Table of Contents

 

 

 

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)

 

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

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes o No

 

Indicate by check mark whether the registrant 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 Company’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

PAGE

PART I: FINANCIAL INFORMATION

 

 

 

Item 1:

Financial Statements:

 

 

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 (unaudited)

3

 

Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 (unaudited)

4

 

Consolidated Statements of Equity for the three and six months ended June 30, 2010 and 2009 (unaudited)

5

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)

6

 

Notes to Consolidated Financial Statements (unaudited)

7

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4:

Controls and Procedures

39

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

Item 1:

Legal Proceedings

39

Item 1A:

Risk Factors

39

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3:

Defaults Upon Senior Securities

40

Item 4:

Removed and Reserved

40

Item 5:

Other Information

40

Item 6:

Exhibits

41

 

 

SIGNATURES

43

 

2



Table of Contents

 

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(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 Trust’s 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 Trust’s 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.

 

3



Table of Contents

 

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.

 

4



Table of Contents

 

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)

 

 

 

Preferred
Shares

 

Common
Shares

 

Additional
Paid-in
Capital

 

Cumulative
Distributions in
Excess of Net
Income

 

Accumulated
Other
Comprehensive
Loss

 

Noncontrolling
Interests

 

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.

 

5



Table of Contents

 

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.

 

6



Table of Contents

 

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 Partnership’s 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 Partnership’s 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 entity’s operations but cannot control the entity’s operations.  We use the cost method of accounting when we own an interest in an entity and cannot exert significant influence over its operations.

 

7



Table of Contents

 

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 enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s 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

 

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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

 

 

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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. Mary’s & 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.

 

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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
Ended June 30,

 

For the Six Months
Ended June 30,

 

 

 

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 venture’s properties are in College Park, Maryland.

(3) This joint venture’s property is in Hanover, Maryland (in the Baltimore/Washington Corridor).

(4) This joint venture’s property is in Huntsville, Alabama.

(5) This joint venture’s property is in Charles County, Maryland.

(6) This joint venture’s 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.

 

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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 venture’s 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.

 

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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 Partnership’s 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

 

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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 Partnership’s 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

)

 

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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
June 30,

 

 

 

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

)

 

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Table of Contents

 

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

 

 

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Table of Contents

 

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. Mary’s 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 REIT’s operating real estate because it provides a measure of the core operations that is unaffected by depreciation, amortization, financing and general and administrative expenses; this measure is particularly useful in our opinion in evaluating the performance of geographic segments, same-office property groupings and individual properties.

 

 

 

Baltimore/
Washington
Corridor

 

Northern
Virginia

 

Greater
Baltimore

 

Colorado
Springs

 

Suburban
Maryland

 

San Antonio

 

Greater
Philadelphia

 

St. Mary’s &
King George
Counties

 

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