UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

(Mark one)

 

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2007

 

or

 

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to              

 

Commission file number 1-14023

 

Corporate Office Properties Trust

(Exact name of registrant as specified in its charter)

 

Maryland

 

23-2947217

(State or other jurisdiction of

 

(IRS Employer

incorporation or organization)

 

Identification No.)

 

 

 

6711 Columbia Gateway Drive, Suite 300, Columbia MD

 

21046

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (443) 285-5400

 


 

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.

x Yes    o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x      Accelerated filer o      Non-accelerated filer o

 

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

 

As of October 31, 2007, 47,363,659 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, 2007 and December 31, 2006 (unaudited)

3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (unaudited)

4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (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

44

Item 4:

Controls and Procedures

45

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

Item 1:

Legal Proceedings

45

Item 1A:

Risk Factors

45

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3:

Defaults Upon Senior Securities

46

Item 4:

Submission of Matters to a Vote of Security Holders

46

Item 5:

Other Information

46

Item 6:

Exhibits

46

 

 

 

 

 

 

SIGNATURES

47

 

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,

 

 

 

2007

 

2006

 

Assets

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

Operating properties, net

 

$

2,158,396

 

$

1,812,883

 

Property held for sale, net

 

14,578

 

 

Projects under construction or development

 

411,971

 

298,427

 

Total commercial real estate properties, net

 

2,584,945

 

2,111,310

 

Cash and cash equivalents

 

21,895

 

7,923

 

Restricted cash

 

16,874

 

52,856

 

Accounts receivable, net

 

20,680

 

26,367

 

Deferred rent receivable

 

50,891

 

41,643

 

Intangible assets on real estate acquisitions, net

 

116,368

 

87,325

 

Deferred charges, net

 

46,019

 

43,710

 

Prepaid and other assets

 

58,351

 

48,467

 

Total assets

 

$

2,916,023

 

$

2,419,601

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgage and other loans payable

 

$

1,599,912

 

$

1,298,537

 

3.5% Exchangeable Senior Notes

 

200,000

 

200,000

 

Accounts payable and accrued expenses

 

80,022

 

68,190

 

Rents received in advance and security deposits

 

24,916

 

20,237

 

Dividends and distributions payable

 

22,433

 

19,164

 

Deferred revenue associated with acquired operating leases

 

12,475

 

11,120

 

Distributions in excess of investment in unconsolidated real estate joint venture

 

4,124

 

3,614

 

Other liabilities

 

7,766

 

8,249

 

Total liabilities

 

1,951,648

 

1,629,111

 

Minority interests:

 

 

 

 

 

Common units in the Operating Partnership

 

115,837

 

104,934

 

Preferred units in the Operating Partnership

 

8,800

 

8,800

 

Other consolidated real estate joint ventures

 

6,970

 

2,453

 

Total minority interests

 

131,607

 

116,187

 

Commitments and contingencies (Note 20)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred Shares of beneficial interest ($0.01 par value; shares authorized of 15,000,000, issued and outstanding of 8,121,667 at September 30,  2007 and 7,590,000 at December 31, 2006 (Note 13))

 

81

 

76

 

Common Shares of beneficial interest ($0.01 par value; 75,000,000 shares authorized, shares issued and outstanding of 47,344,984 at September 30, 2007 and 42,897,639 at December 31, 2006)

 

473

 

429

 

Additional paid-in capital

 

949,392

 

758,032

 

Cumulative distributions in excess of net income

 

(115,963

)

(83,541

)

Accumulated other comprehensive loss

 

(1,215

)

(693

)

Total shareholders’ equity

 

832,768

 

674,303

 

Total liabilities and shareholders’ equity

 

$

2,916,023

 

$

2,419,601

 

 

 

 

 

 

 

 

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

 

For the Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

80,428

 

$

65,614

 

$

234,807

 

$

187,299

 

Tenant recoveries and other real estate operations revenue

 

14,136

 

11,255

 

39,895

 

28,788

 

Construction contract revenues

 

10,047

 

13,219

 

29,358

 

39,919

 

Other service operations revenues

 

910

 

1,572

 

3,369

 

5,321

 

Total revenues

 

105,521

 

91,660

 

307,429

 

261,327

 

Expenses

 

 

 

 

 

 

 

 

 

Property operating expenses

 

31,642

 

24,983

 

92,222

 

67,460

 

Depreciation and other amortization associated with real estate operations

 

26,587

 

21,510

 

80,487

 

58,138

 

Construction contract expenses

 

9,507

 

12,465

 

28,126

 

38,134

 

Other service operations expenses

 

806

 

1,495

 

3,337

 

4,991

 

General and administrative expenses

 

5,423

 

4,226

 

15,122

 

11,894

 

Total operating expenses

 

73,965

 

64,679

 

219,294

 

180,617

 

Operating income

 

31,556

 

26,981

 

88,135

 

80,710

 

Interest expense

 

(21,000

)

(17,678

)

(61,261

)

(51,635

)

Amortization of deferred financing costs

 

(901

)

(736

)

(2,706

)

(1,898

)

Gain on sale of non-real estate investment

 

 

 

1,033

 

 

Income from continuing operations before equity in (loss) income of unconsolidated entities, income taxes and minority interests

 

9,655

 

8,567

 

25,201

 

27,177

 

Equity in (loss) income of unconsolidated entities

 

(46

)

15

 

(197

)

(40

)

Income tax expense

 

(197

)

(202

)

(480

)

(623

)

Income from continuing operations before minority interests

 

9,412

 

8,380

 

24,524

 

26,514

 

Minority interests in income from continuing operations

 

 

 

 

 

 

 

 

 

Common units in the Operating Partnership

 

(808

)

(746

)

(1,936

)

(2,630

)

Preferred units in the Operating Partnership

 

(165

)

(165

)

(495

)

(495

)

Other consolidated entities

 

12

 

38

 

90

 

96

 

Income from continuing operations

 

8,451

 

7,507

 

22,183

 

23,485

 

Income from discontinued operations, net of minority interests

 

1,942

 

12,483

 

1,473

 

15,423

 

Income before gain on sales of real estate

 

10,393

 

19,990

 

23,656

 

38,908

 

Gain on sales of real estate, net

 

1,038

 

597

 

1,199

 

732

 

Net income

 

11,431

 

20,587

 

24,855

 

39,640

 

Preferred share dividends

 

(4,025

)

(4,307

)

(12,043

)

(11,614

)

Issuance costs associated with redeemed preferred shares

 

 

(1,829

)

 

(1,829

)

Net income available to common shareholders

 

$

7,406

 

$

14,451

 

$

12,812

 

$

26,197

 

Basic earnings per common share

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.12

 

$

0.05

 

$

0.24

 

$

0.26

 

Discontinued operations

 

0.04

 

0.29

 

0.04

 

0.38

 

Net income available to common shareholders

 

$

0.16

 

$

0.34

 

$

0.28

 

$

0.64

 

Diluted earnings per common share

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.11

 

$

0.04

 

$

0.24

 

$

0.25

 

Discontinued operations

 

0.04

 

0.29

 

0.03

 

0.36

 

Net income available to common shareholders

 

$

0.15

 

$

0.33

 

$

0.27

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2007

 

2006

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

24,855

 

$

39,640

 

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

 

 

 

 

 

Minority interests

 

2,829

 

6,471

 

Depreciation and other amortization

 

80,660

 

59,993

 

Amortization of deferred financing costs

 

2,706

 

2,032

 

Amortization of deferred market rental revenue

 

(1,569

)

(1,326

)

Equity in loss of unconsolidated entities

 

197

 

40

 

Gain on sales of real estate

 

(4,199

)

(17,990

)

Gain on sale of non-real estate investment

 

(1,033

)

 

Share-based compensation

 

4,969

 

2,485

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in deferred rent receivable

 

(9,248

)

(7,446

)

Decrease (increase) in accounts receivable

 

5,687

 

(11,172

)

Increase in restricted cash and prepaid and other assets

 

(10,217

)

(136

)

(Decrease) increase in accounts payable, accrued expenses and other liabilities

 

(3,847

)

9,390

 

Increase in rents received in advance and security deposits

 

4,679

 

4,786

 

Other

 

(887

)

(181

)

Net cash provided by operating activities

 

95,582

 

86,586

 

Cash flows from investing activities

 

 

 

 

 

Purchases of and additions to commercial real estate properties

 

(301,065

)

(227,592

)

Proceeds from sales of properties

 

8,763

 

46,708

 

Proceeds from sale of non-real estate investment

 

2,526

 

 

Proceeds from sale of unconsolidated real estate joint venture

 

 

1,524

 

Investments in and advances to unconsolidated entities

 

 

127

 

Acquisition of partner interests in consolidated joint ventures

 

(1,262

)

(3,016

)

Distributions from unconsolidated entities

 

319

 

367

 

Leasing costs paid

 

(8,984

)

(6,106

)

Decrease in restricted cash associated with investing activities

 

14,631

 

5,559

 

Purchases of furniture, fixtures and equipment

 

(1,318

)

(7,549

)

Other

 

(848

)

(182

)

Net cash used in investing activities

 

(287,238

)

(190,160

)

Cash flows from financing activities

 

 

 

 

 

Proceeds from mortgage and other loans payable

 

506,571

 

368,259

 

Proceeds from 3.5% Exchangeable Senior Notes

 

 

200,000

 

Repayments of mortgage and other loans payable

 

(243,942

)

(548,090

)

Deferred financing costs paid

 

(1,847

)

(5,402

)

Distributions paid to partners in consolidated joint ventures

 

 

(787

)

Net proceeds from issuance of common shares

 

7,013

 

88,622

 

Net proceeds from issuance of preferred shares

 

 

81,863

 

Redemption of preferred shares

 

 

(28,750

)

Dividends paid

 

(54,163

)

(45,138

)

Distributions paid

 

(8,245

)

(7,614

)

Other

 

241

 

637

 

Net cash provided by financing activities

 

205,628

 

103,600

 

Net increase in cash and cash equivalents

 

13,972

 

26

 

Cash and cash equivalents

 

 

 

 

 

Beginning of period

 

7,923

 

10,784

 

End of period

 

$

21,895

 

$

10,810

 

 

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 acquisition, development, ownership, management and leasing of primarily Class A suburban office properties in the Greater Washington, D.C. region and other select submarkets. We also have a core customer expansion strategy that is built on meeting, through acquisitions and development, the multi-location requirements of our strategic tenants. As of September 30, 2007, our investments in real estate included the following:

 

                  229 wholly owned operating properties totaling 17.7 million square feet;

                  19 wholly owned properties under construction or development that we estimate will total approximately 2.0 million square feet upon completion and one wholly owned office property totaling approximately 75,000 square feet that was under redevelopment;

                  wholly owned land parcels totaling 1,496 acres that we believe are potentially developable into approximately 12.3 million square feet; and

                  partial ownership interests in a number of other real estate projects in operation or under development or redevelopment.

 

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 securities owned by COPT as of September 30, 2007 follows:

 

 

 

 

 

Common Units

 

85%

 

 

Series G Preferred Units

 

100%

 

 

Series H Preferred Units

 

100%

 

 

Series I Preferred Units

 

0%

 

 

Series J Preferred Units

 

100%

 

 

Series K Preferred Units

 

100%

 

(issued on January 9, 2007)

 

 

 

 

 

 

 

Two of our trustees also controlled, either directly or through ownership by other entities or family members, 13% of the Operating Partnership’s common units.

 

In addition to owning interests in real estate, the Operating Partnership also owns 100% of Corporate Office Management, Inc. (“COMI”) and owns, either directly or through COMI, 100% of the consolidated subsidiaries that are set forth below (collectively defined as the “Service Companies”):

 

Entity Name

 

Type of Service Business

 

COPT Property Management Services, LLC (“CPM”)

 

Real Estate Management

 

COPT Development & Construction Services, LLC (“CDC”)

 

Construction and Development

 

Corporate Development Services, LLC (“CDS”)

 

Construction and Development

 

COPT Environmental Systems, LLC (“CES”)

 

Heating and Air Conditioning

 

 

 

Most of the services that CPM provides are for us. CDC, CDS and CES provide services to us and to third parties.

 

 

 

6



 

 

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 2006 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.

3.                                      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 of beneficial interest (“common shares”) outstanding during the period. Our computation of diluted EPS is similar except that:

                  the denominator is increased to include: (1) 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 (2) the effect of dilutive potential common shares outstanding during the period attributable to share-based compensation using the treasury stock method; and

 

                  the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion of securities into common shares that were added to the denominator.

 

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
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

8,451

 

$

7,507

 

$

22,183

 

$

23,485

 

Add: Gain on sales of real estate, net

 

1,038

 

597

 

1,199

 

732

 

Less: Preferred share dividends

 

(4,025

)

(4,307

)

(12,043

)

(11,614

)

Less: Issuance costs associated with redeemed preferred shares

 

 

(1,829

)

 

(1,829

)

Numerator for basic and diluted EPS from continuing operations

 

5,464

 

1,968

 

11,339

 

10,774

 

Income from discontinued operations, net

 

1,942

 

12,483

 

1,473

 

15,423

 

Numerator for basic and diluted EPS on net income available to common shareholders

 

$

 7,406

 

$

 14,451

 

$

 12,812

 

$

 26,197

 

Denominator (all weighted averages):

 

 

 

 

 

 

 

 

 

Denominator for basic EPS (common shares)

 

46,781

 

42,197

 

46,386

 

41,134

 

Dilutive effect of share-based compensation awards

 

1,005

 

1,649

 

1,180

 

1,785

 

Denominator for diluted EPS

 

47,786

 

43,846

 

47,566

 

42,919

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.12

 

$

0.05

 

$

0.24

 

$

0.26

 

Income from discontinued operations

 

0.04

 

0.29

 

0.04

 

0.38

 

Net income available to common shareholders

 

$

0.16

 

$

0.34

 

$

0.28

 

$

0.64

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.11

 

$

0.04

 

$

0.24

 

$

0.25

 

Income from discontinued operations

 

0.04

 

0.29

 

0.03

 

0.36

 

Net income available to common shareholders

 

$

0.15

 

$

0.33

 

$

0.27

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7



 

 

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

Ended September 30,

 

For the Nine Months

Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Conversion of weighted average common units

 

8,297

 

8,562

 

8,339

 

8,516

 

Conversion of weighted average convertible preferred shares

 

434

 

 

421

 

 

Conversion of weighted average convertible preferred units

 

176

 

176

 

176

 

176

 

 

 

 

 

 

 

 

 

 

 

 

The 3.5% Exchangeable Senior Notes did not affect our diluted EPS reported above since the weighted average closing price of our common shares during the period over which the notes were outstanding was less than $54.30 per share.

 

4.                                      Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Our adoption of FIN 48 did not have a material effect on our financial position, results of operations or cash flows.

 

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”).   SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  The Statement does not require any new fair value measurements but does apply under other accounting pronouncements that require or permit fair value measurements.  The changes to current practice resulting from the Statement relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with earlier application encouraged. We do not expect that the adoption of this Statement will have a material effect on our financial position, results of operations or cash flows.

 

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact of SFAS 159 on our consolidated financial position and results of operations.

 

5.                                      Commercial Real Estate Properties

Operating properties consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Land

 

$

412,129

 

$

343,098

 

Buildings and improvements

 

2,013,900

 

1,689,359

 

 

 

2,426,029

 

2,032,457

 

Less: accumulated depreciation

 

(267,633

)

(219,574

)

 

 

$

2,158,396

 

$

1,812,883

 

 

 

 

 

 

 

 

 

 

8



 

 

As of September 30, 2007, 429 Ridge Road, an office property located in Dayton, New Jersey that we were under contract to sell for $17,000, was classified as held for sale (Dayton, New Jersey is located in the Northern/Central New Jersey Region). We expect to complete the sale of this property by January 2008. The components associated with 429 Ridge Road as of September 30, 2007 included the following:

 

 

 

September 30,

 

 

 

2007

 

Land

 

$

2,932

 

Buildings and improvements

 

14,593

 

 

 

17,525

 

Less: accumulated depreciation

 

(2,947

)

 

 

$

14,578

 

 

 

Projects we had under construction or development consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Land

 

$

218,890

 

$

153,436

 

Construction in progress

 

193,081

 

144,991

 

 

 

$

411,971

 

$

298,427

 

 

 

 

 

 

 

 

2007 Acquisitions

 

On January 9 and 10, 2007, we completed a series of transactions that resulted in the acquisition of 56 operating properties totaling approximately 2.4 million square feet and land parcels totaling 187 acres. We refer to these transactions collectively as the Nottingham Acquisition. All of the acquired properties are located in Maryland, with 36 of the operating properties, totaling 1.6 million square feet, and land parcels totaling 175 acres, located in White Marsh, Maryland (located in the Suburban Baltimore region) and the remaining properties and land parcels located in other regions in Northern Baltimore County and the Baltimore/Washington Corridor. We believe that the land parcels can support at least 2.0 million developable square feet. We completed the Nottingham Acquisition for an aggregate cost of $366,852. The table below sets forth the allocation of the acquisition costs of the Nottingham Acquisition:

 

Land, operating properties

 

$

70,754

 

Land, construction or development

 

37,309

 

Building and improvements

 

210,264

 

Intangible assets on real estate acquisitions

 

53,214

 

Total assets

 

371,541

 

Deferred revenue associated with acquired operating leases

 

(4,689

)

Total acquisition cost

 

$

366,852

 

 

 

 

 

 

Intangible assets recorded in connection with the Nottingham Acquisition included the following:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Amortization

 

 

 

 

 

Period (in Years)

 

Tenant relationship value

 

$

25,778

 

8

 

Lease-up value

 

19,425

 

4

 

Lease cost portion of deemed cost avoidance

 

4,206

 

5

 

Lease to market value

 

3,805

 

4

 

 

 

$

53,214

 

6

 

 

We also completed the following acquisitions during the nine months ended September 30, 2007:

 

 

9



 

 

                  the remaining 50% undivided interest in a 132-acre parcel of land located in Colorado Springs, Colorado that we believe can support approximately 1.75 million developable square feet of office space for $13,586 on April 6, 2007; and

 

                  a 56-acre parcel of land located in Aberdeen, Maryland that we believe can support up to 800,000 developable square feet for $10,442 on September 14, 2007 (Aberdeen, Maryland is located in our Suburban Baltimore region). The property is located adjacent to Aberdeen Proving Ground.

 

In addition, we acquired a 23-acre parcel of land located in Hanover, Maryland on July 2, 2007, with a deemed value upon our acquisition of $9,829 (including improvements thereon contributed by us), through Arundel Preserve #5, LLC, a consolidated joint venture in which we own a 50% interest (Hanover, Maryland is located in our Baltimore/Washington Corridor region). The joint venture is constructing an office property on the land parcel totaling approximately 152,000 square feet, and we believe the land parcel can support up to 303,000 additional developable square feet.

 

2007 Construction and Development Activities

 

During the nine months ended September 30, 2007, we had three properties totaling 339,910 square feet (two located in the Baltimore/Washington Corridor and one in our Other region) become fully operational (68,196 of these square feet were placed into service in 2006) and placed into service 48,377 square feet in a partially operational property located in the Baltimore/Washington Corridor.

 

As of September 30, 2007, we had construction underway on five new buildings in the Baltimore/Washington Corridor (including the partially operational property discussed above and one property owned through Arundel Preserve #5, LLC), two in Colorado Springs, Colorado and one in our Other region. We also had development activities underway on five new buildings located in the Baltimore/Washington Corridor, three in Colorado Springs, Colorado, two in Suburban Maryland and one each in Suburban Baltimore and King George County, Virginia. In addition, we had redevelopment underway on one wholly owned existing building located in Colorado Springs, Colorado and three buildings owned by a joint venture (two are located in Northern Virginia and the other in the Baltimore/Washington Corridor).

 

2007 Dispositions

 

We sold the following operating properties during the nine months ended September 30, 2007:

 

 

 

 

 

 

 

Number

 

Total
Rentable

 

 

 

 

 

 

 

 

 

Date of

 

of

 

Square

 

 

 

Gain on

 

Project Name

 

Location

 

Sale

 

Buildings

 

Feet

 

Sale Price

 

Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2 and 8 Centre Drive

 

Monroe, New Jersey

 

9/7/2007

 

2

 

32,331

 

$

6,000

 

$

1,931

 

7321 Parkway Drive

 

Anne Arundel County, Maryland

 

9/7/2007

 

1

 

39,822

 

5,000

 

868

 

 

 

 

 

 

 

3

 

72,153

 

$

11,000

 

$

2,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We also sold a 3.5-acre parcel of land located in White Marsh, Maryland for $1,588. We recognized a gain of $1,134 on this sale.

 

6.                                      Real Estate Joint Ventures

 

During the nine months ended September 30, 2007, we had an investment in one unconsolidated real estate joint venture accounted for using the equity method of accounting. Information pertaining to this joint venture investment is set forth below.

 

 

 

Investment Balance at

 

 

 

 

 

 

 

Total

 

Maximum

 

 

 

September 30,

 

December 31,

 

Date

 

 

 

Nature of

 

Assets at

 

Exposure

 

 

 

2007

 

2006

 

Acquired

 

Ownership

 

Activity

 

9/30/2007

 

to Loss (1)

 

Harrisburg Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gateway Partners, L.P.

 

$

 (4,124)

(2)

$

(3,614)

(2)

9/29/2005

 

20

%

Operates 16 buildings(3)

 

$

73,377

 

$

 

 

 

 

10



 


(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, which we would be required to make if certain contingent events occur.

(2)          The carrying amount of our investment in this joint venture was lower than our share of the equity in the joint venture by $5,206 at September 30, 2007 and $5,072 at December 31, 2006 due to our deferral of gain on the contribution by us of real estate into the joint venture upon its formation. A difference will continue to exist to the extent the nature of our continuing involvement in the joint venture remains the same.

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

 

The following table sets forth condensed balance sheets for Harrisburg Corporate Gateway Partners, L.P.:

 

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Commercial real estate property

 

$

71,413

 

$

72,688

 

Other assets

 

1,964

 

3,207

 

Total assets

 

$

73,377

 

$

75,895

 

 

 

 

 

 

 

Liabilities

 

$

67,938

 

$

67,350

 

Owners’ equity

 

5,439

 

8,545

 

Total liabilities and owners’ equity

 

$

73,377

 

$

75,895

 

 

 

 

 

 

 

 

 

The following table sets forth combined condensed statements of operations for the two unconsolidated real estate joint ventures we owned from January 1, 2006 through September 30, 2007, which included Harrisburg Corporate Gateway Partners, L.P. and Route 46 Partners, a joint venture that was dissolved on July 26, 2006:

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Revenues

 

$

2,455

 

$

2,738

 

$

7,325

 

$

9,196

 

Property operating expenses

 

(850

)

(1,000

)

(2,686

)

(3,187

)

Interest expense

 

(991

)

(1,050

)

(3,109

)

(3,401

)

Depreciation and amortization expense

 

(842

)

(1,677

)

(2,564

)

(3,582

)

Gain on sale

 

 

4,033

 

 

4,033

 

Net (loss) income

 

$

(228

)

$

3,044

 

$

(1,034

)

$

3,059

 

 

 

 

 

 

 

 

 

 

 

 

 

Activity related to consolidated joint ventures during the nine months ended September 30, 2007 included the following:

 

                  as of December 31, 2006, we owned a 50% interest in Commons Office 6-B, LLC, an entity developing a land parcel in Hanover, Maryland. We acquired the remaining 50% interest in this entity for $1,262 on May 24, 2007;

 

                  on June 26, 2007, we completed the formation of Enterprise Campus Developer, LLC, an entity in which we own a 90% interest. This entity was created to develop and construct one or more office buildings on land parcels located in College Park, Maryland as part of a separate joint venture to be formed with another party. At September 30, 2007, development and construction activities were underway in anticipation of the entity’s membership into this future joint venture; and

 

                  as discussed in Note 5, on July 2, 2007, we acquired a 50% interest in Arundel Preserve #5, LLC. The joint venture owns a land parcel located in Hanover, Maryland on which it is constructing an office property totaling approximately 152,000 square feet. We believe the land parcel can support up to 303,000 additional developable square feet.

 

The table below sets forth information pertaining to our investments in consolidated joint ventures at September 30, 2007:

 

 

11



 

 

 

 

Date
Acquired

 

Ownership

% at
9/30/2007

 

Nature of Activity

 

Total
Assets at 9/30/2007

 

Collateralized
Assets at
9/30/2007

 

COPT Opportunity Invest I, LLC

 

12/20/2005

 

92.5

%

Redeveloping three properties (1)

 

$

51,087

 

$

 

Arundel Preserve #5, LLC

 

7/2/2007

 

50.0

%

Developing land parcel (2)

 

23,362

 

 

Enterprise Campus Developer, LLC

 

6/26/2007

 

90.0

%

Developing land parcels (3)

 

14,912

 

 

MOR Forbes 2 LLC

 

12/24/2002

 

50.0

%

Operates one building (4)

 

4,405

 

 

COPT-FD Indian Head, LLC

 

10/23/2006

 

75.0

%

Developing land parcel (5)

 

3,047

 

 

 

 

 

 

 

 

 

 

$

96,813

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)          This joint venture owns two properties in the Northern Virginia region and one in the Baltimore/Washington Corridor region.

(2)          This joint venture is developing a land parcel located in Hanover, Maryland (located in the Baltimore/Washington Corridor).

(3)          This joint venture is developing land parcels located in College Park, Maryland (located in the Suburban Maryland region).

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

(5)         This joint venture’s property is located in Charles County, Maryland (located in our “other” business segment).

 

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

 

7.                                      Intangible Assets on Real Estate Acquisitions

Intangible assets on real estate acquisitions consisted of the following:

 

 

 

September 30, 2007

 

December 31, 2006

 

 

 

Gross Carrying

 

Accumulated

 

Net Carrying

 

Gross Carrying

 

Accumulated

 

Net Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

Amount

 

Amortization

 

Amount

 

Lease-up value

 

$

125,338

 

$

53,985

 

$

71,353

 

$

105,719

 

$

38,279

 

$

67,440

 

Tenant relationship value

 

35,189

 

5,850

 

29,339

 

9,371

 

1,178

 

8,193

 

Lease cost portion of deemed

 

 

 

 

 

 

 

 

 

 

 

 

 

 cost avoidance

 

17,133

 

8,018

 

9,115

 

12,880

 

5,819

 

7,061

 

Lease to market value

 

14,428

 

9,028

 

5,400

 

10,623

 

7,178

 

3,445

 

Market concentration premium

 

1,333

 

172

 

1,161

 

1,333

 

147

 

1,186

 

 

 

$

193,421

 

$

77,053

 

$

116,368

 

$

139,926

 

$

52,601

 

$

87,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of the intangible asset categories set forth above totaled $24,451 in the nine months ended September 30, 2007 and $15,943 in the nine months ended September 30, 2006. The approximate weighted average amortization periods of the categories set forth above follow: lease-up value: nine years; tenant relationship value: eight years; lease cost portion of deemed cost avoidance: six years; lease to market value: four years; and market concentration premium: 35 years. The approximate weighted average amortization period for all of the categories combined is nine years. Estimated amortization expense associated with the intangible asset categories set forth above is $6.0 million for the three months ended December 31, 2007, $21.4 million for 2008, $18.8 million for 2009, $14.6 million for 2010, $11.7 million for 2011 and $9.5 million for 2012.

 

8.                                      Deferred Charges

Deferred charges consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Deferred leasing costs

 

$

59,827

 

$

52,263

 

Deferred financing costs

 

30,290

 

28,275

 

Goodwill

 

1,853

 

1,853

 

Deferred other

 

155

 

155

 

 

 

92,125

 

82,546

 

Accumulated amortization

 

(46,106

)

(38,836

)

Deferred charges, net

 

$

46,019

 

$

43,710

 

 

 

 

 

 

 

 

 

 

12



 

9.             Accounts Receivable

Our accounts receivable are reported net of an allowance for bad debts of $565 at September 30, 2007 and $252 at December 31, 2006.

10.          Prepaid and Other Assets

Prepaid and other assets consisted of the following:

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

Construction contract costs incurred in excess of billings

 

$

21,588

 

$

18,324

 

Prepaid expenses

 

16,641

 

9,059

 

Furniture, fixtures and equipment

 

10,366

 

10,495

 

Other assets

 

9,756

 

10,589

 

Prepaid and other assets

 

$

58,351

 

$

48,467

 

 

 

 

 

 

 

 

11.          Debt

Our debt consisted of the following:

 

 

 

Maximum
Principal Amount

 

Carrying Value at

 

Stated Interest

 

Scheduled
Maturity
Dates at

 

 

 

Under Debt at

 

September 30,

 

December 31,

 

Rates at

 

September 30,

 

 

 

September 30, 2007

 

2007

 

2006

 

September 30, 2007

 

2007

 

Mortgage and other loans payable:

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility

 

 

 

 

 

 

 

 

 

 

 

Wachovia Bank, N.A. Revolving Credit Facility (1)

 

$

500,000(1)

 

$

327,000

 

$

185,000

 

LIBOR + 1.15% to 1.55% (1)

 

March 2008 (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Loans

 

 

 

 

 

 

 

 

 

 

 

Fixed rate mortgage loans (2)

 

N/A

 

1,132,208

 

1,020,619

 

5.20% - 8.63% (3)

 

2007 - 2034 (4)

 

Variable rate construction loan facilities

 

111,500

 

103,818

 

56,079

 

LIBOR + 1.40 to 1.50%

 

2008 (5)

 

Other variable rate mortgage loans

 

N/A

 

34,500

 

34,500

 

LIBOR + 1.20 to 1.50%

 

2008

 

Total mortgage loans

 

 

 

1,270,526

 

1,111,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note payable

 

 

 

 

 

 

 

 

 

 

 

Unsecured seller notes

 

N/A

 

2,386

 

2,339

 

0 - 5.95%

 

2008-2016

 

Total mortgage and other loans payable

 

 

 

1,599,912

 

1,298,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.5% Exchangeable Senior Notes

 

N/A

 

200,000

 

200,000

 

3.50%

 

September 2026 (6)

 

Total debt

 

 

 

$

1,799,912

 

$

1,498,537

 

 

 

 

 

 


(1)     On October 1, 2007, we entered into an amended and restated credit agreement on our Revolving Credit Facility, the terms of which are described below.

(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 $649 at September 30, 2007 and $210 at December 31, 2006.

(3)     The weighted average interest rate on these loans was 5.92% at September 30, 2007.

(4)     A loan with a balance of $4,838 at September 30, 2007 that matures in 2034 may be repaid in March 2014, subject to certain conditions.

(5)     At September 30, 2007, $84,318 in loans scheduled to mature in 2008 may be extended by us for a one-year period, subject to certain conditions.

(6)     Refer to our 2006 Annual Report on Form 10-K for descriptions of provisions for early redemption and repurchase of these notes.

 

On October 1, 2007, we amended and restated the credit agreement on our Revolving Credit Facility with a group of lenders for which KeyBanc Capital Markets and Wachovia Capital Markets, LLC acted as co-lead arrangers, KeyBank National Association acted as administrative agent and Wachovia Bank, National Association acted as syndication agent. The amended and restated credit agreement increased the amount of the lenders’ aggregate commitment under the facility from $500,000 to $600,000, which includes a $50,000 letter of credit

 

 

13



 

subfacility and a $50,000 swingline facility (same-day draw requests), with a right for us to further increase the lenders’ aggregate commitment during the term to a maximum of $800,000, subject to certain conditions. Amounts available under the facility are computed based on 65% of our unencumbered asset value, as defined in the agreement. The facility matures on September 30, 2011, and may be extended by one year at our option, subject to certain conditions. The variable interest rate on the facility is based on one of the following, to be selected by us: (1) the LIBOR rate for the interest period designated by us (customarily the 30-day rate) plus 0.75% to 1.25%, as determined by our leverage levels at different points in time; or (2) the greater of (a) the prime rate of the lender then acting as the administrative agent or (b) the Federal Funds Rate, as defined in the credit agreement, plus 0.50%. Interest is payable at the end of each interest period, and principal outstanding under the facility is payable on the maturity date. The facility also carries a quarterly fee that is based on the unused amount of the facility multiplied by a per annum rate of 0.125% to 0.20%.

 

We capitalized interest costs of $13,957 in the nine months ended September 30, 2007 and $11,319 in the nine months ended September 30, 2006.

 

12.                               Derivatives

 

The following table sets forth our derivative contracts at September 30, 2007 and their respective fair values:

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

 

 

Notional

 

One-Month

 

Effective

 

Expiration

 

September 30,

 

December 31,

 

Nature of Derivative

 

Amount

 

LIBOR base

 

Date

 

Date

 

2007

 

2006

 

Interest rate swap

 

$

50,000

 

5.0360

%

3/28/2006

 

3/30/2009

 

$

(388

)

$

(42

)

Interest rate swap

 

25,000

 

5.2320

%

5/1/2006

 

5/1/2009

 

(282

)

(133

)

Interest rate swap

 

25,000

 

5.2320

%

5/1/2006

 

5/1/2009

 

(282

)

(133

)

 

 

 

 

 

 

 

 

 

 

$

(952

)

$

(308

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

These amounts are included on our Consolidated Balance Sheets as other liabilities.

 

We designated these derivatives as cash flow hedges. These contracts hedge the risk of changes in interest rates on certain of our one-month LIBOR-based variable rate borrowings until their respective maturities.

 

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

 

 

For the Three Months

 

For the Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Decrease in fair value applied to accumulated other comprehensive loss and minority interests

 

$

(1,065

)

$

(1,306

)

$

(644

)

$

 (473

)

 

 

 

 

 

 

 

 

 

 

 

13.                               Shareholders’ Equity

Preferred Shares

 

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

 

 

14


 


 

 

 

 

 

September 30,

 

December 31,

 

 

 

2007

 

2006

 

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

 

3,390,000 designated as Series J Cumulative Redeemable Preferred Shares of beneficial interest (3,390,000 shares issued with an aggregate liquidation preference of $84,750)

 

34

 

34

 

531,667 designated as Series K Cumulative Redeemable Convertible Preferred Shares of beneficial interest (531,667 shares issued with an aggregate liquidation preference of $26,583)

 

5

 

 

Total preferred shares

 

$

81

 

$

76

 

 

 

We issued the Series K Cumulative Redeemable Convertible Preferred Shares of beneficial interest (the “Series K Preferred Shares”) in the Nottingham Acquisition at a value of, and liquidation preference equal to, $50 per share.  The Series K Preferred Shares are nonvoting, redeemable for cash at $50 per share at our option on or after January 9, 2017, and are convertible, subject to certain conditions, into common shares on the basis of 0.8163 common shares for each preferred share, in accordance with the terms of the Articles Supplementary describing the Series K Preferred Shares.  Holders of the Series K Preferred Shares are entitled to cumulative dividends, payable quarterly (as and if declared by our Board of Trustees).  Dividends accrue from the date of issue at the annual rate of $2.80 per share, which is equal to 5.6% of the $50 per share liquidation preference.

 

Common Shares

 

In connection with the Nottingham Acquisition in January 2007, we issued 3,161,000 common shares at a value of $49.57 per share.

 

During the nine months ended September 30, 2007, we converted 553,021 common units in our Operating Partnership into common shares on the basis of one common share for each common unit.

 

See Note 17 for disclosure of common share activity pertaining to our share-based compensation plans.

 

Accumulated Other Comprehensive Loss

 

The table below sets forth activity in the accumulated other comprehensive loss component of shareholders’ equity:

 

 

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

Beginning balance

 

$

 (693

)

$

(482

)

Unrealized loss on derivatives, net of minority interests

 

(561

)

(397

)

Realized loss on derivatives, net of minority interests

 

39

 

38

 

Ending balance

 

$

(1,215

)

$

(841

)

 

The table below sets forth our comprehensive income:

 

 

 

For the Three Months
Ended September 30,

 

For the Nine Months
Ended September 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Net income

 

$

11,431

 

$

20,587

 

$

24,855

 

$

39,640

 

Unrealized loss on derivatives, net of minority interests

 

(903

)

(1,080

)

(561

)

(397

)

Realized loss on derivatives, net of minority interests

 

13

 

13

 

39

 

38

 

Total comprehensive income

 

$

10,541

 

$

19,520

 

$

24,333

 

$

39,281

 

 

15



 

14.          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, 2007:

 

 

 

Record Date

 

Payable Date

 

Dividend/ Distribution Per Share/Unit

 

Total Dividend/ Distribution

 

Series G Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.5000

 

$

1,100

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.5000

 

$

1,100

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.5000

 

$

1,100

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.5000

 

$

1,100

 

 

 

 

 

 

 

 

 

 

 

Series H Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.4688

 

$

938

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.4688

 

$

938

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.4688

 

$

938

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.4688

 

$

938

 

 

 

 

 

 

 

 

 

 

 

Series J Preferred Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.4766

 

$

1,616

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.4766

 

$

1,616

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.4766

 

$

1,616

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.4766

 

$

1,616

 

 

 

 

 

 

 

 

 

 

 

Series K Preferred Shares:

 

 

 

 

 

 

 

 

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.7466

 

$

397

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.7000

 

$

372

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.7000

 

$

372

 

 

 

 

 

 

 

 

 

 

 

Common Shares:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.3100

 

$

13,292

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.3100

 

$

14,529

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.3100

 

$

14,613

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.3400

 

$

16,092

 

 

 

 

 

 

 

 

 

 

 

Series I Preferred Units:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.4688

 

$

165

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.4688

 

$

165

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.4688

 

$

165

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.4688

 

$

165

 

 

 

 

 

 

 

 

 

 

 

Common Units:

 

 

 

 

 

 

 

 

 

Fourth Quarter 2006

 

December 29, 2006

 

January 17, 2007

 

$

0.3100

 

$

2,622

 

First Quarter 2007

 

March 30, 2007

 

April 17, 2007

 

$

0.3100

 

$

2,554

 

Second Quarter 2007

 

June 29, 2007

 

July 17, 2007

 

$

0.3100

 

$

2,574

 

Third Quarter 2007

 

September 28, 2007

 

October 16, 2007

 

$

0.3400

 

$

2,777

 

 

16



 

15.          Supplemental Information to Statements of Cash Flows

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

 

2007

 

2006

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Debt assumed in connection with acquisition of properties

 

$

38,848

 

$

37,484

 

Issuance of common shares in connection with acquisition of properties

 

$

156,691

 

$

 

Issuance of preferred shares in connection with acquisition of properties

 

$

26,583

 

$

 

Proceeds from sales of properties invested in restricted cash account

 

$

701

 

$

 33,730

 

Restricted cash used in connection with acquisitions of properties

 

$

20,827

 

$

 

Issuance of common units in the Operating Partnership in connection with acqusitions of interests in properties

 

$

12,125

 

$

7,497

 

Note receivable assumed upon sale of real estate property

 

$

3,582

 

$

 

Increase in accrued capital improvements, leasing, and acquisition costs

 

$

14,501

 

$

7,217

 

Reclassification of operating assets to investment assets in connection with consolidation of real estate joint ventures

 

$

16,725

 

$

 

Consolidation of real estate joint venture:

 

 

 

 

 

Real estate assets

 

$

3,864

 

$

 

Prepaid and other assets

 

1,021

 

 

Minority interest

 

(4,885

)

 

Net adjustment

 

$

 —

 

$

 —

 

Property acquired through lease arrangements included in rents received in advance and security deposits

 

$

 

$

1,282

 

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

 

$

296

 

$

131

 

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

 

$

(644

)

$

(473

)

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

 

$

29,693 

 

$

13,962 

 

Dividends/distribution payable

 

$

22,433

 

$

19,810

 

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

 

$

25,358

 

$

7,891

 

 

17



16.          Information by Business Segment

As of September 30, 2007, we had nine primary office property segments: Baltimore/Washington Corridor; Northern Virginia; Suburban Baltimore; Colorado Springs, Colorado; Suburban Maryland; Greater Philadelphia; St. Mary’s and King George Counties; San Antonio, Texas; and Northern/Central New Jersey.

 

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
Baltimore

 

Colorado Springs

 

Suburban Maryland

 

Greater
Philadelphia

 

St. Mary's & King George Counties

 

San Antonio

 

Northern/Central New Jersey

 

Other

 

Total

 

Three Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

&n