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

Annual report pursuant to Section 13 and 15(d)

Debt, Net

Debt, Net

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Debt, Net

Debt Summary

Our debt consisted of the following (dollars in thousands):



	Carrying Value (1) as of				December 31, 2019
	December 31, 2019		December 31, 2018		December 31, 2019
	December 31, 2019		December 31, 2018		Stated Interest Rates	Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt (2)	$	143,430	$	147,141	3.82% - 4.62% (3)	2023-2026
Variable rate secured debt (4)	68,055		23,282		LIBOR + 1.45% to 2.35% (5)	2020-2026
Total mortgage and other secured debt	211,485		170,423
Revolving Credit Facility	177,000		213,000		LIBOR + 0.775% to 1.45% (6)	March 2023 (7)
Term Loan Facility (8)	248,706		248,273		LIBOR + 0.85% to 1.65% (9)	2022
Unsecured Senior Notes (10)
3.60%, $350,000 aggregate principal	348,431		347,986		3.60% (11)	May 2023
5.25%, $250,000 aggregate principal	247,652		247,136		5.25% (12)	February 2024
3.70%, $300,000 aggregate principal	299,324		298,815		3.70% (13)	June 2021
5.00%, $300,000 aggregate principal	297,503		297,109		5.00% (14)	July 2025
Unsecured note payable	1,038		1,167		0% (15)	May 2026
Total debt, net	$	1,831,139	$	1,823,909


(1)	The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $5.8 million as of December 31, 2019 and $7.2 million as of December 31, 2018.


(2)	Certain of the fixed rate mortgages carry interest rates that, upon assumption, were above or below market rates 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 $217,000 as of December 31, 2019 and $281,000 as of December 31, 2018.


(3)	The weighted average interest rate on our fixed rate mortgage debt was 4.16% as of December 31, 2019.


(4)	Includes a construction loan with $64.9 million in remaining borrowing capacity as of December 31, 2019.


(5)	The weighted average interest rate on our variable rate secured debt was 3.85% as of December 31, 2019.


(6)	The weighted average interest rate on the Revolving Credit Facility was 2.70% as of December 31, 2019.


(7)	The facility matures in March 2023, with the ability for us to further extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period.

(8)

As discussed below, we have the ability to borrow an additional $150.0 million in the aggregate under this facility, provided that there is no default under the facility and subject to the approval of the lenders. In addition, in connection with our Revolving Credit Facility, we have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.


(9)	The interest rate on this loan was 2.94% as of December 31, 2019.


(10)	Refer to the paragraphs below for further disclosure.


(11)	The carrying value of these notes reflects an unamortized discount totaling $1.1 million as of December 31, 2019 and $1.4 million as of December 31, 2018. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.


(12)	The carrying value of these notes reflects an unamortized discount totaling $2.1 million as of December 31, 2019 and $2.6 million as of December 31, 2018. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.


(13)	The carrying value of these notes reflects an unamortized discount totaling $534,000 as of December 31, 2019 and $943,000 as of December 31, 2018. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.


(14)	The carrying value of these notes reflects an unamortized discount totaling $2.1 million as of December 31, 2019 and $2.4 million as of December 31, 2018. The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%

(15)

This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates. The carrying value of this note reflects an unamortized discount totaling $223,000 as of December 31, 2019 and $294,000 as of December 31, 2018.

All debt is owed by COPLP. While COPT is not directly obligated by any debt, it has guaranteed COPLP’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. In addition, the terms of some of COPLP’s

debt may limit its ability to make certain types of payments and other distributions to COPT in the event of default or when such payments or distributions may prompt failure of debt covenants. As of December 31, 2019, we were compliant with these financial covenants.

Our debt matures on the following schedule (in thousands):



Year Ending December 31,	December 31, 2019
2020	$	16,156
2021	303,955
2022	301,341
2023	593,830
2024	279,683
Thereafter	347,842
Total	$	1,842,807	(1)


(1)	Represents scheduled principal amortization and maturities only and therefore excludes net discounts and deferred financing costs of $11.7 million.

We capitalized interest costs of $10.8 million in 2019, $5.9 million in 2018 and $5.2 million in 2017.

The following table sets forth information pertaining to the fair value of our debt (in thousands):



	December 31, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Fixed-rate debt
Unsecured Senior Notes	$	1,192,910	$	1,227,441	$	1,191,046	$	1,219,603
Other fixed-rate debt	144,468		149,907		148,308		147,106
Variable-rate debt	493,761		495,962		484,555		486,497
	$	1,831,139	$	1,873,310	$	1,823,909	$	1,853,206

Revolving Credit Facility

On October 10, 2018, we entered into a credit agreement with a group of lenders to replace our existing unsecured revolving credit facility with a new facility (the prior facility and new facility are referred to collectively herein as our “Revolving Credit Facility”). The lenders’ aggregate commitment under the new facility is $800.0 million, with the ability for us to increase the lenders’ aggregate commitment to $1.25 billion, provided that there is no default under the facility and subject to the approval of the lenders. The new facility matures on March 10, 2023, with the ability for us to further extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period. The interest rate on the new facility is based on LIBOR plus 0.775% to 1.450%, as determined by the credit ratings assigned to COPLP by Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd. (collectively, the “Ratings Agencies”). The new facility also carries a quarterly fee that is based on the lenders’ aggregate commitment under the facility multiplied by a per annum rate of 0.125% to 0.300%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies. As of December 31, 2019, the maximum borrowing capacity under this facility totaled $800.0 million, of which $623.0 million was available.

Weighted average borrowings under our Revolving Credit Facility totaled $255.6 million in 2019 and $188.1 million in 2018. The weighted average interest rate on our Revolving Credit Facility was 3.32% in 2019 and 3.08% in 2018.

Term Loan Facilities

Our unsecured term loan facility originated in 2015 and was subsequently amended. We have the ability to borrow an additional $150.0 million under this facility provided that there is no default under the loan and subject to the approval of the lenders. The loan matures on December 17, 2022, and carries a variable interest rate based on the LIBOR rate (customarily the 30-day rate) plus 0.85% to 1.65%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies.

In addition to the term loan discussed above, we also had a term loan originating in 2012 on which we repaid $200.0 million in May 2017 and the remaining balance of $100.0 million in November 2018.

In connection with our new Revolving Credit Facility discussed above, we have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.

Unsecured Senior Notes

We may redeem our unsecured senior notes, in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted treasury rate plus a spread (30 basis points for the 3.60% Senior Notes, 40 basis points for the 5.25% Senior Notes, 25 basis points for the 3.70% Senior Notes and 45 basis points for the 5.00% Senior Notes), plus, in each case, accrued and unpaid interest thereon to the date of redemption. However, in each case, if this redemption occurs on or after three months prior to the maturity date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date. These notes are unconditionally guaranteed by COPT.