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 March 31, 2011
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 |
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Non-accelerated filer o |
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Smaller reporting company o |
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|
|
|
(Do not check if a smaller |
|
|
|
|
|
|
reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes x No
As of April 18, 2011, 67,104,034 of the Companys Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.
FORM 10-Q
Corporate Office Properties Trust and Subsidiaries
(Dollars in thousands)
(unaudited)
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Assets |
|
|
|
|
| ||
Properties, net: |
|
|
|
|
| ||
Operating properties, net |
|
$ |
2,819,096 |
|
$ |
2,802,773 |
|
Properties under construction or development |
|
649,675 |
|
642,682 |
| ||
Total properties, net |
|
3,468,771 |
|
3,445,455 |
| ||
Cash and cash equivalents |
|
12,606 |
|
10,102 |
| ||
Restricted cash and marketable securities |
|
24,094 |
|
22,582 |
| ||
Accounts receivable (net of allowance for doubtful accounts of $2,752 and $2,796, respectively) |
|
19,765 |
|
18,938 |
| ||
Deferred rent receivable |
|
82,901 |
|
79,160 |
| ||
Intangible assets on real estate acquisitions, net |
|
106,444 |
|
113,735 |
| ||
Deferred leasing and financing costs, net |
|
60,479 |
|
60,649 |
| ||
Prepaid expenses and other assets |
|
90,749 |
|
93,896 |
| ||
Total assets |
|
$ |
3,865,809 |
|
$ |
3,844,517 |
|
|
|
|
|
|
| ||
Liabilities and equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Debt, net |
|
$ |
2,396,795 |
|
$ |
2,323,681 |
|
Accounts payable and accrued expenses |
|
103,043 |
|
99,699 |
| ||
Rents received in advance and security deposits |
|
29,427 |
|
31,603 |
| ||
Dividends and distributions payable |
|
33,048 |
|
32,986 |
| ||
Deferred revenue associated with operating leases |
|
13,897 |
|
14,802 |
| ||
Distributions received in excess of investment in unconsolidated real estate joint venture |
|
5,686 |
|
5,545 |
| ||
Other liabilities |
|
12,255 |
|
13,063 |
| ||
Total liabilities |
|
2,594,151 |
|
2,521,379 |
| ||
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 shares issued and outstanding at March 31, 2011 and December 31, 2010) |
|
81 |
|
81 |
| ||
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 67,103,918 at March 31, 2011 and 66,931,582 at December 31, 2010) |
|
671 |
|
669 |
| ||
Additional paid-in capital |
|
1,511,638 |
|
1,511,844 |
| ||
Cumulative distributions in excess of net income |
|
(331,313 |
) |
(281,794 |
) | ||
Accumulated other comprehensive loss |
|
(3,197 |
) |
(4,163 |
) | ||
Total Corporate Office Properties Trusts shareholders equity |
|
1,177,880 |
|
1,226,637 |
| ||
Noncontrolling interests in subsidiaries: |
|
|
|
|
| ||
Common units in the Operating Partnership |
|
66,016 |
|
69,337 |
| ||
Preferred units in the Operating Partnership |
|
8,800 |
|
8,800 |
| ||
Other consolidated entities |
|
18,962 |
|
18,364 |
| ||
Noncontrolling interests in subsidiaries |
|
93,778 |
|
96,501 |
| ||
Total equity |
|
1,271,658 |
|
1,323,138 |
| ||
Total liabilities and equity |
|
$ |
3,865,809 |
|
$ |
3,844,517 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Revenues |
|
|
|
|
| ||
Rental revenue |
|
$ |
99,426 |
|
$ |
91,010 |
|
Tenant recoveries and other real estate operations revenue |
|
22,941 |
|
21,218 |
| ||
Construction contract and other service revenues |
|
21,028 |
|
37,365 |
| ||
Total revenues |
|
143,395 |
|
149,593 |
| ||
Expenses |
|
|
|
|
| ||
Property operating expenses |
|
50,905 |
|
48,135 |
| ||
Depreciation and amortization associated with real estate operations |
|
33,020 |
|
27,596 |
| ||
Construction contract and other service expenses |
|
20,618 |
|
36,399 |
| ||
Impairment loss |
|
27,742 |
|
|
| ||
General and administrative expenses |
|
6,777 |
|
5,900 |
| ||
Business development expenses |
|
488 |
|
155 |
| ||
Total operating expenses |
|
139,550 |
|
118,185 |
| ||
Operating income |
|
3,845 |
|
31,408 |
| ||
Interest expense |
|
(26,928 |
) |
(22,638 |
) | ||
Interest and other income |
|
1,168 |
|
1,302 |
| ||
(Loss) income from continuing operations before equity in income (loss) of unconsolidated entities and income taxes |
|
(21,915 |
) |
10,072 |
| ||
Equity in income (loss) of unconsolidated entities |
|
30 |
|
(205 |
) | ||
Income tax benefit (expense) |
|
544 |
|
(41 |
) | ||
(Loss) income from continuing operations |
|
(21,341 |
) |
9,826 |
| ||
Discontinued operations |
|
74 |
|
832 |
| ||
(Loss) income before gain on sales of real estate |
|
(21,267 |
) |
10,658 |
| ||
Gain on sales of real estate, net of income taxes |
|
2,701 |
|
17 |
| ||
Net (loss) income |
|
(18,566 |
) |
10,675 |
| ||
Less net (loss) income attributable to noncontrolling interests: |
|
|
|
|
| ||
Common units in the Operating Partnership |
|
1,479 |
|
(527 |
) | ||
Preferred units in the Operating Partnership |
|
(165 |
) |
(165 |
) | ||
Other consolidated entities |
|
(538 |
) |
(45 |
) | ||
Net (loss) income attributable to Corporate Office Properties Trust |
|
(17,790 |
) |
9,938 |
| ||
Preferred share dividends |
|
(4,025 |
) |
(4,025 |
) | ||
Net (loss) income attributable to Corporate Office Properties Trust common shareholders |
|
$ |
(21,815 |
) |
$ |
5,913 |
|
Net (loss) income attributable to Corporate Office Properties Trust: |
|
|
|
|
| ||
(Loss) income from continuing operations |
|
$ |
(17,859 |
) |
$ |
9,174 |
|
Discontinued operations, net |
|
69 |
|
764 |
| ||
Net (loss) income attributable to Corporate Office Properties Trust |
|
$ |
(17,790 |
) |
$ |
9,938 |
|
Basic earnings per common share (1) |
|
|
|
|
| ||
(Loss) income from continuing operations |
|
$ |
(0.33 |
) |
$ |
0.08 |
|
Discontinued operations |
|
|
|
0.02 |
| ||
Net (loss) income attributable to COPT common shareholders |
|
$ |
(0.33 |
) |
$ |
0.10 |
|
Diluted earnings per common share (1) |
|
|
|
|
| ||
(Loss) income from continuing operations |
|
$ |
(0.33 |
) |
$ |
0.08 |
|
Discontinued operations |
|
|
|
0.02 |
| ||
Net (loss) income attributable to COPT common shareholders |
|
$ |
(0.33 |
) |
$ |
0.10 |
|
(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
|
|
Preferred |
|
Common |
|
Additional |
|
Cumulative |
|
Accumulated |
|
Noncontrolling |
|
Total |
| |||||||
Balance at December 31, 2009 (58,342,673 common shares outstanding) |
|
$ |
81 |
|
$ |
583 |
|
$ |
1,238,704 |
|
$ |
(209,941 |
) |
$ |
(1,907 |
) |
$ |
93,112 |
|
$ |
1,120,632 |
|
Conversion of common units to common shares (309,497 shares) |
|
|
|
3 |
|
4,512 |
|
|
|
|
|
(4,515 |
) |
|
| |||||||
Costs associated with common shares issued to the public |
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) | |||||||
Exercise of share options (128,461 shares) |
|
|
|
1 |
|
2,055 |
|
|
|
|
|
|
|
2,056 |
| |||||||
Share-based compensation |
|
|
|
2 |
|
2,609 |
|
|
|
|
|
|
|
2,611 |
| |||||||
Restricted common share redemptions (96,970 shares) |
|
|
|
|
|
(3,610 |
) |
|
|
|
|
|
|
(3,610 |
) | |||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(180 |
) |
|
|
|
|
180 |
|
|
| |||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
(1,371 |
) |
(103 |
) |
(1,474 |
) | |||||||
Net income |
|
|
|
|
|
|
|
9,938 |
|
|
|
737 |
|
10,675 |
| |||||||
Dividends |
|
|
|
|
|
|
|
(27,186 |
) |
|
|
|
|
(27,186 |
) | |||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(2,032 |
) |
(2,032 |
) | |||||||
Contributions from noncontrolling interests in other consolidated entities |
|
|
|
|
|
|
|
|
|
|
|
9,247 |
|
9,247 |
| |||||||
Acquisition of noncontrolling interests in other consolidated entities |
|
|
|
|
|
(26 |
) |
|
|
|
|
(336 |
) |
(362 |
) | |||||||
Balance at March 31, 2010 (58,927,117 common shares outstanding) |
|
$ |
81 |
|
$ |
589 |
|
$ |
1,244,046 |
|
$ |
(227,189 |
) |
$ |
(3,278 |
) |
$ |
96,290 |
|
$ |
1,110,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at December 31, 2010 (66,931,582 common shares outstanding) |
|
$ |
81 |
|
$ |
669 |
|
$ |
1,511,844 |
|
$ |
(281,794 |
) |
$ |
(4,163 |
) |
$ |
96,501 |
|
$ |
1,323,138 |
|
Conversion of common units to common shares (16,725 shares) |
|
|
|
|
|
263 |
|
|
|
|
|
(263 |
) |
|
| |||||||
Costs associated with common shares issued to the public |
|
|
|
|
|
(117 |
) |
|
|
|
|
|
|
(117 |
) | |||||||
Exercise of share options (24,667 shares) |
|
|
|
|
|
346 |
|
|
|
|
|
|
|
346 |
| |||||||
Share-based compensation |
|
|
|
2 |
|
3,201 |
|
|
|
|
|
|
|
3,203 |
| |||||||
Restricted common share redemptions (104,592 shares) |
|
|
|
|
|
(3,713 |
) |
|
|
|
|
|
|
(3,713 |
) | |||||||
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
|
|
|
|
(163 |
) |
|
|
|
|
163 |
|
|
| |||||||
Adjustments related to derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
966 |
|
2 |
|
968 |
| |||||||
Net loss |
|
|
|
|
|
|
|
(17,790 |
) |
|
|
(776 |
) |
(18,566 |
) | |||||||
Dividends |
|
|
|
|
|
|
|
(31,729 |
) |
|
|
|
|
(31,729 |
) | |||||||
Distributions to owners of common and preferred units in the Operating Partnership |
|
|
|
|
|
|
|
|
|
|
|
(1,974 |
) |
(1,974 |
) | |||||||
Contributions from noncontrolling interests in other consolidated entities |
|
|
|
|
|
(23 |
) |
|
|
|
|
125 |
|
102 |
| |||||||
Balance at March 31, 2011 (67,103,918 common shares outstanding) |
|
$ |
81 |
|
$ |
671 |
|
$ |
1,511,638 |
|
$ |
(331,313 |
) |
$ |
(3,197 |
) |
$ |
93,778 |
|
$ |
1,271,658 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
|
For the Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Revenues from real estate operations received |
|
$ |
114,303 |
|
$ |
112,328 |
|
Construction contract and other service revenues received |
|
21,405 |
|
54,915 |
| ||
Property operating expenses paid |
|
(45,267 |
) |
(46,733 |
) | ||
Construction contract and other service expenses paid |
|
(28,315 |
) |
(55,834 |
) | ||
General and administrative and business development expenses paid |
|
(6,860 |
) |
(7,565 |
) | ||
Interest expense paid |
|
(22,252 |
) |
(21,844 |
) | ||
Interest and other income received |
|
108 |
|
466 |
| ||
Income taxes paid |
|
(170 |
) |
|
| ||
Net cash provided by operating activities |
|
32,952 |
|
35,733 |
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Purchases of and additions to properties |
|
|
|
|
| ||
Construction, development and redevelopment |
|
(46,676 |
) |
(44,032 |
) | ||
Tenant improvements on operating properties |
|
(8,778 |
) |
(2,971 |
) | ||
Capital improvements on operating properties |
|
(4,064 |
) |
(2,735 |
) | ||
Proceeds from sales of properties |
|
3,149 |
|
2,952 |
| ||
Mortgage and other loan receivables funded or acquired |
|
(1,181 |
) |
(321 |
) | ||
Leasing costs paid |
|
(2,894 |
) |
(3,038 |
) | ||
Investment in unconsolidated entities |
|
(250 |
) |
(4,500 |
) | ||
Other |
|
(670 |
) |
(707 |
) | ||
Net cash used in investing activities |
|
(61,364 |
) |
(55,352 |
) | ||
Cash flows from financing activities |
|
|
|
|
| ||
Proceeds from debt, including issuance of exchangeable senior notes |
|
97,273 |
|
135,892 |
| ||
Repayments of debt |
|
|
|
|
| ||
Scheduled principal amortization |
|
(3,798 |
) |
(3,469 |
) | ||
Other repayments |
|
(25,050 |
) |
(80,050 |
) | ||
Net proceeds from issuance of common shares |
|
(117 |
) |
2,038 |
| ||
Dividends paid |
|
(31,664 |
) |
(26,948 |
) | ||
Distributions paid |
|
(1,981 |
) |
(2,154 |
) | ||
Restricted share redemptions |
|
(3,713 |
) |
(3,610 |
) | ||
Other |
|
(34 |
) |
(162 |
) | ||
Net cash provided by financing activities |
|
30,916 |
|
21,537 |
| ||
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
|
2,504 |
|
1,918 |
| ||
Cash and cash equivalents |
|
|
|
|
| ||
Beginning of period |
|
10,102 |
|
8,262 |
| ||
End of period |
|
$ |
12,606 |
|
$ |
10,180 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
|
For the Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Reconciliation of net (loss) income to net cash provided by operating activities: |
|
|
|
|
| ||
Net (loss) income |
|
$ |
(18,566 |
) |
$ |
10,675 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and other amortization |
|
33,645 |
|
28,253 |
| ||
Impairment loss |
|
27,742 |
|
|
| ||
Amortization of deferred financing costs |
|
1,759 |
|
1,126 |
| ||
Increase in deferred rent receivable |
|
(4,240 |
) |
(2,555 |
) | ||
Amortization of above or below market leases |
|
(207 |
) |
(607 |
) | ||
Amortization of net debt discounts |
|
1,649 |
|
917 |
| ||
Gain on sales of real estate |
|
(2,701 |
) |
(325 |
) | ||
Share-based compensation |
|
2,917 |
|
2,611 |
| ||
Other |
|
(719 |
) |
(329 |
) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
(Increase) decrease in accounts receivable |
|
(827 |
) |
3,274 |
| ||
Decrease in restricted cash and marketable securities and prepaid expenses and other assets |
|
4,701 |
|
16,870 |
| ||
Decrease in accounts payable, accrued expenses and other liabilities |
|
(10,025 |
) |
(24,575 |
) | ||
(Decrease) increase in rents received in advance and security deposits |
|
(2,176 |
) |
398 |
| ||
Net cash provided by operating activities |
|
32,952 |
|
35,733 |
| ||
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
| ||
Increase (decrease) in accrued capital improvements, leasing and other investing activity costs |
|
$ |
13,171 |
|
$ |
(1,313 |
) |
Increase in property and debt in connection with loan assumption |
|
$ |
3,040 |
|
$ |
|
|
Increase in property and noncontrolling interests in connection with property contribution by a noncontrolling interest in a joint venture |
|
$ |
|
|
$ |
9,000 |
|
Increase in fair value of derivatives applied to AOCL and noncontrolling interests |
|
$ |
662 |
|
$ |
1,490 |
|
Dividends/distribution payable |
|
$ |
33,048 |
|
$ |
28,556 |
|
Decrease in noncontrolling interests and increase in shareholders equity in connection with the conversion of common units into common shares |
|
$ |
263 |
|
$ |
4,515 |
|
Adjustments to noncontrolling interests resulting from changes in ownership of Operating Partnership by COPT |
|
$ |
163 |
|
$ |
180 |
|
See accompanying notes to consolidated financial statements.
Corporate Office Properties Trust and Subsidiaries
Notes to Consolidated Financial Statements
(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 and defense information technology sectors and data centers serving such sectors. We acquire, develop, manage and lease office and data center properties that are typically concentrated in large office parks primarily located adjacent to government demand drivers and/or in strong markets that we believe possess growth opportunities. As of March 31, 2011, our investments in real estate included the following:
· 252 wholly owned operating office properties totaling 20.2 million square feet;
· 20 wholly owned office properties under construction, development or redevelopment that we estimate will total approximately 2.9 million square feet upon completion, including four partially operational properties included above;
· wholly owned land parcels totaling 1,496 acres that we believe are potentially developable into approximately 14.3 million square feet;
· a wholly owned, partially operational, wholesale data center which upon completion is expected to have an initial stabilization critical load of 18 megawatts; and
· partial ownership interests in a number of other real estate projects in operations, under construction or 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), of which we are the managing general partner. The Operating Partnership owns real estate both directly and through subsidiary partnerships and limited liability companies (LLCs). A summary of our Operating Partnerships forms of ownership and the percentage of those ownership forms owned by COPT as of March 31, 2011 follows:
Common Units |
|
94 |
% |
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 5% of the Operating Partnerships common units (common units) as of March 31, 2011.
In addition to owning 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, 2010 included in our 2010 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 2010 Annual Report on Form 10-K.
3. Fair Value Measurements
For a description on how we estimate fair value, see Note 3 to the consolidated financial statements in our 2010 Annual Report on 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 March 31, 2011 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
|
| ||||
|
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
| ||||
Description |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Marketable securities in deferred compensation plan (1) |
|
|
|
|
|
|
|
|
| ||||
Mutual funds |
|
$ |
6,248 |
|
$ |
|
|
$ |
|
|
$ |
6,248 |
|
Common stocks |
|
1,141 |
|
|
|
|
|
1,141 |
| ||||
Preferred stocks |
|
322 |
|
|
|
|
|
322 |
| ||||
Cash and cash equivalents |
|
431 |
|
|
|
|
|
431 |
| ||||
Other |
|
200 |
|
|
|
|
|
200 |
| ||||
Common stock (1) |
|
801 |
|
|
|
|
|
801 |
| ||||
Interest rate derivative (2) |
|
|
|
935 |
|
|
|
935 |
| ||||
Warrants to purchase common shares in KEYW (2) |
|
|
|
337 |
|
|
|
337 |
| ||||
Assets |
|
$ |
9,143 |
|
$ |
1,272 |
|
$ |
|
|
$ |
10,415 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Deferred compensation plan liability (3) |
|
$ |
8,342 |
|
$ |
|
|
$ |
|
|
$ |
8,342 |
|
Interest rate derivatives (3) |
|
|
|
3,564 |
|
|
|
3,564 |
| ||||
Liabilities |
|
$ |
8,342 |
|
$ |
3,564 |
|
$ |
|
|
$ |
11,906 |
|
(1) Included in the line entitled restricted cash and marketable securities on our consolidated balance sheet.
(2) Included in the line entitled prepaid expenses and other assets on our consolidated balance sheet. We own warrants to purchase common shares in The KEYW Holding Corporation (KEYW), an equity method investee (see Note 6).
(3) 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, please refer to Note 6 for mortgage loans receivable, Note 7 for debt and Note 8 for interest rate derivatives.
4. Properties, net
Operating properties, net consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Land |
|
$ |
502,048 |
|
$ |
501,210 |
|
Buildings and improvements |
|
2,843,873 |
|
2,804,595 |
| ||
|
|
3,345,921 |
|
3,305,805 |
| ||
Less: accumulated depreciation |
|
(526,825 |
) |
(503,032 |
) | ||
|
|
$ |
2,819,096 |
|
$ |
2,802,773 |
|
Properties under construction or development consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Land |
|
$ |
253,505 |
|
$ |
256,487 |
|
Construction in progress, excluding land |
|
396,170 |
|
386,195 |
| ||
|
|
$ |
649,675 |
|
$ |
642,682 |
|
As discussed further in Note 15, on February 15 and 17, 2011, the United States Army (the Army) provided us disclosures regarding the past testing and use of tactical defoliants/herbicides at our property in Cascade, Maryland that was formerly an Army base known as Fort Ritchie (Fort Ritchie). Upon receipt of these disclosures, we commenced a review of our development plans and prospects for the property. We believe that these disclosures by the Army are likely to cause further delays in the resolution of certain existing litigation related to the property (also discussed in Note 15), and that they also increase the level of uncertainty as to our ultimate development rights at the property and future residential and commercial demand for the property. We analyzed various possible outcomes and resulting cash flows expected from the operations and ultimate disposition of the property. After determining that the carrying amount of the property will not likely be recovered from those cash flows, we recognized a non-cash impairment loss of $27.7 million in the three months ended March 31, 2011 for the amount by which the carrying value of the property exceeded its estimated fair value.
2011 Construction, Development and Redevelopment Activities
During the three months ended March 31, 2011, we had one newly constructed office property in the Baltimore/Washington Corridor totaling 151,000 square feet become fully operational (31,000 of these square feet were placed into service in 2010) and placed into service 6,000 square feet in one partially operational office property.
As of March 31, 2011, we had construction underway on 11 office properties totaling 1.2 million square feet, including four in the Baltimore/Washington Corridor, three in Greater Baltimore, one in San Antonio, one in Northern Virginia, one in Huntsville, Alabama and one in St. Marys and King George Counties. We also had development activities underway on seven office properties totaling 991,000 square feet, including three in the Baltimore/Washington Corridor, two in San Antonio, one in Huntsville and one in Greater Baltimore. In addition, we had redevelopment underway on four office properties totaling 868,000 square feet, including two in Greater Philadelphia, one in the Baltimore/Washington Corridor and one in Northern Virginia.
5. Real Estate Joint Ventures
During the three months ended March 31, 2011, 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 (in thousands):
Investment Balance at (1) |
|
|
|
|
|
|
|
Maximum | |||||
March 31, |
|
December 31, |
|
Date |
|
|
|
Nature of |
|
Exposure | |||
2011 |
|
2010 |
|
Acquired |
|
Ownership |
|
Activity |
|
to Loss (2) | |||
|
|
|
|
|
|
|
|
|
|
| |||
$ |
(5,686) |
|
$ |
(5,545) |
|
9/29/2005 |
|
20% |
|
Operates 16 buildings |
|
$ |
|
(1) The carrying amount of our investment in this joint venture was lower than our share of the equity in the joint venture by $5.2 million at March 31, 2011 and December 31, 2010 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.
(2) 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).
The following table sets forth condensed balance sheets for this unconsolidated real estate joint venture (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Properties, net |
|
$ |
61,101 |
|
$ |
61,521 |
|
Other assets |
|
4,060 |
|
4,174 |
| ||
Total assets |
|
$ |
65,161 |
|
$ |
65,695 |
|
|
|
|
|
|
| ||
Liabilities (primarily debt) |
|
$ |
67,626 |
|
$ |
67,454 |
|
Owners equity |
|
(2,465 |
) |
(1,759 |
) | ||
Total liabilities and owners equity |
|
$ |
65,161 |
|
$ |
65,695 |
|
The following table sets forth condensed statements of operations for this unconsolidated real estate joint venture (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Revenues |
|
$ |
1,924 |
|
$ |
2,100 |
|
Property operating expenses |
|
(986 |
) |
(994 |
) | ||
Interest expense |
|
(1,011 |
) |
(981 |
) | ||
Depreciation and amortization expense |
|
(608 |
) |
(878 |
) | ||
Net loss |
|
$ |
(681 |
) |
$ |
(753 |
) |
The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at March 31, 2011 (dollars in thousands):
|
|
|
|
Ownership |
|
|
|
March 31, 2011 (1) |
| |||||||
|
|
Date |
|
% at |
|
Nature of |
|
Total |
|
Pledged |
|
Total |
| |||
|
|
Acquired |
|
3/31/2011 |
|
Activity |
|
Assets |
|
Assets |
|
Liabilities |
| |||
M Square Associates, LLC |
|
6/26/2007 |
|
50.0% |
|
Operating two buildings and developing others (2) |
|
$ |
60,458 |
|
$ |
49,042 |
|
$ |
44,319 |
|
Arundel Preserve #5, LLC |
|
7/2/2007 |
|
50.0% |
|
Operating one building (3) |
|
29,521 |
|
28,735 |
|
16,815 |
| |||
LW Redstone Company, LLC |
|
3/23/2010 |
|
85.0% |
|
Developing land parcel (4) |
|
21,070 |
|
|
|
46 |
| |||
COPT-FD Indian Head, LLC |
|
10/23/2006 |
|
75.0% |
|
Developing land parcel (5) |
|
7,486 |
|
|
|
17 |
| |||
MOR Forbes 2 LLC |
|
12/24/2002 |
|
50.0% |
|
Operating one building (6) |
|
4,003 |
|
|
|
60 |
| |||
|
|
|
|
|
|
|
|
$ |
122,538 |
|
$ |
77,777 |
|
$ |
61,257 |
|
(1) Excludes amounts eliminated in consolidation.
(2) This joint ventures properties are in College Park, Maryland (in the Suburban Maryland region).
(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).
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 (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Investment in KEYW |
|
$ |
23,019 |
|
$ |
22,779 |
|
Mortgage and other investing receivables |
|
20,573 |
|
18,870 |
| ||
Prepaid expenses |
|
14,823 |
|
19,995 |
| ||
Furniture, fixtures and equipment, net |
|
11,120 |
|
11,504 |
| ||
Construction contract costs incurred in excess of billings |
|
8,247 |
|
9,372 |
| ||
Other assets |
|
12,967 |
|
11,376 |
| ||
Prepaid expenses and other assets |
|
$ |
90,749 |
|
$ |
93,896 |
|
Investment in The KEYW Holding Corporation
Our investment in KEYW reflected above consists of common stock and warrants to purchase additional shares of common stock of KEYW. At March 31, 2011 and December 31, 2010, we owned 3.1 million shares, or approximately 12%, of KEYWs common stock. We use the equity method of accounting for our investment in the common stock. The carrying value of our equity method investment in these common shares was $22.7 million at March 31, 2011 and $22.3 million at December 31, 2010. Our investment in these common shares had a fair value of $37.7 million at March 31, 2011 based on the closing price of KEYWs common stock on the NASDAQ Stock Market on that date. In March 2011, we entered into a sales plan, which complies with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, to sell up to 1.6 million shares of our KEYW common stock in 2011.
At March 31, 2011 and December 31, 2010, we owned warrants to purchase 50,000 additional shares of KEYW common stock at an exercise price of $9.25 per share. We account for these warrants as derivatives reported at fair value using the Black-Scholes option-pricing model. The estimated fair value of these warrants was $337,000, or $6.74 per warrant, at March 31, 2011 and $466,000, or $9.32 per warrant, at December 31, 2010.
Mortgage and Other Investing Receivables
Mortgage and other investing receivables consisted of the following (in thousands):
|
|
March 31, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
Mortgage loans receivable |
|
$ |
14,822 |
|
$ |
14,227 |
|
Note receivable from City of Huntsville |
|
5,751 |
|
4,643 |
| ||
|
|
$ |
20,573 |
|
$ |
18,870 |
|
Our mortgage loans receivable reflected above consist of two loans secured by properties in the Baltimore/Washington Corridor. Our note receivable from the City of Huntsville was to fund infrastructure costs in connection with our LW Redstone Company, LLC joint venture. We do not have an allowance for credit losses in connection with theses receivables at March 31, 2011 or December 31, 2010. The fair value of our mortgage and other investing receivables totaled $20.6 million at March 31, 2011 and $18.8 million at December 31, 2010.
Operating Notes Receivable
We had operating notes receivables due from tenants with terms exceeding one year totaling $596,000 at March 31, 2011 and $655,000 at December 31, 2010. We carried allowances for estimated losses for most of these balances.
7. Debt
Our debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Scheduled |
| |||
|
|
Maximum |
|
Carrying Value at |
|
|
|
Maturity |
| |||||
|
|
Availability at |
|
March 31, |
|
December 31, |
|
Stated Interest Rates |
|
Dates at |
| |||
|
|
March 31, 2011 |
|
2011 |
|
2010 |
|
at March 31, 2011 |
|
March 31, 2011 |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Mortgage and Other Secured Loans: |
|
|
|
|
|
|
|
|
|
|
| |||
Fixed rate mortgage loans (1) |
|
N/A |
|
$ |
1,169,688 |
|
$ |
1,173,358 |
|
5.20% - 7.87% (2) |
|
2011 - 2034 (3) |
| |
Revolving Construction Facility |
|
$ |
225,000 |
|
161,612 |
|
142,339 |
|
LIBOR + 1.60% to 2.00% (4) |
|
May 2, 2012 |
| ||
Variable rate secured loans |
|
N/A |
|
310,236 |
|
310,555 |
|
LIBOR + 2.25% to 3.00% (5) |
|
2012-2014 (6) |
| |||
Other construction loan facility |
|
23,400 |
|
16,753 |
|
16,753 |
|
LIBOR + 2.75% (7) |
|
2011 (8) |
| |||
Total mortgage and other secured loans |
|
|
|
1,658,289 |
|
1,643,005 |
|
|
|
|
| |||
Revolving Credit Facility |
|
800,000 |
|
348,000 |
|
295,000 |
|
LIBOR + 0.75% to 1.25% (9) |
|
September 30, 2011 (8) |
| |||
Unsecured notes payable |
|
N/A |
|
4,968 |
|
1,947 |
|
0% (10) |
|
2015-2026 |
| |||
Exchangeable Senior Notes: |
|
|
|
|
|
|
|
|
|
|
| |||
4.25% Exchangeable Senior Notes |
|
N/A |
|
224,686 |
|
223,846 |
|
4.25% |
|
April 2030 (11) |
| |||
3.5% Exchangeable Senior Notes |
|
N/A |
|
160,852 |
|
159,883 |
|
3.50% |
|
September 2026 (12) |
| |||
Total debt |
|
|
|
$ |
2,396,795 |
|
$ |
2,323,681 |
|
|
|
|
| |
(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 net unamortized premiums totaling $2.9 million at March 31, 2011 and $3.2 million at December 31, 2010.
(2) The weighted average interest rate on these loans was 5.97% at March 31, 2011.
(3) A loan with a balance of $4.5 million at March 31, 2011 that matures in 2034 may be repaid in March 2014, subject to certain conditions.
(4) The weighted average interest rate on this loan was 1.87% at March 31, 2011.
(5) Certain of the loans in this category at March 31, 2011 were subject to floor interest rates ranging from 4.25% to 5.50%.
(6) Includes $221.4 million maturing in 2012 that may be extended for a one-year period at our option, subject to certain conditions.
(7) The interest rate on this loan was 3.02% at March 31, 2011.
(8) These loans may be extended for a one-year period at our option, subject to certain conditions.
(9) The weighted average interest rate on the Revolving Credit Facility was 1.12% at March 31, 2011.
(10) These notes may carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling $2.0 million at March 31, 2011 and $1.1 million at December 31, 2010.
(11) As described further in our 2010 Annual Report on Form 10-K, these notes have an exchange settlement feature that provides that the notes may, under certain circumstances, be exchangeable for cash and, at the Operating Partnerships discretion, our common shares at an exchange rate (subject to adjustment) of 20.8011 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2011 and is equivalent to an exchange price of $48.07 per common share). The carrying value of these notes included a principal amount of $240.0 million and an unamortized discount totaling $15.3 million at March 31, 2011 and $16.2 million at December 31, 2010. The effective interest rate under the notes, including amortization of the issuance costs, was 6.05%. Because the closing price of our common shares at March 31, 2011 and December 31, 2010 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized (in thousands):
|
|
For the Three |
| |
|
|
Months Ended |
| |
|
|
March 31, 2011 |
| |
Interest expense at stated interest rate |
|
$ |
2,550 |
|
Interest expense associated with amortization of discount |
|
840 |
| |
Total |
|
$ |
3,390 |
|
(12) As described further in our 2010 Annual Report on Form 10-K, these notes have an exchange settlement feature that provides that the notes 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 19.2648 shares per one thousand dollar principal amount of the notes (exchange rate is as of March 31, 2011 and is equivalent to an exchange price of $51.91 per common share). The carrying value of these notes included a principal amount of $162.5 million and an unamortized discount totaling $1.6 million at March 31, 2011 and $2.6 million at December 31, 2010. The effective interest rate under the notes, including amortization of the issuance costs, was 5.97%. Because the closing price of our common shares at March 31, 2011 and December 31, 2010 was less than the exchange price per common share applicable to these notes, the if-converted value of the notes did not exceed the principal amount. The table below sets forth interest expense recognized on these notes before deductions for amounts capitalized (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Interest expense at stated interest rate |
|
$ |
1,422 |
|
$ |
1,422 |
|
Interest expense associated with amortization of discount |
|
969 |
|
913 |
| ||
Total |
|
$ |
2,391 |
|
$ |
2,335 |
|
We capitalized interest costs of $4.3 million in the three months ended March 31, 2011 and $3.9 million in the three months ended March 31, 2010.
The following table sets forth information pertaining to the fair value of our debt (in thousands):
|
|
March 31, 2011 |
|
December 31, 2010 |
| ||||||||
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
| ||||
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
| ||||
Fixed-rate debt |
|
$ |
1,560,194 |
|
$ |
1,574,532 |
|
$ |
1,559,034 |
|
$ |
1,579,022 |
|
Variable-rate debt |
|
836,601 |
|
840,203 |
|
764,647 |
|
769,247 |
| ||||
|
|
$ |
2,396,795 |
|
$ |
2,414,735 |
|
$ |
2,323,681 |
|
$ |
2,348,269 |
|
8. Interest Rate Derivatives
The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):
|
|
|
|
|
|
|
|
Fair Value at |
| ||||
Notional |
|
One-Month |
|
Effective |
|
Expiration |
|
March 31, |
|
December 31, |
| ||
Amount |
|
LIBOR Base |
|
Date |
|
Date |
|
2011 |
|
2010 |
| ||
$ 120,000 |
|
1.7600 |
% |
1/2/2009 |
|
5/1/2012 |
|
$ |
(1,730 |
) |
$ |
(2,062 |
) |
100,000 |
|
1.9750 |
% |
1/1/2010 |
|
5/1/2012 |
|
(1,675 |
) |
(2,002 |
) | ||
50,000 |
|
0.5025 |
% |
1/3/2011 |
|
1/3/2012 |
|
(61 |
) |
(64 |
) | ||
50,000 |
|
0.5025 |
% |
1/3/2011 |
|
1/3/2012 |
|
(61 |
) |
(64 |
) | ||
50,000 |
|
0.4400 |
% |
1/4/2011 |
|
1/3/2012 |
|
(37 |
) |
(34 |
) | ||
40,000 |
(1) |
3.8300 |
% |
11/2/2010 |
|
11/2/2015 |
|
935 |
|
644 |
| ||
|
|
|
|
|
|
|
|
$ |
(2,629 |
) |
$ |
(3,582 |
) |
(1) The notional amount of this instrument is scheduled to amortize to $36.2 million.
Each of these interest rate swaps was 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 (in thousands):
|
|
March 31, 2011 |
|
December 31, 2010 |
| ||||||
Derivatives Designated as |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
| ||
Interest rate swaps |
|
Prepaid expenses and other assets |
|
$ |
935 |
|
Prepaid expenses and other assets |
|
$ |
644 |
|
Interest rate swaps |
|
Other liabilities |
|
(3,564 |
) |
Other liabilities |
|
(4,226 |
) | ||
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
| ||
Amount of loss recognized in AOCL (effective portion) |
|
$ |
(136 |
) |
$ |
(2,385 |
) |
Amount of loss reclassified from AOCL into interest expense (effective portion) |
|
(1,104 |
) |
(911 |
) | ||
Over the next 12 months, we estimate that approximately $3.9 million 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 March 31, 2011, the fair value of interest rate derivatives in a liability position related to these agreements was $3.6 million, excluding the effects of accrued interest. As of March 31, 2011, 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 $3.9 million.
9. Shareholders Equity
Common Shares
During the three months ended March 31, 2011, holders of 16,725 common units in our Operating Partnership converted their units into common shares on the basis of one common share for each common unit.
We declared dividends per common share of $0.4125 in the three months ended March 31, 2011 and $0.3925 in the three months ended March 31, 2010.
See Note 11 for disclosure of common share activity pertaining to our share-based compensation plans.
Accumulated Other Comprehensive Loss
The table below sets forth activity in the accumulated other comprehensive loss component of shareholders equity (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Beginning balance |
|
$ |
(4,163 |
) |
$ |
(1,907 |
) |
Amount of loss recognized in AOCL (effective portion) |
|
(136 |
) |
(2,385 |
) | ||
Amount of loss reclassified from AOCL to income (effective portion) |
|
1,104 |
|
911 |
| ||
Adjustment to AOCL attributable to noncontrolling interests |
|
(2 |
) |
103 |
| ||
Ending balance |
|
$ |
(3,197 |
) |
$ |
(3,278 |
) |
The table below sets forth total comprehensive income and total comprehensive income attributable to COPT (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Net (loss) income |
|
$ |
(18,566 |
) |
$ |
10,675 |
|
Amount of loss recognized in AOCL |
|
(136 |
) |
(2,385 |
) | ||
Amount of loss reclassified from AOCL to income |
|
1,104 |
|
911 |
| ||
Total comprehensive (loss) income |
|
(17,598 |
) |
9,201 |
| ||
Net loss (income) attributable to noncontrolling interests |
|
776 |
|
(737 |
) | ||
Other comprehensive (loss) income attributable to noncontrolling interests |
|
(62 |
) |
121 |
| ||
Total comprehensive (loss) income attributable to COPT |
|
$ |
(16,884 |
) |
$ |
8,585 |
|
10. Information by Business Segment
As of March 31, 2011, we had nine primary office property segments comprised of: the Baltimore/Washington Corridor; Greater Baltimore; Northern Virginia; Colorado Springs; Suburban Maryland; San Antonio; Washington, DC Capitol Riverfront; Greater Philadelphia; and St. Marys and King George Counties. We also had a wholesale data center segment.
The table below reports segment financial information for our real estate operations (in thousands). Our segment entitled Other includes assets and operations not specifically associated with the other defined segments, including certain properties as well as 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/ |
|
Greater |
|
Northern |
|
Colorado |
|
Suburban |
|
San Antonio |
|
Washington, |
|
Greater |
|
St. Marys & |
|
Wholesale |
|
Other |
|
Total |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Revenues from real estate operations |
|
$ |
53,252 |
|
$ |
17,612 |
|
$ |
18,274 |
|
$ |
5,920 |
|
$ |
5,609 |
|
$ |
7,663 |
|
$ |
4,590 |
|
$ |
1,939 |
|
$ |
3,534 |
|
$ |
1,210 |
|
$ |
2,838 |
|
$ |
122,441 |
|
Property operating expenses |
|
21,390 |
|
8,540 |
|
7,671 |
|
2,436 |
|
2,718 |
|
3,869 |
|
1,627 |
|
446 |
|
1,016 |
|
706 |
|
486 |
|
50,905 |
| ||||||||||||
NOI from real estate operations |
|
$ |
31,862 |
|
$ |
9,072 |
|
$ |
10,603 |
|
$ |
3,484 |
|
$ |
2,891 |
|
$ |
3,794 |
|
$ |
2,963 |
|
$ |
1,493 |
|
$ |
2,518 |
|
$ |
504 |
|
$ |
2,352 |
|
$ |
71,536 |
|
Additions to properties, net |
|
$ |
24,755 |
|
$ |
11,826 |
|
$ |
2,137 |
|
$ |
421 |
|
$ |
1,175 |
|
$ |
2,290 |
|
$ |
63 |
|
$ |
2,233 |
|
$ |
3,250 |
|
$ |
24,070 |
|
$ |
3,131 |
|
$ |
75,351 |
|
Segment assets at March 31, 2011 |
|
$ |
1,405,746 |
|
$ |
589,750 |
|
$ |
543,677 |
|
$ |
263,548 |
|
$ |
176,866 |
|
$ |
155,928 |
|
$ |
118,407 |
|
$ |
124,971 |
|
$ |
101,370 |
|
$ |
154,245 |
|
$ |
231,301 |
|
$ |
3,865,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Revenues from real estate operations |
|
$ |
52,058 |
|
$ |
17,865 |
|
$ |
18,659 |
|
$ |
6,332 |
|
$ |
5,829 |
|
$ |
3,938 |
|
$ |
|
|
$ |
1,202 |
|
$ |
3,589 |
|
$ |
|
|
$ |
3,524 |
|
$ |
112,996 |
|
Property operating expenses |
|
22,155 |
|
9,010 |
|
7,313 |
|
2,309 |
|
2,701 |
|
1,629 |
|
|
|
763 |
|
1,107 |
|
|
|
1,309 |
|
48,296 |
| ||||||||||||
NOI from real estate operations |
|
$ |
29,903 |
|
$ |
8,855 |
|
$ |
11,346 |
|
$ |
4,023 |
|
$ |
3,128 |
|
$ |
2,309 |
|
$ |
|
|
$ |
439 |
|
$ |
2,482 |
|
$ |
|
|
$ |
2,215 |
|
$ |
64,700 |
|
Additions to properties, net |
|
$ |
15,959 |
|
$ |
7,240 |
|
$ |
4,910 |
|
$ |
813 |
|
$ |
1,541 |
|
$ |
4,939 |
|
$ |
|
|
$ |
10,058 |
|
$ |
411 |
|
$ |
|
|
$ |
12,476 |
|
$ |
58,347 |
|
Segment assets at March 31, 2010 |
|
$ |
1,339,080 |
|
$ |
568,361 |
|
$ |
452,105 |
|
$ |
269,338 |
|
$ |
172,971 |
|
$ |
139,977 |
|
$ |
|
|
$ |
115,023 |
|
$ |
94,033 |
|
$ |
|
|
$ |
247,464 |
|
$ |
3,398,352 |
|
The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Segment revenues from real estate operations |
|
$ |
122,441 |
|
$ |
112,996 |
|
Construction contract and other service revenues |
|
21,028 |
|
37,365 |
| ||
Less: Revenues from discontinued operations (Note 13) |
|
(74 |
) |
(768 |
) | ||
Total revenues |
|
$ |
143,395 |
|
$ |
149,593 |
|
The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Segment property operating expenses |
|
$ |
50,905 |
|
$ |
48,296 |
|
Less: Property operating expenses from discontinued operations (Note 13) |
|
|
|
(161 |
) | ||
Total property operating expenses |
|
$ |
50,905 |
|
$ |
48,135 |
|
As previously discussed, we provide real estate services such as property management, construction and development and heating and air conditioning services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (NOI from service operations), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
Construction contract and other service revenues |
|
$ |
21,028 |
|
$ |
37,365 |
|
Construction contract and other service expenses |
|
(20,618 |
) |
(36,399 |
) | ||
NOI from service operations |
|
$ |
410 |
|
$ |
966 |
|
The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to (loss) income from continuing operations as reported on our consolidated statements of operations (in thousands):
|
|
For the Three Months |
| ||||
|
|
Ended March 31, |
| ||||
|
|
2011 |
|
2010 |
| ||
NOI from real estate operations |
|
$ |
71,536 |
|
$ |
64,700 |
|
NOI from service operations |
|
410 |
|
966 |
| ||
Interest and other income |
|
1,168 |
|
1,302 |
| ||
Equity in income (loss) of unconsolidated entities |
|
30 |
|
(205 |
) | ||
Income tax benefit (expense) |
|
544 |
|
(41 |
) | ||
Other adjustments: |
|
|
|
|
| ||
Depreciation and other amortization associated with real estate operations |
|
(33,020 |
) |
(27,596 |
) | ||
Impairment loss |
|
(27,742 |
) |
|
| ||
General and administrative expenses |
|
(6,777 |
) |
(5,900 |
) | ||
Business development expenses |
|
(488 |
) |
(155 |
) | ||
Interest expense on continuing operations |
|
(26,928 |
) |
(22,638 |
) | ||
NOI from discontinued operations |
|
(74 |
) |
(607 |
) | ||
(Loss) income from continuing operations |
|
$ |
(21,341 |
) |
$ |
9,826 |
|
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations are not presented separately for segment purposes. We did not allocate interest expense, depreciation and amortization and impairment loss to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general and administrative expenses, business development expenses, interest and other income, equity in income (loss) of unconsolidated entities, income taxes and noncontrolling interests because these items represent general corporate items not attributable to segments.
11. Share-Based Compensation
Performance Share Units (PSUs)
On March 3, 2011, our Board of Trustees granted 56,883 PSUs to executives. The PSUs have a performance period beginning on the grant date and concluding on the earlier of March 2, 2014 or the date of: (1) termination by the Company without cause, death or disability of the executive or constructive discharge of the executive (collectively, qualified termination); or (2) a sale event. The number of PSUs earned (earned PSUs) at the end of the performance period will be determined based on the percentile rank of the Companys total shareholder return relative to a peer group of companies, as set forth in the following schedule:
Percentile Rank |
|
Earned PSUs Payout % |
75th or greater |
|
200% of PSUs granted |
50th or greater |
|
100% of PSUs granted |
25th |
|
50% of PSUs granted |
Below 25th |
|
0% of PSUs granted |
If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned PSUs will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles. At the end of the performance period, we, in settlement of the award, will issue a number of fully-vested common shares equal to the sum of:
· the number of earned PSUs in settlement of the award plan; plus
· the aggregate dividends that would have been paid with respect to the common shares issued in settlement of the earned PSUs through the date of settlement had such shares been issued on the grant date, divided by the share price on such settlement date, as defined under the terms of the agreement.
If a performance period ends due to a sale event or qualified termination, the number of earned PSUs is prorated based on the portion of the three-year performance period that has elapsed. If employment is terminated by the employee or by the Company for cause, all PSUs are forfeited. PSUs do not carry voting rights.
We computed a grant date fair value of $49.15 per PSU using a Monte Carlo model, which included assumptions of, among other things, the following: baseline common share value of $35.17; expected volatility for our common shares of 61.1%; and risk-free interest rate of 1.32%. We are recognizing the grant date fair value in connection with these PSU awards over a three-year period that commenced on March 3, 2011.
The PSUs granted to our executives on March 4, 2010, as described in our 2010 Annual Report on Form 10-K, were also outstanding at March 31, 2011.
Restricted Shares
During the three months ended March 31, 2011, certain employees and a member of our Board of Trustees were granted a total of 236,859 restricted shares with a weighted average grant date fair value of $35.37 per share. Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employees remain employed by us. The grant of restricted shares to the Trustee vests on the first anniversary of the grant date provided that the Trustee remains in her position. During the three months ended March 31, 2011, forfeiture restrictions lapsed on 278,351 previously issued common shares; these shares had a weighted average grant date fair value of $31.87 per share, and the aggregate intrinsic value of the shares on the vesting dates was $9.9 million.
Options
During the three months ended March 31, 2011, 24,667 options to purchase common shares (options) were exercised. The weighted average exercise price of these options was $14.03 per share, and the aggregate intrinsic value of the options exercised was $518,000.
12. Income Taxes
We own a taxable REIT subsidiary (TRS) that is subject to Federal and state income taxes. Our TRS provision for income tax consisted of the following (in thousands):
|
|
For the Three Months Ended March 31, |
| ||||
|
< |