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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 endedMarch 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto

Commission file number 1-14023
ofc-20220331_g1.jpg
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 classTrading Symbol(s)Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par valueOFCNew 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 April 22, 2022, 112,414,849 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
 
 
   
 
  

2


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
March 31,
2022
December 31, 2021
Assets  
Properties, net:  
Operating properties, net$3,167,851 $3,090,510 
Projects in development or held for future development412,430 442,434 
Total properties, net3,580,281 3,532,944 
Property - operating right-of-use assets38,566 38,361 
Assets held for sale, net 192,699 
Cash and cash equivalents19,347 13,262 
Investment in unconsolidated real estate joint ventures39,440 39,889 
Accounts receivable, net42,596 40,752 
Deferred rent receivable 114,952 108,926 
Intangible assets on property acquisitions, net13,410 14,567 
Lease incentives, net52,089 51,486 
Deferred leasing costs (net of accumulated amortization of $32,293 and $31,768, respectively)
65,660 65,850 
Investing receivables (net of allowance for credit losses of $1,676 and $1,599, respectively)
82,417 82,226 
Prepaid expenses and other assets, net83,268 81,490 
Total assets$4,132,026 $4,262,452 
Liabilities and equity  
Liabilities:  
Debt, net$2,156,784 $2,272,304 
Accounts payable and accrued expenses144,974 186,202 
Rents received in advance and security deposits29,082 32,262 
Dividends and distributions payable31,402 31,299 
Deferred revenue associated with operating leases8,241 9,341 
Property - operating lease liabilities29,729 29,342 
Other liabilities14,458 17,729 
Total liabilities2,414,670 2,578,479 
Commitments and contingencies (Note 18)
Redeemable noncontrolling interests26,820 26,898 
Equity:  
Shareholders’ equity:  
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,418,811 at March 31, 2022 and 112,327,533 at December 31, 2021)
1,124 1,123 
Additional paid-in capital2,479,119 2,481,539 
Cumulative distributions in excess of net income(828,473)(856,863)
Accumulated other comprehensive income (loss)164 (3,059)
Total shareholders’ equity1,651,934 1,622,740 
Noncontrolling interests in subsidiaries:  
Common units in Corporate Office Properties, L.P. (“COPLP”)25,285 21,363 
Other consolidated entities13,317 12,972 
Noncontrolling interests in subsidiaries38,602 34,335 
Total equity1,690,536 1,657,075 
Total liabilities, redeemable noncontrolling interests and equity$4,132,026 $4,262,452 

See accompanying notes to consolidated financial statements.
3


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
For the Three Months Ended March 31,
 20222021
Revenues
Lease revenue$141,389 $137,290 
Other property revenue891 540 
Construction contract and other service revenues53,200 16,558 
Total revenues195,480 154,388 
Operating expenses  
Property operating expenses57,181 53,276 
Depreciation and amortization associated with real estate operations34,264 34,500 
Construction contract and other service expenses51,650 15,793 
General, administrative and leasing expenses8,544 8,406 
Business development expenses and land carry costs783 1,094 
Total operating expenses152,422 113,069 
Interest expense(14,424)(17,519)
Interest and other income 1,893 1,865 
Credit loss recoveries316 907 
Gain on sales of real estate15 (490)
Loss on early extinguishment of debt(342)(33,166)
Income (loss) from continuing operations before equity in income of unconsolidated entities and income taxes30,516 (7,084)
Equity in income of unconsolidated entities888 222 
Income tax expense(153)(32)
Income (loss) from continuing operations31,251 (6,894)
Discontinued operations29,573 815 
Net income (loss)60,824 (6,079)
Net (income) loss attributable to noncontrolling interests:  
Common units in COPLP(856)85 
Other consolidated entities(649)(675)
Net income (loss) attributable to COPT common shareholders$59,319 $(6,669)
Basic earnings per common share: (1)  
Income (loss) from continuing operations$0.27 $(0.07)
Discontinued operations0.26 0.01 
Net income (loss) attributable to COPT common shareholders$0.53 $(0.06)
Diluted earnings per common share: (1)
Income (loss) from continuing operations$0.27 $(0.07)
Discontinued operations0.25 0.01 
Net income (loss) attributable to COPT common shareholders$0.52 $(0.06)
(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.
4


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
For the Three Months Ended March 31,
 20222021
Net income (loss)$60,824 $(6,079)
Other comprehensive income:  
Unrealized income on interest rate derivatives2,537 784 
Reclassification adjustments on interest rate derivatives recognized in interest expense
1,003 1,175 
Total other comprehensive income 3,540 1,959 
Comprehensive income (loss)64,364 (4,120)
Comprehensive income attributable to noncontrolling interests(1,822)(783)
Comprehensive income (loss) attributable to COPT$62,542 $(4,903)
 
See accompanying notes to consolidated financial statements.


5


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 Income (Loss)
Noncontrolling
Interests
Total
For the Three Months Ended March 31, 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) 
Share-based compensation (137,421 shares issued, net of redemptions)
1 1,097 — — 917 2,015 
Redemption of vested equity awards— (2,290)— — — (2,290)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— (545)— — 545  
Comprehensive loss— — (6,669)1,766 371 (4,532)
Dividends— — (30,902)— — (30,902)
Distributions to owners of common units in COPLP— — — — (398)(398)
Distributions to noncontrolling interests in other consolidated entities— — — — (7)(7)
Adjustment to arrive at fair value of redeemable noncontrolling interests— (482)— — — (482)
Other— — — — (324)(324)
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 
For the Three Months Ended March 31, 2022
Balance at December 31, 2021 (112,327,533 common shares outstanding)
$1,123 $2,481,539 $(856,863)$(3,059)$34,335 $1,657,075 
Redemption of common units— — — — (212)(212)
Share-based compensation (91,278 shares issued, net of redemptions)
1 1,014 — — 1,286 2,301 
Redemption of vested equity awards— (1,059)— — — (1,059)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— (2,414)— — 2,414  
Comprehensive income— — 59,319 3,223 1,255 63,797 
Dividends— — (30,929)— — (30,929)
Distributions to owners of common units in COPLP— — — — (469)(469)
Distributions to noncontrolling interests in other consolidated entities— — — — (7)(7)
Adjustment to arrive at fair value of redeemable noncontrolling interests— 39 — — — 39 
Balance at March 31, 2022 (112,418,811 common shares outstanding)
$1,124 $2,479,119 $(828,473)$164 $38,602 $1,690,536 

See accompanying notes to consolidated financial statements.
6


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited) 
For the Three Months Ended March 31,
 20222021
Cash flows from operating activities  
Revenues from real estate operations received$133,550 $133,234 
Construction contract and other service revenues received49,436 22,046 
Property operating expenses paid(56,132)(51,718)
Construction contract and other service expenses paid(47,380)(19,897)
General, administrative, leasing, business development and land carry costs paid(13,196)(10,806)
Interest expense paid(9,949)(24,510)
Lease incentives paid(5,677)(5,963)
Other2,059 (1,714)
Net cash provided by operating activities52,711 40,672 
Cash flows from investing activities  
Development and redevelopment of properties(91,783)(57,427)
Tenant improvements on operating properties(7,989)(4,173)
Other capital improvements on operating properties(14,529)(5,955)
Proceeds from sale of properties220,814  
Leasing costs paid(2,103)(4,628)
Other(190)(631)
Net cash provided by (used in) investing activities104,220 (72,814)
Cash flows from financing activities  
Proceeds from debt
Revolving Credit Facility244,000 73,000 
Unsecured senior notes 589,818 
Other debt proceeds 3,620 
Repayments of debt
Revolving Credit Facility(160,000)(216,000)
Unsecured senior notes (330,039)
Scheduled principal amortization(774)(962)
Other debt repayments(200,000) 
Payments in connection with early extinguishment of debt(6)(31,565)
Common share dividends paid(30,904)(30,862)
Other(2,719)(6,621)
Net cash (used in) provided by financing activities(150,403)50,389 
Net increase in cash and cash equivalents and restricted cash6,528 18,247 
Cash and cash equivalents and restricted cash  
Beginning of period17,316 22,033 
End of period$23,844 $40,280 

See accompanying notes to consolidated financial statements.
 

7


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
For the Three Months Ended March 31,
 20222021
Reconciliation of net income (loss) to net cash provided by operating activities:  
Net income (loss)$60,824 $(6,079)
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and other amortization34,871 37,876 
Amortization of deferred financing costs and net debt discounts1,202 1,335 
Increase in deferred rent receivable(5,822)(5,671)
Gain on sales of real estate(28,579)490 
Share-based compensation2,111 1,904 
Loss on early extinguishment of debt342 33,166 
Other(1,363)(2,217)
Changes in operating assets and liabilities: 
Increase in accounts receivable(1,994)(2,983)
Decrease in prepaid expenses and other assets, net1,585 6,609 
Decrease in accounts payable, accrued expenses and other liabilities(7,286)(21,255)
Decrease in rents received in advance and security deposits(3,180)(2,503)
Net cash provided by operating activities$52,711 $40,672 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period$13,262 $18,369 
Restricted cash at beginning of period4,054 3,664 
Cash and cash equivalents and restricted cash at beginning of period$17,316 $22,033 
Cash and cash equivalents at end of period$19,347 $36,139 
Restricted cash at end of period4,497 4,141 
Cash and cash equivalents and restricted cash at end of period$23,844 $40,280 
Supplemental schedule of non-cash investing and financing activities:  
Decrease in accrued capital improvements, leasing and other investing activity costs$(33,733)$(20,454)
Recognition of operating right-of-use assets and related lease liabilities$683 $328 
Increase in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$3,478 $1,959 
Dividends/distributions payable$31,402 $31,305 
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$ $121 
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$2,414 $545 
(Decrease) increase in redeemable noncontrolling interests and (increase) decrease in equity to carry redeemable noncontrolling interests at fair value$(39)$482 
 
See accompanying notes to consolidated financial statements.

8


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 March 31, 2022, our properties included the following:

188 properties totaling 22.0 million square feet comprised of 17.0 million square feet in 161 office properties and 5.0 million square feet in 27 single-tenant data center shells. We owned 19 of these data center shells through unconsolidated real estate joint ventures;
11 properties under development (eight office properties and three data center shells), including two partially-operational properties, that we estimate will total approximately 1.7 million square feet upon completion; and
approximately 710 acres of land controlled for future development that we believe could be developed into approximately 8.7 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 March 31, 2022, COPT owned 98.0% 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
 
These 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, 2021 included in our 2021 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 2021 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.

9


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, including amounts reclassified in conjunction with the transfer of a wholesale data center to discontinued operations in the fourth quarter of 2021. We provide disclosure regarding our discontinued operations in Note 4.

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 $2.3 million as of March 31, 2022, 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 March 31, 2022, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments were 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 our senior notes (categorized within Level 1 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. 

10


The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2022 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
DescriptionQuoted 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$2,263 $ $ $2,263 
Other59   59 
Other marketable securities (1)33   33 
Interest rate derivatives (1) 1,538  1,538 
Total assets$2,355 $1,538 $ $3,893 
Liabilities:    
Deferred compensation plan liability (2)$ $2,322 $ $2,322 
Interest rate derivatives (2) 665  665 
Total liabilities$ $2,987 $ $2,987 
(1)Included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheet.
(2)Included in the line entitled “other liabilities” on our consolidated balance sheet.

4.    Properties, Net
 
Operating properties, net consisted of the following (in thousands): 
March 31,
2022
December 31, 2021
Land$584,878 $572,900 
Buildings and improvements3,765,625 3,670,133 
Less: Accumulated depreciation(1,182,652)(1,152,523)
Operating properties, net$3,167,851 $3,090,510 

2022 Dispositions and Discontinued Operations

On January 25, 2022, we sold 9651 Hornbaker Road in Manassas, Virginia, our sole wholesale data center investment, for $222.5 million, resulting in a gain on sale of $28.6 million. This property, a separate reportable segment, is reported herein as discontinued operations. The table below sets forth the components of the property’s assets classified as held for sale on our consolidated balance sheet as of December 31, 2021 (in thousands):

Properties, net$191,857 
Deferred rent receivable462 
Intangible assets on property acquisitions, net73 
Deferred leasing costs, net307 
Assets held for sale, net$192,699 

11


The table below sets forth the property’s results of operations included in discontinued operations on our consolidated statements of operations and its operating and investing cash flows included on our consolidated statements of cash flows (in thousands):
 For the Three Months Ended March 31,
 20222021
 (in thousands)
Revenues from real estate operations$1,980 $7,334 
Property operating expenses(971)(3,698)
Depreciation and amortization associated with real estate operations (2,821)
Gain on sale of real estate28,564  
Discontinued operations29,573 815 
Cash flows from operating activities$4,463 $4,387 
Cash flows from investing activities$220,569 $(297)

2022 Development Activities

During the three months ended March 31, 2022, we placed into service 283,000 square feet in two newly-developed properties. As of March 31, 2022, we had 11 properties under development, including two partially-operational properties, that we estimate will total 1.7 million square feet upon completion.

5.    Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. These leases encompass all, or a portion, of properties, with various expiration dates. 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 leases. The table below sets forth our composition of lease revenue recognized between fixed and variable lease revenue (in thousands):
For the Three Months Ended March 31,
Lease revenue (1)20222021
Fixed$111,167 $106,935 
Variable 30,222 30,355 
$141,389 $137,290 
(1)Excludes lease revenue from discontinued operations of which $1.5 million and $5.5 million was fixed and $527,000 and $1.8 million was variable for the three months ended March 31, 2022 and 2021, respectively.

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

As of March 31, 2022
Year Ending December 31,Operating leasesSales-type leases
2022 (1)$329,371 $720 
2023412,129 960 
2024363,829 960 
2025276,356 960 
2026212,571 960 
Thereafter1,032,507 3,556 
Total contractual payments$2,626,763 8,116 
Less: Amount representing interest(2,051)
Net investment in sales-type leases$6,065 
(1)Represents the nine months ending December 31, 2022.

12


Lessee Arrangements

As of March 31, 2022, our balance sheet included $40.8 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating with various expiration dates. Our property right-of-use assets consisted of the following (in thousands):
LeasesBalance Sheet LocationMarch 31, 2022December 31, 2021
Right-of-use assets
Operating leases - PropertyProperty - operating right-of-use assets$38,566 $38,361 
Finance leases - PropertyPrepaid expenses and other assets, net2,230 2,238 
Total right-of-use assets$40,796 $40,599 

Our property lease liabilities reported on our consolidated balance sheets consisted of the following (in thousands):
LeasesBalance Sheet LocationMarch 31, 2022December 31, 2021
Lease liabilities
Operating leases - PropertyProperty - operating lease liabilities$29,729 $29,342 

As of March 31, 2022, our operating leases had a weighted average remaining lease term of 52 years and a weighted average discount rate of 7.19%. The table below presents our total property lease cost (in thousands):
Statement of Operations LocationFor the Three Months Ended March 31,
Lease cost20222021
Operating lease cost
Property leases - fixedProperty operating expenses$1,019 $973 
Property leases - variableProperty operating expenses16 10 
Finance lease cost
Amortization of property right-of-use assetsProperty operating expenses8 9 
$1,043 $992 

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):
For the Three Months Ended March 31,
Supplemental cash flow information20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$837 $782 

Payments on property operating leases were due as follows (in thousands):
Year Ending December 31,
March 31, 2022
2022 (1)$2,518 
20233,399 
20243,451 
20251,797 
20261,578 
Thereafter125,934 
Total lease payments138,677 
Less: Amount representing interest(108,948)
Lease liability$29,729 
(1)Represents the nine months ending December 31, 2022.

13


6.    Real Estate Joint Ventures

Consolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of March 31, 2022 (dollars in thousands):
  Nominal Ownership % 
March 31, 2022 (1)
Date AcquiredTotal
Assets
Encumbered AssetsTotal Liabilities
EntityLocation
LW Redstone Company, LLC (2)3/23/201085%Huntsville, Alabama$512,373 $88,832 $95,225 
Stevens Investors, LLC (3)8/11/201595%Washington, DC167,047  875 
M Square Associates, LLC6/26/200750%College Park, Maryland103,368 60,202 52,730 
 $782,788 $149,034 $148,830 
(1)Excludes amounts eliminated in consolidation.
(2)We fund all capital requirements. Our partner generally receives distributions of the first $1.2 million of annual operating cash flows and we receive the remainder.
(3)As of March 31, 2022, we also had a $112.0 million construction loan to the joint venture, which is eliminated in consolidation, that carries an interest rate of LIBOR plus 2.35% and had a balance of $94.5 million; the loan matures on August 11, 2024, and we have priority for repayment in full of borrowings and accrued interest on the loan over partner distributions of any future refinancing proceeds or other available cash flows.

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 AcquiredNominal Ownership %Number of PropertiesCarrying Value of Investment (1)
EntityMarch 31, 2022December 31, 2021
B RE COPT DC JV II LLC (2)10/30/202010%8 $15,440 $15,579 
BREIT COPT DC JV LLC6/20/201910%9 12,190 12,460 
B RE COPT DC JV III LLC6/2/202110%2 11,810 11,850 
 19 $39,440 $39,889 
(1)Included in the line entitled “investment in unconsolidated real estate joint ventures” on our consolidated balance sheets.
(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by $7.2 million as of both March 31, 2022 and December 31, 2021 due to a difference between our cost basis and our share of the joint venture’s underlying equity in its net assets. We recognize adjustments to our share of the joint venture’s earnings and losses resulting from this basis difference in the underlying assets of the joint venture.

7.    Investing Receivables
 
Investing receivables consisted of the following (in thousands): 
March 31,
2022
December 31, 2021
Notes receivable from the City of Huntsville$79,053 $77,784 
Other investing loans receivable5,040 6,041 
Amortized cost basis84,093 83,825 
Allowance for credit losses(1,676)(1,599)
Investing receivables, net$82,417 $82,226 
 
The balances above include accrued interest receivable, net of allowance for credit losses, of $386,000 as of March 31, 2022 and $5.3 million as of December 31, 2021.

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 $85 million as of March 31, 2022 and $84 million as of December 31, 2021.

14


8.    Prepaid Expenses and Other Assets, Net
 
Prepaid expenses and other assets, net consisted of the following (in thousands): 
March 31,
2022
December 31, 2021
Construction contract costs in excess of billings, net$29,389 $22,384 
Prepaid expenses11,213 20,058 
Furniture, fixtures and equipment, net9,214 9,599 
Deposits6,793 3,910 
Non-real estate equity investments6,109 5,544 
Net investment in sales-type leases6,065 6,194 
Restricted cash4,497 4,054 
Marketable securities in deferred compensation plan2,322 2,556 
Property - finance right-of-use assets2,230 2,238 
Deferred tax asset, net (1)1,688 1,841 
Deferred financing costs, net (2)1,024 1,314 
Other assets2,724 1,798 
Prepaid expenses and other assets, net$