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, 2013

Operating properties, net consisted of the following (in thousands):



	December 31,
	2013			2012
Land	$	430,472		$	427,766
Buildings and improvements	2,869,870			2,725,875
Less: accumulated depreciation	(597,649		)	(555,975		)
Operating properties, net	$	2,702,693		$	2,597,666

Projects we had in development or held for future development consisted of the following (in thousands):



	December 31,
	2013		2012
Land	$	245,676	$	236,324
Construction in progress, excluding land	265,932		329,054
Projects in development or held for future development	$	511,608	$	565,378

2013 Dispositions

In April 2011, we completed a review of our portfolio and identified a number of properties that are no longer closely aligned with our strategy, and our Board of Trustees approved a plan by Management to dispose of some of these properties (the “Strategic Reallocation Plan”). In December 2011, we identified additional properties for disposal, and our Board of Trustees approved a plan by management to increase the scope of the Strategic Reallocation Plan to include the disposition of additional properties. We completed dispositions of the following properties in 2013 primarily in connection with the Strategic Reallocation Plan (dollars in thousands):



Project Name	Location	Date of Sale	Number of Buildings	Total Rentable Square Feet	Transaction Value		Gain on Disposition
920 Elkridge Landing Road	Linthicum, MD	6/25/2013	1	103,000	$	6,900	$	—
4230 Forbes Boulevard	Lanham, MD	12/11/2013	1	56,000	5,600		1,507
December 2013 Colorado Springs Portfolio Disposition	Colorado Springs, CO	12/12/2013	15	1,165,000	133,925		1,164
December 2013 Portfolio Conveyance	Colorado Springs, CO and Linthicum, MD	12/23/2013	14	1,021,000	146,876		—
			31	2,345,000	$	293,301	$	2,671

Each of the above dispositions represents property sales except for the December 2013 Portfolio Conveyance, the disposition of which was completed in connection with a debt extinguishment, as described further below. We also had a disposition of a non-operating property in 2013 for an aggregate transaction value of $3.5 million. In addition to the gains on dispositions reflected above, we also recognized impairment losses on certain of these sales that are disclosed in Note 3.

On December 23, 2013, the mortgage lender on a $146.5 million nonrecourse mortgage loan that was secured by the December 2013 Portfolio Conveyance accepted a deed in lieu of foreclosure on the properties. As a result, we transferred title to the properties to the mortgage lender and we were relieved of the debt obligation plus accrued interest. As of the transfer date, the property had an estimated fair value of $74 million. Upon completion of this transfer, we recognized a gain on extinguishment of debt of $67.8 million, representing the difference between the mortgage loan and interest payable extinguished over the carrying value of the property transferred as of the transfer date (which included the effect of previous impairment losses) and related closing costs.

2013 Construction Activities

During 2013, we placed into service an aggregate of 812,000 square feet in eight newly constructed office properties located in the Baltimore/Washington Corridor, Northern Virginia and Huntsville. As of December 31, 2013, we had seven office properties under construction, or for which we were contractually committed to construct, that we estimate will total 1.0 million square feet upon completion, including three in Northern Virginia, two in the Baltimore/Washington Corridor, one in Huntsville and one in San Antonio. We also had redevelopment underway, or otherwise approved, for three office properties that we estimate will total 376,000 square feet upon completion, including two in Greater Philadelphia and one in the Baltimore/Washington Corridor.

2012 Dispositions

We completed dispositions of the following properties in 2012 primarily in connection with the Strategic Reallocation Plan (dollars in thousands):



Project Name	Location	Date of Sale	Number of Buildings	Total Rentable Square Feet	Transaction Value		Gain on Disposition
White Marsh Portfolio Disposition	White Marsh, MD	1/30/2012	5	163,000	$	19,100	$	2,445
1101 Sentry Gateway	San Antonio, TX	1/31/2012	1	95,000	13,500		1,739
222 and 224 Schilling Circle	Hunt Valley, MD	2/10/2012	2	56,000	4,400		102
15 and 45 West Gude Drive	Rockville, MD	5/2/2012	2	231,000	49,107		—
11800 Tech Road	Silver Spring, MD	6/14/2012	1	240,000	21,300		—
400 Professional Drive	Gaithersburg, MD	7/2/2012	1	130,000	16,198		—
July 2012 Portfolio Disposition	Baltimore/Washington Corridor and Greater Baltimore	7/24/2012	23	1,387,000	161,901		16,900
			35	2,302,000	$	285,506	$	21,186

Each of the above dispositions represents property sales except for 400 Professional Drive, the disposition of which was completed in connection with a debt extinguishment, as described further below. We also had dispositions of non-operating properties in 2012 for aggregate transaction values totaling $28.1 million. In addition to the gains on dispositions reflected above, we also recognized impairment losses on certain of these sales that are disclosed in Note 3.

On July 2, 2012, the mortgage lender on a $15 million nonrecourse mortgage loan that was secured by our 400 Professional Drive property accepted a deed in lieu of foreclosure on the property. As a result, we transferred title to the property to the mortgage lender and we were relieved of the debt obligation plus accrued interest. As of the transfer date, the property had an estimated fair value of $11 million. Upon completion of this transfer, we recognized a gain on extinguishment of debt of $3.7 million, representing the difference between the mortgage loan and interest payable extinguished over the carrying value of the property transferred as of the transfer date (which included the effect of previous impairment losses) and related closing costs.

2012 Acquisition

On July 11, 2012, we acquired 13857 McLearen Road, a 202,000 square foot office property in Herndon, Virginia that was 100% leased, for $48.3 million. The table below sets forth the allocation of the acquisition costs of this property (in thousands):



Land, operating properties	$	3,507
Building and improvements	30,177
Intangible assets on real estate acquisitions	14,993
Total assets	48,677
Below-market leases	(369		)
Total acquisition cost	$	48,308

Intangible assets recorded in connection with the above acquisition included the following (dollars in thousands):



			Weighted Average Amortization Period (in Years)
Tenant relationship value	$	7,472	10
In-place lease value	7,109		5
Above-market leases	412		5
	$	14,993	7

We expensed $229,000 in operating property acquisition costs in 2012 that are included in business development expenses and land carry costs on our consolidated statements of operations.

2012 Construction Activities

During 2012, we placed into service an aggregate of 371,000 square feet in four newly constructed office properties, including two properties in the Baltimore/Washington Corridor, one in Greater Baltimore and one in Northern Virginia.

- Definition

The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures.

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