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

 

 

 

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:

 

 

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”):

 

 

 

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:

 

 

 

 

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:

 

 

 

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

 

 

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:

 

 

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.:

 

 

 

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:

 

 

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		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:

 

 

 

 

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