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What changed in COPT DEFENSE PROPERTIES's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COPT DEFENSE PROPERTIES's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+261 added−257 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-24)

Top changes in COPT DEFENSE PROPERTIES's 2023 10-K

261 paragraphs added · 257 removed · 203 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThese properties generally have higher tenant renewal rates than is typical in commercial office space due in large part to: their proximity to defense installations or other key demand drivers; the ability of many of these properties to meet Anti-Terrorism Force Protection (“ATFP”) requirements; and significant investments often made by tenants for unique needs such as Sensitive Compartmented Information Facility (“SCIF”), critical power supply and operational redundancy.
Biggest changeDue to this business strategy, our Defense/IT Portfolio has certain distinguishing characteristics relative to typical commercial office properties, including: > proximity to demand drivers, which is generally preferred, and often required, for tenants to execute their missions; > demand that is driven by, and correlated with, national security spending for activities occurring in the properties’ respective demand drivers, which we believe has made them less susceptible to the effects of conditions in the overall economy than typical office properties; > higher likelihood of significant tenant investments in properties for unique needs such as Sensitive Compartmented Information Facility (“SCIF”), critical power supply and operational redundancy, which we believe may make tenants unable, or less likely, to relocate; > ability of many of the properties leased to the USG to meet Anti-Terrorism Force Protection (“ATFP”) requirements; and > higher preponderance of tenants who require their employees to work in the properties for security purposes, which we believe makes them less susceptible to remote work trends.
Capital Strategy: Our capital strategy is aimed at maintaining continuous access to capital irrespective of market conditions in the most cost-effective manner by: • maintaining 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; • using secured nonrecourse debt from institutional lenders and banks; • managing our debt by monitoring, among other things: (1) the relationship of certain measures of earnings to our debt level and to certain capital costs; (2) the timing of debt maturities to ensure that maturities in any one year do not exceed levels that we believe we can refinance; (3) our exposure to changes in interest rates; and (4) our total and secured debt levels relative to our overall capital structure; • monitoring capacity available under revolving credit facilities and equity offering programs to provide liquidity to fund investment activities and other capital needs; • raising equity through issuances of common shares and, to a lesser extent, issuances of common equity in COPLP and preferred equity; • recycling proceeds from sales of interests in properties, including through joint venture structures for certain investments, to fund property development and other investment activities and/or reduce overall debt; • paying dividends at a level that is at least sufficient for us to maintain our REIT status; and • continuously evaluating the ability of our capital resources to accommodate our plans for growth.
Capital Strategy: Our capital strategy is aimed at maintaining continuous access to capital irrespective of market conditions in the most cost-effective manner by: > maintaining an investment grade rating to enable us to use debt comprised primarily of unsecured, fixed-rate debt (including the effect of interest rate swaps) from public markets and banks; > using secured nonrecourse debt from institutional lenders and banks; > managing our debt by monitoring, among other things: (1) the relationship of certain measures of earnings to our debt level and to certain capital costs; (2) the timing of debt maturities to ensure that maturities in any one year do not exceed levels that we believe we can refinance; (3) our exposure to changes in interest rates; and (4) our total and secured debt levels relative to our overall capital structure; > monitoring capacity available under revolving credit facilities and equity offering programs to provide liquidity to fund investment activities and other capital needs; > raising equity through issuances of common shares and, to a lesser extent, issuances of common equity in CDPLP and preferred equity; > recycling proceeds from sales of interests in properties, including through joint venture structures for certain investments, to fund property development and other investment activities and/or reduce overall debt; > paying dividends at a level that is at least sufficient for us to maintain our REIT status; and > continuously evaluating the ability of our capital resources to accommodate our plans for growth.
We provide a platform for employees to engage with 8 communities by contributing time, effort, money and expertise, which includes providing employees eight hours of paid time per year to engage in volunteer activities to serve our community directly in a company-organized team or individual format. Our employees select community non-profits for Corporate giving grants and for volunteer time contributions.
We provide a platform for employees to engage with communities by contributing time, effort, money and expertise, which includes providing employees eight hours of paid time per year to engage in volunteer activities to serve our community directly in a company-organized team or individual format. Our employees select community non-profits for Corporate giving grants and for volunteer time contributions.
Competitors for such acquisitions may have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments or may be willing to incur higher leverage. We also compete with many entities, including other publicly-traded commercial office REITs, for capital.
Competitors for such acquisitions may have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments or may be willing to incur higher leverage. We also compete with other entities, including other publicly-traded commercial office REITs, for capital.
If COPT continues to qualify for taxation as a REIT, it generally will not be subject to federal income tax on its taxable income (other than that of its TRS entities) that is distributed to its shareholders.
If COPT Defense continues to qualify for taxation as a REIT, it generally will not be subject to federal income tax on its taxable income (other than that of its TRS entities) that is distributed to its shareholders.
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.
The number of common units owned by COPT Defense is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT Defense, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT Defense common shareholders.
We also grant common equity to all new full-time employees and provide our senior management team and high performers with the ability to earn additional grants to align their interests with those of our shareholders and to incent retention. Wellbeing and Safety : We view wellbeing as including five pillars: Physical, Emotional, Career, Financial and Community.
We also grant common equity to all new full-time employees and provide our senior management team and high performers with the ability to earn additional grants to align their interests with those of our shareholders and to incent retention. Wellbeing and Safety : We view wellbeing as including five dimensions: Physical, Emotional, Career, Financial and Community.
We design programs to support each of these pillars. We directly incent wellbeing behaviors through a points-driven program each year. Employees who achieve the points threshold receive reductions in medical premiums or contributions to their health savings accounts. We believe this program enhances employee wellbeing and reduces medical costs.
We design programs to support each of these dimensions. We directly incent wellbeing behaviors through a points-driven program each year. Employees who achieve the points threshold receive reductions in medical premiums or contributions to their health savings accounts. We believe this program enhances employee wellbeing and reduces medical costs.
In support of our Defense/IT Locations strategy, over one-third of our employees carry government credentials. We operate in markets in which we compete for human capital. We rely on our employees to drive our success and we support them with a variety of programs to enhance their workplace engagement and job fulfillment.
In support of our Defense/IT Portfolio strategy, over one-third of our employees carry government credentials. We operate in markets in which we compete for human capital. We rely on our employees to drive our success and we support them with a variety of programs to enhance their workplace engagement and job fulfillment.
Safety is a key part of our employee wellbeing, largely weighted in the Physical pillar. Recognizing this, we conduct job-tailored safety training on an ongoing basis. We also monitor our workers’ compensation claims to measure the effectiveness of our safety program.
Safety is a key part of our employee wellbeing, largely weighted in the Physical dimension. Recognizing this, we conduct job-tailored safety training on an ongoing basis. We also monitor our workers’ compensation claims to measure the effectiveness of our safety program.
We earned an overall score of “Green Star” on the GRESB survey in each of the last eight years, representing the highest quadrant of achievement on the survey.
We earned an overall score of “Green Star” on the GRESB survey in each of the last nine years, representing the highest quadrant of achievement on the survey.
Our Defense/IT Locations include data center shells, which are properties leased to tenants to be operated as data centers in which we provide tenants with only the core building and basic power, while the tenants fund the costs for the critical power, fiber connectivity and data center infrastructure.
Our Defense/IT Portfolio includes data center shells, which are properties leased to tenants to be operated as data centers in which we provide tenants with only the core building and basic power, while the tenants fund the costs for the critical power, fiber connectivity and data center infrastructure.
These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to produce acceptable operating cash flows. We occasionally compete for the acquisition of land and commercial properties with many entities, including other publicly-traded commercial REITs.
These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to produce acceptable operating cash flows. We occasionally compete with other entities, including other publicly-traded commercial REITs, for acquisitions of land and/or commercial properties.
Building technicians are skilled trades professionals who perform mechanical and operating systems maintenance and otherwise service our properties; and • Office Staff, outlined below, of which approximately 55% were female and approximately 32% of minority race: • Operations Management (69 employees): Property managers and support staff who service our tenant customer needs. • Asset Management and Leasing (11 employees): Customer-facing leaders who drive the financial performance of our assets. • Development and Construction (27 employees): Project managers and support staff who drive our development pipeline and interior design. • Finance and Accounting (69 employees): Professionals who manage our financial activities. • Company Support Functions (43 employees): Includes Human Resources, Investor Relations, Investments, Legal, Marketing, Information Technology, Facility Security and Corporate Administrative Support. • Senior Leadership (13 employees): Our business line and Company leaders, including our Named Executive Officers, who interface with our Board of Trustees and shareholders and manage our business strategy, functional activities, risk and overall success.
Building technicians are skilled trades professionals who perform mechanical and operating systems maintenance and otherwise service our properties; and > Office Staff, outlined below, of which approximately 53% were female and approximately 32% of minority race: > Operations Management (73 employees): Property managers and support staff who service our tenant customer needs. > Asset Management and Leasing (10 employees): Customer-facing leaders who drive the financial performance of our assets. > Development and Construction (30 employees): Project managers and support staff who drive our development pipeline and interior design. > Finance and Accounting (68 employees): Professionals who manage our financial activities. > Company Support Functions (44 employees): Includes Human Resources, Investor Relations, Investments, Legal, Marketing, Information Technology, Facility Security and Corporate Administrative Support. > Senior Leadership (13 employees): Our business line and Company leaders, including our Named Executive Officers, who interface with our Board of Trustees and shareholders and manage our business strategy, functional activities, risk and overall success.
Human Capital Our Workforce : As of December 31, 2022, our workforce was comprised of 395 employees based in Maryland, where we are headquartered, Virginia, Washington, D.C., Alabama and Texas. Our workforce has varying expertise, and includes: • Building Technicians (163 employees), o f which approximately 33% were of minority race.
Human Capital Our Workforce : As of December 31, 2023, our workforce was comprised of 410 employees based in Maryland, where we are headquartered, Virginia, Washington, D.C., Alabama and Texas. Our workforce has varying expertise, and includes: > Building Technicians (172 employees), o f which approximately 32% were of minority race.
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.
In addition to owning real estate, CDPLP 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”).
Asset Management Strategy: We aggressively manage our portfolio to maximize the value and operating performance of each property through: (1) proactive property management and leasing; (2) maximizing tenant retention in order to minimize space downtime and additional capital associated with space rollover; (3) increasing rental rates where market conditions permit; (4) leasing vacant space; (5) achievement of operating efficiencies by increasing economies of scale and, where possible, 6 aggregating vendor contracts to achieve volume pricing discounts; and (6) redevelopment when we believe property conditions and market demand warrant.
We intend to sell our other office properties when we believe that market conditions and opportunities position us to be able to optimize our return on investment. 6 Asset Management Strategy: We aggressively manage our portfolio to maximize the value and operating performance of each property through: (1) proactive property management and leasing; (2) maximizing tenant retention in order to minimize space downtime and capital requirements associated with space rollover; (3) increasing rental rates where market conditions permit; (4) leasing vacant space; (5) achievement of operating efficiencies by increasing economies of scale and, where possible, aggregating vendor contracts to achieve volume pricing discounts; and (6) redevelopment when we believe property conditions and market demand warrant.
We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics and Code of Ethics for Financial Officers within four business days after any such amendments or waivers. The information on our Internet site is not part of this report.
We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics and Code of Ethics for Financial Officers within four business days after any such amendments or waivers.
Properties in this sub-segment as of December 31, 2022 were proximate to the Washington Navy Yard in Washington, D.C., the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; • Redstone Arsenal in Huntsville, Alabama; and • data center shells in Northern Virginia (including 21 owned through unconsolidated real estate joint ventures).
Navy (“Navy Support”). Properties in this sub-segment as of December 31, 2023 were proximate to the Washington Navy Yard in Washington, D.C., the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia; > Redstone Arsenal in Huntsville, Alabama; and 7 > data center shells in Northern Virginia.
Property Development and Acquisition Strategy: We expand our operating portfolio primarily through property developments in support of our Defense/IT Locations strategy, and we have significant land holdings that we believe can further support that growth while serving as a barrier against competitive supply.
Property Development and Acquisition Strategy: We expand our portfolio of operating properties primarily through property development in support of our Defense/IT strategy, and we have significant land holdings that we believe can further support that growth while serving as a barrier against competitive supply. We pursue development activities as market conditions and leasing opportunities support favorable risk-adjusted returns on investment.
COPT’s common shares are publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “OFC”. We believe that COPT is organized and has operated in a manner that satisfies the requirements for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and we intend to continue to operate COPT in such a manner.
We believe that COPT Defense is organized and has operated in a manner that satisfies the requirements for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and we intend to continue to operate COPT Defense in such a manner.
We owned 21 of these data center shells through unconsolidated real estate joint ventures; • seven properties under development (five office properties and two data center shells), including two partially-operational properties, that we estimate will total approximately 1.0 million square feet upon completion; and • approximately 710 acres of land controlled for future development that we believe could be developed into approximately 9.5 million square feet and 43 acres of other land.
We owned 24 of these data center shells through unconsolidated real estate joint ventures; > five properties under development (two office properties and three data center shells) that will total approximately 817,000 square feet upon completion; and > approximately 660 acres of land controlled that we believe could be developed into approximately 7.9 million square feet.
Community Engagement : We encourage employee engagement with our communities to facilitate personal growth and connection and to enhance our citizenship within our communities.
Further, we offer internship and mentorship programs to facilitate teaching and learning from others. Community Engagement : We encourage employee engagement with our communities to facilitate personal growth and connection and to enhance our citizenship within our communities.
The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This Internet website can be accessed at www.sec.gov. 5 Business and Growth Strategies Our primary goal is to deliver attractive total returns to our shareholders.
The information on our Internet site is not part of this report. 5 The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This Internet website can be accessed at www.sec.gov.
If there is an increase in the costs for us to retain employees or if we otherwise fail to attract and retain such employees, our business and operating results could be adversely affected.
This competition could adversely affect our ability to raise capital that we may need to fulfill our capital strategy. In addition, we compete with other entities for talent. If there is an increase in the costs for us to retain employees, or if we otherwise fail to attract and retain employees, our business and operating results could be adversely affected.
Our properties are significantly concentrated in Defense/IT Locations, which as of December 31, 2022 accounted for 186 of our 194 properties, representing 89.7% of our annualized rental revenue, and we control developable land to accommodate future growth in these locations.
Defense/IT Strategy : We focus on owning, operating and developing Defense/IT Portfolio properties, which as of December 31, 2023 accounted for 190 of our 198 properties, representing 89.8% of our annualized rental revenue, and we control developable land to accommodate future growth in this portfolio.
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, Texas; • locations serving the U.S. Navy (“Navy Support”).
Industry Segments As of December 31, 2023, our operations included the following reportable segments: Defense/IT Portfolio and Other. Our Defense/IT Portfolio segment included the following sub-segments: > 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, Texas; > locations serving the U.S.
As of December 31, 2022, 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.
As of December 31, 2023, our Defense/IT Portfolio included: > 190 operating properties totaling 21.7 million square feet comprised of 16.0 million square feet in 160 office properties and 5.7 million square feet in 30 single-tenant data center shells.
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”).
(“CDPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT Defense is the sole general partner. CDPLP owns real estate directly and through subsidiary partnerships and limited liability companies (“LLCs”).
As of December 31, 2022, Defense/IT Locations comprised 186 of our properties, representing 90.7% of our square feet in operations and all of our properties under development, while Regional Office comprised six of our properties, or 8.6% of our square feet in operations. 7 For information relating to our reportable segments, refer to Note 15 to our consolidated financial statements, which are included in a separate section at the end of this Annual Report on Form 10-K beginning on page F-1.
For information relating to our reportable segments, refer to Note 13 to our consolidated financial statements, which are included in a separate section at the end of this Annual Report on Form 10-K beginning on page F-1.
This section sets forth key components of our business and growth strategies that we have in place to support this goal. Defense/IT Locations Strategy : We specialize in serving the unique requirements of tenants in our Defense/IT Locations properties.
Business and Growth Strategies Our primary goal is to deliver attractive total returns to our shareholders. This section sets forth key components of our business and growth strategies that we have in place to support this goal.
These properties are primarily occupied by the USG and contractor tenants engaged in what we believe are high priority security, defense and IT missions. These tenants’ missions pertain more to knowledge- and technology-based activities (i.e., cyber security, research and development and other highly-technical defense and security areas) than to force structure (i.e., troops) and weapon system mass production.
The properties in this portfolio are adjacent to, or contain, their demand drivers, whose activities pertain more to knowledge and technology (i.e., research and development and other highly-technical defense and security areas) than to force structure (i.e., troops) and weapon system mass production.
We offer robust learning programs to all employees, including educational assistance for college-level and vocational degree programs, and cover all expenses for licenses and certifications, management and leadership courses, key skills training and industry and professional conferences. Further, we offer internship programs to facilitate teaching and learning from others.
During 2023, our workforce size did not change significantly, with 72 new hires and 57 departures (an attrition rate of approximately 13.9%). 8 We offer robust learning programs to all employees, including educational assistance for college-level and vocational degree programs, and cover all expenses for licenses and certifications, management and leadership courses, key skills training and industry and professional conferences.
We pursue development activities as market conditions and leasing opportunities support favorable risk-adjusted returns on investment, and therefore typically prefer properties to be significantly leased prior to commencing development. To a lesser extent, we may also pursue growth through acquisitions, seeking to execute such transactions at attractive yields and below replacement cost.
To a lesser extent, we may also pursue growth through acquisitions, seeking to execute such transactions at attractive yields and below replacement cost.
Talent Development : We aim to attract, retain and develop our top talent throughout the employment cycle in order to enhance our talent pool. During 2022, our workforce size did not change significantly, with 64 new hires and 74 departures (an attrition rate of approximately 18.7%).
Talent Development : We aim to attract, retain and develop our top talent throughout the employment cycle in order to enhance our talent pool.
Cyber Command and Defense Information Systems Agency) and Redstone Arsenal (one of the largest defense installations in the United States, housing priority missions such as Army procurement, missile defense, space exploration and research and development, testing and engineering of advanced weapons systems); and • data center shells are located in Northern Virginia, one of the largest data center markets in the world due in large part to its central location along the United States’ eastern seaboard, robust fiber connectivity infrastructure and access to reliable and affordable utilities required to support operations; • well-established relationships with the USG and its contractors; • extensive experience in developing: • high quality office properties; • secured, specialized space, with the ability to satisfy the USG’s unique needs (including SCIF and ATFP requirements); and • data center shells to customer specifications within very condensed timeframes to accommodate time-sensitive tenant demand; and • depth of knowledge, specialized skills and credentialed personnel in operating highly-specialized properties with complex space and security-oriented needs.
We believe that our cross-discipline teams collectively complement our Defense/IT strategy due to: > well-established relationships with the USG and its contractors, many of whom lease space in more than one of our properties, and in multiple geographic locations in some cases; > extensive experience in developing: > high quality office properties; > secured, specialized space, with the ability to satisfy the USG’s unique needs (including SCIF, ATFP and access control requirements); and > data center shells to customer specifications within very condensed timeframes to accommodate time-sensitive tenant demand; and > depth of knowledge, specialized skills and credentialed personnel in operating highly-specialized properties with complex space and security-oriented needs.
Item 1. Business OUR COMPANY General. 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.
Item 1. Business General COPT Defense Properties (“COPT Defense”) and subsidiaries (collectively, the “Company”, “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”) focused on owning, operating and developing properties in locations proximate to, or sometimes containing, key U.S. Government (“USG”) defense installations and missions (which we refer to herein as our Defense/IT Portfolio).
Regional Office Strategy : While Defense/IT Locations are our primary focus, we also own a portfolio of office properties located in select urban submarkets in the Greater Washington, DC/Baltimore region due to our strong market knowledge in that region.
Included among these properties is a portfolio of properties located in the Greater Washington, DC/Baltimore region, which we historically referred to as Regional Office; in 2023, we concluded that these properties were no longer strategic holdings since they do not align with our Defense/IT strategy.
As of December 31, 2022, COPT owned 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.
Common units not owned by COPT Defense carry certain redemption rights.
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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”).
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Our tenants include the USG and their defense contractors, who are primarily engaged in priority national security activities, and who generally require mission-critical and high security property enhancements. In September 2023, we changed our name from Corporate Office Properties Trust to COPT Defense Properties to better describe our investment strategy’s focus on locations serving our country’s priority defense activities.
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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”).
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We also owned eight other operating properties totaling 2.1 million square feet and approximately 50 acres of other developable land in the Greater Washington, DC/Baltimore region as of December 31, 2023. We conduct almost all of our operations and own almost all of our assets through our operating partnership, COPT Defense Properties, L.P.
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We believe that demand at these properties is driven by, and correlated with, national security spending, which we believe has made them less susceptible to the effects of conditions in the overall economy than typical office properties.
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In September 2023, we changed CDPLP’s name from Corporate Office Properties, L.P. to COPT Defense Properties, L.P. Equity interests in CDPLP are in the form of common and preferred units. As of December 31, 2023, COPT Defense owned 97.8% of the outstanding CDPLP common units (“common units”) and there were no preferred units outstanding.
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These properties have also been less susceptible to remote work trends than typical office properties since the tenants often require their employees to work in the properties for security purposes.
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In September 2023, the ticker symbol under which our common shares are publicly traded on the New York Stock Exchange (“NYSE”) changed from “OFC” to “CDP”.
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We believe that our properties and team collectively complement our Defense/IT Locations strategy due to our: • properties’ proximity to defense installations and other knowledge- and technology-based government demand drivers. Such proximity is generally preferred and often required for our tenants to execute their missions. Specifically, our: • office properties are proximate to mission-critical facilities such as Fort George G.
Added
Demand drivers for our Defense/IT Portfolio include: > mission-critical facilities and missions of USG organizations and agencies supporting defense and national security activities, such as intelligence, surveillance, reconnaissance, missile defense, cybersecurity, space exploration, research and development and advanced weapons systems testing and engineering, in Maryland, Northern Virginia, Washington, D.C., Huntsville, Alabama and San Antonio Texas; and > data center shells in Northern Virginia, one of the largest data center markets in the world due in large part to its central location along the United States’ Eastern Seaboard, robust fiber connectivity infrastructure and access to reliable and affordable utilities required to support operations.
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Meade (which houses over 100 Department of Defense organizations and agencies, including those engaged in signals intelligence, such as U.S.
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Other Office Properties : In addition to our Defense/IT Portfolio, we also owned eight other office properties as of December 31, 2023, representing 10.2% of our annualized rental revenue.
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We believe that these submarkets possess the following favorable characteristics: (1) mixed-use, lifestyle-oriented locations with a robust residential and retail base; (2) proximity to public transportation and major transportation routes; (3) an educated workforce; and (4) a diverse employment base. As of December 31, 2022, we owned six Regional Office properties, representing 9.4% of our annualized rental revenue.
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While we typically prefer properties to be significantly leased prior to commencing development, we develop properties ahead of completed leasing in certain locations where we believe that consistent demand and high occupancy rates warrant building of inventory to accommodate future anticipated USG and contractor demand.
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These properties were comprised of: three high-rise Baltimore City properties proximate to the city’s waterfront; two Northern Virginia properties proximate to Washington Metropolitan Area Metrorail stations and major interstates; and a property in Washington, D.C.’s central business district.
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As of December 31, 2023: our Defense/IT Portfolio segment included 190 of our operating properties, representing 91.0% of our square feet in operations, and all of our properties under development were for this segment; and our Other segment included our remaining eight operating properties, representing 9.0% of our square feet in operations.
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We believe that demand for space in these properties is more correlated to changes in conditions in the overall economy than our Defense/IT Locations.
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Industry Segments As of December 31, 2022, our operations included the following reportable segments: Defense/IT Locations; Regional Office; and Other. Our Defense/IT Locations segment included the following sub-segments: • Fort George G.
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This competition could adversely affect our ability to raise capital that we may need to fulfill our capital strategy. In addition, we compete with many entities for talent.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese conditions include, but are not limited to: • downturns in national, regional and local economic environments, including increases in the unemployment rate and inflation or deflation; • competition from other properties; • trends in office real estate that may adversely affect future demand, including remote work and flexible work arrangements, open workspaces and coworking spaces; • deteriorating local real estate market conditions, such as oversupply, reduction in demand and decreasing rental rates; • declining real estate valuations; • adverse developments concerning our tenants, which could affect our ability to collect rents and execute lease renewals; • government actions and initiatives, including risks associated with the impact of prolonged government shutdowns and budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new strategic customers; • increasing operating costs, including insurance, utilities, real estate taxes and other expenses, some of which we may not be able to pass through to tenants; • increasing vacancies and the need to periodically repair, renovate and re-lease space; • increasing interest rates and unavailability of financing on acceptable terms or at all; • unavailability of financing for potential purchasers of our properties; • adverse changes resulting from 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; • adverse changes in taxation or zoning laws; • potential inability to secure adequate insurance; • adverse consequences resulting from civil disturbances, natural disasters, terrorist acts or acts of war; 9 • adverse consequences resulting from climate-related risks; and • potential liability under environmental or other laws or regulations.
Biggest changeThese conditions include, but are not limited to: > downturns in national, regional and local economic environments, including increases in the unemployment rate and inflation or deflation; > competition from other properties; > trends in office real estate that may adversely affect future demand, including remote work and flexible work arrangements, open workspaces and coworking spaces; > deteriorating local real estate market conditions, such as oversupply, reduction in demand and decreasing rental rates; > declining real estate valuations; > adverse developments concerning our tenants, which could affect our ability to collect rents and execute lease renewals; > increasing operating costs, including real estate taxes, utilities, insurance and other expenses, some of which we may not be able to pass through to tenants; > increasing vacancies and the need to periodically repair, renovate and re-lease space; > increasing interest rates and unavailability of financing on acceptable terms or at all; > unavailability of financing for potential purchasers of our properties; 9 > potential impact of prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new tenants; > potential additional costs, such as capital improvements, fees and penalties, associated with environmental laws and regulations; > adverse changes from other government actions and initiatives, such as changes in taxation, zoning laws or other regulations; > potential inability to secure adequate insurance; > adverse consequences resulting from civil disturbances, natural disasters, terrorist acts or acts of war; and > adverse consequences resulting from climate-related risks.
Our business could be adversely affected by security breaches through cyber attacks, cyber intrusions or other factors, and other significant disruptions of our IT networks and related systems. We face risks associated with security breaches and other significant disruptions of our IT networks and related systems, which are essential to our business operations.
Other Risks Our business could be adversely affected by security breaches through cyber attacks, cyber intrusions or other factors, and other significant disruptions of our IT networks and related systems. We face risks associated with security breaches and other significant disruptions of our IT networks and related systems, which are essential to our business operations.
When we develop or redevelop properties, we assume a number of risks, including, but not limited to, the risk of: actual costs exceeding our budgets; conditions or events occurring that delay or preclude our ability to complete the project as originally planned or at all; projected leasing not occurring as expected or at all, or occurring at lower than expected rental rates; and not being able to obtain financing to fund property development activities.
When we develop or redevelop properties, we assume a number of risks, including, but not limited to, the risk of: actual costs 11 exceeding our budgets; conditions or events occurring that delay or preclude our ability to complete the project as originally planned or at all; projected leasing not occurring as expected or at all, or occurring at lower than expected rental rates; and not being able to obtain financing to fund property development activities.
In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Risks Associated with Financing and Other Capital-Related Matters We are dependent on external sources of capital for growth. Because COPT is a REIT, it must distribute at least 90% of its annual taxable income to its shareholders.
In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Risks Associated with Financing and Other Capital-Related Matters We are dependent on external sources of capital for growth. Because COPT Defense is a REIT, it must distribute at least 90% of its annual taxable income to its shareholders.
Also, due to the difference in time between when we receive revenue and pay expenses and when we report such items for distribution purposes, it is possible that we may need to borrow funds for COPT to meet the 90% distribution requirement. We may issue additional common or preferred equity that dilutes our shareholders’ interests.
Also, due to the difference in time between when we receive revenue and pay expenses and when we report such items for distribution purposes, it is possible that we may need to borrow funds for COPT Defense to meet the 90% distribution requirement. We may issue additional common or preferred equity that dilutes our shareholders’ interests.
Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations and the courts might issue new rulings that make it more difficult or impossible for COPT to remain qualified as a REIT. If COPT fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates.
Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations and the courts might issue new rulings that make it more difficult or impossible for COPT Defense to remain qualified as a REIT. If COPT Defense fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates.
Our business may be affected by adverse economic conditions. Our business may be affected by adverse economic conditions in the United States economy, real estate industry as a whole or local markets in which our properties are located, including the impact of high unemployment, inflation or deflation, constrained credit and shortages of goods or services.
Our business may be affected by adverse economic conditions. Our business may be affected by adverse economic conditions in the United States, real estate industry as a whole or local markets in which our properties are located, including the impact of high unemployment, inflation or deflation, constrained credit and shortages of goods or services.
We may suffer adverse consequences as a result of our reliance on rental revenues for our income. We earn revenue from leasing our properties. Certain of our operating costs do not necessarily fluctuate in relation to changes in our rental revenue. As a result, these costs will not necessarily decline and may increase even if our revenues decline.
We may suffer adverse consequences as a result of our reliance on rental revenues for our income. We earn revenue from leasing our properties. Certain of our operating costs do not necessarily fluctuate in relation to changes in our occupancy and rental revenue. As a result, these costs will not necessarily decline and may increase even if our revenues decline.
Acquisitions of commercial properties entail risks, such as the risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions fail to perform as expected. 11 We may pursue selective acquisitions of properties in regions where we have not previously owned properties.
Acquisitions of commercial properties entail risks, such as the risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions fail to perform as expected. We may pursue selective acquisitions of properties in regions where we have not previously owned properties.
Since COPT is a REIT, it must distribute to its shareholders at least 90% of its annual taxable income, which limits the amount of cash that can be retained for other business purposes, including amounts to fund development activities and acquisitions.
Since COPT Defense is a REIT, it must distribute to its shareholders at least 90% of its annual taxable income, which limits the amount of cash that can be retained for other business purposes, including amounts to fund development activities and acquisitions.
If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we are prohibited from doing business, we would be required to terminate our lease or other agreement with them. Item 1B. Unresolved Staff Comments None. 17
If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we are prohibited from doing business, we would be required to terminate our lease or other agreement with them. Item 1B. Unresolved Staff Comments None.
If COPT fails to qualify as a REIT, it would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our shareholders. In addition, if COPT fails to qualify as a REIT, it would no longer be required to pay distributions to shareholders.
If COPT Defense fails to qualify as a REIT, it would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our shareholders. In addition, if COPT Defense fails to qualify as a REIT, it would no longer be required to pay distributions to shareholders.
We have preventative, detective, and responsive measures in place to maintain the security and integrity of our networks and related systems that have to date enabled us to avoid breaches and disruptions that were individually, or in the aggregate, 15 material.
We have preventative, detective, and responsive measures in place to maintain the security and integrity of our networks and related systems that have to date enabled us to avoid breaches and disruptions that were individually, or in the aggregate, material.
Many of these requirements, however, are highly technical and complex. The determination that COPT is a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control.
Many of these requirements, however, are highly technical and complex. The determination that COPT Defense is a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control.
Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, COPT would remain disqualified from being a REIT for four years following the year it first fails to qualify.
Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, COPT Defense would remain disqualified from being a REIT for four years following the year it first fails to qualify.
However, despite our activities to maintain the security and integrity of our networks and related systems, there can be no absolute assurance that these activities will be effective in mitigating these risks.
However, despite our activities to maintain the security and integrity of our networks and related systems, there can be no assurance that these activities will be effective in mitigating these risks.
A security breach or other significant disruption involving our IT networks and related systems could: • disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; • increase the likelihood of missed reporting or permitting deadlines; • affect our ability to properly monitor our compliance with rules and regulations regarding our qualification as a REIT; • result in unauthorized access to, and/or destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties; • disrupt or disable the building systems relied upon by us and our tenants for the effective and efficient use of our properties; • require significant management attention and resources to remedy any resulting damages; • subject us to termination of leases or other agreements or claims for breach of contract, damages or other penalties; and • damage our reputation among our tenants and investors generally.
A security breach or other significant disruption involving our IT networks and related systems, or those of certain of our vendors or service providers, could: > disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; > increase the likelihood of missed reporting or permitting deadlines; > affect our ability to properly monitor our compliance with rules and regulations regarding our qualification as a REIT; 15 > result in unauthorized access to, and/or destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties; > disrupt or disable the building systems relied upon by us and our tenants for the effective and efficient use of our properties; > require significant management attention and resources to remedy any resulting damages; > subject us to termination of leases or other agreements or claims for breach of contract, damages or other penalties; and > damage our reputation among our tenants and investors generally.
Attacks by terrorists or foreign nations, or incidents related to social unrest, could directly or indirectly damage our properties or cause losses that materially exceed our insurance coverage.
Attacks by terrorists or foreign nations, or incidents related to social unrest, could directly or 12 indirectly damage our properties or cause losses that materially exceed our insurance coverage.
You should carefully consider each of these risks and uncertainties, along with all of the information in this Annual Report on Form 10-K and its Exhibits, including our consolidated financial statements and notes thereto for the year ended December 31, 2022 included in a separate section at the end of this report beginning on page F-1.
You should carefully consider each of these risks and uncertainties, along with all of the information in this Annual Report on Form 10-K and its Exhibits, including our consolidated financial statements and notes thereto for the year ended December 31, 2023 included in a separate section at the end of this report beginning on page F-1.
We may also find in such circumstances that we are unable to borrow to cover such costs, in which case our operations could be adversely affected. In addition, the competitive environment for leasing is affected considerably by a number of factors including, among other things, changes due to economic factors such as supply and demand.
We may also find in such circumstances that we are unable to borrow to fund such costs, in which case our operations could be adversely affected. In addition, the competitive environment for leasing is affected considerably by a number of factors including, among other things, changes due to economic factors such as supply and demand.
We may issue additional common shares or new issuances of preferred shares without shareholder approval. Similarly, we may issue additional common or preferred units in COPLP for contributions of cash or property without approval by our shareholders. Our existing shareholders’ interests could be diluted if such additional issuances were to occur.
We may issue additional common shares or new issuances of preferred shares without shareholder approval. Similarly, we may issue additional common or preferred units in CDPLP for contributions of cash or property without approval by our shareholders. Our existing shareholders’ interests could be diluted if such additional issuances were to occur.
As a result, we would be harmed by a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, DC/Baltimore region or the business parks in which our properties are located. We would suffer economic harm if we were unable to renew our leases on favorable terms.
As a result, we could be harmed by a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, DC/Baltimore region or markets, submarkets or business parks in which our properties are located. We would suffer economic harm if we were unable to renew our leases on favorable terms.
As a result of all these factors, COPT’s failure to qualify as a REIT could impair our ability to expand our business and raise capital and would likely have a significant adverse effect on the value of our shares. We may be adversely impacted by changes in tax laws.
As a result of all these factors, COPT Defense’s failure to qualify as a REIT could impair our ability to expand our business and raise capital and would likely have a significant adverse effect on the value of our shares. We may be adversely impacted by changes in tax laws.
COPT’s failure to qualify as a REIT would have adverse tax consequences, which would substantially reduce funds available to make distributions to our shareholders. We believe that COPT has qualified for taxation as a REIT for federal income tax purposes since 1992. We plan for COPT to continue to meet the requirements for taxation as a REIT.
COPT Defense’s failure to qualify as a REIT would have adverse tax consequences, which would substantially reduce funds available to make distributions to our shareholders. We believe that COPT Defense has qualified for taxation as a REIT for federal income tax purposes since 1992. We plan for COPT Defense to continue to meet the requirements for taxation as a REIT.
We are also subject to the risks that: • we may not be able to refinance our existing indebtedness, or may only be able to do so on terms that are less favorable to us than the terms of our existing indebtedness; • in the event of our default under the terms of our Revolving Credit Facility, COPLP could be restricted from making cash distributions to COPT unless such distributions are required to maintain COPT’s qualification as a REIT, which could result in reduced distributions to our equityholders or the need for us to incur additional debt to fund such distributions; and 13 • if we are unable to pay our debt service on time or are unable to comply with restrictive financial covenants for certain of our debt, our lenders could foreclose on our properties securing such debt.
We are also subject to the risks that: > we may not be able to refinance our existing indebtedness, or may only be able to do so on terms that are less favorable to us than the terms of our existing indebtedness; > in the event of our default under the terms of our Revolving Credit Facility, CDPLP could be restricted from making cash distributions to COPT Defense unless such distributions are required to maintain COPT Defense’s qualification as a REIT, which could result in reduced distributions to our equityholders or the need for us to incur additional debt to fund such distributions; and > if we are unable to pay our debt service on time or are unable to comply with restrictive financial covenants for certain of our debt, our lenders could foreclose on our properties securing such debt.
This may limit our ability to make some types of payments, including payment of distributions on common or preferred shares, unless we meet certain financial tests or such payments or distributions are required to maintain COPT’s qualification as a REIT.
This may limit our ability to make some types of payments, including payment of distributions on common or preferred shares, unless we meet certain financial tests or such payments or distributions are required to maintain COPT Defense’s qualification as a REIT.
These conditions include, but are not limited to: • market perception of REITs in general and office REITs in particular; • market perception regarding our major tenants and property concentrations; • the level of institutional investor interest in us; • general economic and business conditions; • prevailing interest rates; • our financial performance; • our underlying asset value; • our actual, or market perception of our, financial condition, performance, dividends and growth potential; and • adverse changes in tax laws.
These conditions include, but are not limited to: > market perception of REITs in general and office REITs in particular; > market perception regarding our major tenants and property concentrations; > the level of institutional investor interest in us; > general economic and business conditions; > prevailing interest rates; > our financial performance; > our underlying asset value; > our actual, or market perception of our, financial condition, performance, dividends and growth potential; > adverse changes in tax laws; and > market perception regarding our commitment to environmental, social and governance matters.
These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to meet our short-term capital needs. We rely on the ability of our tenants to pay rent and would be harmed by their inability to do so.
These factors may make it difficult for us to lease vacant space in existing properties or newly-developed properties and space associated with future lease expirations at rental rates that are sufficient to meet our short-term capital needs. We rely on the ability of our tenants to pay rent and would be harmed by their inability to do so.
For example, to qualify as a REIT, at least 16 95% of COPT’s gross income must come from certain sources that are specified in the REIT tax laws. COPT is also required to distribute to shareholders at least 90% of its annual taxable income.
For example, to qualify as a REIT, at least 95% of COPT Defense’s gross income must come from certain sources that are specified in the REIT tax laws. COPT Defense is also required to distribute to shareholders at least 90% of its annual taxable income.
Some of our loan agreements contain provisions that could, in the event of default, restrict future distributions unless we meet certain financial tests or such payments or distributions are required to maintain COPT’s qualification as a REIT.
Some of our loan agreements contain provisions that could, in the event of default, restrict future distributions unless we meet certain financial tests or such payments or distributions are required to 14 maintain COPT Defense’s qualification as a REIT.
COPT’s Declaration of Trust limits ownership of its common shares by any single shareholder to 9.8% of the number of the outstanding common shares or 9.8% of the value of the outstanding common shares, whichever is more restrictive.
COPT Defense’s Declaration of Trust limits ownership of its common shares by any single shareholder to 9.8% of the number of the outstanding common shares or 9.8% of the value of the outstanding common shares, whichever is more restrictive.
Like other businesses, we have been, and expect to continue to be, subject to cyber-attacks or -intrusions, computer viruses or malware, attempts at unauthorized access and other events of varying degrees.
Like other businesses, we and our vendors and service providers have been, and expect to continue to be, subject to cyber-attacks or -intrusions, computer viruses or malware, attempts at unauthorized access and other events of varying degrees.
Our ability to make distributions at expected levels is also dependent, in part, on other matters, including, but not limited to: • continued property occupancy and timely receipt of rent from our tenants; • the amount of future capital expenditures and expenses for our properties; • our leasing activity and future rental rates; • the strength of the commercial real estate market; • our ability to compete; • governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; • our costs of compliance with environmental and other laws; 14 • our corporate overhead levels; • our amount of uninsured losses; and • our decision to reinvest available cash into operations rather than distribute it.
Our ability to make distributions at expected levels is also dependent, in part, on other matters, including, but not limited to: > continued property occupancy and timely receipt of rent from our tenants; > the amount of future capital expenditures and expenses for our properties; > our leasing activity and future rental rates; > the strength of the commercial real estate market; > our ability to compete; > governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; > our costs of compliance with environmental and other laws; > our corporate overhead levels; and > our amount of uninsured losses.
Our Board of Trustees may issue preferred shares with such preferences, rights, powers and restrictions as our Board of Trustees may determine, which could also delay or prevent a change in control. In addition, various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to shareholders.
Our Board of Trustees may issue preferred shares with such preferences, rights, powers and restrictions if it chooses to do so, which could also delay or prevent a change in control. 16 In addition, various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to shareholders.
COPT’s Declaration of Trust also limits ownership by any single shareholder of our common and preferred shares in the aggregate to 9.8% of the aggregate value of our outstanding common and preferred shares. We call these restrictions the “Ownership Limit.” COPT’s Declaration of Trust allows our Board of Trustees to exempt shareholders from the Ownership Limit.
COPT Defense’s Declaration of Trust also limits ownership by any single shareholder of our common and preferred shares in the aggregate to 9.8% of the aggregate value of our outstanding common and preferred shares. We refer to these restrictions as the “Ownership Limit.” COPT Defense’s Declaration of Trust allows our Board of Trustees to exempt shareholders from the Ownership Limit.
Future changes in the insurance industry’s risk assessment approach and pricing structure may increase the cost of insuring our properties and decrease the scope of insurance coverage. Most of our loan agreements contain customary covenants requiring us to maintain insurance.
These policies include coverage for acts of terrorism. Future changes in the insurance industry’s risk assessment approach and pricing structure may increase the cost of insuring our properties and decrease the scope of insurance coverage. Most of our loan agreements contain customary covenants requiring us to maintain insurance.
The fact that COPT holds most of its assets through COPLP and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize COPT’s REIT status.
The fact that COPT Defense holds most of its assets through CDPLP and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize COPT Defense’s REIT status.
We may invest in certain entities in which we are not the exclusive investor or principal decision maker. Investments in such entities may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions.
Investments in such entities may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions.
Because of our concentration on serving the USG and its contractors with a general focus on national security and information technology, we may be more likely to be targeted by cyber-attacks or -intrusions, including by governments, organizations or persons hostile to the USG.
Because of our concentration on serving the USG and its contractors with a general focus on national security and information technology, we may have a heightened likelihood of being targeted for cyber-attacks or -intrusions, including by governments, organizations or persons hostile to the USG.
A reduction in government spending targeting the activities of the government and its contractors (such as knowledge- and technology-based defense and security activities) in these locations could adversely affect our tenants’ ability to fulfill lease obligations, renew leases or enter into new leases and limit our future growth from properties in these locations.
A reduction in government spending targeting the activities of the USG or its contractors (such as knowledge- and technology-based defense and security activities) in this portfolio’s demand drivers could adversely affect our tenants’ ability to fulfill lease obligations, renew leases or enter into new leases and limit our future growth from properties whose demand rely on such activities.
These capital sources may not be available on favorable terms or at all. Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management’s flexibility in directing our operations. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.
Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management’s flexibility in directing our operations. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.
These credit ratings are subject to ongoing evaluation by the credit rating agencies and can change. Any downgrades of our ratings or a negative outlook by the credit rating agencies would have a materially adverse impact on our cost and availability of capital and also could have a materially adverse effect on the market price of our common shares.
Any downgrades of our ratings or a negative outlook by the credit rating agencies would have a materially adverse impact on our cost and availability of capital and also could have a materially adverse effect on the market price of our common shares.
COVID-19 and its variants, and any similar pandemics should they occur, 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.
The occurrence of epidemics or pandemics 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 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.
We would be harmed if any of our largest tenants fail to make rental payments to us over an extended period of time, including as a result of a prolonged government shutdown, or if the USG elects to terminate some or all of its leases and the space cannot be re-leased on satisfactory terms.
We would be harmed if any of our largest tenants fail to make rental payments to us over an extended period of time, including as a result of a prolonged government shutdown, or if the USG elects to terminate some or all of its leases and the space cannot be re-leased on satisfactory terms. 10 As of December 31, 2023, 89.8% of our annualized rental revenue was from our Defense/IT Portfolio.
Moreover, some of the risks described in other risk factors set forth in this Annual Report on Form 10-K may be more likely to impact us as a result of COVID-19 and its variants, and any similar pandemics should they occur, and the responses to curb spread, including, but not limited to: downturns in national, regional and local economic environments; deteriorating local real estate market conditions; and declining real estate valuations.
Moreover, some of the risks described in other risk factors set forth in this Annual Report on Form 10-K may be more likely to impact us as a result of epidemics or pandemics, including, but not limited to: downturns in national, regional and local economic environments; deteriorating local real estate market conditions; and declining real estate valuations.
However, we may incur significant losses and harm to our financial condition in the future if we were holding large sums of cash in any of these financial institutions at a time when they filed for bankruptcy protection. Other Risks We may suffer adverse effects from the COVID-19 pandemic and similar pandemics.
However, we may incur significant losses and harm to our financial condition in the future if we were holding large sums of cash in any of these financial institutions at a time when they filed for bankruptcy protection.
Our organizational documents do not limit the amount of indebtedness that we may incur. Therefore, we may incur additional indebtedness and become more highly leveraged, which could harm our financial position. A downgrade in our credit ratings would materially adversely affect our business and financial condition. Our Senior Notes are currently rated investment grade by the three major rating agencies.
Our organizational documents do not limit the amount of indebtedness that we may incur. Therefore, we may incur additional indebtedness and become more highly leveraged, which could harm our financial position. A downgrade in our credit ratings would materially adversely affect our business and financial condition.
Such events could adversely affect our properties in a number of ways, including, but not limited to: declining demand for space; our ability to operate them effectively and profitably; their valuations; and our ability to sell them or use them as collateral for future debt.
Such events could adversely affect our properties in a number of ways, including, but not limited to: declining demand for space; our ability to operate them effectively and profitably; their valuations; and our ability to sell them or use them as collateral for future debt. We may be adversely affected by legislation and regulatory changes relating to combating climate change.
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 affect demand for office space.
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; and > 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.
We calculate annualized rental revenue by multiplying by 12 the sum of monthly contractual base rents (ignoring free rent then in effect and rent associated with tenant funded landlord assets) and estimated monthly expense reimbursements under active leases in our portfolio as of December 31, 2022; with regard to properties owned through unconsolidated real estate joint ventures, we include the portion of annualized rental revenue allocable to our ownership interests.
For additional information regarding our tenant concentrations, refer to the section entitled “Concentration of Operations” within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We calculate annualized rental revenue by multiplying by 12 the sum of monthly contractual base rents (ignoring free rent then in effect and rent associated with tenant funded landlord assets) and estimated monthly expense reimbursements under active leases in our portfolio as of the date defined; with regard to properties owned through unconsolidated real estate joint ventures, we include the portion of annualized rental revenue allocable to our ownership interests.
We also occasionally face even greater competition for personnel with certain skill sets or qualifications. As a result, we may not be successful in retaining our existing talent or attracting, training and retaining new personnel with the requisite skills. We may also find that we need to further increase compensation costs in response to this competition.
We face very intense competition for highly-qualified personnel in the labor market. We also occasionally face even greater competition for personnel with certain skill sets or qualifications. As a result, we may not be successful in retaining our existing talent or attracting, training and retaining new personnel with the requisite skills.
Many of our properties are also concentrated in business parks in which we own most of the properties. Consequently, our portfolio of properties is not broadly distributed geographically.
Most of our properties are located in the Mid-Atlantic region of the United States, particularly in the Greater Washington, DC/Baltimore region. Many of our properties are also concentrated in business parks in which we own most of the properties. Consequently, our portfolio of properties is not broadly distributed geographically.
Our ability to operate effectively and succeed in the future is dependent in large part on our employees. Our Defense/IT Locations strategy in particular relies on the knowledge, specialized skills and credentialed personnel on our teams that serve those properties’ unique needs. We face very intense competition for highly-qualified personnel in the labor market.
Our business could be adversely impacted if we are unable to attract and retain highly-qualified personnel. Our ability to operate effectively and succeed in the future is dependent in large part on our employees. Our Defense/IT strategy in particular relies on the knowledge, specialized skills and credentialed personnel on our teams that serve those properties’ unique needs.
Additionally, a successful attack on our vendors or service providers could result in a compromise of our own network or a disruption in our supply chain or services upon which we rely. Our business could be adversely impacted if we are unable to attract and retain highly-qualified personnel.
Additionally, a successful attack on our vendors or service providers could result in a compromise of our own network or a disruption in our supply chain or services upon which we rely.
Our business could be harmed by the loss of key employees, a significant number of employees or a significant number of employees in a specialized area of the Company. We have certain provisions or statutes that may serve to delay or prevent a transaction or a change in control that would be advantageous to our shareholders from occurring.
We have certain provisions or statutes that may serve to delay or prevent a transaction or a change in control that would be advantageous to our shareholders from occurring.
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.
The extent of any effect on our operations, financial condition and cash flows will be dependent on various factors, such as the duration and extent of the epidemic or pandemic, the prevalence, strength and duration of restrictive measures implemented in response and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy.
Our properties may be subject to other risks related to current or future laws, including laws relating to zoning, development, fire and life safety requirements and other matters.
Our properties may be subject to other risks related to current or future laws, including laws relating to zoning, development, fire and life safety requirements and other matters. These laws may require significant property modifications in the future and could result in the levy of fines against us.
The USG may terminate its leases if, among other reasons, the United States Congress fails to provide funding.
Most of our leases with the USG provide for one-year terms, with a series of one-year renewal options. The USG may terminate its leases if, among other reasons, the United States Congress fails to provide funding.
This in turn would trigger a decrease in demand for space in these areas that could increase vacancies in our properties and adversely affect property rental rates and valuations. We may be subject to other possible liabilities that would adversely affect our financial position and cash flows.
This in turn would trigger a decrease in demand for space in these areas that could increase vacancies in our properties and adversely affect property rental rates and valuations. We may be subject to increased costs of insurance and limitations on coverage. Our portfolio of properties is insured for losses under our property, casualty and umbrella insurance policies.
We may be adversely affected by developments concerning our major tenants, including the USG and its contractors. As of December 31, 2022, our 10 largest tenants accounted for 63.4% of our total annualized rental revenue, the three largest of these tenants accounted for 48.9%, and the USG, our largest tenant, accounted for 35.5%.
As of December 31, 2023, our 10 largest tenants accounted for 63.5% of our total annualized rental revenue, the three largest of these tenants accounted for 49.6%, and the USG, our largest tenant, accounted for 35.9%.
These properties have garnered the interest of outside investors, enabling us to raise capital by selling ownership interests through joint venture structures in recent years at favorable profit margins, and to apply the proceeds towards other development opportunities. Our data center shell activity is concentrated with one customer.
These properties have also garnered the interest of outside investors, enabling us to raise capital by selling ownership interests through joint venture structures at favorable profit margins, and to apply the proceeds towards other development opportunities. As of December 31, 2023, we did not have additional land under control in Northern Virginia for the future development of data center shells.
We may suffer economic harm in the event of a decline in the real estate market or general economic conditions in the Mid-Atlantic region, particularly in the Greater Washington, DC/Baltimore region, or in particular business parks. Most of our properties are located in the Mid-Atlantic region of the United States, particularly in the Greater Washington, DC/Baltimore region.
If we are unable to locate additional data center shell development opportunities, we may no longer be able to develop data center shells. We may suffer economic harm in the event of a decline in the real estate market or general economic conditions in the Mid-Atlantic region, particularly in the Greater Washington, DC/Baltimore region, or in particular business parks.
As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it.
As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it. We may be subject to possible environmental liabilities. We are subject to various federal, state and local environmental laws, including air and water quality, hazardous or toxic substances and health and safety.
As of December 31, 2022, we had $2.3 billion in debt, the future maturities of which are set forth in Note 10 to our consolidated financial statements. Payments of principal and interest on our debt may leave us with insufficient cash to operate our properties or pay distributions to COPT’s shareholders required to maintain COPT’s qualification as a REIT.
Payments of principal and interest on our debt may leave us with insufficient cash to operate 13 our properties or pay distributions to COPT Defense’s shareholders required to maintain COPT Defense’s qualification as a REIT.
This requirement limits the extent to which we are able to fund our investment activities using retained cash flow from operations. Therefore, our ability to fund much of these activities is dependent on our ability to externally generate capital through issuances of new debt, common shares, preferred shares, common or preferred units in COPLP or sales of interests in properties.
Therefore, our ability to fund much of these activities is dependent on our ability to externally generate capital through issuances of new debt, common shares, preferred shares, common or preferred units in CDPLP or sales of interests in properties. These capital sources may not be available on favorable terms or at all.
Moreover, uncertainty regarding the potential for future reduction in government spending targeting such activities could also decrease or delay leasing activity from existing or new tenants engaged in these activities. Our future ability to fuel growth through data center shell development may be adversely affected should we suffer a loss of future development opportunities with our data center shell customer.
In addition, uncertainty regarding the potential for future government spending for such activities could also decrease or delay leasing activity from existing or new tenants engaged in these activities.
Data center shells have been a growth driver for our Defense/IT Locations strategy. Since 2013, we have placed into service 28 data center shells totaling 5.3 million 10 square feet, and we had an additional two under development totaling 420,000 square feet as of December 31, 2022.
Since 2013, we have developed 30 data center shells in Northern Virginia totaling 5.7 million square feet for a Fortune 100 Company tenant, and we had an additional three under development totaling 643,000 square feet for that tenant as of December 31, 2023.
Depending on the specific circumstances of each affected property, it is also possible that we could be liable for mortgage indebtedness or other obligations related to the property. We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments.
We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments. We may invest in certain entities in which we are not the exclusive investor or principal decision maker.
While the details of implementing this law are still being finalized by the State, the additional costs that may result from this law and any other similar federal, state or local laws or regulations in the future could be substantial.
We believe that our future additional capital investments and potential fees and penalties resulting from the State of Maryland legislation, and other similar federal, state or local laws or regulations in the future, could potentially be substantial. We may be subject to other possible liabilities that would adversely affect our financial position and cash flows.
Removed
For additional information regarding our tenant concentrations, refer to the section entitled “Concentration of Operations” within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Most of our leases with the USG provide for a series of one-year terms.
Added
We may be adversely affected by developments concerning our major tenants, including the USG and its contractors, or the defense installations or missions from which demand for our Defense/IT Portfolio’s properties is driven.
Removed
As of December 31, 2022, 89.7% of our annualized rental revenue was from Defense/IT Locations, and we expect to maintain a similarly high revenue concentration from properties in these locations.
Added
Moreover, we may face additional economic harm in the event of long-term displacement, or elimination, of government spending for defense installations or missions from which demand for our Defense/IT Portfolio’s properties is driven. Our future ability to develop data center shells will be limited without additional land to do so.
Removed
If that customer no longer chooses to allocate development opportunities to us, we may have limited opportunities to continue to develop data center shells to fuel growth and use as a possible source of capital.
Added
We may be adversely affected by legislation and regulatory changes aimed at combating climate change. For example, the State of Maryland enacted legislation that will subject our properties in the state (approximately half of our portfolio at year end) to future energy performance standards, with potential monetary penalties for failing to meet such standards, building code changes and other requirements.
Removed
Examples of unknown liabilities with respect to acquired properties include, but are not limited to: • liabilities for remediation of disclosed or undisclosed environmental contamination; • claims by tenants, vendors or other persons dealing with the former owners of the properties; • liabilities incurred in the ordinary course of business; and • claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
Added
In order to meet these performance standards and other requirements, we expect that we will need to make additional investments in building systems for new and existing properties. Other jurisdictions in which our properties are located have also either enacted similar legislation or are considering doing so in the future.
Removed
We may be subject to possible environmental liabilities. We are subject to various federal, state and local environmental laws, including air and water quality, hazardous or toxic substances and health and safety.
Added
This requirement may limit the extent to which we are able to fund our investment activities using retained cash flow from operations.
Removed
In addition to the potential for climate-related physical risks, we expect that we could be adversely affected by regulatory changes made in response to climate change.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLease payments will commence under the site-specific leases as cash rents under tenant leases commence at the respective properties. 19 Lease Expirations The following table provides a summary schedule of lease expirations for leases in place at our operating properties as of December 31, 2022 based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles (dollars and square feet in thousands, except per square foot amounts): Year of Lease Expiration Square Footage of Leases Expiring Annualized Rental Revenue of Expiring Leases (1) Percentage of Total Annualized Rental Revenue Expiring (1) Total Annualized Rental Revenue of Expiring Leases Per Occupied Square Foot 2023 1,699 $ 60,040 9.8 % $ 35.29 2024 3,010 83,360 13.7 % $ 33.07 2025 3,585 137,971 22.6 % $ 38.88 2026 1,880 57,230 9.4 % $ 38.70 2027 1,493 38,495 6.3 % $ 32.99 2028 1,764 42,367 6.9 % $ 32.66 2029 1,737 37,804 6.2 % $ 28.19 2030 1,088 22,632 3.7 % $ 28.02 2031 809 12,474 2.0 % $ 29.72 2032 164 4,559 0.7 % $ 27.85 2033 557 20,025 3.3 % $ 35.92 2034 994 20,330 3.3 % $ 30.59 2035 859 23,581 3.9 % $ 27.44 2036 954 19,609 3.2 % $ 20.56 2037 102 8,541 1.4 % $ 82.70 2038 569 14,095 2.3 % $ 24.78 2039 63 1,579 0.3 % $ 25.00 2041 (2) — 4,749 0.8 % N/A 2063 (2) — 133 — % N/A 2072 (2) — 125 — % N/A Total 21,327 $ 609,700 100.0 % $ 33.16 (1) Refer to definition provided on first page of Item 2 of this Annual Report on Form 10-K.
Biggest changeLease payments will commence under the site-specific leases as cash rents under tenant leases commence at the respective properties. 20 Lease Expirations The following table provides a summary schedule of lease expirations for leases in place at our operating properties as of December 31, 2023 based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles (dollars and square feet in thousands, except per square foot amounts): Year of Lease Expiration Square Footage of Leases Expiring Annualized Rental Revenue of Expiring Leases (1) Percentage of Total Annualized Rental Revenue Expiring (1) Total Annualized Rental Revenue of Expiring Leases Per Occupied Square Foot (1) 2024 2,576 $ 82,599 12.8 % $ 35.92 2025 3,645 145,662 22.5 % $ 39.51 2026 1,959 61,398 9.5 % $ 39.41 2027 1,714 49,383 7.6 % $ 35.59 2028 2,418 64,392 10.0 % $ 32.92 2029 2,321 52,455 8.1 % $ 30.72 2030 1,320 29,624 4.6 % $ 28.51 2031 959 16,649 2.6 % $ 29.19 2032 230 7,209 1.1 % $ 31.30 2033 646 22,836 3.5 % $ 35.37 2034 1,438 32,661 5.1 % $ 29.46 2035 1,080 33,217 5.1 % $ 30.75 2036 1,010 9,908 1.5 % $ 29.44 2037 102 9,573 1.5 % $ 92.86 2038 569 14,207 2.2 % $ 24.96 2039 483 9,786 1.5 % $ 20.25 2041 (2) — 4,841 0.8 % N/A 2063 (2) — 135 — % N/A 2072 (2) — 125 — % N/A Total 22,470 $ 646,660 100.0 % $ 34.14 (1) Refer to definition provided on first page of Item 2 of this Annual Report on Form 10-K.
(2) Includes only ground leases. With regard to the leases reported above as expiring in 2023, we believe that the weighted average annualized rental revenue per occupied square foot for such leases as of December 31, 2022, on average, approximated estimated current market rents for the related space, with specific results varying by market.
(2) Includes only ground leases. With regard to the leases reported above as expiring in 2024, we believe that the weighted average annualized rental revenue per occupied square foot for such leases as of December 31, 2023, on average, approximated estimated current market rents for the related space, with specific results varying by market.
(2) Annualized rental revenue is the monthly contractual base rent as of December 31, 2022 (ignoring free rent then in effect and rent associated with tenant funded landlord assets) multiplied by 12, plus the estimated annualized expense reimbursements under existing leases.
(2) Annualized rental revenue is the monthly contractual base rent as of December 31, 2023 (ignoring free rent then in effect and rent associated with tenant funded landlord assets) multiplied by 12, plus the estimated annualized expense reimbursements under existing leases for occupied space.
The following table provides certain information about land that we owned or controlled as of December 31, 2022, including properties under ground lease to us (square feet in thousands): Segment Acres Estimated Developable Square Feet Defense/IT Locations: Fort Meade/BW Corridor: National Business Park (Annapolis Junction, MD) 144 1,630 Howard County, MD 19 290 Other 126 1,338 Total Fort Meade/BW Corridor 289 3,258 NoVA Defense/IT Locations 29 1,171 Navy Support 38 64 Redstone Arsenal (1) 309 3,446 Data Center Shells 33 647 Total Defense/IT Locations 698 8,586 Regional Office 10 900 Total land owned/controlled for future development 708 9,486 Other land owned/controlled 43 638 Total Land Owned/Controlled 751 10,124 (1) This land is owned by the USG and is controlled under a long-term master lease agreement to a consolidated joint venture.
The following table provides certain information about land that we owned or controlled as of December 31, 2023, including properties under ground lease to us (square feet in thousands): Segment Acres Estimated Developable Square Feet Defense/IT Portfolio land owned/controlled for future development: Fort Meade/BW Corridor: National Business Park (Annapolis Junction, MD) 144 1,630 Howard County, MD 19 290 Other 126 1,338 Total Fort Meade/BW Corridor 289 3,258 NoVA Defense/IT 29 1,171 Navy Support 38 64 Redstone Arsenal (1) 300 3,400 Total Defense/IT Portfolio land owned/controlled for future development 656 7,893 Other land owned/controlled 53 1,538 Total Land Owned/Controlled 709 9,431 (1) This land is owned by the USG and is controlled under a long-term master lease agreement to a consolidated joint venture.
Properties The following table provides certain information about our operating property segments as of December 31, 2022 (dollars and square feet in thousands, except per square foot amounts): Segment Number of Properties Rentable Square Feet Occupancy (1) Annualized Rental Revenue (2) Annualized Rental Revenue per Occupied Square Foot (2) Defense/IT Locations: Fort Meade/BW Corridor: National Business Park (Annapolis Junction, MD) 33 4,108 93.9 % $ 160,030 $ 41.49 Howard County, MD 35 2,862 92.1 % 75,549 $ 28.64 Other 23 1,725 90.7 % 49,797 $ 31.68 Fort Meade/BW Corridor Subtotal / Average 91 8,695 92.7 % 285,376 $ 35.38 NoVA Defense/IT 16 2,499 90.0 % 81,238 $ 36.11 Lackland Air Force Base 8 1,060 100.0 % 60,471 $ 52.62 Navy Support 22 1,262 89.8 % 33,101 $ 29.21 Redstone Arsenal 21 2,070 89.9 % 46,234 $ 24.68 Data Center Shells: Consolidated Properties 7 1,736 100.0 % 35,388 $ 20.39 Unconsolidated Joint Venture Properties (3) 21 3,547 100.0 % 5,167 $ 14.57 Defense/IT Locations Subtotal / Average 186 20,869 94.1 % 546,975 $ 32.92 Regional Office 6 1,980 79.0 % 57,273 $ 36.44 Other 2 157 75.5 % 5,452 $ 23.08 Total Operating Properties/Average 194 23,006 92.7 % $ 609,700 $ 33.16 Total Consolidated Operating Properties $ 604,533 (1) This percentage is based upon all rentable square feet under lease terms that were in effect as of December 31, 2022.
Properties The following table provides certain information about our operating property segments as of December 31, 2023 (dollars and square feet in thousands, except per square foot amounts): Segment Number of Properties Operational Square Feet Occupancy (1) Annualized Rental Revenue (2) Annualized Rental Revenue per Occupied Square Foot (2) Defense/IT Portfolio: Fort Meade/BW Corridor: National Business Park (Annapolis Junction, MD) 34 4,293 99.3 % $ 176,899 $ 41.49 Howard County, MD 35 2,862 93.9 % 78,389 $ 29.12 Other 23 1,725 93.1 % 53,064 $ 32.90 Fort Meade/BW Corridor Subtotal / Average 92 8,880 96.4 % 308,352 $ 35.99 NoVA Defense/IT 16 2,501 88.9 % 82,482 $ 37.09 Lackland Air Force Base 8 1,062 100.0 % 61,383 $ 53.27 Navy Support 22 1,273 87.4 % 33,420 $ 30.04 Redstone Arsenal 22 2,300 97.5 % 56,918 $ 25.24 Data Center Shells: Consolidated Properties 6 1,408 100.0 % 31,087 $ 22.08 Unconsolidated Joint Venture Properties 24 4,295 100.0 % 6,741 $ 15.69 Defense/IT Portfolio Subtotal / Average 190 21,719 96.2 % 580,383 $ 33.74 Other 8 2,140 73.2 % 66,277 $ 38.42 Total Operating Properties / Average 198 23,859 94.2 % $ 646,660 $ 34.14 Total Consolidated Operating Properties $ 639,920 (1) This percentage is based upon all rentable square feet under lease terms that were in effect as of December 31, 2023.
We find the measure particularly useful for leasing, tenant and segment analysis. Our calculation of annualized rental revenue per occupied square foot excludes revenue of our reportable segments from leases not associated with our buildings.
We find the measure particularly useful for leasing, tenant, segment and industry analysis.
Removed
(3) Represents properties owned through unconsolidated real estate joint ventures. 18 The following table provides certain information about properties that were under, or otherwise approved for, development as of December 31, 2022 (dollars and square feet in thousands): Property and Location Estimated Rentable Square Feet Upon Completion Percentage Leased Calendar Quarter Anticipated to be Operational Costs Incurred to Date (1) Estimated Costs to Complete (1) Fort Meade/BW Corridor: 550 National Business Parkway Annapolis Junction, Maryland 186 100% 4Q 23 $ 40,335 $ 34,500 Navy Support: Expedition VII (2) St.
Added
Our calculation of annualized rental revenue per occupied square foot excludes revenue of our reportable segments from leases not associated with our buildings. 19 The following table provides certain information about properties that were under, or contractually committed for, development as of December 31, 2023 (dollars and square feet in thousands): Property and Location Estimated Rentable Square Feet Upon Completion Percentage Leased Calendar Quarter Anticipated to be Operational Costs Incurred to Date (1) Estimated Costs to Complete (1) Redstone Arsenal: 5300 Redstone Gateway Huntsville, Alabama 46 100% 1Q 24 $ 17,973 $ 2,578 8100 Rideout Road Huntsville, Alabama 128 42% 3Q 24 30,485 13,478 Subtotal / Average 174 57% 48,458 16,056 Data Center Shells: Southpoint Phase 2 Bldg A Northern Virginia 225 100% 3Q 24 20,760 61,740 Southpoint Phase 2 Bldg B Northern Virginia 193 100% 3Q 25 5,150 59,850 MP 3 Northern Virginia 225 100% 4Q 25 10,031 101,769 Subtotal / Average 643 100% 35,941 223,359 Total Under Development 817 91% $ 84,399 $ 239,415 (1) Includes land, development, leasing costs and allocated portion of structured parking and other shared infrastructure, if applicable.
Removed
Mary's County, Maryland 29 62% 1Q 23 9,037 614 Redstone Arsenal: 7000 Redstone Gateway (2) Huntsville, Alabama 46 69% 3Q 23 7,890 4,513 300 Secured Gateway Huntsville, Alabama 206 100% 4Q 23 25,384 42,371 8100 Rideout Road Huntsville, Alabama 131 0% 3Q 24 14,605 24,720 Subtotal / Average 383 62% 47,879 71,604 Data Center Shells: PS A Northern Virginia 227 100% 3Q 23 12,886 51,114 PS B Northern Virginia 193 100% 4Q 23 7,875 45,125 Subtotal / Average 420 100% 20,761 96,239 Total Under Development 1,018 85% $ 118,012 $ 202,957 (1) Includes land, development, leasing costs and allocated portion of structured parking and other shared infrastructure, if applicable.
Removed
(2) This property had occupied square feet in service as of December 31, 2022. Therefore, the property and its occupied square feet are included in our operating property statistics, including the information set forth on the previous page.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. 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 4. Mine Safety Disclosures Not applicable. 20 PART II
Biggest changeItem 3. 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 4. Mine Safety Disclosures Not applicable. 21 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph and the table compare the cumulative return (assuming reinvestment of dividends) of this investment with a $100 investment at that time in the S&P 500 Index or the All Equity REITs Index of the National Association of Real Estate Investment Trusts (“Nareit”): Period Ended Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Corporate Office Properties Trust $ 100.00 $ 74.90 $ 108.21 $ 99.35 $ 113.23 $ 109.62 S&P 500 Index $ 100.00 $ 94.80 $ 126.06 $ 147.67 $ 192.64 $ 157.27 FTSE Nareit All Equity REITs Index $ 100.00 $ 95.96 $ 123.46 $ 117.14 $ 165.51 $ 124.22 Item 6. [Reserved] 21
Biggest changeThe graph and the table compare the cumulative return (assuming reinvestment of dividends) of this investment with a $100 investment at that time in the S&P 500 Index, the FTSE All Equity REITs Index of the National Association of Real Estate Investment Trusts (“Nareit”) (the “All Equity REITs Index”) and the Office Property Sector of the FTSE All Equity REITs Index of Nareit (the “Office Sector Index”): Period Ended Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 COPT Defense Properties $ 100.00 $ 145.23 $ 134.90 $ 150.59 $ 145.69 $ 150.89 S&P 500 Index $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 Office Property Sector of FTSE Nareit All Equity REITs Index $ 100.00 $ 131.42 $ 107.19 $ 130.77 $ 81.58 $ 83.23 FTSE Nareit All Equity REITs Index $ 100.00 $ 128.66 $ 122.07 $ 172.49 $ 129.45 $ 144.16 In our 2022 Annual Report on Form 10-K, we used the All Equity REITs Index for purposes of comparing the performance of our shares to an industry index of our peers.
This number does not include shareholders whose shares were held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder. Common Shares Performance Graph The graph and the table set forth below assume $100 was invested on December 31, 2017 in our common shares.
This number does not include shareholders whose shares were held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder. Common Shares Performance Graph The graph and the table set forth below assume $100 was invested on December 31, 2018 in our common shares.
Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares trade on the New York Stock Exchange (“NYSE”) under the symbol “OFC.” The number of holders of record of our common shares was 425 as of February 7, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) In September 2023, the ticker symbol under which our common shares are publicly traded on the New York Stock Exchange (“NYSE”) changed from “OFC” to “CDP”. The number of holders of record of our common shares was 439 as of February 7, 2024.
Added
Effective for our 2023 Annual Report on Form 10-K, we changed the industry index of our peers to the Office Sector Index as we believe it to be a closer representation of our business model than the broader index we previously used.
Added
Since 2023 is the initial year for our change in the industry index of our peers, we are presenting both of these indexes in the graph and table included above.
Added
Shares Authorized for Issuance Under Equity Compensation Plans For the information required by Item 5 (a) related to shares authorized for issuance under equity compensation plan, you should refer to our definitive proxy statement relating to the 2024 Annual Meeting of our Shareholders to be filed with the 22 Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Added
(b) Not applicable (c) None Item 6. [Reserved] 23

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

76 edited+35 added−31 removed43 unchanged
Biggest changeThese measures are defined as (1) the sum of (a) dividends on unrestricted common shares and (b) distributions to holders of interests in COPLP (excluding unvested share-based compensation awards) divided by either (2) FFO, Diluted FFO or Diluted FFO, adjusted for comparability. 35 The table below sets forth the computation of the above stated measures for 2022 and 2021 and provides reconciliations to the GAAP measures associated with such measures: For the Years Ended December 31, 2022 2021 (Dollars and shares in thousands, except per share data) Net income $ 178,822 $ 81,578 Real estate-related depreciation and amortization 141,230 147,833 Depreciation and amortization on UJVs allocable to COPT 2,101 1,981 Gain on sales of real estate (47,814) (65,590) FFO 274,339 165,802 FFO allocable to other noncontrolling interests (4,795) (5,483) Basic FFO allocable to share-based compensation awards (1,433) (777) Basic FFO available to common share and common unit holders 268,111 159,542 Redeemable noncontrolling interests (34) (11) Diluted FFO adjustments allocable to share-based compensation awards 109 32 Diluted FFO available to common share and common unit holders 268,186 159,563 Loss on early extinguishment of debt 609 100,626 Gain on early extinguishment of debt on unconsolidated real estate JVs (168) — Loss on interest rate derivatives included in interest expense — 221 Demolition costs on redevelopment and nonrecurring improvements — 423 Executive transition costs 343 — Diluted FFO comparability adjustments allocable to share-based compensation awards (5) (507) Diluted FFO available to common share and common unit holders, as adjusted for comparability $ 268,965 $ 260,326 Weighted average common shares 112,073 111,960 Conversion of weighted average common units 1,454 1,257 Weighted average common shares/units - Basic FFO per share 113,527 113,217 Dilutive effect of share-based compensation awards 431 330 Redeemable noncontrolling interests 116 128 Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability 114,074 113,675 Diluted FFO per share $ 2.35 $ 1.40 Diluted FFO per share, as adjusted for comparability $ 2.36 $ 2.29 Denominator for diluted EPS 112,620 112,418 Weighted average common units 1,454 1,257 Denominator for diluted FFO per share and as adjusted for comparability 114,074 113,675 Common share dividends - unrestricted shares and deferred shares $ 123,367 $ 123,243 Common share dividends - restricted shares and deferred shares 307 324 Common unit distributions - unrestricted units 1,623 1,387 Common unit distributions - restricted units 260 208 Dividends and distributions for net income payout ratio $ 125,557 $ 125,162 Common share dividends - unrestricted shares and deferred shares $ 123,367 $ 123,243 Common unit distributions - unrestricted units 1,623 1,387 Dividends and distributions for FFO payout ratio 124,990 124,630 Common unit distributions - dilutive restricted units 51 25 Dividends and distributions for other non-GAAP payout ratios $ 125,041 $ 124,655 Net income payout ratio 70.2 % 153.4 % FFO payout ratio 45.6 % 75.2 % Diluted FFO payout ratio 46.6 % 78.1 % Diluted FFO payout ratio, as adjusted for comparability 46.5 % 47.9 % 36 Property Additions The table below sets forth the major components of our additions to properties for 2022 and 2021: For the Years Ended December 31, 2022 2021 Variance (in thousands) Development and redevelopment $ 266,680 $ 283,180 $ (16,500) Tenant improvements on operating properties (1) 54,494 23,533 30,961 Capital improvements on operating properties 29,528 35,970 (6,442) $ 350,702 $ 342,683 $ 8,019 (1) Tenant improvement costs incurred on newly-developed properties are classified in this table as development and redevelopment.
Biggest changeThese measures are defined as (1) the sum of dividends on unrestricted common and deferred shares and distributions to holders of interests in CDPLP, to the extent they are dilutive for purposes of calculating the respective related non-GAAP per share measures, divided by (2) the respective non-GAAP measures. 37 The table below sets forth the computation of the above stated measures for 2023 and 2022 and provides reconciliations to the GAAP measures associated with such measures: For the Years Ended December 31, 2023 2022 (Dollars and shares in thousands, except per share data) Net (loss) income $ (74,347) $ 178,822 Real estate-related depreciation and amortization 148,950 141,230 Impairment losses on real estate 252,797 — Gain on sales of real estate (49,392) (47,814) Depreciation and amortization on UJVs allocable to COPT Defense 3,217 2,101 FFO 281,225 274,339 FFO allocable to other noncontrolling interests (3,978) (4,795) Basic FFO allocable to share-based compensation awards (1,940) (1,433) Basic FFO available to common share and common unit holders 275,307 268,111 Redeemable noncontrolling interests (58) (34) Diluted FFO adjustments allocable to share-based compensation awards 150 109 Diluted FFO available to common share and common unit holders 275,399 268,186 Loss on early extinguishment of debt — 609 Executive transition costs 518 343 Gain on early extinguishment of debt on unconsolidated real estate JVs — (168) Diluted FFO comparability adjustments allocable to share-based compensation awards (4) (5) Diluted FFO available to common share and common unit holders, as adjusted for comparability $ 275,913 $ 268,965 Weighted average common shares 112,178 112,073 Conversion of weighted average common units 1,509 1,454 Weighted average common shares/units - Basic FFO per share 113,687 113,527 Dilutive effect of share-based compensation awards 424 431 Redeemable noncontrolling interests 38 116 Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability 114,149 114,074 Diluted EPS $ (0.67) $ 1.53 Diluted FFO per share $ 2.41 $ 2.35 Diluted FFO per share, as adjusted for comparability $ 2.42 $ 2.36 Denominator for diluted EPS 112,178 112,620 Weighted average common units 1,509 1,454 Redeemable noncontrolling interests 38 — Dilutive effect of additional share-based compensation awards 424 — Denominator for diluted FFO per share and as adjusted for comparability 114,149 114,074 Dividends on unrestricted common and deferred shares $ 127,978 $ 123,367 Dividends and distributions on restricted shares and units 828 567 Distributions on unrestricted common units 1,725 1,623 Dividends and distributions for net income payout ratio $ 130,531 $ 125,557 Dividends on unrestricted common and deferred shares $ 127,978 $ 123,367 Distributions on unrestricted common units 1,725 1,623 Dividends and distributions for FFO payout ratio 129,703 124,990 Dividends and distributions adjustments for dilution (7) 51 Dividends and distributions for diluted non-GAAP payout ratios $ 129,696 $ 125,041 Net income payout ratio N/A 70.2 % FFO payout ratio 46.1 % 45.6 % Diluted FFO payout ratio 47.1 % 46.6 % Diluted FFO payout ratio, as adjusted for comparability 47.0 % 46.5 % 38 Property Additions The table below sets forth the major components of our additions to properties for 2023 and 2022: For the Years Ended December 31, 2023 2022 Variance (in thousands) Development $ 248,790 $ 266,680 $ (17,890) Tenant improvements on operating properties (1) 58,315 54,494 3,821 Capital improvements on operating properties 25,976 29,528 (3,552) $ 333,081 $ 350,702 $ (17,621) (1) Tenant improvement costs incurred on newly-developed properties are classified in this table as development.
Net cash flow used in financing activities in 2022 was $183.2 million, and included primarily the following: • dividends to common shareholders of $123.6 million; and • net repayments of debt borrowings during the period of $43.3 million, which included the net effect of: repayments of our Revolving Credit Facility and term loan facility primarily using property sale proceeds; proceeds from our Revolving Credit Facility primarily to fund property development; and the refinancing of our existing Revolving Credit Facility and term loan facility using proceeds from new facilities.
Net cash flow used in financing activities in 2022 was $183.2 million, and included primarily the following: > dividends to common shareholders of $123.6 million; and > net repayments of debt borrowings during the period of $43.3 million, which included the net effect of: repayments of our Revolving Credit Facility and term loan facility primarily using property sale proceeds; proceeds from our Revolving Credit Facility used primarily to fund property development; and the refinancing of our existing Revolving Credit Facility and term loan facility using proceeds from new facilities.
We believe that cash rents and straight-line rents are useful measures for evaluating the rental rates of our leasing activity, including changes in such rates relative to rates that may have been previously in place, with cash rents serving as a measure to evaluate rents at the time rent payments commence, and straight-line rents serving as a measure to evaluate rents over lease terms.
We believe that cash rents and straight-line rents are useful measures for evaluating the rental rates of our leasing activity, including changes in such rates relative to rates that may have been previously in place, with cash rents serving as a measure to evaluate rents at the time rent payments commence, and straight-line rents serving as a measure to evaluate rents over the related lease terms.
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.
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 or loss is the most directly comparable GAAP measure to this non-GAAP measure.
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.
Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us 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.
We find the measure particularly useful for leasing, tenant and segment 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 in this measure.
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 in this measure.
For most of our leases with the USG, our estimates of lease term conclude that exercise of existing renewal options, or continuation of such leases without exercising early termination rights, is reasonably certain as it relates to the expected lease end date.
For most of our leases with the USG, our estimates of lease term conclude 27 that exercise of existing renewal options, or continuation of such leases without exercising early termination rights, is reasonably certain as it relates to the expected lease end date.
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.
Additionally, it should not be used as an alternative to net income or loss 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.
In addition, for: • property operating expenses, mo st 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 .
For: > property operating expenses, mo st 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 .
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.
Since FFO excludes certain items includable in net income or loss, 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.
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 Nareit definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs.
FFO also includes adjustments to net income or loss 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 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 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 10.
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 8.
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.
Since both of the measures discussed above exclude certain items includable in net income or loss, 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.
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.
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 or loss is the most directly comparable GAAP measure to FFO.
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.
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 or loss available to common shareholders.
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.
The computations for all of the above measures on a diluted basis assume the conversion of common units in CDPLP 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.
Our material cash requirements, including contractual and other obligations, include: • property operating expenses, including future lease obligations from us as a lessee; • construction contract expenses; • general and administrative expenses; • debt service, including interest expense; • property development/redevelopment costs; • tenant and capital improvements and leasing costs for operating properties (expected to total approximately $85 million in 2023); • debt balloon payments due upon maturity; and • dividends to our shareholders.
Our material cash requirements, including contractual and other obligations, include: > property operating expenses, including future lease obligations from us as a lessee; > construction contract expenses; > general, administrative, leasing and other expenses; > debt service, including interest expense; > property development costs; > tenant and capital improvements and leasing costs for operating properties (expected to total approximately $85 million in 2024); > debt balloon payments due upon maturity; and > dividends to our shareholders.
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 and investments in UJVs (net of associated income tax) and real estate-related depreciation and amortization.
Funds from Operations Funds from operations (“FFO”) is defined as net income or loss computed using GAAP, excluding gains on sales and impairment losses of real estate and investments in UJVs (net of associated income tax) and real estate-related depreciation and amortization.
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.
We believe that net income or loss 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.
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.
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 or loss is the most directly comparable GAAP measure to Diluted FFO.
Straight-line rents includes annual minimum rents, net of abatements and lease incentives and excluding rent associated with tenant funded landlord assets, on a straight-line basis over the term of the lease, and estimated annual expense reimbursements (as of lease commencement for new or renewed leases or as of lease expiration for expiring leases).
Straight-line rents include annual minimum base rents, net of abatements and lease incentives and excluding rent associated with tenant funded landlord assets, on a straight-line basis over the term of the lease, and estimated annual expense reimbursements (as of lease commencement for new or renewed leases or as of lease expiration for expiring leases).
Our determination of appropriate capitalization or discount rates for use in estimating property fair values also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality and location of the property.
Our determination of appropriate capitalization or discount rates for use in estimating property fair values also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality, location and other unique attributes of the property.
Our estimates consider items such as current and future market rental and occupancy rates, estimated operating and capital expenditures and recent sales data for comparable properties; most of these items are influenced by market data obtained from real estate leasing and brokerage firms and our direct experience with the properties and their markets.
Our estimates consider items such as current and future market rental and occupancy rates, estimated operating and capital expenditures, leasing commissions, absorption and hold periods and recent sales data for comparable properties; most of these items are influenced by market data obtained from real estate leasing and brokerage firms and our direct experience with the properties and their markets.
We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses from continuing and discontinued operations; 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”).
We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses from continuing and discontinued operations; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate 31 joint ventures (“UJVs”) that is allocable to our ownership interest (“UJV NOI allocable to COPT Defense”).
T hese lease arrangements reduce our exposure to increases in property operating expenses; • new property development and tenant improvements associated with new leasing in our Defense/IT Locations, increased costs have not significantly affected our ability to achieve targeted yields on new development and new leasing of existing properties due to continued strong demand for space, which has generally enabled us to increase rents to maintain such yields.
T hese lease arrangements reduce our exposure to increases in property operating expenses; > new property development and tenant improvements associated with new leasing in our Defense/IT Portfolio, increased costs have not significantly affected our ability to achieve targeted yields due to continued strong demand for space, which has generally enabled us to increase rents to maintain such yields.
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.
However, these notes are effectively subordinated in right of payment to CDPLP’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 CDPLP's subsidiaries. COPT Defense fully and unconditionally guarantees CDPLP’s obligations under these notes.
Lease Expirations The table below sets forth as of December 31, 2022 our scheduled lease expirations based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles for our properties by segment/sub-segment in terms of percentage of annualized rental revenue: Expiration of Annualized Rental Revenue of Operating Properties 2023 2024 2025 2026 2027 Thereafter Total Defense/IT Locations Fort Meade/BW Corridor 7.5 % 7.9 % 11.3 % 4.9 % 2.7 % 12.6 % 46.8 % NoVA Defense/IT 0.6 % 2.7 % 2.0 % 0.3 % 1.0 % 6.6 % 13.3 % Lackland Air Force Base 0.0 % 0.0 % 6.5 % 2.0 % 0.0 % 1.4 % 9.9 % Navy Support 0.9 % 1.4 % 0.6 % 1.0 % 1.0 % 0.4 % 5.4 % Redstone Arsenal 0.1 % 0.6 % 1.1 % 0.1 % 0.7 % 5.0 % 7.6 % Data Center Shells 0.0 % 0.1 % 0.0 % 0.1 % 0.1 % 6.3 % 6.7 % Regional Office 0.6 % 0.9 % 0.5 % 0.9 % 0.7 % 5.8 % 9.4 % Other 0.0 % 0.1 % 0.7 % 0.0 % 0.0 % 0.0 % 0.9 % Total 9.8 % 13.7 % 22.6 % 9.4 % 6.3 % 38.2 % 100.0 % The weighted average lease term as of December 31, 2022 was approximately five years.
Lease Expirations The table below sets forth as of December 31, 2023 our scheduled lease expirations based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles for our properties by segment/sub-segment in terms of percentage of annualized rental revenue: Expiration of Annualized Rental Revenue of Operating Properties 2024 2025 2026 2027 2028 Thereafter Total Defense/IT Portfolio: Fort Meade/BW Corridor 8.4 % 11.1 % 5.1 % 4.0 % 7.1 % 11.9 % 47.7 % NoVA Defense/IT 1.5 % 1.8 % 0.3 % 1.0 % 1.1 % 7.0 % 12.8 % Lackland Air Force Base 0.0 % 6.2 % 1.9 % 0.0 % 0.0 % 1.4 % 9.5 % Navy Support 1.6 % 0.7 % 0.9 % 1.2 % 0.2 % 0.5 % 5.2 % Redstone Arsenal 0.5 % 1.1 % 0.1 % 0.7 % 0.0 % 6.4 % 8.8 % Data Center Shells 0.1 % 0.0 % 0.1 % 0.1 % 0.1 % 5.4 % 5.8 % Other 0.7 % 1.6 % 0.9 % 0.7 % 1.4 % 5.0 % 10.2 % Total 12.8 % 22.5 % 9.5 % 7.6 % 10.0 % 37.6 % 100.0 % The weighted average lease term as of December 31, 2023 was approximately five years.
Cash rents include monthly contractual base rent (ignoring rent abatements and rent associated with tenant funded landlord assets) multiplied by 12, plus estimated annualized expense reimbursements (as of lease commencement for new or renewed leases or as of lease expiration for expiring leases).
Cash rents include monthly contractual base rent (ignoring rent abatements and rent associated with tenant funded landlord assets) multiplied by 12, plus estimated annualized expense reimbursements (average for first 12 months of term for new or renewed leases or as of lease expiration for expiring leases).
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.
COPT Defense’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 Defense. COPT Defense itself does not hold any indebtedness, and its only material asset is its investment in CDPLP.
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 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.
Changes in the estimated future cash flows due to changes in our plans for a property or significant changes in our views regarding property market and economic conditions and/or our ability to obtain development rights could result in recognition of impairment losses that could be substantial. 26 Concentration of Operations Customer Concentration of Property Operations The table below sets forth the 20 largest tenants in our portfolio of operating properties based on percentage of annualized rental revenue: Percentage of Annualized Rental Revenue of Operating Properties for 20 Largest Tenants as of December 31, Tenant (1) 2022 2021 2020 USG 35.5 % 35.6 % 34.1 % Fortune 100 Company 8.4 % 9.2 % 9.1 % General Dynamics Corporation 5.1 % 5.6 % 5.6 % The Boeing Company 2.4 % 2.5 % 3.0 % Northrop Grumman Corporation 2.4 % 1.4 % 2.3 % CACI International Inc 2.4 % 2.4 % 2.4 % Peraton Corp. 2.1 % 2.1 % N/A Fortune 100 Company 1.9 % N/A N/A Booz Allen Hamilton, Inc. 1.9 % 1.9 % 2.0 % CareFirst Inc. 1.5 % 1.7 % 2.0 % Morrison & Foerster, LLP 1.4 % 1.0 % 1.0 % KBR, Inc. 1.2 % N/A N/A Raytheon Technologies Corporation 1.1 % 1.1 % 1.0 % Yulista Holding, LLC 1.1 % 1.1 % 1.0 % Wells Fargo & Company 1.1 % 1.1 % 1.2 % AT&T Corporation 1.1 % 1.1 % 1.1 % Miles and Stockbridge, PC 1.1 % 1.0 % 1.0 % Mantech International Corp. 1.0 % 1.0 % 0.8 % Jacobs Engineering Group Inc. 1.0 % 1.0 % 0.9 % The MITRE Corporation 0.8 % 0.8 % 0.8 % University System of Maryland N/A 0.8 % 0.9 % Transamerica Life Insurance Company N/A 0.9 % 0.9 % Science Applications International Corporation N/A N/A 0.9 % Subtotal of 20 largest tenants 74.5 % 73.3 % 72.0 % All remaining tenants 25.5 % 26.7 % 28.0 % Total 100.0 % 100.0 % 100.0 % Total annualized rental revenue $ 609,700 $ 589,425 $ 571,035 (1) Includes affiliated organizations where applicable. 27 Concentration of Properties by Segment The table below sets forth the segment allocation of our annualized rental revenue (excluding our Wholesale Data Center that we sold on January 25, 2022) as of the end of the last three calendar years: Percentage of Annualized Rental Revenue as of December 31, Number of Properties as of December 31, Region 2022 2021 2020 2022 2021 2020 Defense/IT Locations: Fort Meade/BW Corridor 46.8 % 47.0 % 47.3 % 91 90 89 NoVA Defense/IT 13.3 % 13.9 % 12.1 % 16 16 15 Lackland Air Force Base 9.9 % 10.6 % 9.7 % 8 8 7 Navy Support 5.4 % 5.9 % 6.3 % 22 21 21 Redstone Arsenal 7.6 % 5.4 % 5.5 % 21 17 15 Data Center Shells 6.7 % 5.3 % 6.6 % 28 26 26 Total Defense/IT Locations 89.7 % 88.1 % 87.5 % 186 178 173 Regional Office 9.4 % 11.0 % 11.6 % 6 6 6 Other 0.9 % 0.9 % 0.9 % 2 2 2 100.0 % 100.0 % 100.0 % 194 186 181 The changes in revenue concentration reflected above between year end 2021 and 2022 were attributable primarily to the effect of occupied properties placed in service in 2022, most notably for Redstone Arsenal and Data Center Shells, and lower occupancy for our Regional Office properties.
Changes in the estimated future cash flows due to changes in our plans for a property or significant changes in our views regarding property market and economic conditions and/or our ability to obtain development rights could result in recognition of impairment losses that could be substantial. 28 Concentration of Operations Customer Concentration of Property Operations The table below sets forth the 20 largest tenants in our portfolio of operating properties based on percentage of annualized rental revenue: Percentage of Annualized Rental Revenue of Operating Properties for 20 Largest Tenants as of December 31, Tenant (1) 2023 2022 2021 USG 35.9 % 35.5 % 35.6 % Fortune 100 Company 8.7 % 8.4 % 9.2 % General Dynamics Corporation 5.0 % 5.1 % 5.6 % CACI International Inc 2.3 % 2.4 % 2.4 % Northrop Grumman Corporation 2.3 % 2.4 % 1.4 % The Boeing Company 2.3 % 2.4 % 2.5 % Peraton Corp. 2.0 % 2.1 % 2.1 % Booz Allen Hamilton, Inc. 1.8 % 1.9 % 1.9 % Fortune 100 Company 1.8 % 1.9 % N/A Morrison & Foerster, LLP 1.5 % 1.4 % 1.0 % CareFirst Inc. 1.4 % 1.5 % 1.7 % KBR, Inc. 1.2 % 1.2 % N/A Yulista Holding, LLC 1.1 % 1.1 % 1.1 % RTX Corporation 1.1 % 1.1 % 1.1 % Miles and Stockbridge, PC 1.0 % 1.1 % 1.0 % AT&T Corporation 1.0 % 1.1 % 1.1 % Mantech International Corp. 1.0 % 1.0 % 1.0 % Jacobs Engineering Group Inc. 1.0 % 1.0 % 1.0 % Wells Fargo & Company 1.0 % 1.1 % 1.1 % University System of Maryland 0.9 % N/A 0.8 % The MITRE Corporation N/A 0.8 % 0.8 % Transamerica Life Insurance Company N/A N/A 0.9 % Subtotal of 20 largest tenants 74.3 % 74.5 % 73.3 % All remaining tenants 25.7 % 25.5 % 26.7 % Total 100.0 % 100.0 % 100.0 % Total annualized rental revenue $ 646,660 $ 609,700 $ 589,425 (1) Includes affiliated organizations where applicable. 29 Concentration of Properties by Segment The table below sets forth the segment allocation of our annualized rental revenue (excluding our Wholesale Data Center that we sold on January 25, 2022) as of the end of the last three calendar years: Percentage of Annualized Rental Revenue as of December 31, Number of Properties as of December 31, Region 2023 2022 2021 2023 2022 2021 Defense/IT Portfolio: Fort Meade/BW Corridor 47.7 % 46.8 % 47.0 % 92 91 90 NoVA Defense/IT 12.8 % 13.3 % 13.9 % 16 16 16 Lackland Air Force Base 9.5 % 9.9 % 10.6 % 8 8 8 Navy Support 5.2 % 5.4 % 5.9 % 22 22 21 Redstone Arsenal 8.8 % 7.6 % 5.4 % 22 21 17 Data Center Shells 5.8 % 6.7 % 5.3 % 30 28 26 Total Defense/IT Portfolio 89.8 % 89.7 % 88.1 % 190 186 178 Other 10.2 % 10.3 % 11.9 % 8 8 8 100.0 % 100.0 % 100.0 % 198 194 186 The changes in revenue concentration reflected above between year-end 2022 and 2023 were attributable primarily to the: increasing effects in 2023 of occupied properties placed in service (most notably for Fort Meade/BW Corridor, Redstone Arsenal and Data Center Shells) and occupancy from vacant space leasing for Fort Meade/BW Corridor and Redstone Arsenal; offset in part by the decreasing effect from our sale of interests in Data Center Shells in 2023.
We discuss significant factors contributing to changes in our net income between 2022 and 2021 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 • material cash requirements for known contractual and other obligations.
Additional disclosure comparing our 2023 and 2022 results of operations is provided below. 26 We discuss significant factors contributing to changes in our net income between 2023 and 2022 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 > material cash requirements for known contractual and other obligations.
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 December 31, 2022, we were compliant with these covenants.
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.
We expect to use cash flow from operations in 2023 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.
We expect to use cash flow from operations in 2024 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 costs, the fundings for which are discussed below.
Important factors that may affect these expectations, estimates and projections include, but are not limited to: • general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability, property operating and construction costs, and property values; • adverse changes in the real estate markets, including, among other things, increased competition with other companies; • governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses, such as a reduction in rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by our strategic customers; • our ability to borrow on favorable terms; • risks of 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; • 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; • our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships; • possible adverse changes in tax laws; • the dilutive effects of issuing additional common shares; • our ability to achieve projected results; • security breaches relating to cyber attacks, cyber intrusions or other factors, and other significant disruptions of our information technology networks and related systems; and • environmental requirements.
Important factors that may affect these expectations, estimates and projections include, but are not limited to: > general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability, property operating and construction costs, and property values; > adverse changes in the real estate markets, including, among other things, increased competition with other companies; > our ability to borrow on favorable terms; > risks of 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; > potential impact of a prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new tenants; > potential additional costs, such as capital improvements, fees and penalties, associated with environmental laws or regulations; > adverse changes resulting from other government actions and initiatives, such as changes in taxation, zoning laws or other regulations. > our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships; > the dilutive effects of issuing additional common shares; and > security breaches relating to cyber attacks, cyber intrusions or other factors, and other significant disruptions of our information technology networks and related systems.
General, Administrative and Leasing Expenses Our general, administrative and leasing expense are net of amounts capitalized for compensation and indirect costs associated with properties, or portions thereof, undergoing development or redevelopment activities. Our capitalized compensation and indirect costs totaled $10.7 million in 2022 and $11.0 million in 2021.
General, Administrative, Leasing and Other Expenses Our general, administrative, leasing and other expenses are net of amounts capitalized for compensation and indirect costs associated with properties, or portions thereof, undergoing development or redevelopment activities. Our capitalized compensation and indirect costs totaled $9.5 million in 2023 and $10.7 million in 2022.
The facility matures in October 2026 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 0.0625% of the total availability under the facility for each extension period.
The facility matures in October 2026 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 0.0625% of the total availability under the facility for each extension period. Our available borrowing capacity under the facility totaled $525.0 million as of December 31, 2023.
As permitted under Rule 13-01(a)(4)(vi), we 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.
As permitted under Rule 13-01(a)(4)(vi), we 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. 39 Liquidity and Capital Resources As of December 31, 2023, we had $167.8 million in cash and cash equivalents.
The cash rents for our renewals (totaling $31.69 per square foot) decreased on average by approximately 2.0% and the straight-line rents (totaling $31.45 per square foot) increased on average by approximately 3.1% relative to the leases previously in place for the space.
The cash rents for our renewals (totaling $34.69 per square foot) increased on average by approximately 1.5% and the straight-line rents (totaling $34.69 per square foot) increased on average by approximately 9.3% relative to the leases previously in place for the space.
Occupancy and Leasing The tables below set forth occupancy information (excluding our Wholesale Data Center that we sold on January 25, 2022): December 31, 2022 2021 2020 Occupancy rates at period end Total 92.7 % 92.4 % 94.1 % Defense/IT Locations: Fort Meade/BW Corridor 92.7 % 90.0 % 91.0 % NoVA Defense/IT 90.0 % 88.3 % 87.9 % Lackland Air Force Base 100.0 % 100.0 % 100.0 % Navy Support 89.8 % 93.9 % 97.2 % Redstone Arsenal 89.9 % 90.8 % 99.4 % Data Center Shells 100.0 % 100.0 % 100.0 % Total Defense/IT Locations 94.1 % 93.0 % 94.4 % Regional Office 79.0 % 88.7 % 93.1 % Other 75.5 % 66.2 % 68.4 % Annualized rental revenue per occupied square foot at year end $ 33.16 $ 32.47 $ 31.50 Rentable Square Feet Occupied Square Feet (in thousands) December 31, 2021 21,710 20,070 Vacated upon lease expiration (1) — (693) Occupancy for new leases — 695 Development placed in service 1,280 1,255 Other changes 16 — December 31, 2022 23,006 21,327 (1) Includes lease terminations and space reductions occurring in connection with lease renewals. 28 With regard to changes in occupancy from December 31, 2021 to December 31, 2022: • Fort Meade/BW Corridor: Increase was due primarily to occupancy from vacant space leasing in a number of properties in this sub-segment; • Navy Support: Decreased despite its 82.8% tenant retention rate in 2022 due to minimal leasing of vacant space.
Occupancy and Leasing The tables below set forth occupancy information (excluding our Wholesale Data Center that we sold on January 25, 2022): December 31, 2023 2022 2021 Occupancy rates at period end Total 94.2 % 92.7 % 92.4 % Defense/IT Portfolio: Fort Meade/BW Corridor 96.4 % 92.7 % 90.0 % NoVA Defense/IT 88.9 % 90.0 % 88.3 % Lackland Air Force Base 100.0 % 100.0 % 100.0 % Navy Support 87.4 % 89.8 % 93.9 % Redstone Arsenal 97.5 % 89.9 % 90.8 % Data Center Shells 100.0 % 100.0 % 100.0 % Total Defense/IT Portfolio 96.2 % 94.1 % 93.0 % Other 73.2 % 78.8 % 87.0 % Annualized rental revenue per occupied square foot at year end $ 34.14 $ 33.16 $ 32.47 Rentable Square Feet Occupied Square Feet (in thousands) December 31, 2022 23,006 21,327 Vacated upon lease expiration (1) — (504) Occupancy for new leases — 818 Development placed in service 848 827 Other changes 5 2 December 31, 2023 23,859 22,470 (1) Includes lease terminations and space reductions occurring in connection with lease renewals. 30 With regard to changes in occupancy from December 31, 2022 to December 31, 2023: > Fort Meade/BW Corridor: Increase was due primarily to the commencement of occupancy from vacant space leasing in a number of properties in this sub-segment; > Navy Support: Decreased despite an 80.5% tenant retention rate in 2023 due to minimal commencement of occupancy from vacant space leasing.
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 until a later date.
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 until a later date.
While reviewing this section, refer to Note 2 to our consolidated financial statements, including terms defined therein. 25 Assessment of Lease Term as Lessor As discussed above, a significant portion of our portfolio is leased to the USG, and the majority of those leases consist of a series of one-year renewal options (with defined rent escalations upon renewal), and/or provide for early termination rights.
Assessment of Lease Term as Lessor As discussed above, a significant portion of our portfolio is leased to the USG, and the majority of those leases provide for one-year terms, with a series of one-year renewal options (with defined rent escalations upon renewal), and/or provide for early termination rights.
In addition, for variable rate loans, we have used interest rate swaps to hedge the effect of interest rate increases on variable rate debt, including swaps for a $200.0 million notional amount that: fixed the one-month LIBOR interest rate in 2022 at 1.9% through December 1, 2022; and, effective February 1, 2023, fixed the one-month SOFR interest rate at 3.7% for a three-year term; • we have observed constraints in the availability of unsecured bank debt.
While our debt is predominantly fixed rate and in the form of long-term unsecured notes, for variable-rate loans, we used interest rate swaps to hedge the effect of interest rate changes, including swaps for a $200.0 million 35 notional amount that: fixed the one-month LIBOR interest rate in 2022 at 1.9% through December 1, 2022; and, effective February 1, 2023, fixed the one-month SOFR interest rate at 3.7% for a three-year term.
For us: • the above economic conditions have not significantly affected our ability to achieve expected leasing in our Defense/IT Locations, while our Regional Office properties continue to experience a challenging leasing environment that has not improved; • inflationary conditions have contributed to increased costs for certain property operating expenses and building equipment and materials, which affects our development of new properties and improvements for existing properties, although long-term contracts previously in place for much of our property operating costs have buffered our exposure to these increases to a certain extent.
For us: > the above conditions have not significantly affected our ability to achieve expected leasing in our Defense/IT Portfolio, although the properties in our Other segment continue to experience a challenging leasing environment that has not improved; > inflationary conditions have contributed to increased costs for certain property operating expenses and building equipment and materials, which affects our development of new properties and improvements for existing properties.
The cash rents of this leasing totaled $28.90 per square foot and the straight-line rents totaled $29.59 per square foot; these leases had a weighted average lease term of approximately 7.3 years, with average escalations per year of 2.7%, and the per annum average committed costs associated with completing this leasing was approximately $8.81 per square foot.
The cash rents of this leasing totaled $34.87 per square foot and the straight-line rents totaled $35.10 per square foot; these leases had a weighted average lease term of approximately 8.2 years, with average escalations per year of 2.5%, and the per annum average committed costs associated with completing this leasing was approximately $9.41 per square foot.
As of December 31, 2022, we had scheduled lease expirations for 1.7 million square feet in 2023, representing 8.0% of our total occupied square feet and 9.8% of our total annualized rental revenue, including: • 1.5 million square feet in our Defense/IT Locations segment, a high proportion of which we expect to renew; and • 170,000 square feet in our Regional Office segment, most of which we do not expect to renew.
As of December 31, 2023, we had scheduled lease expirations for 2.6 million square feet in 2024, representing 11.5% of our total occupied square feet and 12.8% of our total annualized rental revenue, including: > 2.4 million square feet in our Defense/IT Portfolio segment, a high proportion of which we expect to renew; and > 161,000 square feet in our Other segment, most of which we do not expect to renew.
Our Same Properties pool consisted of 174 properties, comprising 86.9% of our portfolio’s square footage as of December 31, 2022.
Our Same Property pool consisted of 180 properties, comprising 86.4% of our portfolio’s square footage as of December 31, 2023.
It is possible that the use of different reasonable estimates or assumptions could result in materially different amounts being reported in our consolidated financial statements.
It is possible that the use of different reasonable estimates or assumptions could result in materially different amounts being reported in our consolidated financial statements. While reviewing this section, refer to Note 2 to our consolidated financial statements, including terms defined therein.
In 2022, we leased 3.0 million square feet, including 476,000 square feet of development space in Defense/IT Locations, with weighted average lease terms of 13.3 years. In 2022, we renewed leases on 1.7 million square feet, representing a tenant retention rate of 72.1%.
In 2023, we leased 2.9 million square feet, including 747,000 square feet of development space in our Defense/IT Portfolio, with weighted average lease terms of 14.4 years. In 2023, we renewed leases on 1.7 million square feet, representing a tenant retention rate of 79.7%.
We retained a 10% interest in the properties through a newly-formed joint venture. We used substantially all of the proceeds from these sales to pay down debt, including our Revolving Credit Facility and an unsecured term loan, in order to free up borrowing capacity available to fund development activities.
We retained a 10% interest in the properties through a newly-formed joint venture. We used substantially all of the proceeds from this sale to pay down our Revolving Credit Facility to create additional borrowing capacity available to fund future development.
In addition, we periodically raise equity when we access the public equity markets by issuing common shares and, to a lesser extent, preferred shares. We have a program in place 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.
We have a program in place 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.
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 that secured non-recourse debt on which we defaulted and, subsequently, extinguished via conveyance of such 34 properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; and, for periods prior to October 1, 2022, demolition costs on redevelopment and nonrecurring improvements and executive transition costs.
Additionally, it should not be used as an alternative to net income or loss 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. 36 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 that secured non-recourse debt on which we defaulted and, subsequently, extinguished via conveyance of such properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; executive transition costs associated with named executive officers; and, for periods prior to October 1, 2022, demolition costs on redevelopment and nonrecurring improvements and executive transition costs associated with other senior management team members.
As of December 31, 2022, we had $15.9 million in debt balloon payments due in 2023, which were repaid on February 1, 2023. Beyond 2023, we expect to continue to actively develop and redevelop properties and fund using, in part, remaining cash flow from operations, with the balance funded primarily using borrowings under our Revolving Credit Facility, at least initially.
Beyond 2024, we expect to continue to actively develop and redevelop properties and fund using, in part, remaining cash flow from operations, with the balance, at least initially, funded primarily using borrowings under our Revolving Credit Facility.
We define these as changes from “Same Properties.” For further discussion of the concept of “operational,” refer to the Properties section of Note 2 of the consolidated financial statements; • developed or redeveloped and placed into service that were not 100% operational throughout the two years being compared; and • disposed; and • our wholesale data center that we sold on January 25, 2022.
For further discussion of the concept of “operational,” refer to the Properties section of Note 2 of the consolidated financial statements; > developed or redeveloped properties placed into service that were not 100% operational throughout the two years being compared; and > disposed properties. In addition to owning properties, we provide construction management and other services.
Most of these lease renewals were for our Defense/IT Locations, which had a retention rate of 78.8%, while our Regional Office segment had a retention rate of 23.8%.
Most of these lease renewals were for our Defense/IT Portfolio, which had a retention rate of 85.7%, while our Other segment had a retention rate of 25.3%.
However, continued cost increases could adversely affect our ability to continue to achieve targeted yields on future new property development and future new leasing of existing properties to the extent increases in market rental rates do not keep pace, which could also reduce our willingness to commence development of new properties ; and • other capital improvements, the increasing cost environment could increasingly affect our willingness, or timeline, for completing such improvements; • increased interest rates have not yet significantly affected our borrowing costs due in large part to debt refinancings that we completed in 2020 and 2021.
However, continued cost increases could adversely affect our ability to continue to achieve targeted yields on future new property development and future new leasing of our existing properties to the extent increases in market rental rates do not keep pace; this could also reduce our willingness to develop, or our tenants’ willingness to commit to leasing, new properties ; and > other capital improvements, the increasing cost environment could affect our willingness, or timeline, for completing such improvements; > we observed uncertainty in the debt markets in 2023 both in terms of availability and pricing, particularly for commercial real estate.
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.
Our senior unsecured debt is rated investment grade, with stable outlooks, 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.
The renewed leases had a weighted average lease term of approximately 3.6 years, with average escalations per year of 2.5%, and the per annum average committed costs associated with completing the leasing was approximately $2.96 per square foot.
The renewed leases had a weighted average lease term of approximately 4.8 years, with average escalations per year of 2.6%, and the per annum average committed costs associated with completing the leasing was approximately $3.16 per square foot. In 2023, we also completed leasing on 452,000 square feet of vacant space, predominantly for our Defense/IT Portfolio.
NOI from Service Operations For the Years Ended December 31, 2022 2021 Variance (in thousands) Construction contract and other service revenues $ 154,632 $ 107,876 $ 46,756 Construction contract and other service expenses (149,963) (104,053) (45,910) NOI from service operations $ 4,669 $ 3,823 $ 846 Construction contract and other service revenues and expenses increased in 2022 due primarily to a higher volume of construction activity for one of our tenants.
NOI from Service Operations For the Years Ended December 31, 2023 2022 Variance (in thousands) Construction contract and other service revenues $ 60,179 $ 154,632 $ (94,453) Construction contract and other service expenses (57,416) (149,963) 92,547 NOI from service operations $ 2,763 $ 4,669 $ (1,906) Construction contract and other service revenues and expenses decreased in 2023 due primarily to a lower volume of construction activity for one of our tenants.
Supplemental Guarantor Information As of December 31, 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.
Supplemental Guarantor Information As of December 31, 2023, CDPLP had several series of unsecured senior notes outstanding that were issued in transactions registered with the SEC under the Securities Act. These notes are CDPLP’s direct, senior unsecured and unsubordinated obligations and rank equally in right of payment with all of CDPLP’s existing and future senior unsecured and unsubordinated indebtedness.
The table below reconciles NOI from real estate operations to net income, the most directly comparable GAAP measure: For the Years Ended December 31, 2022 2021 (in thousands) Net income $ 178,822 $ 81,578 Construction contract and other service revenues (154,632) (107,876) Depreciation and other amortization associated with real estate operations 141,230 137,543 Construction contract and other service expenses 149,963 104,053 General, administrative and leasing expenses 35,798 36,127 Business development expenses and land carry costs 3,193 4,647 Interest expense 61,174 65,398 Interest and other income (9,341) (7,879) Credit loss expense (recoveries) 271 (1,128) Gain on sales of real estate from continuing operations (19,250) (65,590) Loss on early extinguishment of debt 609 100,626 Equity in income of unconsolidated entities (1,743) (1,093) Unconsolidated real estate JVs NOI allocable to COPT included in equity in income of unconsolidated entities 4,327 4,029 Income tax expense 447 145 Discontinued operations (29,573) (3,358) Revenues from real estate operations from discontinued operations 1,980 30,490 Property operating expenses from discontinued operations (971) (16,842) NOI from real estate operations $ 362,304 $ 360,870 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 two years being compared.
The table below reconciles NOI from real estate operations to net (loss) income, the most directly comparable GAAP measure: For the Years Ended December 31, 2023 2022 (in thousands) Net (loss) income $ (74,347) $ 178,822 Construction contract and other service revenues (60,179) (154,632) Depreciation and other amortization associated with real estate operations 148,950 141,230 Construction contract and other service expenses 57,416 149,963 Impairment losses 252,797 — General, administrative, leasing and other expenses 42,769 38,991 Interest expense 71,142 61,174 Interest and other income, net (12,587) (9,070) Gain on sales of real estate from continuing operations (49,392) (19,250) Loss on early extinguishment of debt — 609 Equity in loss (income) of unconsolidated entities 261 (1,743) UJV NOI allocable to COPT Defense included in equity in (loss) income of unconsolidated entities 6,659 4,327 Income tax expense 588 447 Discontinued operations — (29,573) Revenues from real estate operations from discontinued operations — 1,980 Property operating expenses from discontinued operations — (971) NOI from real estate operations $ 384,077 $ 362,304 We view our changes in NOI from real estate operations as being comprised of the following primary categories: > Same Property, which we define as properties stably owned and 100% operational throughout the two years being compared.
On January 10, 2023, we raised an additional $190.2 million from our sale of a 90% interest in three data center shells in Northern Virginia, resulting in a gain on sale of approximately $49 million. We retained a 10% interest in the properties through a newly-formed joint venture.
Please refer to the section below entitled “Occupancy and Leasing” for additional related disclosure. On January 10, 2023, we raised $190.2 million in capital from our sale of a 90% interest in three data center shell properties in Northern Virginia, resulting in a gain on sale of $49.4 million.
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.
We then subsequently pay down the facility using cash available from operations and proceeds from financing and/or investing activities, such as long-term borrowings, equity issuances and sales of interests in properties.
In 2023, we expect to spend $250 million to $275 million on development costs, most of which was contractually obligated as of December 31, 2022; we expect to fund these cash requirements using, in part, remaining cash flow from operations, with the balance funded primarily using borrowings under our Revolving Credit Facility, at least initially.
We expect to fund these cash requirements using, in part, remaining cash flow from operations and any remaining excess available cash and cash equivalents, with the balance funded using borrowings under our Revolving Credit Facility, at least initially.
Our average outstanding debt was $2.3 billion in 2022 and $2.2 billion in 2021, and our weighted average effective interest rate on debt was approximately 2.8% in 2022 and 3.0% in 2021. 33 Gain on Sales of Real Estate Gain on sales of real estate in 2022 was due to our sale of a 90% interest in two data center shell properties.
Gain on Sales of Real Estate The gain on sales of real estate recognized in 2023 was due to our sale of a 90% interest in three data center shell properties. Gain on sales of real estate in 2022 was due to our sale of a 90% interest in two data center shell properties.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements for information regarding recent accounting pronouncements. 38
As of December 31, 2023, we were compliant with these covenants. 40 Recent Accounting Pronouncements See Note 2 to our consolidated financial statements for information regarding recent accounting pronouncements.
Interest Expense The table below sets forth components of our interest expense: For the Years Ended December 31, 2022 2021 Variance (in thousands) Interest on unsecured senior notes $ 47,496 $ 48,333 $ (837) Interest on mortgage and other secured debt 4,632 7,373 (2,741) Interest on unsecured term debt 3,503 4,259 (756) Interest on Revolving Credit Facility 6,800 1,631 5,169 Interest expense recognized on interest rate swaps 946 5,028 (4,082) Amortization of deferred financing costs 2,297 2,980 (683) Other interest 2,209 2,261 (52) Capitalized interest (6,709) (6,467) (242) Interest expense $ 61,174 $ 65,398 $ (4,224) Regarding the changes in interest expense components reported above: the decrease for mortgage and other secured debt was attributable primarily to our payoff of two mortgages during 2021; and the increase for our Revolving Credit Facility was attributable to higher weighted average balances and variable interest rates, the effect of which was partially offset by the effect of interest rate swaps in place through November 2022.
Interest Expense The table below sets forth components of our interest expense: For the Years Ended December 31, 2023 2022 Variance (in thousands) Interest on unsecured senior notes $ 53,546 $ 47,496 $ 6,050 Interest on mortgage and other secured debt 5,072 4,632 440 Interest on unsecured term debt 8,139 3,503 4,636 Interest on Revolving Credit Facility 8,341 6,800 1,541 Interest expense (offsets) additions from interest rate swaps (3,900) 946 (4,846) Amortization of deferred financing costs 2,580 2,297 283 Other interest 1,843 2,209 (366) Capitalized interest (4,479) (6,709) 2,230 Interest expense $ 71,142 $ 61,174 $ 9,968 Regarding the changes in interest expense components reported above: the increase for unsecured senior notes was attributable to the 5.25% Notes issued in September 2023; and the increases for the unsecured term debt and Revolving Credit Facility were attributable to higher variable interest rates, the effect of which was mostly offset by interest rate swaps in place during the respective periods.
We believe that the weighted average annualized rental revenue per occupied square foot for leases expiring in 2023, on average, approximated estimated current market rents for the related space, with specific results varying by segment. 29 Results of Operations For a discussion of our results of operations comparison for 2021 and 2020, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on February 22, 2022.
We believe that the weighted average annualized rental revenue per occupied square foot for leases expiring in 2024, on average, approximated estimated current market rents for the related space, with specific results varying by segment/sub-segment.
As of December 31, 2022 we had scheduled lease expirations in 2023 for 198,000 square feet, or 17.4%, of this sub-segment’s occupied square feet, most of which we expect to renew; • Redstone Arsenal: 2021 and 2022 year end occupancy included the effect of a 121,000 square foot property vacated by its tenant in late 2021 that we leased in 2022 for occupancy in 2023.
As of December 31, 2023 we had scheduled lease expirations in 2024 for 352,000 square feet, or 32%, of this sub-segment’s occupied square feet, most of which we expect to renew; > Redstone Arsenal: Increase was due primarily to the commencement of occupancy from vacant space leasing in a number of properties in this sub-segment; and > Other: Decreased due to vacated space resulting from its 25.3% tenant retention rate and minimal vacant space leasing.
In 2022 and through the date of this filing, the United States economy experienced inflationary conditions, increased interest rates, higher volatility in the debt and equity capital markets, certain supply-chain related shortages and declines in gross domestic product in the first two quarters.
In 2023, the United States economy experienced inflationary conditions, increased interest rates, higher volatility in the debt and equity capital markets and certain supply-chain related shortages that, coupled with increased prevalence of remote- and flexible-work arrangements in recent years, adversely affected the United States office real estate industry.
This pool of properties changed from the pool used for purposes of comparing 2021 and 2020 in our 2021 Annual Report on Form 10-K due to the: addition of nine properties placed in service and 100% operational on or before 32 January 1, 2021 and eight properties owned through an unconsolidated real estate joint venture that was formed in 2020; and removal of two properties in which we sold a 90% interest.
This pool of properties changed from the pool used for purposes of comparing 2022 and 2021 in our 2022 Annual Report on Form 10-K due to the: addition of seven properties placed in service and 100% operational on or before January 1, 2022 and two properties owned through a UJV that was formed in 2021; and removal of three properties in which we sold a 90% interest in 2023. 34 Regarding the changes in NOI from real estate operations reported above: > the increase for our Same Property pool was due in large part to additional revenue in 2023 resulting from higher occupancy and the commencement of tenant expense reimbursements on certain recently commenced leases; > developed and redeveloped properties placed in service reflects the effect of 13 properties placed in service in 2023 and 2022; and > dispositions, net of retained interest in newly-formed UJVs reflects the effect of our sale of 90% of our interests in three data center shells in 2023 and two in 2022, as well as the sale of our wholesale data center on January 25, 2022.
Net cash flow used in investing activities decreased $119.5 million from 2021 to 2022 due primarily to $138.0 million in additional proceeds from property sales in 2022, which included proceeds from our wholesale data center sale.
Net cash flow used in investing activities increased $86.2 million from 2022 to 2023 due in large part to lower proceeds from properties sold in 2023, which included our sale of a 90% interest in three data center shells, relative to 2022, which included sales of our wholesale data center and a 90% interest in two data center shells.
Net cash flow used in financing activities in 2021 was $50.9 million, and included primarily the following: • dividends to common shareholders of $123.5 million; offset in part by • net proceeds from debt borrowings during the period of $82.8 million, which included: the net effect of our senior note issuances and senior note purchases and redemptions (and related early extinguishment costs); the repayment of a portion of our term loan facility; the payoff of a construction loan and mortgage loan (and related early extinguishment costs); and the net pay down of our Revolving Credit Facility.
Net cash flow provided by financing activities in 2023 was $46.3 million, and included primarily the following: > net proceeds of debt borrowings during the period of $181.4 million, which included the net effect of our issuance of the 5.25% Notes and a net paydown of borrowings under our Revolving Credit Facility using proceeds from the notes issuance and from property sales; and > dividends to common shareholders of $127.2 million.
A reconciliation of NOI from real estate operations and NOI from service operations to income from continuing operations reported on the consolidated statements of operations is provided in Note 15 to our consolidated financial statements. 30 Comparison of Statements of Operations for the Years Ended December 31, 2022 and 2021 For the Years Ended December 31, 2022 2021 Variance (in thousands) Revenues Revenues from real estate operations $ 584,398 $ 556,570 $ 27,828 Construction contract and other service revenues 154,632 107,876 46,756 Total revenues 739,030 664,446 74,584 Operating expenses Property operating expenses 227,430 213,377 14,053 Depreciation and amortization associated with real estate operations 141,230 137,543 3,687 Construction contract and other service expenses 149,963 104,053 45,910 General, administrative and leasing expenses 35,798 36,127 (329) Business development expenses and land carry costs 3,193 4,647 (1,454) Total operating expenses 557,614 495,747 61,867 Interest expense (61,174) (65,398) 4,224 Interest and other income 9,341 7,879 1,462 Credit loss (expense) recoveries (271) 1,128 (1,399) Gain on sales of real estate 19,250 65,590 (46,340) Loss on early extinguishment of debt (609) (100,626) 100,017 Equity in income of unconsolidated entities 1,743 1,093 650 Income tax expense (447) (145) (302) Income from continuing operations 149,249 78,220 71,029 Discontinued operations 29,573 3,358 26,215 Net income $ 178,822 $ 81,578 $ 97,244 31 NOI from Real Estate Operations For the Years Ended December 31, 2022 2021 Variance (Dollars in thousands, except per square foot data) Revenues Same Properties revenues Lease revenue, excluding lease termination revenue and provision for collectability losses $ 527,611 $ 523,621 $ 3,990 Lease termination revenue, net 2,237 2,416 (179) Provision for collectability losses included in lease revenue (745) (105) (640) Other property revenue 4,073 2,771 1,302 Same Properties total revenues 533,176 528,703 4,473 Developed and redeveloped properties placed in service 41,934 16,186 25,748 Wholesale data center 1,980 30,490 (28,510) Dispositions 4,684 7,660 (2,976) Other 4,604 4,021 583 586,378 587,060 (682) Property operating expenses Same Properties (212,859) (203,118) (9,741) Developed and redeveloped properties placed in service (9,990) (5,078) (4,912) Wholesale data center (979) (17,424) 16,445 Dispositions (889) (1,313) 424 Other (3,684) (3,286) (398) (228,401) (230,219) 1,818 UJV NOI allocable to COPT Same Properties 3,689 3,687 2 Retained interests in newly-formed UJVs 638 360 278 Dispositions — (18) 18 4,327 4,029 298 NOI from real estate operations Same Properties 324,006 329,272 (5,266) Developed and redeveloped properties placed in service 31,944 11,108 20,836 Wholesale data center 1,001 13,066 (12,065) Dispositions, net of retained interests in newly-formed UJVs 4,433 6,689 (2,256) Other 920 735 185 $ 362,304 $ 360,870 $ 1,434 Same Properties NOI from real estate operations by segment Defense/IT Locations $ 299,291 $ 299,196 $ 95 Regional Office 23,382 28,719 (5,337) Other 1,333 1,357 (24) $ 324,006 $ 329,272 $ (5,266) Same Properties rent statistics Average occupancy rate 92.0 % 93.2 % (1.2 %) Average straight-line rent per occupied square foot (1) $ 26.06 $ 26.03 $ 0.03 (1) Includes minimum base rents, net of abatements and lease incentives and excluding lease termination revenue, on a straight-line basis for the years set forth above.
A reconciliation of NOI from real estate operations and NOI from service operations to (loss) income from continuing operations reported on the consolidated statements of operations is provided in Note 13 to our consolidated financial statements. 32 Comparison of Statements of Operations for the Years Ended December 31, 2023 and 2022 For the Years Ended December 31, 2023 2022 Variance (in thousands) Revenues Revenues from real estate operations $ 624,803 $ 584,398 $ 40,405 Construction contract and other service revenues 60,179 154,632 (94,453) Total revenues 684,982 739,030 (54,048) Operating expenses Property operating expenses 247,385 227,430 19,955 Depreciation and amortization associated with real estate operations 148,950 141,230 7,720 Construction contract and other service expenses 57,416 149,963 (92,547) Impairment losses 252,797 — 252,797 General, administrative, leasing and other expenses 42,769 38,991 3,778 Total operating expenses 749,317 557,614 191,703 Interest expense (71,142) (61,174) (9,968) Interest and other income, net 12,587 9,070 3,517 Gain on sales of real estate 49,392 19,250 30,142 Loss on early extinguishment of debt — (609) 609 Equity in (loss) income of unconsolidated entities (261) 1,743 (2,004) Income tax expense (588) (447) (141) (Loss) income from continuing operations (74,347) 149,249 (223,596) Discontinued operations — 29,573 (29,573) Net (loss) income $ (74,347) $ 178,822 $ (253,169) 33 NOI from Real Estate Operations For the Years Ended December 31, 2023 2022 Variance (Dollars in thousands, except per square foot data) Revenues Same Property revenues Lease revenue, excluding lease termination revenue and collectability loss provisions $ 567,320 $ 544,312 $ 23,008 Lease termination revenue, net 3,745 2,237 1,508 Collectability loss provisions included in lease revenue (1,313) (745) (568) Other property revenue 4,832 4,077 755 Same Property total revenues 574,584 549,881 24,703 Developed and redeveloped properties placed in service 42,156 10,515 31,641 Dispositions, net of retained interest in newly-formed UJVs 400 21,404 (21,004) Other 7,663 4,578 3,085 624,803 586,378 38,425 Property operating expenses Same Property (234,052) (219,876) (14,176) Developed and redeveloped properties placed in service (6,421) (1,177) (5,244) Dispositions, net of retained interest in newly-formed UJVs (56) (3,665) 3,609 Other (6,856) (3,683) (3,173) (247,385) (228,401) (18,984) UJV NOI allocable to COPT Defense Same Property 4,301 4,308 (7) Retained interests in newly-formed UJVs 2,358 19 2,339 6,659 4,327 2,332 NOI from real estate operations Same Property 344,833 334,313 10,520 Developed and redeveloped properties placed in service 35,735 9,338 26,397 Dispositions, net of retained interest in newly-formed UJVs 2,702 17,758 (15,056) Other 807 895 (88) $ 384,077 $ 362,304 $ 21,773 Same Property NOI from real estate operations by segment Defense/IT Portfolio $ 316,701 $ 305,377 $ 11,324 Other 28,132 28,936 (804) $ 344,833 $ 334,313 $ 10,520 Same Property rent statistics Average occupancy rate 92.7 % 91.6 % 1.1 % Average straight-line rent per occupied square foot (1) $ 27.13 $ 26.94 $ 0.19 (1) Includes minimum base rents, net of abatements and lease incentives and excluding lease termination revenue, on a straight-line basis for the years set forth above.
For our 2022 results of operations: • diluted earnings per share increased 125.0% and net income increased $97.2 million, or 119.2%, relative to 2021 due primarily to lower debt extinguishment losses that were offset in part by lower gains from sales of properties; • diluted funds from operations per share adjusted for comparability increased 3.1% and the numerator for that measure increased $8.6 million, or 3.3%, relative to 2021, much of which was attributable to lower interest expense; • net operating income (“NOI”) from real estate operations, our segment performance measure, increased $1.4 million, or 0.4%, relative to 2021.
This change was comprised primarily of: > a $26.4 million increase from newly-developed properties placed in service; and > a $10.5 million increase from our Same Properties, which included the effect of increased occupancy in our Defense/IT Portfolio; offset in part by > a $15.1 million decrease from property dispositions; and > diluted funds from operations per share, as adjusted for comparability increased 2.5% and the numerator for that measure increased $6.9 million, or 2.6%, relative to 2022, due primarily to increased NOI from real estate operations in 2023, offset in part by higher interest expense.
Cash Flows Net cash flow from operating activities increased $16.7 million, or 6.7%, from 2021 to 2022 attributable primarily to: additional interest income received on notes receivable from the City of Huntsville; and lower interest expense paid resulting from debt refinancings completed in 2021 that reduced our borrowing rates on unsecured senior notes and affected the timing of our interest payments; offset in part by a decrease associated with the timing of cash flows from third-party construction projects.
Cash Flows Net cash flow from operating activities increased $10.4 million, or 3.9%, from 2022 to 2023, which included the effects of increased cash flow from real estate operations resulting from the growth of our operating portfolio, offset in part by higher payments for lease incentives and sales-type lease costs and lower interest income received on investing receivables from the City of Huntsville in 2023.
Removed
Overview In 2022, we: • achieved strong tenant retention and vacant space leasing driven by high leasing demand for space in our large concentration of Defense/IT Locations, which more than offset the effect of lagging demand in our Regional Office properties; • placed into service our second highest annual total of newly developed square feet on record, all in our Defense/IT Locations; • ended the year with additional new Defense/IT Locations under development that were substantially pre-leased; • raised capital from property dispositions, including from our wholesale data center, to create borrowing capacity available to fund development of new Defense/IT Locations; and • refinanced our Revolving Credit Facility and an unsecured term loan, after which we had no significant remaining debt maturing until 2026.
Added
Overview In 2023, we: > experienced continued strong demand across our Defense/IT Portfolio segments that drove: > strengthened occupancy of our operating properties, with year-end occupancy and leased rates at near-record levels; and > near-record tenant retention rates, at increased rent levels; > continued growth through substantially pre-leased development, with space placed in service during the year that was virtually full and a pipeline of substantially pre-leased properties under development at year end; > raised capital from a sale of interests in data center shell properties, using the proceeds to create borrowing capacity to fund future development activities; > opportunistically issued debt through a private placement to pre-fund the expected borrowings needed to fund our forecasted development activities for most of the next three years; and > ended the year with no significant debt maturing until 2026, most of our Revolving Credit Facility’s borrowing capacity available and significant cash balances on hand.
Removed
We leased 3.0 million square feet in 2022 in our portfolio, which ended the year 92.7% occupied and 95.2% leased.
Added
Strong demand from our Defense/IT Portfolio drove increased property occupancy that more than offset the continuing effects of lagging demand in our Other segment.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIncreases in interest rates can also result in increased interest expense when our fixed rate debt matures and needs to be refinanced.
Biggest changeIncreases in interest rates can result in increased interest expense under our Revolving Credit Facility and other variable-rate debt to the extent we do not have interest rate swaps in place to hedge the effect of such rate increases. Increases in interest rates can also result in increased interest expense when our fixed-rate debt matures and needs to be refinanced.
(2) As of December 31, 2022, maturities in 2026 included $211.0 million that may be extended to 2027 and $125.0 million that may be extended to 2028, both subject to certain conditions. (3) The amounts reflected above used interest rates as of December 31, 2022 for variable rate debt.
(2) As of December 31, 2023, maturities in 2026 included $75.0 million that may be extended to 2027 and $125.0 million that may be extended to 2028, both subject to certain conditions. (3) The amounts reflected above used interest rates as of December 31, 2023 for variable-rate debt.
See Note 11 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of December 31, 2022 and 2021 and their respective fair values.
See Note 9 to our consolidated financial statements for information pertaining to interest rate swap contracts in place as of December 31, 2023 and 2022 and their respective fair values.
The fair value of our debt was $1.9 billion as of December 31, 2022 and $2.3 billion as of December 31, 2021. If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $88 million as of December 31, 2022 and $138 million as of December 31, 2021.
The fair value of our debt was $2.2 billion as of December 31, 2023 and $1.9 billion as of December 31, 2022. If interest rates had been 1% lower, the fair value of our fixed-rate debt would have increased by approximately $82 million as of December 31, 2023 and $88 million as of December 31, 2022.
Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $1.5 million in 2022 and $2.9 million in 2021 if the applicable variable index rate was 1% higher.
Based on our variable-rate debt balances, including the effect of interest rate swap contracts, our interest expense would have increased by $764,000 in 2023 and $1.5 million in 2022 if the applicable variable index rate was 1% higher.
The following table sets forth as of December 31, 2022 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands): For the Years Ending December 31, 2023 2024 2025 2026 2027 Thereafter Total Debt: Fixed rate debt (1) $ 18,414 $ 29,443 $ 1,302 $ 436,140 $ — $ 1,400,000 $ 1,885,299 Weighted average interest rate 3.94% 4.42% 3.23% 2.38% —% 2.58% 2.58% Variable rate debt (2) $ 540 $ 540 $ 22,415 $ 346,160 $ — $ — $ 369,655 Weighted average interest rate (3) 5.57% 5.57% 5.62% 5.56% —% —% 5.57% (1) Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $23.2 million.
The following table sets forth as of December 31, 2023 our debt obligations and weighted average interest rates on debt maturing each year (dollars in thousands): For the Years Ending December 31, 2024 2025 2026 2027 2028 Thereafter Total Debt: Fixed-rate debt (1) $ 29,443 $ 1,302 $ 436,140 $ — $ 345,000 $ 1,400,000 $ 2,211,885 Weighted average interest rate 4.42% 3.23% 2.38% —% 5.25% 2.58% 2.98% Variable-rate debt (2) $ 540 $ 22,415 $ 210,160 $ — $ — $ — $ 233,115 Weighted average interest rate (3) 6.93% 6.97% 6.66% —% —% —% 6.69% (1) Represents principal maturities only and therefore excludes net discounts and deferred financing costs of $28.7 million.
Item 7A. 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.
Item 7A. 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.
Interest expense in 2022 was less sensitive to a change in interest rates than 2021 due primarily to our having a lower average variable-rate debt balance in 2022 including the effect of interest rate derivatives in place. Item 8.
Interest expense in 2023 was less sensitive to a change in interest rates than 2022 due primarily to our having a lower average variable-rate debt balance in 2023, including the effect of interest rate swaps. Item 8. Financial Statements and Supplementary Data This item is included in a separate section at the end of this report beginning on page F-1.
Financial Statements and Supplementary Data This item is included in a separate section at the end of this report beginning on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.

Other CDP 10-K year-over-year comparisons