UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(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, 2005

 

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

 

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.)

 

 

 

8815 Centre Park Drive, Suite 400, Columbia MD

 

21045

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s 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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes   ý No

 

On November 2, 2005, 39,590,253 shares of the Company’s Common Shares of Beneficial Interest, $0.01 par value, were issued.

 

 



 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

PAGE

PART I: FINANCIAL INFORMATION

 

 

 

Item 1:

Financial Statements:

 

 

Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004 (unaudited)

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004 (unaudited)

4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (unaudited)

5

 

Notes to Consolidated Financial Statements

6

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4:

Controls and Procedures

42

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

Item 1:

Legal Proceedings

43

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3:

Defaults Upon Senior Securities

43

Item 4:

Submission of Matters to a Vote of Security Holders

43

Item 5:

Other Information

44

Item 6:

Exhibits

44

 

 

 

SIGNATURES

45

 

2



 

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Assets

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

Operating properties, net

 

$

1,421,128

 

$

1,407,148

 

Projects under construction or development

 

274,269

 

136,152

 

Total commercial real estate properties, net

 

1,695,397

 

1,543,300

 

Investments in and advances to unconsolidated real estate joint ventures

 

1,208

 

1,201

 

Investment in real estate, net

 

1,696,605

 

1,544,501

 

Cash and cash equivalents

 

17,348

 

13,821

 

Restricted cash

 

15,083

 

12,617

 

Accounts receivable, net

 

12,537

 

16,771

 

Investment in other unconsolidated entity

 

1,621

 

1,621

 

Deferred rent receivable

 

30,222

 

26,282

 

Intangible assets on real estate acquisitions, net

 

67,686

 

67,560

 

Deferred charges, net

 

31,420

 

27,642

 

Prepaid and other assets

 

25,465

 

18,646

 

Furniture, fixtures and equipment, net

 

3,709

 

2,565

 

Total assets

 

$

1,901,696

 

$

1,732,026

 

Liabilities and shareholders’ equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgage and other loans payable

 

$

1,124,299

 

$

1,022,688

 

Accounts payable and accrued expenses

 

38,795

 

46,307

 

Rents received in advance and security deposits

 

14,191

 

12,781

 

Dividends and distributions payable

 

16,665

 

14,713

 

Deferred revenue associated with acquired operating leases

 

8,045

 

7,247

 

Distributions in excess of investment in unconsolidated real estate joint venture

 

2,519

 

 

Fair value of derivatives

 

1,516

 

 

Other liabilities

 

4,619

 

7,488

 

Total liabilities

 

1,210,649

 

1,111,224

 

Minority interests:

 

 

 

 

 

Common units in the Operating Partnership

 

98,433

 

88,355

 

Preferred units in the Operating Partnership

 

8,800

 

8,800

 

Other consolidated real estate joint ventures

 

1,297

 

1,723

 

Total minority interests

 

108,530

 

98,878

 

Commitments and contingencies (Note 20)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred Shares of beneficial interest ($0.01 par value; 15,000,000 shares authorized) (Note 14)

 

67

 

67

 

Common Shares of beneficial interest ($0.01 par value; 75,000,000 shares authorized, shares issued of 39,558,398 at September 30, 2005 and 36,842,108 at December 31, 2004)

 

396

 

368

 

Additional paid-in capital

 

654,024

 

578,228

 

Cumulative distributions in excess of net income

 

(63,256

)

(51,358

)

Value of unearned restricted common share grants

 

(7,318

)

(5,381

)

Accumulated other comprehensive loss

 

(1,396

)

 

Total shareholders’ equity

 

582,517

 

521,924

 

Total liabilities and shareholders’ equity

 

$

1,901,696

 

$

1,732,026

 

 

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)

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Revenues

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

54,978

 

$

46,781

 

$

161,009

 

$

137,606

 

Tenant recoveries and other real estate operations revenue

 

8,018

 

5,495

 

21,878

 

15,917

 

Construction contract revenues

 

28,476

 

6,766

 

61,649

 

18,136

 

Other service operations revenues

 

1,308

 

700

 

3,696

 

3,052

 

Total revenues

 

92,780

 

59,742

 

248,232

 

174,711

 

Expenses

 

 

 

 

 

 

 

 

 

Property operating

 

19,032

 

15,789

 

55,171

 

44,862

 

Depreciation and other amortization associated with real estate operations

 

18,004

 

11,619

 

47,459

 

37,512

 

Construction contract expenses

 

28,073

 

6,483

 

60,193

 

17,280

 

Other service operations expenses

 

1,253

 

495

 

3,499

 

2,440

 

General and administrative expenses

 

3,318

 

2,698

 

9,760

 

7,471

 

Total operating expenses

 

69,680

 

37,084

 

176,082

 

109,565

 

Operating income

 

23,100

 

22,658

 

72,150

 

65,146

 

Interest expense

 

(14,370

)

(10,668

)

(41,281

)

(31,117

)

Amortization of deferred financing costs

 

(641

)

(577

)

(1,508

)

(1,936

)

Income from continuing operations before gain (loss) on sales of real estate, equity in loss of unconsolidated entities, income taxes and minority interests

 

8,089

 

11,413

 

29,361

 

32,093

 

Gain (loss) on sales of real estate

 

105

 

24

 

339

 

(174

)

Equity in loss of unconsolidated entities

 

 

 

 

(88

)

Income tax expense

 

(294

)

(145

)

(964

)

(375

)

Income from continuing operations before minority interests

 

7,900

 

11,292

 

28,736

 

31,456

 

Minority interests in income from continuing operations Common units in the Operating Partnership

 

(821

)

(1,583

)

(3,413

)

(4,154

)

Preferred units in the Operating Partnership

 

(165

)

(14

)

(495

)

(14

)

Other consolidated entities

 

19

 

8

 

58

 

 

Income from continuing operations

 

6,933

 

9,703

 

24,886

 

27,288

 

Income from discontinued operations, net of minority interests

 

3,656

 

47

 

3,863

 

298

 

Net income

 

10,589

 

9,750

 

28,749

 

27,586

 

Preferred share dividends

 

(3,653

)

(3,784

)

(10,961

)

(12,675

)

Issuance costs associated with redeemed preferred shares

 

 

(1,813

)

 

(1,813

)

Net income available to common shareholders

 

$

6,936

 

$

4,153

 

$

17,788

 

$

13,098

 

Basic earnings per common share

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.09

 

$

0.12

 

$

0.38

 

$

0.40

 

Discontinued operations

 

0.10

 

 

0.10

 

0.01

 

Net income

 

$

0.19

 

$

0.12

 

$

0.48

 

$

0.41

 

Diluted earnings per common share

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.09

 

$

0.12

 

$

0.36

 

$

0.38

 

Discontinued operations

 

0.09

 

 

0.10

 

0.01

 

Net income

 

$

0.18

 

$

0.12

 

$

0.46

 

$

0.39

 

 

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 September 30,

 

 

 

2005

 

2004

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

28,749

 

$

27,586

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Minority interests

 

4,806

 

4,255

 

Depreciation and other amortization

 

47,951

 

38,045

 

Amortization of deferred financing costs

 

1,508

 

1,936

 

Amortization of deferred market rental revenue

 

(32

)

(806

)

Equity in loss of unconsolidated entities

 

 

88

 

(Gain) loss on sales of real estate

 

(4,674

)

174

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in deferred rent receivable

 

(4,570

)

(5,473

)

Increase in accounts receivable, restricted cash and prepaid and other assets

 

(3,504

)

(1,239

)

Increase in accounts payable, accrued expenses, rents received in advance and security deposits

 

4,322

 

1,890

 

Other

 

1,666

 

1,608

 

Net cash provided by operating activities

 

76,222

 

68,064

 

Cash flows from investing activities

 

 

 

 

 

Purchases of and additions to commercial real estate properties

 

(279,082

)

(205,991

)

Proceeds from sales of properties

 

29,470

 

 

Proceeds from contribution of assets to unconsolidated real estate joint venture

 

68,646

 

 

Investments in and advances from (to) unconsolidated entities

 

36

 

(39

)

Leasing costs paid

 

(6,582

)

(7,877

)

Advances to certain real estate joint ventures

 

 

(515

)

Other

 

(2,719

)

168

 

Net cash used in investing activities

 

(190,231

)

(214,254

)

Cash flows from financing activities

 

 

 

 

 

Proceeds from mortgage and other loans payable

 

423,699

 

476,667

 

Repayments of mortgage and other loans payable

 

(334,890

)

(378,412

)

Deferred financing costs paid

 

(2,752

)

(3,371

)

Increase in other liabilities associated with financing activities

 

 

4,000

 

Acquisition of partner interest in consolidated joint venture

 

(1,208

)

(4,928

)

Net proceeds from issuance of common shares

 

78,260

 

121,604

 

Redemption of preferred shares

 

 

(31,250

)

Dividends paid

 

(38,968

)

(34,661

)

Distributions paid

 

(7,060

)

(6,224

)

Other

 

455

 

96

 

Net cash provided by financing activities

 

117,536

 

143,521

 

Net increase (decrease) in cash and cash equivalents

 

3,527

 

(2,669

)

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

13,821

 

9,481

 

End of period

 

$

17,348

 

$

6,812

 

 

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)
(unaudited)

 

1.             Organization

 

Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”) that focuses on the ownership, management, leasing, acquisition and development of suburban office properties primarily in select submarkets within the Mid-Atlantic region of the United States.  We have implemented a core customer expansion strategy that is built around meeting, through acquisitions and development, the multi-location requirements of our existing strategic tenants. Our strategy is to operate in select, demographically strong submarkets where we can achieve critical mass, operating synergies and key competitive advantages, including attracting high quality tenants and securing acquisition and development opportunities.  As of September 30, 2005, our portfolio included 136 wholly owned operating office properties and 18 operating office properties that we 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 Partnership’s forms of ownership and the percentage of those ownership forms owned by COPT as of September 30, 2005 follows:

 

 

 

% Owned
by COPT

 

Common Units

 

81

%

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

%

 

The Operating Partnership also owns 100% of Corporate Office Management, Inc. (“COMI”) (collectively with its subsidiaries defined as the “Service Companies”).  As of September 30, 2005, COMI owned 100% of the consolidated subsidiaries that 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

 

Most of the services that CRM and CDS provide are for us.

 

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 2004 Annual Report on Form 10-K.  The interim financial statements on the previous pages reflect all adjustments that we believe are necessary for the fair statement 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.

 

6



 

3.             Earnings Per Share (“EPS”)

 

A summary of the numerator and denominator for purposes of our basic and diluted EPS calculations is set forth below (dollars and shares in thousands, except per share data):

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

6,933

 

$

9,703

 

$

24,886

 

$

27,288

 

Less: Preferred share dividends

 

(3,653

)

(3,784

)

(10,961

)

(12,675

)

Less: Issuance costs associated with redeemed preferred shares

 

 

(1,813

)

 

(1,813

)

Numerator for basic EPS from continuing operations

 

3,280

 

4,106

 

13,925

 

12,800

 

Add: Convertible preferred share dividends

 

 

 

 

21

 

Numerator for diluted EPS from continuing operations

 

3,280

 

4,106

 

13,925

 

12,821

 

Add: Income from discontinued operations, net

 

3,656

 

47

 

3,863

 

298

 

Less: Convertible preferred share dividends

 

 

 

 

(21

)

Numerator for basic EPS on net income available to common shareholders

 

6,936

 

4,153

 

17,788

 

13,098

 

Add: Convertible preferred share dividends

 

 

 

 

21

 

Numerator for diluted EPS on net income available to common shareholders

 

$

6,936

 

$

4,153

 

$

17,788

 

$

13,119

 

Denominator (all weighted averages):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS (common shares)

 

36,913

 

33,797

 

36,721

 

32,124

 

Assumed conversion of share options

 

1,667

 

1,655

 

1,595

 

1,680

 

Assumed conversion of convertible preferred shares

 

 

 

 

179

 

Denominator for diluted EPS

 

38,580

 

35,452

 

38,316

 

33,983

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.09

 

$

0.12

 

$

0.38

 

$

0.40

 

Income from discontinued operations

 

0.10

 

 

0.10

 

0.01

 

Net income available to common shareholders

 

$

0.19

 

$

0.12

 

$

0.48

 

$

0.41

 

Diluted EPS

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.09

 

$

0.12

 

$

0.36

 

$

0.38

 

Income from discontinued operations

 

0.09

 

 

0.10

 

0.01

 

Net income available to common shareholders

 

$

0.18

 

$

0.12

 

$

0.46

 

$

0.39

 

 

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

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Conversion of weighted average common units

 

8,758

 

8,690

 

8,707

 

8,773

 

Restricted common shares

 

191

 

206

 

175

 

195

 

Conversion of weighted average convertible preferred units

 

176

 

15

 

176

 

5

 

Conversion of share options

 

 

5

 

 

5

 

 

7



 

4.             Share-Based Compensation

 

Expenses from share-based compensation are reflected in our Consolidated Statements of Operations as follows:

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Increase in general and administrative expenses

 

$

497

 

$

405

 

$

1,420

 

$

1,165

 

Increase in construction contract and other service operations expenses

 

80

 

146

 

203

 

430

 

 

The following table summarizes our operating results as if we elected to account for our share-based compensation under the fair value provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”:

 

 

 

For the Three Months

 

For the Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net income, as reported

 

$

10,589

 

$

9,750

 

$

28,749

 

$

27,586

 

Add: Share-based compensation expense, net of related tax effects and minority interests, included in the determination of net income

 

437

 

388

 

1,239

 

1,106

 

Less: Share-based compensation expense determined under the fair value based method, net of related tax effects and minority interests

 

(432

)

(322

)

(1,200

)

(917

)

Net income, pro forma

 

$

10,594

 

$

9,816

 

$

28,788

 

$

27,775

 

Basic EPS on net income available to common shareholders, as reported

 

$

0.19

 

$

0.12

 

$

0.48

 

$

0.41

 

Basic EPS on net income available to common shareholders, pro forma

 

$

0.19

 

$

0.12

 

$

0.49

 

$

0.41

 

Diluted EPS on net income available to common shareholders, as reported

 

$

0.18

 

$

0.12

 

$

0.46

 

$

0.39

 

Diluted EPS on net income available to common shareholders, pro forma

 

$

0.18

 

$

0.12

 

$

0.47

 

$

0.39

 

 

The share-based compensation expense under the fair value method, as reported in the above table, was computed using the Black-Scholes option-pricing model.

 

5.             Recent Accounting Pronouncements

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (“SFAS 153”).  The Accounting Principles Board’s Opinion No. 29, “Accounting for Nonmonetary Transactions” (“APB 29”) is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  However, the guidance in APB 29 included certain exceptions to that principle.  SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance.  Under SFAS 153, a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS 153 will be effective for us for nonmonetary asset exchanges occurring after December 31, 2005.  We are reviewing the provisions of SFAS 153 and assessing the impact it will have on us upon adoption.

 

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143” (“FIN 47”).  FIN 47 clarifies that the term “conditional asset retirement obligation” as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to an unconditional obligation to perform an asset retirement activity in which the timing and/or method of

 

8



 

settlement are conditioned upon future events that may or may not be within the entity’s control.  The fair value of liabilities related to such obligations should be recognized when incurred and reasonably estimable.  Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation.  This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  FIN 47 is effective no later than December 31, 2005.  We are reviewing the provisions of FIN 47 and assessing the impact it will have on us upon adoption.

 

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”).  The statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  The statement will require us to measure the cost of employee services received in exchange for an award of equity instruments based generally on the fair value of the award on the grant date; such cost will be recognized over the period during which the employee is required to provide service in exchange for the award (generally the vesting period).  No compensation cost is recognized for equity instruments for which employees do not render the requisite service.  SFAS 123(R) was to be effective for us in June 2005 for applicability to all awards granted, modified, repurchased or cancelled after July 1, 2005; the statement also was to require that we recognize compensation cost on or after July 1, 2005 for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the fair value of those awards on the date of grant.  In April 2005, the Securities and Exchange Commission (the “SEC”) extended the effective date of SFAS 123(R) to the beginning of our next fiscal year (January 1, 2006).  The SEC’s new rule does not change the accounting required by SFAS 123(R); it changes only the dates for compliance with the standard.  We are reviewing the provisions of SFAS 123(R) and assessing the impact it will have on us upon adoption.

 

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”).  SAB 107 expresses the SEC staff’s views regarding the interaction between SFAS 123(R) and certain SEC rules and regulations and provides the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies.  In particular, it provides guidance in a number of areas, including share-based payment transactions with nonemployees, valuation methods, the classification of compensation expense, non-GAAP measures, capitalization of compensation costs related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123(R), the modification of employee share options prior to adoption of SFAS 123(R) and certain disclosure requirements.  We are reviewing the provisions of SAB 107 and assessing the impact it will have on us upon our adoption of SFAS 123(R).

 

6.             Commercial Real Estate Properties

 

Operating properties consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Land

 

$

268,583

 

$

268,327

 

Buildings and improvements

 

1,315,969

 

1,280,537

 

 

 

1,584,552

 

1,548,864

 

Less: accumulated depreciation

 

(163,424

)

(141,716

)

 

 

$

1,421,128

 

$

1,407,148

 

 

9



 

Projects we had under construction or pre-construction consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Land

 

$

127,085

 

$

74,190

 

Construction in progress

 

147,184

 

61,962

 

 

 

$

274,269

 

$

136,152

 

 

2005 Acquisitions

 

We acquired the following office properties during the nine months ended September 30, 2005:

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Date of

 

Number of

 

Rentable

 

 

 

Project Name

 

Location

 

Acquisition

 

Buildings

 

Square Feet

 

Initial Cost

 

8611 Military Drive (1)

 

San Antonio, TX

 

3/30/2005

 

2

 

468,994

 

$

30,845

 

Rockville Corporate Center

 

Rockville, MD (2)

 

4/7/2005

 

2

 

221,702

 

37,617

 

7175 Riverwood Drive

 

Columbia, MD (3)

 

7/27/2005

 

1

 

26,500

 

2,456

 

Gateway Crossing 95

 

Columbia, MD (3)

 

9/19/2005

 

5

 

188,819

 

26,060

 

Patriot Park I & II

 

Colorado Springs, CO

 

9/28/2005

 

2

 

135,907

 

18,010

 

1670 N. Newport Road

 

Colorado Springs, CO

 

9/30/2005

 

1

 

67,500

 

9,033

 

 

 

 

 

 

 

13

 

1,109,422

 

$

124,021

 

 


(1)   The buildings in this project are initially undergoing redevelopment.

(2)   Located in the Suburban Maryland region.

(3)   Located in the Baltimore/Washington Corridor region.

 

The table below sets forth the allocation of the acquisition costs of these properties:

 

 

 

8611
Military
Drive

 

Rockville
Corporate
Center

 

7175
Riverwood
Drive

 

Gateway
Crossing
95

 

Patriot Park
I & II

 

1670 N.
Newport
Road

 

Total

 

Land, operating properties

 

$

 

$

6,222

 

$

1,788

 

$

5,533

 

$

1,313

 

$

849

 

$

15,705

 

Land, construction or development

 

11,007

 

 

 

 

 

 

11,007

 

Building and improvements

 

 

28,925

 

763

 

17,582

 

14,371

 

6,968

 

68,609

 

Construction in progress

 

19,838

 

 

 

 

 

 

19,838

 

Intangible assets on real estate acquisitions

 

 

4,004

 

113

 

3,317

 

2,371

 

1,216

 

11,021

 

Total assets

 

30,845

 

39,151

 

2,664

 

26,432

 

18,055

 

9,033

 

126,180

 

Deferred revenue associated with acquired operating leases

 

 

(1,534

)

(208

)

(372

)

(45

)

 

(2,159

)

Total acquisition cost

 

$

30,845

 

$

37,617

 

$

2,456

 

$

26,060

 

$

18,010

 

$

9,033

 

$

124,021

 

 

We also acquired the following during the nine months ended September 30, 2005:

 

      a 19-acre parcel of land located in Chantilly, Virginia that is adjacent to existing properties we own for $7,141 on January 27, 2005 (Chantilly, Virginia is located in the Northern Virginia region).  We expect to develop this land parcel in the future;

      a 32-acre parcel of land located in Dahlgren, Virginia that is adjacent to one of our office properties for $1,227 on March 16, 2005 (Dahlgren, Virginia is located in the St. Mary’s and King George Counties region).  We expect to develop this land parcel in the future;

      a 16-acre parcel of land adjacent to 8611 Military Drive in San Antonio, Texas for $3,013 on March 30, 2005.  We expect to operate this land parcel as part of the campus that includes 8611 Military Drive;

      a ten-acre parcel of land adjacent to the Rockville Corporate Center for $6,234 on April 7, 2005.  We expect to develop this land parcel in the future;

 

10



 

      a 27-acre parcel of land adjacent to 8611 Military Drive in San Antonio, Texas for $5,893 on June 14, 2005.  We expect to develop this land parcel in the future;

      a two-acre parcel of land located in Linthicum, Maryland that is adjacent to one of our office properties for $735 on July 6, 2005;

      a 64-acre land parcel located in Colorado Springs, Colorado, five acres of which is undergoing construction of a 50,000 square foot, fully-leased building, for a purchase price of $9,408 on July 8, 2005.  We expect to develop this land parcel in the future;

      a four-acre parcel of land located in Columbia, Maryland that is adjacent to 7175 Riverwood Drive for $1,367 on July 27, 2005; and

      a 50% undivided interest in a 132-acre land parcel, subject to a cotenancy agreement, in Colorado Springs, Colorado for $10,651 on September 28, 2005.

 

In 2004, we sold a land parcel in Columbia, Maryland and a land parcel in Linthicum, Maryland for an aggregate of $9,600.  We issued to the buyer a $5,600 mortgage loan; the balance of the acquisition was in the form of cash from the buyer.  The buyer in this transaction had an option to contribute the two land parcels into our Operating Partnership between January 1, 2005 and February 28, 2005 in exchange for extinguishment of the $5,600 mortgage loan with us and common units in our Operating Partnership; the buyer exercised its option in February 2005 and, as a result, on April 18, 2005, the debt from us was essentially extinguished and the buyer received 142,776 common units in the Operating Partnership valued at $3,697.  We accounted for the 2004 transaction using the financing method of accounting; as a result, the 2004 sale transaction was not recorded as a sale and the $4,000 in net proceeds received from the buyer was recorded as a liability prior to the contribution of the land parcels back into the Operating Partnership in April 2005.

 

2005 Construction and Pre-Construction Activities

 

In August 2005, we fully placed into service a newly constructed 103,683 square foot building located in the Baltimore/Washington Corridor.

 

As of September 30, 2005, we had construction underway on six new buildings in the Baltimore/Washington Corridor, one in Northern Virginia, one in St. Mary’s County, Maryland and one in Colorado Springs, Colorado.  We also had pre-construction activities underway on two new buildings located in the Baltimore/Washington Corridor and one new building in King George County and redevelopment underway on two existing buildings in San Antonio, Texas

 

2005 Dispositions

 

On June 10, 2005, we sold a four-acre parcel of land located in Columbia, Maryland for $2,571.  We recognized a gain of $186 on this sale.

 

On August 31, 2005, we sold a newly constructed property in Columbia, Maryland for $4,794.  We recognized a gain of $80 on this sale.

 

On September 8, 2005, we sold three office properties totaling 152,731 square feet located in the Northern Central New Jersey region for a total sale price of $22,458.  We recognized a total gain of $4,335 on this sale.

 

On September 29, 2005, we contributed our portfolio of properties in Harrisburg, Pennsylvania, consisting of 16 office properties, one unimproved land parcel and an option to acquire a land parcel, into a real estate joint venture at a value of $73,000.  In exchange for our contribution, we received $69,587 in cash (after closing costs and operating prorations) and a 20% interest in Harrisburg Corporate Gateway Partners, L.P.  As part of this transaction, we entered into an agreement to manage the operations of the joint venture’s properties for a five year term.  We did not recognize a gain on this transaction since we have certain contingent obligations that may exceed our proportionate interest remaining in effect as long as we continue to manage the properties; these contingent obligations are described below in Note 20.

 

11



 

7.             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

 

 

 

Nature of

 

Assets at

 

Exposure

 

 

 

2005

 

2004

 

Acquired

 

Ownership

 

Activity

 

9/30/2005

 

to Loss (1)

 

Route 46 Partners

 

$

1,208

 

$

1,201

 

3/14/2003

 

20

%

Operates one building (2)

 

$

23,290

 

$

1,628

 

Harrisburg Corporate Gateway Partners, L.P.  (3)

 

(2,519

)

 

9/29/2005

 

20

%

Operates 16 buildings (4)

 

$

79,704

 

$

 

 


(1)   Derived from the sum of our investment balance and maximum additional unilateral capital contributions or loans required from us.  Not reported above are additional amounts that we and our partner are required to fund when needed by this joint venture; these funding requirements are proportional to our respective ownership percentages.  Also not reported above are additional unilateral contributions or loans from us, the amounts of which are uncertain, that would be due if certain contingent events occurred.

(2)   This joint venture’s property is located in Fairfield, New Jersey.

(3)   Our balance sheet reflects distributions in excess of investment for this joint venture due to our not recognizing gain on our contribution of properties into the joint venture. We did not recognize a gain on the contribution since we have certain contingent obligations that may exceed our proportionate interest remaining in effect as long as we continue to manage the joint venture’s properties; these contingent obligations are described below in Note 20..

(4)   This joint venture’s properties are located in Greater Harrisburg, Pennsylvania.

 

The following table sets forth a condensed balance sheet for our unconsolidated joint ventures as of September 30, 2005:

 

Commercial real estate property

 

$

94,540

 

Other assets

 

8,454

 

Total assets

 

$

102,994

 

 

 

 

 

Liabilities

 

$

81,420

 

Owners’ equity

 

21,574

 

Total liabilities and owners’ equity

 

$

102,994

 

 

Our joint venture partner in Route 46 Partners has preference in receiving distributions of cash flows for a defined return.  Once our partner receives its defined return, we are entitled to receive distributions for a defined return.  We did not recognize income from our investment in Route 46 Partners in the nine months ended September 30, 2005 and 2004 since the income earned by the entity in those periods did not exceed our partner’s defined return.

 

Our investments in consolidated real estate joint ventures included the following:

 

 

 

 

 

Ownership

 

 

 

Total

 

Collateralized

 

 

 

Date

 

% at

 

Nature of

 

Assets at

 

Assets at

 

 

 

Acquired

 

9/30/2005

 

Activity

 

9/30/2005

 

9/30/2005

 

MOR Forbes 2 LLC

 

12/24/2002

 

50

%

Operating building (1)

 

$

4,583

 

$

3,998

 

MOR Montpelier 3 LLC

 

2/21/2002

 

50

%

Developing land parcel (2)

 

1,958

 

 

 

 

 

 

 

 

 

 

$

6,541

 

$

3,998

 

 


(1) This joint venture’s property is located in Lanham, Maryland (located in the Suburban Maryland region).

(2) This joint venture’s property is located in Laurel, Maryland (located in the Baltimore/Washington Corridor region).

 

From April 4, 2001 until June 9, 2005, we owned an 80% interest in Gateway 70 LLC, a consolidated joint venture developing two land parcels in Columbia, Maryland.  On June 9, 2005, we acquired the remaining 20% interest in Gateway 70 LLC not previously owned by us for $1,208.

 

12



 

On April 11, 2005, we executed a contribution agreement that formed a joint venture relationship with a limited partnership to develop up to 1.8 million square feet of office space on 63 acres of land located in Hanover, Maryland (in the Baltimore/Washington Corridor).  Under the contribution agreement, we agreed to fund up to $2,200 in pre-construction costs associated with the property.  As we and the joint venture partner agree to proceed with the construction of buildings in the future, we would make additional cash capital contributions into newly-formed entities and our joint venture partner would contribute land into such entities.  We will have a 50% interest in this joint venture relationship.

 

As described in Note 6, we acquired an interest in Harrisburg Corporate Gateway Partners, L.P. on September 29, 2005.

 

Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 20.

 

8.             Investment in Other Unconsolidated Entity

 

Our investment in an unconsolidated non-real estate entity is set forth below:

 

 

 

 

 

 

 

 

 

Ownership

 

Investment

 

 

 

September 30,

 

December 31,

 

Date

 

% at

 

Accounting

 

 

 

2005

 

2004

 

Acquired

 

9/30/2005

 

Method

 

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.

 

9.             Intangible Assets on Real Estate Acquisitions

 

Intangible assets on real estate acquisitions consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Lease-up value

 

$

72,869

 

$

65,638

 

Lease to market value

 

8,869

 

9,595

 

Lease cost portion of deemed cost avoidance

 

9,554

 

8,700

 

Market concentration premium

 

1,333

 

1,333

 

Tenant relationship value

 

2,586

 

 

Subtotal

 

95,211

 

85,266

 

Accumulated amortization

 

(27,525

)

(17,706

)

Intangible assets on real estate acquisitions, net

 

$

67,686

 

$

67,560

 

 

10.          Deferred Charges

 

Deferred charges consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

Deferred leasing costs

 

$

39,015

 

$

33,302

 

Deferred financing costs

 

19,945

 

16,996

 

Goodwill

 

1,853

 

1,853

 

Deferred other

 

155

 

155

 

 

 

60,968

 

52,306

 

Accumulated amortization

 

(29,548

)

(24,664

)

Deferred charges, net

 

$

31,420

 

$

27,642

 

 

13



 

11.          Accounts Receivable

 

Our accounts receivable are reported net of an allowance for bad debts of $353 at September 30, 2005 and $490 at December 31, 2004.

 

12.          Derivatives

 

The following table sets forth our derivative contracts and their respective fair values:

 

Nature of Derivative

 

Notional
Amount

 

One-Month
LIBOR base

 

Effective
Date

 

Expiration
Date

 

Fair Value at
September 30,
2005

 

Fair Value at
December 31,
2004

 

Interest rate swap

 

$

50,000

 

2.3075

%

1/2/2003

 

1/3/2005

 

$

 

$

 

Forward starting swap

 

73,400

 

5.0244

%

7/15/2005

 

7/15/2015

 

(1,516

)

 

 

 

 

 

 

 

 

 

 

 

$

(1,516

)

$

 

 

We designated each of these derivatives as cash flow hedges.  The first swap noted above hedged the risk of changes in interest rates on certain of our one-month LIBOR-based variable rate borrowings.  On April 7, 2005, we entered into the forward starting swap to lock in the 10-year LIBOR swap rate in contemplation of our obtaining a long-term, fixed rate financing later in 2005.  We obtained this long-term financing in October 2005 and cash settled the swap at that time for a payment of $603.  This payment represented the present value of the basis point differential between 5.0244% and the 10-year LIBOR swap rate at the time we cash settled the swap, plus accrued interest.  As of September 30, 2005, the forward starting swap was considered a highly effective cash flow hedge under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended.

 

The table below sets forth our accounting application of changes in derivative fair values:

 

 

 

For the Nine Months

 

 

 

Ended September 30,

 

 

 

2005

 

2004

 

(Decrease) increase in fair value applied to AOCL (1) and minority interests

 

$

(1,516

)

$

345

 

Increase in fair value recognized as gain (2)

 

$

 

$

77

 

 


(1)           AOCL is defined as accumulated other comprehensive loss.

(2)           Represents hedge ineffectiveness and is included in interest expense on our Consolidated Statements of Operations.

 

14



 

13.          Mortgages and Other Loans Payable

 

Mortgage and other loans payable at September 30, 2005 consisted of the following:

 

 

 

Maximum

 

 

 

 

 

 

 

Scheduled

 

 

 

Principal Amount

 

Carrying Value at

 

 

 

Maturity

 

 

 

Under Loans at

 

September 30,

 

December 31,

 

Stated Interest Rates

 

Dates at

 

 

 

September 30, 2005

 

2005

 

2004

 

at September 30, 2005

 

September 30, 2005

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

 

 

Wachovia Bank, N.A. Revolving Credit Facility

 

$

400,000

 

$

239,000

 

$

203,600

 

LIBOR + 1.15% to 1.55%

 

March 2008 (1)

 

 

 

 

 

239,000

 

203,600

 

 

 

 

 

Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

Fixed rate mortgage loans (2)

 

N/A

 

709,385

 

737,380

 

3.00% - 9.48% (3)

 

2006 - 2034 (4)

 

Variable rate construction loan facilities

 

$

182,933

 

97,616

 

35,316

 

LIBOR + 1.40% to 2.20%

 

2005 - 2008 (5)

 

Other variable rate mortgage loans

 

N/A

 

77,200

 

45,124

 

LIBOR + 1.20% to 1.75% and Prime rate + 2.50%

 

2005 - 2010

 

Total mortgage loans

 

 

 

884,201

 

817,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note payable

 

 

 

 

 

 

 

 

 

 

 

Unsecured seller note

 

N/A

 

1,098

 

1,268

 

5.95%

 

May 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Total mortgage and other loans payable

 

 

 

$

1,124,299

 

$

1,022,688

 

 

 

 

 

 


(1)   The Revolving Credit Facility may be extended for a one-year period, subject to certain conditions.

(2)   Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore are recorded at their fair value based on applicable effective interest rates.  The carrying values of these loans reflect net premiums totaling $1.2 million at September 30, 2005 and $1.6 million at December 31, 2004.

(3)   The weighted average interest rate on these loans was 6.17% at September 30, 2005.

(4)   A loan with a balance of $10.7 million at September 30, 2005 that matures in 2025 is subject to a call date of October 2010.

(5)   At September 30, 2005, $33.5 million in loans scheduled to mature in 2008 may be extended for a one-year period, subject to certain conditions.

 

We have guaranteed the repayment of $464.7 million of the mortgage and other loans set forth above.

 

On June 24, 2005, we amended our existing Revolving Credit Facility.  Under the amendment, the maximum principal amount was increased from $300.0 million to $400.0 million, with a right to further increase the maximum principal amount in the future to $600.0 million, subject to certain conditions.  In addition, the scheduled maturity date was extended for one year to March 2008, with a one-year extension available, subject to certain conditions.  The facility has a fee of 0.125% to 0.25% on the amount of the credit facility that is unused.

 

15



 

14.          Shareholders’ Equity

 

Preferred Shares

 

Preferred shares of beneficial interest (“preferred shares”) consisted of the following:

 

 

 

September 30,
2005

 

December 31,
2004

 

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)

 

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)

 

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)

 

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)

 

20

 

20

 

Total preferred shares

 

$

67

 

$

67

 

 

Common Shares

 

On September 28, 2005, we sold 2,300,000 common shares to an underwriter at a net price of $32.76 per share.  We contributed the net proceeds after offering costs totaling approximately $75,165 to our Operating Partnership in exchange for 2,300,000 common units.

 

During the nine months ended September 30, 2005, we issued 130,975 common shares of beneficial interest (“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 143,723 common shares previously issued to employees.

 

We issued 283,417 common shares upon the exercise of share options during the nine months ended September 30, 2005.  During the same period, we converted 12,320 common units in our Operating Partnership into common shares on the basis of one common share for each common unit.

 

Comprehensive Income

 

A summary of the activity in the AOCL component of shareholders’ equity for the nine months ended September 30, 2005 follows:

 

Beginning balance

 

$

 

Unrealized loss on derivatives, net of minority interests

 

(1,396

)

Ending balance

 

$

(1,396

)

 

The table below sets forth our comprehensive income:

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net income

 

$

10,589

 

$

9,750

 

$

28,749

 

$

27,586

 

Unrealized gain (loss) on derivatives, net of minority interests

 

1,962

 

47

 

(1,396

)

258

 

Total comprehensive income

 

$

12,551

 

$

9,797

 

$

27,353

 

$

27,844

 

 

16



 

15.          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, 2005:

 

 

 

Record Date

 

Payable Date

 

Dividend/
Distribution Per
Share/Unit

 

Total Dividend/
Distribution

 

Series E Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.6406

 

$

737

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.6406

 

$

737

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.6406

 

$

737

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.6406

 

$

737

 

 

 

 

 

 

 

 

 

 

 

Series F Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.6172

 

$

880

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.6172

 

$

880

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.6172

 

$

880

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.6172

 

$

880

 

 

 

 

 

 

 

 

 

 

 

Series G Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.5000

 

$

1,100

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.5000

 

$

1,100

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.5000

 

$

1,100

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.5000

 

$

1,100

 

 

 

 

 

 

 

 

 

 

 

Series H Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.4688

 

$

938

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.4688

 

$

938

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.4688

 

$

938

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.4688

 

$

938

 

 

 

 

 

 

 

 

 

 

 

Common Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.2550

 

$

9,288

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.2550

 

$

9,339

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.2550

 

$

9,381

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.2800

 

$

10,966

 

 

 

 

 

 

 

 

 

 

 

Series I Preferred Units:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.4688

 

$

165

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.4688

 

$

165

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.4688

 

$

165

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.4688

 

$

165

 

 

 

 

 

 

 

 

 

 

 

Common Units:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2004

 

December 31, 2004

 

January 14, 2005

 

$

0.2550

 

$

2,179

 

First Quarter 2005

 

March 31, 2005

 

April 15, 2005

 

$

0.2550

 

$

2,179

 

Second Quarter 2005

 

June 30, 2005

 

July 15, 2005

 

$

0.2550

 

$

2,205

 

Third Quarter 2005

 

September 30, 2005

 

October 14, 2005

 

$

0.2800

 

$

2,452

 

 

17



 

16.          Supplemental Information to Statements of Cash Flows

 

 

 

For the Nine Months
Ended September 30,

 

 

 

2005

 

2004

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Consolidation of real estate joint ventures in connection with adoption of FASB Interpretation FIN 46(R), “Consolidation of Variable Interest Entities”:

 

 

 

 

 

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

 

$

13,128

 

$

99,756

 

(Decrease) increase in accrued capital improvements and leasing costs

 

$

(9,531

)

$

14,383

 

Amortization of discounts and premiums on mortgage loans to commercial real estate properties

 

$

203

 

$

576

 

Accretion of other liability to commercial real estate properties

 

$

 

$

147

 

(Decrease) increase in fair value of derivatives applied to AOCL and minority interests

 

$

(1,516

)

$

345

 

Issuance of common units in the Operating Partnership in connection with contribution of properties accounted for under the financing method of accounting

 

$

3,687

 

$

 

Issuance of common units in the Operating Partnership in connection with acquisition of properties

 

$

2,647

 

$

 

Issuance of preferred units in the Operating Partnership in connection with acquisition of properties

 

$

 

$

8,800

 

Adjustments to minority interests resulting from changes in ownership of Operating Partnership by COPT

 

$

6,863

 

$

17,799

 

Dividends/distribution payable

 

$

16,665

 

$

14,533

 

Decrease in minority interests and increase in shareholders’ equity in connection with the conversion of common units into common shares

 

$

324

 

$

5,553

 

Conversion of preferred shares adjusted to common shares and paid in capital

 

$

 

$

12

 

Issuance of restricted shares

 

$

3,481

 

$

2,271

 

 

18



 

17.          Information by Business Segment

 

We have nine primary office property segments: Baltimore/Washington Corridor; Northern Virginia; Suburban Maryland; Greater Philadelphia; St. Mary’s and King George Counties; Northern/Central New Jersey; Colorado Springs, Colorado; San Antonio, Texas; and Greater Harrisburg, Pennsylvania.

 

The table below reports segment financial information.  Our segment entitled “Other” includes assets and operations not specifically associated with the other defined segments, including corporate assets, investments in unconsolidated entities and elimination entries required in consolidation.  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 REIT’s 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/
Washington
Corridor

 

Northern
Virginia

 

Suburban
Maryland

 

Greater
Philadelphia

 

St. Mary’s
& King
George
Counties

 

Northern/
Central
New Jersey

 

Colorado
Springs

 

San
Antonio

 

Greater
Harrisburg

 

Other

 

Total

 

Three Months Ended September 30, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

30,771

 

$

15,473

 

$

3,354

 

$

2,506

 

$

2,900

 

$

3,862

 

$

23

 

$

 

$

2,196

 

$

2,582

 

$

63,667

 

Property operating expenses

 

9,246

 

5,207

 

1,231

 

43

 

715

 

1,617

 

37

 

 

771

 

461

 

19,328

 

NOI

 

$

21,525

 

$

10,266

 

$

2,123

 

$

2,463

 

$

2,185

 

$

2,245

 

$

(14

)

$

 

$

1,425

 

$

2,121

 

$

44,339

 

Commercial real estate property expenditures

 

$

51,640

 

$

5,083

 

$

736

 

$

243

 

$

748

 

$

482

 

$

44,178

 

$

1,367

 

$

287

 

$

1,280

 

$

106,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2004:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

26,921

 

$

10,121

 

$

2,622

 

$

2,506

 

$

1,750

 

$

4,696

 

$

 

$

 

$

2,271

 

$

2,210

 

$

53,097

 

Property operating expenses

 

8,660

 

3,166

 

925

 

39

 

376

 

1,387