UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-14023
(Exact name of registrant as specified in its charter)
Maryland |
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23-2947217 |
(State or other jurisdiction of |
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(IRS Employer |
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8815 Centre Park Drive, Suite 400, Columbia MD |
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21045 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (410) 730-9092
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.
ý Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ý Yes o No
On November 2, 2004, 36,687,271 shares of the Companys Common Shares of Beneficial Interest, $0.01 par value, were issued.
TABLE OF CONTENTS
FORM 10-Q
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PAGE |
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Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Corporate Office Properties Trust and Subsidiaries
(Dollars in thousands)
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September 30, |
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December 31, |
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||||
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(unaudited) |
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||||
Assets |
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||||
Investment in real estate: |
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|
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||||
Operating properties, net |
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$ |
1,360,697 |
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$ |
1,116,847 |
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Projects under construction or development |
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125,296 |
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67,149 |
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||||
Total commercial real estate properties, net |
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1,485,993 |
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1,183,996 |
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||||
Investments in and advances to unconsolidated real estate joint ventures |
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1,094 |
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5,262 |
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||||
Investment in real estate, net |
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1,487,087 |
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1,189,258 |
|
||||
Cash and cash equivalents |
|
6,812 |
|
9,481 |
|
||||
Restricted cash |
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10,760 |
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11,030 |
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||||
Accounts receivable, net |
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10,278 |
|
13,047 |
|
||||
Investments in and advances to other unconsolidated entities |
|
1,621 |
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1,621 |
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||||
Deferred rent receivable |
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23,383 |
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17,903 |
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||||
Intangible assets on real estate acquisitions, net |
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67,083 |
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55,692 |
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||||
Deferred charges, net |
|
26,407 |
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17,723 |
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||||
Prepaid and other assets |
|
14,703 |
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14,311 |
|
||||
Furniture, fixtures and equipment, net |
|
2,579 |
|
2,010 |
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||||
Total assets |
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$ |
1,650,713 |
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$ |
1,332,076 |
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Liabilities and shareholders equity |
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Liabilities: |
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|
||||
Mortgage and other loans payable |
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$ |
947,332 |
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$ |
738,698 |
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Accounts payable and accrued expenses |
|
41,155 |
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23,126 |
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||||
Rents received in advance and security deposits |
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11,519 |
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10,112 |
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||||
Dividends and distributions payable |
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14,533 |
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12,098 |
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Deferred revenue associated with acquired operating leases |
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7,670 |
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9,630 |
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Fair value of derivatives |
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45 |
|
467 |
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Other liabilities |
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7,115 |
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7,768 |
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Total liabilities |
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1,029,369 |
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801,899 |
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Minority interests: |
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|
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Common units in the Operating Partnership |
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90,029 |
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79,796 |
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Preferred units in the Operating Partnership |
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8,800 |
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Other consolidated real estate joint ventures |
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1,594 |
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|
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Total minority interests |
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100,423 |
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79,796 |
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Commitments and contingencies (Note 16) |
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Shareholders equity: |
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||||
Preferred Shares of beneficial interest ($0.01 par value; 15,000,000 shares authorized) (Note 10) |
|
67 |
|
85 |
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||||
Common Shares of beneficial interest ($0.01 par value; 45,000,000 shares authorized, shares issued of 36,801,533 at September 30, 2004 and 29,563,867 at December 31, 2003) |
|
368 |
|
296 |
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||||
Additional paid-in capital |
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575,180 |
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494,299 |
|
||||
Cumulative distributions in excess of net income |
|
(47,862 |
) |
(38,483 |
) |
||||
Value of unearned restricted common share grants |
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(5,381 |
) |
(4,107 |
) |
||||
Treasury shares, at cost (166,600 shares) |
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(1,415 |
) |
(1,415 |
) |
||||
Accumulated other comprehensive income (loss) |
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(36 |
) |
(294 |
) |
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Total shareholders equity |
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520,921 |
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450,381 |
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Total liabilities and shareholders equity |
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$ |
1,650,713 |
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$ |
1,332,076 |
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See accompanying notes to consolidated financial statements.
3
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
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For the three months ended |
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For the nine months ended |
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2004 |
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2003 |
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2004 |
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2003 |
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||||
Revenues |
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Rental revenue |
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$ |
47,491 |
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$ |
40,210 |
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$ |
139,723 |
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$ |
112,921 |
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Tenant recoveries and other real estate operations revenue |
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5,606 |
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5,238 |
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16,237 |
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14,923 |
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Construction contract revenues |
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6,766 |
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19,008 |
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18,136 |
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24,222 |
|
||||
Other service operations revenues |
|
959 |
|
795 |
|
3,806 |
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2,241 |
|
||||
Total revenues |
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60,822 |
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65,251 |
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177,902 |
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154,307 |
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Expenses |
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Property operating |
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16,197 |
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13,075 |
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45,883 |
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37,830 |
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Depreciation and other amortization associated with real estate operations |
|
11,802 |
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9,462 |
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38,045 |
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26,735 |
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Construction contract expenses |
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6,483 |
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18,035 |
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17,280 |
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23,099 |
|
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Other service operations expenses |
|
754 |
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1,026 |
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3,194 |
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2,784 |
|
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General and administrative expenses |
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2,698 |
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1,937 |
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7,471 |
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5,651 |
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Total operating expenses |
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37,934 |
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43,535 |
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111,873 |
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96,099 |
|
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Operating income |
|
22,888 |
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21,716 |
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66,029 |
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58,208 |
|
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Interest expense |
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(10,839 |
) |
(10,436 |
) |
(31,615 |
) |
(30,608 |
) |
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Amortization of deferred financing costs |
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(577 |
) |
(773 |
) |
(1,936 |
) |
(1,957 |
) |
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Income from continuing operations before gain on sales of real estate, equity in gain (loss) of unconsolidated real estate joint ventures, income taxes and minority interests |
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11,472 |
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10,507 |
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32,478 |
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25,643 |
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Gain (loss) on sales of real estate, excluding discontinued operations |
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24 |
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23 |
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(174 |
) |
448 |
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Equity in income (loss) of unconsolidated real estate joint ventures |
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95 |
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(88 |
) |
(91 |
) |
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Income tax expense |
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(145 |
) |
(297 |
) |
(375 |
) |
(238 |
) |
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Income from continuing operations before minority interests |
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11,351 |
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10,328 |
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31,841 |
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25,762 |
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Minority interests in income from continuing operations |
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Common units in the Operating Partnership |
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(1,595 |
) |
(1,757 |
) |
(4,241 |
) |
(4,329 |
) |
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Preferred units in the Operating Partnership |
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(14 |
) |
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(14 |
) |
(1,049 |
) |
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Other consolidated entities |
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8 |
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|
|
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|
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Income from continuing operations |
|
9,750 |
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8,571 |
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27,586 |
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20,384 |
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Income from discontinued operations, net of minority interests |
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11 |
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2,423 |
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Net income |
|
9,750 |
|
8,582 |
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27,586 |
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22,807 |
|
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Preferred share dividends |
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(3,784 |
) |
(3,157 |
) |
(12,675 |
) |
(8,224 |
) |
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Repurchase of preferred units in excess of recorded book value |
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|
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|
|
|
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(11,224 |
) |
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Issuance costs associated with redeemed preferred shares |
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(1,813 |
) |
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(1,813 |
) |
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Net income available to common shareholders |
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$ |
4,153 |
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$ |
5,425 |
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$ |
13,098 |
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$ |
3,359 |
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Basic earnings per common share |
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|
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Income before discontinued operations |
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$ |
0.12 |
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$ |
0.19 |
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$ |
0.41 |
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$ |
0.04 |
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Discontinued operations |
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|
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|
|
0.09 |
|
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Net income |
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$ |
0.12 |
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$ |
0.19 |
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$ |
0.41 |
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$ |
0.13 |
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Diluted earnings per common share |
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|
|
|
|
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|
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|
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Income before discontinued operations |
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$ |
0.12 |
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$ |
0.18 |
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$ |
0.39 |
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$ |
0.03 |
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Discontinued operations |
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|
|
|
|
|
|
0.09 |
|
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Net income |
|
$ |
0.12 |
|
$ |
0.18 |
|
$ |
0.39 |
|
$ |
0.12 |
|
See accompanying notes to consolidated financial statements.
4
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
|
For the nine months ended |
|
||||
|
|
2004 |
|
2003 |
|
||
Cash flows from operating activities |
|
|
|
|
|
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Net income |
|
$ |
27,586 |
|
$ |
22,807 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
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Minority interests |
|
4,255 |
|
6,383 |
|
||
Depreciation and other amortization |
|
38,045 |
|
26,754 |
|
||
Amortization of deferred financing costs |
|
1,936 |
|
1,957 |
|
||
Amortization of value of acquired operating leases to rental revenue |
|
(806 |
) |
(1,465 |
) |
||
Equity in loss of unconsolidated real estate joint ventures |
|
88 |
|
91 |
|
||
Loss (gain) on sales of real estate, including amounts in discontinued operations |
|
174 |
|
(3,443 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Increase in deferred rent receivable |
|
(5,473 |
) |
(3,629 |
) |
||
Increase in accounts receivable, restricted cash and prepaid and other assets |
|
(1,239 |
) |
(5,677 |
) |
||
Increase in accounts payable, accrued expenses, rents received in advance and security deposits |
|
1,890 |
|
8,889 |
|
||
Other |
|
1,608 |
|
790 |
|
||
Net cash provided by operating activities |
|
68,064 |
|
53,457 |
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Purchases of and additions to commercial real estate properties |
|
(205,991 |
) |
(183,697 |
) |
||
Proceeds from sales of properties |
|
|
|
36,904 |
|
||
Investments in and advances to unconsolidated real estate joint ventures |
|
(39 |
) |
(735 |
) |
||
Leasing costs paid |
|
(7,877 |
) |
(2,061 |
) |
||
Advances to certain real estate joint ventures |
|
(515 |
) |
(4,134 |
) |
||
Other |
|
168 |
|
(1,680 |
) |
||
Net cash used in investing activities |
|
(214,254 |
) |
(155,403 |
) |
||
Cash flows from financing activities |
|
|
|
|
|
||
Proceeds from mortgage and other loans payable |
|
476,667 |
|
206,057 |
|
||
Repayments of mortgage and other loans payable |
|
(378,412 |
) |
(169,055 |
) |
||
Deferred financing costs paid |
|
(3,371 |
) |
(1,277 |
) |
||
Increase in other liabilities associated with financing activities |
|
4,000 |
|
4,000 |
|
||
Acquire partner interest in consolidated joint venture |
|
(4,928 |
) |
|
|
||
Net proceeds from issuance of common shares |
|
121,604 |
|
81,388 |
|
||
Net proceeds from issuance of preferred shares |
|
|
|
53,240 |
|
||
Repurchase of preferred units |
|
|
|
(35,591 |
) |
||
Redemption of preferred shares |
|
(31,250 |
) |
|
|
||
Dividends paid |
|
(34,661 |
) |
(24,595 |
) |
||
Distributions paid |
|
(6,224 |
) |
(7,126 |
) |
||
Other |
|
96 |
|
2,286 |
|
||
Net cash provided by financing activities |
|
143,521 |
|
109,327 |
|
||
Net (decrease) increase in cash and cash equivalents |
|
(2,669 |
) |
7,381 |
|
||
Cash and cash equivalents |
|
|
|
|
|
||
Beginning of year |
|
9,481 |
|
5,991 |
|
||
End of period |
|
$ |
6,812 |
|
$ |
13,372 |
|
See accompanying notes to consolidated financial statements.
5
Corporate Office Properties Trust and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Organization
Corporate Office Properties Trust (COPT) and subsidiaries (collectively, the Company) is a fully-integrated and self-managed real estate investment trust (REIT). We focus principally on the ownership, management, leasing, acquisition and development of suburban office properties located in select submarkets in the Mid-Atlantic region of the United States. COPT is qualified as a REIT as defined in the Internal Revenue Code of 1986 and is the successor to a corporation organized in 1988. As of September 30, 2004, our portfolio included 136 office properties, including two properties owned through joint ventures.
We conduct almost all of our operations through our operating partnership, Corporate Office Properties, L.P. (the Operating Partnership), for which we are the managing general partner. The Operating Partnership owns real estate both directly and through subsidiary partnerships and limited liability companies (LLCs). A summary of our Operating Partnerships forms of ownership and the percentage of those ownership forms owned by COPT as of September 30, 2004 follows:
|
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% Owned |
|
Common Units |
|
80 |
% |
Series E Preferred Units |
|
100 |
% |
Series F Preferred Units |
|
100 |
% |
Series G Preferred Units |
|
100 |
% |
Series H Preferred Units |
|
100 |
% |
Series I Preferred Units |
|
0 |
% |
Please refer to Note 3 below for a description of the Series I Preferred Units.
The Operating Partnership also owns 100% of Corporate Office Management, Inc. (COMI) (together with its subsidiaries defined as the Service Companies). COMIs consolidated subsidiaries are set forth below:
Entity Name |
|
Type of Service Business |
Corporate Realty Management, LLC (CRM) |
|
Real Estate Management |
Corporate Development Services, LLC (CDS) |
|
Construction and Development |
Corporate Cooling and Controls, LLC (CC&C) |
|
Heating and Air Conditioning |
COMI owns 100% of these entities.
2. Basis of Presentation
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete Consolidated Financial Statements are not included herein. These interim financial statements should be read together with the financial statements and notes thereto included in our 2003 Annual Report on Form 10-K. The interim financial statements on the previous pages reflect all adjustments which we believe are necessary for the fair presentation of our financial position and results of operations for the interim periods presented. These adjustments are of a normal recurring nature. The results of operations for such interim periods are not necessarily indicative of the results for a full year.
We use four different accounting methods to report our investments in entities: the consolidation method, the equity method, the cost method and the financing method.
6
Consolidation Method
We use the consolidation method when we own most of the outstanding voting interests in an entity and can control its operations. This means the accounts of the entity are combined with our accounts. We eliminate balances and transactions between companies when we consolidate these accounts. Our Consolidated Financial Statements include the accounts of:
COPT;
the Operating Partnership and its subsidiary partnerships and LLCs;
the Service Companies; and
Corporate Office Properties Holdings, Inc. (of which we own 100%).
See the section in Note 3 entitled Recent Accounting Pronouncements for a description of Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). FIN 46R affects our determination of when to use the consolidation method of accounting.
Equity Method
We use the equity method of accounting when we own an interest in an entity and can exert significant influence over the entitys operations but cannot control the entitys operations. Under the equity method, we report:
our ownership interest in the entitys capital as an investment on our Consolidated Balance Sheets; and
our percentage share of the earnings or losses from the entity in our Consolidated Statements of Operations.
See the section in Note 3 entitled Recent Accounting Pronouncements for a description of FIN 46R. FIN 46R affects our determination of when to use the equity method of accounting.
Cost Method
We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over the entitys operations. Under the cost method, we report:
the cost of our investment in the entity as an investment on our Consolidated Balance Sheets; and
distributions to us of the entitys earnings in our Consolidated Statements of Operations.
Financing Method
We use the financing method of accounting for certain real estate joint ventures. We use this method when we contribute a parcel of land into a real estate joint venture and have an option to acquire our partners joint venture interest for a pre-determined purchase price. Details of the financing method of accounting are described below:
the costs associated with a land parcel at the time of its contribution into a joint venture are reported as commercial real estate properties on our Consolidated Balance Sheets;
the cash received from a joint venture in connection with our land contribution is reported as other liabilities on our Consolidated Balance Sheets. The liability is accreted towards the pre-determined purchase price over the life of our option to acquire our partners interest in the joint venture. We also report interest expense in connection with the accretion of the liability;
as construction of a building on the land parcel is completed and operations of the building commence, we report 100% of the revenues and expenses associated with the property on our Consolidated Statements of Operations; and
construction costs and debt activity for the real estate project relating to periods after the land contribution are not reported by us.
At the time we exercise the option to acquire our partners joint venture interest, we begin consolidating the accounts of the entity with our accounts. See the section in Note 3 entitled Recent Accounting Pronouncements
7
for a description of FIN 46R. FIN 46R affects our determination of when to use the financing method of accounting.
3. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
We make estimates and assumptions when preparing financial statements under generally accepted accounting principles (GAAP). These estimates and assumptions affect various matters, including:
the reported amounts of assets and liabilities in our Consolidated Balance Sheets at the dates of the financial statements;
the disclosure of contingent assets and liabilities at the dates of the financial statements; and
the reported amounts of revenues and expenses in our Consolidated Statements of Operations during the reporting periods.
These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are often beyond managements control. As a result, actual amounts could differ from these estimates.
Accounts Receivable
Our accounts receivable are reported net of an allowance for bad debts of $383 at September 30, 2004 and $548 at December 31, 2003.
Minority Interests
As discussed previously, we consolidate the accounts of our Operating Partnership and its subsidiaries into our financial statements. However, we do not own 100% of the Operating Partnership. We also do not own 100% of three consolidated real estate joint ventures. The amounts reported for minority interests on our Consolidated Balance Sheets represent the portion of these consolidated entities equity that we do not own. The amounts reported for minority interests on our Consolidated Statements of Operations represent the portion of these consolidated entities net income not allocated to us.
Common units of the Operating Partnership (common units) are substantially similar to our common shares of beneficial interest (common shares). Common units are also exchangeable into our common shares, subject to certain conditions.
For a portion of 2003, the Operating Partnership had 1,016,662 Series C Preferred Units outstanding that we did not own. These units were convertible, subject to certain conditions, into common units on the basis of 2.381 common units for each Series C Preferred Unit. These units were repurchased by the Operating Partnership on June 16, 2003 for $36,068 (including $477 for accrued and unpaid distributions), or $14.90 per common share on an as-converted basis. As a result of the repurchase, we recognized an $11,224 reduction to net income available to common shareholders associated with the excess of the repurchase price over the sum of the recorded book value of the units and the accrued and unpaid return to the unitholder.
On September 23, 2004, we issued 352,000 Series I Preferred Units in the Operating Partnership to an unrelated party in connection with our acquisition of two office properties in Northern Virginia. These units have a liquidation preference of $25.00 per unit, plus any accrued and unpaid distributions of return thereon (as described below), and may be redeemed for cash by the Operating Partnership at our option any time after September 22, 2019. The owner of these units is entitled to a priority annual cumulative return equal to 7.5% of their liquidation preference through September 22, 2019; the annual cumulative preferred return increases for each subsequent five-year period, subject to certain maximum limits. These units are convertible into common units on the basis of 0.5 common units for each Series I Preferred Unit; the resulting common units would then be exchangeable for common shares in accordance with the terms of the Operating Partnerships agreement of limited partnership.
8
Earnings Per Share (EPS)
We present both basic and diluted EPS. We compute basic EPS by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Our computation of diluted EPS is similar except that:
the denominator is increased to include the weighted average number of potential additional common shares that would have been outstanding if securities that are convertible into our common shares were converted; and
the numerator is adjusted to add back any convertible preferred dividends and any other changes in income or loss that would result from the assumed conversion into common shares.
Our computation of diluted EPS does not assume conversion of securities into our common shares if conversion of those securities would increase our diluted EPS in a given period. A summary of the numerator and denominator for purposes of basic and diluted EPS calculations is set forth below (dollars and shares in thousands, except per share data):
|
|
For the three months |
|
For the nine months |
|
||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
||||
Numerator for basic EPS on net income available to common shareholders |
|
$ |
4,153 |
|
$ |
5,425 |
|
$ |
13,098 |
|
$ |
3,359 |
|
Subtract: Income from discontinued operations, net |
|
|
|
(11 |
) |
|
|
(2,423 |
) |
||||
Numerator for basic EPS before discontinued operations |
|
4,153 |
|
5,414 |
|
13,098 |
|
936 |
|
||||
Add: Series D Preferred Share dividends |
|
|
|
136 |
|
21 |
|
|
|
||||
Numerator for diluted EPS before discontinued operations |
|
4,153 |
|
5,550 |
|
13,119 |
|
936 |
|
||||
Add: Income from discontinued operations, net |
|
|
|
11 |
|
|
|
2,423 |
|
||||
Numerator for diluted EPS on net income available to common shareholders |
|
$ |
4,153 |
|
$ |
5,561 |
|
$ |
13,119 |
|
$ |
3,359 |
|
Denominator (all weighted averages): |
|
|
|
|
|
|
|
|
|
||||
Denominator for basic EPS (common shares) |
|
33,797 |
|
28,832 |
|
32,124 |
|
25,886 |
|
||||
Assumed conversion of share options |
|
1,655 |
|
1,480 |
|
1,680 |
|
1,257 |
|
||||
Assumed conversion of Series D Preferred Shares |
|
|
|
1,197 |
|
179 |
|
|
|
||||
Denominator for diluted EPS |
|
35,452 |
|
31,509 |
|
33,983 |
|
27,143 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
||||
Income before discontinued operations |
|
$ |
0.12 |
|
$ |
0.19 |
|
$ |
0.41 |
|
$ |
0.04 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
0.09 |
|
||||
Net income available to common shareholders |
|
$ |
0.12 |
|
$ |
0.19 |
|
$ |
0.41 |
|
$ |
0.13 |
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
||||
Income before discontinued operations |
|
$ |
0.12 |
|
$ |
0.18 |
|
$ |
0.39 |
|
$ |
0.03 |
|
Income from discontinued operations |
|
|
|
|
|
|
|
0.09 |
|
||||
Net income available to common shareholders |
|
$ |
0.12 |
|
$ |
0.18 |
|
$ |
0.39 |
|
$ |
0.12 |
|
Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods:
|
|
Weighted average shares in denominator |
|
||||||
|
|
For the three months |
|
For the nine months |
|
||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Conversion of weighted average common units |
|
8,690 |
|
8,909 |
|
8,773 |
|
8,954 |
|
Restricted common shares |
|
206 |
|
161 |
|
195 |
|
132 |
|
Conversion of share options |
|
5 |
|
6 |
|
5 |
|
50 |
|
Conversion of weighted average preferred units |
|
15 |
|
|
|
5 |
|
1,472 |
|
Conversion of weighted average preferred shares |
|
|
|
|
|
|
|
1,197 |
|
9
Stock-Based Compensation
We and the Service Companies recognize expense from share options issued to employees using the intrinsic value method. As a result, we do not record compensation expense for share option grants except as set forth below:
When the exercise price of a share option grant is less than the market price of our common shares on the option grant date, we recognize compensation expense equal to the difference between the exercise price and the grant-date market price; this compensation expense is recognized over the service period to which the options relate.
In 1999, we reduced the exercise price of 360,500 share options from $9.25 to $8.00. We recognize compensation expense on the share price appreciation and future vesting associated with the re-priced share options. As of September 30, 2004, 4,400 of these share options were outstanding.
We recognize compensation expense on share options granted to employees of CRM and CC&C prior to January 1, 2001 equal to the difference between the exercise price of such share options and the market price of our common shares on January 1, 2001, to the extent such amount relates to service periods remaining after January 1, 2001.
We grant common shares subject to forfeiture restrictions to certain employees. We recognize compensation expense for such grants over the service periods to which the grants relate. We compute compensation expense for common share grants based on the value of such grants, as determined by the value of our common shares on the applicable measurement date, as defined below:
When forfeiture restrictions on grants only require the recipient to remain employed by us over defined periods of time for such restrictions to lapse, the measurement date is the date the shares are granted.
When forfeiture restrictions on grants require (1) that the recipient remain employed by us over defined periods of time and (2) that the Company meet certain performance criteria for such restrictions to lapse, the measurement date is the date that the performance criteria are deemed to be met.
Expenses from stock-based compensation are reflected in our Consolidated Statements of Operations as follows:
|
|
For the three months |
|
For the nine months |
|
||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
Increase in general and administrative expenses |
|
$ |
405 |
|
$ |
269 |
|
$ |
1,165 |
|
$ |
753 |
|
Increase in losses from service operations |
|
146 |
|
98 |
|
430 |
|
289 |
|
||||
The following table summarizes our operating results as if we elected to account for our stock-based compensation under the fair value provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation:
10
|
|
For the three months |
|
For the nine months |
|
|||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
Net income, as reported |
|
$ |
9,750 |
|
$ |
8,582 |
|
$ |
27,586 |
|
$ |
22,807 |
|
|
Add: |
Stock-based compensation expense, net of related tax effects and minority interests, included in the determination of net income |
|
388 |
|
247 |
|
1,106 |
|
676 |
|
||||
Less: |
Stock-based compensation expense determined under the fair value based method, net of related tax effects and minority interests |
|
(322 |
) |
(222 |
) |
(917 |
) |
(618 |
) |
||||
Net income, pro forma |
|
$ |
9,816 |
|
$ |
8,607 |
|
$ |
27,775 |
|
$ |
22,865 |
|
|
Basic earnings per share on net income available to common shareholders, as reported |
|
$ |
0.12 |
|
$ |
0.19 |
|
$ |
0.41 |
|
$ |
0.13 |
|
|
Basic earnings per share on net income available to common shareholders, pro forma |
|
$ |
0.12 |
|
$ |
0.19 |
|
$ |
0.41 |
|
$ |
0.13 |
|
|
Diluted earnings per share on net income available to common shareholders, as reported |
|
$ |
0.12 |
|
$ |
0.18 |
|
$ |
0.39 |
|
$ |
0.12 |
|
|
Diluted earnings per share on net income available to common shareholders, pro forma |
|
$ |
0.12 |
|
$ |
0.18 |
|
$ |
0.39 |
|
$ |
0.13 |
|
The stock-based compensation expense under the fair value method, as reported in the above table, was computed using the Black-Scholes option-pricing model.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN 46). In December 2003, FASB issued FIN No. 46R which replaced FIN 46 and clarified Accounting Research Bulletin 51 (ARB 51). FIN 46R provides guidance in identifying situations in which an entity is controlled by its owners without such owners owning most of the outstanding voting rights in the entity; it defines the entity in such situations as a variable interest entity (VIE). Situations identified by FIN 46R include when the equity owners do not have the characteristics of controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46R then provides guidance in determining when an owner of a VIE should use the consolidation method in accounting for its investment in the VIE. It also provides for additional disclosure requirements for certain owners of VIEs. We adopted FIN 46R immediately for all VIEs created subsequent to January 31, 2003 and effective March 31, 2004 for VIEs created prior to February 1, 2003. In connection with our adoption of FIN 46R, we began to use the consolidation method of accounting effective March 31, 2004 for our investments in the following joint ventures: MOR Forbes 2 LLC, Gateway 70 LLC and MOR Montpelier 3 LLC, which were previously accounted for using the equity method of accounting, and NBP 220, LLC, which was previously accounted for using the financing method of accounting (see Note 2). The effect of consolidating these joint ventures on our Consolidated Balance Sheet as of March 31, 2004 is set forth below.
11
Operating properties |
|
$ |
2,176 |
|
Projects under construction or development |
|
17,959 |
|
|
Investments in and advances to unconsolidated real estate joint ventures |
|
(3,957 |
) |
|
Restricted cash |
|
10 |
|
|
Accounts receivable, net |
|
145 |
|
|
Deferred rent receivable |
|
7 |
|
|
Deferred charges, net |
|
1,026 |
|
|
Prepaid and other assets |
|
(3,263 |
) |
|
Mortgage and other loans payable |
|
(10,171 |
) |
|
Accounts payable and accrued expenses |
|
(2,737 |
) |
|
Rents received in advance and security deposits |
|
(347 |
) |
|
Other liabilities |
|
4,650 |
|
|
Minority interests-other consolidated real estate entities |
|
(5,498 |
) |
|
|
|
$ |
|
|
The consolidation of these joint ventures had no effect on our Consolidated Statements of Operations included herein for periods prior to April 1, 2004. Additional information regarding our real estate joint ventures is available in Note 5 to the Consolidated Financial Statements.
4. Commercial Real Estate Properties
Operating properties consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
Land |
|
$ |
260,197 |
|
$ |
216,703 |
|
Buildings and improvements |
|
1,231,518 |
|
1,003,214 |
|
||
|
|
1,491,715 |
|
1,219,917 |
|
||
Less: accumulated depreciation |
|
(131,018 |
) |
(103,070 |
) |
||
|
|
$ |
1,360,697 |
|
$ |
1,116,847 |
|
Projects we had under construction or development consisted of the following:
|
|
September 30, |
|
December 31, |
|
||||
Land |
|
$ |
75,925 |
|
$ |
53,356 |
|
||
Construction in progress |
|
49,371 |
|
13,793 |
|
||||
|
|
$ |
125,296 |
|
$ |
67,149 |
|
||
2004 Acquisitions
We acquired the following office properties during the nine months ended September 30, 2004:
12
Project Name |
|
Location |
|
Date of |
|
Number of |
|
Total |
|
Initial Cost |
|
|
400 Professional Drive |
|
Gaithersburg, MD |
|
3/5/2004 |
|
1 |
|
129,030 |
|
$ |
23,196 |
|
Wildewood and Exploration/ |
|
St. Marys County, MD |
|
3/24/2004 & |
|
|
|
|
|
|
|
|
Expedition Office Parks |
|
|
|
5/5/2004 |
|
9 |
|
489,924 |
|
57,844 |
|
|
10150 York Road |
|
Hunt Valley, MD |
|
4/15/2004 |
|
1 |
|
178,764 |
|
15,372 |
|
|
Pinnacle Towers |
|
Tysons Corner, VA |
|
9/23/2004 |
|
2 |
|
440,102 |
|
106,445 |
|
|
Corporate Pointe III |
|
Chantilly, VA |
|
9/29/2004 |
|
1 |
|
114,126 |
|
22,903 |
|
|
|
|
|
|
|
|
|
|
1,351,946 |
|
$ |
225,760 |
|
The table below sets forth the allocation of the acquisition costs of these properties:
|
|
400 |
|
Wildewood and |
|
10150 York |
|
Pinnacle |
|
Corporate |
|
Total |
|
||||||||||
Land |
|
$ |
3,673 |
|
$ |
10,160 |
|
$ |
2,695 |
|
$ |
18,564 |
|
$ |
3,511 |
|
$ |
38,603 |
|
||||
Building and improvements |
|
17,400 |
|
43,232 |
|
11,714 |
|
76,815 |
|
15,503 |
|
164,664 |
|
||||||||||
Intangible assets on real estate acquisitions |
|
2,154 |
|
4,502 |
|
1,357 |
|
11,066 |
|
3,889 |
|
22,968 |
|
||||||||||
Total assets |
|
23,227 |
|
57,894 |
|
15,766 |
|
106,445 |
|
22,903 |
|
226,235 |
|
||||||||||
Deferred revenue associated with acquired operating leases |
|
(31 |
) |
(50 |
) |
(394 |
) |
|
|
|
|
(475 |
) |
||||||||||
Total acquisition cost |
|
$ |
23,196 |
|
$ |
57,844 |
|
$ |
15,372 |
|
$ |
106,445 |
|
$ |
22,903 |
|
$ |
225,760 |
|
||||
We also acquired the following during the nine months ended September 30, 2004:
a parcel of land located in St. Marys County, Maryland for $1,905 on March 24, 2004 in connection with our acquisition of the Wildewood and Exploration/Expedition Office Parks;
two adjacent parcels of land located in Chantilly, Virginia for $4,012 on April 14, 2004. An operating building of ours is located on one of these parcels and a project we have under construction is located on the other parcel;
a 5.3 acre parcel of land located in Herndon, Virginia that is adjacent to one of our office properties for $9,614 on April 29, 2004;
a property located in Blue Bell, Pennsylvania that is adjacent to an office park we own for $401 on July 15, 2004;
a 14.0 acre parcel of land located in Columbia, Maryland for $6,386 on September 20, 2004; and
an 18.8 acre parcel of land located in South Brunswick, New Jersey that is adjacent to an office park we own for $511 on September 29, 2004.
2004 Construction/Development
During the nine months ended September 30, 2004, we fully placed into service a new building located in Annapolis Junction, Maryland and a new building located in Lanham, Maryland.
As of September 30, 2004, we had construction underway on three new buildings in Annapolis Junction, Maryland and two new buildings in Chantilly, Virginia. We also had development underway on two new buildings located in Annapolis Junction, Maryland.
2004 Dispositions
On April 26, 2004, we sold a land parcel in Columbia, Maryland and a land parcel in Linthicum, Maryland for $9,600. We issued to the buyer a $5,600 mortgage loan bearing interest at 5.5% and a maturity date of July 2005; the balance of the acquisition was in the form of cash from the buyer. Upon completion of the sale, we entered into an agreement with the buyer to lease the land parcels for an aggregate monthly payment of $10 beginning July 1, 2004 until April 30, 2005, at which time the rent reduces to $1 per month until 2079. The buyer in this transaction has an option to contribute the two land parcels into our Operating Partnership between January 1, 2005 and
13
February 28, 2005 in exchange for extinguishment of the $5,600 mortgage loan with us and $4,000 in common units in our Operating Partnership; a unit price ranging from $24.45 to $25.90 will be used to determine the number of units in the Operating Partnership that the buyer would receive if the option were exercised. If the buyer in this transaction does not exercise its option to contribute the two land parcels into our Operating Partnership, we have the option to re-acquire the properties anytime after March 15, 2005 for the same consideration described in the previous sentence. We accounted for this transaction using the financing method of accounting; as a result, the transaction was not recorded as a sale and the $4,000 in net proceeds received from the buyer is included in other liabilities on our consolidated balance sheet as of September 30, 2004.
5. Real Estate Joint Ventures
Our investments in and advances to unconsolidated real estate joint ventures accounted for using the equity method of accounting included the following:
|
|
Balance at |
|
|
|
|
|
|
|
Total |
|
Maximum |
|
||||||
|
|
September
30, |
|
December
31, |
|
Date |
|
Ownership |
|
Nature
of |
|
Assets
at |
|
Exposure |
|
||||
Route 46 Partners, LLC |
|
$ |
1,094 |
|
$ |
1,055 |
|
3/14/03 |
|
20% |
|
Operating building (2) |
|
$ |
23,074 |
|
$ |
1,664 |
|
Gateway 70 LLC |
|
|
|
3,017 |
|
4/5/01 |
|
See Below |
|
Developing land parcel (3) |
|
N/A |
|
N/A |
|
||||
MOR Forbes 2 LLC |
|
|
|
735 |
|
12/24/02 |
|
See Below |
|
Operating building (4) |
|
N/A |
|
N/A |
|
||||
MOR Montpelier 3 LLC |
|
|
|
455 |
|
2/21/02 |
|
See Below |
|
Developing land parcel (5) |
|
N/A |
|
N/A |
|
||||
|
|
$ |
1,094 |
|
$ |
5,262 |
|
|
|
|
|
|
|
$ |
23,074 |
|
$ |
1,664 |
|
(1) Derived from the sum of our investment balance, loan guarantees (based on maximum loan balance) and maximum additional unilateral capital contributions and loans required from us. Not reported above are additional amounts that we and our partners are required to fund when needed by these joint ventures; these funding requirements are proportional to our ownership percentage.
(2) This joint ventures property is located in Fairfield, New Jersey.
(3) This joint ventures property is located in Columbia, Maryland.
(4) This joint ventures property is located in Lanham, Maryland.
(5) This joint ventures property is located in Laurel, Maryland.
As discussed in Note 3, we adopted FIN 46R effective March 31, 2004 for VIEs created prior to February 1, 2003. Upon this adoption, we began using the consolidation method of accounting for the following joint ventures that had previously been accounted for using either the equity or financing methods of accounting:
|
|
Date |
|
Ownership |
|
Nature of |
|
Total |
|
Collateralized |
|
||
NBP 220, LLC |
|
1/31/03 |
|
100 |
% |
Operating building (1) |
|
$ |
34,894 |
|
$ |
33,162 |
|
MOR Forbes 2 LLC |
|
12/24/02 |
|
50 |
% |
Operating building (2) |
|
4,614 |
|
4,195 |
|
||
Gateway 70 LLC |
|
4/5/01 |
|
80 |
% |
Developing land parcel (3) |
|
3,782 |
|
|
|
||
MOR Montpelier 3 LLC |
|
2/21/02 |
|
50 |
% |
Developing land parcel (4) |
|
946 |
|
|
|
||
|
|
|
|
|
|
|
|
$ |
44,236 |
|
$ |
37,357 |
|
(1) This joint ventures property is located in Annapolis Junction, Maryland. Our ownership was 20% until we acquired the remaining interest on September 10, 2004. The building was placed into service in September 2004.
(2) This joint ventures property is located in Lanham, Maryland. The recently constructed building became 100% operational in August 2004.
(3) This joint ventures property is located in Columbia, Maryland.
(4) This joint ventures property is located in Laurel, Maryland.
Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 16. The following table sets forth a condensed balance sheet for our one unconsolidated real estate joint venture as of September 30, 2004:
14
Commercial real estate property |
|
$ |
21,595 |
|
Other assets |
|
1,479 |
|
|
Total assets |
|
$ |
23,074 |
|
|
|
|
|
|
Liabilities |
|
$ |
14,745 |
|
Owners equity |
|
8,329 |
|
|
Total liabilities and owners equity |
|
$ |
23,074 |
|
6. Investments in and Advances to Other Unconsolidated Entities
Our investments in and advances to other unconsolidated entities include the following:
|
|
September 30, |
|
December 31, |
|
Date |
|
Ownership |
|
Investment |
|
||
TractManager, Inc. (1) |
|
$ |
1,621 |
|
$ |
1,621 |
|
Various 2000 |
|
5 |
% |
Cost |
|
(1) TractManager, Inc. has developed an Internet-based contract imaging and management system for sale to real estate owners and healthcare providers.
7. Intangible Assets on Real Estate Acquisitions
Intangible assets on real estate acquisitions consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
Tenant value |
|
$ |
63,172 |
|
$ |
46,613 |
|
Lease to market value |
|
9,485 |
|
7,819 |
|
||
Lease cost portion of deemed cost avoidance |
|
8,407 |
|
5,294 |
|
||
Market concentration premium |
|
1,334 |
|
1,333 |
|
||
Subtotal |
|
82,398 |
|
61,059 |
|
||
Accumulated amortization |
|
(15,315 |
) |
(5,367 |
) |
||
Intangible assets on real estate acquisitions, net |
|
$ |
67,083 |
|
$ |
55,692 |
|
8. Deferred Charges
Deferred charges consisted of the following:
|
|
September
30, |
|
December
31, |
|
||
Deferred leasing costs |
|
$ |
30,529 |
|
$ |
20,712 |
|
Deferred financing costs |
|
16,813 |
|
13,263 |
|
||
Goodwill |
|
1,880 |
|
1,880 |
|
||
Deferred other |
|
155 |
|
155 |
|
||
|
|
49,377 |
|
36,010 |
|
||
Accumulated amortization |
|
(22,970 |
) |
(18,287 |
) |
||
Deferred charges, net |
|
$ |
26,407 |
|
$ |
17,723 |
|
15
9. Derivatives
The following table sets forth our derivative contracts and their respective fair values:
Nature of Derivative |
|
Notional |
|
One-Month |
|
Effective |
|
Expiration |
|
Fair Value at |
|
Fair Value at |
|
|||
Interest rate swap |
|
$ |
50.0 |
|
2.308 |
% |
1/2/2003 |
|
1/3/2005 |
|
$ |
(45 |
) |
$ |
(467 |
) |
Interest rate swap |
|
50.0 |
|
1.520 |
% |
1/7/2003 |
|
1/2/2004 |
|
|
|
|
|
|||
Total |
|
|
|
|
|
|
|
|
|
$ |
(45 |
) |
$ |
(467 |
) |
|
We have designated each of these derivatives as cash flow hedges. These derivatives hedge the risk of changes in interest rates on certain of our one-month LIBOR-based variable rate borrowings. At September 30, 2004, our outstanding interest rate swap was considered a highly effective cash flow hedge under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
The table below sets forth our accounting application of changes in derivative fair values:
|
|
For the nine months |
|
||||
|
|
2004 |
|
2003 |
|
||
Increase (decrease) in fair value applied to AOCL (1) and minority interests |
|
$ |
345 |
|
$ |
(232 |
) |
Increase in fair value recognized as gain (2) |
|
77 |
|
|
|
||
(1) AOCL is defined below.
(2) Represents hedge ineffectiveness and is included in interest expense on our Consolidated Statements of Operations.
Over time, the unrealized losses associated with interest rate swaps that are held in the accumulated other comprehensive loss component of shareholders equity (AOCL) and minority interests will be reclassified to earnings as interest payments occur on our LIBOR-based borrowings.
16
10. Shareholders Equity
Preferred Shares
Preferred shares of beneficial interest (preferred shares) consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
1,725,000 designated as Series B Cumulative Redeemable Preferred Shares of beneficial interest (no shares issued and outstanding at September 30, 2004 and 1,250,000 shares issued and outstanding with an aggregate liquidation preference of $31,250 at December 31, 2003) |
|
$ |
|
|
$ |
13 |
|
544,000 designated as Series D Cumulative Convertible Redeemable Preferred Shares of beneficial interest (no shares issued and outstanding at September 30, 2004 and 544,000 shares issued and outstanding with an aggregate liquidation preference of $13,600 at December 31, 2003) |
|
|
|
5 |
|
||
1,265,000 designated as Series E Cumulative Redeemable Preferred Shares of beneficial interest (1,150,000 shares issued with an aggregate liquidation preference of $28,750 at September 30, 2004 and December 31, 2003) |
|
11 |
|
11 |
|
||
1,425,000 designated as Series F Cumulative Redeemable Preferred Shares of beneficial interest (1,425,000 shares issued with an aggregate liquidation preference of $35,625 at September 30, 2004 and December 31, 2003) |
|
14 |
|
14 |
|
||
2,200,000 designated as Series G Cumulative Redeemable Preferred Shares of beneficial interest (2,200,000 shares issued with an aggregate liquidation preference of $55,000 at September 30, 2004 and December 31, 2003) |
|
22 |
|
22 |
|
||
2,000,000 designated as Series H Cumulative Redeemable Preferred Shares of beneficial interest (2,000,000 shares issued with an aggregate liquidation preference of $50,000 at September 30, 2004 and December 31, 2003) |
|
20 |
|
20 |
|
||
Total preferred shares |
|
$ |
67 |
|
$ |
85 |
|
On February 11, 2004, the holder of the Series D Preferred Shares converted the shares into common shares on the basis of 2.2 common shares for each Series D Preferred Share, resulting in the issuance of 1,196,800 common shares.
On July 15, 2004, we redeemed the Series B Preferred Shares for a redemption price of $31,250. At the completion of this transaction, we recognized a $1,813 decrease to net income available to common shareholders pertaining to the original issuance costs we incurred on the shares.
Common Shares
On April 23, 2004, we sold 2,750,000 common shares to an underwriter at a net price of $21.243 per share. We contributed the net proceeds totaling approximately $58,200 to our Operating Partnership in exchange for 2,750,000 common units.
On September 28, 2004, we sold 2,283,600 common shares to underwriters at a net price of $25.10 per share. We contributed the net proceeds totaling approximately $57,200 to our Operating Partnership in exchange for 2,283,600 common units.
During the nine months ended September 30, 2004, 236,108 common units in our Operating Partnership were converted into common shares on the basis of one common share for each common unit.
During the nine months ended September 30, 2004, we issued 99,935 common shares to certain employees. All of these shares are subject to forfeiture restrictions that lapse annually throughout their respective terms provided that the employees remain employed by us. During the same period, forfeiture restrictions lapsed on 113,478 common shares previously issued to employees. We also issued 4,000 unrestricted common shares to employees during this period.
17
We issued 667,223 common shares upon the exercise of share options during the nine months ended September 30, 2004.
A summary of the activity in the AOCL component of shareholders equity for the nine months ended September 30, 2004 follows:
Beginning balance |
|
$ |
(294 |
) |
Unrealized gain on interest rate swaps, net of minority interests |
|
258 |
|
|
Ending balance |
|
$ |
(36 |
) |
The table below sets forth our comprehensive income for the periods reported herein:
|
|
For the three months |
|
For the nine months |
|
|||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
Net income |
|
$ |
9,750 |
|
$ |
8,582 |
|
$ |
27,586 |
|
$ |
22,807 |
|
|
Increase (decrease) in fair value of derivatives |
|
47 |
|
144 |
|
258 |
|
(199 |
) |
|||||
Total comprehensive income |
|
$ |
9,797 |
|
$ |
8,726 |
|
$ |
27,844 |
|
$ |
22,608 |
|
|
18
11. Dividends and Distributions
The following table summarizes our dividends and distributions when either the payable dates or record dates occurred during the nine months ended September 30, 2004:
|
|
Record Date |
|
Payable Date |
|
Dividend/ |
|
Total |
|
||
Series B Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.6250 |
|
$ |
781 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.6250 |
|
$ |
781 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.6250 |
|
$ |
781 |
|
|
|
|
|
|
|
|
|
|
|
||
Series D Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.2500 |
|
$ |
136 |
|
|
|
|
|
|
|
|
|
|
|
||
Series E Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.6406 |
|
$ |
737 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.6406 |
|
$ |
737 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.6406 |
|
$ |
737 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.6406 |
|
$ |
737 |
|
|
|
|
|
|
|
|
|
|
|
||
Series F Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.6172 |
|
$ |
880 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.6172 |
|
$ |
880 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.6172 |
|
$ |
880 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.6172 |
|
$ |
880 |
|
|
|
|
|
|
|
|
|
|
|
||
Series G Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.5000 |
|
$ |
1,100 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.5000 |
|
$ |
1,100 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.5000 |
|
$ |
1,100 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.5000 |
|
$ |
1,100 |
|
|
|
|
|
|
|
|
|
|
|
||
Series H Preferred Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.1458 |
|
$ |
292 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.4688 |
|
$ |
938 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.4688 |
|
$ |
938 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.4688 |
|
$ |
938 |
|
|
|
|
|
|
|
|
|
|
|
||
Common Shares: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.2350 |
|
$ |
6,806 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.2350 |
|
$ |
7,178 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.2350 |
|
$ |
7,878 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.2550 |
|
$ |
9,235 |
|
|
|
|
|
|
|
|
|
|
|
||
Common Units: |
|
|
|
|
|
|
|
|
|
||
Fourth Quarter 2003 |
|
December 31, 2003 |
|
January 15, 2004 |
|
$ |
0.2350 |
|
$ |
2,085 |
|
First Quarter 2004 |
|
March 31, 2004 |
|
April 15, 2004 |
|
$ |
0.2350 |
|
$ |
2,074 |
|
Second Quarter 2004 |
|
June 30, 2004 |
|
July 15, 2004 |
|
$ |
0.2350 |
|
$ |
2,057 |
|
Third Quarter 2004 |
|
September 30, 2004 |
|
October 15, 2004 |
|
$ |
0.2550 |
|
$ |
2,201 |
|
19
12. Supplemental Information to Statements of Cash Flows
|
|
For the nine months |
|
||||
|
|
2004 |
|
2003 |
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
||
|
|
|
|
|
|
||
Consolidation of real estate joint ventures in connection with adoption of FIN 46R: |
|
|
|
|
|
||
Operating properties |
|
$ |
2,176 |
|
$ |
|
|
Projects under construction or development |
|
17,959 |
|
|
|
||
Investments in and advances to unconsolidated real estate joint ventures |
|
(3,957 |
) |
|
|
||
Restricted cash |
|
10 |
|
|
|
||
Accounts receivable, net |
|
145 |
|
|
|
||
Deferred rent receivable |
|
7 |
|
|
|
||
Deferred charges, net |
|
1,026 |
|
|
|
||
Prepaid and other assets |
|
(3,263 |
) |
|
|
||
Mortgage and other loans payable |
|
(10,171 |
) |
|
|
||
Accounts payable and accrued expenses |
|
(2,737 |
) |
|
|
||
Rents received in advance and security deposits |
|
(347 |
) |
|
|
||
Other liabilities |
|
4,650 |
|
|
|
||
Minority interests-other consolidated real estate entities |
|
(5,498 |
) |
|
|
||
Net adjustment |
|
$ |
|
|
$ |
|
|
Adjustment to purchase of commercial real estate properties by acquiring joint venture interests: |
|
|
|
|
|
||
Operating properties |
|
$ |
(83 |
) |
$ |
|
|
Investments in and advances to unconsolidated real estate joint ventures |
|
83 |
|
|
|
||
Net adjustment |
|
$ |
|
|
$ |
|
|
Debt assumed in connection with acquisitions |
|
$ |
99,756 |
|
$ |
16,917 |
|
Notes receivable assumed upon sales of real estate |
|
$ |
|
|
$ |
3,300 |
|
Investment in real estate joint venture obtained with disposition of property |
|
$ |
|
|
$ |
2,300 |
|
Increase (decrease) in accrued capital improvements and leasing costs |
|
$ |
14,383 |
|
$ |
(856 |
) |
Amortization of discounts and premiums on mortgage loans to commercial real estate properties |
|
$ |
576 |
|
$ |
323 |
|
Accretion of other liability to commercial real estate properties |
|
$ |
147 |
|
$ |
358 |
|
Increase (decrease) in fair value of derivatives applied to AOCL and minority interests |
|
$ |
345 |
|
$ |
(232 |
) |
Issuance of preferred units in the Operating Partnership |
|
$ |
8,800 |
|
$ |
|
|
Adjustments to minority interests resulting from changes in ownership of Operating Partnership by COPT |
|
$ |
17,799 |
|
$ |
6,688 |
|
Dividends/distribution payable |
|
$ |
14,533 |
|
$ |
11,637 |
|
Decrease in minority interests and increase in shareholders equity in connection with the conversion of common units into common shares |
|
$ |
5,553 |
|
$ |
2,066 |
|
Conversion of preferred shares adjusted to common shares and paid in capital |
|
$ |
12 |
|
$ |
|
|
Issuance of restricted shares |
|
$ |
2,271 |
|
$ |
|
|
20
13. Information by Business Segment
We have seven primary office property segments: Baltimore/Washington Corridor, Northern Virginia, Greater Philadelphia, Northern/Central New Jersey, Greater Harrisburg, Suburban Maryland and Southern Maryland.
The table below reports segment financial information. The reportable segments include, when applicable, properties classified as discontinued operations because these properties are included in the measure of profit reviewed by management. Our segment entitled Other includes assets and operations not specifically associated with the other defined segments. We measure the performance of our segments based on total revenues less property operating expenses, a measure we define as net operating income (NOI). We believe that NOI is an important supplemental measure of operating performance for a REITs operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.
|
|
Baltimore/ |
|
Northern |
|
Greater |
|
Northern/ |
|
Greater |
|
Suburban |
|
Southern |
|
Other |
|
Total |
|
||||||||||||||
Three months ended September 30, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Revenues |
|
$ |
26,921 |
|
$ |
10,121 |
|
$ |
2,506 |
|
$ |
4,696 |
|
$ |
2,271 |
|
$ |
2,622 |
|
$ |
1,750 |
|
$ |
2,210 |
|
$ |
53,097 |
|
|||||
Property operating expenses |
|
8,658 |
|
3,166 |
|
39 |
|
1,387 |
|
689 |
|
927 |
|
376 |
|
955 |
|
16,197 |
|
||||||||||||||
NOI |
|
$ |
18,263 |
|
$ |
6,955 |
|
$ |
2,467 |
|
$ |
3,309 |
|
$ |
1,582 |
|
$ |
1,695 |
|
$ |
1,374 |
|
$ |
1,255 |
|
$ |
36,900 |
|
|||||
Commercial real estate property expenditures |
|
$ |
43,159 |
|
$ |
121,415 |
|
$ |
593 |
|
$ |
901 |
|
$ |
65 |
|
$ |
88 |
|
$ |
26 |
|
$ |
1,100 |
|
$ |
167,347 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Three months ended September 30, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Revenues |
|
$ |
24,670 |
|
$ |
9,010 |
|
$ |
2,507 |
|
$ |
3,685 |
|
$ |
2,372 |
|
$ |
1,481 |
|
$ |
|
|
$ |
1,725 |
|
$ |
45,450 |
|
|||||
Property operating expenses |
|
7,242 |
|
2,657 |
|
36 |
|
1,300 |
|
663 |
|
536 |
|
|
|
628 |
|
13,062 |
|
||||||||||||||
NOI |
|
$ |
17,428 |
|
$ |
6,353 |
|
$ |
2,471 |
|
$ |
2,385 |
|
$ |
1,709 |
|
$ |
945 |
|
$ |
|
|
$ |
1,097 |
|
$ |
32,388 |
|
|||||
Commercial real estate property expenditures |
|
$ |
3,741 |
|
$ |
61,663 |
|
$ |
201 |
|
$ |
122 |
|
$ |
74 |
|
$ |
101 |
|
$ |
|
|
$ |
381 |
|
$ |
66,283 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nine months ended September 30, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Revenues |
|
$ |
77,220 |
|
$ |
34,296 |
|
$ |
7,519 |
|
$ |
14,036 |
|
$ |
6,682 |
|
$ |
6,535 |
|
$ |
3,536 |
|
$ |
6,136 |
|
$ |
155,960 |
|
|||||
Property operating expenses |
|
24,394 |
|
9,552 |
|
118 |
|
4,114 |
|
2,190 |
|
2,310 |
|
768 |
|
2,437 |
|
45,883 |
|
||||||||||||||
NOI |
|
$ |
52,826 |
|
$ |
24,744 |
|
$ |
7,401 |
|
$ |
9,922 |
|
$ |
4,492 |
|
$ |
4,225 |
|
$ |
2,768 |
|
$ |
3,699 |
|
$ |
110,077 |
|
|||||
Commercial real estate property expenditures |
|
$ |
87,249 |
|
$ |
139,957 |
|
$ |
944 |
|
$ |
1,650 |
|
$ |
329 |
|
$ |
27,475 |
|
$ |
55,324 |
|
$ |
17,017 |
|
$ |
329,945 |
|
|||||
Segment assets at September 30, 2004 |
|
$ |
753,607 |
|
$ |
415,076 |
|
$ |
101,425 |