ofc-20220630

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, 2022


☐			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, 2022, 112,423,310 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, 2022 and December 31, 2021 (unaudited)	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (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	42
Item 4:	Controls and Procedures	43

PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	43
Item 1A:	Risk Factors	43
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3:	Defaults Upon Senior Securities	43
Item 4:	Mine Safety Disclosures	43
Item 5:	Other Information	43
Item 6:	Exhibits	44

SIGNATURES		45

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, 2022		December 31, 2021
Assets
Properties, net:
Operating properties, net	$	3,180,790	$	3,090,510
Projects in development or held for future development	458,961		442,434
Total properties, net	3,639,751		3,532,944
Property - operating right-of-use assets	38,056		38,361

Assets held for sale, net	—		192,699
Cash and cash equivalents	20,735		13,262
Investment in unconsolidated real estate joint ventures	39,017		39,889
Accounts receivable, net	31,554		40,752
Deferred rent receivable	121,015		108,926
Intangible assets on property acquisitions, net	12,543		14,567
Lease incentives, net	50,871		51,486
Deferred leasing costs (net of accumulated amortization of $32,379 and $31,768, respectively)	68,004		65,850
Investing receivables (net of allowance for credit losses of $1,645 and $1,599, respectively)	84,885		82,226


Prepaid expenses and other assets, net	78,762		81,490
Total assets	$	4,185,193	$	4,262,452
Liabilities and equity
Liabilities:
Debt, net	$	2,177,811	$	2,272,304
Accounts payable and accrued expenses	177,180		186,202
Rents received in advance and security deposits	27,745		32,262
Dividends and distributions payable	31,400		31,299
Deferred revenue associated with operating leases	8,416		9,341
Property - operating lease liabilities	29,412		29,342


Other liabilities	10,526		17,729
Total liabilities	2,462,490		2,578,479
Commitments and contingencies (Note 18)
Redeemable noncontrolling interests	26,752		26,898
Equity:
Shareholders’ equity:
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,424,671 at June 30, 2022 and 112,327,533 at December 31, 2021)	1,124		1,123
Additional paid-in capital	2,481,139		2,481,539
Cumulative distributions in excess of net income	(827,076)		(856,863)
Accumulated other comprehensive income (loss)	1,806		(3,059)
Total shareholders’ equity	1,656,993		1,622,740
Noncontrolling interests in subsidiaries:
Common units in Corporate Office Properties, L.P. (“COPLP”)	25,505		21,363

Other consolidated entities	13,453		12,972
Noncontrolling interests in subsidiaries	38,958		34,335
Total equity	1,695,951		1,657,075
Total liabilities, redeemable noncontrolling interests and equity	$	4,185,193	$	4,262,452

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,
	2022		2021		2022		2021
Revenues
Lease revenue	$	142,277	$	136,454	$	283,666	$	273,744
Other property revenue	969		765		1,860		1,305
Construction contract and other service revenues	42,557		19,988		95,757		36,546
Total revenues	185,803		157,207		381,283		311,595
Operating expenses
Property operating expenses	54,116		50,914		111,297		104,190
Depreciation and amortization associated with real estate operations	34,812		34,732		69,076		69,232
Construction contract and other service expenses	41,304		19,082		92,954		34,875

General, administrative and leasing expenses	8,355		9,222		16,899		17,628
Business development expenses and land carry costs	701		1,372		1,484		2,466
Total operating expenses	139,288		115,322		291,710		228,391
Interest expense	(14,808)		(15,942)		(29,232)		(33,461)
Interest and other income	1,818		2,228		3,711		4,093
Credit loss (expense) recoveries	(225)		(193)		91		714
Gain on sales of real estate	(19)		40,233		(4)		39,743
Loss on early extinguishment of debt	—		(25,228)		(342)		(58,394)

Income from continuing operations before equity in income of unconsolidated entities and income taxes	33,281		42,983		63,797		35,899
Equity in income of unconsolidated entities	318		260		1,206		482
Income tax expense	(4)		(24)		(157)		(56)
Income from continuing operations	33,595		43,219		64,846		36,325
Discontinued operations	—		679		29,573		1,494
Net income	33,595		43,898		94,419		37,819
Net income attributable to noncontrolling interests:
Common units in COPLP	(496)		(559)		(1,352)		(474)

Other consolidated entities	(789)		(938)		(1,438)		(1,613)



Net income attributable to COPT common shareholders	$	32,310	$	42,401	$	91,629	$	35,732

Basic earnings per common share: (1)
Income from continuing operations	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32
Diluted earnings per common share: (1)
Income from continuing operations	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32

(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,
	2022		2021		2022		2021
Net income	$	33,595	$	43,898	$	94,419	$	37,819
Other comprehensive income:
Unrealized income (loss) on interest rate derivatives	1,008		(240)		3,545		544
Reclassification adjustments on interest rate derivatives recognized in interest expense	754		1,203		1,757		2,378


Total other comprehensive income	1,762		963		5,302		2,922
Comprehensive income	35,357		44,861		99,721		40,741
Comprehensive income attributable to noncontrolling interests	(1,405)		(1,484)		(3,227)		(2,267)
Comprehensive income attributable to COPT	$	33,952	$	43,377	$	96,494	$	38,474

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 Income (Loss)		Noncontrolling Interests		Total
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

For the Three Months Ended June 30, 2022
Balance at March 31, 2022 (112,418,811 common shares outstanding)	$	1,124	$	2,479,119	$	(828,473)	$	164	$	38,602	$	1,690,536




Redemption of common units	—		—		—		—		(164)		(164)
Share-based compensation (5,860 shares issued, net of redemptions)	—		1,007		—		—		1,370		2,377
Redemption of vested equity awards	—		(61)		—		—		—		(61)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		1,036		—		—		(1,036)		—
Comprehensive income	—		—		32,310		1,642		666		34,618
Dividends	—		—		(30,913)		—		—		(30,913)
Distributions to owners of common units in COPLP	—		—		—		—		(472)		(472)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		38		—		—		—		38

Balance at June 30, 2022 (112,424,671 common shares outstanding)	$	1,124	$	2,481,139	$	(827,076)	$	1,806	$	38,958	$	1,695,951

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 Income (Loss)		Noncontrolling Interests		Total
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

For the Six Months Ended June 30, 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	—		—		—		—		(376)		(376)


Share-based compensation (97,138 shares issued, net of redemptions)	1		2,021		—		—		2,656		4,678
Redemption of vested equity awards	—		(1,120)		—		—		—		(1,120)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		(1,378)		—		—		1,378		—
Comprehensive income	—		—		91,629		4,865		1,921		98,415
Dividends	—		—		(61,842)		—		—		(61,842)
Distributions to owners of common units in COPLP	—		—		—		—		(941)		(941)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(15)		(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		77		—		—		—		77


Balance at June 30, 2022 (112,424,671 common shares outstanding)	$	1,124	$	2,481,139	$	(827,076)	$	1,806	$	38,958	$	1,695,951

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Revenues from real estate operations received	$	285,858	$	280,708
Construction contract and other service revenues received	90,663		38,419
Property operating expenses paid	(99,512)		(91,672)
Construction contract and other service expenses paid	(88,833)		(34,445)
General, administrative, leasing, business development and land carry costs paid	(17,782)		(15,399)
Interest expense paid	(26,732)		(31,392)
Lease incentives paid	(7,739)		(7,442)





Other	2,797		(765)
Net cash provided by operating activities	138,720		138,012
Cash flows from investing activities
Development and redevelopment of properties	(142,862)		(110,909)

Tenant improvements on operating properties	(16,734)		(10,872)
Other capital improvements on operating properties	(21,590)		(12,382)


Proceeds from sale of properties	220,780		114,394


Leasing costs paid	(4,121)		(11,408)



Other	(565)		576
Net cash provided by (used in) investing activities	34,908		(30,601)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	329,000		387,000
Unsecured senior notes	—		589,818
Other debt proceeds	—		4,459
Repayments of debt
Revolving Credit Facility	(224,000)		(361,000)
Unsecured senior notes	—		(600,000)

Scheduled principal amortization	(1,618)		(1,922)
Other debt repayments	(200,000)		—




Payments in connection with early extinguishment of debt	(6)		(55,713)
Common share dividends paid	(61,814)		(61,747)





Other	(6,859)		(8,564)
Net cash used in financing activities	(165,297)		(107,669)
Net increase (decrease) in cash and cash equivalents and restricted cash	8,331		(258)
Cash and cash equivalents and restricted cash
Beginning of period	17,316		22,033
End of period	$	25,647	$	21,775

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,
	2022		2021
Reconciliation of net income to net cash provided by operating activities:
Net income	$	94,419	$	37,819
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	70,235		76,476



Amortization of deferred financing costs and net debt discounts	2,351		2,666
Increase in deferred rent receivable	(11,603)		(9,421)
Gain on sales of real estate	(28,560)		(39,743)

Share-based compensation	4,301		3,913
Loss on early extinguishment of debt	342		58,394

Other	(2,549)		(2,462)
Changes in operating assets and liabilities:
Decrease in accounts receivable	9,374		45
Decrease in lease incentives and prepaid expenses and other assets, net	8,407		13,894
Decrease in accounts payable, accrued expenses and other liabilities	(3,480)		(1,037)
Decrease in rents received in advance and security deposits	(4,517)		(2,532)

Net cash provided by operating activities	$	138,720	$	138,012
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 period	4,054		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	$	20,735	$	17,182
Restricted cash at end of period	4,912		4,593
Cash and cash equivalents and restricted cash at end of period	$	25,647	$	21,775
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$	(6,222)	$	(15,887)


Recognition of operating right-of-use assets and related lease liabilities	$	683	$	328




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






Increase in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	5,072	$	2,922

Dividends/distributions payable	$	31,400	$	31,302

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	$	1,378	$	(194)
(Decrease) increase in redeemable noncontrolling interests and (increase) decrease in equity to carry redeemable noncontrolling interests at fair value	$	(77)	$	622

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, 2022, our properties included the following:

•188 properties totaling 22.1 million square feet comprised of 17.1 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;

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

•approximately 710 acres of land controlled for future development that we believe could be developed into approximately 8.4 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, 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.

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 $1.9 million as of June 30, 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 June 30, 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.

The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of June 30, 2022 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	$	1,824	$	—	$	—	$	1,824
Other	57		—		—		57
Other marketable securities (1)	32		—		—		32
Interest rate derivatives (1)	—		2,468		—		2,468
Total assets	$	1,913	$	2,468	$	—	$	4,381
Liabilities:
Deferred compensation plan liability (2)	$	—	$	1,881	$	—	$	1,881

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

(2)