ofc-20230331

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			March 31, 2023


☐			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 April 21, 2023, 112,513,857 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 March 31, 2023 and December 31, 2022 (unaudited)	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)	7






Notes to Consolidated Financial Statements (unaudited)		9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4:	Controls and Procedures	37

PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	37
Item 1A:	Risk Factors	37
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3:	Defaults Upon Senior Securities	37
Item 4:	Mine Safety Disclosures	37
Item 5:	Other Information	37
Item 6:	Exhibits	38

SIGNATURES		39

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, 2023		December 31, 2022
Assets
Properties, net:
Operating properties, net	$	3,272,873	$	3,258,899
Projects in development or held for future development	341,202		297,499
Total properties, net	3,614,075		3,556,398
Property - operating right-of-use assets	42,808		37,020

Assets held for sale, net	—		161,286
Cash and cash equivalents	15,199		12,337
Investment in unconsolidated real estate joint ventures	42,279		21,460
Accounts receivable, net	46,149		43,334
Deferred rent receivable	130,153		125,147
Lease incentives, net	49,679		49,757
Deferred leasing costs (net of accumulated amortization of $36,416 and $35,270, respectively)	68,930		69,339
Investing receivables (net of allowance for credit losses of $2,937 and $2,794, respectively)	85,499		84,621

Prepaid expenses and other assets, net	83,221		96,576
Total assets	$	4,177,992	$	4,257,275
Liabilities and equity
Liabilities:
Debt, net	$	2,123,012	$	2,231,794
Accounts payable and accrued expenses	128,509		157,998
Rents received in advance and security deposits	34,653		30,016
Dividends and distributions payable	32,630		31,400
Deferred revenue associated with operating leases	9,022		11,004
Property - operating lease liabilities	34,896		28,759

Other liabilities	21,008		18,556
Total liabilities	2,383,730		2,509,527
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests	25,448		26,293
Equity:
Shareholders’ equity:
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,513,857 at March 31, 2023 and 112,423,893 at December 31, 2022)	1,125		1,124
Additional paid-in capital	2,484,501		2,486,116
Cumulative distributions in excess of net income	(760,820)		(807,508)
Accumulated other comprehensive income	1,353		2,071
Total shareholders’ equity	1,726,159		1,681,803
Noncontrolling interests in subsidiaries:
Common units in Corporate Office Properties, L.P. (“COPLP”)	29,268		25,808

Other consolidated entities	13,387		13,844
Noncontrolling interests in subsidiaries	42,655		39,652
Total equity	1,768,814		1,721,455
Total liabilities, redeemable noncontrolling interests and equity	$	4,177,992	$	4,257,275

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 March 31,
	2023		2022
Revenues
Lease revenue	$	150,560	$	141,389
Other property revenue	1,121		891
Construction contract and other service revenues	15,820		53,200
Total revenues	167,501		195,480
Operating expenses
Property operating expenses	59,420		57,181
Depreciation and amortization associated with real estate operations	36,995		34,264
Construction contract and other service expenses	15,201		51,650

General, administrative and leasing expenses	9,995		8,544
Business development expenses and land carry costs	495		783
Total operating expenses	122,106		152,422
Interest expense	(16,442)		(14,424)
Interest and other income	2,323		1,893
Credit loss (expense) recoveries	(67)		316
Gain on sales of real estate	49,378		15
Loss on early extinguishment of debt	—		(342)

Income from continuing operations before equity in (loss) income of unconsolidated entities and income taxes	80,587		30,516
Equity in (loss) income of unconsolidated entities	(64)		888
Income tax expense	(125)		(153)
Income from continuing operations	80,398		31,251
Discontinued operations	—		29,573
Net income	80,398		60,824
Net income attributable to noncontrolling interests:
Common units in COPLP	(1,293)		(856)

Other consolidated entities	(326)		(649)



Net income attributable to common shareholders	$	78,779	$	59,319

Basic earnings per common share: (1)
Income from continuing operations	$	0.70	$	0.27
Discontinued operations	—		0.26
Net income attributable to common shareholders	$	0.70	$	0.53
Diluted earnings per common share: (1)
Income from continuing operations	$	0.70	$	0.27
Discontinued operations	—		0.25
Net income attributable to common shareholders	$	0.70	$	0.52

(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders.

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 March 31,
	2023		2022
Net income	$	80,398	$	60,824
Other comprehensive (loss) income:
Unrealized (loss) income on interest rate derivatives	(215)		2,537
Reclassification adjustments on interest rate derivatives recognized in interest expense	(591)		1,003


Total other comprehensive (loss) income	(806)		3,540
Comprehensive income	79,592		64,364
Comprehensive income attributable to noncontrolling interests	(1,531)		(1,822)
Comprehensive income attributable to common shareholders	$	78,061	$	62,542

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 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)
Adjustments for changes in 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

For the Three Months Ended March 31, 2023
Balance at December 31, 2022 (112,423,893 common shares outstanding)	$	1,124	$	2,486,116	$	(807,508)	$	2,071	$	39,652	$	1,721,455




Redemption of common units	—		—		—		—		(373)		(373)
Share-based compensation (89,964 shares issued, net of redemptions)	1		1,059		—		—		754		1,814
Redemption of vested equity awards	—		(1,113)		—		—		—		(1,113)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		(2,342)		—		—		2,342		—
Comprehensive income	—		—		78,779		(718)		832		78,893
Dividends	—		—		(32,091)		—		—		(32,091)
Distributions to owners of common units in COPLP	—		—		—		—		(544)		(544)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)
Adjustments for changes in fair value of redeemable noncontrolling interests	—		781		—		—		—		781

Balance at March 31, 2023 (112,513,857 common shares outstanding)	$	1,125	$	2,484,501	$	(760,820)	$	1,353	$	42,655	$	1,768,814

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Revenues from real estate operations received	$	152,273	$	133,550
Construction contract and other service revenues received	18,765		49,436
Property operating expenses paid	(55,753)		(56,132)
Construction contract and other service expenses paid	(21,999)		(47,380)
General, administrative, leasing, business development and land carry costs paid	(11,681)		(13,196)
Interest expense paid	(12,031)		(9,949)
Lease incentives paid	(10,350)		(5,677)





Other	(479)		2,059
Net cash provided by operating activities	58,745		52,711
Cash flows from investing activities
Development and redevelopment of properties	(71,282)		(91,783)

Tenant improvements on operating properties	(22,568)		(7,989)
Other capital improvements on operating properties	(5,512)		(14,529)


Proceeds from sale of properties	189,325		220,814



Leasing costs paid	(4,655)		(2,103)



Other	(125)		(190)
Net cash provided by investing activities	85,183		104,220
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	95,000		244,000



Repayments of debt
Revolving Credit Facility	(188,000)		(160,000)

Term loan facility	—		(200,000)
Scheduled principal amortization	(790)		(774)
Other debt repayments	(15,902)		—





Common share dividends paid	(30,941)		(30,904)





Other	(2,900)		(2,725)
Net cash used in financing activities	(143,533)		(150,403)
Net increase in cash and cash equivalents and restricted cash	395		6,528
Cash and cash equivalents and restricted cash
Beginning of period	16,509		17,316
End of period	$	16,904	$	23,844

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2023		2022
Reconciliation of net income to net cash provided by operating activities:
Net income	$	80,398	$	60,824
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	37,597		34,871



Amortization of deferred financing costs and net debt discounts	1,250		1,202
Increase in deferred rent receivable	(6,869)		(5,822)
Gain on sales of real estate	(49,378)		(28,579)

Share-based compensation	1,733		2,111


Other	(376)		(1,021)
Changes in operating assets and liabilities:
Increase in accounts receivable	(2,802)		(1,994)
Decrease in lease incentives and prepaid expenses and other assets, net	9,361		1,585
Decrease in accounts payable, accrued expenses and other liabilities	(16,806)		(7,286)
Increase (decrease) in rents received in advance and security deposits	4,637		(3,180)

Net cash provided by operating activities	$	58,745	$	52,711
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period	$	12,337	$	13,262
Restricted cash at beginning of period	4,172		4,054
Cash and cash equivalents and restricted cash at beginning of period	$	16,509	$	17,316

Cash and cash equivalents at end of period	$	15,199	$	19,347
Restricted cash at end of period	1,705		4,497
Cash and cash equivalents and restricted cash at end of period	$	16,904	$	23,844
Supplemental schedule of non-cash investing and financing activities:
Decrease in accrued capital improvements, leasing and other investing activity costs	$	(11,043)	$	(33,733)


Recognition of operating right-of-use assets and related lease liabilities	$	6,697	$	683
Recognition of finance right-of-use assets and related lease liabilities	$	434	$	—




Investment in unconsolidated real estate joint venture retained in property disposition	$	21,121	$	—






(Decrease) increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests	$	(806)	$	3,478

Dividends/distributions payable	$	32,630	$	31,402


Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$	2,342	$	2,414
Decrease in redeemable noncontrolling interests and increase in equity to adjust for changes in fair value of redeemable noncontrolling interests	$	(781)	$	(39)

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 submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of March 31, 2023, our properties included the following:

•194 properties totaling 23.0 million square feet comprised of 17.7 million square feet in 166 office properties and 5.3 million square feet in 28 single-tenant data center shells. We owned 24 of these data center shells through unconsolidated real estate joint ventures;

•nine properties under development (five office properties and four data center shells), including one partially-operational property, that we estimate will total approximately 1.5 million square feet upon completion; and

•approximately 680 acres of land controlled for future development that we believe could be developed into approximately 9.0 million square feet and approximately 40 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, 2023, COPT owned 97.9% 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, 2022 included in our 2022 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 2022 Annual Report on Form 10-K.

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.

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 March 31, 2023, 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, as disclosed in Note 9, 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, 2023, 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 8, 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.

The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2023 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: (1)
Marketable securities in deferred compensation plan
Mutual funds	$	1,831	$	—	$	—	$	1,831
Other	44		—		—		44

Interest rate derivatives	—		2,179		—		2,179
Total assets	$	1,875	$	2,179	$	—	$	4,054
Liabilities: (2)
Deferred compensation plan liability	$	—	$	1,875	$	—	$	1,875
Interest rate derivatives	—		355		—		355
Total liabilities	$	—	$	2,230	$	—	$	2,230

(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, 2023		December 31, 2022
Land	$	540,037	$	539,809
Buildings and improvements	4,033,266		3,986,524
Less: Accumulated depreciation	(1,300,430)		(1,267,434)
Operating properties, net	$	3,272,873	$	3,258,899

2023 Dispositions

On January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia based on an aggregate property value of $211.3 million and retained a 10% interest in the properties through Redshift JV LLC, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $190.2 million. We account for our interest in the joint venture using the equity method of accounting, as described further in Note 6. We recognized a gain on sale of $49.4 million. The table below sets forth the components of the properties’ assets, which were classified as held for sale on our consolidated balance sheet as of December 31, 2022 (in thousands):



Properties, net	$	156,691
Deferred rent receivable	4,595



Assets held for sale, net	$	161,286

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)	2023		2022
Fixed	$	116,039	$	111,167
Variable	34,521		30,222
	$	150,560	$	141,389

(1)Excludes lease revenue from discontinued operations of which $1.5 million was fixed and $527,000 was variable for the three months ended March 31, 2022.

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


	As of March 31, 2023
Year Ending December 31,	Operating leases		Sales-type leases

2023 (1)	$	329,700	$	720
2024	415,499		960
2025	332,260		960
2026	263,741		960
2027	228,712		960
Thereafter	1,023,570		2,596
Total contractual payments	$	2,593,482	7,156
Less: Amount representing interest			(1,628)
Net investment in sales-type leases (2)			$	5,528

(1)Represents the nine months ending December 31, 2023.

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

Lessee Arrangements

As of March 31, 2023, our balance sheet included $45.4 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 and property lease liabilities on our consolidated balance sheets consisted of the following (in thousands):


Leases	Balance Sheet Location	March 31, 2023		December 31, 2022
Right-of-use assets
Operating leases - Property	Property - operating right-of-use assets	$	42,808	$	37,020
Finance leases - Property	Prepaid expenses and other assets, net	2,621		2,207
Total right-of-use assets		$	45,429	$	39,227
Lease liabilities
Operating leases - Property	Property - operating lease liabilities	$	34,896	$	28,759
Finance leases - Property	Other liabilities	431		—
Total lease liabilities		$	35,327	$	28,759

As of March 31, 2023, our operating leases had a weighted average remaining lease term of 45 years and a weighted average discount rate of 7.34%, while our finance leases had a weighted average remaining lease term of ten years and a weighted average discount rate of 9.14%. The table below presents our total property lease costs (in thousands):


	Statement of Operations Location	For the Three Months Ended March 31,
Lease cost		2023		2022
Operating lease cost
Property leases - fixed	Property operating expenses	$	1,535	$	1,019
Property leases - variable	Property operating expenses	17		16
Finance lease cost
Amortization of property right-of-use assets	Property operating expenses	20		8
Interest on lease liabilities	Interest expense	13		—
		$	1,585	$	1,043

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 information	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	1,185	$	837
Operating cash flows for financing leases	$	13	$	—
Financing cash flows for financing leases	$	4	$	—

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


	March 31, 2023
Year Ending December 31,	Operating Leases		Finance Leases
2023 (1)	$	4,863	$	45
2024	6,623		61
2025	2,249		63
2026	1,662		65
2027	1,677		67
Thereafter	130,495		365
Total lease payments	147,569		666
Less: Amount representing interest	(112,673)		(235)
Lease liability	$	34,896	$	431

(1)Represents the nine months ending December 31, 2023.

6. Real Estate Joint Ventures

Consolidated Real Estate Joint Ventures

The table below sets forth information as of March 31, 2023 pertaining to our investments in consolidated real estate joint ventures, which are each variable interest entities (dollars in thousands):


		Nominal Ownership %		March 31, 2023 (1)
	Date Acquired			Total Assets		Encumbered Assets		Total Liabilities		Mortgage Debt
Entity			Location
LW Redstone Company, LLC (2)	3/23/2010	85%	Huntsville, Alabama	$	633,045	$	94,288	$	114,695	$	51,659
Stevens Investors, LLC	8/11/2015	95%	Washington, DC	168,445		—		2,379		—
M Square Associates, LLC	6/26/2007	50%	College Park, Maryland	101,534		58,856		51,545		49,507
				$	903,024	$	153,144	$	168,619	$	101,166

(1)Excludes amounts eliminated in consolidation.

(2)We fund all capital requirements. Our partner receives distributions of the first $1.2 million of annual operating cash flows and we receive the remainder.

Unconsolidated Real Estate Joint Ventures

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


	Date Acquired	Nominal Ownership %	Number of Properties	Carrying Value of Investment (1)
Entity				March 31, 2023		December 31, 2022
Redshift JV LLC	1/10/2023	10%	3	$	21,181	$	—
BREIT COPT DC JV LLC	6/20/2019	10%	9	11,331		11,568
Quark JV LLC	12/14/2022	10%	2	6,761		6,758
B RE COPT DC JV III LLC	6/2/2021	10%	2	3,006		3,134
B RE COPT DC JV II LLC (2)	10/30/2020	10%	8	(1,803)		(1,459)
			24	$	40,476	$	20,001

(1)Included $42.3 million and $21.5 million reported in “Investment in unconsolidated real estate joint ventures” as of March 31, 2023 and December 31, 2022, respectively, and $1.8 million and $1.5 million for investments with deficit balances reported in “other liabilities” on our consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by $7.0 million as of March 31, 2023 and December 31, 2022 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.

As described further in Note 4, on January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia and retained a 10% interest in the properties through Redshift JV LLC, a newly-formed joint venture. We concluded that the joint venture is a variable interest entity. Under the terms of the joint venture agreement, we and our partner receive returns in proportion to our investments, and our maximum exposure to losses is limited to our investment, subject to certain indemnification obligations with respect to nonrecourse debt secured by the properties. The nature of our involvement in the activities of the joint venture does not give us power over decisions that significantly affect its economic performance.

7. Investing Receivables

Investing receivables consisted of the following (in thousands):


	March 31, 2023		December 31, 2022
Notes receivable from the City of Huntsville	$	70,592	$	69,703
Other investing loans receivable	17,844		17,712
Amortized cost basis	88,436		87,415
Allowance for credit losses	(2,937)		(2,794)
Investing receivables, net	$	85,499	$	84,621

The balances above include accrued interest receivable, net of allowance for credit losses, of $750,000 as of March 31, 2023 and $2.9 million as of December 31, 2022.

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 as of March 31, 2023 carry interest rates ranging from 12.0% to 14.0% and mature within one year.

The fair value of these receivables was approximately $89 million as of March 31, 2023 and $87 million as of December 31, 2022.

8. Debt, Net

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



	Carrying Value (1) as of					March 31, 2023
	March 31, 2023		December 31, 2022
					Stated Interest Rates		Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt	$	67,954	$	84,433		3.82% to 4.62% (2)		2024-2026
Variable rate secured debt	33,212		33,318			SOFR + 0.10% + 1.45% to 1.55% (3)		2025-2026
Total mortgage and other secured debt	101,166		117,751
Revolving Credit Facility	118,000		211,000			SOFR + 0.10% + 0.725% to 1.400% (4)		October 2026 (5)
Term Loan Facility	124,034