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			~~September~~June 30, ~~2021~~2022


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


For the transition period from						to

Commission file number 1-14023

CORPORATE OFFICE PROPERTIES TRUST

(Exact name of registrant as specified in its charter)


Maryland						23-2947217
(State or other jurisdiction of						(IRS Employer
incorporation or organization)						Identification No.)


6711 Columbia Gateway Drive, Suite 300, Columbia, MD			21046
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (443) 285-5400

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the ~~registrant:~~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. ☒ Yes ☐ No

☒~~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). ☒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”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes☒No

As of ~~October~~July 22, ~~2021, 112,324,851~~2022, 112,423,310 of Corporate Office Properties Trust’s Common Shares of Beneficial Interest, $0.01 par value, were issued and outstanding.

TABLE OF CONTENTS

FORM 10-Q


		PAGE
PART I: FINANCIAL INFORMATION

Item 1:	Financial Statements
Consolidated Financial Statements
	Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (unaudited)	3
	Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5
	Consolidated Statements of Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	8






Notes to Consolidated Financial Statements (unaudited)		10
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	4542
Item 4:	Controls and Procedures	4543

PART II: OTHER INFORMATION

Item 1:	Legal Proceedings	4543
Item 1A:	Risk Factors	4643
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	4643
Item 3:	Defaults Upon Senior Securities	4643
Item 4:	Mine Safety Disclosures	4643
Item 5:	Other Information	4643
Item 6:	Exhibits	4744

SIGNATURES		4845

PART I: FINANCIAL INFORMATION

~~ITEM~~Item 1. Financial Statements

Corporate Office Properties Trust and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Assets	Assets					Assets
Properties, net:	Properties, net:					Properties, net:
Operating properties, net	Operating properties, net	$	3,227,797	$	3,115,280	Operating properties, net	$	3,180,790	$	3,090,510
Projects in development or held for future development	Projects in development or held for future development	379,325		447,269		Projects in development or held for future development	458,961		442,434
Total properties, net	Total properties, net	3,607,122		3,562,549		Total properties, net	3,639,751		3,532,944
Property - operating right-of-use assets	Property - operating right-of-use assets	38,854		40,570		Property - operating right-of-use assets	38,056		38,361
Property - finance right-of-use assets		40,077		40,425

Assets held for sale, net	Assets held for sale, net	2,821		—		Assets held for sale, net	—		192,699
Cash and cash equivalents	Cash and cash equivalents	14,570		18,369		Cash and cash equivalents	20,735		13,262
Investment in unconsolidated real estate joint ventures	Investment in unconsolidated real estate joint ventures	40,304		29,303		Investment in unconsolidated real estate joint ventures	39,017		39,889
Accounts receivable, net	Accounts receivable, net	33,110		41,637		Accounts receivable, net	31,554		40,752
Deferred rent receivable	Deferred rent receivable	103,062		92,876		Deferred rent receivable	121,015		108,926
Intangible assets on real estate acquisitions, net		15,788		19,344
Deferred leasing costs (net of accumulated amortization of $31,975 and $30,375, respectively)		62,269		58,613
Investing receivables (net of allowance for credit losses of $1,415 and $2,851, respectively)		75,947		68,754
Intangible assets on property acquisitions, net						Intangible assets on property acquisitions, net	12,543		14,567
Lease incentives, net						Lease incentives, net	50,871		51,486
Deferred leasing costs (net of accumulated amortization of $32,379 and $31,768, respectively)						Deferred leasing costs (net of accumulated amortization of $32,379 and $31,768, respectively)	68,004		65,850
Investing receivables (net of allowance for credit losses of $1,645 and $1,599, respectively)						Investing receivables (net of allowance for credit losses of $1,645 and $1,599, respectively)	84,885		82,226

Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	117,214		104,583		Prepaid expenses and other assets, net	78,762		81,490
Total assets	Total assets	$	4,151,138	$	4,077,023	Total assets	$	4,185,193	$	4,262,452
Liabilities and equity	Liabilities and equity					Liabilities and equity
Liabilities:	Liabilities:					Liabilities:
Debt, net	Debt, net	$	2,159,732	$	2,086,918	Debt, net	$	2,177,811	$	2,272,304
Accounts payable and accrued expenses	Accounts payable and accrued expenses	176,636		142,717		Accounts payable and accrued expenses	177,180		186,202
Rents received in advance and security deposits	Rents received in advance and security deposits	32,092		33,425		Rents received in advance and security deposits	27,745		32,262
Dividends and distributions payable	Dividends and distributions payable	31,306		31,231		Dividends and distributions payable	31,400		31,299
Deferred revenue associated with operating leases	Deferred revenue associated with operating leases	8,704		10,832		Deferred revenue associated with operating leases	8,416		9,341
Property - operating lease liabilities	Property - operating lease liabilities	29,630		30,746		Property - operating lease liabilities	29,412		29,342

Interest rate derivatives		5,562		9,522

Other liabilities	Other liabilities	10,691		12,490		Other liabilities	10,526		17,729
Total liabilities	Total liabilities	2,454,353		2,357,881		Total liabilities	2,462,490		2,578,479
Commitments and contingencies (Note 18)	Commitments and contingencies (Note 18)	0		0		Commitments and contingencies (Note 18)	0		0
Redeemable noncontrolling interests	Redeemable noncontrolling interests	26,006		25,430		Redeemable noncontrolling interests	26,752		26,898
Equity:	Equity:					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 112,325,411 at September 30, 2021 and 112,181,759 at December 31, 2020)		1,123		1,122
Shareholders’ equity:						Shareholders’ equity:
Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,424,671 at June 30, 2022 and 112,327,533 at December 31, 2021)						Common Shares of beneficial interest ($0.01 par value; 150,000,000 shares authorized; shares issued and outstanding of 112,424,671 at June 30, 2022 and 112,327,533 at December 31, 2021)	1,124		1,123
Additional paid-in capital	Additional paid-in capital	2,480,412		2,478,906		Additional paid-in capital	2,481,139		2,481,539
Cumulative distributions in excess of net income	Cumulative distributions in excess of net income	(839,676)		(809,836)		Cumulative distributions in excess of net income	(827,076)		(856,863)
Accumulated other comprehensive loss		(5,347)		(9,157)
Total Corporate Office Properties Trust’s shareholders’ equity		1,636,512		1,661,035
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	1,806		(3,059)
Total shareholders’ equity						Total shareholders’ equity	1,656,993		1,622,740
Noncontrolling interests in subsidiaries:	Noncontrolling interests in subsidiaries:					Noncontrolling interests in subsidiaries:
Common units in Corporate Office Properties, L.P. (“COPLP”)	Common units in Corporate Office Properties, L.P. (“COPLP”)	21,568		20,465		Common units in Corporate Office Properties, L.P. (“COPLP”)	25,505		21,363

Other consolidated entities	Other consolidated entities	12,699		12,212		Other consolidated entities	13,453		12,972
Noncontrolling interests in subsidiaries	Noncontrolling interests in subsidiaries	34,267		32,677		Noncontrolling interests in subsidiaries	38,958		34,335
Total equity	Total equity	1,670,779		1,693,712		Total equity	1,695,951		1,657,075
Total liabilities, redeemable noncontrolling interests and equity	Total liabilities, redeemable noncontrolling interests and equity	$	4,151,138	$	4,077,023	Total liabilities, redeemable noncontrolling interests and equity	$	4,185,193	$	4,262,452

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues									Revenues
Lease revenue	Lease revenue	$	145,749	$	133,875	$	434,031	$	397,034	Lease revenue	$	142,277	$	136,454	$	283,666	$	273,744
Other property revenue	Other property revenue	841		568		2,146		2,063		Other property revenue	969		765		1,860		1,305
Construction contract and other service revenues	Construction contract and other service revenues	28,046		20,323		64,592		46,240		Construction contract and other service revenues	42,557		19,988		95,757		36,546
Total revenues	Total revenues	174,636		154,766		500,769		445,337		Total revenues	185,803		157,207		381,283		311,595
Operating expenses	Operating expenses									Operating expenses
Property operating expenses	Property operating expenses	57,190		51,552		168,780		151,755		Property operating expenses	54,116		50,914		111,297		104,190
Depreciation and amortization associated with real estate operations	Depreciation and amortization associated with real estate operations	36,611		35,332		111,487		101,540		Depreciation and amortization associated with real estate operations	34,812		34,732		69,076		69,232
Construction contract and other service expenses	Construction contract and other service expenses	27,089		19,220		61,964		44,052		Construction contract and other service expenses	41,304		19,082		92,954		34,875
Impairment losses		—		1,530		—		1,530

General, administrative and leasing expenses	General, administrative and leasing expenses	9,342		7,467		26,970		23,111		General, administrative and leasing expenses	8,355		9,222		16,899		17,628
Business development expenses and land carry costs	Business development expenses and land carry costs	1,093		1,094		3,559		3,474		Business development expenses and land carry costs	701		1,372		1,484		2,466
Total operating expenses	Total operating expenses	131,325		116,195		372,760		325,462		Total operating expenses	139,288		115,322		291,710		228,391
Interest expense	Interest expense	(15,720)		(17,152)		(49,181)		(50,789)		Interest expense	(14,808)		(15,942)		(29,232)		(33,461)
Interest and other income	Interest and other income	1,818		1,746		5,911		5,233		Interest and other income	1,818		2,228		3,711		4,093
Credit loss recoveries		326		1,465		1,040		161
Credit loss (expense) recoveries										Credit loss (expense) recoveries	(225)		(193)		91		714
Gain on sales of real estate	Gain on sales of real estate	(32)		—		39,711		5		Gain on sales of real estate	(19)		40,233		(4)		39,743
Loss on early extinguishment of debt	Loss on early extinguishment of debt	(1,159)		(3,237)		(59,553)		(3,237)		Loss on early extinguishment of debt	—		(25,228)		(342)		(58,394)
Loss on interest rate derivatives		—		(53,196)		—		(53,196)
Income (loss) before equity in income of unconsolidated entities and income taxes		28,544		(31,803)		65,937		18,052

Income from continuing operations before equity in income of unconsolidated entities and income taxes										Income from continuing operations before equity in income of unconsolidated entities and income taxes	33,281		42,983		63,797		35,899
Equity in income of unconsolidated entities	Equity in income of unconsolidated entities	297		477		779		1,372		Equity in income of unconsolidated entities	318		260		1,206		482
Income tax expense	Income tax expense	(47)		(16)		(103)		(95)		Income tax expense	(4)		(24)		(157)		(56)
Net income (loss)		28,794		(31,342)		66,613		19,329
Net (income) loss attributable to noncontrolling interests:
Income from continuing operations										Income from continuing operations	33,595		43,219		64,846		36,325
Discontinued operations										Discontinued operations	—		679		29,573		1,494
Net income										Net income	33,595		43,898		94,419		37,819
Net income attributable to noncontrolling interests:										Net income attributable to noncontrolling interests:
Common units in COPLP	Common units in COPLP	(357)		386		(831)		(185)		Common units in COPLP	(496)		(559)		(1,352)		(474)
Preferred units in COPLP		—		(77)		—		(231)

Other consolidated entities	Other consolidated entities	(1,336)		(812)		(2,949)		(3,207)		Other consolidated entities	(789)		(938)		(1,438)		(1,613)

Net income (loss) attributable to COPT common shareholders		$	27,101	$	(31,845)	$	62,833	$	15,706
Net income attributable to COPT common shareholders										Net income attributable to COPT common shareholders	$	32,310	$	42,401	$	91,629	$	35,732

Earnings per common share: (1)
Net income (loss) attributable to COPT common shareholders - basic		$	0.24	$	(0.29)	$	0.56	$	0.14
Net income (loss) attributable to COPT common shareholders - diluted		$	0.24	$	(0.29)	$	0.56	$	0.14
Basic earnings per common share: (1)										Basic earnings per common share: (1)
Income from continuing operations										Income from continuing operations	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations										Discontinued operations	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders										Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32
Diluted earnings per common share: (1)										Diluted earnings per common share: (1)
Income from continuing operations										Income from continuing operations	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations										Discontinued operations	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders										Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32

(1) Basic and diluted earnings per common share are calculated based on amounts attributable to common shareholders of Corporate Office Properties Trust.

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income (loss)		$	28,794	$	(31,342)	$	66,613	$	19,329
Net income										Net income	$	33,595	$	43,898	$	94,419	$	37,819
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Unrealized (loss) income on interest rate derivatives		(118)		1,428		426		(39,592)
Unrealized income (loss) on interest rate derivatives										Unrealized income (loss) on interest rate derivatives	1,008		(240)		3,545		544
Reclassification adjustments on interest rate derivatives recognized in interest expense	Reclassification adjustments on interest rate derivatives recognized in interest expense	1,226		1,342		3,604		2,408		Reclassification adjustments on interest rate derivatives recognized in interest expense	754		1,203		1,757		2,378
Reclassification adjustments on interest rate derivatives recognized in loss on interest rate derivatives		—		51,865		—		51,865

Total other comprehensive income	Total other comprehensive income	1,108		54,635		4,030		14,681		Total other comprehensive income	1,762		963		5,302		2,922
Comprehensive income	Comprehensive income	29,902		23,293		70,643		34,010		Comprehensive income	35,357		44,861		99,721		40,741
Comprehensive income attributable to noncontrolling interests	Comprehensive income attributable to noncontrolling interests	(1,733)		(1,173)		(4,000)		(3,408)		Comprehensive income attributable to noncontrolling interests	(1,405)		(1,484)		(3,227)		(2,267)
Comprehensive income attributable to COPT	Comprehensive income attributable to COPT	$	28,169	$	22,120	$	66,643	$	30,602	Comprehensive income attributable to COPT	$	33,952	$	43,377	$	96,494	$	38,474

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


		Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total			Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
For the Three Months Ended September 30, 2020
Balance at June 30, 2020 (112,183,192 common shares outstanding)		$	1,122	$	2,477,977	$	(797,959)	$	(64,513)	$	40,297	$	1,656,924
For the Three Months Ended June 30, 2021														For the Three Months Ended June 30, 2021
Balance at March 31, 2021 (112,327,234 common shares outstanding)														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														Redemption of common units	—		—		—		—		(241)		(241)

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

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

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

For the Three Months Ended September 30, 2021
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

Redemption of common units		—		—		—		—		(56)		(56)
Share-based compensation (10,659 shares redeemed, net of issuances)		—		1,064		—		—		1,098		2,162
Share-based compensation (8,836 shares issued, net of redemptions)														Share-based compensation (8,836 shares issued, net of redemptions)	—		1,078		—		—		1,067		2,145
Redemption of vested equity awards	Redemption of vested equity awards	—		(64)		—		—		—		(64)		Redemption of vested equity awards	—		(68)		—		—		—		(68)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		1,051		—		—		(1,051)		—		Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		739		—		—		(739)		—
Comprehensive income	Comprehensive income	—		—		27,101		1,068		600		28,769		Comprehensive income	—		—		42,401		976		743		44,120
Dividends	Dividends	—		—		(30,883)		—		—		(30,883)		Dividends	—		—		(30,888)		—		—		(30,888)
Distributions to owners of common units in COPLP	Distributions to owners of common units in COPLP	—		—		—		—		(398)		(398)		Distributions to owners of common units in COPLP	—		—		—		—		(400)		(400)

Distributions to noncontrolling interests in other consolidated entities	Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)		Distributions to noncontrolling interests in other consolidated entities	��		—		—		—		(8)		(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests	Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(55)		—		—		—		(55)		Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(140)		—		—		—		(140)

Balance at September 30, 2021 (112,325,411 common shares outstanding)		$	1,123	$	2,480,412	$	(839,676)	$	(5,347)	$	34,267	$	1,670,779
Balance at June 30, 2021 (112,336,070 common shares outstanding)														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

For the Three Months Ended June 30, 2022														For the Three Months Ended June 30, 2022
Balance at March 31, 2022 (112,418,811 common shares outstanding)														Balance at March 31, 2022 (112,418,811 common shares outstanding)	$	1,124	$	2,479,119	$	(828,473)	$	164	$	38,602	$	1,690,536

Redemption of common units														Redemption of common units	—		—		—		—		(164)		(164)
Share-based compensation (5,860 shares issued, net of redemptions)														Share-based compensation (5,860 shares issued, net of redemptions)	—		1,007		—		—		1,370		2,377
Redemption of vested equity awards														Redemption of vested equity awards	—		(61)		—		—		—		(61)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP														Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		1,036		—		—		(1,036)		—
Comprehensive income														Comprehensive income	—		—		32,310		1,642		666		34,618
Dividends														Dividends	—		—		(30,913)		—		—		(30,913)
Distributions to owners of common units in COPLP														Distributions to owners of common units in COPLP	—		—		—		—		(472)		(472)

Distributions to noncontrolling interests in other consolidated entities														Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(8)		(8)
Adjustment to arrive at fair value of redeemable noncontrolling interests														Adjustment to arrive at fair value of redeemable noncontrolling interests	—		38		—		—		—		38

Balance at June 30, 2022 (112,424,671 common shares outstanding)														Balance at June 30, 2022 (112,424,671 common shares outstanding)	$	1,124	$	2,481,139	$	(827,076)	$	1,806	$	38,958	$	1,695,951

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Equity

(Dollars in thousands)

(unaudited)


		Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total			Common Shares		Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
For the Nine Months Ended September 30, 2020
Balance at December 31, 2019 (112,068,705 common shares outstanding)		$	1,121	$	2,481,558	$	(778,275)	$	(25,444)	$	40,285	$	1,719,245
Cumulative effect of accounting change for adoption of credit loss guidance		—		—		(5,541)		—		—		(5,541)
Balance at December 31, 2019, as adjusted		1,121		2,481,558		(783,816)		(25,444)		40,285		1,713,704
For the Six Months Ended June 30, 2021														For the Six Months Ended June 30, 2021
Balance at December 31, 2020 (112,181,759 common shares outstanding)														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 (12,009 shares)		—		182		—		—		(182)		—

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

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

For the Nine Months Ended September 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)	Conversion of common units to common shares (8,054 shares)	—		121		—		—		(121)		—		Conversion of common units to common shares (8,054 shares)	—		121		—		—		(121)		—
Redemption of common units	Redemption of common units	—		—		—		—		(297)		(297)		Redemption of common units	—		—		—		—		(241)		(241)

Share-based compensation (135,598 shares issued, net of redemptions)		1		3,239		—		—		3,082		6,322
Share-based compensation (146,257 shares issued, net of redemptions)														Share-based compensation (146,257 shares issued, net of redemptions)	1		2,175		—		—		1,984		4,160
Redemption of vested equity awards	Redemption of vested equity awards	—		(2,422)		—		—		—		(2,422)		Redemption of vested equity awards	—		(2,358)		—		—		—		(2,358)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		1,245		—		—		(1,245)		—		Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		194		—		—		(194)		—
Comprehensive income	Comprehensive income	—		—		62,833		3,810		1,714		68,357		Comprehensive income	—		—		35,732		2,742		1,114		39,588
Dividends	Dividends	—		—		(92,673)		—		—		(92,673)		Dividends	—		—		(61,790)		—		—		(61,790)
Distributions to owners of common units in COPLP	Distributions to owners of common units in COPLP	—		—		—		—		(1,196)		(1,196)		Distributions to owners of common units in COPLP	—		—		—		—		(798)		(798)

Distributions to noncontrolling interests in other consolidated entities	Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(23)		(23)		Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(15)		(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests	Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(677)		—		—		—		(677)		Adjustment to arrive at fair value of redeemable noncontrolling interests	—		(622)		—		—		—		(622)
Other	Other	—		—		—		—		(324)		(324)		Other	—		—		—		—		(324)		(324)

Balance at September 30, 2021 (112,325,411 common shares outstanding)		$	1,123	$	2,480,412	$	(839,676)	$	(5,347)	$	34,267	$	1,670,779
Balance at June 30, 2021 (112,336,070 common shares outstanding)														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

For the Six Months Ended June 30, 2022														For the Six Months Ended June 30, 2022
Balance at December 31, 2021 (112,327,533 common shares outstanding)														Balance at December 31, 2021 (112,327,533 common shares outstanding)	$	1,123	$	2,481,539	$	(856,863)	$	(3,059)	$	34,335	$	1,657,075

Redemption of common units														Redemption of common units	—		—		—		—		(376)		(376)

Share-based compensation (97,138 shares issued, net of redemptions)														Share-based compensation (97,138 shares issued, net of redemptions)	1		2,021		—		—		2,656		4,678
Redemption of vested equity awards														Redemption of vested equity awards	—		(1,120)		—		—		—		(1,120)
Adjustments to noncontrolling interests resulting from changes in ownership of COPLP														Adjustments to noncontrolling interests resulting from changes in ownership of COPLP	—		(1,378)		—		—		1,378		—
Comprehensive income														Comprehensive income	—		—		91,629		4,865		1,921		98,415
Dividends														Dividends	—		—		(61,842)		—		—		(61,842)
Distributions to owners of common units in COPLP														Distributions to owners of common units in COPLP	—		—		—		—		(941)		(941)

Distributions to noncontrolling interests in other consolidated entities														Distributions to noncontrolling interests in other consolidated entities	—		—		—		—		(15)		(15)
Adjustment to arrive at fair value of redeemable noncontrolling interests														Adjustment to arrive at fair value of redeemable noncontrolling interests	—		77		—		—		—		77

Balance at June 30, 2022 (112,424,671 common shares outstanding)														Balance at June 30, 2022 (112,424,671 common shares outstanding)	$	1,124	$	2,481,139	$	(827,076)	$	1,806	$	38,958	$	1,695,951

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Revenues from real estate operations received	Revenues from real estate operations received	$	427,448	$	394,094	Revenues from real estate operations received	$	285,858	$	280,708
Construction contract and other service revenues received	Construction contract and other service revenues received	68,780		53,911		Construction contract and other service revenues received	90,663		38,419
Property operating expenses paid	Property operating expenses paid	(168,009)		(159,007)		Property operating expenses paid	(99,512)		(91,672)
Construction contract and other service expenses paid	Construction contract and other service expenses paid	(50,275)		(45,686)		Construction contract and other service expenses paid	(88,833)		(34,445)
General, administrative, leasing, business development and land carry costs paid	General, administrative, leasing, business development and land carry costs paid	(22,367)		(24,408)		General, administrative, leasing, business development and land carry costs paid	(17,782)		(15,399)
Interest expense paid	Interest expense paid	(46,621)		(49,693)		Interest expense paid	(26,732)		(31,392)
Lease incentives paid	Lease incentives paid	(8,694)		(12,634)		Lease incentives paid	(7,739)		(7,442)

Other	Other	(359)		2,464		Other	2,797		(765)
Net cash provided by operating activities	Net cash provided by operating activities	199,903		159,041		Net cash provided by operating activities	138,720		138,012
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Development and redevelopment of properties	Development and redevelopment of properties	(176,554)		(284,416)		Development and redevelopment of properties	(142,862)		(110,909)

Tenant improvements on operating properties	Tenant improvements on operating properties	(15,149)		(23,377)		Tenant improvements on operating properties	(16,734)		(10,872)
Other capital improvements on operating properties	Other capital improvements on operating properties	(19,256)		(24,797)		Other capital improvements on operating properties	(21,590)		(12,382)

Proceeds from sale of properties	Proceeds from sale of properties	114,050		—		Proceeds from sale of properties	220,780		114,394
Non-operating distributions from unconsolidated real estate joint venture		872		2,287

Leasing costs paid	Leasing costs paid	(14,929)		(12,455)		Leasing costs paid	(4,121)		(11,408)

Settlement of interest rate derivatives		—		(53,130)

Other	Other	(1,026)		(321)		Other	(565)		576
Net cash used in investing activities		(111,992)		(396,209)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	34,908		(30,601)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from debt	Proceeds from debt					Proceeds from debt
Revolving Credit Facility	Revolving Credit Facility	456,000		409,000		Revolving Credit Facility	329,000		387,000
Unsecured senior notes	Unsecured senior notes	987,210		395,264		Unsecured senior notes	—		589,818
Other debt proceeds	Other debt proceeds	4,630		199,088		Other debt proceeds	—		4,459
Repayments of debt	Repayments of debt					Repayments of debt
Revolving Credit Facility	Revolving Credit Facility	(589,000)		(529,000)		Revolving Credit Facility	(224,000)		(361,000)
Unsecured senior notes	Unsecured senior notes	(600,000)		(122,948)		Unsecured senior notes	—		(600,000)

Scheduled principal amortization	Scheduled principal amortization	(2,911)		(3,077)		Scheduled principal amortization	(1,618)		(1,922)
Other debt repayments	Other debt repayments	(188,960)		—		Other debt repayments	(200,000)		—
Deferred financing costs paid		(2,662)		(2,161)

Payments in connection with early extinguishment of debt	Payments in connection with early extinguishment of debt	(55,720)		(3,037)		Payments in connection with early extinguishment of debt	(6)		(55,713)
Common share dividends paid	Common share dividends paid	(92,632)		(92,512)		Common share dividends paid	(61,814)		(61,747)

Distributions paid to redeemable noncontrolling interests		(1,687)		(13,515)
Redemption of vested equity awards		(2,422)		(1,629)

Other	Other	(3,645)		(1,760)		Other	(6,859)		(8,564)
Net cash (used in) provided by financing activities		(91,799)		233,713
Net decrease in cash and cash equivalents and restricted cash		(3,888)		(3,455)
Net cash used in financing activities						Net cash used in financing activities	(165,297)		(107,669)
Net increase (decrease) in cash and cash equivalents and restricted cash						Net increase (decrease) in cash and cash equivalents and restricted cash	8,331		(258)
Cash and cash equivalents and restricted cash	Cash and cash equivalents and restricted cash					Cash and cash equivalents and restricted cash
Beginning of period	Beginning of period	22,033		18,130		Beginning of period	17,316		22,033
End of period	End of period	$	18,145	$	14,675	End of period	$	25,647	$	21,775

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Reconciliation of net income to net cash provided by operating activities:	Reconciliation of net income to net cash provided by operating activities:					Reconciliation of net income to net cash provided by operating activities:
Net income	Net income	$	66,613	$	19,329	Net income	$	94,419	$	37,819
Adjustments to reconcile net income to net cash provided by operating activities:	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 amortization	Depreciation and other amortization	113,676		102,864		Depreciation and other amortization	70,235		76,476
Impairment losses		—		1,530

Amortization of deferred financing costs and net debt discounts	Amortization of deferred financing costs and net debt discounts	3,969		3,104		Amortization of deferred financing costs and net debt discounts	2,351		2,666
Increase in deferred rent receivable	Increase in deferred rent receivable	(13,515)		(3,560)		Increase in deferred rent receivable	(11,603)		(9,421)
Gain on sales of real estate	Gain on sales of real estate	(39,711)		(5)		Gain on sales of real estate	(28,560)		(39,743)

Share-based compensation	Share-based compensation	5,960		4,753		Share-based compensation	4,301		3,913
Loss on early extinguishment of debt	Loss on early extinguishment of debt	59,553		3,237		Loss on early extinguishment of debt	342		58,394
Loss on interest rate derivatives		—		53,196

Other	Other	(3,708)		(4,184)		Other	(2,549)		(2,462)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		6,269		(744)
Increase in prepaid expenses and other assets, net		(13,120)		(13,164)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		15,250		(3,971)
Decrease in accounts receivable						Decrease in accounts receivable	9,374		45
Decrease in lease incentives and prepaid expenses and other assets, net						Decrease in lease incentives and prepaid expenses and other assets, net	8,407		13,894
Decrease in accounts payable, accrued expenses and other liabilities						Decrease in accounts payable, accrued expenses and other liabilities	(3,480)		(1,037)
Decrease in rents received in advance and security deposits	Decrease in rents received in advance and security deposits	(1,333)		(3,344)		Decrease in rents received in advance and security deposits	(4,517)		(2,532)

Net cash provided by operating activities	Net cash provided by operating activities	$	199,903	$	159,041	Net cash provided by operating activities	$	138,720	$	138,012
Reconciliation of cash and cash equivalents and restricted cash:	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	Cash and cash equivalents at beginning of period	$	18,369	$	14,733	Cash and cash equivalents at beginning of period	$	13,262	$	18,369
Restricted cash at beginning of period	Restricted cash at beginning of period	3,664		3,397		Restricted cash at beginning of period	4,054		3,664
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	$	22,033	$	18,130	Cash and cash equivalents and restricted cash at beginning of period	$	17,316	$	22,033

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	14,570	$	11,458	Cash and cash equivalents at end of period	$	20,735	$	17,182
Restricted cash at end of period	Restricted cash at end of period	3,575		3,217		Restricted cash at end of period	4,912		4,593
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	18,145	$	14,675	Cash and cash equivalents and restricted cash at end of period	$	25,647	$	21,775
Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Increase (decrease) in accrued capital improvements, leasing and other investing activity costs		$	17,590	$	(195)
Decrease in accrued capital improvements, leasing and other investing activity costs						Decrease in accrued capital improvements, leasing and other investing activity costs	$	(6,222)	$	(15,887)

Recognition of operating right-of-use assets and related lease liabilities	Recognition of operating right-of-use assets and related lease liabilities	$	328	$	8,955	Recognition of operating right-of-use assets and related lease liabilities	$	683	$	328

Investment in unconsolidated real estate joint venture retained in property disposition	Investment in unconsolidated real estate joint venture retained in property disposition	$	11,842	$	—	Investment in unconsolidated real estate joint venture retained in property disposition	$	—	$	11,842

Increase (decrease) in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests		$	4,030	$	(37,183)
Increase in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests						Increase in fair value of derivatives applied to accumulated other comprehensive loss and noncontrolling interests	$	5,072	$	2,922

Dividends/distributions payable	Dividends/distributions payable	$	31,306	$	31,307	Dividends/distributions payable	$	31,400	$	31,302

Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	121	$	182	Decrease in noncontrolling interests and increase in shareholders’ equity in connection with the conversion of common units into common shares	$	—	$	121
Adjustments to noncontrolling interests resulting from changes in COPLP ownership	Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$	(1,245)	$	(527)	Adjustments to noncontrolling interests resulting from changes in COPLP ownership	$	1,378	$	(194)
Increase in redeemable noncontrolling interests and decrease in equity to carry redeemable noncontrolling interests at fair value		$	677	$	4,711
(Decrease) increase in redeemable noncontrolling interests and (increase) decrease in equity to carry redeemable noncontrolling interests at fair value						(Decrease) increase in redeemable noncontrolling interests and (increase) decrease in equity to carry redeemable noncontrolling interests at fair value	$	(77)	$	622

See accompanying notes to consolidated financial statements.

Corporate Office Properties Trust 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”). We own, manage, lease, develop and selectively acquire office and data center properties. The majority of our portfolio is in locations that support the United States Government (“USG”) and its contractors, most of whom are engaged in national security, defense and information technology (“IT”) related activities servicing what we believe are growing, durable, priority missions (“Defense/IT Locations”). We also own a portfolio of office properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of ~~September~~June 30, ~~2021,~~2022, our properties included the following:

•~~186~~188 properties totaling ~~21.7~~22.1 million square feet comprised of ~~16.9~~17.1 million square feet in ~~160~~161 office properties and ~~4.7~~5.0 million square feet in 2627 single-tenant data center ~~shell properties (“data center shells”).~~shells. We owned 19 of these data center shells through unconsolidated real estate joint ventures;

•~~a wholesale data center with a capacity of 19.25 megawatts;~~

•1312 properties under development ~~(10~~(9 office properties and 3 data center shells), including 31 partially-operational ~~properties,~~property, and an expansion of 1 fully-operational property that we estimate will total approximately ~~1.8~~1.9 million square feet upon completion; and

•approximately ~~720~~710 acres of land controlled for future development that we believe could be developed into approximately ~~8.9~~8.4 million square feet and 43 acres of other land.

We conduct almost all of our operations and own almost all of our assets through our operating partnership, Corporate Office Properties, L.P. (“COPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT is the sole general partner. COPLP owns real estate directly and through subsidiary partnerships and limited liability companies (“LLCs”). In addition to owning real estate, COPLP also owns subsidiaries that provide real estate services such as property management, development and construction services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”).

Equity interests in COPLP are in the form of common and preferred units. As of ~~September~~June 30, ~~2021,~~2022, COPT owned ~~98.3%~~98.0% of the outstanding COPLP common units (“common units”) and there were no preferred units outstanding. Common units not owned by COPT carry certain redemption rights. The number of common units owned by COPT is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT common shareholders.

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

2. Summary of Significant Accounting Policies

Basis of Presentation

~~The~~These consolidated financial statements include the accounts of COPT, the Operating Partnership, their subsidiaries and other entities in which COPT has a majority voting interest and control. We also consolidate certain entities when control of such entities can be achieved through means other than voting rights (“variable interest entities” or “VIEs”) if we are deemed to be the primary beneficiary of such entities. We eliminate all intercompany balances and transactions in consolidation.

We use the equity method of accounting when we own an interest in an entity and can exert significant influence over but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity (and net advances) is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity.

When we own an equity investment in an entity and cannot exert significant influence over its operations, we measure the investment at fair value, with changes recognized through net income. For an investment without a readily determinable fair value, we measure the investment at cost, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.

These interim financial statements should be read together with the consolidated financial statements and notes thereto as

of and for the year ended December 31, ~~2020~~2021 included in ~~the Company’s and Operating Partnership’s 2020~~our 2021 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly state our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in ~~the Company’s and Operating Partnership’s 2020~~our 2021 Annual Report on Form 10-K as updated for our adoption of recent accounting pronouncements discussed below.

Reclassifications

We reclassified certain amounts from ~~the~~ prior ~~period~~periods to conform to the current period presentation of our consolidated financial statements with no effect on previously reported net income or ~~equity.~~equity, including amounts reclassified in conjunction with the transfer of a wholesale data center to discontinued operations in the fourth quarter of 2021. We provide disclosure regarding our discontinued operations in Note 4.

Recent Accounting Pronouncements

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

3.Fair Value Measurements

Recurring Fair Value Measurements

We have a non-qualified elective deferred compensation plan for Trustees and certain members of our management team that, prior to December 31, 2019, permitted participants to defer up to 100% of their compensation on a pre-tax basis and receive a tax-deferred return on such deferrals. Effective December 31, 2019, no new investments of deferred compensation were eligible for the plan. The assets held in the plan (comprised primarily of mutual funds and equity securities) and the corresponding liability to the participants are measured at fair value on a recurring basis on our consolidated balance sheets using quoted market prices, as are other marketable securities that we hold. The balance of the plan, which was fully funded and totaled ~~$2.6~~$1.9 million as of ~~September~~June 30, ~~2021,~~2022, is included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets along with an insignificant amount of other marketable securities. The offsetting liability associated with the plan is adjusted to fair value at the end of each accounting period based on the fair value of the plan assets and reported in “other liabilities” on our consolidated balance sheets. The assets of the plan are classified in Level 1 of the fair value hierarchy, while the offsetting liability is classified in Level 2 of the fair value hierarchy.

The fair values of our interest rate derivatives are determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our interest rate derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of ~~September~~June 30, ~~2021,~~2022, 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~~were 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~~our senior notes (categorized within Level 21 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments include scheduled

principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment.

For additional fair value information, refer to Note 7 for investing receivables, Note 9 for debt and Note 10 for interest rate derivatives.

The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of ~~September~~June 30, ~~2021~~2022 and the hierarchy level of inputs used in measuring their respective fair values under applicable accounting standards (in thousands):

Description Quoted Prices in
Active Markets for
Identical Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Assets:
Marketable securities in deferred compensation plan (1)
Mutual funds $ 2,545 $ — $ — $ 2,545
Other 71 — — 71
Other marketable securities (1) 33 — — 33
Interest rate derivatives (1) — 70 — 70
Total assets $ 2,649 $ 70 $ — $ 2,719
Liabilities:
Deferred compensation plan liability (2) $ — $ 2,616 $ — $ 2,616
Interest rate derivatives — 5,562 — 5,562
Total liabilities $ — $ 8,178 $ — $ 8,178


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	$	1,824	$	—	$	—	$	1,824
Other	57		—		—		57
Other marketable securities (1)	32		—		—		32
Interest rate derivatives (1)	—		2,468		—		2,468
Total assets	$	1,913	$	2,468	$	—	$	4,381
Liabilities:
Deferred compensation plan liability (2)	$	—	$	1,881	$	—	$	1,881

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

(2)Included in the line entitled “other liabilities” on our consolidated balance sheet.

4. Properties, Net

Operating properties, net consisted of the following (in thousands):


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Land	Land	$	539,899	$	528,269	Land	$	584,878	$	572,900
Buildings and improvements	Buildings and improvements	3,890,678		3,711,264		Buildings and improvements	3,809,623		3,670,133
Less: Accumulated depreciation	Less: Accumulated depreciation	(1,202,780)		(1,124,253)		Less: Accumulated depreciation	(1,213,711)		(1,152,523)
Operating properties, net	Operating properties, net	$	3,227,797	$	3,115,280	Operating properties, net	$	3,180,790	$	3,090,510

~~As of September 30, 2021,~~2022 Dispositions and Discontinued Operations

On January 25, 2022, we ~~had 1 property~~sold 9651 Hornbaker Road in Manassas, Virginia, our sole wholesale data center ~~shells sub-segment previously removed from service that was~~investment, for $222.5 million, resulting in a gain on sale of $28.6 million. This property, a separate reportable segment, is reported herein as discontinued operations. The table below sets forth the components of the property’s assets classified as ~~assets~~ held for sale ~~net~~ on our consolidated balance sheet ~~the sole component~~as of ~~which was properties, net.~~December 31, 2021 (in thousands):

~~2021 Dispositions~~



Properties, net	$	191,857
Deferred rent receivable	462
Intangible assets on property acquisitions, net	73
Deferred leasing costs, net	307

Assets held for sale, net	$	192,699

~~On June 2, 2021, we sold a 90% interest~~

The table below sets forth the property’s results of operations included in ~~2 data center shell properties in Northern Virginia based~~discontinued operations on ~~an aggregate property value~~our consolidated statements of ~~$118.8 million~~operations 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 forits operating and investing cash flows included on our ~~interest in the joint venture using the equity method~~consolidated statements of ~~accounting as described further in Note 6. We recognized a gain on sale of $40.2 million in the nine months ended September 30, 2021.~~cash flows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(in thousands)
Revenues from real estate operations	$	—	$	7,204	$	1,980	$	14,538
Property operating expenses	—		(3,702)		(971)		(7,400)
Depreciation and amortization associated with real estate operations	—		(2,823)		—		(5,644)

Gain on sale of real estate	—		—		28,564		—
Discontinued operations	$	—	$	679	$	29,573	$	1,494

Cash flows from operating activities					$	5,497	$	8,938
Cash flows from investing activities					$	220,549	$	(577)

~~2021~~2022 Development Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we placed into service ~~709,000~~363,000 square feet in 63 newly-developed properties. As of ~~September~~June 30, ~~2021,~~2022, we had 1312 properties under development, including 31 partially-operational ~~properties,~~property, and an expansion of 1 fully-operational property that we estimate will total ~~1.8~~1.9 million square feet upon completion.

5. Leases

Lessor Arrangements

We lease real estate properties, comprised primarily of office properties and data center shells, to third parties. These leases encompass all, or a portion, of properties, with various expiration dates. Our lease revenue is comprised of: fixed lease revenue, including contractual rent billings under leases recognized on a straight-line basis over lease terms and amortization of lease incentives and above- and below- market lease intangibles; and variable lease revenue, including tenant expense recoveries, lease termination revenue and other revenue from tenants that is not fixed under ~~the lease.~~leases. The table below sets forth our composition of lease revenue recognized between fixed and variable lease revenue (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
Lease revenue(1)	Lease revenue(1)	2021		2020		2021		2020		Lease revenue(1)	2022		2021		2022		2021
Fixed	Fixed	$	114,309	$	106,743	$	340,157	$	314,845	Fixed	$	112,691	$	107,823	$	223,858	$	214,758
Variable	Variable	31,440		27,132		93,874		82,189		Variable	29,586		28,631		59,808		58,986
		$	145,749	$	133,875	$	434,031	$	397,034		$	142,277	$	136,454	$	283,666	$	273,744

(1)Excludes lease revenue from discontinued operations of which: $5.6 million was fixed and $1.6 million was variable for the three months ended June 30, 2021; and $1.5 million and $11.1 million was fixed and $527,000 and $3.4 million was variable for the six months ended June 30, 2022 and 2021, respectively.

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

As of September 30, 2021
Year Ending December 31, Operating leases Sales-type leases
2021 (1) $ 109,800 $ 221
2022 418,746 960
2023 370,652 960
2024 323,198 960
2025 241,090 960
Thereafter 1,020,675 4,516
Total contractual payments $ 2,484,161 8,577
Less: Amount representing interest (2,277)
Net investment in sales-type leases $ 6,300


	As of June 30, 2022
Year Ending December 31,	Operating leases		Sales-type leases

2022 (1)	$	223,948	$	480
2023	420,071		960
2024	372,126		960
2025	285,179		960
2026	221,782		960
Thereafter	1,055,808		3,556
Total contractual payments	$	2,578,914	7,876
Less: Amount representing interest			(1,942)
Net investment in sales-type leases			$	5,934

(1)Represents the ~~three~~six months ending December 31, ~~2021.~~2022.

Lessee Arrangements

As of ~~September~~June 30, ~~2021,~~2022, our balance sheet included ~~$78.9~~$40.3 million in right-of-use assets associated primarily with land leased from third parties underlying certain properties that we are operating with various expiration dates. Our property right-of-use assets consisted of the following (in thousands):


Leases	Leases	Balance Sheet Location	September 30, 2021		December 31, 2020		Leases	Balance Sheet Location	June 30, 2022		December 31, 2021
Right-of-use assets	Right-of-use assets						Right-of-use assets
Operating leases - Property	Operating leases - Property	Property - operating right-of-use assets	$	38,854	$	40,570	Operating leases - Property	Property - operating right-of-use assets	$	38,056	$	38,361
Finance leases - Property ~~(1)~~	Finance leases - Property ~~(1)~~	Property - finance right-of-use assets	40,077		40,425		Finance leases - Property ~~(1)~~	Prepaid expenses and other assets, net	2,222		2,238
Total right-of-use assets	Total right-of-use assets		$	78,931	$	80,995	Total right-of-use assets		$	40,278	$	40,599

~~(1)On October 22, 2021, we acquired land leased in Washington, D.C., for which we had a $37.8 million right-of-use asset as of September 30, 2021, for a nominal amount under a bargain purchase option.~~

~~Property~~Our property lease liabilities reported on our consolidated balance sheets consisted of the following (in thousands):


Leases	Leases	Balance Sheet Location	September 30, 2021		December 31, 2020		Leases	Balance Sheet Location	June 30, 2022		December 31, 2021
Lease liabilities	Lease liabilities						Lease liabilities
Operating leases - Property	Operating leases - Property	Property - operating lease liabilities	$	29,630	$	30,746	Operating leases - Property	Property - operating lease liabilities	$	29,412	$	29,342
Finance leases - Property		Other liabilities	14		28
Total lease liabilities			$	29,644	$	30,774

~~The table below sets forth the~~As of June 30, 2022, our operating leases had a weighted average ~~terms~~remaining lease term of 52 years and a weighted average discount ~~rates~~rate of ~~our property leases as of September 30, 2021:~~


~~Weighted average remaining lease term~~
~~Operating leases~~	~~51 years~~
~~Finance leases~~	~~< 1 year~~
~~Weighted average discount rate~~
~~Operating leases~~	~~7.16~~	%
~~Finance leases~~	~~3.62~~	%

7.19%. The table below presents our total property lease cost (in thousands):


		Statement of Operations Location		For the Three Months Ended September 30,						For the Nine Months Ended September 30,							Statement of Operations Location		For the Three Months Ended June 30,						For the Six Months Ended June 30,
Lease cost	Lease cost		2021			2020			2021			2020	Lease cost					2022			2021			2022			2021
Operating lease cost	Operating lease cost															Operating lease cost
Property leases - fixed	Property leases - fixed	Property operating expenses		$	1,013		$	598		$	2,999		$	1,465	Property leases - fixed		Property operating expenses		$	1,032		$	1,013		$	2,051		$	1,986
Property leases - variable	Property leases - variable	Property operating expenses		11			107			31			116		Property leases - variable		Property operating expenses		17			10			33			20
Finance lease cost	Finance lease cost														Finance lease cost
Amortization of property right-of-use assets	Amortization of property right-of-use assets	Property operating expenses		5			9			23			27		Amortization of property right-of-use assets		Property operating expenses		8			9			16			18

				$	1,029		$	714		$	3,053		$	1,608					$	1,057		$	1,032		$	2,100		$	2,024

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


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
Supplemental cash flow information	Supplemental cash flow information	2021		2020		Supplemental cash flow information	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	2,399	$	987	Operating cash flows for operating leases	$	1,676	$	1,586

Financing cash flows for financing leases	Financing cash flows for financing leases	$	14	$	674	Financing cash flows for financing leases	$	—	$	10

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

As of September 30, 2021
Year Ending December 31, Operating leases Finance
leases Total
2021 (1) $ 807 $ — $ 807
2022 3,297 14 3,311
2023 3,352 — 3,352
2024 3,403 — 3,403
2025 1,749 — 1,749
Thereafter 123,979 — 123,979
Total lease payments 136,587 14 136,601
Less: Amount representing interest (106,957) — (106,957)
Lease liability $ 29,630 $ 14 $ 29,644


Year Ending December 31,	June 30, 2022
2022 (1)	$	1,679
2023	3,399
2024	3,451
2025	1,797
2026	1,578
Thereafter	125,934
Total lease payments	137,838
Less: Amount representing interest	(108,426)
Lease liability	$	29,412

(1)Represents the ~~three~~six months ending December 31, ~~2021.~~2022.

6. Real Estate Joint Ventures

Consolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in consolidated real estate joint ventures as of ~~September~~June 30, ~~2021~~2022 (dollars in thousands):


								September 30, 2021 (1)																	Nominal Ownership %										June 30, 2022 (1)
		Date Acquired		Nominal Ownership %				Total Assets			Encumbered Assets					Total Liabilities							Date Acquired										Total Assets					Encumbered Assets				Total Liabilities
Entity	Entity				Location					Entity					Nominal Ownership %				Location
LW Redstone Company, LLC (2)	LW Redstone Company, LLC (2)		3/23/2010		85%		Huntsville, Alabama						$	453,496							$	90,295						$	99,173		LW Redstone Company, LLC (2)			3/23/2010					85%		Huntsville, Alabama				$	547,429	$	88,065	$	108,738
Stevens Investors, LLC(3)	Stevens Investors, LLC(3)	8/11/2015		95%		Washington, DC		164,189			—							859		Stevens Investors, LLC(3)				8/11/2015			95%			Washington, DC				167,443					—				904
M Square Associates, LLC	M Square Associates, LLC	6/26/2007		50%		College Park, Maryland		100,634			60,950					52,527			M Square Associates, LLC				6/26/2007			50%						College Park, Maryland				102,419				60,153				51,802
								$	718,319		$	151,245				$	152,559																			$	817,291			$	148,218			$	161,444

(1)Excludes amounts eliminated in consolidation.

(2)We fund all capital requirements. Our partner generally receives distributions of the ~~firs~~t ~~$1.2~~first $1.2 millionof annual operating cash flows and we receive the remainder.

(3)

~~On August 11, 2021,~~As of June 30, 2022, we ~~entered into~~also had a $112.0 million construction ~~loan with Stevens Investors, LLC to enable it to early extinguish a third party construction loan. Our~~ loan to the joint venture, which is eliminated in consolidation, that carries an interest rate of LIBOR plus 2.35% and had a balance of ~~$90.5 million as of September 30, 2021. The~~$95.3 million; the loan matures on August 11, 2024, and we have priority for repayment in full of borrowings and accrued interest on the loan over partner distributions of any future refinancing proceeds or other available cash flows.

Unconsolidated Real Estate Joint Ventures

The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):


		Date Acquired		Nominal Ownership %		Number of Properties	Carrying Value of Investment (1)								Date Acquired			Nominal Ownership %		Number of Properties		Carrying Value of Investment (1)
Entity	Entity				September 30, 2021		December 31, 2020		Entity							June 30, 2022					December 31, 2021
B RE COPT DC JV II LLC (2)	B RE COPT DC JV II LLC (2)		10/30/2020			10%	8			$	15,735		$	15,988			B RE COPT DC JV II LLC (2)		10/30/2020		10%			8			$	15,291	$	15,579
BREIT COPT DC JV LLC	BREIT COPT DC JV LLC	6/20/2019		10%		9	12,620			13,315		BREIT COPT DC JV LLC			6/20/2019			10%		9		11,971			12,460
B RE COPT DC JV III LLC	B RE COPT DC JV III LLC	6/2/2021		10%		2	11,949			—		B RE COPT DC JV III LLC			6/2/2021			10%		2		11,755			11,850
						19	$	40,304		$	29,303									19		$	39,017		$	39,889

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

(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by ~~$7.3~~$7.1 million as of ~~September~~June 30, ~~2021~~2022 and ~~$7.4~~$7.2 million as of December 31, ~~2020~~2021 due to a difference between our cost basis and our share of the joint venture’s underlying equity in its net assets. We recognize adjustments to our share of the joint venture’s earnings and losses resulting from this basis difference in the underlying assets of the joint venture.

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

7. Investing Receivables

Investing receivables consisted of the following (in thousands):

September 30,
2021 December 31, 2020
Notes receivable from the City of Huntsville $ 71,322 $ 65,564
Other investing loans receivable 6,040 6,041
Amortized cost basis 77,362 71,605
Allowance for credit losses (1,415) (2,851)
Investing receivables, net $ 75,947 $ 68,754


	June 30, 2022		December 31, 2021
Notes receivable from the City of Huntsville	$	81,497	$	77,784
Other investing loans receivable	5,033		6,041
Amortized cost basis	86,530		83,825
Allowance for credit losses	(1,645)		(1,599)
Investing receivables, net	$	84,885	$	82,226

The balances above include accrued interest receivable, net of allowance for credit losses, of ~~$3.6~~$2.3 million as of ~~September~~June 30, ~~2021~~2022 and ~~$4.8~~$5.3 million as of December 31, ~~2020.~~2021.

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

The fair value of these receivables was approximately ~~$78~~$88 million as of ~~September~~June 30, ~~2021~~2022 and ~~$73~~$84 million as of December 31, ~~2020.~~2021.

8. Prepaid Expenses and Other Assets, Net

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

September 30,
2021 December 31, 2020
Lease incentives, net $ 40,150 $ 35,642
Prepaid expenses 26,815 19,690
Construction contract costs in excess of billings, net 12,987 10,343
Furniture, fixtures and equipment, net 10,008 10,433
Net investment in sales-type leases 6,300 6,573
Non-real estate equity investments 5,545 5,509
Restricted cash 3,575 3,664
Marketable securities in deferred compensation plan 2,616 3,027
Deferred tax asset, net (1) 1,883 1,989
Deferred financing costs, net (2) 1,595 2,439
Other assets 5,740 5,274
Prepaid expenses and other assets, net $ 117,214 $ 104,583


	June 30, 2022		December 31, 2021
Construction contract costs in excess of billings, net	$	29,223	$	22,384
Furniture, fixtures and equipment, net	9,014		9,599
Deposits	7,154		3,910
Non-real estate equity investments	6,107		5,544
Prepaid expenses	6,066		20,058
Net investment in sales-type leases	5,934		6,194
Restricted cash	4,912		4,054
Interest rate derivatives	2,468		355
Property - finance right-of-use assets	2,222		2,238
Marketable securities in deferred compensation plan	1,881		2,556
Deferred tax asset, net (1)	1,685		1,841
Deferred financing costs, net (2)	746		1,314
Other assets	1,350		1,443
Prepaid expenses and other assets, net	$	78,762	$	81,490

(1)Includes a valuation allowance of $24,000 as of ~~September~~June 30, ~~2021~~2022 and ~~$201,000 as of~~ December 31, ~~2020.~~2021.

(2)Represents deferred costs, net of accumulated amortization, attributable to our Revolving Credit Facility and interest rate derivatives.

9. Debt, Net

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

Carrying Value (1) as of
September 30,
2021 December 31, 2020 September 30, 2021
Stated Interest Rates Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt (2) $ 137,310 $ 139,991 3.82% - 4.62% (3) 2023-2026
Variable rate secured debt 33,698 115,119 LIBOR + 1.45% to 1.55% (4) 2025-2026
Total mortgage and other secured debt 171,008 255,110
Revolving Credit Facility (5) 10,000 143,000 LIBOR + 0.775% to 1.45% (6) March 2023 (5)
Term Loan Facility 299,274 398,447 LIBOR + 1.00% to 1.65% (7) December 2022
Unsecured Senior Notes
5.00%, $300,000 aggregate principal 298,235 297,915 5.00% (8) July 2025
2.25%, $400,000 aggregate principal 395,232 394,464 2.25% (9) March 2026
2.00%, $400,000 aggregate principal 396,394 — 2.00% (10) January 2029
2.75%, $600,000 aggregate principal 588,798 — 2.75% (10) April 2031
3.60%, $350,000 aggregate principal — 348,888 3.60% (11) N/A (11)
5.25%, $250,000 aggregate principal — 248,194 5.25% (12) N/A (12)
Unsecured note payable 791 900 0% (13) May 2026
Total debt, net $ 2,159,732 $ 2,086,918



	Carrying Value (1) as of
	June 30, 2022		December 31, 2021			June 30, 2022
					Stated Interest Rates		Scheduled Maturity
Mortgage and Other Secured Debt:
Fixed rate mortgage debt	$	85,708	$	86,960		3.82% - 4.62% (2)		2023-2026
Variable rate secured debt	33,530		33,667			LIBOR + 1.45% to 1.55% (3)		2025-2026
Total mortgage and other secured debt	119,238		120,627
Revolving Credit Facility (4)	181,000		76,000			LIBOR + 0.775% to 1.45% (5)		March 2023 (4)
Term Loan Facility (6)	99,904		299,420			LIBOR + 1.00% to 1.65% (7)		December 2022
Unsecured Senior Notes
2.25%, $400,000 aggregate principal	396,013		395,491			2.25% (8)		March 2026
2.00%, $400,000 aggregate principal	396,749		396,512			2.00% (9)		January 2029
2.75%, $600,000 aggregate principal	589,588		589,060			2.75% (10)		April 2031
2.90%, $400,000 aggregate principal	394,643		394,441			2.90% (11)		December 2033
Unsecured note payable	676		753			0% (12)		May 2026
Total debt, net	$	2,177,811	$	2,272,304

(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of ~~$5.4~~$4.9 million as of ~~September~~June 30, ~~2021~~2022 and ~~$5.9~~$5.8 million as of December 31, ~~2020.~~2021.

(2)Certain of the fixed rate mortgages carry interest rates that, upon assumption, were above or below market rates and therefore were recorded at their fair value based on applicable effective interest rates. The carrying values of these loans reflect net unamortized premiums totaling $108,000 as of September 30, 2021 and $155,000 as of December 31, 2020.

~~(3)~~The weighted average interest rate on our fixed rate mortgage debt was ~~4.16%~~4.07% as of ~~September~~June 30, ~~2021.~~2022.

~~(4)~~(3)The weighted average interest rate on our variable rate secured debt was ~~1.60%~~2.58% as of ~~September~~June 30, ~~2021.~~2022.

~~(5)~~(4)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.

~~(6)~~(5)The weighted average interest rate on the Revolving Credit Facility was ~~1.19%~~2.38% as of ~~September~~June 30, ~~2021.~~2022.

(6)We repaid $200.0 million of this loan during the six months ended June 30, 2022.

(7)The interest rate on this loan was ~~1.09%~~2.31% as of ~~September~~June 30, ~~2021.~~2022.

(8)The carrying value of these notes reflects an unamortized discount totaling ~~$1.5~~$3.2 millionas of ~~September~~June 30, ~~2021~~2022 and ~~$1.8~~$3.6 million as of December 31, ~~2020. The effective interest rate under the notes, including amortization of the issuance costs, was 5.15%.~~

~~(9)The carrying value of these notes reflects an unamortized discount totaling $3.9 million as of September 30, 2021 and $4.5 million as of December 31, 2020.~~2021. The effective interest rate under the notes, including amortization of the issuance costs, was 2.48%.

(9)The carrying value of these notes reflects an unamortized discount totaling $2.3 million as of June 30, 2022 and $2.5 million as of December 31, 2021. The effective interest rate under the notes, including amortization of the issuance costs, was 2.09%.

(10)~~Refer to paragraph below for further disclosure.~~The carrying value of these notes reflects an unamortized discount totaling $9.0 million as of June 30, 2022 and $9.5 million as of December 31, 2021. The effective interest rate under the notes, including amortization of the issuance costs, was 2.94%.

(11)The carrying value of these notes reflects an unamortized discount totaling ~~$781,000~~$4.4 million as of June 30, 2022 and $4.5 million as of December 31, ~~2020.~~2021. The effective interest rate under the notes, including amortization of the issuance costs, was ~~3.70%~~3.01%. ~~Refer to paragraph below for further disclosure.~~

(12)The carrying value of these notes reflects an unamortized discount totaling $1.6 million as of December 31, 2020. The effective interest rate under the notes, including amortization of the issuance costs, was 5.49%. Refer to paragraph below for further disclosure.

~~(13)~~This note carries an interest rate that, upon assumption, was below market rates and it therefore was recorded at its fair value based on applicable effective interest rates. The carrying value of this note reflects an unamortized discount totaling ~~$120,000~~$85,000 as of ~~September~~June 30, ~~2021~~2022 and ~~$161,000~~$108,000 as of December 31, ~~2020.~~2021.

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

~~We issued the following unsecured senior notes in 2021:~~

•$600.0 million of 2.75% Senior Notes due 2031 (the “2.75% Notes”) at an initial offering price of 98.95% of their face value on March 11, 2021, resulting in proceeds, after deducting underwriting discounts, but before other offering expenses, of $589.8 million. The notes mature on April 15, 2031. The carrying value of these notes reflects an unamortized discount totaling $9.7 million as of September 30, 2021. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.94%; and

•$400.0 million of 2.00% Senior Notes due 2029 (the “2.00% Notes”) at an initial offering price of 99.97% of their face value on August 11, 2021, resulting in proceeds, after deducting underwriting discounts, but before other offering

expenses, of $397.4 million. The notes mature on January 15, 2029. The carrying value of these notes reflects an unamortized discount totaling $2.6 million as of September 30, 2021. The effective interest rate under the notes, including amortization of discount and issuance costs, was 2.09%.

We may redeem these notes, in whole at any time or in part from time to time, at our option, at a redemption price equal to the greater of (1) the aggregate principal amount of the notes being redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to its present value, on a semi-annual basis at an adjusted treasury rate plus a spread (25 basis points for the 2.75% Notes and 20 basis points for the 2.00% Notes), plus accrued and unpaid interest thereon to the date of redemption. However, if this redemption occurs on or after January 15, 2031 for the 2.75% Notes or November 15, 2028 for the 2.00% Notes, the redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date. These notes are unconditionally guaranteed by COPT.

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

•~~effective March 11, 2021, purchased pursuant to tender offers $184.4 million of 3.60% Notes for $196.7 million and $145.6 million of 5.25% Notes for $164.7 million, plus accrued interest; and~~

•~~on April 12, 2021, redeemed the remaining $165.6 million of 3.60% Notes for $176.3 million and $104.4 million of 5.25% Notes for $117.7 million, plus accrued interest.~~

~~In connection with these purchases and redemptions, we recognized a loss on early extinguishment of debt of $58.4 million in the nine months ended September 30, 2021.~~

~~On August 11, 2021, we repaid $100.0 million of our term loan facility.~~

Certain of our debt instruments require that we comply with a number of restrictive financial covenants. As of ~~September~~June 30, ~~2021,~~2022, we were compliant with these financial covenants.

Our debt matures on the following schedule (in thousands):


Year Ending December 31,	June 30, 2022
2022 (1)	$	101,715
2023	199,953
2024	29,983
2025	23,717
2026	446,300
Thereafter	1,400,000
Total	$	2,201,668	(2)

(1)Represents the six months ending December 31, 2022.

(2)Represents scheduled principal amortization and maturities only and therefore excludes net discounts and deferred financing costs of $23.9 million.

We capitalized interest costs of ~~$1.8~~$1.4 million in the three months ended ~~September~~June 30, 2022, $1.7 million in the three months ended June 30, 2021, $2.9 million in the ~~three~~six months ended ~~September~~June 30, ~~2020, $5.3~~2022 and $3.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021 and $9.4 million in the nine months ended September 30, 2020.~~2021.

The following table sets forth information pertaining to the fair value of our debt (in thousands):


		September 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Fixed-rate debt	Fixed-rate debt									Fixed-rate debt
Unsecured Senior Notes	Unsecured Senior Notes	$	1,678,659	$	1,723,267	$	1,289,461	$	1,334,342	Unsecured Senior Notes	$	1,776,993	$	1,739,316	$	1,775,504	$	1,809,950
Other fixed-rate debt	Other fixed-rate debt	138,101		136,653		140,891		142,838		Other fixed-rate debt	86,384		82,707		87,713		87,339
Variable-rate debt	Variable-rate debt	342,972		343,577		656,566		654,102		Variable-rate debt	314,434		313,220		409,087		409,639
		$	2,159,732	$	2,203,497	$	2,086,918	$	2,131,282		$	2,177,811	$	2,135,243	$	2,272,304	$	2,306,928

10. Interest Rate Derivatives

The following table sets forth the key terms and fair values of our interest rate swap derivatives ~~each of which was designated as a cash flow hedge of interest rate risk~~ (dollars in thousands):


							Fair Value at										Fair Value at
Notional Amount	Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	September 30, 2021		December 31, 2020		Notional Amount		Fixed Rate	Floating Rate Index	Effective Date	Expiration Date	June 30, 2022		December 31, 2021
$	100,000		1.901%	One-Month LIBOR	9/1/2016	12/1/2022	$	(2,065)	$	(3,394)	100,000		1.901%	One-Month LIBOR	9/1/2016	12/1/2022	$	269	$	(1,361)
$	100,000		1.905%	One-Month LIBOR	9/1/2016	12/1/2022	(2,070)		(3,401)		100,000		1.905%	One-Month LIBOR	9/1/2016	12/1/2022	268		(1,365)
$	50,000		1.908%	One-Month LIBOR	9/1/2016	12/1/2022	(1,036)		(1,704)		11,000	(1)	1.678%	One-Month LIBOR	8/1/2019	8/1/2026	495		(234)
$	11,180	(1)	1.678%	One-Month LIBOR	8/1/2019	8/1/2026	(391)		(733)		22,925	(2)	0.573%	One-Month LIBOR	4/1/2020	3/26/2025	1,436		355
$	23,000	(2)	0.573%	One-Month LIBOR	4/1/2020	3/26/2025	70		(290)		50,000	(3)	1.908%	One-Month LIBOR	9/1/2016	N/A	—		(684)
							$	(5,492)	$	(9,522)							$	2,468	$	(3,289)

(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.

(3)We cash settled this swap and accrued interest thereon for $625,000 on January 28, 2022.

Each of these swaps was designated as a cash flow hedge of interest rate risk except for the swap with a $50.0 million notional amount for which we discontinued hedge accounting in December 2021.

The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):


			Fair Value at						Fair Value at
Derivatives	Derivatives	Balance Sheet Location	September 30, 2021		December 31, 2020		Derivatives	Balance Sheet Location	June 30, 2022		December 31, 2021
Interest rate swaps designated as cash flow hedges	Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets, net	$	70	$	—	Interest rate swaps designated as cash flow hedges	Prepaid expenses and other assets, net	$	2,468	$	355
Interest rate swaps designated as cash flow hedges	Interest rate swaps designated as cash flow hedges	Interest rate derivatives (liabilities)	$	(5,562)	$	(9,522)	Interest rate swaps designated as cash flow hedges	Other liabilities	$	—	$	(2,960)
Interest rate swap not designated							Interest rate swap not designated	Other liabilities	$	—	$	(684)

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

Amount of (Loss) Income Recognized in AOCL on Derivatives Amount of Loss Reclassified from AOCL into Interest Expense on Statement of Operations
Derivatives in Hedging Relationships For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Interest rate derivatives $ (118) $ 1,428 $ 426 $ (39,592) $ (1,226) $ (1,342) $ (3,604) $ (2,408)


		Amount of Loss Reclassified from AOCL into Loss on Interest Rate Derivatives on Statement of Operations								Amount of Loss Recognized on Undesignated Swaps in Loss on Interest Rate Derivatives on Statement of Operations									Amount of Income (Loss) Recognized in AOCI on Derivatives								Amount of Loss Reclassified from AOCI into Interest Expense on Statement of Operations
Derivatives in Hedging Relationships	Derivatives in Hedging Relationships	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Derivatives in Hedging Relationships	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,
		2021		2020		2021		2020		2021		2020		2021		2020			2022		2021		2022		2021		2022		2021		2022		2021
Interest rate derivatives	Interest rate derivatives	$	—	$	(51,865)	$	—	$	(51,865)	$	—	$	(1,265)	$	—	$	(1,265)	Interest rate derivatives	$	1,008	$	(240)	$	3,545	$	544	$	(754)	$	(1,203)	$	(1,757)	$	(2,378)

Based on the fair value of our derivatives as of ~~September~~June 30, ~~2021,~~2022, we estimate that approximately ~~$4.8~~$1.0 million of ~~losses~~gains will be reclassified from ~~AOCL~~accumulated other comprehensive income (“ AOCI”) as ~~an increase~~a decrease to interest expense over the next 12 months.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements. As of ~~September~~June 30, ~~2021,~~2022, we were not in default with any of these ~~provisions. As of September 30, 2021, the fair value of interest rate derivatives in a liability position related to these agreements was $5.6 million, excluding the effects of accrued interest~~provisions, and ~~credit valuation adjustments. As of September 30, 2021,~~ we had not posted any collateral related to these agreements. ~~If we breach any of these provisions, we could be required to settle our obligations under the agreements at their termination value, which was $6.0 million as of September 30, 2021.~~

11. Redeemable Noncontrolling Interests

Our partners in 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 Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Beginning balance	Beginning balance	$	25,430	$	29,431	Beginning balance	$	26,898	$	25,430

Distributions to noncontrolling interests	Distributions to noncontrolling interests	(2,387)		(13,335)		Distributions to noncontrolling interests	(1,375)		(1,165)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	2,286		2,715		Net income attributable to noncontrolling interests	1,306		1,153
Adjustment to arrive at fair value of interests	Adjustment to arrive at fair value of interests	677		4,711		Adjustment to arrive at fair value of interests	(77)		622
Ending balance	Ending balance	$	26,006	$	23,522	Ending balance	$	26,752	$	26,040

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

12. Equity

~~Common Shares~~

~~As of September 30, 2021,~~In May 2022, we ~~had remaining capacity under our~~entered into an at-the-market (“ATM”) stock offering program ~~equal to~~(the “2022 ATM Program”) that replaced a similar program established in 2018 (the “2018 ATM Program”) because we replaced the registration statement under which the 2018 ATM Program was registered with a new registration statement. Under the 2022 ATM Program, we may offer and sell common shares in at-the-market stock offerings having an aggregate gross sales price of up to $300 million inand may also, at our discretion, sell common ~~share sales.~~

~~During~~shares under forward equity sales agreements. As of June 30, 2022, we had not issued any shares under the ~~nine months ended September 30, 2021, certain COPLP limited partners converted 8,054 common units in COPLP for an equal number of common shares.~~2022 ATM Program.

We declared dividends per common share of $0.275 in the three months ended ~~September~~June 30, 2022 and 2021 and ~~2020 and $0.825~~$0.550 in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

See Note 16 for disclosure of COPT common share and COPLP common unit activity pertaining to our share-based compensation plans.

13. Credit Losses, Financial Assets and Other Instruments

The table below sets forth the ~~activity for the~~ allowance for credit losses activity for the six months ended June 30, 2022 and 2021 (in thousands):


											Investing Receivables		Tenant Notes Receivable (1)		Other Assets (2)		Total
December 31, 2021										December 31, 2021	$	1,599	$	1,057	$	913	$	3,569

Credit loss expense (recoveries)										Credit loss expense (recoveries)	46		(76)		(61)		(91)

		For the Nine Months Ended September 30, 2021
		Investing Receivables		Tenant Notes Receivable (1)		Other Assets (2)		Total
June 30, 2022										June 30, 2022	$	1,645	$	981	$	852	$	3,478

December 31, 2020	December 31, 2020	$	2,851	$	1,203	$	643	$	4,697	December 31, 2020	$	2,851	$	1,203	$	643	$	4,697

Credit loss (recoveries) expense	Credit loss (recoveries) expense	(1,436)		(114)		510		(1,040)		Credit loss (recoveries) expense	(719)		(77)		82		(714)

September 30, 2021		$	1,415	$	1,089	$	1,153	$	3,657
June 30, 2021										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 ~~September~~June 30, 2022 and December 31, 2021 included $742,000 and $218,000, respectively, in the line entitled “accounts receivable, net” and $110,000 and $695,000, respectively, in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheets. The balance as of June 30, 2021 and December 31, 2020 included ~~$705,000~~$89,000 and $257,000, respectively, in the line entitled “accounts receivable, net” and ~~$448,000~~$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 ~~September~~June 30, ~~2021~~2022 (in thousands):


		Origination Year															Origination Year
		2016 and Earlier		2017		2018		2019		2020		2021		Total			2017 and Earlier		2018		2019		2020		2021		Total
Investing receivables:	Investing receivables:															Investing receivables:
Credit risk classification:	Credit risk classification:															Credit risk classification:
Investment grade	Investment grade	$	68,773	$	1,043	$	—	$	—	$	1,057	$	449	$	71,322	Investment grade	$	73,478	$	—	$	—	$	1,757	$	6,262	$	81,497
Non-investment grade	Non-investment grade	—		—		—		6,040		—		—		6,040		Non-investment grade	—		—		5,033		—		—		5,033
Total	Total	$	68,773	$	1,043	$	—	$	6,040	$	1,057	$	449	$	77,362	Total	$	73,478	$	—	$	5,033	$	1,757	$	6,262	$	86,530

Tenant notes receivable:	Tenant notes receivable:															Tenant notes receivable:
Credit risk classification:	Credit risk classification:															Credit risk classification:
Investment grade	Investment grade	$	—	$	—	$	949	$	69	$	297	$	—	$	1,315	Investment grade	$	—	$	855	$	52	$	234	$	—	$	1,141
Non-investment grade	Non-investment grade	221		—		141		147		1,763		—		2,272		Non-investment grade	180		115		108		1,646		—		2,049
Total	Total	$	221	$	—	$	1,090	$	216	$	2,060	$	—	$	3,587	Total	$	180	$	970	$	160	$	1,880	$	—	$	3,190

Sales-type lease receivables:	Sales-type lease receivables:															Sales-type lease receivables:
Credit risk classification:	Credit risk classification:															Credit risk classification:
Investment grade	Investment grade	$	—	$	—	$	—	$	—	$	6,300	$	—	$	6,300	Investment grade	$	—	$	—	$	—	$	5,934	$	—	$	5,934

Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings Ltd.), meaning that they are considered to have at least an adequate capacity to meet their financial commitments, with credit risk ranging from minimal to moderate. Our non-investment grade credit risk classification represents entities with either no credit agency credit ratings or ratings deemed to be sub-investment grade; we believe that there is significantly more credit risk associated with this classification. The credit risk classifications of our investing receivables and tenant notes receivable were last updated in ~~September 2021.~~June 2022.

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

Notes receivable on nonaccrual status as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were not significant. We did not recognize any interest income on notes receivable on nonaccrual status during the three or ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

14. Information by Business Segment

We have the following reportable segments: Defense/IT Locations; Regional Office; Wholesale Data ~~Center;~~Center (the only property in which we sold on January 25, 2022); 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;~~Locations (“NoVA Defense/IT”); Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy ~~Support Locations”~~Support”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; Redstone Arsenal (in Huntsville); and data center shells (properties leased to tenants to be operated as data centers in which the tenants fund the costs for the power, fiber connectivity and data center infrastructure). Our segment reporting included below reflects our retrospective reclassification of: certain activities to our Other reportable segment from our Wholesale Data Center reportable segment in the fourth quarter of 2021; and 2 properties to our NoVA Defense/IT sub-segment from our Regional Office segment in the first quarter of 2022.

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

The table below reports segment financial information for our reportable segments (in thousands):


		Defense/Information Technology Locations																									Defense/IT Locations
		Fort Meade/BW Corridor		Northern Virginia Defense/IT		Lackland Air Force Base		Navy Support Locations		Redstone Arsenal		Data Center Shells		Total Defense/IT Locations		Regional Office		Operating Wholesale Data Center		Other		Total					Fort Meade/BW Corridor			NoVA Defense/IT			Lackland Air Force Base			Navy Support			Redstone Arsenal			Data Center Shells			Total Defense/IT Locations			Regional Office			Wholesale Data Center			Other			Total
Three Months Ended September 30, 2021
Three Months Ended June 30, 2022																								Three Months Ended June 30, 2022
Revenues from real estate operations	Revenues from real estate operations	$	66,029	$	15,291	$	14,519	$	8,558	$	9,144	$	6,913	$	120,454	$	16,810	$	8,637	$	689	$	146,590		Revenues from real estate operations		$	67,589		$	18,103		$	15,129		$	8,085		$	9,308		$	9,140		$	127,354		$	14,121		$	—		$	1,771		$	143,246
Property operating expenses	Property operating expenses	(22,956)		(5,980)		(6,935)		(3,454)		(3,003)		(657)		(42,985)		(8,395)		(5,345)		(465)		(57,190)			Property operating expenses		(23,499)			(6,157)			(7,520)			(3,330)			(3,631)			(1,189)			(45,326)			(7,628)			50			(1,212)			(54,116)
UJV NOI allocable to COPT	UJV NOI allocable to COPT	—		—		—		—		—		1,060		1,060		—		—		—		1,060			UJV NOI allocable to COPT		—			—			—			—			—			1,080			1,080			—			—			—			1,080
NOI from real estate operations	NOI from real estate operations	$	43,073	$	9,311	$	7,584	$	5,104	$	6,141	$	7,316	$	78,529	$	8,415	$	3,292	$	224	$	90,460		NOI from real estate operations		$	44,090		$	11,946		$	7,609		$	4,755		$	5,677		$	9,031		$	83,108		$	6,493		$	50		$	559		$	90,210
Additions to long-lived assets	Additions to long-lived assets	$	10,671	$	1,614	$	—	$	897	$	107	$	—	$	13,289	$	5,319	$	1,141	$	69	$	19,818		Additions to long-lived assets		$	12,341		$	2,541		$	—		$	650		$	224		$	—		$	15,756		$	3,561		$	16		$	65		$	19,398
Transfers from non-operating properties	Transfers from non-operating properties	$	53,935	$	87,986	$	7,332	$	—	$	5,519	$	421	$	155,193	$	381	$	—	$	—	$	155,574		Transfers from non-operating properties		$	768		$	918		$	521		$	(78)		$	20,037		$	5,673		$	27,839		$	30		$	—		$	—		$	27,869
Three Months Ended September 30, 2020
Three Months Ended June 30, 2021																								Three Months Ended June 30, 2021
Revenues from real estate operations	Revenues from real estate operations	$	63,328	$	14,699	$	12,602	$	8,006	$	6,079	$	7,995	$	112,709	$	14,913	$	6,068	$	753	$	134,443		Revenues from real estate operations		$	64,840		$	15,626		$	13,688		$	8,445		$	8,775		$	8,070		$	119,444		$	15,970		$	7,204		$	1,805		$	144,423
Property operating expenses	Property operating expenses	(21,537)		(5,245)		(7,116)		(3,044)		(2,029)		(861)		(39,832)		(7,782)		(3,642)		(296)		(51,552)			Property operating expenses		(21,714)			(5,917)			(7,506)			(3,227)			(2,968)			(777)			(42,109)			(7,463)			(3,828)			(1,216)			(54,616)
UJV NOI allocable to COPT	UJV NOI allocable to COPT	—		—		—		—		—		1,752		1,752		—		—		—		1,752			UJV NOI allocable to COPT		—			—			—			—			—			973			973			—			—			—			973
NOI from real estate operations	NOI from real estate operations	$	41,791	$	9,454	$	5,486	$	4,962	$	4,050	$	8,886	$	74,629	$	7,131	$	2,426	$	457	$	84,643		NOI from real estate operations		$	43,126		$	9,709		$	6,182		$	5,218		$	5,807		$	8,266		$	78,308		$	8,507		$	3,376		$	589		$	90,780
Additions to long-lived assets	Additions to long-lived assets	$	7,511	$	2,219	$	—	$	1,650	$	6,382	$	—	$	17,762	$	5,303	$	1,917	$	(3)	$	24,979		Additions to long-lived assets		$	11,511		$	1,172		$	—		$	1,205		$	3,053		$	—		$	16,941		$	3,939		$	121		$	9		$	21,010
Transfers from non-operating properties	Transfers from non-operating properties	$	(209)	$	58	$	221	$	—	$	61,520	$	65,269	$	126,859	$	—	$	—	$	—	$	126,859		Transfers from non-operating properties		$	784		$	25		$	49,218		$	—		$	1,288		$	1,017		$	52,332		$	38,000		$	—		$	—		$	90,332
Nine Months Ended September 30, 2021
Six Months Ended June 30, 2022																								Six Months Ended June 30, 2022
Revenues from real estate operations	Revenues from real estate operations	$	197,315	$	45,214	$	40,762	$	25,401	$	26,172	$	23,770	$	358,634	$	50,371	$	24,902	$	2,270	$	436,177		Revenues from real estate operations		$	134,803		$	36,679		$	29,842		$	16,254		$	18,503		$	16,645		$	252,726		$	29,203		$	1,980		$	3,597		$	287,506
Property operating expenses	Property operating expenses	(69,341)		(17,394)		(21,315)		(10,114)		(8,525)		(2,516)		(129,205)		(23,901)		(14,395)		(1,279)		(168,780)			Property operating expenses		(49,283)			(13,026)			(14,592)			(6,801)			(7,366)			(2,199)			(93,267)			(15,558)			(975)			(2,468)			(112,268)
UJV NOI allocable to COPT	UJV NOI allocable to COPT	—		—		—		—		—		2,950		2,950		—		—		—		2,950			UJV NOI allocable to COPT		—			—			—			—			—			2,160			2,160			—			—			—			2,160
NOI from real estate operations	NOI from real estate operations	$	127,974	$	27,820	$	19,447	$	15,287	$	17,647	$	24,204	$	232,379	$	26,470	$	10,507	$	991	$	270,347		NOI from real estate operations		$	85,520		$	23,653		$	15,250		$	9,453		$	11,137		$	16,606		$	161,619		$	13,645		$	1,005		$	1,129		$	177,398
Additions to long-lived assets	Additions to long-lived assets	$	29,063	$	2,921	$	—	$	2,654	$	3,418	$	—	$	38,056	$	13,430	$	1,490	$	82	$	53,058		Additions to long-lived assets		$	24,126		$	4,730		$	—		$	1,390		$	459		$	—		$	30,705		$	7,894		$	(35)		$	66		$	38,630
Transfers from non-operating properties	Transfers from non-operating properties	$	55,075	$	88,099	$	56,601	$	—	$	19,724	$	2,423	$	221,922	$	38,738	$	—	$	—	$	260,660		Transfers from non-operating properties		$	6,137		$	1,237		$	939		$	6,298		$	20,113		$	86,876		$	121,600		$	301		$	—		$	—		$	121,901
Segment assets at September 30, 2021		$	1,315,101	$	470,077	$	196,624	$	172,381	$	299,184	$	353,340	$	2,806,707	$	538,080	$	194,576	$	3,508	$	3,542,871
Nine Months Ended September 30, 2020
Segment assets at June 30, 2022																								Segment assets at June 30, 2022		$	1,331,828		$	488,597		$	196,723		$	172,873		$	316,008		$	435,252		$	2,941,281		$	534,257		$	—		$	3,878		$	3,479,416
Six Months Ended June 30, 2021																								Six Months Ended June 30, 2021
Revenues from real estate operations	Revenues from real estate operations	$	190,464	$	42,824	$	37,935	$	24,466	$	15,402	$	20,648	$	331,739	$	45,535	$	19,695	$	2,128	$	399,097		Revenues from real estate operations		$	131,286		$	31,811		$	26,243		$	16,843		$	17,028		$	16,857		$	240,068		$	31,673		$	14,538		$	3,308		$	289,587
Property operating expenses	Property operating expenses	(63,618)		(15,765)		(21,696)		(9,500)		(5,488)		(2,307)		(118,374)		(22,207)		(10,338)		(836)		(151,755)			Property operating expenses		(46,385)			(12,253)			(14,380)			(6,660)			(5,522)			(1,859)			(87,059)			(14,667)			(7,651)			(2,213)			(111,590)
UJV NOI allocable to COPT	UJV NOI allocable to COPT	—		—		—		—		—		5,190		5,190		—		—		—		5,190			UJV NOI allocable to COPT		—			—			—			—			—			1,890			1,890			—			—			—			1,890
NOI from real estate operations	NOI from real estate operations	$	126,846	$	27,059	$	16,239	$	14,966	$	9,914	$	23,531	$	218,555	$	23,328	$	9,357	$	1,292	$	252,532		NOI from real estate operations		$	84,901		$	19,558		$	11,863		$	10,183		$	11,506		$	16,888		$	154,899		$	17,006		$	6,887		$	1,095		$	179,887
Additions to long-lived assets	Additions to long-lived assets	$	22,144	$	8,114	$	—	$	5,518	$	6,698	$	—	$	42,474	$	13,105	$	10,699	$	165	$	66,443		Additions to long-lived assets		$	18,392		$	1,470		$	—		$	1,757		$	3,311		$	—		$	24,930		$	7,948		$	349		$	13		$	33,240
Transfers from non-operating properties	Transfers from non-operating properties	$	4,304	$	838	$	381	$	—	$	91,827	$	171,465	$	268,815	$	—	$	—	$	—	$	268,815		Transfers from non-operating properties		$	1,140		$	113		$	49,269		$	—		$	14,205		$	2,002		$	66,729		$	38,357		$	—		$	—		$	105,086
Segment assets at September 30, 2020		$	1,264,547	$	392,226	$	143,206	$	180,337	$	234,355	$	446,530	$	2,661,201	$	387,290	$	204,834	$	3,643	$	3,256,968
Segment assets at June 30, 2021																								Segment assets at June 30, 2021		$	1,266,622		$	403,442		$	189,418		$	174,633		$	295,672		$	353,797		$	2,683,584		$	520,126		$	196,209		$	3,639		$	3,403,558

The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Segment revenues from real estate operations	Segment revenues from real estate operations	$	146,590	$	134,443	$	436,177	$	399,097	Segment revenues from real estate operations	$	143,246	$	144,423	$	287,506	$	289,587
Construction contract and other service revenues	Construction contract and other service revenues	28,046		20,323		64,592		46,240		Construction contract and other service revenues	42,557		19,988		95,757		36,546
Less: Revenues from discontinued operations (Note 4)										Less: Revenues from discontinued operations (Note 4)	—		(7,204)		(1,980)		(14,538)
Total revenues	Total revenues	$	174,636	$	154,766	$	500,769	$	445,337	Total revenues	$	185,803	$	157,207	$	381,283	$	311,595

The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Segment property operating expenses	$	54,116	$	54,616	$	112,268	$	111,590
Less: Property operating expenses from discontinued operations (Note 4)	—		(3,702)		(971)		(7,400)
Total property operating expenses	$	54,116	$	50,914	$	111,297	$	104,190

The following table reconciles UJV NOI allocable to COPT to equity in income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
UJV NOI allocable to COPT	UJV NOI allocable to COPT	$	1,060	$	1,752	$	2,950	$	5,190	UJV NOI allocable to COPT	$	1,080	$	973	$	2,160	$	1,890
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense	Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense	(763)		(1,274)		(2,167)		(3,814)		Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense	(760)		(711)		(1,518)		(1,404)
Add: Equity in loss of unconsolidated non-real estate entities		—		(1)		(4)		(4)
Add: Equity in (loss) income of unconsolidated non-real estate entities										Add: Equity in (loss) income of unconsolidated non-real estate entities	(2)		(2)		564		(4)
Equity in income of unconsolidated entities	Equity in income of unconsolidated entities	$	297	$	477	$	779	$	1,372	Equity in income of unconsolidated entities	$	318	$	260	$	1,206	$	482

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Construction contract and other service revenues	Construction contract and other service revenues	$	28,046	$	20,323	$	64,592	$	46,240	Construction contract and other service revenues	$	42,557	$	19,988	$	95,757	$	36,546
Construction contract and other service expenses	Construction contract and other service expenses	(27,089)		(19,220)		(61,964)		(44,052)		Construction contract and other service expenses	(41,304)		(19,082)		(92,954)		(34,875)
NOI from service operations	NOI from service operations	$	957	$	1,103	$	2,628	$	2,188	NOI from service operations	$	1,253	$	906	$	2,803	$	1,671

The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to ~~net~~ income (loss) from continuing operations as reported on our consolidated statements of operations (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
NOI from real estate operations	NOI from real estate operations	$	90,460	$	84,643	$	270,347	$	252,532	NOI from real estate operations	$	90,210	$	90,780	$	177,398	$	179,887
NOI from service operations	NOI from service operations	957		1,103		2,628		2,188		NOI from service operations	1,253		906		2,803		1,671
Interest and other income	Interest and other income	1,818		1,746		5,911		5,233		Interest and other income	1,818		2,228		3,711		4,093
Credit loss recoveries		326		1,465		1,040		161
Credit loss (expense) recoveries										Credit loss (expense) recoveries	(225)		(193)		91		714
Gain on sales of real estate	Gain on sales of real estate	(32)		—		39,711		5		Gain on sales of real estate	(19)		40,233		(4)		39,743
Equity in income of unconsolidated entities	Equity in income of unconsolidated entities	297		477		779		1,372		Equity in income of unconsolidated entities	318		260		1,206		482
Income tax expense	Income tax expense	(47)		(16)		(103)		(95)		Income tax expense	(4)		(24)		(157)		(56)
Depreciation and other amortization associated with real estate operations	Depreciation and other amortization associated with real estate operations	(36,611)		(35,332)		(111,487)		(101,540)		Depreciation and other amortization associated with real estate operations	(34,812)		(34,732)		(69,076)		(69,232)
Impairment losses		—		(1,530)		—		(1,530)

General, administrative and leasing expenses	General, administrative and leasing expenses	(9,342)		(7,467)		(26,970)		(23,111)		General, administrative and leasing expenses	(8,355)		(9,222)		(16,899)		(17,628)
Business development expenses and land carry costs	Business development expenses and land carry costs	(1,093)		(1,094)		(3,559)		(3,474)		Business development expenses and land carry costs	(701)		(1,372)		(1,484)		(2,466)
Interest expense	Interest expense	(15,720)		(17,152)		(49,181)		(50,789)		Interest expense	(14,808)		(15,942)		(29,232)		(33,461)
UJV NOI allocable to COPT included in equity in income of unconsolidated entities	UJV NOI allocable to COPT included in equity in income of unconsolidated entities	(1,060)		(1,752)		(2,950)		(5,190)		UJV NOI allocable to COPT included in equity in income of unconsolidated entities	(1,080)		(973)		(2,160)		(1,890)
Revenues from real estate operations from discontinued operations (Note 4)										Revenues from real estate operations from discontinued operations (Note 4)	—		(7,204)		(1,980)		(14,538)
Property operating expenses from discontinued operations (Note 4)										Property operating expenses from discontinued operations (Note 4)	—		3,702		971		7,400
Loss on early extinguishment of debt	Loss on early extinguishment of debt	(1,159)		(3,237)		(59,553)		(3,237)		Loss on early extinguishment of debt	—		(25,228)		(342)		(58,394)
Loss on interest rate derivatives		—		(53,196)		—		(53,196)
Net income (loss)		$	28,794	$	(31,342)	$	66,613	$	19,329

Income from continuing operations										Income from continuing operations	$	33,595	$	43,219	$	64,846	$	36,325

The following table reconciles our segment assets to our consolidated total assets (in thousands):


		September 30, 2021		September 30, 2020			June 30, 2022		June 30, 2021
Segment assets	Segment assets	$	3,542,871	$	3,256,968	Segment assets	$	3,479,416	$	3,403,558
Operating properties lease liabilities included in segment assets	Operating properties lease liabilities included in segment assets	29,644		26,054		Operating properties lease liabilities included in segment assets	29,412		29,927
Non-operating property assets	Non-operating property assets	385,025		642,182		Non-operating property assets	469,380		441,048
Other assets	Other assets	193,598		194,985		Other assets	206,985		177,499
Total consolidated assets	Total consolidated assets	$	4,151,138	$	4,120,189	Total consolidated assets	$	4,185,193	$	4,052,032

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

15. Construction Contract and Other Service Revenues

We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Construction contract revenue:	Construction contract revenue:									Construction contract revenue:
Guaranteed maximum price	Guaranteed maximum price	$	15,846	$	4,358	$	29,335	$	14,834	Guaranteed maximum price	$	36,503	$	11,388	$	84,426	$	13,489
Firm fixed price										Firm fixed price	3,257		2,441		6,701		3,912
Cost-plus fee	Cost-plus fee	4,742		13,249		23,075		20,121		Cost-plus fee	2,255		5,847		3,561		18,333
Firm fixed price		7,042		1,365		10,954		9,421
Other	Other	416		1,351		1,228		1,864		Other	542		312		1,069		812
		$	28,046	$	20,323	$	64,592	$	46,240		$	42,557	$	19,988	$	95,757	$	36,546

The table below reports construction contract and other service revenues by service type (in thousands):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Construction contract revenue:	Construction contract revenue:									Construction contract revenue:
Construction	Construction	$	26,893	$	18,786	$	61,477	$	42,520	Construction	$	41,829	$	18,828	$	94,398	$	34,584
Design	Design	737		186		1,887		1,856		Design	186		848		290		1,150
Other	Other	416		1,351		1,228		1,864		Other	542		312		1,069		812
		$	28,046	$	20,323	$	64,592	$	46,240		$	42,557	$	19,988	$	95,757	$	36,546

We recognized an insignificant amount of revenue in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 from performance obligations satisfied (or partially satisfied) in previous periods.

Accounts receivable related to our construction contract services is included in accounts receivable, net on our consolidated balance sheets. The beginning and ending balances of accounts receivable related to our construction contracts were as follows (in thousands):


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Beginning balance	Beginning balance	$	13,997	$	12,378	Beginning balance	$	7,193	$	13,997
Ending balance	Ending balance	$	5,726	$	11,183	Ending balance	$	4,751	$	10,003

Contract assets, which we refer to herein as construction contract costs in excess of billings, net, are included in prepaid expenses and other assets, net ~~reported~~ on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Beginning balance	Beginning balance	$	10,343	$	17,223	Beginning balance	$	22,384	$	10,343
Ending balance	Ending balance	$	12,987	$	13,980	Ending balance	$	29,223	$	9,766

Contract liabilities are included in other liabilities ~~reported~~ on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
		2021		2020			2022		2021
Beginning balance	Beginning balance	$	4,610	$	1,184	Beginning balance	$	2,499	$	4,610
Ending balance	Ending balance	$	3,818	$	5,236	Ending balance	$	2,363	$	2,320
Portion of beginning balance recognized in revenue during:	Portion of beginning balance recognized in revenue during:					Portion of beginning balance recognized in revenue during:
Three months ended September 30		$	9	$	19
Nine months ended September 30		$	2,626	$	757
Three months ended June 30						Three months ended June 30	$	164	$	2,070
Six months ended June 30						Six months ended June 30	$	190	$	2,617

Revenue allocated to the remaining performance obligations under existing contracts as of ~~September~~June 30, ~~2021~~2022 that will be recognized as revenue in future periods was ~~$159.2~~$62.4 million, of which we expect to recognize approximately ~~$29~~$44 million in the ~~three~~six months ending December 31, ~~2021~~2022 and ~~most of~~ the remainder in ~~2022.~~2023.

We have no deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020. Our credit~~2021. Credit loss expense on construction contracts ~~receivables~~receivable and unbilled construction revenue ~~totaled $412,000 and $463,000 in~~was insignificant for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively,~~2022 and ~~was insignificant in the three and nine months ended September 30, 2020.~~2021.

16. Share-Based Compensation

Restricted Shares

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, certain employees and non-employee members of our Board of Trustees (“Trustees”) were granted a total of ~~165,770~~165,284 restricted common shares with an aggregate grant date fair value of $4.4 million (weighted average of ~~$26.25~~$26.52 per share). Restricted shares granted to employees vest based on increments and over periods of time set forth under the terms of the respective awards provided that the employee remains employed by us. Restricted shares granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, forfeiture restrictions lapsed on ~~157,066~~141,185 previously issued common shares; these shares had a weighted average grant date fair value of ~~$25.88~~$26.28 per share, and the aggregate intrinsic value of the shares on the vesting dates was ~~$4.1~~$3.7 million.

~~Performance Share Awards (“PSUs”)~~

~~We issued 93,824 common shares on February 3, 2021 to executives in settlement of PSUs granted in 2018, representing 200% of the target awards for those PSUs.~~

Profit Interest Units in COPLP (“PIUs”)

We granted 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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we granted ~~93,983~~101,966 TB-PIUs with an aggregate grant date fair value of ~~$2.5~~$2.7 million (weighted average of ~~$26.16~~$26.39 per TB-PIU) to senior management team members and certain non-employee Trustees. TB-PIUs granted to senior management team members ~~generally~~ vest ~~in equal annual~~based on increments and over ~~a three-year period beginning on~~periods of time set forth under the ~~first anniversary~~terms of the ~~date of grant~~respective awards provided that the employee remains employed by us. TB-PIUs granted to non-employee Trustees vest on the first anniversary of the grant date, provided that the Trustee remains in his or her position. Prior to vesting, TB-PIUs carry substantially the same rights to distributions as non-PIU common units but carry no redemption rights. During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, forfeiture restrictions lapsed on ~~40,591~~73,056 previously issued TB-PIUs; these TB-PIUs had a weighted average grant date fair value of ~~$25.14~~$26.01 per unit, and the aggregate intrinsic value of the TB-PIUs on the vesting date was ~~$1.1~~$1.9 million.

PB-PIUs

On January 1, ~~2021,~~2022, we granted certain senior management team members ~~227,544~~231,838 PB-PIUs with a three-year performance period concluding on the earlier of December 31, ~~2023~~2024 or the date of: (1) termination by us without cause, death or disability of the employee or constructive discharge of the employee (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 Rank						Earned PB-PIUs Payout %
75th or greater						100% of PB-PIUs granted
50th (target)						50% of PB-PIUs granted
25th						25% of PB-PIUs granted
Below 25th						0% of PB-PIUs granted

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 to: the number of earned awards; and the excess, if any, 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 over (2) the aggregate distributions made on the PB-PIUs during the performance 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.

These PB-PIU grants had an aggregate grant date fair value of ~~$3.4~~$3.8 million ($~~30.03~~32.87 per 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 ~~$26.08;~~$27.97; expected volatility for common shares of ~~34.7%~~31.7%; and a risk-free interest rate of ~~0.18%~~0.98%.

Based on COPT’s TSR relative to its peer group of companies, for the 2019 PB-PIUs issued to executives that vested on December 31, 2021, we issued 156,104 PIUs in settlement of the PB-PIUs on February 1, 2022.

Deferred Share Awards

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, a non-employee Trustee was granted ~~3,416~~3,941 deferred share awards with an aggregate grant date fair value of ~~$93,000~~$100,000 ($~~27.12~~25.41 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).

17. Earnings Per Share (“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 redeemable noncontrolling interests and share-based compensation awards using the if-converted or treasury stock 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 September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income (loss) attributable to COPT		$	27,101	$	(31,845)	$	62,833	$	15,706
Income attributable to share-based compensation awards		(92)		(145)		(337)		(365)
Numerator for basic EPS on net income (loss) attributable to COPT common shareholders		27,009		(31,990)		62,496		15,341
Income from continuing operations										Income from continuing operations	$	33,595	$	43,219	$	64,846	$	36,325
Income from continuing operations attributable to noncontrolling interests										Income from continuing operations attributable to noncontrolling interests	(1,285)		(1,488)		(2,369)		(2,068)
Income from continuing operations attributable to share-based compensation awards for basic EPS										Income from continuing operations attributable to share-based compensation awards for basic EPS	(92)		(134)		(204)		(247)
Numerator for basic EPS from continuing operations attributable to COPT common shareholders										Numerator for basic EPS from continuing operations attributable to COPT common shareholders	32,218		41,597		62,273		34,010

Redeemable noncontrolling interests	Redeemable noncontrolling interests	(89)		—		(82)		—		Redeemable noncontrolling interests	(30)		(20)		(69)		7

Income attributable to share-based compensation awards		13		—		17		6
Numerator for diluted EPS on net income (loss) attributable to COPT common shareholders		$	26,933	$	(31,990)	$	62,431	$	15,347
Adjustment to income from continuing operations attributable to share-based compensation awards for diluted EPS										Adjustment to income from continuing operations attributable to share-based compensation awards for diluted EPS	17		11		35		9
Numerator for diluted EPS from continuing operations attributable to COPT common shareholders										Numerator for diluted EPS from continuing operations attributable to COPT common shareholders	32,205		41,588		62,239		34,026
Discontinued operations										Discontinued operations	—		679		29,573		1,494
Discontinued operations attributable to noncontrolling interests										Discontinued operations attributable to noncontrolling interests	—		(9)		(421)		(19)
Income from discontinued operations attributable to share-based compensation awards for diluted EPS										Income from discontinued operations attributable to share-based compensation awards for diluted EPS	—		(2)		(90)		3
Numerator for diluted EPS on net income attributable to COPT common shareholders										Numerator for diluted EPS on net income attributable to COPT common shareholders	$	32,205	$	42,256	$	91,301	$	35,504

Denominator (all weighted averages):	Denominator (all weighted averages):									Denominator (all weighted averages):
Denominator for basic EPS (common shares)	Denominator for basic EPS (common shares)	111,985		111,811		111,949		111,778		Denominator for basic EPS (common shares)	112,082		111,974		112,052		111,931

Dilutive effect of redeemable noncontrolling interests	Dilutive effect of redeemable noncontrolling interests	138		—		130		—		Dilutive effect of redeemable noncontrolling interests	126		133		129		125
Dilutive effect of share-based compensation awards	Dilutive effect of share-based compensation awards	375		—		285		278		Dilutive effect of share-based compensation awards	429		297		427		280
Denominator for diluted EPS (common shares)	Denominator for diluted EPS (common shares)	112,498		111,811		112,364		112,056		Denominator for diluted EPS (common shares)	112,637		112,404		112,608		112,336
Basic EPS		$	0.24	$	(0.29)	$	0.56	$	0.14
Diluted EPS		$	0.24	$	(0.29)	$	0.56	$	0.14

Basic EPS:										Basic EPS:
Income from continuing operations attributable to COPT common shareholders										Income from continuing operations attributable to COPT common shareholders	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations attributable to COPT common shareholders										Discontinued operations attributable to COPT common shareholders	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders										Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32
Diluted EPS:										Diluted EPS:
Income from continuing operations attributable to COPT common shareholders										Income from continuing operations attributable to COPT common shareholders	$	0.29	$	0.37	$	0.55	$	0.30
Discontinued operations attributable to COPT common shareholders										Discontinued operations attributable to COPT common shareholders	—		0.01		0.26		0.02
Net income attributable to COPT common shareholders										Net income attributable to COPT common shareholders	$	0.29	$	0.38	$	0.81	$	0.32

Our diluted EPS computations do not include the effects of the following securities since the conversions of such securities would increase diluted EPS for the respective periods (in thousands):

Weighted Average Shares Excluded from Denominator
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Conversion of common units 1,262 1,240 1,257 1,235
Conversion of redeemable noncontrolling interests 782 973 793 954
Conversion of Series I Preferred Units — 176 — 176


	Weighted Average Shares Excluded from Denominator
	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2022	2021	2022	2021
Conversion of common units	1,476	1,262	1,430	1,254
Conversion of redeemable noncontrolling interests	863	776	835	799

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

•weighted average restricted shares and deferred share awards for the three months ended ~~September~~June 30, 2022 and 2021 of 404,000 and ~~2020 of 410,000 and 429,000,~~420,000, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 of 401,000 and ~~2020 of 416,000 and 432,000,~~419,000, respectively;

•weighted average ~~unvested~~ TB-PIUs for the three months ended ~~September~~June 30, 2022 and 2021 of 191,000 and ~~2020 of 168,000 and 91,000,~~166,000, respectively, and for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 of 182,000 and ~~2020 of 155,000 and 85,000,~~148,000, respectively; and

•weighted average ~~unvested~~ PB-PIUs for the ~~nine~~three and six months ended ~~September~~June 30, 2021 of 228,000.

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 ~~September~~June 30, ~~2021,~~2022, management believes that it is reasonably possible that we could recognize a loss of up to ~~$3.4~~$3.8 million for certain municipal tax claims; 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 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 $31 million as of ~~September~~June 30, ~~2021.~~2022. 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 ~~September~~June 30, ~~2021,~~2022, we do not expect any such future fundings will be required.

~~Effects of COVID-19~~

As of the date of this filing, spread of COVID-19 continues world- and nation-wide. Since the beginning of the year, the United States has significantly increased the proportion of the population that has received COVID-19 vaccines, and there is increased confidence that spread of COVID-19 can, to a large extent, be contained through vaccinations and wearing masks indoors in public. As a result, most restrictive measures previously instituted to control spread have been gradually lifted and an increased proportion of the population has resumed a return to normal activities.However, there continues to be significant uncertainty regarding the duration and extent of the pandemic due to factors such as the continuing spread of the virus, the pace of world- and nation-wide vaccination efforts, the emergence of new variants of the virus and the efficacy of vaccines against such variants. While the pandemic 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, 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, 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.

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

Overview

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we:

•finished the period with our ~~office and data center shell~~ portfolio ~~93.3%~~91.6% occupied and ~~94.6%~~93.6% leased;

•placed into service ~~709,000~~363,000 square feet in ~~six~~three newly-developed ~~office~~ properties that were ~~90.4%~~99.0% leased as of ~~September~~June 30, ~~2021;~~2022; and

•~~refinanced certain unsecured senior notes issuances with~~sold our wholesale data center for $222.5 million, resulting in a ~~new unsecured senior note issuance by:~~

◦~~issuing $600.0 million~~gain on sale 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 nine months ended September 30, 2021 of $58.4 million.

~~We used borrowings under our Revolving Credit Facility to fund the net cash outlay resulting from this refinancing;~~

•issued $400.0 million of 2.00% Notes at an initial offering price of 99.97% of their face value on August 11, 2021. The proceeds from this issuance, after deducting underwriting discounts but before other offering expenses, were $397.4$28.6 million. We used ~~$100.0 million of~~ the proceeds ~~from this issuance~~ to repay a portion of our ~~term loan facility, $89.0 million to pay off a construction loan~~Term Loan Facility and ~~most of~~ the ~~remaining proceeds to repay borrowings under our Revolving Credit Facility; and~~

•sold a 90% interest in two data center shell properties in Northern Virginia on June 2, 2021 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, which was used by usremainder to repay borrowings under our Revolving Credit Facility.

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.

In 2022, the United States economy has experienced inflationary conditions, increased interest rates and certain supply-chain related shortages, and had two consecutive quarters of decreased gross domestic product. For us, to date:

•inflationary conditions have contributed to increased costs for certain property operating expenses and building materials, which affects our development of new properties and improvements for existing properties. The effect of these increased costs has not significantly impacted us to date primarily since we had contracts in place for much of our property operating expense, development and building improvement cash requirements. However, we are expecting:

•continued increases in property operating expenses, particularly from new or renewed contracts for service arrangements. Most of our leases obligate tenants to pay either their full share of a building’s operating expenses or their share to the extent such expenses exceed amounts established in their leases. We believe that these lease arrangements reduce our exposure to increases in property operating expenses;

•increased costs for contemplated new property development, which could adversely affect our ability to achieve targeted development yields to the extent increases in market rental rates do not keep pace, and therefore could also reduce our willingness to commence development of new properties;

•increased costs for tenant improvements associated with new leasing, which could reduce our willingness to enter into new leases to the extent increases in market rents do not keep pace with cost increases; and

•increased costs for contemplated other capital improvements, which could affect our willingness, or timeline, for completing such improvements;

•increased interest rates have not significantly affected us due in large part to debt refinancings that we completed in 2020 and 2021. Our debt is predominantly fixed rate and in the form of long-term unsecured notes, and we have no significant fixed rate debt maturing until 2026. Moreover, most of the effect of interest rate increases on our variable rate debt is hedged by interest rate swaps through the end of 2022; and

•supply-chain related shortages have not had a significant effect on our ability to execute our operating and development activities.

We discuss significant factors contributing to changes in our net income in the section below entitled “Results of Operations.” In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

•how we expect to generate and obtain cash for short and long-term capital needs; and

•~~our commitments~~material cash requirements for known contractual and ~~contingencies.~~other obligations.

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~~We caution readers that forward-looking statements reflect our opinion only as of the date on which they were made. You should not place undue reliance on forward-looking statements. The following factors, ~~that may affect these expectations, estimates~~among others,

could cause actual results and ~~projections include, but are not limited to:~~future events to differ materially from those set forth or contemplated in the forward-looking statements:

•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, property operating and 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;

•risks of ~~real estate~~property 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~~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~~

As of the date of this filing, spread of COVID-19 continues world- and nation-wide. Since the beginning of the year, the United States has significantly increased the proportion of the population that has received COVID-19 vaccines, and there is increased confidence that spread of COVID-19 can, to a large extent, be contained through vaccinations and wearing masks indoors in public. As a result, most restrictive measures previously instituted to control spread have been gradually lifted and an increased proportion of the population has resumed a return to normal activities. However, there continues to be significant uncertainty regarding the duration and extent of the pandemic due to factors such as the continuing spread of the virus, the pace of world- and nation-wide vaccination efforts, the emergence of new variants of the virus and the efficacy of vaccines against such variants.

While the pandemic 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, our results of operations were not significantly affected by the pandemic. For the three and nine months ended September 30, 2021, our:

•Same Properties NOI from real estate operations increased relative to the comparable 2020 periods by $2.7 million and $3.7 million, respectively, and was only minimally affected by the pandemic-related effect of lower provisions for collectability losses in the 2021 periods relative to the 2020 periods; and

•lease revenue collections were not significantly affected by the pandemic. After agreeing to deferred payment arrangements for approximately $2.6 million in lease receivables last year (most of which was repaid by June 30, 2021), we did not agree to significant additional arrangements to date in 2021.

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

While we do not believe that our development leasing and ability to renew leases scheduled to expire have been significantly affected by the pandemic, we do believe that the impact of the restrictive measures and the economic uncertainty caused by the pandemic has impacted our timing and volume of vacant space leasing, and may continue to do so in the future, particularly for our Regional Office properties.

The 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 shortages. These types of issues have not significantly affected us to date but could in the future, depending on pandemic related developments.

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

Occupancy and Leasing

~~Office and Data Center Shell Portfolio~~

The tables below set forth occupancy information pertaining to our portfolio of office and data center shell properties:


		September 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021
Occupancy rates at period end	Occupancy rates at period end							Occupancy rates at period end
Total	Total	93.3		%	94.1		%	Total	91.6		%	92.4		%
Defense/IT Locations:	Defense/IT Locations:							Defense/IT Locations:
Fort Meade/BW Corridor	Fort Meade/BW Corridor	90.4		%	91.0		%	Fort Meade/BW Corridor	90.5		%	90.0		%
Northern Virginia Defense/IT		88.8		%	88.1		%
NoVA Defense/IT								NoVA Defense/IT	88.2		%	89.5		%
Lackland Air Force Base	Lackland Air Force Base	100.0		%	100.0		%	Lackland Air Force Base	100.0		%	100.0		%
Navy Support Locations		96.5		%	97.2		%
Navy Support								Navy Support	91.3		%	93.9		%
Redstone Arsenal	Redstone Arsenal	99.3		%	99.4		%	Redstone Arsenal	87.7		%	90.8		%
Data Center Shells	Data Center Shells	100.0		%	100.0		%	Data Center Shells	100.0		%	100.0		%
Total Defense/IT Locations	Total Defense/IT Locations	94.1		%	94.5		%	Total Defense/IT Locations	92.9		%	93.2		%
Regional Office	Regional Office	87.8		%	92.5		%	Regional Office	80.2		%	87.3		%
Other	Other	66.2		%	68.4		%	Other	75.5		%	66.2		%
Average contractual annual rental rate per square foot at period end (1)		$	32.38		$	31.50
Annualized rental revenue per occupied square foot at period end								Annualized rental revenue per occupied square foot at period end	$	32.76		$	32.47

~~(1)Includes estimated expense reimbursements.~~

Rentable
Square Feet Occupied
Square Feet
(in thousands)
December 31, 2020 20,959 19,722
Vacated upon lease expiration (1) — (524)
Occupancy for new leases — 387
Developed or redeveloped 709 628
Other changes (8) —
September 30, 2021 21,660 20,213


	Rentable Square Feet	Occupied Square Feet
	(in thousands)
December 31, 2021	21,710	20,070
Vacated upon lease expiration (1)	—	(473)
Occupancy for new leases	—	294
Developed	363	352



Other changes	16	—
June 30, 2022	22,089	20,243

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

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we ~~completed 2.7 million square feet of leasing, including: renewed leases on~~leased 1.4 million square feet, including: 676,000 square feet of renewal leasing, representing ~~74.6%~~a tenant retention rate of 61.9%; 277,000 square feet of vacant space leasing; and 476,000 square feet of development leasing.

Annualized rental revenue is a measure that we use to evaluate the ~~square footage~~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 and rent associated with tenant funded landlord assets). Our computation of annualized rental revenue excludes the effect of lease ~~expirations (including~~incentives. 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. Tenant retention rate is a measure we use that represents the percentage of square feet renewed in a period relative to the total square feet scheduled to expire in that period; we include the effect of early ~~renewals); 420,000 square feet of vacant space; and 915,000 square feet of development space.~~renewals in this measure.

~~Wholesale Data Center~~

Our 19.25 megawatt wholesale data center was 86.7% leased as of September 30, 2021 and December 31, 2020. An 11.25 megawatt lease that expired in August 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:~~includes real estate revenues and property operating ~~expenses;~~expenses from continuing and ~~the net of revenues~~discontinued operations and ~~property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJVs”) that is allocable to our ownership interest (“~~UJV NOI allocable to ~~COPT”).~~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 being compared. We define these as changes from “Same Properties”;

•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.~~center that we sold on January 25, 2022.

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 from continuing operations reported on ~~our~~the consolidated statements of operations is provided in Note 14 to our consolidated financial statements.

Comparison of Statements of Operations for the Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021


		For the Three Months Ended September 30,							For the Three Months Ended June 30,
		2021		2020		Variance			2022		2021		Variance
		(in thousands)							(in thousands)
Revenues	Revenues							Revenues
Revenues from real estate operations	Revenues from real estate operations	$	146,590	$	134,443	$	12,147	Revenues from real estate operations	$	143,246	$	137,219	$	6,027
Construction contract and other service revenues	Construction contract and other service revenues	28,046		20,323		7,723		Construction contract and other service revenues	42,557		19,988		22,569
Total revenues	Total revenues	174,636		154,766		19,870		Total revenues	185,803		157,207		28,596
Operating expenses	Operating expenses							Operating expenses
Property operating expenses	Property operating expenses	57,190		51,552		5,638		Property operating expenses	54,116		50,914		3,202
Depreciation and amortization associated with real estate operations	Depreciation and amortization associated with real estate operations	36,611		35,332		1,279		Depreciation and amortization associated with real estate operations	34,812		34,732		80
Construction contract and other service expenses	Construction contract and other service expenses	27,089		19,220		7,869		Construction contract and other service expenses	41,304		19,082		22,222
Impairment losses		—		1,530		(1,530)

General, administrative and leasing expenses	General, administrative and leasing expenses	9,342		7,467		1,875		General, administrative and leasing expenses	8,355		9,222		(867)
Business development expenses and land carry costs	Business development expenses and land carry costs	1,093		1,094		(1)		Business development expenses and land carry costs	701		1,372		(671)
Total operating expenses	Total operating expenses	131,325		116,195		15,130		Total operating expenses	139,288		115,322		23,966
Interest expense	Interest expense	(15,720)		(17,152)		1,432		Interest expense	(14,808)		(15,942)		1,134
Interest and other income	Interest and other income	1,818		1,746		72		Interest and other income	1,818		2,228		(410)
Credit loss recoveries		326		1,465		(1,139)
Credit loss expense								Credit loss expense	(225)		(193)		(32)
Gain on sales of real estate	Gain on sales of real estate	(32)		—		(32)		Gain on sales of real estate	(19)		40,233		(40,252)
Loss on early extinguishment of debt	Loss on early extinguishment of debt	(1,159)		(3,237)		2,078		Loss on early extinguishment of debt	—		(25,228)		25,228
Loss on interest rate derivatives		—		(53,196)		53,196

Equity in income of unconsolidated entities	Equity in income of unconsolidated entities	297		477		(180)		Equity in income of unconsolidated entities	318		260		58
Income tax expense	Income tax expense	(47)		(16)		(31)		Income tax expense	(4)		(24)		20
Net income (loss)		$	28,794	$	(31,342)	$	60,136
Income from continuing operations								Income from continuing operations	33,595		43,219		(9,624)
Discontinued operations								Discontinued operations	—		679		(679)
Net income								Net income	$	33,595	$	43,898	$	(10,303)

NOI from Real Estate Operations


		For the Three Months Ended September 30,										For the Three Months Ended June 30,
		2021			2020			Variance				2022			2021			Variance
		(Dollars in thousands, except per square foot data)										(Dollars in thousands, except per square foot data)
Revenues	Revenues										Revenues
Same Properties revenues	Same Properties revenues										Same Properties revenues
Lease revenue, excluding net lease termination revenue and provision for collectability losses	Lease revenue, excluding net lease termination revenue and provision for collectability losses	$	123,331		$	119,782		$	3,549		Lease revenue, excluding net lease termination revenue and provision for collectability losses	$	131,535		$	130,229		$	1,306
Lease termination revenue, net	Lease termination revenue, net	853			455			398			Lease termination revenue, net	399			1,094			(695)
Provision for collectability losses included in lease revenue	Provision for collectability losses included in lease revenue	1			(412)			413			Provision for collectability losses included in lease revenue	(727)			5			(732)
Other property revenue	Other property revenue	808			573			235			Other property revenue	935			732			203
Same Properties total revenues	Same Properties total revenues	124,993			120,398			4,595			Same Properties total revenues	132,142			132,060			82
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	12,937			4,930			8,007			Developed and redeveloped properties placed in service	9,979			2,841			7,138

Wholesale data center	Wholesale data center	8,637			6,068			2,569			Wholesale data center	—			7,204			(7,204)

Dispositions	Dispositions	(154)			3,047			(3,201)			Dispositions	(4)			1,165			(1,169)
Other	Other	177			—			177			Other	1,129			1,153			(24)
		146,590			134,443			12,147				143,246			144,423			(1,177)
Property operating expenses	Property operating expenses										Property operating expenses
Same Properties	Same Properties	(48,769)			(46,856)			(1,913)			Same Properties	(50,972)			(48,557)			(2,415)
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	(2,945)			(726)			(2,219)			Developed and redeveloped properties placed in service	(2,291)			(1,150)			(1,141)

Wholesale data center	Wholesale data center	(5,345)			(3,642)			(1,703)			Wholesale data center	50			(3,828)			3,878

Dispositions	Dispositions	(44)			(326)			282			Dispositions	—			(135)			135
Other	Other	(87)			(2)			(85)			Other	(903)			(946)			43
		(57,190)			(51,552)			(5,638)				(54,116)			(54,616)			500

UJV NOI allocable to COPT	UJV NOI allocable to COPT										UJV NOI allocable to COPT
Same Properties	Same Properties	504			504			—			Same Properties	924			923			1
Retained interest in newly-formed UJVs	Retained interest in newly-formed UJVs	575			—			575			Retained interest in newly-formed UJVs	156			50			106
Dispositions		(19)			1,248			(1,267)

		1,060			1,752			(692)				1,080			973			107

NOI from real estate operations	NOI from real estate operations										NOI from real estate operations
Same Properties	Same Properties	76,728			74,046			2,682			Same Properties	82,094			84,426			(2,332)
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	9,992			4,204			5,788			Developed and redeveloped properties placed in service	7,688			1,691			5,997

Wholesale data center	Wholesale data center	3,292			2,426			866			Wholesale data center	50			3,376			(3,326)

Dispositions, net of retained interest in newly-formed UJVs	Dispositions, net of retained interest in newly-formed UJVs	358			3,969			(3,611)			Dispositions, net of retained interest in newly-formed UJVs	152			1,080			(928)
Other	Other	90			(2)			92			Other	226			207			19
		$	90,460		$	84,643		$	5,817			$	90,210		$	90,780		$	(570)

Same Properties NOI from real estate operations by segment	Same Properties NOI from real estate operations by segment										Same Properties NOI from real estate operations by segment
Defense/IT Locations	Defense/IT Locations	$	68,664		$	66,459		$	2,205		Defense/IT Locations	$	76,319		$	76,359		$	(40)
Regional Office	Regional Office	7,739			7,131			608			Regional Office	5,441			7,686			(2,245)
Other	Other	325			456			(131)			Other	334			381			(47)
		$	76,728		$	74,046		$	2,682			$	82,094		$	84,426		$	(2,332)

Same Properties rent statistics	Same Properties rent statistics										Same Properties rent statistics
Average occupancy rate	Average occupancy rate	92.0		%	92.8		%	(0.8		%)	Average occupancy rate	91.6		%	93.7		%	(2.1		%)
Average straight-line rent per occupied square foot (1)	Average straight-line rent per occupied square foot (1)	$	6.59		$	6.49		$	0.10		Average straight-line rent per occupied square foot (1)	$	6.42		$	6.40		$	0.02

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

Our Same Properties pool consisted of ~~159~~176 properties, comprising ~~80.2%~~92.1% of our ~~office and data center shell~~ portfolio’s square footage as of ~~September~~June 30, ~~2021.~~2022. This pool of properties changed from the pool used for purposes of comparing ~~2020~~2021 and ~~2019~~2020 in our ~~2020~~2021 Annual Report on Form 10-K due to ~~the:~~the addition of ~~eight~~nine properties placed in service and 100%

operational on or before January 1, ~~2020~~2021 and ~~nine~~eight 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.~~2020.

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

•the ~~increase~~decrease for our Same Properties pool was ~~due~~attributable primarily to ~~higher rent per occupied square foot~~our Regional Office segment, which had lower occupancy in the current period due mostly to ~~an increase in rental rates (mostly from leases~~the scheduled lease expiration of ~~renewed or previously-vacant space), offset in part by lower occupancy in the current period;~~a 140,000 square foot space;

•developed and redeveloped properties placed in service reflects the effect of 17ten properties placed in service in ~~2020~~2021 and ~~2021;~~2022; and

•dispositions, net of retained interest in newly-formed UJVs reflects the effect of our ~~decrease~~sale of a 90% interest in ~~ownership of eight~~two data center shells ~~in 2020 and two~~ in 2021.

NOI from Service Operations


		For the Three Months Ended September 30,							For the Three Months Ended June 30,
		2021		2020		Variance			2022		2021		Variance
		(in thousands)							(in thousands)
Construction contract and other service revenues	Construction contract and other service revenues	$	28,046	$	20,323	$	7,723	Construction contract and other service revenues	$	42,557	$	19,988	$	22,569
Construction contract and other service expenses	Construction contract and other service expenses	(27,089)		(19,220)		(7,869)		Construction contract and other service expenses	(41,304)		(19,082)		(22,222)
NOI from service operations	NOI from service operations	$	957	$	1,103	$	(146)	NOI from service operations	$	1,253	$	906	$	347

Construction contract and other service ~~revenue~~revenues and expenses increased in the current period due primarily to a higher volume of construction activity ~~in connection with several~~for one 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 income relative to our real estate operations.

~~General, administrative and leasing expenses~~Gain on sales of real estate

~~General, administrative and leasing expenses increased~~The gain on sales of real estate recognized in ~~large part~~the prior period was due to ~~higher compensation related expenses~~our sale of a 90% interest in ~~the current period.~~two data center shell properties.

Loss on extinguishment of debt

The loss on early extinguishment of debt ~~in the current period was attributable to our repayment of $100.0 million of our term loan facility and payoff of a construction loan. The loss on early extinguishment of debt~~recognized in the prior period was attributable to our ~~purchase~~redemption of ~~3.70% Senior Notes due 2021.~~unsecured senior notes that we refinanced.

~~Loss on interest rate derivatives~~

We recognized a loss in the prior period on interest rate swaps previously designated as cash flow hedges of interest expense on forecasted future borrowings that we determined would probably not occur.

Comparison of Statements of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

For the Nine Months Ended September 30,
2021 2020 Variance
(in thousands)
Revenues
Revenues from real estate operations $ 436,177 $ 399,097 $ 37,080
Construction contract and other service revenues 64,592 46,240 18,352
Total revenues 500,769 445,337 55,432
Operating expenses
Property operating expenses 168,780 151,755 17,025
Depreciation and amortization associated with real estate operations 111,487 101,540 9,947
Construction contract and other service expenses 61,964 44,052 17,912
Impairment losses — 1,530 (1,530)
General, administrative and leasing expenses 26,970 23,111 3,859
Business development expenses and land carry costs 3,559 3,474 85
Total operating expenses 372,760 325,462 47,298
Interest expense (49,181) (50,789) 1,608
Interest and other income 5,911 5,233 678
Credit loss recoveries 1,040 161 879
Gain on sales of real estate 39,711 5 39,706
Loss on early extinguishment of debt (59,553) (3,237) (56,316)
Loss on interest rate derivatives — (53,196) 53,196
Equity in income of unconsolidated entities 779 1,372 (593)
Income tax expense (103) (95) (8)
Net income $ 66,613 $ 19,329 $ 47,284


	For the Six Months Ended June 30,
	2022		2021		Variance
	(in thousands)
Revenues
Revenues from real estate operations	$	285,526	$	275,049	$	10,477
Construction contract and other service revenues	95,757		36,546		59,211
Total revenues	381,283		311,595		69,688
Operating expenses
Property operating expenses	111,297		104,190		7,107
Depreciation and amortization associated with real estate operations	69,076		69,232		(156)
Construction contract and other service expenses	92,954		34,875		58,079

General, administrative and leasing expenses	16,899		17,628		(729)
Business development expenses and land carry costs	1,484		2,466		(982)
Total operating expenses	291,710		228,391		63,319
Interest expense	(29,232)		(33,461)		4,229
Interest and other income	3,711		4,093		(382)
Credit loss recoveries	91		714		(623)
Gain on sales of real estate	(4)		39,743		(39,747)
Loss on early extinguishment of debt	(342)		(58,394)		58,052

Equity in income of unconsolidated entities	1,206		482		724
Income tax expense	(157)		(56)		(101)
Income from continuing operations	64,846		36,325		28,521
Discontinued operations	29,573		1,494		28,079
Net income	$	94,419	$	37,819	$	56,600

NOI from Real Estate Operations


		For the Nine Months Ended September 30,										For the Six Months Ended June 30,
		2021			2020			Variance				2022			2021			Variance
		(Dollars in thousands, except per square foot data)										(Dollars in thousands, except per square foot data)
Revenues	Revenues										Revenues
Same Properties revenues	Same Properties revenues										Same Properties revenues
Lease revenue, excluding lease termination revenue and provision for collectability losses	Lease revenue, excluding lease termination revenue and provision for collectability losses	$	367,002		$	361,032		$	5,970		Lease revenue, excluding lease termination revenue and provision for collectability losses	$	264,040		$	261,386		$	2,654
Lease termination revenue, net	Lease termination revenue, net	3,309			693			2,616			Lease termination revenue, net	620			2,456			(1,836)
Provision for collectability losses included in lease revenue	Provision for collectability losses included in lease revenue	(118)			(1,894)			1,776			Provision for collectability losses included in lease revenue	(727)			(119)			(608)
Other property revenue	Other property revenue	2,047			2,060			(13)			Other property revenue	1,794			1,239			555
Same Properties total revenues	Same Properties total revenues	372,240			361,891			10,349			Same Properties total revenues	265,727			264,962			765
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	35,902			8,410			27,492			Developed and redeveloped properties placed in service	17,506			5,250			12,256

Wholesale data center	Wholesale data center	24,902			19,695			5,207			Wholesale data center	1,980			14,538			(12,558)

Dispositions	Dispositions	2,691			9,097			(6,406)			Dispositions	(3)			2,846			(2,849)
Other	Other	442			4			438			Other	2,296			1,991			305
		436,177			399,097			37,080				287,506			289,587			(2,081)
Property operating expenses	Property operating expenses										Property operating expenses
Same Properties	Same Properties	(145,830)			(139,209)			(6,621)			Same Properties	(105,133)			(100,212)			(4,921)
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	(7,795)			(1,246)			(6,549)			Developed and redeveloped properties placed in service	(4,356)			(1,712)			(2,644)

Wholesale data center	Wholesale data center	(14,395)			(10,338)			(4,057)			Wholesale data center	(975)			(7,651)			6,676

Dispositions	Dispositions	(477)			(952)			475			Dispositions	1			(433)			434
Other	Other	(283)			(10)			(273)			Other	(1,805)			(1,582)			(223)
		(168,780)			(151,755)			(17,025)				(112,268)			(111,590)			(678)

UJV NOI allocable to COPT	UJV NOI allocable to COPT										UJV NOI allocable to COPT
Same Properties	Same Properties	1,506			1,515			(9)			Same Properties	1,850			1,840			10
Retained interest in newly-formed UJVs	Retained interest in newly-formed UJVs	1,463			—			1,463			Retained interest in newly-formed UJVs	310			50			260
Dispositions		(19)			3,675			(3,694)

		2,950			5,190			(2,240)				2,160			1,890			270

NOI from real estate operations	NOI from real estate operations										NOI from real estate operations
Same Properties	Same Properties	227,916			224,197			3,719			Same Properties	162,444			166,590			(4,146)
Developed and redeveloped properties placed in service	Developed and redeveloped properties placed in service	28,107			7,164			20,943			Developed and redeveloped properties placed in service	13,150			3,538			9,612

Wholesale data center	Wholesale data center	10,507			9,357			1,150			Wholesale data center	1,005			6,887			(5,882)

Dispositions, net of retained interest in newly-formed UJVs	Dispositions, net of retained interest in newly-formed UJVs	3,658			11,820			(8,162)			Dispositions, net of retained interest in newly-formed UJVs	308			2,463			(2,155)
Other	Other	159			(6)			165			Other	491			409			82
		$	270,347		$	252,532		$	17,815			$	177,398		$	179,887		$	(2,489)

Same Properties NOI from real estate operations by segment	Same Properties NOI from real estate operations by segment										Same Properties NOI from real estate operations by segment
Defense/IT Locations	Defense/IT Locations	$	203,232		$	199,577		$	3,655		Defense/IT Locations	$	149,905		$	151,018		$	(1,113)
Regional Office	Regional Office	23,674			23,328			346			Regional Office	11,900			14,887			(2,987)
Other	Other	1,010			1,292			(282)			Other	639			685			(46)
		$	227,916		$	224,197		$	3,719			$	162,444		$	166,590		$	(4,146)

Same Properties rent statistics	Same Properties rent statistics										Same Properties rent statistics
Average occupancy rate	Average occupancy rate	92.4		%	92.7		%	(0.3		%)	Average occupancy rate	91.7		%	93.6		%	(1.9		%)
Average straight-line rent per occupied square foot (1)	Average straight-line rent per occupied square foot (1)	$	19.62		$	19.42		$	0.20		Average straight-line rent per occupied square foot (1)	$	12.87		$	12.80		$	0.07

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

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

•the ~~increase~~decrease for our Same Properties pool was ~~due~~attributable primarily ~~to: higher rent per occupied square foot~~to our Regional Office segment, which had lower occupancy in the current period due mostly to ~~an increase in rental rates (mostly from leases~~the scheduled lease expiration of ~~renewed or previously-vacant space); and higher lease termination~~a 140,000 square foot space;

~~revenues and lower provisions for collectability losses in the current period; offset in part by higher snow removal costs in the current period;~~

•developed and redeveloped properties placed in service reflects the effect of 17ten properties placed in service in ~~2020~~2021 and ~~2021;~~2022; and

NOI from Service Operations


		For the Nine Months Ended September 30,							For the Six Months Ended June 30,
		2021		2020		Variance			2022		2021		Variance
		(in thousands)							(in thousands)
Construction contract and other service revenues	Construction contract and other service revenues	$	64,592	$	46,240	$	18,352	Construction contract and other service revenues	$	95,757	$	36,546	$	59,211
Construction contract and other service expenses	Construction contract and other service expenses	(61,964)		(44,052)		(17,912)		Construction contract and other service expenses	(92,954)		(34,875)		(58,079)
NOI from service operations	NOI from service operations	$	2,628	$	2,188	$	440	NOI from service operations	$	2,803	$	1,671	$	1,132

Construction contract and other service revenue and expenses increased in the current period due primarily to a higher volume of construction activity ~~in connection with several~~for one of our tenants.

~~Depreciation and amortization associated with real estate operations~~Interest expense

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

~~General, administrative and leasing expenses~~

~~General, administrative and leasing expenses increased in large part~~Interest expense decreased due to ~~higher compensation related expenses~~lower weighted average interest rates in the current ~~period.~~period resulting primarily from debt refinancings that we completed in 2021.

Gain on sales of real estate

The gain on sales of real estate recognized in the prior period was due to our sale of a 90% interest in two data center shell ~~properties in the current period.~~properties.

Loss on extinguishment of debt

The loss on early extinguishment of debt in the current period was attributable to our purchase and redemption of 3.60% Notes and 5.25% Notes, repayment of $100.0 million of our term loan facility and payoff of a construction loan. The loss on early extinguishment of debtrecognized in the prior period was attributable to our purchase or redemption of ~~3.70% Senior Notes due 2021.~~unsecured senior notes that we refinanced.

~~Loss on interest rate derivatives~~Discontinued operations

~~Refer to~~Discontinued operations includes our ~~explanation above for the three-month periods.~~wholesale data center, which we sold on January 25, 2022.

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) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (3) depreciation and amortization allocable to noncontrolling interests in other consolidated entities and (4) Basic FFO allocable to share-based compensation awards. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions. We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares. We believe that net income is the most directly comparable GAAP measure to Basic FFO. Basic FFO has essentially

the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.

Diluted FFO available to common share and common unit holders (“Diluted FFO”) is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below. We believe that net income is the most directly comparable GAAP measure to Diluted FFO. Since Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the balance with other GAAP and non-GAAP measures. Diluted FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income when evaluating our financial performance or to cash flow from operating, investing and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.

Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude: operating property acquisition costs; 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 (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 onof 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.

4039

The table below sets forth the computation of the above stated measures, and provides reconciliations to ~~our~~the GAAP measures associated with such measures:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars and shares in thousands, except per share data)									(Dollars and shares in thousands, except per share data)
Net income (loss)		$	28,794	$	(31,342)	$	66,613	$	19,329
Net income										Net income	$	33,595	$	43,898	$	94,419	$	37,819
Real estate-related depreciation and amortization	Real estate-related depreciation and amortization	36,611		35,332		111,487		101,540		Real estate-related depreciation and amortization	34,812		37,555		69,076		74,876
Depreciation and amortization on UJVs allocable to COPT	Depreciation and amortization on UJVs allocable to COPT	525		819		1,455		2,455		Depreciation and amortization on UJVs allocable to COPT	525		476		1,051		930
Impairment losses on real estate		—		1,530		—		1,530

Gain on sales of real estate	Gain on sales of real estate	32		—		(39,711)		(5)		Gain on sales of real estate	19		(40,233)		(28,560)		(39,743)
FFO	FFO	65,962		6,339		139,844		124,849		FFO	68,951		41,696		135,986		73,882
FFO allocable to other noncontrolling interests	FFO allocable to other noncontrolling interests	(1,696)		(1,074)		(4,025)		(14,614)		FFO allocable to other noncontrolling interests	(1,178)		(1,302)		(2,220)		(2,329)
Basic FFO allocable to share-based compensation awards	Basic FFO allocable to share-based compensation awards	(313)		(119)		(663)		(449)		Basic FFO allocable to share-based compensation awards	(357)		(193)		(719)		(353)
Noncontrolling interests-preferred units in the Operating Partnership		—		(77)		—		(231)

Basic FFO available to common share and common unit holders	Basic FFO available to common share and common unit holders	63,953		5,069		135,156		109,555		Basic FFO available to common share and common unit holders	67,416		40,201		133,047		71,200

Redeemable noncontrolling interests	Redeemable noncontrolling interests	(68)		—		1		103		Redeemable noncontrolling interests	4		11		(2)		70
Diluted FFO adjustments allocable to share-based compensation awards	Diluted FFO adjustments allocable to share-based compensation awards	13		—		27		—		Diluted FFO adjustments allocable to share-based compensation awards	27		—		54		—
Diluted FFO available to common share and common unit holders	Diluted FFO available to common share and common unit holders	63,898		5,069		135,184		109,658		Diluted FFO available to common share and common unit holders	67,447		40,212		133,099		71,270
Loss on interest rate derivatives		—		53,196		—		53,196

Loss on early extinguishment of debt	Loss on early extinguishment of debt	1,159		3,237		59,553		3,237		Loss on early extinguishment of debt	—		25,228		342		58,394
Demolition costs on redevelopment and nonrecurring improvements	Demolition costs on redevelopment and nonrecurring improvements	129		11		431		63		Demolition costs on redevelopment and nonrecurring improvements	—		302		—		302
Diluted FFO comparability adjustments for redeemable noncontrolling interests		—		34		—		—

Executive transition costs										Executive transition costs	137		—		137		—
Diluted FFO comparability adjustments allocable to share-based compensation awards	Diluted FFO comparability adjustments allocable to share-based compensation awards	(7)		(139)		(300)		(307)		Diluted FFO comparability adjustments allocable to share-based compensation awards	—		(137)		(2)		(304)
Dilutive preferred units in the Operating Partnership		—		77		—		231
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	Diluted FFO available to common share and common unit holders, as adjusted for comparability	$	65,179	$	61,485	$	194,868	$	177,168	Diluted FFO available to common share and common unit holders, as adjusted for comparability	$	67,584	$	65,605	$	133,576	$	129,662

Weighted average common shares	Weighted average common shares	111,985		111,811		111,949		111,778		Weighted average common shares	112,082		111,974		112,052		111,931
Conversion of weighted average common units	Conversion of weighted average common units	1,262		1,240		1,257		1,235		Conversion of weighted average common units	1,476		1,262		1,430		1,254
Weighted average common shares/units - Basic FFO per share	Weighted average common shares/units - Basic FFO per share	113,247		113,051		113,206		113,013		Weighted average common shares/units - Basic FFO per share	113,558		113,236		113,482		113,185
Dilutive effect of share-based compensation awards	Dilutive effect of share-based compensation awards	375		274		311		278		Dilutive effect of share-based compensation awards	429		297		427		280

Redeemable noncontrolling interests	Redeemable noncontrolling interests	138		—		130		125		Redeemable noncontrolling interests	126		133		129		125
Weighted average common shares/units - Diluted FFO per share		113,760		113,325		113,647		113,416
Redeemable noncontrolling interests		—		109		—		—
Dilutive convertible preferred units		—		176		—		176
Weighted average common shares/units - Diluted FFO per share, as adjusted for comparability		113,760		113,610		113,647		113,592

Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability										Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability	114,113		113,666		114,038		113,590

Diluted FFO per share	Diluted FFO per share	$	0.56	$	0.04	$	1.19	$	0.97	Diluted FFO per share	$	0.59	$	0.35	$	1.17	$	0.63
Diluted FFO per share, as adjusted for comparability	Diluted FFO per share, as adjusted for comparability	$	0.57	$	0.54	$	1.71	$	1.56	Diluted FFO per share, as adjusted for comparability	$	0.59	$	0.58	$	1.17	$	1.14

Denominator for diluted EPS	Denominator for diluted EPS	112,498		111,811		112,364		112,056		Denominator for diluted EPS	112,637		112,404		112,608		112,336
Weighted average common units	Weighted average common units	1,262		1,240		1,257		1,235		Weighted average common units	1,476		1,262		1,430		1,254
Redeemable noncontrolling interests		—		—		—		125

Anti-dilutive EPS effect of share-based compensation awards		—		274		26		—
Denominator for diluted FFO per share		113,760		113,325		113,647		113,416
Redeemable noncontrolling interests		—		109		—		—
Dilutive convertible preferred units		—		176		—		176
Denominator for diluted FFO per share, as adjusted for comparability		113,760		113,610		113,647		113,592

Denominator for diluted FFO per share and as adjusted for comparability										Denominator for diluted FFO per share and as adjusted for comparability	114,113		113,666		114,038		113,590

Property Additions

The table below sets forth the major components of our additions to properties for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (in thousands):


Development	$	~~195,825~~138,409

Tenant improvements on operating properties (1)	~~16,665~~16,207
Capital improvements on operating properties	~~18,191~~13,584
	$	~~230,681~~168,200

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

Cash Flows

Net cash flow from operating activities increased ~~$40.9 million~~$708,000 when comparing the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020 due primarily to an increase~~which included a decrease in ~~cash flow from real estate operations~~interest expense paid resulting from ~~the growth of~~debt refinancings completed in 2021 that reduced our ~~property portfolio~~borrowing rates on unsecured senior notes and ~~an increase associated with~~affected the timing of ~~cash flow from third-party construction projects.~~our interest payments on such notes.

Net cash flow ~~used in~~provided by investing activities ~~decreased $284.2~~increased $65.5 million when comparing the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ due ~~primarily~~to $220.8 million in proceeds from properties sold in the current period (primarily pertaining to our ~~receipt of $114.1~~wholesale data center) as compared to $114.4 million in ~~property disposition proceeds in 2021 mostly~~the prior period (mostly from our sale of a 90% interest in two data center ~~shells,~~shells), partially offset by a ~~$107.9~~$32.0 million ~~decrease~~increase in cash outlays for development and redevelopment of properties ~~and the effect of $53.1 million paid~~ in the ~~prior period to cash settle interest rate swaps.~~current period.

Net cash flow used in financing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was $91.8 million, and included dividends to common shareholders of $92.6 million. Net proceeds from debt borrowings during the period totaled $11.2 million, which included the net effect of our purchase and redemption of 3.60% Notes and 5.25% Notes (and related early extinguishment costs), issuance of 2.75% Notes and 2.00% Notes and the repayment of a portion of our term loan facility and payoff of a construction loan (and related early extinguishment costs).

~~Net cash flow provided by financing activities in the nine months ended September 30, 2020 was $233.7~~$165.3 million, and included the following:

•net ~~proceeds from~~repayment of debt borrowings of ~~$345.3 million, which included the net increase from our issuance of 2.25% Notes~~$96.6 million; and ~~purchase of 3.70% Notes (and related early extinguishment costs); offset in part by~~

•dividends to common shareholders of ~~$92.5~~$61.8 million.

Net cash flow used in financing activities in the six months ended June 30, 2021 was $107.7 million, and included the following:

•dividends to common shareholders of $61.7 million; and

•net repayment of debt borrowings of $37.4 million.

Supplemental Guarantor Information

As of ~~September~~June 30, ~~2021,~~2022, 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 unsubordinated obligations and rank equally in right of payment with all of COPLP’s existing and future 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 COPLP's subsidiaries. COPT fully 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 guarantees by, COPT. COPT itself does not hold any indebtedness, and its only material asset is its investment in COPLP.

In 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 became effective on January 4, 2021. As a result of these amendments, subsidiary issuers of obligations guaranteed by the parent are not required to provide 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~~do not provide summarized financial information for the Operating Partnership since: the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company; and we believe that inclusion of such summarized financial information would be repetitive and not provide incremental value to investors.

Liquidity and Capital Resources

Our primary cash requirements are for operating expenses, debt service, development of new properties, improvements to existing properties and dividends to our shareholders. We expect to continue to use cash flow provided by operations as the primary source to meet our 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 COPLP’s unitholders and improvements to existing properties. As of ~~September~~June 30, ~~2021,~~2022, we had ~~$14.6~~$20.7 million in cash and cash equivalents.

We have a Revolving Credit Facility with an aggregate commitment by the lenders of $800.0 million, with the ability for us to increase such commitment to $1.25 billion, provided that there is no default under the facility and subject to the approval of the lenders. We use this facility to initially fund much of the cash requirements from our investing activities, including property development/redevelopment costs, as well as certain debt balloon payments due upon maturity. We then subsequently pay down the facility using cash available from operations and proceeds from long-term borrowings, equity issuances and sales of interests in properties. The facility matures in March 2023, and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period. As of June 30, 2022, the maximum borrowing capacity under this facility totaled $800.0 million, of which $619.0 million was available.

Our senior unsecured debt is ~~currently~~ rated investment grade by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks primarily for joint venture financings. In addition, we periodically raise equity when we access the public equity markets by issuing common ~~and/or~~shares and, to a lesser extent, preferred shares.

~~We use~~In May 2022, we replaced our Revolving Credit Facility to initially finance much of our investing activities. We subsequently pay down the facility using cash available from operations and proceeds from long-term borrowings, equity issuances and sales of interests in properties. The lenders’ aggregate commitment under the facility is $800.0 million,2018 ATM stock offering program with the ability for us to increase the lenders’ aggregate commitment to $1.25 billion, provided that there is no default under the facility and subject to the approval of the lenders. The facility matures in March 2023, and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.075% of the total availability under the facility for each extension period. As of September 30, 2021, the maximum borrowing capacity under this facility totaled $800.0 million, of which $790.0 million was available.

~~We have a program in place~~2022 ATM Program under which we 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, we may also, at our 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 issuing the shares and receiving the sale proceeds ~~from the sale~~ until a later date.

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

4341

Our material cash requirements, including contractual and other obligations, ~~as of September 30, 2021 included the following (in thousands):~~

For the Periods Ending December 31,
2021 2022 2023 2024 2025 Thereafter Total
Contractual obligations (1)
Debt (2)
Balloon payments due upon maturity $ — $ 300,000 $ 73,578 $ 27,649 $ 322,100 $ 1,445,623 $ 2,168,950
Scheduled principal payments (3) 1,045 4,498 3,552 2,334 1,617 677 13,723
Interest on debt (3)(4) 14,562 57,963 52,759 51,009 42,665 114,185 333,143
Development obligations (5)(6) 77,621 161,023 46,081 — — — 284,725
Third-party construction cost obligations (6)(7) 26,773 100,000 — — — — 126,773
Tenant and other building improvements (3)(6) 13,811 22,465 33,203 — — — 69,479
Property finance leases (principal and interest) (3) — 14 — — — — 14
Property operating leases (3) 807 3,297 3,352 3,403 1,749 123,979 136,587
Total contractual cash obligations $ 134,619 $ 649,260 $ 212,525 $ 84,395 $ 368,131 $ 1,684,464 $ 3,133,394
include:

~~(1)~~•~~The contractual~~property operating expenses, including future lease 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).from us as a lessee;

~~(2)~~•Represents scheduled principal amortization payments and maturities only and therefore excludes net debt discounts and deferred financing costs of $22.9 million. As of September 30, 2021, maturities in 2023 included $10.0 million that may be extended to 2024, subject to certain conditions.construction contract expenses;

~~(3)~~•~~We expect to pay these items using cash flow from operations.~~general and administrative expenses;

~~(4)~~•~~Represents~~debt service, including interest expense;

•property development/redevelopment costs;

•tenant and capital improvements and leasing costs for ~~our outstanding debt as~~operating properties (expected to total approximately $55 million during the remainder of September 30, 2021 for the terms of such debt. For variable rate debt, the amounts reflected above used September 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.2022);

~~(5)~~•~~Represents contractual obligations pertaining to new development activities.~~debt balloon payments due upon maturity; and

~~(6)~~•~~Due~~dividends 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.shareholders.

We expect to ~~spend approximately $85 million on development costs and approximately $40 million on improvements and leasing costs for operating properties (including the commitments set forth in the table above)~~use cash flow from operations during the remainder of ~~2021. We~~2022 and annually thereafter for the foreseeable future to fund all of these cash requirements except for debt balloon payments due upon maturity and a portion of property development/redevelopment costs.

During the remainder of 2022, we expect to spend approximately $165 million on development/redevelopment costs, most of which was contractually obligated as of June 30, 2022; we expect to fund these cash requirements using, in part, any available remaining cash flow from operations, with the ~~development costs initially~~balance funded primarily using ~~primarily~~ borrowings under our Revolving Credit ~~Facility. We~~Facility, at least initially. As of June 30, 2022, we had $100 million in debt balloon payments due in December 2022 that we expect to repay using borrowings under our Revolving Credit Facility or proceeds from new long-term debt borrowings. As we use our Revolving Credit Facility to fund development/redevelopment costs and debt balloon payments, we intend to free up borrowing capacity by paying it down using proceeds from sales of interests in data center shells, property sales, new long-term debt borrowings and/or issuing common shares.

Beyond 2022, we expect to fund ~~improvements to existing operating properties~~property development and redevelopment activities using, in part, any available remaining cash flow from ~~operating activities.~~operations, with most of the balance funded initially using borrowings under our Revolving Credit Facility.

We provide disclosure in our consolidated financial statements on our future lessee obligations (expected to be funded primarily by cash flow from operations) in Note 5 and future debt obligations (expected to be refinanced by new debt borrowings or funded by future equity issuances and/or sales of interests in properties) in Note 9.

Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service and maximum secured indebtedness ratio. As of ~~September~~June 30, ~~2021,~~2022, we were compliant with these covenants.

~~Off-Balance Sheet Arrangements~~

~~We had no material off-balance sheet arrangements during the nine months ended September 30, 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks, one of the most predominant of which is a change in interest rates. Increases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable rate debt. Increases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced.

The following table sets forth as of ~~September~~June 30, ~~2021~~2022 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands):

For the Periods Ending December 31,
2021 2022 2023 2024 2025 Thereafter Total
Debt:
Fixed rate debt (1) $ 985 $ 4,033 $ 66,590 $ 29,443 $ 301,302 $ 1,436,140 $ 1,838,493
Weighted average interest rate 3.97% 3.98% 4.22% 4.42% 4.99% 2.43% 2.95%
Variable rate debt $ 60 $ 300,465 $ 10,540 $ 540 $ 22,415 $ 10,160 $ 344,180
Weighted average interest rate (2) 1.54% 1.09% 1.21% 1.59% 1.63% 1.54% 1.14%


	For the Periods Ending December 31,
	2022		2023		2024		2025		2026		Thereafter		Total
Debt:
Fixed rate debt (1)	$	1,445	$	18,413	$	29,443	$	1,302	$	436,140	$	1,400,000	$	1,886,743
Weighted average interest rate	3.84%		3.94%		4.42%		3.23%		2.38%		2.58%		2.58%
Variable rate debt (2)	$	100,270	$	181,540	$	540	$	22,415	$	10,160	$	—	$	314,925
Weighted average interest rate (3)	2.31%		2.38%		2.57%		2.61%		2.51%		—%		2.38%

(1)Represents principal maturities only and therefore excludes net discounts and deferred financing costs of ~~$22.9~~$23.9 million.

(2)As of ~~September~~June 30, ~~2021,~~2022, maturities in 2023 included ~~$10.0~~$181.0 million that may be extended to 2024, subject to certain conditions.

~~(2)~~(3)The amounts reflected above used interest rates as of ~~September~~June 30, ~~2021~~2022 for variable rate debt.

The fair value of our debt was ~~$2.2~~$2.1 billion as of ~~September~~June 30, ~~2021.~~2022. If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately ~~$110~~$122 million as of ~~September~~June 30, ~~2021.~~2022.

See Note 10 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of ~~September~~June 30, ~~2021~~2022 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 ~~$2.5 million~~$395,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 if the applicable LIBOR rate was 1% higher.

Item 4. Controls and Procedures

(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 our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2021.~~2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of ~~September~~June 30, ~~2021~~2022 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 our management, including our 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 our internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our 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 us (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).

Item 1A. Risk Factors

There have been no material changes to the risk factors included in our ~~2020~~2021 Annual Report on Form 10-K.

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

(a)Not applicable

(b)Not applicable

(c)Not applicable

Item 3. Defaults Upon Senior Securities

(a)Not applicable

(b)Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

On November 1, 2021, COPT and COPLP, entered into Letter Agreements (the “2021 Letter Agreements”) with Todd Hartman, our Executive Vice President and Chief Operating Officer, and Anthony Mifsud, our Executive Vice President and Chief Financial Officer, regarding their participation in COPT’s and COPLP’s Executive Change in Control and Severance Plan (the “Plan”). The 2021 Letter Agreements supersede previous Letter Agreements that COPT and COPLP had with Mr. Hartman and Mr. Mifsud dated November 30, 2020 and November 1, 2016, respectively, pertaining to their respective participation in the Plan. The 2021 Letter Agreements establish 5-year participation periods for Mr. Hartman and Mr. Mifsud under the Plan, after which they will cease to participate in the Plan unless otherwise agreed to by COPT, COPLP and the respective executives.(a) Not applicable

Under the Plan, each executive selected to participate is entitled to receive the following payments and benefits in the event the executive is terminated prior to the end of any defined participation period for any reason other than death, disability or for “cause,” as defined in the Plan, or is “Constructively Discharged,” as defined in the Plan: (1) a severance payment equal to a specified severance multiple, described below, multiplied by the sum of the executive’s annual base salary plus the average of the executive’s annual cash performance bonuses for the last three years; (2) a pro-rated annual cash performance bonus for the year of termination through the date of termination based on the amount of the executive’s target annual cash performance bonus for that year; (3) full vesting of equity awards subject to a time-based vesting schedule (with vesting of equity awards subject to performance-based vesting conditions to remain governed by the terms of the(b) Not applicable award agreement); (4) the right to exercise existing stock options for up to 18 months following termination; and (5) continuing coverage under COPLP’s group medical, dental and vision plans for up to 24 months following termination unless such benefits are available to the executive through another group plan. If any payments and benefits to be paid or provided to an executive, whether pursuant to the Plan or otherwise, would be subject to “golden parachute” excise taxes under the Internal Revenue Code, the executive’s payments and benefits will be reduced to the extent necessary to avoid such excise taxes, but only if such a reduction of pay or benefits would result in a greater after-tax benefit to the executive.

~~An executive’s receipt of payments and benefits under the Plan will be conditioned upon the executive’s execution of a general release of claims in favor of COPT and COPLP.~~ In addition, in order to participate in the Plan, an executive must agree to comply with non-competition and non-solicitation covenants while the executive is employed and for 12 months thereafter and confidentiality and non-disparagement covenants. COPT and COPLP may amend or terminate the Plan at any time, provided that executive’s rights to payments and benefits upon a termination in connection with or within 12 months after a “Change in Control,” as defined in the Plan, may not be adversely affected by an amendment or termination occurring within 12 months before or after the Change in Control.

4643

Messrs. Hartman’s and Mifsud’s severance multiple under the Plan will be 1.00 or, in the event of a termination within six months prior to and 12 months after a Change in Control, the multiple will be 2.99.

Item 6. Exhibits

(a)Exhibits:


EXHIBIT NO.						DESCRIPTION

~~10.1~~						~~Third Supplemental Indenture, by and~~ among Corporate Office Properties, L.P., as issuer, Corporate Office Properties Trust, as guarantor, and U.S. Bank National Association, as trustee (filed with the Company’s Current Report on Form 8-K dated August 11, 2021 and incorporated herein by reference).

~~10.2~~						~~Letter Agreement, dated November 1, 2021, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and Todd Hartman (filed herewith).~~

~~10.3~~						~~Letter Agreement, dated November 1, 2021, between Corporate Office Properties Trust, Corporate Office Properties, L.P., and Anthony Mifsud (filed herewith).~~

22.1						List of Subsidiary Issuers and Guaranteed Securities (filed ~~herewith)~~with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and incorporated herein by reference).

31.1						Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

31.2						Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).

32.1						Certification of the Chief Executive Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.) (Furnished herewith).

32.2						Certification of the Chief Financial Officer of Corporate Office Properties Trust required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended). (Furnished herewith).

101.INS						XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document (filed herewith).

101.SCH						Inline XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.LAB						Inline XBRL Extension Labels Linkbase (filed herewith).

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

4744

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			CORPORATE OFFICE PROPERTIES TRUST


Date:	August 2, 2022
By:	/s/ Stephen E. Budorick
			Stephen E. Budorick
			President and Chief Executive Officer


Date:	August 2, 2022	By:	/s/ Anthony Mifsud
			Anthony Mifsud
			Executive Vice President and Chief Financial Officer

~~Dated:~~	~~November 1, 2021~~

4845


	As of September 30, 2021
Year Ending December 31,	Operating leases		Sales-type leases

2021 (1)	$	109,800	$	221
2022	418,746		960
2023	370,652		960
2024	323,198		960
2025	241,090		960
Thereafter	1,020,675		4,516
Total contractual payments	$	2,484,161	8,577
Less: Amount representing interest			(2,277)
Net investment in sales-type leases			$	6,300