| Properties, Net |
Properties, Net
Operating properties, net consisted of the following (in thousands):
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December 31, |
|
2017 |
|
2016 |
Land |
$ |
455,680 |
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|
$ |
433,311 |
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Buildings and improvements |
3,068,124 |
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|
2,944,905 |
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Less: Accumulated depreciation |
(786,193 |
) |
|
(706,385 |
) |
Operating properties, net |
$ |
2,737,611 |
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|
$ |
2,671,831 |
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Projects we had in development or held for future development consisted of the following (in thousands):
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December 31, |
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2017 |
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2016 |
Land |
$ |
240,825 |
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|
$ |
195,521 |
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Development in progress, excluding land |
162,669 |
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|
206,010 |
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Projects in development or held for future development |
$ |
403,494 |
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|
$ |
401,531 |
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Our properties held for sale included:
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• |
as of December 31, 2017: 11751 Meadowville Lane, a property in our Data Center Shells sub-segment, the sale of which was not recognized for accounting purposes, as discussed below; and
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• |
as of December 31, 2016: eight operating properties in White Marsh (included primarily in our Regional Office segment); one operating property in our Northern Virginia Defense/IT sub-segment; and land in White Marsh and Northern Virginia.
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The table below sets forth the components of assets held for sale (in thousands):
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December 31, |
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2017 |
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2016 |
Properties, net |
$ |
38,670 |
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|
$ |
85,402 |
|
Deferred rent receivable |
3,237 |
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|
4,241 |
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Intangible assets on real estate acquisitions, net |
— |
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|
338 |
|
Deferred leasing costs, net |
319 |
|
|
3,636 |
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Lease incentives, net |
— |
|
|
1,037 |
|
Assets held for sale, net |
$ |
42,226 |
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|
$ |
94,654 |
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2017 Dispositions
In 2017, we sold the following operating properties (dollars in thousands):
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Project Name |
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City, State |
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Segment |
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Date of Sale |
|
Number of Buildings |
|
Total Rentable Square Feet |
|
Transaction Value |
|
Gain on Sale |
3120 Fairview Park Drive |
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Falls Church, VA |
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Northern Virginia Defense/IT |
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2/15/2017 |
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1 |
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190,000 |
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|
$ |
39,000 |
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|
$ |
— |
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1334 Ashton Road |
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Hanover, MD |
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Fort Meade/BW Corridor |
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6/9/2017 |
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1 |
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|
37,000 |
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|
2,300 |
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|
— |
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Remaining White Marsh Properties (1) |
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White Marsh, MD |
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Regional Office and Other |
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7/28/2017 |
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8 |
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|
412,000 |
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|
47,500 |
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|
1,180 |
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201 Technology Drive |
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Lebanon, VA |
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Data Center Shells |
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10/27/2017 |
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1 |
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103,000 |
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|
29,500 |
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|
3,625 |
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7320 Parkway Drive |
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Hanover, MD |
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Fort Meade/BW Corridor |
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12/15/2017 |
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1 |
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57,000 |
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|
7,529 |
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|
831 |
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12 |
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|
799,000 |
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|
$ |
125,829 |
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|
$ |
5,636 |
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(1) This sale also included land.
We also sold:
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11751 Meadowville Lane, an operating property totaling 193,000 square feet in Chester, Virginia (in our Data Center Shells sub-segment), for $44.0 million on October 27, 2017. We provided a financial guaranty to the buyer under which we provided an indemnification for up to $20 million in losses it could incur related to a potential defined capital event occurring on the property by June 30, 2019. We accounted for this transaction as a financing arrangement. Accordingly, we did not recognize the sale of this property for accounting purposes (and will not until the guaranty expires) and we reported the sales proceeds as a liability on the balance sheet as of December 31, 2017 on the line entitled deferred property sale. In addition, we reported this property as held for sale as of December 31, 2017. We do not expect to incur any losses under this financial guaranty; and
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other land for $14.3 million and recognized a gain on sale of $4.2 million.
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2017 Construction Activities
In 2017, we placed into service 1.1 million square feet in eight newly constructed properties (including a partially operational property) and 94,000 square feet in three redeveloped properties. As of December 31, 2017, we had nine properties under construction, or for which we were contractually committed to construct, that we estimate will total 1.1 million square feet upon completion (including a partially operational property and two properties completed and held for future lease to the United States Government) and one partially operational property under redevelopment that we estimate will total 22,000 square feet upon completion.
2016 Dispositions
In 2016, we sold the following operating properties (dollars in thousands):
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Project Name |
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City, State |
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Segment |
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Date of Sale |
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Number of Buildings |
|
Total Rentable Square Feet |
|
Transaction Value |
|
Gain on Sale |
Arborcrest Corporate Campus (1) |
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Philadelphia, PA |
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Regional Office |
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8/4/2016 |
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4 |
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654,000 |
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|
$ |
142,800 |
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|
$ |
4,742 |
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8003 Corporate Drive |
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White Marsh, MD |
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Regional Office |
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8/17/2016 |
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1 |
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18,000 |
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|
2,400 |
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|
— |
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1341 & 1343 Ashton Road |
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Hanover, MD |
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Fort Meade/BW Corridor |
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9/9/2016 |
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2 |
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25,000 |
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2,900 |
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848 |
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8007, 8013, 8015, 8019 and 8023-8027 Corporate Drive (1) |
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White Marsh, MD |
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Regional Office |
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9/21/2016 |
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5 |
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130,000 |
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14,513 |
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1,906 |
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1302, 1304 and 1306 Concourse Drive |
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Linthicum, MD |
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Fort Meade/BW Corridor |
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9/29/2016 |
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3 |
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299,000 |
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|
48,100 |
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|
8,375 |
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2900 Towerview Road |
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Herndon, VA |
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Northern Virginia Defense/IT |
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10/19/2016 |
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1 |
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151,000 |
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12,100 |
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|
— |
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4940 Campbell Boulevard |
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White Marsh, MD |
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Regional Office |
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11/17/2016 |
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1 |
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50,000 |
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5,200 |
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— |
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1560 A and B Cable Ranch Road |
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San Antonio, TX |
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Other |
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11/30/2016 |
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2 |
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120,000 |
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10,300 |
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|
— |
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1331 Ashton Road |
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Hanover, MD |
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Fort Meade/BW Corridor |
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12/19/2016 |
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1 |
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29,000 |
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2,625 |
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— |
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900 Elkridge Landing Road |
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Linthicum, MD |
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Fort Meade/BW Corridor |
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12/22/2016 |
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1 |
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101,000 |
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7,800 |
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— |
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21 |
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1,577,000 |
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$ |
248,738 |
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$ |
15,871 |
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(1) This sale also included land.
We also sold:
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a 50% interest in six triple-net leased, single-tenant data center properties in Virginia by contributing them into a newly-formed joint venture, GI-COPT DC Partnership LLC (“GI-COPT”), for an aggregate property value of $147.6 million on July 21, 2016. We obtained $60.0 million in non-recourse mortgage loans on the properties through the joint venture immediately prior to the sale of our interest and received the net proceeds. Our partner in the joint venture acquired the 50% interest in the joint venture from us for $44.3 million. We account for our 50% interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on the sale of our interest of $17.9 million; and
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other land for $21.8 million and recognized a gain on sale of $7.2 million.
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2016 Construction Activities
In 2016, we placed into service 639,000 square feet in six newly constructed properties and 61,000 square feet in three redeveloped properties.
2015 Acquisitions
In 2015, we acquired the following operating properties:
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250 W. Pratt Street, a 367,000 square foot office property in Baltimore, Maryland (included in our Regional Office segment) that was 96.2% leased, for $61.8 million on March 19, 2015;
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2600 Park Tower Drive, a 237,000 square foot office property in Vienna, Virginia (included in our Northern Virginia Defense/IT segment) that was 100% leased, for $80.5 million on April 15, 2015; and
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100 Light Street, a 558,000 square foot office property in Baltimore, Maryland (included in our Regional Office segment) that was 93.5% leased, and its structured parking garage, 30 Light Street, for $121.2 million on August 7, 2015. In connection with that acquisition, we assumed a $55.0 million mortgage loan with a fair value at assumption of $55.5 million.
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The table below sets forth the allocation of the aggregate purchase price of these properties to the value of the acquired assets and liabilities (in thousands):
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Land, operating properties |
|
$ |
55,076 |
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Building and improvements |
|
139,540 |
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Intangible assets on real estate acquisitions |
|
75,729 |
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Total assets |
|
270,345 |
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Below-market leases |
|
(6,808 |
) |
Total acquisition cost |
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$ |
263,537 |
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Intangible assets recorded in connection with these acquisitions included the following (dollars in thousands):
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Weighted Average Amortization Period (in Years) |
Tenant relationship value |
$ |
31,183 |
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|
12 |
In-place lease value |
35,139 |
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|
7 |
Above-market leases |
6,720 |
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|
4 |
Below-market cost arrangements |
2,687 |
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|
40 |
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$ |
75,729 |
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|
10 |
These properties contributed:
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• |
revenues of $38.1 million in 2017, $36.9 million in 2016 and $20.2 million in 2015; and
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net income from continuing operations of $1.9 million in 2017, $2.2 million in 2016 and $1.2 million in 2015.
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We expensed operating property acquisition costs of $4.1 million in 2015 that were included in business development expenses and land carry costs on our consolidated statements of operations.
We accounted for these acquisitions as business combinations. We included the results of operations for the acquisitions in our consolidated statements of operations from their respective purchase dates through December 31, 2017. The following table presents pro forma information for COPT and subsidiaries as if these acquisitions had occurred on January 1, 2014. This pro forma information also includes adjustments to reclassify the operating property acquisition costs disclosed above to the year ended December 31, 2014 from the 2015 periods in which they were actually incurred. The pro forma financial information was prepared for comparative purposes only and is not necessarily indicative of what would have occurred had these acquisitions been made at that time or of results which may occur in the future (in thousands, except per shares amounts).
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For the Year Ended December 31, 2015 |
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(Unaudited) |
Pro forma total revenues |
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$ |
641,982 |
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Pro forma net income attributable to COPT common shareholders |
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$ |
167,079 |
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Pro forma EPS: |
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Basic |
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$ |
1.77 |
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Diluted |
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$ |
1.77 |
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2015 Dispositions
In 2015, we completed dispositions of the following operating properties (dollars in thousands):
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Project Name |
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City, State |
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Segment |
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Date of Disposition |
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Number of Buildings |
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Total Rentable Square Feet |
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Transaction Value (1) |
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Gain on Disposition |
1550 Westbranch Drive |
|
McLean, VA |
|
Regional Office |
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7/27/2015 |
|
1 |
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160,000 |
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|
$ |
27,800 |
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|
$ |
— |
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15000 and 15010 Conference Center Drive |
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Chantilly, VA |
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Northern Virginia Defense/IT |
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8/28/2015 |
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2 |
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665,000 |
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|
167,335 |
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|
— |
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13200 Woodland Park Road |
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Herndon, VA |
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Regional Office |
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10/27/2015 |
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1 |
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397,000 |
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84,000 |
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42,515 |
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9900, 9910 and 9920 Franklin Square Drive |
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White Marsh, MD |
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Regional Office |
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11/9/2015 |
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3 |
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135,000 |
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24,150 |
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6,468 |
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9690 Deereco Road and 375 W. Padonia Road |
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Timonium, MD |
|
Regional Office |
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12/17/2015 |
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2 |
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240,000 |
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|
44,500 |
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|
15,050 |
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9 |
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1,597,000 |
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$ |
347,785 |
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$ |
64,033 |
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(1) |
Each of these properties were sold except for 15000 and 15010 Conference Center Drive, the disposition of which was completed in connection with a debt extinguishment, as discussed further below. |
We also sold land in 2015 for $18.1 million and recognized gains of $4.0 million on the sales.
On August 28, 2015, ownership in 15000 and 15010 Conference Center Drive was transferred to the mortgage lender on a $150.0 million nonrecourse mortgage loan that was secured by the properties and we removed the debt obligation and accrued interest from our balance sheet. Upon completion of this transfer, we recognized a gain on early extinguishment of debt of $84.8 million, representing the difference between the mortgage loan and accrued interest payable extinguished over the carrying value of the properties transferred as of the transfer date and related closing costs.
2015 Construction Activities
In 2015, we placed into service 897,000 square feet in seven newly constructed properties and 170,000 square feet in two redeveloped properties.
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