COPT Defense Properties Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Prepaid Expenses and Other Assets, Net

Prepaid Expenses and Other Assets, Net

12 Months Ended

Dec. 31, 2017

Prepaid Expense and Other Assets [Abstract]

Prepaid expenses and other assets, net consisted of the following (in thousands):



	December 31,
	2017		2016
Prepaid expenses	$	24,670	$	24,432
Lease incentives, net	19,011		18,276
Furniture, fixtures and equipment, net	5,256		5,204
Construction contract costs incurred in excess of billings	4,884		10,350
Interest rate derivatives	3,073		158
Non-real estate equity method investments	2,412		2,355
Deferred tax asset, net	1,892		3,036
Deferred financing costs, net (1)	1,202		3,128
Other assets	4,821		5,825
Prepaid expenses and other assets, net	$	67,221	$	72,764

(1) Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.

Deferred tax asset, net reported above includes the following tax effects of temporary differences and carry forwards of our TRS (in thousands):



	December 31,
	2017			2016
Operating loss carry forward	$	3,209		$	5,084
Share-based compensation	7			13
Accrued payroll	49			101
Property	43			(100		)
Valuation allowance	(1,416		)	(2,062		)
Deferred tax asset, net	$	1,892		$	3,036

We recognize a valuation allowance on our deferred tax asset if we believe all or some portion of the asset may not be realized. An increase or decrease in the valuation allowance resulting from a change in circumstances that causes a change in our judgment about the realizability of our deferred tax asset is included in income. The deferred tax asset valuation allowance is due to a decrease in future projected operating income in our TRS resulting primarily from our dispositions of certain properties to which the TRS provided amenity services and our planned reduction in amenity services provided by the TRS at certain other properties. We believe it is more likely than not that the results of future operations in our TRS will generate sufficient taxable income to realize our December 31, 2017 net deferred tax asset.