COPT Defense Properties Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Real Estate Joint Ventures

Real Estate Joint Ventures

3 Months Ended

Mar. 31, 2013

Equity Method Investments and Joint Ventures [Abstract]

During the three months ended March 31, 2013, 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 (dollars in thousands):



Investment Balance at (1)						Date		Nature of	Maximum Exposure
March 31, 2013			December 31, 2012			Acquired	Ownership	Activity	to Loss (2)
$	(6,420	)	$	(6,420	)	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 $4.0 million at March 31, 2013 and $4.5 million December 31, 2012 due to our deferral of gain on the contribution by us of real estate into the joint venture upon its formation and our discontinuance of loss recognition under the equity method effective October 2012, as discussed below. A difference will continue to exist to the extent the nature of our continuing involvement in the joint venture remains the same and we continue to no longer recognize income or losses under the equity method.

(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 16).

The following table sets forth condensed balance sheets for this unconsolidated real estate joint venture (in thousands):



	March 31, 2013			December 31, 2012
Properties, net	$	58,130		$	58,460
Other assets	5,120			4,376
Total assets	$	63,250		$	62,836

Liabilities (primarily debt)	$	75,417		$	72,693
Owners’ equity	(12,167		)	(9,857		)
Total liabilities and owners’ equity	$	63,250		$	62,836

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,
	2013			2012
Revenues	$	1,792		$	1,894
Property operating expenses	(786		)	(737		)
Interest expense	(2,774		)	(1,125		)
Depreciation and amortization expense	(542		)	(570		)
Net loss	$	(2,310	)	$	(538	)

As discussed further in our 2012 Annual Report on Form 10-K, in 2012, the holder of mortgage debt encumbering all of the joint venture’s properties notified us of the debt’s default, initiated foreclosure proceedings and terminated our property management responsibilities; accordingly, we discontinued recognition of losses on this investment under the equity method effective in October 2012 due to our having neither the obligation nor intent to support the joint venture.

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures at March 31, 2013 (dollars in thousands):



		Ownership		March 31, 2013				(1)
	Date	% at		Total		Pledged		Total
	Acquired	3/31/2013	Nature of Activity	Assets		Assets		Liabilities
LW Redstone Company, LLC	3/23/2010	85%	Developing business park (2)	$	95,447	$	23,199	$	23,973
M Square Associates, LLC	6/26/2007	50%	Operating two buildings and developing others (3)	61,059		47,361		42,675
Arundel Preserve #5, LLC	7/2/2007	50%	Operating one building (4)	39,462		35,114		20,177
COPT-FD Indian Head, LLC	10/23/2006	75%	Holding land parcel (5)	6,447		—		—
MOR Forbes 2 LLC	12/24/2002	50%	Operating one building (6)	3,926		—		95
				$	206,341	$	105,674	$	86,920

(1) Excludes amounts eliminated in consolidation.

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

(3) This joint venture’s properties are in College Park, Maryland (in the Suburban Maryland region).

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

(5) This joint venture’s property is in Charles County, Maryland. In 2012, the joint venture exercised its option under a development agreement to require Charles County to repurchase the land parcel at its original acquisition cost. Under the terms of the agreement with Charles County, the repurchase is expected to occur by August 2014.

(6) This joint venture’s 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 16.