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Actionable news in OFC: CORPORATE OFFICE PROPERTIES TRUST,

Corporate Office Properties, L.P.

Corporate Office Properties TrustMaryland23-2947217
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
Corporate Office Properties, L.P.Delaware23-2930022
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
combined reports better reflect how management and the analyst community view the business as a single operating unit;
combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and
combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
PAGE
PART I: FINANCIAL INFORMATION
Item 1:Financial Statements:
Consolidated Financial Statements of Corporate Office Properties Trust
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (unaudited)3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)5
Consolidated Statements of Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited)6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)7
Consolidated Financial Statements of Corporate Office Properties, L.P.
Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (unaudited)9
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)10
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)11
Consolidated Statements of Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited)12
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)13
Notes to Consolidated Financial Statements (unaudited)15
Item 2:Management’s Discussion and Analysis of Financial Condition and Results of Operations35
Item 3:Quantitative and Qualitative Disclosures About Market Risk50
Item 4:Controls and Procedures50
PART II: OTHER INFORMATION
Item 1:Legal Proceedings51
Item 1A:Risk Factors51
Item 2:Unregistered Sales of Equity Securities and Use of Proceeds51
Item 3:Defaults Upon Senior Securities51
Item 4:Mine Safety Disclosures51
Item 5:Other Information51
Item 6:Exhibits52
SIGNATURES53
September 30,
2017
December 31,
2016
Assets

Properties, net:

Operating properties, net$2,690,712
$2,671,831
Projects in development or held for future development406,319
401,531
Total properties, net3,097,031
3,073,362
Assets held for sale, net74,415
94,654
Cash and cash equivalents10,858
209,863
Restricted cash and marketable securities6,173
8,193
Investment in unconsolidated real estate joint venture25,194
25,548
Accounts receivable (net of allowance for doubtful accounts of $639 and $603, respectively)27,624
34,438
Deferred rent receivable (net of allowance of $255 and $373, respectively)84,743
90,219
Intangible assets on real estate acquisitions, net64,055
78,351
Deferred leasing costs (net of accumulated amortization of $28,590 and $65,988, respectively)47,033
41,214
Investing receivables56,108
52,279
Prepaid expenses and other assets, net66,538
72,764
Total assets$3,559,772
$3,780,885
Liabilities and equity

Liabilities:

Debt, net$1,873,291
$1,904,001
Accounts payable and accrued expenses121,483
108,682
Rents received in advance and security deposits26,223
29,798
Dividends and distributions payable28,462
31,335
Deferred revenue associated with operating leases12,047
12,666
Redeemable preferred shares of beneficial interest ($0.01 par value; 531,667 shares issued and outstanding at December 31, 2016 and none at September 30, 2017)
26,583
Capital lease obligation16,347

Other liabilities43,866
50,177
Total liabilities2,121,719
2,163,242
Commitments and contingencies (Note 15)



Redeemable noncontrolling interests23,269
22,979
Equity:

Corporate Office Properties Trust’s shareholders’ equity:

Preferred Shares of beneficial interest at liquidation preference ($0.01 par value; 25,000,000 shares authorized, 6,900,000 shares issued and outstanding at December 31, 2016 and none at September 30, 2017)
172,500
Common Shares of beneficial interest ($0.01 par value; 125,000,000 shares authorized, shares issued and outstanding of 99,608,170 at September 30, 2017 and 98,498,651 at December 31, 2016)996
985
Additional paid-in capital2,150,067
2,116,581
Cumulative distributions in excess of net income(800,290)(765,276)
Accumulated other comprehensive loss(859)(1,731)
Total Corporate Office Properties Trust’s shareholders’ equity1,349,914
1,523,059
Noncontrolling interests in subsidiaries:

Common units in COPLP44,089
49,228
Preferred units in COPLP8,800
8,800
Other consolidated entities11,981
13,577
Noncontrolling interests in subsidiaries64,870
71,605
Total equity1,414,784
1,594,664
Total liabilities, redeemable noncontrolling interest and equity$3,559,772
$3,780,885
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Revenues

Rental revenue$102,275
$103,956
$304,237
$316,862
Tenant recoveries and other real estate operations revenue24,956
26,998
78,058
81,103
Construction contract and other service revenues29,786
11,149
65,958
34,372
Total revenues157,017
142,103
448,253
432,337
Expenses



Property operating expenses46,368
49,952
143,515
149,968
Depreciation and amortization associated with real estate operations34,438
32,015
100,290
99,790
Construction contract and other service expenses28,788
10,341
63,589
32,513
Impairment (recoveries) losses(161)27,699
1,464
99,837
General, administrative and leasing expenses7,368
8,855
23,838
28,764
Business development expenses and land carry costs1,277
1,716
4,567
6,497
Total operating expenses118,078
130,578
337,263
417,369
Operating income 38,939
11,525
110,990
14,968
Interest expense(19,615)(18,301)(57,772)(64,499)
Interest and other income 1,508
1,391
4,817
3,877
Loss on early extinguishment of debt
(59)(513)(37)
Income (loss) before equity in income of unconsolidated entities and income taxes20,832
(5,444)57,522
(45,691)
Equity in income of unconsolidated entities719
594
2,162
614
Income tax (expense) benefit(57)21
(145)28
Income (loss) before gain on sales of real estate21,494
(4,829)59,539
(45,049)
Gain on sales of real estate1,188
34,101
5,438
34,101
Net income (loss)22,682
29,272
64,977
(10,948)
Net (income) loss attributable to noncontrolling interests:



Common units in COPLP(704)(901)(1,611)948
Preferred units in COPLP(165)(165)(495)(495)
Other consolidated entities(897)(907)(2,738)(2,799)
Net income (loss) attributable to COPT20,916
27,299
60,133
(13,294)
Preferred share dividends
(3,552)(6,219)(10,657)
Issuance costs associated with redeemed preferred shares

(6,847)
Net income (loss) attributable to COPT common shareholders$20,916
$23,747
$47,067
$(23,951)
Earnings per common share:



Net income (loss) attributable to COPT common shareholders - basic$0.21
$0.25
$0.47
$(0.26)
Net income (loss) attributable to COPT common shareholders - diluted$0.21
$0.25
$0.47
$(0.26)
Dividends declared per common share$0.275
$0.275
$0.825
$0.825
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Net income (loss)$22,682
$29,272
$64,977
$(10,948)
Other comprehensive income (loss)



Unrealized (loss) gain on interest rate derivatives(301)407
(1,877)(16,581)
Loss on interest rate derivatives recognized in interest expense (effective portion)615
1,043
2,652
2,763
Loss on interest rate derivatives recognized in interest expense (ineffective portion)

88

Equity in other comprehensive income (loss) of equity method investee

39
(184)
Other comprehensive income (loss)314
1,450
902
(14,002)
Comprehensive income (loss)22,996
30,722
65,879
(24,950)
Comprehensive income attributable to noncontrolling interests(1,776)(2,025)(4,874)(1,820)
Comprehensive income (loss) attributable to COPT$21,220
$28,697
$61,005
$(26,770)
PreferredSharesCommonSharesAdditionalPaid-inCapitalCumulativeDistributions inExcess of NetIncomeAccumulatedOtherComprehensive LossNoncontrollingInterestsTotal
Balance at December 31, 2015 (94,531,512 common shares outstanding)$199,083
$945
$2,004,507
$(657,172)$(2,838)$72,039
$1,616,564
Conversion of common units to common shares (87,000 shares)
1
1,166


(1,167)
Costs associated with common shares issued to the public

(5)


(5)
Share-based compensation (146,274 shares issued, net of redemptions)
2
6,175



6,177
Redemption of vested equity awards

(2,179)


(2,179)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP

(42)

42

Comprehensive loss


(13,294)(13,476)141
(26,629)
Dividends


(88,796)

(88,796)
Distributions to owners of common and preferred units in COPLP




(3,498)(3,498)
Distributions to noncontrolling interests in other consolidated entities




(12)(12)
Adjustment to arrive at fair value of redeemable noncontrolling interests

(516)


(516)
Tax loss from share-based compensation

(319)


(319)
Balance at September 30, 2016 (94,764,786 common shares outstanding)$199,083
$948
$2,008,787
$(759,262)$(16,314)$67,545
$1,500,787
Balance at December 31, 2016 (98,498,651 common shares outstanding)$172,500
$985
$2,116,581
$(765,276)$(1,731)$71,605
$1,594,664
Redemption of preferred shares (6,900,000 shares)(172,500)
6,847
(6,847)

(172,500)
Conversion of common units to common shares (337,000 shares)
3
4,599


(4,602)
Common shares issued under at-the-market program (591,042 shares)
6
19,662



19,668
Exercise of share options (5,000 shares)

150



150
Share-based compensation (176,477 shares issued, net of redemptions)
2
4,442



4,444
Redemption of vested equity awards

(1,869)


(1,869)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP

(589)

589

Comprehensive income


60,133
872
3,154
64,159
Dividends


(88,300)

(88,300)
Distributions to owners of common and preferred units in COPLP




(3,262)(3,262)
Distributions to noncontrolling interests in other consolidated entities




(2,614)(2,614)
Adjustment to arrive at fair value of redeemable noncontrolling interests

244



244
Balance at September 30, 2017 (99,608,170 common shares outstanding)$
$996
$2,150,067
$(800,290)$(859)$64,870
$1,414,784
For the Nine Months Ended September 30,
20172016
Cash flows from operating activities

Revenues from real estate operations received$390,116
$393,300
Construction contract and other service revenues received72,682
54,399
Property operating expenses paid(144,187)(154,203)
Construction contract and other service expenses paid(57,189)(33,169)
General, administrative, leasing, business development and land carry costs paid(27,066)(27,879)
Interest expense paid(55,637)(61,662)
Lease incentives(9,414)(1,789)
Other1,373
976
Net cash provided by operating activities170,678
169,973
Cash flows from investing activities

Construction, development and redevelopment(113,678)(121,297)
Tenant improvements on operating properties(19,876)(26,055)
Other capital improvements on operating properties(15,174)(22,063)
Proceeds from dispositions of properties101,107
210,661
Proceeds from partial sale of properties, net of related debt
43,686
Leasing costs paid(6,468)(6,024)
Other1,359
(991)
Net cash (used in) provided by investing activities(52,730)77,917
Cash flows from financing activities

Proceeds from debt
Revolving Credit Facility268,000
362,500
Other debt proceeds
105,000
Repayments of debt
Revolving Credit Facility(98,000)(406,000)
Scheduled principal amortization(2,878)(4,454)
Other debt repayments(200,150)(203,056)
Deferred financing costs paid
(825)
Net proceeds from issuance of common shares19,834
(46)
Redemption of preferred shares(199,083)
Common share dividends paid(81,779)(78,072)
Preferred share dividends paid(9,305)(10,657)
Distributions paid to noncontrolling interests in COPLP(3,371)(3,476)
Distributions paid to redeemable noncontrolling interests(7,860)(14,329)
Redemption of vested equity awards(1,869)(2,179)
Other(492)(5,032)
Net cash used in financing activities(316,953)(260,626)
Net decrease in cash and cash equivalents(199,005)(12,736)
Cash and cash equivalents

Beginning of period209,863
60,310
End of period$10,858
$47,574
For the Nine Months Ended September 30,
20172016
Reconciliation of net income (loss) to net cash provided by operating activities:

Net income (loss)$64,977
$(10,948)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization101,963
101,429
Impairment losses1,457
99,797
(Gain) loss on interest rate derivatives(43)347
Amortization of deferred financing costs and net debt discounts3,514
4,456
Increase in deferred rent receivable(545)(930)
Gain on sales of real estate(5,438)(34,101)
Share-based compensation4,092
5,637
Other(3,970)(2,727)
Operating changes in assets and liabilities:
Decrease in accounts receivable7,498
3,658
Decrease in restricted cash and marketable securities2,778
18
Decrease (increase) in prepaid expenses and other assets, net3,190
(19,778)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(5,220)31,523
Decrease in rents received in advance and security deposits(3,575)(8,408)
Net cash provided by operating activities$170,678
$169,973
Supplemental schedule of non-cash investing and financing activities:

Increase in accrued capital improvements, leasing and other investing activity costs$17,129
$9,963
Increase in property in connection with capital lease obligation$16,127
$
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture$
$22,600
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest$
$6,683
Non-cash changes from partial sale of properties, net of debt:
Decrease in properties, net$
$(114,597)
Increase in investment in unconsolidated real estate joint venture$
$25,680
Decrease in debt$
$59,534
Other net decreases in assets and liabilities$
$3,619
Increase (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$774
$(13,817)
Equity in other comprehensive income (loss) of an equity method investee$39
$(184)
Dividends/distribution payable$28,462
$30,225
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$4,602
$1,167
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$589
$42
(Decrease) increase in redeemable noncontrolling interest and (increase) decrease in equity to carry redeemable noncontrolling interest at fair value$(244)$516
September 30,
2017
December 31,
2016
Assets

Properties, net:

Operating properties, net$2,690,712
$2,671,831
Projects in development or held for future development406,319
401,531
Total properties, net3,097,031
3,073,362
Assets held for sale, net74,415
94,654
Cash and cash equivalents10,858
209,863
Restricted cash and marketable securities1,766
2,756
Investment in unconsolidated real estate joint venture25,194
25,548
Accounts receivable (net of allowance for doubtful accounts of $639 and $603, respectively)27,624
34,438
Deferred rent receivable (net of allowance of $255 and $373, respectively)84,743
90,219
Intangible assets on real estate acquisitions, net64,055
78,351
Deferred leasing costs (net of accumulated amortization of $28,590 and $65,988, respectively)47,033
41,214
Investing receivables56,108
52,279
Prepaid expenses and other assets, net66,538
72,764
Total assets$3,555,365
$3,775,448
Liabilities and equity

Liabilities:

Debt, net$1,873,291
$1,904,001
Accounts payable and accrued expenses121,483
108,682
Rents received in advance and security deposits26,223
29,798
Distributions payable28,462
31,335
Deferred revenue associated with operating leases12,047
12,666
Redeemable preferred units of general partner, 531,667 units outstanding at December 31, 2016 and none at September 30, 2017
26,583
Capital lease obligation16,347


Other liabilities39,459
44,740
Total liabilities2,117,312
2,157,805
Commitments and contingencies (Note 15)



Redeemable noncontrolling interests23,269
22,979
Equity:

Corporate Office Properties, L.P.’s equity:

Preferred units
General partner, 6,900,000 preferred units outstanding at December 31, 2016 and none at September 30, 2017
172,500
Limited partner, 352,000 preferred units outstanding at September 30, 2017 and December 31, 20168,800
8,800
Common units, 99,608,170 and 98,498,651 held by the general partner and 3,253,391 and 3,590,391 held by limited partners at September 30, 2017 and December 31, 2016, respectively1,394,911
1,401,597
Accumulated other comprehensive loss(952)(1,854)
Total Corporate Office Properties, L.P.’s equity1,402,759
1,581,043
Noncontrolling interests in subsidiaries12,025
13,621
Total equity1,414,784
1,594,664
Total liabilities, redeemable noncontrolling interest and equity$3,555,365
$3,775,448
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Revenues

Rental revenue$102,275
$103,956
$304,237
$316,862
Tenant recoveries and other real estate operations revenue24,956
26,998
78,058
81,103
Construction contract and other service revenues29,786
11,149
65,958
34,372
Total revenues157,017
142,103
448,253
432,337
Expenses



Property operating expenses46,368
49,952
143,515
149,968
Depreciation and amortization associated with real estate operations34,438
32,015
100,290
99,790
Construction contract and other service expenses28,788
10,341
63,589
32,513
Impairment (recoveries) losses(161)27,699
1,464
99,837
General, administrative and leasing expenses7,368
8,855
23,838
28,764
Business development expenses and land carry costs1,277
1,716
4,567
6,497
Total operating expenses118,078
130,578
337,263
417,369
Operating income 38,939
11,525
110,990
14,968
Interest expense(19,615)(18,301)(57,772)(64,499)
Interest and other income1,508
1,391
4,817
3,877
Loss on early extinguishment of debt
(59)(513)(37)
Income (loss) before equity in income of unconsolidated entities and income taxes20,832
(5,444)57,522
(45,691)
Equity in income of unconsolidated entities719
594
2,162
614
Income tax (expense) benefit (57)21
(145)28
Income (loss) before gain on sales of real estate21,494
(4,829)59,539
(45,049)
Gain on sales of real estate1,188
34,101
5,438
34,101
Net income (loss)22,682
29,272
64,977
(10,948)
Net income attributable to noncontrolling interests in consolidated entities(897)(913)(2,738)(2,803)
Net income (loss) attributable to COPLP21,785
28,359
62,239
(13,751)
Preferred unit distributions(165)(3,717)(6,714)(11,152)
Issuance costs associated with redeemed preferred units

(6,847)
Net income (loss) attributable to COPLP common unitholders$21,620
$24,642
$48,678
$(24,903)
Earnings per common unit:



Net income (loss) attributable to COPLP common unitholders - basic$0.21
$0.25
$0.47
$(0.26)
Net income (loss) attributable to COPLP common unitholders - diluted$0.21
$0.25
$0.47
$(0.26)
Distributions declared per common unit$0.275
$0.275
$0.825
$0.825
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Net income (loss)$22,682
$29,272
$64,977
$(10,948)
Other comprehensive income (loss)

Unrealized (loss) gain on interest rate derivatives(301)407
(1,877)(16,581)
Loss on interest rate derivatives recognized in interest expense (effective portion)615
1,043
2,652
2,763
Loss on interest rate derivatives recognized in interest expense (ineffective portion)

88

Equity in other comprehensive income (loss) of equity method investee

39
(184)
Other comprehensive income (loss)314
1,450
902
(14,002)
Comprehensive income (loss)22,996
30,722
65,879
(24,950)
Comprehensive income attributable to noncontrolling interests(897)(913)(2,738)(2,803)
Comprehensive income (loss) attributable to COPLP$22,099
$29,809
$63,141
$(27,753)
Limited Partner Preferred UnitsGeneral Partner Preferred UnitsCommon UnitsAccumulated Other Comprehensive Income (Loss)Noncontrolling Interests in Subsidiaries
UnitsAmountUnitsAmountUnitsAmountTotal Equity
Balance at December 31, 2015352,000
$8,800
7,431,667
$199,083
98,208,903
$1,400,745
$(2,985)$10,921
$1,616,564
Costs associated with common shares issued to the public




(5)

(5)
Share-based compensation (units net of redemption)



146,274
6,177


6,177
Redemptions of vested equity awards




(2,179)

(2,179)
Comprehensive loss
495

10,657

(24,903)(14,002)1,124
(26,629)
Distributions to owners of common and preferred units
(495)
(10,657)
(81,142)

(92,294)
Distributions to noncontrolling interests in subsidiaries






(12)(12)
Adjustment to arrive at fair value of redeemable noncontrolling interest




(516)

(516)
Tax loss from share-based compensation




(319)

(319)
Balance at September 30, 2016352,000
$8,800
7,431,667
$199,083
98,355,177
$1,297,858
$(16,987)$12,033
$1,500,787
Balance at December 31, 2016352,000
$8,800
6,900,000
$172,500
102,089,042
$1,401,597
$(1,854)$13,621
$1,594,664
Redemption of preferred units resulting from redemption of preferred shares

(6,900,000)(172,500)



(172,500)
Issuance of common units resulting from common shares issued under COPT at-the-market program



591,042
19,668


19,668
Issuance of common units resulting from exercise of share options



5,000
150


150
Share-based compensation (units net of redemption)



176,477
4,444


4,444
Redemptions of vested equity awards




(1,869)

(1,869)
Comprehensive income
495

6,219

55,525
902
1,018
64,159
Distributions to owners of common and preferred units
(495)
(6,219)
(84,848)

(91,562)
Distributions to noncontrolling interests in subsidiaries






(2,614)(2,614)
Adjustment to arrive at fair value of redeemable noncontrolling interest




244


244
Balance at September 30, 2017352,000
$8,800

$
102,861,561
$1,394,911
$(952)$12,025
$1,414,784
For the Nine Months Ended September 30,
20172016
Cash flows from operating activities

Revenues from real estate operations received$390,116
$393,300
Construction contract and other service revenues received72,682
54,399
Property operating expenses paid(144,187)(154,203)
Construction contract and other service expenses paid(57,189)(33,169)
General, administrative, leasing, business development and land carry costs paid(27,066)(27,879)
Interest expense paid(55,637)(61,662)
Lease incentives(9,414)(1,789)
Other1,373
976
Net cash provided by operating activities170,678
169,973
Cash flows from investing activities

Construction, development and redevelopment(113,678)(121,297)
Tenant improvements on operating properties(19,876)(26,055)
Other capital improvements on operating properties(15,174)(22,063)
Proceeds from dispositions of properties101,107
210,661
Proceeds from partial sale of properties, net of related debt
43,686
Leasing costs paid(6,468)(6,024)
Other1,359
(991)
Net cash (used in) provided by investing activities(52,730)77,917
Cash flows from financing activities

Proceeds from debt
Revolving Credit Facility268,000
362,500
Other debt proceeds
105,000
Repayments of debt
Revolving Credit Facility(98,000)(406,000)
Scheduled principal amortization(2,878)(4,454)
Other debt repayments(200,150)(203,056)
Deferred financing costs paid
(825)
Net proceeds from issuance of common units 19,834
(46)
Redemption of preferred units(199,083)
Common unit distributions paid(84,655)(81,053)
Preferred unit distributions paid(9,800)(11,152)
Distributions paid to redeemable noncontrolling interests(7,860)(14,329)
Redemption of vested equity awards(1,869)(2,179)
Other(492)(5,032)
Net cash used in financing activities(316,953)(260,626)
Net decrease in cash and cash equivalents(199,005)(12,736)
Cash and cash equivalents

Beginning of period209,863
60,310
End of period$10,858
$47,574
For the Nine Months Ended September 30,
20172016
Reconciliation of net income (loss) to net cash provided by operating activities:

Net income (loss)$64,977
$(10,948)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization101,963
101,429
Impairment losses1,457
99,797
(Gain) loss on interest rate derivatives(43)347
Amortization of deferred financing costs and net debt discounts3,514
4,456
Increase in deferred rent receivable(545)(930)
Gain on sales of real estate(5,438)(34,101)
Share-based compensation4,092
5,637
Other(3,970)(2,727)
Operating changes in assets and liabilities:
Decrease in accounts receivable7,498
3,658
Decrease (increase) in restricted cash and marketable securities1,748
(495)
Decrease (increase) in prepaid expenses and other assets, net3,190
(19,778)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(4,190)32,036
Decrease in rents received in advance and security deposits(3,575)(8,408)
Net cash provided by operating activities$170,678
$169,973
Supplemental schedule of non-cash investing and financing activities:

Increase in accrued capital improvements, leasing and other investing activity costs$17,129
$9,963
Increase in property in connection with capital lease obligation$16,127
$
Increase in property and redeemable noncontrolling interests in connection with property contributed in a joint venture$
$22,600
Decrease in redeemable noncontrolling interests and increase in other liabilities in connection with distribution payable to redeemable noncontrolling interest$
$6,683
Non-cash changes from partial sale of properties, net of debt:
Decrease in properties, net$
$(114,597)
Increase in investment in unconsolidated real estate joint venture$
$25,680
Decrease in debt$
$59,534
Other net decreases in assets and liabilities$
$3,619
Increase (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$774
$(13,817)
Equity in other comprehensive income (loss) of an equity method investee$39
$(184)
Distributions payable$28,462
$30,225
(Decrease) increase in redeemable noncontrolling interest and (increase) decrease in equity to carry redeemable noncontrolling interest at fair value$(244)$516
ten office properties under construction or redevelopment that we estimate will total approximately 1.1 million square feet upon completion, including three triple-net leased, single-tenant data center properties, three partially operational properties and two properties completed but held for future lease to the United States Government;
984 acres of land we controlled for future development that we believe could be developed into approximately 12.3 million square feet and an additional 152 acres of other land; and
Balance sheet reporting: We believe that we will apply an approach under the new guidance that is similar to the current accounting for operating leases, in which we will continue to recognize the underlying leased asset as property on our balance sheet.
Deferral of non-incremental lease costs: Under the new lease guidance, we will no longer be able to defer the recognition of non-incremental costs in connection with new or extended tenant leases (refer to amounts reported in our 2016 Annual Report on Form 10-K for amounts deferred in 2014, 2015 and 2016). Upon adoption of the new guidance, we would expense previously deferred non-incremental lease costs for existing leases unless we elect the package of practical expedients, in which case such costs would remain deferred and amortized over the remaining lease terms.
Lease revenue reporting: We believe that the new revenue standard will apply to executory costs and other components of revenue deemed to be non-lease components (such as common area maintenance and provision of utilities), even when the revenue for such activities is not separately stipulated in the lease. In that case, we would need to separate the lease components of revenue due under leases from the non-lease components and the revenue from these items previously recognized on a straight-line basis under current lease guidance would be recognized under the new revenue guidance as the related services are delivered. As a result, while the total revenue recognized over time would not differ under the new guidance, the recognition pattern could be different. We are in the process of evaluating the significance of the difference in the recognition pattern that would result from this change.
Our most significant leases as lessee are ground leases we have for certain properties; as of September 30, 2017, our future minimum rental payments under these leases totaled $90.2 million, with various expiration dates extending to the year 2100. While we are still in the process of evaluating these leases under the new guidance, we believe that we will be required to recognize a right-of-use asset and a lease liability for the present value of these minimum lease payments. We also believe that these types of leases most likely would be classified as finance leases under the new guidance, which would result in the interest component of each lease payment being recorded as interest expense and the right-of-use asset being amortized into expense using the straight-line method over the life of the lease; however, if we elect to apply the package of practical expedients, we will continue to account for our existing ground leases as operating leases upon adoption of the guidance.
DescriptionQuoted Prices in
Active Markets for
Identical Assets (Level 1)
Significant Other
Observable Inputs(Level 2)
Significant
Unobservable Inputs(Level 3)
Total
Assets:



Marketable securities in deferred compensation plan (1)



Mutual funds$4,336
$
$
$4,336
Other71


71
Interest rate derivatives (2)
126

126
Total assets$4,407
$126
$
$4,533
Liabilities:



Deferred compensation plan liability (3)$
$4,407
$
$4,407
Interest rate derivatives (3)
316

316
Total liabilities$
$4,723
$
$4,723
DescriptionQuoted Prices in
Active Markets for
Identical Assets (Level 1)
Significant Other
Observable Inputs(Level 2)
Significant
Unobservable Inputs(Level 3)
Total
Assets:



Interest rate derivatives (1)$
$126
$
$126
Liabilities:



Interest rate derivatives (2)$
$316
$
$316
September 30,
2017
December 31,
2016
Land$440,771
$433,311
Buildings and improvements3,009,203
2,944,905
Less: Accumulated depreciation(759,262)(706,385)
Operating properties, net$2,690,712
$2,671,831
September 30,
2017
December 31,
2016
Land$216,108
$195,521
Development in progress, excluding land190,211
206,010
Projects in development or held for future development$406,319
$401,531
as of December 31, 2016: eight operating properties in White Marsh (included primarily in our Regional Office segment); one operating property in our Northern Virginia Defense/IT sub-segment; and land in White Marsh and Northern Virginia.
September 30, 2017December 31, 2016
Properties, net$68,081
$85,402
Deferred rent receivable5,582
4,241
Intangible assets on real estate acquisitions, net
338
Deferred leasing costs, net742
3,636
Lease incentives, net10
1,037
Assets held for sale, net$74,415
$94,654
Project NameCity, StateSegmentDate of SaleNumber of BuildingsTotal Rentable Square FeetTransaction ValueGain on Sale
3120 Fairview Park DriveFalls Church, VANorthern Virginia Defense/IT 2/15/20171
190,000
$39,000
$
1334 Ashton RoadHanover, MDFort Meade/BW Corridor6/9/20171
37,000
2,300

Remaining White Marsh Properties (1)White Marsh, MDRegional Office and Other7/28/20178
412,000
47,500
1,180
Dispositions through 9/30/201710
639,000
$88,800
$1,180
11751 Meadowville Lane, an operating property totaling 193,000 square feet in Chester, Virginia (in our Data Center Shells sub-segment), for $44.3 million. We provided a financial guaranty to the buyer under which we would indemnify it for up to $20 million in losses it could incur related to a potential defined capital event occurring on the property by June 30, 2019. Accordingly, we will not recognize the sale of this property for accounting purposes, and will reflect the sale price of the property as a liability, until the guaranty expires. We do not expect to incur any losses under this financial guaranty.
Nominal
OwnershipSeptember 30, 2017 (1)
Date% as ofTotalEncumberedTotal
Acquired9/30/2017Nature of ActivityAssetsAssetsLiabilities
LW Redstone Company, LLC3/23/201085%Development and operation of real estate (2)$158,937
$76,374
$50,344
M Square Associates, LLC6/26/200750%Development and operation of real estate (3)70,767
45,813
46,895
Stevens Investors, LLC8/11/201595%Development of real estate (4)70,383

23,566
$300,087
$122,187
$120,805
(4) This joint venture’s property is in Washington, DC. Our partner in this joint venture received an additional distribution from the joint venture of $6.7 million in July 2017 that was reported in other liabilities on our consolidated balance sheet as of December 31, 2016.
September 30,
2017
December 31,
2016
Notes receivable from the City of Huntsville$53,088
$49,258
Other investing loans receivable3,020
3,021
$56,108
$52,279
September 30,
2017
December 31,
2016
Prepaid expenses$30,932
$24,432
Lease incentives, net17,202
18,276
Furniture, fixtures and equipment, net5,422
5,204
Deferred tax asset, net (1)2,851
3,036
Non-real estate equity method investments2,413
2,355
Construction contract costs incurred in excess of billings2,005
10,350
Deferred financing costs, net (2)1,419
3,128
Other assets4,294
5,983
Prepaid expenses and other assets, net$66,538
$72,764
Carrying Value (1) as of
September 30,
2017
December 31,
2016
Stated Interest Rates as ofScheduled Maturity as of
September 30, 2017September 30, 2017
Mortgage and Other Secured Debt:

Fixed rate mortgage debt (2)$151,594
$154,143
3.82% - 7.87% (3)2019-2026
Variable rate secured debt13,200
13,448
LIBOR + 1.85% (4)October 2020
Total mortgage and other secured debt164,794
167,591
Revolving Credit Facility 170,000

LIBOR + 0.875% to 1.60% (5)May 2019 (6)
Term Loan Facilities (7)348,371
547,494
LIBOR + 0.90% to 2.40% (8)2020-2022
Unsecured Senior Notes
3.600%, $350,000 aggregate principal347,445
347,128
3.60% (9)May 2023
5.250%, $250,000 aggregate principal246,525
246,176
5.25% (10)February 2024
3.700%, $300,000 aggregate principal298,200
297,843
3.70% (11)June 2021
5.000%, $300,000 aggregate principal296,639
296,368
5.00% (12)July 2025
Unsecured notes payable1,317
1,401
0% (13)2026
Total debt, net$1,873,291
$1,904,001
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $4.8 million as of September 30, 2017 and $6.1 million as of December 31, 2016.
(2) Certain fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling $367,000 as of September 30, 2017 and $422,000 as of December 31, 2016.
(6)The facility matures in May 2019, with the ability for us to further 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 0.075% of the total availability under the facility for each extension period.
(7) As of September 30, 2017, we have the ability to borrow an additional $350.0 million in the aggregate under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders. On May 1, 2017, we repaid $200.0 million of the loan balance on a term loan scheduled to mature in 2020.
(9)The carrying value of these notes reflects an unamortized discount totaling $1.8 million as of September 30, 2017 and $2.0 million as of December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.
(10)The carrying value of these notes reflects an unamortized discount totaling $3.1 million as of September 30, 2017 and $3.4 million as of December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.
(11)The carrying value of these notes reflects an unamortized discount totaling $1.4 million as of September 30, 2017 and $1.7 million as of December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.
(13) These notes carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling $394,000 as of September 30, 2017 and $460,000 as of December 31, 2016.
September 30, 2017December 31, 2016
CarryingFairCarryingFair
AmountValueAmountValue
Fixed-rate debt



Unsecured Senior Notes$1,188,809
$1,231,222
$1,187,515
$1,220,282
Other fixed-rate debt152,911
154,781
155,544
156,887
Variable-rate debt531,571
531,520
560,942
558,437
$1,873,291
$1,917,523
$1,904,001
$1,935,606





Fair Value at
Notional AmountFixed Rate
Floating Rate Index
Effective Date
Expiration Date
September 30,
2017

December 31,
2016
$100,000

1.7300%
One-Month LIBOR
9/1/2015
8/1/2019
$(237)
$(848)
13,311
(1)1.3900%One-Month LIBOR10/13/201510/1/2020126
100
100,000
1.9013%One-Month LIBOR9/1/201612/1/2022(27)(23)
100,000
1.9050%One-Month LIBOR9/1/201612/1/2022(22)48
50,000
1.9079%One-Month LIBOR9/1/201612/1/2022(30)10
100,000
(2)1.6730%
One-Month LIBOR
9/1/2015
8/1/2019


(701)





$(190)
$(1,414)
(2) We cash settled this derivative and interest accrued thereon for $460,000 on May 1, 2017. Since the hedged transactions associated with this derivative were still probable to occur as of the settlement date, amounts in accumulated other comprehensive loss (“AOCL”) associated with this derivative will be reclassified to interest expense through August 2019.
Fair Value at
DerivativesBalance Sheet LocationSeptember 30,
2017
December 31, 2016
Interest rate swaps designated as cash flow hedgesPrepaid expenses and other assets$126
$158
Interest rate swaps designated as cash flow hedgesOther liabilities(316)(1,572)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Unrealized (loss) gain recognized in AOCL (effective portion)$(301)$407
$(1,877)$(16,581)
Loss reclassified from AOCL into interest expense (effective portion)(615)(1,043)(2,652)(2,763)
Gain (loss) on derivatives recognized in interest expense (ineffective portion)34
1,523
132
(347)
Loss reclassified from AOCL into interest expense (ineffective portion) (1)

(88)
For the Nine Months Ended September 30,
20172016
Beginning balance$22,979
$19,218
Contributions from noncontrolling interests
22,779
Distributions to noncontrolling interests(1,186)(21,344)
Net income attributable to noncontrolling interests1,720
1,679
Adjustment to arrive at fair value of interests(244)516
Ending balance$23,269
$22,848
the 5.600% Series K Cumulative Redeemable Preferred Shares (the “Series K Preferred Shares”), redeemed effective January 21, 2017 at a price of $50.00 per share, or $26.6 million in the aggregate, plus accrued and unpaid dividends thereon through the date of redemption. Concurrently with this redemption, COPLP redeemed its Series K Preferred Units on the same terms. Since we made an irrevocable notification to holders of the Series K Preferred Shares in December 2016 of our intention to redeem such shares, we presented the liquidation preference of the shares/units as a liability on the consolidated balance sheets of COPT and COPLP as of December 31, 2016; we also recognized a $17,000 decrease to net income available to common shareholders/unitholders in the three months ended December 31, 2016 pertaining to the original issuance costs incurred on the shares/units; and
the 7.375% Series L Cumulative Preferred Shares (the “Series L Preferred Shares”), redeemed effective June 27, 2017 at a price of $25.00 per share, or $172.5 million in the aggregate, plus accrued and unpaid dividends thereon up to but not including the date of redemption. Concurrently with this redemption, COPLP redeemed its Series L Preferred Units on the same terms. We also recognized a $6.8 million decrease to net income available to common shareholders/unitholders in the nine months ended September 30, 2017 pertaining to the original issuance costs incurred on the shares/units.
Operating Office Property Segments
Defense/Information Technology Locations
Fort Meade/BW CorridorNorthern Virginia Defense/IT Lackland Air Force BaseNavy Support LocationsRedstone ArsenalData Center ShellsTotal Defense/IT LocationsRegional OfficeOperating
Wholesale
Data Center
OtherTotal
Three Months Ended September 30, 2017








Revenues from real estate operations$61,254
$12,190
$11,024
$7,494
$3,532
$6,676
$102,170
$16,656
$7,398
$1,007
$127,231
Property operating expenses(19,708)(4,343)(6,193)(3,157)(1,432)(637)(35,470)(7,406)(3,175)(317)(46,368)
UJV NOI allocable to COPT




1,297
1,297



1,297
NOI from real estate operations$41,546
$7,847
$4,831
$4,337
$2,100
$7,336
$67,997
$9,250
$4,223
$690
$82,160
Additions to long-lived assets$5,810
$2,587
$55
$1,910
$843
$
$11,205
$5,338
$9
$76
$16,628
Transfers from non-operating properties$5,519
$45,554
$
$8
$(62)$29,803
$80,822
$25
$
$
$80,847
Three Months Ended September 30 2016









Revenues from real estate operations$61,460
$12,231
$12,532
$7,232
$3,189
$5,175
$101,819
$20,499
$6,809
$1,827
$130,954
Property operating expenses(20,598)(4,462)(7,599)(3,374)(1,112)(528)(37,673)(8,155)(3,317)(807)(49,952)
UJV NOI allocable to COPT




1,008
1,008



1,008
NOI from real estate operations$40,862
$7,769
$4,933
$3,858
$2,077
$5,655
$65,154
$12,344
$3,492
$1,020
$82,010
Additions to long-lived assets$5,901
$7,153
$
$2,207
$2,642
$
$17,903
$4,168
$108
$53
$22,232
Transfers from non-operating properties$5,331
$308
$3
$
$3,100
$25,513
$34,255
$(4)$40
$
$34,291
Nine Months Ended September 30, 2017








Revenues from real estate operations$183,393
$34,992
$35,687
$21,953
$10,616
$17,998
$304,639
$52,394
$21,201
$4,061
$382,295
Property operating expenses(60,357)(13,014)(21,125)(9,391)(4,294)(1,873)(110,054)(21,974)(10,041)(1,446)(143,515)
UJV NOI allocable to COPT




3,889
3,889



3,889
NOI from real estate operations$123,036
$21,978
$14,562
$12,562
$6,322
$20,014
$198,474
$30,420
$11,160
$2,615
$242,669
Additions to long-lived assets$15,085
$6,032
$71
$6,309
$1,059
$
$28,556
$16,476
$3,588
$203
$48,823
Transfers from non-operating properties$37,094
$45,994
$
$474
$1,643
$55,003
$140,208
$
$8
$18
$140,234
Segment assets at September 30, 2017$1,265,569
$400,855
$129,657
$194,801
$108,884
$258,611
$2,358,377
$398,579
$226,909
$13,347
$2,997,212
Nine Months Ended September 30, 2016








Revenues from real estate operations$184,881
$36,404
$34,408
$21,164
$9,496
$18,793
$305,146
$67,284
$20,106
$5,429
$397,965
Property operating expenses(64,222)(13,310)(19,863)(9,573)(3,050)(2,164)(112,182)(26,707)(8,629)(2,450)(149,968)
UJV NOI allocable to COPT




1,008
1,008



1,008
NOI from real estate operations$120,659
$23,094
$14,545
$11,591
$6,446
$17,637
$193,972
$40,577
$11,477
$2,979
$249,005
Additions to long-lived assets$19,516
$13,290
$
$5,710
$3,561
$
$42,077
$9,107
$108
$363
$51,655
Transfers from non-operating properties$41,850
$28,158
$240
$
$3,315
$81,467
$155,030
$104
$(391)$(11)$154,732
Segment assets at September 30, 2016$1,261,337
$416,886
$132,722
$195,244
$111,310
$189,746
$2,307,245
$453,766
$234,551
$31,563
$3,027,125
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Segment revenues from real estate operations$127,231
$130,954
$382,295
$397,965
Construction contract and other service revenues29,786
11,149
65,958
34,372
Total revenues$157,017
$142,103
$448,253
$432,337
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
UJV NOI allocable to COPT$1,297
$1,008
$3,889
$1,008
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense(577)(415)(1,724)(415)
Add: Equity in (loss) income of unconsolidated non-real estate entities(1)1
(3)21
Equity in income of unconsolidated entities$719
$594
$2,162
$614
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Construction contract and other service revenues$29,786
$11,149
$65,958
$34,372
Construction contract and other service expenses(28,788)(10,341)(63,589)(32,513)
NOI from service operations$998
$808
$2,369
$1,859
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
NOI from real estate operations$82,160
$82,010
$242,669
$249,005
NOI from service operations998
808
2,369
1,859
Interest and other income 1,508
1,391
4,817
3,877
Equity in income of unconsolidated entities719
594
2,162
614
Income tax (expense) benefit(57)21
(145)28
Depreciation and other amortization associated with real estate operations(34,438)(32,015)(100,290)(99,790)
Impairment recoveries (losses)161
(27,699)(1,464)(99,837)
General, administrative and leasing expenses(7,368)(8,855)(23,838)(28,764)
Business development expenses and land carry costs(1,277)(1,716)(4,567)(6,497)
Interest expense(19,615)(18,301)(57,772)(64,499)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities(1,297)(1,008)(3,889)(1,008)
Loss on early extinguishment of debt
(59)(513)(37)
Income (loss) before gain on sales of real estate$21,494
$(4,829)$59,539
$(45,049)
September 30,
2017
September 30,
2016
Segment assets$2,997,212
$3,027,125
Non-operating property assets413,255
421,364
Other assets149,305
185,705
Total COPT consolidated assets$3,559,772
$3,634,194
Percentile RankEarned PSUs Payout %
75th or greater200% of PSUs granted
50th or greater100% of PSUs granted
25th50% of PSUs granted
Below 25th0% of PSUs granted
the aggregate dividends that would have been paid with respect to the common shares issued in settlement of the earned PSUs through the date of settlement had such shares been issued on the grant date, divided by the share price on such settlement date, as defined under the terms of the agreement.
the denominator is increased to include: (1) the weighted average number of potential additional common shares that would have been outstanding if securities that are convertible into COPT common shares were converted; and (2) the effect of dilutive potential common shares outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and
the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common shares that we added to the denominator.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Numerator:

Net income (loss) attributable to COPT$20,916
$27,299
$60,133
$(13,294)
Preferred share dividends
(3,552)(6,219)(10,657)
Issuance costs associated with redeemed preferred shares

(6,847)
Income attributable to share-based compensation awards(95)(105)(337)(319)
Numerator for basic and diluted EPS on net income (loss) attributable to COPT common shareholders$20,821
$23,642
$46,730
$(24,270)
Denominator (all weighted averages):

Denominator for basic EPS (common shares)99,112
94,433
98,855
94,312
Dilutive effect of share-based compensation awards146
81
154

Denominator for diluted EPS (common shares) 99,258
94,514
99,009
94,312
Basic EPS:

Net income (loss) attributable to COPT common shareholders$0.21
$0.25
$0.47
$(0.26)
Diluted EPS:

Net income (loss) attributable to COPT common shareholders$0.21
$0.25
$0.47
$(0.26)
Weighted Average Shares Excluded from Denominator
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Conversion of common units3,350
3,591
3,400
3,648
Conversion of Series I Preferred Units176
176
176
176
Conversion of Series K Preferred Shares
434

434
weighted average restricted shares and deferred share awards for the three months ended September 30, 2017 and 2016 of 445,000 and 375,000, respectively, and for the nine months endedSeptember 30, 2017 and 2016 of 431,000 and 394,000, respectively; and
weighted average options for the three months ended September 30, 2017 and 2016 of 40,000 and 233,000, respectively, and for the nine months ended September 30, 2017 and 2016 of 80,000 and 307,000, respectively.
the denominator is increased to include: (1) the weighted average number of potential additional common units that would have been outstanding if securities that are convertible into our common units were converted; and (2) the effect of dilutive potential common units outstanding during the period attributable to share-based compensation using the treasury stock or if-converted methods; and
the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common units that we added to the denominator.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Numerator:

Net income (loss) attributable to COPLP common unitholders$21,785
$28,359
$62,239
$(13,751)
Preferred unit distributions(165)(3,717)(6,714)(11,152)
Issuance costs associated with redeemed preferred units

(6,847)
Income attributable to share-based compensation awards(95)(105)(337)(319)
Numerator for basic and diluted EPU on net income (loss) attributable to COPLP common unitholders$21,525
$24,537
$48,341
$(25,222)
Denominator (all weighted averages):

Denominator for basic EPU (common units)102,462
98,024
102,255
97,960
Dilutive effect of share-based compensation awards146
81
154

Denominator for diluted EPU (common units)102,608
98,105
102,409
97,960
Basic EPU:

Net income (loss) attributable to COPLP common unitholders$0.21
$0.25
$0.47
$(0.26)
Diluted EPU:

Net income (loss) attributable to COPLP common unitholders$0.21
$0.25
$0.47
$(0.26)
Weighted Average Units Excluded from Denominator
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
Conversion of Series I preferred units176
176
176
176
Conversion of Series K preferred units
434

434
weighted average restricted units and deferred share awards for the three months ended September 30, 2017 and 2016 of 445,000 and 375,000, respectively, and for the nine months endedSeptember 30, 2017 and 2016 of 431,000 and 394,000, respectively; and
weighted average options for the three months ended September 30, 2017 and 2016 of 40,000 and 233,000, respectively, and for the nine months ended September 30, 2017 and 2016 of 80,000 and 307,000, respectively.
Year Ending December 31,
2017 (1)$320
20181,275
20191,263
20201,257
20211,260
Thereafter85,761
$91,136
Year Ending December 31,
2017 (1)$700
201815,775
2020135
Thereafter75
Total minimum rental payments$16,685
Less: Amount representing interest(338)
Capital lease obligation$16,347
we placed into service an aggregate of 839,000 square feet in eight newly constructed or redeveloped properties that were 89% leased as of September 30, 2017;
we sold ten operating properties totaling 639,000 square feet that were 89.4% occupied for $88.8 million and other land for $14.3 million. The net proceeds from these sales were used primarily to repay borrowings under our Revolving Credit Facility and to fund cash reserves;
we repaid $200.0 million of the loan balance on a term loan scheduled to mature in 2020 using available cash;
Series K Preferred Shares effective January 21, 2017 at a price of $50.00 per share, or $26.6 million in the aggregate, plus accrued and unpaid dividends thereon through the date of redemption using available cash. Concurrently with this redemption, COPLP redeemed its Series K Preferred Units on the same terms; and
Series L Preferred Shares effective June 27, 2017 at a price of $25.00 per share, or $172.5 million in the aggregate, plus accrued and unpaid dividends thereon through the date of redemption using borrowings from our Revolving Credit Facility. Concurrently with this redemption, COPLP redeemed its Series L Preferred Units on the same terms; and
COPT issued 591,042 common shares at a weighted average price of $33.84 per share under its ATM stock offering program. Net proceeds from the shares issued totaled $19.7 million, which were used primarily to fund cash reserves.
11751 Meadowville Lane, an operating property totaling 193,000 square feet in Chester, Virginia (in our Data Center Shells sub-segment), for $44.3 million. We provided a financial guaranty to the buyer under which we would indemnify it for up to $20 million in losses it could incur related to a potential defined capital event occurring on the property by June 30, 2019. Accordingly, we will not recognize the sale of this property for accounting purposes, and will reflect the sale price of the property as a liability, until the guaranty expires. We do not expect to incur any losses under this financial guaranty.
adverse changes in the real estate markets, including, among other things, increased competition with other companies;
governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment of demand for additional space by our strategic customers;
risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;
changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
September 30, 2017December 31, 2016
Occupancy rates at period end

Total93.4%92.1%
Defense/IT Locations:
Fort Meade/BW Corridor95.6%94.3%
Northern Virginia Defense/IT88.7%85.0%
Lackland Air Force Base100.0%100.0%
Navy Support Locations82.5%72.7%
Redstone Arsenal97.9%96.4%
Data Center Shells100.0%100.0%
Total Defense/IT Locations94.7%92.6%
Regional Office92.4%95.2%
Other29.4%52.9%
Average contractual annual rental rate per square foot at period end (1)$29.94
$30.16
(1) Includes estimated expense reimbursements. Amounts reported include the portion of properties owned through an unconsolidated real estate joint venture that was allocable to our ownership interest.
RentableSquare FeetOccupiedSquare Feet
(in thousands)
December 31, 201617,190
15,831
Square feet vacated
(316)
Occupancy of previously vacated space in connection with new leases (1)
412
Square feet constructed or redeveloped839
866
Dispositions(639)(572)
Square feet removed from operations for redevelopment(22)
Other changes8
5
September 30, 201717,376
16,226
constructed or redeveloped office properties placed into service that were not 100% operational throughout the current and prior year reporting periods;
For the Three Months Ended September 30,
20172016Variance
(in thousands)
Revenues


Revenues from real estate operations$127,231
$130,954
$(3,723)
Construction contract and other service revenues29,786
11,149
18,637
Total revenues157,017
142,103
14,914
Expenses


Property operating expenses46,368
49,952
(3,584)
Depreciation and amortization associated with real estate operations34,438
32,015
2,423
Construction contract and other service expenses28,788
10,341
18,447
Impairment (recoveries) losses(161)27,699
(27,860)
General, administrative and leasing expenses7,368
8,855
(1,487)
Business development expenses and land carry costs1,277
1,716
(439)
Total operating expenses118,078
130,578
(12,500)
Operating income 38,939
11,525
27,414
Interest expense(19,615)(18,301)(1,314)
Interest and other income1,508
1,391
117
Loss on early extinguishment of debt
(59)59
Equity in income of unconsolidated entities719
594
125
Income tax (expense) benefit(57)21
(78)
Income (loss) before gain on sales of real estate21,494
(4,829)26,323
Gain on sales of real estate1,188
34,101
(32,913)
Net income $22,682
$29,272
$(6,590)
For the Three Months Ended September 30,
20172016Variance
(Dollars in thousands, except per square foot data)
Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue$86,226
$84,889
$1,337
Lease termination revenue860
389
471
Tenant recoveries and other real estate operations revenue22,258
24,312
(2,054)
Same Office Properties total revenues109,344
109,590
(246)
Constructed and redeveloped properties placed in service6,969
2,094
4,875
Wholesale data center7,398
6,809
589
Properties held for sale2,723
2,700
23
Dispositions538
9,506
(8,968)
Other259
255
4
127,231
130,954
(3,723)
Property operating expenses
Same Office Properties(40,981)(42,745)1,764
Constructed and redeveloped properties placed in service(1,555)(513)(1,042)
Wholesale data center(3,175)(3,317)142
Properties held for sale(299)(283)(16)
Dispositions(124)(2,743)2,619
Other(234)(351)117
(46,368)(49,952)3,584
UJV NOI allocable to COPT1,297
1,008
289
NOI from real estate operations
Same Office Properties68,363
66,845
1,518
Constructed and redeveloped properties placed in service5,414
1,581
3,833
Wholesale data center4,223
3,492
731
Properties held for sale2,424
2,417
7
Dispositions414
6,763
(6,349)
Other1,322
912
410
$82,160
$82,010
$150
Same Office Properties rent statistics
Average occupancy rate92.6%91.6%1.0%
Average straight-line rent per occupied square foot (1)$6.46
$6.43
$0.03
For the Three Months Ended September 30,
20172016Variance
(in thousands)
Construction contract and other service revenues$29,786
$11,149
$18,637
Construction contract and other service expenses28,788
10,341
18,447
NOI from service operations$998
$808
$190
For the Nine Months Ended September 30,
20172016Variance
(in thousands)
Revenues


Revenues from real estate operations$382,295
$397,965
$(15,670)
Construction contract and other service revenues65,958
34,372
31,586
Total revenues448,253
432,337
15,916
Expenses


Property operating expenses143,515
149,968
(6,453)
Depreciation and amortization associated with real estate operations100,290
99,790
500
Construction contract and other service expenses63,589
32,513
31,076
Impairment losses1,464
99,837
(98,373)
General, administrative and leasing expenses23,838
28,764
(4,926)
Business development expenses and land carry costs4,567
6,497
(1,930)
Total operating expenses337,263
417,369
(80,106)
Operating income 110,990
14,968
96,022
Interest expense(57,772)(64,499)6,727
Interest and other income4,817
3,877
940
Loss on early extinguishment of debt(513)(37)(476)
Equity in income of unconsolidated entities2,162
614
1,548
Income tax (expense) benefit (145)28
(173)
Income (loss) before gain on sales of real estate59,539
(45,049)104,588
Gain on sales of real estate5,438
34,101
(28,663)
Net income (loss)$64,977
$(10,948)$75,925
For the Nine Months Ended September 30,
20172016Variance
(Dollars in thousands, except per square foot data)
Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue$259,141
$252,914
$6,227
Lease termination revenue2,083
1,678
405
Tenant recoveries and other real estate operations revenue69,995
70,509
(514)
Same Office Properties total revenues331,219
325,101
6,118
Constructed and redeveloped properties placed in service15,357
4,780
10,577
Wholesale data center21,201
20,106
1,095
Properties held for sale8,182
8,211
(29)
Dispositions5,522
38,998
(33,476)
Other814
769
45
382,295
397,965
(15,670)
Property operating expenses
Same Office Properties(125,651)(125,872)221
Constructed and redeveloped properties placed in service(4,206)(1,016)(3,190)
Wholesale data center(10,041)(8,629)(1,412)
Properties held for sale(918)(930)12
Dispositions(1,695)(12,743)11,048
Other(1,004)(778)(226)
(143,515)(149,968)6,453
UJV NOI allocable to COPT3,889
1,008
2,881
NOI from real estate operations
Same Office Properties205,568
199,229
6,339
Constructed and redeveloped properties placed in service11,151
3,764
7,387
Wholesale data center11,160
11,477
(317)
Properties held for sale7,264
7,281
(17)
Dispositions3,827
26,255
(22,428)
Other3,699
999
2,700
$242,669
$249,005
$(6,336)
Same Office Properties rent statistics
Average occupancy rate92.5%91.4%1.1%
Average straight-line rent per occupied square foot (1)$19.46
$19.22
$0.24
For the Nine Months Ended September 30,
20172016Variance
(in thousands)
Construction contract and other service revenues$65,958
$34,372
$31,586
Construction contract and other service expenses63,589
32,513
31,076
NOI from service operations$2,369
$1,859
$510
$34.4 million on operating properties in Aberdeen (included in our Other segment). After shortening our estimated holding period for these properties, we determined that the carrying amount of the properties would not likely be recovered from the operation and eventual dispositions of the properties during the shortened holding period. Accordingly, we adjusted the properties to their estimated fair values;
$4.4 million on land in Aberdeen. In performing our analysis related to the operating properties in Aberdeen, we determined that the weakening leasing and overall commercial real estate conditions in that market indicated that our land holdings in the market may be impaired. As a result, we determined that the carrying amount of the land was not recoverable and adjusted the land to its estimated fair value;
$8.2 million on land in Frederick, Maryland. We determined that the carrying amount of the land would not likely be recovered from its sale and adjusted the land to its estimated fair value;
$14.1 million on operating properties in our Northern Virginia and Fort Meade/BW Corridor sub-segments that we reclassified to held for sale during the period whose carrying amounts exceeded their estimated fair values less costs to sell;
$2.4 million primarily on land in Colorado Springs and operating properties in White Marsh (included in our Regional Office Segment) classified as held for sale whose carrying amounts exceeded their estimated fair values less costs to sell based on updated negotiations with prospective buyers.
$13.3 million on the operating property in our Northern Virginia Defense/IT sub-segment. Communication with a major tenant in the building during the quarter led us to conclude that there was significant uncertainty with respect to the tenant renewing its lease expiring in 2019. As a result of this information and continuing sub-market weakness, we determined that this property no longer met our long-term hold strategy and we placed it into our asset sales program. Accordingly, we adjusted the carrying amount of the property to its estimated fair value less costs to sell; and
$2.9 million on the other properties that we reclassified as held for sale, primarily associated with a land parcel in White Marsh. As of June 30, 2016, this land was under a sales contract subject to a re-zoning contingency. During the third quarter, we were denied favorable re-zoning and the contract was canceled. As a result, we determined this property will be sold as is, reclassified it to held for sale and adjusted its carrying value to its estimated fair value less costs to sell.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017201620172016
(Dollars and shares in thousands, except per share data)
Net income (loss)$22,682
$29,272
$64,977
$(10,948)
Add Real estate-related depreciation and amortization34,438
32,015
100,290
99,790
Add: Depreciation and amortization on UJV allocable to COPT310
207
932
207
Add: Impairment (recoveries) losses on previously depreciated operating properties(159)25,857
1,451
81,828
Add: Gain on sales of previously depreciated operating properties(8)(34,101)(39)(34,101)
FFO57,263
53,250
167,611
136,776
Less: Preferred share dividends
(3,552)(6,219)(10,657)
Less: Noncontrolling interests-preferred units in the Operating Partnership(165)(165)(495)(495)
Less: FFO allocable to other noncontrolling interests(917)(894)(2,801)(2,935)
Less: Issuance costs associated with redeemed preferred shares

(6,847)
Basic and diluted FFO allocable to share-based compensation awards(215)(190)(616)(486)
Basic and diluted FFO available to common share and common unit holders55,966
48,449
150,633
122,203
Gain on sales of non-operating properties(1,180)
(5,399)
Impairment (recoveries) losses on non-operating properties(2)1,842
13
18,009
(Gain) loss on interest rate derivatives(34)(1,523)(43)347
Loss on early extinguishment of debt
59
513
37
Issuance costs associated with redeemed preferred shares

6,847

Executive transition costs2
1,639
732
6,023
Demolition costs on redevelopment properties

294
578
Diluted FFO comparability adjustments allocable to share-based compensation awards5
(5)(12)(99)
Diluted FFO available to common share and common unit holders, as adjusted for comparability$54,757
$50,461
$153,578
$147,098
Weighted average common shares99,112
94,433
98,855
94,312
Conversion of weighted average common units3,350
3,591
3,400
3,648
Weighted average common shares/units - Basic FFO102,462
98,024
102,255
97,960
Dilutive effect of share-based compensation awards146
81
154
98
Weighted average common shares/units - Diluted FFO102,608
98,105
102,409
98,058
Diluted FFO per share$0.55
$0.49
$1.47
$1.25
Diluted FFO per share, as adjusted for comparability$0.53
$0.51
$1.50
$1.50
Denominator for diluted EPS99,258
94,514
99,009
94,312
Weighted average common units3,350
3,591
3,400
3,648
Anti-dilutive EPS effect of share-based compensation awards


98
Denominator for diluted FFO per share measures102,608
98,105
102,409
98,058
Construction, development and redevelopment$140,666
Tenant improvements on operating properties21,056
(1)
Capital improvements on operating properties13,051
$174,773
For the Periods Ending December 31,
20172018201920202021ThereafterTotal
Contractual obligations (1)






Debt (2)






Balloon payments due upon maturity$
$
$170,000
$112,132
$300,000
$1,276,829
$1,858,961
Scheduled principal payments1,033
4,241
4,387
4,024
3,875
10,680
28,240
Interest on debt (3)18,318
73,020
70,114
66,708
58,846
117,338
404,344
New development and redevelopment obligations (4)(5)23,932
10,269
856



35,057
Third-party construction and development obligations (5)(6)30,083
37,270




67,353
Capital expenditures for operating properties (5)(7)5,509
27,314
12,985



45,808
Capital lease obligation (principal and interest)700
15,775

135

75
16,685
Operating leases (8)320
1,275
1,263
1,257
1,260
85,761
91,136
Other obligations (8)172
380
342
153
39
9
1,095
Total contractual cash obligations$80,067
$169,544
$259,947
$184,409
$364,020
$1,490,692
$2,548,679
(1)The contractual obligations set forth in this table exclude property operations contracts that may be terminated with notice of one month or less and also exclude accruals and payables incurred (with the exclusion of debt) and therefore reflected in our reported liabilities.
(2)Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $13.9 million. As of September 30, 2017, maturities included $170.0 million in 2019 that may be extended to 2020, subject to certain conditions.
(3)Represents interest costs for our outstanding debt as of September 30, 2017 for the terms of such debt. For variable rate debt, the amounts reflected above used September 30, 2017 interest rates on variable rate debt in computing interest costs for the terms of such debt. We expect to pay these items using cash flow from operations.
(4)Represents contractual obligations pertaining to new development and redevelopment activities.
(5)Due to the long-term nature of certain construction and development contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.
(6) Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients. We expect to be reimbursed in full for these costs by our clients.
For the Periods Ending December 31,
20172018201920202021ThereafterTotal
Debt:





Fixed rate debt (1)$939
$3,858
$3,991
$3,718
$303,875
$1,037,509
$1,353,890
Weighted average interest rate4.35%4.37%4.36%3.96%3.70%4.47%4.30%
Variable rate debt (2)$94
$383
$170,396
$112,438
$
$250,000
$533,311
Weighted average interest rate (3)3.09%3.09%2.40%2.69%%3.04%2.76%
(a)During the three months ended September 30, 2017, 150,000 of COPLP’s common units were exchanged for 150,000 COPT common shares in accordance with COPLP’s Second Amended and Restated Limited Partnership Agreement, as amended. The issuance of these common shares was effected in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

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