UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q 
(Mark one)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2018March 31, 2019
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
           
Commission file number 1-14023 (Corporate Office Properties Trust)
Commission file number 333-189188 (Corporate Office Properties, L.P.)
Corporate Office Properties Trust
Corporate Office Properties, L.P.
(Exact name of registrant as specified in its charter)
Corporate Office Properties Trust Maryland 23-2947217
  (State or other jurisdiction of (IRS Employer
  incorporation or organization) Identification No.)
     
Corporate Office Properties, L.P. Delaware 23-2930022
  (State or other jurisdiction of (IRS Employer
  incorporation or organization) Identification No.)
6711 Columbia Gateway Drive, Suite 300, Columbia, MD21046
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code:  (443) 285-5400
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

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



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

Corporate Office Properties Trust
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o

Corporate Office Properties, L.P.
Large accelerated filer ýo
 
Accelerated filer o
 
Non-accelerated filer oý
 
Smaller reporting company o
Emerging growth company o

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par valueOFCNew York Stock Exchange

As of October 19, 2018April 26, 2019, 108,855,016111,917,479 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.
     

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2018March 31, 2019 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, 2018March 31, 2019, COPT owned approximately 98.8%98.6% of the outstanding common units in COPLP; the remaining common units and all of the outstanding COPLP preferred units 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 two operate as an interrelated, consolidated company. COPT is a 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 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.

Noncontrolling interests, 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 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 4,3, 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 15,16, 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, 2018March 31, 2019 and December 31, 20172018 (unaudited)
3
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
4
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
5
 
Consolidated Statements of Equity for the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
6
 
Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
7
Consolidated Financial Statements of Corporate Office Properties, L.P.
 
 
Consolidated Balance Sheets as of September 30, 2018March 31, 2019 and December 31, 20172018 (unaudited)
9
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
10
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
11
 
Consolidated Statements of Equity for the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited) 
12
 
Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017 (unaudited)
13
Notes to Consolidated Financial Statements (unaudited)
15
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3835
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
5145
Item 4:
Controls and Procedures
5145
   
PART II: OTHER INFORMATION
 
   
Item 1:
Legal Proceedings
5246
Item 1A:
Risk Factors
5246
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
5246
Item 3:
Defaults Upon Senior Securities
5246
Item 4:
Mine Safety Disclosures
5246
Item 5:
Other Information
5246
Item 6:
Exhibits
5347
  
SIGNATURES
5448



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,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Assets 
  
 
  
Properties, net: 
  
 
  
Operating properties, net$2,796,577
 $2,737,611
$2,865,829
 $2,847,265
Projects in development or held for future development410,850
 403,494
437,173
 403,361
Total properties, net3,207,427
 3,141,105
3,303,002
 3,250,626
Assets held for sale, net42,226
 42,226
Property - operating right-of-use assets27,569
 —
Property - finance right-of-use assets40,488
 —
Cash and cash equivalents9,492
 12,261
7,780
 8,066
Investment in unconsolidated real estate joint venture40,318
 41,787
39,359
 39,845
Accounts receivable (net of allowance for doubtful accounts of $850 and $607, respectively)19,245
 31,802
Deferred rent receivable (net of allowance of $438 and $364, respectively)89,171
 86,710
Accounts receivable25,261
 26,277
Deferred rent receivable91,304
 89,350
Intangible assets on real estate acquisitions, net47,065
 59,092
33,172
 43,470
Deferred leasing costs (net of accumulated amortization of $30,832 and $29,560, respectively)49,510
 48,322
Deferred leasing costs (net of accumulated amortization of $34,666 and $31,994, respectively)51,736
 50,191
Investing receivables55,688
 57,493
69,390
 56,982
Interest rate derivatives10,875
 3,073
2,602
 5,617
Prepaid expenses and other assets, net79,349
 71,334
84,196
 85,581
Total assets$3,650,366
 $3,595,205
$3,775,859
 $3,656,005
Liabilities and equity 
  
 
  
Liabilities: 
  
 
  
Debt, net$1,808,030
 $1,828,333
$1,876,149
 $1,823,909
Accounts payable and accrued expenses90,224
 108,137
112,076
 92,855
Rents received in advance and security deposits23,159
 25,648
25,635
 30,079
Dividends and distributions payable30,483
 28,921
31,346
 30,856
Deferred revenue associated with operating leases10,006
 11,682
8,415
 9,125
Deferred property sale43,377
 43,377
Capital lease obligation660
 15,853
Property - operating lease liabilities16,619
 —
Interest rate derivatives11,894
 5,459
Other liabilities9,267
 41,822
10,162
 10,414
Total liabilities2,015,206
 2,103,773
2,092,296
 2,002,697
Commitments and contingencies (Note 16)

 

Commitments and contingencies (Note 17)

 

Redeemable noncontrolling interests25,431
 23,125
27,385
 26,260
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 108,848,223 at September 30, 2018 and 101,292,299 at December 31, 2017)1,088
 1,013
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 111,939,790 at March 31, 2019 and 110,241,868 at December 31, 2018)1,119
 1,102
Additional paid-in capital2,390,484
 2,201,047
2,475,497
 2,431,355
Cumulative distributions in excess of net income(833,508) (802,085)(856,703) (846,808)
Accumulated other comprehensive income10,108
 2,167
Accumulated other comprehensive loss(9,538) (238)
Total Corporate Office Properties Trust’s shareholders’ equity1,568,172
 1,402,142
1,610,375
 1,585,411
Noncontrolling interests in subsidiaries: 
  
 
  
Common units in COPLP19,525
 45,097
20,167
 19,168
Preferred units in COPLP8,800
 8,800
8,800
 8,800
Other consolidated entities13,232
 12,268
16,836
 13,669
Noncontrolling interests in subsidiaries41,557
 66,165
45,803
 41,637
Total equity1,609,729
 1,468,307
1,656,178
 1,627,048
Total liabilities, redeemable noncontrolling interests and equity$3,650,366
 $3,595,205
$3,775,859
 $3,656,005

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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Revenues 
  
     
  
Rental revenue$102,132
 $102,275
 $304,087
 $304,237
Tenant recoveries and other real estate operations revenue26,856
 24,956
 82,341
 78,058
Lease revenue$130,903
 $127,133
Other property revenue1,087
 1,145
Construction contract and other service revenues8,423
 29,786
 53,202
 65,958
16,950
 27,198
Total revenues137,411
 157,017
 439,630
 448,253
148,940
 155,476
Expenses 
  
  
  
Operating expenses 
  
Property operating expenses49,340
 46,368
 149,737
 143,515
49,445
 50,951
Depreciation and amortization associated with real estate operations34,195
 34,438
 100,897
 100,290
34,796
 33,512
Construction contract and other service expenses8,058
 28,788
 51,215
 63,589
16,326
 26,216
Impairment (recoveries) losses—
 (161) —
 1,464
General, administrative and leasing expenses6,899
 7,368
 21,819
 23,838
8,751
 7,292
Business development expenses and land carry costs1,567
 1,277
 4,415
 4,567
1,113
 1,614
Total operating expenses100,059
 118,078
 328,083
 337,263
110,431
 119,585
Operating income37,352
 38,939
 111,547
 110,990
Interest expense(19,181) (19,615) (56,910) (57,772)(18,674) (18,784)
Interest and other income1,486
 1,508
 4,284
 4,817
2,286
 1,359
Gain on sales of real estate—
 1,188
 (27) 5,438
—
 (4)
Loss on early extinguishment of debt—
 —
 —
 (513)
Income before equity in income of unconsolidated entities and income taxes19,657
 22,020
 58,894
 62,960
22,121
 18,462
Equity in income of unconsolidated entities374
 371
 1,120
 1,118
391
 373
Income tax benefit (expense)291
 (57) 173
 (145)
Income tax expense(194) (55)
Net income20,322
 22,334
 60,187
 63,933
22,318
 18,780
Net income attributable to noncontrolling interests: 
  
  
  
 
  
Common units in COPLP(380) (693) (1,532) (1,576)(257) (544)
Preferred units in COPLP(165) (165) (495) (495)(165) (165)
Other consolidated entities(1,080) (897) (2,879) (2,738)(1,037) (921)
Net income attributable to COPT18,697
 20,579
 55,281
 59,124
Preferred share dividends—
 —
 —
 (6,219)
Issuance costs associated with redeemed preferred shares—
 —
 —
 (6,847)
Net income attributable to COPT common shareholders$18,697
 $20,579
 $55,281
 $46,058
$20,859
 $17,150
          
Earnings per common share: 
  
  
  
Earnings per common share: (1) 
  
Net income attributable to COPT common shareholders - basic$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
Net income attributable to COPT common shareholders - diluted$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
(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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Net income$20,322
 $22,334
 $60,187
 $63,933
$22,318
 $18,780
Other comprehensive income 
  
  
  
Unrealized gain (loss) on interest rate derivatives1,325
 (301) 7,913
 (1,877)
Other comprehensive (loss) income 
  
Unrealized (loss) gain on interest rate derivatives(8,845) 4,676
(Gain) loss on interest rate derivatives recognized in interest expense(207) 615
 (9) 2,740
(570) 245
Equity in other comprehensive income of equity method investee—
 —
 —
 39
Other comprehensive income1,118
 314
 7,904
 902
Other comprehensive (loss) income(9,415) 4,921
Comprehensive income21,440
 22,648
 68,091
 64,835
12,903
 23,701
Comprehensive income attributable to noncontrolling interests(1,647) (1,765) (5,145) (4,839)(1,344) (1,790)
Comprehensive income attributable to COPT$19,793
 $20,883
 $62,946
 $59,996
$11,559
 $21,911
 
See accompanying notes to consolidated financial statements.




Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
Preferred
Shares
 
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Income (Loss)
 
Noncontrolling
Interests
 Total
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Income (Loss)
 
Noncontrolling
Interests
 Total
Balance at December 31, 2016 (98,498,651 common shares outstanding)$172,500
 $985
 $2,116,581
 $(747,825) $(1,731) $72,267
 $1,612,777
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
Balance at December 31, 2017 (101,292,299 common shares outstanding)$1,013
 $2,201,047
 $(802,085) $2,167
 $66,165
 $1,468,307
Cumulative effect of accounting change for adoption of hedge accounting guidance—
 —
 (276) 276
 —
 —
Balance at December 31, 2017, as adjusted1,013
 2,201,047
 (802,361) 2,443
 66,165
 1,468,307
Conversion of common units to common shares (53,817 shares)1
 760
 —
 —
 (761) —
Common shares issued under forward equity sale agreements (677,000 shares)7
 19,969
 —
 —
 —
 19,976
Share-based compensation (127,242 shares issued, net of redemptions)1
 1,679
 —
 —
 —
 1,680
Redemption of vested equity awards—
 —
 (1,869) —
 —
 —
 (1,869)—
 (1,327) —
 —
 —
 (1,327)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP—
 —
 (589) —
 —
 589
 —
—
 (164) —
 —
 164
 —
Comprehensive income—
 —
 —
 59,124
 872
 3,119
 63,115
—
 —
 17,150
 4,761
 1,152
 23,063
Dividends—
 —
 —
 (88,300) —
 —
 (88,300)—
 —
 (28,091) —
 —
 (28,091)
Distributions to owners of common and preferred units in COPLP—
 —
 —
 —
 —
 (3,262) (3,262)—
 —
 —
 —
 (1,044) (1,044)
Distributions to noncontrolling interests in other consolidated entities—
 —
 —
 —
 —
 (2,614) (2,614)—
 —
 —
 —
 (3) (3)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 244
 —
 —
 —
 244
—
 (537) —
 —
 —
 (537)
Balance at September 30, 2017 (99,608,170 common shares outstanding)$—
 $996
 $2,150,067
 $(783,848) $(859) $65,497
 $1,431,853
Balance at March 31, 2018 (102,150,358 common shares outstanding)$1,022
 $2,221,427
 $(813,302) $7,204

$65,673
 $1,482,024
                        
Balance at December 31, 2017 (101,292,299 common shares outstanding)$—
 $1,013
 $2,201,047
 $(802,085) $2,167
 $66,165
 $1,468,307
Cumulative effect of accounting change for adoption of hedge accounting guidance—
 —
 —
 (276) 276
 —
 —
Balance at December 31, 2017, as adjusted—
 1,013
 2,201,047
 (802,361) 2,443
 66,165
 1,468,307
Conversion of common units to common shares (1,895,627 shares)—
 19
 27,263
 —
 —
 (27,282) —
Common shares issued under forward equity sale agreements (4,527,000 shares)—
 45
 132,285
 —
 —
 —
 132,330
Common shares issued under at-the-market program (991,664 shares)—
 10
 29,722
 —
 —
 —
 29,732
Share-based compensation (141,633 shares issued, net of redemptions)—
 1
 5,178
 —
 —
 —
 5,179
Balance at December 31, 2018 (110,241,868 common shares outstanding)$1,102
 $2,431,355
 $(846,808) $(238) $41,637
 $1,627,048
Conversion of common units to common shares (5,500 shares)—
 80
 —
 —
 (80) —
Common shares issued under forward equity sale agreements (1,614,087 shares)16
 46,438
 —
 —
 —
 46,454
Share-based compensation (78,335 shares issued, net of redemptions)1
 1,562
 —
 —
 239
 1,802
Redemption of vested equity awards—
 —
 (1,611) —
 —
 —
 (1,611)—
 (1,817) —
 —
 —
 (1,817)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP—
 —
 (2,069) —
 —
 2,069
 —
—
 (1,322) —
 —
 1,322
 —
Comprehensive income—
 —
 —
 55,281
 7,665
 3,242
 66,188
—
 —
 20,859
 (9,300) 669
 12,228
Dividends—
 —
 —
 (86,428) —
 —
 (86,428)—
 —
 (30,754) —
 —
 (30,754)
Distributions to owners of common and preferred units in COPLP—
 —
 —
 —
 —
 (2,626) (2,626)—
 —
 —
 —
 (550) (550)
Contributions from noncontrolling interests in other consolidated entities—
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in other consolidated entities—
 —
 —
 —
 —
 (11) (11)—
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 (1,331) —
 —
 —
 (1,331)—
 (799) —
 —
 —
 (799)
Balance at September 30, 2018 (108,848,223 common shares outstanding)$—
 $1,088
 $2,390,484
 $(833,508) $10,108
 $41,557
 $1,609,729
Balance at March 31, 2019 (111,939,790 common shares outstanding)$1,119
 $2,475,497
 $(856,703) $(9,538) $45,803
 $1,656,178

See accompanying notes to consolidated financial statements.


Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited) 
For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 20172019 2018
Cash flows from operating activities 
  
 
  
Revenues from real estate operations received$395,172
 $389,206
$126,569
 $135,027
Construction contract and other service revenues received27,450
 72,682
5,904
 9,268
Property operating expenses paid(150,039) (144,527)(42,974) (43,212)
Construction contract and other service expenses paid(71,034) (57,189)(4,614) (41,128)
General, administrative, leasing, business development and land carry costs paid(20,858) (27,066)(11,703) (10,900)
Interest expense paid(55,611) (55,637)(18,282) (19,092)
Lease incentives paid(5,985) (9,414)(1,158) (4,204)
Other2,572
 1,373
910
 436
Net cash provided by operating activities121,667
 169,428
54,652
 26,195
Cash flows from investing activities 
  
 
  
Construction, development and redevelopment(105,852) (113,678)(100,212) (17,540)
Tenant improvements on operating properties(27,962) (19,876)(4,174) (9,077)
Other capital improvements on operating properties(13,357) (15,174)(4,476) (5,198)
Proceeds from dispositions of properties—
 101,107
Investing receivables funded(11,051) —
Leasing costs paid(6,277) (6,468)(2,539) (2,015)
Other762
 1,619
1,297
 (974)
Net cash used in investing activities(152,686) (52,470)(121,155) (34,804)
Cash flows from financing activities 
  
 
  
Proceeds from debt      
Revolving Credit Facility208,000
 268,000
123,000
 82,000
Other debt proceeds11,267
 —
3,350
 —
Repayments of debt      
Revolving Credit Facility(235,000) (98,000)(74,000) (55,000)
Scheduled principal amortization(3,161) (3,028)(1,098) (1,052)
Other debt repayments—
 (200,000)
Deferred financing costs paid(3,413) —
Payments on capital lease obligation(15,379) —
Payments on finance lease liabilities(52) (4,202)
Net proceeds from issuance of common shares162,230
 19,834
46,415
 19,989
Redemption of preferred shares—
 (199,083)
Common share dividends paid(84,349) (81,779)(30,287) (27,855)
Preferred share dividends paid—
 (9,305)
Distributions paid to noncontrolling interests in COPLP(3,169) (3,371)(553) (1,059)
Distributions paid to redeemable noncontrolling interests(1,090) (7,860)
Redemption of vested equity awards(1,611) (1,869)(1,817) (1,327)
Other(5,205) (492)1,370
 (5,183)
Net cash provided by (used in) financing activities29,120
 (316,953)
Net cash provided by financing activities66,328
 6,311
Net decrease in cash and cash equivalents and restricted cash(1,899) (199,995)(175) (2,298)
Cash and cash equivalents and restricted cash 
  
 
  
Beginning of period14,831
 212,619
11,950
 14,831
End of period$12,932
 $12,624
$11,775
 $12,533

See accompanying notes to consolidated financial statements.
 



Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 20172019 2018
Reconciliation of net income to net cash provided by operating activities: 
  
 
  
Net income$60,187
 $63,933
$22,318
 $18,780
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation and amortization102,440
 101,963
Impairment losses—
 1,457
Depreciation and other amortization35,229
 34,035
Amortization of deferred financing costs and net debt discounts2,478
 3,514
898
 822
Increase in deferred rent receivable(3,687) (545)(2,539) (1,512)
Gain on sales of real estate27
 (5,438)—
 4
Share-based compensation4,735
 4,092
1,659
 1,545
Other(1,969) (2,969)(1,572) (907)
Changes in operating assets and liabilities: 
   
  
Decrease in accounts receivable12,404
 7,498
1,033
 7,877
(Increase) decrease in prepaid expenses and other assets, net(3,810) 4,718
(6,752) 8,533
Decrease in accounts payable, accrued expenses and other liabilities(48,649) (5,220)
Decrease in rents received in advance and security deposits(2,489) (3,575)
Increase (decrease) in accounts payable, accrued expenses and other liabilities8,822
 (43,903)
(Decrease) increase in rents received in advance and security deposits(4,444) 921
Net cash provided by operating activities$121,667
 $169,428
$54,652
 $26,195
Reconciliation of cash and cash equivalents and restricted cash:      
Cash and cash equivalents at beginning of period$12,261
 $209,863
$8,066
 $12,261
Restricted cash at beginning of period2,570
 2,756
3,884
 2,570
Cash and cash equivalents and restricted cash at beginning of period$14,831
 $212,619
$11,950
 $14,831
      
Cash and cash equivalents at end of period$9,492
 $10,858
$7,780
 $8,888
Restricted cash at end of period3,440
 1,766
3,995
 3,645
Cash and cash equivalents and restricted cash at end of period$12,932
 $12,624
$11,775
 $12,533
Supplemental schedule of non-cash investing and financing activities: 
  
 
  
Increase in accrued capital improvements, leasing and other investing activity costs$3,550
 $17,129
$11,329
 $12,232
Increase in property in connection with capital lease obligation$—
 $16,127
Increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests$7,802
 $774
Equity in other comprehensive income of an equity method investee$—
 $39
Finance right-of-use asset contributed by noncontrolling interest in joint venture$2,570
 $—
Operating right-of-use assets obtained in exchange for operating lease liabilities$276
 $—
(Decrease) increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests$(9,450) $4,887
Dividends/distributions payable$30,483
 $28,462
$31,346
 $29,146
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$27,282
 $4,602
$80
 $761
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$2,069
 $589
$1,322
 $164
Increase (decrease) in redeemable noncontrolling interests and decrease (increase) in equity to carry redeemable noncontrolling interests at fair value$1,331
 $(244)
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$799
 $537
 
See accompanying notes to consolidated financial statements.





Corporate Office Properties, L.P. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except unit data)
(unaudited)
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Assets 
  
 
  
Properties, net: 
  
 
  
Operating properties, net$2,796,577
 $2,737,611
$2,865,829
 $2,847,265
Projects in development or held for future development410,850
 403,494
437,173
 403,361
Total properties, net3,207,427
 3,141,105
3,303,002
 3,250,626
Assets held for sale, net42,226
 42,226
Property - operating right-of-use assets27,569
 —
Property - finance right-of-use assets40,488
 —
Cash and cash equivalents9,492
 12,261
7,780
 8,066
Investment in unconsolidated real estate joint venture40,318
 41,787
39,359
 39,845
Accounts receivable (net of allowance for doubtful accounts of $850 and $607, respectively)19,245
 31,802
Deferred rent receivable (net of allowance of $438 and $364, respectively)89,171
 86,710
Accounts receivable25,261
 26,277
Deferred rent receivable91,304
 89,350
Intangible assets on real estate acquisitions, net47,065
 59,092
33,172
 43,470
Deferred leasing costs (net of accumulated amortization of $30,832 and $29,560, respectively)49,510
 48,322
Deferred leasing costs (net of accumulated amortization of $34,666 and $31,994, respectively)51,736
 50,191
Investing receivables55,688
 57,493
69,390
 56,982
Interest rate derivatives10,875
 3,073
2,602
 5,617
Prepaid expenses and other assets, net75,003
 66,718
79,982
 81,713
Total assets$3,646,020
 $3,590,589
$3,771,645
 $3,652,137
Liabilities and equity 
  
 
  
Liabilities: 
  
 
  
Debt, net$1,808,030
 $1,828,333
$1,876,149
 $1,823,909
Accounts payable and accrued expenses90,224
 108,137
112,076
 92,855
Rents received in advance and security deposits23,159
 25,648
25,635
 30,079
Distributions payable30,483
 28,921
31,346
 30,856
Deferred revenue associated with operating leases10,006
 11,682
8,415
 9,125
Deferred property sale43,377
 43,377
Capital lease obligation660

15,853
Property - operating lease liabilities16,619
 —
Interest rate derivatives11,894
 5,459
Other liabilities4,921
 37,206
5,948
 6,546
Total liabilities2,010,860
 2,099,157
2,088,082
 1,998,829
Commitments and contingencies (Note 16)

 

Commitments and contingencies (Note 17)

 

Redeemable noncontrolling interests25,431
 23,125
27,385
 26,260
Equity: 
  
 
  
Corporate Office Properties, L.P.’s equity: 
  
 
  
Preferred units held by limited partner, 352,000 preferred units outstanding at September 30, 2018 and December 31, 20178,800
 8,800
Common units, 108,848,223 and 101,292,299 held by the general partner and 1,355,251 and 3,250,878 held by limited partners at September 30, 2018 and December 31, 2017, respectively1,577,299
 1,445,022
Accumulated other comprehensive income10,353
 2,173
Preferred units held by limited partner, 352,000 preferred units outstanding at March 31, 2019 and December 31, 20188,800
 8,800
Common units, 111,939,790 and 110,241,868 held by the general partner and 1,576,024 and 1,332,886 held by limited partners at March 31, 2019 and December 31, 2018, respectively1,640,272
 1,604,655
Accumulated other comprehensive loss(9,536) (121)
Total Corporate Office Properties, L.P.’s equity1,596,452
 1,455,995
1,639,536
 1,613,334
Noncontrolling interests in subsidiaries13,277
 12,312
16,642
 13,714
Total equity1,609,729
 1,468,307
1,656,178
 1,627,048
Total liabilities, redeemable noncontrolling interests and equity$3,646,020
 $3,590,589
$3,771,645
 $3,652,137

See accompanying notes to consolidated financial statements.



Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per unit data)
(unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Revenues 
  
     
  
Rental revenue$102,132
 $102,275
 $304,087
 $304,237
Tenant recoveries and other real estate operations revenue26,856
 24,956
 82,341
 78,058
Lease revenue$130,903
 $127,133
Other property revenue1,087
 1,145
Construction contract and other service revenues8,423
 29,786
 53,202
 65,958
16,950
 27,198
Total revenues137,411
 157,017
 439,630
 448,253
148,940
 155,476
Expenses 
  
  
  
Operating expenses 
  
Property operating expenses49,340
 46,368
 149,737
 143,515
49,445
 50,951
Depreciation and amortization associated with real estate operations34,195
 34,438
 100,897
 100,290
34,796
 33,512
Construction contract and other service expenses8,058
 28,788
 51,215
 63,589
16,326
 26,216
Impairment (recoveries) losses—
 (161) —
 1,464
General, administrative and leasing expenses6,899
 7,368
 21,819
 23,838
8,751
 7,292
Business development expenses and land carry costs1,567
 1,277
 4,415
 4,567
1,113
 1,614
Total operating expenses100,059
 118,078
 328,083
 337,263
110,431
 119,585
Operating income37,352
 38,939
 111,547
 110,990
Interest expense(19,181) (19,615) (56,910) (57,772)(18,674) (18,784)
Interest and other income1,486
 1,508
 4,284
 4,817
2,286
 1,359
Gain on sales of real estate—
 1,188
 (27) 5,438
—
 (4)
Loss on early extinguishment of debt—
 —
 —
 (513)
Income before equity in income of unconsolidated entities and income taxes19,657
 22,020
 58,894
 62,960
22,121
 18,462
Equity in income of unconsolidated entities374
 371
 1,120
 1,118
391
 373
Income tax benefit (expense)291
 (57) 173
 (145)
Income tax expense(194) (55)
Net income20,322
 22,334
 60,187
 63,933
22,318
 18,780
Net income attributable to noncontrolling interests in consolidated entities(1,080) (897) (2,879) (2,738)(1,037) (921)
Net income attributable to COPLP19,242
 21,437
 57,308
 61,195
21,281
 17,859
Preferred unit distributions(165) (165) (495) (6,714)(165) (165)
Issuance costs associated with redeemed preferred units—
 —
 —
 (6,847)
Net income attributable to COPLP common unitholders$19,077
 $21,272
 $56,813
 $47,634
$21,116
 $17,694
Earnings per common unit: 
  
  
  
   
Earnings per common unit: (1) 
  
Net income attributable to COPLP common unitholders - basic$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
Net income attributable to COPLP common unitholders - diluted$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
(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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Net income$20,322
 $22,334
 $60,187
 $63,933
$22,318
 $18,780
Other comprehensive income 
  
    
Unrealized gain (loss) on interest rate derivatives1,325
 (301) 7,913
 (1,877)
Other comprehensive (loss) income   
Unrealized (loss) gain on interest rate derivatives(8,845) 4,676
(Gain) loss on interest rate derivatives recognized in interest expense(207) 615
 (9) 2,740
(570) 245
Equity in other comprehensive income of equity method investee—
 —
 —
 39
Other comprehensive income1,118
 314
 7,904
 902
Other comprehensive (loss) income(9,415) 4,921
Comprehensive income21,440
 22,648
 68,091
 64,835
12,903
 23,701
Comprehensive income attributable to noncontrolling interests(1,080) (897) (2,879) (2,738)(1,037) (921)
Comprehensive income attributable to COPLP$20,360
 $21,751
 $65,212
 $62,097
$11,866
 $22,780
 
See accompanying notes to consolidated financial statements.

 


Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
Limited Partner Preferred Units 
General Partner
 Preferred Units
 Common Units Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests in Subsidiaries  Limited Partner Preferred Units Common Units Accumulated Other Comprehensive Income (Loss) Noncontrolling Interests in Subsidiaries  
Units Amount Units Amount Units Amount Total EquityUnits Amount Units Amount Total Equity
Balance at December 31, 2016352,000
 $8,800
 6,900,000
 $172,500
 102,089,042
 $1,419,710
 $(1,854) $13,621
 $1,612,777
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
Balance at December 31, 2017352,000
 $8,800
 104,543,177
 $1,445,022
 $2,173
 $12,312
 $1,468,307
Cumulative effect of accounting change for adoption of hedge accounting guidance—
 —
 —
 (276) 276
 —
 —
Balance at December 31, 2017, as adjusted352,000
 8,800
 104,543,177
 1,444,746
 2,449
 12,312
 1,468,307
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements—
 —
 677,000
 19,976
 —
 —
 19,976
Share-based compensation (units net of redemption)—
 —
 —
 —
 176,477
 4,444
 —
 —
 4,444
—
 —
 127,242
 1,680
 —
 —
 1,680
Redemptions of vested equity awards—
 —
 —
 —
 —
 (1,869) —
 —
 (1,869)—
 —
 —
 (1,327) —
 —
 (1,327)
Comprehensive income—
 495
 —
 6,219
 —
 54,481
 902
 1,018
 63,115
—
 165
 —
 17,694
 4,921
 283
 23,063
Distributions to owners of common and preferred units—
 (495) —
 (6,219) —
 (84,848) —
 —
 (91,562)—
 (165) —
 (28,970) —
 —
 (29,135)
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 —
 —
 (2,614) (2,614)—
 —
 —
 —
 —
 (3) (3)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 —
 —
 244
 —
 —
 244
—
 —
 —
 (537) —
 —
 (537)
Balance at September 30, 2017352,000
 $8,800
 —
 $—
 102,861,561
 $1,411,980
 $(952) $12,025
 $1,431,853
Balance at March 31, 2018352,000
 $8,800
 105,347,419
 $1,453,262
 $7,370
 $12,592
 $1,482,024
                              
Balance at December 31, 2017352,000
 $8,800
 —
 $—
 104,543,177
 $1,445,022
 $2,173
 $12,312
 $1,468,307
Cumulative effect of accounting change for adoption of hedge accounting guidance—
 —
 —
 —
 —
 (276) 276
 —
 —
Balance at December 31, 2017, as adjusted352,000
 8,800
 —
 —
 104,543,177
 1,444,746
 2,449
 12,312
 1,468,307
Balance at December 31, 2018352,000
 $8,800
 111,574,754
 $1,604,655
 $(121) $13,714
 $1,627,048
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements—
 —
 —
 —
 4,527,000
 132,330
 —
 —
 132,330
—
 —
 1,614,087
 46,454
 —
 —
 46,454
Issuance of common units resulting from common shares issued under COPT at-the-market program—
 —
 —
 —
 991,664
 29,732
 —
 —
 29,732
Share-based compensation (units net of redemption)—
 —
 —
 —
 141,633
 5,179
 —
 —
 5,179
—
 —
 326,973
 1,802
 —
 —
 1,802
Redemptions of vested equity awards—
 —
 —
 —
 —
 (1,611) —
 —
 (1,611)—
 —
 —
 (1,817) —
 —
 (1,817)
Comprehensive income—
 495
 —
 —
 —
 56,813
 7,904
 976
 66,188
—
 165
 —
 21,116
 (9,415) 362
 12,228
Distributions to owners of common and preferred units—
 (495) —
 —
 —
 (88,559) —
 —
 (89,054)—
 (165) —
 (31,139) —
 —
 (31,304)
Contributions from noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 —
 —
 (11) (11)—
 —
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 —
 —
 (1,331) —
 —
 (1,331)—
 —
 —
 (799) —
 —
 (799)
Balance at September 30, 2018352,000
 $8,800
 —
 $—
 110,203,474
 $1,577,299
 $10,353
 $13,277
 $1,609,729
Balance at March 31, 2019352,000
 $8,800
 113,515,814
 $1,640,272
 $(9,536) $16,642
 $1,656,178

See accompanying notes to consolidated financial statements.


Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 20172019 2018
Cash flows from operating activities 
  
 
  
Revenues from real estate operations received$395,172
 $389,206
$126,569
 $135,027
Construction contract and other service revenues received27,450
 72,682
5,904
 9,268
Property operating expenses paid(150,039) (144,527)(42,974) (43,212)
Construction contract and other service expenses paid(71,034) (57,189)(4,614) (41,128)
General, administrative, leasing, business development and land carry costs paid(20,858) (27,066)(11,703) (10,900)
Interest expense paid(55,611) (55,637)(18,282) (19,092)
Lease incentives paid(5,985) (9,414)(1,158) (4,204)
Other2,572
 1,373
910
 436
Net cash provided by operating activities121,667
 169,428
54,652
 26,195
Cash flows from investing activities 
  
 
  
Construction, development and redevelopment(105,852) (113,678)(100,212) (17,540)
Tenant improvements on operating properties(27,962) (19,876)(4,174) (9,077)
Other capital improvements on operating properties(13,357) (15,174)(4,476) (5,198)
Proceeds from dispositions of properties—
 101,107
Investing receivables funded(11,051) —
Leasing costs paid(6,277) (6,468)(2,539) (2,015)
Other762
 1,619
1,297
 (974)
Net cash used in investing activities(152,686) (52,470)(121,155) (34,804)
Cash flows from financing activities 
  
 
  
Proceeds from debt      
Revolving Credit Facility208,000
 268,000
123,000
 82,000
Other debt proceeds11,267
 —
3,350
 —
Repayments of debt      
Revolving Credit Facility(235,000) (98,000)(74,000) (55,000)
Scheduled principal amortization(3,161) (3,028)(1,098) (1,052)
Other debt repayments—
 (200,000)
Deferred financing costs paid(3,413) —
Payments on capital lease obligation(15,379) —
Payments on finance lease liabilities(52) (4,202)
Net proceeds from issuance of common units162,230
 19,834
46,415
 19,989
Redemption of preferred units—
 (199,083)
Common unit distributions paid(87,023) (84,655)(30,675) (28,749)
Preferred unit distributions paid(495) (9,800)(165) (165)
Distributions paid to redeemable noncontrolling interests(1,090) (7,860)
Redemption of vested equity awards(1,611) (1,869)(1,817) (1,327)
Other(5,205) (492)1,370
 (5,183)
Net cash provided by (used in) financing activities29,120
 (316,953)
Net cash provided by financing activities66,328
 6,311
Net decrease in cash and cash equivalents and restricted cash(1,899) (199,995)(175) (2,298)
Cash and cash equivalents and restricted cash 
  
 
  
Beginning of period14,831
 212,619
11,950
 14,831
End of period$12,932
 $12,624
$11,775
 $12,533

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,For the Three Months Ended March 31,
2018 20172019 2018
Reconciliation of net income to net cash provided by operating activities: 
  
 
  
Net income$60,187
 $63,933
$22,318
 $18,780
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Depreciation and amortization102,440
 101,963
Impairment losses—
 1,457
Depreciation and other amortization35,229
 34,035
Amortization of deferred financing costs and net debt discounts2,478
 3,514
898
 822
Increase in deferred rent receivable(3,687) (545)(2,539) (1,512)
Gain on sales of real estate27
 (5,438)—
 4
Share-based compensation4,735
 4,092
1,659
 1,545
Other(1,969) (2,969)(1,572) (907)
Operating changes in assets and liabilities: 
  
Changes in operating assets and liabilities: 
  
Decrease in accounts receivable12,404
 7,498
1,033
 7,877
(Increase) decrease in prepaid expenses and other assets, net(4,080) 3,688
(6,406) 8,398
Decrease in accounts payable, accrued expenses and other liabilities(48,379) (4,190)
Decrease in rents received in advance and security deposits(2,489) (3,575)
Increase (decrease) in accounts payable, accrued expenses and other liabilities8,476
 (43,768)
(Decrease) increase in rents received in advance and security deposits(4,444) 921
Net cash provided by operating activities$121,667
 $169,428
$54,652
 $26,195
Reconciliation of cash and cash equivalents and restricted cash:      
Cash and cash equivalents at beginning of period$12,261
 $209,863
$8,066
 $12,261
Restricted cash at beginning of period2,570
 2,756
3,884
 2,570
Cash and cash equivalents and restricted cash at beginning of period$14,831
 $212,619
$11,950
 $14,831
      
Cash and cash equivalents at end of period$9,492
 $10,858
$7,780
 $8,888
Restricted cash at end of period3,440
 1,766
3,995
 3,645
Cash and cash equivalents and restricted cash at end of period$12,932
 $12,624
$11,775
 $12,533
Supplemental schedule of non-cash investing and financing activities: 
  
 
  
Increase in accrued capital improvements, leasing and other investing activity costs$3,550
 $17,129
$11,329
 $12,232
Increase in property in connection with capital lease obligation$—
 $16,127
Increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests$7,802
 $774
Equity in other comprehensive income of an equity method investee$—
 $39
Finance right-of-use asset contributed by noncontrolling interest in joint venture$2,570
 $—
Operating right-of-use assets obtained in exchange for operating lease liabilities$276
 $—
(Decrease) increase in fair value of derivatives applied to accumulated other comprehensive income and noncontrolling interests$(9,450) $4,887
Distributions payable$30,483
 $28,462
$31,346
 $29,146
Increase (decrease) in redeemable noncontrolling interests and decrease (increase) in equity to carry redeemable noncontrolling interests at fair value$1,331
 $(244)
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$799
 $537
 
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 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, 2018March 31, 2019, our properties included the following:

161165 properties totaling 17.918.3 million square feet comprised of 15.115.2 million square feet in 144146 office properties and 2.73.1 million square feet in 1719 single-tenant data center shell properties (“data center shells”). We owned six of these data center shells through an unconsolidated real estate joint venture;
a wholesale data center with a critical load of 19.25 megawatts;
1115 properties under construction or redevelopment (six(ten office properties and five data center shells) that we estimate will total approximately 1.42.0 million square feet upon completion, including two partially-operational properties; and
approximately 900 acres of land controlled for future development that we believe could be developed into approximately 11.911.6 million square feet and 150 acres of other 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 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, 2018,March 31, 2019, COPT owned 98.8%98.6% of the outstanding COPLP common units (“common units”); the remaining common units and all of the outstanding COPLP preferred units (“preferred units”) were owned by third parties. 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 all common units to quarterly distributions and payments in liquidation is substantially the same as those of COPT common shareholders. Similarly,However, COPLP’s common units include a special class of unit referred to as profit interest units (“PIUs”) originating from certain share-based compensation awards issued to executives (described further in the case of any series of preferred units held by COPT, there is a series of preferred shares of beneficial interest (“preferred shares”) in COPTNote 15) that is equivalent in numberare subject to vesting and carries substantially the same terms as such series of COPLP preferredcertain tax event criteria, and accordingly may carry different rights to redemption and distributions than non-PIU common 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; similarly, although COPLP does not have a board of trustees, we refer to COPT’s Board of Trustees as COPLP’s Board of Trustees.
  
2.     Summary of Significant Accounting Policies
 
Basis of Presentation
 
The COPT consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which COPT has a majority voting interest and control.  The COPLP consolidated financial statements include the accounts of COPLP, its subsidiaries and other entities in which COPLP has a majority voting interest and control.  We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities.  We eliminate all intercompany balances and transactions in consolidation.



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

These interim financial statements should be read together with the consolidated financial statements and notes thereto as of and for the year ended December 31, 20172018 included in our 20172018 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 20172018 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.

Reclassification

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, including restricted cash and marketable securities that were reclassified to the line entitled “prepaid expenses and other assets, net” onreclassifications of our consolidated balance sheets after having been reported on a separate linerevenue from real estate operations in connection with our Quarterly Reports on Form 10-Q filed in prior years and previous Annual Reports on Form 10-K.adoption of new lease guidance described below.

Recent Accounting Pronouncements

We adopted guidance issued by the Financial Accounting Standards Board (“FASB”) effective January 1, 2018 regarding the recognition of revenue from contracts with customers (“Topic 606”). Under this guidance, an entity recognizes 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 determined that Topic 606 is applicable to our construction contract and other service revenues, which includes predominantly construction and design projects performed primarily for tenants of our properties. We used the modified retrospective method for contracts that were not completed as of January 1, 2018. Under this method, the cumulative effect of initially applying the guidance is recognized as an adjustment to the opening balance of retained earnings as of the date of initial application. Our adoption of Topic 606 effective January 1, 2018 did not affect our consolidated financial statements other than additional disclosure provided in accordance with the guidance. We did not elect to use any of the practical expedients provided for under the guidance. As discussed further below, Topic 606 will also apply to lease revenue deemed to be non-lease components (such as common area maintenance and provision of utilities) once the new guidance setting forth principles for the recognition, measurement, presentation and disclosure of leases goes into effect on January 1, 2019.

We adopted guidance issued by the FASB effective January 1, 2018 that requires entities to measure equity investments at fair value through net income, except for those that result in consolidation or are accounted for under the equity method of accounting. For equity investments without readily determinable fair values, the guidance permits the application of a measurement alternative using the cost of the investment, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. Our adoption of this guidance had no effect on our consolidated financial statements.
We adopted guidance issued by the FASB retrospectively effective January 1, 2018 that clarifies how entities should classify certain cash receipts and cash payments on the statement 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 application of the predominance principle. Our adoption of this guidance had no effect on our consolidated financial statements.

We adopted guidance issued by the FASB retrospectively effective January 1, 2018 that requires 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.  As a result of our adoption of this guidance, the change in restricted cash is no longer reported as either operating or investing activities on our statements of cash flows. Our restricted cash primarily consists of cash escrowed under mortgage debt for capital improvements and real estate taxes and certain tenant security deposits. Our adoption of this guidance had the following effects on our consolidated statements of cash flows for the nine months ended September 30, 2017 (in thousands):
  As Previously Reported Impact of Adoption As
Adjusted
Net cash provided by operating activities $170,678
 $(1,250) $169,428
Net cash used in investing activities $(52,730) $260
 $(52,470)
Net decrease in cash and cash equivalents and restricted cash $(199,005) $(990) $(199,995)
Beginning of period cash and cash equivalents and restricted cash $209,863
 $2,756
 $212,619
End of period cash and cash equivalents and restricted cash $10,858
 $1,766
 $12,624

We adopted guidance issued by the FASB that clarifies the scope of provisions and accounting for nonfinancial asset derecognition, including partial sales of real estate assets, effective January 1, 2018 using the full retrospective method. 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 nonfinancial 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 are now subject to the same derecognition model as all other nonfinancial assets. We had a transaction in July 2016 accounted for as a partial sale under the previous guidance that meets the criteria for immediate full gain recognition under the new guidance; as a result, we retrospectively recognized an additional $18 million in income in 2016 that was being amortized into income in subsequent periods under the previous guidance. The recognition pattern for our other sales of real estate were not changed by this new guidance. The full retrospective method requires adjustment of each reporting period presented at the time of adoption.







The tables below set forth the impact of the adoption of this guidance for amounts previously reported on the consolidated financial statements of COPT and subsidiaries (in thousands):
  As of December 31, 2017 As of September 30, 2017 As of December 31, 2016
Consolidated Balance Sheets As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted
Investment in unconsolidated real estate joint venture $25,066
 $16,721
 $41,787
 $25,194
 $17,069
 $42,263
 $25,548
 $18,113
 $43,661
Cumulative distributions in excess of net income $(818,190) $16,105
 $(802,085) $(800,290) $16,442
 $(783,848) $(765,276) $17,451
 $(747,825)
Noncontrolling interests in subsidiaries $65,549
 $616
 $66,165
 $44,089
 $627
 $44,716
 $71,605
 $662
 $72,267
  For the Three Months Ended September 30, 2017 For the Nine Months Ended September 30, 2017
Consolidated Statements of Operations and Comprehensive Income As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted
Equity in income of unconsolidated entities $719
 $(348) $371
 $2,162
 $(1,044) $1,118
Net income $22,682
 $(348) $22,334
 $64,977
 $(1,044) $63,933
Net income attributable to noncontrolling interests - Common units in COPLP $(704) $11
 $(693) $(1,611) $35
 $(1,576)
Net income attributable to COPT $20,916
 $(337) $20,579
 $60,133
 $(1,009) $59,124
Net income attributable to COPT common shareholders $20,916
 $(337) $20,579
 $47,067
 $(1,009) $46,058
Earnings per common share - basic and diluted $0.21
 $—
 $0.21
 $0.47
 $(0.01) $0.46
Comprehensive income $22,996
 $(348) $22,648
 $65,879
 $(1,044) $64,835
Comprehensive income attributable to COPT $21,220
 $(337) $20,883
 $61,005
 $(1,009) $59,996
             
The tables below set forth the impact of the adoption of this guidance for amounts previously reported on the consolidated financial statements of COPLP and subsidiaries (in thousands):
  As of December 31, 2017 As of September 30, 2017 As of December 31, 2016
Consolidated Balance Sheets As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted
Investment in unconsolid. real estate joint venture $25,066
 $16,721
 $41,787
 $25,194
 $17,069
 $42,263
 $25,548
 $18,113
 $43,661
Common units $1,428,301
 $16,721
 $1,445,022
 $1,394,911
 $17,069
 $1,411,980
 $1,401,597
 $18,113
 $1,419,710
  For the Three Months Ended September 30, 2017 For the Nine Months Ended September 30, 2017
Consolidated Statements of Operations and Comprehensive Income As Previously Reported Impact of Adoption As
Adjusted		 As Previously Reported Impact of Adoption As
Adjusted
Equity in income of unconsolidated entities $719
 $(348) $371
 $2,162
 $(1,044) $1,118
Net income $22,682
 $(348) $22,334
 $64,977
 $(1,044) $63,933
Net income attributable to COPLP $21,785
 $(348) $21,437
 $62,239
 $(1,044) $61,195
Net income attributable to COPLP common unitholders $21,620
 $(348) $21,272
 $48,678
 $(1,044) $47,634
Earnings per common unit - basic and diluted $0.21
 $—
 $0.21
 $0.47
 $(0.01) $0.46
Comprehensive income $22,996
 $(348) $22,648
 $65,879
 $(1,044) $64,835
Comprehensive income attributable to COPLP $22,099
 $(348) $21,751
 $63,141
 $(1,044) $62,097
             
Adoption of this guidance had no impact to cash provided by or used in operating, financing or investing activities on our consolidated statements of cash flows for the nine months ended September 30, 2017.


We early adopted guidance issued by the FASB effective January 1, 2018 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. We adopted this guidance using the modified retrospective transition method under which we eliminated $276,000 in previously-recorded cumulative hedge ineffectiveness as of January 1, 2018 by means of a cumulative-effect adjustment to our beginning balance of accumulated other comprehensive income (“AOCI”), with a corresponding adjustment to the beginning balance of: cumulative distributions in excess of net income for COPT and subsidiaries; and common units for COPLP and subsidiaries.

In August 2018, the Securities and Exchange Commission amended its rules to simplify or eliminate outdated, duplicative or overlapping disclosure requirements. The amendments also expand certain disclosure requirements, such as requiring (effective January 1, 2019) current and comparative quarter and year-to-date reporting of changes in shareholders’ equity in interim periods. We adopted these rules effective November 5, 2018 for the changes in disclosure that were required for this Quarterly Report on Form 10-Q, the effect of which was not material to the consolidated financial statements included herein, and we do not expect our adoption of these rules to have a material impact on our consolidated financial statements included in our future periodic filings.

In February 2016, the FASB issued guidance that setssetting 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. TheThis guidance requires lessors of real estate to account for leases using an approach that is substantially equivalent to existing guidance previously in place for sales-typeoperating leases, direct financing leases and operatingsales-type leases.  ThisWe adopted this guidance will be adopted by us on January 1, 2019 using a modified retrospective transition approach under which willwe elected to apply the guidance effective January 1, 2019 with a cumulative-effect adjustment as of such date, and not adjust prior comparative reporting periods. The guidance permits lessees and lessors to electperiods (except for our presentation of lease revenue discussed below). We elected to apply a package of practical expedients that allow them notenabled us to reassesscarry forward upon adoption: the lease classification for anyadoption our historical assessments of: expired or existing leases;leases regarding their lease classification and deferred recognition of incrementalnon-incremental direct costs of leasing for any expired or existing leases;costs; and whether any expired or existing contracts are, or contain, leases. The guidanceWe also permits lessors to electelected a practical expedient (by class of underlying asset)that enabled us to avoid the need to assess whether expired or existing land easements not previously accounted for as leases are, or contain, a lease. In addition, we elected a practical expedient for our rental properties (as lessor) to avoid separating non-lease components that otherwise would need to be accounted for under the recently-adopted revenue accounting guidance (such as common area maintenance and provisiontenant reimbursements of utilities)property operating expenses) from the associated lease component ifsince (1) the non-lease components have the same timing and pattern of transfer as the associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease; once this practical expedient is adopted, the lessor would be ableenables us to account for the combination of the lease component and non-lease components as an operating lease as long assince the lease component is the predominant component of the combined components. We expect to elect each of the above practical expedients. Below is a summary of the anticipated effects of this guidance onprimary changes in our accounting and reporting.reporting that resulted from our adoption of this guidance:

Real estateProperty leases in which we are the lessor:
◦Balance sheet reporting: We believeDeferral of non-incremental leasing costs: For new or extended tenant leases, we no longer defer recognition of non-incremental leasing costs that we will apply an approachwould have deferred under the newprior accounting guidance that is similar(refer to the current accounting for operating leases,our 2018 Annual Report on Form 10-K in which we will continue to recognize the underlying leased asset as property on our balance sheet.reported amounts deferred in 2018, 2017 and 2016).
◦DeferralChange in presentation of non-incrementalrevenue: Due to our adoption of the practical expedient discussed above to not separate non-lease component revenue from the associated lease costs: Undercomponent, we are aggregating revenue from our lease components and non-lease components (comprised predominantly of tenant operating expense reimbursements) into the newline entitled “lease revenue.” We are reporting other revenue from our properties in the line entitled “other property revenue.” We recast prior periods for these changes in presentation.
◦Changes in assessment of lease revenue collectability: Changes in our assessment of lease revenue collectability that previously would have resulted in charges to bad debt expense under prior guidance we will be expensing future non-incremental costs in connectionare being recognized as an


adjustment to rental revenue under the new guidance. Such amounts recognized by us in prior periods were not significant.
◦Operating expenses paid directly by tenants to third parties: Operating expenses paid directly by tenants to third parties (primarily for real estate taxes) and revenue associated with new or extendedsuch tenant leases the recognition of whichpayments that would have been deferredrecognized under current accounting (refer toprior guidance will no longer be reported on our Statement of Operations. Such amounts reportedrecognized by us in our 2017 Annual Report on Form 10-K for amounts deferred in 2017, 2016 and 2015).prior periods were not significant.
Leases (the most significant of which are ground leases) in which we are the lessee:
◦Our most significantBalance sheet presentation of property operating lease right-of-use assets: Upon adoption on January 1, 2019, we recognized property right-of-use assets and offsetting lease liabilities for existing operating leases as lessee are ground leases; astotaling $16 million for the present value of September 30, 2018, our future minimum rentallease payments under these leases, totaled $87.5and also reclassified an additional $11 million in amounts previously presented elsewhere on our balance sheet in connection with various expiration dates extendingthese leases to the year 2100.right-of-use assets. We believe that we will be required to recognize additional right-of-use assets and lease liabilities for the present valueas we enter into new operating leases.
◦Balance sheet presentation of these minimumproperty finance lease payments. We also believeright-of-use assets: Property right-of-use assets of finance leases that these types of leases would be classifiedpreviously were presented as properties under prior guidance are being presented as property finance leasesright-of-use assets under the new guidance, which wouldguidance. As a result, we reclassified $38 million in the interest componentassets from properties to property finance right-of-use assets upon adoption on January 1, 2019.
◦Segment assets: We changed our definition 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, we expect to elect to apply the package of practical expedients under which we would continue to accountsegment assets used for our existing ground leases asreportable segments to include property right-of-use assets associated with operating leases upon adoptionproperties, net of the guidance.related lease liabilities.



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 to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g. loan commitments). Under the new guidance, an entity will recognize its estimate of expected credit losses 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 guidance is effective for us beginning January 1, 2020, with early adoption permitted after December 2018. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

In August 2018, the FASB issued guidance that modifies disclosure requirements for fair value measurements. This guidance is effective for us beginning January 1, 2020. Early adoption is permitted for this guidance, and entities are permitted to early adopt with respect to any removed or modified disclosures while delaying adoption of additional disclosure requirements until the effective date. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued guidance 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 did not previously address the accounting for such implementation costs. The guidance is effective for us beginning January 1, 2020, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

3.     Revenue Recognition on Construction Contract and Other Service Revenues

We enter into construction contracts to complete various design and construction services primarily for our United States Government tenants. The revenues and expenses from these services consist primarily of subcontracted costs that are reimbursed to us by our customers along with a fee. These services are an ancillary component of our overall operations, with small operating margins relative to the revenue. We review each contract to determine the performance obligations and allocate the transaction price. We recognize revenue under these contracts as services are performed in an amount that reflects the consideration we expect to receive in exchange for those services. Our performance obligations are satisfied over time as work progresses. Revenue recognition is determined using the input method based on costs incurred as of point in time relative to the total estimated costs at completion to measure progress toward satisfying our performance obligations. We believe incurred costs of work performed best depicts the transfer of control of the services being transferred to the customer.

In determining whether the performance obligations of each construction contract should be accounted for separately versus together, we consider numerous factors that may require significant judgment, including: whether the components contracted are substantially the same with the same pattern of transfer; whether the customer could contract with another party to perform construction based on our design project; and whether the customer can elect not to move forward after the design phase of the contract. Most of our contracts have a single performance obligation as the promise to transfer the services is not separately identifiable from other obligations in the contracts and, therefore, are not distinct. Some contracts have multiple performance obligations, most commonly due to having distinct project phases for design and construction for which our customer is making decisions and managing separately. In these cases, we allocate the transaction price between these performance obligations based on the amounts separately set forth in the contracts for such obligations. Contract modifications, such as change orders, are routine for our construction contracts and are generally determined to be additions to the existing performance obligations because they would have been part of the initial performance obligations if they were identified at the initial contract date.

We have three main types of compensation arrangements for our construction contracts: guaranteed maximum price (“GMP”); firm fixed price (“FFP”); and cost-plus fee.

GMP contracts provide for revenue equal to costs incurred plus a fee equal to a percentage of such costs, up to a maximum contract amount. We generally enter into GMP contracts for projects that are significant in nature based on the size of the project and total fees, and for which the full scope of the project has not been determined as of the contract date. GMP contracts are lower risk to us than FFP contracts since the costs and revenue move proportionately to one another;
FFP contracts provide for revenue equal to a fixed fee. These contracts are typically lower in value and scope relative to GMP contracts, and are generally entered into when the scope of the project is well defined. Typically, we assume more risk with FFP contracts than GMP contracts since the revenue is fixed and we could realize losses or less than expected profits if we incur more costs than originally estimated. However, these types of contracts offer the opportunity for additional profits when we complete the work for less than originally estimated. Determining the estimated total costs for


contracts under an FFP compensation arrangement may require significant judgment and has a direct effect on our revenue recognition pattern;
Cost-plus fee contracts provide for revenue equal to costs incurred plus a fee equal to a percentage of such costs but, unlike GMP contracts, do not have a maximum contract amount. Similar to GMP contracts, cost-plus fee contracts are low risk to us since the costs and revenue move proportionately to one another.

Construction contract cost estimates are based on various assumptions, such as performance of subcontractors and cost and availability of materials, to project the outcome of future events over the course of the project. We review and update these estimates regularly as a significant change could affect the profitability of our construction contracts. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method as the modification does not create a new performance obligation. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.

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,
 2018 2017 2018 2017
Construction contract revenues:       
GMP$1,840
 $25,235
 $31,865
 $50,141
FFP3,653
 3,759
 16,376
 14,544
Cost-plus fee2,719
 560
 4,273
 577
Other211
 232
 688
 696
 $8,423
 $29,786
 $53,202
 $65,958

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,
 2018 2017 2018 2017
Construction contract revenues:       
Construction$8,160
 $30,004
 $50,743
 $61,173
Design52
 (450) 1,771
 4,089
Other211
 232
 688
 696
 $8,423
 $29,786
 $53,202
 $65,958

We recognized revenue from performance obligations satisfied (or partially satisfied) in previous periods of $(1,000) and $47,000 in the three months ended September 30, 2018 and 2017, respectively; and $318,000 and $594,000 in the nine months ended September 30, 2018 and 2017, respectively.

Our timing of revenue recognition for construction contracts generally differs from the timing of invoicing to customers. We recognize such revenue as we satisfy our performance obligations. Payment terms and conditions vary by contract type. Under most of our contracts, we bill customers monthly, as work progresses, in accordance with the contract terms, with payment due in 30 days, although customers occasionally pay in advance of services being provided. We have determined that our contracts generally do not include a significant financing component. The primary purpose of the timing of our invoicing is for convenience, not to receive financing from our customers or to provide customers with financing. Additionally, the timing of transfer of the services is often at the discretion of the customer. We recognized no impairment losses on construction contracts receivable or unbilled construction revenue in the periods set forth herein.



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,
 2018 2017
Beginning balance$4,577
 $4,131
Ending balance$5,571
 $5,414

Under most of our contracts, we bill customers one month subsequent to revenue recognition, resulting in contract assets representing unbilled construction revenue. Contract assets, which we refer to herein as construction costs in excess of billings, 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,
 2018 2017
Beginning balance$4,884
 $10,350
Ending balance$2,821
 $2,005

Our contract liabilities consist of advance payments from our customers or billings in excess of construction contract revenue recognized. 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,
 2018 2017
Beginning balance$27,402
 $32,650
Ending balance$560
 $32,762
Portion of beginning balance recognized in revenue during:   
Three months ended September 30$—
 $11,689
Nine months ended September 30$27,296
 $32,650

The change in the contract liabilities balance reported above for the nine months ended September 30, 2018 was due primarily to our satisfaction of performance obligations during the period on a contract on which we previously received advance payments from a customer.

Revenue allocated to the remaining performance obligations under existing contracts as of September 30, 2018 that will be recognized as revenue in future periods was $13.7 million, $8 million of which we expect to recognize during the remainder of 2018.

We have no deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues.

4.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 participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. 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 sheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded, totaled $4.3$4.2 million as of September 30, 2018,March 31, 2019, and is included in the line entitled “prepaid expenses and other assets, net” on COPT’s consolidated balance sheets. 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 COPT’s 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, 2018,March 31, 2019, 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 valuevalues 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 7 for investing receivables, Note 9 for debt and Note 10 for interest rate derivatives. 

COPT and Subsidiaries

The table below sets forth financial assets and liabilities of COPT and subsidiaries that are accounted for at fair value on a recurring basis as of September 30, 2018March 31, 2019 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 Significant Other
Observable Inputs(Level 2)		 Significant
Unobservable Inputs(Level 3)		 Total Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
 Total
Assets:  
  
  
  
  
  
  
  
Marketable securities in deferred compensation plan (1)  
  
  
  
  
  
  
  
Mutual funds $4,298
 $—
 $—
 $4,298
 $4,171
 $—
 $—
 $4,171
Other 48
 —
 —
 48
 43
 —
 —
 43
Interest rate derivatives —
 10,875
 —
 10,875
 —
 2,602
 —
 2,602
Total assets $4,346
 $10,875
 $—
 $15,221
 $4,214
 $2,602
 $—
 $6,816
Liabilities:  
  
  
  
  
  
  
  
Deferred compensation plan liability (2) $—
 $4,346
 $—
 $4,346
 $—
 $4,214
 $—
 $4,214
Interest rate derivatives —
 11,894
 —
 11,894
Total liabilities $—
 $16,108
 $—
 $16,108

(1) Included in the line entitled “prepaid expenses and other assets, net” on COPT’s consolidated balance sheet.
(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 subsidiaries that are accounted for at fair value on a recurring basis as of September 30, 2018March 31, 2019 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:  
  
  
  
Interest rate derivatives $—
 $10,875
 $—
 $10,875


Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 Significant Other
Observable Inputs(Level 2)		 
Significant
Unobservable 
Inputs
(Level 3)
 Total
Assets:  
  
  
  
Interest rate derivatives $—
 $2,602
 $—
 $2,602
Liabilities:  
  
  
  
Interest rate derivatives $—
 $11,894
 $—
 $11,894

5.4.    Properties, Net
 
Operating properties, net consisted of the following (in thousands): 
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Land$481,527
 $455,680
$505,062
 $503,274
Buildings and improvements3,182,709
 3,068,124
3,288,033
 3,241,894
Less: Accumulated depreciation(867,659) (786,193)(927,266) (897,903)
Operating properties, net$2,796,577
 $2,737,611
$2,865,829
 $2,847,265

ProjectsProperties we had in development or held for future development consisted of the following (in thousands):
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Land$220,468
 $240,825
$227,852
 $207,760
Development in progress, excluding land190,382
 162,669
209,321
 195,601
Projects in development or held for future development$410,850
 $403,494
$437,173
 $403,361

Our property held for sale is 11751 Meadowville Lane, a property in our Data Center Shells sub-segment, the sale of which was not recognized for accounting purposes. We provided a financial guaranty to the buyer under which we provided an indemnification for up to $20 million in losses it could incur related to a potential defined capital event occurring on the property; our financial guaranty to the buyer expired on October 1, 2018, resulting in no losses to us. We accounted for this transaction as a financing arrangement. Accordingly, we did not recognize the sale of this property for accounting purposes until the expiration of the guaranty on October 1, 2018, and we reported the sales proceeds as a liability on the consolidated balance sheets as of September 30, 2018 and December 31, 2017 in the line entitled “deferred property sale.” The table below sets forth the components of this property’s assets as of September 30, 2018 and December 31, 2017 (in thousands):
Properties, net$38,670
Deferred rent receivable3,237
Deferred leasing costs, net319
Assets held for sale, net$42,226

20182019 Construction Activities

During the ninethree months ended September 30, 2018,March 31, 2019, we placed into service 432,000181,000 square feet in fourthree newly-constructed properties and 18,000 square feet in(including one redeveloped property.partially-operational property). As of September 30, 2018,March 31, 2019, we had nine14 properties under construction (including onetwo partially-operational property)properties), or which we were contractually committed to construct, that we estimate will total 1.31.9 million square feet upon completion and two propertiesone property under redevelopment (including one partially-operational property) that we estimate will total 128,000106,000 square feet upon completion.

5.    Leases

Lessor arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of March 31, 2019, these leases, which may encompass all, or a portion of, a property, had remaining lease terms spanning from one month to 15 years and averaging approximately five years. These leases usually include options under which the tenant may renew its lease based on market rates at the time of renewal, which are then typically subject to further negotiation. These leases occasionally provide the tenant with an option to terminate its lease early usually for a defined termination fee. While a significant portion of our portfolio is leased to the United States Government, and the majority of those leases consist of a series of one-year renewal options, or provide for early termination rights, we have concluded that exercise of existing renewal options, or continuation of such leases without exercising early termination rights, is reasonably assured for virtually all of these leases.



Most of our lease revenue is from fixed contractual payments defined under the lease that, in most cases, escalate annually over the term of the lease. Our lease revenue also includes variable lease payments predominantly for tenant reimbursements of property operating expenses and lease termination fees. Property operating expense reimbursement structures vary, with some tenants responsible for all of a property’s expenses, while others are responsible for their share of a property’s expense only to the extent such expenses exceed amounts defined in the lease (which are derived from the property’s historical expense levels). Lease termination fees in most cases result from a tenant’s exercise of an existing right under a lease, and are usually equal to a defined percentage of the remaining rents due under the lease and/or the remaining unamortized lease origination costs (including tenant improvements and lease commissions).

The table below sets forth our allocation of lease revenue recognized between fixed contractual payments and variable lease payments (in thousands):
Lease revenue For the Three Months Ended
March 31, 2019
Fixed contractual payments $105,335
Variable lease payments 25,568
  $130,903

Fixed contractual payments due under our property leases were as follows (in thousands):
Year Ending December 31, March 31, 2019 December 31, 2018
2019 (1) $305,864
 $400,617
2020 347,477
 337,646
2021 293,546
 280,369
2022 258,502
 246,329
2023 206,833
 194,888
Thereafter 562,614
 523,932
  $1,974,836
 $1,983,781

(1) As of March 31, 2019, represents the nine months ending December 31, 2019.

Lessee arrangements

We lease from third parties land underlying properties that we are operating or developing. These ground leases have long durations with remaining terms ranging from 30 years (excluding extension options) to 97 years. As of March 31, 2019, our balance sheet included $68.1 million in right-of-use assets associated with ground leases that 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 97-year remaining lease term, and we possess a bargain purchase option that we expect to exercise in 2020;
$10.4 million for land underlying office properties in Washington, DC under two leases with remaining terms of approximately 80 years;
$6.5 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 30 years and an option to renew for an additional 49 years that was included in the lease term used in determining the asset balance;
$6.7 million for land in a research park in College Park, Maryland under four 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 64 to 75 years;
$4.3 million for land in a business park in Huntsville, Alabama under nine leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 44 to 50 years and options to renew for an additional 25 years that were not included in the lease term used in determining the asset balance; and
$2.3 million for other land in our Fort Meade/BW Corridor sub-segment under two leases with remaining terms of approximately 49 years all of the rent on which was previously paid.

As of March 31, 2019, our balance sheet also included right-of-use lease assets totaling $1.2 million in connection with vehicles and office equipment that we lease from third parties.

In determining operating right-of-use assets and lease liabilities for our existing operating leases upon our adoption of the new lease guidance discussed further in Note 2, as well as for new operating leases in the current period, we were required to


estimate an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. Since the terms under our ground leases are significantly longer than the terms of borrowings available to us on a fully-collateralized basis, our estimate of this rate required significant judgment, and considered factors such as interest rates available to us on a fully-collateralized basis for shorter-termed debt and U.S. Treasury rates.

Our right-of-use assets consisted of the following (in thousands):
Leases Balance Sheet Location March 31, 2019
Right-of-use assets    
Operating leases - Property Property - operating right-of-use assets $27,569
Finance leases    
Property Property - finance right-of-use assets 40,488
Vehicles and office equipment Prepaid expenses and other assets, net 1,197
Total finance lease right-of-use assets   41,685
     
Total right-of-use assets   $69,254

Lease liabilities consisted of the following (in thousands):
Leases Balance Sheet Location March 31, 2019
Lease liabilities    
Operating leases - Property Property - operating lease liabilities $16,619
Finance leases Other liabilities 1,275
     
Total lease liabilities   $17,894

The table below sets forth the weighted average lease terms and discount rates of our leases as of March 31, 2019:
Weighted average remaining lease term
Operating leases70 years
Finance leases2 years
Weighted average discount rate
Operating leases7.35%
Finance leases3.10%

The table below presents our total lease cost (in thousands):
Lease cost Statement of Operations Location For the Three Months Ended
March 31, 2019
Operating lease cost    
Property leases Property operating expense $413
Vehicles and office equipment General, administrative and leasing expense 17
Finance lease cost    
Amortization of vehicles and office equipment right-of-use assets General, administrative and leasing expense 113
Interest on lease liabilities Interest expense 4
    $547

The table below presents the effect of lease payments on our consolidated statement of cash flows (in thousands):
Supplemental cash flow information For the Three Months Ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows for operating leases $228
Operating cash flows for financing leases $4
Financing cash flows for financing leases $52



Payments on leases as of March 31, 2019 were due as follows (in thousands):
Year Ending December 31,  Operating leases Finance leases Total
2019 (1) $830
 $179
 $1,009
2020 1,128
 862
 1,990
2021 1,111
 202
 1,313
2022 1,129
 64
 1,193
2023 1,135
 —
 1,135
Thereafter 99,185
 —
 99,185
Total lease payments 104,518
��1,307
 105,825
Less: Amount representing interest (87,899) (32) (87,931)
Lease liability $16,619
 $1,275
 $17,894

(1) Represents the nine months ending December 31, 2019.

Future minimum rental payments on leases as of December 31, 2018 were due as follows (in thousands):
Year Ending December 31,  Operating leases Finance leases Total
2019 $1,101
 $219
 $1,320
2020 1,110
 844
 1,954
2021 1,094
 184
 1,278
2022 1,115
 49
 1,164
2023 1,119
 —
 1,119
Thereafter 83,373
 —
 83,373
Total lease payments $88,912
 1,296
 90,208
Less: Amount representing interest N/A
 (24) (24)
Total N/A
 $1,272
 $90,184

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, 2018March 31, 2019 (dollars in thousands):
 Nominal      
   Ownership   September 30, 2018 (1)   Nominal ownership % as of 3/31/19   March 31, 2019 (1)
 Date % as of Total Encumbered Total Date Acquired Total Assets Encumbered Assets Total Liabilities
 Acquired 9/30/2018 Nature of Activity Assets Assets Liabilities Nominal ownership % as of 3/31/19Nature of Activity 
LW Redstone Company, LLC 3/23/2010 85% Development and operation of real estate (2) $165,752
 $73,405
 $53,653
 3/23/2010 85%Development and operation of real estate (2) $178,227
 $75,542
 $55,472
M Square Associates, LLC 6/26/2007 50% Development and operation of real estate (3) 74,848
 44,009
 45,369
 6/26/2007 50%Development and operation of real estate (3) 79,257
 46,180
 44,554
Stevens Investors, LLC 8/11/2015 95% Development of real estate (4) 79,093
 78,545
 12,662
 8/11/2015 95% Development of real estate (4) 88,628
 88,073
 20,742
   $319,693
 $195,959
 $111,684
   $346,112
 $209,795
 $120,768
(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.

Unconsolidated Real Estate Joint Venture

As of September 30, 2018,March 31, 2019, we owned a 50% interest in GI-COPT DC Partnership LLC (“GI-COPT”), a joint venture owning six triple-net leased, single-tenant data center shell properties in Virginia, that we account for using the equity method of accounting. As of September 30, 2018,March 31, 2019, we had an investment balance in GI-COPT of $40.3$39.4 million.



7.    Investing Receivables
 
Investing receivables, including accrued interest thereon, consisted of the following (in thousands):
 
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Notes receivable from the City of Huntsville$52,667
 $54,472
$55,293
 $53,961
Other investing loans receivable3,021
 3,021
14,097
 3,021
$55,688
 $57,493
$69,390
 $56,982
 
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%.

We did not have an allowance for credit losses in connection with our investing receivables as of September 30, 2018March 31, 2019 or December 31, 20172018.  The fair value of these receivables was approximately $57.0$74 million as of September 30, 2018March 31, 2019 and $58.3$58 million as of December 31, 2017.2018.



8.    Prepaid Expenses and Other Assets, Net
 
Prepaid expenses and other assets, net of COPT and subsidiaries consisted of the following (in thousands):
 
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Lease incentives, net$22,981
 $21,258
Construction contract costs incurred in excess of billings14,834
 3,189
Prepaid expenses$31,259
 $24,670
10,749
 25,658
Lease incentives, net18,583
 19,011
Furniture, fixtures and equipment, net7,087
 5,256
Furniture, fixtures and equipment, net (1)8,453
 8,630
Non-real estate equity investments5,085
 5,056
5,792
 5,940
Marketable securities in deferred compensation plan4,346
 4,616
Deferred financing costs, net (2)4,473
 4,733
Restricted cash3,440
 2,570
3,995
 3,884
Construction contract costs incurred in excess of billings2,821
 4,884
Deferred tax asset, net (1)(3)2,080
 1,892
1,890
 2,084
Other assets4,648
 3,379
6,815
 6,337
Prepaid expenses and other assets, net$79,349
 $71,334
Total for COPLP and subsidiaries79,982
 81,713
Marketable securities in deferred compensation plan4,214
 3,868
Total for COPT and subsidiaries$84,196
 $85,581

(1) Includes $1.2 million in finance right-of-use assets as of March 31, 2019.
(2) Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.
(3) Includes a valuation allowance of $3.0$2.4 million as of September 30, 2018March 31, 2019 and $1.4$2.7 million as of December 31, 2017.2018.



9.    Debt, Net
 
Our debt consisted of the following (dollars in thousands):
 Carrying Value (1) as of  Carrying Value (1) as of 
 September 30,
2018		 December 31,
2017		 Stated Interest Rates as of Scheduled Maturity as of March 31,
2019		 December 31,
2018		 March 31, 2019
 September 30, 2018 September 30, 2018 Stated Interest Rates Scheduled Maturity
Mortgage and Other Secured Debt:  
  
      
  
    
Fixed rate mortgage debt (2) $148,054
 $150,723
 3.82% - 7.87% (3) 2019-2026 $146,212
 $147,141
 3.82% - 7.87% (3) 2019-2026
Variable rate secured debt (4) 20,890
 13,115
 LIBOR + 1.85% to 2.35% (5) 2020-2022 26,915
 23,282
 LIBOR + 1.85% to 2.35% (5) 2020-2022
Total mortgage and other secured debt 168,944
 163,838
     173,127
 170,423
    
Revolving Credit Facility (6) 99,000
 126,000
 LIBOR + 0.875% to 1.60% (7) May 2019 (6) 262,000
 213,000
 LIBOR + 0.775% to 1.45% (6) March 2023 (7)
Term Loan Facilities (8) 348,298
 347,959
 LIBOR + 0.90% to 1.85% (9) 2020-2022
Term Loan Facility (8) 248,381
 248,273
 LIBOR + 0.85% to 1.65% (9) 2022
Unsecured Senior Notes          
3.600%, $350,000 aggregate principal 347,876
 347,551
 3.60% (10) May 2023 348,096
 347,986
 3.60% (10) May 2023
5.250%, $250,000 aggregate principal 247,011
 246,645
 5.25% (11) February 2024 247,263
 247,136
 5.25% (11) February 2024
3.700%, $300,000 aggregate principal 298,690
 298,322
 3.70% (12) June 2021 298,941
 298,815
 3.70% (12) June 2021
5.000%, $300,000 aggregate principal 297,013
 296,731
 5.00% (13) July 2025 297,206
 297,109
 5.00% (13) July 2025
Unsecured note payable 1,198
 1,287
 0% (14) May 2026 1,135
 1,167
 0% (14) May 2026
Total debt, net $1,808,030
 $1,828,333
     $1,876,149
 $1,823,909
    

(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $7.6$6.8 million as of September 30, 2018March 31, 2019 and $5.0$7.2 million as of December 31, 2017.2018.
(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 $298,000$264,000 as of September 30, 2018March 31, 2019 and $349,000$281,000 as of December 31, 2017.2018.
(3)The weighted average interest rate on our fixed rate mortgage debt was 4.18%4.17% as of September 30, 2018.March 31, 2019.
(4)Includes a construction loan with $100.7$94.9 million in remaining borrowing capacity as of September 30, 2018.March 31, 2019.
(5) The weighted average interest rate on our variable rate secured debt was 4.20%4.63% as of September 30, 2018.March 31, 2019.
(6)As discussed further below, we entered into a credit agreement on October 10, 2018 to replace our existing revolving credit facility with a new facility.
(7)The weighted average interest rate on the Revolving Credit Facility was 3.37%3.54% as of September 30, 2018.March 31, 2019.
(7)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.
(8)  As of September 30, 2018,March 31, 2019, we have the ability to borrow an additional $350.0$150.0 million in the aggregate under these term loan facilities,this facility, provided that there is no default under the facilitiesfacility and subject to the approval of the lenders. In addition, in connection with our Revolving Credit Facility, we 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.
(9) 
The weighted average interest rate on these loansthis loan was 3.47%3.74% as of September 30, 2018March 31, 2019.
(10)
The carrying value of these notes reflects an unamortized discount totaling $1.5$1.3 million as of September 30, 2018March 31, 2019 and $1.7$1.4 million as of December 31, 20172018.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%. 
(11)
The carrying value of these notes reflects an unamortized discount totaling $2.7$2.5 million as of September 30, 2018March 31, 2019 and $3.0$2.6 million as of December 31, 20172018.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. 
(12)
The carrying value of these notes reflects an unamortized discount totaling $1.0 million$842,000 as of September 30, 2018March 31, 2019 and $1.3 million$943,000 as of December 31, 20172018.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.85%. 
(13) The carrying value of these notes reflects an unamortized discount totaling $2.5$2.3 million as of September 30, 2018March 31, 2019 and $2.7$2.4 million as of December 31, 2017.2018.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.
(14) 
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 $313,000276,000 as of September 30, 2018March 31, 2019 and $373,000294,000 as of December 31, 20172018.
 
All debt is owed by the Operating Partnership.COPLP. While COPT is not directly obligated by any debt, it has guaranteed the Operating Partnership’sCOPLP’s Revolving Credit Facility, Term Loan Facilities and Unsecured Senior Notes.

On October 10, 2018, we entered into a credit agreement with a group of lenders to replace our existing unsecured revolving credit facility with a new facility (the prior facility and new facility are referred to collectively herein as our “Revolving Credit Facility”). The lenders’ aggregate commitment under the new facility is $800.0 million, with the ability for us to increase the lenders’ aggregate commitment to $1.25 billion, provided that there is no default under the facility and subject to the approval of the lenders. The new facility matures on March 10, 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. The interest rate on the new facility is based on LIBOR plus 0.775% to 1.450%, as determined by the credit ratings assigned to COPLP by Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd. (collectively, the “Ratings Agencies”). The new facility also carries a quarterly fee that is based on the lenders’ aggregate commitment under the facility multiplied by a per annum rate of 0.125% to 0.300%, as determined by the credit ratings assigned to COPLP by the Ratings Agencies.



Certain of our debt instruments require that we comply with a number of restrictive financial covenants.  As of September 30, 2018,March 31, 2019, we were within the compliance requirements of these financial covenants.

We capitalized interest costs of $2.0 million in the three months ended March 31, 2019 and $1.4 million in the three months ended September 30, 2018, $1.1 million in the three months ended September 30, 2017, $4.2 million in the nine months ended September 30, 2018 and $4.2 million in the nine months ended September 30, 2017.March 31, 2018.



The following table sets forth information pertaining to the fair value of our debt (in thousands): 
September 30, 2018 December 31, 2017
Carrying Fair Carrying FairMarch 31, 2019 December 31, 2018
Amount Value Amount ValueCarrying Amount Fair Value Carrying Amount Fair Value
Fixed-rate debt 
  
  
  
 
  
  
  
Unsecured Senior Notes$1,190,590
 $1,218,314
 $1,189,249
 $1,229,398
$1,191,506
 $1,222,637
 $1,191,046
 $1,219,603
Other fixed-rate debt149,252
 145,341
 152,010
 152,485
147,347
 146,585
 148,308
 147,106
Variable-rate debt468,188
 467,556
 487,074
 485,694
537,296
 540,915
 484,555
 486,497
$1,808,030
 $1,831,211
 $1,828,333
 $1,867,577
$1,876,149
 $1,910,137
 $1,823,909
 $1,853,206
 

10.    Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge of interest rate risk (dollars in thousands):
  
 
 
Fair Value at   
 
 
Fair Value at
Notional AmountNotional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
September 30,
2018
December 31,
2017		Notional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
March 31,
2019
December 31,
2018
$100,000

1.7300%
One-Month LIBOR
9/1/2015
8/1/2019
$695

$252
100,000

1.7300%
One-Month LIBOR
9/1/2015
8/1/2019
$255

$472
12,931
(1)1.3900% One-Month LIBOR 10/13/2015 10/1/2020 349
 213
12,73512,735
(1)1.3900% One-Month LIBOR 10/13/2015 10/1/2020 170
 239
100,000100,000
 1.9013% One-Month LIBOR 9/1/2016 12/1/2022 3,937
 1,046
100,000
 1.9013% One-Month LIBOR 9/1/2016 12/1/2022 879
 1,968
100,000100,000
 1.9050% One-Month LIBOR 9/1/2016 12/1/2022 3,943
 1,051
100,000
 1.9050% One-Month LIBOR 9/1/2016 12/1/2022 871
 1,967
50,00050,000
 1.9079% One-Month LIBOR 9/1/2016 12/1/2022 1,951
 511
50,000
 1.9079% One-Month LIBOR 9/1/2016 12/1/2022 427
 971
75,00075,000
 3.1760% Three-Month LIBOR 6/30/2020 6/30/2030 (4,869) (2,676)
75,00075,000
 3.1920% Three-Month LIBOR 6/30/2020 6/30/2030 (4,974) (2,783)
75,00075,000
 2.7440% Three-Month LIBOR 6/30/2020 6/30/2030 (2,051) —

  
 
 
 
$10,875

$3,073
  
 
 
 
$(9,292)
$158

(1)     The notional amount of this instrument is scheduled to amortize to $12.1 million.
(1)The notional amount of this instrument is scheduled to amortize to $12.1 million.
 
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,
2018		 December 31, 2017 Balance Sheet Location March 31,
2019		 December 31, 2018
Interest rate swaps designated as cash flow hedges Interest rate derivatives $10,875
 $3,073
 Interest rate derivatives (assets) $2,602
 $5,617
Interest rate swaps designated as cash flow hedges Interest rate derivatives (liabilities) $(11,894) $(5,459)
 
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
 Amount of Gain (Loss) Recognized in AOCI on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Interest Expense on Statement of Operations Amount of (Loss) Gain Recognized in AOCL on Derivatives Amount of Gain (Loss) 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, For the Three Months Ended March 31, For the Three Months Ended March 31,
Derivatives in Hedging Relationships 2018 2017 2018 2017 2018 2017 2018 2017 2019 2018 2019 2018
Interest rate derivatives $1,325
 $(301) $7,913
 $(1,877) $207
 $(615) $9
 $(2,740) $(8,845) $4,676
 $570
 $(245)

Over the next 12 months, we estimate that approximately $2.5 million$817,000 of gains will be reclassified from AOCIaccumulated other comprehensive loss (“AOCL”) as a decrease to interest expense.

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. WeAs of March 31, 2019, we are not in default with any of these provisions. As of September 30, 2018, we did not have anyMarch 31, 2019, the fair value of interest rate derivatives in a liability positions.position related to these agreements was $12.0 million, excluding the effects of accrued interest and credit valuation adjustments. As of September 30, 2018,March 31, 2019, 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 $12.0 million as of March 31, 2019.

11.    Redeemable Noncontrolling Interests

Our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC (discussed further in Note 6), 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 Three Months Ended March 31,
  2019 2018
Beginning balance $26,260
 $23,125
Distributions to noncontrolling interests (349) (452)
Net income attributable to noncontrolling interests 675
 638
Adjustment to arrive at fair value of interests 799
 537
Ending balance $27,385
 $23,848

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. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):
  For the Nine Months Ended September 30,
  2018 2017
Beginning balance $23,125
 $22,979
Contributions from noncontrolling interests 186
 —
Distributions to noncontrolling interests (1,114) (1,186)
Net income attributable to noncontrolling interests 1,903
 1,720
Adjustment to arrive at fair value of interests 1,331
 (244)
Ending balance $25,431
 $23,269

12.    Equity
 
During the ninethree months ended September 30, 2018,March 31, 2019, COPT issued 4.51.6 million common shares under its forward equity sale agreements for net proceeds of $132.5$46.5 million. COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP. COPT’sCOPT has no remaining capacity under the forward equity sale agreements was 3.0 million common shares as of September 30, 2018.March 31, 2019.

During the nine months ended September 30, 2018, COPT issued 991,664 common shares at a weighted average price of $30.46 per share under its existing at-the-market (“ATM”) stock offering program. Net proceeds from the shares issued totaled $29.8 million, after payment of $0.5 million in commissions to sales agents. COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP. As of September 30, 2018, COPT’sMarch 31, 2019, COPT had remaining capacity under this ATMits at-the-market stock offering program isequal to an aggregate gross sales price of $39.8$300 million in common share sales.

During the ninethree months ended September 30, 2018,March 31, 2019, certain COPLP limited partners converted 1.9 million5,500 common units in COPLP for an equal number of common shares in COPT.

We declared dividends per COPT common share and COPLP common unit of $0.275 in the three months ended September 30, 2018March 31, 2019 and 2017 and $0.825 in the nine months ended September 30, 2018 and 2017.2018.

See Note 1415 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.



13.    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 (referred to herein as “Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure). As of September 30, 2018 and December 31, 2017, our Regional Office segment included properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics; during 2017, this segment also included suburban properties that did not meet these characteristics (that were since disposed).

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



The table below reports segment financial information for our reportable segments (in thousands): 
Operating Property Segments      Operating Property Segments      
Defense/Information Technology Locations        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 TotalFort 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, 2018 
  
  
    
  
    
  
  
  
Three Months Ended March 31, 2019 
  
  
    
  
    
  
  
  
Revenues from real estate operations$61,396
 $13,960
 $11,254
 $7,899
 $3,734
 $6,689
 $104,932
 $15,272
 $7,781
 $1,003
 $128,988
$62,683
 $14,831
 $11,561
 $8,155
 $3,939
 $7,354
 $108,523
 $14,833
 $7,871
 $763
 $131,990
Property operating expenses(19,847) (5,518) (6,432) (3,208) (1,569) (574) (37,148) (7,425) (3,965) (802) (49,340)(22,335) (5,292) (5,959) (3,404) (1,539) (353) (38,882) (7,416) (2,838) (309) (49,445)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,206
 1,206
 —
 —
 —
 1,206
—
 —
 —
 —
 —
 1,219
 1,219
 —
 —
 —
 1,219
NOI from real estate operations$41,549
 $8,442
 $4,822
 $4,691
 $2,165
 $7,321
 $68,990
 $7,847
 $3,816
 $201
 $80,854
$40,348
 $9,539
 $5,602
 $4,751
 $2,400
 $8,220
 $70,860
 $7,417
 $5,033
 $454
 $83,764
Additions to long-lived assets$11,211
 $2,305
 $—
 $1,758
 $33
 $—
 $15,307
 $5,670
 $370
 $(88) $21,259
$3,935
 $1,447
 $—
 $5,017
 $300
 $—
 $10,699
 $3,989
 $156
 $10
 $14,854
Transfers from non-operating properties$14,698
 $1,550
 $—
 $(17) $13
 $30,286
 $46,530
 $—
 $155
 $—
 $46,685
$5,040
 $4,509
 $6,503
 $—
 $3,635
 $19,788
 $39,475
 $—
 $—
 $—
 $39,475
Three Months Ended September 30, 2017 
  
  
  
  
  
    
  
  
  
Segment assets at March 31, 2019$1,279,983
 $400,741
 $145,697
 $189,192
 $110,195
 $370,447
 $2,496,255
 $394,001
 $213,993
 $3,904
 $3,108,153
Three Months Ended March 31, 2018 
  
  
    
  
    
  
  
  
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
$62,782
 $12,561
 $11,443
 $7,870
 $3,633
 $5,831
 $104,120
 $15,284
 $8,077
 $797
 $128,278
Property operating expenses(19,708) (4,343) (6,193) (3,157) (1,432) (637) (35,470) (7,406) (3,175) (317) (46,368)(21,604) (4,723) (6,598) (3,304) (1,440) (794) (38,463) (7,878) (4,258) (352) (50,951)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,202
 1,202
 —
 —
 —
 1,202
—
 —
 —
 —
 —
 1,199
 1,199
 —
 —
 —
 1,199
NOI from real estate operations$41,546
 $7,847
 $4,831
 $4,337
 $2,100
 $7,241
 $67,902
 $9,250
 $4,223
 $690
 $82,065
$41,178
 $7,838
 $4,845
 $4,566
 $2,193
 $6,236
 $66,856
 $7,406
 $3,819
 $445
 $78,526
Additions to long-lived assets$5,810
 $2,587
 $55
 $1,910
 $843
 $—
 $11,205
 $5,338
 $9
 $76
 $16,628
$7,121
 $1,940
 $—
 $1,108
 $79
 $—
 $10,248
 $3,884
 $36
 $127
 $14,295
Transfers from non-operating properties$5,519
 $45,554
 $—
 $8
 $(62) $29,803
 $80,822
 $25
 $—
 $—
 $80,847
$17,186
 $341
 $—
 $(3) $444
 $1,114
 $19,082
 $—
 $1,012
 $—
 $20,094
Nine Months Ended September 30, 2018 
  
  
    
  
    
  
  
  
Revenues from real estate operations$186,171
 $39,639
 $35,079
 $23,896
 $11,019
 $18,475
 $314,279
 $45,852
 $23,963
 $2,334
 $386,428
Property operating expenses(61,550) (15,150) (20,524) (9,943) (4,518) (2,167) (113,852) (22,472) (12,373) (1,040) (149,737)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 3,607
 3,607
 —
 —
 —
 3,607
NOI from real estate operations$124,621
 $24,489
 $14,555
 $13,953
 $6,501
 $19,915
 $204,034
 $23,380
 $11,590
 $1,294
 $240,298
Additions to long-lived assets$26,483
 $5,431
 $—
 $4,316
 $463
 $—
 $36,693
 $14,915
 $487
 $227
 $52,322
Transfers from non-operating properties$34,919
 $2,243
 $—
 $(17) $483
 $61,075
 $98,703
 $—
 $2,300
 $—
 $101,003
Segment assets at September 30, 2018$1,280,837
 $394,066
 $126,047
 $189,406
 $105,315
 $359,653
 $2,455,324
 $396,624
 $219,041
 $3,997
 $3,074,986
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—
 —
 —
 —
 —
 3,602
 3,602
 —
 —
 —
 3,602
NOI from real estate operations$123,036
 $21,978
 $14,562
 $12,562
 $6,322
 $19,727
 $198,187
 $30,420
 $11,160
 $2,615
 $242,382
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
 $275,680
 $2,375,446
 $398,579
 $226,909
 $13,347
 $3,014,281
Segment assets at March 31, 2018$1,273,359
 $399,202
 $127,855
 $192,116
 $107,096
 $302,120
 $2,401,748
 $397,355
 $222,738
 $4,125
 $3,025,966


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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Segment revenues from real estate operations$128,988
 $127,231
 $386,428
 $382,295
$131,990
 $128,278
Construction contract and other service revenues8,423
 29,786
 53,202
 65,958
16,950
 27,198
Total revenues$137,411
 $157,017
 $439,630
 $448,253
$148,940
 $155,476
 
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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
UJV NOI allocable to COPT$1,206
 $1,202
 $3,607
 $3,602
$1,219
 $1,199
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense(830) (830) (2,482) (2,481)(827) (824)
Add: Equity in loss of unconsolidated non-real estate entities(2) (1) (5) (3)(1) (2)
Equity in income of unconsolidated entities$374
 $371
 $1,120
 $1,118
$391
 $373
 
As previously discussed, we provide real estate services such as property management and construction and development services primarily for our properties but also for third parties.  The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities.  Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Construction contract and other service revenues$8,423
 $29,786
 $53,202
 $65,958
$16,950
 $27,198
Construction contract and other service expenses(8,058) (28,788) (51,215) (63,589)(16,326) (26,216)
NOI from service operations$365
 $998
 $1,987
 $2,369
$624
 $982



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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
NOI from real estate operations$80,854
 $82,065
 $240,298
 $242,382
$83,764
 $78,526
NOI from service operations365
 998
 1,987
 2,369
624
 982
Interest and other income1,486
 1,508
 4,284
 4,817
2,286
 1,359
Gain on sales of real estate—
 1,188
 (27) 5,438
—
 (4)
Equity in income of unconsolidated entities374
 371
 1,120
 1,118
391
 373
Income tax benefit (expense)291
 (57) 173
 (145)
Income tax expense(194) (55)
Depreciation and other amortization associated with real estate operations(34,195) (34,438) (100,897) (100,290)(34,796) (33,512)
Impairment recoveries (losses)—
 161
 —
 (1,464)
General, administrative and leasing expenses(6,899) (7,368) (21,819) (23,838)(8,751) (7,292)
Business development expenses and land carry costs(1,567) (1,277) (4,415) (4,567)(1,113) (1,614)
Interest expense(19,181) (19,615) (56,910) (57,772)(18,674) (18,784)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities(1,206) (1,202) (3,607) (3,602)(1,219) (1,199)
Loss on early extinguishment of debt—
 —
 —
 (513)
Net income$20,322
 $22,334
 $60,187
 $63,933
$22,318
 $18,780
 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
September 30,
2018		 September 30,
2017		March 31,
2019		 March 31,
2018
Segment assets$3,074,986
 $3,014,281
$3,108,153
 $3,025,966
Operating properties lease liabilities included in segment assets16,342
 —
Non-operating property assets420,109
 413,255
485,911
 425,951
Other assets155,271
 149,305
165,453
 144,321
Total COPT consolidated assets$3,650,366
 $3,576,841
$3,775,859
 $3,596,238
 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that UJV NOI allocable to COPT are not presented separately for segment purposes.statements.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment (recoveries) losses, loss on early extinguishment of debt, gain on sales of real estate and equity in income of unconsolidated entities not included in NOI to our real estate segments since they are not included in the measure of segment profit reviewed by management.  We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.

14.Construction Contract and Other Service Revenues

We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):
 For the Three Months Ended March 31,
 2019 2018
Construction contract revenues:   
Guaranteed maximum price$12,356
 $20,486
Firm fixed price2,325
 6,435
Cost-plus fee2,060
 58
Other209
 219
 $16,950
 $27,198



The table below reports construction contract and other service revenues by service type (in thousands):
 For the Three Months Ended March 31,
 2019 2018
Construction contract revenues:   
Construction$16,489
 $25,915
Design252
 1,064
Other209
 219
 $16,950
 $27,198

We recognized revenue of $32,000 and $309,000 in the three months ended March 31, 2019 and 2018, respectively, from performance obligations satisfied (or partially satisfied) in previous periods.

Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):
 For the Three Months Ended March 31,
 2019 2018
Beginning balance$6,701
 $4,577
Ending balance$6,569
 $4,021

Contract assets, which we refer to herein as construction costs in excess of billings, are included in prepaid expenses and other assets, net reported on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):
 For the Three Months Ended March 31,
 2019 2018
Beginning balance$3,189
 $4,884
Ending balance$14,834
 $4,250

Contract liabilities are included in other liabilities reported on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):
 For the Three Months Ended March 31,
 2019 2018
Beginning balance$568
 $27,402
Ending balance$1,005
 $8,279
Revenue recognized included in beginning balance$439
 $19,297

The change in the contract liabilities balance reported above for the three months ended March 31, 2018 was due primarily to our satisfaction of performance obligations during the period on a contract on which we previously received advance payments from a customer.

Revenue allocated to the remaining performance obligations under existing contracts as of March 31, 2019 that will be recognized as revenue in future periods was $51.6 million, approximately $45 million of which we expect to recognize during the remainder of 2019.

We have no deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues and had no impairment losses on construction contracts receivable or unbilled construction revenue for the three months ended March 31, 2019 and 2018.

15.    Share-Based Compensation
 
Restricted Shares
During the three months ended March 31, 2019, certain employees were granted a total of 135,396 restricted common shares with an aggregate grant date fair value of $3.5 million ($25.81 per share).  Restricted shares granted to employees vest


based on increments and over periods of time set forth under the terms of the respective awards provided that the employee remains employed by us. During the three months ended March 31, 2019, forfeiture restrictions lapsed on 151,252 previously issued common shares; these shares had a weighted average grant date fair value of $27.94 per share, and the aggregate intrinsic value of the shares on the vesting dates was $3.9 million.

Performance Share Awards (“PSUs”)
 
OnWe issued 44,757 common shares on January 1, 2018,18, 2019 to executives in settlement of PSUs granted in 2016, representing 157% of the target award for those PSUs.

PIUs

Commencing in 2019, we offered our Boardexecutives the opportunity to select PIUs as a form of Trusteeslong-term compensation in lieu of, or in combination with, other forms of share-based compensation awards (restricted shares and PSUs). PIUs are a special class of common unit structured to qualify as “profit interests” for tax purposes. Our executives selected PIUs as their form of share-based compensation for their 2019 grants. We granted the executives 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 59,110three months ended PSUsMarch 31, 2019, our executives were granted a total of 54,956 TB-PIUs with an aggregate grant date fair value of $1.9$1.4 million ($25.81 per TB-PIU). TB-PIUs granted to our three executives.  The PSUs haveexecutives vest in equal one-third increments over a performancethree-year period beginning on the first anniversary of the date of grant. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights.

PB-PIUs

On January 1, 2018 and2019, we granted our executives 193,682 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 20202021 or the date of: (1) termination by us without cause, death or disability of the executive or constructive discharge of the executive (collectively, “qualified termination”); or (2) a sale event.  The number of PSUs earned (“earned PSUs”)awards at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return relative to a peer group of companies, as set forth in the following schedule:
Percentile Rank Earned PSUsAwards Payout %
75th or greater 200%100% of PSUsPB-PIUs granted
50th (target) 100%50% of PSUsPB-PIUs granted
25th 50%25% of PSUsPB-PIUs granted
Below 25th 0% of PSUsPB-PIUs granted



If the percentile rank exceeds the 25th percentile and is between two of the percentile ranks set forth in the table above, then the percentage of the earned PSUsawards will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles.  During the performance period, PB-PIUs carry rights to distributions equal to 10% of the distribution rights of non-PIU common units but carry no redemption rights.

At the end of the performance period, we in settlement ofwill settle the award will:

issue a number of fully-vested COPT common sharesby issuing vested PIUs equal to the number of earned PSUsawards in settlement of the award plan;plan and
pay paying cash equal to the excess, if any, of: the aggregate dividendsdistributions that would have been paid with respect to the common sharesvested PIUs issued in settlement of the earned PSUsawards through the date of settlement had such sharesvested PIUs been issued on the grant date.
date; over the aggregate distributions made on the PB-PIUs during the performance period. If a performance period ends due to a sale event or qualified termination, the number of earned PSUsawards is prorated based on the portion of the three-year performance period that has elapsed.  If employment is terminated by the employee or by us for cause, all PSUsPB-PIUs are forfeited. PSUs do not carry voting rights.

We computed aThese PB-PIUs had an aggregate grant date fair value of $31.97$2.4 million ($12.47 per PSUPB-PIU) which is being recognized over the performance period. The grant date fair value was computed using a Monte Carlo model. Significant assumptions formodel that model included the following:following


assumptions: baseline common share value of $29.20;$21.03; expected volatility for COPT common shares of 17.0%21.0%; and a risk-free interest rate of 2.04%2.51%.  

We issued 13,328 common shares on February 22, 2018 to executives in settlement of PSUs issued in 2015, representing 75% of the target award for those PSUs.

Restricted Shares
During the nine months endedSeptember 30, 2018, certain employees and non-employee members of our Board of Trustees were granted a total of 208,266 restricted common shares with an aggregate grant date fair value of $5.3 million (weighted average of $25.69 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 endedSeptember 30, 2018, forfeiture restrictions lapsed on 169,391 previously issued common shares; these shares had a weighted average grant date fair value of $29.60 per share, and the aggregate intrinsic value of the shares on the vesting dates was $4.3 million.

Deferred Share Awards

During the nine months ended September 30, 2018, non-employee members of our Board of Trustees were granted a total of 13,832 deferred share awards with an aggregate grant date fair value of $388,000 ($28.08 per share). Deferred share awards vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. We settle deferred share awards by issuing an equivalent number of common shares upon vesting of the awards or a later date elected by the Trustee (generally upon cessation of being a Trustee). During the nine months ended September 30, 2018, we issued 5,515 common shares in settlement of deferred share awards; these shares had a grant date fair value of $29.32 per share, and the aggregate intrinsic value of the shares on the settlement date was $154,000.

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

We present both basic and diluted EPS.  We compute basic EPS by dividing net income available to common shareholders allocable to unrestricted common shares under the two-class method by the weighted average number of unrestricted common shares outstanding during the period.  Our computation of diluted EPS is similar except that:
 
the denominator is increased to include: (1) the weighted average number of potential additional common shares that would have been outstanding if securities that are convertible into COPT common shares were converted; and (2) the effect of dilutive potential common shares outstanding during the period attributable to COPT’s forward equity sale agreements, redeemable noncontrolling interests and our share-based compensation using the treasury stock or if-converted methods; and
the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common shares that we addedadd to the denominator.



Summaries of the numerator and denominator for purposes of basic and diluted EPS calculations are set forth below (in thousands, except per share data):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Numerator: 
  
     
  
Net income attributable to COPT$18,697
 $20,579
 $55,281
 $59,124
$20,859
 $17,150
Preferred share dividends—
 —
 —
 (6,219)
Issuance costs associated with redeemed preferred shares—
 —
 —
 (6,847)
Income attributable to share-based compensation awards(114) (95) (348) (337)(86) (117)
Numerator for basic and diluted EPS on net income attributable to COPT common shareholders$18,583
 $20,484
 $54,933
 $45,721
$20,773
 $17,033
Denominator (all weighted averages): 
  
     
  
Denominator for basic EPS (common shares)104,379
 99,112
 102,401
 98,855
109,951
 100,999
Dilutive effect of share-based compensation awards231
 146
 165
 154
267
 144
Dilutive effect of forward equity sale agreements178
 —
 60
 —
Denominator for diluted EPS (common shares)104,788
 99,258
 102,626
 99,009
110,218
 101,143
Basic EPS$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
Diluted EPS$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
 
Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods (in thousands):
Weighted Average Shares Excluded from Denominator
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Weighted Average Shares Excluded from Denominator
For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Conversion of common units2,135
 3,350
 2,847
 3,400
1,331
 3,221
Conversion of redeemable noncontrolling interests1,013
 —
Conversion of Series I preferred units176
 176
 176
 176
176
 176
 
The following securities were also excluded from the computation of diluted EPS because their effects were not dilutive:effect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the three months ended March 31, 2019 and 2018 of 1.5 million and 7.5 million, respectively;
weighted average restricted shares and deferred share awards for the three months ended September 30,March 31, 2019 and 2018 of 463,000 and 2017 of 455,000 and 445,000, respectively, and for the nine months ended September 30, 2018 and 2017 of 452,000 and 431,000,444,000, respectively; and
weighted average options for the three months ended September 30,March 31, 2019 and 2018 and 2017 of 30,000 and 40,000, respectively,60,000, respectively; and
weighted average unvested PIUs of 19,000 for the ninethree months ended September 30, 2018 and 2017 of 45,000 and 80,000, respectively.March 31, 2019.



COPLP and Subsidiaries EPU

We present both basic and diluted EPU.  We compute basic EPU by dividing net income available to common unitholders allocable to unrestricted common units under the two-class method by the weighted average number of unrestricted common units outstanding during the period.  Our computation of diluted EPU is similar except that:
 
the denominator is increased to include: (1) the weighted average number of potential additional common units that would have been outstanding if securities that are convertible into our common units were converted; and (2) the effect of dilutive potential common units outstanding during the period attributable to COPT’s forward equity sale agreements, redeemable noncontrolling interests and our share-based compensation using the treasury stock or if-converted methods; and
the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common units that we addedadd to the denominator.



Summaries of the numerator and denominator for purposes of basic and diluted EPU calculations are set forth below (in thousands, except per unit data):
For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
Numerator: 
  
     
  
Net income attributable to COPLP$19,242
 $21,437
 $57,308
 $61,195
$21,281
 $17,859
Preferred unit distributions(165) (165) (495) (6,714)(165) (165)
Issuance costs associated with redeemed preferred units—
 —
 —
 (6,847)
Income attributable to share-based compensation awards(114) (95) (348) (337)(93) (117)
Numerator for basic and diluted EPU on net income attributable to COPLP common unitholders$18,963
 $21,177
 $56,465
 $47,297
$21,023
 $17,577
Denominator (all weighted averages): 
  
     
  
Denominator for basic EPU (common units)106,514
 102,462
 105,248
 102,255
111,282
 104,220
Dilutive effect of share-based compensation awards231
 146
 165
 154
267
 144
Dilutive effect of forward equity sale agreements178
 —
 60
 —
Denominator for diluted EPU (common units)106,923
 102,608
 105,473
 102,409
111,549
 104,364
Basic EPU$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
Diluted EPU$0.18
 $0.21
 $0.54
 $0.46
$0.19
 $0.17
 
Our diluted EPU computations do not include the effect of 176,000 common units resulting from an assumed conversioneffects of the Series I preferred unitsfollowing securities since the conversions of such a conversionsecurities would increase diluted EPU for the three and nine months ended September 30, 2018 and 2017. respective periods (in thousands):
 
Weighted Average Units Excluded
from Denominator
For the Three Months Ended March 31,
 2019 2018
Conversion of redeemable noncontrolling interests1,013
 —
Conversion of Series I preferred units176
 176

The following securities were also excluded from the computation of diluted EPU because their effects were not dilutive:effect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the three months ended March 31, 2019 and 2018 of 1.5 million and 7.5 million, respectively;
weighted average restricted units and deferred share awards for the three months ended September 30,March 31, 2019 and 2018 of 463,000 and 2017 of 455,000 and 445,000, respectively, and for the nine months ended September 30, 2018 and 2017 of 452,000 and 431,000,444,000, respectively; and
weighted average options for the three months ended September 30, 2018March 31, 2019 and 20172018 of 30,000 and 40,00060,000, respectively,respectively; and
weighted average unvested PIUs of 19,000 for the ninethree months ended September 30, 2018 and 2017 of 45,000 and 80,000, respectively.March 31, 2019.



16.17.    Commitments and Contingencies
 
Litigation and Claims
 
In the normal course of business, we are subject to legal actions and other claims.  We record losses for specific legal proceedings and claims when we determine that a loss is probable and the amount of loss can be reasonably estimated.  Management believes that it is reasonably possible that we could incur losses pursuant to 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 three 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 National Business Park North.  The real estate taxes on increases in assessed value of a development district encompassing National Business Park North are to be transferred to a special fund pledged to the repayment of the bonds. While we are obligated to fund, through a special tax, any future shortfalls between debt service of the bonds and real estate taxes available to repay the bonds, as of September 30, 2018,March 31, 2019, we do not expect any such future fundings will be required.

Operating Leases

We are obligated as lessee under operating leases (mostly ground leases) with various expiration dates extending to the year 2100. Future minimum rental payments due under the terms of these operating leases as of September 30, 2018 follow (in thousands):
Year Ending December 31,  
2018 (1) $328
2019 1,297
2020 1,261
2021 1,258
2022 1,143
Thereafter 83,039
  $88,326
(1) Represents the three months ending December 31, 2018.

Capital Lease

On May 25, 2017, we entered into a ground lease on land under development in Washington, DC through 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 in 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 and have since paid down most of this liability. The remaining capital lease obligation as of September 30, 2018 was $660,000, which is due in 2020.

Contractual Obligations

We had amounts remaining to be incurred under various contractual obligations as of September 30, 2018March 31, 2019 that included the following (excluding amounts incurred and therefore reflected as liabilities reported on our consolidated balance sheets):

development and redevelopment obligations of $163.1$184.3 million;
tenant and other capital expenditures for operating propertiesimprovements of $39.7$45.3 million;
third party construction obligations of $3.6$32.6 million; and
other obligations of $2.1$1.7 million.



Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
During the ninethree months ended September 30, 2018March 31, 2019: 

we finished the period with our office and data center shell portfolio 92.1%92.6% occupied;
we placed into service 450,000181,000 square feet in fivethree newly-constructed or redeveloped properties that were 85.8%100.0% leased as of September 30, 2018;March 31, 2019; and
COPT issued:
◦4.5 million common shares under its forward equity sale agreements for net proceeds of $132.5 million; and
◦991,664 common shares at a weighted average price of $30.46 per share under its ATM stock offering program for net proceeds of $29.8 million.
issued 1.6 million common shares under its forward equity sale agreements for net proceeds of $46.5 million. COPT contributed the net proceeds from these issuances to COPLP in exchange for an equal number of units in COPLP. The proceeds were used primarily to repay borrowings under our Revolving Credit Facility that funded development costs.

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:

disclosed include information pertaining to six properties owned through an unconsolidated real estate joint venture except for amounts reported for Annualized Rental Revenue, which represent the portion attributable to our ownership interest; and
exclude, for purposes of amounts reported as of September 30, 2018 and December 31, 2017, a property reported as held for sale that we sold in 2017 subject to our providing a financial guaranty to the buyer under which we indemnified it for up to $20 million in losses it could incur related to a potential defined capital event occurring on the property; our financial guaranty to the buyer expired on October 1, 2018, resulting in no losses to us.  Accordingly, we did not recognize the sale of this property for accounting purposes until the expiration of the guaranty on October 1, 2018, and we reported the sales proceeds as a liability on our consolidated balance sheets through September 30, 2018.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;
governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or a curtailment ofreduced or delayed demand for additional space by our strategic customers;
our ability to borrow on favorable terms;


risks of real estate acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;
changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
our ability to satisfy and operate effectively under Federal income tax rules relating to real estate investment trusts and partnerships;
possible adverse changes in tax laws;
the dilutive effects of issuing additional common shares;


our ability to achieve projected results;
security breaches relating to cyber attacks, cyber intrusions or other factors; and
environmental requirements.

We undertake no obligation to publicly update or supplement forward-looking statements.
 
Occupancy and Leasing
 
Office and Data Center Shell Portfolio
 
The tables below set forth occupancy information pertaining to our portfolio of office and data center shell properties:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Occupancy rates at period end 
  
 
  
Total92.1% 93.6%92.6% 93.0%
Defense/IT Locations:      
Fort Meade/BW Corridor91.7% 95.6%90.4% 91.1%
Northern Virginia Defense/IT83.8% 89.1%91.7% 91.3%
Lackland Air Force Base100.0% 100.0%100.0% 100.0%
Navy Support Locations88.0% 87.7%90.9% 90.5%
Redstone Arsenal99.0% 98.2%98.4% 99.0%
Data Center Shells100.0% 100.0%100.0% 100.0%
Total Defense/IT Locations92.6% 95.2%93.4% 93.6%
Regional Office89.0% 89.5%88.3% 89.2%
Other77.2% 34.4%73.7% 77.2%
Average contractual annual rental rate per square foot at period end (1)$29.73
 $29.84
$29.71
 $30.04

(1) Includes estimated expense reimbursements. Amounts reported include the portion of six properties owned through an unconsolidated real estate joint venture that was allocable to our ownership interest.
Rentable
Square Feet
 
Occupied
Square Feet
Rentable
Square Feet
 
Occupied
Square Feet
(in thousands)(in thousands)
December 31, 201717,345
 16,227
December 31, 201818,094
 16,821
Vacated upon lease expiration (1)—
 (653)—
 (301)
Occupancy for new leases (2)—
 464
—
 326
Constructed or redeveloped (3)780
 414
181
 181
Removed from operations (4)(241) —
Other changes(17) 4
63
 (37)
September 30, 201817,867
 16,456
March 31, 201918,338
 16,990

(1)Includes lease terminations and space reductions occurring in connection with lease renewals.
(2)Excludes occupancy of vacant square feet acquired or developed.
(3)Includes 330,000 unoccupied square feet that were completed in 2016 but reported as construction projects through December 31, 2017 since they were held for future lease to the United States Government.
(4)Includes the removal of one property for which we have no leasing plan or intention to allocate future capital and one property reclassified as redevelopment.



Total occupancy decreased from December 31, 2017 to September 30, 2018 due primarily to the addition of 404,000 unoccupied, newly-constructed square feet during the period, including: 243,000 in the Fort Meade/BW Corridor sub-segment; and 161,000 in the Northern Virginia Defense/IT sub-segment leased in June 2018 that we expect to be occupied by the end of the year.

During the ninethree months ended September 30, 2018,March 31, 2019, we completed 2.9 million956,000 square feet of leasing, including: renewed leases on 1.8 million291,000 square feet, representing 77.1%71.3% of the square footage of our lease expirations (including the effect of early renewals and excluding the effect of 108,000renewals); 539,000 square feet vacated in a property in the Fort Meade/BW Corridor sub-segment that was removed from service for redevelopment); 694,000 of constructiondevelopment and redevelopment space; and 348,000 in other leasing.126,000 square feet of vacant space.

Wholesale Data Center
 
Our 19.25 megawatt wholesale data center had 16.86 megawattswas 87.6% leased as of September 30, 2018March 31, 2019 and December 31, 2017.2018.

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:



office and data center shell properties:
continually owned and 100% operational throughout the current and prior year reporting periods, excluding properties held for sale.  We define these as changes from “Same Properties”;
constructed or redeveloped and placed into service that were not 100% operational throughout the current and prior year reporting periods; and
disposed (including a property reported as held for sale since December 31, 2017, the sale of which in 2017 was not recognized for accounting purposes);disposed; and
our wholesale data center.

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 operatingnet income, 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 reported on the consolidated statements of operations of COPT and subsidiaries is provided in Note 13 to our consolidated financial statements.



Comparison of Statements of Operations for the Three Months Ended September 30,March 31, 2019 and 2018 and 2017

For the Three Months Ended September 30,For the Three Months Ended March 31,
2018 2017 Variance2019 2018 Variance
(in thousands)(in thousands)
Revenues 
  
  
 
  
  
Revenues from real estate operations$128,988
 $127,231
 $1,757
$131,990
 $128,278
 $3,712
Construction contract and other service revenues8,423
 29,786
 (21,363)16,950
 27,198
 (10,248)
Total revenues137,411
 157,017
 (19,606)148,940
 155,476
 (6,536)
Expenses 
  
  
Operating expenses 
  
  
Property operating expenses49,340
 46,368
 2,972
49,445
 50,951
 (1,506)
Depreciation and amortization associated with real estate operations34,195
 34,438
 (243)34,796
 33,512
 1,284
Construction contract and other service expenses8,058
 28,788
 (20,730)16,326
 26,216
 (9,890)
Impairment recoveries—
 (161) 161
General, administrative and leasing expenses6,899
 7,368
 (469)8,751
 7,292
 1,459
Business development expenses and land carry costs1,567
 1,277
 290
1,113
 1,614
 (501)
Total operating expenses100,059
 118,078
 (18,019)110,431
 119,585
 (9,154)
Operating income37,352
 38,939
 (1,587)
Interest expense(19,181) (19,615) 434
(18,674) (18,784) 110
Interest and other income1,486
 1,508
 (22)2,286
 1,359
 927
Gain on sales of real estate—
 1,188
 (1,188)—
 (4) 4
Equity in income of unconsolidated entities374
 371
 3
391
 373
 18
Income tax benefit (expense)291
 (57) 348
Income tax expense(194) (55) (139)
Net income$20,322
 $22,334
 $(2,012)$22,318
 $18,780
 $3,538



NOI from Real Estate Operations
For the Three Months Ended September 30,For the Three Months Ended March 31,
2018 2017 Variance2019 2018 Variance
(Dollars in thousands, except per square foot data)(Dollars in thousands, except per square foot data)
Revenues          
Same Properties revenues          
Rental revenue, excluding lease termination revenue$89,237
 $88,622
 $615
Lease revenue, excluding lease termination revenue$117,899
 $116,064
 $1,835
Lease termination revenue759
 860
 (101)521
 1,008
 (487)
Tenant recoveries and other real estate operations revenue23,015
 22,545
 470
Other property revenue1,042
 1,112
 (70)
Same Properties total revenues113,011
 112,027
 984
119,462
 118,184
 1,278
Constructed and redeveloped properties placed in service8,174
 3,880
 4,294
4,445
 914
 3,531
Wholesale data center7,781
 7,398
 383
7,871
 8,077
 (206)
Dispositions—
 3,261
 (3,261)—
 135
 (135)
Other22
 665
 (643)212
 968
 (756)
128,988
 127,231
 1,757
131,990
 128,278
 3,712
Property operating expenses          
Same Properties(42,598) (41,589) (1,009)(45,785) (46,219) 434
Constructed and redeveloped properties placed in service(2,702) (930) (1,772)(859) (228) (631)
Wholesale data center(3,965) (3,175) (790)(2,838) (4,258) 1,420
Dispositions26
 (423) 449
—
 (21) 21
Other(101) (251) 150
37
 (225) 262
(49,340) (46,368) (2,972)(49,445) (50,951) 1,506
          
Same Properties UJV NOI allocable to COPT1,206
 1,202
 4
1,219
 1,199
 20
          
NOI from real estate operations          
Same Properties71,619
 71,640
 (21)74,896
 73,164
 1,732
Constructed and redeveloped properties placed in service5,472
 2,950
 2,522
3,586
 686
 2,900
Wholesale data center3,816
 4,223
 (407)5,033
 3,819
 1,214
Dispositions26
 2,838
 (2,812)—
 114
 (114)
Other(79) 414
 (493)249
 743
 (494)
$80,854
 $82,065
 $(1,211)$83,764
 $78,526
 $5,238
     
Same Properties NOI from real estate operations by segment     
Defense/IT Locations$67,068
 $65,425
 $1,643
Regional Office7,417
 7,313
 104
Other411
 426
 (15)
$74,896
 $73,164
 $1,732
     
Same Properties rent statistics          
Average occupancy rate91.5% 91.7% (0.2)%92.6% 91.4% 1.2%
Average straight-line rent per occupied square foot (1)$6.42
 $6.36
 $0.06
$6.26
 $6.20
 $0.06
 
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

Our Same Properties pool consisted of 147156 properties, comprising 90.8%94.7% of our office and data center shell portfolio’s square footage as of September 30, 2018.March 31, 2019. This pool of properties included the following changeschanged from the pool used for purposes of comparing 20172018 and 20162017 in our 20172018 Annual Report on Form 10-K:10-K due to the addition of 14nine properties placed in service and 100% operational on or before January 1, 2017 (including six unconsolidated real estate joint venture properties and two properties added to our rentable square feet in 2018 that were previously reported as construction projects since they were held for future lease to the United States Government); and the removal of one property in 2018 for which we have no leasing plan or intention to allocate future capital and one property reclassified as redevelopment.2018.



Our NOI from constructed and redeveloped properties placed in service included 14nine properties and land under a long-term contract placed in service in 20172018 and 2018.2019.

NOI from Service Operations
 For the Three Months Ended September 30, For the Three Months Ended March 31,
 2018 2017 Variance 2019 2018 Variance
 (in thousands) (in thousands)
Construction contract and other service revenues $8,423
 $29,786
 $(21,363) $16,950
 $27,198
 $(10,248)
Construction contract and other service expenses 8,058
 28,788
 (20,730) 16,326
 26,216
 (9,890)
NOI from service operations $365
 $998
 $(633) $624
 $982
 $(358)

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

Comparison of Statements of Operations for the Nine Months Ended September 30, 2018General, administrative and 2017leasing expenses

 For the Nine Months Ended September 30,
 2018 2017 Variance
 (in thousands)
Revenues 
  
  
Revenues from real estate operations$386,428
 $382,295
 $4,133
Construction contract and other service revenues53,202
 65,958
 (12,756)
Total revenues439,630
 448,253
 (8,623)
Expenses 
  
  
Property operating expenses149,737
 143,515
 6,222
Depreciation and amortization associated with real estate operations100,897
 100,290
 607
Construction contract and other service expenses51,215
 63,589
 (12,374)
Impairment losses—
 1,464
 (1,464)
General, administrative and leasing expenses21,819
 23,838
 (2,019)
Business development expenses and land carry costs4,415
 4,567
 (152)
Total operating expenses328,083
 337,263
 (9,180)
Operating income111,547
 110,990
 557
Interest expense(56,910) (57,772) 862
Interest and other income4,284
 4,817
 (533)
Gain on sales of real estate(27) 5,438
 (5,465)
Loss on early extinguishment of debt—
 (513) 513
Equity in income of unconsolidated entities1,120
 1,118
 2
Income tax benefit (expense)173
 (145) 318
Net income$60,187
 $63,933
 $(3,746)



NOI from Real Estate Operations
 For the Nine Months Ended September 30,
 2018 2017 Variance
 (Dollars in thousands, except per square foot data)
Revenues     
Same Properties revenues     
Rental revenue, excluding lease termination revenue$266,647
 $266,094
 $553
Lease termination revenue2,325
 2,083
 242
Tenant recoveries and other real estate operations revenue71,693
 70,934
 759
Same Properties total revenues340,665
 339,111
 1,554
Constructed and redeveloped properties placed in service20,544
 6,253
 14,291
Wholesale data center23,963
 21,201
 2,762
Dispositions140
 13,704
 (13,564)
Other1,116
 2,026
 (910)
 386,428
 382,295
 4,133
Property operating expenses     
Same Properties(130,876) (127,275) (3,601)
Constructed and redeveloped properties placed in service(5,979) (2,450) (3,529)
Wholesale data center(12,373) (10,041) (2,332)
Dispositions(4) (2,614) 2,610
Other(505) (1,135) 630
 (149,737) (143,515) (6,222)
      
Same Properties UJV NOI allocable to COPT3,607
 3,602
 5
      
NOI from real estate operations     
Same Properties213,396
 215,438
 (2,042)
Constructed and redeveloped properties placed in service14,565
 3,803
 10,762
Wholesale data center11,590
 11,160
 430
Dispositions136
 11,090
 (10,954)
Other611
 891
 (280)
 $240,298
 $242,382
 $(2,084)
Same Properties rent statistics     
Average occupancy rate91.2% 93.5% (2.3)%
Average straight-line rent per occupied square foot (1)$19.27
 $19.16
 $0.11
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

The decreaseGeneral, administrative and leasing expenses increased in large part due to our Same Properties NOI from real estate operations reflected above was due primarily to higher snow and utilities expensesadoption of lease accounting guidance in the current period as well as higher real estate taxes at certain properties resulting from increased property assessments.under which we no longer defer recognition of non-incremental leasing costs.

Our NOI from constructed and redeveloped properties placed in service included 14 properties placed in service in 2017 and 2018.

NOI from Service Operations
  For the Nine Months Ended September 30,
  2018 2017 Variance
  (in thousands)
Construction contract and other service revenues $53,202
 $65,958
 $(12,756)
Construction contract and other service expenses 51,215
 63,589
 (12,374)
NOI from service operations $1,987
 $2,369
 $(382)



Construction contract and other service revenue and expenses decreased due primarily to a lower volume of construction activity in connection with several of our tenants.

Gain on Sales of Real Estate

We recognized a gain on sales of real estate of $5.4 million in the prior period in connection with land sales.

Funds from Operations
 
Funds from operations (“FFO”) is defined as net income computed using GAAP, excluding gains on sales of, and impairment losses on, previously depreciated operating properties, plusof real estate and real estate-related depreciation and amortization. When multiple properties consisting of both operating and non-operating properties exist on a single tax parcel, we classify all of the gains on sales of, and impairment losses on, the tax parcel as all being for previously depreciated operating properties when most of the value of the parcel is associated with operating properties on the parcel. FFO also includes adjustments to net income for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe that we use the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”) definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs.  We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains related toon sales of, and impairment losses on, previously depreciated operating properties,of real estate, net of related tax benefit, 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 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 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 gains on debt extinguishment; loss on interest rate derivatives; demolition costs on redevelopment and nonrecurring improvements; executive transition costs;


and issuance costs associated with redeemed preferred shares.  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 adopted, retrospectively effective January 1, 2019, Nareit’s 2018 Whitepaper Restatement, which changed the prior definition of FFO to also exclude gains on sales and impairment losses of properties other than previously depreciated operating properties, net of associated income tax. This adoption affected our reporting for FFO, Basic FFO, Diluted FFO and Diluted FFO per share.


The table below sets forth the computation of the above stated measures for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, 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,For the Three Months Ended March 31,
2018 2017 2018 20172019 2018
(Dollars and shares in thousands, 
except per share data)
(Dollars and shares in thousands, 
except per share data)
Net income$20,322
 $22,334
 $60,187
 $63,933
$22,318
 $18,780
Add: Real estate-related depreciation and amortization34,195
 34,438
 100,897
 100,290
34,796
 33,512
Add: Depreciation and amortization on UJV allocable to COPT564
 563
 1,691
 1,689
566
 563
Add: Impairment (recoveries) losses on previously depreciated operating properties—
 (159) —
 1,451
Less: Gain on sales of previously depreciated operating properties—
 (8) 27
 (39)
Less: Gain on sales of real estate—
 4
FFO55,081
 57,168
 162,802
 167,324
57,680
 52,859
Less: Noncontrolling interests-preferred units in the Operating Partnership(165) (165) (495) (495)(165) (165)
Less: FFO allocable to other noncontrolling interests(1,060) (917) (2,757) (2,801)(971) (944)
Less: Preferred share dividends—
 —
 —
 (6,219)
Less: Issuance costs associated with redeemed preferred shares—
 —
 —
 (6,847)
Basic and diluted FFO allocable to share-based compensation awards(214) (215) (651) (616)(185) (213)
Basic and diluted FFO available to common share and common unit holders53,642
 55,871
 158,899
 150,346
Gain on sales of non-operating properties—
 (1,180) —
 (5,399)
Impairment (recoveries) losses on non-operating properties—
 (2) —
 13
Gain on interest rate derivatives—
 (34) —
 (43)
Loss on early extinguishment of debt—
 —
 —
 513
Issuance costs associated with redeemed preferred shares—
 —
 —
 6,847
Basic FFO available to common share and common unit holders56,359
 51,537
Redeemable noncontrolling interests381
 —
Diluted FFO available to common share and common unit holders56,740
 51,537
Executive transition costs46
 2
 422
 732
4
 163
Demolition costs on redevelopment and nonrecurring improvements251
 —
 299
 294
44
 39
Diluted FFO comparability adjustments allocable to share-based compensation awards(1) 5
 (3) (12)—
 (1)
Diluted FFO available to common share and common unit holders, as adjusted for comparability$53,938
 $54,662
 $159,617
 $153,291
$56,788
 $51,738
          
Weighted average common shares104,379
 99,112
 102,401
 98,855
109,951
 100,999
Conversion of weighted average common units2,135
 3,350
 2,847
 3,400
1,331
 3,221
Weighted average common shares/units - Basic FFO106,514
 102,462
 105,248
 102,255
111,282
 104,220
Dilutive effect of share-based compensation awards231
 146
 165
 154
302
 144
Dilutive effect of forward equity sale agreements178
 —
 60
 —
Redeemable noncontrolling interests1,013
 —
Weighted average common shares/units - Diluted FFO106,923
 102,608
 105,473
 102,409
112,597
 104,364
          
Diluted FFO per share$0.50
 $0.54
 $1.51
 $1.47
$0.50
 $0.49
Diluted FFO per share, as adjusted for comparability$0.50
 $0.53
 $1.51
 $1.50
$0.50
 $0.50
          
          
Denominator for diluted EPS104,788
 99,258
 102,626
 99,009
110,218
 101,143
Weighted average common units2,135
 3,350
 2,847
 3,400
1,331
 3,221
Redeemable noncontrolling interests1,013
 —
Anti-dilutive EPS effect of share-based compensation awards35
 —
Denominator for diluted FFO per share measures106,923
 102,608
 105,473
 102,409
112,597
 104,364

Property Additions
 
The table below sets forth the major components of our additions to properties for the ninethree months ended September 30, 2018March 31, 2019 (in thousands):
Construction, development and redevelopment$107,526
$110,479
Tenant improvements on operating properties (1)27,518
4,504
Capital improvements on operating properties13,671
4,531
$148,715
$119,514

(1) Tenant improvement costs incurred on newly-constructed properties are classified in this table as construction, development and redevelopment.
 


Cash Flows
 
Net cash flow from operating activities decreased $47.8increased $28.5 million when comparing the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 due primarily to our payment in 2018 of construction costs on a contract that the customer pre-funded to us in prior years.
 
Net cash flow used in investing activities increased $100.2$86.4 million when comparing the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 due primarily to a decrease in property sales in 2018 relative to 2017.increased cash outlays for construction, development and redevelopment.
 
Net cash flow provided by financing activities in the ninethree months ended September 30, 2018March 31, 2019 was $29.1$66.3 million, and included the following:

net proceeds from debt borrowings of $51.3 million; and
net proceeds from the issuance of common shares (or units) of $162.2$46.4 million; offset in part by
dividends and/or distributions to equity holders of $87.5 million;
net repayments of debt borrowings of $18.9 million; and
payments on a capital lease obligation of $15.4$30.8 million.

Net cash flow used inprovided by financing activities in the ninethree months ended September 30, 2017March 31, 2018 was $317.0$6.3 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 ofproceeds from debt borrowings of $33.0$25.9 million; offset in part byand
net proceeds from the issuance of common shares (or units) of $19.8$20.0 million; offset in part by
dividends and/or distributions to equity holders of $28.9 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 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, 2018March 31, 2019, COPT owned 98.8%98.6% of the outstanding common units in COPLP; the remaining common units and all of the outstanding preferred units 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 9 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 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, development activities and acquisitions.
 


Liquidity and Capital Resources of COPLP
 
COPLP’s primary cash requirements are for operating expenses, debt service, development of new properties, improvements to existing properties and acquisitions, to the extent they are pursued in the future.  We expect COPLP to continue to use cash flow provided by operations as the primary source to meet its short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, distributions to its security holders and improvements to existing properties.  As of September 30, 2018,March 31, 2019, COPLP had $9.5$7.8 million in cash and cash equivalents.
 
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 COPLP to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. COPLP also uses secured nonrecourse debt from institutional lenders and banks for joint venture financing. In addition, COPLP periodically raises equity from COPT when COPT accesses the public equity markets by issuing common and/or preferred shares.
 
COPLP uses its Revolving Credit Facility to initially finance much of its investing activities.  COPLP subsequently pays down the facility using cash available from operations and proceeds from long-term borrowings, equity issuances and property sales.  Assales of September 30, 2018, the maximum borrowing capacity under this facility totaled $800.0 million, of which $701.0 million was available. On October 10, 2018, COPLP entered into a credit agreement with a group of lenders to replace its existing facility with a new one.interests in properties.  The lenders’ aggregate commitment under the new facility is $800.0 million, with the ability for COPLP to increase the lenders’ aggregate commitment to $1.25 billion, provided that there is no default under the facility and subject to the approval of the lenders. The new facility matures in March 2023, and may be extended by two six-month periods at COPLP’s option, provided that there is no default under the facility and COPLP pays an extension fee of 0.075% of the total availability under the facility for each extension period. As of March 31, 2019, the maximum borrowing capacity under this facility totaled $800.0 million, of which $538.0 million was available.

AsCOPT has an equity 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 September 30, 2018,up to $300 million. Under this program, COPT hadmay 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 agreements in place with 3.0 millionof common shares available for future issuance withwhen the agreement is executed but defer receiving the proceeds from the sale until a settlement value of $86.5 million that we expect to use to fund development costs.later date.

We believe that COPLP’s liquidity and capital resources are adequate for its near-term and longer-term requirements without necessitating property sales. However, we may disposeWe do, however, expect to raise at least $200 million from sales of interests in properties opportunistically or when capital markets otherwise warrant.

during the remainder of 2019 and use the proceeds to repay borrowings and fund construction and development costs.


The following table summarizes our contractual obligations as of September 30, 2018March 31, 2019 (in thousands):
For the Periods Ending December 31,  For the Periods Ending December 31,  
2018 2019 2020 2021 2022 Thereafter Total2019 2020 2021 2022 2023 Thereafter Total
Contractual obligations (1) 
  
  
  
  
  
  
 
  
  
  
  
  
  
Debt (2) 
  
  
  
  
  
  
 
  
  
  
  
  
  
Balloon payments due upon maturity$—
 $99,000
 $112,132
 $300,000
 $261,306
 $1,026,832
 $1,799,270
$—
 $12,133
 $300,000
 $267,092
 $675,578
 $613,252
 $1,868,055
Scheduled principal payments (3)1,079
 4,387
 4,024
 3,875
 4,033
 6,644
 24,042
3,290
 4,023
 3,875
 4,032
 3,012
 3,633
 21,865
Interest on debt (3)(4)18,731
 72,426
 68,675
 60,423
 55,108
 63,592
 338,955
58,706
 77,950
 70,864
 65,411
 37,804
 27,566
 338,301
Development and redevelopment obligations (5)(6)76,296
 71,916
 14,925
 —
 —
 —
 163,137
168,968
 14,643
 703
 —
 —
 —
 184,314
Third-party construction obligations (6)(7)2,091
 1,462
 —
 —
 —
 —
 3,553
24,579
 8,010
 —
 —
 —
 —
 32,589
Capital expenditures for operating properties (3)(6)(8)8,350
 20,390
 10,959
 —
 —
 —
 39,699
Capital lease obligation (principal and interest)—
 —
 660
 —
 —
 —
 660
Tenant and other capital improvements
(3)(6)(8)
13,894
 23,470
 7,945
 —
 —
 —
 45,309
Finance leases (principal and interest) (3)179
 862
 202
 64
 —
 —
 1,307
Operating leases (3)328
 1,297
 1,261
 1,258
 1,143
 83,039
 88,326
830
 1,128
 1,111
 1,129
 1,135
 99,185
 104,518
Other obligations (3)175
 375
 236
 182
 178
 978
 2,124
191
 195
 178
 178
 178
 800
 1,720
Total contractual cash obligations$107,050
 $271,253
 $212,872
 $365,738
 $321,768
 $1,181,085
 $2,459,766
$270,637
 $142,414
 $384,878
 $337,906
 $717,707
 $744,436
 $2,597,978

(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 $15.3$13.8 million. As of September 30, 2018,March 31, 2019, maturities included $99.0$262.0 million in 2019 under our Revolving Credit Facility2023 that under the terms of the new facility, matures in 2023 and 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, 2018March 31, 2019 for the terms of such debt.  For variable rate debt, the amounts reflected above used September 30, 2018March 31, 2019 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 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.
(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.
(8)Represents contractual obligations pertaining to capital expenditures for our operating properties.  We expect to pay these costs primarily using cash flow from operating activities.
 
We expect to spend approximately $120$240 million on construction and development costs and approximately $25$55 million on improvements and leasing costs for operating properties (including the commitments set forth in the table above) during the remainder of 2018.2019.  We expect to fund the construction and development costs initially using primarily borrowings under our Revolving Credit Facility and proceeds from common shares issued under COPT’s forward equity sale agreements.Facility.  We expect to fund improvements to existing operating properties using cash flow from operating activities. We expect to use proceeds from sales of property interests to repay borrowings under our Revolving Credit Facility.

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, 2018March 31, 2019, we were compliant with these covenants.

Off-Balance Sheet Arrangements
 
 We had no material off-balance sheet arrangements during the ninethree months ended September 30, 2018.March 31, 2019.

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, 2018March 31, 2019 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):
For the Periods Ending December 31,  For the Periods Ending December 31,  
2018 2019 2020 2021 2022 Thereafter Total2019 2020 2021 2022 2023 Thereafter Total
Debt: 
  
    
  
  
  
 
  
    
  
  
  
Fixed rate debt (1)$982
 $3,991
 $3,718
 $303,875
 $4,033
 $1,033,476
 $1,350,075
$2,992
 $3,718
 $303,875
 $4,033
 $416,590
 $616,885
 $1,348,093
Weighted average interest rate4.37% 4.36% 3.96% 3.70% 3.98% 4.48% 4.30%4.35% 3.96% 3.70% 3.98% 3.70% 5.00% 4.30%
Variable rate debt (2)$97
 $99,396
 $112,438
 $—
 $261,306
 $—
 $473,237
$298
 $12,438
 $—
 $267,091
 $262,000
 $—
 $541,827
Weighted average interest rate (3)3.96% 3.37% 3.56% —% 3.50% —% 3.49%4.34% 4.34% —% 3.81% 3.54% —% 3.69%

(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $15.3$13.8 million.
(2)As of September 30, 2018,March 31, 2019, maturities included $99.0$262.0 million in 2019 under our Revolving Credit Facility2023 that under the terms of the new facility, matures in 2023 and may be extended to 2024, subject to certain conditions.
(3)The amounts reflected above used interest rates as of September 30, 2018March 31, 2019 for variable rate debt.

The fair value of our debt was $1.81.9 billion as of September 30, 2018March 31, 2019.  If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $5853 million as of September 30, 2018March 31, 2019.
 
See Note 10 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of September 30, 2018March 31, 2019 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 $1.4 million$481,000 in the ninethree months ended September 30, 2018March 31, 2019 if the applicable LIBOR rate was 1% higher.
 
Item 4.          Controls and Procedures
 
COPT

(a)                                 Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of COPT’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2018.March 31, 2019.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that COPT’s disclosure controls and procedures as of September 30, 2018March 31, 2019 were functioning effectively to provide reasonable assurance that the information required to be disclosed 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 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 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
 


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of COPLP’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of September 30, 2018March 31, 2019.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that COPLP’s disclosure controls and procedures as of September 30, 2018March 31, 2019 were functioning effectively to provide reasonable assurance that the information required to be disclosed 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 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 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 have been no material changes to the risk factors included in our 20172018 Annual Report on Form 10-K.
 
Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds
 
(a) 
During the three months ended September 30, 2018, 1.8 millionMarch 31, 2019, 5,500 of COPLP’s common units were exchanged for 1.8 million5,500 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:
 
EXHIBIT
NO.
 DESCRIPTION
   
10.1
Form of Corporate Office Properties Trust Performance-Based Profit Interest Unit Award Certificate (2017 Omnibus Equity and Incentive Plan) (filed herewith).
10.2
Form of Corporate Office Properties Trust Time-Based Profit Interest Unit Award Certificate (2017 Omnibus Equity and Incentive Plan) (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 (filed herewith).
   
101.SCH XBRL Taxonomy Extension Schema Document (filed herewith).
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
   
101.LAB XBRL Extension Labels Linkbase (filed herewith).
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned Registrants have duly caused this report to be signed on 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
    
 /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:November 8, 2018May 7, 2019Dated:November 8, 2018May 7, 2019

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