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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 endedJune 30, 2023
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
COPT_logo_abbreviated_black(2).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 July 21, 2023, 112,534,746 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)
June 30,
2023
December 31,
2022
Assets  
Properties, net:  
Operating properties, net$3,272,670 $3,258,899 
Projects in development or held for future development399,565 297,499 
Total properties, net3,672,235 3,556,398 
Property - operating right-of-use assets41,652 37,020 
Assets held for sale, net 161,286 
Cash and cash equivalents14,273 12,337 
Investment in unconsolidated real estate joint ventures41,928 21,460 
Accounts receivable, net47,363 43,334 
Deferred rent receivable 136,382 125,147 
Lease incentives, net59,541 49,757 
Deferred leasing costs (net of accumulated amortization of $37,451 and $35,270, respectively)
69,218 69,339 
Investing receivables (net of allowance for credit losses of $3,250 and $2,794, respectively)
86,708 84,621 
Prepaid expenses and other assets, net77,046 96,576 
Total assets$4,246,346 $4,257,275 
Liabilities and equity  
Liabilities:  
Debt, net$2,176,174 $2,231,794 
Accounts payable and accrued expenses135,784 157,998 
Rents received in advance and security deposits32,021 30,016 
Dividends and distributions payable32,636 31,400 
Deferred revenue associated with operating leases9,199 11,004 
Property - operating lease liabilities33,923 28,759 
Other liabilities27,699 18,556 
Total liabilities2,447,436 2,509,527 
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests22,215 26,293 
Equity:  
Shareholders’ equity:  
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,538,555 at June 30, 2023 and 112,423,893 at December 31, 2022)
1,125 1,124 
Additional paid-in capital2,486,996 2,486,116 
Cumulative distributions in excess of net income(762,617)(807,508)
Accumulated other comprehensive income 5,224 2,071 
Total shareholders’ equity1,730,728 1,681,803 
Noncontrolling interests in subsidiaries:  
Common units in Corporate Office Properties, L.P. (“COPLP”)29,563 25,808 
Other consolidated entities16,404 13,844 
Noncontrolling interests in subsidiaries45,967 39,652 
Total equity1,776,695 1,721,455 
Total liabilities, redeemable noncontrolling interests and equity$4,246,346 $4,257,275 

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 June 30,For the Six Months Ended June 30,
 2023202220232022
Revenues  
Lease revenue$153,682 $142,277 $304,242 $283,666 
Other property revenue1,271 969 2,392 1,860 
Construction contract and other service revenues14,243 42,557 30,063 95,757 
Total revenues169,196 185,803 336,697 381,283 
Operating expenses    
Property operating expenses61,600 54,116 121,020 111,297 
Depreciation and amortization associated with real estate operations37,600 34,812 74,595 69,076 
Construction contract and other service expenses13,555 41,304 28,756 92,954 
General, administrative, leasing and other expenses10,358 9,056 20,848 18,383 
Total operating expenses123,113 139,288 245,219 291,710 
Interest expense(16,519)(14,808)(32,961)(29,232)
Interest and other income, net2,143 1,593 4,399 3,802 
Gain on sales of real estate14 (19)49,392 (4)
Loss on early extinguishment of debt   (342)
Income from continuing operations before equity in income of unconsolidated entities and income taxes31,721 33,281 112,308 63,797 
Equity in income of unconsolidated entities111 318 47 1,206 
Income tax expense(190)(4)(315)(157)
Income from continuing operations31,642 33,595 112,040 64,846 
Discontinued operations   29,573 
Net income 31,642 33,595 112,040 94,419 
Net income attributable to noncontrolling interests:    
Common units in COPLP(516)(496)(1,809)(1,352)
Other consolidated entities(839)(789)(1,165)(1,438)
Net income attributable to common shareholders$30,287 $32,310 $109,066 $91,629 
Basic earnings per common share: (1)    
Income from continuing operations$0.27 $0.29 $0.97 $0.55 
Discontinued operations   0.26 
Net income attributable to common shareholders$0.27 $0.29 $0.97 $0.81 
Diluted earnings per common share: (1)
Income from continuing operations$0.27 $0.29 $0.96 $0.55 
Discontinued operations   0.26 
Net income attributable to common shareholders$0.27 $0.29 $0.96 $0.81 
(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders.

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 June 30,For the Six Months Ended June 30,
 2023202220232022
Net income$31,642 $33,595 $112,040 $94,419 
Other comprehensive income:    
Unrealized income on interest rate derivatives4,989 1,008 4,774 3,545 
Reclassification adjustments on interest rate derivatives recognized in interest expense
(974)754 (1,565)1,757 
Total other comprehensive income 4,015 1,762 3,209 5,302 
Comprehensive income35,657 35,357 115,249 99,721 
Comprehensive income attributable to noncontrolling interests(1,499)(1,405)(3,030)(3,227)
Comprehensive income attributable to common shareholders$34,158 $33,952 $112,219 $96,494 
 
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
Noncontrolling
Interests
Total
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)
Adjustments for changes in 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 
For the Three Months Ended June 30, 2023
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 
Redemption of common units— — — — (81)(81)
Share-based compensation (24,698 shares issued, net of redemptions)
— 981 — — 1,382 2,363 
Redemption of vested equity awards— (38)— — — (38)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— 1,040 — — (1,040) 
Comprehensive income— — 30,287 3,871 936 35,094 
Dividends— — (32,084)— — (32,084)
Distributions to owners of common units in COPLP— — — — (548)(548)
Distributions to noncontrolling interests in other consolidated entities— — — — (7)(7)
Adjustments for changes in fair value of redeemable noncontrolling interests— 512 — — — 512 
Reclassification of redeemable noncontrolling interests to equity— — — — 2,670 2,670 
Balance at June 30, 2023 (112,538,555 common shares outstanding)
$1,125 $2,486,996 $(762,617)$5,224 $45,967 $1,776,695 

See accompanying notes to consolidated financial statements.



6


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity (continued)
(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, 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)
Adjustments for changes in 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 
For the Six Months Ended June 30, 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— — — — (454)(454)
Share-based compensation (114,662 shares issued, net of redemptions)
1 2,040 — — 2,136 4,177 
Redemption of vested equity awards— (1,151)— — — (1,151)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— (1,302)— — 1,302  
Comprehensive income— — 109,066 3,153 1,768 113,987 
Dividends— — (64,175)— — (64,175)
Distributions to owners of common units in COPLP— — — — (1,092)(1,092)
Distributions to noncontrolling interests in other consolidated entities— — — — (15)(15)
Adjustments for changes in fair value of redeemable noncontrolling interests— 1,293 — — — 1,293 
Reclassification of redeemable noncontrolling interests to equity— — — — 2,670 2,670 
Balance at June 30, 2023 (112,538,555 common shares outstanding)
$1,125 $2,486,996 $(762,617)$5,224 $45,967 $1,776,695 

See accompanying notes to consolidated financial statements.
7


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited) 
For the Six Months Ended June 30,
 20232022
Cash flows from operating activities  
Revenues from real estate operations received$311,501 $285,858 
Construction contract and other service revenues received31,479 90,663 
Property operating expenses paid(101,842)(99,512)
Construction contract and other service expenses paid(31,982)(88,833)
General, administrative, leasing and other expenses paid(18,516)(17,782)
Interest expense paid(29,975)(26,732)
Lease incentives paid(16,457)(7,739)
Other(3,295)2,797 
Net cash provided by operating activities140,913 138,720 
Cash flows from investing activities  
Development and redevelopment of properties(145,395)(142,862)
Tenant improvements on operating properties(43,642)(16,734)
Other capital improvements on operating properties(8,034)(21,590)
Proceeds from sale of properties189,506 220,780 
Leasing costs paid(9,120)(4,121)
Other251 (565)
Net cash (used in) provided by investing activities(16,434)34,908 
Cash flows from financing activities  
Proceeds from debt
Revolving Credit Facility197,000 329,000 
Repayments of debt
Revolving Credit Facility(237,000)(224,000)
Term loan facility (200,000)
Scheduled principal amortization(1,536)(1,618)
Other debt repayments(15,902) 
Common share dividends paid(63,016)(61,814)
Other(4,222)(6,865)
Net cash used in financing activities(124,676)(165,297)
Net (decrease) increase in cash and cash equivalents and restricted cash(197)8,331 
Cash and cash equivalents and restricted cash  
Beginning of period16,509 17,316 
End of period$16,312 $25,647 

See accompanying notes to consolidated financial statements.
 

8


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
For the Six Months Ended June 30,
 20232022
Reconciliation of net income to net cash provided by operating activities:  
Net income $112,040 $94,419 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and other amortization75,806 70,235 
Amortization of deferred financing costs and net debt discounts2,500 2,351 
Increase in deferred rent receivable(12,771)(11,603)
Gain on sales of real estate(49,392)(28,560)
Share-based compensation3,946 4,301 
Other(1,603)(2,207)
Changes in operating assets and liabilities: 
(Increase) decrease in accounts receivable(4,029)9,374 
Decrease in lease incentives and prepaid expenses and other assets, net8,389 8,407 
Increase (decrease) in accounts payable, accrued expenses and other liabilities4,022 (3,480)
Increase (decrease) in rents received in advance and security deposits2,005 (4,517)
Net cash provided by operating activities$140,913 $138,720 
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 period4,172 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$14,273 $20,735 
Restricted cash at end of period2,039 4,912 
Cash and cash equivalents and restricted cash at end of period$16,312 $25,647 
Supplemental schedule of non-cash investing and financing activities:  
Decrease in accrued capital improvements, leasing and other investing activity costs$(17,627)$(6,222)
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 $ 
Increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests$3,209 $5,072 
Dividends/distributions payable$32,636 $31,400 
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$1,302 $1,378 
Decrease in redeemable noncontrolling interests and increase in equity to adjust for changes in fair value of redeemable noncontrolling interests$(1,293)$(77)
Reclassification of redeemable noncontrolling interests to equity$2,670 $ 
 
See accompanying notes to consolidated financial statements.

9


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 June 30, 2023, our properties included the following:

194 properties totaling 23.0 million square feet comprised of 17.8 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 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 June 30, 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.

10


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 of mutual funds) 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. The balance of the plan, which was fully funded and totaled $1.8 million as of June 30, 2023, is included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets. 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 June 30, 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 June 30, 2023 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: (1)    
Marketable securities in deferred compensation plan $1,822 $ $ $1,822 
Interest rate derivatives  5,840  5,840 
Total assets$1,822 $5,840 $ $7,662 
Liabilities: (2)    
Deferred compensation plan liability $ $1,822 $ $1,822 
(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.

11


4.    Properties, Net
 
Operating properties, net consisted of the following (in thousands): 
June 30,
2023
December 31,
2022
Land$539,870 $539,809 
Buildings and improvements4,066,866 3,986,524 
Less: Accumulated depreciation(1,334,066)(1,267,434)
Operating properties, net$3,272,670 $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 receivable4,595 
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 June 30,For the Six Months Ended June 30,
Lease revenue (1)2023202220232022
Fixed$118,461 $112,691 $234,500 $223,858 
Variable 35,221 29,586 69,742 59,808 
$153,682 $142,277 $304,242 $283,666 
(1)Excludes lease revenue from discontinued operations of which $1.5 million was fixed and $527,000 was variable for the six months ended June 30, 2022.

Lessee Arrangements

As of June 30, 2023, our balance sheet included $44.3 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):
LeasesBalance Sheet LocationJune 30,
2023
December 31,
2022
Right-of-use assets
Operating leases - PropertyProperty - operating right-of-use assets$41,652 $37,020 
Finance leases - PropertyPrepaid expenses and other assets, net2,603 2,207 
Total right-of-use assets$44,255 $39,227 
Lease liabilities
Operating leases - PropertyProperty - operating lease liabilities$33,923 $28,759 
Finance leases - PropertyOther liabilities426  
Total lease liabilities$34,349 $28,759 

12


As of June 30, 2023, our operating leases had a weighted average remaining lease term of 47 years and a weighted average discount rate of 7.32%, 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 LocationFor the Three Months Ended June 30,For the Six Months Ended June 30,
Lease cost2023202220232022
Operating lease cost
Property leases - fixedProperty operating expenses$1,803 $1,032 $3,338 $2,051 
Property leases - variableProperty operating expenses16 17 33 33 
Finance lease cost
Amortization of property right-of-use assetsProperty operating expenses19 8 39 16 
Interest on lease liabilitiesInterest expense10  23  
$1,848 $1,057 $3,433 $2,100 

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):
For the Six Months Ended June 30,
Supplemental cash flow information20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$2,806 $1,676 
Operating cash flows for financing leases$23 $ 
Financing cash flows for financing leases$9 $ 

Payments on property leases were due as follows (in thousands):
June 30, 2023
Year Ending December 31,Operating LeasesFinance Leases
2023 (1)
$3,242 $30 
20246,623 61 
20252,249 63 
20261,662 65 
20271,677 67 
Thereafter130,495 366 
Total lease payments145,948 652 
Less: Amount representing interest(112,025)(226)
Lease liability$33,923 $426 
(1)Represents the six months ending December 31, 2023.

6.    Real Estate Joint Ventures

Consolidated Real Estate Joint Ventures

The table below sets forth information as of June 30, 2023 pertaining to our investments in consolidated real estate joint ventures, which are each variable interest entities (dollars in thousands):
  Nominal Ownership % 
June 30, 2023 (1)
Date AcquiredTotal
Assets
Encumbered AssetsTotal LiabilitiesMortgage Debt
EntityLocation
LW Redstone Company, LLC (2)3/23/201085%Huntsville, Alabama$661,917 $96,088 $105,280 $51,301 
Stevens Investors, LLC 8/11/201595%Washington, DC167,132  1,738  
M Square Associates, LLC6/26/200750%College Park, Maryland100,933 58,171 50,445 49,220 
 $929,982 $154,259 $157,463 $100,521 
(1)Excludes amounts eliminated in consolidation.
(2)We fund all capital requirements. Our partner receives distributions of $1.2 million of annual operating cash flows and we receive the remainder.

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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)
EntityJune 30,
2023
December 31,
2022
Redshift JV LLC1/10/202310%3 $21,151 $ 
BREIT COPT DC JV LLC6/20/201910%9 11,096 11,568 
Quark JV LLC12/14/202210%2 6,747 6,758 
B RE COPT DC JV III LLC6/2/202110%2 2,934 3,134 
B RE COPT DC JV II LLC (2)10/30/202010%8 (1,999)(1,459)
 24 $39,929 $20,001 
(1)Included $41.9 million and $21.5 million reported in “Investment in unconsolidated real estate joint ventures” as of June 30, 2023 and December 31, 2022, respectively, and $2.0 million and $1.5 million for investments with deficit balances reported in “other liabilities” on our consolidated balance sheets as of June 30, 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 $6.9 million as of June 30, 2023 and $7.0 million as of 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): 
June 30,
2023
December 31,
2022
Notes receivable from the City of Huntsville$72,544 $69,703 
Other investing loans receivable17,414 17,712 
Amortized cost basis89,958 87,415 
Allowance for credit losses(3,250)(2,794)
Investing receivables, net$86,708 $84,621 
 
The balances above include accrued interest receivable, net of allowance for credit losses, of $2.5 million as of June 30, 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 loan receivable as of June 30, 2023 carries a stated interest rate of 12.0% and matures in 2024.

The fair value of these receivables was approximately $91 million as of June 30, 2023 and $87 million as of December 31, 2022.

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8.    Debt, Net
 
Our debt consisted of the following (dollars in thousands):
 Carrying Value (1) as ofJune 30, 2023
June 30,
2023
December 31, 2022
 Stated Interest RatesScheduled Maturity
Mortgage and Other Secured Debt:    
Fixed rate mortgage debt $67,415 $84,433 
3.82% to 4.62% (2)
2024-2026
Variable rate secured debt 33,106 33,318 
SOFR + 0.10%
+ 1.45% to 1.55% (3)
2025-2026
Total mortgage and other secured debt100,521 117,751   
Revolving Credit Facility 171,000 211,000 
SOFR + 0.10%
+ 0.725% to 1.400% (4)
October 2026 (5)
Term Loan Facility124,120 123,948 
SOFR + 0.10%
+ 0.850% to 1.700% (6)
January 2026 (7)
Unsecured Senior Notes
2.25%, $400,000 aggregate principal
397,071 396,539 
2.25% (8)
March 2026
2.00%, $400,000 aggregate principal
397,229 396,988 
2.00% (9)
January 2029
2.75%, $600,000 aggregate principal
590,664 590,123 
2.75% (10)
April 2031
2.90%, $400,000 aggregate principal
395,055 394,848 
2.90% (11)
December 2033
Unsecured note payable514 597 
0% (12)
May 2026
Total debt, net$2,176,174 $2,231,794   
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $4.8 million as of June 30, 2023 and $5.4 million as of December 31, 2022.
(2)The weighted average interest rate on our fixed rate mortgage debt was 4.10% as of June 30, 2023.
(3)Including the effect of interest rate swaps that hedge the risk of interest rate changes, the weighted average interest rate on our variable rate secured debt as of June 30, 2023 was 2.45%; excluding the effect of these swaps, the weighted average interest rate on this debt as of June 30, 2023 was 6.67%.
(4)The weighted average interest rate on the Revolving Credit Facility was 6.28% as of June 30, 2023, excluding the effect of interest rate swaps that hedge the risk of interest rate changes (see Note 9).
(5)The facility matures in October 2026, with the ability for us to extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period.
(6)The interest rate on this loan was 6.56% as of June 30, 2023, excluding the effect of interest rate swaps that hedge the risk of interest rate changes (see Note 9).
(7)This facility matures in January 2026, with the ability for us to extend such maturity by two 12-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.125% of the outstanding loan balance for each extension period.
(8)The carrying value of these notes reflects an unamortized discount totaling $2.4 million as of June 30, 2023 and $2.8 million as of December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 2.48%.
(9)The carrying value of these notes reflects an unamortized discount totaling $2.0 million as of June 30, 2023 and $2.1 million as of December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 2.09%.
(10)The carrying value of these notes reflects an unamortized discount totaling $8.1 million as of June 30, 2023 and $8.5 million as of December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 2.94%.
(11)The carrying value of these notes reflects an unamortized discount totaling $4.1 million as of June 30, 2023 and $4.2 million as of December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 3.01%.
(12)This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates.  The carrying value of this note reflects an unamortized discount totaling $47,000 as of June 30, 2023 and $65,000 as of December 31, 2022.
 
All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed COPLP’s Revolving Credit Facility, Term Loan Facility and Unsecured Senior Notes.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants.  As of June 30, 2023, we were compliant with these financial covenants.
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Our debt matures on the following schedule (in thousands):
Year Ending December 31,June 30, 2023
2023 (1)
$1,516 
202429,983 
202523,717 
2026742,300 
2027 
Thereafter1,400,000 
Total$2,197,516 (2)
(1)Represents the six months ending December 31, 2023.
(2)Represents scheduled principal amortization and maturities only and therefore excludes net discounts and deferred financing costs of $21.3 million.

We capitalized interest costs of $1.2 million in the three months ended June 30, 2023, $1.4 million in the three months ended June 30, 2022, $2.0 million in the six months ended June 30, 2023 and $2.9 million in the six months ended June 30, 2022.

The following table sets forth information pertaining to the fair value of our debt (in thousands): 
 June 30, 2023December 31, 2022
 Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Fixed-rate debt    
Unsecured Senior Notes$1,780,019 $1,401,467 $1,778,498 $1,433,561 
Other fixed-rate debt67,929 63,545 85,030 80,330 
Variable-rate debt328,226 328,340 368,266 367,896 
 $2,176,174 $1,793,352 $2,231,794 $1,881,787 
 
9.    Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):
     Fair Value at
Notional Amount Fixed RateFloating Rate IndexEffective DateExpiration DateJune 30,
2023
December 31,
2022
$10,760 (1)1.678%
SOFR + 0.10%
8/1/20198/1/2026$811 $806 
$22,625 (2)0.573%
SOFR + 0.10%
4/1/20203/26/20251,641 1,825 
$150,000 3.742%One-Month SOFR2/1/20232/2/20262,545  
$50,000 3.747%One-Month SOFR2/1/20232/2/2026843  
      $5,840 $2,631 
(1)The notional amount of this instrument is scheduled to amortize to $10.0 million.
(2)The notional amount of this instrument is scheduled to amortize to $22.1 million.

Each of these swaps was designated as a cash flow hedge of interest rate risk.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):
 Fair Value at
DerivativesBalance Sheet LocationJune 30,
2023
December 31,
2022
Interest rate swaps designated as cash flow hedgesPrepaid expenses and other assets, net$5,840 $2,631 
 
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The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):