UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q 
(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 20202021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
           
Commission file number 1-14023
1-14023 (Corporate Office Properties Trust)
Commission file number 333-189188 (Corporate Office Properties, L.P.)CORPORATE OFFICE PROPERTIES TRUST
Corporate Office Properties Trust
Corporate Office Properties, L.P.
(Exact name of registrant as specified in its charter)
Corporate Office Properties TrustMarylandMaryland23-2947217
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
Corporate Office Properties, L.P.Delaware23-2930022
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
6711 Columbia Gateway Drive,,Suite 300,,Columbia,,MD21046
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code: (443)  (443) 285-5400

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

Corporate Office Properties Trust ☒ Yes   ☐ No
Corporate Office Properties, L.P. ☒ Yes   ☐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 ☒ Yes   ☐ No
Corporate Office Properties, L.P.
☒ Yes   ☐ 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☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐

Corporate Office Properties, L.P.
Large accelerated filer☐Accelerated filer☐Non-accelerated filer☒Smaller reporting company☐Emerging growth company☐

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

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

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 ☐Yes   ☒ No
Corporate Office Properties, L.P. ☐ Yes   ☒ No

As of July 20, 2020, 112,183,19222, 2021, 112,334,670 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 June 30, 2020 of Corporate Office Properties Trust (“COPT”) and subsidiaries (collectively, the “Company”) and Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, “we,” “our,” and “us” refer collectively to COPT, COPLP and their subsidiaries.

COPT is a real estate investment trust, or REIT, and the sole general partner of COPLP. As of June 30, 2020, COPT owned 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.

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. 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 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 differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 3, Fair Value Measurements of COPT and subsidiaries and COPLP and subsidiaries;
Note 8, Prepaid Expenses and Other Assets, Net of COPT and subsidiaries and COPLP and subsidiaries; and
Note 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
Consolidated Financial Statements of Corporate Office Properties Trust
3
4
5
6
8
Consolidated Financial Statements of Corporate Office Properties, L.P.
Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (unaudited)
10
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)
11
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)
12
Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)
13
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)
15
Notes to Consolidated Financial Statements (unaudited)
1710
4130
5844
5844
5944
5945
6045
6045
6045
6045
6146
6247


2

PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements


Corporate Office Properties Trust and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
June 30,
2021		December 31, 2020
Assets  
Properties, net:  
Operating properties, net$3,099,182 $3,115,280 
Projects in development or held for future development431,535 447,269 
Total properties, net3,530,717 3,562,549 
Property - operating right-of-use assets39,333 40,570 
Property - finance right-of-use assets40,082 40,425 
Cash and cash equivalents17,182 18,369 
Investment in unconsolidated real estate joint ventures40,586 29,303 
Accounts receivable, net39,951 41,637 
Deferred rent receivable99,715 92,876 
Intangible assets on real estate acquisitions, net16,959 19,344 
Deferred leasing costs (net of accumulated amortization of $30,532 and $30,375, respectively)62,277 58,613 
Investing receivables (net of allowance for credit losses of $2,132 and $2,851, respectively)73,073 68,754 
Prepaid expenses and other assets, net92,157 104,583 
Total assets$4,052,032 $4,077,023 
Liabilities and equity  
Liabilities:  
Debt, net$2,109,640 $2,086,918 
Accounts payable and accrued expenses127,027 142,717 
Rents received in advance and security deposits30,893 33,425 
Dividends and distributions payable31,302 31,231 
Deferred revenue associated with operating leases9,564 10,832 
Property - operating lease liabilities29,909 30,746 
Interest rate derivatives6,646 9,522 
Other liabilities9,699 12,490 
Total liabilities2,354,680 2,357,881 
Commitments and contingencies (Note 18)00
Redeemable noncontrolling interests26,040 25,430 
Equity:  
Corporate Office Properties Trust’s shareholders’ equity:  
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,336,070 at June 30, 2021 and 112,181,759 at December 31, 2020)1,123 1,122 
Additional paid-in capital2,478,416 2,478,906 
Cumulative distributions in excess of net income(835,894)(809,836)
Accumulated other comprehensive loss(6,415)(9,157)
Total Corporate Office Properties Trust’s shareholders’ equity1,637,230 1,661,035 
Noncontrolling interests in subsidiaries:  
Common units in Corporate Office Properties, L.P. (“COPLP”)21,604 20,465 
Other consolidated entities12,478 12,212 
Noncontrolling interests in subsidiaries34,082 32,677 
Total equity1,671,312 1,693,712 
Total liabilities, redeemable noncontrolling interests and equity$4,052,032 $4,077,023 
 June 30,
2020		 December 31,
2019
Assets 
  
Properties, net: 
  
Operating properties, net$2,888,817
 $2,772,647
Projects in development or held for future development624,282
 568,239
Total properties, net3,513,099
 3,340,886
Property - operating right-of-use assets31,009
 27,864
Property - finance right-of-use assets40,441
 40,458
Cash and cash equivalents21,596
 14,733
Investment in unconsolidated real estate joint ventures50,457
 51,949
Accounts receivable, net30,404
 35,444
Deferred rent receivable90,493
 87,736
Intangible assets on real estate acquisitions, net24,768
 27,392
Deferred leasing costs (net of accumulated amortization of $34,878 and $33,782, respectively)58,666
 58,392
Investing receivables (net of allowance for credit losses of $3,976 at June 30, 2020)72,333
 73,523
Prepaid expenses and other assets, net78,059
 96,076
Total assets$4,011,325
 $3,854,453
Liabilities and equity 
  
Liabilities: 
  
Debt, net$2,012,019
 $1,831,139
Accounts payable and accrued expenses149,836
 148,746
Rents received in advance and security deposits30,459
 33,620
Dividends and distributions payable31,302
 31,263
Deferred revenue associated with operating leases8,821
 7,361
Property - operating lease liabilities20,796
 17,317
Interest rate derivatives65,612
 25,682
Other liabilities12,408
 10,649
Total liabilities2,331,253
 2,105,777
Commitments and contingencies (Note 17)


 


Redeemable noncontrolling interests23,148
 29,431
Equity: 
  
Corporate Office Properties Trust’s shareholders’ equity: 
  
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,183,192 at June 30, 2020 and 112,068,705 at December 31, 2019)1,122
 1,121
Additional paid-in capital2,477,977
 2,481,558
Cumulative distributions in excess of net income(797,959) (778,275)
Accumulated other comprehensive loss(64,513) (25,444)
Total Corporate Office Properties Trust’s shareholders’ equity1,616,627
 1,678,960
Noncontrolling interests in subsidiaries: 
  
Common units in COPLP19,611
 19,597
Preferred units in COPLP8,800
 8,800
Other consolidated entities11,886
 11,888
Noncontrolling interests in subsidiaries40,297
 40,285
Total equity1,656,924
 1,719,245
Total liabilities, redeemable noncontrolling interests and equity$4,011,325
 $3,854,453


See accompanying notes to consolidated financial statements.

3

Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Revenues 
  
    
Lease revenue$132,147
 $131,415
 $263,159
 $262,318
Other property revenue391
 1,356
 1,495
 2,443
Construction contract and other service revenues12,236
 42,299
 25,917
 59,249
Total revenues144,774
 175,070
 290,571
 324,010
Operating expenses 
  
  
  
Property operating expenses50,204
 47,886
 100,203
 97,331
Depreciation and amortization associated with real estate operations33,612
 34,802
 66,208
 69,598
Construction contract and other service expenses11,711
 41,002
 24,832
 57,328
General, administrative and leasing expenses8,158
 9,386
 15,644
 18,137
Business development expenses and land carry costs1,262
 870
 2,380
 1,983
Total operating expenses104,947
 133,946
 209,267
 244,377
Interest expense(16,797) (18,475) (33,637) (37,149)
Interest and other income2,282
 1,849
 3,487
 4,135
Credit loss expense(615) —
 (1,304) —
Gain on sales of real estate—
 84,469
 5
 84,469
Income before equity in income of unconsolidated entities and income taxes24,697
 108,967
 49,855
 131,088
Equity in income of unconsolidated entities454
 420
 895
 811
Income tax (expense) benefit(30) 176
 (79) (18)
Net income25,121
 109,563
 50,671
 131,881
Net income attributable to noncontrolling interests: 
  
  
  
Common units in COPLP(284) (1,339) (571) (1,596)
Preferred units in COPLP(77) (165) (154) (330)
Other consolidated entities(1,263) (1,268) (2,395) (2,305)
Net income attributable to COPT common shareholders$23,497
 $106,791
 $47,551
 $127,650
        
Earnings per common share: (1) 
  
  
  
Net income attributable to COPT common shareholders - basic$0.21
 $0.95
 $0.42
 $1.15
Net income attributable to COPT common shareholders - diluted$0.21
 $0.95
 $0.42
 $1.15

For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
Revenues  
Lease revenue$143,658 $132,147 $288,282 $263,159 
Other property revenue765 391 1,305 1,495 
Construction contract and other service revenues19,988 12,236 36,546 25,917 
Total revenues164,411 144,774 326,133 290,571 
Operating expenses    
Property operating expenses54,616 50,204 111,590 100,203 
Depreciation and amortization associated with real estate operations37,555 33,612 74,876 66,208 
Construction contract and other service expenses19,082 11,711 34,875 24,832 
General, administrative and leasing expenses9,222 8,158 17,628 15,644 
Business development expenses and land carry costs1,372 1,262 2,466 2,380 
Total operating expenses121,847 104,947 241,435 209,267 
Interest expense(15,942)(16,797)(33,461)(33,637)
Interest and other income2,228 2,282 4,093 3,487 
Credit loss (expense) recoveries(193)(615)714 (1,304)
Gain on sales of real estate40,233 0 39,743 5 
Loss on early extinguishment of debt(25,228)0 (58,394)0 
Income before equity in income of unconsolidated entities and income taxes43,662 24,697 37,393 49,855 
Equity in income of unconsolidated entities260 454 482 895 
Income tax expense(24)(30)(56)(79)
Net income43,898 25,121 37,819 50,671 
Net income attributable to noncontrolling interests:    
Common units in COPLP(559)(284)(474)(571)
Preferred units in COPLP0 (77)0 (154)
Other consolidated entities(938)(1,263)(1,613)(2,395)
Net income attributable to COPT common shareholders$42,401 $23,497 $35,732 $47,551 
Earnings per common share: (1)    
Net income attributable to COPT common shareholders - basic$0.38 $0.21 $0.32 $0.42 
Net income attributable to COPT common shareholders - diluted$0.38 $0.21 $0.32 $0.42 
(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.

4

Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
For the Three Months Ended June 30, For the Six Months Ended June 30,For the Three Months Ended June 30,For the Six Months Ended June 30,
2020 2019 2020 2019 2021202020212020
Net income$25,121
 $109,563
 $50,671
 $131,881
Net income$43,898 $25,121 $37,819 $50,671 
Other comprehensive loss: 
  
  
  
Unrealized loss on interest rate derivatives(3,315) (13,545) (41,020) (22,390)
Loss (gain) on interest rate derivatives recognized in interest expense935
 (557) 1,066
 (1,127)
Total other comprehensive loss(2,380) (14,102) (39,954) (23,517)
Other comprehensive income (loss):Other comprehensive income (loss):    
Unrealized (loss) income on interest rate derivativesUnrealized (loss) income on interest rate derivatives(240)(3,315)544 (41,020)
Reclassification adjustments on interest rate derivatives recognized in interest expenseReclassification adjustments on interest rate derivatives recognized in interest expense1,203 935 2,378 1,066 
Total other comprehensive income (loss)Total other comprehensive income (loss)963 (2,380)2,922 (39,954)
Comprehensive income22,741
 95,461
 10,717
 108,364
Comprehensive income44,861 22,741 40,741 10,717 
Comprehensive income attributable to noncontrolling interests(1,556) (2,597) (2,235) (3,941)Comprehensive income attributable to noncontrolling interests(1,484)(1,556)(2,267)(2,235)
Comprehensive income attributable to COPT$21,185
 $92,864
 $8,482
 $104,423
Comprehensive income attributable to COPT$43,377 $21,185 $38,474 $8,482 
 
See accompanying notes to consolidated financial statements.



5

Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
 Common
Shares		Additional
Paid-in
Capital		Cumulative
Distributions in
Excess of Net
Income		Accumulated
Other
Comprehensive Loss		Noncontrolling
Interests		Total
For the Three Months Ended June 30, 2020
Balance at March 31, 2020 (112,169,463 common shares outstanding)$1,122 $2,476,677 $(790,600)$(62,201)$40,188 $1,665,186 
Share-based compensation (13,729 shares issued, net of redemptions)0 1,188 — — 548 1,736 
Redemption of vested equity awards— (80)— — — (80)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— 428 — — (428)0 
Comprehensive income— — 23,497 (2,312)439 21,624 
Dividends— — (30,856)— — (30,856)
Distributions to owners of common and preferred units in COPLP— — — — (442)(442)
Distributions to noncontrolling interests in other consolidated entities— — — — (8)(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests— (236)— — — (236)
Balance at June 30, 2020 (112,183,192 common shares outstanding)$1,122 $2,477,977 $(797,959)$(64,513)$40,297 $1,656,924 
For the Three Months Ended June 30, 2021
Balance at March 31, 2021 (112,327,234 common shares outstanding)$1,123 $2,476,807 $(847,407)$(7,391)$33,660 $1,656,792 
Redemption of common units— — — — (241)(241)
Share-based compensation (8,836 shares issued, net of redemptions)— 1,078 — — 1,067 2,145 
Redemption of vested equity awards— (68)— — — (68)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— 739 — — (739)0 
Comprehensive income— — 42,401 976 743 44,120 
Dividends— — (30,888)— — (30,888)
Distributions to owners of common units in COPLP— — — — (400)(400)
Distributions to noncontrolling interests in other consolidated entities— — — — (8)(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests— (140)— — — (140)
Balance at June 30, 2021 (112,336,070 common shares outstanding)$1,123 $2,478,416 $(835,894)$(6,415)$34,082 $1,671,312 
  
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests
 Total
For the Three Months Ended June 30, 2019            
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
Redemption of common units —
 —
 —
 —
 (1) (1)
Share-based compensation (10,097 shares issued, net of redemptions) —
 1,487
 —
 —
 346
 1,833
Redemption of vested equity awards —
 (103) —
 —
 —
 (103)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP —
 488
 —
 —
 (488) —
Comprehensive income —
 —
 106,791
 (13,927) 1,728
 94,592
Dividends —
 —
 (30,755) —
 —
 (30,755)
Distributions to owners of common and preferred units in COPLP —
 —
 —
 —
 (553) (553)
Distributions to noncontrolling interests in other consolidated entities —
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests —
 (2,076) —
 —
 —
 (2,076)
Balance at June 30, 2019 (111,949,887 common shares outstanding) $1,119
 $2,475,293
 $(780,667) $(23,465)
$46,831
 $1,719,111
             
For the Three Months Ended June 30, 2020            
Balance at March 31, 2020 (112,169,463 common shares outstanding) $1,122
 $2,476,677
 $(790,600) $(62,201) $40,188
 $1,665,186
Share-based compensation (13,729 shares issued, net of redemptions) —
 1,188
 —
 —
 548
 1,736
Redemption of vested equity awards —
 (80) —
 —
 —
 (80)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP —
 428
 —
 —
 (428) —
Comprehensive income —
 —
 23,497
 (2,312) 439
 21,624
Dividends —
 —
 (30,856) —
 —
 (30,856)
Distributions to owners of common and preferred units in COPLP —
 —
 —
 —
 (442) (442)
Distributions to noncontrolling interests in other consolidated entities —
 —
 —
 —
 (8) (8)
Adjustment to arrive at fair value of redeemable noncontrolling interests —
 (236) —
 —
 —
 (236)
Balance at June 30, 2020 (112,183,192 common shares outstanding) $1,122
 $2,477,977
 $(797,959) $(64,513) $40,297
 $1,656,924

See accompanying notes to consolidated financial statements.




6

Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Equity (continued)
(Dollars in thousands)
(unaudited)
 Common
Shares		Additional
Paid-in
Capital		Cumulative
Distributions in
Excess of Net
Income		Accumulated
Other
Comprehensive Loss		Noncontrolling
Interests		Total
For the Six Months Ended June 30, 2020
Balance at December 31, 2019 (112,068,705 common shares outstanding)$1,121 $2,481,558 $(778,275)$(25,444)$40,285 $1,719,245 
Cumulative effect of accounting change for adoption of credit loss guidance— — (5,541)— — (5,541)
Balance at December 31, 2019, as adjusted1,121 2,481,558 (783,816)(25,444)40,285 1,713,704 
Conversion of common units to common shares (12,009 shares)— 182 — — (182)0 
Share-based compensation (102,478 shares issued, net of redemptions)1 2,171 — — 774 2,946 
Redemption of vested equity awards— (1,572)— — — (1,572)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— (25)— — 25 0 
Comprehensive income— — 47,551 (39,069)160 8,642 
Dividends— — (61,694)— — (61,694)
Distributions to owners of common and preferred units in COPLP— — — — (862)(862)
Contributions from noncontrolling interests in other consolidated entities— — — — 112 112 
Distributions to noncontrolling interests in other consolidated entities— — — — (15)(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests— (4,337)— — — (4,337)
Balance at June 30, 2020 (112,183,192 common shares outstanding)$1,122 $2,477,977 $(797,959)$(64,513)$40,297 $1,656,924 
For the Six Months Ended June 30, 2021
Balance at December 31, 2020 (112,181,759 common shares outstanding)$1,122 $2,478,906 $(809,836)$(9,157)$32,677 $1,693,712 
Conversion of common units to common shares (8,054 shares)— 121 — — (121)0 
Redemption of common units— — — — (241)(241)
Share-based compensation (146,257 shares issued, net of redemptions)1 2,175 — — 1,984 4,160 
Redemption of vested equity awards— (2,358)— — — (2,358)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP— 194 — — (194)0 
Comprehensive income— — 35,732 2,742 1,114 39,588 
Dividends— — (61,790)— — (61,790)
Distributions to owners of common units in COPLP— — — — (798)(798)
Distributions to noncontrolling interests in other consolidated entities— — — — (15)(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests— (622)— — — (622)
Other— — — — (324)(324)
Balance at June 30, 2021 (112,336,070 common shares outstanding)$1,123 $2,478,416 $(835,894)$(6,415)$34,082 $1,671,312 

7
 
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Distributions in
Excess of Net
Income
 
Accumulated
Other
Comprehensive Loss
 
Noncontrolling
Interests
 Total
For the Six Months Ended June 30, 2019           
Balance at December 31, 2018 (110,241,868 common shares outstanding)$1,102
 $2,431,355
 $(846,808) $(238) $41,637
 $1,627,048
Conversion of common units to common shares (5,500 shares)—
 80
 —
 —
 (80) —
Redemption of common units—
 —
 —
 —
 (1) (1)
Common shares issued under forward equity sale agreements (1,614,087 shares)16
 46,438
 —
 —
 —
 46,454
Share-based compensation (88,432 shares issued, net of redemptions)1
 3,049
 —
 —
 585
 3,635
Redemption of vested equity awards—
 (1,920) —
 —
 —
 (1,920)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP—
 (834) —
 —
 834
 —
Comprehensive income—
 —
 127,650
 (23,227) 2,397
 106,820
Dividends—
 —
 (61,509) —
 —
 (61,509)
Distributions to owners of common and preferred units in COPLP—
 —
 —
 —
 (1,103) (1,103)
Contributions from noncontrolling interests in other consolidated entities—
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in other consolidated entities—
 —
 —
 —
 (8) (8)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 (2,875) —
 —
 —
 (2,875)
Balance at June 30, 2019 (111,949,887 common shares outstanding)$1,119
 $2,475,293
 $(780,667) $(23,465) $46,831
 $1,719,111
            
For the Six Months Ended June 30, 2020           
Balance at December 31, 2019 (112,068,705 common shares outstanding)$1,121
 $2,481,558
 $(778,275) $(25,444) $40,285
 $1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance—
 —
 (5,541) —
 —
 (5,541)
Balance at December 31, 2019, as adjusted1,121
 2,481,558
 (783,816) (25,444) 40,285
 1,713,704
Conversion of common units to common shares (12,009 shares)—
 182
 —
 —
 (182) —
Share-based compensation (102,478 shares issued, net of redemptions)1
 2,171
 —
 —
 774
 2,946
Redemption of vested equity awards—
 (1,572) —
 —
 —
 (1,572)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP—
 (25) —
 —
 25
 —
Comprehensive income—
 —
 47,551
 (39,069) 160
 8,642
Dividends—
 —
 (61,694) —
 —
 (61,694)
Distributions to owners of common and preferred units in COPLP—
 —
 —
 —
 (862) (862)
Contributions from noncontrolling interests in other consolidated entities—
 —
 —
 —
 112
 112
Distributions to noncontrolling interests in other consolidated entities—
 —
 —
 —
 (15) (15)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 (4,337) —
 —
 —
 (4,337)
Balance at June 30, 2020 (112,183,192 common shares outstanding)$1,122
 $2,477,977
 $(797,959) $(64,513) $40,297
 $1,656,924



Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited) 
For the Six Months Ended June 30,For the Six Months Ended June 30,
2020 2019 20212020
Cash flows from operating activities 
  
Cash flows from operating activities  
Revenues from real estate operations received$265,833
 $257,832
Revenues from real estate operations received$280,708 $265,833 
Construction contract and other service revenues received42,149
 21,449
Construction contract and other service revenues received38,419 42,149 
Property operating expenses paid(86,934) (83,305)Property operating expenses paid(91,672)(86,934)
Construction contract and other service expenses paid(32,107) (31,157)Construction contract and other service expenses paid(34,445)(32,107)
General, administrative, leasing, business development and land carry costs paid(16,969) (16,541)General, administrative, leasing, business development and land carry costs paid(15,399)(16,969)
Interest expense paid(31,581) (34,896)Interest expense paid(31,392)(31,581)
Lease incentives paid(5,611) (3,228)Lease incentives paid(7,442)(5,611)
Other1,757
 1,661
Other(765)1,757 
Net cash provided by operating activities136,537
 111,815
Net cash provided by operating activities138,012 136,537 
Cash flows from investing activities 
  
Cash flows from investing activities  
Development and redevelopment of properties(185,357) (219,633)Development and redevelopment of properties(110,909)(185,357)
Tenant improvements on operating properties(16,489) (7,585)Tenant improvements on operating properties(10,872)(16,489)
Other capital improvements on operating properties(11,576) (8,920)Other capital improvements on operating properties(12,382)(11,576)
Proceeds from property dispositions   
Distribution from unconsolidated real estate joint venture following contribution of properties—
 129,783
Sale of properties—
 107,517
Investing receivables funded—
 (11,104)
Proceeds from sale of propertiesProceeds from sale of properties114,394 0 
Leasing costs paid(8,424) (7,632)Leasing costs paid(11,408)(8,424)
Other(5,442) 3,944
Other576 (5,442)
Net cash used in investing activities(227,288) (13,630)Net cash used in investing activities(30,601)(227,288)
Cash flows from financing activities 
  
Cash flows from financing activities  
Proceeds from debt   Proceeds from debt
Revolving Credit Facility251,000
 258,000
Revolving Credit Facility387,000 251,000 
Unsecured senior notesUnsecured senior notes589,818 0 
Other debt proceeds189,359
 10,606
Other debt proceeds4,459 189,359 
Repayments of debt   Repayments of debt
Revolving Credit Facility(259,000) (308,000)Revolving Credit Facility(361,000)(259,000)
Unsecured senior notesUnsecured senior notes(600,000)0 
Scheduled principal amortization(2,044) (2,193)Scheduled principal amortization(1,922)(2,044)
Deferred financing costs paid(1,261) —
Deferred financing costs paid(1,620)(1,261)
Net proceeds from issuance of common shares—
 46,415
Payments in connection with early extinguishment of debtPayments in connection with early extinguishment of debt(55,713)0 
Common share dividends paid(61,667) (61,040)Common share dividends paid(61,747)(61,667)
Distributions paid to noncontrolling interests in COPLP(863) (1,115)
Distributions paid to redeemable noncontrolling interests(12,662) (687)Distributions paid to redeemable noncontrolling interests(1,226)(12,662)
Redemption of vested equity awards(1,572) (1,920)Redemption of vested equity awards(2,358)(1,572)
Other(2,803) 533
Other(3,360)(3,666)
Net cash provided by (used in) financing activities98,487
 (59,401)
Net increase in cash and cash equivalents and restricted cash7,736
 38,784
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(107,669)98,487 
Net (decrease) increase in cash and cash equivalents and restricted cashNet (decrease) increase in cash and cash equivalents and restricted cash(258)7,736 
Cash and cash equivalents and restricted cash 
  
Cash and cash equivalents and restricted cash  
Beginning of period18,130
 11,950
Beginning of period22,033 18,130 
End of period$25,866
 $50,734
End of period$21,775 $25,866 

See accompanying notes to consolidated financial statements.
 


8

Corporate Office Properties Trust and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
For the Six Months Ended June 30,For the Six Months Ended June 30,
2020 2019 20212020
Reconciliation of net income to net cash provided by operating activities: 
  
Reconciliation of net income to net cash provided by operating activities:  
Net income$50,671
 $131,881
Net income$37,819 $50,671 
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and other amortization67,075
 70,527
Depreciation and other amortization76,476 67,075 
Amortization of deferred financing costs and net debt discounts1,993
 1,801
Amortization of deferred financing costs and net debt discounts2,666 1,993 
Increase in deferred rent receivable(1,070) (2,419)Increase in deferred rent receivable(9,421)(1,070)
Gain on sales of real estate(5) (84,469)Gain on sales of real estate(39,743)(5)
Share-based compensation3,027
 3,283
Share-based compensation3,913 3,027 
Loss on early extinguishment of debtLoss on early extinguishment of debt58,394 0 
Other(1,263) (2,996)Other(2,462)(1,263)
Changes in operating assets and liabilities: 
  Changes in operating assets and liabilities: 
Decrease (increase) in accounts receivable5,039
 (31,846)
Decrease (increase) in prepaid expenses and other assets, net23,202
 (852)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(8,971) 29,507
Decrease in accounts receivableDecrease in accounts receivable45 5,039 
Decrease in prepaid expenses and other assets, netDecrease in prepaid expenses and other assets, net13,894 23,202 
Decrease in accounts payable, accrued expenses and other liabilitiesDecrease in accounts payable, accrued expenses and other liabilities(1,037)(8,971)
Decrease in rents received in advance and security deposits(3,161) (2,602)Decrease in rents received in advance and security deposits(2,532)(3,161)
Net cash provided by operating activities$136,537
 $111,815
Net cash provided by operating activities$138,012 $136,537 
Reconciliation of cash and cash equivalents and restricted cash:   Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period$14,733
 $8,066
Cash and cash equivalents at beginning of period$18,369 $14,733 
Restricted cash at beginning of period3,397
 3,884
Restricted cash at beginning of period3,664 3,397 
Cash and cash equivalents and restricted cash at beginning of period$18,130
 $11,950
Cash and cash equivalents and restricted cash at beginning of period$22,033 $18,130 
   
Cash and cash equivalents at end of period$21,596
 $46,282
Cash and cash equivalents at end of period$17,182 $21,596 
Restricted cash at end of period4,270
 4,452
Restricted cash at end of period4,593 4,270 
Cash and cash equivalents and restricted cash at end of period$25,866
 $50,734
Cash and cash equivalents and restricted cash at end of period$21,775 $25,866 
Supplemental schedule of non-cash investing and financing activities: 
  
Supplemental schedule of non-cash investing and financing activities:  
Increase in accrued capital improvements, leasing and other investing activity costs$12,940
 $29,862
Finance right-of-use asset contributed by noncontrolling interest in joint venture$—
 $2,570
Operating right-of-use assets obtained in exchange for operating lease liabilities$3,381
 $255
Non-cash changes from property dispositions:   
Contribution of properties to unconsolidated real estate joint venture$—
 $99,288
Investment in unconsolidated real estate joint venture retained in disposition$—
 $26,500
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$(39,953) $(23,585)
(Decrease) increase in accrued capital improvements, leasing and other investing activity costs(Decrease) increase in accrued capital improvements, leasing and other investing activity costs$(15,887)$12,940 
Recognition of operating right-of-use assets and related lease liabilitiesRecognition of operating right-of-use assets and related lease liabilities$328 $3,381 
Investment in unconsolidated real estate joint venture retained in property dispositionInvestment in unconsolidated real estate joint venture retained in property disposition$11,842 $0 
Increase (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interestsIncrease (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$2,922 $(39,953)
Dividends/distributions payable$31,302
 $31,346
Dividends/distributions payable$31,302 $31,302 
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$182
 $80
Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares$121 $182 
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$25
 $834
Adjustments to noncontrolling interests resulting from changes in COPLP ownership$(194)$25 
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$4,337
 $2,875
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$622 $4,337 
 
See accompanying notes to consolidated financial statements.





Corporate Office Properties, L.P. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except unit data)
(unaudited)
 June 30,
2020		 December 31,
2019
Assets 
  
Properties, net: 
  
Operating properties, net$2,888,817
 $2,772,647
Projects in development or held for future development624,282
 568,239
Total properties, net3,513,099
 3,340,886
Property - operating right-of-use assets31,009
 27,864
Property - finance right-of-use assets40,441
 40,458
Cash and cash equivalents21,596
 14,733
Investment in unconsolidated real estate joint ventures50,457
 51,949
Accounts receivable, net30,404
 35,444
Deferred rent receivable90,493
 87,736
Intangible assets on real estate acquisitions, net24,768
 27,392
Deferred leasing costs (net of accumulated amortization of $34,878 and $33,782, respectively)58,666
 58,392
Investing receivables (net of allowance for credit losses of $3,976 at June 30, 2020)72,333
 73,523
Prepaid expenses and other assets, net75,527
 93,016
Total assets$4,008,793
 $3,851,393
Liabilities and equity 
  
Liabilities: 
  
Debt, net$2,012,019
 $1,831,139
Accounts payable and accrued expenses149,836
 148,746
Rents received in advance and security deposits30,459
 33,620
Distributions payable31,302
 31,263
Deferred revenue associated with operating leases8,821
 7,361
Property - operating lease liabilities20,796
 17,317
Interest rate derivatives65,612
 25,682
Other liabilities9,876
 7,589
Total liabilities2,328,721
 2,102,717
Commitments and contingencies (Note 17)


 


Redeemable noncontrolling interests23,148
 29,431
Equity: 
  
Corporate Office Properties, L.P.’s equity: 
  
Preferred units held by limited partner, 352,000 preferred units outstanding at June 30, 2020 and December 31, 20198,800
 8,800
Common units, 112,183,192 and 112,068,705 held by the general partner and 1,628,421 and 1,482,425 held by limited partners at June 30, 2020 and December 31, 2019, respectively1,701,375
 1,724,159
Accumulated other comprehensive loss(65,183) (25,648)
Total Corporate Office Properties, L.P.’s equity1,644,992
 1,707,311
Noncontrolling interests in subsidiaries11,932
 11,934
Total equity1,656,924
 1,719,245
Total liabilities, redeemable noncontrolling interests and equity$4,008,793
 $3,851,393

See accompanying notes to consolidated financial statements.


Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per unit data)
(unaudited)
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Revenues 
  
    
Lease revenue$132,147
 $131,415
 $263,159
 $262,318
Other property revenue391
 1,356
 1,495
 2,443
Construction contract and other service revenues12,236
 42,299
 25,917
 59,249
Total revenues144,774
 175,070
 290,571
 324,010
Operating expenses 
  
  
  
Property operating expenses50,204
 47,886
 100,203
 97,331
Depreciation and amortization associated with real estate operations33,612
 34,802
 66,208
 69,598
Construction contract and other service expenses11,711
 41,002
 24,832
 57,328
General, administrative and leasing expenses8,158
 9,386
 15,644
 18,137
Business development expenses and land carry costs1,262
 870
 2,380
 1,983
Total operating expenses104,947
 133,946
 209,267
 244,377
Interest expense(16,797) (18,475) (33,637) (37,149)
Interest and other income2,282
 1,849
 3,487
 4,135
Credit loss expense(615) —
 (1,304) —
Gain on sales of real estate—
 84,469
 5
 84,469
Income before equity in income of unconsolidated entities and income taxes24,697
 108,967
 49,855
 131,088
Equity in income of unconsolidated entities454
 420
 895
 811
Income tax (expense) benefit(30) 176
 (79) (18)
Net income25,121
 109,563
 50,671
 131,881
Net income attributable to noncontrolling interests in consolidated entities(1,263) (1,268) (2,395) (2,305)
Net income attributable to COPLP23,858
 108,295
 48,276
 129,576
Preferred unit distributions(77) (165) (154) (330)
Net income attributable to COPLP common unitholders$23,781
 $108,130
 $48,122
 $129,246
        
Earnings per common unit: (1) 
  
  
  
Net income attributable to COPLP common unitholders - basic$0.21
 $0.95
 $0.42
 $1.15
Net income attributable to COPLP common unitholders - diluted$0.21
 $0.95
 $0.42
 $1.15

(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.

9

Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Net income$25,121
 $109,563
 $50,671
 $131,881
Other comprehensive loss: 
  
    
Unrealized loss on interest rate derivatives(3,315) (13,545) (41,020) (22,390)
Loss (gain) on interest rate derivatives recognized in interest expense935
 (557) 1,066
 (1,127)
Total other comprehensive loss(2,380) (14,102) (39,954) (23,517)
Comprehensive income22,741
 95,461
 10,717
 108,364
Comprehensive income attributable to noncontrolling interests(1,223) (1,268) (1,976) (2,305)
Comprehensive income attributable to COPLP$21,518
 $94,193
 $8,741
 $106,059
See accompanying notes to consolidated financial statements.



Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Equity
(Dollars in thousands)
(unaudited)
 Limited Partner Preferred Units Common Units Accumulated Other Comprehensive Loss Noncontrolling Interests in Subsidiaries  
 Units Amount Units Amount   Total Equity
For the Three Months Ended June 30, 2019             
Balance at March 31, 2019352,000
 $8,800
 113,515,814
 $1,640,272
 $(9,536) $16,642
 $1,656,178
Redemption of common units—
 —
 (44) (1) —
 —
 (1)
Share-based compensation (units net of redemption)—
 —
 16,961
 1,833
 —
 —
 1,833
Redemptions of vested equity awards—
 —
 —
 (103) —
 —
 (103)
Comprehensive income—
 165
 —
 108,130
 (14,102) 399
 94,592
Distributions to owners of common and preferred units—
 (165) —
 (31,143) —
 —
 (31,308)
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (4) (4)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (2,076) —
 —
 (2,076)
Balance at June 30, 2019352,000
 $8,800
 113,532,731
 $1,716,912
 $(23,638) $17,037
 $1,719,111
              
For the Three Months Ended June 30, 2020             
Balance at March 31, 2020352,000
 $8,800
 113,789,912
 $1,707,395
 $(62,843) $11,834
 $1,665,186
Share-based compensation (units net of redemption)—
 —
 21,701
 1,736
 —
 —
 1,736
Redemptions of vested equity awards—
 —
 —
 (80) —
 —
 (80)
Comprehensive loss—
 77
 —
 23,781
 (2,340) 106
 21,624
Distributions to owners of common and preferred units—
 (77) —
 (31,221) —
 —
 (31,298)
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (8) (8)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (236) —
 —
 (236)
Balance at June 30, 2020352,000
 $8,800
 113,811,613
 $1,701,375
 $(65,183) $11,932
 $1,656,924

See accompanying notes to consolidated financial statements.




Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Equity (continued)
(Dollars in thousands)
(unaudited)
 Limited Partner Preferred Units Common Units Accumulated Other Comprehensive Loss Noncontrolling Interests in Subsidiaries  
 Units Amount Units Amount   Total Equity
For the Six Months Ended June 30, 2019             
Balance at December 31, 2018352,000
 $8,800
 111,574,754
 $1,604,655
 $(121) $13,714
 $1,627,048
Redemption of common units—
 —
 (44) (1) —
 —
 (1)
Issuance of common units resulting from common shares issued under COPT forward equity sale agreements—
 —
 1,614,087
 46,454
 —
 —
 46,454
Share-based compensation (units net of redemption)—
 —
 343,934
 3,635
 —
 —
 3,635
Redemptions of vested equity awards—
 —
 —
 (1,920) —
 —
 (1,920)
Comprehensive income—
 330
 —
 129,246
 (23,517) 761
 106,820
Distributions to owners of common and preferred units—
 (330) —
 (62,282) —
 —
 (62,612)
Contributions from noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 2,570
 2,570
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (8) (8)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (2,875) —
 —
 (2,875)
Balance at June 30, 2019352,000
 $8,800
 113,532,731
 $1,716,912
 $(23,638) $17,037
 $1,719,111
              
For the Six Months Ended June 30, 2020             
Balance at December 31, 2019352,000
 $8,800
 113,551,130
 $1,724,159
 $(25,648) $11,934
 $1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance—
 —
 —
 (5,541) —
 —
 (5,541)
Balance at December 31, 2019, as adjusted352,000
 8,800
 113,551,130
 1,718,618
 (25,648) 11,934
 1,713,704
Share-based compensation (units net of redemption)—
 —
 260,483
 2,946
 —
 —
 2,946
Redemptions of vested equity awards—
 —
 —
 (1,572) —
 —
 (1,572)
Comprehensive income—
 154
 —
 48,122
 (39,535) (99) 8,642
Distributions to owners of common and preferred units—
 (154) —
 (62,402) —
 —
 (62,556)
Contributions from noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 112
 112
Distributions to noncontrolling interests in subsidiaries—
 —
 —
 —
 —
 (15) (15)
Adjustment to arrive at fair value of redeemable noncontrolling interests—
 —
 —
 (4,337) —
 —
 (4,337)
Balance at June 30, 2020352,000
 $8,800
 113,811,613
 $1,701,375
 $(65,183) $11,932
 $1,656,924

See accompanying notes to consolidated financial statements.



Corporate Office Properties, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 For the Six Months Ended June 30,
 2020 2019
Cash flows from operating activities 
  
Revenues from real estate operations received$265,833
 $257,832
Construction contract and other service revenues received42,149
 21,449
Property operating expenses paid(86,934) (83,305)
Construction contract and other service expenses paid(32,107) (31,157)
General, administrative, leasing, business development and land carry costs paid(16,969) (16,541)
Interest expense paid(31,581) (34,896)
Lease incentives paid(5,611) (3,228)
Other1,757
 1,661
Net cash provided by operating activities136,537
 111,815
Cash flows from investing activities 
  
Development and redevelopment of properties(185,357) (219,633)
Tenant improvements on operating properties(16,489) (7,585)
Other capital improvements on operating properties(11,576) (8,920)
Proceeds from property dispositions   
Distribution from unconsolidated real estate joint venture following contribution of properties—
 129,783
Sale of properties—
 107,517
Investing receivables funded—
 (11,104)
Leasing costs paid(8,424) (7,632)
Other(5,442) 3,944
Net cash used in investing activities(227,288) (13,630)
Cash flows from financing activities 
  
Proceeds from debt   
Revolving Credit Facility251,000
 258,000
Other debt proceeds189,359
 10,606
Repayments of debt   
Revolving Credit Facility(259,000) (308,000)
Scheduled principal amortization(2,044) (2,193)
Deferred financing costs paid(1,261) —
Net proceeds from issuance of common units—
 46,415
Common unit distributions paid(62,376) (61,825)
Distributions paid to redeemable noncontrolling interests(12,662) (687)
Redemption of vested equity awards(1,572) (1,920)
Other(2,957) 203
Net cash provided by (used in) financing activities98,487
 (59,401)
Net increase in cash and cash equivalents and restricted cash7,736
 38,784
Cash and cash equivalents and restricted cash 
  
Beginning of period18,130
 11,950
End of period$25,866
 $50,734

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 Six Months Ended June 30,
 2020 2019
Reconciliation of net income to net cash provided by operating activities: 
  
Net income$50,671
 $131,881
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Depreciation and other amortization67,075
 70,527
Amortization of deferred financing costs and net debt discounts1,993
 1,801
Increase in deferred rent receivable(1,070) (2,419)
Gain on sales of real estate(5) (84,469)
Share-based compensation3,027
 3,283
Other(1,263) (2,996)
Changes in operating assets and liabilities: 
  
Decrease (increase) in accounts receivable5,039
 (31,846)
Decrease (increase) in prepaid expenses and other assets, net22,674
 (483)
(Decrease) increase in accounts payable, accrued expenses and other liabilities(8,443) 29,138
Decrease in rents received in advance and security deposits(3,161) (2,602)
Net cash provided by operating activities$136,537
 $111,815
Reconciliation of cash and cash equivalents and restricted cash:   
Cash and cash equivalents at beginning of period$14,733
 $8,066
Restricted cash at beginning of period3,397
 3,884
Cash and cash equivalents and restricted cash at beginning of period$18,130
 $11,950
    
Cash and cash equivalents at end of period$21,596
 $46,282
Restricted cash at end of period4,270
 4,452
Cash and cash equivalents and restricted cash at end of period$25,866
 $50,734
Supplemental schedule of non-cash investing and financing activities: 
  
Increase in accrued capital improvements, leasing and other investing activity costs$12,940
 $29,862
Finance right-of-use asset contributed by noncontrolling interest in joint venture$—
 $2,570
Operating right-of-use assets obtained in exchange for operating lease liabilities$3,381
 $255
Non-cash changes from property dispositions:   
Contribution of properties to unconsolidated real estate joint venture$—
 $99,288
Investment in unconsolidated real estate joint venture retained in disposition$—
 $26,500
Decrease in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests$(39,953) $(23,585)
Distributions payable$31,302
 $31,346
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value$4,337
 $2,875
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”, “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”). Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”) is the entity through which COPT, the sole general partner of COPLP, conducts almost all of its operations and owns almost all of its assets. Unless otherwise expressly stated or the context otherwise requires, “we”, “us” and “our” as used herein refer to each of the Company and the Operating Partnership. We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support the United States Government (“USG”) and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable, priority missions (“Defense/IT Locations”). We also own a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of June 30, 2020,2021, our properties included the following:


174•183 properties totaling 19.821.1 million square feet comprised of 15.616.4 million square feet in 150157 office properties and 4.24.7 million square feet in 2426 single-tenant data center shell properties (“data center shells”). We owned 1519 of these data center shells through unconsolidated real estate joint ventures;
•a wholesale data center with a critical load of 19.25 megawatts;
11•14 properties under development (9or redevelopment (11 office properties and 23 data center shells), including 13 partially-operational property, and expansions of 3 fully-operational properties, that we estimate will total approximately 1.92.0 million square feet upon completion; and
•approximately 900770 acres of land controlled for future development that we believe could be developed into approximately 11.59.2 million square feet and 43 acres of other land.
 
We conduct almost all of our operations and own almost all of our assets through our operating partnership, Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT is the sole general partner. COPLP owns real estate directly and through subsidiary partnerships and limited liability companies (“LLCs”).  In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management, development and construction services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).

Equity interests in COPLP are in the form of common and preferred units. As of June 30, 2020,2021, COPT owned 98.6%98.3% of the outstanding COPLP common units (“common units”); the remaining common units and all of the outstanding COPLPthere were 0 preferred units (“preferred units”) were owned by third parties.outstanding. Common units not owned by COPT carry certain redemption rights. The number of common units owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT common shareholders. In the case of any series of preferred units held by COPT, there would be a series of preferred shares of beneficial interest (“preferred shares”) in COPT that is equivalent in number and carries substantially the same terms as such series of COPLP preferred units. 

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

Because COPLP is managed by COPT, and COPT conducts substantially all of its operations through COPLP, we refer to COPT’s executive officers as COPLP’s executive officers; 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.
 
When we own an equity investment in an entity and cannot exert significant influence over its operations, we measure the investment at fair value, with changes recognized through net income. For an investment without a readily determinable fair value, we measure the investment at cost, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.

These interim financial statements should be read together with the consolidated financial statements and notes thereto as
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of and for the year ended December 31, 20192020 included in our 2019the Company’s and Operating Partnership’s 2020 Annual Report on Form 10-K.  The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly state our financial position and results of operations.  All adjustments are of a normal recurring nature.  The consolidated financial statements have been prepared using the accounting policies described in our 2019the Company’s and Operating Partnership’s 2020 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.


ReclassificationsReclassification

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

Recent Accounting Pronouncements

Effective January 1, 2020, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that changes how entities measure credit losses for most financial assets and certain other instruments 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 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables (excluding those arising from operating leases), loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g. loan commitments and guarantees). Under this guidance, we recognize an estimate of our expected credit losses on these asset types as an allowance, as the guidance requires that financial assets be measured on an amortized cost basis and be presented at the net amount expected to be collected. We adopted this guidance effective January 1, 2020 using the modified retrospective transition method under which we recognized a $5.5 million allowance for credit losses by means of a cumulative-effect adjustment to cumulative distributions in excess of net income of the Company (or common units of the Operating Partnership), and did not adjust prior comparative reporting periods. Our consolidated statements of operations reflect adjustments for changes in our expected credit losses occurring subsequent to adoption of this guidance.

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

Effective January 1, 2020, we adopted guidance issued by the FASB 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. Our adoption of this guidance did not have a material impact on our consolidated financial statements.

In March 2020, the FASBFinancial Accounting Standards Board issued guidance containing practical expedients for reference rate reform related activities pertaining to debt, leases, derivatives and other contracts. The guidance is optional and may be adoptedelected over time as reference rate reform activities occur. During the six months ended June 30,In 2020, we elected to apply thean expedient to treat any changes in loans resulting from reference rate reform as debt modifications (as opposed to extinguishments) and hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of thesethe hedge accounting expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of this guidance and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB issued a Staff Q&A document that addressed the accounting for lease accounting guidance for lease concessions resulting from the COVID-19 pandemic. Under existing lease guidance, we would normally have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated


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

Credit Losses, Financial Assets and Other Instruments

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

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

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

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



The table below sets forth the activity for the allowance for credit losses (in thousands):
 For the Six Months Ended June 30, 2020
 Investing Receivables 
Tenant Notes
Receivable (1)
 Other Assets (2) Off-Balance Sheet Credit Exposures (3) Total
December 31, 2019$—
 $97
 $—
 $—
 $97
Cumulative effect of change for adoption of credit loss guidance3,732
 325
 144
 1,340
 5,541
Credit loss expense244
 719
 25
 316
 1,304
June 30, 2020$3,976
 $1,141
 $169
 $1,656
 $6,942
(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.
(2) The balance as of June 30, 2020 included $104,000 in the line entitled “accounts receivable, net” and $65,000 in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets.
(3) Included in the line entitled “other liabilities” on our consolidated balance sheets.

The following table presents the amortized cost basis of our investing receivables and tenants notes receivable by credit risk classification, by origination year as of June 30, 2020 (in thousands):
 Origination Year  
 2015 and Earlier 2016 2017 2018 2019 2020 Total
Investing receivables:             
Credit risk classification:             
Investment grade$61,329
 $—
 $887
 $—
 $—
 $—
 $62,216
Non-investment grade3,020
 —
 —
 —
 11,073
 —
 14,093
Total$64,349
 $—
 $887
 $—
 $11,073
 $—
 $76,309
              
Tenant notes receivable:             
Credit risk classification:             
Investment grade$—
 $68
 $—
 $1,069
 $95
 $—
 $1,232
Non-investment grade97
 202
 —
 178
 2,067
 1,600
 4,144
Total$97
 $270
 $—
 $1,247
 $2,162
 $1,600
 $5,376


Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd.), meaning that they are considered to have at least an adequate capacity to meet their financial commitments, with credit risk ranging from minimal to moderate. Our non-investment grade credit risk classification represents entities with either no credit agency credit ratings or ratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification. The credit risk classifications of our investing receivables and tenant notes receivable were last updated in June 2020.

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

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

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



3.     Fair Value Measurements

Recurring Fair Value Measurements

COPT hasWe have a non-qualified elective deferred compensation plan for Trustees and certain members of our management team that, prior to December 31, 2019, permitted participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. The Company froze additional entry into the plan effectiveEffective December 31, 2019.2019, no new investments of deferred compensation were eligible for the plan.  The assets held in the plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on COPT’sour consolidated balance sheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded and totaled $2.5$2.7 million as of June 30, 2020,2021, is included in the line entitled “prepaid expenses and other assets, net” on COPT’sour consolidated balance sheets along with an insignificant amount of other marketable securities. The offsetting liability associated with the plan is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in “other liabilities” on COPT’sour 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 June 30, 2020,2021, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments are not significant. As a result, we determined that our interest rate derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets (excluding investing receivables) and accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturities of these instruments.  The fair values of our investing receivables, as disclosed in Note 7, were based on the discounted estimated future cash flows of the loans (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans with similar maturities and credit quality, and the estimated cash payments include scheduled principal and interest payments.  For our disclosure of debt fair values in Note 9, we estimated the fair value of our unsecured senior notes based on quoted market rates for publicly-traded debt (categorized within Level 2 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled
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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 our financial assets and liabilities of COPT and subsidiaries that are accounted for at fair value on a recurring basis as of June 30, 20202021 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
DescriptionQuoted Prices in
Active Markets for
Identical Assets (Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable 
Inputs
(Level 3)		Total
Assets:    
Marketable securities in deferred compensation plan (1)    
Mutual funds$2,648 $0 $0 $2,648 
Other14 0 0 14 
Other marketable securities (1)33 0 0 33 
Interest rate derivatives (1)0 46 0 46 
Total assets$2,695 $46 $0 $2,741 
Liabilities:    
Deferred compensation plan liability (2)$0 $2,662 $0 $2,662 
Interest rate derivatives— 6,646 0 6,646 
Total liabilities$0 $9,308 $0 $9,308 

Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
 Total
Assets:  
  
  
  
Marketable securities in deferred compensation plan (1)  
  
  
  
Mutual funds $2,512
 $—
 $—
 $2,512
Other 20
 —
 —
 20
Mutual funds (1) 7
 —
 —
 7
Total assets $2,539
 $—
 $—
 $2,539
Liabilities:  
  
  
  
Deferred compensation plan liability (2) $—
 $2,532
 $—
 $2,532
Interest rate derivatives —
 65,612
 —
 65,612
Total liabilities $—
 $68,144
 $—
 $68,144

(1)Included in the line entitled “prepaid expenses and other assets, net” on COPT’sour consolidated balance sheet.
(2)Included in the line entitled “other liabilities” on COPT’sour 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 June 30, 2020 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):
Description Quoted Prices in
Active Markets for
Identical Assets (Level 1)		 Significant Other
Observable Inputs(Level 2)		 
Significant
Unobservable 
Inputs
(Level 3)
 Total
Assets:  
  
  
  
Mutual funds (1) $7
 $—
 $—
 $7
Liabilities:  
  
  
  
Interest rate derivatives $—
 $65,612
 $—
 $65,612


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

4.    Properties, Net
 
Operating properties, net consisted of the following (in thousands): 
June 30,
2021		December 31, 2020
Land$527,994 $528,269 
Buildings and improvements3,753,620 3,711,264 
Less: Accumulated depreciation(1,182,432)(1,124,253)
Operating properties, net$3,099,182 $3,115,280 
 June 30,
2020		 December 31,
2019
Land$502,609
 $472,976
Buildings and improvements3,451,302
 3,306,791
Less: Accumulated depreciation(1,065,094) (1,007,120)
Operating properties, net$2,888,817
 $2,772,647


2021 Dispositions
2020
On June 2, 2021, we sold a 90% interest in 2 data center shell properties in Northern Virginia based on an aggregate property value of $118.8 million and retained a 10% interest in the properties through B RE COPT DC JV III LLC, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $106.9 million. We account for our interest in the joint venture using the equity method of accounting as described further in Note 6. We recognized a gain on sale of $40.3 million.

2021 Development Activities

During the six months ended June 30, 2020,2021, we placed into service 621,000243,000 square feet in 4 newly-developed properties and 21,000 square feet in a redeveloped property.properties. As of June 30, 2020,2021, we had 1113 properties under development, including 13 partially-operational property, and expansions of 3 fully-operational properties, that we estimate will total 1.9 million square feet upon completion and 1 property under redevelopment that we estimate will total 57,000 square feet upon completion.


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5.    Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. As of June 30, 2020, theseThese leases which may encompass all, or a portion, of a property, had remaining terms spanning from one month to 15 years and averaging approximately five years.

properties, with various expiration dates. Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under the lease. The table below sets forth our allocationcomposition of lease revenue recognized between fixed and variable lease revenue (in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
Lease revenue2021202020212020
Fixed$113,423 $103,993 $225,848 $208,102 
Variable30,235 28,154 62,434 55,057 
$143,658 $132,147 $288,282 $263,159 
  For the Three Months Ended June 30, For the Six Months Ended June 30,
Lease revenue 2020 2019 2020 2019
Fixed $103,993
 $104,193
 $208,102
 $208,837
Variable 28,154
 27,222
 55,057
 53,481
  $132,147
 $131,415
 $263,159
 $262,318


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

As of June 30, 2021
Year Ending December 31, June 30, 2020 December 31, 2019Year Ending December 31,Operating leasesSales-type leases
2020 (1) $203,627
 $388,310
2021(1) 372,518
 336,482
$215,266 $442 
2022 335,187
 299,356
2022398,730 960 
2023 281,094
 245,661
2023346,493 960 
2024 231,731
 195,246
2024299,455 960 
20252025220,803 960 
Thereafter 634,608
 474,741
Thereafter879,852 4,516 
 $2,058,765
 $1,939,796
Total contractual paymentsTotal contractual payments$2,360,599 8,798 
Less: Amount representing interestLess: Amount representing interest(2,393)
Net investment in sales-type leasesNet investment in sales-type leases$6,405 

(1) As of June 30, 2020, representsRepresents the six months ending December 31, 2020.2021.

Lessee arrangementsArrangements

As of June 30, 2020,2021, our balance sheet included $71.5$79.4 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating or developing. The land leases have long durationsdeveloping, with remaining terms ranging from 29 (excluding extension options) to 96 years, and included:

$37.8 million for land on which we are developing an office property in Washington, DC through our Stevens Investors, LLC joint venture, virtually all of the rent on which was previously paid. This lease has a 96-year remaining term, and we possess a bargain purchase option that we expect to exercise in 2021;
$10.2 million for land underlying operating office properties in Washington, DC under 2 leases with remaining terms of approximately 80 years;
$6.4 million for land underlying a parking garage in Baltimore, Maryland under a lease with a remaining term of 29 years and an option to renew for an additional 49 years that was included in the term used in determining the asset balance;
$6.6 million for land in a research park in College Park, Maryland under 4 leases through our M Square Associates, LLC joint venture, all of the rent on which was previously paid. These leases had remaining terms ranging from 63 to 74 years;
$8.1 million for land in a business park in Huntsville, Alabama under 11 leases through our LW Redstone Company, LLC joint venture, with remaining terms ranging from 43 to 50 years and options to renew for an additional 25 years that were not included in the term used in determining the asset balance; and
$2.3 million for other land underlying operating properties in our Fort Meade/BW Corridor sub-segment under 2 leases with remaining terms of approximately 48 years, all of the rent on which was previously paid.



various expiration dates. Our property right-of-use assets consisted of the following (in thousands):
Leases Balance Sheet Location June 30, 2020 December 31, 2019
Right-of-use assets      
Operating leases - Property Property - operating right-of-use assets $31,009
 $27,864
Finance leases - Property Property - finance right-of-use assets 40,441
 40,458
Total right-of-use assets   $71,450
 $68,322

LeasesBalance Sheet LocationJune 30, 2021December 31, 2020
Right-of-use assets
Operating leases - PropertyProperty - operating right-of-use assets$39,333 $40,570 
Finance leases - PropertyProperty - finance right-of-use assets40,082 40,425 
Total right-of-use assets$79,415 $80,995 

Property lease liabilities consisted of the following (in thousands):
Leases Balance Sheet Location June 30, 2020 December 31, 2019LeasesBalance Sheet LocationJune 30, 2021December 31, 2020
Lease liabilities    Lease liabilities
Operating leases - Property Property - operating lease liabilities $20,796
 $17,317
Operating leases - PropertyProperty - operating lease liabilities$29,909 $30,746 
Finance leases - Property Other liabilities 688
 702
Finance leases - PropertyOther liabilities18 28 
Total lease liabilities $21,484
 $18,019
Total lease liabilities$29,927 $30,774 

13

The table below sets forth the weighted average terms and discount rates of our property leases as of June 30, 2020:2021:
Weighted average remaining lease term
Operating leases6551 years
Finance leases< 1 year
Weighted average discount rate
Operating leases7.227.16 %
Finance leases3.62%


The table below presents our total property lease cost (in thousands):
Statement of Operations LocationFor the Three Months Ended June 30,For the Six Months Ended June 30,
Lease cost2021202020212020
Operating lease cost
Property leases - fixedProperty operating expenses$1,013 $440 $1,986 $867 
Property leases - variableProperty operating expenses10 5 20 9 
Finance lease cost
Amortization of property right-of-use assetsProperty operating expenses9 9 18 18 
$1,032 $454 $2,024 $894 
  Statement of Operations Location For the Three Months Ended June 30, For the Six Months Ended June 30,
Lease cost  2020 2019 2020 2019
Operating lease cost          
Property leases Property operating expenses $445
 $413
 $876
 $826
Finance lease cost          
Amortization of property right-of-use assets Property operating expenses 9
 12
 18
 12
    $454
 $425
 $894
 $838

The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):
For the Six Months Ended June 30,
Supplemental cash flow information20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$1,586 $541 
Financing cash flows for financing leases$10 $14 
  For the Six Months Ended June 30,
Supplemental cash flow information 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows for operating leases $541
 $550
Financing cash flows for financing leases $14
 $4




Payments on property leases were due as follows (in thousands):
As of June 30, 2021
Year Ending December 31, Operating leasesFinance
leases		Total
2021 (1)$1,610 $4 $1,614 
20223,297 14 3,311 
20233,352 0 3,352 
20243,403 0 3,403 
20251,749 0 1,749 
Thereafter123,979 0 123,979 
Total lease payments137,390 18 137,408 
Less: Amount representing interest(107,481)0 (107,481)
Lease liability$29,909 $18 $29,927 
  As of June 30, 2020 As of December 31, 2019
Year Ending December 31,  Operating leases Finance leases Total  Operating leases Finance leases Total
2020 (1) $636
 $660
 $1,296
 $1,092
 $674
 $1,766
2021 1,328
 14
 1,342
 1,138
 14
 1,152
2022 1,352
 14
 1,366
 1,162
 14
 1,176
2023 1,358
 —
 1,358
 1,167
 —
 1,167
2024 1,363
 —
 1,363
 1,173
 —
 1,173
Thereafter 113,780
 —
 113,780
 100,609
 —
 100,609
Total lease payments 119,817
 688
 120,505
 106,341
 702
 107,043
Less: Amount representing interest (99,021) —
 (99,021) (89,024) —
 (89,024)
Lease liability $20,796
 $688
 $21,484
 $17,317
 $702
 $18,019


(1) As of June 30, 2020, representsRepresents the six months ending December 31, 2020.2021.

14

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 June 30, 20202021 (dollars in thousands):
   June 30, 2021 (1)
Date AcquiredNominal Ownership %Total
Assets		Encumbered AssetsTotal Liabilities
EntityLocation
LW Redstone Company, LLC (2)3/23/201085%Huntsville, Alabama$429,103 $90,985 $89,943 
Stevens Investors, LLC8/11/201595%Washington, DC163,349 162,141 89,142 
M Square Associates, LLC6/26/200750%College Park, Maryland101,228 61,395 52,767 
 $693,680 $314,521 $231,852 
        June 30, 2020 (1)
  Date Acquired Nominal Ownership %   Total Assets Encumbered Assets Total Liabilities
Entity   Location   
LW Redstone Company, LLC 3/23/2010 85% Huntsville, Alabama $335,040
 $111,380
 $107,223
M Square Associates, LLC 6/26/2007 50% College Park, Maryland 92,946
 62,725
 56,153
Stevens Investors, LLC 8/11/2015 95% Washington, DC 141,952
 141,234
 69,982
        $569,938
 $315,339
 $233,358
(1)Excludes amounts eliminated in consolidation.

(1)Excludes amounts eliminated in consolidation.

In March 2020,(2)While net cash flow distributions to the LW Redstone Company, LLC joint venture agreement was amended to changepartners vary depending on the distribution terms to allowsource of the venture to distribute financing proceeds to satisfyfunds distributed, cash flows are generally distributed as follows: (1) cumulative preferred returns of 13.5% on our partner’s $9.0 million in invested capital; (2) cumulative preferred returns of 13.5% on our invested capital; (3) return of our invested capital; (4) return of our partner’s invested capital; and (5) any remaining residual 85% to provideus and 15% to our partner a priority preferred return on its invested capital.partner.

Unconsolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):
Date AcquiredNominal Ownership %Number of PropertiesCarrying Value of Investment (1)
EntityJune 30, 2021December 31, 2020
B RE COPT DC JV II LLC (2)10/30/202010%8 $15,877 $15,988 
BREIT COPT DC JV LLC6/20/201910%9 12,840 13,315 
B RE COPT DC JV III LLC6/2/202110%2 11,869 0 
 19 $40,586 $29,303 
  Date Acquired Nominal Ownership % Number of Properties Carrying Value of Investment (1)
Entity    June 30, 2020 December 31, 2019
GI-COPT DC Partnership LLC 7/21/2016 50% 6
 $36,720
 $37,816
BREIT COPT DC JV LLC 6/20/2019 10% 9
 13,737
 14,133
      15
 $50,457
 $51,949

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

In May 2020, the GI-COPT(2)Our investment in B RE COPT DC PartnershipJV II LLC joint venture agreement was amended to reflectlower than our agreement to initially fund the costs of expanding certainshare of the joint venture’s existing operating properties. Followingequity by $7.3 million as of June 30, 2021 and $7.4 million as of December 31, 2020 due to a difference between our completioncost basis and our share of the joint venture’s underlying equity in its net assets. We recognize adjustments to our share of the joint venture’s earnings and losses resulting from this basis difference in the tenant’s commencementunderlying assets of rent paymentsthe joint venture.

As described further in Note 4, on June 2, 2021, we sold a 90% interest in 2 data center shell properties in Northern Virginia and retained a 10% interest in the property expansion,properties through B RE COPT DC JV III LLC, a newly-formed joint venture. We concluded that the joint venture will reimburse us foris a variable interest entity. Under the lesserterms of the actual development costsjoint venture agreement, we and our partner receive returns in proportion to our investments, and our maximum exposure to losses is limited to our investment, subject to certain indemnification obligations with respect to any nonrecourse debt secured by the properties. The nature of our involvement in the activities of the expansion or $6 million using proceeds from proportional capital contributions byjoint venture does not give us and our partner.power over decisions that significantly affect its economic performance.



7.    Investing Receivables
 
Investing receivables consisted of the following (in thousands):
 June 30,
2020		 December 31,
2019
Notes receivable from the City of Huntsville$62,216
 $59,427
Other investing loans receivable14,093
 14,096
Amortized cost basis76,309
 73,523
Allowance for credit losses(3,976) —
Investing receivables, net$72,333
 $73,523

June 30,
2021		December 31, 2020
Notes receivable from the City of Huntsville$69,165 $65,564 
Other investing loans receivable6,040 6,041 
Amortized cost basis75,205 71,605 
Allowance for credit losses(2,132)(2,851)
Investing receivables, net$73,073 $68,754 
 
The balances above include accrued interest receivable, net of allowance for credit losses, of $1.9$1.8 million as of June 30, 20202021 and $4.7$4.8 million as of December 31, 2019.2020.

15

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

The fair value of these receivables was approximately $77$76 million as of June 30, 20202021 and $74$73 million as of December 31, 2019.2020.

8.    Prepaid Expenses and Other Assets, Net
 
Prepaid expenses and other assets, net consisted of the following (in thousands):
June 30,
2021		December 31, 2020
Lease incentives, net$37,665 $35,642 
Furniture, fixtures and equipment, net9,993 10,433 
Construction contract costs in excess of billings, net9,766 10,343 
Net investment in sales-type leases6,405 6,573 
Non-real estate equity investments5,541 5,509 
Restricted cash4,593 3,664 
Prepaid expenses4,516 19,690 
Marketable securities in deferred compensation plan2,662 3,027 
Deferred tax asset, net (1)1,928 1,989 
Deferred financing costs, net (2)1,876 2,439 
Other assets7,212 5,274 
Prepaid expenses and other assets, net$92,157 $104,583 
 June 30,
2020		 December 31,
2019
Lease incentives, net$29,092
 $28,433
Furniture, fixtures and equipment, net9,015
 7,823
Non-real estate equity investments6,726
 6,705
Prepaid expenses6,600
 18,835
Construction contract costs in excess of billings, net5,508
 17,223
Restricted cash4,270
 3,397
Deferred financing costs, net (1)3,069
 3,633
Deferred tax asset, net (2)2,249
 2,328
Other assets8,998
 4,639
Total for COPLP and subsidiaries75,527
 93,016
Marketable securities in deferred compensation plan2,532
 3,060
Total for COPT and subsidiaries$78,059
 $96,076


(1)Includes a valuation allowance of $41,000 as of June 30, 2021 and $201,000 as of December 31, 2020.
(1) (2)Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.
(2) Includes a valuation allowance of $533,000 as of June 30, 2020 and $480,000 as of December 31, 2019.


16

9.    Debt, Net
 
Our debt consisted of the following (dollars in thousands):
 Carrying Value (1) as of
 June 30,
2021		December 31, 2020June 30, 2021
 Stated Interest RatesScheduled Maturity
Mortgage and Other Secured Debt:    
Fixed rate mortgage debt (2)$138,209 $139,991 3.82% - 4.62% (3)2023-2026
Variable rate secured debt (4)121,126 115,119 LIBOR + 1.45% to 2.35% (5)2022-2026
Total mortgage and other secured debt259,335 255,110   
Revolving Credit Facility (6)169,000 143,000 LIBOR + 0.775% to 1.45% (7)March 2023 (6)
Term Loan Facility398,837 398,447 LIBOR + 1.00% to 1.65% (8)December 2022
Unsecured Senior Notes
5.00%, $300,000 aggregate principal298,127 297,915 5.00% (9)July 2025
2.25%, $400,000 aggregate principal394,975 394,464 2.25% (10)March 2026
2.75%, $600,000 aggregate principal588,538 0 2.75% (11)April 2031
3.60%, $350,000 aggregate principal0 348,888 3.60% (12)N/A (11)
5.25%, $250,000 aggregate principal0 248,194 5.25% (13)N/A (12)
Unsecured note payable828 900 0% (14)May 2026
Total debt, net$2,109,640 $2,086,918   
  Carrying Value (1) as of    
  June 30,
2020		 December 31,
2019		 June 30, 2020
    Stated Interest Rates Scheduled Maturity
Mortgage and Other Secured Debt:  
  
    
Fixed rate mortgage debt (2) $141,729
 $143,430
 3.82% - 4.62% (3) 2023-2026
Variable rate secured debt (4) 108,392
 68,055
 LIBOR + 1.45% to 2.35% (5) 2020-2026
Total mortgage and other secured debt 250,121
 211,485
    
Revolving Credit Facility (6) 169,000
 177,000
 LIBOR + 0.775% to 1.45% (7) March 2023 (6)
Term Loan Facility (8) 398,058
 248,706
 LIBOR + 1.00% to 1.65% (9) 2022
Unsecured Senior Notes        
3.60%, $350,000 aggregate principal 348,658
 348,431
 3.60% (10) May 2023
5.25%, $250,000 aggregate principal 247,920
 247,652
 5.25% (11) February 2024
3.70%, $300,000 aggregate principal 299,585
 299,324
 3.70% (12) June 2021
5.00%, $300,000 aggregate principal 297,707
 297,503
 5.00% (13) July 2025
Unsecured note payable 970
 1,038
 0% (14) May 2026
Total debt, net $2,012,019
 $1,831,139
    


(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $5.9 million as of June 30, 2021 and December 31, 2020.
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $6.0 million as of June 30, 2020 and $5.8 million as of December 31, 2019.
(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 $186,000 as of June 30, 2020 and $217,000 as of December 31, 2019.
(3)
(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 $124,000 as of June 30, 2021 and $155,000 as of December 31, 2020.
(3)The weighted average interest rate on our fixed rate mortgage debt was 4.16% as of June 30, 2021.
(4)Includes a construction loan with $23.6 million in remaining borrowing capacity as of June 30, 2021.
(5)The weighted average interest rate on our variable rate secured debt was 2.23% as of June 30, 2021.
(6)The facility matures in March 2023, with the ability for us to further extend such maturity by 2 six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period. In connection with this facility, we also have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.
(7)The weighted average interest rate on the Revolving Credit Facility was 1.19% as of June 30, 2021.
(8)The interest rate on our fixed rate mortgage debt was 4.16% as of June 30, 2020.
(4)Includes a construction loan with $47.6 million in remaining borrowing capacity as of June 30, 2020.
(5) The weighted average interest rate on our variable rate secured debt was 2.22% as of June 30, 2020.
(6)The facility matures in March 2023, with the ability for us to further extend such maturity by 2 six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period. In connection with this facility, we also have the ability to borrow up to $500.0 million under new term loans from the facility’s lender group provided that there is no default under the facility and subject to the approval of the lenders.
(7)The weighted average interest rate on the Revolving Credit Facility was 1.20% as of June 30, 2020.
(8)   On March 6, 2020, we amended this loan facility to increase the loan amount by $150.0 million and change the interest terms.was 1.34% as of June 30, 2021.
(9)
The interest rate on this loan was 1.17% as of June 30, 2020.
(10)
The carrying value of these notes reflects an unamortized discount totaling $939,000as of June 30, 2020 and $1.1 million as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%. 
(11)
The carrying value of these notes reflectsan unamortized discount totaling $1.9 millionas of June 30, 2020 and $2.1 million as of December 31, 2019.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. 
(12)
The carrying value of these notes reflects an unamortized discount totaling $324,000as of June 30, 2020 and $534,000 as of December 31, 2019.  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 $1.9$1.6 million as of June 30, 20202021 and $2.1$1.8 million as of December 31, 2019.2020.  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 $191,000 as of June 30, 2020 and $223,000 as of December 31, 2019
(10)The carrying value of these notes reflects an unamortized discount totaling $4.1 million as of June 30, 2021 and $4.5 million as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 2.48%.
(11)Refer to paragraph below for further disclosure.
(12)The carrying value of these notes reflects an unamortized discount totaling $781,000 as of December 31, 2020.  The effective interest rate under the notes, including amortization of the issuance costs, was 3.70%. Refer to paragraph below for further disclosure.
(13)The carrying value of these notes reflects an unamortized discount totaling $1.6 million as of December 31, 2020.  The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. Refer to paragraph below for further disclosure.
(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 $133,000 as of June 30, 2021 and $161,000 as of December 31, 2020.
 
All debt is owed by the Operating Partnership. While COPT is not directly obligated by any debt, it has guaranteed COPLP’s Revolving Credit Facility, Term Loan FacilitiesFacility and Unsecured Senior Notes.

On March 11, 2021, we issued $600.0 million of 2.75% Senior Notes due 2031 (the “2.75% Notes”) at an initial offering price of 98.95% of their face value. The proceeds from this issuance, after deducting underwriting discounts, but before other offering expenses, were $589.8 million. The notes mature on April 15, 2031. We may redeem the notes, in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted treasury rate plus a spread of 25 basis points, plus accrued and unpaid interest thereon to the date of redemption. However, if this redemption occurs on or after three months prior to the maturity date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not
17

including, the redemption date. These notes are unconditionally guaranteed by COPT. The carrying value of these notes reflects an unamortized discount totaling $9.9 million as of June 30, 2021. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.94%.

With regard to our 3.60% Senior Notes due 2023 (the “3.60% Notes”) and 5.25% Senior Notes due 2024 (the “5.25% Notes”), we:

•effective March 11, 2021, purchased pursuant to tender offers $184.4 million of 3.60% Notes for $196.7 million and $145.6 million of 5.25% Notes for $164.7 million, plus accrued interest; and
•on April 12, 2021, redeemed the remaining $165.6 million of 3.60% Notes for $176.3 million and $104.4 million of 5.25% Notes for $117.7 million, plus accrued interest.

In connection with these purchases and redemptions, we recognized a loss on early extinguishment of debt of $25.2 million in the three months ended June 30, 2021 and $58.4 million in the six months ended June 30, 2021.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants.  As of June 30, 2020,2021, we were compliant with these financial covenants.

We capitalized interest costs of $1.7 million in the three months ended June 30, 2021, $3.2 million in the three months ended June 30, 2020, $2.4$3.5 million in the threesix months ended June 30, 2019,2021 and $6.5 million in the six months ended June 30, 2020 and $4.4 million in the six months ended June 30, 2019.2020.


The following table sets forth information pertaining to the fair value of our debt (in thousands): 
 June 30, 2020 December 31, 2019
 Carrying Amount Fair Value Carrying Amount Fair Value
Fixed-rate debt 
  
  
  
Unsecured Senior Notes$1,193,870
 $1,224,800
 $1,192,910
 $1,227,441
Other fixed-rate debt142,699
 145,473
 144,468
 149,907
Variable-rate debt675,450
 666,040
 493,761
 495,962
 $2,012,019
 $2,036,313
 $1,831,139
 $1,873,310
 June 30, 2021December 31, 2020
 Carrying AmountFair ValueCarrying AmountFair Value
Fixed-rate debt    
Unsecured Senior Notes$1,281,640 $1,324,953 $1,289,461 $1,334,342 
Other fixed-rate debt139,037 138,241 140,891 142,838 
Variable-rate debt688,963 691,144 656,566 654,102 
 $2,109,640 $2,154,338 $2,086,918 $2,131,282 

10.    Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge of interest rate risk (dollars in thousands):
     Fair Value at
Notional Amount Fixed RateFloating Rate IndexEffective DateExpiration DateJune 30,
2021		December 31, 2020
$100,000  1.901%One-Month LIBOR9/1/201612/1/2022$(2,477)$(3,394)
$100,000 1.905%One-Month LIBOR9/1/201612/1/2022(2,483)(3,401)
$50,000 1.908%One-Month LIBOR9/1/201612/1/2022(1,244)(1,704)
$11,200 (1)1.678%One-Month LIBOR8/1/20198/1/2026(442)(733)
$23,000 (2)0.573%One-Month LIBOR4/1/20203/26/202546 (290)
      $(6,600)$(9,522)

(1)The notional amount of this instrument is scheduled to amortize to $10.0 million.
(2)The notional amount of this instrument is scheduled to amortize to $22.1 million.

18

   


 
 
Fair Value at
Notional Amount Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
June 30,
2020
December 31,
2019
$12,234
(1)1.390% One-Month LIBOR 10/13/2015 10/1/2020 $(38) $23
100,000
 1.901% One-Month LIBOR 9/1/2016 12/1/2022 (4,326) (1,028)
100,000
 1.905% One-Month LIBOR 9/1/2016 12/1/2022 (4,336) (1,037)
50,000
 1.908% One-Month LIBOR 9/1/2016 12/1/2022 (2,171) (524)
11,200
(2)1.678% One-Month LIBOR 8/1/2019 8/1/2026 (858) (20)
150,000
 0.498% One-Month LIBOR 4/1/2020 12/31/2020 (248) —
23,000
(3)0.573% One-Month LIBOR 4/1/2020 3/26/2025 (378) —
75,000
 3.176% Three-Month LIBOR 6/30/2020 6/30/2030 (18,779) (8,640)
75,000
 3.192% Three-Month LIBOR 6/30/2020 6/30/2030 (18,897) (8,749)
75,000
 2.744% Three-Month LIBOR 6/30/2020 6/30/2030 (15,581) (5,684)
 
  
 
 
 
$(65,612)
$(25,659)

(1)The notional amount of this instrument is scheduled to amortize to $12.1 million.
(2)The notional amount of this instrument is scheduled to amortize to $10.0 million.
(3)The notional amount of this instrument is scheduled to amortize to $22.1 million.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):
    Fair Value at
Derivatives Balance Sheet Location June 30,
2020		 December 31, 2019
Interest rate swaps designated as cash flow hedges Prepaid expenses and other assets, net $—
 $23
Interest rate swaps designated as cash flow hedges Interest rate derivatives (liabilities) $(65,612) $(25,682)

 Fair Value at
DerivativesBalance Sheet LocationJune 30,
2021		December 31, 2020
Interest rate swaps designated as cash flow hedgesPrepaid expenses and other assets, net$46 $0 
Interest rate swaps designated as cash flow hedgesInterest rate derivatives (liabilities)$(6,646)$(9,522)
 
The tabletables below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
Amount of (Loss) Income Recognized in AOCL on DerivativesAmount of Loss Reclassified from AOCL into Interest Expense on Statement of Operations
Derivatives in Hedging RelationshipsFor the Three Months Ended June 30,For the Six Months Ended June 30,For the Three Months Ended June 30,For the Six Months Ended June 30,
20212020202120202021202020212020
Interest rate derivatives$(240)$(3,315)$544 $(41,020)$(1,203)$(935)$(2,378)$(1,066)
  Amount of Loss Recognized in AOCL on Derivatives Amount of (Loss) Gain Reclassified from AOCL into Interest Expense on Statement of Operations
  For the Three Months Ended June 30, For the Six Months Ended June 30, For the Three Months Ended June 30, For the Six Months Ended June 30,
Derivatives in Hedging Relationships 2020 2019 2020 2019 2020 2019 2020 2019
Interest rate derivatives $(3,315) $(13,545) $(41,020) $(22,390) $(935) $557
 $(1,066) $1,127


Based on the fair value of our derivatives as of June 30, 2020,2021, we estimate that approximately $8.1$4.7 million of losses will be reclassified from accumulated other comprehensive loss (“AOCL”)AOCL as an increase to interest expense over the next 12 months.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on


our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of June 30, 2020,2021, we were not in default with any of these provisions. As of June 30, 2020,2021, the fair value of interest rate derivatives in a liability position related to these agreements was $65.8$6.7 million, excluding the effects of accrued interest and credit valuation adjustments. As of June 30, 2020,2021, we had not posted any collateral related to these agreements.  If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $66.2$7.1 million as of June 30, 2020.2021.

11.    Redeemable Noncontrolling Interests

Our partners in 2 real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, have the right to require us to acquire their respective interests at fair value; accordingly, we classify the fair value of our partners’ interests as redeemable noncontrolling interests in the mezzanine section of our consolidated balance sheets. The table below sets forth the activity for these redeemable noncontrolling interests (in thousands):
For the Six Months Ended June 30,
20212020
Beginning balance$25,430 $29,431 
Distributions to noncontrolling interests(1,165)(12,695)
Net income attributable to noncontrolling interests1,153 2,075 
Adjustment to arrive at fair value of interests622 4,337 
Ending balance$26,040 $23,148 
  For the Six Months Ended June 30,
  2020 2019
Beginning balance $29,431
 $26,260
Distributions to noncontrolling interests (12,695) (876)
Net income attributable to noncontrolling interests 2,075
 1,544
Adjustment to arrive at fair value of interests 4,337
 2,875
Ending balance $23,148
 $29,803


We determine the fair value of the interests based on unobservable inputs after considering the assumptions that market participants would make in pricing the interest. We apply a discount rate to the estimated future cash flows allocable to our partners from the properties underlying the respective joint ventures. Estimated cash flows used in such analyses are based on our plans for the properties and our views of market and economic conditions, and consider items such as current and future rental rates, occupancy projections and estimated operating and development expenditures.

12.    Equity
 
Common Shares/UnitsShares

As of June 30, 2020, COPT2021, we had remaining capacity under itsour at-the-market stock offering program equal to an aggregate gross sales price of $300 million in common share sales.

19

During the six months ended June 30, 2020,2021, certain COPLP limited partners converted 12,0098,054 common units in COPLP for an equal number of common shares in COPT.shares.

We declared dividends per COPT common share and distributions per COPLP common unit of $0.275 in the three months ended June 30, 20202021 and 20192020 and $0.550 in the six months ended June 30, 20202021 and 2019.2020.

See Note 1516 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.

13.    Credit Losses, Financial Assets and Other Instruments

The table below sets forth the activity for the allowance for credit losses (in thousands):
For the Six Months Ended June 30, 2021
Investing ReceivablesTenant Notes
Receivable (1)		Other Assets (2)Total
December 31, 2020$2,851 $1,203 $643 $4,697 
Credit loss (recoveries) expense(719)(77)82 (714)
June 30, 2021$2,132 $1,126 $725 $3,983 
(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.
(2)The balance as of June 30, 2021 and December 31, 2020 included $89,000 and $257,000, respectively, in the line entitled “accounts receivable, net” and $636,000 and $386,000, respectively, in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets.

The following table presents the amortized cost basis of our investing receivables, tenant notes receivable and sales-type lease receivables by credit risk classification, by origination year as of June 30, 2021 (in thousands):
Origination Year
2016 and Earlier20172018201920202021Total
Investing receivables:
Credit risk classification:
Investment grade$67,112 $1,019 $0 $0 $1,028 $6 $69,165 
Non-investment grade0 0 0 6,040 0 0 6,040 
Total$67,112 $1,019 $0 $6,040 $1,028 $6 $75,205 
Tenant notes receivable:
Credit risk classification:
Investment grade$0 $0 $965 $74 $308 $0 $1,347 
Non-investment grade234 0 149 157 1,803 0 2,343 
Total$234 $0 $1,114 $231 $2,111 $0 $3,690 
Sales-type lease receivables:
Credit risk classification:
Investment grade$0 $0 $0 $0 $6,405 $0 $6,405 

Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd.), meaning that they are considered to have at least an adequate capacity to meet their financial commitments, with credit risk ranging from minimal to moderate. Our non-investment grade credit risk classification represents entities with either no credit agency credit ratings or ratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification. The credit risk classifications of our investing receivables and tenant notes receivable were last updated in June 2021.

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

20


Notes receivable on nonaccrual status as of June 30, 2021 and December 31, 2020 were not significant. We did not recognize any interest income on notes receivable on nonaccrual status during the three or six months ended June 30, 2021 and 2020.
13.
14.    Information by Business Segment

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

We measure the performance of our segments through the measure we define as net operating income from real estate operations (“NOI from real estate operations”), which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to COPT’sour 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.

21




The table below reports segment financial information for our reportable segments (in thousands): 
Defense/Information Technology Locations
 Fort Meade/BW CorridorNorthern Virginia Defense/ITLackland Air Force BaseNavy Support LocationsRedstone ArsenalData Center ShellsTotal Defense/IT LocationsRegional OfficeOperating Wholesale
Data Center		OtherTotal
Three Months Ended June 30, 2021         
Revenues from real estate operations$64,840 $14,712 $13,688 $8,445 $8,775 $8,070 $118,530 $16,884 $8,175 $834 $144,423 
Property operating expenses(21,714)(5,538)(7,506)(3,227)(2,968)(777)(41,730)(7,842)(4,629)(415)(54,616)
UJV NOI allocable to COPT0 0 0 0 0 973 973 0 0 0 973 
NOI from real estate operations$43,126 $9,174 $6,182 $5,218 $5,807 $8,266 $77,773 $9,042 $3,546 $419 $90,780 
Additions to long-lived assets$11,511 $1,022 $0 $1,205 $3,053 $0 $16,791 $4,089 $121 $9 $21,010 
Transfers from non-operating properties$784 $25 $49,218 $0 $1,288 $1,017 $52,332 $38,000 $0 $0 $90,332 
Three Months Ended June 30, 2020          
Revenues from real estate operations$62,698 $14,447 $13,257 $8,119 $4,647 $7,076 $110,244 $15,162 $6,455 $677 $132,538 
Property operating expenses(20,859)(5,335)(7,785)(3,171)(1,612)(789)(39,551)(6,888)(3,463)(302)(50,204)
UJV NOI allocable to COPT0 0 0 0 0 1,725 1,725 0 0 0 1,725 
NOI from real estate operations$41,839 $9,112 $5,472 $4,948 $3,035 $8,012 $72,418 $8,274 $2,992 $375 $84,059 
Additions to long-lived assets$6,958 $3,204 $0 $2,110 $146 $0 $12,418 $4,445 $7,904 $103 $24,870 
Transfers from non-operating properties$3,975 $524 $145 $0 $29,171 $49,964 $83,779 $0 $0 $0 $83,779 
Six Months Ended June 30, 2021         
Revenues from real estate operations$131,286 $29,923 $26,243 $16,843 $17,028 $16,857 $238,180 $33,561 $16,265 $1,581 $289,587 
Property operating expenses(46,385)(11,414)(14,380)(6,660)(5,522)(1,859)(86,220)(15,506)(9,050)(814)(111,590)
UJV NOI allocable to COPT0 0 0 0 0 1,890 1,890 0 0 0 1,890 
NOI from real estate operations$84,901 $18,509 $11,863 $10,183 $11,506 $16,888 $153,850 $18,055 $7,215 $767 $179,887 
Additions to long-lived assets$18,392 $1,307 $0 $1,757 $3,311 $0 $24,767 $8,111 $349 $13 $33,240 
Transfers from non-operating properties$1,140 $113 $49,269 $0 $14,205 $2,002 $66,729 $38,357 $0 $0 $105,086 
Segment assets at June 30, 2021$1,266,622 $385,050 $189,418 $174,633 $295,672 $353,797 $2,665,192 $538,518 $196,395 $3,453 $3,403,558 
Six Months Ended June 30, 2020         
Revenues from real estate operations$127,136 $28,125 $25,333 $16,460 $9,323 $12,653 $219,030 $30,622 $13,627 $1,375 $264,654 
Property operating expenses(42,081)(10,520)(14,580)(6,456)(3,459)(1,446)(78,542)(14,425)(6,696)(540)(100,203)
UJV NOI allocable to COPT0 0 0 0 0 3,438 3,438 0 0 0 3,438 
NOI from real estate operations$85,055 $17,605 $10,753 $10,004 $5,864 $14,645 $143,926 $16,197 $6,931 $835 $167,889 
Additions to long-lived assets$14,633 $5,895 $0 $3,868 $316 $0 $24,712 $7,802 $8,782 $168 $41,464 
Transfers from non-operating properties$4,513 $780 $160 $0 $30,307 $106,196 $141,956 $0 $0 $0 $141,956 
Segment assets at June 30, 2020$1,271,790 $394,363 $144,253 $181,744 $167,161 $382,749 $2,542,060 $389,058 $205,711 $3,710 $3,140,539 
 Operating Property Segments      
 Defense/Information Technology Locations        
 Fort Meade/BW Corridor Northern Virginia Defense/IT Lackland Air Force Base Navy Support Locations Redstone Arsenal Data Center Shells Total Defense/IT Locations Regional Office Wholesale
Data Center		 Other Total
Three Months Ended June 30, 2020 
  
  
    
  
    
  
  
  
Revenues from real estate operations$62,698
 $14,447
 $13,257
 $8,119
 $4,647
 $7,076
 $110,244
 $15,162
 $6,455
 $677
 $132,538
Property operating expenses(20,859) (5,335) (7,785) (3,171) (1,612) (789) (39,551) (6,888) (3,463) (302) (50,204)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,725
 1,725
 —
 —
 —
 1,725
NOI from real estate operations$41,839
 $9,112
 $5,472
 $4,948
 $3,035
 $8,012
 $72,418
 $8,274
 $2,992
 $375
 $84,059
Additions to long-lived assets$6,958
 $3,204
 $—
 $2,110
 $146
 $—
 $12,418
 $4,445
 $7,904
 $103
 $24,870
Transfers from non-operating properties$3,975
 $524
 $145
 $—
 $29,171
 $49,964
 $83,779
 $—
 $—
 $—
 $83,779
Three Months Ended June 30, 2019 
  
  
  
  
  
    
  
  
  
Revenues from real estate operations$61,659
 $13,912
 $12,104
 $8,185
 $3,968
 $8,624
 $108,452
 $15,018
 $8,560
 $741
 $132,771
Property operating expenses(19,344) (4,694) (6,648) (3,286) (1,599) (759) (36,330) (7,590) (3,618) (348) (47,886)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 1,251
 1,251
 —
 —
 —
 1,251
NOI from real estate operations$42,315
 $9,218
 $5,456
 $4,899
 $2,369
 $9,116
 $73,373
 $7,428
 $4,942
 $393
 $86,136
Additions to long-lived assets$7,499
 $1,703
 $—
 $928
 $536
 $—
 $10,666
 $4,870
 $95
 $34
 $15,665
Transfers from non-operating properties$1,338
 $20
 $1,833
 $—
 $5,576
 $92,844
 $101,611
 $—
 $—
 $—
 $101,611
Six Months Ended June 30, 2020 
  
  
    
  
    
  
  
  
Revenues from real estate operations$127,136
 $28,125
 $25,333
 $16,460
 $9,323
 $12,653
 $219,030
 $30,622
 $13,627
 $1,375
 $264,654
Property operating expenses(42,081) (10,520) (14,580) (6,456) (3,459) (1,446) (78,542) (14,425) (6,696) (540) (100,203)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 3,438
 3,438
 —
 —
 —
 3,438
NOI from real estate operations$85,055
 $17,605
 $10,753
 $10,004
 $5,864
 $14,645
 $143,926
 $16,197
 $6,931
 $835
 $167,889
Additions to long-lived assets$14,633
 $5,895
 $—
 $3,868
 $316
 $—
 $24,712
 $7,802
 $8,782
 $168
 $41,464
Transfers from non-operating properties$4,513
 $780
 $160
 $—
 $30,307
 $106,196
 $141,956
 $—
 $—
 $—
 $141,956
Segment assets at June 30, 2020$1,271,790
 $394,363
 $144,253
 $181,744
 $167,161
 $382,749
 $2,542,060
 $389,058
 $205,711
 $3,710
 $3,140,539
Six Months Ended June 30, 2019 
  
  
    
  
    
  
  
  
Revenues from real estate operations$124,342
 $28,743
 $23,665
 $16,340
 $7,907
 $15,978
 $216,975
 $29,851
 $16,431
 $1,504
 $264,761
Property operating expenses(41,679) (9,986) (12,607) (6,690) (3,138) (1,112) (75,212) (15,006) (6,456) (657) (97,331)
UJV NOI allocable to COPT—
 —
 —
 —
 —
 2,470
 2,470
 —
 —
 —
 2,470
NOI from real estate operations$82,663
 $18,757
 $11,058
 $9,650
 $4,769
 $17,336
 $144,233
 $14,845
 $9,975
 $847
 $169,900
Additions to long-lived assets$11,434
 $3,150
 $—
 $5,945
 $836
 $—
 $21,365
 $8,859
 $251
 $44
 $30,519
Transfers from non-operating properties$6,378
 $4,529
 $8,336
 $—
 $9,211
 $112,632
 $141,086
 $—
 $—
 $—
 $141,086
Segment assets at June 30, 2019$1,274,336
 $398,586
 $146,475
 $187,172
 $115,222
 $307,676
 $2,429,467
 $393,110
 $209,787
 $3,776
 $3,036,140



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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 June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Segment revenues from real estate operations$132,538
 $132,771
 $264,654
 $264,761
Construction contract and other service revenues12,236
 42,299
 25,917
 59,249
Total revenues$144,774
 $175,070
 $290,571
 $324,010

For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
Segment revenues from real estate operations$144,423 $132,538 $289,587 $264,654 
Construction contract and other service revenues19,988 12,236 36,546 25,917 
Total revenues$164,411 $144,774 $326,133 $290,571 
 
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 June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
UJV NOI allocable to COPT$1,725
 $1,251
 $3,438
 $2,470
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense(1,270) (830) (2,540) (1,657)
Add: Equity in loss of unconsolidated non-real estate entities(1) (1) (3) (2)
Equity in income of unconsolidated entities$454
 $420
 $895
 $811

For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
UJV NOI allocable to COPT$973 $1,725 $1,890 $3,438 
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense(711)(1,270)(1,404)(2,540)
Add: Equity in loss of unconsolidated non-real estate entities(2)(1)(4)(3)
Equity in income of unconsolidated entities$260 $454 $482 $895 
 
As previously discussed, we provide real estate services such as property management, development and construction services primarily for our properties but also for third parties.  The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities.  Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
Construction contract and other service revenues$19,988 $12,236 $36,546 $25,917 
Construction contract and other service expenses(19,082)(11,711)(34,875)(24,832)
NOI from service operations$906 $525 $1,671 $1,085 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Construction contract and other service revenues$12,236
 $42,299
 $25,917
 $59,249
Construction contract and other service expenses(11,711) (41,002) (24,832) (57,328)
NOI from service operations$525
 $1,297
 $1,085
 $1,921

23



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 June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
NOI from real estate operations$84,059
 $86,136
 $167,889
 $169,900
NOI from service operations525
 1,297
 1,085
 1,921
Interest and other income2,282
 1,849
 3,487
 4,135
Credit loss expense(615) —
 (1,304) —
Gain on sales of real estate—
 84,469
 5
 84,469
Equity in income of unconsolidated entities454
 420
 895
 811
Income tax (expense) benefit(30) 176
 (79) (18)
Depreciation and other amortization associated with real estate operations(33,612) (34,802) (66,208) (69,598)
General, administrative and leasing expenses(8,158) (9,386) (15,644) (18,137)
Business development expenses and land carry costs(1,262) (870) (2,380) (1,983)
Interest expense(16,797) (18,475) (33,637) (37,149)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities(1,725) (1,251) (3,438) (2,470)
Net income$25,121
 $109,563
 $50,671
 $131,881

For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
NOI from real estate operations$90,780 $84,059 $179,887 $167,889 
NOI from service operations906 525 1,671 1,085 
Interest and other income2,228 2,282 4,093 3,487 
Credit loss (expense) recoveries(193)(615)714 (1,304)
Gain on sales of real estate40,233 0 39,743 5 
Equity in income of unconsolidated entities260 454 482 895 
Income tax expense(24)(30)(56)(79)
Depreciation and other amortization associated with real estate operations(37,555)(33,612)(74,876)(66,208)
General, administrative and leasing expenses(9,222)(8,158)(17,628)(15,644)
Business development expenses and land carry costs(1,372)(1,262)(2,466)(2,380)
Interest expense(15,942)(16,797)(33,461)(33,637)
UJV NOI allocable to COPT included in equity in income of unconsolidated entities(973)(1,725)(1,890)(3,438)
Loss on early extinguishment of debt(25,228)0 (58,394)0 
Net income$43,898 $25,121 $37,819 $50,671 
 
The following table reconciles our segment assets to theour consolidated total assets of COPT and subsidiaries (in thousands):
 June 30,
2020		 June 30,
2019
Segment assets$3,140,539
 $3,036,140
Operating properties lease liabilities included in segment assets19,073
 16,502
Non-operating property assets679,207
 523,801
Other assets172,506
 227,026
Total COPT consolidated assets$4,011,325
 $3,803,469

June 30,
2021		June 30,
2020
Segment assets$3,403,558 $3,140,539 
Operating properties lease liabilities included in segment assets29,927 19,073 
Non-operating property assets441,048 679,207 
Other assets177,499 172,506 
Total consolidated assets$4,052,032 $4,011,325 
 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment losses, gain on sales of real estate, loss on early extinguishment of debt and equity in income of unconsolidated entities not included in NOI to our real estate segments since they are not included in the measure of segment profit reviewed by management.  We also did not allocate general, administrative and leasing expenses, business development expenses and land carry costs, interest and other income, credit loss expense,(expense) recoveries, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.

14.15.     Construction Contract and Other Service Revenues

We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Construction contract revenue:
Guaranteed maximum price$11,388 $5,432 $13,489 $10,476 
Cost-plus fee5,847 3,563 18,333 6,872 
Firm fixed price2,441 2,984 3,912 8,056 
Other312 257 812 513 
$19,988 $12,236 $36,546 $25,917 

24
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Construction contract revenue:       
Guaranteed maximum price$5,432
 $25,792
 $10,476
 $38,148
Firm fixed price2,984
 1,335
 8,056
 3,660
Cost-plus fee3,563
 14,969
 6,872
 17,029
Other257
 203
 513
 412
 $12,236
 $42,299
 $25,917
 $59,249




The table below reports construction contract and other service revenues by service type (in thousands):
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
Construction contract revenue:
Construction$18,828 $10,851 $34,584 $23,734 
Design848 1,128 1,150 1,670 
Other312 257 812 513 
$19,988 $12,236 $36,546 $25,917 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Construction contract revenue:       
Construction$10,851
 $42,010
 $23,734
 $58,499
Design1,128
 86
 1,670
 338
Other257
 203
 513
 412
 $12,236
 $42,299
 $25,917
 $59,249


We recognized an increase (decrease) ininsignificant amount of revenue of $74,000 and $(14,000) in the three months ended June 30, 2020 and 2019, respectively, and $74,000 and $18,000 in the six months ended June 30, 20202021 and 2019, respectively,2020 from performance obligations satisfied (or partially satisfied) in previous periods.

Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):
For the Six Months Ended June 30,
20212020
Beginning balance$13,997 $12,378 
Ending balance$10,003 $8,898 
 For the Six Months Ended June 30,
 2020 2019
Beginning balance$12,378
 $6,701
Ending balance$8,898
 $34,837


The increase in the accounts receivable balance reported above for the six months ended June 30, 2019 was due primarily to significant amounts billed near the end of the period.

Contract assets, which we refer to herein as construction contract costs in excess of billings, net, are included in prepaid expenses and other assets, net reported on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):
For the Six Months Ended June 30,
20212020
Beginning balance$10,343 $17,223 
Ending balance$9,766 $5,508 
 For the Six Months Ended June 30,
 2020 2019
Beginning balance$17,223
 $3,189
Ending balance$5,508
 $12,629


Contract liabilities are included in other liabilities reported on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):
For the Six Months Ended June 30,
20212020
Beginning balance$4,610 $1,184 
Ending balance$2,320 $2,435 
Portion of beginning balance recognized in revenue during:
Three months ended June 30$2,070 $92 
Six months ended June 30$2,617 $738 
 For the Six Months Ended June 30,
 2020 2019
Beginning balance$1,184
 $568
Ending balance$2,435
 $156
Portion of beginning balance recognized in revenue during:   
Three months ended June 30$92
 $6
Six months ended June 30$738
 $445


Revenue allocated to the remaining performance obligations under existing contracts as of June 30, 20202021 that will be recognized as revenue in future periods was $70.5$171.7 million, approximately $20$69 million of which we expect to recognize during the remainder of 2020.2021.

We incurred nohave 0 deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues and had no significant credit loss expense on construction contracts receivable or unbilled construction revenue in the three or six months ended June 30, 20202021 and 2019.2020.



15.16.    Share-Based Compensation
 
Restricted Shares
 
During the six months ended June 30, 2020,2021, certain employees and non-employee members of our Board of Trustees (“Trustees”) were granted a total of 152,793161,345 restricted common shares with an aggregate grant date fair value of $3.9$4.2 million (weighted average of $25.20$26.19 per share). Restricted shares granted to employees vest based on increments and over periods of
25

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 six months ended June 30, 2020,2021, forfeiture restrictions lapsed on 159,083150,751 previously issued common shares; these shares had a weighted average grant date fair value of $28.16$25.75 per share, and the aggregate intrinsic value of the shares on the vesting dates was $4.0$3.9 million.

Deferred Share Awards

During the
six months ended June 30, 2020, certain non-employee Trustees were granted a total of 7,972 deferred share awards with an aggregate grant date fair value of $187,000 ($23.44 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).

Performance Share Awards (“PSUs”)
 
We issued 23,18193,824 common shares on January 13, 2020February 3, 2021 to executives in settlement of PSUs granted in 2017,2018, representing 53%200% of the target awards for those PSUs.

Profit Interest Units in COPLP (“PIUs”)

For 2020, we offered our executives and Trustees the opportunity to select PIUs as a form of long-term compensation in lieu of, or in combination with, other forms of share-based compensation awards (restricted shares, deferred share awards and PSUs). Our executives and certain of our Trustees selected PIUs as their form of share-based compensation for their 2020 grants. We granted 2 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 six months ended June 30, 2020, our executives and certain non-employee Trustees were2021, we granted a total of 75,05393,983 TB-PIUs with an aggregate grant date fair value of $1.9$2.5 million (weighted average of $25.14$26.16 per TB-PIU). to senior management team members and certain non-employee Trustees. TB-PIUs granted to executivessenior management team members generally vest in equal one-thirdannual increments over a three-year period beginning on the first anniversary of the date of grant.grant provided that the employee remains employed by us. TB-PIUs granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the six months ended June 30, 2020, 20,622 TB-PIUs awarded to our former Executive Vice President and Chief Operating Officer were forfeited upon his resignation. During the six months ended June 30, 2020,2021, forfeiture restrictions lapsed on 25,18240,591 previously issued TB-PIUs; these TB-PIUs had a weighted average grant date fair value of $26.30$25.14 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was $640,000.$1.1 million.



PB-PIUs

On January 1, 2020,2021, we granted our executives 176,758certain senior management team members 227,544 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 20222023 or the date of: (1) termination by us without cause, death or disability of the executiveemployee or constructive discharge of the executiveemployee (collectively, “qualified termination”); or (2) a sale event.  The number of earned awards at the end of the performance period will be determined based on the percentile rank of COPT’s total shareholder return (“TSR”) relative to a peer group of companies, as set forth in the following schedule:
Percentile RankEarned AwardsPB-PIUs Payout %
75th or greater100% of PB-PIUs granted
50th (target)50% of PB-PIUs granted
25th25% of PB-PIUs granted
Below 25th0% of PB-PIUs granted


If the percentile rank exceeds the 25th percentile and is between 2 of the percentile ranks set forth in the table above, then the percentage of the earned awards will be interpolated between the ranges set forth in the table above to reflect any performance between the listed percentiles.  If COPT’s TSR during the measurement period is negative, the maximum number of earned awards will be limited to the target level payout percentage.  During the performance period, PB-PIUs carry rights to distributions equal to 10% of the distribution rights of non-PIU common units but carry no redemption rights.

At the end of the performance period, we will settle the award by issuing vested PIUs equal toto: the number of earned awards in settlement of the award planawards; and paying cash equal to the excess, if any, of:of (1) the aggregate distributions that would have been paid with respect to vested PIUs issued in settlement of the earned awards through the date of settlement had such vested PIUs been issued on the grant date;date over (2) the aggregate distributions made on the PB-PIUs during the performance period.period, divided by the price of our common shares on the settlement date. If a performance period ends due to a sale event or qualified termination, the number of earned awards 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 PB-PIUs are forfeited.

26

These PB-PIU grants had an aggregate grant date fair value of $2.9$3.4 million ($16.3630.03 per PB-PIU)target-level award associated with the grants) which is being recognized over the performance period. The grant date fair value was computed using a Monte Carlo model that included the following assumptions: baseline common share value of $29.38;$26.08; expected volatility for common shares of 18.0%34.7%; and a risk-free interest rate of 1.65%0.18%.  

Deferred Share Awards

During the six months ended June 30, 2020, 73,184 PB-PIUs awarded to our former Executive Vice President and Chief Operating Officer were forfeited2021, a non-employee Trustee was granted 3,416 deferred share awards with an aggregate grant date fair value of $93,000 ($27.12 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 his resignation.vesting of the awards or a later date elected by the Trustee (generally upon cessation of being a Trustee).

16.17.    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 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 awards using the if-converted or 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 add 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 June 30,For the Six Months Ended June 30,
 2021202020212020
Numerator:  
Net income attributable to COPT$42,401 $23,497 $35,732 $47,551 
Income attributable to share-based compensation awards(136)(115)(244)(220)
Numerator for basic EPS on net income attributable to COPT common shareholders42,265 23,382 35,488 47,331 
Redeemable noncontrolling interests(20)0 7 0 
Income attributable to share-based compensation awards11 6 9 14 
Numerator for diluted EPS on net income attributable to COPT common shareholders$42,256 $23,388 $35,504 $47,345 
Denominator (all weighted averages):  
Denominator for basic EPS (common shares)111,974 111,800 111,931 111,762 
Dilutive effect of redeemable noncontrolling interests133 0 125 0 
Dilutive effect of share-based compensation awards297 321 280 280 
Denominator for diluted EPS (common shares)112,404 112,121 112,336 112,042 
Basic EPS$0.38 $0.21 $0.32 $0.42 
Diluted EPS$0.38 $0.21 $0.32 $0.42 
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Numerator: 
  
    
Net income attributable to COPT$23,497
 $106,791
 $47,551
 $127,650
Income attributable to share-based compensation awards(115) (364) (220) (413)
Numerator for basic EPS on net income attributable to COPT common shareholders23,382
 106,427
 47,331
 127,237
Preferred unit distributions—
 165
 —
 —
Redeemable noncontrolling interests—
 902
 —
 66
Common units in the Operating Partnership—
 —
 —
 1,515
Income attributable to share-based compensation awards6
 18
 14
 22
Numerator for diluted EPS on net income attributable to COPT common shareholders$23,388
 $107,512
 $47,345
 $128,840
Denominator (all weighted averages): 
  
    
Denominator for basic EPS (common shares)111,800
 111,557
 111,762
 110,759
Dilutive convertible preferred units—
 176
 —
 —
Dilutive effect of common units—
 —
 —
 1,329
Dilutive effect of redeemable noncontrolling interests—
 1,062
 —
 130
Dilutive effect of share-based compensation awards321
 310
 280
 289
Denominator for diluted EPS (common shares)112,121
 113,105
 112,042
 112,507
Basic EPS$0.21
 $0.95
 $0.42
 $1.15
Diluted EPS$0.21
 $0.95
 $0.42
 $1.15
27

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 June 30,For the Six Months Ended June 30,
 2021202020212020
Conversion of common units1,262 1,237 1,254 1,232 
Conversion of redeemable noncontrolling interests776 878 799 944 
Conversion of Series I Preferred Units0 176 0 176 
 Weighted Average Shares Excluded from Denominator
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Conversion of common units1,237
 1,327
 1,232
 —
Conversion of redeemable noncontrolling interests878
 —
 944
 907
Conversion of Series I preferred units176
 —
 176
 176

The following securities were also excluded from the computation of diluted EPS because their effect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the six months ended June 30, 2019 of 758,000;
•weighted average restricted shares and deferred share awards for the three months ended June 30, 2021 and 2020 of 420,000 and 2019 of 429,000, and 425,000, respectively, and for the six months ended June 30, 2021 and 2020 of 419,000 and 2019 of 434,000, and 444,000, respectively;
weighted average options for the three and six months ended June 30, 2019 of 17,000 and 23,000, respectively; and
•weighted average unvested TB-PIUs for the three months ended June 30, 2021 and 2020 of 166,000 and 2019 of 90,000, and 59,000, respectively, and for the six months ended June 30, 2021 and 2020 of 148,000 and 2019 of 82,000, respectively; and 39,000, respectively.

COPLP and Subsidiaries EPU

We present both basic and diluted EPU.  We compute basic EPU by dividing net income available to common unitholders allocable to unrestricted common units under the two-class method by the •weighted average number of unrestricted common units outstanding during the period.  Our computation of diluted EPU is similar except that:
the denominator is increased to include: (1) the weighted average number of potential additional common units that would have been outstanding if securities that are convertible into our common units were converted; and (2) the effect of dilutive


potential common units outstanding during the period attributable to COPT’s forward equity sale agreements, redeemable noncontrolling interests and our share-based compensation using the treasury stock or if-converted methods; and
the numerator is adjusted to add back any changes in income or loss that would result from the assumed conversion into common units that we add 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 June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Numerator: 
  
    
Net income attributable to COPLP$23,858
 $108,295
 $48,276
 $129,576
Preferred unit distributions(77) (165) (154) (330)
Income attributable to share-based compensation awards(133) (438) (254) (494)
Numerator for basic EPU on net income attributable to COPLP common unitholders23,648
 107,692
 47,868
 128,752
Redeemable noncontrolling interests—
 902
 —
 66
Income attributable to share-based compensation awards—
 18
 —
 22
Dilutive effective of preferred units—
 165
 —
 —
Numerator for diluted EPU on net income attributable to COPLP common unitholders$23,648
 $108,777
 $47,868
 $128,840
Denominator (all weighted averages): 
  
    
Denominator for basic EPU (common units)113,037
 112,884
 112,994
 112,088
Dilutive convertible preferred units—
 176
 —
 —
Dilutive effect of redeemable noncontrolling interests—
 1,062
 —
 130
Dilutive effect of share-based compensation awards321
 310
 280
 289
Denominator for diluted EPU (common units)113,358
 114,432
 113,274
 112,507
Basic EPU$0.21
 $0.95
 $0.42
 $1.15
Diluted EPU$0.21
 $0.95
 $0.42
 $1.15

Our diluted EPU computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPU for the respective periods (in thousands):
 Weighted Average Shares Excluded from Denominator
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Conversion of redeemable noncontrolling interests878
 —
 944
 907
Conversion of Series I preferred units176
 —
 176
 176


The following securities were also excluded from the computation of diluted EPU because their effect was antidilutive:

weighted average shares related to COPT’s forward equity sale agreements for the six months ended June 30, 2019 of 758,000;
weighted average restricted units and deferred share awards for the three months ended June 30, 2020 and 2019 of 429,000 and 425,000, respectively, and for the six months ended June 30, 2020 and 2019 of 434,000 and 444,000, respectively;
weighted average optionsunvested PB-PIUs for the three and six months ended June 30, 20192021 of 17,000 and 23,000, respectively; and228,000.
weighted average unvested TB-PIUs for the three months ended June 30, 2020 and 2019 of 90,000 and 59,000, respectively, and for the six months ended June 30, 2020 and 2019 of 82,000 and 39,000, respectively.



17.18.    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.  As of June 30, 2020,2021, management believes that it is reasonably possible that we could recognize a loss of up to $3.2$3.3 million for certain municipal tax claims. Whileclaims; while we do not believe this loss would materially affect our financial position or liquidity, it could be material to our results of operations. Management believes that it is also reasonably possible that we could incur losses pursuant to other such claims but do not believe such losses would materially affect our financial position, liquidity or results of operations. Our assessment of the potential outcomes of these matters involves significant judgment and is subject to change based on future developments.
 
Environmental
 
We are subject to various Federal, state and local environmental regulations related to our property ownership and operation.  We have performed environmental assessments of our properties, the results of which have not revealed any environmental liability that we believe would have a materially adverse effect on our financial position, operations or liquidity.

In connection with a lease and subsequent sale in 2008 and 2010 of 3 properties in Dayton, New Jersey, we agreed to provide certain environmental indemnifications limited to $19 million in the aggregate. We have insurance coverage in place to mitigate much of any potential future losses that may result from these indemnification agreements.
 
Tax Incremental Financing Obligation
 
Anne Arundel County, Maryland issued tax incremental financing bonds to third-party investors in order to finance public improvements needed in connection with our project known as the National Business Park.  These bonds had a remaining principal balance of approximately $34$33 million as of June 30, 2020.2021. The real estate taxes on increases in assessed values post-bond issuance of properties in development districts encompassing the National Business Park are transferred to a special fund pledged to the repayment of the bonds. While we are obligated to fund, through a special tax, any future shortfalls between debt service of the bonds and real estate taxes available to repay the bonds, as of June 30, 2020,2021, we do not expect any such future fundings will be significant.required.

Effects of COVID-19
 
Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities have imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong measures were in place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures in late April, as regional COVID-19 case volumes appeared to be decreasing. The pace of the easing of these measures varied regionally, with some state and local governments lifting restrictive measures entirely, and many businesses were able to gradually begin resuming a return to normal operations. As of the date of this filing, spread of the coronavirus, or COVID-19, continues world- and nation-wide. To date, the United States has made significant progress with the pandemic relative to the beginning of the year, with significantly lower new case volumes were increasingand a significant increase in muchthe proportion of the country, with certain authorities re-institutingpopulation that has been vaccinated.With this progress, most restrictive measures previously instituted to control spread have been gradually lifted and others contemplating doing so. Asan increasing proportion of the
28

population has resumed a result,return to normal activities.However, there continues to be significant uncertainty regarding the duration and extent of thisthe pandemic and, once it subsides,due to factors such as the potential for it to reoccur on a significant scalecontinuing spread of the virus (including recent increases in the future. The outbreak has significantly disrupted economic markets worldwide, as well asnew case volumes in much of the United States at a national, regionalStates), the pace of vaccination efforts (including potential future booster shots) and local level,vaccine efficacy in terms of duration and created significant volatility in financial markets. These conditions could continue or further deteriorate as businesses feelagainst variants of the prolonged effects of stalled or reduced operations and uncertainty regardingvirus. While the pandemic continues.has impacted the operations of much of the commercial real estate industry, we believe that we have been less susceptible to such impact due to our portfolio’s significant concentration in Defense/IT Locations. As a result, we believe that we have not been significantly affected by the pandemic.

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

•disruption of our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;
•our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;


•shortages in supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;
•access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;
•our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development; and
•an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

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


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Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
During the six months ended June 30, 2020,2021, we: 


•finished the period with our office and data center shell portfolio 93.4%93.5% occupied and 94.5%94.3% leased;
•placed into service 642,000243,000 square feet in four newly-developed office properties (includingthat were 77.7% leased as of June 30, 2021;
•refinanced certain unsecured senior notes issuances with a new unsecured senior note issuance by:
◦issuing $600.0 million of 2.75% Notes at an initial offering price of 98.95% of their face value on March 11, 2021. The proceeds from this issuance, after deducting underwriting discounts but before other offering expenses, were $589.8 million; and
◦purchasing or redeeming $350.0 million of 3.60% Notes (52.7% of such notes effective March 11, 2021 and the remaining notes on April 12, 2021) and $250.0 million of 5.25% Notes (58.2% of such notes effective March 11, 2021 and the remaining notes on April 12, 2021) for $373.1 million and $282.4 million, respectively, plus accrued interest. In connection with these purchases, we recognized a loss on early extinguishment of debt in the three months and six months ended June 30, 2021 of $25.2 million and $58.4 million, respectively.
We used borrowings under our Revolving Credit Facility to fund the net cash outlay resulting from this refinancing; and
•sold a 90% interest in two data center shell properties and two office properties in our Redstone Arsenal sub-segment) and one redevelopedNorthern Virginia on June 2, 2021 based on an aggregate property that were 98.6% leased asvalue of June 30, 2020; and
amended an existing term loan facility to increase the loan amount by $150.0$118.8 million and reduceretained a 10% interest in the LIBORproperties through B RE COPT DC JV III LLC, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest rate spread on the facility. Wefrom us for $106.9 million, which was used the resulting loan proceedsby us to repay borrowings under our Revolving Credit Facility that funded development costs.Facility.

In addition, effective March 16, 2020, Paul R. Adkins resigned from his position as Executive Vice President and Chief Operating Officer. We commenced a search for candidates to replace Mr. Adkins and, in the interim, have senior level employees handling his responsibilities.

We refer to the measure “annualized rental revenue” in various sections of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Quarterly Report on Form 10-Q. Annualized rental revenue is a measure that we use to evaluate the source of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect). Our computation of annualized rental revenue excludes the effect of lease incentives, although the effect of this exclusion is not material. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles in the United States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis.

With regard to our operating portfolio square footage, occupancy and leasing statistics included below and elsewhere in this Quarterly Report on Form 10-Q, amounts disclosed include information pertaining to properties owned through unconsolidated real estate joint ventures except for amounts reported for annualized rental revenue, which represent the portion attributable to our ownership interest.ventures.

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, construction costs and property values;


•adverse changes in the real estate markets, including, among other things, increased competition with other companies;
•risks and uncertainties regarding the impact of the COVID-19 pandemic, and similar pandemics, along with restrictive measures instituted to prevent spread, on our business, the real estate industry and national, regional and local economic conditions;
•governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by our strategic customers;
•our ability to borrow on favorable terms;
30

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

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

Pandemic Overview

Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities have imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong measures were in place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures in late April, as regional COVID-19 case volumes appeared to be decreasing. The pace of the easing of these measures varied regionally, with some state and local governments lifting restrictive measures entirely, and many businesses were able to gradually begin resuming a return to normal operations. As of the date of this filing, spread of the coronavirus, or COVID-19, continues world- and nation-wide. To date, the United States has made significant progress with the pandemic relative to the beginning of the year, with significantly lower new case volumes were increasingand a significant increase in muchthe proportion of the country, with certain authorities re-institutingpopulation that has been vaccinated. With this progress, most restrictive measures previously instituted to control spread have been gradually lifted and others contemplating doing so. Asan increasing proportion of the population has resumed a result,return to normal activities. However, there continues to be significant uncertainty regarding the duration and extent of thisthe pandemic and, once it subsides,due to factors such as the potential for it to reoccur on a significant scalecontinuing spread of the virus (including recent increases in the future. The outbreak has significantly disrupted economic markets worldwide, as well asnew case volumes in much of the United States at a national, regionalStates), the pace of vaccination efforts (including potential future booster shots) and local level,vaccine efficacy in terms of duration and created significant volatility in financial markets. These conditions could continue or further deteriorate as businesses feelagainst variants of the prolonged effects of stalled or reduced operations and uncertainty regardingvirus.

While the pandemic continues.

Effect on Real Estate Industry

COVID-19 has significantly affectedimpacted the operations of much of the commercial real estate industry, as certain tenants’ operations, including the ability to use space and run businesses,we believe that we have been disrupted, which has adversely affected tenants’ abilityless susceptible to sustain their businesses, including their ability, or willingness, to fulfill their lease obligations. The industry has also been significantly impacted by the economic disruption that COVID-19 has triggered, which has affected the ability to lease space in most property types to new and existing tenants at favorable terms. Key demand drivers for office space, such as employment levels, business confidence and corporate profits, have been adversely affected. In addition, after months of businesses operating in significant part through remote work arrangements out of necessity, the pace of such arrangements becoming more prevalent long-term could accelerate, adversely affecting office space demand, although that effect may be offset by a slowing in the trend toward adoption of shared office and open workplace structuresimpact due to greater social distancing concerns.our portfolio’s significant concentration in Defense/IT Locations. As a result, the commercial real estate industry, including office real estate, is facing enhanced risk for adverse impacts inour results of operations financial conditions and cash flows due to the COVID-19 pandemic and the potential for lasting future effects.



Effect on the Company

Our office and data center shell portfolio is significantly concentrated in Defense/IT Locations, representing 165 of the portfolio’s 174 properties, or 87.8%, of our annualized rental revenue as of June 30, 2020. These properties are primarily occupied by the USG and contractor tenants engaged in what we believe are high-priority security, defense and IT missions. As a result, most of these properties have been designated as “essential businesses,” and are therefore exempt from many of the restrictions that have otherwise affected much of the commercial real estate industry. Furthermore, since the tenants in these properties are mostly the USG, or contractors of the USG who continue to be compensated by the USG for their services, we believe that their ability, and willingness, to fulfill their lease obligations will not be disrupted. Our Defense/IT Locations do include several tenants serving as amenities to business parks housing our properties (such as restaurant, retail and personal service providers); while these tenants’ operations have been significantly disrupted by COVID-19, our annualized rental revenue from these tenants is not significant.

As of June 30, 2020, we owned seven Regional Office properties, representing 11.7% of our office and data center shell portfolio’s annualized rental revenue. These properties were comprised of: three high-rise Baltimore City properties proximate to the city’s waterfront; and four Northern Virginia properties. While these properties include tenants in the financial services, health care and public health sectors, which, as “essential businesses,” have been exempt from restrictions on operations, they also include a number of non-essential business tenants. These properties are more subject to traditional office fundamentals than our Defense/IT Locations and therefore face much of the enhanced risk in adverse impacts from COVID-19 described above.

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

for the operations of our properties;
◦we consulted with medical experts in developing an approach to safely operate our properties during the pandemic;
◦we used manufacturer recommended OEM heating and air conditioning filters to ensure appropriate outside air distribution;
◦we proactively engaged our tenants to help them through unknowns as pandemic concerns heightened and restrictive measures were being instituted, and maintained that engagement to ensure communication regarding steps we were taking in our business operations, any changes in tenant operations (such as office closures or revised work schedules) and the existence of any actual or presumed COVID-19 cases in properties;
◦our on-site property operations staff were required to use personal protective equipment, such as masks, gloves and hand sanitizer, and implement other procedural changes to enhance separation and minimize spread;
◦we instituted enhanced cleaning measures, particularly for high touch areas and flat surfaces, and conducted special deep cleanings in properties potentially affected by actual or presumed COVID-19 cases;
◦we provided signage promoting proper social distancing practices and hand sanitizer stations for property common area lobbies; and
◦for properties not being used by tenants due to office closures or work from home arrangements, we locked down public (non-tenant) access to the properties for security purposes and instituted other measures aimed at managing costs;
for our employees:
◦our staff deemed to be essential, including our executives, select other members of our leadership team and most of our property management team, have continued to report to their normal work locations; and
◦most of our other staff worked from home from mid-March until the end of May, when they began reporting to their normal work locations on a weekly rotational basis; and
for our leasing activities:
◦we continued active engagement for lease transactions already in progress;
◦during periods of time in which we were unable to physically show space to prospective tenants (from mid-March until late May to mid-June), we showed space to new prospective tenants using a combination of virtual technology and pre-recorded video tours; and
◦we implemented new advertising strategies to promote space availability.

As of the date of this filing, COVID-19 had not significantly affected our results of operations. Our:by the pandemic. For the three and six months ended June 30, 2021, our:

same property•Same Properties NOI from real estate operations decreased 0.2%increased for the three months ended June 30, 2020 relative to the comparable 2019 period and increased 1.2% for the six months ended June 30, 20202021 relative to the comparable 2019 period. These changes included2020 periods by $2.1 million and $1.1 million, respectively, and was only minimally affected by the pandemic-related net effect of a $1.6 million increase inlower provisions for collectability losses, most of whichoffset in part by lower parking revenue, in the 2021 periods relative to the 2020 periods; and


was attributable to tenants whose operations were significantly disrupted by the pandemic (including primarily tenants serving as amenities to Defense/IT Location properties);
other •lease revenue collections were not significantly affected by the pandemic. However, we have agreedAfter agreeing to deferred payment arrangements for $2.8approximately $2.6 million in lease receivables last year (most of which was repaid by June 30, 2021), we did not agree to be repaidsignificant additional arrangements to date in most cases by 2021 with primarily Regional Office tenants and tenants serving as amenities to Defense/IT Location properties whose operations were significantly disrupted;2021.
office and data center shell portfolio was 93.4% occupied (compared to 92.9% at year end) and 94.5% leased (compared to 94.4% at year end) and our Same Properties portfolio was 92.3% occupied (compared to 91.8% at year end) and 93.5% leased (unchanged from year end). These percentages reflect decreases of 0.3% to 0.4% since March 31, 2020 attributable primarily to a tenant whose planned vacancy was known prior to the pandemic;
operating expenses were not significantly affected by the pandemic. While there were some additional expenses resulting from additional cleaning related costs, personal protective equipment supplies and social distancing measures, those expenses were offset by expense savings from reduced property usage by tenants; and
leadership team concluded that the economic disruption resulting from COVID-19 constituted a significant adverse change in the business climate that could affect the value of our Regional Office properties, which are dependent on commercial office tenants and could suffer increased vacancy as a result. Accordingly, we concluded that these circumstances constituted an indicator of impairment. We performed recovery analyses for each Regional Office property’s asset group and concluded that the carrying value of each asset group was recoverable from the respective estimated undiscounted future cash flows. As a result, no impairment loss was recognized.

While we do not currently expect that COVID-19the pandemic will significantly affect our future results of operations, financial condition or cash flows, we believe that the impact of the pandemic will be dependent on future developments, including the duration and extent of the pandemic, and any future resurgence thereof, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, all of which are uncertain and difficult to predict. Nevertheless, we believe at this time that there is more inherent risk associated with the operations of our Regional Office properties than our Defense/IT Locations.

We believe that COVID-19 led to several leases being executed later than we previously expected, and the inability for us to physically show space to prospective tenants due to restrictive measures has served as an impediment to initiating new and progressing active leasing transactions. While we do not expectbelieve that our development leasing and ability to renew leases scheduled to expire will behave been significantly affected by the pandemic, we do expectbelieve that the impact of the restrictive measures and the economic uncertainty caused by the pandemic has impacted our timing and volume of vacant space leasing, and may continue to do so in the future.

For our development activity, we delivered newly constructed space in three properties on schedule during the three months ended June 30, 2020, and the 11 properties and expansions of three fully-operational properties that were under development as of June 30, 2020 face minimal operational risk as they were 84% leased as of the date of this filing. COVID-19The pandemic enhances the risk of us being able to stay on pace to complete development and begin operations on schedule due to the potential for delays from: jurisdictional permitting and inspections; factories’ ability to provide materials; and possible labor quarantines.shortages. These types of issues have not significantly affected us to date but could in the future, depending on COVID-19pandemic related developments.

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

In March 2020, due to the potential for financial market instability from the pandemic, we borrowed under our Revolving Credit Facility in order to pre-fund our short-term capital needs. As the capital markets remained stable in the second quarter of 2020, we repaid much of these borrowings in June 2020. As of the date of this filing, we believe that the financial markets would support our ability to obtain unsecured, fixed rate debt.
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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:
 June 30, 2020 December 31, 2019
Occupancy rates at period end 
  
Total93.4% 92.9%
Defense/IT Locations:   
Fort Meade/BW Corridor90.9% 92.4%
Northern Virginia Defense/IT87.0% 82.4%
Lackland Air Force Base100.0% 100.0%
Navy Support Locations93.9% 92.5%
Redstone Arsenal99.7% 99.3%
Data Center Shells100.0% 100.0%
Total Defense/IT Locations93.8% 93.7%
Regional Office92.0% 88.1%
Other68.4% 73.0%
Average contractual annual rental rate per square foot at period end (1)$31.15
 $31.28

(1) Includes estimated expense reimbursements.
 
Rentable
Square Feet
 
Occupied
Square Feet
 (in thousands)
December 31, 201919,173
 17,816
Vacated upon lease expiration (1)—
 (264)
Occupancy for new leases (2)—
 310
Developed or redeveloped642
 620
Other changes(34) (3)
June 30, 202019,781
 18,479

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

June 30, 2021December 31, 2020
Occupancy rates at period end  
Total93.5 %94.1 %
Defense/IT Locations:
Fort Meade/BW Corridor90.6 %91.0 %
Northern Virginia Defense/IT87.7 %88.1 %
Lackland Air Force Base100.0 %100.0 %
Navy Support Locations96.9 %97.2 %
Redstone Arsenal99.6 %99.4 %
Data Center Shells100.0 %100.0 %
Total Defense/IT Locations94.3 %94.5 %
Regional Office88.3 %92.5 %
Other66.2 %68.4 %
Average contractual annual rental rate per square foot at period end (1)$32.18 $31.50 

(1)Includes estimated expense reimbursements.
Rentable
Square Feet		Occupied
Square Feet
 (in thousands)
December 31, 202020,959 19,722 
Vacated upon lease expiration (1)— (391)
Occupancy for new leases— 269 
Developed or redeveloped243 162 
Removed from operations(63)— 
Other changes(4)— 
June 30, 202121,135 19,762 

(1)Includes lease terminations and space reductions occurring in connection with lease renewals.

During the six months ended June 30, 2020,2021, we completed 1.61.7 million square feet of leasing, including: renewed leases on 1.1 million815,000 square feet, representing 81.0%78.3% of the square footage of our lease expirations (including the effect of early renewals)renewals and excluding vacated space removed from service for redevelopment); 276,000205,000 square feet of vacant space; and 641,000 square feet of development and redevelopment space; and 213,000 square feet of vacant space.

Wholesale Data Center
 
Our 19.25 megawatt wholesale data center was 90.6%86.7% leased as of June 30, 20202021 and 76.9% leased as of December 31, 2019, reflecting an increase from our leasing of 3.1 megawatts in April 2020. We have a known tenant downsizing of 0.75 megawatts occurring in July 2020 and are negotiating the renewal of aAn 11.25 megawatt lease for 11.25 megawatts that is scheduled to expireexpired in August 2020.2020 remains in place until renewed by both parties or terminated by either party.

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’sour 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:
•stably owned and 100% operational throughout the current and prior year reporting periods.periods being compared.  We define these as changes from “Same Properties”;

32


•developed or redeveloped and placed into service that were not 100% operational throughout the current and prior year reporting periods; and
•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 net 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 theour consolidated statements of operations of COPT and subsidiaries is provided in Note 1314 to our consolidated financial statements.

Comparison of Statements of Operations for the Three Months Ended June 30, 20202021 and 20192020

 For the Three Months Ended June 30,
 20212020Variance
 (in thousands)
Revenues   
Revenues from real estate operations$144,423 $132,538 $11,885 
Construction contract and other service revenues19,988 12,236 7,752 
Total revenues164,411 144,774 19,637 
Operating expenses   
Property operating expenses54,616 50,204 4,412 
Depreciation and amortization associated with real estate operations37,555 33,612 3,943 
Construction contract and other service expenses19,082 11,711 7,371 
General, administrative and leasing expenses9,222 8,158 1,064 
Business development expenses and land carry costs1,372 1,262 110 
Total operating expenses121,847 104,947 16,900 
Interest expense(15,942)(16,797)855 
Interest and other income2,228 2,282 (54)
Credit loss expense(193)(615)422 
Gain on sales of real estate40,233 — 40,233 
Loss on early extinguishment of debt(25,228)— (25,228)
Equity in income of unconsolidated entities260 454 (194)
Income tax expense(24)(30)6 
Net income$43,898 $25,121 $18,777 

33
 For the Three Months Ended June 30,
 2020 2019 Variance
 (in thousands)
Revenues 
  
  
Revenues from real estate operations$132,538
 $132,771
 $(233)
Construction contract and other service revenues12,236
 42,299
 (30,063)
Total revenues144,774
 175,070
 (30,296)
Operating expenses 
  
  
Property operating expenses50,204
 47,886
 2,318
Depreciation and amortization associated with real estate operations33,612
 34,802
 (1,190)
Construction contract and other service expenses11,711
 41,002
 (29,291)
General, administrative and leasing expenses8,158
 9,386
 (1,228)
Business development expenses and land carry costs1,262
 870
 392
Total operating expenses104,947
 133,946
 (28,999)
Interest expense(16,797) (18,475) 1,678
Interest and other income2,282
 1,849
 433
Credit loss expense(615) —
 (615)
Gain on sales of real estate—
 84,469
 (84,469)
Equity in income of unconsolidated entities454
 420
 34
Income tax (expense) benefit(30) 176
 (206)
Net income$25,121
 $109,563
 $(84,442)




NOI from Real Estate Operations
For the Three Months Ended June 30,For the Three Months Ended June 30,
2020 2019 Variance20212020Variance
(Dollars in thousands, except per square foot data)(Dollars in thousands, except per square foot data)
Revenues     Revenues
Same Properties revenues     Same Properties revenues
Lease revenue, excluding lease termination revenue and provision for collectability losses$119,808
 $115,363
 $4,445
Lease termination revenue358
 285
 73
Lease revenue, excluding net lease termination revenue and provision for collectability lossesLease revenue, excluding net lease termination revenue and provision for collectability losses$121,160 $120,866 $294 
Lease termination revenue, netLease termination revenue, net1,094 200 894 
Provision for collectability losses included in lease revenue(1,592) (24) (1,568)Provision for collectability losses included in lease revenue5 (1,374)1,379 
Other property revenue337
 1,303
 (966)Other property revenue732 389 343 
Same Properties total revenues118,911
 116,927
 1,984
Same Properties total revenues122,991 120,081 2,910 
Developed and redeveloped properties placed in service7,189
 1,929
 5,260
Developed and redeveloped properties placed in service11,647 2,484 9,163 
Wholesale data center6,455
 8,560
 (2,105)Wholesale data center8,175 6,455 1,720 
Dispositions(17) 4,673
 (4,690)Dispositions1,165 3,099 (1,934)
Other—
 682
 (682)Other445 419 26 
132,538
 132,771
 (233)144,423 132,538 11,885 
Property operating expenses     Property operating expenses
Same Properties(45,487) (43,338) (2,149)Same Properties(46,852)(46,001)(851)
Developed and redeveloped properties placed in service(1,255) (346) (909)Developed and redeveloped properties placed in service(2,761)(289)(2,472)
Wholesale data center(3,463) (3,618) 155
Wholesale data center(4,629)(3,463)(1,166)
Dispositions4
 (562) 566
Dispositions(135)(311)176 
Other(3) (22) 19
Other(239)(140)(99)
(50,204) (47,886) (2,318)(54,616)(50,204)(4,412)
     
UJV NOI allocable to COPT     UJV NOI allocable to COPT
Same Properties1,220
 1,205
 15
Same Properties503 506 (3)
Retained interests in UJV formed in 2019505
 46
 459
DispositionsDispositions— 1,219 (1,219)
Retained interest in newly-formed UJVsRetained interest in newly-formed UJVs470 — 470 
1,725
 1,251
 474
973 1,725 (752)
     
NOI from real estate operations     NOI from real estate operations
Same Properties74,644
 74,794
 (150)Same Properties76,642 74,586 2,056 
Developed and redeveloped properties placed in service5,934
 1,583
 4,351
Developed and redeveloped properties placed in service8,886 2,195 6,691 
Wholesale data center2,992
 4,942
 (1,950)Wholesale data center3,546 2,992 554 
Dispositions, net of retained interests in UJV formed in 2019492
 4,157
 (3,665)
Dispositions, net of retained interest in newly-formed UJVsDispositions, net of retained interest in newly-formed UJVs1,500 4,007 (2,507)
Other(3) 660
 (663)Other206 279 (73)
$84,059
 $86,136
 $(2,077)$90,780 $84,059 $6,721 
     
Same Properties NOI from real estate operations by segment     Same Properties NOI from real estate operations by segment
Defense/IT Locations$65,995
 $66,980
 $(985)Defense/IT Locations$68,041 $65,937 $2,104 
Regional Office8,274
 7,430
 844
Regional Office8,220 8,274 (54)
Other375
 384
 (9)Other381 375 6 
$74,644
 $74,794
 $(150)$76,642 $74,586 $2,056 
     
Same Properties rent statistics     Same Properties rent statistics
Average occupancy rate92.4% 91.6% 0.8%Average occupancy rate92.7 %92.7 %— %
Average straight-line rent per occupied square foot (1)$6.47
 $6.55
 $(0.08)Average straight-line rent per occupied square foot (1)$6.55 $6.44 $0.11 
 
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.
(1)Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

Our Same Properties pool consisted of 152158 properties, comprising 83.7%81.9% of our office and data center shell portfolio’s square footage as of June 30, 2020.2021. This pool of properties changed from the pool used for purposes of comparing 20192020 and 20182019 in our 20192020 Annual Report on Form 10-K due to thethe: addition of fiveeight properties placed in service and 100% operational
34

on or before January 1, 2019.2020 and nine properties owned through an unconsolidated real estate joint venture that was formed in 2019; and removal of two properties in which we sold a 90% interest and one property reclassified as redevelopment.




Regarding the changes in NOI from real estate operations ofreported above:

•the increase for our Same Properties pool was due primarily to lower provisions for collectability losses and higher lease termination revenue in the current period;
•developed and redeveloped properties placed in service included 13reflects the effect of 15 properties placed in service in 20192020 and 2020, while our 2021; and
•dispositions, includednet of retained interest in newly-formed UJVs reflects the effect of our decrease in ownership in 2019 of nineeight data center shells.shells in 2020 and two in 2021.

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

NOI from Service Operations
For the Three Months Ended June 30,
20212020Variance
(in thousands)
Construction contract and other service revenues$19,988 $12,236 $7,752 
Construction contract and other service expenses(19,082)(11,711)(7,371)
NOI from service operations$906 $525 $381 
  For the Three Months Ended June 30,
  2020 2019 Variance
  (in thousands)
Construction contract and other service revenues $12,236
 $42,299
 $(30,063)
Construction contract and other service expenses (11,711) (41,002) 29,291
NOI from service operations $525
 $1,297
 $(772)

Construction contract and other service revenue and expenses decreasedincreased due primarily to a lowerhigher 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 net income relative to our real estate operations.

Interest ExpenseDepreciation and amortization associated with real estate operations

Interest expense decreased due primarily to: increased capitalized interest resulting from a higher volume of active development projects;The increase in depreciation and lower borrowings and interest rates on our Revolving Credit Facility.amortization associated with real estate operations was mostly attributable to newly-developed properties placed in service.

Gain on sales of real estate

The gain on sales of real estate in the current period was due to our sale of a 90% interest in seventwo data center shell properties in 2019 that did not recurthe current period.

Loss on extinguishment of debt

The loss on early extinguishment of debt recognized in the current period was attributable to our redemption of the remaining 3.60% Notes and 5.25% Notes in the current period.


35


Comparison of Statements of Operations for the Six Months Ended June 30, 20202021 and 20192020

 For the Six Months Ended June 30,
 20212020Variance
 (in thousands)
Revenues   
Revenues from real estate operations$289,587 $264,654 $24,933 
Construction contract and other service revenues36,546 25,917 10,629 
Total revenues326,133 290,571 35,562 
Operating expenses   
Property operating expenses111,590 100,203 11,387 
Depreciation and amortization associated with real estate operations74,876 66,208 8,668 
Construction contract and other service expenses34,875 24,832 10,043 
General, administrative and leasing expenses17,628 15,644 1,984 
Business development expenses and land carry costs2,466 2,380 86 
Total operating expenses241,435 209,267 32,168 
Interest expense(33,461)(33,637)176 
Interest and other income4,093 3,487 606 
Credit loss recoveries (expense)714 (1,304)2,018 
Gain on sales of real estate39,743 5 39,738 
Loss on early extinguishment of debt(58,394)— (58,394)
Equity in income of unconsolidated entities482 895 (413)
Income tax expense(56)(79)23 
Net income$37,819 $50,671 $(12,852)

36
 For the Six Months Ended June 30,
 2020 2019 Variance
 (in thousands)
Revenues 
  
  
Revenues from real estate operations$264,654
 $264,761
 $(107)
Construction contract and other service revenues25,917
 59,249
 (33,332)
Total revenues290,571
 324,010
 (33,439)
Operating expenses 
  
  
Property operating expenses100,203
 97,331
 2,872
Depreciation and amortization associated with real estate operations66,208
 69,598
 (3,390)
Construction contract and other service expenses24,832
 57,328
 (32,496)
General, administrative and leasing expenses15,644
 18,137
 (2,493)
Business development expenses and land carry costs2,380
 1,983
 397
Total operating expenses209,267
 244,377
 (35,110)
Interest expense(33,637) (37,149) 3,512
Interest and other income3,487
 4,135
 (648)
Credit loss expense(1,304) —
 (1,304)
Gain on sales of real estate5
 84,469
 (84,464)
Equity in income of unconsolidated entities895
 811
 84
Income tax expense(79) (18) (61)
Net income$50,671
 $131,881
 $(81,210)




NOI from Real Estate Operations
For the Six Months Ended June 30,For the Six Months Ended June 30,
2020 2019 Variance20212020Variance
(Dollars in thousands, except per square foot data)(Dollars in thousands, except per square foot data)
Revenues     Revenues
Same Properties revenues     Same Properties revenues
Lease revenue, excluding lease termination revenue and provision for collectability losses$238,175
 $231,822
 $6,353
Lease revenue, excluding lease termination revenue and provision for collectability losses$242,972 $240,406 $2,566 
Lease termination revenue443
 806
 (363)Lease termination revenue2,456 238 2,218 
Provision for collectability losses included in lease revenue(1,700) (93) (1,607)Provision for collectability losses included in lease revenue(119)(1,482)1,363 
Other property revenue1,381
 2,345
 (964)Other property revenue1,239 1,487 (248)
Same Properties total revenues238,299
 234,880
 3,419
Same Properties total revenues246,548 240,649 5,899 
Constructed and redeveloped properties placed in service12,741
 2,831
 9,910
Developed and redeveloped properties placed in serviceDeveloped and redeveloped properties placed in service22,965 3,480 19,485 
Wholesale data center13,627
 16,431
 (2,804)Wholesale data center16,265 13,627 2,638 
Dispositions(17) 9,048
 (9,065)Dispositions2,845 6,050 (3,205)
Other4
 1,571
 (1,567)Other964 848 116 
264,654
 264,761
 (107)289,587 264,654 24,933 
Property operating expenses     Property operating expenses
Same Properties(91,132) (89,503) (1,629)Same Properties(96,822)(92,066)(4,756)
Constructed and redeveloped properties placed in service(2,370) (660) (1,710)
Developed and redeveloped properties placed in serviceDeveloped and redeveloped properties placed in service(4,850)(520)(4,330)
Wholesale data center(6,696) (6,456) (240)Wholesale data center(9,050)(6,696)(2,354)
Dispositions4
 (700) 704
Dispositions(433)(626)193 
Other(9) (12) 3
Other(435)(295)(140)
(100,203) (97,331) (2,872)(111,590)(100,203)(11,387)
     
UJV NOI allocable to COPT     UJV NOI allocable to COPT
Same Properties2,427
 2,424
 3
Same Properties1,002 1,011 (9)
Retained interests in UJV formed in 20191,011
 46
 965
DispositionsDispositions— 2,427 (2,427)
Retained interest in newly-formed UJVsRetained interest in newly-formed UJVs888 — 888 
1,890 3,438 (1,548)
3,438
 2,470
 968
NOI from real estate operations     NOI from real estate operations
Same Properties149,594
 147,801
 1,793
Same Properties150,728 149,594 1,134 
Constructed and redeveloped properties placed in service10,371
 2,171
 8,200
Developed and redeveloped properties placed in serviceDeveloped and redeveloped properties placed in service18,115 2,960 15,155 
Wholesale data center6,931
 9,975
 (3,044)Wholesale data center7,215 6,931 284 
Dispositions, net of retained interests in UJV formed in 2019998
 8,394
 (7,396)
Dispositions, net of retained interest in newly-formed UJVsDispositions, net of retained interest in newly-formed UJVs3,300 7,851 (4,551)
Other(5) 1,559
 (1,564)Other529 553 (24)
$167,889
 $169,900
 $(2,011)$179,887 $167,889 $11,998 
     
Same Properties NOI from real estate operations by segment     Same Properties NOI from real estate operations by segment
Defense/IT Locations$132,561
 $132,159
 $402
Defense/IT Locations$134,108 $132,561 $1,547 
Regional Office16,197
 14,847
 1,350
Regional Office15,935 16,197 (262)
Other836
 795
 41
Other685 836 (151)
$149,594
 $147,801
 $1,793
$150,728 $149,594 $1,134 
     
Same Properties rent statistics     Same Properties rent statistics
Average occupancy rate92.3% 91.6% 0.7%Average occupancy rate92.6 %92.7 %(0.1 %)
Average straight-line rent per occupied square foot (1)$13.02
 $13.10
 $(0.08)Average straight-line rent per occupied square foot (1)$13.05 $12.95 $0.10 
 
(1) Includes minimum base rents, net of abatements, and lease incentives on a straight-line basis for the periods set forth above.

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



Regarding the changes in NOI from real estate operations reported above:

•the increase for our Same Properties pool was due primarily to: higher rent per occupied square foot in the current period due to an increase in rental rates (mostly from leases of our constructedrenewed or previously-vacant space) and lower provisions for
37

collectability losses; and higher lease termination revenue in the current period; offset in part by higher snow removal costs and lower parking revenue in the current period;
•developed and redeveloped properties placed in service included 13reflects the effect of 15 properties placed in service in 20192020 and 2020, while our 2021; and
•dispositions, includednet of retained interest in newly-formed UJVs reflects the effect of our decrease in ownership in 2019 of nineeight data center shells.shells in 2020 and two in 2021.

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

NOI from Service Operations
For the Six Months Ended June 30,
20212020Variance
(in thousands)
Construction contract and other service revenues$36,546 $25,917 $10,629 
Construction contract and other service expenses(34,875)(24,832)(10,043)
NOI from service operations$1,671 $1,085 $586 
  For the Six Months Ended June 30,
  2020 2019 Variance
  (in thousands)
Construction contract and other service revenues $25,917
 $59,249
 $(33,332)
Construction contract and other service expenses (24,832) (57,328) 32,496
NOI from service operations $1,085
 $1,921
 $(836)

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

General, administrativeDepreciation and leasing expenses

General, administrative and leasing expenses decreased in large part due to lower professional fees and compensation related expenses in the current period.

Interest Expense

Interest expense decreased due primarily to: increased capitalized interest resulting from a higher volume of active development projects; and lower borrowings and interest rates on our Revolving Credit Facility.

Credit Loss Expense

Credit loss expense recognized in the current period resulted from our adoption of new accounting guidance effective January 1, 2020 that changed the model used in measuring credit losses from an incurred loss model to an expected loss approach.

amortization associated with real estate operations

The increase in depreciation and amortization associated with real estate operations was mostly attributable to newly-developed properties placed in service.

Gain on sales of real estate

The gain on sales of real estate in the current period was due to our sale of a 90% interest in seventwo data center shell properties in 2019 that did not recurthe current period.

Loss on extinguishment of debt

The loss on early extinguishment of debt recognized in the current period.period was attributable to our purchase and redemption of 3.60% Notes and 5.25% Notes.

Funds from Operations
 
Funds from operations (“FFO”) is defined as net income computed using GAAP, excluding gains on sales and impairment losses of real estate (net of associated income tax) and real estate-related depreciation and amortization. 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”) 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 on sales and impairment losses of real estate and investments in unconsolidated real estate joint ventures (net of associated income tax), and 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)(3) depreciation and amortization allocable to noncontrolling interests in other consolidated entities and (5)(4) Basic FFO allocable to share-based compensation awards.  With
38

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; 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;extinguishment (discussed further below); loss on interest rate derivatives; demolition costs on redevelopment and nonrecurring improvements; executive transition costs; issuance costs associated with redeemed preferred shares; allocations of FFO to holders ofon noncontrolling interests resulting from capital events; and certain other expenses that we believe are not closely correlated with our operating performance.  This measure also includes adjustments for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that net income is the most directly comparable GAAP measure to this non-GAAP measure.  This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
 
Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share (“EPS”) in evaluating net income available to common shareholders.  In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.
 
Diluted FFO per share, as adjusted for comparability is (1) Diluted FFO, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged.  We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results.  We believe this to be a useful supplemental measure alongside Diluted FFO per share as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that diluted EPS is the most directly comparable GAAP measure to


this per share measure.  This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
 
The computations for all of the above measures on a diluted basis assume the conversion of common units in COPLP but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.
39




The table below sets forth the computation of the above stated measures, and provides reconciliations to theour GAAP measures of COPT and subsidiaries associated with such measures:
For the Three Months Ended June 30,For the Six Months Ended June 30,
 2021202020212020
 (Dollars and shares in thousands, except per share data)
Net income$43,898 $25,121 $37,819 $50,671 
Real estate-related depreciation and amortization37,555 33,612 74,876 66,208 
Depreciation and amortization on UJVs allocable to COPT476 818 930 1,636 
Gain on sales of real estate(40,233)— (39,743)(5)
FFO41,696 59,551 73,882 118,510 
FFO allocable to other noncontrolling interests(1,302)(1,525)(2,329)(13,540)
Basic FFO allocable to share-based compensation awards(193)(254)(353)(447)
Noncontrolling interests-preferred units in the Operating Partnership— (77)— (154)
Basic FFO available to common share and common unit holders40,201 57,695 71,200 104,369 
Dilutive preferred units in the Operating Partnership— 77 — 154 
Redeemable noncontrolling interests11 37 70 69 
Diluted FFO available to common share and common unit holders40,212 57,809 71,270 104,592 
Diluted FFO comparability adjustments allocable to share-based compensation awards(137)(1)(304)(51)
Loss on early extinguishment of debt25,228 — 58,394 — 
Demolition costs on redevelopment and nonrecurring improvements302 9 302 52 
FFO allocation to other noncontrolling interests resulting from capital event— — — 11,090 
Diluted FFO available to common share and common unit holders, as adjusted for comparability$65,605 $57,817 $129,662 $115,683 
Weighted average common shares111,974 111,800 111,931 111,762 
Conversion of weighted average common units1,262 1,237 1,254 1,232 
Weighted average common shares/units - Basic FFO per share113,236 113,037 113,185 112,994 
Dilutive effect of share-based compensation awards297 321 280 280 
Dilutive convertible preferred units— 176 — 176 
Redeemable noncontrolling interests133 157 125 133 
Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability113,666 113,691 113,590 113,583 
Diluted FFO per share$0.35 $0.51 $0.63 $0.92 
Diluted FFO per share, as adjusted for comparability$0.58 $0.51 $1.14 $1.02 
Denominator for diluted EPS112,404 112,121 112,336 112,042 
Weighted average common units1,262 1,237 1,254 1,232 
Redeemable noncontrolling interests— 157 — 133 
Dilutive convertible preferred units— 176 — 176 
Denominator for diluted FFO per share and as adjusted for comparability113,666 113,691 113,590 113,583 

40
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
 
(Dollars and shares in thousands, 
except per share data)
Net income$25,121
 $109,563
 $50,671
 $131,881
Real estate-related depreciation and amortization33,612
 34,802
 66,208
 69,598
Depreciation and amortization on UJV allocable to COPT818
 566
 1,636
 1,132
Gain on sales of real estate—
 (84,469) (5) (84,469)
FFO59,551
 60,462
 118,510
 118,142
Noncontrolling interests-preferred units in the Operating Partnership(77) (165) (154) (330)
FFO allocable to other noncontrolling interests(1,525) (1,188) (13,540) (2,159)
Basic FFO allocable to share-based compensation awards(254) (229) (447) (414)
Basic FFO available to common share and common unit holders57,695
 58,880
 104,369
 115,239
Dilutive preferred units in the Operating Partnership77
 —
 154
 —
Redeemable noncontrolling interests37
 33
 69
 942
Diluted FFO available to common share and common unit holders57,809
 58,913
 104,592
 116,181
Executive transition costs—
 —
 —
 4
Demolition costs on redevelopment and nonrecurring improvements9
 —
 52
 44
Non-comparable professional and legal expenses—
 311
 —
 311
FFO allocation to other noncontrolling interests resulting from capital event—
 —
 11,090
 —
Diluted FFO comparability adjustments allocable to share-based compensation awards(1) (2) (51) (2)
Diluted FFO available to common share and common unit holders, as adjusted for comparability$57,817
 $59,222
 $115,683
 $116,538
        
Weighted average common shares111,800
 111,557
 111,762
 110,759
Conversion of weighted average common units1,237
 1,327
 1,232
 1,329
Weighted average common shares/units - Basic FFO per share113,037
 112,884
 112,994
 112,088
Dilutive effect of share-based compensation awards321
 310
 280
 289
Dilutive convertible preferred units176
 —
 176
 —
Redeemable noncontrolling interests157
 136
 133
 1,037
Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability113,691
 113,330
 113,583
 113,414
        
Diluted FFO per share$0.51
 $0.52
 $0.92
 $1.02
Diluted FFO per share, as adjusted for comparability$0.51
 $0.52
 $1.02
 $1.03
        
Denominator for diluted EPS112,121
 113,105
 112,042
 112,507
Weighted average common units1,237
 1,327
 1,232
 —
Redeemable noncontrolling interests157
 (926) 133
 907
Dilutive convertible preferred units176
 (176) 176
 —
Denominator for diluted FFO per share and as adjusted for comparability113,691
 113,330
 113,583
 113,414




Property Additions
 
The table below sets forth the major components of our additions to properties for the six months endedJune 30, 20202021 (in thousands):
Development$96,308 
Tenant improvements on operating properties (1)12,275 
Capital improvements on operating properties10,398 
$118,981 

Development and redevelopment$197,037
Tenant improvements on operating properties (1)17,153
Capital improvements on operating properties16,137
 $230,327

(1)Tenant improvement costs incurred on newly-constructednewly-developed properties are classified in this table as development and redevelopment.
 
Cash Flows
 
Net cash flow from operating activities increased $24.7$1.5 million when comparing the six months ended June 30, 2021 and 2020 and 2019 due primarily to an increase in cash flow from real estate operations resulting from the growth of our property portfolio, which was partially offset by a decrease associated with the timing of cash flow from third-party construction projects.
 
Net cash flow used in investing activities increased $213.7decreased $196.7 million when comparing the six months ended June 30, 20202021 and 20192020 due primarily to $237.3$114.4 million in property disposition proceeds mostly from our sale in the prior year2021 of a 90% interest in properties that was offset bytwo data center shells and a $34.3$74.4 million decrease in cash outlays for development and redevelopment of propertiesproperties.
Net cash flow used in financing activities in the current period.six months ended June 30, 2021 was $107.7 million, and included the following:

•net cash outlays from debt borrowings of $37.4 million, which included the net decrease from our purchase and redemption of 3.60% Notes and 5.25% Notes (and related early extinguishment costs) and issuance of 2.75% Notes; and
•dividends to common shareholders of $61.7 million.

Net cash flow provided by financing activities in the six months ended June 30, 2020 was $98.5 million, and included the following:

•net proceeds from debt borrowings of $179.3 million; offset in part by
•dividends and/or distributions to equity holderscommon shareholders of $62.5$61.7 million.

Net cash flow provided by financing activities in the six months endedSupplemental Guarantor Information

As of June 30, 2019 was $59.4 million,2021, COPLP had several series of unsecured senior notes outstanding that were issued in transactions registered with the SEC under the Securities Act of 1933, as amended. These notes are COPLP’s direct, senior unsecured and included the following:

dividends and/or distributions to equity holdersunsubordinated obligations and rank equally in right of $62.2 million; and
net debt repayments of $41.6 million; offset in part by
net proceeds from the issuance of common shares (or units) of $46.4 million.

Liquidity and Capital Resources of COPT

COPLP is the entity through which COPT, the sole general partner of COPLP, conducts almostpayment with all of its operationsCOPLP’s existing and owns almostfuture senior unsecured and unsubordinated indebtedness. However, these notes are effectively subordinated in right of payment to COPLP’s existing and future secured indebtedness. The notes are also effectively subordinated in right of payment to all existing and future liabilities and other indebtedness, whether secured or unsecured, of its assets.COPLP's subsidiaries. COPT occasionally issues public equity but does not otherwise generate any capital itselffully and unconditionally guarantees COPLP’s obligations under these notes. COPT’s guarantees of these notes are senior unsecured obligations that rank equally in right of payment with other senior unsecured obligations of, or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursedguarantees by, COPLP.COPT. 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 June 30, 2020, COPT owned 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 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 believeIn March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and adopted Rule 13-01 of Regulation S-X to simplify disclosure requirements related to certain registered securities 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.became effective on January 4, 2021. As a result of this distribution requirement, it cannot rely on retained earningsthese amendments, subsidiary issuers of obligations guaranteed by the parent are not required to fund its ongoingprovide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and, subject to certain exceptions, summarized financial information. Accordingly, we no longer present separate consolidated financial statements for the Operating Partnership. Furthermore, as permitted under Rule 13-01(a)(4)(vi), we have excluded summarized financial information for the Operating Partnership since: the assets, liabilities, and results of operations toof the same extent that some other companies can. COPT may need to continue to raise capitalCompany and the Operating Partnership are not materially different than the corresponding amounts presented in the equity marketsconsolidated financial statements of the Company; and we believe that inclusion of such summarized financial information would be repetitive and not provide incremental value to fund COPLP’s working capital needs, development activities and acquisitions.investors.
41


Liquidity and Capital Resources of COPLP
 
COPLP’sOur primary cash requirements are for operating expenses, debt service, development of new properties, and improvements to existing properties.properties and dividends to our shareholders.  We expect COPLP to continue to use cash flow provided by operations as the primary source to meet itsour short-term capital needs, including property operating expenses, general and administrative expenses, interest expense, scheduled principal amortization of debt, dividends to our shareholders, distributions to its security holdersCOPLP’s unitholders and improvements to existing properties.  As of June 30, 2020, COPLP2021, we had $21.6$17.2 million in cash and cash equivalents.
 
COPLP’sOur senior unsecured debt is currently rated investment grade by the three major rating agencies. We aim to maintain an investment grade rating to enable COPLPus to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. COPLPWe also usesuse secured nonrecourse debt from institutional lenders and banks primarily for joint venture financing.financings. In addition, COPLPwe periodically raisesraise equity from COPT when COPT accesseswe access the public equity markets by issuing common and/or preferred shares.
 
COPLP uses itsWe use our Revolving Credit Facility to initially finance much of itsour investing activities.  COPLPWe subsequently payspay down the facility using cash available from operations and proceeds from long-term borrowings, (net of any related hedging costs), equity issuances and sales of interests in properties.  The lenders’ aggregate commitment under the facility is $800.0 million, with the ability for COPLPus 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 facility matures in March 2023, and may be extended by two six-month periods at COPLP’sour option, provided that there is no default under the facility and COPLP payswe pay an extension fee of 0.075% of the total availability under the facility for each extension period. As of June 30, 2020,2021, the maximum borrowing capacity under this facility totaled $800.0 million, of which $631.0 million was available.

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

We believe that COPLP’sour liquidity and capital resources are adequate for itsour near-term and longer-term requirements without necessitating property sales. However, we may dispose of interests in properties opportunistically or when capital marketsmarket conditions otherwise warrant. WeIn addition, we believe that we have the ability to raise additional equity by selling interests in data center shells through joint ventures.


42


Our contractual obligations as of June 30, 20202021 included the following (in thousands):
 For the Periods Ending December 31, 
 20212022202320242025ThereafterTotal
Contractual obligations (1)       
Debt (2)       
Balloon payments due upon maturity$— $488,413 $232,578 $27,649 $322,100 $1,045,623 $2,116,363 
Scheduled principal payments (3)2,034 4,498 3,552 2,334 1,617 677 14,712 
Interest on debt (3)(4)28,304 55,420 45,125 43,011 34,666 89,852 296,378 
Development and redevelopment obligations (5)(6)150,331 69,918 558 — — — 220,807 
Third-party construction cost obligations (6)(7)44,748 100,000 — — — — 144,748 
Tenant and other building improvements (3)(6)19,080 33,158 10,480 — — — 62,718 
Property finance leases (principal and interest) (3)4 14 — — — — 18 
Property operating leases (3)1,610 3,297 3,352 3,403 1,749 123,979 137,390 
Total contractual cash obligations$246,111 $754,718 $295,645 $76,397 $360,132 $1,260,131 $2,993,134 

(1)The contractual obligations set forth in this table exclude contracts for property operations and certain other contracts entered into in the normal course of business. Also excluded are accruals and payables incurred and interest rate derivative liabilities, which are reflected in our reported liabilities (although debt and lease liabilities are included on the table).
 For the Periods Ending December 31,  
 2020 2021 2022 2023 2024 Thereafter Total
Contractual obligations (1) 
  
  
  
  
  
  
Debt (2) 
  
  
  
  
  
  
Balloon payments due upon maturity$12,133
 $300,000
 $464,406
 $582,577
 $277,649
 $367,723
 $2,004,488
Scheduled principal payments (3)1,979
 3,955
 4,498
 3,553
 2,334
 2,294
 18,613
Interest on debt (3)(4)33,498
 60,193
 54,656
 36,980
 18,631
 9,848
 213,806
Development and redevelopment obligations (5)(6)174,511
 28,897
 2,354
 —
 —
 —
 205,762
Third-party construction cost obligations (6)(7)5,998
 5,261
 —
 —
 —
 —
 11,259
Tenant and other building improvements (3)(6)20,957
 28,752
 9,547
 —
 —
 —
 59,256
Property finance leases (principal and interest) (3)660
 14
 14
 —
 —
 —
 688
Property operating leases (3)636
 1,328
 1,352
 1,358
 1,363
 113,780
 119,817
Total contractual cash obligations$250,372
 $428,400
 $536,827
 $624,468
 $299,977
 $493,645
 $2,633,689
(2)Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $21.4 million. As of June 30, 2021, maturities in 2023 included $169.0 million that may be extended to 2024, subject to certain conditions.
(3)We expect to pay these items using cash flow from operations.
(4)Represents interest costs for our outstanding debt as of June 30, 2021 for the terms of such debt.  For variable rate debt, the amounts reflected above used June 30, 2021 interest rates on variable rate debt in computing interest costs for the terms of such debt. We expect to pay these items using cash flow from operations.
(5)Represents contractual obligations pertaining to new development and redevelopment activities.
(6)Due to the long-term nature of certain development and construction contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.
(7)Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients.  We expect to be reimbursed in full for these costs by our clients.

(1)The contractual obligations set forth in this table exclude contracts for property operations and certain other contracts entered into in the normal course of business. Also excluded are accruals and payables incurred and interest rate derivative liabilities, which are reflected in our reported liabilities (although debt and lease liabilities are included on the table).
(2)Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $11.1 million. As of June 30, 2020, maturities included $300 million in 2021 that we expect to refinance; maturities also included $169.0 million in 2023 that may be extended to 2024, subject to certain conditions.
(3)We expect to pay these items using cash flow from operations.
(4)
Represents interest costs for our outstanding debt as of June 30, 2020 for the terms of such debt.  For variable rate debt, the amounts reflected above used June 30, 2020 interest rates on variable rate debt in computing interest costs for the terms of such debt. We expect to pay these items using cash flow from operations.
(5)Represents contractual obligations pertaining to new development and redevelopment activities.
(6)Due to the long-term nature of certain development and construction contracts and leases included in these lines, the amounts reported in the table represent our estimate of the timing for the related obligations being payable.
(7)  Represents contractual obligations pertaining to projects for which we are acting as construction manager on behalf of unrelated parties who are our clients.  We expect to be reimbursed in full for these costs by our clients.

We expect to spend approximately $140$150 million on development costs and approximately $45$55 million on improvements and leasing costs for operating properties (including the commitments set forth in the table above) during the remainder of 2020.2021.  We expect to fund the development costs initially using primarily borrowings under our Revolving Credit Facility.  We expect to fund improvements to existing operating properties using cash flow from operating activities.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio.  As of June 30, 2020,2021, we were compliant with these covenants.

Off-Balance Sheet Arrangements
 
We had no material off-balance sheet arrangements during the six months ended June 30, 2020.2021.

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.


43

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 June 30, 20202021 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):
 For the Periods Ending December 31, 
 20212022202320242025ThereafterTotal
Debt:      
Fixed rate debt (1)$1,954 $4,033 $66,590 $29,443 $301,302 $1,036,140 $1,439,462 
Weighted average interest rate3.97%3.98%4.22%4.42%4.99%2.59%3.21%
Variable rate debt$80 $488,878 $169,540 $540 $22,415 $10,160 $691,613 
Weighted average interest rate (2)1.54%1.55%1.20%1.60%1.64%1.54%1.46%

 For the Periods Ending December 31,  
 2020 2021 2022 2023 2024 Thereafter Total
Debt: 
  
    
  
  
  
Fixed rate debt (1)$1,878
 $303,875
 $4,033
 $416,590
 $279,443
 $337,442
 $1,343,261
Weighted average interest rate3.96% 3.70% 3.98% 3.70% 5.16% 4.87% 4.30%
Variable rate debt (2)$12,234
 $80
 $464,871
 $169,540
 $540
 $32,575
 $679,840
Weighted average interest rate (3)2.02% 1.62% 1.36% 1.21% 1.68% 1.69% 1.35%

(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $11.1 million.
(2)As of June 30, 2020, maturities included $169.0 million in 2023 that may be extended to 2024, subject to certain conditions.
(3)The amounts reflected above used interest rates as of June 30, 2020 for variable rate debt.

(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $21.4 million. As of June 30, 2021, maturities in 2023 included $169.0 million that may be extended to 2024, subject to certain conditions.
(2)The amounts reflected above used interest rates as of June 30, 2021 for variable rate debt.

The fair value of our debt was $2.0$2.2 billion as of June 30, 2020.2021.  If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $39$86 million as of June 30, 2020.2021.
 
See Note 10 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of June 30, 20202021 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 $1.2$2.0 million in the six months ended June 30, 20202021 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’sour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2020.2021.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that COPT’sour disclosure controls and procedures as of June 30, 20202021 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 itsour management, including itsour 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 COPT’sour internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, itsour 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 June 30, 2020.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that COPLP’s disclosure controls and procedures as of June 30, 2020 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 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 Partnershipus (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).
 
44

Item 1A.  Risk Factors

Other than as set forth below, there There have been no material changes to the risk factors and uncertainties relating toincluded in our business and the ownership of our securities as previously set forth in Part 1, Item 1A of our2020 Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

10-K.
We may suffer further adverse effects from the COVID-19 pandemic, and similar pandemics, along with restrictive measures instituted to prevent spread. Since first being declared a pandemic by the World Health Organization in early March 2020, the coronavirus, or COVID-19, has spread worldwide. In an effort to control its spread, governments and other authorities have imposed restrictive measures affecting freedom of movement and business operations, such as shelter-in-place orders and business closures. Strong measures were in place in much of the United States beginning in March, bringing many businesses to a halt while forcing others to change the way in which they conduct their operations, with much of the workforce working from their homes to the extent they were able. States and local governments began easing these measures in late April, as regional COVID-19 case volumes appeared to be decreasing. The pace of the easing of these measures varied regionally, with some state and local governments lifting restrictive measures entirely, and many businesses were able to gradually begin resuming a return to normal operations. As of the date of this filing, case volumes were increasing in much of the country, with certain authorities re-instituting restrictive measures and others contemplating doing so. As a result, there continues to be significant uncertainty regarding the duration of this pandemic and, once it subsides, the potential for it to reoccur on a significant scale in the future. The outbreak has significantly disrupted economic markets worldwide, as well as in the United States at a national, regional and local level, and created significant volatility in financial markets. These conditions could continue or further deteriorate as businesses feel the prolonged effects of stalled or reduced operations and uncertainty regarding the pandemic continues.

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

disruption of our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;
our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;
shortages in supply of products or services from our and our tenants’ vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;


access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities;
our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development; and
an increase in the pace of businesses implementing remote work arrangements over the long-term, which would adversely effect demand for office space.

The extent of the effect on our operations, financial condition, cash flows and ability to make expected distributions to shareholders will be dependent on future developments, including the duration of the pandemic and any future resurgence thereof, the prevalence, strength and duration of restrictive measures and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy, all of which are uncertain and difficult to predict. Moreover, some of the risks described in the risk factors set forth in Item 1A of our 2019 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the first quarter of 2020 may be more likely to impact us as a result of COVID-19 and the responses to curb its spread, including, but not limited to: downturns in national, regional and local economic environments; deteriorating local real estate market conditions; and declining real estate valuations.

Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)Not applicable

Not applicable

(b)        Not applicable

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

Not applicable

Item 5.          Other Information

None.


45

Item 6.          Exhibits
 
(a)         Exhibits:
EXHIBIT
NO.		DESCRIPTION
EXHIBIT
NO.
DESCRIPTION
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).
32.3101.INS
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.INSXBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document (filed herewith).
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.LABInline XBRL Extension Labels Linkbase (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


46

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned Registrants haveRegistrant has duly caused this report to be signed on theirits behalf by the undersigned thereunto duly authorized.
 
CORPORATE OFFICE PROPERTIES TRUSTCORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust,
its General Partner
/s/ Stephen E. Budorick
/s/ Stephen E. Budorick
Stephen E. BudorickStephen E. Budorick
President and Chief Executive OfficerPresident and Chief Executive Officer
/s/ Anthony Mifsud/s/ Anthony Mifsud
Anthony MifsudAnthony Mifsud
Executive Vice President and Chief Financial OfficerExecutive Vice President and Chief Financial Officer
Dated:July 31, 2020Dated:July 31, 202030, 2021

6247