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 March 31, 2010
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
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
Accelerated filer o |
|
|
Non-accelerated filer o |
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
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 April 16, 2010, 58,929,245 of the Companys Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.
FORM 10-Q
Corporate Office Properties Trust and Subsidiaries
(Dollars in thousands)
(unaudited)
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Assets |
|
|
|
|
|
||
Properties, net: |
|
|
|
|
|
||
Operating properties, net |
|
$ |
2,493,891 |
|
$ |
2,510,277 |
|
Properties held for sale, net |
|
18,546 |
|
18,533 |
|
||
Projects under construction or development |
|
552,525 |
|
501,090 |
|
||
Total properties, net |
|
3,064,962 |
|
3,029,900 |
|
||
Cash and cash equivalents |
|
10,180 |
|
8,262 |
|
||
Restricted cash and marketable securities |
|
18,981 |
|
16,549 |
|
||
Accounts receivable, net |
|
13,982 |
|
17,459 |
|
||
Deferred rent receivable |
|
74,113 |
|
71,805 |
|
||
Intangible assets on real estate acquisitions, net |
|
94,925 |
|
100,671 |
|
||
Deferred charges, net |
|
52,797 |
|
53,421 |
|
||
Prepaid expenses and other assets |
|
68,412 |
|
81,955 |
|
||
Total assets |
|
$ |
3,398,352 |
|
$ |
3,380,022 |
|
|
|
|
|
|
|
||
Liabilities and equity |
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
||
Mortgage and other loans payable, net |
|
$ |
1,950,070 |
|
$ |
1,897,694 |
|
3.5% Exchangeable Senior Notes, net |
|
157,061 |
|
156,147 |
|
||
Accounts payable and accrued expenses |
|
86,650 |
|
116,455 |
|
||
Rents received in advance and security deposits |
|
32,575 |
|
32,177 |
|
||
Dividends and distributions payable |
|
28,556 |
|
28,440 |
|
||
Deferred revenue associated with operating leases |
|
13,827 |
|
14,938 |
|
||
Distributions in excess of investment in unconsolidated real estate joint venture |
|
5,238 |
|
5,088 |
|
||
Other liabilities |
|
13,836 |
|
8,451 |
|
||
Total liabilities |
|
2,287,813 |
|
2,259,390 |
|
||
Commitments and contingencies (Note 15) |
|
|
|
|
|
||
Equity: |
|
|
|
|
|
||
Corporate Office Properties Trusts shareholders equity: |
|
|
|
|
|
||
Preferred Shares of beneficial interest with an aggregate liquidation preference of $216,333 ($0.01 par value; 15,000,000 shares authorized and 8,121,667 issued and outstanding at March 31, 2010 and December 31, 2009) |
|
81 |
|
81 |
|
||
Common Shares of beneficial interest ($0.01 par value; 75,000,000 shares authorized, shares issued and outstanding of 58,927,117 at March 31, 2010 and 58,342,673 at December 31, 2009) |
|
589 |
|
583 |
|
||
Additional paid-in capital |
|
1,244,046 |
|
1,238,704 |
|
||
Cumulative distributions in excess of net income |
|
(227,189 |
) |
(209,941 |
) |
||
Accumulated other comprehensive loss |
|
(3,278 |
) |
(1,907 |
) |
||
Total Corporate Office Properties Trusts shareholders equity |
|
1,014,249 |
|
1,027,520 |
|
||
Noncontrolling interests in subsidiaries: |
|
|
|
|
|
||
Common units in the Operating Partnership |
|
68,113 |
|
73,892 |
|
||
Preferred units in the Operating Partnership |
|
8,800 |
|
8,800 |
|
||
Other consolidated real estate joint ventures |
|
19,377 |
|
10,420 |
|
||
Noncontrolling interests in subsidiaries |
|
96,290 |
|
93,112 |
|
||
Total equity |
|
1,110,539 |
|
1,120,632 |
|
||
Total liabilities and equity |
|
$ |
3,398,352 |
|
$ |
3,380,022 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Revenues |
|
|
|
|
|
||
Rental revenue |
|
$ |
91,010 |
|
$ |
88,845 |
|
Tenant recoveries and other real estate operations revenue |
|
21,218 |
|
17,263 |
|
||
Construction contract and other service revenues |
|
37,365 |
|
74,889 |
|
||
Total revenues |
|
149,593 |
|
180,997 |
|
||
Expenses |
|
|
|
|
|
||
Property operating expenses |
|
48,135 |
|
38,964 |
|
||
Depreciation and amortization associated with real estate operations |
|
27,596 |
|
26,277 |
|
||
Construction contract and other service expenses |
|
36,399 |
|
73,323 |
|
||
General and administrative expenses |
|
5,900 |
|
5,543 |
|
||
Business development expenses |
|
155 |
|
646 |
|
||
Total operating expenses |
|
118,185 |
|
144,753 |
|
||
Operating income |
|
31,408 |
|
36,244 |
|
||
Interest expense |
|
(22,638 |
) |
(19,363 |
) |
||
Interest and other income |
|
1,302 |
|
1,078 |
|
||
Income from continuing operations before equity in loss of unconsolidated entities and income taxes |
|
10,072 |
|
17,959 |
|
||
Equity in loss of unconsolidated entities |
|
(205 |
) |
(115 |
) |
||
Income tax expense |
|
(41 |
) |
(70 |
) |
||
Income from continuing operations |
|
9,826 |
|
17,774 |
|
||
Discontinued operations |
|
832 |
|
392 |
|
||
Income before gain on sales of real estate |
|
10,658 |
|
18,166 |
|
||
Gain on sales of real estate, net of income taxes |
|
17 |
|
|
|
||
Net income |
|
10,675 |
|
18,166 |
|
||
Less net income attributable to noncontrolling interests: |
|
|
|
|
|
||
Common units in the Operating Partnership |
|
(527 |
) |
(1,804 |
) |
||
Preferred units in the Operating Partnership |
|
(165 |
) |
(165 |
) |
||
Other |
|
(45 |
) |
(50 |
) |
||
Net income attributable to Corporate Office Properties Trust |
|
9,938 |
|
16,147 |
|
||
Preferred share dividends |
|
(4,025 |
) |
(4,025 |
) |
||
Net income attributable to Corporate Office Properties Trust common shareholders |
|
$ |
5,913 |
|
$ |
12,122 |
|
Net income attributable to Corporate Office Properties Trust: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
9,174 |
|
$ |
15,804 |
|
Discontinued operations, net |
|
764 |
|
343 |
|
||
Net income attributable to Corporate Office Properties Trust |
|
$ |
9,938 |
|
$ |
16,147 |
|
Basic earnings per common share (1) |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
0.08 |
|
$ |
0.22 |
|
Discontinued operations |
|
0.02 |
|
0.01 |
|
||
Net income attributable to COPT common shareholders |
|
$ |
0.10 |
|
$ |
0.23 |
|
Diluted earnings per common share (1) |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
0.08 |
|
$ |
0.22 |
|
Discontinued operations |
|
0.02 |
|
0.01 |
|
||
Net income attributable to COPT common shareholders |
|
$ |
0.10 |
|
$ |
0.23 |
|
(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
|
|
Preferred |
|
Common |
|
Additional |
|
Cumulative |
|
Accumulated |
|
Noncontrolling |
|
Total |
|
|||||||
Balance at December 31, 2009 (58,342,673 common shares outstanding) |
|
$ |
81 |
|
$ |
583 |
|
$ |
1,238,704 |
|
$ |
(209,941 |
) |
$ |
(1,907 |
) |
$ |
93,112 |
|
$ |
1,120,632 |
|
Conversion of common units to common shares (309,497 shares) |
|
|
|
3 |
|
4,512 |
|
|
|
|
|
(4,515 |
) |
|
|
|||||||
Costs associated with common shares issued to the public |
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) |
|||||||
Exercise of share options (128,461 shares) |
|
|
|
1 |
|
2,055 |
|
|
|
|
|
|
|
2,056 |
|
|||||||
Share-based compensation |
|
|
|
2 |
|
2,609 |
|
|
|
|
|
|
|
2,611 |
|
|||||||
Restricted common share redemptions (96,970 shares) |
|
|
|
|
|
(3,610 |
) |
|
|
|
|
|
|
(3,610 |
) |
|||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(180 |
) |
|
|
|
|
180 |
|
|
|
|||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
(1,371 |
) |
(103 |
) |
(1,474 |
) |
|||||||
Net income |
|
|
|
|
|
|
|
9,938 |
|
|
|
737 |
|
10,675 |
|
|||||||
Dividends |
|
|
|
|
|
|
|
(27,186 |
) |
|
|
|
|
(27,186 |
) |
|||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(2,032 |
) |
(2,032 |
) |
|||||||
Contributions from noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
9,247 |
|
9,247 |
|
|||||||
Distributions to noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
(26 |
) |
|
|
|
|
(336 |
) |
(362 |
) |
|||||||
Balance at March 31, 2010 (58,927,117 common shares outstanding) |
|
$ |
81 |
|
$ |
589 |
|
$ |
1,244,046 |
|
$ |
(227,189 |
) |
$ |
(3,278 |
) |
$ |
96,290 |
|
$ |
1,110,539 |
|
Balance at December 31, 2008 (51,790,442 common shares outstanding) |
|
$ |
81 |
|
$ |
518 |
|
$ |
1,112,734 |
|
$ |
(162,572 |
) |
$ |
(4,749 |
) |
$ |
136,411 |
|
$ |
1,082,423 |
|
Conversion of common units to common shares (2,310,000 shares) |
|
|
|
23 |
|
53,785 |
|
|
|
|
|
(53,808 |
) |
|
|
|||||||
Costs associated with common shares issued to the public |
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
(14 |
) |
|||||||
Exercise of share options (12,300 common shares) |
|
|
|
1 |
|
125 |
|
|
|
|
|
|
|
126 |
|
|||||||
Share-based compensation |
|
|
|
2 |
|
2,743 |
|
|
|
|
|
|
|
2,745 |
|
|||||||
Restricted common share redemptions (69,455 shares) |
|
|
|
|
|
(1,696 |
) |
|
|
|
|
|
|
(1,696 |
) |
|||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(19,101 |
) |
|
|
|
|
19,101 |
|
|
|
|||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
1,493 |
|
(575 |
) |
918 |
|
|||||||
Decrease in tax benefit from share-based compensation |
|
|
|
|
|
(152 |
) |
|
|
|
|
|
|
(152 |
) |
|||||||
Net income |
|
|
|
|
|
|
|
16,147 |
|
|
|
2,019 |
|
18,166 |
|
|||||||
Dividends |
|
|
|
|
|
|
|
(24,289 |
) |
|
|
|
|
(24,289 |
) |
|||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(2,250 |
) |
(2,250 |
) |
|||||||
Contributions from noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
649 |
|
649 |
|
|||||||
Balance at March 31, 2009 (54,370,547 common shares outstanding) |
|
$ |
81 |
|
$ |
544 |
|
$ |
1,148,424 |
|
$ |
(170,714 |
) |
$ |
(3,256 |
) |
$ |
101,547 |
|
$ |
1,076,626 |
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
|
For the Three Months Ended |
|
||||
|
|
2010 |
|
2009 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net income |
|
$ |
10,675 |
|
$ |
18,166 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and other amortization |
|
28,253 |
|
27,030 |
|
||
Amortization of deferred financing costs |
|
1,126 |
|
1,024 |
|
||
Amortization of above or below market leases |
|
(607 |
) |
(380 |
) |
||
Amortization of net debt discounts |
|
917 |
|
827 |
|
||
Gain on sales of real estate |
|
(325 |
) |
|
|
||
Share-based compensation |
|
2,611 |
|
2,745 |
|
||
Other |
|
(329 |
) |
(743 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Increase in deferred rent receivable |
|
(2,555 |
) |
(1,215 |
) |
||
Decrease in accounts receivable |
|
3,274 |
|
947 |
|
||
Decrease in restricted cash and marketable securities and prepaid and other assets |
|
16,870 |
|
4,672 |
|
||
(Decrease) increase in accounts payable, accrued expenses and other liabilities |
|
(24,575 |
) |
13,977 |
|
||
Increase in rents received in advance and security deposits |
|
398 |
|
1,060 |
|
||
Net cash provided by operating activities |
|
35,733 |
|
68,110 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Purchases of and additions to properties |
|
(49,738 |
) |
(43,036 |
) |
||
Proceeds from sales of properties |
|
2,952 |
|
|
|
||
Mortgage loan receivable funded |
|
(321 |
) |
|
|
||
Leasing costs paid |
|
(3,038 |
) |
(1,833 |
) |
||
Investment in unconsolidated entity |
|
(4,500 |
) |
|
|
||
Other |
|
(707 |
) |
(847 |
) |
||
Net cash used in investing activities |
|
(55,352 |
) |
(45,716 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Proceeds from debt |
|
135,892 |
|
136,536 |
|
||
Repayments of debt |
|
|
|
|
|
||
Balloon payments |
|
(80,050 |
) |
(122,635 |
) |
||
Scheduled principal amortization |
|
(3,469 |
) |
(2,847 |
) |
||
Net proceeds from issuance of common shares |
|
2,038 |
|
112 |
|
||
Dividends paid |
|
(26,948 |
) |
(23,331 |
) |
||
Distributions paid |
|
(2,154 |
) |
(3,111 |
) |
||
Restricted share redemptions |
|
(3,610 |
) |
(1,696 |
) |
||
Other |
|
(162 |
) |
505 |
|
||
Net cash provided (used) by financing activities |
|
21,537 |
|
(16,467 |
) |
||
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
1,918 |
|
5,927 |
|
||
Cash and cash equivalents |
|
|
|
|
|
||
Beginning of period |
|
8,262 |
|
6,775 |
|
||
End of period |
|
$ |
10,180 |
|
$ |
12,702 |
|
See accompanying notes to consolidated financial statements.
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, we or us) is a fully-integrated and self-managed real estate investment trust (REIT) that focuses primarily on strategic customer relationships and specialized tenant requirements in the United States Government, defense information technology and data sectors. We acquire, develop, manage and lease properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in demographically strong markets possessing growth opportunities. As of March 31, 2010, our investments in real estate included the following:
· 248 wholly owned operating properties totaling 18.9 million square feet;
· 22 wholly owned properties under construction, development or redevelopment that we estimate will total approximately 2.8 million square feet upon completion;
· wholly owned land parcels totaling 1,503 acres that we believe are potentially developable into approximately 13.3 million square feet; and
· partial ownership interests in a number of other real estate projects in operations, under development or held for future development.
We conduct almost all of our operations through our operating partnership, Corporate Office Properties, L.P. (the Operating Partnership), for which we are the managing general partner. The Operating Partnership owns real estate both directly and through subsidiary partnerships and limited liability companies (LLCs). A summary of our Operating Partnerships forms of ownership and the percentage of those ownership forms owned by COPT as of March 31, 2010 follows:
|
92 |
% |
|
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 |
% |
Three of our trustees also controlled, either directly or through ownership by other entities or family members, an additional 6% of the Operating Partnerships common units.
In addition to owning interests in real estate, the Operating Partnership also owns entities that provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties.
Basis of Presentation
The consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which we have a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (variable interest entities or VIEs) if we are deemed to be the primary beneficiary of such entities. We eliminate all significant intercompany balances and transactions in consolidation. We use the equity method of accounting when we own an interest in an entity and can exert significant influence over the entitys operations but cannot control the entitys operations. We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.
These interim financial statements should be read together with the financial statements and notes thereto as of and for the year ended December 31, 2009 included in our 2009 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly present our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in our 2009 Annual Report on Form 10-K except for the implementation of recent accounting pronouncements as discussed below.
We reclassified certain amounts from the prior periods to conform to the current period presentation of our Consolidated Financial Statements with no effect on previously reported net income or equity.
Recent Accounting Pronouncements
We adopted amended guidance issued by the FASB effective January 1, 2010 related to the accounting and disclosure requirements for the consolidation of entities when control of such entities can be achieved through means other than voting rights (variable interest entities or VIEs). This guidance requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE based primarily on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The guidance also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the standard requires enhanced disclosures about an enterprises involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprises financial statements. As discussed further in Note 5, the adoption of this guidance did not affect our financial position, results of operations or cash flows.
Fair Value of Financial Instruments
Accounting standards define fair value as the exit price, or the amount that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The standards also establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy of these inputs is broken down into three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active and (3) inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The assets held in connection with our non-qualified elective deferred compensation plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on our Consolidated Balance Sheet using quoted market prices. The assets are treated as trading securities for accounting purposes and included in the line entitled restricted cash and marketable securities on our Consolidated Balance Sheet. The offsetting liability is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in other liabilities on our consolidated balance sheet. The assets and corresponding liability of our non-qualified elective deferred compensation plan are classified in Level 1 of the fair value hierarchy.
The valuation of our interest rate derivatives is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of March 31, 2010, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest
rate derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2010:
|
|
Quoted Prices in |
|
|
|
|
|
|
|
||||
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
||||
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
|
||||
Description |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan assets (1) |
|
$ |
7,417 |
|
$ |
|
|
$ |
|
|
$ |
7,417 |
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan liability (2) |
|
$ |
7,417 |
|
$ |
|
|
$ |
|
|
$ |
7,417 |
|
Interest rate derivatives (2) |
|
|
|
3,227 |
|
|
|
3,227 |
|
||||
Liabilities |
|
$ |
7,417 |
|
$ |
3,227 |
|
$ |
|
|
$ |
10,644 |
|
(1) Included in the line entitled restricted cash and marketable securities on our Consolidated Balance Sheet.
(2) Included in the line entitled other liabilities on our Consolidated Balance Sheet.
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding mortgage loans receivable) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments. We estimated the fair values of our mortgage loans receivable by using discounted cash flow analyses based on an appropriate market rate for a similar type of instrument. We estimated fair values of our debt based on quoted market prices for publicly-traded debt and on the discounted estimated future cash payments to be made for other debt; the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments. Fair value estimates are made at a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement of such fair value amounts may not be possible and may not be a prudent management decision.
For additional fair value information, please refer to Note 6 for mortgage loans receivable, Note 7 for debt and Note 8 for derivatives.
We present both basic and diluted EPS. We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted 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 into common shares that we added to the denominator.
Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Numerator: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
9,826 |
|
$ |
17,774 |
|
Add: Gain on sales of real estate, net |
|
17 |
|
|
|
||
Less: Preferred share dividends |
|
(4,025 |
) |
(4,025 |
) |
||
Less: Income from continuing operations attributable to noncontrolling interests |
|
(669 |
) |
(1,970 |
) |
||
Less: Income from continuing operations attributable to restricted shares |
|
(290 |
) |
(268 |
) |
||
Numerator for basic and diluted EPS from continuing operations attributable to COPT common shareholders |
|
4,859 |
|
11,511 |
|
||
Add: Discontinued operations, net |
|
832 |
|
392 |
|
||
Less: Discontinued operations, net attributable to noncontrolling interests |
|
(68 |
) |
(49 |
) |
||
Numerator for basic and diluted EPS on net income attributable to COPT common shareholders |
|
$ |
5,623 |
|
$ |
11,854 |
|
Denominator (all weighted averages): |
|
|
|
|
|
||
Denominator for basic EPS (common shares) |
|
57,844 |
|
51,930 |
|
||
Dilutive effect of share-based compensation awards |
|
364 |
|
498 |
|
||
Denominator for diluted EPS |
|
58,208 |
|
52,428 |
|
||
|
|
|
|
|
|
||
Basic EPS: |
|
|
|
|
|
||
Income from continuing operations attributable to COPT common shareholders |
|
$ |
0.08 |
|
$ |
0.22 |
|
Discontinued operations attributable to COPT common shareholders |
|
0.02 |
|
0.01 |
|
||
Net income attributable to COPT common shareholders |
|
$ |
0.10 |
|
$ |
0.23 |
|
Diluted EPS: |
|
|
|
|
|
||
Income from continuing operations attributable to COPT common shareholders |
|
$ |
0.08 |
|
$ |
0.22 |
|
Discontinued operations attributable to COPT common shareholders |
|
0.02 |
|
0.01 |
|
||
Net income attributable to COPT common shareholders |
|
$ |
0.10 |
|
$ |
0.23 |
|
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 |
|
||
|
|
Excluded from Denominator |
|
||
|
|
For the Three Months |
|
||
|
|
Ended March 31, |
|
||
|
|
2010 |
|
2009 |
|
Conversion of common units |
|
5,017 |
|
7,253 |
|
Conversion of convertible preferred units |
|
176 |
|
176 |
|
Conversion of convertible preferred shares |
|
434 |
|
434 |
|
The following share-based compensation securities were excluded from the computation of diluted EPS because their effect was antidilutive (in thousands):
· weighted average restricted shares for the three months ended March 31, 2010 and 2009 of 661 and 606, respectively;
· weighted average options to purchase common shares for the three months ended March 31, 2010 and 2009 of 662 and 976, respectively; and
· performance share units issued in 2010 described further in Note 12.
In addition, the 3.5% Exchangeable Senior Notes, which have an exchange settlement feature, did not affect our diluted EPS reported above since the weighted average closing price of our common shares during each of the periods was less than the exchange price per common share applicable for such periods.
Operating properties, net consisted of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land |
|
$ |
478,555 |
|
$ |
479,545 |
|
Buildings and improvements |
|
2,451,013 |
|
2,445,775 |
|
||
|
|
2,929,568 |
|
2,925,320 |
|
||
Less: accumulated depreciation |
|
(435,677 |
) |
(415,043 |
) |
||
|
|
$ |
2,493,891 |
|
$ |
2,510,277 |
|
As of March 31, 2010 and December 31, 2009, 431 and 437 Ridge Road, two office properties located in Dayton, New Jersey that we were under contract to sell along with a contiguous land parcel for $23,920, were classified as held for sale. The components associated with these properties included the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land, operating properties |
|
$ |
3,498 |
|
$ |
3,498 |
|
Land, development |
|
512 |
|
512 |
|
||
Buildings and improvements |
|
21,509 |
|
21,509 |
|
||
Construction in progress |
|
596 |
|
583 |
|
||
|
|
26,115 |
|
26,102 |
|
||
Less: accumulated depreciation |
|
(7,569 |
) |
(7,569 |
) |
||
|
|
$ |
18,546 |
|
$ |
18,533 |
|
Projects we had under construction or development consisted of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land |
|
$ |
235,838 |
|
$ |
231,297 |
|
Construction in progress |
|
316,687 |
|
269,793 |
|
||
|
|
$ |
552,525 |
|
$ |
501,090 |
|
2010 Construction, Development and Redevelopment Activities
As of March 31, 2010, we had construction underway on 11 new buildings totaling 1.3 million square feet (four in the Baltimore/Washington Corridor, three in San Antonio, Texas, two in Colorado Springs, Colorado and two in Greater Baltimore) (including 98,000 square feet in partially operational properties placed into service). We also had development activities underway on 11 new buildings totaling 1.2 million square feet, including two through a consolidated joint venture (four in the Baltimore/Washington Corridor, two in Greater Baltimore, two in San Antonio, two in Huntsville, Alabama and one in St. Marys & King George Counties). In addition, we had redevelopment underway on two properties totaling 567,000 square feet (one in Greater Philadelphia and one in the Baltimore/Washington Corridor).
5. Real Estate Joint Ventures
During the three months ended March 31, 2010, 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 |
|
|
|
|
|
|
|
Maximum |
|
|||||
March 31, |
|
December 31, |
|
Date |
|
|
|
Nature of |
|
Exposure |
|
|||
2010 |
|
2009 |
|
Acquired |
|
Ownership |
|
Activity |
|
to Loss (1) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
$ |
(5,238 |
)(2) |
$ |
(5,088 |
)(2) |
9/29/2005 |
|
20 |
% |
Operates 16 buildings |
|
$ |
|
|
(1) Derived from the sum of our investment balance and maximum additional unilateral capital contributions or loans required from us. Not reported above are additional amounts that we and our partner are required to fund when needed by this joint venture; these funding requirements are proportional to our respective ownership percentages. Also not reported above are additional unilateral contributions or loans from us, the amounts of which are uncertain, that we would be required to make if certain contingent events occur (see Note 15).
(2) The carrying amount of our investment in this joint venture was lower than our share of the equity in the joint venture by $5,196 at March 31, 2010 and December 31, 2009 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.
The following table sets forth condensed balance sheets for this unconsolidated joint venture:
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Properties, net |
|
$ |
62,566 |
|
$ |
62,990 |
|
Other assets |
|
4,784 |
|
5,148 |
|
||
Total assets |
|
$ |
67,350 |
|
$ |
68,138 |
|
|
|
|
|
|
|
||
Liabilities (primarily debt) |
|
$ |
67,576 |
|
$ |
67,611 |
|
Owners equity |
|
(226 |
) |
527 |
|
||
Total liabilities and owners equity |
|
$ |
67,350 |
|
$ |
68,138 |
|
The following table sets forth condensed statements of operations for this unconsolidated joint venture:
|
|
For the Three Months |
|
||||
|
|
2010 |
|
2009 |
|
||
Revenues |
|
$ |
2,100 |
|
$ |
2,420 |
|
Property operating expenses |
|
(994 |
) |
(835 |
) |
||
Interest expense |
|
(981 |
) |
(981 |
) |
||
Depreciation and amortization expense |
|
(878 |
) |
(799 |
) |
||
Net loss |
|
$ |
(753 |
) |
$ |
(195 |
) |
The table below sets forth information pertaining to our investments in consolidated joint ventures at March 31, 2010:
|
|
|
|
Ownership |
|
|
|
March 31, 2010 (1) |
|
|||||||
|
|
Date |
|
% at |
|
Nature of |
|
Total |
|
Pledged |
|
Total |
|
|||
|
|
Acquired |
|
3/31/2010 |
|
Activity |
|
Assets |
|
Assets |
|
Liabilities |
|
|||
M Square Associates, LLC |
|
6/26/2007 |
|
45.0 |
% |
Developing and operating buildings (2) |
|
$ |
51,749 |
|
$ |
|
|
$ |
4,289 |
|
Arundel Preserve #5, LLC |
|
7/2/2007 |
|
50.0 |
% |
Operates one building (3) |
|
29,698 |
|
29,221 |
|
16,859 |
|
|||
LW Redstone Company, LLC |
|
3/23/2010 |
|
85.0 |
% |
Developing land parcel (4) |
|
11,406 |
|
|
|
|
|
|||
COPT-FD Indian Head, LLC |
|
10/23/2006 |
|
75.0 |
% |
Developing land parcel (5) |
|
7,383 |
|
|
|
2 |
|
|||
MOR Forbes 2 LLC |
|
12/24/2002 |
|
50.0 |
% |
Operates one building (6) |
|
3,923 |
|
|
|
99 |
|
|||
|
|
|
|
|
|
|
|
$ |
104,159 |
|
$ |
29,221 |
|
$ |
21,249 |
|
(1) Excluding amounts eliminated in consolidation.
(2) This joint venture is developing and operating properties located in College Park, Maryland.
(3) This joint ventures property is located in Hanover, Maryland (located in the Baltimore/Washington Corridor).
(4) This joint ventures property is located in Huntsville, Alabama.
(5) This joint ventures property is located in Charles County, Maryland (located in our Other business segment).
(6) This joint ventures property is located in Lanham, Maryland (located in the Suburban Maryland region).
We determined that all of our joint ventures were VIEs under applicable accounting standards. As discussed in Note 2, we adopted amended guidance issued by the FASB effective January 1, 2010 related to the accounting and disclosure requirements for the consolidation of VIEs. Upon adoption of this standard on January 1, 2010, we re-evaluated our existing:
· unconsolidated joint venture and determined that we should continue to account for our investment using the equity method of accounting primarily because our partner has: (1) the power to direct the matters that most significantly impact the activities of the joint venture, including the management and operations of the properties and disposal rights with respect to such properties; and (2) the right to receive benefits and absorb losses that could be significant to the VIE through its proportionately larger investment; and
· consolidated joint ventures and determined that we should continue to consolidate each of them because we have: (1) the power to direct the matters that most significantly impact the activities of the joint ventures, including development, leasing and management of the properties constructed by the VIEs; and (2) both the obligation to fund the activities of the ventures to the extent that third-party financing is not obtained and the right to receive returns on our fundings, which could be potentially significant to the VIEs.
Therefore, the adoption of this guidance did not affect our financial position, results of operations or cash flows.
In March 2010, we completed the formation of LW Redstone Company, LLC (Redstone), a joint venture created to develop Redstone Gateway, a 468-acre land parcel adjacent to Redstone Arsenal in Huntsville, Alabama. The land is owned by the U.S. Government and is under a long term master lease to the joint venture. Through this master lease, the joint venture will create a business park that we expect will total approximately 4.6 million square feet of office and retail space when completed, including approximately 4.4 million square feet of Class A office space. In addition, the business park will include hotel and other amenities.
We anticipate funding certain infrastructure costs that we expect will be reimbursed by the city of Huntsville. We also expect to fund additional development and construction costs through equity contributions to the extent that third party financing is not obtained. Our partner is not required to make any future contributions to the joint venture. Net cash flow distributions to the partners of Redstone vary depending on the source of the funds distributed and the nature of the capital fundings outstanding at the time of distribution. In the case of all distribution sources, we are first entitled to repayment of operating deficits funded by us and preferred returns on such fundings. We are also generally entitled to repayment of infrastructure and vertical construction costs funded by us and preferred returns on such fundings before our partner is entitled to receive repayment of its equity contribution of $9,000. In addition, we will be entitled to 85% of distributable cash in excess of preferred returns.
We determined that Redstone is a VIE under applicable accounting standards and that we should consolidate it because: (1) we control the activities that are most significant to the VIE (we hold two of three positions on the joint ventures management committee, and we will be responsible for the development, construction, leasing and management of the office properties to be constructed by the VIE); and (2) we have both the obligation to provide significant funding for the project, as noted above, and the right to receive returns on our funding.
At December 31, 2009, we had a 92.5% ownership interest in COPT Opportunity Invest I, LLC, an entity which is redeveloping a property in Hanover, Maryland. In February 2010, we acquired the remaining 7.5% ownership interest in this entity.
Our commitments and contingencies pertaining to our real estate joint ventures are disclosed in Note 15.
Prepaid expenses and other assets consisted of the following:
|
|
March 31, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Prepaid expenses |
|
$ |
14,791 |
|
$ |
19,769 |
|
Equity method investment in unconsolidated entity |
|
14,605 |
|
9,461 |
|
||
Mortgage loans receivable (1) |
|
13,453 |
|
12,773 |
|
||
Furniture, fixtures and equipment, net |
|
12,362 |
|
12,633 |
|
||
Other assets |
|
7,659 |
|
7,763 |
|
||
Construction contract costs incurred in excess of billings |
|
5,542 |
|
19,556 |
|
||
Prepaid expenses and other assets |
|
$ |
68,412 |
|
$ |
81,955 |
|
(1) The fair value of our mortgage loans receivable totaled $15,525 at March 31, 2010 and $15,126 at December 31, 2009.
Our debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
Scheduled |
|
|||
|
|
Maximum |
|
Carrying Value at |
|
|
|
Maturity |
|
|||||
|
|
Availability at |
|
March 31, |
|
December 31, |
|
Stated Interest Rates |
|
Dates at |
|
|||
|
|
March 31, 2010 |
|
2010 |
|
2009 |
|
at March 31, 2010 |
|
March 31, 2010 |
|
|||
Mortgage and other loans payable: |
|
|
|
|
|
|
|
|
|
|
|
|||
Revolving Credit Facility |
|
$ |
600,000 |
|
$ |
397,000 |
|
$ |
365,000 |
|
LIBOR + 0.75% to 1.25% (1) |
|
September 30, 2011 (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage and Other Secured Loans |
|
|
|
|
|
|
|
|
|
|
|
|||
Fixed rate mortgage loans (3) |
|
N/A |
|
1,163,072 |
|
1,166,443 |
|
5.20% - 7.94% (4) |
|
2010 - 2034 (5) |
|
|||
Revolving Construction Facility |
|
225,000 |
|
100,225 |
|
76,333 |
|
LIBOR + 1.60% to 2.00% (6) |
|
May 2, 2011 (2) |
|
|||
Other variable rate secured loans |
|
N/A |
|
271,019 |
|
271,146 |
|
LIBOR + 2.25% to 3.00% (7) |
|
2012-2014 (2) |
|
|||
Other construction loan facilities |
|
23,400 |
|
16,753 |
|
16,753 |
|
LIBOR + 2.75% (8) |
|
2011 (2) |
|
|||
Total mortgage and other secured loans |
|
|
|
1,551,069 |
|
1,530,675 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Unsecured notes payable (9) |
|
N/A |
|
2,001 |
|
2,019 |
|
0.00% |
|
2026 |
|
|||
Total mortgage and other loans payable |
|
|
|
1,950,070 |
|
1,897,694 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
3.5% Exchangeable Senior Notes |
|
N/A |
|
157,061 |
|
156,147 |
|
3.50% |
|
September 2026 (10) |
|
|||
Total debt |
|
|
|
$ |
2,107,131 |
|
$ |
2,053,841 |
|
|
|
|
|
|
(1) The interest rate on the Revolving Credit Facility was 1.03% at March 31, 2010.
(2) Includes loans that may be extended for a one-year period at our option, subject to certain conditions.
(3) Several of the fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect unamortized premiums totaling $342 at March 31, 2010 and $371 at December 31, 2009.
(4) The weighted average interest rate on these loans was 6.0% at March 31, 2010.
(5) A loan with a balance of $4,637 at March 31, 2010 that matures in 2034 may be repaid in March 2014, subject to certain conditions.
(6) The weighted average interest rate on this loan was 1.83% at March 31, 2010.
(7) The loans in this category at March 31, 2010 are subject to floor interest rates ranging from 4.25% to 5.5%.
(8) The interest rate on this loan was 3.0% at March 31, 2010.
(9) The carrying value of these notes reflects unamortized discount totaling $1,210 at March 31, 2010 and $1,242 at December 31, 2009.
(10) As described further in our 2009 Annual Report on Form 10-K, the notes have an exchange settlement feature that provides that they may, under certain circumstances, be exchangeable for cash (up to the principal amount of the notes) and, with respect to any excess exchange value, may be exchangeable into (at our option) cash, our common shares or a combination of cash and our common shares at an exchange rate (subject to adjustment) of 18.9937 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2010 and is equivalent to an exchange price of $52.65 per common share). The carrying value of these notes included a principal amount of $162,500 and an unamortized discount totaling $5,439 at March 31, 2010 and $6,353 at December 31, 2009. The effective interest rate under the notes, including amortization of the issuance costs, was 5.97%. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized:
|
|
For the Three Months |
|
||||
|
|
2010 |
|
2009 |
|
||
Interest expense at stated interest rate |
|
$ |
1,422 |
|
$ |
1,422 |
|
Interest expense associated with amortization of discount |
|
913 |
|
860 |
|
||
Total |
|
$ |
2,335 |
|
$ |
2,282 |
|
We capitalized interest costs of $3,936 in the three months ended March 31, 2010 and $4,499 in the three months ended March 31, 2009.
The following table sets forth information pertaining to the fair value of our debt:
|
|
March 31, 2010 |
|
December 31, 2009 |
|
||||||||
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
||||
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
||||
Fixed-rate debt |
|
$ |
1,322,134 |
|
$ |
1,256,906 |
|
$ |
1,324,609 |
|
$ |
1,252,126 |
|
Variable-rate debt |
|
784,997 |
|
761,565 |
|
729,232 |
|
704,508 |
|
||||
|
|
$ |
2,107,131 |
|
$ |
2,018,471 |
|
$ |
2,053,841 |
|
$ |
1,956,634 |
|
On April 7, 2010, the Operating Partnership issued a $240,000 aggregate principal amount of 4.25% Exchangeable Senior Notes due 2030. Interest on the notes is payable on April 15 and October 15 of each year. The notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and, at the Operating Partnerships discretion, our common shares at an exchange rate (subject to adjustment) of 20.7658 shares per one thousand dollar principal amount of the notes (exchange rate is as of April 7, 2010 and is equivalent to an exchange price of $48.16 per common share, a 20% premium over the closing price on the NYSE on the transaction pricing date). On or after April 20, 2015, the Operating Partnership may redeem the notes in cash in whole or in part. The holders of the notes have the right to require us to repurchase the notes in cash in whole or in part on each of April 15, 2015, April 15, 2020 and April 15, 2025, or in the event of a fundamental change, as defined under the terms of the notes, for a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. Prior to April 20, 2015, subject to certain exceptions, if (1) a fundamental change occurs as a result of certain forms of transactions or series of transactions and (2) a holder elects to exchange its notes in connection with such fundamental change, we will increase the applicable exchange rate for the notes surrendered for exchange by a number of additional shares of our common shares as a make whole premium. The notes are general unsecured senior obligations of the Operating Partnership and rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership. The Operating Partnerships obligations under the notes are fully and unconditionally guaranteed by us. The initial liability component of this debt issuance is approximately $221,000 and the equity component is approximately $19,000. The effective interest rate on the liability component, including amortization of the issuance costs, is approximately 6.5%.
8. Interest Rate Derivatives
The following table sets forth the key terms and fair values of our interest rate swap derivatives at March 31, 2010 and December 31, 2009, all of which are interest rate swaps:
|
|
|
|
|
|
|
|
Fair Value at |
|
|||||
Notional |
|
One-Month |
|
Effective |
|
Expiration |
|
March 31, |
|
December 31, |
|
|||
Amount |
|
LIBOR base |
|
Date |
|
Date |
|
2010 |
|
2009 |
|
|||
$ |
100,000 |
|
1.9750 |
% |
1/1/2010 |
|
5/1/2012 |
|
$ |
(1,711 |
) |
$ |
(1,068 |
) |
120,000 |
|
1.7600 |
% |
1/2/2009 |
|
5/1/2012 |
|
(1,516 |
) |
(669 |
) |
|||
|
|
|
|
|
|
|
|
$ |
(3,227 |
) |
$ |
(1,737 |
) |
|
Each of these interest rate swaps were designated as cash flow hedges of interest rate risk. The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet as of March 31, 2010 and December 31, 2009:
Derivatives Designated as |
|
March 31, 2010 |
|
December 31, 2009 |
|
||||||
Hedging Instruments |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
|
||
Interest rate swaps |
|
Other liabilities |
|
$ |
(3,227 |
) |
Other liabilities |
|
$ |
(1,737 |
) |
The table below presents the effect of our interest rate derivatives on our Consolidated Statements of Operations and comprehensive income for the three months ended March 31, 2010 and 2009:
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Amount of loss recognized in AOCL (effective portion) |
|
$ |
(2,385 |
) |
$ |
(1,381 |
) |
Amount of loss reclassified from AOCL into interest expense (effective portion) |
|
(911 |
) |
(2,299 |
) |
||
Amount of loss recognized in interest expense (ineffective portion and amount excluded from effectiveness testing) |
|
|
|
(279 |
) |
||
Over the next 12 months, we estimate that approximately $3,077 will be reclassified from AOCL as an increase to interest expense.
We have agreements with each of our interest rate derivative counterparties that contain provisions under which if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations. These agreements also incorporate the loan covenant provisions of our indebtedness with a lender affiliate of the derivative counterparties. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreements. As of March 31, 2010, the fair value of interest rate derivatives in a liability position related to these agreements was $3,227, excluding the effects of accrued interest. As of March 31, 2010, we had not posted any collateral related to these agreements. We are not in default with any of these provisions. If we breached any of these provisions, we would be required to settle our obligations under the agreements at their termination value of $3,580.
Common Shares
During the three months ended March 31, 2010, we converted 309,497 common units in our Operating Partnership into common shares on the basis of one common share for each common unit.
See Note 12 for disclosure of common share activity pertaining to our share-based compensation plans.
We declared dividends per common share of $0.3925 in the three months ended March 31, 2010 and $0.3725 in the three months ended March 31, 2009.
Accumulated Other Comprehensive Loss
The table below sets forth activity in the accumulated other comprehensive loss component of shareholders equity:
|
|
For the Three Months |
|
||||
|
|
2010 |
|
2009 |
|
||
Beginning balance |
|
$ |
(1,907 |
) |
$ |
(4,749 |
) |
Amount of loss recognized in AOCL |
|
(2,385 |
) |
(1,381 |
) |
||
Amount of loss reclassified from AOCL to income |
|
911 |
|
2,299 |
|
||
Adjustment to AOCL attributable to noncontrolling interests |
|
103 |
|
575 |
|
||
Ending balance |
|
$ |
(3,278 |
) |
$ |
(3,256 |
) |
The table below sets forth total comprehensive income and total comprehensive income attributable to COPT:
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Net income |
|
$ |
10,675 |
|
$ |
18,166 |
|
Amount of loss recognized in AOCL |
|
(2,385 |
) |
(1,381 |
) |
||
Amount of loss reclassified from AOCL to income |
|
911 |
|
2,299 |
|
||
Total comprehensive income |
|
9,201 |
|
19,084 |
|
||
Net income attributable to noncontrolling interests |
|
(737 |
) |
(2,019 |
) |
||
Other comprehensive loss (income) attributable to noncontrolling interests |
|
121 |
|
(116 |
) |
||
Total comprehensive income attributable to COPT |
|
$ |
8,585 |
|
$ |
16,949 |
|
|
|
For the Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
||
|
|
|
|
|
|
||
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs |
|
$ |
(1,313 |
) |
$ |
3,622 |
|
Increase in property and noncontrolling interests in connection with property contribution to joint venture |
|
$ |
9,000 |
|
$ |
|
|
Increase in fair value of derivatives applied to AOCL and noncontrolling interests |
|
$ |
1,490 |
|
$ |
885 |
|
Dividends/distribution payable |
|
$ |
28,556 |
|
$ |
25,891 |
|
Decrease in noncontrolling interests and increase in shareholders equity in connection with the conversion of common units into common shares |
|
$ |
4,515 |
|
$ |
53,808 |
|
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
$ |
180 |
|
$ |
19,101 |
|
As of March 31, 2010, we had eight primary office property segments: Baltimore/Washington Corridor; Northern Virginia; Greater Baltimore; Colorado Springs; Suburban Maryland; San Antonio; Greater Philadelphia; and St. Marys and King George Counties.
The table below reports segment financial information for our real estate operations. Our segment entitled Other includes assets and operations not specifically associated with the other defined segments, including corporate assets and investments in unconsolidated entities. We measure the performance of our segments through a measure we define as net operating income from real estate operations (NOI from real estate operations), which is derived by subtracting property expenses from revenues from real estate operations. We believe that NOI from real estate operations is an important supplemental measure of operating performance for a REITs operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.
|
|
Baltimore/ |
|
Northern |
|
Greater |
|
Colorado |
|
Suburban |
|
San Antonio |
|
Greater |
|
St. Marys & |
|
Other |
|
Intersegment |
|
Total |
|
|||||||||||
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Revenues from real estate operations |
|
$ |
52,058 |
|
$ |
18,659 |
|
$ |
17,865 |
|
$ |
6,332 |
|
$ |
5,829 |
|
$ |
3,938 |
|
$ |
1,202 |
|
$ |
3,589 |
|
$ |
3,524 |
|
$ |
|
|
$ |
112,996 |
|
Property operating expenses |
|
22,155 |
|
7,313 |
|
9,010 |
|
2,309 |
|
2,701 |
|
1,629 |
|
763 |
|
1,107 |
|
1,309 |
|
|
|
48,296 |
|
|||||||||||
NOI from real estate operations |
|
$ |
29,903 |
|
$ |
11,346 |
|
$ |
8,855 |
|
$ |
4,023 |
|
$ |
3,128 |
|
$ |
2,309 |
|
$ |
439 |
|
$ |
2,482 |
|
$ |
2,215 |
|
$ |
|
|
$ |
64,700 |
|
Additions to properties, net |
|
$ |
15,959 |
|
$ |
4,910 |
|
$ |
7,240 |
|
$ |
813 |
|
$ |
1,541 |
|
$ |
4,939 |
|
$ |
10,058 |
|
$ |
411 |
|
$ |
12,476 |
|
$ |
|
|
$ |
58,347 |
|
Segment assets at March 31, 2010 |
|
$ |
1,339,080 |
|
$ |
452,105 |
|
$ |
568,361 |
|
$ |
269,338 |
|
$ |
172,971 |
|
$ |
139,977 |
|
$ |
115,023 |
|
$ |
94,033 |
|
$ |
247,551 |
|
$ |
(87 |
) |
$ |
3,398,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Revenues from real estate operations |
|
$ |
49,004 |
|
$ |
22,099 |
|
$ |
13,771 |
|
$ |
4,877 |
|
$ |
5,023 |
|
$ |
2,945 |
|
$ |
2,506 |
|
$ |
3,399 |
|
$ |
3,220 |
|
$ |
|
|
$ |
106,844 |
|
Property operating expenses |
|
18,619 |
|
7,796 |
|
6,771 |
|
1,323 |
|
2,054 |
|
836 |
|
81 |
|
886 |
|
667 |
|
|
|
39,033 |
|
|||||||||||
NOI from real estate operations |
|
$ |
30,385 |
|
$ |
14,303 |
|
$ |
7,000 |
|
$ |
3,554 |
|
$ |
2,969 |
|
$ |
2,109 |
|
$ |
2,425 |
|
$ |
2,513 |
|
$ |
2,553 |
|
$ |
|
|
$ |
67,811 |
|
Additions to properties, net |
|
$ |
19,179 |
|
$ |
69 |
|
$ |
3,311 |
|
$ |
5,197 |
|
$ |
4,609 |
|
$ |
7,379 |
|
$ |
2,313 |
|
$ |
347 |
|
$ |
7,757 |
|
$ |
(7 |
) |
$ |
50,154 |
|
Segment assets at March 31, 2009 |
|
$ |
1,270,539 |
|
$ |
458,934 |
|
$ |
436,862 |
|
$ |
253,764 |
|
$ |
155,712 |
|
$ |
104,284 |
|
$ |
96,267 |
|
$ |
94,809 |
|
$ |
267,108 |
|
$ |
(989 |
) |
$ |
3,137,290 |
|
The following table reconciles our segment revenues to total revenues as reported on our Consolidated Statements of Operations:
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Segment revenues from real estate operations |
|
$ |
112,996 |
|
$ |
106,844 |
|
Construction contract and other service revenues |
|
37,365 |
|
74,889 |
|
||
Less: Revenues from discontinued operations (Note 14) |
|
(768 |
) |
(736 |
) |
||
Total revenues |
|
$ |
149,593 |
|
$ |
180,997 |
|
The following table reconciles our segment property operating expenses to property operating expenses as reported on our Consolidated Statements of Operations:
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Segment property operating expenses |
|
$ |
48,296 |
|
$ |
39,033 |
|
Less: Property operating expenses from discontinued operations (Note 14) |
|
(161 |
) |
(69 |
) |
||
Total property operating expenses |
|
$ |
48,135 |
|
$ |
38,964 |
|
As previously discussed, we provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (NOI from service operations), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. As a result, we believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations:
|
|
For the Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Construction contract and other service revenues |
|
$ |
37,365 |
|
$ |
74,889 |
|
Construction contract and other service expenses |
|
(36,399 |
) |
(73,323 |
) |
||
NOI from service operations |
|
$ |
966 |
|
$ |
1,566 |
|