Investing receivables (net of allowance for credit losses of $2,132 and $2,851, respectively)	73,073		68,754


Prepaid expenses and other assets, net	92,157		104,583
Total assets	$	4,052,032	$	4,077,023
Liabilities and equity
Liabilities:
Debt, net	$	2,109,640	$	2,086,918
Accounts payable and accrued expenses	127,027		142,717
Rents received in advance and security deposits	30,893		33,425
Dividends and distributions payable	31,302		31,231
Deferred revenue associated with operating leases	9,564		10,832
Property - operating lease liabilities	29,909		30,746

Interest rate derivatives	6,646		9,522
Other liabilities	9,699		12,490
Total liabilities	2,354,680		2,357,881
Commitments and contingencies (Note 18)
Redeemable noncontrolling interests	26,040		25,430
Equity:
Corporate Office Properties Trust’s shareholders’ equity:
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,336,070 at June 30, 2021 and 112,181,759 at December 31, 2020)	1,123		1,122
Additional paid-in capital	2,478,416		2,478,906
Cumulative distributions in excess of net income	(835,894)		(809,836)
Accumulated other comprehensive loss	(6,415)		(9,157)
Total Corporate Office Properties Trust’s shareholders’ equity	1,637,230		1,661,035
Noncontrolling interests in subsidiaries:
Common units in Corporate Office Properties, L.P. (“COPLP”)	21,604		20,465

Other consolidated entities	12,478		12,212
Noncontrolling interests in subsidiaries	34,082		32,677
Total equity	1,671,312		1,693,712
Total liabilities, redeemable noncontrolling interests and equity	$	4,052,032	$	4,077,023

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Revenues
Lease revenue	$	143,658	$	132,147	$	288,282	$	263,159
Other property revenue	765		391		1,305		1,495
Construction contract and other service revenues	19,988		12,236		36,546		25,917
Total revenues	164,411		144,774		326,133		290,571
Operating expenses
Property operating expenses	54,616		50,204		111,590		100,203
Depreciation and amortization associated with real estate operations	37,555		33,612		74,876		66,208
Construction contract and other service expenses	19,082		11,711		34,875		24,832

General, administrative and leasing expenses	9,222		8,158		17,628		15,644
Business development expenses and land carry costs	1,372		1,262		2,466		2,380
Total operating expenses	121,847		104,947		241,435		209,267
Interest expense	(15,942)		(16,797)		(33,461)		(33,637)
Interest and other income	2,228		2,282		4,093		3,487
Credit loss (expense) recoveries	(193)		(615)		714		(1,304)
Gain on sales of real estate	40,233		—		39,743		5
Loss on early extinguishment of debt	(25,228)		—		(58,394)		—

Income before equity in income of unconsolidated entities and income taxes	43,662		24,697		37,393		49,855
Equity in income of unconsolidated entities	260		454		482		895
Income tax expense	(24)		(30)		(56)		(79)
Net income	43,898		25,121		37,819		50,671
Net income attributable to noncontrolling interests:
Common units in COPLP	(559)		(284)		(474)		(571)
Preferred units in COPLP	—		(77)		—		(154)
Other consolidated entities	(938)		(1,263)		(1,613)		(2,395)



Net income attributable to COPT common shareholders	$	42,401	$	23,497	$	35,732	$	47,551

Earnings per common share: (1)
Net income attributable to COPT common shareholders - basic	$	0.38	$	0.21	$	0.32	$	0.42
Net income attributable to COPT common shareholders - diluted	$	0.38	$	0.21	$	0.32	$	0.42

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

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	43,898	$	25,121	$	37,819	$	50,671
Other comprehensive income (loss):
Unrealized (loss) income on interest rate derivatives	(240)		(3,315)		544		(41,020)
Reclassification adjustments on interest rate derivatives recognized in interest expense	1,203		935		2,378		1,066


Total other comprehensive income (loss)	963		(2,380)		2,922		(39,954)
Comprehensive income	44,861		22,741		40,741		10,717
Comprehensive income attributable to noncontrolling interests	(1,484)		(1,556)		(2,267)		(2,235)
Comprehensive income attributable to COPT	$	43,377	$	21,185	$	38,474	$	8,482

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


	Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
For the Three Months Ended June 30, 2020
Balance at March 31, 2020 (112,169,463 common shares outstanding)	$	1,122	$	2,476,677	$	(790,600)	$	(62,201)	$	40,188	$	1,665,186




Share-based compensation (13,729 shares issued, net of redemptions)	—		1,188		—		—		548		1,736
Redemption of vested equity awards	—		(80)		—		—		—		(80)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		428		—		—		(428)		—
Comprehensive income	—		—		23,497		(2,312)		439		21,624
Dividends	—		—		(30,856)		—		—		(30,856)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(442)		(442)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(236)		—		—		—		(236)

Balance at June 30, 2020 (112,183,192 common shares outstanding)	$	1,122	$	2,477,977	$	(797,959)	$	(64,513)	$	40,297	$	1,656,924

For the Three Months Ended June 30, 2021
Balance at March 31, 2021 (112,327,234 common shares outstanding)	$	1,123	$	2,476,807	$	(847,407)	$	(7,391)	$	33,660	$	1,656,792




Redemption of common units	—		—		—		—		(241)		(241)
Share-based compensation (8,836 shares issued, net of redemptions)	—		1,078		—		—		1,067		2,145
Redemption of vested equity awards	—		(68)		—		—		—		(68)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		739		—		—		(739)		—
Comprehensive income	—		—		42,401		976		743		44,120
Dividends	—		—		(30,888)		—		—		(30,888)
Distributions to owners of common units in COPLP	—		—		—		—		(400)		(400)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(140)		—		—		—		(140)

Balance at June 30, 2021 (112,336,070 common shares outstanding)	$	1,123	$	2,478,416	$	(835,894)	$	(6,415)	$	34,082	$	1,671,312

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


	Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
For the Six Months Ended June 30, 2020
Balance at December 31, 2019 (112,068,705 common shares outstanding)	$	1,121	$	2,481,558	$	(778,275)	$	(25,444)	$	40,285	$	1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance	—		—		(5,541)		—		—		(5,541)
Balance at December 31, 2019, as adjusted	1,121		2,481,558		(783,816)		(25,444)		40,285		1,713,704

Conversion of common units to common shares (12,009 shares)	—		182		—		—		(182)		—



Share-based compensation (102,478 shares issued, net of redemptions)	1		2,171		—		—		774		2,946
Redemption of vested equity awards	—		(1,572)		—		—		—		(1,572)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		(25)		—		—		25		—
Comprehensive income	—		—		47,551		(39,069)		160		8,642
Dividends	—		—		(61,694)		—		—		(61,694)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(862)		(862)
Contributions from noncontrolling interests in other consolidated entities	—		—		—		—		112		112
Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(15)		(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(4,337)		—		—		—		(4,337)

Balance at June 30, 2020 (112,183,192 common shares outstanding)	$	1,122	$	2,477,977	$	(797,959)	$	(64,513)	$	40,297	$	1,656,924

For the Six Months Ended June 30, 2021
Balance at December 31, 2020 (112,181,759 common shares outstanding)	$	1,122	$	2,478,906	$	(809,836)	$	(9,157)	$	32,677	$	1,693,712


Conversion of common units to common shares (8,054 shares)	—		121		—		—		(121)		—
Redemption of common units	—		—		—		—		(241)		(241)


Share-based compensation (146,257 shares issued, net of redemptions)	1		2,175		—		—		1,984		4,160
Redemption of vested equity awards	—		(2,358)		—		—		—		(2,358)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		194		—		—		(194)		—
Comprehensive income	—		—		35,732		2,742		1,114		39,588
Dividends	—		—		(61,790)		—		—		(61,790)
Distributions to owners of common units in COPLP	—		—		—		—		(798)		(798)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(15)		(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(622)		—		—		—		(622)
Other	—		—		—		—		(324)		(324)

Balance at June 30, 2021 (112,336,070 common shares outstanding)	$	1,123	$	2,478,416	$	(835,894)	$	(6,415)	$	34,082	$	1,671,312

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2021		2020
Cash flows from operating activities
Revenues from real estate operations received	$	280,708	$	265,833
Construction contract and other service revenues received	38,419		42,149
Property operating expenses paid	(91,672)		(86,934)
Construction contract and other service expenses paid	(34,445)		(32,107)
General, administrative, leasing, business development and land carry costs paid	(15,399)		(16,969)
Interest expense paid	(31,392)		(31,581)
Lease incentives paid	(7,442)		(5,611)





Other	(765)		1,757
Net cash provided by operating activities	138,012		136,537
Cash flows from investing activities
Development and redevelopment of properties	(110,909)		(185,357)

Tenant improvements on operating properties	(10,872)		(16,489)
Other capital improvements on operating properties	(12,382)		(11,576)


Proceeds from sale of properties	114,394		—


Leasing costs paid	(11,408)		(8,424)



Other	576		(5,442)
Net cash used in investing activities	(30,601)		(227,288)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	387,000		251,000
Unsecured senior notes	589,818		—
Other debt proceeds	4,459		189,359
Repayments of debt
Revolving Credit Facility	(361,000)		(259,000)
Unsecured senior notes	(600,000)		—
Scheduled principal amortization	(1,922)		(2,044)

Deferred financing costs paid	(1,620)		(1,261)



Payments in connection with early extinguishment of debt	(55,713)		—
Common share dividends paid	(61,747)		(61,667)



Distributions paid to redeemable noncontrolling interests	(1,226)		(12,662)
Redemption of vested equity awards	(2,358)		(1,572)
Other	(3,360)		(3,666)
Net cash (used in) provided by financing activities	(107,669)		98,487
Net (decrease) increase in cash and cash equivalents and restricted cash	(258)		7,736
Cash and cash equivalents and restricted cash
Beginning of period	22,033		18,130
End of period	$	21,775	$	25,866

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2021		2020
Reconciliation of net income to net cash provided by operating activities:
Net income	$	37,819	$	50,671
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	76,476		67,075



Amortization of deferred financing costs and net debt discounts	2,666		1,993
Increase in deferred rent receivable	(9,421)		(1,070)
Gain on sales of real estate	(39,743)		(5)

Share-based compensation	3,913		3,027
Loss on early extinguishment of debt	58,394		—

Other	(2,462)		(1,263)
Changes in operating assets and liabilities:
Decrease in accounts receivable	45		5,039
Decrease in prepaid expenses and other assets, net	13,894		23,202
Decrease in accounts payable, accrued expenses and other liabilities	(1,037)		(8,971)
Decrease in rents received in advance and security deposits	(2,532)		(3,161)

Net cash provided by operating activities	$	138,012	$	136,537
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period	$	18,369	$	14,733
Restricted cash at beginning of period	3,664		3,397
Cash and cash equivalents and restricted cash at beginning of period	$	22,033	$	18,130

Cash and cash equivalents at end of period	$	17,182	$	21,596
Restricted cash at end of period	4,593		4,270
Cash and cash equivalents and restricted cash at end of period	$	21,775	$	25,866
Supplemental schedule of non-cash investing and financing activities:
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs	$	(15,887)	$	12,940


Recognition of operating right-of-use assets and related lease liabilities	$	328	$	3,381




Investment in unconsolidated real estate joint venture retained in property disposition	$	11,842	$	—






Increase (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	2,922	$	(39,953)

Dividends/distributions payable	$	31,302	$	31,302

Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	121	$	182
Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$	(194)	$	25
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value	$	622	$	4,337

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

1. Organization

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”, “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”). 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, 2021, our properties included the following:

•183 properties totaling 21.1 million square feet comprised of 16.4 million square feet in 157 office properties and 4.7 million square feet in 26 single-tenant data center shell properties (“data center shells”). We owned 19 of these data center shells through unconsolidated real estate joint ventures;

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

•14 properties under development or redevelopment (11 office properties and three data center shells), including three partially-operational properties, that we estimate will total approximately 2.0 million square feet upon completion; and

•approximately 770 acres of land controlled for future development that we believe could be developed into approximately 9.2 million square feet and 43 acres of other land.

We conduct almost all of our operations and own almost all of our assets through our operating partnership, Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT is the sole general partner. 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, 2021, COPT owned 98.3% of the outstanding COPLP common units (“common units”) and there were no preferred units outstanding. 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.

COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.

2. Summary of Significant Accounting Policies

Basis of Presentation

The 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. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities. We eliminate all intercompany balances and transactions in consolidation.

We use the equity method of accounting when we own an interest in an entity and can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net 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, 2020 included in the Company’s and Operating Partnership’s 2020 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 the Company’s and Operating Partnership’s 2020 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.

Reclassification

We reclassified certain amounts from the prior period 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

In March 2020, the Financial Accounting Standards Board 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 elected over time as reference rate reform activities occur. In 2020, we elected to apply an expedient to treat any changes in loans resulting from reference rate reform as debt modifications (as opposed to extinguishments) and 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 the hedge accounting 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.

3. Fair Value Measurements

Recurring Fair Value Measurements

We have 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. Effective December 31, 2019, no new investments of deferred compensation were eligible for the plan. 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 our 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 $2.7 million as of June 30, 2021, is included in the line entitled “prepaid expenses and other assets, net” on our 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 our 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, 2021, 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.

For additional fair value information, refer to Note 7 for investing receivables, Note 9 for debt and Note 10 for interest rate derivatives.

The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2021 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	$	2,648	$	—	$	—	$	2,648
Other	14		—		—		14
Other marketable securities (1)	33		—		—		33
Interest rate derivatives (1)	—		46		—		46
Total assets	$	2,695	$	46	$	—	$	2,741
Liabilities:
Deferred compensation plan liability (2)	$	—	$	2,662	$	—	$	2,662
Interest rate derivatives	—