UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-Q
(Mark one)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2017
March 31, 2020
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
           
Commission file number 1-14023 (Corporate Office Properties Trust)
Commission file number 333-189188 (Corporate Office Properties, L.P.)
Corporate Office Properties Trust
Corporate Office Properties, L.P.
(Exact name of registrant as specified in its charter)
Corporate Office Properties Trust Maryland 23-2947217
  (State or other jurisdiction of (IRS Employer
  incorporation or organization) Identification No.)
     
Corporate Office Properties, L.P. Delaware 23-2930022
  (State or other jurisdiction of (IRS Employer
  incorporation or organization) Identification No.)
6711 Columbia Gateway Drive,Suite 300,Columbia,MD21046
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code:  (443)  (443) 285-5400

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par valueOFCNew York Stock Exchange
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Corporate Office Properties Trust ý☒ Yes   o☐ No
Corporate Office Properties, L.P. ý☒ Yes   o☐ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Corporate Office Properties Trust ý☒ Yes   o☐ No
Corporate Office Properties, L.P. ý☒ Yes   o☐ No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Corporate Office Properties Trust
Large accelerated filerý
☒ 
Accelerated filero
☐ 
Non-accelerated filero
☐ 
Smaller reporting companyo
☐
Emerging growth companyo
(Do not check if a smaller reporting company)☐


Corporate Office Properties, L.P.
Large accelerated filerý
☐ 
Accelerated filero
☐ 
Non-accelerated filero
☒ 
Smaller reporting companyo
☐
Emerging growth companyo
(Do not check if a smaller reporting company)☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 


Corporate Office Properties Trust o☐
Corporate Office Properties, L.P. o☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Corporate Office Properties Trust o☐ Yes   ý☒ No
Corporate Office Properties, L.P. o☐ Yes   ý☒ No


As of October 20, 2017April 21, 2020, 99,609,634112,169,463 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.
     


EXPLANATORY NOTE


This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2017March 31, 2020 of Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) and Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” refer collectively to COPT, COPLP and their subsidiaries.


COPT is a real estate investment trust, or REIT, and the sole general partner of COPLP. As of September 30, 2017March 31, 2020, COPT owned approximately 96.8%98.6% of the outstanding common units and none of the outstanding preferred units in COPLP; the remaining common units and all of the outstanding COPLP preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT controls COPLP and can cause it to enter into major transactions including acquisitions, dispositions and refinancings and cause changes in its line of business, capital structure and distribution policies.


There are a few differences between the Company and the Operating Partnership which are reflected in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnershiptwo operate as an interrelated, consolidated company. COPT is a real estate investment trust,REIT whose only material asset is its ownership of partnership interests of COPLP. As a result, COPT does not conduct business itself, other than acting as the sole general partner of COPLP, issuing public equity from time to time and guaranteeing certain debt of COPLP. COPT itself is not directly obligated under any indebtedness but guarantees some of the debt of COPLP. COPLP owns substantially all of the assets of COPT either directly or through its subsidiaries, conducts almost all of the operations of the business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from public equity issuances by COPT, which are contributed to COPLP in exchange for partnership units, COPLP generates the capital required by COPT’s business through COPLP’s operations, by COPLP’s direct or indirect incurrence of indebtedness or through the issuance of partnership units.business.


Noncontrolling interests, and shareholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of COPT and those of COPLP. The common limited partnership interests in COPLP not


owned by COPT are accounted for as partners’ capital in COPLP’s consolidated financial statements and as noncontrolling interests in COPT’s consolidated financial statements. COPLP’s consolidated financial statements also reflect COPT’s noncontrolling interests in certain real estate partnerships and limited liability companies (“LLCs”); the differences between shareholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued at the COPT and COPLP levels and in COPT’s noncontrolling interests in these real estate partnerships and LLCs. The only other significant differences between the consolidated financial statements of COPT and those of COPLP are assets held in connection with a non-qualified elective deferred compensation plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the plan’s participants that are held directly by COPT.



We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
combined reports better reflect how management, investors 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.


To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries;
Note 8, Prepaid Expenses and Other Assets, Net of COPT and subsidiaries and COPLP and subsidiaries; and
Note 14,16, Earnings per Share of COPT and subsidiaries and Earnings per Unit of COPLP and subsidiaries;
“Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPT”; and
“Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of COPLP.”


This report also includes separate sections under Part I, Item 4. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for each of COPT and COPLP to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that COPT and COPLP are compliant with Rule 13a-15 and Rule 15d-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.







TABLE OF CONTENTS
 
FORM 10-Q
 
 PAGE
PART I: FINANCIAL INFORMATION
 
  
Item 1:
Financial Statements:
 
Consolidated Financial Statements of Corporate Office Properties Trust
 
 
Consolidated Balance Sheets as of September 30, 2017March 31, 2020 and December 31, 20162019 (unaudited)
3
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
4
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
5
 
Consolidated Statements of Equity for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
6
 
Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
7
Consolidated Financial Statements of Corporate Office Properties, L.P.
 
 
Consolidated Balance Sheets as of September 30, 2017March 31, 2020 and December 31, 20162019 (unaudited)
9
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
10
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
11
 
Consolidated Statements of Equity for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
12
 
Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019 (unaudited)
13
Notes to Consolidated Financial Statements (unaudited)
15
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3537
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
5049
Item 4:
Controls and Procedures
5049
   
PART II: OTHER INFORMATION
 
   
Item 1:
Legal Proceedings
5150
Item 1A:
Risk Factors
5150
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
51
Item 3:
Defaults Upon Senior Securities
51
Item 4:
Mine Safety Disclosures
51
Item 5:
Other Information
51
Item 6:
Exhibits
52
  
SIGNATURES
53






PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements




Corporate Office Properties Trust and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
 March 31,
2020		 December 31,
2019
Assets 
  
Properties, net: 
  
Operating properties, net$2,813,949
 $2,772,647
Projects in development or held for future development605,679
 568,239
Total properties, net3,419,628
 3,340,886
Property - operating right-of-use assets27,793
 27,864
Property - finance right-of-use assets40,450
 40,458
Cash and cash equivalents159,061
 14,733
Investment in unconsolidated real estate joint ventures51,220
 51,949
Accounts receivable, net30,317
 35,444
Deferred rent receivable89,690
 87,736
Intangible assets on real estate acquisitions, net26,078
 27,392
Deferred leasing costs (net of accumulated amortization of $34,613 and $33,782, respectively)58,608
 58,392
Investing receivables (net of allowance for credit losses of $3,598 at March 31, 2020)71,197
 73,523
Prepaid expenses and other assets, net80,415
 96,076
Total assets$4,054,457
 $3,854,453
Liabilities and equity 
  
Liabilities: 
  
Debt, net$2,076,839
 $1,831,139
Accounts payable and accrued expenses128,441
 148,746
Rents received in advance and security deposits33,323
 33,620
Dividends and distributions payable31,301
 31,263
Deferred revenue associated with operating leases6,972
 7,361
Property - operating lease liabilities17,365
 17,317
Interest rate derivatives63,232
 25,682
Other liabilities8,886
 10,649
Total liabilities2,366,359
 2,105,777
Commitments and contingencies (Note 17)


 


Redeemable noncontrolling interests22,912
 29,431
Equity: 
  
Corporate Office Properties Trust’s shareholders’ equity: 
  
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,169,463 at March 31, 2020 and 112,068,705 at December 31, 2019)1,122
 1,121
Additional paid-in capital2,476,677
 2,481,558
Cumulative distributions in excess of net income(790,600) (778,275)
Accumulated other comprehensive loss(62,201) (25,444)
Total Corporate Office Properties Trust’s shareholders’ equity1,624,998
 1,678,960
Noncontrolling interests in subsidiaries: 
  
Common units in COPLP19,600
 19,597
Preferred units in COPLP8,800
 8,800
Other consolidated entities11,788
 11,888
Noncontrolling interests in subsidiaries40,188
 40,285
Total equity1,665,186
 1,719,245
Total liabilities, redeemable noncontrolling interests and equity$4,054,457
 $3,854,453

 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

See accompanying notes to consolidated financial statements.




Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 For the Three Months Ended March 31,
 2020 2019
Revenues 
  
Lease revenue$131,012
 $130,903
Other property revenue1,104
 1,087
Construction contract and other service revenues13,681
 16,950
Total revenues145,797
 148,940
Operating expenses 
  
Property operating expenses49,999
 49,445
Depreciation and amortization associated with real estate operations32,596
 34,796
Construction contract and other service expenses13,121
 16,326
General, administrative and leasing expenses7,486
 8,751
Business development expenses and land carry costs1,118
 1,113
Total operating expenses104,320
 110,431
Interest expense(16,840) (18,674)
Interest and other income1,205
 2,286
Credit loss expense(689) —
Gain on sales of real estate5
 —
Income before equity in income of unconsolidated entities and income taxes25,158
 22,121
Equity in income of unconsolidated entities441
 391
Income tax expense(49) (194)
Net income25,550
 22,318
Net income attributable to noncontrolling interests: 
  
Common units in COPLP(287) (257)
Preferred units in COPLP(77) (165)
Other consolidated entities(1,132) (1,037)
Net income attributable to COPT common shareholders$24,054
 $20,859
    
Earnings per common share: (1) 
  
Net income attributable to COPT common shareholders - basic$0.21
 $0.19
Net income attributable to COPT common shareholders - diluted$0.21
 $0.19

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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 income38,939
 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) 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
(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.


See accompanying notes to consolidated financial statements.




Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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)
 For the Three Months Ended March 31,
 2020 2019
Net income$25,550
 $22,318
Other comprehensive loss: 
  
Unrealized loss on interest rate derivatives(37,705) (8,845)
Loss (gain) on interest rate derivatives recognized in interest expense131
 (570)
Total other comprehensive loss(37,574) (9,415)
Comprehensive (loss) income(12,024) 12,903
Comprehensive income attributable to noncontrolling interests(679) (1,344)
Comprehensive (loss) income attributable to COPT$(12,703) $11,559
 
See accompanying notes to consolidated financial statements.








Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
Preferred
Shares
 
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests
 Total 
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests
 Total
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
For the Three Months Ended March 31, 2019            
Balance at December 31, 2018 (110,241,868 common shares outstanding) $1,102
 $2,431,355
 $(846,808) $(238) $41,637
 $1,627,048
Conversion of common units to common shares (5,500 shares) —
 80
 —
 —
 (80) —
Common shares issued under forward equity sale agreements (1,614,087 shares) 16
 46,438
 —
 —
 —
 46,454
Share-based compensation (78,335 shares issued, net of redemptions) 1
 1,562
 —
 —
 239
 1,802
Redemption of vested equity awards —
 (1,817) —
 —
 —
 (1,817)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP —
 (1,322) —
 —
 1,322
 —
Comprehensive income —
 —
 20,859
 (9,300) 669
 12,228
Dividends —
 —
 (30,754) —
 —
 (30,754)
Distributions to owners of common and preferred units in COPLP —
 —
 —
 —
 (550) (550)
Contributions from noncontrolling interests in other consolidated entities —
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in other consolidated entities —
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests —
 (799) —
 —
 —
 (799)
Balance at March 31, 2019 (111,939,790 common shares outstanding) $1,119
 $2,475,497
 $(856,703) $(9,538)
$45,803
 $1,656,178
            
For the Three Months Ended March 31, 2020            
Balance at December 31, 2019 (112,068,705 common shares outstanding) $1,121
 $2,481,558
 $(778,275) $(25,444) $40,285
 $1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance —
 —
 (5,541) —
 —
 (5,541)
Balance at December 31, 2019, as adjusted 1,121
 2,481,558
 (783,816) (25,444) 40,285
 1,713,704
Conversion of common units to common shares (12,009 shares) —
 182
 —
 —
 (182) —
Share-based compensation (88,749 shares issued, net of redemptions) 1
 983
 —
 —
 226
 1,210
Redemption of vested equity awards—
 —
 (2,179) —
 —
 —
 (2,179) —
 (1,492) —
 —
 —
 (1,492)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP—
 —
 (42) —
 —
 42
 —
 —
 (453) —
 —
 453
 —
Comprehensive loss—
 —
 —
 (13,294) (13,476) 141
 (26,629) —
 —
 24,054
 (36,757) (279) (12,982)
Dividends—
 —
 —
 (88,796) —
 —
 (88,796) —
 —
 (30,838) —
 —
 (30,838)
Distributions to owners of common and preferred units in COPLP—
 —
 —
 —
 —
 (3,498) (3,498) —
 —
 —
 —
 (420) (420)
Contributions from noncontrolling interests in other consolidated entities —
 —
 —
 —
 112
 112
Distributions to noncontrolling interests in other consolidated entities—
 —
 —
 —
 —
 (12) (12) —
 —
 —
 —
 (7) (7)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 (516) —
 —
 —
 (516) —
 (4,101) —
 —
 —
 (4,101)
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
Balance at March 31, 2020 (112,169,463 common shares outstanding) $1,122
 $2,476,677
 $(790,600) $(62,201) $40,188
 $1,665,186


See accompanying notes to consolidated financial statements.







Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Nine Months Ended September 30,For the Three Months Ended March 31,
2017 20162020 2019
Cash flows from operating activities 
  
 
  
Revenues from real estate operations received$390,116
 $393,300
$133,092
 $126,569
Construction contract and other service revenues received72,682
 54,399
24,925
 5,904
Property operating expenses paid(144,187) (154,203)(46,330) (42,974)
Construction contract and other service expenses paid(57,189) (33,169)(17,631) (4,614)
General, administrative, leasing, business development and land carry costs paid(27,066) (27,879)(12,371) (11,703)
Interest expense paid(55,637) (61,662)(16,767) (18,282)
Lease incentives(9,414) (1,789)
Lease incentives paid(3,628) (1,158)
Other1,373
 976
928
 910
Net cash provided by operating activities170,678
 169,973
62,218
 54,652
Cash flows from investing activities 
  
 
  
Construction, development and redevelopment(113,678) (121,297)
Development and redevelopment of properties(92,802) (100,212)
Tenant improvements on operating properties(19,876) (26,055)(10,446) (4,174)
Other capital improvements on operating properties(15,174) (22,063)(5,457) (4,476)
Proceeds from dispositions of properties101,107
 210,661
Proceeds from partial sale of properties, net of related debt—
 43,686
Investing receivables funded—
 (11,051)
Leasing costs paid(6,468) (6,024)(5,950) (2,539)
Other1,359
 (991)192
 1,297
Net cash (used in) provided by investing activities(52,730) 77,917
Net cash used in investing activities(114,463) (121,155)
Cash flows from financing activities 
  
 
  
Proceeds from debt      
Revolving Credit Facility268,000
 362,500
251,000
 123,000
Other debt proceeds—
 105,000
181,595
 3,350
Repayments of debt      
Revolving Credit Facility(98,000) (406,000)(186,000) (74,000)
Scheduled principal amortization(2,878) (4,454)(1,021) (1,098)
Other debt repayments(200,150) (203,056)
Deferred financing costs paid—
 (825)(1,261) —
Net proceeds from issuance of common shares19,834
 (46)—
 46,415
Redemption of preferred shares(199,083) —
Common share dividends paid(81,779) (78,072)(30,817) (30,287)
Preferred share dividends paid(9,305) (10,657)
Distributions paid to noncontrolling interests in COPLP(3,371) (3,476)(403) (553)
Distributions paid to redeemable noncontrolling interests(7,860) (14,329)(11,870) —
Redemption of vested equity awards(1,869) (2,179)(1,492) (1,817)
Other(492) (5,032)(2,729) 1,318
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 
  
Net cash provided by financing activities197,002
 66,328
Net increase (decrease) in cash and cash equivalents and restricted cash144,757
 (175)
Cash and cash equivalents and restricted cash 
  
Beginning of period209,863
 60,310
18,130
 11,950
End of period$10,858
 $47,574
$162,887
 $11,775


See accompanying notes to consolidated financial statements.
 





Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
 For the Nine Months Ended September 30,
 2017 2016
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
 For the Three Months Ended March 31,
 2020 2019
Reconciliation of net income to net cash provided by operating activities: 
  
Net income$25,550
 $22,318
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and other amortization33,015
 35,229
Amortization of deferred financing costs and net debt discounts961
 898
Increase in deferred rent receivable(2,230) (2,539)
Share-based compensation1,389
 1,659
Other(52) (1,572)
Changes in operating assets and liabilities: 
  
Decrease in accounts receivable4,547
 1,033
Decrease (increase) in prepaid expenses and other assets, net15,548
 (6,752)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(16,213) 8,822
Decrease in rents received in advance and security deposits(297) (4,444)
Net cash provided by operating activities$62,218
 $54,652
Reconciliation of cash and cash equivalents and restricted cash:   
Cash and cash equivalents at beginning of period$14,733
 $8,066
Restricted cash at beginning of period3,397
 3,884
Cash and cash equivalents and restricted cash at beginning of period$18,130
 $11,950
    
Cash and cash equivalents at end of period$159,061
 $7,780
Restricted cash at end of period3,826
 3,995
Cash and cash equivalents and restricted cash at end of period$162,887
 $11,775
Supplemental schedule of non-cash investing and financing activities: 
  
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs$(4,795) $11,329
Finance right-of-use asset contributed by noncontrolling interest in joint venture$—
 $2,570
Operating right-of-use assets obtained in exchange for operating lease liabilities$—
 $276
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$(37,573) $(9,450)
Dividends/distributions payable$31,301
 $31,346
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$182
 $80
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$453
 $1,322
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$4,101
 $799
 
See accompanying notes to consolidated financial statements.










Corporate Office Properties, L.P. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except unit data)
(unaudited)
September 30,
2017		 December 31,
2016		March 31,
2020		 December 31,
2019
Assets 
  
 
  
Properties, net: 
  
 
  
Operating properties, net$2,690,712
 $2,671,831
$2,813,949
 $2,772,647
Projects in development or held for future development406,319
 401,531
605,679
 568,239
Total properties, net3,097,031
 3,073,362
3,419,628
 3,340,886
Assets held for sale, net74,415
 94,654
Property - operating right-of-use assets27,793
 27,864
Property - finance right-of-use assets40,450
 40,458
Cash and cash equivalents10,858
 209,863
159,061
 14,733
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
Investment in unconsolidated real estate joint ventures51,220
 51,949
Accounts receivable, net30,317
 35,444
Deferred rent receivable89,690
 87,736
Intangible assets on real estate acquisitions, net64,055
 78,351
26,078
 27,392
Deferred leasing costs (net of accumulated amortization of $28,590 and $65,988, respectively)47,033
 41,214
Investing receivables56,108
 52,279
Deferred leasing costs (net of accumulated amortization of $34,613 and $33,782, respectively)58,608
 58,392
Investing receivables (net of allowance for credit losses of $3,598 at March 31, 2020)71,197
 73,523
Prepaid expenses and other assets, net66,538
 72,764
78,136
 93,016
Total assets$3,555,365
 $3,775,448
$4,052,178
 $3,851,393
Liabilities and equity 
  
 
  
Liabilities: 
  
 
  
Debt, net$1,873,291
 $1,904,001
$2,076,839
 $1,831,139
Accounts payable and accrued expenses121,483
 108,682
128,441
 148,746
Rents received in advance and security deposits26,223
 29,798
33,323
 33,620
Distributions payable28,462
 31,335
31,301
 31,263
Deferred revenue associated with operating leases12,047
 12,666
6,972
 7,361
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
—
—
Property - operating lease liabilities17,365
 17,317
Interest rate derivatives63,232
 25,682
Other liabilities39,459
 44,740
6,607
 7,589
Total liabilities2,117,312
 2,157,805
2,364,080
 2,102,717
Commitments and contingencies (Note 15)

 

Commitments and contingencies (Note 17)


 


Redeemable noncontrolling interests23,269
 22,979
22,912
 29,431
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
Preferred units held by limited partner, 352,000 preferred units outstanding at March 31, 2020 and December 31, 20198,800
 8,800
Common units, 112,169,463 and 112,068,705 held by the general partner and 1,620,449 and 1,482,425 held by limited partners at March 31, 2020 and December 31, 2019, respectively1,707,395
 1,724,159
Accumulated other comprehensive loss(952) (1,854)(62,843) (25,648)
Total Corporate Office Properties, L.P.’s equity1,402,759
 1,581,043
1,653,352
 1,707,311
Noncontrolling interests in subsidiaries12,025
 13,621
11,834
 11,934
Total equity1,414,784
 1,594,664
1,665,186
 1,719,245
Total liabilities, redeemable noncontrolling interest and equity$3,555,365
 $3,775,448
Total liabilities, redeemable noncontrolling interests and equity$4,052,178
 $3,851,393


See accompanying notes to consolidated financial statements.





Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per unit data)
(unaudited)
 For the Three Months Ended March 31,
 2020 2019
Revenues 
  
Lease revenue$131,012
 $130,903
Other property revenue1,104
 1,087
Construction contract and other service revenues13,681
 16,950
Total revenues145,797
 148,940
Operating expenses 
  
Property operating expenses49,999
 49,445
Depreciation and amortization associated with real estate operations32,596
 34,796
Construction contract and other service expenses13,121
 16,326
General, administrative and leasing expenses7,486
 8,751
Business development expenses and land carry costs1,118
 1,113
Total operating expenses104,320
 110,431
Interest expense(16,840) (18,674)
Interest and other income1,205
 2,286
Credit loss expense(689) —
Gain on sales of real estate5
 —
Income before equity in income of unconsolidated entities and income taxes25,158
 22,121
Equity in income of unconsolidated entities441
 391
Income tax expense(49) (194)
Net income25,550
 22,318
Net income attributable to noncontrolling interests in consolidated entities(1,132) (1,037)
Net income attributable to COPLP24,418
 21,281
Preferred unit distributions(77) (165)
Net income attributable to COPLP common unitholders$24,341
 $21,116
    
Earnings per common unit: (1) 
  
Net income attributable to COPLP common unitholders - basic$0.21
 $0.19
Net income attributable to COPLP common unitholders - diluted$0.21
 $0.19

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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 income38,939
 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
(1) Basic and diluted earnings per common unit are calculated based on amounts attributable to common unitholders of Corporate Office Properties, L.P.


See accompanying notes to consolidated financial statements.




Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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)
 For the Three Months Ended March 31,
 2020 2019
Net income$25,550
 $22,318
Other comprehensive loss: 
  
Unrealized loss on interest rate derivatives(37,705) (8,845)
Loss (gain) on interest rate derivatives recognized in interest expense131
 (570)
Total other comprehensive loss(37,574) (9,415)
Comprehensive (loss) income(12,024) 12,903
Comprehensive income attributable to noncontrolling interests(753) (1,037)
Comprehensive (loss) income attributable to COPLP$(12,777) $11,866
 
See accompanying notes to consolidated financial statements.







Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
 Limited Partner Preferred Units 
General Partner
 Preferred Units
 Common Units Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests in Subsidiaries  
 Units Amount Units Amount Units Amount   Total 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
 Limited Partner Preferred Units Common Units Accumulated Other Comprehensive Loss Noncontrolling Interests in Subsidiaries  
 Units Amount Units Amount   Total Equity
For the Three Months Ended March 31, 2019             
Balance at December 31, 2018352,000
 $8,800
 111,574,754
 $1,604,655
 $(121) $13,714
 $1,627,048
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements—
 —
 1,614,087
 46,454
 —
 —
 46,454
Share-based compensation (units net of redemption)—
 —
 326,973
 1,802
 —
 —
 1,802
Redemptions of vested equity awards—
 —
 —
 (1,817) —
 —
 (1,817)
Comprehensive income—
 165
 —
 21,116
 (9,415) 362
 12,228
Distributions to owners of common and preferred units—
 (165) —
 (31,139) —
 —
 (31,304)
Contributions from noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (799) —
 —
 (799)
Balance at March 31, 2019352,000
 $8,800
 113,515,814
 $1,640,272
 $(9,536) $16,642
 $1,656,178
              
For the Three Months Ended March 31, 2020             
Balance at December 31, 2019352,000
 $8,800
 113,551,130
 $1,724,159
 $(25,648) $11,934
 $1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance—
 —
 —
 (5,541) —
 —
 (5,541)
Balance at December 31, 2019, as adjusted352,000
 8,800
 113,551,130
 1,718,618
 (25,648) 11,934
 1,713,704
Share-based compensation (units net of redemption)—
 —
 238,782
 1,210
 —
 —
 1,210
Redemptions of vested equity awards—
 —
 —
 (1,492) —
 —
 (1,492)
Comprehensive loss—
 77
 —
 24,341
 (37,195) (205) (12,982)
Distributions to owners of common and preferred units—
 (77) —
 (31,181) —
 —
 (31,258)
Contributions from noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 112
 112
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (7) (7)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (4,101) —
 —
 (4,101)
Balance at March 31, 2020352,000
 $8,800
 113,789,912
 $1,707,395
 $(62,843) $11,834
 $1,665,186


See accompanying notes to consolidated financial statements.






Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Nine Months Ended September 30,For the Three Months Ended March 31,
2017 20162020 2019
Cash flows from operating activities 
  
 
  
Revenues from real estate operations received$390,116
 $393,300
$133,092
 $126,569
Construction contract and other service revenues received72,682
 54,399
24,925
 5,904
Property operating expenses paid(144,187) (154,203)(46,330) (42,974)
Construction contract and other service expenses paid(57,189) (33,169)(17,631) (4,614)
General, administrative, leasing, business development and land carry costs paid(27,066) (27,879)(12,371) (11,703)
Interest expense paid(55,637) (61,662)(16,767) (18,282)
Lease incentives(9,414) (1,789)
Lease incentives paid(3,628) (1,158)
Other1,373
 976
928
 910
Net cash provided by operating activities170,678
 169,973
62,218
 54,652
Cash flows from investing activities 
  
 
  
Construction, development and redevelopment(113,678) (121,297)
Development and redevelopment of properties(92,802) (100,212)
Tenant improvements on operating properties(19,876) (26,055)(10,446) (4,174)
Other capital improvements on operating properties(15,174) (22,063)(5,457) (4,476)
Proceeds from dispositions of properties101,107
 210,661
Proceeds from partial sale of properties, net of related debt—
 43,686
Investing receivables funded—
 (11,051)
Leasing costs paid(6,468) (6,024)(5,950) (2,539)
Other1,359
 (991)192
 1,297
Net cash (used in) provided by investing activities(52,730) 77,917
Net cash used in investing activities(114,463) (121,155)
Cash flows from financing activities 
  
 
  
Proceeds from debt      
Revolving Credit Facility268,000
 362,500
251,000
 123,000
Other debt proceeds—
 105,000
181,595
 3,350
Repayments of debt      
Revolving Credit Facility(98,000) (406,000)(186,000) (74,000)
Scheduled principal amortization(2,878) (4,454)(1,021) (1,098)
Other debt repayments(200,150) (203,056)
Deferred financing costs paid—
 (825)(1,261) —
Net proceeds from issuance of common units19,834
 (46)—
 46,415
Redemption of preferred units(199,083) —
Common unit distributions paid(84,655) (81,053)(31,143) (30,675)
Preferred unit distributions paid(9,800) (11,152)
Distributions paid to redeemable noncontrolling interests(7,860) (14,329)(11,870) —
Redemption of vested equity awards(1,869) (2,179)(1,492) (1,817)
Other(492) (5,032)(2,806) 1,153
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 
  
Net cash provided by financing activities197,002
 66,328
Net increase (decrease) in cash and cash equivalents and restricted cash144,757
 (175)
Cash and cash equivalents and restricted cash 
  
Beginning of period209,863
 60,310
18,130
 11,950
End of period$10,858
 $47,574
$162,887
 $11,775


See accompanying notes to consolidated financial statements.



Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(in thousands)
(unaudited)


 For the Nine Months Ended September 30,
 2017 2016
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
 For the Three Months Ended March 31,
 2020 2019
Reconciliation of net income to net cash provided by operating activities: 
  
Net income$25,550
 $22,318
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and other amortization33,015
 35,229
Amortization of deferred financing costs and net debt discounts961
 898
Increase in deferred rent receivable(2,230) (2,539)
Share-based compensation1,389
 1,659
Other(52) (1,572)
Changes in operating assets and liabilities: 
  
Decrease in accounts receivable4,547
 1,033
Decrease (increase) in prepaid expenses and other assets, net14,768
 (6,406)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(15,433) 8,476
Decrease in rents received in advance and security deposits(297) (4,444)
Net cash provided by operating activities$62,218
 $54,652
Reconciliation of cash and cash equivalents and restricted cash:   
Cash and cash equivalents at beginning of period$14,733
 $8,066
Restricted cash at beginning of period3,397
 3,884
Cash and cash equivalents and restricted cash at beginning of period$18,130
 $11,950
    
Cash and cash equivalents at end of period$159,061
 $7,780
Restricted cash at end of period3,826
 3,995
Cash and cash equivalents and restricted cash at end of period$162,887
 $11,775
Supplemental schedule of non-cash investing and financing activities: 
  
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs$(4,795) $11,329
Finance right-of-use asset contributed by noncontrolling interest in joint venture$—
 $2,570
Operating right-of-use assets obtained in exchange for operating lease liabilities$—
 $276
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$(37,573) $(9,450)
Distributions payable$31,301
 $31,346
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$4,101
 $799
 
See accompanying notes to consolidated financial statements.








Corporate Office Properties Trust and Subsidiaries and Corporate Office Properties, L.P. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
 
1.    Organization
 
Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) is a fully-integrated and self-managed real estate investment trust (“REIT”). Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”) is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. Unless otherwise expressly stated or the context otherwise requires, “we”, “us” and “our” as used herein refer to each of the Company and the Operating Partnership. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support the United States Government (“USG”) and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable, priority missions (“Defense/IT Locations”). We also own a portfolio of office properties located in select urban/urban-like submarkets within our regional footprintin the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics as well as other properties supporting general commercial office tenants (“Regional Office”). As of September 30, 2017March 31, 2020, our properties included the following:


159 operating office171 properties totaling 17.419.4 million square feet including 15 triple-net leased,comprised of 15.4 million square feet in 148 office properties and 4.0 million square feet in 23 single-tenant data center properties.shell properties (“data center shells”). We owned six15 of these propertiesdata center shells through an unconsolidated real estate joint venture;ventures;
tena wholesale data center with a critical load of 19.25 megawatts;
14 properties under development or redevelopment (11 office properties under construction or redevelopmentand 3 data center shells) that we estimate will total approximately 1.12.3 million square feet upon completion, including three triple-net leased, single-tenant data center properties, three partially operational properties1 partially-operational property; and two properties completed but held for future lease to the United States Government;
984approximately 900 acres of land we controlled for future development that we believe could be developed into approximately 12.311.2 million square feet and an additional 15243 acres of other land; and
a wholesale data center with a critical load of 19.25 megawatts.land.
 
COPLP owns real estate directly and through subsidiary partnerships and limited liability companies (“LLCs”).  In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management, development and construction and development services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).


Equity interests in COPLP are in the form of common and preferred units. As of September 30, 2017,March 31, 2020, COPT owned 96.8%98.6% of the outstanding COPLP common units (“common units”); the remaining common units and noneall of the outstanding COPLP preferred units (“preferred units”); the remaining common and preferred units in COPLP were owned by third parties. Common units in COPLP not owned by COPT carry certain redemption rights. The number of common units in COPLP owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of all COPLP common units to quarterly distributions and payments in liquidation is substantially the same as thosethat of COPT common shareholders. Similarly, inIn the case of any series of preferred units in COPLP held by COPT, there iswould be a series of preferred shares of beneficial interest (“preferred shares”) in COPT that is equivalent in number and carries substantially the same terms as such series of COPLP preferred units. 

COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.


Because COPLP is managed by COPT, and COPT conducts substantially all of its operations through COPLP, we refer to COPT’s executive officers as COPLP’s executive officers, andofficers; similarly, although as a partnership, COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.
  
2.Summary of Significant Accounting Policies
 
Basis of Presentation
 
The COPT consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which COPT has a majority voting interest and control.  The COPLP consolidated financial statements include the accounts of COPLP, its subsidiaries and other entities in which COPLP has a majority voting interest and control.  We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities.  We eliminate all intercompany balances and transactions in consolidation.





We use the equity method of accounting when we own an interest in an entity and can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.
 
We use the cost method of accounting whenWhen we own an interestequity investment in an entity and cannot exert significant influence over its operations.operations, we measure the investment at fair value, with changes recognized through net income. For an investment without a readily determinable fair value, we measure the investment at cost, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.


These interim financial statements should be read together with the consolidated financial statements and notes thereto as of and for the year ended December 31, 20162019 included in our 20162019 Annual Report on Form 10-K.  The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly state our financial position and results of operations.  All adjustments are of a normal recurring nature.  The consolidated financial statements have been prepared using the accounting policies described in our 20162019 Annual Report on Form 10-K.10-K as updated for our adoption of recent accounting pronouncements discussed below.


ReclassificationReclassifications


We reclassified certain amounts from prior periods to conform to the current period presentation of our consolidated financial statements with no effect on previously reported net income or equity.


Recent Accounting Pronouncements


WeEffective January 1, 2020, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) effective January 1, 2017 intended to simplify various aspects related to the accounting and presentation for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the consolidated statement of cash flows. In connection with our adoption of this policy, we made an entity-wide accounting policy election to continue to account for potential future award forfeitures by estimating the number of awards that are expected to vest. Our adoption of this guidance did not have a material impact on our consolidated financial statements.

We adopted guidance issued by the FASB prospectively effective January 1, 2017 that clarifies the definition of a business used by entities in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. Under the new guidance, we expect that the majority of our future operating property acquisitions will be accounted for as asset acquisitions, whereas under the previous guidance our recent acquisitions were accounted for as business combinations; we believe that the primary effect of this change will be that transaction costs associated with future acquisitions will be capitalized rather than expensed as incurred. This guidance had no effect on our consolidated financial statements upon adoption.

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 and expect to use the modified retrospective method, under which the cumulative effect of initially applying the guidance is recognized at the date of initial application. We do not believe that our adoption of this guidance beginning on January 1, 2018 will have a material effect on our consolidated financial statements. However, as discussed further below, once the new guidance setting forth principles for the recognition, measurement, presentation and disclosure of leases goes into effect on January 1, 2019, we believe that the new revenue standard will apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (such as common area maintenance and provision of utilities), which could affect our recognition pattern for such revenue.

In February 2016, the FASB issued guidance that sets forth principles for the recognition, measurement, presentation and disclosure of leases.  This guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. The resulting classification determines whether the lease expense is recognized based on an effective interest method or straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The guidance requires lessors of real estate to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.  This guidance is effective for reporting periods beginning January 1, 2019 using a modified retrospective transition approach at


the time of adoption. Early adoption is also permitted for this guidance. In addition, the guidance permits lessees and lessors to elect to apply a package of practical expedients that allow them not to reassess upon adoption: the lease classification for any expired or existing leases; their deferred recognition of incremental direct costs of leasing for any expired or existing leases; and whether any expired or existing contracts are, or contain, leases. While we are still completing our assessment of the impact of this guidance, below is a summary of the anticipated primary effects of this guidance on our accounting and reporting.

Real estate leases in which we are the lessor:
◦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.
Leases in which we are the lessee:
◦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.

In June 2016, the FASB issued guidance that changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current incurred loss model with an expected loss approach, resulting in a more timely recognition of such losses. The guidance will applyapplies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables (excluding those arising from operating leases), loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g. loan commitments)commitments and guarantees). Under the newthis guidance, an entity willwe recognize itsan estimate of our expected credit losses on these asset types as an allowance, as the guidance requires that financial assets be measured on an amortized cost basis and to be presented at the net amount expected to be collected. TheWe adopted this guidance is effective for us beginning January 1, 2020 with early adoption permitted after December 2018. We are currently assessingusing the financial impactmodified retrospective transition method under which we recognized a $5.5 million allowance for credit losses by means of this guidance on our consolidated financial statements.

In August 2016, the FASB issued guidance that clarifies how entities should classify certain cash receipts and cash payments on the statementa cumulative-effect adjustment to cumulative distributions in excess of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The areas addressed in the new guidance relate to debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distributions received from equity method investments, beneficial interest in securitization transactions and separately identifiable cash flows and applicationnet income of the predominance principle. The guidance is effectiveCompany (or common units of the Operating Partnership), and did not adjust prior comparative reporting periods. Our consolidated statements of operations reflect adjustments for us beginning January 1, 2018, with early adoption permitted. We do not expect thechanges in our expected credit losses occurring subsequent to adoption of this guidance.

Effective January 1, 2020, we adopted guidance toissued by the FASB that modifies disclosure requirements for fair value measurements. The resulting changes in disclosure did not have a material impact on our consolidated financial statements.


In November 2016,Effective January 1, 2020, we adopted guidance issued by the FASB issuedthat aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. FASB guidance that requiresdid not previously address the statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts described as restricted cash or restricted cash equivalents.  Under the new guidance, amounts described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. 


The guidance is effectiveaccounting for us beginning January 1, 2018, with early adoption permitted. We do not expect thesuch implementation costs. Our adoption of this guidance todid not have a material impact on our consolidated financial statements.


In February 2017,Credit Losses, Financial Assets and Other Instruments

As discussed above, effective January 1, 2020, we adopted guidance issued by the FASB issued guidance clarifyingthat changed how we measure credit losses for most financial assets and certain other instruments not measured at fair value through net income from an incurred loss model to an expected loss approach. Our items within the scope of asset derecognition provisionsthis guidance included the following:

investing receivables, as disclosed in Note 7;
tenant notes receivable;
other assets comprised of non-lease revenue related accounts receivable (primarily from construction contract services) and accountingcontract assets from unbilled construction contract revenue; and


off-balance sheet credit exposures, which included $4.8 million in unfunded commitments to fund tenant loans and a tax incremental financing obligation disclosed in Note 17.

Under this guidance, we recognize an estimate of our expected credit losses on these items as an allowance, as the guidance requires that financial assets be measured on an amortized cost basis and be presented at the net amount expected to be collected (or as a separate liability in the case of off-balance sheet credit exposures). The allowance represents the portion of the amortized cost basis that we do not expect to collect (or loss we expect to incur in the case of off-balance sheet credit exposures) due to credit over the contractual life based on available information relevant to assessing the collectability of cash flows, which includes consideration of past events, current conditions and reasonable and supportable forecasts of future economic conditions (including consideration of asset- or borrower-specific factors). The guidance requires the allowance for partial salesexpected credit losses to reflect the risk of nonfinancial assets. The new guidance requiresloss, even when that risk is remote. An allowance for credit losses is measured and recorded upon the initial recognition of a salefinancial asset (or off-balance sheet credit exposures), regardless of whether it is originated or purchased. Quarterly, the expected losses are re-estimated, considering any cash receipts and changes in risks or assumptions, with resulting adjustments recognized in the line entitled “credit loss expense” on our consolidated statements of operations.

We estimate expected credit losses for in-scope items using historical loss rate information developed for varying classifications of credit risk and contractual lives of such items. Due to our limited quantity of items within the scope of this guidance and the unique risk characteristics of such items, we individually assign each in-scope item a credit risk classification. The credit risk classifications assigned by us are determined based on credit ratings assigned by ratings agencies (as available) or are internally-developed based on available financial information, historical payment experience, credit documentation, other publicly available information and current economic trends. In addition, for certain items in which the risk of credit loss is affected by the economic performance of a real estate development project, we develop probability weighted scenario analyses for varying levels of performance in estimating our credit loss allowance (applicable to our investing receivable from the City of Huntsville disclosed in Note 7 and resulting gaina tax incremental financing obligation disclosed in Note 17).

The table below sets forth the activity for the allowance for credit losses (in thousands):
 For the Three Months Ended March 31, 2020
 Investing Receivables 
Tenant Notes
Receivable (1)
 Other Assets (2) Off-Balance Sheet Credit Exposures (3) Total
December 31, 2019$—
 $(97) $—
 $—
 $(97)
Cumulative effect of change for adoption of credit loss guidance(3,732) (325) (144) (1,340) (5,541)
Credit loss expense134
 23
 (77) (769) (689)
March 31, 2020$(3,598) $(399) $(221) $(2,109) $(6,327)
(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.
(2) The balance as of March 31, 2020 included $181,000 in the line entitled “accounts receivable, net” and $40,000 in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets.
(3) Included in the line entitled “other liabilities” on our consolidated balance sheets.

Most of our credit loss expense for the three months ended March 31, 2020 was attributable to a new commitment to fund a tenant note receivable for improvements in a property.



The following table presents the amortized cost basis of our investing receivables and tenants notes receivable by credit risk classification, by origination year as of March 31, 2020 (in thousands):
 Origination Year  
 2015 and Earlier 2016 2017 2018 2019 2020 Total as of March 31, 2020
Investing receivables:             
Credit risk classification:             
Investment grade$59,833
 $—
 $866
 $—
 $—
 $—
 $60,699
Non-investment grade3,020
 —
 —
 —
 11,076
 —
 14,096
Total$62,853
 $—
 $866
 $—
 $11,076
 $—
 $74,795
              
Tenant notes receivable:             
Credit risk classification:             
Investment grade$21
 $78
 $—
 $1,100
 $100
 $—
 $1,299
Non-investment grade97
 219
 —
 185
 2,079
 —
 2,580
Total$118
 $297
 $—
 $1,285
 $2,179
 $—
 $3,879


Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or loss when control transfers and the buyer has the abilityFitch Ratings Ltd.), meaning that they are considered to direct use of,have at least an adequate capacity to meet their financial commitments, with credit risk ranging from minimal to moderate. Our non-investment grade credit risk classification represents entities with either no credit agency credit ratings or obtain substantially allratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification.

An insignificant portion of the remaining benefitinvesting and tenant notes receivables set forth above were past due, which we define as being delinquent by more than three months from the asset (which generally will occurdue date.

When we believe that collection of interest income on an investing or tenant note receivable is not probable, we place the closing date);receivable on nonaccrual status, meaning interest income is recognized when payments are received rather than on an accrual basis. We had a tenant note receivable on nonaccrual status as of March 31, 2020 and December 31, 2019 with an amortized cost basis of $97,000, which was fully reserved as of each date. We did not recognize any interest income during the factorthree months ended March 31, 2020 on receivables on nonaccrual status.

We write off receivables when we believe the facts and circumstances indicate that continued pursuit of continuing involvementcollection is no longer a specific considerationwarranted. When cash is received in connection with receivables for the timing of recognition. The new guidance eliminates the need to consider adequacy of buyer investment, which was replaced by additional judgments regarding collectability and intent and/or ability to pay. The new guidance also requires an entity to derecognize nonfinancial assets and in substance non financial assets once it transfers control of such assets. When an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the entity is required to measure any non-controlling interest it receives or retains at fair value andwe have previously recognized credit losses, we recognize a full gain or loss on the transaction; as a result, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets. As discussed furtherreductions in our 2016 Annual Report on Form 10-K, we had a transaction in July 2016 accounted for as a partial sale under existing guidance that would meet the criteria for immediate full gain recognition under the new guidance; this would result in an additional $18 million in income being recognized in 2016 that is currently being amortized into income in subsequent periods under existing guidance. We do not believe that the recognition pattern for our other sales of real estate will be changed by the new guidance. We will adopt this guidance for our annual and interim periods beginning January 1, 2018 and expect to use the the full retrospective method, under which we would retrospectively restate each reporting period presented at the time of adoption.credit loss expense.

In August 2017, the FASB issued guidance that makes targeted improvements to hedge accounting. This new guidance simplifies the application of hedge accounting and better aligns financial reporting for hedging activities with companies’ economic objectives in undertaking those activities. Under the new guidance, all changes in the fair value of highly effective cash flow hedges will be recorded in other comprehensive income instead of income. The new guidance also eases the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The guidance is effective for us beginning January 1, 2019, with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.


3.Fair Value Measurements


Recurring Fair Value Measurements


COPT has a non-qualified elective deferred compensation plan for Trustees and certain members of our management team that, permitsprior to December 31, 2019, permitted participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The Company froze additional entry into the plan effective December 31, 2019.  The assets held in the plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on COPT’s consolidated balance sheetsheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded and totaled $4.4$2.3 million as of September 30, 2017, andMarch 31, 2020, is included in the accompanying COPTline entitled “prepaid expenses and other assets, net” on COPT’s consolidated balance sheets in the line entitled restricted cash andalong with an insignificant amount of other marketable securities. The offsetting liability associated with the plan is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in other liabilities“other liabilities” on COPT’s consolidated balance sheets.sheet. The assets of the plan and other marketable securities that we hold are classified in Level 1 of the fair value hierarchy. Thehierarchy, while the offsetting liability associated with the plan is classified in Level 2 of the fair value hierarchy.


The fair values of our interest rate derivatives are determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the


derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of September 30, 2017,March 31, 2020, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.


The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding investing receivables) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments.  As discussed in Note 6, we estimated theThe fair values of our investing receivables, as disclosed in Note 7, were based on the discounted estimated future cash flows of the loans (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans with similar maturities and credit quality, and the estimated cash payments


include scheduled principal and interest payments.  For our disclosure of debt fair values in Note 8,9, we estimated the fair value of our unsecured senior notes based on quoted market rates for publicly-traded debt (categorized within Level 2 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled principal and interest payments.  Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment.  Settlement at such fair value amounts may not be possible and may not be a prudent management decision.
 
For additional fair value information, please refer to Note 67 for investing receivables, Note 89 for debt and Note 910 for interest rate derivatives. 


COPT and Subsidiaries


The table below sets forth financial assets and liabilities of COPT and its subsidiaries that are accounted for at fair value on a recurring basis as of September 30, 2017March 31, 2020 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 Significant Other
Observable Inputs(Level 2)		 Significant
Unobservable Inputs(Level 3)		 Total Quoted 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
 $2,260
 $—
 $—
 $2,260
Other 71
 —
 —
 71
 19
 —
 —
 19
Interest rate derivatives (2) —
 126
 —
 126
Mutual funds (1) 10
 —
 —
 10
Total assets $4,407
 $126
 $—
 $4,533
 $2,289
 $—
 $—
 $2,289
Liabilities:  
  
  
  
  
  
  
  
Deferred compensation plan liability (3)(2) $—
 $4,407
 $—
 $4,407
 $—
 $2,279
 $—
 $2,279
Interest rate derivatives (3) —
 316
 —
 316
 —
 63,232
 —
 63,232
Total liabilities $—
 $4,723
 $—
 $4,723
 $—
 $65,511
 $—
 $65,511


(1) Included in the line entitled “restricted cash and marketable securities” on COPT’s consolidated balance sheet.
(2) Included in the line entitled “prepaid expenses and other assets”assets, net” on COPT’sCOPT’s consolidated balance sheet.
(3)(2) Included in the line entitled “other liabilities” on COPT’s consolidated balance sheet.



COPLP and Subsidiaries


The table below sets forth financial assets and liabilities of COPLP and its subsidiaries that are accounted for at fair value on a recurring basis as of September 30, 2017March 31, 2020 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 Significant Other
Observable Inputs(Level 2)		 
Significant
Unobservable 
Inputs
(Level 3)
 Total
Assets:  
  
  
  
Mutual funds (1) $10
 $—
 $—
 $10
Liabilities:  
  
  
  
Interest rate derivatives $—
 $63,232
 $—
 $63,232

Description Quoted 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


(1) Included in the line entitled “prepaid expenses and other assets”assets, net” on COPLP’sCOPLP’s consolidated balance sheet.
(2) Included in the line entitled “other liabilities” on COPLP’s consolidated balance sheet.

Nonrecurring Fair Value Measurements

As part of our closing process for the first, second and third quarters of 2017, we conducted our quarterly review of our portfolio of long-lived assets to be held and used for indicators of impairment and found there to be no impairment losses. Further, for the respective quarters in 2017, we performed recoverability analyses for our properties classified as held for sale, which resulted in impairment losses of $1.6 million in the second quarter of 2017. These impairment losses were primarily on


properties in White Marsh, Maryland (“White Marsh”) (included in our Regional Office and Other segments) that we reclassified to held for sale during the period and adjusted to fair value less costs to sell. These properties were sold in the third quarter.

Changes in the expected future cash flows due to changes in our plans for specific properties (especially our expected holding period) could result in the recognition of impairment losses. In addition, because properties held for sale are carried at the lower of carrying value or estimated fair values less costs to sell, declines in their estimated fair values due to market conditions and other factors could result in the recognition of impairment losses.


4.Properties, Net
 
Operating properties, net consisted of the following (in thousands): 
 March 31,
2020		 December 31,
2019
Land$489,744
 $472,976
Buildings and improvements3,359,908
 3,306,791
Less: Accumulated depreciation(1,035,703) (1,007,120)
Operating properties, net$2,813,949
 $2,772,647

 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

2020 Development Activities

During the three months ended March 31, 2020, we placed into service 230,000 square feet in 1 newly-developed property. As of March 31, 2020, we had 13 properties under development, or which we were contractually committed to develop, that we estimate will total 2.2 million square feet upon completion and 1 partially-operational property under redevelopment that we estimate will total 106,000 square feet upon completion.

5.    Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of March 31, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 15 years and averaging approximately five years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocation of lease revenue recognized between fixed and variable lease revenue (in thousands):
  For the Three Months Ended March 31,
Lease revenue 2020 2019
Fixed $104,109
 $104,644
Variable 26,903
 26,259
  $131,012
 $130,903



Projects
Fixed contractual payments due under our property leases were as follows (in thousands):
Year Ending December 31, March 31, 2020 December 31, 2019
2020 (1) $301,914
 $388,310
2021 357,747
 336,482
2022 319,239
 299,356
2023 264,865
 245,661
2024 214,797
 195,246
Thereafter 548,049
 474,741
  $2,006,611
 $1,939,796

(1) As of March 31, 2020, represents the nine months ending December 31, 2020.

Lessee arrangements

We lease land underlying certain properties that we are operating or developing from third parties. These ground leases have long durations with remaining terms ranging from 29 years (excluding extension options) to 96 years. As of March 31, 2020, our balance sheet included $68.2 million in development or heldright-of-use assets associated with ground leases that included:

$37.8 million for future developmentland on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2020;
$10.3 million for land underlying operating office properties in Washington, DC under 2 leases with remaining terms of approximately 80 years;
$6.5 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 29 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;
$6.6 million for land in a research park in College Park, Maryland under 4 leases through our M Square Associates, LLC joint venture all of the rent on which was previously paid. These leases had remaining terms ranging from 63 to 74 years;
$4.8 million for land in a business park in Huntsville, Alabama under 9 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance; and
$2.3 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under 2 leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.

Our right-of-use assets consisted of the following (in thousands):
 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
Leases Balance Sheet Location March 31, 2020 December 31, 2019
Right-of-use assets      
Operating leases - Property Property - operating right-of-use assets $27,793
 $27,864
Finance leases - Property Property - finance right-of-use assets 40,450
 40,458
Total right-of-use assets   $68,243
 $68,322

Lease liabilities consisted of the following (in thousands):
Leases Balance Sheet Location March 31, 2020 December 31, 2019
Lease liabilities      
Operating leases - Property Property - operating lease liabilities $17,365
 $17,317
Finance leases - Property Other liabilities 702
 702
Total lease liabilities   $18,067
 $18,019



Our properties held for sale included:

as of September 30, 2017: two operating properties in our Data Center Shells sub-segment and one in our Fort Meade/BW Corridor sub-segment; and
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.


The table below sets forth the componentsweighted average terms and discount rates of assets held for sale on our consolidated balance sheet for these propertiesleases as of March 31, 2020:
Weighted average remaining lease term
Operating leases68 years
Finance leases< 1 year
Weighted average discount rate
Operating leases7.33%
Finance leases3.62%


The table below presents our total lease cost (in thousands):
 September 30, 2017 December 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



2017 Dispositions

During the nine months ended September 30, 2017, we sold the following operating properties (dollars in thousands):
Project Name City, State Segment Date of Sale Number of Buildings Total Rentable Square Feet Transaction Value Gain on Sale
3120 Fairview Park Drive Falls Church, VA Northern Virginia Defense/IT 2/15/2017 1
 190,000
 $39,000
 $—
1334 Ashton Road Hanover, MD Fort Meade/BW Corridor 6/9/2017 1
 37,000
 2,300
 —
Remaining White Marsh Properties (1) White Marsh, MD Regional Office and Other 7/28/2017 8
 412,000
 47,500
 1,180
Dispositions through 9/30/2017   10
 639,000
 $88,800
 $1,180
    For the Three Months Ended March 31,
Lease cost Statement of Operations Location 2020 2019
Operating lease cost      
Property leases Property operating expenses $431
 $413
Finance lease cost      
Amortization of property right-of-use assets Property operating expenses 9
 —
    $440
 $413


The table below presents the effect of lease payments on our consolidated statements of cash flows (in thousands):
  For the Three Months Ended March 31,
Supplemental cash flow information 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows for operating leases $311
 $228
Financing cash flows for financing leases $—
 $52


Payments on leases as of March 31, 2020 and December 31, 2019 were due as follows (in thousands):
  As of March 31, 2020 As of December 31, 2019
Year Ending December 31,  Operating leases Finance leases Total  Operating leases Finance leases Total
2020 (1) $826
 $674
 $1,500
 $1,092
 $674
 $1,766
2021 1,138
 14
 1,152
 1,138
 14
 1,152
2022 1,162
 14
 1,176
 1,162
 14
 1,176
2023 1,167
 —
 1,167
 1,167
 —
 1,167
2024 1,173
 —
 1,173
 1,173
 —
 1,173
Thereafter 100,609
 —
 100,609
 100,609
 —
 100,609
Total lease payments 106,075
 702
 106,777
 106,341
 702
 107,043
Less: Amount representing interest (88,710) —
 (88,710) (89,024) —
 (89,024)
Lease liability $17,365
 $702
 $18,067
 $17,317
 $702
 $18,019

(1) This sale also included land.

We also sold other land inAs of March 31, 2020, represents the nine months ended September 30, 2017 for $14.3 million and recognized a gain on sale of $4.2 million.ending December 31, 2020.

On October 27, 2017, we sold:

201 Technology Drive, an operating property totaling 103,000 square feet in Lebanon, Virginia (in our Data Center Shells sub-segment), for $29.2 million; and
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.

2017 Construction Activities

During the nine months endedSeptember 30, 2017, we placed into service 751,000 square feet in five newly constructed properties (including a partially operational property) and 88,000 square feet in three redeveloped properties (including a partially operational property). As of September 30, 2017, we had eight office properties under construction, or for which we were contractually committed to construct, that we estimate will total 1.1 million square feet upon completion (including two properties completed but held for future lease to the United States Government) and two office properties under redevelopment that we estimate will total 36,000 square feet upon completion.


5.


6.Real Estate Joint Ventures


Consolidated Real Estate Joint Ventures


The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of September 30, 2017March 31, 2020 (dollars in thousands):
 Nominal           March 31, 2020 (1)
   Ownership   September 30, 2017 (1) Date Acquired Nominal Ownership % Total Assets Encumbered Assets Total Liabilities
 Date % as of Total Encumbered Total
 Acquired 9/30/2017 Nature of Activity Assets Assets Liabilities
Entity Date Acquired Nominal Ownership % Location Total Assets Encumbered Assets Total Liabilities
LW Redstone Company, LLC 3/23/2010 85% Development and operation of real estate (2) $158,937
 $76,374
 $50,344
 Huntsville, Alabama 
M Square Associates, LLC 6/26/2007 50% Development and operation of real estate (3) 70,767
 45,813
 46,895
 6/26/2007 50% College Park, Maryland 91,205
 63,318
 56,396
Stevens Investors, LLC 8/11/2015 95% Development of real estate (4) 70,383
 —
 23,566
 8/11/2015 95% Washington, DC 135,861
 135,175
 64,621
   $300,087
 $122,187
 $120,805
   $512,739
 $310,332
 $221,432
(1)Excludes amounts eliminated in consolidation.
(2) This joint venture’s properties are in Huntsville, Alabama.
(3)This joint venture’s properties are in College Park, Maryland.
(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.



In March 2020, the LW Redstone Company, LLC joint venture agreement was amended to change the distribution terms to allow the venture to distribute financing proceeds to satisfy our partner’s cumulative preferred return and to provide our partner a priority preferred return on its invested capital.


Unconsolidated Real Estate Joint VentureVentures


As of September 30, 2017, we owned a 50% interestThe table below sets forth information pertaining to our investments in GI-COPT DC Partnership LLC (“GI-COPT”), aunconsolidated real estate joint venture owning six triple-net leased, single-tenant data center properties in Virginia, that we accountventures accounted for using the equity method of accounting. As of September 30, 2017, we had an investment balanceaccounting (dollars in GI-COPT of $25.2 million. Our balance was $17.1 million lower than our share of the joint venture’s equity due to a difference between our cost basis and our share of the underlying equitythousands):
  Date Acquired Nominal Ownership % Number of Properties Carrying Value of Investment (1)
Entity    March 31, 2020 December 31, 2019
GI-COPT DC Partnership LLC 7/21/2016 50% 6
 $37,275
 $37,816
BREIT COPT DC JV LLC 6/20/2019 10% 9
 13,945
 14,133
      15
 $51,220
 $51,949
(1) Included in the net assets upon formation of theline entitled “investment in unconsolidated real estate joint venture; we are amortizing this basis difference into equity in income from unconsolidated entities over the lives of the underlying assets.ventures” on our consolidated balance sheets.


6.7.    Investing Receivables
 
Investing receivables including accrued interest thereon, consisted of the following (in thousands):
 March 31,
2020		 December 31,
2019
Notes receivable from the City of Huntsville$60,699
 $59,427
Other investing loans receivable14,096
 14,096
Amortized cost basis74,795
 73,523
Allowance for credit losses(3,598) ��
Investing receivables, net$71,197
 $73,523
 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

 
The balances above include accrued interest receivable, net of allowance for credit losses, of $433,000 as of March 31, 2020 and $4.7 million as of December 31, 2019.

Our notes receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 5)6) and carry an interest rate of 9.95%. Our other investing loans receivable carry an interest rate of 8.0%.


We did not have an allowance for credit losses in connection with our investing receivables as of September 30, 2017 or December 31, 2016.  The fair value of these receivables approximated their carrying amountswas approximately $75 million as of September 30, 2017March 31, 2020 and $74 million as of December 31, 2016.2019.


7.


8.    Prepaid Expenses and Other Assets, Net
 
Prepaid expenses and other assets, net consisted of the following (in thousands):
 March 31,
2020		 December 31,
2019
Lease incentives, net$29,026
 $28,433
Prepaid expenses12,482
 18,835
Furniture, fixtures and equipment, net7,620
 7,823
Construction contract costs in excess of billings, net7,463
 17,223
Non-real estate equity investments6,714
 6,705
Restricted cash3,826
 3,397
Deferred financing costs, net (1)3,351
 3,633
Deferred tax asset, net (2)2,279
 2,328
Other assets5,375
 4,639
Total for COPLP and subsidiaries78,136
 93,016
Marketable securities in deferred compensation plan2,279
 3,060
Total for COPT and subsidiaries$80,415
 $96,076

 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


(1) Includes a valuation allowance of $2.1 million.
(2) Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.

(2) Includes a valuation allowance of $480,000 as of March 31, 2020 and December 31, 2019.




8.
9.    Debt, Net
 
Our debt consisted of the following (dollars in thousands):
 Carrying Value (1) as of  Carrying Value (1) as of 
 September 30,
2017		 December 31,
2016		 Stated Interest Rates as of Scheduled Maturity as of March 31,
2020		 December 31,
2019		 March 31, 2020
 September 30, 2017 September 30, 2017 Stated Interest Rates Scheduled Maturity
Mortgage and Other Secured Debt:  
  
      
  
    
Fixed rate mortgage debt (2) $151,594
 $154,143
 3.82% - 7.87% (3) 2019-2026 $142,581
 $143,430
 3.82% - 4.62% (3) 2023-2026
Variable rate secured debt(4) 13,200
 13,448
 LIBOR + 1.85% (4) October 2020 100,003
 68,055
 LIBOR + 1.45% to 2.35% (5) 2020-2026
Total mortgage and other secured debt 164,794
 167,591
     242,584
 211,485
    
Revolving Credit Facility(6) 170,000
 —
 LIBOR + 0.875% to 1.60% (5) May 2019 (6) 242,000
 177,000
 LIBOR + 0.775% to 1.45% (7) March 2023 (6)
Term Loan Facilities (7) 348,371
 547,494
 LIBOR + 0.90% to 2.40% (8) 2020-2022
Term Loan Facility (8) 397,863
 248,706
 LIBOR + 1.00% to 1.65% (9) 2022
Unsecured Senior Notes          
3.600%, $350,000 aggregate principal 347,445
 347,128
 3.60% (9) May 2023
5.250%, $250,000 aggregate principal 246,525
 246,176
 5.25% (10) February 2024
3.700%, $300,000 aggregate principal 298,200
 297,843
 3.70% (11) June 2021
5.000%, $300,000 aggregate principal 296,639
 296,368
 5.00% (12) July 2025
Unsecured notes payable 1,317
 1,401
 0% (13) 2026
3.60%, $350,000 aggregate principal 348,544
 348,431
 3.60% (10) May 2023
5.25%, $250,000 aggregate principal 247,785
 247,652
 5.25% (11) February 2024
3.70%, $300,000 aggregate principal 299,454
 299,324
 3.70% (12) June 2021
5.00%, $300,000 aggregate principal 297,605
 297,503
 5.00% (13) July 2025
Unsecured note payable 1,004
 1,038
 0% (14) May 2026
Total debt, net $1,873,291
 $1,904,001
     $2,076,839
 $1,831,139
    


(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $4.8$6.6 million as of September 30, 2017March 31, 2020 and $6.1$5.8 million as of December 31, 2016.2019.
(2)  Certain of the fixed rate mortgages carry interest rates that, upon assumption, 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$202,000 as of September 30, 2017March 31, 2020 and $422,000$217,000 as of December 31, 2016.2019.
(3)The weighted average interest rate on our fixed rate mortgage debt was 4.19%4.16% as of September 30, 2017.March 31, 2020.
(4)Includes a construction loan with $55.9 million in remaining borrowing capacity as of March 31, 2020.
(5) The weighted average interest rate on our variable rate secured debt was 3.77% as of September 30, 2017 was 3.09%.
(5)The weighted average interest rate on the Revolving Credit Facility was 2.40% as of September 30, 2017.March 31, 2020.
(6)The facility matures in May 2019,March 2023, with the ability for us to further extend such maturity by two2 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, In connection with this facility, we also have the ability to borrow an additional $350.0up to $500.0 million inunder new term loans from the aggregate under these term loan facilities,facility’s lender group provided that there is no default under the facilitiesfacility and subject to the approval of the lenders. On May 1, 2017, we repaid $200.0 million
(7)The weighted average interest rate on the Revolving Credit Facility was 1.74% as of March 31, 2020.
(8)   On March 6, 2020, we amended this loan facility to increase the loan amount by $150.0 million and change the interest terms.
(9) The interest rate on this loan balance on a term loan scheduled to mature inwas 2.37% as of March 31, 2020.
(8) (10)
The weighted average interest rate on these loans was 2.93% as of September 30, 2017.
(9)
The carrying value of these notes reflects an unamortized discount totaling $1.8$1.0 millionas of September 30, 2017March 31, 2020 and $2.0$1.1 million as of December 31, 20162019.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%. 
(10)(11)
The carrying value of these notes reflectsan unamortized discount totaling $3.1$2.0 millionas of September 30, 2017March 31, 2020 and $3.4$2.1 million as of December 31, 20162019.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. 
(11)(12)
The carrying value of these notes reflects an unamortized discount totaling $1.4 million$429,000as of September 30, 2017March 31, 2020 and $1.7 million$534,000 as of December 31, 20162019.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%. 
(12)(13) The carrying value of these notes reflects an unamortized discount totaling $2.8$2.0 millionas of September 30, 2017March 31, 2020 and $3.0$2.1 million as of December 31, 2016.2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.
(13)(14) 
These notes carryThis note carries an interest ratesrate that, wereupon assumption, was below market rates upon assumption and it therefore werewas recorded at theirits fair value based on applicable effective interest rates.  The carrying value of these notesthis note reflects an unamortized discount totaling $394,000207,000 as of September 30, 2017March 31, 2020 and $460,000223,000 as of December 31, 20162019.
 
All debt is owed by the Operating Partnership.COPLP. While COPT is not directly obligated by any debt, it has guaranteed the Operating Partnership’sCOPLP’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.


Certain of our debt instruments require that we comply with a number of restrictive financial covenants.  As of September 30, 2017,March 31, 2020, we were compliant with these financial covenants.


We capitalized interest costs of $1.1$3.4 million in the three months ended September 30, 2017, $1.2March 31, 2020 and $2.0 million in the three months ended September 30, 2016, $4.2 million in the nine months ended September 30, 2017 and $4.3 million in the nine months ended September 30, 2016.March 31, 2019.





The following table sets forth information pertaining to the fair value of our debt (in thousands): 
September 30, 2017 December 31, 2016
Carrying Fair Carrying FairMarch 31, 2020 December 31, 2019
Amount Value Amount ValueCarrying Amount Fair Value Carrying Amount Fair Value
Fixed-rate debt 
  
  
  
 
  
  
  
Unsecured Senior Notes$1,188,809
 $1,231,222
 $1,187,515
 $1,220,282
$1,193,388
 $1,223,259
 $1,192,910
 $1,227,441
Other fixed-rate debt152,911
 154,781
 155,544
 156,887
143,585
 142,201
 144,468
 149,907
Variable-rate debt531,571
 531,520
 560,942
 558,437
739,866
 747,039
 493,761
 495,962
$1,873,291
 $1,917,523
 $1,904,001
 $1,935,606
$2,076,839
 $2,112,499
 $1,831,139
 $1,873,310


9.10.    Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge of interest rate risk (dollars in thousands):
  
 
 
Fair Value at   
 
 
Fair Value at
Notional AmountNotional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
September 30,
2017
December 31,
2016		Notional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
March 31,
2020
December 31,
2019
$100,000

1.7300%
One-Month LIBOR
9/1/2015
8/1/2019
$(237)
$(848)12,336
(1)1.390% One-Month LIBOR 10/13/2015 10/1/2020 $(57) $23
13,311
(1)1.3900% One-Month LIBOR 10/13/2015 10/1/2020 126
 100
100,000100,000
 1.9013% One-Month LIBOR 9/1/2016 12/1/2022 (27) (23)100,000
 1.901% One-Month LIBOR 9/1/2016 12/1/2022 (4,297) (1,028)
100,000100,000
 1.9050% One-Month LIBOR 9/1/2016 12/1/2022 (22) 48
100,000
 1.905% One-Month LIBOR 9/1/2016 12/1/2022 (4,307) (1,037)
50,00050,000
 1.9079% One-Month LIBOR 9/1/2016 12/1/2022 (30) 10
50,000
 1.908% One-Month LIBOR 9/1/2016 12/1/2022 (2,157) (524)
100,000
(2)1.6730%
One-Month LIBOR
9/1/2015
8/1/2019
—

(701)
11,20011,200
(2)1.678% One-Month LIBOR 8/1/2019 8/1/2026 (778) (20)
150,000150,000
 0.498% One-Month LIBOR 4/1/2020 12/31/2020 (125) —
23,00023,000
(3)0.573% One-Month LIBOR 4/1/2020 3/26/2025 (174) —
75,00075,000
 3.176% Three-Month LIBOR 6/30/2020 6/30/2030 (18,132) (8,640)
75,00075,000
 3.192% Three-Month LIBOR 6/30/2020 6/30/2030 (18,249) (8,749)
75,00075,000
 2.744% Three-Month LIBOR 6/30/2020 6/30/2030 (14,956) (5,684)

  
 
 
 
$(190)
$(1,414)
  
 
 
 
$(63,232)
$(25,659)


(1)     The notional amount of this instrument is scheduled to amortize to $12.1 million.
(1)The notional amount of this instrument is scheduled to amortize to $12.1 million.
(2)
We cash settledThe notional amount of this derivative and interest accrued thereon for $460,000 on May 1, 2017. Since the hedged transactions associated withinstrument is scheduled to amortize to $10.0 million.
(3)The notional amount of this derivative were still probableinstrument is scheduled to occur as of the settlement date, amounts in accumulated other comprehensive loss (“AOCL”) associated with this derivative will be reclassifiedamortize to interest expense through August 2019.$22.1 million.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):
    Fair Value at
Derivatives Balance Sheet Location March 31,
2020		 December 31, 2019
Interest rate swaps designated as cash flow hedges Prepaid expenses and other assets, net $—
 $23
Interest rate swaps designated as cash flow hedges Interest rate derivatives (liabilities) $(63,232) $(25,682)
    Fair Value at
Derivatives Balance Sheet Location September 30,
2017		 December 31, 2016
Interest rate swaps designated as cash flow hedges Prepaid expenses and other assets $126
 $158
Interest rate swaps designated as cash flow hedges Other liabilities (316) (1,572)

 
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
  Amount of Loss Recognized in AOCL on Derivatives Amount of (Loss) Gain Reclassified from AOCL into Interest Expense on Statement of Operations
  For the Three Months Ended March 31, For the Three Months Ended March 31,
Derivatives in Hedging Relationships 2020 2019 2020 2019
Interest rate derivatives $(37,705) $(8,845) $(131) $570

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
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) —


(1)Represents a loss recognizedBased on certain interest rate swaps from the accelerated reclassification of amounts in AOCL on May 1, 2017, when we concluded that hedged forecasted transactions were probable not to occur.



Over the next 12 months,fair value of our derivatives as of March 31, 2020, we estimate that approximately $1.6$6.0 million of losses will be reclassified from AOCLaccumulated other comprehensive loss (“AOCL”) as an increase to interest expense.expense over the next 12 months.



We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of September 30, 2017,March 31, 2020, we were not in default with any of these provisions. As of March 31, 2020, the fair value of interest rate derivatives in a liability position related to these agreements was $305,000,$63.4 million, excluding the effects of accrued interest and credit valuation adjustments. As of September 30, 2017,March 31, 2020, we had not posted any collateral related to these agreements.  We are not in default with any of these provisions.  If we breachedbreach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $63.5 million as of $484,000.March 31, 2020.

10.11.    Redeemable Noncontrolling Interests


Our partners in two2 real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, (discussed further in Note 5), have the right to require us to acquire their respective interests at fair value; accordingly, we classify the fair value of our partners’ interests as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheet. sheets. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):
  For the Three Months Ended March 31,
  2020 2019
Beginning balance $29,431
 $26,260
Distributions to noncontrolling interests (11,578) (349)
Net income attributable to noncontrolling interests 958
 675
Adjustment to arrive at fair value of interests 4,101
 799
Ending balance $22,912
 $27,385


We determine the fair value of the interests based on unobservable inputs after considering the assumptions that market participants would make in pricing the interest. We apply a discount rate to the estimated future cash flows allocable to our partners from the properties underlying the respective joint ventures. Estimated cash flows used in such analyses are based on our plans for the properties and our views of market and economic conditions, and consider items such as current and future rental rates, occupancies for the properties and comparable propertiesoccupancy projections and estimated operating and capitaldevelopment expenditures. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):
  For the Nine Months Ended September 30,
  2017 2016
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 interests 1,720
 1,679
Adjustment to arrive at fair value of interests (244) 516
Ending balance $23,269
 $22,848


11.12.    Equity
 
During the nine months ended September 30, 2017,Common Shares/Units

As of March 31, 2020, COPT redeemed all of the outstanding shares of its following series of preferred shares:

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.

During the nine months ended September 30, 2017, COPT issued 591,042 common shares at a weighted average price of $33.84 per share under its existing at-the-market (“ATM”) stock offering program. Net proceeds from the shares issued totaled $19.7 million, after payment of $300,000 in commissions to sales agents. COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP. COPT’shad remaining capacity under this ATMits at-the-market stock offering program isequal to an aggregate gross sales price of $70.0$300 million in common share sales.




During the ninethree months ended September 30, 2017,March 31, 2020, certain COPLP limited partners converted 337,00012,009 common units in COPLP for an equal number of common shares in COPT.


We declared dividends per COPT common share and distributions per COPLP common unit of $0.275 in the three months ended March 31, 2020 and 2019.

See Note 1315 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.





12.
13.    Information by Business Segment


We have the following reportable segments: Defense/IT Locations; Regional Office; our operating wholesale data center;Wholesale Data Center; and other.Other. We also report on Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (referred to herein as “Fort(“Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure).

We measure the performance of our segments through the measure we define as net operating income from real estate operations (“NOI from real estate operations”), which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to COPT’s ownership interest (“UJV NOI allocable to COPT”). Amounts reported for segment assets represent long-lived assets associated with consolidated operating properties (including the carrying value of properties, right-of-use assets, net of related lease liabilities, intangible assets, deferred leasing costs, deferred rents receivable and lease incentives) and the carrying value of investments in UJVs owning operating properties. Amounts reported as additions to long-lived assets represent additions to existing consolidated operating properties, excluding transfers from non-operating properties, which we report separately.


The table below reports segment financial information for our reportable segments (in thousands): 
 Operating Property Segments      
 Defense/Information Technology Locations        
 Fort Meade/BW Corridor Northern Virginia Defense/IT Lackland Air Force Base Navy Support Locations Redstone Arsenal Data Center Shells Total Defense/IT Locations Regional Office Wholesale
Data Center		 Other Total
Three Months Ended March 31, 2020 
  
  
    
  
    
  
  
  
Revenues from real estate operations$64,438
 $13,678
 $12,076
 $8,341
 $4,676
 $5,577
 $108,786
 $15,460
 $7,172
 $698
 $132,116
Property operating expenses(21,222) (5,185) (6,795) (3,285) (1,847) (657) (38,991) (7,537) (3,233) (238) (49,999)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,713
 1,713
 —
 —
 —
 1,713
NOI from real estate operations$43,216
 $8,493
 $5,281
 $5,056
 $2,829
 $6,633
 $71,508
 $7,923
 $3,939
 $460
 $83,830
Additions to long-lived assets$7,675
 $2,691
 $—
 $1,758
 $170
 $—
 $12,294
 $3,357
 $878
 $65
 $16,594
Transfers from non-operating properties$538
 $256
 $15
 $—
 $1,136
 $56,232
 $58,177
 $—
 $—
 $—
 $58,177
Segment assets at March 31, 2020$1,275,601
 $395,108
 $145,363
 $183,054
 $138,797
 $334,102
 $2,472,025
 $390,352
 $200,891
 $3,677
 $3,066,945
Three Months Ended March 31, 2019 
  
  
    
  
    
  
  
  
Revenues from real estate operations$62,683
 $14,831
 $11,561
 $8,155
 $3,939
 $7,354
 $108,523
 $14,833
 $7,871
 $763
 $131,990
Property operating expenses(22,335) (5,292) (5,959) (3,404) (1,539) (353) (38,882) (7,416) (2,838) (309) (49,445)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,219
 1,219
 —
 —
 —
 1,219
NOI from real estate operations$40,348
 $9,539
 $5,602
 $4,751
 $2,400
 $8,220
 $70,860
 $7,417
 $5,033
 $454
 $83,764
Additions to long-lived assets$3,935
 $1,447
 $—
 $5,017
 $300
 $—
 $10,699
 $3,989
 $156
 $10
 $14,854
Transfers from non-operating properties$5,040
 $4,509
 $6,503
 $—
 $3,635
 $19,788
 $39,475
 $—
 $—
 $—
 $39,475
Segment assets at March 31, 2019$1,279,983
 $400,741
 $145,697
 $189,192
 $110,195
 $370,447
 $2,496,255
 $394,001
 $213,993
 $3,904
 $3,108,153



 Operating Office Property Segments      
 Defense/Information Technology Locations        
 Fort Meade/BW Corridor Northern Virginia Defense/IT Lackland Air Force Base Navy Support Locations Redstone Arsenal Data Center Shells Total Defense/IT Locations Regional Office Operating
Wholesale
Data Center		 Other Total
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



The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Segment revenues from real estate operations$132,116
 $131,990
Construction contract and other service revenues13,681
 16,950
Total revenues$145,797
 $148,940
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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

 
The following table reconciles UJV NOI allocable to COPT to equity in income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):
 For the Three Months Ended March 31,
 2020 2019
UJV NOI allocable to COPT$1,713
 $1,219
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense(1,270) (827)
Add: Equity in loss of unconsolidated non-real estate entities(2) (1)
Equity in income of unconsolidated entities$441
 $391
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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

 
As previously discussed, we provide real estate services such as property management, development and construction and development services primarily for our properties but also for third parties.  The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities.  Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Construction contract and other service revenues$13,681
 $16,950
Construction contract and other service expenses(13,121) (16,326)
NOI from service operations$560
 $624

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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





The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to net income from before gain on sales of real estate as reported on our consolidated statements of operations (in thousands):
 For the Three Months Ended March 31,
 2020 2019
NOI from real estate operations$83,830
 $83,764
NOI from service operations560
 624
Interest and other income1,205
 2,286
Credit loss expense(689) —
Gain on sales of real estate5
 —
Equity in income of unconsolidated entities441
 391
Income tax expense(49) (194)
Depreciation and other amortization associated with real estate operations(32,596) (34,796)
General, administrative and leasing expenses(7,486) (8,751)
Business development expenses and land carry costs(1,118) (1,113)
Interest expense(16,840) (18,674)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities(1,713) (1,219)
Net income$25,550
 $22,318
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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 income1,508
 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)

 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 March 31,
2020		 March 31,
2019
Segment assets$3,066,945
 $3,108,153
Operating properties lease liabilities included in segment assets17,365
 16,342
Non-operating property assets658,978
 485,911
Other assets311,169
 165,453
Total COPT consolidated assets$4,054,457
 $3,775,859
 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

 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations and UJV NOI allocable to COPT are not presented separately for segment purposes.statements.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment (recoveries) losses, loss on early extinguishment of debt, gain on sales of real estate and equity in income of unconsolidated entities not included in NOI to our real estate segments since they are not included in the measure of segment profit reviewed by management.  We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, credit loss expense, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.


13.14.Construction Contract and Other Service Revenues

We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Construction contract revenue:   
Guaranteed maximum price$5,044
 $12,356
Firm fixed price5,072
 2,325
Cost-plus fee3,309
 2,060
Other256
 209
 $13,681
 $16,950



The table below reports construction contract and other service revenues by service type (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Construction contract revenue:   
Construction$12,883
 $16,489
Design542
 252
Other256
 209
 $13,681
 $16,950


We recognized revenue of $32,000 in the three months ended March 31, 2019 from performance obligations satisfied (or partially satisfied) in previous periods.

Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Beginning balance$12,378
 $6,701
Ending balance$10,852
 $6,569


Contract assets, which we refer to herein as construction contract costs in excess of billings, net are included in prepaid expenses and other assets, net reported on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Beginning balance$17,223
 $3,189
Ending balance$7,463
 $14,834


Contract liabilities are included in other liabilities reported on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):
 For the Three Months Ended March 31,
 2020 2019
Beginning balance$1,184
 $568
Ending balance$1,417
 $1,005
Portion of beginning balance recognized in revenue during period$646
 $439


Revenue allocated to the remaining performance obligations under existing contracts as of March 31, 2020 that will be recognized as revenue in future periods was $74.1 million, approximately $26 million of which we expect to recognize during the remainder of 2020.

We incurred no deferred incremental costs to obtain or fulfill our construction contracts or other service revenues and had no significant credit loss expense on construction contracts receivable or unbilled construction revenue in the three months ended March 31, 2020 and 2019.



15.    Share-Based Compensation and Other Compensation Matters
 
Performance-Based Share Units (“PSUs”)Restricted Shares
 
On January 1, 2017, our BoardDuring the three months ended March 31, 2020, certain employees were granted a total of Trustees granted 36,525 PSUs133,335 restricted common shares with an aggregate grant date fair value of $1.4$3.4 million ($25.34 per share).  Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employee remains employed by us. During the three months ended March 31, 2020, forfeiture restrictions lapsed on 132,703 previously issued common shares; these shares had a weighted average grant date fair value of $28.13 per share, and the aggregate intrinsic value of the shares on the vesting dates was $3.4 million.

Performance Share Awards (“PSUs”)
We issued 23,181 common shares on January 13, 2020 to executives in settlement of PSUs granted in 2017, representing 53% of the target awards for those PSUs.

Profit Interest Units (“PIUs”)

For 2020, we offered our three executives (the “January Grants”the opportunity to select PIUs as a form of long-term compensation in lieu of, or in combination with, other forms of share-based compensation awards (restricted shares, deferred share awards and PSUs), and our executives selected PIUs. We granted 2 forms of PIUs: time-based PIUs (“TB-PIUs”); and performance-based PIUs (“PB-PIUs”). The PSUs haveTB-PIUs are subject to forfeiture restrictions until the end of the requisite service period, at which time the TB-PIUs automatically convert into vested PIUs. PB-PIUs are subject to a market condition in that the number of earned awards are determined at the end of the performance period (as described further below) and then settled in vested PIUs. Vested PIUs carry substantially the same rights to redemption and distributions as non-PIU common units.

TB-PIUs

During the three months ended March 31, 2020, our executives were granted a total of 67,081 TB-PIUs with an aggregate grant date fair value of $1.7 million ($25.34 per TB-PIU). TB-PIUs granted to executives vest in equal one-third increments over a three-year period beginning on the first anniversary of the date of grant. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the three months ended March 31, 2020, 20,622 TB-PIUs awarded to our former Executive Vice President and Chief Operating Officer were forfeited upon his resignation. During the three months ended March 31, 2020, forfeiture restrictions lapsed on 18,318 previously issued TB-PIUs; these TB-PIUs had a grant date fair value of $25.81 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was $464,000.

PB-PIUs

On January 1, 2017 and2020, we granted our executives 176,758 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 20192022 or the date of: (1) termination by us without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event.  The number of PSUs earned (“earned PSUs”)awards at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return (“TSR”) relative to a peer group of companies, as set forth in the following schedule:
Percentile Rank Earned PSUsAwards Payout %
75th or greater 200%100% of PSUsPB-PIUs granted
50th or greater(target) 100%50% of PSUsPB-PIUs granted
25th 50%25% of PSUsPB-PIUs granted
Below 25th 0% of PSUsPB-PIUs granted





If the percentile rank exceeds the 25th percentile and is between two2 of the percentile ranks set forth in the table above, then the percentage of the earned PSUsawards will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles.  If COPT’s TSR during the measurement period is negative, the maximum number of earned awards will be limited to the target level payout percentage.  During the performance period, PB-PIUs carry rights to distributions equal to 10% of the distribution rights of non-PIU common units but carry no redemption rights.



At the end of the performance period, we will settle the award by issuing vested PIUs equal to the number of earned awards in settlement of the award will issue a number of fully-vested COPT common sharesplan and paying cash equal to the sumexcess, if any, of:

the number of earned PSUs in settlement of the award plan; plus
the aggregate dividendsdistributions that would have been paid with respect to the common sharesvested PIUs issued in settlement of the earned PSUsawards through the date of settlement had such sharesvested PIUs been issued on the grant date, divided bydate; over the share priceaggregate distributions made on such settlement date, as defined under the terms ofPB-PIUs during the agreement.
performance period. If a performance period ends due to a sale event or qualified termination, the number of earned PSUsawards is prorated based on the portion of the three-year performance period that has elapsed.  If employment is terminated by the employee or by us for cause, all PSUsPB-PIUs are forfeited.  PSUs do not carry voting rights.


On August 23, 2017, the January Grants were modified to include a provision that limits the earned PSUs payout percentage to 100% of the PSUs granted if COPT’s total shareholder return is negative during the performance period irrespective of its percentile rank in the peer group (the “Negative TSR Modifier”). In addition, as a result of the modification to the January Grants, on August 23, 2017, we augmented the January Grants by issuingThese PB-PIU grants had an aggregate of 2,826 additional PSUs to the executives. Each of the PSU Certificates also includes the Negative TSR Modifier. The incremental award to the executives on August 23, 2017 resulting from these modifications totaled $12,000.

For the January Grants, we computed a grant date fair value of $38.43$2.9 million ($16.36 per PSUPB-PIU) which is being recognized over the performance period. The grant date fair value was computed using a Monte Carlo model whichthat included assumptions of, among other things, the following:following assumptions: baseline common share value of $31.22;$29.38; expected volatility for COPT common shares of 19.0%18.0%; and a risk-free interest rate of 1.47%. For the award modification on August 23, 2017, we computed a pre-modification fair value of $49.66 per PSU and a post-modification fair value of $46.39 per PSU using a Monte Carlo model, which included assumptions of, among other things, the following: baseline common share value of $33.40; expected volatility for COPT common shares of 18.7%; and a risk-free interest rate of 1.36%1.65%.  

We issued 9,763 common shares on February 7, 2017 to Mr. Stephen E. Budorick, our Chief Executive Officer, in settlement of PSUs issued in 2014, representing 100% of the target award for those PSUs.

Restricted Shares
During the nine months endedSeptember 30, 2017, certain employees and non-employee members of our Board of Trustees were granted a total of 230,635 restricted common shares with an aggregate grant date fair value of $7.8 million (weighted average of $33.96 per share).  Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employees remain employed by us.  Restricted shares granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. During the nine months endedSeptember 30, 2017, forfeiture restrictions lapsed on 148,401 previously issued common shares; these shares had a weighted average grant date fair value of $26.18 per share, and the aggregate intrinsic value of the shares on the vesting dates was $5.0 million.

Deferred Share Awards


During the ninethree months ended September 30, 2017, nonemployee members ofMarch 31, 2020, 73,184 PB-PIUs awarded to our Board of Trusteesformer Executive Vice President and Chief Operating Officer were granted a total of 10,032 deferred share awards with an aggregate grant date fair value of $326,000 ($32.47 per share). Deferred share awards vest on the first anniversary of the grant date, provided that the Trustee remains inforfeited upon his or her position. We settle deferred share awards by issuing an equivalent number of common shares upon vesting of the awards or a later date elected by the Trustee (generally upon cessation of being a Trustee). During the nine months ended September 30, 2017, we issued 15,590 common shares in settlement of deferred share awards granted in 2016; these shares had a grant date fair value of $26.89 per share, and the aggregate intrinsic value of the shares on the settlement date was $508,000.resignation.

Options
During the nine months ended September 30, 2017, 5,000 options to purchase common shares (“options”) were exercised.  The weighted average exercise price of these options was $29.98 per share, and the aggregate intrinsic value of the options exercised was $18,000.



14.16.    Earnings Per Share (“EPS”) and Earnings Per Unit (“EPU”)
 
COPT and Subsidiaries EPS


We present both basic and diluted EPS.  We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted common shares outstanding during the period.  Our computation of diluted EPS is similar except that:
 
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 COPT’s forward equity sale agreements, redeemable noncontrolling interests and our 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 addedadd to the denominator.


Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):
 For the Three Months Ended March 31,
 2020 2019
Numerator: 
  
Net income attributable to COPT$24,054
 $20,859
Income attributable to share-based compensation awards(105) (86)
Numerator for basic EPS on net income attributable to COPT common shareholders23,949
 20,773
Income attributable to share-based compensation awards8
 —
Numerator for diluted EPS on net income attributable to COPT common shareholders$23,957
 $20,773
Denominator (all weighted averages): 
  
Denominator for basic EPS (common shares)111,724
 109,951
Dilutive effect of share-based compensation awards239
 267
Denominator for diluted EPS (common shares)111,963
 110,218
Basic EPS$0.21
 $0.19
Diluted EPS$0.21
 $0.19
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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)

 


Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods (in thousands):
 Weighted Average Shares Excluded from Denominator
 For the Three Months Ended March 31,
 2020 2019
Conversion of common units1,226
 1,331
Conversion of redeemable noncontrolling interests1,011
 1,013
Conversion of Series I preferred units176
 176
 Weighted Average Shares Excluded from Denominator
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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

 
The following share-based compensation securities were also excluded from the computation of diluted EPS because their effects wereeffect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the three months ended March 31, 2019 of 1.5 million;
weighted average restricted shares and deferred share awards for the three months ended September 30, 2017March 31, 2020 and 20162019 of 445,000440,000 and 375,000, respectively, and for the nine months ended September 30, 2017 and 2016 of 431,000 and 394,000,463,000, respectively; and
weighted average options for the three months ended September 30, 2017March 31, 2019 of 30,000; and 2016 of 40,000 and 233,000, respectively, and
weighted average unvested TB-PIUs for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 of 80,00075,000 and 307,000,19,000, respectively.




COPLP and Subsidiaries EPU


We present both basic and diluted EPU.  We compute basic EPU by dividing net income available to common unitholders allocable to unrestricted common units under the two-class method by the weighted average number of unrestricted common units outstanding during the period.  Our computation of diluted EPU is similar except that:
 
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 COPT’s forward equity sale agreements, redeemable noncontrolling interests and our 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 addedadd to the denominator.


Summaries of the numerator and denominator for purposes of basic and diluted EPU calculations are set forth below (in thousands, except per unit data):
 For the Three Months Ended March 31,
 2020 2019
Numerator: 
  
Net income attributable to COPLP$24,418
 $21,281
Preferred unit distributions(77) (165)
Income attributable to share-based compensation awards(121) (93)
Numerator for basic and diluted EPU on net income attributable to COPLP common unitholders$24,220
 $21,023
Denominator (all weighted averages): 
  
Denominator for basic EPU (common units)112,950
 111,282
Dilutive effect of share-based compensation awards239
 267
Denominator for diluted EPU (common units)113,189
 111,549
Basic EPU$0.21
 $0.19
Diluted EPU$0.21
 $0.19
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
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)

 


Our diluted EPU computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPU for the respective periods (in thousands):
 Weighted Average Shares Excluded from Denominator
 For the Three Months Ended March 31,
 2020 2019
Conversion of redeemable noncontrolling interests1,011
 1,013
Conversion of Series I preferred units176
 176

 Weighted Average Units Excluded from Denominator
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Conversion of Series I preferred units176
 176
 176
 176
Conversion of Series K preferred units—
 434
 —
 434

The following share-based compensation securities were also excluded from the computation of diluted EPU because their effects wereeffect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the three months ended March 31, 2019 of 1.5 million;
weighted average restricted units and deferred share awards for the three months ended September 30, 2017March 31, 2020 and 20162019 of 445,000440,000 and 375,000, respectively, and for the nine months ended September 30, 2017 and 2016 of 431,000 and 394,000,463,000, respectively; and
weighted average options for the three months ended September 30, 2017March 31, 2019 of 30,000; and 2016 of 40,000 and 233,000, respectively, and
weighted average unvested TB-PIUs for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 of 80,00075,000 and 307,000,19,000, respectively.




15.17.    Commitments and Contingencies
 
Litigation and Claims
 
In the normal course of business, we are involved insubject to legal actions arising from our ownership and administration of properties.other claims.  We establish reservesrecord losses for specific legal proceedings and claims when we determine that the likelihood of an unfavorable outcomea loss is probable and the amount of loss can be reasonably estimated.  Management doesAs of March 31, 2020, management believes that it is reasonably possible that we could recognize a loss of up to $3.1 million for certain municipal tax claims. While we do not anticipate that any liabilities that may result from such proceedings will have abelieve this loss would materially adverse effect onaffect our financial position operations or liquidity.liquidity, it could be material to our results of operations. Management believes that it is also reasonably possible that we could incur losses pursuant to other such claims but do not believe such losses would materially affect our financial position, liquidity or results of operations. Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.
 
Environmental
 
We are subject to various Federal, state and local environmental regulations related to our property ownership and operation.  We have performed environmental assessments of our properties, the results of which have not revealed any environmental liability that we believe would have a materially adverse effect on our financial position, operations or liquidity.

Tax Incremental Financing Obligation
In August 2010, Anne Arundel County, Maryland issued $30 million in tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as National Business Park North.  The real estate taxes on increases in assessed value of a development district encompassing National Business Park North are to be transferred to a special fund pledged to the repayment of the bonds.  We recognized a $685,000 liability through September 30, 2017 representing our estimated obligation to fund through a special tax any future shortfalls between debt service on the bonds and real estate taxes available to repay the bonds.

Operating Leases

We are obligated as lessee under operating leases (mostly ground leases) with various expiration dates extending to the year 2100. Future minimum rental payments due under the terms of these operating leases as of September 30, 2017 follow (in thousands):
Year Ending December 31,  
2017 (1) $320
2018 1,275
2019 1,263
2020 1,257
2021 1,260
Thereafter 85,761
  $91,136
(1) Represents the three months ending December 31, 2017.



Capital Lease

On May 25, 2017, we entered into a ground lease on land under development in Washington, D.C. for our Stevens Investors, LLC joint venture. The lease has a 99-year term, and we possess an option to purchase the property for one dollar (estimated to occur between 2019 and 2020). Upon inception of the lease, we recorded a $16.1 million capital lease liability on our consolidated balance sheets based on the present value of the future minimum rental payments. Future minimum rental payments due under the term of this lease as of September 30, 2017 follow (in thousands):
Year Ending December 31,  
2017 (1) $700
2018 15,775
2020 135
Thereafter 75
Total minimum rental payments $16,685
Less: Amount representing interest (338)
Capital lease obligation $16,347

(1) Represents the three months ending December 31, 2017.

Contractual Obligations

We had amounts remaining to be incurred under various contractual obligations as of September 30, 2017 that included the following (excluding amounts incurred and therefore reflected as liabilities reported on our consolidated balance sheet):

new development and redevelopment obligations of $35.1 million;
capital expenditures for operating properties of $45.8 million;
third party construction and development of $67.4 million; and
other obligations of $1.1 million.

Environmental Indemnity Agreement
In connection with a lease and subsequent sale in 2008 and 2010 of three3 properties in Dayton, New Jersey, we agreed to provide certain environmental indemnifications limited to $19 million in the aggregate. We have insurance coverage in place to mitigate much of any potential future losses that may result from these indemnification agreements.
Tax Incremental Financing Obligation
Anne Arundel County, Maryland issued tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as the National Business Park.  These bonds had a remaining principal balance of approximately $34 million as of March 31, 2020. The real estate taxes on increases in assessed values post-bond issuance of properties in development districts encompassing the National Business Park are transferred to a special fund pledged to the repayment of the bonds. While we are obligated to fund, through a special tax, any future shortfalls between debt service of the bonds and real estate taxes available to repay the bonds, as of March 31, 2020, we do not expect any such future fundings will be significant.

Effects of COVID-19
Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide and throughout the United States. As of May 8, 2020, there continued to be significant uncertainty regarding the duration of COVID-19’s spread, and the potential, once its spread subsides, for the virus to reoccur on


a significant scale in the future. The COVID-19 outbreak has prompted governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The outbreak has significantly disrupted economic markets worldwide, as well as in the United States at a national, regional and local level, and created significant volatility in financial markets. Furthermore, conditions could potentially continue to deteriorate as a result of the pandemic.

COVID-19 and measures instituted to prevent spread, may adversely affect us in many ways, including by disrupting:

our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;
our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;
access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;
the supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively; and
our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development.

The extent of COVID-19’s effect on our operational and financial performance is dependent on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the effects of COVID-19 have developed, we are unable at this time to estimate the magnitude of the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.




Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
During the ninethree months endedSeptember 30, 2017:  March 31, 2020, we: 


we finished the period with occupancy of our office and data center shell portfolio of operating office properties at 93.4%, including six properties owned through an unconsolidated real estate joint venture;93.7% occupied and 94.9% leased;
we placed into service an aggregate of 839,000230,000 square feet in eight newly constructed or redeveloped propertiesone newly-developed data center shell property that were 89%was 100.0% leased as of September 30, 2017;March 31, 2020; and
we sold ten operating properties totaling 639,000 square feet that were 89.4% occupied for $88.8amended an existing term loan facility to increase the loan amount by $150.0 million and other land for $14.3 million. The netreduce the LIBOR interest rate spread on the facility. We used the resulting loan proceeds from these sales were used primarily to repay borrowings under our Revolving Credit Facility that funded development costs.

In addition, effective March 16, 2020, Paul R. Adkins resigned from his position as Executive Vice President and Chief Operating Officer. We commenced a search for candidates to fund cash reserves;replace Mr. Adkins and, in the interim, have senior level employees handling his responsibilities.
we repaid $200.0 million
We refer to the measure “annualized rental revenue” in various sections of the loan balanceManagement’s Discussion and Analysis of Financial Condition and Results of Operations section of this Quarterly Report on Form 10-Q. Annualized rental revenue is a term loan scheduledmeasure that we use to matureevaluate the source of our rental revenue as of a point in 2020 using available cash;
COPT redeemed alltime. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect). Our computation of annualized rental revenue excludes the outstanding shareseffect of its:
Series K Preferred Shares effective January 21, 2017 atlease incentives, although the effect of this exclusion is not material. We consider annualized rental revenue to be a price of $50.00 per share, or $26.6 millionuseful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles in the aggregate, plus accruedUnited States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and unpaid dividends thereonindustry analysis.

With regard to our operating portfolio square footage, occupancy and leasing statistics included below and elsewhere in this Quarterly Report on Form 10-Q, amounts disclosed include information pertaining to properties owned through unconsolidated real estate joint ventures except for amounts reported for annualized rental revenue, which represent the date of redemption using available cash. Concurrently with this redemption, COPLP redeemed its Series K Preferred Units on the same terms; andportion attributable to our ownership interest.
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.

On October 27, 2017, we sold:

201 Technology Drive, an operating property totaling 103,000 square feet in Lebanon, Virginia (in our Data Center Shells sub-segment), for $29.2 million; and
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.

The net proceeds from these sales were used primarily to repay borrowings under our Revolving Credit Facility


We discuss significant factors contributing to changes in our net income in the section below entitled “Results of Operations.” The results of operations discussion is combined for COPT and COPLP because there are no material differences in the results of operations between the two reporting entities.


In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:


how we expect to generate cash for short and long-term capital needs; and
our commitments and contingencies.
 
You should refer to our consolidated financial statements and the notes thereto as you read this section.
 
This section contains “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those


discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:


general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability and property values;
adverse changes in the real estate markets, including, among other things, increased competition with other companies;


risks associated with uncertainties regarding the impact of the COVID-19 pandemic on our business and national, regional and local economic conditions;
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 ofreduced or delayed demand for additional space by our strategic customers;
our ability to borrow on favorable terms;
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;
possible adverse changes in tax laws;
the dilutive effects of issuing additional common shares;
our ability to achieve projected results;
security breaches relating to cyber attacks, cyber intrusions or other factors; and
environmental requirements.


We undertake no obligation to publicly update or supplement forward-looking statements.
 
Effects of COVID-19

Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide and throughout the United States. As of the date of this filing, there continued to be significant uncertainty regarding the duration of COVID-19’s spread, and the potential, once its spread subsides, for the virus to reoccur on a significant scale in the future. The COVID-19 outbreak has prompted governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations, such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The outbreak has significantly disrupted economic markets worldwide, as well as in the United States at a national, regional and local level, and created significant volatility in financial markets. Furthermore, conditions could potentially continue to deteriorate as a result of the pandemic.

COVID-19 has significantly affected the operations of much of the commercial real estate industry as tenants’ operations, including the ability to use space and run businesses, has been disrupted, which has adversely affected their ability to sustain their businesses, as well as their ability, or willingness, to fulfill their lease obligations. The industry has also been significantly impacted by the economic disruption that COVID-19 has triggered, which has adversely impacted the ability to lease space in most property types to new and existing tenants at favorable terms. As result, the commercial real estate industry is facing enhanced risk for adverse impacts in its operations, financial conditions and cash flows from COVID-19.

Our office and data center shell portfolio is significantly concentrated in Defense/IT Locations, representing 162 of the portfolio’s 171 properties, or 87.7%, of our annualized rental revenue as of March 31, 2020. These properties are primarily occupied by the USG and contractor tenants engaged in what we believe are high-priority security, defense and IT missions. As a result, most of these properties are designated as “essential businesses,” and are therefore exempt from many of the restrictions that have otherwise affected much of the commercial real estate industry. Furthermore, since the tenants in these properties are mostly the USG, or contractors of the USG who will continue to be compensated by the USG for their services, we believe that their ability, and willingness, to fulfill their lease obligations will not be significantly disrupted. Our Defense/IT Locations do include several tenants serving as amenities to business parks housing our properties (such as restaurant, retail and personal service providers); while these tenants’ operations have been significantly disrupted by COVID-19, our annualized rental revenue from these tenants is not significant.

As of March 31, 2020, we owned seven Regional Office properties, representing 11.8% of our office and data center shell portfolio’s annualized rental revenue; these properties were comprised of: three high-rise Baltimore City properties proximate to the city’s waterfront; and four Northern Virginia properties. While these properties include tenants in the financial services, health care and public health sectors, which, as “essential businesses,” are exempt from restrictions on operations, they also include a number of non essential business tenants. These properties are more subject to traditional office fundamentals than our Defense/IT Locations and therefore face much of the enhanced risk in adverse impacts from COVID-19 described above.



In terms of the effect of COVID-19 on our results of operations for the three months ended March 31, 2020, we:

concluded that the economic disruption resulting from COVID-19 constituted a significant adverse change in the business climate that could affect the value of our Regional Office properties, which are dependent on commercial office tenants and could suffer increased vacancy as a result. Accordingly, we concluded that these circumstances constituted an indicator of impairment. We performed recovery analyses for each Regional Office property’s asset group and concluded that the carrying values of each asset group was recoverable from its respective estimated undiscounted future cash flows. As a result, no impairment loss was recognized; and
maintained operational service level at our properties, with our property-level building technicians and maintenance employees working on site (with personal protective equipment, social distancing and more frequent cleaning), while most of our corporate headquarters-based employees worked from home.

While we do not currently expect that COVID-19 will significantly affect our results of operations, we believe that the effect will ultimately be dependent on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Nevertheless, we believe at this time that there is more inherent risk associated with the operations of our Regional Office properties than our Defense/IT Locations.

We believe that COVID-19 has delayed our ability to complete several leases that we previously thought were on track for completion by March 31, 2020. The inability for us to physically show space to prospective tenants due to COVID-19 related restrictions also serves as an impediment to initiate new leasing activity. Overall, we believe that COVID-19 could: impede our ability to complete leasing for our Defense/IT Locations at the pace that we were previously expecting, though we still expect such leasing to advance; and potentially create more significant challenges for leasing space in our Regional Office properties.

For our development activity, the 13 properties that were under development as of March 31, 2020 face minimal operational risk as they were 78% leased as of April 30, 2020. However, COVID-19 does enhance the risk of us being able to stay on pace to complete development and begin operations on schedule due to the potential for delays from: factories’ ability to provide materials; possible labor quarantines; and jurisdictional permitting and inspections. These types of issues have not significantly affected us to date but could in the future, depending on future COVID-19 related developments.

COVID-19’s effects on economic and financial markets could impede our ability, or willingness based on terms available, to obtain unsecured, fixed rate debt or raise equity through issuances of COPT common shares. Due to the potential for further financial market instability, we borrowed under our Revolving Credit Facility in late March of 2020 in order to pre-fund our short-term capital needs. While we expect to spend approximately $220 million on development costs and approximately $70 million on improvements and leasing costs for operating properties during the remainder of 2020, as of March 31, 2020, we had $159 million in cash and cash equivalents on hand, $558.0 million in available borrowing capacity under our Revolving Credit Facility and minimal debt maturities for the remainder of 2020. In addition, we believe that we have the ability to raise equity by selling interests in data center shells through joint ventures.



Occupancy and Leasing
 
Office Propertiesand Data Center Shell Portfolio
 
The tables below set forth occupancy information pertaining to our portfolio of operating office properties, which included six properties owned through an unconsolidated real estate joint venture:and data center shell properties:
September 30, 2017 December 31, 2016March 31, 2020 December 31, 2019
Occupancy rates at period end 
  
 
  
Total93.4% 92.1%93.7% 92.9%
Defense/IT Locations:      
Fort Meade/BW Corridor95.6% 94.3%92.4% 92.4%
Northern Virginia Defense/IT88.7% 85.0%85.5% 82.4%
Lackland Air Force Base100.0% 100.0%100.0% 100.0%
Navy Support Locations82.5% 72.7%94.0% 92.5%
Redstone Arsenal97.9% 96.4%99.7% 99.3%
Data Center Shells100.0% 100.0%100.0% 100.0%
Total Defense/IT Locations94.7% 92.6%94.2% 93.7%
Regional Office92.4% 95.2%91.4% 88.1%
Other29.4% 52.9%64.6% 73.0%
Average contractual annual rental rate per square foot at period end (1)$29.94
 $30.16
$31.42
 $31.28


(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.


 
Rentable
Square Feet
 
Occupied
Square 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
 
Rentable
Square Feet
 
Occupied
Square Feet
 (in thousands)
December 31, 201919,173
 17,816
Vacated upon lease expiration (1)—
 (62)
Occupancy for new leases (2)—
 180
Developed or redeveloped230
 230
Other changes(25) (3)
March 31, 202019,378
 18,161


(1)Includes lease terminations and space reductions occurring in connection with lease renewals.
(2)Excludes occupancy of vacant square feet acquired or developed.


During the ninethree months ended September 30, 2017, March 31, 2020, we completed 2.2 million631,000 square feet of leasing, including 482,000 of construction and redevelopment space, andincluding: renewed 82.4%leases on 488,000 square feet, representing 89.0% of the square footage of our lease expirations (including the effect of early renewals).; and 143,000 square feet of vacant space.

Occupancy of our Same Office Properties increased from 91.8% as of December 31, 2016 to 92.6% as of September 30, 2017.


Wholesale Data Center Property
 
OurAs of March 31, 2020 and December 31, 2019, 14.8 megawatts, or 76.9%, of the 19.25 megawattmegawatts in our wholesale data center property had 16.9were leased. While 1.2 megawatts in known tenant downsizing are expected to occur by July 2020, in April 2020, we leased as3.1 megawatts scheduled to commence in phases from April through November 2020. We are negotiating the renewal of September 30, 2017, a 2.0 megawatt increase relativelease for 11.25 megawatts that is scheduled to December 31, 2016.expire in August 2020.


Results of Operations
 
We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to COPT’s ownership interest (“UJV NOI allocable to COPT”).  We view our NOI from real estate operations as comprising the following primary categories of operatingcategories:

office and data center shell properties:
office properties continuallystably owned and 100% operational throughout the current and prior year reporting periods, excluding properties held for sale.periods.  We define these as changes from “Same Office Properties”;
constructed

developed or redeveloped office propertiesand placed into service that were not 100% operational throughout the current and prior year reporting periods; and
disposed; and
our wholesale data center;center.
properties held for sale as of September 30, 2017; and
property dispositions.


In addition to owning properties, we provide construction management and other services. The primary manner in which we evaluate the operating performance of our construction management and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities.  The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee.  The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.
 
Since both of the measures discussed above exclude certain items includable in net income, before gain on sales of real estate, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures. A reconciliation of NOI from real estate operations and NOI from service operations to net income before gain on sales of real estate reported on the consolidated statements of operations of COPT and subsidiaries is provided in Note 1213 to our consolidated financial statements.




Comparison of Statements of Operations for the Three Months Ended September 30, 2017March 31, 2020 and 20162019


For the Three Months Ended September 30,For the Three Months Ended March 31,
2017 2016 Variance2020 2019 Variance
(in thousands)(in thousands)
Revenues 
  
  
 
  
  
Revenues from real estate operations$127,231
 $130,954
 $(3,723)$132,116
 $131,990
 $126
Construction contract and other service revenues29,786
 11,149
 18,637
13,681
 16,950
 (3,269)
Total revenues157,017
 142,103
 14,914
145,797
 148,940
 (3,143)
Expenses 
  
  
Operating expenses 
  
  
Property operating expenses46,368
 49,952
 (3,584)49,999
 49,445
 554
Depreciation and amortization associated with real estate operations34,438
 32,015
 2,423
32,596
 34,796
 (2,200)
Construction contract and other service expenses28,788
 10,341
 18,447
13,121
 16,326
 (3,205)
Impairment (recoveries) losses(161) 27,699
 (27,860)
General, administrative and leasing expenses7,368
 8,855
 (1,487)7,486
 8,751
 (1,265)
Business development expenses and land carry costs1,277
 1,716
 (439)1,118
 1,113
 5
Total operating expenses118,078
 130,578
 (12,500)104,320
 110,431
 (6,111)
Operating income38,939
 11,525
 27,414
Interest expense(19,615) (18,301) (1,314)(16,840) (18,674) 1,834
Interest and other income1,508
 1,391
 117
1,205
 2,286
 (1,081)
Loss on early extinguishment of debt—
 (59) 59
Credit loss expense(689) —
 (689)
Gain on sales of real estate5
 —
 5
Equity in income of unconsolidated entities719
 594
 125
441
 391
 50
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)
Income tax expense(49) (194) 145
Net income$22,682
 $29,272
 $(6,590)$25,550
 $22,318
 $3,232





NOI from Real Estate Operations
For the Three Months Ended September 30,For the Three Months Ended March 31,
2017 2016 Variance2020 2019 Variance
(Dollars in thousands, except per square foot data)(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
Same Properties revenues     
Lease revenue, excluding lease termination revenue$118,259
 $116,390
 $1,869
Lease termination revenue860
 389
 471
85
 521
 (436)
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
Other property revenue1,044
 1,042
 2
Same Properties total revenues119,388
 117,953
 1,435
Developed and redeveloped properties placed in service5,552
 902
 4,650
Wholesale data center7,398
 6,809
 589
7,172
 7,871
 (699)
Properties held for sale2,723
 2,700
 23
Dispositions538
 9,506
 (8,968)—
 4,375
 (4,375)
Other259
 255
 4
4
 889
 (885)
127,231
 130,954
 (3,723)132,116
 131,990
 126
Property operating expenses          
Same Office Properties(40,981) (42,745) 1,764
Constructed and redeveloped properties placed in service(1,555) (513) (1,042)
Same Properties(45,645) (46,165) 520
Developed and redeveloped properties placed in service(1,115) (314) (801)
Wholesale data center(3,175) (3,317) 142
(3,233) (2,838) (395)
Properties held for sale(299) (283) (16)
Dispositions(124) (2,743) 2,619
—
 (138) 138
Other(234) (351) 117
(6) 10
 (16)
(46,368) (49,952) 3,584
(49,999) (49,445) (554)
          
UJV NOI allocable to COPT1,297
 1,008
 289
     
Same Properties1,207
 1,219
 (12)
Retained interests in UJV formed in 2019506
 —
 506
1,713
 1,219
 494
          
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
Same Properties74,950
 73,007
 1,943
Developed and redeveloped properties placed in service4,437
 588
 3,849
Wholesale data center4,223
 3,492
 731
3,939
 5,033
 (1,094)
Properties held for sale2,424
 2,417
 7
Dispositions414
 6,763
 (6,349)
Dispositions, net of retained interests in UJV formed in 2019506
 4,237
 (3,731)
Other1,322
 912
 410
(2) 899
 (901)
$82,160
 $82,010
 $150
$83,830
 $83,764
 $66
Same Office Properties rent statistics     
     
Same Properties NOI from real estate operations by segment     
Defense/IT Locations$66,566
 $65,179
 $1,387
Regional Office7,923
 7,417
 506
Other461
 411
 50
$74,950
 $73,007
 $1,943
     
Same Properties rent statistics     
Average occupancy rate92.6% 91.6% 1.0%92.3% 91.6% 0.7%
Average straight-line rent per occupied square foot (1)$6.46
 $6.43
 $0.03
$6.54
 $6.55
 $(0.01)
 
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the three-month periods set forth above.


Our Same Office Properties pool consisted of 135 office152 properties, comprising 82.9%85.5% of our total operating office and data center shell portfolio’s square footage as of September 30, 2017 (84.7% excluding the effect of properties held for sale).March 31, 2020. This pool of properties included the following changeschanged from the pool used for purposes of comparing 20162019 and 20152018 in our 20162019 Annual Report on Form 10-K:10-K due to the addition of fourfive properties placed in service that wereand 100% operational on or before January 1, 2016 and three properties acquired in 2015; and the removal of two properties disposed, two properties reclassified to held for sale and one property reclassified as redevelopment in 2017. The decrease in tenant recoveries and other real estate operations revenue and property operating expenses from our Same Office Properties was due primarily to a decrease in operating expenses directly reimbursable from tenants.2019.







Our NOI from constructeddeveloped and redeveloped properties placed in service included 1410 properties placed in service in 20162019 and 2017.2020, while our dispositions included our decrease in ownership in 2019 of nine data center shells.


NOI from Service Operations
 For the Three Months Ended September 30, For the Three Months Ended March 31,
 2017 2016 Variance 2020 2019 Variance
 (in thousands) (in thousands)
Construction contract and other service revenues $29,786
 $11,149
 $18,637
 $13,681
 $16,950
 $(3,269)
Construction contract and other service expenses 28,788
 10,341
 18,447
 (13,121) (16,326) 3,205
NOI from service operations $998
 $808
 $190
 $560
 $624
 $(64)


Construction contract and other service revenue and expenses increaseddecreased due primarily to a greaterlower volume of construction activity in connection with several of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us (primarilyprimarily on behalf of tenants).tenants. Service operations are an ancillary component of our overall operations that typically contribute an insignificant amount of operatingnet income relative to our real estate operations.


Impairment (Recoveries) LossesInterest Expense


The decrease in impairment losses was attributable primarily to the losses described below in our explanation for the nine-month period ended September 30, 2016.

General, Administrative and Leasing Expenses

General, administrative and leasing expensesInterest expense decreased due primarily to our recognition in the prior period of $1.6 million in executive transition costs, representing mostly severance and termination benefits primarily in connection with executive departures.
Gain on Sales of Real Estate

We recognized gain on sales of real estate of $1.2 million in the current period in connection withincreased capitalized interest resulting from a land sale in White Marsh (discussed further in Note 4 to our consolidated financial statements). We recognized gain on sales of real estate in the prior period of $17.9 million on our sale of a 50% interest in six triple-net leased, single-tenant data center properties and $16.2 million in connection with other operating property dispositions.



Comparison of Statements of Operations for the Nine Months Ended September 30, 2017 and 2016

 For the Nine Months Ended September 30,
 2017 2016 Variance
 (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 income110,990
 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



NOI from Real Estate Operations
 For the Nine Months Ended September 30,
 2017 2016 Variance
 (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
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the nine-month periods set forth above.

Our NOI from constructed and redeveloped properties placed in service included 14 properties placed in service in 2016 and 2017.

NOI from Service Operations
  For the Nine Months Ended September 30,
  2017 2016 Variance
  (in thousands)
Construction contract and other service revenues $65,958
 $34,372
 $31,586
Construction contract and other service expenses 63,589
 32,513
 31,076
NOI from service operations $2,369
 $1,859
 $510

Construction contract and other service revenue and expenses increased due primarily to a greaterhigher volume of construction activity in connection with several of our tenants.active development projects.



Impairment Losses

In the first quarter of 2016, we set a goal to raise cash from sales of properties in 2016 considerably in excess of our assets held for sale at December 31, 2015. The specific properties we would sell to achieve this goal had not been identified when the goal was established. Throughout 2016, we engaged in the process of identifying properties we would sell.

In the first quarter of 2016, we reclassified: most of our properties in Greater Philadelphia (included in our Regional Office segment); two properties in the Fort Meade/BW Corridor sub-segment; and our remaining land holdings in Colorado Springs, Colorado (“Colorado Springs”) to held for sale and recognized $2.4 million of impairment losses. As of March 31, 2016, we had $225.9 million of assets held for sale.

During the second quarter of 2016, as part of our closing process, we conducted our quarterly review of our portfolio for indicators of impairment considering the refined investment strategy of our then newly-appointed Chief Executive Officer and the goals of the asset sales program and concluded that we would: (1) not hold our operating properties in Aberdeen, Maryland (“Aberdeen”) for the long-term; (2) not develop commercial properties on land in Frederick, Maryland; (3) sell specific properties in our Northern Virginia Defense/IT and Fort Meade/BW Corridor sub-segments; and (4) sell the remaining operating property in Greater Philadelphia that had not previously been classified as held for sale. Accordingly, we performed recoverability analyses for each of these properties and recorded the following impairment losses:

$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;
$6.2 million on the property in Greater Philadelphia (included in our Regional Office segment) that we reclassified to held for sale during the period and adjusted to fair value less costs to sell; and
$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.

There were no property sales in the second quarter of 2016 and as of June 30, 2016, we had $300.6 million of assets held for sale.

During the third quarter of 2016, as part of our closing process, we conducted our quarterly review of our portfolio for indicators of impairment considering refinements to our disposition strategy made during the third quarter of 2016 to sell an additional operating property in our Northern Virginia Defense/IT sub-segment, an additional operating property in our Fort Meade/BW Corridor sub-segment and our remaining operating properties and land in White Marsh that had not previously been classified as held for sale. In connection with our determinations that we planned to sell these properties, we performed recoverability analyses for each of these properties and recorded the following impairment losses:

$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.



During our review we also recognized additional impairment losses of $11.5 million on properties previously classified as held for sale. Approximately $10 million of these losses pertained to properties in White Marsh due to our assessment that certain significant tenants will likely exercise lease termination rights and to reflect market conditions. The remainder of these losses pertained primarily to properties in San Antonio, Texas (in our Other segment), where prospective purchasers reduced offering prices late in the third quarter. We executed property sales of $210.7 million in the third quarter of 2016 and had $161.5 million of assets held for sale as of September 30, 2016.

Refer to Note 3 to our consolidated financial statements for disclosure regarding impairment losses recognized in the current period.

General, Administrative and Leasing Expenses

General, administrative and leasing expenses decreased due primarily to our recognition in the prior period of $6.0 million in executive transition costs, representing mostly severance and termination benefits primarily in connection with executive departures, compared to $732,000 in such costs recognized in the current period.
Interest Expense 

The decrease in interest expense included the effect of a 10% decrease in our average outstanding debt in the current period relative to the prior period.

Gain on Sales of Real Estate

We recognized gain on sales of real estate of $5.4 million in the current period in connection with land sales (discussed further in Note 4 to our consolidated financial statements). We recognized gain on sales of real estate in the prior period of $17.9 million on our sale of a 50% interest in six triple-net leased, single-tenant data center properties and $16.2 million in connection with other operating property dispositions.


Funds from Operations
 
Funds from operations (“FFO”) is defined as net income computed using GAAP, excluding gains on sales of, and impairment losses on, previously depreciated operating properties, plusof real estate (net of associated income tax) and real estate-related depreciation and amortization. When multiple properties consisting of both operating and non-operating properties exist on a single tax parcel, we classify all of the gains on sales of, and impairment losses on, the tax parcel as all being for previously depreciated operating properties when most of the value of the parcel is associated with operating properties on the parcel. FFO also includes adjustments to net income for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe that we use the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs.  We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related toon sales of, and impairment losses on, previously depreciated operating properties, net of related tax benefit,real estate (net of associated income tax), and excluding real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods.  In addition, since most equity REITs provide FFO information to the investment community, we believe that FFO is useful to investors as a supplemental measure for comparing our results to those of other equity REITs.  We believe that net income is the most directly comparable GAAP measure to FFO.
 
Since FFO excludes certain items includable in net income, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. FFO is not necessarily an indication of our cash flow available to fund cash needs.  Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.
 
Basic FFO available to common share and common unit holders (“Basic FFO”) is FFO adjusted to subtract (1) preferred share dividends, (2) issuance costs associated with redeemed preferred shares, (3) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (4) depreciation and amortization allocable to noncontrolling interests in other consolidated entities and (5) Basic FFO allocable to restricted shares.share-based compensation awards.  With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders.  Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions.  We believe that Basic FFO is useful to investors due to the


close correlation of common units to common shares.  We believe that net income is the most directly comparable GAAP measure to Basic FFO.  Basic FFO has essentially the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.
 
Diluted FFO available to common share and common unit holders (“Diluted FFO”) is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares.  We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below.  We believe that net income is the most directly comparable GAAP measure to Diluted FFO.  Since


Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures.  Diluted FFO is not necessarily an indication of our cash flow available to fund cash needs.  Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.
 
Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to excludeexclude: operating property acquisition costs; gains on sales of, and impairment losses on, properties other than previously depreciated operating properties, net of associated income tax; gain or loss on early extinguishment of debt; FFO associated with properties securing non-recourse debt on which we have defaulted and which we have extinguished, or expect to extinguish, via conveyance of such properties, including property NOI, interest expense and interest expense;gains on debt extinguishment; loss on interest rate derivatives; demolition costs on redevelopment properties;and nonrecurring improvements; executive transition costs (including separation related compensation and replacement recruitment for Vice President level positions and above); andcosts; issuance costs associated with redeemed preferred shares.shares; allocations of FFO to holders of noncontrolling interests resulting from capital events; and certain other expenses that we believe are not closely correlated with our operating performance.  This measure also includes adjustments for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that net income is the most directly comparable GAAP measure to this non-GAAP measure.  This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
 
Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share (“EPS”) in evaluating net income available to common shareholders.  In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.
 
Diluted FFO per share, as adjusted for comparability is (1) Diluted FFO, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results.  We believe this to be a useful supplemental measure alongside Diluted FFO per share as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that diluted EPS is the most directly comparable GAAP measure to this per share measure.  This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
 
The computations for all of the above measures on a diluted basis assume the conversion of common units in COPLP but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.

We use measures called payout ratios as supplemental measures of our ability to make distributions to investors based on each of the following: FFO; Diluted FFO; and Diluted FFO, adjusted for comparability. These measures are defined as (1) the



sum of (a) dividends on common shares and (b) distributions to holders of interests in COPLP and dividends on convertible preferred shares when such distributions and dividends are included in Diluted FFO divided by either (2) FFO, Diluted FFO or Diluted FFO, adjusted for comparability.

The table appearing below sets forth the computation of the above stated measures for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, and provides reconciliations to the GAAP measures of COPT and subsidiaries associated with such measures:
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
 
(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
 For the Three Months Ended March 31,
 2020 2019
 
(Dollars and shares in thousands, 
except per share data)
Net income$25,550
 $22,318
Real estate-related depreciation and amortization32,596
 34,796
Depreciation and amortization on UJV allocable to COPT818
 566
Gain on sales of real estate(5) —
FFO58,959
 57,680
Noncontrolling interests-preferred units in the Operating Partnership(77) (165)
FFO allocable to other noncontrolling interests(12,015) (971)
Basic FFO allocable to share-based compensation awards(193) (185)
Basic FFO available to common share and common unit holders46,674
 56,359
Redeemable noncontrolling interests32
 381
Diluted FFO available to common share and common unit holders46,706
 56,740
Executive transition costs—
 4
Demolition costs on redevelopment and nonrecurring improvements43
 44
Dilutive preferred units in the Operating Partnership77
 —
FFO allocation to other noncontrolling interests resulting from capital event11,090
 —
Diluted FFO comparability adjustments allocable to share-based compensation awards(50) —
Diluted FFO available to common share and common unit holders, as adjusted for comparability$57,866
 $56,788
    
Weighted average common shares111,724
 109,951
Conversion of weighted average common units1,226
 1,331
Weighted average common shares/units - Basic FFO per share112,950
 111,282
Dilutive effect of share-based compensation awards239
 302
Redeemable noncontrolling interests110
 1,013
Weighted average common shares/units - Diluted FFO per share113,299
 112,597
Dilutive convertible preferred units176
 —
Weighted average common shares/units - Diluted FFO per share, as adjusted for comparability113,475
 112,597
    
Diluted FFO per share$0.41
 $0.50
Diluted FFO per share, as adjusted for comparability$0.51
 $0.50
    
Denominator for diluted EPS111,963
 110,218
Weighted average common units1,226
 1,331
Redeemable noncontrolling interests110
 1,013
Anti-dilutive EPS effect of share-based compensation awards—
 35
Denominator for diluted FFO per share113,299
 112,597
Dilutive convertible preferred units176
 —
Denominator for diluted FFO per share, as adjusted for comparability113,475
 112,597





Property Additions
 
The table below sets forth the major components of our additions to properties for the ninethree months endedSeptember 30, 2017March 31, 2020 (in thousands):
Construction, development and redevelopment$140,666
  
Development and redevelopment$95,365
Tenant improvements on operating properties(1)21,056
 (1)9,486
Capital improvements on operating properties13,051
  2,475
$174,773
  $107,326

(1) Tenant improvement costs incurred on newly-constructed properties are classified in this table as construction, development and redevelopment.
 
Cash Flows
 
Net cash flow provided byfrom operating activities increased by $0.7$7.6 million when comparing the ninethree months ended September 30, 2017March 31, 2020 and 20162019 due primarily to lower interest expense paymentsan increase in cash flow received from real estate operations, which was affected by the timing of cash receipts, and an increase in cash flow associated with the timing of cash flow from third-party construction projects.
Net cash flow used in investing activities decreased $6.7 million when comparing the three months ended March 31, 2020 and 2019 due primarily to our funding of an $11.0 million investing receivable in the current period due to lower outstanding debt balances, partially offset by lower net cash flows from construction contract and other services.prior period.
 
Net cash flow provided by investing activities decreased $130.6 million when comparing the nine months ended September 30, 2017 and 2016 due primarily to a decrease in property sales in 2017 relative to 2016.
Net cash flow used in financing activities in the ninethree months ended September 30, 2017March 31, 2020 was $317.0$197.0 million, and included the following:


redemptionnet proceeds from debt borrowings of preferred shares (or units) of $199.1$245.6 million; offset in part by
dividends and/or distributions to equity holders of $94.5 million;$31.2 million.

Net cash flow provided by financing activities in the three months ended March 31, 2019 was $66.3 million, and included the following:

net repayments ofproceeds from debt borrowings of $33.0$51.3 million; offset in part byand
net proceeds from the issuance of common shares (or units) of $19.8 million.

Net cash flow used$46.4 million; offset in financing activities in the nine months ended September 30, 2016 was $260.6 million, and included the following:

part by
dividends and/or distributions to equity holders of $92.2 million; and
distributions to redeemable noncontrolling interests of $14.3 million related primarily to distributions to our partner in Stevens Investors, LLC, as discussed in our 2016 Annual Report on Form 10-K; offset in part by
net proceeds from debt borrowings of $146.0$30.8 million.


Liquidity and Capital Resources of COPT


COPLP is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. COPT occasionally issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by COPLP. COPT itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of COPLP. COPT’s principal funding requirement is the payment of dividends on its common and preferred shares. COPT’s principal source of funding for its dividend payments is distributions it receives from COPLP.


As of September 30, 2017March 31, 2020, COPT owned 96.8%98.6% of the outstanding common units and none of the outstanding preferred units in COPLP; the remaining common units and all of the outstanding preferred units in COPLP were owned by third parties. As the sole general partner of COPLP, COPT has the full, exclusive and complete responsibility for COPLP’s day-to-day management and control.


The liquidity of COPT is dependent on COPLP’s ability to make sufficient distributions to COPT. The primary cash requirement of COPT is its payment of dividends to its shareholders. COPT also guarantees some of the Operating Partnership’s debt, as discussed further in Note 89 of the notes to consolidated financial statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger COPT’s guarantee obligations, then COPT will be required to fulfill its cash payment commitments under such guarantees. However, COPT’s only significant asset is its investment in COPLP.




As discussed further below, we believe that the Operating Partnership’s sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured line of credit,Revolving Credit Facility, are adequate for it to make its distribution payments to COPT and, in turn, for COPT to make its dividend payments to its shareholders.



COPT’s short-term liquidity requirements consist primarily of funds to pay for future dividends expected to be paid to its shareholders. COPT periodically accesses the public equity markets to raise capital by issuing common and/or preferred shares.


For COPT to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually to at least 90% of its ordinary taxable income. As a result of this distribution requirement, it cannot rely on retained earnings to fund its ongoing operations to the same extent that some other companies can. COPT may need to continue to raise capital in the equity markets to fund COPLP’s working capital needs, acquisitionsdevelopment activities and developments.acquisitions.
 
Liquidity and Capital Resources of COPLP
 
OurCOPLP’s primary cash requirements are for operating expenses, debt service, development of new properties and improvements to existing properties and acquisitions, to the extent they are pursued in the future.properties.  We expect COPLP to continue to use cash flow provided by operations as the primary source to meet ourits short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, distributions to ourits security holders and improvements to existing properties.  As of September 30, 2017, weMarch 31, 2020, COPLP had $10.9$159.1 million in cash and cash equivalents.
 
OurCOPLP’s senior unsecured debt is currently rated investment grade by the three major rating agencies. We aim to maintain an investment grade rating to enable usCOPLP to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. WeCOPLP also useuses secured nonrecourse debt from institutional lenders and banks when appropriate.for joint venture financing. In addition, weCOPLP periodically accessraises equity from COPT when COPT accesses the public equity markets to raise capital by issuing common and/or preferred shares.
 
We use ourCOPLP uses its Revolving Credit Facility to initially finance much of ourits investing activities.  WeCOPLP subsequently paypays down the facility using cash available from operations and proceeds from long-term borrowings, equity issuances and property sales.sales of interests in properties.  The lenders’ aggregate commitment under the facility is $800.0$800.0 million,, with the ability for usCOPLP to increase the lenders’ aggregate commitment to $1.3$1.25 billion,, provided that there is no default under the facility and subject to the approval of the lenders. Amounts available under theThe facility are computed based on 60% of our unencumbered asset value, as defined in the loan agreement.  The Revolving Credit Facility matures in May 2019,March 2023, and may be extended by two six-month periods at ourCOPLP’s option, provided that there is no default under the facility and we payCOPLP pays an extension fee of 0.075% of the total availability ofunder the facility.facility for each extension period. As of September 30, 2017,March 31, 2020, the maximum borrowing capacity under this facility totaled $800.0$800.0 million,, of which $630.0$558.0 million was available.


COPT has a program in place under which it may offer and sell common shares in at-the-market stock offerings having an aggregate gross sales price of up to $300 million. Under this program, COPT may also, at its discretion, sell common shares under forward equity sales agreements. The use of a forward equity sales agreement would enable us to lock in a price on a sale of common shares when the agreement is executed but defer receiving the proceeds from the sale until a later date.

We believe that ourCOPLP’s liquidity and capital resources are adequate for ourits near-term and longer-term requirements without necessitating property sales. However, we may dispose of interests in properties opportunistically or when capital markets otherwise warrant.




The following table summarizes ourOur contractual obligations as of September 30, 2017March 31, 2020 included the following (in thousands):
For the Periods Ending December 31,  For the Periods Ending December 31,  
2017 2018 2019 2020 2021 Thereafter Total2020 2021 2022 2023 2024 Thereafter Total
Contractual obligations (1) 
  
  
  
  
  
  
 
  
  
  
  
  
  
Debt (2) 
  
  
  
  
  
  
 
  
  
  
  
  
  
Balloon payments due upon maturity$—
 $—
 $170,000
 $112,132
 $300,000
 $1,276,829
 $1,858,961
$12,132
 $300,000
 $456,162
 $655,578
 $277,649
 $367,723
 $2,069,244
Scheduled principal payments(3)1,033
 4,241
 4,387
 4,024
 3,875
 10,680
 28,240
3,002
 3,955
 4,498
 3,553
 2,334
 2,294
 19,636
Interest on debt (3)(4)18,318
 73,020
 70,114
 66,708
 58,846
 117,338
 404,344
56,607
 68,503
 62,560
 38,021
 19,243
 10,190
 255,124
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
Development and redevelopment obligations (5)(6)141,256
 18,398
 501
 —
 —
 —
 160,155
Third-party construction cost obligations (6)(7)11,231
 2,309
 —
 —
 —
 —
 13,540
Tenant and other building improvements (3)(6)22,761
 26,381
 8,757
 —
 —
 —
 57,899
Property finance leases (principal and interest) (3)674
 14
 14
 —
 —
 —
 702
Property operating leases (3)826
 1,138
 1,162
 1,167
 1,173
 100,609
 106,075
Total contractual cash obligations$80,067
 $169,544
 $259,947
 $184,409
 $364,020
 $1,490,692
 $2,548,679
$248,489
 $420,698
 $533,654
 $698,319
 $300,399
 $480,816
 $2,682,375


(1)The contractual obligations set forth in this table exclude contracts for property operations and certain other contracts that may be terminated with noticeentered into in the normal course of one month or less and also excludebusiness. Also excluded are accruals and payables incurred (with the exclusion of debt) and thereforeinterest rate derivative liabilities, which are reflected in our reported liabilities.liabilities (although debt and lease liabilities are included on the table).
(2)Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $13.9$12.0 million. As of September 30, 2017,March 31, 2020, maturities included $170.0$242.0 million in 20192023 that may be extended to 2020,2024, subject to certain conditions.
(3)We expect to pay these items using cash flow from operations.
(4)
Represents interest costs for our outstanding debt as of September 30, 2017March 31, 2020 for the terms of such debt.  For variable rate debt, the amounts reflected above used September 30, 2017March 31, 2020 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)(5)Represents contractual obligations pertaining to new development and redevelopment activities.
(5)(6)Due to the long-term nature of certain constructiondevelopment and developmentconstruction 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)(7)  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.
(7)Represents contractual obligations pertaining to capital expenditures for our operating properties.  We expect to pay these costs primarily using cash flow from operations.
(8) We expect to pay these items using cash flow from operations.

We expect to spend approximately $60$220 million on construction and development costs and approximately $20$70 million on improvements toand leasing costs for operating properties (including the commitments set forth in the table above) during the remainder of 2017.2020.  We expect to fund the construction and development costs initially using primarily borrowings under our Revolving Credit Facility.  We expect to fund improvements to existing operating properties using cash flow from operations.operating activities.


Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio.  As of September 30, 2017March 31, 2020, we were compliant with these covenants.


Off-Balance Sheet Arrangements
 
 We had no material off-balance sheet arrangements during the ninethree months ended September 30, 2017.March 31, 2020.


Inflation
 
Most of our tenants are obligated to pay their share of a property’s operating expenses to the extent such expenses exceed amounts established in their leases, which are based on historical expense levels.  Some of our tenants are obligated to pay their full share of a building’s operating expenses.  These arrangements somewhat reduce our exposure to increases in such costs resulting from inflation.


Recent Accounting Pronouncements


See Note 2 to our consolidated financial statements for information regarding recent accounting pronouncements.






Item 3.Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to certain market risks, one of the most predominant of which is a change in interest rates.  Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable rate debt.  Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced.
 
The following table sets forth as of September 30, 2017March 31, 2020 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):
For the Periods Ending December 31,  For the Periods Ending December 31,  
2017 2018 2019 2020 2021 Thereafter Total2020 2021 2022 2023 2024 Thereafter Total
Debt: 
  
    
  
  
  
 
  
    
  
  
  
Fixed rate debt (1)$939
 $3,858
 $3,991
 $3,718
 $303,875
 $1,037,509
 $1,353,890
$2,799
 $303,875
 $4,033
 $416,590
 $279,443
 $337,442
 $1,344,182
Weighted average interest rate4.35% 4.37% 4.36% 3.96% 3.70% 4.47% 4.30%3.96% 3.70% 3.98% 3.70% 5.16% 4.87% 4.30%
Variable rate debt (2)$94
 $383
 $170,396
 $112,438
 $—
 $250,000
 $533,311
$12,336
 $80
 $456,627
 $242,540
 $540
 $32,575
 $744,698
Weighted average interest rate (3)3.09% 3.09% 2.40% 2.69% —% 3.04% 2.76%3.43% 3.03% 2.57% 1.75% 3.46% 3.55% 2.36%


(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $13.9$12.0 million.
(2)As of September 30, 2017,March 31, 2020, maturities included $170.0$242.0 million in 20192023 that may be extended to 2020,2024, subject to certain conditions.
(3)The amounts reflected above used interest rates as of September 30, 2017March 31, 2020 for variable rate debt.


The fair value of our debt was $1.9$2.1 billion as of September 30, 2017.March 31, 2020.  If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $71$42 million as of September 30, 2017March 31, 2020.
 
See Note 910 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of September 30, 2017March 31, 2020 and their respective fair values.


Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $892,000$620,000 in the ninethree months ended September 30, 2017March 31, 2020 if the applicable LIBOR rate was 1% higher.
 
Item 4.Controls and Procedures
 
COPT

(a)Evaluation of Disclosure Controls and Procedures
 
The Company’sOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of itsCOPT’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2017.March 31, 2020.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’sCOPT’s disclosure controls and procedures as of September 30, 2017March 31, 2020 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’sits management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
(b)Change in Internal Control over Financial Reporting
 
No change in the Company’sCOPT’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
 


COPLP

(a)Evaluation of Disclosure Controls and Procedures
 
The Operating Partnership’sOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of itsCOPLP’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of September 30, 2017March 31, 2020.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Operating Partnership’sCOPLP’s disclosure controls and procedures as of September 30, 2017March 31, 2020 were functioning effectively to provide reasonable assurance that the information required to be disclosed by the Operating Partnership in reports filed or


submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Operating Partnership’sits management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
(b)Change in Internal Control over Financial Reporting
 
No change in the Operating Partnership’sCOPLP’s internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.


PART II: OTHER INFORMATION
 
Item 1.Legal Proceedings
 
We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against the Company or the Operating Partnership (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).
 
Item 1A.  Risk Factors
 
ThereOther than as set forth below, there have been no material changes to the risk factors includedrisks and uncertainties relating to our business and the ownership of our securities as previously set forth in Part I, Item 1A of our 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2019.

We may suffer adverse effects from the COVID-19 pandemic and measures instituted to prevent its spread. Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide and throughout the United States. As of May 8, 2020, there continued to be significant uncertainty regarding the duration of COVID-19’s spread, and the potential, once its spread subsides, for the virus to reoccur on a significant scale in the future. The COVID-19 outbreak has prompted governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The outbreak has significantly disrupted economic markets worldwide, as well as in the United States at a national, regional and local level, and created significant volatility in financial markets. Furthermore, conditions could potentially continue to deteriorate as a result of the pandemic.

COVID-19, and similar pandemics, and measures instituted to prevent spread, may adversely affect us in many ways, including by disrupting:

our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;
our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;
access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;
the supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively; and
our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development.



The extent of COVID-19’s effect on our operational and financial performance is dependent on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the effects of COVID-19 have developed, we are unable at this time to estimate the magnitude of the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material. Moreover, some of the risks described in the risk factors set forth in Item 1A of our 2019 Annual Report on Form 10-K may be more likely to impact us as a result of COVID-19 and the responses to curb its spread.
 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)
During the three months ended September 30, 2017, 150,000March 31, 2020, 12,009 of COPLP’s common units were exchanged for 150,00012,009 COPT common shares in accordance with COPLP’s SecondThird 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.

(b)Not applicable

(c)Not applicable
 
Item 3.Defaults Upon Senior Securities
 
(a)Not applicable
 
(b)Not applicable
 
Item 4.Mine Safety Disclosures


Not applicable


Item 5.Other Information

NoneNone.





Item 6.Exhibits
 
(a)Exhibits:
EXHIBIT
NO.
 DESCRIPTION
   
10.1
 
FormAmended and Restated Term Loan Agreement, dated as of March 6, 2020, by and among Corporate Office Properties, Trust Performance-Based Restricted Share Unit Award Certificate (2017 Omnibus EquityL.P.; Corporate Office Properties Trust; Capital One, National Association, PNC Capital Markets LLC and Incentive Plan)Regions Capital Markets, a division of Regions Bank, PNC Bank, National Association and Regions Bank (filed herewith).
10.2
Separation Agreement and Release, dated as of March 16, 2020, by and between Corporate Office Properties, L.P. and Paul R. Adkins (filed with the Company’s Current Report on Form 8-K dated August 23, 2017March 16, 2020 and incorporated herein by reference).
   
12.131.1
 
COPT’s Statement regarding Computation of Earnings to Combined Fixed Charges and Preferred Share Dividends (filed herewith).
12.2
COPLP’s Statement regarding Computation of Consolidated Ratio of Earnings to Fixed Charges (filed herewith).
31.1
Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
   
31.2
 
Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
   
31.3
 
Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
   
31.4
 
Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
   
32.1
 
Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).
   
32.2
 
Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).
   
32.3
 
Certification of the Chief Executive Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).
   
32.4
 
Certification of the Chief Financial Officer of Corporate Office Properties, L.P. required by Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).
   
101.INS XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document (filed herewith).
   
101.SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith).
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
   
101.LAB Inline XBRL Extension Labels Linkbase (filed herewith).
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned Registrants have duly caused this report to be signed on itstheir behalf by the undersigned thereunto duly authorized.
 
 CORPORATE OFFICE PROPERTIES TRUST CORPORATE OFFICE PROPERTIES, L.P.
   By: Corporate Office Properties Trust,
   its General Partner
    
 /s/ Stephen E. Budorick /s/ Stephen E. Budorick
 Stephen E. Budorick Stephen E. Budorick
 President and Chief Executive Officer President and Chief Executive Officer
    
    
 /s/ Anthony Mifsud /s/ Anthony Mifsud
 Anthony Mifsud Anthony Mifsud
 Executive Vice President and Chief Financial Officer Executive Vice President and Chief Financial Officer
    
Dated:October 27, 2017May 8, 2020Dated:October 27, 2017May 8, 2020


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