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, 2023

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


	December 31,
	2023		2022
Land	$	482,964	$	539,809
Buildings and improvements	4,164,004		3,986,524
Less: Accumulated depreciation	(1,400,162)		(1,267,434)
Operating properties, net	$	3,246,806	$	3,258,899

2023 Impairments

As part of our closing process for the three months ended September 30, 2023, we conducted our quarterly review of our portfolio of long-lived assets to be held and used for indicators of impairment. As a result of this process, we shortened the expected holding periods for six operating properties in our Other segment and a parcel of land located in Baltimore, Maryland, Northern Virginia and Washington, D.C. We determined that the carrying amount of the properties would not likely be recovered from the undiscounted cash flows from the operations and sales of the properties over the shortened holding periods. Accordingly, we recognized impairment losses of $252.8 million on these properties during the period.

2023 Dispositions

On January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia based on an aggregate property value of $211.3 million and retained a 10% interest in the properties through Redshift JV LLC (“Redshift”), a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $190.2 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 $49.4 million. The table below sets forth the components of the properties’ assets, which were classified as held for sale on our consolidated balance sheet as of December 31, 2022 (in thousands):



Properties, net	$	156,691
Deferred rent receivable	4,595



Assets held for sale, net	$	161,286

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
Revenues from real estate operations	$	1,980	$	30,490
Property operating expenses	(971)		(16,842)
Depreciation and amortization associated with real estate operations	—		(10,290)

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

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

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.

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.