UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(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) |
Registrants 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 Companys Common Shares of Beneficial Interest, $0.01 par value, were issued.
TABLE OF CONTENTS
FORM 10-Q
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PAGE |
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Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006 (unaudited) |
3 |
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4 |
||
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5 |
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6 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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44 |
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45 |
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45 |
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45 |
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46 |
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46 |
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46 |
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46 |
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46 |
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47 |
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2
Corporate Office Properties Trust and Subsidiaries
(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 |
|
||||
|
|
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)
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 Partnerships 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 Partnerships 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
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.
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 |
|
For the Nine Months |
|
|||||||||
|
|
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.
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 enterprises 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.
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 |
|
|
|
|
|
||
|
|
|
|
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 ventures 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 |
|
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 entitys 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 |
|
Ownership % at |
|
Nature of Activity |
|
Total |
|
Collateralized |
|
||
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 ventures property is located in Lanham, Maryland (located in the Suburban Maryland region).
(5) This joint ventures 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.
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.
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
Our accounts receivable are reported net of an allowance for bad debts of $565 at September 30, 2007 and $252 at December 31, 2006.
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 |
|
|
|
|
|
|
|
Our debt consisted of the following:
|
|
Maximum |
|
Carrying Value at |
|
Stated Interest |
|
Scheduled |
|
|||||
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
||||
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 |
|
||||
|
|
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 |
|
For the Nine Months |
|
||||||||
|
|
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
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
|
|
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
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. Marys 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 REITs operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.
|
|
Baltimore/ |
|
Northern Virginia |
|
Suburban |
|
Colorado Springs |
|
Suburban Maryland |
|
Greater |
|
St. Mary's & King George Counties |
|
San Antonio |
|
Northern/Central New Jersey |
|
Other |
|
Total |
|
|||||||||||
Three Months Ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
&n |