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

6 Months Ended

Jun. 30, 2023

Equity Method Investments and Joint Ventures [Abstract]

Consolidated Real Estate Joint Ventures

The table below sets forth information as of June 30, 2023 pertaining to our investments in consolidated real estate joint ventures, which are each variable interest entities (dollars in thousands):


		Nominal Ownership %		June 30, 2023 (1)
	Date Acquired			Total Assets		Encumbered Assets		Total Liabilities		Mortgage Debt
Entity			Location
LW Redstone Company, LLC (2)	3/23/2010	85%	Huntsville, Alabama	$	661,917	$	96,088	$	105,280	$	51,301
Stevens Investors, LLC	8/11/2015	95%	Washington, DC	167,132		—		1,738		—
M Square Associates, LLC	6/26/2007	50%	College Park, Maryland	100,933		58,171		50,445		49,220
				$	929,982	$	154,259	$	157,463	$	100,521

(1)Excludes amounts eliminated in consolidation.

(2)We fund all capital requirements. Our partner receives distributions of $1.2 million of annual operating cash flows and we receive the remainder.

Unconsolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):


	Date Acquired	Nominal Ownership %	Number of Properties	Carrying Value of Investment (1)
Entity				June 30, 2023		December 31, 2022
Redshift JV LLC	1/10/2023	10%	3	$	21,151	$	—
BREIT COPT DC JV LLC	6/20/2019	10%	9	11,096		11,568
Quark JV LLC	12/14/2022	10%	2	6,747		6,758
B RE COPT DC JV III LLC	6/2/2021	10%	2	2,934		3,134
B RE COPT DC JV II LLC (2)	10/30/2020	10%	8	(1,999)		(1,459)
			24	$	39,929	$	20,001

(1)Included $41.9 million and $21.5 million reported in “Investment in unconsolidated real estate joint ventures” as of June 30, 2023 and December 31, 2022, respectively, and $2.0 million and $1.5 million for investments with deficit balances reported in “other liabilities” on our consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by $6.9 million as of June 30, 2023 and $7.0 million as of December 31, 2022 due to a difference between our cost basis and our share of the joint venture’s underlying equity in its net assets. We recognize adjustments to our share of the joint venture’s earnings and losses resulting from this basis difference in the underlying assets of the joint venture.

As described further in Note 4, on January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia and retained a 10% interest in the properties through Redshift JV LLC, a newly-formed joint venture. We concluded that the joint venture is a variable interest entity. Under the terms of the joint venture agreement, we and our partner receive returns in proportion to our investments, and our maximum exposure to losses is limited to our investment, subject to certain indemnification obligations with respect to nonrecourse debt secured by the properties. The nature of our involvement in the activities of the joint venture does not give us power over decisions that significantly affect its economic performance.