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

Annual report pursuant to Section 13 and 15(d)

Properties, Net

Properties, Net

12 Months Ended

Dec. 31, 2022

Operating properties, net, excluding properties held for sale, consisted of the following (in thousands):


	December 31,
	2022		2021
Land	$	539,809	$	572,900
Buildings and improvements	3,986,524		3,670,133
Less: Accumulated depreciation	(1,267,434)		(1,152,523)
Operating properties, net	$	3,258,899	$	3,090,510

Our properties held for sale included:

•as of December 31, 2022, three data center shell properties in Northern Virginia in which we sold a 90% interest and retained a 10% interest through a newly-formed joint venture on January 10, 2023; and

•as of December 31, 2021, 9651 Hornbaker Road in Manassas, Virginia, our wholesale data center investment that we sold on January 25, 2022.

The table below sets forth the components of assets classified as held for sale on our consolidated balance sheets (in thousands):


	December 31,
	2022		2021
Properties, net	$	156,691	$	191,857
Deferred rent receivable	4,595		462
Deferred leasing costs, net	—		307
Intangible assets on property acquisitions, net	—		73

Assets held for sale, net	$	161,286	$	192,699

2022 Dispositions and Discontinued Operations

On January 25, 2022, we sold 9651 Hornbaker Road in Manassas, Virginia, our sole wholesale data center investment, for $222.5 million, resulting in a gain on sale of $28.6 million. This property, a separate reportable segment, is reported herein as discontinued operations. The table below sets forth the property’s results of operations included in discontinued operations on our consolidated statements of operations and its operating and investing cash flows included on our consolidated statements of cash flows (in thousands):


	For the Years Ended December 31,
	2022		2021		2020
Revenues from real estate operations	$	1,980	$	30,490	$	27,011
Property operating expenses	(971)		(16,842)		(13,044)
Depreciation and amortization associated with real estate operations	—		(10,290)		(11,690)

Gain on sale of real estate	28,564		—		—
Discontinued operations	29,573		3,358		2,277

Cash flows from operating activities	$	5,757	$	10,930	$	16,051
Cash flows from investing activities	$	220,565	$	(1,912)	$	(11,485)

On December 14, 2022, we sold a 90% interest in two data center shell properties in Northern Virginia based on an aggregate property value of $67.0 million and retained a 10% interest in the properties through Quark JV LLC (“Quark”), a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $60.3 million. We account for our interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on sale of $19.2 million.

2022 Development Activities

In 2022, we placed into service 1.3 million square feet in nine newly-developed properties and 14,000 square feet in an expansion of one fully-operational property. As of December 31, 2022, we had seven properties under development, including two partially-operational properties, that we estimate will total 1.0 million square feet upon completion.

2021 Dispositions

On June 2, 2021, we sold a 90% interest in two data center shell properties in Northern Virginia based on an aggregate property value of $118.8 million and retained a 10% interest in the properties through B RE COPT DC JV III LLC (“BRE-COPT 3”), a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $106.9 million. We account for our interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on sale of $40.2 million.

On December 30, 2021, we sold a property that was previously removed from service from our data center shells sub-segment for $30.0 million and recognized a gain on sale of $25.9 million.

2021 Development Activities

In 2021, we placed into service 766,000 square feet in eight newly-developed properties.

2020 Dispositions

On October 30, 2020, we sold a 90% interest in two data center shell properties in Northern Virginia based on an aggregate property value of $89.7 million and retained a 10% interest in the properties through B RE COPT DC JV II LLC (“BRE-COPT 2”), a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $80.7 million. We account for our interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on sale of $30.0 million.

2020 Development Activities

In 2020, we placed into service 1.8 million square feet in 11 newly-developed properties, 42,000 square feet in expansions of three fully-operational properties and 21,000 square feet in a redeveloped property.

In the third quarter of 2020, we concluded that we no longer expected to develop a property in Baltimore, Maryland. As a result, we recognized an impairment loss on previously incurred pre-development costs of $1.5 million.