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 submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics (“Regional Office”). As of March 31, 2023, our properties included the following:
•194 properties totaling 23.0 million square feet comprised of 17.7 million square feet in 166 office properties and 5.3 million square feet in 28 single-tenant data center shells. We owned 24 of these data center shells through unconsolidated real estate joint ventures;
•nine properties under development (five office properties and four data center shells), including one partially-operational property, that we estimate will total approximately 1.5 million square feet upon completion; and
•approximately 680 acres of land controlled for future development that we believe could be developed into approximately 9.0 million square feet and approximately 40 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 March 31, 2023, COPT owned 97.9% 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
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, 2022 included in our 2022 Annual Report on Form 10-K. The unaudited consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly state our financial position and results of operations. All adjustments are of a normal recurring nature. The consolidated financial statements have been prepared using the accounting policies described in our 2022 Annual Report on Form 10-K.
Reclassifications
We reclassified certain amounts from prior periods to conform to the current period presentation of our consolidated financial statements with no effect on previously reported net income or equity.
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 $1.9 million as of March 31, 2023, 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, as disclosed in Note 9, 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 March 31, 2023, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivatives and determined that these adjustments 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 8, we estimated the fair value of our unsecured senior notes based on quoted market rates for our senior notes (categorized within Level 1 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.
The table below sets forth our financial assets and liabilities accounted for at fair value on a recurring basis as of March 31, 2023 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: (1) | | | | | | | | |
| Marketable securities in deferred compensation plan | | | | | | | | |
| Mutual funds | | $ | 1,831 | | | $ | — | | | $ | — | | | $ | 1,831 | |
| Other | | 44 | | | — | | | — | | | 44 | |
| | | | | | | | |
| Interest rate derivatives | | — | | | 2,179 | | | — | | | 2,179 | |
| Total assets | | $ | 1,875 | | | $ | 2,179 | | | $ | — | | | $ | 4,054 | |
| Liabilities: (2) | | | | | | | | |
| Deferred compensation plan liability | | $ | — | | | $ | 1,875 | | | $ | — | | | $ | 1,875 | |
| Interest rate derivatives | | — | | | 355 | | | — | | | 355 | |
| Total liabilities | | $ | — | | | $ | 2,230 | | | $ | — | | | $ | 2,230 | |
(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):
| | | | | | | | | | | |
| March 31,
2023 | | December 31, 2022 |
| Land | $ | 540,037 | | | $ | 539,809 | |
| Buildings and improvements | 4,033,266 | | | 3,986,524 | |
| Less: Accumulated depreciation | (1,300,430) | | | (1,267,434) | |
| Operating properties, net | $ | 3,272,873 | | | $ | 3,258,899 | |
2023 Dispositions
On January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia based on an aggregate property value of $211.3 million and retained a 10% interest in the properties through Redshift JV LLC, a newly-formed joint venture. Our partner in the joint venture acquired the 90% interest from us for $190.2 million. We account for our interest in the joint venture using the equity method of accounting, as described further in Note 6. We recognized a gain on sale of $49.4 million. The table below sets forth the components of the properties’ assets, which were classified as held for sale on our consolidated balance sheet as of December 31, 2022 (in thousands):
| | | | | | | | | |
| | |
| Properties, net | | | $ | 156,691 | |
| Deferred rent receivable | | | 4,595 | |
| | | |
| | | |
| | | |
| Assets held for sale, net | | | $ | 161,286 | |
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 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 March 31, | | |
| Lease revenue (1) | | 2023 | | 2022 | | | | |
| Fixed | | $ | 116,039 | | | $ | 111,167 | | | | | |
| Variable | | 34,521 | | | 30,222 | | | | | |
| | $ | 150,560 | | | $ | 141,389 | | | | | |
(1)Excludes lease revenue from discontinued operations of which $1.5 million was fixed and $527,000 was variable for the three months ended March 31, 2022.
Fixed contractual payments due under our property leases were as follows (in thousands):
| | | | | | | | | | | | | | |
| | As of March 31, 2023 |
| Year Ending December 31, | | Operating leases | | Sales-type leases |
| | | | |
| 2023 (1) | | $ | 329,700 | | | $ | 720 | |
| 2024 | | 415,499 | | | 960 | |
| 2025 | | 332,260 | | | 960 | |
| 2026 | | 263,741 | | | 960 | |
| 2027 | | 228,712 | | | 960 | |
| Thereafter | | 1,023,570 | | | 2,596 | |
| Total contractual payments | | $ | 2,593,482 | | | 7,156 | |
| Less: Amount representing interest | | | | (1,628) | |
| Net investment in sales-type leases (2) | | | | $ | 5,528 | |
(1)Represents the nine months ending December 31, 2023.
(2)Included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheet.
Lessee Arrangements
As of March 31, 2023, our balance sheet included $45.4 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 and property lease liabilities on our consolidated balance sheets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| Leases | | Balance Sheet Location | | March 31,
2023 | | December 31, 2022 |
| Right-of-use assets | | | | | | |
| Operating leases - Property | | Property - operating right-of-use assets | | $ | 42,808 | | | $ | 37,020 | |
| Finance leases - Property | | Prepaid expenses and other assets, net | | 2,621 | | | 2,207 | |
| Total right-of-use assets | | | | $ | 45,429 | | | $ | 39,227 | |
| Lease liabilities | | | | | | |
| Operating leases - Property | | Property - operating lease liabilities | | $ | 34,896 | | | $ | 28,759 | |
| Finance leases - Property | | Other liabilities | | 431 | | | — | |
| Total lease liabilities | | | | $ | 35,327 | | | $ | 28,759 | |
As of March 31, 2023, our operating leases had a weighted average remaining lease term of 45 years and a weighted average discount rate of 7.34%, while our finance leases had a weighted average remaining lease term of ten years and a weighted average discount rate of 9.14%. The table below presents our total property lease costs (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of Operations Location | | For the Three Months Ended March 31, | | |
| Lease cost | | | 2023 | | 2022 | | | | |
| Operating lease cost | | | | | | | | | | |
| Property leases - fixed | | Property operating expenses | | $ | 1,535 | | | $ | 1,019 | | | | | |
| Property leases - variable | | Property operating expenses | | 17 | | | 16 | | | | | |
| Finance lease cost | | | | | | | | | | |
| Amortization of property right-of-use assets | | Property operating expenses | | 20 | | | 8 | | | | | |
| Interest on lease liabilities | | Interest expense | | 13 | | | — | | | | | |
| | | | $ | 1,585 | | | $ | 1,043 | | | | | |
The table below presents the effect of property lease payments on our consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
| Supplemental cash flow information | | | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows for operating leases | | | $ | 1,185 | | | $ | 837 | |
| Operating cash flows for financing leases | | | $ | 13 | | | $ | — | |
| Financing cash flows for financing leases | | | $ | 4 | | | $ | — | |
| | | | | |
| | | | | |
Payments on property leases were due as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | | | | | |
| Year Ending December 31, | | Operating Leases | | Finance
Leases | | | | | | | | |
| 2023 (1) | | $ | 4,863 | | | $ | 45 | | | | | | | | | |
| 2024 | | 6,623 | | | 61 | | | | | | | | | |
| 2025 | | 2,249 | | | 63 | | | | | | | | | |
| 2026 | | 1,662 | | | 65 | | | | | | | | | |
| 2027 | | 1,677 | | | 67 | | | | | | | | | |
| Thereafter | | 130,495 | | | 365 | | | | | | | | | |
| Total lease payments | | 147,569 | | | 666 | | | | | | | | | |
| Less: Amount representing interest | | (112,673) | | | (235) | | | | | | | | | |
| Lease liability | | $ | 34,896 | | | $ | 431 | | | | | | | | | |
(1)Represents the nine months ending December 31, 2023.
6. Real Estate Joint Ventures
Consolidated Real Estate Joint Ventures
The table below sets forth information as of March 31, 2023 pertaining to our investments in consolidated real estate joint ventures, which are each variable interest entities (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Nominal Ownership % | | | | March 31, 2023 (1) |
| | Date Acquired | | | | | Total
Assets | | Encumbered Assets | | Total Liabilities | | Mortgage Debt |
| Entity | | | | Location | | | | |
| LW Redstone Company, LLC (2) | | 3/23/2010 | | 85% | | Huntsville, Alabama | | $ | 633,045 | | | $ | 94,288 | | | $ | 114,695 | | | $ | 51,659 | |
| Stevens Investors, LLC | | 8/11/2015 | | 95% | | Washington, DC | | 168,445 | | | — | | | 2,379 | | | — | |
| M Square Associates, LLC | | 6/26/2007 | | 50% | | College Park, Maryland | | 101,534 | | | 58,856 | | | 51,545 | | | 49,507 | |
| | | | | | | | $ | 903,024 | | | $ | 153,144 | | | $ | 168,619 | | | $ | 101,166 | |
(1)Excludes amounts eliminated in consolidation.
(2)We fund all capital requirements. Our partner receives distributions of the first $1.2 million of annual operating cash flows and we receive the remainder.
Unconsolidated Real Estate Joint Ventures
The table below sets forth information pertaining to our investments in unconsolidated real estate joint ventures accounted for using the equity method of accounting (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Date Acquired | | Nominal Ownership % | | Number of Properties | | Carrying Value of Investment (1) |
| Entity | | | | | March 31,
2023 | | December 31, 2022 |
| Redshift JV LLC | | 1/10/2023 | | 10% | | 3 | | | $ | 21,181 | | | $ | — | |
| BREIT COPT DC JV LLC | | 6/20/2019 | | 10% | | 9 | | | 11,331 | | | 11,568 | |
| Quark JV LLC | | 12/14/2022 | | 10% | | 2 | | | 6,761 | | | 6,758 | |
| B RE COPT DC JV III LLC | | 6/2/2021 | | 10% | | 2 | | | 3,006 | | | 3,134 | |
| B RE COPT DC JV II LLC (2) | | 10/30/2020 | | 10% | | 8 | | | (1,803) | | | (1,459) | |
| | | | | | 24 | | | $ | 40,476 | | | $ | 20,001 | |
(1)Included $42.3 million and $21.5 million reported in “Investment in unconsolidated real estate joint ventures” as of March 31, 2023 and December 31, 2022, respectively, and $1.8 million and $1.5 million for investments with deficit balances reported in “other liabilities” on our consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.
(2)Our investment in B RE COPT DC JV II LLC was lower than our share of the joint venture’s equity by $7.0 million as of March 31, 2023 and December 31, 2022 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 January 10, 2023, we sold a 90% interest in three data center shell properties in Northern Virginia and retained a 10% interest in the properties through Redshift JV 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 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):
| | | | | | | | | | | |
| March 31,
2023 | | December 31, 2022 |
| Notes receivable from the City of Huntsville | $ | 70,592 | | | $ | 69,703 | |
| Other investing loans receivable | 17,844 | | | 17,712 | |
| Amortized cost basis | 88,436 | | | 87,415 | |
| Allowance for credit losses | (2,937) | | | (2,794) | |
| Investing receivables, net | $ | 85,499 | | | $ | 84,621 | |
The balances above include accrued interest receivable, net of allowance for credit losses, of $750,000 as of March 31, 2023 and $2.9 million as of December 31, 2022.
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 as of March 31, 2023 carry interest rates ranging from 12.0% to 14.0% and mature within one year.
The fair value of these receivables was approximately $89 million as of March 31, 2023 and $87 million as of December 31, 2022.
8. Debt, Net
Our debt consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | Carrying Value (1) as of | | March 31, 2023 |
| | | March 31,
2023 | | December 31, 2022 | |
| | | | | Stated Interest Rates | | Scheduled Maturity |
| Mortgage and Other Secured Debt: | | | | | | | | | |
| Fixed rate mortgage debt | | | $ | 67,954 | | | $ | 84,433 | | | 3.82% to 4.62% (2) | | 2024-2026 |
| Variable rate secured debt | | | 33,212 | | | 33,318 | | | SOFR + 0.10% + 1.45% to 1.55% (3) | | 2025-2026 |
| Total mortgage and other secured debt | | | 101,166 | | | 117,751 | | | | | |
| Revolving Credit Facility | | | 118,000 | | | 211,000 | | | SOFR + 0.10% + 0.725% to 1.400% (4) | | October 2026 (5) |
| Term Loan Facility | | | 124,034 | | | 123,948 | | | SOFR + 0.10% + 0.850% to 1.700% (6) | | January 2026 (7) |
| Unsecured Senior Notes | | | | | | | | | |
2.25%, $400,000 aggregate principal | | | 396,805 | | | 396,539 | | | 2.25% (8) | | March 2026 |
2.00%, $400,000 aggregate principal | | | 397,108 | | | 396,988 | | | 2.00% (9) | | January 2029 |
2.75%, $600,000 aggregate principal | | | 590,392 | | | 590,123 | | | 2.75% (10) | | April 2031 |
2.90%, $400,000 aggregate principal | | | 394,951 | | | 394,848 | | | 2.90% (11) | | December 2033 |
| Unsecured note payable | | | 556 | | | 597 | | | 0% (12) | | May 2026 |
| Total debt, net | | | $ | 2,123,012 | | | $ | 2,231,794 | | | | | |
(1)The carrying values of our debt other than the Revolving Credit Facility reflect net deferred financing costs of $5.1 million as of March 31, 2023 and $5.4 million as of December 31, 2022.
(2)The weighted average interest rate on our fixed rate mortgage debt was 4.10% as of March 31, 2023.
(3)The weighted average interest rate on our variable rate secured debt as of March 31, 2023 was 6.20%, or 2.45% including the effect of interest rate swaps that hedge the risk of interest rate changes on this debt.
(4)The weighted average interest rate on the Revolving Credit Facility was 5.84% as of March 31, 2023.
(5)The facility matures in October 2026, with the ability for us to extend such maturity by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period.
(6)The interest rate on this loan was 6.07% as of March 31, 2023.
(7)This facility matures in January 2026, with the ability for us to extend such maturity by two 12-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.125% of the outstanding loan balance for each extension period.
(8)The carrying value of these notes reflects an unamortized discount totaling $2.6 million as of March 31, 2023 and $2.8 million as of December 31, 2022. 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 $2.1 million as of March 31, 2023 and December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 2.09%.
(10)The carrying value of these notes reflects an unamortized discount totaling $8.3 million as of March 31, 2023 and $8.5 million as of December 31, 2022. 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 $4.1 million as of March 31, 2023 and $4.2 million as of December 31, 2022. The effective interest rate under the notes, including amortization of the issuance costs, was 3.01%.
(12)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 $55,000 as of March 31, 2023 and $65,000 as of December 31, 2022.
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.
Certain of our debt instruments require that we comply with a number of restrictive financial covenants. As of March 31, 2023, we were compliant with these financial covenants.
Our debt matures on the following schedule (in thousands):
| | | | | | | | | | | |
| Year Ending December 31, | | March 31, 2023 | |
| 2023 (1) | | $ | 2,262 | | |
| 2024 | | 29,983 | | |
| 2025 | | 23,717 | | |
| 2026 | | 689,300 | | |
| 2027 | | — | | |
| Thereafter | | 1,400,000 | | |
| Total | | $ | 2,145,262 | | (2) |
(1)Represents the nine months ending December 31, 2023.
(2)Represents scheduled principal amortization and maturities only and therefore excludes net discounts and deferred financing costs of $22.3 million.
We capitalized interest costs of $770,000 in the three months ended March 31, 2023 and $1.5 million in the three months ended March 31, 2022.
The following table sets forth information pertaining to the fair value of our debt (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
| Fixed-rate debt | | | | | | | |
| Unsecured Senior Notes | $ | 1,779,256 | | | $ | 1,436,838 | | | $ | 1,778,498 | | | $ | 1,433,561 | |
| Other fixed-rate debt | 68,510 | | | 64,120 | | | 85,030 | | | 80,330 | |
| Variable-rate debt | 275,246 | | | 274,551 | | | 368,266 | | | 367,896 | |
| | $ | 2,123,012 | | | $ | 1,775,509 | | | $ | 2,231,794 | | | $ | 1,881,787 | |
9. Interest Rate Derivatives
The following table sets forth the key terms and fair values of our interest rate swap derivatives (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Fair Value at |
| Notional Amount | | Fixed Rate | | Floating Rate Index | | Effective Date | | Expiration Date | | March 31,
2023 | | December 31, 2022 |
| $ | 10,820 | | (1) | 1.678% | | SOFR + 0.10% | | 8/1/2019 | | 8/1/2026 | | $ | 654 | | | $ | 806 | |
| $ | 22,700 | | (2) | 0.573% | | SOFR + 0.10% | | 4/1/2020 | | 3/26/2025 | | 1,525 | | | 1,825 | |
| $ | 150,000 | | | 3.742% | | One-Month SOFR | | 2/1/2023 | | 2/2/2026 | | (262) | | | — | |
| $ | 50,000 | | | 3.747% | | One-Month SOFR | | 2/1/2023 | | 2/2/2026 | | (93) | | | — | |
| | | | | | | | | | | $ | 1,824 | | | $ | 2,631 | |
(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.
Each of these swaps was designated as a cash flow hedge of interest rate risk.
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):
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| | | | | Fair Value at |
| Derivatives | | Balance Sheet Location | | March 31,
2023 | | December 31, 2022 |
| Interest rate swaps designated as cash flow hedges | | Prepaid expenses and other assets, net | | $ | 2,179 | | | $ | 2,631 | |
| Interest rate swaps designated as cash flow hedges | | Other liabilities | | $ | (355) | | | $ | — | |
| | | | | | |
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
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| | Amount of (Loss) Income
Recognized in
AOCI on Derivatives | | Amount of Income (Loss) Reclassified from AOCI into Interest Expense on Statement of Operations |
| Derivatives in Hedging Relationships | | For the Three Months Ended March 31, | | | | For the Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | | | 2023 | | 2022 | | | | |
| Interest rate derivatives | | $ | (215) | | | $ | 2,537 | | | | | | | $ | 591 | | | $ | (1,003) | | | | | |
Based on the fair value of our derivatives as of March 31, 2023, we estimate that approximately $2.9 million of gains will be reclassified from accumulated other comprehensive income (“ AOCI”) as 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 March 31, 2023, we were not in default with any of these provisions. As of March 31, 2023, the fair value of interest rate derivatives in a net liability position related to these agreements was $219,000, including accrued interest and excluding credit valuation adjustments, and 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 these agreements for this amount.
10. Redeemable Noncontrolling Interests
Our partners in two real estate joint ventures, LW Redstone Company, LLC and Stevens Investors, LLC, have the right to require us to acquire their respective interests at fair value; accordingly, we classify 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):
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| | For the Three Months Ended March 31, |
| | 2023 | | 2022 |
| Beginning balance | | $ | 26,293 | | | $ | 26,898 | |
| | | | |
| Distributions to noncontrolling interests | | (763) | | | (606) | |
| Net income attributable to noncontrolling interests | | 699 | | | 567 | |
| Adjustments for changes in fair value of interests | | (781) | | | (39) | |
| Ending balance | | $ | 25,448 | | | $ | 26,820 | |
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.
11. Equity
As of March 31, 2023, we had remaining capacity under our at-the-market stock offering program equal to an aggregate gross sales price of $300 million in common shares.
We declared dividends per common share of $0.285 in the three months ended March 31, 2023 and $0.275 in the three months ended March 31, 2022.
See Note 15 for disclosure of common share activity pertaining to our share-based compensation plans.
12. Information by Business Segment
We have the following reportable segments: Defense/IT Locations; Regional Office; Wholesale Data 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 (“NoVA Defense/IT”); Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy (“Navy 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).
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):
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| Defense/IT Locations | | | | | | | | |
| | 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 |
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Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | | | | | | |
| Revenues from real estate operations | $ | 69,777 | | | $ | 19,829 | | | $ | 15,605 | | | $ | 7,925 | | | $ | 13,414 | | | $ | 6,692 | | | $ | 133,242 | | | $ | 16,054 | | | $ | — | | | $ | 2,385 | | | $ | 151,681 | |
| Property operating expenses | (24,520) | | | (7,572) | | | (7,945) | | | (3,543) | | | (4,636) | | | (594) | | | (48,810) | | | (8,851) | | | — | | | (1,759) | | | (59,420) | |
| UJV NOI allocable to COPT | — | | | — | | | — | | | — | | | — | | | 1,642 | | | 1,642 | | | — | | | — | | | — | | | 1,642 | |
| NOI from real estate operations | $ | 45,257 | | | $ | 12,257 | | | $ | 7,660 | | | $ | 4,382 | | | $ | 8,778 | | | $ | 7,740 | | | $ | 86,074 | | | $ | 7,203 | | | $ | — | | | $ | 626 | | | $ | 93,903 | |
| Additions to long-lived assets | $ | 12,135 | | | $ | 2,398 | | | $ | 62 | | | $ | 759 | | | $ | 6,594 | | | $ | — | | | $ | 21,948 | | | $ | 3,278 | | | $ | — | | | $ | 11 | | | $ | 25,237 | |
| Transfers from non-operating properties | $ | 5,781 | | | $ | 238 | | | $ | 28 | | | $ | 2,650 | | | $ | 14,392 | | | $ | 3,311 | | | $ | 26,400 | | | $ | 13 | | | $ | — | | | $ | — | | | $ | 26,413 | |
Segment assets at March 31, 2023 | $ | 1,390,273 | | | $ | 486,649 | | | $ | 193,160 | | | $ | 169,235 | | | $ | 472,237 | | | $ | 324,422 | | | $ | 3,035,976 | | | $ | 545,817 | | | $ | — | | | $ | 3,321 | | | $ | 3,585,114 | |
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | | |
| Revenues from real estate operations | $ | 67,214 | | | $ | 18,576 | | | $ | 14,713 | | | $ | 8,169 | | | $ | 9,195 | | | $ | 7,505 | | | $ | 125,372 | | | $ | 15,082 | | | $ | 1,980 | | | $ | 1,826 | | | $ | 144,260 | |
| Property operating expenses | (25,784) | | | (6,869) | | | (7,072) | | | (3,471) | | | (3,735) | | | (1,010) | | | (47,941) | | | (7,930) | | | (1,025) | | | (1,256) | | | (58,152) | |
| UJV NOI allocable to COPT | — | | | — | | | — | | | — | | | — | | | 1,080 | | | 1,080 | | | — | | | — | | | — | | | 1,080 | |
| NOI from real estate operations | $ | 41,430 | | | $ | 11,707 | | | $ | 7,641 | | | $ | 4,698 | | | $ | 5,460 | | | $ | 7,575 | | | $ | 78,511 | | | $ | 7,152 | | | $ | 955 | | | $ | 570 | | | $ | 87,188 | |
| Additions to long-lived assets | $ | 11,785 | | | $ | 2,189 | | | $ | — | | | $ | 740 | | | $ | 235 | | | $ | — | | | $ | 14,949 | | | $ | 4,333 | | | $ | (51) | | | $ | 1 | | | $ | 19,232 | |
| Transfers from non-operating properties | $ | 5,369 | | | $ | 319 | | | $ | 418 | | | $ | 6,376 | | | $ | 76 | | | $ | 81,203 | | | $ | 93,761 | | | $ | 271 | | | $ | — | | | $ | — | | | $ | 94,032 | |
Segment assets at March 31, 2022 | $ | 1,334,119 | | | $ | 488,479 | | | $ | 197,406 | | | $ | 175,176 | | | $ | 297,974 | | | $ | 430,447 | | | $ | 2,923,601 | | | $ | 536,909 | | | $ | — | | | $ | 3,901 | | | $ | 3,464,411 | |
The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
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| For the Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Segment revenues from real estate operations | $ | 151,681 | | | $ | 144,260 | | | | | |
| Construction contract and other service revenues | 15,820 | | | 53,200 | | | | | |
| Less: Revenues from discontinued operations | — | | | (1,980) | | | | | |
| Total revenues | $ | 167,501 | | | $ | 195,480 | | | | | |
The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):
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| For the Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Segment property operating expenses | $ | 59,420 | | | $ | 58,152 | | | | | |
| Less: Property operating expenses from discontinued operations | — | | | (971) | | | | | |
| Total property operating expenses | $ | 59,420 | | | $ | 57,181 | | | | | |
The following table reconciles UJV NOI allocable to COPT to equity in (loss) income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):
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| For the Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| UJV NOI allocable to COPT | $ | 1,642 | | | $ | 1,080 | | | | | |
| Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense | (1,704) | | | (758) | | | | | |
| Add: Equity in (loss) income of unconsolidated non-real estate entities | (2) | | | 566 | | | | | |
| Equity in (loss) income of unconsolidated entities | $ | (64) | | | $ | 888 | | | | | |
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):
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| For the Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| Construction contract and other service revenues | $ | 15,820 | | | $ | 53,200 | | | | | |
| Construction contract and other service expenses | (15,201) | | | (51,650) | | | | | |
| NOI from service operations | $ | 619 | | | $ | 1,550 | | | | | |
The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from continuing operations as reported on our consolidated statements of operations (in thousands):
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| For the Three Months Ended March 31, | | |
| | 2023 | | 2022 | | | | |
| NOI from real estate operations | $ | 93,903 | | | $ | 87,188 | | | | | |
| NOI from service operations | 619 | | | 1,550 | | | | | |
| Depreciation and other amortization associated with real estate operations | (36,995) | | | (34,264) | | | | | |
| General, administrative and leasing expenses | (9,995) | | | (8,544) | | | | | |
| Business development expenses and land carry costs | (495) | | | (783) | | | | | |
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| Interest expense | (16,442) | | | (14,424) | | | | | |
| Interest and other income | 2,323 | | | 1,893 | | | | | |
| Credit loss (expense) recoveries | (67) | | | 316 | | | | | |
| Gain on sales of real estate | 49,378 | | | 15 | | | | | |
| Loss on early extinguishment of debt | — | | | (342) | | | | | |
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| Equity in (loss) income of unconsolidated entities | (64) | | | 888 | | | | | |
| UJV NOI allocable to COPT included in equity in (loss) income of unconsolidated entities | (1,642) | | | (1,080) | | | | | |
| Income tax expense | (125) | | | (153) | | | | | |
| Revenues from real estate operations from discontinued operations | — | | | (1,980) | | | | | |
| Property operating expenses from discontinued operations | — | | | 971 | | | | | |
| Income from continuing operations | $ | 80,398 | | | $ | 31,251 | | | | | |
The following table reconciles our segment assets to our consolidated total assets (in thousands):
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| | March 31,
2023 | | March 31,
2022 |
| Segment assets | | $ | 3,585,114 | | | $ | 3,464,411 | |
| Operating properties lease liabilities included in segment assets | | 35,327 | | | 29,729 | |
| Non-operating property assets | | 345,518 | | | 419,346 | |
| Other assets | | 212,033 | | | 218,540 | |
| Total consolidated assets | | $ | 4,177,992 | | | $ | 4,132,026 | |
The accounting policies of the segments are the same as those used to prepare our consolidated financial 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, gain on sales of real estate, loss on early extinguishment of debt and equity in (loss) 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.
13. Construction Contract and Other Service Revenues
We disaggregate our construction contract and other service revenues by compensation arrangement and by service type as we believe it best depicts the nature, timing and uncertainty of our revenue. The table below reports construction contract and other service revenues by compensation arrangement (in thousands):
| | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Construction contract revenue: | | | | | | | |
| Guaranteed maximum price | $ | 6,743 | | | $ | 47,923 | | | | | |
| Firm fixed price | 5,879 | | | 3,444 | | | | | |
| Cost-plus fee | 2,709 | | | 1,306 | | | | | |
| Other | 489 | | | 527 | | | | | |
| $ | 15,820 | | | $ | 53,200 | | | | | |
The table below reports construction contract and other service revenues by service type (in thousands):
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| For the Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Construction contract revenue: | | | | | | | |
| Construction | $ | 14,725 | | | $ | 52,569 | | | | | |
| Design | 606 | | | 104 | | | | | |
| Other | 489 | | | 527 | | | | | |
| $ | 15,820 | | | $ | 53,200 | | | | | |
We recognized an insignificant amount of revenue in the three months ended March 31, 2023 and 2022 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):
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| For the Three Months Ended March 31, |
| 2023 | | 2022 |
| Beginning balance | $ | 7,618 | | | $ | 7,193 | |
| Ending balance | $ | 6,786 | | | $ | 4,165 | |
Contract assets are included in prepaid expenses and other assets, net on our consolidated balance sheets. The beginning and ending balances of our contract assets were as follows (in thousands):
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| For the Three Months Ended March 31, |
| 2023 | | 2022 |
| Beginning balance | $ | 22,331 | | | $ | 22,384 | |
| Ending balance | $ | 20,619 | | | $ | 29,389 | |
Contract liabilities are included in other liabilities on our consolidated balance sheets. Changes in contract liabilities were as follows (in thousands):
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| For the Three Months Ended March 31, |
| 2023 | | 2022 |
| Beginning balance | $ | 2,867 | | | $ | 2,499 | |
| Ending balance | $ | 3,399 | | | $ | 2,534 | |
| | | |
| Portion of beginning balance recognized in revenue during period | $ | 77 | | | $ | 26 | |
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Revenue allocated to the remaining performance obligations under existing contracts as of March 31, 2023 that will be recognized as revenue in future periods was $61.5 million, of which we expect to recognize approximately $50 million in the nine months ending December 31, 2023 and the remainder in 2024.
We have no deferred incremental costs incurred to obtain or fulfill our construction contracts or other service revenues as of March 31, 2023 and December 31, 2022. We had credit loss recoveries on construction contracts receivable and unbilled construction revenue of $65,000 in the three months ended March 31, 2023 and $372,000 in the three months ended March 31, 2022.
14. Credit Losses on Financial Assets and Other Instruments
The table below sets forth the activity for our allowance for credit losses for the three months ended March 31, 2023 and 2022 (in thousands):
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| Investing Receivables | | Tenant Notes
Receivable (1) | | Other Assets (2) | | | | | | Total |
| December 31, 2022 | $ | 2,794 | | | $ | 778 | | | $ | 268 | | | | | | | $ | 3,840 | |
| | | | | | | | | | | |
| Credit loss expense (recoveries) | 143 | | | (19) | | | (57) | | | | | | | 67 | |
| | | | | | | | | | | |
| Write-offs | — | | | (33) | | | — | | | | | | | (33) | |
| | | | | | | | | | | |
| March 31, 2023 | $ | 2,937 | | | $ | 726 | | | $ | 211 | | | | | | | $ | 3,874 | |
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| December 31, 2021 | $ | 1,599 | | | $ | 1,057 | | | $ | 913 | | | | | | | $ | 3,569 | |
| Credit loss expense (recoveries) | 77 | | | (34) | | | (359) | | | | | | | (316) | |
| March 31, 2022 | $ | 1,676 | | | $ | 1,023 | | | $ | 554 | | | | | | | $ | 3,253 | |
(1)Included in the line entitled “accounts receivable, net” on our consolidated balance sheets.
(2)The balance as of March 31, 2023 was included in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheet. The balance as of December 31, 2022 included $52,000 in the line entitled “accounts receivable, net” and $216,000 in the line entitled “prepaid expenses and other assets, net” on our consolidated balance sheet.
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 March 31, 2023 (in thousands):
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| Origination Year | | |
| 2018 and Earlier | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Total |
| Investing receivables: | | | | | | | | | | | | | |
| Credit risk classification: | | | | | | | | | | | | | |
| Investment grade | $ | 61,092 | | | $ | — | | | $ | 1,931 | | | $ | 7,569 | | | $ | — | | | $ | — | | | $ | 70,592 | |
| Non-investment grade | — | | | — | | | — | | | — | | | 17,844 | | | — | | | 17,844 | |
| Total | $ | 61,092 | | | $ | — | | | $ | 1,931 | | | $ | 7,569 | | | $ | 17,844 | | | $ | — | | | $ | 88,436 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Tenant notes receivable: | | | | | | | | | | | | | |
| Credit risk classification: | | | | | | | | | | | | | |
| Investment grade | $ | 772 | | | $ | 34 | | | $ | 176 | | | $ | — | | | $ | — | | | $ | — | | | $ | 982 | |
| Non-investment grade | 193 | | | 78 | | | 1,532 | | | — | | | — | | | — | | | 1,803 | |
| Total | $ | 965 | | | $ | 112 | | | $ | 1,708 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,785 | |
Gross write-offs during the three months ended March 31, 2023 | $ | 33 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 33 | |
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| Sales-type lease receivables: | | | | | | | | | | | | | |
| Credit risk classification: | | | | | | | | | | | | | |
| Investment grade | $ | — | | | $ | — | | | $ | 5,528 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5,528 | |
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Our investment grade credit risk classification represents entities with investment grade credit ratings from ratings agencies (such as S&P Global Ratings, Moody’s Investors Service, Inc. or Fitch Ratings, Inc.), 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 March 2023.
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 March 31, 2023 and December 31, 2022 were not significant. We did not recognize any interest income on notes receivable on nonaccrual status during the three months ended March 31, 2023 and 2022.
15. Share-Based Compensation
Restricted Shares
The following table summarizes restricted share activity under our share-based compensation plans for the three months ended March 31, 2023:
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| | Number of Shares | | Weighted Average Grant Date Fair Value |
Unvested as of December 31, 2022 | | 325,083 | | | $ | 26.27 | |
| Granted | | 158,242 | | | $ | 25.72 | |
| Forfeited | | (24,510) | | | $ | 25.89 | |
| Vested | | (124,838) | | | $ | 26.02 | |
Unvested as of March 31, 2023 | | 333,977 | | | $ | 26.13 | |
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.
The aggregate intrinsic value of restricted shares that vested was $3.2 million for the three months ended March 31, 2023.
Profit Interest Units in COPLP (“PIUs”)
We granted two forms of PIUs: time-based PIUs (“TB-PIUs”); and performance-based PIUs (“PB-PIUs”). TB-PIUs are subject to forfeiture restrictions until the end of the requisite service period, at which time the TB-PIUs automatically convert into vested PIUs. PB-PIUs are subject to a market condition in that the number of earned awards are determined at the end of the performance period (as described further below) and then settled in vested PIUs. Vested PIUs carry substantially the same rights to redemption and distributions as non-PIU common units.
TB-PIUs
The following table summarizes TB-PIUs activity under our share-based compensation plans for the three months ended March 31, 2023:
| | | | | | | | | | | | | | |
| | Number of TB-PIUs | | Weighted Average Grant Date Fair Value |
Unvested as of December 31, 2022 | | 187,330 | | | $ | 26.19 | |
| Granted | | 82,334 | | | $ | 25.72 | |
| Forfeited | | (27,182) | | | $ | 26.46 | |
| Vested | | (73,869) | | | $ | 26.07 | |
Unvested as of March 31, 2023 | | 168,613 | | | $ | 25.97 | |
TB-PIUs granted to senior management team members 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. 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.
The aggregate intrinsic value of TB-PIUs that vested was $1.9 million for the three months ended March 31, 2023.
PB-PIUs
On January 1, 2023, we granted certain senior management team members 275,402 PB-PIUs with a three-year performance period concluding on the earlier of December 31, 2025 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:
