SEGMENT INFORMATION | 12. SEGMENT INFORMATION As of September 30, 2017, the Company owns and manages properties within five segments: (1) Philadelphia Central Business District (CBD), (2) Pennsylvania Suburbs, (3) Metropolitan Washington, D.C., (4) Austin, Texas and (5) Other. The Philadelphia CBD segment includes properties located in the City of Philadelphia in Pennsylvania. The Pennsylvania Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The Metropolitan Washington, D.C. segment includes properties in the District of Columbia, Northern Virginia and southern Maryland. The Austin, Texas segment includes properties in the City of Austin, Texas. The Other segment includes properties located in Camden County in New Jersey and properties in New Castle County in Delaware. On February 2, 2017, the Company sold its last two remaining properties located in California, which were previously included in the Other segment. See Note 3, “Real Estate Investments,” The following tables provide selected asset information and results of operations of the Company's reportable segments (in thousands): Real estate investments, at cost: September 30, 2017 December 31, 2016 Philadelphia CBD $ 1,591,828 $ 1,320,974 Pennsylvania Suburbs (a) 966,128 1,005,446 Metropolitan Washington, D.C. 976,286 975,987 Austin, Texas 146,859 146,794 Other 87,966 137,094 $ 3,769,067 $ 3,586,295 Assets held for sale (b) 47,291 73,591 Operating properties $ 3,816,358 $ 3,659,886 Corporate Construction-in-progress $ 127,141 $ 297,462 Land held for development $ 120,696 $ 150,970 (a) As of September 30, 2017, the Company categorized (b) Real estate investments related to assets held for sale above represents gross real estate assets and does not include accumulated “Real Estate Investments,” None of the above aforementioned sales or properties classified as held for sale are considered significant dispositions under the accounting guidance for discontinued operations. Net operating income (in thousands): Three-month periods ended September 30, 2017 2016 Total revenue Operating expenses (a) Net operating income (loss) Total revenue Operating expenses (a) Net operating income Philadelphia CBD $ 56,452 $ (22,010 ) $ 34,442 $ 50,744 $ (19,071 ) $ 31,673 Pennsylvania Suburbs 34,861 (11,846 ) 23,015 35,763 (11,247 ) 24,516 Metropolitan Washington, D.C. 23,079 (8,500 ) 14,579 24,251 (9,900 ) 14,351 Austin, Texas 7,886 (3,929 ) 3,957 8,726 (3,523 ) 5,203 Other 3,752 (2,647 ) 1,105 8,526 (4,837 ) 3,689 Corporate 2,408 (1,769 ) 639 1,684 (2,739 ) (1,055 ) Operating properties $ 128,438 $ (50,701 ) $ 77,737 $ 129,694 $ (51,317 ) $ 78,377 Nine-month periods ended September 30, 2017 2016 Total revenue Operating expenses (a) Net operating income Total revenue Operating expenses (a) Net operating income Philadelphia CBD $ 165,352 $ (64,311 ) $ 101,041 $ 148,496 $ (58,102 ) $ 90,394 Pennsylvania Suburbs 105,673 (35,670 ) 70,003 107,971 (36,982 ) 70,989 Metropolitan Washington, D.C. 69,190 (26,347 ) 42,843 76,881 (29,567 ) 47,314 Austin, Texas 25,772 (11,634 ) 14,138 25,123 (9,689 ) 15,434 Other 14,274 (9,083 ) 5,191 30,328 (17,513 ) 12,815 Corporate 6,888 (5,355 ) 1,533 4,578 (4,460 ) 118 Operating properties $ 387,149 $ (152,400 ) $ 234,749 $ 393,377 $ (156,313 ) $ 237,064 (a) Includes property operating expense, real estate taxes and third party management expense. Unconsolidated real estate ventures (in thousands): Investment in real estate ventures, at equity Equity in income (loss) of real estate ventures As of Three-month periods ended September 30, Nine-month periods ended September 30, September 30, 2017 December 31, 2016 2017 2016 2017 2016 Philadelphia CBD $ 42,298 $ 48,691 $ 134 $ (453 ) $ 113 $ (473 ) Pennsylvania Suburbs 3,320 15,421 24 (170 ) 448 410 Metropolitan Washington, D.C. (a) 119,550 141,786 (5,264 ) (5,287 ) (4,872 ) (6,068 ) Austin, Texas 52,940 52,886 (15 ) (561 ) 1,266 (1,299 ) MAP Venture (b) 16,283 20,893 (706 ) (1,010 ) (2,610 ) (2,608 ) Other 1,922 1,654 104 227 268 715 Total $ 236,313 $ 281,331 $ (5,723 ) $ (7,254 ) $ (5,387 ) $ (9,323 ) (a) The three- and nine-month periods ended September 30, 2017 include a $4.8 million other than temporary impairment charge related to the BDN - AI Venture that was recorded during the three months ended September 30, 2017. (b) The MAP Venture represents a joint venture formed between the Company and MAP Ground Lease Holdings LLC, an affiliate of Och-Ziff Capital Management Group, LLC, on February 4, 2016. The MAP Venture’s business operations, including properties in Richmond, Virginia; Metropolitan Washington, D.C.; New Jersey/Delaware and Pennsylvania Suburbs, are centrally managed with the results reported to management of the Company on a consolidated basis. As a result, the investment in the MAP Venture is separately presented. All other unconsolidated real estate ventures are managed consistently with the Company’s regional segments. Net operating income (“NOI”) is a non-GAAP financial measure defined as total revenue less property operating expenses, real estate taxes and third party management expenses. Property operating expenses that are included in determining NOI consist of costs that are necessary and allocable to our operating properties such as utilities, property-level salaries, repairs and maintenance, property insurance, management fees and bad debt expense. General and administrative expenses that are not reflected in NOI primarily consist of corporate-level salaries, amortization of share awards and professional fees that are incurred as part of corporate office management. All companies may not calculate NOI in the same manner. NOI is the measure that is used by the Company to evaluate the operating performance of its real estate assets by segment. The Company believes NOI provides useful information to investors regarding the financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. While NOI is a relevant and widely used measure of operating performance of real estate investment trusts, it does not represent cash flow from operations or net income as defined by GAAP and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance. NOI does not reflect interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs. The Company believes that net income (loss), as defined by GAAP, is the most appropriate earnings measure. The following is a reconciliation of consolidated net income, as defined by GAAP, to consolidated NOI, (in thousands): Three-month periods ended September 30, Nine-month periods ended September 30, 2017 2016 2017 2016 Net income $ 19,046 $ 7,884 $ 48,015 $ 52,871 Plus: Interest expense 19,732 20,814 61,473 64,334 Interest expense - amortization of deferred financing costs 577 645 1,807 2,063 Interest expense - financing obligation - 156 - 679 Depreciation and amortization 42,429 46,956 132,584 142,736 General and administrative expenses 5,813 5,515 21,797 20,711 Equity in loss of Real Estate Ventures 5,723 7,254 5,387 9,323 Provision for impairment - - 3,057 13,069 Loss on early extinguishment of debt - - - 66,590 Less: Interest income 79 291 635 970 Income tax benefit 793 - 1,032 - Net gain (loss) on disposition of real estate - (104 ) 8,411 114,625 Net gain on sale of undepreciated real estate 953 188 953 188 Net gain on Real Estate Venture transactions 13,758 10,472 28,340 19,529 Consolidated net operating income $ 77,737 $ 78,377 $ 234,749 $ 237,064 |