UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
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 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). x 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 July 20, 2010, 59,287,048 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)
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Assets |
|
|
|
|
|
||
Properties, net: |
|
|
|
|
|
||
Operating properties, net |
|
$ |
2,558,567 |
|
$ |
2,510,277 |
|
Properties held for sale, net |
|
18,548 |
|
18,533 |
|
||
Projects under construction or development |
|
553,399 |
|
501,090 |
|
||
Total properties, net |
|
3,130,514 |
|
3,029,900 |
|
||
Cash and cash equivalents |
|
9,879 |
|
8,262 |
|
||
Restricted cash and marketable securities |
|
20,738 |
|
16,549 |
|
||
Accounts receivable, net |
|
12,552 |
|
17,459 |
|
||
Deferred rent receivable |
|
75,683 |
|
71,805 |
|
||
Intangible assets on real estate acquisitions, net |
|
96,151 |
|
100,671 |
|
||
Deferred leasing and financing costs, net |
|
55,838 |
|
51,570 |
|
||
Prepaid expenses and other assets |
|
65,928 |
|
83,806 |
|
||
Total assets |
|
$ |
3,467,283 |
|
$ |
3,380,022 |
|
|
|
|
|
|
|
||
Liabilities and equity |
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
||
Debt, net |
|
$ |
2,182,375 |
|
$ |
2,053,841 |
|
Accounts payable and accrued expenses |
|
84,164 |
|
116,455 |
|
||
Rents received in advance and security deposits |
|
28,328 |
|
32,177 |
|
||
Dividends and distributions payable |
|
28,580 |
|
28,440 |
|
||
Deferred revenue associated with operating leases |
|
12,929 |
|
14,938 |
|
||
Distributions received in excess of investment in unconsolidated real estate joint venture |
|
5,351 |
|
5,088 |
|
||
Other liabilities |
|
13,990 |
|
8,451 |
|
||
Total liabilities |
|
2,355,717 |
|
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 June 30, 2010 and December 31, 2009) |
|
81 |
|
81 |
|
||
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized and 59,287,761 shares issued and outstanding at June 30, 2010; 75,000,000 shares authorized and 58,342,673 shares issued and outstanding at December 31, 2009) |
|
593 |
|
583 |
|
||
Additional paid-in capital |
|
1,269,142 |
|
1,238,704 |
|
||
Cumulative distributions in excess of net income |
|
(246,008 |
) |
(209,941 |
) |
||
Accumulated other comprehensive loss |
|
(4,263 |
) |
(1,907 |
) |
||
Total Corporate Office Properties Trusts shareholders equity |
|
1,019,545 |
|
1,027,520 |
|
||
Noncontrolling interests in subsidiaries: |
|
|
|
|
|
||
Common units in the Operating Partnership |
|
63,675 |
|
73,892 |
|
||
Preferred units in the Operating Partnership |
|
8,800 |
|
8,800 |
|
||
Other consolidated real estate joint ventures |
|
19,546 |
|
10,420 |
|
||
Noncontrolling interests in subsidiaries |
|
92,021 |
|
93,112 |
|
||
Total equity |
|
1,111,566 |
|
1,120,632 |
|
||
Total liabilities and equity |
|
$ |
3,467,283 |
|
$ |
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 |
|
For the Six Months |
|
||||||||
|
|
Ended June 30, |
|
Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
91,173 |
|
$ |
87,649 |
|
$ |
182,183 |
|
$ |
176,494 |
|
Tenant recoveries and other real estate operations revenue |
|
18,084 |
|
17,358 |
|
39,302 |
|
34,621 |
|
||||
Construction contract and other service revenues |
|
26,065 |
|
103,324 |
|
63,430 |
|
178,213 |
|
||||
Total revenues |
|
135,322 |
|
208,331 |
|
284,915 |
|
389,328 |
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
||||
Property operating expenses |
|
40,005 |
|
37,100 |
|
88,140 |
|
76,064 |
|
||||
Depreciation and amortization associated with real estate operations |
|
29,548 |
|
28,493 |
|
57,144 |
|
54,770 |
|
||||
Construction contract and other service expenses |
|
25,402 |
|
101,161 |
|
61,801 |
|
174,484 |
|
||||
General and administrative expenses |
|
5,926 |
|
5,834 |
|
11,826 |
|
11,377 |
|
||||
Business development expenses |
|
465 |
|
446 |
|
620 |
|
1,092 |
|
||||
Total operating expenses |
|
101,346 |
|
173,034 |
|
219,531 |
|
317,787 |
|
||||
Operating income |
|
33,976 |
|
35,297 |
|
65,384 |
|
71,541 |
|
||||
Interest expense |
|
(25,812 |
) |
(18,620 |
) |
(48,450 |
) |
(37,983 |
) |
||||
Interest and other income |
|
245 |
|
1,252 |
|
1,547 |
|
2,330 |
|
||||
Income from continuing operations before equity in loss of unconsolidated entities and income taxes |
|
8,409 |
|
17,929 |
|
18,481 |
|
35,888 |
|
||||
Equity in loss of unconsolidated entities |
|
(72 |
) |
(202 |
) |
(277 |
) |
(317 |
) |
||||
Income tax expense |
|
(7 |
) |
(52 |
) |
(48 |
) |
(122 |
) |
||||
Income from continuing operations |
|
8,330 |
|
17,675 |
|
18,156 |
|
35,449 |
|
||||
Discontinued operations |
|
486 |
|
376 |
|
1,318 |
|
768 |
|
||||
Income before gain on sales of real estate |
|
8,816 |
|
18,051 |
|
19,474 |
|
36,217 |
|
||||
Gain on sales of real estate, net of income taxes |
|
335 |
|
|
|
352 |
|
|
|
||||
Net income |
|
9,151 |
|
18,051 |
|
19,826 |
|
36,217 |
|
||||
Less net income attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
|
||||
Common units in the Operating Partnership |
|
(364 |
) |
(1,272 |
) |
(891 |
) |
(3,076 |
) |
||||
Preferred units in the Operating Partnership |
|
(165 |
) |
(165 |
) |
(330 |
) |
(330 |
) |
||||
Other consolidated entities |
|
(156 |
) |
25 |
|
(201 |
) |
(25 |
) |
||||
Net income attributable to Corporate Office Properties Trust |
|
8,466 |
|
16,639 |
|
18,404 |
|
32,786 |
|
||||
Preferred share dividends |
|
(4,026 |
) |
(4,026 |
) |
(8,051 |
) |
(8,051 |
) |
||||
Net income attributable to Corporate Office Properties Trust common shareholders |
|
$ |
4,440 |
|
$ |
12,613 |
|
$ |
10,353 |
|
$ |
24,735 |
|
Net income attributable to Corporate Office Properties Trust: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
8,016 |
|
$ |
16,297 |
|
$ |
17,190 |
|
$ |
32,101 |
|
Discontinued operations, net |
|
450 |
|
342 |
|
1,214 |
|
685 |
|
||||
Net income attributable to Corporate Office Properties Trust |
|
$ |
8,466 |
|
$ |
16,639 |
|
$ |
18,404 |
|
$ |
32,786 |
|
Basic earnings per common share (1) |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.06 |
|
$ |
0.21 |
|
$ |
0.15 |
|
$ |
0.43 |
|
Discontinued operations |
|
0.01 |
|
0.01 |
|
0.02 |
|
0.02 |
|
||||
Net income attributable to COPT common shareholders |
|
$ |
0.07 |
|
$ |
0.22 |
|
$ |
0.17 |
|
$ |
0.45 |
|
Diluted earnings per common share (1) |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.06 |
|
$ |
0.21 |
|
$ |
0.15 |
|
$ |
0.43 |
|
Discontinued operations |
|
0.01 |
|
0.01 |
|
0.02 |
|
0.01 |
|
||||
Net income attributable to COPT common shareholders |
|
$ |
0.07 |
|
$ |
0.22 |
|
$ |
0.17 |
|
$ |
0.44 |
|
(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, 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 (2,824,000 shares) |
|
|
|
28 |
|
61,368 |
|
|
|
|
|
(61,396 |
) |
|
|
|||||||
Common shares issued to the public (2,990,000 shares) |
|
|
|
30 |
|
71,795 |
|
|
|
|
|
|
|
71,825 |
|
|||||||
Exercise of share options (153,177 common shares) |
|
|
|
2 |
|
1,855 |
|
|
|
|
|
|
|
1,857 |
|
|||||||
Share-based compensation |
|
|
|
2 |
|
5,248 |
|
|
|
|
|
|
|
5,250 |
|
|||||||
Restricted common share redemptions (71,267 shares) |
|
|
|
|
|
(1,752 |
) |
|
|
|
|
|
|
(1,752 |
) |
|||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(21,165 |
) |
|
|
|
|
21,165 |
|
|
|
|||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
3,573 |
|
650 |
|
4,223 |
|
|||||||
Decrease in tax benefit from share-based compensation |
|
|
|
|
|
(152 |
) |
|
|
|
|
|
|
(152 |
) |
|||||||
Net income |
|
|
|
|
|
|
|
32,786 |
|
|
|
3,431 |
|
36,217 |
|
|||||||
Dividends |
|
|
|
|
|
|
|
(49,912 |
) |
|
|
|
|
(49,912 |
) |
|||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(4,308 |
) |
(4,308 |
) |
|||||||
Contributions from noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
736 |
|
736 |
|
|||||||
Balance at June 30, 2009 (58,016,683 common shares outstanding) |
|
$ |
81 |
|
$ |
580 |
|
$ |
1,229,931 |
|
$ |
(179,698 |
) |
$ |
(1,176 |
) |
$ |
96,689 |
|
$ |
1,146,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
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 |
|
Issuance of 4.25% Exchangeable Senior Notes |
|
|
|
|
|
18,149 |
|
|
|
|
|
|
|
18,149 |
|
|||||||
Conversion of common units to common shares (610,598 shares) |
|
|
|
6 |
|
8,821 |
|
|
|
|
|
(8,827 |
) |
|
|
|||||||
Costs associated with common shares issued to the public |
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|||||||
Exercise of share options (175,443 shares) |
|
|
|
2 |
|
3,082 |
|
|
|
|
|
|
|
3,084 |
|
|||||||
Share-based compensation |
|
|
|
2 |
|
5,640 |
|
|
|
|
|
|
|
5,642 |
|
|||||||
Restricted common share redemptions (99,692 shares) |
|
|
|
|
|
(3,713 |
) |
|
|
|
|
|
|
(3,713 |
) |
|||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(1,496 |
) |
|
|
|
|
1,496 |
|
|
|
|||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
(2,356 |
) |
(161 |
) |
(2,517 |
) |
|||||||
Net income |
|
|
|
|
|
|
|
18,404 |
|
|
|
1,422 |
|
19,826 |
|
|||||||
Dividends |
|
|
|
|
|
|
|
(54,471 |
) |
|
|
|
|
(54,471 |
) |
|||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(3,946 |
) |
(3,946 |
) |
|||||||
Contributions from noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
|
|
|
|
|
|
9,260 |
|
9,260 |
|
|||||||
Distributions to noncontrolling interests in other consolidated real estate joint ventures |
|
|
|
|
|
(26 |
) |
|
|
|
|
(335 |
) |
(361 |
) |
|||||||
Balance at June 30, 2010 (59,287,761 common shares outstanding) |
|
$ |
81 |
|
$ |
593 |
|
$ |
1,269,142 |
|
$ |
(246,008 |
) |
$ |
(4,263 |
) |
$ |
92,021 |
|
$ |
1,111,566 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
|
For the Six Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2010 |
|
2009 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net income |
|
$ |
19,826 |
|
$ |
36,217 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and other amortization |
|
58,433 |
|
56,311 |
|
||
Amortization of deferred financing costs |
|
2,621 |
|
2,033 |
|
||
Increase in deferred rent receivable |
|
(4,289 |
) |
(3,006 |
) |
||
Amortization of above or below market leases |
|
(1,037 |
) |
(997 |
) |
||
Amortization of net debt discounts |
|
2,649 |
|
1,663 |
|
||
Gain on sales of real estate |
|
(660 |
) |
|
|
||
Share-based compensation |
|
5,642 |
|
5,250 |
|
||
Other |
|
(92 |
) |
(1,794 |
) |
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Decrease (increase) in accounts receivable |
|
4,704 |
|
(92 |
) |
||
Decrease (increase) in restricted cash and marketable securities and prepaid expenses and other assets |
|
21,820 |
|
(4,681 |
) |
||
(Decrease) increase in accounts payable, accrued expenses and other liabilities |
|
(27,213 |
) |
38,055 |
|
||
Increase in rents received in advance and security deposits |
|
(3,849 |
) |
(528 |
) |
||
Net cash provided by operating activities |
|
78,555 |
|
128,431 |
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Purchases of and additions to properties |
|
(145,950 |
) |
(101,650 |
) |
||
Proceeds from sales of properties |
|
3,947 |
|
65 |
|
||
Mortgage loan receivable funded |
|
(603 |
) |
|
|
||
Leasing costs paid |
|
(5,297 |
) |
(6,282 |
) |
||
Investment in unconsolidated entity |
|
(4,500 |
) |
|
|
||
Other |
|
(3,278 |
) |
(4,636 |
) |
||
Net cash used in investing activities |
|
(155,681 |
) |
(112,503 |
) |
||
Cash flows from financing activities |
|
|
|
|
|
||
Proceeds from debt, including issuance of exchangeable senior notes |
|
500,459 |
|
314,147 |
|
||
Repayments of debt |
|
|
|
|
|
||
Scheduled principal amortization |
|
(6,969 |
) |
(5,509 |
) |
||
Other repayments |
|
(349,006 |
) |
(335,339 |
) |
||
Deferred financing costs paid |
|
(6,252 |
) |
(202 |
) |
||
Net proceeds from issuance of common shares |
|
3,065 |
|
73,682 |
|
||
Dividends paid |
|
(54,091 |
) |
(47,596 |
) |
||
Distributions paid |
|
(4,186 |
) |
(5,361 |
) |
||
Restricted share redemptions |
|
(3,713 |
) |
(1,752 |
) |
||
Other |
|
(564 |
) |
(2,842 |
) |
||
Net cash provided (used) by financing activities |
|
78,743 |
|
(10,772 |
) |
||
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
1,617 |
|
5,156 |
|
||
Cash and cash equivalents |
|
|
|
|
|
||
Beginning of period |
|
8,262 |
|
6,775 |
|
||
End of period |
|
$ |
9,879 |
|
$ |
11,931 |
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
||
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs |
|
$ |
(2,064 |
) |
$ |
11,971 |
|
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 |
|
$ |
2,547 |
|
$ |
4,225 |
|
Dividends/distribution payable |
|
$ |
28,580 |
|
$ |
27,057 |
|
Decrease in noncontrolling interests and increase in shareholders equity in connection with the conversion of common units into common shares |
|
$ |
8,827 |
|
$ |
61,396 |
|
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
$ |
1,496 |
|
$ |
21,165 |
|
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)
1. Organization
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 June 30, 2010, our investments in real estate included the following:
· 247 wholly owned operating properties totaling 19.5 million square feet;
· 22 wholly owned properties under construction, development or redevelopment that we estimate will total approximately 3.1 million square feet upon completion, including three partially operational properties included above;
· wholly owned land parcels totaling 1,515 acres that we believe are potentially developable into approximately 14.1 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 June 30, 2010 follows:
Common Units |
|
93 |
% |
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.
2. Summary of Significant Accounting Policies
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.
Reclassifications
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 Financial Accounting Standards Board (FASB) effective January 1, 2010 related to the accounting and disclosure requirements for the consolidation of 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.
We adopted guidance issued by the FASB effective January 1, 2010 that requires new disclosures and clarifications to existing disclosures pertaining to transfers in and out of Level 1 and Level 2 fair value measurements, presentation of activity within Level 3 fair value measurements and details of valuation techniques and inputs utilized. Our adoption of this guidance did not have a material effect on our financial statements or disclosures.
3. Fair Value Measurements
For a description on how we estimate fair value, see Note 2 to the consolidated financial statements in our 2009 Form 10-K.
The table below sets forth our financial assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2010 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards:
|
|
Quoted Prices in |
|
|
|
|
|
|
|
||||
|
|
Active Markets for |
|
Significant Other |
|
Significant |
|
|
|
||||
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
|
||||
Description |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
Marketable securities (1) |
|
$ |
7,719 |
|
$ |
|
|
$ |
|
|
$ |
7,719 |
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan liability (2) |
|
$ |
6,935 |
|
$ |
|
|
$ |
|
|
$ |
6,935 |
|
Interest rate derivatives (2) |
|
|
|
4,284 |
|
|
|
4,284 |
|
||||
Liabilities |
|
$ |
6,935 |
|
$ |
4,284 |
|
$ |
|
|
$ |
11,219 |
|
(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. 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, see Note 6 for mortgage loans receivable, Note 7 for debt and Note 8 for derivatives.
4. Properties, net
Operating properties, net consisted of the following:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land |
|
$ |
486,962 |
|
$ |
479,545 |
|
Buildings and improvements |
|
2,528,444 |
|
2,445,775 |
|
||
|
|
3,015,406 |
|
2,925,320 |
|
||
Less: accumulated depreciation |
|
(456,839 |
) |
(415,043 |
) |
||
|
|
$ |
2,558,567 |
|
$ |
2,510,277 |
|
As of June 30, 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:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land, operating properties |
|
$ |
3,498 |
|
$ |
3,498 |
|
Land, development |
|
512 |
|
512 |
|
||
Buildings and improvements |
|
21,510 |
|
21,509 |
|
||
Construction in progress |
|
597 |
|
583 |
|
||
|
|
26,117 |
|
26,102 |
|
||
Less: accumulated depreciation |
|
(7,569 |
) |
(7,569 |
) |
||
|
|
$ |
18,548 |
|
$ |
18,533 |
|
Projects under construction or development consisted of the following:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Land |
|
$ |
234,150 |
|
$ |
231,297 |
|
Construction in progress |
|
319,249 |
|
269,793 |
|
||
|
|
$ |
553,399 |
|
$ |
501,090 |
|
2010 Acquisitions
On June 28, 2010, we acquired a 152,000 square foot office property in McLean, Virginia for $40,000. The table below sets forth the allocation of the acquisition costs of this property:
Land, operating properties |
|
$ |
6,378 |
|
Building and improvements |
|
25,429 |
|
|
Intangible assets on real estate acquisitions |
|
8,193 |
|
|
Total acquisition cost |
|
$ |
40,000 |
|
Intangible assets recorded in connection with the above acquisition included the following:
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
Period |
|
|
|
|
|
|
(in Years) |
|
|
In-place lease value |
|
$ |
6,255 |
|
2 |
|
Tenant relationship value |
|
1,938 |
|
7 |
|
|
|
|
$ |
8,193 |
|
3 |
|
2010 Construction, Development and Redevelopment Activities
During the six months ended June 30, 2010, we had two newly constructed buildings totaling 236,000 square feet in Colorado Springs, Colorado become fully operational (49,000 of these square feet were placed into service in 2009) and placed into service 72,000 square feet in two partially operational properties (one in the Baltimore/Washington Corridor and one in Greater Baltimore).
As of June 30, 2010, we had construction underway on ten buildings totaling 1.2 million square feet (five in the Baltimore/Washington Corridor, three in San Antonio, Texas and two in Greater Baltimore) (including 117,000 square feet placed into service in partially operational properties). We also had development activities underway on twelve new buildings totaling 1.5 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, one in Northern Virginia and one in St. Marys & King George Counties). In addition, we had redevelopment underway on two properties totaling 576,000 square feet (one in the Baltimore/Washington Corridor and one in Greater Philadelphia).
5. Real Estate Joint Ventures
During the six months ended June 30, 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 |
|
|||||
June 30, |
|
December 31, |
|
Date |
|
|
|
Nature of |
|
Exposure |
|
|||
2010 |
|
2009 |
|
Acquired |
|
Ownership |
|
Activity |
|
to Loss (1) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
$ |
(5,351) |
(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 June 30, 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:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Properties, net |
|
$ |
62,120 |
|
$ |
62,990 |
|
Other assets |
|
4,354 |
|
5,148 |
|
||
Total assets |
|
$ |
66,474 |
|
$ |
68,138 |
|
|
|
|
|
|
|
||
Liabilities (primarily debt) |
|
$ |
67,266 |
|
$ |
67,611 |
|
Owners equity |
|
(792 |
) |
527 |
|
||
Total liabilities and owners equity |
|
$ |
66,474 |
|
$ |
68,138 |
|
The following table sets forth condensed statements of operations for this unconsolidated joint venture:
|
|
For
the Three Months |
|
For
the Six Months |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues |
|
$ |
2,089 |
|
$ |
2,313 |
|
$ |
4,189 |
|
$ |
4,733 |
|
Property operating expenses |
|
(832 |
) |
(836 |
) |
(1,826 |
) |
(1,671 |
) |
||||
Interest expense |
|
(966 |
) |
(993 |
) |
(1,947 |
) |
(1,974 |
) |
||||
Depreciation and amortization expense |
|
(857 |
) |
(803 |
) |
(1,735 |
) |
(1,602 |
) |
||||
Net loss |
|
$ |
(566 |
) |
$ |
(319 |
) |
$ |
(1,319 |
) |
$ |
(514 |
) |
The table below sets forth information pertaining to our investments in consolidated joint ventures at June 30, 2010:
|
|
|
|
Ownership |
|
|
|
June 30, 2010 (1) |
|
|||||||
|
|
Date |
|
% at |
|
Nature of |
|
Total |
|
Pledged |
|
Total |
|
|||
|
|
Acquired |
|
6/30/2010 |
|
Activity |
|
Assets |
|
Assets |
|
Liabilities |
|
|||
M Square Associates, LLC |
|
6/26/2007 |
|
45.0 |
% |
Operating two buildings and developing others (2) |
|
$ |
57,096 |
|
$ |
|
|
$ |
775 |
|
Arundel Preserve #5, LLC |
|
7/2/2007 |
|
50.0 |
% |
Operating one building (3) |
|
29,969 |
|
29,640 |
|
16,834 |
|
|||
LW Redstone Company, LLC |
|
3/23/2010 |
|
85.0 |
% |
Developing land parcel (4) |
|
12,405 |
|
|
|
109 |
|
|||
COPT-FD Indian Head, LLC |
|
10/23/2006 |
|
75.0 |
% |
Developing land parcel (5) |
|
7,408 |
|
|
|
|
|
|||
MOR Forbes 2 LLC |
|
12/24/2002 |
|
50.0 |
% |
Operating one building (6) |
|
3,906 |
|
|
|
73 |
|
|||
|
|
|
|
|
|
|
|
$ |
110,784 |
|
$ |
29,640 |
|
$ |
17,791 |
|
(1) Excludes amounts eliminated in consolidation.
(2) This joint ventures properties are in College Park, Maryland.
(3) This joint ventures property is in Hanover, Maryland (in the Baltimore/Washington Corridor).
(4) This joint ventures property is in Huntsville, Alabama.
(5) This joint ventures property is in Charles County, Maryland.
(6) This joint ventures property is in Lanham, Maryland (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 that 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.
6. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Equity method investment in unconsolidated entity |
|
$ |
14,646 |
|
$ |
9,461 |
|
Mortgage loans receivable (1) |
|
14,109 |
|
12,773 |
|
||
Furniture, fixtures and equipment, net |
|
12,142 |
|
12,633 |
|
||
Prepaid expenses |
|
9,026 |
|
19,769 |
|
||
Construction contract costs incurred in excess of billings |
|
4,744 |
|
19,556 |
|
||
Other assets |
|
11,261 |
|
9,614 |
|
||
Prepaid expenses and other assets |
|
$ |
65,928 |
|
$ |
83,806 |
|
(1) The fair value of our mortgage loans receivable totaled $15,904 at June 30, 2010 and $15,126 at December 31, 2009.
7. Debt
Our debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
Scheduled |
|
|||
|
|
Maximum |
|
Carrying Value at |
|
|
|
Maturity |
|
|||||
|
|
Availability at |
|
June 30, |
|
December 31, |
|
Stated Interest Rates |
|
Dates at |
|
|||
|
|
June 30, 2010 |
|
2010 |
|
2009 |
|
at June 30, 2010 |
|
June 30, 2010 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage and Other Secured Loans: |
|
|
|
|
|
|
|
|
|
|
|
|||
Fixed rate mortgage loans (1) |
|
N/A |
|
$ |
1,159,669 |
|
$ |
1,166,443 |
|
5.20% - 7.94% (2) |
|
2010 - 2034 (3) |
|
|
Revolving Construction Facility |
|
$ |
225,000 |
|
102,887 |
|
76,333 |
|
LIBOR + 1.60% to 2.00% (4) |
|
May 2, 2011 (5) |
|
||
Variable rate secured loans |
|
N/A |
|
270,892 |
|
271,146 |
|
LIBOR + 2.25% to 3.00% (6) |
|
2012-2014 (5) |
|
|||
Other construction loan facilities |
|
23,400 |
|
16,753 |
|
16,753 |
|
LIBOR + 2.75% (7) |
|
2011 (5) |
|
|||
Total mortgage and other secured loans |
|
|
|
1,550,201 |
|
1,530,675 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revolving Credit Facility |
|
700,000 |
|
250,000 |
|
365,000 |
|
LIBOR + 0.75% to 1.25% (8) |
|
September 30, 2011 (5) |
|
|||
Unsecured notes payable (9) |
|
N/A |
|
1,983 |
|
2,019 |
|
0.00% |
|
2026 |
|
|||
Exchangeable Senior Notes: |
|
|
|
|
|
|
|
|
|
|
|
|||
4.25% Exchangeable Senior Notes |
|
N/A |
|
222,204 |
|
|
|
4.25% |
|
April 2030 (10) |
|
|||
3.5% Exchangeable Senior Notes |
|
N/A |
|
157,987 |
|
156,147 |
|
3.50% |
|
September 2026 (11) |
|
|||
Total debt |
|
|
|
$ |
2,182,375 |
|
$ |
2,053,841 |
|
|
|
|
|
|
(1) |
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 $313 at June 30, 2010 and $371 at December 31, 2009. |
(2) |
The weighted average interest rate on these loans was 6.0% at June 30, 2010. |
(3) |
A loan with a balance of $4,616 at June 30, 2010 that matures in 2034 may be repaid in March 2014, subject to certain conditions. |
(4) |
The weighted average interest rate on this loan was 1.96% at June 30, 2010. |
(5) |
Includes amounts that may be extended for a one-year period at our option, subject to certain conditions. |
(6) |
The loans in this category at June 30, 2010 are subject to floor interest rates ranging from 4.25% to 5.5%. |
(7) |
The interest rate on this loan was 3.1% at June 30, 2010. |
(8) |
The weighted average interest rate on the Revolving Credit Facility was 1.45% at June 30, 2010. |
(9) |
The carrying value of these notes reflects unamortized discount totaling $1,178 at June 30, 2010 and $1,242 at December 31, 2009. |
(10) |
Refer to the paragraph below for descriptions of provisions for early redemption and repurchase of these notes. |
(11) |
As described further in our 2009 Annual Report on Form 10-K, these 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 19.049 shares per one thousand dollar principal amount of the notes (exchange rate is as of June 30, 2010 and is equivalent to an exchange price of $52.50 per common share). The carrying value of these notes included a principal amount of $162,500 and an unamortized discount totaling $4,513 at June 30, 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 |
|
For the Six Months |
|
||||||||
|
|
Ended June 30, |
|
Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Interest expense at stated interest rate |
|
$ |
1,422 |
|
$ |
1,422 |
|
$ |
2,844 |
|
$ |
2,844 |
|
Interest expense associated with amortization of discount |
|
927 |
|
874 |
|
1,840 |
|
1,734 |
|
||||
Total |
|
$ |
2,349 |
|
$ |
2,296 |
|
$ |
4,684 |
|
$ |
4,578 |
|
In April 2010, we increased the borrowing capacity under our Revolving Credit Facility by $100,000, from $600,000 to $700,000.
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 of beneficial interest (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 June 30, 2010 and is equivalent to an exchange price of $48.16 per common share) (the initial exchange rate of the notes was based on 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 was $221,401 and the equity component was $18,599. In addition, we recognized $450 of the financing fees incurred in relation to these notes in equity. The carrying value of these notes at June 30, 2010 included an unamortized discount totaling $17,796 at June 30, 2010. The effective interest rate on the liability component, including amortization of the issuance costs, is 6.05%. The table below sets forth interest expense recognized on these notes for the three and six months ended June 30, 2010 before deductions for amounts capitalized:
Interest expense at stated interest rate |
|
$ |
2,380 |
|
Interest expense associated with amortization of discount |
|
803 |
|
|
Total |
|
$ |
3,183 |
|
We capitalized interest costs of $4,208 in the three months ended June 30, 2010, $3,985 in the three months ended June 30, 2009, $8,144 in the six month ended June 30, 2010 and $8,484 in the six months ended June 30, 2009.
The following table sets forth information pertaining to the fair value of our debt:
|
|
June 30, 2010 |
|
December 31, 2009 |
|
||||||||
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
||||
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
||||
Fixed-rate debt |
|
$ |
1,541,843 |
|
$ |
1,509,836 |
|
$ |
1,324,609 |
|
$ |
1,252,126 |
|
Variable-rate debt |
|
640,532 |
|
629,145 |
|
729,232 |
|
704,508 |
|
||||
|
|
$ |
2,182,375 |
|
$ |
2,138,981 |
|
$ |
2,053,841 |
|
$ |
1,956,634 |
|
8. Interest Rate Derivatives
The following table sets forth the key terms and fair values of our interest rate derivatives at June 30, 2010 and December 31, 2009, all of which are interest rate swaps:
|
|
|
|
|
|
|
|
Fair Value at |
|
|||||
Notional |
|
One-Month |
|
Effective |
|
Expiration |
|
June 30, |
|
December 31, |
|
|||
Amount |
|
LIBOR base |
|
Date |
|
Date |
|
2010 |
|
2009 |
|
|||
$ |
100,000 |
|
1.9750 |
% |
1/1/2010 |
|
5/1/2012 |
|
$ |
(2,158 |
) |
$ |
(1,068 |
) |
120,000 |
|
1.7600 |
% |
1/2/2009 |
|
5/1/2012 |
|
(2,126 |
) |
(669 |
) |
|||
|
|
|
|
|
|
|
|
$ |
(4,284 |
) |
$ |
(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 June 30, 2010 and December 31, 2009:
Derivatives Designated as |
|
June 30, 2010 |
|
December 31, 2009 |
|
||||||
Hedging Instruments |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
|
||
Interest rate swaps |
|
Other liabilities |
|
$ |
(4,284 |
) |
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 and six months ended June 30, 2010 and 2009:
|
|
For the Three Months |
|
For the Six Months |
|
||||||||
|
|
Ended June 30, |
|
Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Amount of (loss) gain recognized in AOCL (effective portion) |
|
$ |
(1,929 |
) |
$ |
1,658 |
|
$ |
(4,314 |
) |
$ |
277 |
|
Amount of loss reclassified from AOCL into interest expense (effective portion) |
|
(886 |
) |
(1,647 |
) |
(1,797 |
) |
(3,946 |
) |
||||
Amount of gain (loss) recognized in interest expense (ineffective portion and amount excluded from effectiveness testing) |
|
|
|
51 |
|
|
|
(228 |
) |
||||
Over the next 12 months, we estimate that approximately $2,921 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 could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of June 30, 2010, the fair value of interest rate derivatives in a liability position related to these agreements was $4,284, excluding the effects of accrued interest. As of June 30, 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 could be required to settle our obligations under the agreements at their termination value of $4,706.
9. Shareholders Equity
Common Shares
During the six months ended June 30, 2010, we converted 610,598 common units in our Operating Partnership into common shares on the basis of one common share for each common unit.
See Note 11 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 June 30, 2010, $0.3725 in the three months ended June 30, 2010, $0.785 in the six months ended June 30, 2010 and $0.745 in the six months ended June 30, 2009.
Accumulated Other Comprehensive Loss
The table below sets forth activity in the accumulated other comprehensive loss component of shareholders equity:
|
|
For
the Six Months Ended |
|
||||
|
|
2010 |
|
2009 |
|
||
Beginning balance |
|
$ |
(1,907 |
) |
$ |
(4,749 |
) |
Amount of (loss) gain recognized in AOCL (effective portion) |
|
(4,314 |
) |
277 |
|
||
Amount of loss reclassified from AOCL to income (effective portion) |
|
1,797 |
|
3,946 |
|
||
Adjustment to AOCL attributable to noncontrolling interests |
|
161 |
|
(650 |
) |
||
Ending balance |
|
$ |
(4,263 |
) |
$ |
(1,176 |
) |
The table below sets forth total comprehensive income and total comprehensive income attributable to COPT:
|
|
For the Three Months |
|
For the Six Months |
|
||||||||
|
|
Ended June 30, |
|
Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Net income |
|
$ |
9,151 |
|
$ |
18,051 |
|
$ |
19,826 |
|
$ |
36,217 |
|
Amount of (loss) gain recognized in AOCL |
|
(1,929 |
) |
1,658 |
|
(4,314 |
) |
277 |
|
||||
Amount of loss reclassified from AOCL to income |
|
886 |
|
1,647 |
|
1,797 |
|
3,946 |
|
||||
Total comprehensive income |
|
8,108 |
|
21,356 |
|
17,309 |
|
40,440 |
|
||||
Net income attributable to noncontrolling interests |
|
(685 |
) |
(1,412 |
) |
(1,422 |
) |
(3,431 |
) |
||||
Other comprehensive loss (income) attributable to noncontrolling interests |
|
77 |
|
(300 |
) |
198 |
|
(416 |
) |
||||
Total comprehensive income attributable to COPT |
|
$ |
7,500 |
|
$ |
19,644 |
|
$ |
16,085 |
|
$ |
36,593 |
|
10. Information by Business Segment
As of June 30, 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 |
|
Total |
|
||||||||||
Three Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues from real estate operations |
|
$ |
50,623 |
|
$ |
18,172 |
|
$ |
16,827 |
|
$ |
6,154 |
|
$ |
5,452 |
|
$ |
4,228 |
|
$ |
1,510 |
|
$ |
3,530 |
|
$ |
3,495 |
|
$ |
109,991 |
|
Property operating expenses |
|
16,853 |
|
6,706 |
|
7,311 |
|
2,239 |
|
2,199 |
|
2,100 |
|
800 |
|
1,041 |
|
895 |
|
40,144 |
|
||||||||||
NOI from real estate operations |
|
$ |
33,770 |
|
$ |
11,466 |
|
$ |
9,516 |
|
$ |
3,915 |
|
$ |
3,253 |
|
$ |
2,128 |
|
$ |
710 |
|
$ |
2,489 |
|
$ |
2,600 |
|
$ |
69,847 |
|
Additions to properties, net |
|
$ |
32,257 |
|
$ |
32,684 |
|
$ |
7,919 |
|
$ |
700 |
|
$ |
540 |
|
$ |
5,559 |
|
$ |
6,273 |
|
$ |
132 |
|
$ |
1,311 |
|
$ |
87,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Three Months Ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues from real estate operations |
|
$ |
48,941 |
|
$ |
18,950 |
|
$ |
13,746 |
|
$ |
5,797 |
|
$ |
5,164 |
|
$ |
3,547 |
|
$ |
2,507 |
|
$ |
3,467 |
|
$ |
3,599 |
|
$ |
105,718 |
|
Property operating expenses |
|
17,447 |
|
7,435 |
|
5,881 |
|
1,726 |
|
2,036 |
|
961 |
|
(17 |
) |
803 |
|
890 |
|
37,162 |
|
||||||||||
NOI from real estate operations |
|
$ |
31,494 |
|
$ |
11,515 |
|
$ |
7,865 |
|
$ |
4,071 |
|
$ |
3,128 |
|
$ |
2,586 |
|
$ |
2,524 |
|
$ |
2,664 |
|
$ |
2,709 |
|
$ |
68,556 |
|
Additions to properties, net |