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

Annual report pursuant to Section 13 and 15(d)

Equity - COPT and Subsidiaries

Equity - COPT and Subsidiaries

12 Months Ended

Dec. 31, 2019

Stockholders' Equity Note [Abstract]

Preferred Shares

As of December 31, 2019, COPT had 25.0 million preferred shares authorized and unissued at $0.01 par value per share. In 2017, COPT redeemed all of its outstanding preferred shares, including:


•	the 5.600% Series K Cumulative Redeemable Preferred Shares (the “Series K Preferred Shares”) redeemed effective January 21, 2017 at a price of $50.00 per share, or $26.6 million in the aggregate, plus accrued and unpaid dividends thereon through the date of redemption. Concurrently with this redemption, COPLP redeemed its Series K Preferred Units on the same terms; and

•

the 7.375% Series L Cumulative Preferred Shares (the “Series L Preferred Shares”) redeemed effective June 27, 2017 at a price of $25.00 per share, or $172.5 million in the aggregate, plus accrued and unpaid dividends thereon up to but not including the date of redemption. Concurrently with this redemption, COPLP redeemed its Series L Preferred Units on the same terms. We also recognized a $6.8 million decrease to net income available to common shareholders in 2017 pertaining to the original issuance costs incurred on the shares.

Common Shares

In September 2016, COPT established an at-the-market (“ATM”) stock offering program under which it may, from time to time, offer and sell common shares in “at the market” stock offerings having an aggregate gross sales price of up to $200.0 million (the “2016 ATM Program”). COPT issued the following common shares under this ATM program in 2018 and 2017:


•	992,000 shares in 2018 at a weighted average price of $30.46 per share. Net proceeds from the shares issued totaled $29.8 million, after payment of $0.5 million in commissions to sales agents; and


•	591,000 shares in 2017 at a weighted average price of $33.84 per share. Net proceeds from the shares issued totaled $19.7 million, after payment of $0.3 million in commissions to sales agents.

COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP.

In November 2018, COPT replaced its 2016 ATM Program with a new program under which it may offer and sell common shares in at-the-market stock offerings having an aggregate gross sales price of up to $300 million (the “2018 ATM Program”). Under the 2018 ATM Program, COPT may also, at its discretion, sell common shares under forward equity sales agreements. As of December 31, 2019, COPT has not issued any shares under the 2018 ATM Program.

On November 2, 2017, COPT entered into forward equity sale agreements to issue 9.2 million common shares at an initial gross offering price of $285.2 million, or $31.00 per share, before underwriting discounts, commissions and offering expenses. The forward sale price received upon physical settlement of the agreements was subject to adjustment on a daily basis based on a floating interest rate factor equal to the overnight bank funding rate less a spread, and was decreased on each of certain dates specified in the agreements during the term of the agreements. COPT issued the following common shares under these forward equity sale agreements:


•	1.6 million shares in 2019 for net proceeds of $46.5 million;


•	5.9 million shares in 2018 for net proceeds of $172.5 million; and


•	1.7 million shares in 2017 for net proceeds of $50.0 million.

COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP. COPT used its remaining capacity under these agreements in 2019.

Certain holders of COPLP common units converted their units into COPT common shares on the basis of one common share for each common unit in the amount of 105,039 in 2019, 1.9 million in 2018 and 339,513 in 2017.

COPT declared dividends per common share of $1.10 in 2019, 2018 and 2017.

COPT pays dividends at the discretion of its Board of Trustees. COPT’s ability to pay cash dividends will be dependent upon: (1) the cash flow generated from our operations; (2) cash generated or used by our financing and investing activities; and (3) the annual distribution requirements under the REIT provisions of the Code described in Note 2 and such other factors as the Board of Trustees deems relevant. COPT’s ability to make cash dividends will also be limited by the terms of COPLP’s Partnership Agreement, as well as by limitations imposed by state law. In addition, COPT is prohibited from paying cash dividends in excess of the amount necessary for it to qualify for taxation as a REIT if a default or event of default exists pursuant to the terms of our Revolving Credit Facility; this restriction does not currently limit COPT’s ability to pay dividends, and COPT does not believe that this restriction is reasonably likely to limit its ability to pay future dividends because it expects to comply with the terms of our Revolving Credit Facility.

See Note 15 for disclosure of common share activity pertaining to our share-based compensation plans.

Equity - COPLP and Subsidiaries

General Partner Preferred Units

In 2017, COPLP redeemed all of the outstanding units of the following series of preferred units held by COPT:


•	the 5.600% Series K Preferred Units effective on January 21, 2017; and


•	the 7.375% Series L Cumulative Preferred Units on June 27, 2017 at a price of $25.00 per unit, or $172.5 million in the aggregate, plus accrued and unpaid distributions thereon through the date of redemption, and recognized a $6.8 million decrease to net income available to common unitholders pertaining to the units’ original issuance costs at the time of redemption.

Following the completion of these redemptions in 2017, COPT held no preferred units in COPLP.

Limited Partner Preferred Units

COPLP has 352,000 Series I Preferred Units issued to an unrelated party that have an aggregate liquidation preference of $8.8 million ($25.00 per unit), plus any accrued and unpaid distributions of return thereon. The owner of these units is entitled to a priority annual cumulative return equal to 3.5% of their liquidation preference. These units are convertible into common units on the basis of 0.5 common units for each Series I Preferred Unit; the resulting common units would then be exchangeable for COPT common shares in accordance with the terms of COPLP’s agreement of limited partnership. These units may be redeemed for cash by COPLP at COPLP’s option on or after January 1, 2020, provided that COPLP provides notice to the unit holder six months prior to the effective date of the redemption. The units’ terms also require COPLP to provide notice to the unit holder for defined periods of time in advance of the sale of certain property or repayment or refinancing of certain debt, after which, in certain instances, the unit holder would have the ability to require COPLP to redeem the units at their liquidation preference. The terms of these units were amended on July 31, 2019 to:


•	reduce, effective September 23, 2019, the priority annual cumulative return on these units from 7.5% of the units’ liquidation preference to 3.5%, and eliminate provisions for future increases previously in place;


•	extend the earliest date that COPLP could redeem the units to January 1, 2020; and


•	establish the notice provisions in advance of property sales and debt repayments or refinancing and related redemption requirements described above.

Common Units

COPT owned 98.7% of COPLP’s common units as of December 31, 2019 and 98.8% as of December 31, 2018.

In 2018 and 2017, COPT acquired additional common units through the following common share issuances under its 2016 ATM Program:


•	992,000 shares in 2018 at a weighted average price of $30.46 per share. Net proceeds from the shares issued totaled $29.8 million, after payment of $0.5 million in commissions to sales agents; and


•	591,000 shares in 2017 at a weighted average price of $33.84 per share. Net proceeds from the shares issued totaled $19.7 million, after payment of $0.3 million in commissions to sales agents.

From 2017 through 2019, COPT also acquired additional common units through the following common share issuances under its forward equity sale agreements:


•	1.6 million shares in 2019 for net proceeds of $46.5 million;


•	5.9 million shares in 2018 for net proceeds of $172.5 million; and


•	1.7 million shares in 2017 for net proceeds of $50.0 million.

Limited partners in COPLP holding common units have the right to require COPLP to redeem all or a portion of their common units. COPLP (or COPT as the general partner) has the right, in its sole discretion, to deliver to such redeeming limited partners for each partnership unit either one COPT common share (subject to anti-dilution adjustment) or a cash payment equal to the then fair market value of such share (so adjusted) (based on the formula for determining such value set

forth in the partnership agreement). Certain limited partners holding common units redeemed their units into common shares on the basis of one common share for each common unit in the amount of 105,039 in 2019, 1.9 million in 2018 and 339,513 in 2017. In addition, we redeemed 924 common units in 2019 for $25,000 and 13,377 in 2018 for $339,000.

COPLP declared distributions per common unit of $1.10 in 2019, 2018 and 2017.