Annual report pursuant to Section 13 and 15(d)

Debt, Net

v3.24.0.1
Debt, Net
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
Debt, Net Debt, Net
 
Debt Summary

Our debt consisted of the following (dollars in thousands):
 
Carrying Value (1) as of December 31,
 December 31, 2023
  2023 2022 Stated Interest Rates Scheduled Maturity
Mortgage and Other Secured Debt:        
Fixed-rate mortgage debt $ 66,314  $ 84,433 
3.82% to 4.62% (2)
 2024-2026
Variable-rate secured debt 32,894  33,318 
SOFR + 0.10%
+ 1.45% to 1.55% (3)
 2025-2026
Total mortgage and other secured debt 99,208  117,751     
Revolving Credit Facility (4) 75,000  211,000 
SOFR + 0.10%
+ 0.725% to 1.400% (5)
 October 2026 (4)
Term Loan Facility (4) 124,291  123,948 
SOFR + 0.10%
+ 0.850% to 1.700% (6)
 January 2026 (4)
Unsecured Senior Notes (4)
2.25%, $400,000 aggregate principal
 397,608  396,539 
2.25% (7)
 March 2026
5.25%, $345,000 aggregate principal
 335,802  — 
5.25% (8)
 September 2028
2.00%, $400,000 aggregate principal
 397,471  396,988 
2.00% (9)
 January 2029
2.75%, $600,000 aggregate principal
 591,212  590,123 
2.75% (10)
 April 2031
2.90%, $400,000 aggregate principal
 395,265  394,848 
2.90% (11)
 December 2033
Unsecured note payable 430  597 
0% (12)
 May 2026
Total debt, net $ 2,416,287  $ 2,231,794     
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $5.3 million as of December 31, 2023 and $5.4 million as of December 31, 2022.
(2)The weighted average interest rate on our fixed-rate mortgage debt was 4.10% as of December 31, 2023.
(3)Including the effect of interest rate swaps that hedge the risk of interest rate changes, the weighted average interest rate on our variable-rate secured debt as of December 31, 2023 was 2.45%; excluding the effect of these swaps, the weighted average interest rate on this debt as of December 31, 2023 was 6.94%.
(4)Refer to the paragraphs below for further disclosure.
(5)The weighted average interest rate on the Revolving Credit Facility was 6.49% as of December 31, 2023, excluding the effect of interest rate swaps that hedge the risk of interest rate changes (see Note 9).
(6)The interest rate on this loan was 6.74% as of December 31, 2023, excluding the effect of interest rate swaps that hedge the risk of interest rate changes (see Note 9).
(7)The carrying value of these notes reflects unamortized discounts and commissions totaling $1.9 million as of December 31, 2023 and $2.8 million as of December 31, 2022 The effective interest rate under the notes, including amortization of such costs, was 2.48%.
(8)The carrying value of these notes reflects unamortized commissions totaling $8.1 million as of December 31, 2023. The effective interest rate under the notes, including amortization of such costs, was 5.83%. Refer to the paragraphs below for further disclosure.
(9)The carrying value of these notes reflects unamortized discounts and commissions totaling $1.8 million as of December 31, 2023 and $2.1 million as of December 31, 2022. The effective interest rate under the notes, including amortization of such costs, was 2.09%.
(10)The carrying value of these notes reflects unamortized discounts and commissions totaling $7.6 million as of December 31, 2023 and $8.5 million as of December 31, 2022. The effective interest rate under the notes, including amortization of such costs, was 2.94%.
(11)The carrying value of these notes reflects unamortized discounts and commissions totaling $3.9 million as of December 31, 2023 and $4.2 million as of December 31, 2022. The effective interest rate under the notes, including amortization of such costs, was 3.01%.
(12)This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates.  The carrying value of this note reflects an unamortized discount totaling $32,000 as of December 31, 2023 and $65,000 as of December 31, 2022.
All debt is owed by the Operating Partnership. While COPT Defense is not directly obligated by any debt, it has guaranteed CDPLP’s Revolving Credit Facility, Term Loan Facility and Unsecured Senior Notes. All of our mortgage and other secured debt as of December 31, 2023 was for consolidated real estate joint ventures (see Note 6).

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum fixed charge coverage ratio, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. In addition, the terms of some of CDPLP’s debt may limit its ability to make certain types of payments and other distributions to COPT Defense in the event of default or when such payments or distributions may prompt failure of debt covenants, unless such distributions are required to maintain COPT Defense’s qualification as a REIT.  As of December 31, 2023, we were compliant with these financial covenants.
Our debt matures on the following schedule (in thousands):
Year Ending December 31, December 31, 2023
2024 $ 29,983 
2025 23,717 
2026 646,300 
2027 — 
2028 345,000 
Thereafter 1,400,000 
Total $ 2,445,000  (1)
(1)Represents scheduled principal amortization and maturities only and therefore excludes net discounts and deferred financing costs of $28.7 million.

We capitalized interest costs of $4.5 million in 2023, $6.7 million in 2022 and $6.5 million in 2021.

The following table sets forth information pertaining to the fair value of our debt (in thousands):
  December 31, 2023 December 31, 2022
  Carrying
Amount		 Estimated
Fair Value		 Carrying
Amount		 Estimated
Fair Value
Fixed-rate debt        
Unsecured Senior Notes $ 2,117,358  $ 1,876,611  $ 1,778,498  $ 1,433,561 
Other fixed-rate debt 66,744  63,692  85,030  80,330 
Variable-rate debt 232,185  232,270  368,266  367,896 
  $ 2,416,287  $ 2,172,573  $ 2,231,794  $ 1,881,787 

Revolving Credit Facility

On October 26, 2022, we entered into a credit agreement with a group of lenders for an unsecured revolving credit facility with a lender commitment of $600.0 million that replaced our existing unsecured revolving credit facility (the prior facility and new facility are referred to collectively herein as our “Revolving Credit Facility”). The facility matures on October 26, 2026, with the ability for us to extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period. The interest rate on the facility is based on the Secured Overnight Financing Rate (“SOFR”) plus a SOFR index adjustment of 0.10% plus 0.725% to 1.400%, as determined by the credit ratings assigned to CDPLP by S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. (collectively, the “Ratings Agencies”). The facility also carries a quarterly fee that is based on the lenders’ commitment under the facility multiplied by a per annum rate of 0.125% to 0.300%, as determined by the credit ratings assigned to CDPLP by the Ratings Agencies. As of December 31, 2023, the maximum borrowing capacity under this facility totaled $600.0 million, of which $525.0 million was available.

Weighted average borrowings under our Revolving Credit Facility totaled $133.3 million in 2023 and $202.8 million in 2022. The weighted average interest rate on our Revolving Credit Facility was 6.17% in 2023 and 3.31% in 2022, excluding the effect of interest rate swaps that hedge the risk of interest rate changes.

Term Loan Facilities

The credit agreement with a group of lenders entered into on October 26, 2022 discussed above provided for a $125.0 million unsecured term loan with an interest rate based on SOFR plus a SOFR index adjustment of 0.10% plus 0.850% to 1.700%, as determined by the credit ratings assigned to CDPLP by the Ratings Agencies. This term loan facility matures on January 30, 2026, with the ability for us to extend such maturity by two 12-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.125% of the outstanding loan balance for each extension period.

In addition to the term loan discussed above, we also had a term loan that we amended in 2020 to increase the loan amount by $150.0 million for a balance outstanding of $400.0 million. We repaid $100.0 million of this loan in 2021 and the remaining $300.0 million in 2022.
Unsecured Senior Notes

From 2021 through 2023, we issued the following unsecured senior notes:

>$600.0 million of 2.75% Senior Notes due 2031 (the “2.75% Notes”) at an initial offering price of 98.95% of their face value on March 11, 2021, resulting in proceeds, after deducting underwriting discounts and commissions, but before other offering expenses, of $589.8 million. The notes mature on April 15, 2031;
>$400.0 million of 2.00% Senior Notes due 2029 (the “2.00% Notes”) at an initial offering price of 99.97% of their face value on August 11, 2021, resulting in proceeds, after deducting underwriting discounts and commissions, but before other offering expenses, of $397.4 million. The notes mature on January 15, 2029;
>$400.0 million of 2.90% Senior Notes due 2033 (the “2.90% Notes”) at an initial offering price of 99.53% of their face value on November 17, 2021, resulting in proceeds, after deducting underwriting discounts and commissions, but before other offering expenses, of $395.4 million. The notes mature on December 1, 2033; and
>$345.0 million of 5.25% Exchangeable Senior Notes due 2028 (the “5.25% Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, on September 12, 2023, resulting in proceeds, after deducting the initial purchasers’ commissions, but before other offering expenses, of $336.4 million. The notes mature on September 15, 2028.

We may redeem our 2.25% Senior Notes due 2026 (the “2.25% Notes”) and the 2.75% Notes, 2.00% Notes and 2.90% Notes in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted treasury rate plus a spread (35 basis points for the 2.25% Notes, 25 basis points for the 2.75% Notes, 20 basis points for the 2.00% Notes and 25 basis points for the 2.90% Notes), plus, in each case, accrued and unpaid interest thereon to the date of redemption. However, in each case, if this redemption occurs on or after a defined date (February 15, 2026 for the 2.25% Notes, January 15, 2031 for the 2.75% Notes, November 15, 2028 for the 2.00% Notes and September 1, 2033 for the 2.90% Notes), the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the applicable redemption date. These notes are unconditionally guaranteed by COPT Defense.

With regard to the 5.25% Notes:

>prior to the close of business on the business day immediately preceding June 15, 2028, the notes will be exchangeable at the option of the noteholders only in the event of certain circumstances and during certain periods defined under the terms of the notes. On or after June 15, 2028, the notes will be exchangeable at the option of the holders at any time prior to the close of business on the business day immediately preceding the maturity date. Upon exchange, the principal amount of notes is payable in cash. The remainder of the exchange obligation, if any, as determined based on the exchange price per common share at the time of settlement, is payable in cash, common shares or a combination thereof at our election. The exchange rate of the notes initially equaled 33.3739 of our common shares per $1,000 principal amount of notes (equivalent to an initial exchange price of approximately $29.96 per common share). The exchange rate is subject to adjustment upon the occurrence of some events, but will not be adjusted for any accrued and unpaid interest;
>we may redeem the notes at our option, in whole or in part, on any business day on or after September 21, 2026, and prior to the 51st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common shares has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will be equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date;
>the notes are unconditionally guaranteed by COPT Defense; and
>the table below sets forth interest expense recognized on the notes in 2023 (in thousands):
Interest expense at stated interest rate $ 5,484 
Interest expense associated with amortization of debt discount and issuance costs 500 
Total $ 5,984 
In 2021, we purchased or redeemed the following unsecured senior notes:

>purchased pursuant to tender offers $184.4 million of 3.60% Senior Notes due 2023 for $196.7 million and $145.6 million of 5.25% Senior Notes due 2024 for $164.7 million, plus accrued interest effective March 11, 2021; and on April 12, 2021, redeemed the remaining $165.6 million of 3.60% Senior Notes due 2023 for $176.3 million and $104.4 million of 5.25% Senior Notes due 2024 for $117.7 million, plus accrued interest. In connection with these purchases and redemptions, we recognized a loss on early extinguishment of debt of $58.4 million in 2021; and
>redeemed $300.0 million of 5.00% Senior Notes due 2025 on November 18, 2021 for $336.4 million plus accrued interest. We recognized a loss on early extinguishment of debt of $38.2 million for this redemption in 2021.