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, 2017, 99,609,634~~23, 2020, 112,175,248 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, ~~$0.01~~$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, ~~2017~~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, ~~2017~~,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 Partnership~~two 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, ~~2017~~2020 and December 31, ~~2016~~2019 (unaudited)	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	5
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	78
Consolidated Financial Statements of Corporate Office Properties, L.P.
	Consolidated Balance Sheets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (unaudited)	910
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	1011
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	1112
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	1213
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	1315
Notes to Consolidated Financial Statements (unaudited)		1517
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3543
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5060
Item 4:	Controls and Procedures	5060

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	5161
Item 1A:	Risk Factors	5161
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	5162
Item 3:	Defaults Upon Senior Securities	5162
Item 4:	Mine Safety Disclosures	5162
Item 5:	Other Information	5162
Item 6:	Exhibits	5263

SIGNATURES		5364

PART I: FINANCIAL INFORMATION

ITEM 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)


	September 30, 2020		December 31, 2019
Assets
Properties, net:
Operating properties, net	$	2,999,892	$	2,772,647
Projects in development or held for future development	587,046		568,239
Total properties, net	3,586,938		3,340,886
Property - operating right-of-use assets	36,442		27,864
Property - finance right-of-use assets	40,432		40,458

Cash and cash equivalents	11,458		14,733
Investment in unconsolidated real estate joint ventures	49,662		51,949
Accounts receivable, net	36,151		35,444
Deferred rent receivable	92,853		87,736
Intangible assets on real estate acquisitions, net	22,433		27,392
Deferred leasing costs (net of accumulated amortization of $31,927 and $33,782 respectively)	59,392		58,392
Investing receivables (net of allowance for credit losses of $4,040 at September 30, 2020)	74,136		73,523


Prepaid expenses and other assets, net	110,292		96,076
Total assets	$	4,120,189	$	3,854,453
Liabilities and equity
Liabilities:
Debt, net	$	2,181,551	$	1,831,139
Accounts payable and accrued expenses	140,921		148,746
Rents received in advance and security deposits	30,276		33,620
Dividends and distributions payable	31,307		31,263
Deferred revenue associated with operating leases	8,579		7,361
Property - operating lease liabilities	26,382		17,317

Interest rate derivatives	10,977		25,682
Other liabilities	17,038		10,649
Total liabilities	2,447,031		2,105,777
Commitments and contingencies (Note 17)
Redeemable noncontrolling interests	23,522		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 112,175,688 at September 30, 2020 and 112,068,705 at December 31, 2019)	1,122		1,121
Additional paid-in capital	2,479,321		2,481,558
Cumulative distributions in excess of net income	(860,647)		(778,275)
Accumulated other comprehensive loss	(10,548)		(25,444)
Total Corporate Office Properties Trust’s shareholders’ equity	1,609,248		1,678,960
Noncontrolling interests in subsidiaries:
Common units in COPLP	19,522		19,597
Preferred units in COPLP	8,800		8,800
Other consolidated entities	12,066		11,888
Noncontrolling interests in subsidiaries	40,388		40,285
Total equity	1,649,636		1,719,245
Total liabilities, redeemable noncontrolling interests and equity	$	4,120,189	$	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 development 406,319
401,531
Total properties, net 3,097,031
3,073,362
Assets held for sale, net 74,415
94,654
Cash and cash equivalents 10,858
209,863
Restricted cash and marketable securities 6,173
8,193
Investment in unconsolidated real estate joint venture 25,194
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, net 64,055
78,351
Deferred leasing costs (net of accumulated amortization of $28,590 and $65,988, respectively) 47,033
41,214
Investing receivables 56,108
52,279
Prepaid expenses and other assets, net 66,538
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 expenses 121,483
108,682
Rents received in advance and security deposits 26,223
29,798
Dividends and distributions payable 28,462
31,335
Deferred revenue associated with operating leases 12,047
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 obligation 16,347
—
Other liabilities 43,866
50,177
Total liabilities 2,121,719
2,163,242
Commitments and contingencies (Note 15)

Redeemable noncontrolling interests 23,269
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 capital 2,150,067
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’ equity 1,349,914
1,523,059
Noncontrolling interests in subsidiaries:

Common units in COPLP 44,089
49,228
Preferred units in COPLP 8,800
8,800
Other consolidated entities 11,981
13,577
Noncontrolling interests in subsidiaries 64,870
71,605
Total equity 1,414,784
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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Lease revenue	$	133,875	$	129,461	$	397,034	$	391,779
Other property revenue	568		1,273		2,063		3,716
Construction contract and other service revenues	20,323		28,697		46,240		87,946
Total revenues	154,766		159,431		445,337		483,441
Operating expenses
Property operating expenses	51,552		49,714		151,755		147,045
Depreciation and amortization associated with real estate operations	35,332		34,692		101,540		104,290
Construction contract and other service expenses	19,220		27,802		44,052		85,130
Impairment losses	1,530		327		1,530		327
General, administrative and leasing expenses	7,467		7,929		23,111		26,066
Business development expenses and land carry costs	1,094		964		3,474		2,947
Total operating expenses	116,195		121,428		325,462		365,805
Interest expense	(17,152)		(17,126)		(50,789)		(54,275)
Interest and other income	1,746		1,842		5,233		5,977
Credit loss recoveries	1,465		0		161		0
Gain on sales of real estate	0		0		5		84,469
Loss on early extinguishment of debt	(3,237)		0		(3,237)		0
Loss on interest rate derivatives	(53,196)		0		(53,196)		0
(Loss) income before equity in income of unconsolidated entities and income taxes	(31,803)		22,719		18,052		153,807
Equity in income of unconsolidated entities	477		396		1,372		1,207
Income tax (expense) benefit	(16)		131		(95)		113
Net (loss) income	(31,342)		23,246		19,329		155,127
Net loss (income) attributable to noncontrolling interests:
Common units in COPLP	386		(267)		(185)		(1,863)
Preferred units in COPLP	(77)		(157)		(231)		(487)
Other consolidated entities	(812)		(1,565)		(3,207)		(3,870)



Net (loss) income attributable to COPT common shareholders	$	(31,845)	$	21,257	$	15,706	$	148,907

Earnings per common share: (1)
Net (loss) income attributable to COPT common shareholders - basic	$	(0.29)	$	0.19	$	0.14	$	1.34
Net (loss) income attributable to COPT common shareholders - diluted	$	(0.29)	$	0.19	$	0.14	$	1.33

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 revenue 24,956
26,998
78,058
81,103
Construction contract and other service revenues 29,786
11,149
65,958
34,372
Total revenues 157,017
142,103
448,253
432,337
Expenses

Property operating expenses 46,368
49,952
143,515
149,968
Depreciation and amortization associated with real estate operations 34,438
32,015
100,290
99,790
Construction contract and other service expenses 28,788
10,341
63,589
32,513
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
Total operating expenses 118,078
130,578
337,263
417,369
Operating income 38,939
11,525
110,990
14,968
Interest expense (19,615 ) (18,301 ) (57,772 ) (64,499 )
Interest and other income 1,508
1,391
4,817
3,877
Loss on early extinguishment of debt —
(59 ) (513 ) (37 )
Income (loss) before equity in income of unconsolidated entities and income taxes 20,832
(5,444 ) 57,522
(45,691 )
Equity in income of unconsolidated entities 719
594
2,162
614
Income tax (expense) benefit (57 ) 21
(145 ) 28
Income (loss) before gain on sales of real estate 21,494
(4,829 ) 59,539
(45,049 )
Gain on sales of real estate 1,188
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 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 ) —
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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income	$	(31,342)	$	23,246	$	19,329	$	155,127
Other comprehensive income (loss):
Unrealized income (loss) on interest rate derivatives	1,428		(11,047)		(39,592)		(33,437)
Reclassification adjustments on interest rate derivatives recognized in interest expense	1,342		(307)		2,408		(1,434)
Reclassification adjustments on interest rate derivatives recognized in loss on interest rate derivatives	51,865		0		51,865		0

Total other comprehensive income (loss)	54,635		(11,354)		14,681		(34,871)
Comprehensive income	23,293		11,892		34,010		120,256
Comprehensive income attributable to noncontrolling interests	(1,173)		(1,750)		(3,408)		(5,691)
Comprehensive income attributable to COPT	$	22,120	$	10,142	$	30,602	$	114,565

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


	Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
For the Three Months Ended September 30, 2019
Balance at June 30, 2019 (111,949,887 common shares outstanding)	$	1,119	$	2,475,293	$	(780,667)	$	(23,465)	$	46,831	$	1,719,111
Conversion of common units to common shares (97,539 shares)	1		1,475		—		—		(1,476)		0
Redemption of common units	—		—		—		—		(24)		(24)


Share-based compensation (11,749 shares issued, net of redemptions)	1		1,525		—		—		369		1,895
Redemption of vested equity awards	—		(53)		—		—		—		(53)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		312		—		—		(312)		0
Comprehensive income	—		—		21,257		(11,115)		565		10,707
Dividends	—		—		(30,825)		—		—		(30,825)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(517)		(517)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(5,878)		(5,878)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		1,531		—		—		—		1,531

Balance at September 30, 2019 (112,059,175 common shares outstanding)	$	1,121	$	2,480,083	$	(790,235)	$	(34,580)	$	39,558	$	1,695,947

For the Three Months Ended September 30, 2020
Balance at June 30, 2020 (112,183,192 common shares outstanding)	$	1,122	$	2,477,977	$	(797,959)	$	(64,513)	$	40,297	$	1,656,924





Share-based compensation (7,504 shares redeemed, net of issuances)	—		1,223		—		—		561		1,784
Redemption of vested equity awards	—		(57)		—		—		—		(57)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		552		—		—		(552)		0
Comprehensive income	—		—		(31,845)		53,965		533		22,653
Dividends	—		—		(30,843)		—		—		(30,843)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(444)		(444)

Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(7)		(7)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(374)		—		—		—		(374)

Balance at September 30, 2020 (112,175,688 common shares outstanding)	$	1,122	$	2,479,321	$	(860,647)	$	(10,548)	$	40,388	$	1,649,636

Preferred
Shares

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
Redemption of vested equity awards —
—
(2,179 ) —
—
—
(2,179 )
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP —
—
(42 ) —
—
42
—
Comprehensive loss —
—
—
(13,294 ) (13,476 ) 141
(26,629 )
Dividends —
—
—
(88,796 ) —
—
(88,796 )
Distributions to owners of common and preferred units in COPLP —
—
—
—
—
(3,498 ) (3,498 )
Distributions to noncontrolling interests in other consolidated entities —
—
—
—
—
(12 ) (12 )
Adjustment to arrive at fair value of redeemable noncontrolling interests —
—
(516 ) —
—
—
(516 )
Tax loss from share-based compensation —
—
(319 ) —
—
—
(319 )
Balance at September 30, 2016 (94,764,786 common shares outstanding) $ 199,083
$ 948
$ 2,008,787
$ (759,262 ) $ (16,314 ) $ 67,545
$ 1,500,787

Balance at December 31, 2016 (98,498,651 common shares outstanding) $ 172,500
$ 985
$ 2,116,581
$ (765,276 ) $ (1,731 ) $ 71,605
$ 1,594,664
Redemption of preferred shares (6,900,000 shares) (172,500 ) —
6,847
(6,847 ) —
—
(172,500 )
Conversion of common units to common shares (337,000 shares) —
3
4,599
—
—
(4,602 ) —
Common shares issued under at-the-market program (591,042 shares) —
6
19,662
—
—
—
19,668
Exercise of share options (5,000 shares) —
—
150
—
—
—
150
Share-based compensation (176,477 shares issued, net of redemptions) —
2
4,442
—
—
—
4,444
Redemption of vested equity awards —
—
(1,869 ) —
—
—
(1,869 )
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP —
—
(589 ) —
—
589
—
Comprehensive income —
—
—
60,133
872
3,154
64,159
Dividends —
—
—
(88,300 ) —
—
(88,300 )
Distributions to owners of common and preferred units in COPLP —
—
—
—
—
(3,262 ) (3,262 )
Distributions to noncontrolling interests in other consolidated entities —
—
—
—
—
(2,614 ) (2,614 )
Adjustment to arrive at fair value of redeemable noncontrolling interests —
—
244
—
—
—
244
Balance at September 30, 2017 (99,608,170 common shares outstanding) $ —
$ 996
$ 2,150,067
$ (800,290 ) $ (859 ) $ 64,870
$ 1,414,784

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity (continued)

(Dollars in thousands)

(unaudited)


	Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
For the Nine Months Ended September 30, 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 (103,039 shares)	1		1,555		—		—		(1,556)		0
Redemption of common units	—		—		—		—		(25)		(25)
Common shares issued under forward equity sale agreements (1,614,087 shares)	16		46,438		—		—		—		46,454

Share-based compensation (100,181 shares issued, net of redemptions)	2		4,574		—		—		954		5,530
Redemption of vested equity awards	—		(1,973)		—		—		—		(1,973)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		(522)		—		—		522		0
Comprehensive income	—		—		148,907		(34,342)		2,962		117,527
Dividends	—		—		(92,334)		—		—		(92,334)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(1,620)		(1,620)
Contributions from noncontrolling interests in other consolidated entities	—		—		—		—		2,570		2,570
Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(5,886)		(5,886)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(1,344)		—		—		—		(1,344)

Balance at September 30, 2019 (112,059,175 common shares outstanding)	$	1,121	$	2,480,083	$	(790,235)	$	(34,580)	$	39,558	$	1,695,947

For the Nine Months Ended September 30, 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)		0



Share-based compensation (94,974 shares issued, net of redemptions)	1		3,394		—		—		1,335		4,730
Redemption of vested equity awards	—		(1,629)		—		—		—		(1,629)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		527		—		—		(527)		0
Comprehensive income	—		—		15,706		14,896		693		31,295
Dividends	—		—		(92,537)		—		—		(92,537)
Distributions to owners of common and preferred units in COPLP	—		—		—		—		(1,306)		(1,306)
Contributions from noncontrolling interests in other consolidated entities	—		—		—		—		112		112
Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(22)		(22)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(4,711)		—		—		—		(4,711)

Balance at September 30, 2020 (112,175,688 common shares outstanding)	$	1,122	$	2,479,321	$	(860,647)	$	(10,548)	$	40,388	$	1,649,636

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
	2017			2016				2020		2019
Cash flows from operating activities							Cash flows from operating activities
Revenues from real estate operations received	$	390,116		$	393,300		Revenues from real estate operations received	$	394,094	$	391,758
Construction contract and other service revenues received	72,682			54,399			Construction contract and other service revenues received	53,911		65,813
Property operating expenses paid	(144,187		)	(154,203		)	Property operating expenses paid	(159,007)		(151,478)
Construction contract and other service expenses paid	(57,189		)	(33,169		)	Construction contract and other service expenses paid	(45,686)		(68,599)
General, administrative, leasing, business development and land carry costs paid	(27,066		)	(27,879		)	General, administrative, leasing, business development and land carry costs paid	(24,408)		(23,806)
Interest expense paid	(55,637		)	(61,662		)	Interest expense paid	(49,693)		(52,818)
Lease incentives	(9,414		)	(1,789		)
Lease incentives paid							Lease incentives paid	(12,634)		(6,366)

Other	1,373			976			Other	2,464		2,533
Net cash provided by operating activities	170,678			169,973			Net cash provided by operating activities	159,041		157,037
Cash flows from investing activities							Cash flows from investing activities
Construction, development and redevelopment	(113,678		)	(121,297		)
Development and redevelopment of properties							Development and redevelopment of properties	(284,416)		(308,997)

Tenant improvements on operating properties	(19,876		)	(26,055		)	Tenant improvements on operating properties	(23,377)		(16,466)
Other capital improvements on operating properties	(15,174		)	(22,063		)	Other capital improvements on operating properties	(24,797)		(14,497)
Proceeds from dispositions of properties	101,107			210,661
Proceeds from partial sale of properties, net of related debt	—			43,686
Proceeds from property dispositions							Proceeds from property dispositions
Distribution from unconsolidated real estate joint venture following contribution of properties							Distribution from unconsolidated real estate joint venture following contribution of properties	0		129,783
Sale of properties							Sale of properties	0		107,440
Distributions from unconsolidated real estate joint ventures							Distributions from unconsolidated real estate joint ventures	2,287		16,937
Investing receivables funded							Investing receivables funded	(258)		(11,169)
Leasing costs paid	(6,468		)	(6,024		)	Leasing costs paid	(12,455)		(13,502)

Settlement of interest rate derivatives							Settlement of interest rate derivatives	(53,130)		0
Other	1,359			(991		)	Other	(63)		1,558
Net cash (used in) provided by investing activities	(52,730		)	77,917
Net cash used in investing activities							Net cash used in investing activities	(396,209)		(108,913)
Cash flows from financing activities							Cash flows from financing activities
Proceeds from debt							Proceeds from debt
Revolving Credit Facility	268,000			362,500			Revolving Credit Facility	409,000		349,000
Unsecured senior notes							Unsecured senior notes	395,264		0
Other debt proceeds	—			105,000			Other debt proceeds	199,088		32,002
Repayments of debt							Repayments of debt
Revolving Credit Facility	(98,000		)	(406,000		)	Revolving Credit Facility	(529,000)		(342,000)
Unsecured senior notes							Unsecured senior notes	(122,948)		0
Scheduled principal amortization	(2,878		)	(4,454		)	Scheduled principal amortization	(3,077)		(3,300)
Other debt repayments	(200,150		)	(203,056		)

Deferred financing costs paid	—			(825		)	Deferred financing costs paid	(2,161)		(405)

Net proceeds from issuance of common shares	19,834			(46		)	Net proceeds from issuance of common shares	0		46,415
Redemption of preferred shares	(199,083		)	—

Common share dividends paid	(81,779		)	(78,072		)	Common share dividends paid	(92,512)		(91,835)
Preferred share dividends paid	(9,305		)	(10,657		)

Distributions paid to noncontrolling interests in COPLP	(3,371		)	(3,476		)	Distributions paid to noncontrolling interests in COPLP	(1,303)		(1,661)
Distributions paid to noncontrolling interests in other consolidated entities							Distributions paid to noncontrolling interests in other consolidated entities	(15)		(5,882)
Distributions paid to redeemable noncontrolling interests	(7,860		)	(14,329		)	Distributions paid to redeemable noncontrolling interests	(13,515)		(984)
Redemption of vested equity awards	(1,869		)	(2,179		)	Redemption of vested equity awards	(1,629)		(1,973)
Payments in connection with early extinguishment of debt							Payments in connection with early extinguishment of debt	(3,037)		0
Other	(492		)	(5,032		)	Other	(442)		(1,944)
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 (used in) financing activities							Net cash provided by (used in) financing activities	233,713		(22,567)
Net (decrease) increase in cash and cash equivalents and restricted cash							Net (decrease) increase in cash and cash equivalents and restricted cash	(3,455)		25,557
Cash and cash equivalents and restricted cash							Cash and cash equivalents and restricted cash
Beginning of period	209,863			60,310			Beginning of period	18,130		11,950
End of period	$	10,858		$	47,574		End of period	$	14,675	$	37,507

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per unit data)

(unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Lease revenue	$	133,875	$	129,461	$	397,034	$	391,779
Other property revenue	568		1,273		2,063		3,716
Construction contract and other service revenues	20,323		28,697		46,240		87,946
Total revenues	154,766		159,431		445,337		483,441
Operating expenses
Property operating expenses	51,552		49,714		151,755		147,045
Depreciation and amortization associated with real estate operations	35,332		34,692		101,540		104,290
Construction contract and other service expenses	19,220		27,802		44,052		85,130
Impairment losses	1,530		327		1,530		327
General, administrative and leasing expenses	7,467		7,929		23,111		26,066
Business development expenses and land carry costs	1,094		964		3,474		2,947
Total operating expenses	116,195		121,428		325,462		365,805
Interest expense	(17,152)		(17,126)		(50,789)		(54,275)
Interest and other income	1,746		1,842		5,233		5,977
Credit loss recoveries	1,465		0		161		0
Gain on sales of real estate	0		0		5		84,469
Loss on early extinguishment of debt	(3,237)		0		(3,237)		0
Loss on interest rate derivatives	(53,196)		0		(53,196)		0
(Loss) income before equity in income of unconsolidated entities and income taxes	(31,803)		22,719		18,052		153,807
Equity in income of unconsolidated entities	477		396		1,372		1,207
Income tax (expense) benefit	(16)		131		(95)		113
Net (loss) income	(31,342)		23,246		19,329		155,127
Net income attributable to noncontrolling interests in consolidated entities	(812)		(1,565)		(3,207)		(3,870)
Net (loss) income attributable to COPLP	(32,154)		21,681		16,122		151,257
Preferred unit distributions	(77)		(157)		(231)		(487)

Net (loss) income attributable to COPLP common unitholders	$	(32,231)	$	21,524	$	15,891	$	150,770

Earnings per common unit: (1)
Net (loss) income attributable to COPLP common unitholders - basic	$	(0.29)	$	0.19	$	0.14	$	1.34
Net (loss) income attributable to COPLP common unitholders - diluted	$	(0.29)	$	0.19	$	0.14	$	1.33

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 revenue 24,956
26,998
78,058
81,103
Construction contract and other service revenues 29,786
11,149
65,958
34,372
Total revenues 157,017
142,103
448,253
432,337
Expenses

Property operating expenses 46,368
49,952
143,515
149,968
Depreciation and amortization associated with real estate operations 34,438
32,015
100,290
99,790
Construction contract and other service expenses 28,788
10,341
63,589
32,513
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
Total operating expenses 118,078
130,578
337,263
417,369
Operating income 38,939
11,525
110,990
14,968
Interest expense (19,615 ) (18,301 ) (57,772 ) (64,499 )
Interest and other income 1,508
1,391
4,817
3,877
Loss on early extinguishment of debt —
(59 ) (513 ) (37 )
Income (loss) before equity in income of unconsolidated entities and income taxes 20,832
(5,444 ) 57,522
(45,691 )
Equity in income of unconsolidated entities 719
594
2,162
614
Income tax (expense) benefit (57 ) 21
(145 ) 28
Income (loss) before gain on sales of real estate 21,494
(4,829 ) 59,539
(45,049 )
Gain on sales of real estate 1,188
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 COPLP 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 ) —
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 September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income	$	(31,342)	$	23,246	$	19,329	$	155,127
Other comprehensive income (loss):
Unrealized income (loss) on interest rate derivatives	1,428		(11,047)		(39,592)		(33,437)
Reclassification adjustments on interest rate derivatives recognized in interest expense	1,342		(307)		2,408		(1,434)
Reclassification adjustments on interest rate derivatives recognized in loss on interest rate derivatives	51,865		0		51,865		0

Total other comprehensive income (loss)	54,635		(11,354)		14,681		(34,871)
Comprehensive income	23,293		11,892		34,010		120,256
Comprehensive income attributable to noncontrolling interests	(827)		(1,464)		(2,803)		(3,769)
Comprehensive income attributable to COPLP	$	22,466	$	10,428	$	31,207	$	116,487

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			Common Units			Accumulated Other Comprehensive Loss		Noncontrolling Interests in Subsidiaries
	Units	Amount		Units	Amount						Total Equity
For the Three Months Ended September 30, 2019
Balance at June 30, 2019	352,000	$	8,800	113,532,731	$	1,716,912	$	(23,638)	$	17,037	$	1,719,111
Redemption of common units	—	—		(880)	(24)		—		—		(24)


Share-based compensation (units net of redemption)	—	—		11,749	1,895		—		—		1,895
Redemptions of vested equity awards	—	—		—	(53)		—		—		(53)
Comprehensive income	—	157		—	21,524		(11,253)		279		10,707
Distributions to owners of common and preferred units	—	(157)		—	(31,185)		—		—		(31,342)

Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—		(5,878)		(5,878)

Adjustment to arrive at fair value of redeemable noncontrolling interests	—	—		—	1,531		—		—		1,531

Balance at September 30, 2019	352,000	$	8,800	113,543,600	$	1,710,600	$	(34,891)	$	11,438	$	1,695,947

For the Three Months Ended September 30, 2020
Balance at June 30, 2020	352,000	$	8,800	113,811,613	$	1,701,375	$	(65,183)	$	11,932	$	1,656,924





Share-based compensation (units net of issuances)	—	—		(7,504)	1,784		—		—		1,784
Redemptions of vested equity awards	—	—		—	(57)		—		—		(57)
Comprehensive income	—	77		—	(32,231)		54,620		187		22,653
Distributions to owners of common and preferred units	—	(77)		—	(31,210)		—		—		(31,287)

Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—		(7)		(7)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—	—		—	(374)		—		—		(374)

Balance at September 30, 2020	352,000	$	8,800	113,804,109	$	1,639,287	$	(10,563)	$	12,112	$	1,649,636

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, 2015 352,000
$ 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, 2016 352,000
$ 8,800
7,431,667
$ 199,083
98,355,177
$ 1,297,858
$ (16,987 ) $ 12,033
$ 1,500,787

Balance at December 31, 2016 352,000
$ 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, 2017 352,000
$ 8,800
—
$ —
102,861,561
$ 1,394,911
$ (952 ) $ 12,025
$ 1,414,784

See accompanying notes to consolidated financial statements.

Corporate Office Properties, L.P. and Subsidiaries

Consolidated Statements of Equity (continued)

(Dollars in thousands)

(unaudited)


	Limited Partner Preferred Units			Common Units			Accumulated Other Comprehensive Loss		Noncontrolling Interests in Subsidiaries
	Units	Amount		Units	Amount						Total Equity
For the Nine Months Ended September 30, 2019
Balance at December 31, 2018	352,000	$	8,800	111,574,754	$	1,604,655	$	(121)	$	13,714	$	1,627,048



Redemption of common units	—	—		(924)	(25)		—		—		(25)
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)	—	—		355,683	5,530		—		—		5,530
Redemptions of vested equity awards	—	—		—	(1,973)		—		—		(1,973)
Comprehensive income	—	487		—	150,770		(34,770)		1,040		117,527
Distributions to owners of common and preferred units	—	(487)		—	(93,467)		—		—		(93,954)
Contributions from noncontrolling interests in subsidiaries	—	—		—	—		—		2,570		2,570
Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—		(5,886)		(5,886)

Adjustment to arrive at fair value of redeemable noncontrolling interests	—	—		—	(1,344)		—		—		(1,344)

Balance at September 30, 2019	352,000	$	8,800	113,543,600	$	1,710,600	$	(34,891)	$	11,438	$	1,695,947

For the Nine Months Ended September 30, 2020
Balance at December 31, 2019	352,000	$	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 adjusted	352,000	8,800		113,551,130	1,718,618		(25,648)		11,934		1,713,704



Share-based compensation (units net of redemption)	—	—		252,979	4,730		—		—		4,730
Redemptions of vested equity awards	—	—		—	(1,629)		—		—		(1,629)
Comprehensive income	—	231		—	15,891		15,085		88		31,295
Distributions to owners of common and preferred units	—	(231)		—	(93,612)		—		—		(93,843)
Contributions from noncontrolling interests in subsidiaries	—	—		—	—		—		112		112
Distributions to noncontrolling interests in subsidiaries	—	—		—	—		—		(22)		(22)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—	—		—	(4,711)		—		—		(4,711)

Balance at September 30, 2020	352,000	$	8,800	113,804,109	$	1,639,287	$	(10,563)	$	12,112	$	1,649,636

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,
	2020		2019
Cash flows from operating activities
Revenues from real estate operations received	$	394,094	$	391,758
Construction contract and other service revenues received	53,911		65,813
Property operating expenses paid	(159,007)		(151,478)
Construction contract and other service expenses paid	(45,686)		(68,599)
General, administrative, leasing, business development and land carry costs paid	(24,408)		(23,806)
Interest expense paid	(49,693)		(52,818)
Lease incentives paid	(12,634)		(6,366)




Other	2,464		2,533
Net cash provided by operating activities	159,041		157,037
Cash flows from investing activities
Development and redevelopment of properties	(284,416)		(308,997)

Tenant improvements on operating properties	(23,377)		(16,466)
Other capital improvements on operating properties	(24,797)		(14,497)
Proceeds from property dispositions
Distribution from unconsolidated real estate joint venture following contribution of properties	0		129,783
Sale of properties	0		107,440
Distributions from unconsolidated real estate joint ventures	2,287		16,937
Investing receivables funded	(258)		(11,169)
Leasing costs paid	(12,455)		(13,502)


Settlement of interest rate derivatives	(53,130)		0
Other	(63)		1,558
Net cash used in investing activities	(396,209)		(108,913)
Cash flows from financing activities
Proceeds from debt
Revolving Credit Facility	409,000		349,000
Unsecured senior notes	395,264		0
Other debt proceeds	199,088		32,002
Repayments of debt
Revolving Credit Facility	(529,000)		(342,000)
Unsecured senior notes	(122,948)		0
Scheduled principal amortization	(3,077)		(3,300)

Deferred financing costs paid	(2,161)		(405)


Net proceeds from issuance of common units	0		46,415

Common unit distributions paid	(93,584)		(93,001)

Distributions paid to noncontrolling interests in other consolidated entities	(15)		(5,882)
Distributions paid to redeemable noncontrolling interests	(13,515)		(984)
Redemption of vested equity awards	(1,629)		(1,973)
Payments in connection with early extinguishment of debt	(3,037)		0
Other	(673)		(2,439)
Net cash provided by (used in) financing activities	233,713		(22,567)
Net (decrease) increase in cash and cash equivalents and restricted cash	(3,455)		25,557
Cash and cash equivalents and restricted cash
Beginning of period	18,130		11,950
End of period	$	14,675	$	37,507

For the Nine Months Ended September 30,
2017 2016
Cash flows from operating activities

Revenues from real estate operations received $ 390,116
$ 393,300
Construction contract and other service revenues received 72,682
54,399
Property operating expenses paid (144,187 ) (154,203 )
Construction contract and other service expenses paid (57,189 ) (33,169 )
General, administrative, leasing, business development and land carry costs paid (27,066 ) (27,879 )
Interest expense paid (55,637 ) (61,662 )
Lease incentives (9,414 ) (1,789 )
Other 1,373
976
Net cash provided by operating activities 170,678
169,973
Cash flows from investing activities

Construction, development and redevelopment (113,678 ) (121,297 )
Tenant improvements on operating properties (19,876 ) (26,055 )
Other capital improvements on operating properties (15,174 ) (22,063 )
Proceeds from dispositions of properties 101,107
210,661
Proceeds from partial sale of properties, net of related debt —
43,686
Leasing costs paid (6,468 ) (6,024 )
Other 1,359
(991 )
Net cash (used in) provided by investing activities (52,730 ) 77,917
Cash flows from financing activities

Proceeds from debt
Revolving Credit Facility 268,000
362,500
Other debt proceeds —
105,000
Repayments of debt
Revolving Credit Facility (98,000 ) (406,000 )
Scheduled principal amortization (2,878 ) (4,454 )
Other debt repayments (200,150 ) (203,056 )
Deferred financing costs paid —
(825 )
Net proceeds from issuance of common units 19,834
(46 )
Redemption of preferred units (199,083 ) —
Common unit distributions paid (84,655 ) (81,053 )
Preferred unit distributions paid (9,800 ) (11,152 )
Distributions paid to redeemable noncontrolling interests (7,860 ) (14,329 )
Redemption of vested equity awards (1,869 ) (2,179 )
Other (492 ) (5,032 )
Net cash used in financing activities (316,953 ) (260,626 )
Net decrease in cash and cash equivalents (199,005 ) (12,736 )
Cash and cash equivalents

Beginning of period 209,863
60,310
End of period $ 10,858
$ 47,574

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 amortization 101,963
101,429
Impairment losses 1,457
�� 99,797
(Gain) loss on interest rate derivatives (43 ) 347
Amortization of deferred financing costs and net debt discounts 3,514
4,456
Increase in deferred rent receivable (545 ) (930 )
Gain on sales of real estate (5,438 ) (34,101 )
Share-based compensation 4,092
5,637
Other (3,970 ) (2,727 )
Operating changes in assets and liabilities:

Decrease in accounts receivable 7,498
3,658
Decrease (increase) in restricted cash and marketable securities 1,748
(495 )
Decrease (increase) in prepaid expenses and other assets, net 3,190
(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 Nine Months Ended September 30,
	2020		2019
Reconciliation of net income to net cash provided by operating activities:
Net income	$	19,329	$	155,127
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization	102,864		105,686
Impairment losses	1,530		327


Amortization of deferred financing costs and net debt discounts	3,104		2,716
Increase in deferred rent receivable	(3,560)		(4,184)
Gain on sales of real estate	(5)		(84,469)

Share-based compensation	4,753		4,979
Loss on early extinguishment of debt	3,237		0
Loss on interest rate derivatives	53,196		0
Other	(4,184)		(4,296)
Changes in operating assets and liabilities:
Increase in accounts receivable	(744)		(9,483)
Increase in prepaid expenses and other assets, net	(13,552)		(26,489)
(Decrease) increase in accounts payable, accrued expenses and other liabilities	(3,583)		19,227
Decrease in rents received in advance and security deposits	(3,344)		(2,104)

Net cash provided by operating activities	$	159,041	$	157,037
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 period	3,397		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	$	11,458	$	34,005
Restricted cash at end of period	3,217		3,502
Cash and cash equivalents and restricted cash at end of period	$	14,675	$	37,507
Supplemental schedule of non-cash investing and financing activities:
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs	$	(195)	$	29,457

Finance right-of-use asset contributed by noncontrolling interest in joint venture	$	0	$	2,570
Recognition of operating right-of-use assets and related lease liabilities	$	8,955	$	255


Non-cash changes from property dispositions:
Contribution of properties to unconsolidated real estate joint venture	$	0	$	99,288
Investment in unconsolidated real estate joint venture retained in disposition	$	0	$	26,500






Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	(37,183)	$	(34,951)

Distributions payable	$	31,307	$	31,345

Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value	$	4,711	$	1,344

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 footprint~~in 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, ~~2017~~,2020, our properties included the following:

~~159 operating office~~•176 properties totaling ~~17.4~~20.4 million square feet ~~including 15 triple-net leased,~~comprised of 15.9 million square feet in 151 office properties and 4.5 million square feet in 25 single-tenant data center ~~properties.~~shell properties (“data center shells”). We owned ~~six~~15 of these ~~properties~~data center shells through an unconsolidated real estate joint ~~venture;~~ventures;

~~ten~~•a wholesale data center with a critical load of 19.25 megawatts;

•11 properties under development (10 office properties ~~under construction or redevelopment~~and 1 data center shell), including 1 partially-operational property, and expansion of 1 fully-operational property that we estimate will total approximately ~~1.1~~1.6 million square feet upon ~~completion, including three triple-net leased, single-tenant data center properties, three partially operational properties~~completion; and ~~two properties completed but held for future lease to the United States Government;~~

~~984~~•approximately 860 acres of land we controlled for future development that we believe could be developed into approximately ~~12.3~~11.0 million square feet and ~~an additional 152~~43 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~~,2020, COPT owned ~~96.8%~~98.6% of the outstanding COPLP common units (“common units”); the remaining common units and ~~none~~all 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 ~~those~~that of COPT common shareholders. ~~Similarly, in~~In 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, and~~officers; 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 when~~When we own an ~~interest~~equity 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, ~~2016~~2019 included in our ~~2016~~2019 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 ~~2016~~2019 Annual Report on Form ~~10-K.~~10-K as updated for our adoption of recent accounting pronouncements discussed below.

~~Reclassification~~Reclassifications

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 apply~~applies 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).~~exposures. Under ~~the new~~this guidance, ~~an entity will~~we recognize ~~its~~an 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. ~~The~~We adopted this guidance is effective ~~for us beginning~~ January 1, 2020 ~~with early adoption permitted after December 2018. We are currently assessing~~using the ~~financial impact~~modified 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 statement~~a 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 effective~~Company (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 the~~changes 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 ~~issued~~that 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 requires~~did 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 effective~~accounting for ~~us beginning January 1, 2018, with early adoption permitted. We do not expect the~~such implementation costs. Our adoption of this guidance todid not have a material impact on our consolidated financial statements.

In ~~February 2017,~~March 2020, the FASB issued guidance ~~clarifying the scope of asset derecognition provisions~~containing practical expedients for reference rate reform related activities pertaining to debt, leases, derivatives and accounting for partial sales of nonfinancial assets. The new guidance requires recognition of a sale of real estate and resulting gain or loss when control transfers and the buyer has the ability to direct use of, or obtain substantially all of the remaining benefit from, the asset (which generally will occur on the closing date); the factor of continuing involvement is no longer a specific consideration 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 and 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 further 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.

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.contracts. The guidance is ~~effective~~optional and may be adopted over time as reference rate reform activities occur. During the nine months ended September 30, 2020, we elected to apply an expedient to treat any changes in loans resulting from reference rate reform as debt modifications (as opposed to extinguishments) and hedge accounting expedients related to probability and the assessments of effectiveness for ~~us beginning January 1, 2019,~~future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with ~~early adoption permitted.~~past presentation. We ~~are currently evaluating~~will continue to evaluate the impact of this guidance ~~including transition~~and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB issued a Staff Q&A document that addressed the accounting for lease accounting guidance for lease concessions resulting from the COVID-19 pandemic. Under existing lease guidance, we would normally have to

determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated as a lease modification) or if such a concession was implemented pursuant to enforceable rights and ~~required disclosures,~~obligations within the existing lease agreement (and, therefore, not treated as a lease modification). The Staff Q&A document enabled us to bypass the lease-by-lease analysis for lease concessions resulting from the COVID-19 pandemic, and instead elect to either apply the lease modification accounting framework or not, with such elections applied consistently to leases with similar characteristics and similar circumstances. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (such as deferrals of lease payments or reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We chose to apply the elections available under the Staff Q&A to restructurings of lease payment terms granted by us to tenants, the effect of which did not have a material impact on our consolidated financial statements.

Credit Losses, Financial Assets and Other Instruments

As discussed above, effective January 1, 2020, we adopted guidance issued by the FASB that 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 this 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 contract assets from unbilled construction contract revenue; and

•off-balance sheet credit exposures.

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 expected credit losses to reflect the risk of loss, even when that risk is remote. An allowance for credit losses is measured and recorded upon the initial recognition of a financial asset (or off-balance sheet credit exposure), 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 as credit loss expense or recoveries 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. Due to our limited quantity of items within the scope of this guidance and the ~~timing~~unique risk characteristics of ~~adoption.~~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 notes receivable from the City of Huntsville disclosed in Note 7 and a 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 Nine Months Ended September 30, 2020
	Investing Receivables		Tenant Notes Receivable (1)		Other Assets (2)		Off-Balance Sheet Credit Exposures (3)		Total
December 31, 2019	$	0	$	97	$	0	$	0	$	97
Cumulative effect of change for adoption of credit loss guidance	3,732		325		144		1,340		5,541
Credit loss expense (recoveries)	308		696		152		(1,317)		(161)


September 30, 2020	$	4,040	$	1,118	$	296	$	23	$	5,477

(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.

(2)The balance as of September 30, 2020 included $95,000 in the line entitled “accounts receivable, net” and $201,000 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.

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 September 30, 2020 (in thousands):


	Origination Year
	2015 and Earlier		2016		2017		2018		2019		2020		Total
Investing receivables:
Credit risk classification:
Investment grade	$	62,842	$	0	$	948	$	0	$	0	$	219	$	64,009
Non-investment grade	3,020		0		0		0		11,147		0		14,167
Total	$	65,862	$	0	$	948	$	0	$	11,147	$	219	$	78,176

Tenant notes receivable:
Credit risk classification:
Investment grade	$	0	$	27	$	0	$	1,054	$	90	$	360	$	1,531
Non-investment grade	97		179		0		171		1,973		1,600		4,020
Total	$	97	$	206	$	0	$	1,225	$	2,063	$	1,960	$	5,551

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 Fitch Ratings Ltd.), meaning that they are considered to 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 ratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification. The credit risk classifications of our investing receivables and tenant notes receivable were last updated in September 2020.

An insignificant portion of the investing and tenant notes receivables set forth above was past due, which we define as being delinquent by more than three months from the due date.

When we believe that collection of interest income on an investing or tenant note receivable is not probable, we place the receivable on nonaccrual status, meaning interest income is recognized when payments are received rather than on an accrual basis. Notes receivable on nonaccrual status as of September 30, 2020 and December 31, 2019 were not significant. We did not recognize any interest income during the three and nine months ended September 30, 2020 on notes receivable on nonaccrual status.

We write off receivables when we believe the facts and circumstances indicate that continued pursuit of collection is no longer warranted. When cash is received in connection with receivables for which we have previously recognized credit losses, we recognize reductions in our credit loss expense.

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, ~~permits~~prior 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 ~~sheet~~sheets 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~~$2.7 million as of September 30, ~~2017, and~~2020, is included in the ~~accompanying COPT~~line entitled “prepaid expenses and other assets, net” on COPT’s consolidated balance sheets ~~in the line entitled restricted cash and~~along 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. The assets of the plan ~~and other marketable securities that we hold~~ are classified in Level 1 of the fair value ~~hierarchy. The~~hierarchy, 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,~~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 the~~The 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, ~~2017~~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:
Marketable securities in deferred compensation plan (1)
Mutual funds	$	2,652	$	0	$	0	$	2,652
Other	20		0		0		20
Mutual funds (1)	20		0		0		20

Total assets	$	2,692	$	0	$	0	$	2,692
Liabilities:
Deferred compensation plan liability (2)	$	0	$	2,672	$	0	$	2,672
Interest rate derivatives	0		10,977		0		10,977
Total liabilities	$	0	$	13,649	$	0	$	13,649

Description 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
Other 71
—
—
71
Interest rate derivatives (2) —
126
—
126
Total assets $ 4,407
$ 126
$ —
$ 4,533
Liabilities:

Deferred compensation plan liability (3) $ —
$ 4,407
$ —
$ 4,407
Interest rate derivatives (3) —
316
—
316
Total liabilities $ —
$ 4,723
$ —
$ 4,723

(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, ~~2017~~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)	$	20	$	0	$	0	$	20


Liabilities:
Interest rate derivatives	$	0	$	10,977	$	0	$	10,977

(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~~In 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)~~2020, we concluded that we ~~reclassified~~no longer expected to ~~held for sale during the period and adjusted to fair value less~~develop a property in Baltimore, Maryland. As a result, we recognized an impairment loss on previously incurred predevelopment costs ~~to sell. These properties were sold in the third quarter.~~of $1.5 million.

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):


	September 30, 2020		December 31, 2019
Land	$	525,584	$	472,976
Buildings and improvements	3,569,749		3,306,791
Less: Accumulated depreciation	(1,095,441)		(1,007,120)
Operating properties, net	$	2,999,892	$	2,772,647

September 30,
2017 December 31,
2016
Land $ 440,771
$ 433,311
Buildings and improvements 3,009,203
2,944,905
Less: Accumulated depreciation (759,262 ) (706,385 )
Operating properties, net $ 2,690,712
$ 2,671,831

2020 Development Activities

~~Projects in development or held for future development consisted of the following (in thousands):~~

September 30,
2017 December 31,
2016
Land $ 216,108
$ 195,521
Development in progress, excluding land 190,211
206,010
Projects in development or held for future development $ 406,319
$ 401,531

~~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 components of assets held for sale on our consolidated balance sheet for these properties (in thousands):~~

September 30, 2017 December 31, 2016
Properties, net $ 68,081
$ 85,402
Deferred rent receivable 5,582
4,241
Intangible assets on real estate acquisitions, net —
338
Deferred leasing costs, net 742
3,636
Lease incentives, net 10
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

~~(1) This sale also included land.~~

~~We also sold other land in the nine months ended September 30, 2017 for $14.3 million and recognized a gain on sale of $4.2 million.~~

~~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~~,2020, we placed into service ~~751,000~~1.2 million square feet in ~~five newly constructed~~6 newly-developed properties, ~~(including a partially operational property) and 88,000~~28,000 square feet in ~~three~~expansions of 2 fully-operational properties and 21,000 square feet in a redeveloped ~~properties (including a partially operational property).~~property. As of September 30, ~~2017,~~2020, we had ~~eight office~~11 properties under ~~construction, or for which we were contractually committed to construct,~~development, including 1 partially-operational property, and an expansion of 1 fully-operational property that we estimate will total ~~1.1~~1.6 million square feet upon ~~completion (including two~~completion.

5. Leases

Lessor Arrangements

We lease real estate properties, ~~completed but held for future lease to the United States Government) and two~~comprised primarily of office properties and data center shells, to third parties. As of September 30, 2020, these leases, which may encompass all, or a portion of, a property, had remaining terms spanning from one month to 18 years and averaging approximately 5.3 years.

Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under ~~redevelopment~~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 September 30,				For the Nine Months Ended September 30,
Lease revenue	2020		2019		2020		2019
Fixed	$	106,743	$	102,389	$	314,845	$	311,226
Variable	27,132		27,072		82,189		80,553
	$	133,875	$	129,461	$	397,034	$	391,779

Fixed contractual payments due under our property leases were as follows (in thousands):


Year Ending December 31,	September 30, 2020		December 31, 2019
2020 (1)	$	107,972	$	388,310
2021	410,966		336,482
2022	362,892		299,356
2023	307,346		245,661
2024	258,059		195,246
Thereafter	773,582		474,741
	$	2,220,817	$	1,939,796

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

Lessee arrangements

As of September 30, 2020, our balance sheet included $76.9 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we ~~estimate will~~are operating or developing. The land leases have long durations

with remaining terms ranging from 28 years (excluding extension options) to 96 years. As of September 30, 2020, our right-of-use assets included:

•$37.8 million for land 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 2021;

•$10.1 million for land underlying operating office properties in Washington, DC under 2 leases with remaining terms of approximately 80 years;

•$9.3 million for land in a business park in Huntsville, Alabama under 12 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;

•$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 62 to 74 years;

•$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 28 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;

•$4.3 million for data center space in Phoenix, Arizona with a remaining term of four years and an option to renew for an additional five years; and

•$2.2 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 property right-of-use assets consisted of the following (in thousands):


Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Right-of-use assets
Operating leases - Property	Property - operating right-of-use assets	$	36,442	$	27,864
Finance leases - Property	Property - finance right-of-use assets	40,432		40,458
Total right-of-use assets		$	76,874	$	68,322

Property lease liabilities consisted of the following (in thousands):


Leases	Balance Sheet Location	September 30, 2020		December 31, 2019
Lease liabilities
Operating leases - Property	Property - operating lease liabilities	$	26,382	$	17,317
Finance leases - Property	Other liabilities	28		702
Total lease liabilities		$	26,410	$	18,019

The table below sets forth the weighted average terms and discount rates of our property leases as of September 30, 2020:


Weighted average remaining lease term
Operating leases	54 years
Finance leases	< 1 year
Weighted average discount rate
Operating leases	7.19	%
Finance leases	3.62	%

The table below presents our total ~~36,000 square feet upon completion.~~property lease cost (in thousands):


	Statement of Operations Location	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Lease cost		2020		2019		2020		2019
Operating lease cost
Property leases - fixed	Property operating expenses	$	600	$	413	$	1,474	$	1,239
Property leases - variable	Property operating expenses	105		0		107		0
Finance lease cost
Amortization of property right-of-use assets	Property operating expenses	9		9		27		21

		$	714	$	422	$	1,608	$	1,260

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):


	For the Nine Months Ended September 30,
Supplemental cash flow information	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	987	$	804

Financing cash flows for financing leases	$	674	$	14

Payments on property leases were due as follows (in thousands):


	As of September 30, 2020						As of December 31, 2019
Year Ending December 31,	Operating leases		Finance leases		Total		Operating leases		Finance leases		Total
2020 (1)	$	615	$	0	$	615	$	1,092	$	674	$	1,766
2021	2,513		14		2,527		1,138		14		1,152
2022	2,566		14		2,580		1,162		14		1,176
2023	2,601		0		2,601		1,167		0		1,167
2024	2,636		0		2,636		1,173		0		1,173
Thereafter	118,295		0		118,295		100,609		0		100,609
Total lease payments	129,226		28		129,254		106,341		702		107,043
Less: Amount representing interest	(102,844)		0		(102,844)		(89,024)		0		(89,024)
Lease liability	$	26,382	$	28	$	26,410	$	17,317	$	702	$	18,019

(1)As of September 30, 2020, represents the three months ending December 31, 2020.

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, ~~2017~~2020 (dollars in thousands):


				September 30, 2020 (1)
	Date Acquired	Nominal Ownership %		Total Assets		Encumbered Assets		Total Liabilities
Entity			Location
LW Redstone Company, LLC	3/23/2010	85%	Huntsville, Alabama	$	371,537	$	110,972	$	104,204
Stevens Investors, LLC	8/11/2015	95%	Washington, DC	153,869		152,972		81,134
M Square Associates, LLC	6/26/2007	50%	College Park, Maryland	98,322		62,628		56,167
				$	623,728	$	326,572	$	241,505

(1)Excludes amounts eliminated in consolidation.

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.

Nominal
Ownership September 30, 2017 (1)
Date % as of Total Encumbered Total
Acquired 9/30/2017 Nature of Activity Assets Assets Liabilities
LW Redstone Company, LLC 3/23/2010 85% Development and operation of real estate (2) $ 158,937
$ 76,374
$ 50,344
M Square Associates, LLC 6/26/2007 50% Development and operation of real estate (3) 70,767
45,813
46,895
Stevens Investors, LLC 8/11/2015 95% Development of real estate (4) 70,383
—
23,566
$ 300,087
$ 122,187
$ 120,805


~~(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.

Unconsolidated Real Estate Joint ~~Venture~~Ventures

~~As of September 30, 2017, we owned a 50% interest~~The table below sets forth information pertaining to our investments in ~~GI-COPT DC Partnership LLC (“GI-COPT”), a~~unconsolidated real estate joint ~~venture owning six triple-net leased, single-tenant data center properties in Virginia, that we account~~ventures accounted for using the equity method of ~~accounting. As~~accounting (dollars in thousands):


	Date Acquired	Nominal Ownership %	Number of Properties	Carrying Value of Investment (1)
Entity				September 30, 2020		December 31, 2019
GI-COPT DC Partnership LLC	7/21/2016	50%	6	$	36,135	$	37,816
BREIT COPT DC JV LLC	6/20/2019	10%	9	13,527		14,133
			15	$	49,662	$	51,949

(1)Included in the line entitled “investment in unconsolidated real estate joint ventures” on our consolidated balance sheets.

In May 2020, the GI-COPT DC Partnership LLC joint venture agreement was amended to reflect our agreement to initially fund the costs of ~~September 30, 2017, we had an investment balance in GI-COPT of $25.2 million. Our balance was $17.1 million lower than our share~~expanding certain of the joint venture’s ~~equity due to a difference between~~existing operating properties. Following our ~~cost basis~~completion of, and the tenant’s commencement of rent payments on, the property expansion, the joint venture will reimburse us for the lesser of the actual development costs of the expansion or $6 million using proceeds from proportional capital contributions by us and our share of the underlying equity in the net assets upon formation of the joint venture; we are amortizing this basis difference into equity in income from unconsolidated entities over the lives of the underlying assets.partner.

6.7. Investing Receivables

Investing receivables ~~including accrued interest thereon,~~ consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Notes receivable from the City of Huntsville	$	64,009	$	59,427
Other investing loans receivable	14,167		14,096
Amortized cost basis	78,176		73,523
Allowance for credit losses	(4,040)		0
Investing receivables, net	$	74,136	$	73,523

September 30,
2017 December 31,
2016
Notes receivable from the City of Huntsville $ 53,088
$ 49,258
Other investing loans receivable 3,020
3,021
$ 56,108
$ 52,279
The balances above include accrued interest receivable, net of allowance for credit losses, of $3.4 million as of September 30, 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 amounts~~was approximately $78 million as of September 30, ~~2017~~2020 and $74 million as of December 31, ~~2016.~~2019.

8. Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following (in thousands):


	September 30, 2020		December 31, 2019
Lease incentives, net	$	36,259	$	28,433
Prepaid expenses	27,612		18,835
Construction contract costs in excess of billings, net	13,980		17,223
Furniture, fixtures and equipment, net	10,193		7,823
Non-real estate equity investments	6,487		6,705
Restricted cash	3,217		3,397
Deferred financing costs, net (1)	2,721		3,633
Deferred tax asset, net (2)	2,246		2,328

Other assets	4,905		4,639
Total for COPLP and subsidiaries	107,620		93,016
Marketable securities in deferred compensation plan	2,672		3,060
Total for COPT and subsidiaries	$	110,292	$	96,076

September 30,
2017 December 31,
2016
Prepaid expenses $ 30,932
$ 24,432
Lease incentives, net 17,202
18,276
Furniture, fixtures and equipment, net 5,422
5,204
Deferred tax asset, net (1) 2,851
3,036
Non-real estate equity method investments 2,413
2,355
Construction contract costs incurred in excess of billings 2,005
10,350
Deferred financing costs, net (2) 1,419
3,128
Other assets 4,294
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 $565,000 as of September 30, 2020 and $480,000 as of December 31, 2019.

9. Debt, Net

Our debt consisted of the following (dollars in thousands):



	Carrying Value (1) as of
	September 30, 2020		December 31, 2019			September 30, 2020
					Stated Interest Rates		Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt (2)	$	140,868	$	143,430		3.82% - 4.62% (3)		2023-2026
Variable rate secured debt (4)	118,690		68,055			LIBOR + 1.45% to 2.35% (5)		2021-2026
Total mortgage and other secured debt	259,558		211,485
Revolving Credit Facility (6)	57,000		177,000			LIBOR + 0.775% to 1.45% (7)		March 2023 (6)
Term Loan Facility (8)	398,253		248,706			LIBOR + 1.00% to 1.65% (9)		2022
Unsecured Senior Notes
3.70%, $300,000 aggregate principal	176,885		299,324			3.70% (10)		October 2020 (10)
3.60%, $350,000 aggregate principal	348,772		348,431			3.60% (11)		May 2023
5.25%, $250,000 aggregate principal	248,056		247,652			5.25% (12)		February 2024
5.00%, $300,000 aggregate principal	297,810		297,503			5.00% (13)		July 2025
2.25%, $400,000 aggregate principal	394,282		0			2.25% (14)		March 2026
Unsecured note payable	935		1,038			0% (15)		May 2026
Total debt, net	$	2,181,551	$	1,831,139

Carrying Value (1) as of
September 30,
2017 December 31,
2016 Stated Interest Rates as of Scheduled Maturity as of
September 30, 2017 September 30, 2017
Mortgage and Other Secured Debt:

Fixed rate mortgage debt (2) $ 151,594
$ 154,143
3.82% - 7.87% (3) 2019-2026
Variable rate secured debt 13,200
13,448
LIBOR + 1.85% (4) October 2020
Total mortgage and other secured debt 164,794
167,591

Revolving Credit Facility 170,000
—
LIBOR + 0.875% to 1.60% (5) May 2019 (6)
Term Loan Facilities (7) 348,371
547,494
LIBOR + 0.90% to 2.40% (8) 2020-2022
Unsecured Senior Notes
3.600%, $350,000 aggregate 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
Total debt, net $ 1,873,291
$ 1,904,001

(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $6.5 million as of September 30, 2020 and $5.8 million as of December 31, 2019.


~~(1)~~	~~The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $4.8 million as of September 30, 2017 and $6.1 million as of December 31, 2016.~~


~~(2)~~	Certain fixed rate mortgages carry interest rates that were above or below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling $367,000 as of September 30, 2017 and $422,000 as of December 31, 2016.


~~(3)~~	~~The weighted average interest rate on our fixed rate mortgage debt was 4.19% as of September 30, 2017.~~


~~(4)~~	~~The interest rate on our variable rate secured debt 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.~~


~~(6)~~	The facility matures in May 2019, with the ability for us to further extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period.


~~(7)~~	As of September 30, 2017, we have the ability to borrow an additional $350.0 million in the aggregate under these term loan facilities, provided that there is no default under the facilities and subject to the approval of the lenders. On May 1, 2017, we repaid $200.0 million of the loan balance on a term loan scheduled to mature in 2020.


~~(8)~~	~~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 millionas of~~ ~~September 30, 2017~~ ~~and $2.0 million~~ ~~as of~~ ~~December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.~~


~~(10)~~	~~The carrying value of these notes reflectsan unamortized discount totaling $3.1 millionas of~~ ~~September 30, 2017~~ ~~and $3.4 million as of~~ ~~December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.~~


~~(11)~~	~~The carrying value of these notes reflects an unamortized discount totaling $1.4 millionas of~~ ~~September 30, 2017~~ ~~and $1.7 million as of~~ ~~December 31, 2016. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%.~~

~~(12)~~ (2)Certain of the fixed rate mortgages carry interest rates that, upon assumption, were above or below market rates 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 $170,000 as of September 30, 2020 and $217,000 as of December 31, 2019.

(3)The weighted average interest rate on our fixed rate mortgage debt was 4.16% as of September 30, 2020.

(4)Includes a construction loan with $37.4 million in remaining borrowing capacity as of September 30, 2020.

(5)The weighted average interest rate on our variable rate secured debt was 2.24% as of September 30, 2020.

(6)The facility matures in March 2023, with the ability for us to further extend such maturity by 2 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. In connection with this facility, we also have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.

(7)The weighted average interest rate on the Revolving Credit Facility was 1.21% as of September 30, 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 was 1.16% as of September 30, 2020.

(10)The carrying value of these notes reflects an unamortized discount totaling ~~$2.8 million~~$128,000as of September 30, ~~2017~~2020 and ~~$3.0~~$534,000 as of December 31, 2019. The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%. Refer to paragraph below for further disclosure.

(11)The carrying value of these notes reflects an unamortized discount totaling $860,000as of September 30, 2020 and $1.1 million as of December 31, 2019. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%.

(12)The carrying value of these notes reflectsan unamortized discount totaling $1.8 millionas of September 30, 2020 and $2.1 million as of December 31, ~~2016.~~2019. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%.

(13)The carrying value of these notes reflects an unamortized discount totaling $1.8 millionas of September 30, 2020 and $2.1 million as of December 31, 2019. The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.

~~(13)~~

These notes carry interest rates that were below market rates upon assumption and therefore were recorded at their fair value based on applicable effective interest rates. The carrying value of these notes reflects an unamortized discount totaling ~~$394,000~~ ~~as of~~ ~~September 30, 2017~~ ~~and~~ ~~$460,000~~ ~~as of~~ ~~December 31, 2016~~.

(14)Refer to paragraph below for further disclosure.

(15)This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates. The carrying value of this note reflects an unamortized discount totaling $176,000 as of September 30, 2020 and $223,000 as of December 31, 2019.

All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed ~~the Operating Partnership’s~~COPLP’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.

On September 17, 2020, we issued $400.0 million of 2.25% Senior Notes due 2026 (the “2.25% Notes”) at an initial offering price of 99.416% of their face value. The proceeds from this issuance, after deducting underwriting discounts, but before other offering expenses, were $395.3 million. The notes mature on March 15, 2026. We may redeem the notes, in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted

treasury rate plus a spread of 35 basis points, plus accrued and unpaid interest thereon to the date of redemption. However, if this redemption occurs on or after one month prior to the maturity date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date. These notes are unconditionally guaranteed by COPT. The carrying value of these notes reflects an unamortized discount totaling $4.7 million as of September 30, 2020. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.48%.

On September 17, 2020, we purchased $122.9 million, or 40.98% of the aggregate principal amount, of our 3.70% Senior Notes due 2021 (the “3.70% Notes”) for $126.0 million, plus accrued interest, pursuant to a tender offer. In connection with this purchase, we recognized a loss on early extinguishment of debt of $3.2 million during the three and nine months ended September 30, 2020. On October 19, 2020, we redeemed the remaining $177.1 million of the 3.70% Notes for $180.9 million plus accrued interest, and recognized an additional loss on early extinguishment of debt of approximately $4 million.

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

We capitalized interest costs of ~~$1.1~~$2.9 million in the three months ended September 30, ~~2017, $1.2~~2020, $2.9 million in the three months ended September 30, ~~2016, $4.2~~2019, $9.4 million in the nine months ended September 30, ~~2017~~2020 and ~~$4.3~~$7.3 million in the nine months ended September 30, ~~2016.~~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		Fair			September 30, 2020				December 31, 2019
	Amount		Value		Amount		Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt									Fixed-rate debt
Unsecured Senior Notes	$	1,188,809	$	1,231,222	$	1,187,515	$	1,220,282	Unsecured Senior Notes	$	1,465,805	$	1,505,414	$	1,192,910	$	1,227,441
Other fixed-rate debt	152,911		154,781		155,544		156,887		Other fixed-rate debt	141,803		144,370		144,468		149,907
Variable-rate debt	531,571		531,520		560,942		558,437		Variable-rate debt	573,943		567,461		493,761		495,962
	$	1,873,291	$	1,917,523	$	1,904,001	$	1,935,606		$	2,181,551	$	2,217,245	$	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
Notional Amount			Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	September 30, 2020		December 31, 2019
$	12,132	(1)	1.390%	One-Month LIBOR	10/13/2015	10/1/2020	$	0	$	23
100,000			1.901%	One-Month LIBOR	9/1/2016	12/1/2022	(3,857)		(1,028)
100,000			1.905%	One-Month LIBOR	9/1/2016	12/1/2022	(3,865)		(1,037)
50,000			1.908%	One-Month LIBOR	9/1/2016	12/1/2022	(1,935)		(524)
11,200		(2)	1.678%	One-Month LIBOR	8/1/2019	8/1/2026	(827)		(20)
150,000			0.498%	One-Month LIBOR	4/1/2020	12/31/2020	(127)		0
23,000		(3)	0.573%	One-Month LIBOR	4/1/2020	3/26/2025	(366)		0
75,000		(4)	3.176%	Three-Month LIBOR	6/30/2020	N/A	0		(8,640)
75,000		(4)	3.192%	Three-Month LIBOR	6/30/2020	N/A	0		(8,749)
75,000		(4)	2.744%	Three-Month LIBOR	6/30/2020	N/A	0		(5,684)
							$	(10,977)	$	(25,659)

Fair Value at
Notional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
September 30,
2017
December 31,
2016
$ 100,000

1.7300%
One-Month LIBOR
9/1/2015
8/1/2019
$ (237 )
$ (848 )
13,311
(1) 1.3900% One-Month LIBOR 10/13/2015 10/1/2020 126
100
100,000
1.9013% One-Month LIBOR 9/1/2016 12/1/2022 (27 ) (23 )
100,000
1.9050% One-Month LIBOR 9/1/2016 12/1/2022 (22 ) 48
50,000
1.9079% One-Month LIBOR 9/1/2016 12/1/2022 (30 ) 10
100,000
(2) 1.6730%
One-Month LIBOR
9/1/2015
8/1/2019
—

(701 )

$ (190 )
$ (1,414 )

(1)The notional amount of this instrument is scheduled to amortize to ~~$12.1 million~~.$12.1 million.


~~(2)~~	We cash settled this derivative and interest accrued thereon for $460,000 on May 1, 2017. Since the hedged transactions associated with this derivative were still probable to occur as of the settlement date, amounts in accumulated other comprehensive loss (“~~AOCL~~”~~) associated with this derivative will be reclassified to interest expense through August 2019.~~

(2)The notional amount of this instrument is scheduled to amortize to $10.0 million.

(3)The notional amount of this instrument is scheduled to amortize to $22.1 million.

(4)As discussed below, these instruments were cash settled in September 2020.

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								Fair Value at
Derivatives	Balance Sheet Location	September 30, 2017			December 31, 2016			Derivatives	Balance Sheet Location	September 30, 2020		December 31, 2019
Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets	$	126		$	158		Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets, net	$	0	$	23
Interest rate swaps designated as cash flow hedges	Other liabilities	(316		)	(1,572		)	Interest rate swaps designated as cash flow hedges	Interest rate derivatives (liabilities)	$	(10,977)	$	(25,682)

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):


	Amount of Income (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 September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Derivatives in Hedging Relationships	2020		2019		2020		2019		2020		2019		2020		2019
Interest rate derivatives	$	1,428	$	(11,047)	$	(39,592)	$	(33,437)	$	(1,342)	$	307	$	(2,408)	$	1,434

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 recognized 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.


	Amount of Loss Reclassified from AOCL into Loss on Interest Rate Derivatives on Statement of Operations								Amount of Loss Recognized on Undesignated Swaps in Loss on Interest Rate Derivatives on Statement of Operations
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Derivatives in Hedging Relationships	2020		2019		2020		2019		2020		2019		2020		2019
Interest rate derivatives	$	(51,865)	$	0	$	(51,865)	$	0	$	(1,265)	$	0	$	(1,265)	$	0

As described further in Note 9, in September 2020, we completed our issuance of the 2.25% Notes. In August 2020, in anticipation of pursuing such an issuance, we determined that the forecasted transactions hedged by our 3 interest rate swaps with an effective date of June 30, 2020 and an aggregate notional amount of $225.0 million were no longer probable of occurring, resulting in our discontinuance of hedge accounting on these swaps. When we consummated the note issuance in September 2020, we determined that it was probable that the forecasted transactions would not occur, resulting in our reclassification of $51.9 million in losses from accumulated other comprehensive loss (“AOCL”) to loss on interest rate derivatives on our statements of operations. On September 22, 2020, we cash settled these swaps and accrued interest thereon for an aggregate amount of $53.1 million.

~~Over~~

Based on the ~~next 12 months,~~fair value of our derivatives as of September 30, 2020, we estimate that approximately ~~$1.6~~$4.8 million of losses will be reclassified from 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~~,2020, we were not in default with any of these provisions. As of September 30, 2020, the fair value of interest rate derivatives in a liability position related to these agreements was ~~$305,000~~,$11.1 million, excluding the effects of accrued interest and credit valuation adjustments. As of September 30, ~~2017~~,2020, we had not posted any collateral related to these agreements. ~~We are not in default with any of these provisions.~~ If we ~~breached~~breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $11.5 million as of ~~$484,000~~.September 30, 2020.

~~10.~~

11. Redeemable Noncontrolling Interests

Our partners in ~~two~~2 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 Nine Months Ended September 30,
	2020		2019
Beginning balance	$	29,431	$	26,260

Distributions to noncontrolling interests	(13,335)		(1,656)
Net income attributable to noncontrolling interests	2,715		2,729
Adjustment to arrive at fair value of interests	4,711		1,344
Ending balance	$	23,522	$	28,677

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 properties~~occupancy projections and estimated operating and ~~capital~~development expenditures. ~~The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):~~

•weighted average options for the three and nine months ended September 30, ~~2017~~2019 of 3,000 and ~~2016~~16,000, respectively; and

•weighted average unvested TB-PIUs for the three months ended September 30, 2020 and 2019 of ~~40,000~~91,000 and ~~233,000~~,62,000, respectively, and for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 of ~~80,000~~85,000 and ~~307,000,~~47,000, respectively.

~~15.~~17. Commitments and Contingencies

Litigation and Claims

In the normal course of business, we are ~~involved in~~subject to legal actions ~~arising from our ownership~~ and ~~administration of properties.~~other claims. We ~~establish reserves~~record losses for specific legal proceedings and claims when we determine that ~~the likelihood of an unfavorable outcome~~a loss is probable and the amount of loss can be reasonably estimated. ~~Management does~~As of September 30, 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 a~~believe this loss would materially ~~adverse effect on~~affect 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.

In connection with a lease and subsequent sale in 2008 and 2010 of 3 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

~~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 the National Business ~~Park North.~~Park. These bonds had a remaining principal balance of approximately $33 million as of September 30, 2020. The real estate taxes on increases in assessed ~~value~~values post-bond issuance of aproperties in development ~~district~~districts encompassing the 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~~While we are obligated to fund, through a special tax, any future shortfalls between debt service onof 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 leasesbonds, as of September 30, ~~2017 follow (in thousands):~~2020, we do not expect any such future fundings will be required.

Year Ending December 31,
2017 (1) $ 320
2018 1,275
2019 1,263
2020 1,257
2021 1,260
Thereafter 85,761
$ 91,136
Effects of COVID-19

~~(1) Represents~~Since first being declared a pandemic by the ~~three months ending December 31, 2017.~~World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong restrictive measures were put into place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures to varying extents in late April, with some lifting restrictive measures entirely, while others chose a more gradual, extended easing approach. While the easing of these measures has enabled many businesses to gradually resume normal operations, most businesses continue to be hindered to varying extents by either measures still in effect, operational challenges resulting from social distancing requirements/expectations and/or a reluctance by much of the population to engage in certain activities while the pandemic is still active. As of the date of this filing, COVID-19 spread continues world- and nation-wide, and is expected to continue until effective vaccinations have been developed and then distributed and administered to much of the population. As a result, there continues to be significant uncertainty regarding the duration and extent of this pandemic. The outbreak has significantly disrupted financial and economic markets worldwide, as well as in the United States at a national, regional and local level. These conditions could continue or further deteriorate as businesses feel the prolonged effects of stalled or reduced operations and uncertainty regarding the pandemic continues.

COVID-19, and similar pandemics, along with measures instituted to prevent spread, may adversely affect us in many ways, including, but not limited to:

~~Capital Lease~~•disruption of 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;

•shortages in supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;

•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;

•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; and

•an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

The extent of the effect on our operations, financial condition and cash flows will be dependent on future developments, including the duration of the pandemic, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, all of which are uncertain and difficult to predict.

18. Subsequent Event

On ~~May 25, 2017,~~October 30, 2020, we ~~entered into~~sold a ~~ground lease~~90% interest in 2 data center shell properties in Virginia based on ~~land under development~~an aggregate property value of $90 million and retained a 10% interest in ~~Washington, D.C.~~the properties through B RE COPT DC JV II LLC (“B RE COPT”), a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $81 million. We are accounting 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~~ ~~three~~ ~~properties in Dayton, New Jersey, we agreed to provide certain environmental indemnifications limited to $19 million~~interest in the ~~aggregate. We have insurance coverage in place to mitigate much~~joint venture using the equity method of ~~any potential future losses that may result from these indemnification agreements.~~accounting.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

During the nine months endedSeptember 30, ~~2017~~: 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;~~93.8% occupied and 94.4% leased;

we •placed into service ~~an aggregate of 839,000~~1.2 million square feet in ~~eight newly constructed or~~six newly-developed properties (including three data center shell properties and three office properties in our Redstone Arsenal sub-segment), expansions of two fully-operational properties and one redeveloped ~~properties~~property that were ~~89%~~99.2% leased as of September 30, ~~2017;~~2020;

~~we sold ten operating properties totaling 639,000 square feet that were 89.4% occupied for $88.8~~•refinanced unsecured senior notes due to mature in June 2021 with a new note issuance on September 17, 2020 by:

◦issuing $400.0 million ~~and other land for $14.3 million.~~of 2.25% Notes at an initial offering price of 99.416% of their face value. The ~~net~~ proceeds from ~~these sales~~this issuance, after deducting underwriting discounts but before other offering expenses, were approximately $395.3 million;

◦completing a tender offer for $300.0 million of 3.70% Notes, which resulted in our purchase of $122.9 million, or 40.98%, of the notes for $126.0 million plus accrued interest; and

◦initiating the redemption of the remaining $177.1 million of 3.70% Notes, which was completed on October 19, 2020 for $180.9 million plus accrued interest.

We initially used ~~primarily~~the remaining proceeds from the 2.25% Notes issuance to repay borrowings under our Revolving Credit Facility and ~~to fund~~for general corporate purposes, which included the cash ~~reserves;~~

~~we repaid $200.0 million~~settlement of ~~the loan balance on a term loan scheduled to mature in 2020 using available cash;~~

~~COPT redeemed all of the outstanding shares of its:~~

~~Series K Preferred Shares effective January 21, 2017 at a price of $50.00 per share, or $26.6 million in the aggregate, plus~~three forward-starting interest rate swaps and accrued ~~and unpaid dividends~~interest thereon ~~through the date of redemption using available cash. Concurrently with this redemption, COPLP redeemed its Series K Preferred Units on the same terms; and~~

~~Series L Preferred Shares effective June 27, 2017 at a price of $25.00 per share, or $172.5 million in the aggregate, plus accrued and unpaid dividends thereon through the date of redemption using~~for $53.1 million. We subsequently used borrowings ~~from~~under our Revolving Credit ~~Facility. Concurrently with this~~Facility to fund the 3.70% Notes redemption ~~COPLP redeemed its Series L Preferred Units~~on October 19, 2020; and

•amended an existing term loan facility to increase the loan amount by $150.0 million and reduce the LIBOR interest rate spread 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~~facility. We used the resulting loan 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~~

~~The net 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 replace Mr. Adkins and, in the interim, have senior level employees handling his responsibilities.

On October 30, 2020, we sold a 90% interest in two data center shell properties in Virginia based on an aggregate property value of $90 million and retained a 10% interest in the properties through B RE COPT, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $81 million, which was used to repay borrowings under our Revolving Credit Facility.

We refer to the measure “annualized rental revenue” in various sections of the Management’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 measure that we use to evaluate the source of our rental revenue as of a point in time. 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 effect of lease incentives, although the effect of this exclusion is not material. We consider annualized rental revenue to be a useful 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 United States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry 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 portion attributable to our ownership interest.

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 and uncertainties regarding the impact of the COVID-19 pandemic, and similar pandemics, along with restrictive measures instituted to prevent spread, on our business, the real estate industry 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 of~~reduced 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

Pandemic Overview

Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong restrictive measures were put into place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures to varying extents in late April, with some lifting restrictive measures entirely, while others chose a more gradual, extended easing approach. While the easing of these measures has enabled many businesses to gradually resume normal operations, most businesses continue to be hindered to varying extents by either measures still in effect, operational challenges resulting from social distancing requirements/expectations and/or a reluctance by much of the population to engage in certain activities while the pandemic is still active. As of the date of this filing, COVID-19 spread continues world- and nation-wide, and is expected to continue until effective vaccinations have been developed and then distributed and administered to much of the population. As a result, there continues

to be significant uncertainty regarding the duration and extent of this pandemic. COVID-19 has significantly disrupted financial and economic markets worldwide, as well as in the United States at a national, regional and local level. These conditions could continue or further deteriorate as businesses feel the prolonged effects of stalled or reduced operations and uncertainty regarding the pandemic continues.

Effect on Real Estate Industry

COVID-19 has significantly affected the operations of much of the commercial real estate industry as certain tenants’ operations, including the ability to use space and run businesses, have been disrupted. This has adversely affected tenants’ ability to sustain their businesses, including 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 affected the ability to lease space in many property types to new and existing tenants at favorable terms. Key demand drivers for office space, such as employment levels, business confidence and corporate profits, have been adversely affected. In addition, after months of businesses operating in significant part through remote work arrangements out of necessity, the pace of such arrangements becoming more prevalent long-term could accelerate, adversely affecting office space demand, although that effect may be offset by a slowing in the trend toward adoption of shared office and open workplace structures due to greater social distancing concerns. As a result, the commercial real estate industry, including office real estate, has suffered adverse impacts in its operations, financial conditions and cash flows due to the COVID-19 pandemic and faces the potential for lasting future effects.

Effect on the Company

Our office and data center shell portfolio is significantly concentrated in Defense/IT Locations, representing 167 of the portfolio’s 176 properties, or 88.0%, of our annualized rental revenue as of September 30, 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 were designated as “essential businesses,” and therefore exempt from many of the restrictions that otherwise have 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 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 disrupted. Our Defense/IT Locations do include 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 September 30, 2020, we owned seven Regional Office properties, representing 11.5% 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,” have been 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.

The pandemic has affected the manner in which we conduct our operations in the following ways:

•for the operations of our properties;

◦we consulted with medical experts in developing an approach to safely operate our properties during the pandemic;

◦we use manufacturer recommended heating and air conditioning filters to ensure appropriate outside air distribution;

◦we proactively engaged our tenants to help them through unknowns as pandemic concerns heightened and restrictive measures were being instituted, and maintained that engagement to ensure communication regarding steps we were taking in our business operations, any changes in tenant operations (such as office closures or revised work schedules) and the existence of any actual or presumed COVID-19 cases in properties;

◦our on-site property operations staff have been required to use personal protective equipment, such as masks, gloves and hand sanitizer, and implement other procedural changes to enhance separation and minimize spread;

◦we instituted enhanced cleaning measures, particularly for high touch areas and flat surfaces, and conducted special deep cleanings in properties potentially affected by actual or presumed COVID-19 cases;

◦we provided signage promoting proper social distancing practices and hand sanitizer stations for property common area lobbies; and

◦for properties that were not being used by tenants due to office closures or work from home arrangements, we locked down public (non-tenant) access to the properties for security purposes and instituted other measures aimed at managing costs;

•for our employees:

◦our staff deemed to be essential, including our executives, select other members of our leadership team and most of our property management team, have continued to report to their normal work locations; and

◦most of our other staff worked from home from mid-March until the end of May, when most began reporting to their normal work locations on a weekly rotational basis; and

•for our leasing activities:

◦we continued active engagement for lease transactions already in progress while business closures were in place;

◦during periods of time in which we were unable to physically show space to prospective tenants (from mid-March until late May to mid-June), we showed space to new prospective tenants using a combination of virtual technology and pre-recorded video tours; and

◦we implemented new advertising strategies to promote space availability.

As of the date of this filing, we believe that COVID-19 has not significantly affected our results of operations. Our:

•same property NOI from real estate operations decreased 1.6% for the three months ended September 30, 2020 and increased 0.3% for the nine months ended September 30, 2020 relative to the comparable 2019 periods. These changes included the effect of $1.1 million and $2.7 million increases in provisions for collectability losses and $739,000 and $1.3 million decreases in parking revenue in the three and nine months ended September 30, 2020, respectively, relative to the comparable 2019 periods. Substantially all of the increases in collectibility losses was attributable to tenants whose operations were significantly disrupted by the pandemic (including primarily tenants serving as amenities to Defense/IT Location properties);

•other lease revenue collections were not significantly affected by the pandemic. However, we have agreed to deferred payment arrangements for approximately $2.6 million in lease receivables to be repaid in most cases by 2021 with primarily Regional Office tenants and tenants serving as amenities to Defense/IT Location properties whose operations were significantly disrupted;

•office and data center shell portfolio was 93.8% occupied (compared to 92.9% at year end) and 94.4% leased (unchanged from year end) and our Same Properties portfolio was 92.5% occupied (compared to 91.8% at year end) and 93.2% leased (compared to 93.5% at year end);

•operating expenses included the effect of higher cleaning and maintenance related costs, which was partially offset by higher tenant expense reimbursements; and

•leadership team 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 value of each asset group was recoverable from the respective estimated undiscounted future cash flows. As a result, no impairment loss was recognized.

While we do not currently expect that COVID-19 will significantly affect our results of operations, financial condition or cash flows, we believe that the impact of the pandemic will be dependent on future developments, including the duration of the pandemic, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, 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 led to several leases being executed later than we previously expected, and the inability for us to physically show space to prospective tenants for a period of time due to restrictive measures served as an impediment to initiating new and progressing active leasing transactions. While we do not believe that our development leasing and ability to renew leases scheduled to expire has been significantly affected by the pandemic, we do believe that the impact of the restrictive measures and the economic uncertainty caused by the pandemic has impacted our timing and volume of vacant space leasing, and may continue to do so in the future.

For our development activity, we have delivered space in five newly-constructed properties and expansions of two fully-operational properties on schedule since March 2020, and the 11 properties and expansion of one fully-operational property that were under development as of September 30, 2020 face minimal operational risk as they were 84% leased as of the date of this filing. COVID-19 enhances 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: jurisdictional permitting and inspections; factories’ ability to provide materials; and possible labor quarantines. These types of issues have not significantly affected us to date but could in the future, depending on COVID-19 related developments.

We do not expect that we will be required to incur significant additional capital expenditures on existing properties as a result of COVID-19.

In March 2020, due to the potential for financial market instability from the pandemic, we borrowed under our Revolving Credit Facility in order to pre-fund our short-term capital needs. As the capital markets remained stable in the second quarter of 2020, we repaid much of these borrowings in June 2020. We completed an issuance of $400.0 million in unsecured senior notes in September 2020, which enabled us to refinance $300.0 million in notes maturing in 2021, and we have no other significant debt maturities until 2022.

Occupancy and Leasing

Office ~~Properties~~and 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, 2020			December 31, 2019
Occupancy rates at period end
Total	93.8		%	92.9		%
Defense/IT Locations:
Fort Meade/BW Corridor	90.7		%	92.4		%
Northern Virginia Defense/IT	88.5		%	82.4		%
Lackland Air Force Base	100.0		%	100.0		%
Navy Support Locations	95.6		%	92.5		%
Redstone Arsenal	99.5		%	99.3		%
Data Center Shells	100.0		%	100.0		%
Total Defense/IT Locations	94.2		%	93.7		%
Regional Office	92.3		%	88.1		%
Other	68.4		%	73.0		%
Average contractual annual rental rate per square foot at period end (1)	$	30.83		$	31.28

September 30, 2017 December 31, 2016
Occupancy rates at period end

Total 93.4 % 92.1 %
Defense/IT Locations:
Fort Meade/BW Corridor 95.6 % 94.3 %
Northern Virginia Defense/IT 88.7 % 85.0 %
Lackland Air Force Base 100.0 % 100.0 %
Navy Support Locations 82.5 % 72.7 %
Redstone Arsenal 97.9 % 96.4 %
Data Center Shells 100.0 % 100.0 %
Total Defense/IT Locations 94.7 % 92.6 %
Regional Office 92.4 % 95.2 %
Other 29.4 % 52.9 %
Average contractual annual rental rate per square foot at period end (1) $ 29.94
$ 30.16


~~(1)~~	~~Includes estimated expense reimbursements. Amounts reported include the portion of properties owned through an unconsolidated real estate joint venture that was allocable to our ownership interest.~~

(1)Includes estimated expense reimbursements.


	Rentable Square Feet	Occupied Square Feet
	(in thousands)
December 31, 2019	19,173	17,816
Vacated upon lease expiration (1)	—	(365)
Occupancy for new leases (2)	—	459
Developed or redeveloped	1,241	1,220



Other changes	(25)	—
September 30, 2020	20,389	19,130

Rentable
Square Feet

Occupied
Square Feet
(in thousands)
December 31, 2016 17,190
15,831
Square feet vacated —
(316 )
Occupancy of previously vacated space in connection with new leases (1) —
412
Square feet constructed or redeveloped 839
866
Dispositions (639 ) (572 )
Square feet removed from operations for redevelopment (22 ) —
Other changes 8
5
September 30, 2017 17,376
16,226
(1)Includes lease terminations and space reductions occurring in connection with lease renewals.


~~(1)~~	~~Excludes occupancy of vacant square feet acquired or developed.~~

(2)Excludes occupancy of vacant square feet acquired or developed.

During the nine months ended September 30, ~~2017,~~2020, we completed ~~2.2~~2.7 million square feet of leasing, ~~including 482,000 of construction and redevelopment space, and~~including: renewed ~~82.4%~~leases on 1.9 million square feet, representing 84.3% of the square footage of our lease expirations (including the effect of early renewals).; 520,000 square feet of development and redevelopment space; and 274,000 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~~

Our 19.25 megawatt wholesale data center ~~property had 16.9 megawatts~~was 86.7% leased as of September 30, ~~2017, a 2.0 megawatt increase relative to~~2020 and 76.9% leased as of December 31, ~~2016.~~2019, reflecting an increase from our leasing of 3.1 megawatts in April 2020. We have a lease for 11.25 megawatts in holdover status requiring six months’ notice for the tenant to terminate that we are negotiating for renewal.

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 operating~~categories:

•office and data center shell properties:

~~office properties continually~~•stably 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 properties~~and 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, ~~2017~~2020 and ~~2016~~2019


	For the Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Revenues
Revenues from real estate operations	$	134,443	$	130,734	$	3,709
Construction contract and other service revenues	20,323		28,697		(8,374)
Total revenues	154,766		159,431		(4,665)
Operating expenses
Property operating expenses	51,552		49,714		1,838
Depreciation and amortization associated with real estate operations	35,332		34,692		640
Construction contract and other service expenses	19,220		27,802		(8,582)
Impairment losses	1,530		327		1,203
General, administrative and leasing expenses	7,467		7,929		(462)
Business development expenses and land carry costs	1,094		964		130
Total operating expenses	116,195		121,428		(5,233)
Interest expense	(17,152)		(17,126)		(26)
Interest and other income	1,746		1,842		(96)
Credit loss recoveries	1,465		—		1,465

Loss on early extinguishment of debt	(3,237)		—		(3,237)
Loss on interest rate derivatives	(53,196)		—		(53,196)
Equity in income of unconsolidated entities	477		396		81
Income tax (expense) benefit	(16)		131		(147)
Net (loss) income	$	(31,342)	$	23,246	$	(54,588)

For the Three Months Ended September 30,
2017 2016 Variance
(in thousands)
Revenues

Revenues from real estate operations $ 127,231
$ 130,954
$ (3,723 )
Construction contract and other service revenues 29,786
11,149
18,637
Total revenues 157,017
142,103
14,914
Expenses

Property operating expenses 46,368
49,952
(3,584 )
Depreciation and amortization associated with real estate operations 34,438
32,015
2,423
Construction contract and other service expenses 28,788
10,341
18,447
Impairment (recoveries) losses (161 ) 27,699
(27,860 )
General, administrative and leasing expenses 7,368
8,855
(1,487 )
Business development expenses and land carry costs 1,277
1,716
(439 )
Total operating expenses 118,078
130,578
(12,500 )
Operating income 38,939
11,525
27,414
Interest expense (19,615 ) (18,301 ) (1,314 )
Interest and other income 1,508
1,391
117
Loss on early extinguishment of debt —
(59 ) 59
Equity in income of unconsolidated entities 719
594
125
Income tax (expense) benefit (57 ) 21
(78 )
Income (loss) before gain on sales of real estate 21,494
(4,829 ) 26,323
Gain on sales of real estate 1,188
34,101
(32,913 )
Net income $ 22,682
$ 29,272
$ (6,590 )

NOI from Real Estate Operations


	For the Three Months Ended September 30,										For the Three Months Ended September 30,
	2017			2016			Variance				2020			2019			Variance
	(Dollars in thousands, except per square foot data)										(Dollars in thousands, except per square foot data)
Revenues										Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue	$	86,226		$	84,889		$	1,337
Same Properties revenues										Same Properties revenues
Lease revenue, excluding lease termination revenue and provision for collectability losses										Lease revenue, excluding lease termination revenue and provision for collectability losses	$	118,830		$	117,360		$	1,470
Lease termination revenue	860			389			471			Lease termination revenue	609			823			(214)
Tenant recoveries and other real estate operations revenue	22,258			24,312			(2,054		)
Same Office Properties total revenues	109,344			109,590			(246		)
Constructed and redeveloped properties placed in service	6,969			2,094			4,875
Provision for collectability losses included in lease revenue										Provision for collectability losses included in lease revenue	(1,089)			(39)			(1,050)
Other property revenue										Other property revenue	515			1,227			(712)
Same Properties total revenues										Same Properties total revenues	118,865			119,371			(506)
Developed and redeveloped properties placed in service										Developed and redeveloped properties placed in service	9,510			2,885			6,625

Wholesale data center	7,398			6,809			589			Wholesale data center	6,068			6,565			(497)
Properties held for sale	2,723			2,700			23

Dispositions	538			9,506			(8,968		)	Dispositions	—			1,230			(1,230)
Other	259			255			4			Other	—			683			(683)
	127,231			130,954			(3,723		)		134,443			130,734			3,709
Property operating expenses										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										Same Properties	(46,342)			(45,636)			(706)
Developed and redeveloped properties placed in service										Developed and redeveloped properties placed in service	(1,566)			(513)			(1,053)

Wholesale data center	(3,175		)	(3,317		)	142			Wholesale data center	(3,642)			(3,374)			(268)
Properties held for sale	(299		)	(283		)	(16		)

Dispositions	(124		)	(2,743		)	2,619			Dispositions	—			(164)			164
Other	(234		)	(351		)	117			Other	(2)			(27)			25
	(46,368		)	(49,952		)	3,584				(51,552)			(49,714)			(1,838)

UJV NOI allocable to COPT	1,297			1,008			289			UJV NOI allocable to COPT
Same Properties										Same Properties	1,247			1,214			33
Retained interests in UJV formed in 2019										Retained interests in UJV formed in 2019	505			387			118
											1,752			1,601			151

NOI from real estate operations										NOI from real estate operations
Same Office Properties	68,363			66,845			1,518
Constructed and redeveloped properties placed in service	5,414			1,581			3,833
Same Properties										Same Properties	73,770			74,949			(1,179)
Developed and redeveloped properties placed in service										Developed and redeveloped properties placed in service	7,944			2,372			5,572

Wholesale data center	4,223			3,492			731			Wholesale data center	2,426			3,191			(765)
Properties held for sale	2,424			2,417			7
Dispositions	414			6,763			(6,349		)

Dispositions, net of retained interests in UJV formed in 2019										Dispositions, net of retained interests in UJV formed in 2019	505			1,453			(948)
Other	1,322			912			410			Other	(2)			656			(658)
	$	82,160		$	82,010		$	150			$	84,643		$	82,621		$	2,022
Same Office Properties rent statistics

Same Properties NOI from real estate operations by segment										Same Properties NOI from real estate operations by segment
Defense/IT Locations										Defense/IT Locations	$	66,183		$	66,405		$	(222)
Regional Office										Regional Office	7,131			8,163			(1,032)
Other										Other	456			381			75
											$	73,770		$	74,949		$	(1,179)

Same Properties rent statistics										Same Properties rent statistics
Average occupancy rate	92.6		%	91.6		%	1.0		%	Average occupancy rate	92.4		%	91.6		%	0.8		%
Average straight-line rent per occupied square foot (1)	$	6.46		$	6.43		$	0.03		Average straight-line rent per occupied square foot (1)	$	6.54		$	6.56		$	(0.02)


~~(1)~~	~~Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the three-month periods set forth above.~~

(1)Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

Our Same ~~Office~~ Properties pool consisted of ~~135 office~~152 properties, comprising ~~82.9%~~81.3% 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).~~2020. This pool of properties ~~included the following changes~~changed from the pool used for purposes of comparing ~~2016~~2019 and ~~2015~~2018 in our ~~2016~~2019 Annual Report on Form ~~10-K:~~10-K due to the addition of ~~four~~five properties placed in service ~~that were~~and 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 other2019.

NOI from real estate operations of our Same Properties pool decreased primarily due to lower parking revenue and ~~property operating expenses from our Same Office Properties~~higher provisions for collectibility losses, substantially all of which was ~~due primarily~~attributable to ~~a decrease in operating expenses directly reimbursable from tenants.~~the effects of COVID-19, as well as higher maintenance expenses.

~~Our~~ NOI from ~~constructed~~real estate operations of our developed and redeveloped properties placed in service included 1415 properties placed in service in ~~2016~~2019 and ~~2017.~~2020, while our dispositions included our decrease in ownership in 2019 of nine data center shells.

NOI from real estate operations of our wholesale data center decreased due primarily to higher repairs and maintenance expenses and slightly lower occupancy.

NOI from Service Operations


	For the Three Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Construction contract and other service revenues	$	20,323	$	28,697	$	(8,374)
Construction contract and other service expenses	(19,220)		(27,802)		8,582
NOI from service operations	$	1,103	$	895	$	208

For the Three Months Ended September 30,
2017 2016 Variance
(in thousands)
Construction contract and other service revenues $ 29,786
$ 11,149
$ 18,637
Construction contract and other service expenses 28,788
10,341
18,447
NOI from service operations $ 998
$ 808
$ 190

Construction contract and other service revenue and expenses ~~increased~~decreased due primarily to a ~~greater~~lower 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 ~~(primarily~~primarily on behalf of ~~tenants).~~tenants. Service operations are an ancillary component of our overall operations that typically contribute an insignificant amount of ~~operating~~net income relative to our real estate operations.

~~Impairment (Recoveries) Losses~~Loss on extinguishment of debt

~~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 expenses decreased due primarily to our recognition in the prior period~~Our loss on early extinguishment 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~~debt in the current period ~~in connection with a land sale in White Marsh (discussed~~was attributable to our purchase of the 3.70% Senior Notes due 2021.

Loss on interest rate derivatives

As described further in Note 410 to our consolidated financial ~~statements). We~~statements, we recognized ~~gain on sales of real estate~~a loss in the ~~prior~~current period on interest rate swaps previously designated as cash flow hedges of ~~$17.9 million~~interest expense 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.~~forecasted future borrowings that we determined would probably not occur.

Comparison of Statements of Operations for the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019


	For the Nine Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Revenues
Revenues from real estate operations	$	399,097	$	395,495	$	3,602
Construction contract and other service revenues	46,240		87,946		(41,706)
Total revenues	445,337		483,441		(38,104)
Operating expenses
Property operating expenses	151,755		147,045		4,710
Depreciation and amortization associated with real estate operations	101,540		104,290		(2,750)
Construction contract and other service expenses	44,052		85,130		(41,078)
Impairment losses	1,530		327		1,203
General, administrative and leasing expenses	23,111		26,066		(2,955)
Business development expenses and land carry costs	3,474		2,947		527
Total operating expenses	325,462		365,805		(40,343)
Interest expense	(50,789)		(54,275)		3,486
Interest and other income	5,233		5,977		(744)
Credit loss recoveries	161		—		161
Gain on sales of real estate	5		84,469		(84,464)
Loss on early extinguishment of debt	(3,237)		—		(3,237)
Loss on interest rate derivatives	(53,196)		—		(53,196)
Equity in income of unconsolidated entities	1,372		1,207		165
Income tax (expense) benefit	(95)		113		(208)
Net income	$	19,329	$	155,127	$	(135,798)

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 revenues 65,958
34,372
31,586
Total revenues 448,253
432,337
15,916
Expenses

Property operating expenses 143,515
149,968
(6,453 )
Depreciation and amortization associated with real estate operations 100,290
99,790
500
Construction contract and other service expenses 63,589
32,513
31,076
Impairment losses 1,464
99,837
(98,373 )
General, administrative and leasing expenses 23,838
28,764
(4,926 )
Business development expenses and land carry costs 4,567
6,497
(1,930 )
Total operating expenses 337,263
417,369
(80,106 )
Operating income 110,990
14,968
96,022
Interest expense (57,772 ) (64,499 ) 6,727
Interest and other income 4,817
3,877
940
Loss on early extinguishment of debt (513 ) (37 ) (476 )
Equity in income of unconsolidated entities 2,162
614
1,548
Income tax (expense) benefit (145 ) 28
(173 )
Income (loss) before gain on sales of real estate 59,539
(45,049 ) 104,588
Gain on sales of real estate 5,438
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,										For the Nine Months Ended September 30,
	2017			2016			Variance				2020			2019			Variance
	(Dollars in thousands, except per square foot data)										(Dollars in thousands, except per square foot data)
Revenues										Revenues
Same Office Properties revenues
Rental revenue, excluding lease termination revenue	$	259,141		$	252,914		$	6,227
Same Properties revenues										Same Properties revenues
Lease revenue, excluding lease termination revenue and provision for collectability losses										Lease revenue, excluding lease termination revenue and provision for collectability losses	$	357,005		$	349,182		$	7,823
Lease termination revenue	2,083			1,678			405			Lease termination revenue	1,052			1,629			(577)
Tenant recoveries and other real estate operations revenue	69,995			70,509			(514		)
Same Office Properties total revenues	331,219			325,101			6,118
Provision for collectability losses included in lease revenue										Provision for collectability losses included in lease revenue	(2,789)			(132)			(2,657)
Other property revenue										Other property revenue	1,896			3,572			(1,676)
Same Properties total revenues										Same Properties total revenues	357,164			354,251			2,913
Constructed and redeveloped properties placed in service	15,357			4,780			10,577			Constructed and redeveloped properties placed in service	22,251			5,716			16,535

Wholesale data center	21,201			20,106			1,095			Wholesale data center	19,695			22,996			(3,301)
Properties held for sale	8,182			8,211			(29		)

Dispositions	5,522			38,998			(33,476		)	Dispositions	(17)			10,278			(10,295)
Other	814			769			45			Other	4			2,254			(2,250)
	382,295			397,965			(15,670		)		399,097			395,495			3,602
Property operating expenses										Property operating expenses
Same Office Properties	(125,651		)	(125,872		)	221
Same Properties										Same Properties	(137,474)			(135,139)			(2,335)
Constructed and redeveloped properties placed in service	(4,206		)	(1,016		)	(3,190		)	Constructed and redeveloped properties placed in service	(3,936)			(1,173)			(2,763)

Wholesale data center	(10,041		)	(8,629		)	(1,412		)	Wholesale data center	(10,338)			(9,830)			(508)
Properties held for sale	(918		)	(930		)	12

Dispositions	(1,695		)	(12,743		)	11,048			Dispositions	4			(864)			868
Other	(1,004		)	(778		)	(226		)	Other	(11)			(39)			28
	(143,515		)	(149,968		)	6,453				(151,755)			(147,045)			(4,710)

UJV NOI allocable to COPT	3,889			1,008			2,881			UJV NOI allocable to COPT
Same Properties										Same Properties	3,674			3,638			36
Retained interests in UJV formed in 2019										Retained interests in UJV formed in 2019	1,516			433			1,083
											5,190			4,071			1,119

NOI from real estate operations										NOI from real estate operations
Same Office Properties	205,568			199,229			6,339
Same Properties										Same Properties	223,364			222,750			614
Constructed and redeveloped properties placed in service	11,151			3,764			7,387			Constructed and redeveloped properties placed in service	18,315			4,543			13,772

Wholesale data center	11,160			11,477			(317		)	Wholesale data center	9,357			13,166			(3,809)
Properties held for sale	7,264			7,281			(17		)
Dispositions	3,827			26,255			(22,428		)

Dispositions, net of retained interests in UJV formed in 2019										Dispositions, net of retained interests in UJV formed in 2019	1,503			9,847			(8,344)
Other	3,699			999			2,700			Other	(7)			2,215			(2,222)
	$	242,669		$	249,005		$	(6,336	)		$	252,532		$	252,521		$	11
Same Office Properties rent statistics

Same Properties NOI from real estate operations by segment										Same Properties NOI from real estate operations by segment
Defense/IT Locations										Defense/IT Locations	$	198,744		$	198,564		$	180
Regional Office										Regional Office	23,328			23,010			318
Other										Other	1,292			1,176			116
											$	223,364		$	222,750		$	614

Same Properties rent statistics										Same Properties rent statistics
Average occupancy rate	92.5		%	91.4		%	1.1		%	Average occupancy rate	92.4		%	91.6		%	0.8		%
Average straight-line rent per occupied square foot (1)	$	19.46		$	19.22		$	0.24		Average straight-line rent per occupied square foot (1)	$	19.55		$	19.66		$	(0.11)


~~(1)~~	~~Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the nine-month periods set forth above.~~

(1)Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

~~Our~~

NOI from real estate operations of our constructed and redeveloped properties placed in service included 1415 properties placed in service in ~~2016~~2019 and ~~2017.~~2020, while our dispositions included our decrease in ownership in 2019 of nine data center shells.

NOI from real estate operations of our wholesale data center decreased due primarily to lease termination revenue recognized in the prior period that did not recur in the current period.

NOI from Service Operations


	For the Nine Months Ended September 30,
	2020		2019		Variance
	(in thousands)
Construction contract and other service revenues	$	46,240	$	87,946	$	(41,706)
Construction contract and other service expenses	(44,052)		(85,130)		41,078
NOI from service operations	$	2,188	$	2,816	$	(628)

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~~decreased due primarily to a ~~greater~~lower volume of construction activity in connection with several of our tenants.

~~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~~administrative and ~~Leasing Expenses~~leasing expenses

General, administrative and leasing expenses decreased in large part due ~~primarily~~ to ~~our recognition in the prior period of $6.0 million in executive transition costs, representing mostly severance~~lower professional fees and ~~termination benefits primarily in connection with executive departures, compared to $732,000~~ ~~in such costs recognized~~compensation related expenses in the current period.

Interest Expense

~~The decrease in~~Interest expense decreased due primarily to increased capitalized interest ~~expense included the effect~~resulting from a higher volume of ~~a 10% decrease in~~active development projects and lower borrowings and interest rates on our ~~average outstanding debt in the current period relative to the prior period.~~Revolving Credit Facility.

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~~

The gain on sales of real estate in the ~~prior~~current period ~~of $17.9 million on~~was due to our sale of a ~~50%~~90% interest in ~~six triple-net leased, single-tenant~~seven data center shell properties ~~and $16.2 million~~ in ~~connection with other operating property dispositions.~~2019 that did not recur in the current period.

Loss on extinguishment of debt

Refer to our explanation above for the three-month periods.

Loss on interest rate derivatives

Refer to our explanation above for the three-month periods.

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, plus~~of 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 to~~on 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 ~~exclude~~exclude: 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); and~~costs; 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, 2017 and 2016,~~ 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 amortization 34,438
32,015
100,290
99,790
Add: Depreciation and amortization on UJV allocable to COPT 310
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 )
FFO 57,263
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 holders 55,966
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 costs 2
1,639
732
6,023
Demolition costs on redevelopment properties —
—
294
578
Diluted FFO comparability adjustments allocable to share-based compensation awards 5
(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 shares 99,112
94,433
98,855
94,312
Conversion of weighted average common units 3,350
3,591
3,400
3,648
Weighted average common shares/units - Basic FFO 102,462
98,024
102,255
97,960
Dilutive effect of share-based compensation awards 146
81
154
98
Weighted average common shares/units - Diluted FFO 102,608
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 EPS 99,258
94,514
99,009
94,312
Weighted average common units 3,350
3,591
3,400
3,648
Anti-dilutive EPS effect of share-based compensation awards —
—
—
98
Denominator for diluted FFO per share measures 102,608
98,105
102,409
98,058


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(Dollars and shares in thousands, except per share data)
Net (loss) income	$	(31,342)	$	23,246	$	19,329	$	155,127
Real estate-related depreciation and amortization	35,332		34,692		101,540		104,290
Depreciation and amortization on UJV allocable to COPT	819		790		2,455		1,922
Impairment losses on real estate	1,530		327		1,530		327
Gain on sales of real estate	—		—		(5)		(84,469)
FFO	6,339		59,055		124,849		177,197
Noncontrolling interests-preferred units in the Operating Partnership	(77)		(157)		(231)		(487)
FFO allocable to other noncontrolling interests	(1,074)		(1,429)		(14,614)		(3,588)
Basic FFO allocable to share-based compensation awards	(119)		(248)		(449)		(662)
Basic FFO available to common share and common unit holders	5,069		57,221		109,555		172,460

Redeemable noncontrolling interests	—		34		103		100

Diluted FFO available to common share and common unit holders	5,069		57,255		109,658		172,560
Loss on early extinguishment of debt	3,237		—		3,237		—
Loss on interest rate derivatives	53,196		—		53,196		—

Demolition costs on redevelopment and nonrecurring improvements	11		—		63		44
Executive transition costs	—		—		—		4
Non-comparable professional and legal expenses	—		175		—		486
Dilutive preferred units in the Operating Partnership	77		—		231		—
FFO allocation to other noncontrolling interests resulting from capital event	—		—		11,090		—
Diluted FFO comparability adjustments for redeemable noncontrolling interests	34		—		—		—
Diluted FFO comparability adjustments allocable to share-based compensation awards	(139)		—		(307)		(2)
Diluted FFO available to common share and common unit holders, as adjusted for comparability	$	61,485	$	57,430	$	177,168	$	173,092

Weighted average common shares	111,811		111,582		111,778		111,036
Conversion of weighted average common units	1,240		1,312		1,235		1,323
Weighted average common shares/units - Basic FFO per share	113,051		112,894		113,013		112,359
Dilutive effect of share-based compensation awards	274		361		278		313


Redeemable noncontrolling interests	—		109		125		123
Weighted average common shares/units - Diluted FFO per share	113,325		113,364		113,416		112,795
Dilutive convertible preferred units	176		—		176		—
Redeemable noncontrolling interests	109		—		—		—
Weighted average common shares/units - Diluted FFO per share, as adjusted for comparability	113,610		113,364		113,592		112,795

Diluted FFO per share	$	0.04	$	0.51	$	0.97	$	1.53
Diluted FFO per share, as adjusted for comparability	$	0.54	$	0.51	$	1.56	$	1.53

Denominator for diluted EPS	111,811		111,943		112,056		111,472
Weighted average common units	1,240		1,312		1,235		1,323
Redeemable noncontrolling interests	—		109		125		—

Anti-dilutive EPS effect of share-based compensation awards	274		—		—		—
Denominator for diluted FFO per share	113,325		113,364		113,416		112,795
Dilutive convertible preferred units	176		—		176		—
Redeemable noncontrolling interests	109		—		—		—
Denominator for diluted FFO per share, as adjusted for comparability	113,610		113,364		113,592		112,795

Property Additions

The table below sets forth the major components of our additions to properties for the nine months endedSeptember 30, ~~2017~~2020 (in thousands):


Development and redevelopment	$	288,345

Tenant improvements on operating properties (1)	21,162
Capital improvements on operating properties	26,536
	$	336,043

Construction, development and redevelopment $ 140,666

Tenant improvements on operating properties 21,056
(1)
Capital improvements on operating properties 13,051

$ 174,773

(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 by~~from operating activities increased ~~by $0.7~~$2.0 million when comparing the nine months ended September 30, ~~2017~~2020 and 2016 due primarily to lower interest expense payments in the current period due to lower outstanding debt balances, partially offset by lower net cash flows from construction contract and other services.2019.

Net cash flow ~~provided by~~used for investing activities ~~decreased $130.6~~increased $287.3 million when comparing the nine months ended September 30, ~~2017~~2020 and ~~2016 due primarily~~2019. This increase included the effect of $53.1 million paid in the current period to cash settle interest rate swaps and an offset to cash outlays in the prior period resulting from $237.2 million in proceeds from our sale of a ~~decrease~~90% interest in ~~property sales in 2017 relative to 2016.~~properties.

Net cash flow provided by financing activities in the nine months ended September 30, 2020 was $233.7 million, and included the following:

•net proceeds from debt borrowings of $348.3 million, which included the net increase from our issuance of the 2.25% Notes and purchase of the 3.70% Notes; offset in part by

•dividends and/or distributions to equity holders of $93.8 million.

Net cash flow used in financing activities in the nine months ended September 30, ~~2017~~2019 was ~~$317.0~~$22.6 million, and included the following:

~~redemption of preferred shares (or units) of $199.1 million;~~

•dividends and/or distributions to equity holders of ~~$94.5 million; and~~

~~net repayments of debt borrowings of $33.0~~$93.5 million; offset in part by

•net proceeds from the issuance of common shares (or units) of ~~$19.8 million.~~

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

~~dividends and/or distributions to equity holders of $92.2~~$46.4 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~~$35.7 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, ~~2017~~,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, acquisitions~~development activities and ~~developments.~~acquisitions.

Liquidity and Capital Resources of COPLP

~~Our~~COPLP’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 ~~our~~its short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, distributions to ~~our~~its security holders and improvements to existing properties. As of September 30, ~~2017, we~~2020, COPLP had ~~$10.9~~$11.5 million in cash and cash equivalents.

~~Our~~COPLP’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 ~~use~~uses secured nonrecourse debt from institutional lenders and banks ~~when appropriate.~~for joint venture financing. In addition, weCOPLP periodically ~~access~~raises equity from COPT when COPT accesses the public equity markets ~~to raise capital~~ by issuing common and/or preferred shares.

~~We use our~~COPLP uses its Revolving Credit Facility to initially finance much of ~~our~~its investing activities. WeCOPLP subsequently ~~pay~~pays down the facility using cash available from operations and proceeds from long-term borrowings (net of any related hedging costs), 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 the~~The 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 ~~our~~COPLP’s option, provided that there is no default under the facility and ~~we pay~~COPLP pays an extension fee of 0.075% of the total availability ofunder the ~~facility.~~facility for each extension period. As of September 30, ~~2017~~,2020, the maximum borrowing capacity under this facility totaled ~~$800.0~~$800.0 million,, of which ~~$630.0~~$743.0 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 ~~our~~COPLP’s liquidity and capital resources are adequate for ~~our~~its 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. As discussed above, on October 30, 2020, we sold a 90% interest in two data center shell properties for $81 million, which was used to repay borrowings under our Revolving Credit Facility, and we retained a 10% interest in the properties through a joint venture. In addition, as of the date of this filing, we have a firm commitment for the sale of 80% of our ownership interest in GI-COPT DC Partnership LLC, an unconsolidated joint venture, for approximately $61 million. We believe that we have the ability to raise additional equity by selling interests in data center shells through joint ventures.

~~The following table summarizes our~~Our contractual obligations as of September 30, ~~2017~~2020 included the following (in thousands):


	For the Periods Ending December 31,
	2020		2021		2022		2023		2024		Thereafter		Total
Contractual obligations (1)
Debt (2)
Balloon payments due upon maturity	$	177,052	$	12,031	$	474,558	$	470,578	$	277,649	$	767,723	$	2,179,591
Scheduled principal payments (3)	1,048		3,955		4,498		3,553		2,334		2,294		17,682
Interest on debt (3)(4)	16,218		63,388		62,392		45,717		27,625		20,719		236,059
Development and redevelopment obligations (5)(6)	41,644		22,090		2,748		—		—		—		66,482
Third-party construction cost obligations (6)(7)	7,072		13,375		—		—		—		—		20,447
Tenant and other building improvements (3)(6)	18,123		33,531		10,770		—		—		—		62,424
Property finance leases (principal and interest) (3)	—		14		14		—		—		—		28
Property operating leases (3)	615		2,513		2,566		2,601		2,636		118,295		129,226
Total contractual cash obligations	$	261,772	$	150,897	$	557,546	$	522,449	$	310,244	$	909,031	$	2,711,939

For the Periods Ending December 31,
2017 2018 2019 2020 2021 Thereafter Total
Contractual obligations (1)

Debt (2)

Balloon payments due upon maturity $ —
$ —
$ 170,000
$ 112,132
$ 300,000
$ 1,276,829
$ 1,858,961
Scheduled principal payments 1,033
4,241
4,387
4,024
3,875
10,680
28,240
Interest on debt (3) 18,318
73,020
70,114
66,708
58,846
117,338
404,344
New development and redevelopment obligations (4)(5) 23,932
10,269
856
—
—
—
35,057
Third-party construction and development obligations (5)(6) 30,083
37,270
—
—
—
—
67,353
Capital expenditures for operating properties (5)(7) 5,509
27,314
12,985
—
—
—
45,808
Capital lease obligation (principal and interest) 700
15,775
—
135
—
75
16,685
Operating leases (8) 320
1,275
1,263
1,257
1,260
85,761
91,136
Other obligations (8) 172
380
342
153
39
9
1,095
Total contractual cash obligations $ 80,067
$ 169,544
$ 259,947
$ 184,409
$ 364,020
$ 1,490,692
$ 2,548,679

(1)The contractual obligations set forth in this table exclude contracts for property operations and certain other contracts entered into in the normal course of business. Also excluded are accruals and payables incurred and interest rate derivative liabilities, which are reflected in our reported liabilities (although debt and lease liabilities are included on the table).


~~(1)~~	The contractual obligations set forth in this table exclude property operations contracts that may be terminated with notice of one month or less and also exclude accruals and payables incurred (with the exclusion of debt) and therefore reflected in our reported liabilities.


~~(2)~~	Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $13.9 million. As of September 30, 2017, maturities included $170.0 million in 2019 that may be extended to 2020, subject to certain conditions.


~~(3)~~	~~Represents interest costs for our outstanding debt as of~~ ~~September 30, 2017~~ ~~for the terms of such debt. For variable rate debt, the amounts reflected above used~~ ~~September 30, 2017~~ ~~interest rates on variable rate debt in computing interest costs for the terms of such debt. We expect to pay these items using cash flow from operations.~~


~~(4)~~	~~Represents contractual obligations pertaining to new development and redevelopment activities.~~


~~(5)~~	Due to the long-term nature of certain construction and development contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.


~~(6)~~	Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients. We expect to be reimbursed in full for these costs by our clients.


~~(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.~~

(2)Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $15.7 million. Maturities included $177.1 million in 2020, representing our 3.70% Notes that were redeemed in October 2020 using borrowings under our Revolving Credit Facility, and $57.0 million in 2023 that may be extended to 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, 2020 for the terms of such debt. For variable rate debt, the amounts reflected above used September 30, 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.

(5)Represents contractual obligations pertaining to new development and redevelopment activities.

(6)Due to the long-term nature of certain development and construction 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.

(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.

We expect to spend approximately ~~$60~~$75 million on ~~construction and~~ development costs and approximately ~~$20~~$30 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, ~~2017~~,2020, we were compliant with these covenants.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements during the nine months ended September 30, ~~2017.~~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, ~~2017~~2020 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):


	For the Periods Ending December 31,
	2020		2021		2022		2023		2024		Thereafter		Total
Debt:
Fixed rate debt (1)	$	177,999	$	3,875	$	4,033	$	416,591	$	279,443	$	737,442	$	1,619,383
Weighted average interest rate	3.70%		3.97%		3.98%		3.70%		5.16%		3.45%		3.84%
Variable rate debt (2)	$	101	$	12,111	$	475,023	$	57,540	$	540	$	32,575	$	577,890
Weighted average interest rate (3)	2.01%		2.00%		1.37%		1.21%		1.66%		1.67%		1.39%

For the Periods Ending December 31,
2017 2018 2019 2020 2021 Thereafter Total
Debt:

Fixed rate debt (1) $ 939
$ 3,858
$ 3,991
$ 3,718
$ 303,875
$ 1,037,509
$ 1,353,890
Weighted average interest rate 4.35 % 4.37 % 4.36 % 3.96 % 3.70 % 4.47 % 4.30 %
Variable rate debt (2) $ 94
$ 383
$ 170,396
$ 112,438
$ —
$ 250,000
$ 533,311
Weighted average interest rate (3) 3.09 % 3.09 % 2.40 % 2.69 % — % 3.04 % 2.76 %


~~(1)~~	~~Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $13.9 million.~~


~~(2)~~	~~As of September 30, 2017, maturities included $170.0 million in 2019 that may be extended to 2020, subject to certain conditions.~~


~~(3)~~	~~The amounts reflected above used interest rates as of September 30, 2017 for variable rate debt.~~

(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $15.7 million.

(2)As of September 30, 2020, maturities included $177.1 million in 2020, representing our 3.70% Notes that were redeemed in October 2020, and $57.0 million in 2023 that may be extended to 2024, subject to certain conditions.

(3)The amounts reflected above used interest rates as of September 30, 2020 for variable rate debt.

The fair value of our debt was ~~$1.9~~$2.2 billion as of September 30, ~~2017~~.2020. If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately ~~$71~~$55 million as of September 30, ~~2017~~.2020.

See Note 910 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of September 30, ~~2017~~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~~$1.7 million in the nine months ended September 30, ~~2017~~2020 if the applicable LIBOR rate was 1% higher.

Item 4.Controls and Procedures

COPT

(a)Evaluation of Disclosure Controls and Procedures

~~The Company’s~~Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ~~its~~COPT’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2017~~.2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ~~the Company’s~~COPT’s disclosure controls and procedures as of September 30, ~~2017~~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’s~~its 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’s~~COPT’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’s~~Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ~~its~~COPLP’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of September 30, ~~2017~~.2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that ~~the Operating Partnership’s~~COPLP’s disclosure controls and procedures as of September 30, ~~2017~~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’s~~its 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’s~~COPLP’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

~~There~~Other than as set forth below, there have been no material changes to the risk factors ~~included~~and uncertainties relating to our business and the ownership of our securities as previously set forth in Part 1, Item 1A of our ~~2016~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2019 and Part II, Item 1A of the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

We may suffer further adverse effects from the COVID-19 pandemic, and similar pandemics, along with restrictive measures instituted to prevent spread. Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong restrictive measures were put into place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures to varying extents in late April, with some lifting restrictive measures entirely, while others chose a more gradual, extended easing approach. While the easing of these measures has enabled many businesses to gradually resume normal operations, most businesses continue to be hindered to varying extents by either measures still in effect, operational challenges resulting from social distancing requirements/expectations and/or a reluctance by much of the population to engage in certain activities while the pandemic is still active. As of the date of this filing, COVID-19 spread continues world- and nation-wide, and is expected to continue until effective vaccinations have been developed and then distributed and administered to much of the population. As a result, there continues to be significant uncertainty regarding the duration and extent of this pandemic. The outbreak has significantly disrupted financial and economic markets worldwide, as well as in the United States at a national, regional and local level. These conditions could continue or further deteriorate as businesses feel the prolonged effects of stalled or reduced operations and uncertainty regarding the pandemic continues.

COVID-19, and similar pandemics, along with measures instituted to prevent spread, may adversely affect us in many ways, including, but not limited to:

•disruption of 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;

•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; and

•an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

The extent of the effect on our operations, financial condition, cash flows and ability to make expected distributions to shareholders will be dependent on future developments, including the duration of the pandemic and any future resurgence thereof, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, all of which are uncertain and difficult to predict. Moreover, some of the risks described in the risk factors set forth in Item 1A of our 2019 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q may be more likely to impact us as a result of COVID-19 and the responses to curb its spread, including, but not limited to: downturns in national, regional and local economic environments; deteriorating local real estate market conditions; and declining real estate valuations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not applicable

(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

None.

Item 6.Exhibits

(a)Exhibits:


~~(a)~~ EXHIBIT NO.			During the three months ended September 30, 2017, 150,000 of COPLP’s common units were exchanged for 150,000 COPT common shares in accordance with COPLP’s Second Amended and Restated Limited Partnership Agreement, as amended. The issuance of these common shares was effected in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

~~(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~~

~~None~~

~~Item 6.Exhibits~~

~~(a)Exhibits:~~

DESCRIPTION

~~EXHIBIT~~ ~~NO.~~		~~DESCRIPTION~~

10.1			~~Form of~~First Supplemental Indenture, by and among Corporate Office Properties, L.P., as issuer, Corporate Office Properties Trust, ~~Performance-Based Restricted Share Unit Award Certificate (2017 Omnibus Equity~~as guarantor, and ~~Incentive Plan)~~U.S. Bank National Association, as trustee (filed with the Company’s Current Report on Form 8-K dated ~~August 23, 2017~~September 17, 2020 and incorporated herein by reference).

~~12.1~~31.1			~~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).

104			Cover 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 ~~its~~their behalf by the undersigned thereunto duly authorized.


		CORPORATE OFFICE PROPERTIES TRUST				CORPORATE OFFICE PROPERTIES, L.P.
						By: Corporate Office Properties Trust,
						its General Partner

		~~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, 2017~~30, 2020		Dated:		October ~~27, 2017~~30, 2020

5364


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par value	OFC	New York Stock Exchange



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	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 development	406,319			401,531
Total properties, net	3,097,031			3,073,362
Assets held for sale, net	74,415			94,654
Cash and cash equivalents	10,858			209,863
Restricted cash and marketable securities	6,173			8,193
Investment in unconsolidated real estate joint venture	25,194			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, net	64,055			78,351
Deferred leasing costs (net of accumulated amortization of $28,590 and $65,988, respectively)	47,033			41,214
Investing receivables	56,108			52,279
Prepaid expenses and other assets, net	66,538			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 expenses	121,483			108,682
Rents received in advance and security deposits	26,223			29,798
Dividends and distributions payable	28,462			31,335
Deferred revenue associated with operating leases	12,047			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 obligation	16,347			—
Other liabilities	43,866			50,177
Total liabilities	2,121,719			2,163,242
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests	23,269			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 capital	2,150,067			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’ equity	1,349,914			1,523,059
Noncontrolling interests in subsidiaries:
Common units in COPLP	44,089			49,228
Preferred units in COPLP	8,800			8,800
Other consolidated entities	11,981			13,577
Noncontrolling interests in subsidiaries	64,870			71,605
Total equity	1,414,784			1,594,664
Total liabilities, redeemable noncontrolling interest and equity	$	3,559,772		$	3,780,885



	Preferred Shares			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
Redemption of vested equity awards	—			—		(2,179		)	—			—			—			(2,179		)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—			—		(42		)	—			—			42			—
Comprehensive loss	—			—		—			(13,294		)	(13,476		)	141			(26,629		)
Dividends	—			—		—			(88,796		)	—			—			(88,796		)
Distributions to owners of common and preferred units in COPLP	—			—		—			—			—			(3,498		)	(3,498		)
Distributions to noncontrolling interests in other consolidated entities	—			—		—			—			—			(12		)	(12		)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—			—		(516		)	—			—			—			(516		)
Tax loss from share-based compensation	—			—		(319		)	—			—			—			(319		)
Balance at September 30, 2016 (94,764,786 common shares outstanding)	$	199,083		$	948	$	2,008,787		$	(759,262	)	$	(16,314	)	$	67,545		$	1,500,787

Balance at December 31, 2016 (98,498,651 common shares outstanding)	$	172,500		$	985	$	2,116,581		$	(765,276	)	$	(1,731	)	$	71,605		$	1,594,664
Redemption of preferred shares (6,900,000 shares)	(172,500		)	—		6,847			(6,847		)	—			—			(172,500		)
Conversion of common units to common shares (337,000 shares)	—			3		4,599			—			—			(4,602		)	—
Common shares issued under at-the-market program (591,042 shares)	—			6		19,662			—			—			—			19,668
Exercise of share options (5,000 shares)	—			—		150			—			—			—			150
Share-based compensation (176,477 shares issued, net of redemptions)	—			2		4,442			—			—			—			4,444
Redemption of vested equity awards	—			—		(1,869		)	—			—			—			(1,869		)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—			—		(589		)	—			—			589			—
Comprehensive income	—			—		—			60,133			872			3,154			64,159
Dividends	—			—		—			(88,300		)	—			—			(88,300		)
Distributions to owners of common and preferred units in COPLP	—			—		—			—			—			(3,262		)	(3,262		)
Distributions to noncontrolling interests in other consolidated entities	—			—		—			—			—			(2,614		)	(2,614		)
Adjustment to arrive at fair value of redeemable noncontrolling interests	—			—		244			—			—			—			244
Balance at September 30, 2017 (99,608,170 common shares outstanding)	$	—		$	996	$	2,150,067		$	(800,290	)	$	(859	)	$	64,870		$	1,414,784



	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			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Subsidiaries			Total Equity
Balance at December 31, 2015	352,000	$	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, 2016	352,000	$	8,800		7,431,667		$	199,083		98,355,177	$	1,297,858		$	(16,987	)	$	12,033		$	1,500,787

Balance at December 31, 2016	352,000	$	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, 2017	352,000	$	8,800		—		$	—		102,861,561	$	1,394,911		$	(952	)	$	12,025		$	1,414,784



	September 30, 2017		December 31, 2016
Properties, net	$	68,081	$	85,402
Deferred rent receivable	5,582		4,241
Intangible assets on real estate acquisitions, net	—		338
Deferred leasing costs, net	742		3,636
Lease incentives, net	10		1,037
Assets held for sale, net	$	74,415	$	94,654



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



		Nominal
		Ownership		September 30, 2017 (1)
	Date	% as of		Total		Encumbered		Total
	Acquired	9/30/2017	Nature of Activity	Assets		Assets		Liabilities
LW Redstone Company, LLC	3/23/2010	85%	Development and operation of real estate (2)	$	158,937	$	76,374	$	50,344
M Square Associates, LLC	6/26/2007	50%	Development and operation of real estate (3)	70,767		45,813		46,895
Stevens Investors, LLC	8/11/2015	95%	Development of real estate (4)	70,383		—		23,566
				$	300,087	$	122,187	$	120,805


	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 September 30, 2020
Revenues from real estate operations	$	63,328	$	14,699	$	12,602	$	8,006	$	6,079	$	7,995	$	112,709	$	14,913	$	6,068	$	753	$	134,443
Property operating expenses	(21,537)		(5,245)		(7,116)		(3,044)		(2,029)		(861)		(39,832)		(7,782)		(3,642)		(296)		(51,552)
UJV NOI allocable to COPT	0		0		0		0		0		1,752		1,752		0		0		0		1,752
NOI from real estate operations	$	41,791	$	9,454	$	5,486	$	4,962	$	4,050	$	8,886	$	74,629	$	7,131	$	2,426	$	457	$	84,643
Additions to long-lived assets	$	7,511	$	2,219	$	0	$	1,650	$	6,382	$	0	$	17,762	$	5,303	$	1,917	$	(3)	$	24,979
Transfers from non-operating properties	$	(209)	$	58	$	221	$	0	$	61,520	$	65,269	$	126,859	$	0	$	0	$	0	$	126,859
Three Months Ended September 30, 2019
Revenues from real estate operations	$	63,436	$	13,551	$	12,703	$	8,183	$	4,171	$	5,913	$	107,957	$	15,508	$	6,565	$	704	$	130,734
Property operating expenses	(20,743)		(4,965)		(7,149)		(3,581)		(1,717)		(518)		(38,673)		(7,343)		(3,374)		(324)		(49,714)
UJV NOI allocable to COPT	0		0		0		0		0		1,601		1,601		0		0		0		1,601
NOI from real estate operations	$	42,693	$	8,586	$	5,554	$	4,602	$	2,454	$	6,996	$	70,885	$	8,165	$	3,191	$	380	$	82,621
Additions to long-lived assets	$	10,770	$	2,922	$	0	$	2,003	$	446	$	0	$	16,141	$	6,339	$	61	$	19	$	22,560
Transfers from non-operating properties	$	1,381	$	118	$	2,120	$	0	$	4,152	$	9,483	$	17,254	$	0	$	(1,012)	$	0	$	16,242
Nine Months Ended September 30, 2020
Revenues from real estate operations	$	190,464	$	42,824	$	37,935	$	24,466	$	15,402	$	20,648	$	331,739	$	45,535	$	19,695	$	2,128	$	399,097
Property operating expenses	(63,618)		(15,765)		(21,696)		(9,500)		(5,488)		(2,307)		(118,374)		(22,207)		(10,338)		(836)		(151,755)
UJV NOI allocable to COPT	0		0		0		0		0		5,190		5,190		0		0		0		5,190
NOI from real estate operations	$	126,846	$	27,059	$	16,239	$	14,966	$	9,914	$	23,531	$	218,555	$	23,328	$	9,357	$	1,292	$	252,532
Additions to long-lived assets	$	22,144	$	8,114	$	0	$	5,518	$	6,698	$	0	$	42,474	$	13,105	$	10,699	$	165	$	66,443
Transfers from non-operating properties	$	4,304	$	838	$	381	$	0	$	91,827	$	171,465	$	268,815	$	0	$	0	$	0	$	268,815
Segment assets at September 30, 2020	$	1,264,547	$	392,226	$	143,206	$	180,337	$	234,355	$	446,530	$	2,661,201	$	387,290	$	204,834	$	3,643	$	3,256,968
Nine Months Ended September 30, 2019
Revenues from real estate operations	$	187,778	$	42,294	$	36,368	$	24,523	$	12,078	$	21,891	$	324,932	$	45,359	$	22,996	$	2,208	$	395,495
Property operating expenses	(62,422)		(14,951)		(19,756)		(10,271)		(4,855)		(1,630)		(113,885)		(22,349)		(9,830)		(981)		(147,045)
UJV NOI allocable to COPT	0		0		0		0		0		4,071		4,071		0		0		0		4,071
NOI from real estate operations	$	125,356	$	27,343	$	16,612	$	14,252	$	7,223	$	24,332	$	215,118	$	23,010	$	13,166	$	1,227	$	252,521
Additions to long-lived assets	$	22,204	$	6,072	$	0	$	7,948	$	1,282	$	0	$	37,506	$	15,198	$	312	$	63	$	53,079
Transfers from non-operating properties	$	7,759	$	4,647	$	10,456	$	0	$	13,363	$	122,115	$	158,340	$	0	$	(1,012)	$	0	$	157,328
Segment assets at September 30, 2019	$	1,271,668	$	398,137	$	147,505	$	186,243	$	118,839	$	298,675	$	2,421,067	$	393,747	$	205,550	$	3,708	$	3,024,072



	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


	September 30, 2017		September 30, 2016			September 30, 2020		September 30, 2019
Segment assets	$	2,997,212	$	3,027,125	Segment assets	$	3,256,968	$	3,024,072
Operating properties lease liabilities included in segment assets					Operating properties lease liabilities included in segment assets	26,054		16,645
Non-operating property assets	413,255		421,364		Non-operating property assets	642,182		597,301
Other assets	149,305		185,705		Other assets	194,985		217,351
Total COPT consolidated assets	$	3,559,772	$	3,634,194	Total COPT consolidated assets	$	4,120,189	$	3,855,369



~~Percentile Rank~~		~~Earned PSUs Payout %~~
~~75th or greater~~		~~200% of PSUs granted~~
~~50th or greater~~		~~100% of PSUs granted~~
~~25th~~		~~50% of PSUs granted~~
~~Below 25th~~		~~0% of PSUs granted~~


Percentile Rank						Earned Awards Payout %
75th or greater						100% of PB-PIUs granted
50th (target)						50% of PB-PIUs granted
25th						25% of PB-PIUs granted
Below 25th						0% of PB-PIUs granted



	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 units	3,350	3,591	3,400	3,648
Conversion of Series I Preferred Units	176	176	176	176
Conversion of Series K Preferred Shares	—	434	—	434



	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 units	176	176	176	176
Conversion of Series K preferred units	—	434	—	434



Year Ending December 31,
2017 (1)	$	320
2018	1,275
2019	1,263
2020	1,257
2021	1,260
Thereafter	85,761
	$	91,136



Construction, development and redevelopment	$	140,666
Tenant improvements on operating properties	21,056		(1)
Capital improvements on operating properties	13,051
	$	174,773

6711 Columbia Gateway Drive, Suite 300, Columbia, MD

(Address of principal executive offices)

(Zip Code)