Notes to Consolidated Financial Statements
(unaudited)
1. Organization
Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”, “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”). 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 in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of September 30, 2021, our properties included the following:
•186 properties totaling 21.7 million square feet comprised of 16.9 million square feet in 160 office properties and 4.7 million square feet in 26 single-tenant data center shell properties (“data center shells”). We owned 19 of these data center shells through unconsolidated real estate joint ventures;
•a wholesale data center with a capacity of 19.25 megawatts;
•13 properties under development (10 office properties and three data center shells), including three partially-operational properties, that we estimate will total approximately 1.8 million square feet upon completion; and
•approximately 720 acres of land controlled for future development that we believe could be developed into approximately 8.9 million square feet and 43 acres of other land.
We conduct almost all of our operations and own almost all of our assets through our operating partnership, Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT is the sole general partner. 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 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, 2021, COPT owned 98.3% of the outstanding COPLP common units (“common units”) and there were no preferred units outstanding. Common units not owned by COPT carry certain redemption rights. The number of common units owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT common shareholders.
COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”.
2. Summary of Significant Accounting Policies
Basis of Presentation
The 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. 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.
When we own an equity investment in an entity and cannot exert significant influence over its 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, 2020 included in the Company’s and Operating Partnership’s 2020 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 the Company’s and Operating Partnership’s 2020 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.
Reclassifications
We reclassified certain amounts from the prior period 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
In March 2020, the Financial Accounting Standards Board issued guidance containing practical expedients for reference rate reform related activities pertaining to debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. In 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 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 past presentation. We will continue to evaluate the impact of this guidance and may apply other elections as applicable as additional changes in the market occur.
3. Fair Value Measurements
Recurring Fair Value Measurements
We have a non-qualified elective deferred compensation plan for Trustees and certain members of our management team that, 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. Effective December 31, 2019, no new investments of deferred compensation were eligible for the plan. 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 our consolidated balance sheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded and totaled $2.6 million as of September 30, 2021, is included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets 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” on our consolidated balance sheets. The assets of the plan are classified in Level 1 of the fair value hierarchy, while the offsetting liability 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, 2021, 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. 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 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.
For additional fair value information, refer to Note 7 for investing receivables, Note 9 for debt and Note 10 for interest rate derivatives.
The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2021 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
|
|
$
|
2,545
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,545
|
|
|
Other
|
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
Other marketable securities (1)
|
|
33
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
Interest rate derivatives (1)
|
|
—
|
|
|
70
|
|
|
—
|
|
|
70
|
|
|
Total assets
|
|
$
|
2,649
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
2,719
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liability (2)
|
|
$
|
—
|
|
|
$
|
2,616
|
|
|
$
|
—
|
|
|
$
|
2,616
|
|
|
Interest rate derivatives
|
|
—
|
|
|
5,562
|
|
|
—
|
|
|
5,562
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
8,178
|
|
|
$
|
—
|
|
|
$
|
8,178
|
|
(1)Included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheet.
(2)Included in the line entitled “other liabilities” on our consolidated balance sheet.
4. Properties, Net
Operating properties, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Land
|
$
|
539,899
|
|
|
$
|
528,269
|
|
|
Buildings and improvements
|
3,890,678
|
|
|
3,711,264
|
|
|
Less: Accumulated depreciation
|
(1,202,780)
|
|
|
(1,124,253)
|
|
|
Operating properties, net
|
$
|
3,227,797
|
|
|
$
|
3,115,280
|
|
As of September 30, 2021, we had one property in our data center shells sub-segment previously removed from service that was classified as assets held for sale, net on our consolidated balance sheet, the sole component of which was properties, net.
2021 Dispositions
On June 2, 2021, we sold a 90% interest in two data center shell properties in Northern Virginia based on an aggregate property value of $118.8 million and retained a 10% interest in the properties through B RE COPT DC JV III LLC, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $106.9 million. We account for our interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on sale of $40.2 million in the nine months ended September 30, 2021.
2021 Development Activities
During the nine months ended September 30, 2021, we placed into service 709,000 square feet in six newly-developed properties. As of September 30, 2021, we had 13 properties under development, including three partially-operational properties, that we estimate will total 1.8 million square feet upon completion.
5. Leases
Lessor Arrangements
We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. These leases encompass all, or a portion, of properties, with various expiration dates. Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our composition 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
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Fixed
|
|
$
|
114,309
|
|
|
$
|
106,743
|
|
|
$
|
340,157
|
|
|
$
|
314,845
|
|
|
Variable
|
|
31,440
|
|
|
27,132
|
|
|
93,874
|
|
|
82,189
|
|
|
|
|
$
|
145,749
|
|
|
$
|
133,875
|
|
|
$
|
434,031
|
|
|
$
|
397,034
|
|
Fixed contractual payments due under our property leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
Year Ending December 31,
|
|
Operating leases
|
|
Sales-type leases
|
|
|
|
|
|
|
|
2021 (1)
|
|
$
|
109,800
|
|
|
$
|
221
|
|
|
2022
|
|
418,746
|
|
|
960
|
|
|
2023
|
|
370,652
|
|
|
960
|
|
|
2024
|
|
323,198
|
|
|
960
|
|
|
2025
|
|
241,090
|
|
|
960
|
|
|
Thereafter
|
|
1,020,675
|
|
|
4,516
|
|
|
Total contractual payments
|
|
$
|
2,484,161
|
|
|
8,577
|
|
|
Less: Amount representing interest
|
|
|
|
(2,277)
|
|
|
Net investment in sales-type leases
|
|
|
|
$
|
6,300
|
|
(1)Represents the three months ending December 31, 2021.
Lessee Arrangements
As of September 30, 2021, our balance sheet included $78.9 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating with various expiration dates. Our property right-of-use assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Balance Sheet Location
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Right-of-use assets
|
|
|
|
|
|
|
|
Operating leases - Property
|
|
Property - operating right-of-use assets
|
|
$
|
38,854
|
|
|
$
|
40,570
|
|
|
Finance leases - Property (1)
|
|
Property - finance right-of-use assets
|
|
40,077
|
|
|
40,425
|
|
|
Total right-of-use assets
|
|
|
|
$
|
78,931
|
|
|
$
|
80,995
|
|
(1)On October 22, 2021, we acquired land leased in Washington, D.C., for which we had a $37.8 million right-of-use asset as of September 30, 2021, for a nominal amount under a bargain purchase option.
Property lease liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
Balance Sheet Location
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Lease liabilities
|
|
|
|
|
|
|
|
Operating leases - Property
|
|
Property - operating lease liabilities
|
|
$
|
29,630
|
|
|
$
|
30,746
|
|
|
Finance leases - Property
|
|
Other liabilities
|
|
14
|
|
|
28
|
|
|
Total lease liabilities
|
|
|
|
$
|
29,644
|
|
|
$
|
30,774
|
|
The table below sets forth the weighted average terms and discount rates of our property leases as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
Operating leases
|
|
51 years
|
|
Finance leases
|
|
< 1 year
|
|
Weighted average discount rate
|
|
|
|
Operating leases
|
|
7.16
|
%
|
|
Finance leases
|
|
3.62
|
%
|
The table below presents our total 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
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating lease cost
|
|
|
|
|
|
|
|
|
|
|
|
Property leases - fixed
|
|
Property operating expenses
|
|
$
|
1,013
|
|
|
$
|
598
|
|
|
$
|
2,999
|
|
|
$
|
1,465
|
|
|
Property leases - variable
|
|
Property operating expenses
|
|
11
|
|
|
107
|
|
|
31
|
|
|
116
|
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of property right-of-use assets
|
|
Property operating expenses
|
|
5
|
|
|
9
|
|
|
23
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,029
|
|
|
$
|
714
|
|
|
$
|
3,053
|
|
|
$
|
1,608
|
|
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
|
|
|
2021
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
|
$
|
2,399
|
|
|
$
|
987
|
|
|
|
|
|
|
|
|
|
Financing cash flows for financing leases
|
|
|
$
|
14
|
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on property leases were due as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
|
Year Ending December 31,
|
|
Operating leases
|
|
Finance
leases
|
|
Total
|
|
|
|
|
|
|
|
2021 (1)
|
|
$
|
807
|
|
|
$
|
—
|
|
|
$
|
807
|
|
|
|
|
|
|
|
|
2022
|
|
3,297
|
|
|
14
|
|
|
3,311
|
|
|
|
|
|
|
|
|
2023
|
|
3,352
|
|
|
—
|
|
|
3,352
|
|
|
|
|
|
|
|
|
2024
|
|
3,403
|
|
|
—
|
|
|
3,403
|
|
|
|
|
|
|
|
|
2025
|
|
1,749
|
|
|
—
|
|
|
1,749
|
|
|
|
|
|
|
|
|
Thereafter
|
|
123,979
|
|
|
—
|
|
|
123,979
|
|
|
|
|
|
|
|
|
Total lease payments
|
|
136,587
|
|
|
14
|
|
|
136,601
|
|
|
|
|
|
|
|
|
Less: Amount representing interest
|
|
(106,957)
|
|
|
—
|
|
|
(106,957)
|
|
|
|
|
|
|
|
|
Lease liability
|
|
$
|
29,630
|
|
|
$
|
14
|
|
|
$
|
29,644
|
|
|
|
|
|
|
|
(1)Represents the three months ending December 31, 2021.
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, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 (1)
|
|
|
|
Date Acquired
|
|
Nominal Ownership %
|
|
|
|
Total
Assets
|
|
Encumbered Assets
|
|
Total Liabilities
|
|
Entity
|
|
|
|
Location
|
|
|
|
|
LW Redstone Company, LLC (2)
|
|
3/23/2010
|
|
85%
|
|
Huntsville, Alabama
|
|
$
|
453,496
|
|
|
$
|
90,295
|
|
|
$
|
99,173
|
|
|
Stevens Investors, LLC
|
|
8/11/2015
|
|
95%
|
|
Washington, DC
|
|
164,189
|
|
|
—
|
|
|
859
|
|
|
M Square Associates, LLC
|
|
6/26/2007
|
|
50%
|
|
College Park, Maryland
|
|
100,634
|
|
|
60,950
|
|
|
52,527
|
|
|
|
|
|
|
|
|
|
|
$
|
718,319
|
|
|
$
|
151,245
|
|
|
$
|
152,559
|
|
(1)Excludes amounts eliminated in consolidation.
(2)We fund all capital requirements. Our partner generally receives distributions of the first $1.2 million of annual operating cash flows and we receive the remainder.
On August 11, 2021, we entered into a $112.0 million construction loan with Stevens Investors, LLC to enable it to early extinguish a third party construction loan. Our loan to the joint venture, which is eliminated in consolidation, carries an interest rate of LIBOR plus 2.35% and had a balance of $90.5 million as of September 30, 2021. The loan matures on August 11, 2024, and we have priority for repayment in full of borrowings and accrued interest on the loan over partner distributions of any future refinancing proceeds or other available cash flows.
Unconsolidated Real Estate Joint Ventures
The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Acquired
|
|
Nominal Ownership %
|
|
Number of Properties
|
|
Carrying Value of Investment (1)
|
|
Entity
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
B RE COPT DC JV II LLC (2)
|
|
10/30/2020
|
|
10%
|
|
8
|
|
|
$
|
15,735
|
|
|
$
|
15,988
|
|
|
BREIT COPT DC JV LLC
|
|
6/20/2019
|
|
10%
|
|
9
|
|
|
12,620
|
|
|
13,315
|
|
|
B RE COPT DC JV III LLC
|
|
6/2/2021
|
|
10%
|
|
2
|
|
|
11,949
|
|
|
—
|
|
|
|
|
|
|
|
|
19
|
|
|
$
|
40,304
|
|
|
$
|
29,303
|
|
(1)Included in the line entitled “investment in unconsolidated real estate joint ventures” on our consolidated balance sheets.
(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by $7.3 million as of September 30, 2021 and $7.4 million as of December 31, 2020 due to a difference between our cost basis and our share of the joint venture’s underlying equity in its net assets. We recognize adjustments to our share of the joint venture’s earnings and losses resulting from this basis difference in the underlying assets of the joint venture.
As described further in Note 4, on June 2, 2021, we sold a 90% interest in two data center shell properties in Northern Virginia and retained a 10% interest in the properties through B RE COPT DC JV III LLC, a newly-formed joint venture. We concluded that the joint venture is a variable interest entity. Under the terms of the joint venture agreement, we and our partner receive returns in proportion to our investments, and our maximum exposure to losses is limited to our investment, subject to certain indemnification obligations with respect to any nonrecourse debt secured by the properties. The nature of our involvement in the activities of the joint venture does not give us power over decisions that significantly affect its economic performance.
7. Investing Receivables
Investing receivables consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Notes receivable from the City of Huntsville
|
$
|
71,322
|
|
|
$
|
65,564
|
|
|
Other investing loans receivable
|
6,040
|
|
|
6,041
|
|
|
Amortized cost basis
|
77,362
|
|
|
71,605
|
|
|
Allowance for credit losses
|
(1,415)
|
|
|
(2,851)
|
|
|
Investing receivables, net
|
$
|
75,947
|
|
|
$
|
68,754
|
|
The balances above include accrued interest receivable, net of allowance for credit losses, of $3.6 million as of September 30, 2021 and $4.8 million as of December 31, 2020.
Our notes receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 6) and carry an interest rate of 9.95%. Our other investing loans receivable carry an interest rate of 8.0%.
The fair value of these receivables was approximately $78 million as of September 30, 2021 and $73 million as of December 31, 2020.
8. Prepaid Expenses and Other Assets, Net
Prepaid expenses and other assets, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Lease incentives, net
|
$
|
40,150
|
|
|
$
|
35,642
|
|
|
Prepaid expenses
|
26,815
|
|
|
19,690
|
|
|
Construction contract costs in excess of billings, net
|
12,987
|
|
|
10,343
|
|
|
Furniture, fixtures and equipment, net
|
10,008
|
|
|
10,433
|
|
|
Net investment in sales-type leases
|
6,300
|
|
|
6,573
|
|
|
Non-real estate equity investments
|
5,545
|
|
|
5,509
|
|
|
Restricted cash
|
3,575
|
|
|
3,664
|
|
|
Marketable securities in deferred compensation plan
|
2,616
|
|
|
3,027
|
|
|
Deferred tax asset, net (1)
|
1,883
|
|
|
1,989
|
|
|
Deferred financing costs, net (2)
|
1,595
|
|
|
2,439
|
|
|
|
|
|
|
|
Other assets
|
5,740
|
|
|
5,274
|
|
|
Prepaid expenses and other assets, net
|
$
|
117,214
|
|
|
$
|
104,583
|
|
(1)Includes a valuation allowance of $24,000 as of September 30, 2021 and $201,000 as of December 31, 2020.
(2)Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.
9. Debt, Net
Our debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value (1) as of
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31, 2020
|
|
September 30, 2021
|
|
|
|
|
|
Stated Interest Rates
|
|
Scheduled Maturity
|
|
Mortgage and Other Secured Debt:
|
|
|
|
|
|
|
|
|
|
|
Fixed rate mortgage debt (2)
|
|
|
$
|
137,310
|
|
|
$
|
139,991
|
|
|
3.82% - 4.62% (3)
|
|
2023-2026
|
|
Variable rate secured debt
|
|
|
33,698
|
|
|
115,119
|
|
|
LIBOR + 1.45% to 1.55% (4)
|
|
2025-2026
|
|
Total mortgage and other secured debt
|
|
|
171,008
|
|
|
255,110
|
|
|
|
|
|
|
Revolving Credit Facility (5)
|
|
|
10,000
|
|
|
143,000
|
|
|
LIBOR + 0.775% to 1.45% (6)
|
|
March 2023 (5)
|
|
Term Loan Facility
|
|
|
299,274
|
|
|
398,447
|
|
|
LIBOR + 1.00% to 1.65% (7)
|
|
December 2022
|
|
Unsecured Senior Notes
|
|
|
|
|
|
|
|
|
|
|
5.00%, $300,000 aggregate principal
|
|
|
298,235
|
|
|
297,915
|
|
|
5.00% (8)
|
|
July 2025
|
|
2.25%, $400,000 aggregate principal
|
|
|
395,232
|
|
|
394,464
|
|
|
2.25% (9)
|
|
March 2026
|
|
2.00%, $400,000 aggregate principal
|
|
|
396,394
|
|
|
—
|
|
|
2.00% (10)
|
|
January 2029
|
|
2.75%, $600,000 aggregate principal
|
|
|
588,798
|
|
|
—
|
|
|
2.75% (10)
|
|
April 2031
|
|
3.60%, $350,000 aggregate principal
|
|
|
—
|
|
|
348,888
|
|
|
3.60% (11)
|
|
N/A (11)
|
|
5.25%, $250,000 aggregate principal
|
|
|
—
|
|
|
248,194
|
|
|
5.25% (12)
|
|
N/A (12)
|
|
Unsecured note payable
|
|
|
791
|
|
|
900
|
|
|
0% (13)
|
|
May 2026
|
|
Total debt, net
|
|
|
$
|
2,159,732
|
|
|
$
|
2,086,918
|
|
|
|
|
|
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $5.4 million as of September 30, 2021 and $5.9 million as of December 31, 2020.
(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 $108,000 as of September 30, 2021 and $155,000 as of December 31, 2020.
(3)The weighted average interest rate on our fixed rate mortgage debt was 4.16% as of September 30, 2021.
(4)The weighted average interest rate on our variable rate secured debt was 1.60% as of September 30, 2021.
(5)The facility matures in March 2023, 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. 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.
(6)The weighted average interest rate on the Revolving Credit Facility was 1.19% as of September 30, 2021.
(7)The interest rate on this loan was 1.09% as of September 30, 2021.
(8)The carrying value of these notes reflects an unamortized discount totaling $1.5 million as of September 30, 2021 and $1.8 million as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.
(9)The carrying value of these notes reflects an unamortized discount totaling $3.9 million as of September 30, 2021 and $4.5 million as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 2.48%.
(10)Refer to paragraph below for further disclosure.
(11)The carrying value of these notes reflects an unamortized discount totaling $781,000 as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%. Refer to paragraph below for further disclosure.
(12)The carrying value of these notes reflects an unamortized discount totaling $1.6 million as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. Refer to paragraph below for further disclosure.
(13)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 $120,000 as of September 30, 2021 and $161,000 as of December 31, 2020.
All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed COPLP’s Revolving Credit Facility, Term Loan Facility and Unsecured Senior Notes.
We issued the following unsecured senior notes in 2021:
•$600.0 million of 2.75% Senior Notes due 2031 (the “2.75% Notes”) at an initial offering price of 98.95% of their face value on March 11, 2021, resulting in proceeds, after deducting underwriting discounts, but before other offering expenses, of $589.8 million. The notes mature on April 15, 2031. The carrying value of these notes reflects an unamortized discount totaling $9.7 million as of September 30, 2021. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.94%; and
•$400.0 million of 2.00% Senior Notes due 2029 (the “2.00% Notes”) at an initial offering price of 99.97% of their face value on August 11, 2021, resulting in proceeds, after deducting underwriting discounts, but before other offering
expenses, of $397.4 million. The notes mature on January 15, 2029. The carrying value of these notes reflects an unamortized discount totaling $2.6 million as of September 30, 2021. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.09%.
We may redeem these 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 (25 basis points for the 2.75% Notes and 20 basis points for the 2.00% Notes), plus accrued and unpaid interest thereon to the date of redemption. However, if this redemption occurs on or after January 15, 2031 for the 2.75% Notes or November 15, 2028 for the 2.00% Notes, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date. These notes are unconditionally guaranteed by COPT.
With regard to our 3.60% Senior Notes due 2023 (the “3.60% Notes”) and 5.25% Senior Notes due 2024 (the “5.25% Notes”), we:
•effective March 11, 2021, purchased pursuant to tender offers $184.4 million of 3.60% Notes for $196.7 million and $145.6 million of 5.25% Notes for $164.7 million, plus accrued interest; and
•on April 12, 2021, redeemed the remaining $165.6 million of 3.60% Notes for $176.3 million and $104.4 million of 5.25% Notes for $117.7 million, plus accrued interest.
In connection with these purchases and redemptions, we recognized a loss on early extinguishment of debt of $58.4 million in the nine months ended September 30, 2021.
On August 11, 2021, we repaid $100.0 million of our term loan facility.
Certain of our debt instruments require that we comply with a number of restrictive financial covenants. As of September 30, 2021, we were compliant with these financial covenants.
We capitalized interest costs of $1.8 million in the three months ended September 30, 2021, $2.9 million in the three months ended September 30, 2020, $5.3 million in the nine months ended September 30, 2021 and $9.4 million in the nine months ended September 30, 2020.
The following table sets forth information pertaining to the fair value of our debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Fixed-rate debt
|
|
|
|
|
|
|
|
|
Unsecured Senior Notes
|
$
|
1,678,659
|
|
|
$
|
1,723,267
|
|
|
$
|
1,289,461
|
|
|
$
|
1,334,342
|
|
|
Other fixed-rate debt
|
138,101
|
|
|
136,653
|
|
|
140,891
|
|
|
142,838
|
|
|
Variable-rate debt
|
342,972
|
|
|
343,577
|
|
|
656,566
|
|
|
654,102
|
|
|
|
$
|
2,159,732
|
|
|
$
|
2,203,497
|
|
|
$
|
2,086,918
|
|
|
$
|
2,131,282
|
|
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,
2021
|
|
December 31, 2020
|
|
$
|
100,000
|
|
|
1.901%
|
|
One-Month LIBOR
|
|
9/1/2016
|
|
12/1/2022
|
|
$
|
(2,065)
|
|
|
$
|
(3,394)
|
|
|
$
|
100,000
|
|
|
1.905%
|
|
One-Month LIBOR
|
|
9/1/2016
|
|
12/1/2022
|
|
(2,070)
|
|
|
(3,401)
|
|
|
$
|
50,000
|
|
|
1.908%
|
|
One-Month LIBOR
|
|
9/1/2016
|
|
12/1/2022
|
|
(1,036)
|
|
|
(1,704)
|
|
|
$
|
11,180
|
|
(1)
|
1.678%
|
|
One-Month LIBOR
|
|
8/1/2019
|
|
8/1/2026
|
|
(391)
|
|
|
(733)
|
|
|
$
|
23,000
|
|
(2)
|
0.573%
|
|
One-Month LIBOR
|
|
4/1/2020
|
|
3/26/2025
|
|
70
|
|
|
(290)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,492)
|
|
|
$
|
(9,522)
|
|
(1)The notional amount of this instrument is scheduled to amortize to $10.0 million.
(2)The notional amount of this instrument is scheduled to amortize to $22.1 million.
The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Derivatives
|
|
Balance Sheet Location
|
|
September 30,
2021
|
|
December 31, 2020
|
|
Interest rate swaps designated as cash flow hedges
|
|
Prepaid expenses and other assets, net
|
|
$
|
70
|
|
|
$
|
—
|
|
|
Interest rate swaps designated as cash flow hedges
|
|
Interest rate derivatives (liabilities)
|
|
$
|
(5,562)
|
|
|
$
|
(9,522)
|
|
The tables below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Income Recognized in AOCL on Derivatives
|
|
Amount of Loss Reclassified from AOCL into Interest Expense on Statement of Operations
|
|
Derivatives in Hedging Relationships
|
|
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,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Interest rate derivatives
|
|
$
|
(118)
|
|
|
$
|
1,428
|
|
|
$
|
426
|
|
|
$
|
(39,592)
|
|
|
$
|
(1,226)
|
|
|
$
|
(1,342)
|
|
|
$
|
(3,604)
|
|
|
$
|
(2,408)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Derivatives in Hedging Relationships
|
|
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,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Interest rate derivatives
|
|
$
|
—
|
|
|
$
|
(51,865)
|
|
|
$
|
—
|
|
|
$
|
(51,865)
|
|
|
$
|
—
|
|
|
$
|
(1,265)
|
|
|
$
|
—
|
|
|
$
|
(1,265)
|
|
Based on the fair value of our derivatives as of September 30, 2021, we estimate that approximately $4.8 million of losses will be reclassified from AOCL as an increase to interest 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, 2021, we were not in default with any of these provisions. As of September 30, 2021, the fair value of interest rate derivatives in a liability position related to these agreements was $5.6 million, excluding the effects of accrued interest and credit valuation adjustments. As of September 30, 2021, we had not posted any collateral related to these agreements. If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $6.0 million as of September 30, 2021.
11. Redeemable Noncontrolling Interests
Our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, 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 sheets. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2021
|
|
2020
|
|
Beginning balance
|
|
$
|
25,430
|
|
|
$
|
29,431
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
(2,387)
|
|
|
(13,335)
|
|
|
Net income attributable to noncontrolling interests
|
|
2,286
|
|
|
2,715
|
|
|
Adjustment to arrive at fair value of interests
|
|
677
|
|
|
4,711
|
|
|
Ending balance
|
|
$
|
26,006
|
|
|
$
|
23,522
|
|
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, occupancy projections and estimated operating and development expenditures.
12. Equity
Common Shares
As of September 30, 2021, we had remaining capacity under our at-the-market stock offering program equal to an aggregate gross sales price of $300 million in common share sales.
During the nine months ended September 30, 2021, certain COPLP limited partners converted 8,054 common units in COPLP for an equal number of common shares.
We declared dividends per common share of $0.275 in the three months ended September 30, 2021 and 2020 and $0.825 in the nine months ended September 30, 2021 and 2020.
See Note 16 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.
13. Credit Losses, Financial Assets and Other Instruments
The table below sets forth the activity for the allowance for credit losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2021
|
|
|
Investing Receivables
|
|
Tenant Notes
Receivable (1)
|
|
Other Assets (2)
|
|
|
|
|
|
Total
|
|
December 31, 2020
|
$
|
2,851
|
|
|
$
|
1,203
|
|
|
$
|
643
|
|
|
|
|
|
|
$
|
4,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit loss (recoveries) expense
|
(1,436)
|
|
|
(114)
|
|
|
510
|
|
|
|
|
|
|
(1,040)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
$
|
1,415
|
|
|
$
|
1,089
|
|
|
$
|
1,153
|
|
|
|
|
|
|
$
|
3,657
|
|
(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.
(2)The balance as of September 30, 2021 and December 31, 2020 included $705,000 and $257,000, respectively, in the line entitled “accounts receivable, net” and $448,000 and $386,000, respectively, in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets.
The following table presents the amortized cost basis of our investing receivables, tenant notes receivable and sales-type lease receivables by credit risk classification, by origination year as of September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination Year
|
|
|
|
|
2016 and Earlier
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Total
|
|
Investing receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade
|
$
|
68,773
|
|
|
$
|
1,043
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,057
|
|
|
$
|
449
|
|
|
$
|
71,322
|
|
|
Non-investment grade
|
—
|
|
|
—
|
|
|
—
|
|
|
6,040
|
|
|
—
|
|
|
—
|
|
|
6,040
|
|
|
Total
|
$
|
68,773
|
|
|
$
|
1,043
|
|
|
$
|
—
|
|
|
$
|
6,040
|
|
|
$
|
1,057
|
|
|
$
|
449
|
|
|
$
|
77,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant notes receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
949
|
|
|
$
|
69
|
|
|
$
|
297
|
|
|
$
|
—
|
|
|
$
|
1,315
|
|
|
Non-investment grade
|
221
|
|
|
—
|
|
|
141
|
|
|
147
|
|
|
1,763
|
|
|
—
|
|
|
2,272
|
|
|
Total
|
$
|
221
|
|
|
$
|
—
|
|
|
$
|
1,090
|
|
|
$
|
216
|
|
|
$
|
2,060
|
|
|
$
|
—
|
|
|
$
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales-type lease receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit risk classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,300
|
|
|
$
|
—
|
|
|
$
|
6,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2021.
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.
Notes receivable on nonaccrual status as of September 30, 2021 and December 31, 2020 were not significant. We did not recognize any interest income on notes receivable on nonaccrual status during the three or nine months ended September 30, 2021 and 2020.
14. Information by Business Segment
We have the following reportable segments: Defense/IT Locations; Regional Office; Wholesale Data Center; and Other. We also report on Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (“Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants fund the costs for the power, fiber connectivity and data center infrastructure).
We measure the performance of our segments through the measure we define as net operating income from real estate operations (“NOI from real estate operations”), which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to our ownership interest (“UJV NOI allocable to COPT”). Amounts reported for segment assets represent long-lived assets associated with consolidated operating properties (including the carrying value of properties, right-of-use assets, net of related lease liabilities, intangible assets, deferred leasing costs, deferred rents receivable and lease incentives) and the carrying value of investments in UJVs owning operating properties. Amounts reported as additions to long-lived assets represent additions to existing consolidated operating properties, excluding transfers from non-operating properties, which we report separately.
The table below reports segment financial information for our reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from real estate operations
|
$
|
66,029
|
|
|
$
|
15,291
|
|
|
$
|
14,519
|
|
|
$
|
8,558
|
|
|
$
|
9,144
|
|
|
$
|
6,913
|
|
|
$
|
120,454
|
|
|
$
|
16,810
|
|
|
$
|
8,637
|
|
|
$
|
689
|
|
|
$
|
146,590
|
|
|
Property operating expenses
|
(22,956)
|
|
|
(5,980)
|
|
|
(6,935)
|
|
|
(3,454)
|
|
|
(3,003)
|
|
|
(657)
|
|
|
(42,985)
|
|
|
(8,395)
|
|
|
(5,345)
|
|
|
(465)
|
|
|
(57,190)
|
|
|
UJV NOI allocable to COPT
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,060
|
|
|
1,060
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,060
|
|
|
NOI from real estate operations
|
$
|
43,073
|
|
|
$
|
9,311
|
|
|
$
|
7,584
|
|
|
$
|
5,104
|
|
|
$
|
6,141
|
|
|
$
|
7,316
|
|
|
$
|
78,529
|
|
|
$
|
8,415
|
|
|
$
|
3,292
|
|
|
$
|
224
|
|
|
$
|
90,460
|
|
|
Additions to long-lived assets
|
$
|
10,671
|
|
|
$
|
1,614
|
|
|
$
|
—
|
|
|
$
|
897
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
13,289
|
|
|
$
|
5,319
|
|
|
$
|
1,141
|
|
|
$
|
69
|
|
|
$
|
19,818
|
|
|
Transfers from non-operating properties
|
$
|
53,935
|
|
|
$
|
87,986
|
|
|
$
|
7,332
|
|
|
$
|
—
|
|
|
$
|
5,519
|
|
|
$
|
421
|
|
|
$
|
155,193
|
|
|
$
|
381
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155,574
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,752
|
|
|
1,752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
|
|
|
$
|
—
|
|
|
$
|
1,650
|
|
|
$
|
6,382
|
|
|
$
|
—
|
|
|
$
|
17,762
|
|
|
$
|
5,303
|
|
|
$
|
1,917
|
|
|
$
|
(3)
|
|
|
$
|
24,979
|
|
|
Transfers from non-operating properties
|
$
|
(209)
|
|
|
$
|
58
|
|
|
$
|
221
|
|
|
$
|
—
|
|
|
$
|
61,520
|
|
|
$
|
65,269
|
|
|
$
|
126,859
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
126,859
|
|
|
Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from real estate operations
|
$
|
197,315
|
|
|
$
|
45,214
|
|
|
$
|
40,762
|
|
|
$
|
25,401
|
|
|
$
|
26,172
|
|
|
$
|
23,770
|
|
|
$
|
358,634
|
|
|
$
|
50,371
|
|
|
$
|
24,902
|
|
|
$
|
2,270
|
|
|
$
|
436,177
|
|
|
Property operating expenses
|
(69,341)
|
|
|
(17,394)
|
|
|
(21,315)
|
|
|
(10,114)
|
|
|
(8,525)
|
|
|
(2,516)
|
|
|
(129,205)
|
|
|
(23,901)
|
|
|
(14,395)
|
|
|
(1,279)
|
|
|
(168,780)
|
|
|
UJV NOI allocable to COPT
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,950
|
|
|
2,950
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,950
|
|
|
NOI from real estate operations
|
$
|
127,974
|
|
|
$
|
27,820
|
|
|
$
|
19,447
|
|
|
$
|
15,287
|
|
|
$
|
17,647
|
|
|
$
|
24,204
|
|
|
$
|
232,379
|
|
|
$
|
26,470
|
|
|
$
|
10,507
|
|
|
$
|
991
|
|
|
$
|
270,347
|
|
|
Additions to long-lived assets
|
$
|
29,063
|
|
|
$
|
2,921
|
|
|
$
|
—
|
|
|
$
|
2,654
|
|
|
$
|
3,418
|
|
|
$
|
—
|
|
|
$
|
38,056
|
|
|
$
|
13,430
|
|
|
$
|
1,490
|
|
|
$
|
82
|
|
|
$
|
53,058
|
|
|
Transfers from non-operating properties
|
$
|
55,075
|
|
|
$
|
88,099
|
|
|
$
|
56,601
|
|
|
$
|
—
|
|
|
$
|
19,724
|
|
|
$
|
2,423
|
|
|
$
|
221,922
|
|
|
$
|
38,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
260,660
|
|
|
Segment assets at September 30, 2021
|
$
|
1,315,101
|
|
|
$
|
470,077
|
|
|
$
|
196,624
|
|
|
$
|
172,381
|
|
|
$
|
299,184
|
|
|
$
|
353,340
|
|
|
$
|
2,806,707
|
|
|
$
|
538,080
|
|
|
$
|
194,576
|
|
|
$
|
3,508
|
|
|
$
|
3,542,871
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,190
|
|
|
5,190
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
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
|
|
|
$
|
—
|
|
|
$
|
5,518
|
|
|
$
|
6,698
|
|
|
$
|
—
|
|
|
$
|
42,474
|
|
|
$
|
13,105
|
|
|
$
|
10,699
|
|
|
$
|
165
|
|
|
$
|
66,443
|
|
|
Transfers from non-operating properties
|
$
|
4,304
|
|
|
$
|
838
|
|
|
$
|
381
|
|
|
$
|
—
|
|
|
$
|
91,827
|
|
|
$
|
171,465
|
|
|
$
|
268,815
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
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
|
|
The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Segment revenues from real estate operations
|
$
|
146,590
|
|
|
$
|
134,443
|
|
|
$
|
436,177
|
|
|
$
|
399,097
|
|
|
Construction contract and other service revenues
|
28,046
|
|
|
20,323
|
|
|
64,592
|
|
|
46,240
|
|
|
Total revenues
|
$
|
174,636
|
|
|
$
|
154,766
|
|
|
$
|
500,769
|
|
|
$
|
445,337
|
|
The following table reconciles UJV NOI allocable to COPT to equity in income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
UJV NOI allocable to COPT
|
$
|
1,060
|
|
|
$
|
1,752
|
|
|
$
|
2,950
|
|
|
$
|
5,190
|
|
|
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
|
(763)
|
|
|
(1,274)
|
|
|
(2,167)
|
|
|
(3,814)
|
|
|
Add: Equity in loss of unconsolidated non-real estate entities
|
—
|
|
|
(1)
|
|
|
(4)
|
|
|
(4)
|
|
|
Equity in income of unconsolidated entities
|
$
|
297
|
|
|
$
|
477
|
|
|
$
|
779
|
|
|
$
|
1,372
|
|
As previously discussed, we provide real estate services such as property management, development and construction services primarily for our properties but also for third parties. The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities. Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Construction contract and other service revenues
|
$
|
28,046
|
|
|
$
|
20,323
|
|
|
$
|
64,592
|
|
|
$
|
46,240
|
|
|
Construction contract and other service expenses
|
(27,089)
|
|
|
(19,220)
|
|
|
(61,964)
|
|
|
(44,052)
|
|
|
NOI from service operations
|
$
|
957
|
|
|
$
|
1,103
|
|
|
$
|
2,628
|
|
|
$
|
2,188
|
|
The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to net income as reported on our consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
NOI from real estate operations
|
$
|
90,460
|
|
|
$
|
84,643
|
|
|
$
|
270,347
|
|
|
$
|
252,532
|
|
|
NOI from service operations
|
957
|
|
|
1,103
|
|
|
2,628
|
|
|
2,188
|
|
|
Interest and other income
|
1,818
|
|
|
1,746
|
|
|
5,911
|
|
|
5,233
|
|
|
Credit loss recoveries
|
326
|
|
|
1,465
|
|
|
1,040
|
|
|
161
|
|
|
Gain on sales of real estate
|
(32)
|
|
|
—
|
|
|
39,711
|
|
|
5
|
|
|
Equity in income of unconsolidated entities
|
297
|
|
|
477
|
|
|
779
|
|
|
1,372
|
|
|
Income tax expense
|
(47)
|
|
|
(16)
|
|
|
(103)
|
|
|
(95)
|
|
|
Depreciation and other amortization associated with real estate operations
|
(36,611)
|
|
|
(35,332)
|
|
|
(111,487)
|
|
|
(101,540)
|
|
|
Impairment losses
|
—
|
|
|
(1,530)
|
|
|
—
|
|
|
(1,530)
|
|
|
General, administrative and leasing expenses
|
(9,342)
|
|
|
(7,467)
|
|
|
(26,970)
|
|
|
(23,111)
|
|
|
Business development expenses and land carry costs
|
(1,093)
|
|
|
(1,094)
|
|
|
(3,559)
|
|
|
(3,474)
|
|
|
Interest expense
|
(15,720)
|
|
|
(17,152)
|
|
|
(49,181)
|
|
|
(50,789)
|
|
|
UJV NOI allocable to COPT included in equity in income of unconsolidated entities
|
(1,060)
|
|
|
(1,752)
|
|
|
(2,950)
|
|
|
(5,190)
|
|
|
Loss on early extinguishment of debt
|
(1,159)
|
|
|
(3,237)
|
|
|
(59,553)
|
|
|
(3,237)
|
|
|
Loss on interest rate derivatives
|
—
|
|
|
(53,196)
|
|
|
—
|
|
|
(53,196)
|
|
|
Net income (loss)
|
$
|
28,794
|
|
|
$
|
(31,342)
|
|
|
$
|
66,613
|
|
|
$
|
19,329
|
|
The following table reconciles our segment assets to our consolidated total assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Segment assets
|
$
|
3,542,871
|
|
|
$
|
3,256,968
|
|
|
Operating properties lease liabilities included in segment assets
|
29,644
|
|
|
26,054
|
|
|
Non-operating property assets
|
385,025
|
|
|
642,182
|
|
|
Other assets
|
193,598
|
|
|
194,985
|
|
|
Total consolidated assets
|
$
|
4,151,138
|
|
|
$
|
4,120,189
|
|
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements. In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment losses, gain on sales of real estate, loss on early extinguishment of debt, loss on interest rate derivatives and equity in income of unconsolidated entities not included in NOI to our real estate segments since they are not included in the measure of segment profit reviewed by management. We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, credit loss (expense) recoveries, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.
15. Construction Contract and Other Service Revenues
We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Construction contract revenue:
|
|
|
|
|
|
|
|
|
Guaranteed maximum price
|
$
|
15,846
|
|
|
$
|
4,358
|
|
|
$
|
29,335
|
|
|
$
|
14,834
|
|
|
Cost-plus fee
|
4,742
|
|
|
13,249
|
|
|
23,075
|
|
|
20,121
|
|
|
Firm fixed price
|
7,042
|
|
|
1,365
|
|
|
10,954
|
|
|
9,421
|
|
|
Other
|
416
|
|
|
1,351
|
|
|
1,228
|
|
|
1,864
|
|
|
|
$
|
28,046
|
|
|
$
|
20,323
|
|
|
$
|
64,592
|
|
|
$
|
46,240
|
|
The table below reports construction contract and other service revenues by service type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Construction contract revenue:
|
|
|
|
|
|
|
|
|
Construction
|
$
|
26,893
|
|
|
$
|
18,786
|
|
|
$
|
61,477
|
|
|
$
|
42,520
|
|
|
Design
|
737
|
|
|
186
|
|
|
1,887
|
|
|
1,856
|
|
|
Other
|
416
|
|
|
1,351
|
|
|
1,228
|
|
|
1,864
|
|
|
|
$
|
28,046
|
|
|
$
|
20,323
|
|
|
$
|
64,592
|
|
|
$
|
46,240
|
|
We recognized an insignificant amount of revenue in the three and nine months ended September 30, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous periods.
Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Beginning balance
|
$
|
13,997
|
|
|
$
|
12,378
|
|
|
Ending balance
|
$
|
5,726
|
|
|
$
|
11,183
|
|
Contract assets, which we refer to herein as construction contract costs in excess of billings, net, are included in prepaid expenses and other assets, net reported on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Beginning balance
|
$
|
10,343
|
|
|
$
|
17,223
|
|
|
Ending balance
|
$
|
12,987
|
|
|
$
|
13,980
|
|
Contract liabilities are included in other liabilities reported on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
Beginning balance
|
$
|
4,610
|
|
|
$
|
1,184
|
|
|
Ending balance
|
$
|
3,818
|
|
|
$
|
5,236
|
|
|
Portion of beginning balance recognized in revenue during:
|
|
|
|
|
Three months ended September 30
|
$
|
9
|
|
|
$
|
19
|
|
|
Nine months ended September 30
|
$
|
2,626
|
|
|
$
|
757
|
|
Revenue allocated to the remaining performance obligations under existing contracts as of September 30, 2021 that will be recognized as revenue in future periods was $159.2 million, of which we expect to recognize approximately $29 million in the three months ending December 31, 2021 and most of the remainder in 2022.
We have no deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues as of September 30, 2021 and December 31, 2020. Our credit loss expense on construction contracts receivables and unbilled construction revenue totaled $412,000 and $463,000 in the three and nine months ended September 30, 2021, respectively, and was insignificant in the three and nine months ended September 30, 2020.
16. Share-Based Compensation
Restricted Shares
During the nine months ended September 30, 2021, certain employees and non-employee members of our Board of Trustees (“Trustees”) were granted a total of 165,770 restricted common shares with an aggregate grant date fair value of $4.4 million (weighted average of $26.25 per share). Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employee remains employed by us. Restricted shares granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. During the nine months ended September 30, 2021, forfeiture restrictions lapsed on 157,066 previously issued common shares; these shares had a weighted average grant date fair value of $25.88 per share, and the aggregate intrinsic value of the shares on the vesting dates was $4.1 million.
Performance Share Awards (“PSUs”)
We issued 93,824 common shares on February 3, 2021 to executives in settlement of PSUs granted in 2018, representing 200% of the target awards for those PSUs.
Profit Interest Units in COPLP (“PIUs”)
We granted two forms of PIUs: time-based PIUs (“TB-PIUs”); and performance-based PIUs (“PB-PIUs”). TB-PIUs are subject to forfeiture restrictions until the end of the requisite service period, at which time the TB-PIUs automatically convert into vested PIUs. PB-PIUs are subject to a market condition in that the number of earned awards are determined at the end of the performance period (as described further below) and then settled in vested PIUs. Vested PIUs carry substantially the same rights to redemption and distributions as non-PIU common units.
TB-PIUs
During the nine months ended September 30, 2021, we granted 93,983 TB-PIUs with an aggregate grant date fair value of $2.5 million (weighted average of $26.16 per TB-PIU) to senior management team members and certain non-employee Trustees. TB-PIUs granted to senior management team members generally vest in equal annual increments over a three-year period beginning on the first anniversary of the date of grant provided that the employee remains employed by us. TB-PIUs granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the nine months ended September 30, 2021, forfeiture restrictions lapsed on 40,591 previously issued TB-PIUs; these TB-PIUs had a weighted average grant date fair value of $25.14 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was $1.1 million.
