Segment Information

9 Months Ended

Sep. 30, 2019

As of September 30, 2019, the Company owns and manages properties within five segments: (1) Philadelphia Central Business District (Philadelphia CBD), (2) Pennsylvania Suburbs, (3) Austin, Texas (4) Metropolitan Washington, D.C. and (5) Other. The Philadelphia CBD segment includes properties located in the City of Philadelphia, Pennsylvania. The Pennsylvania Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The Austin, Texas segment includes properties in the City of Austin, Texas. The Metropolitan Washington, D.C. segment includes properties in the District of Columbia, Northern Virginia and southern Maryland. The Other segment includes properties located in Camden County in New Jersey and properties in New Castle County in Delaware. In addition to the five segments, the corporate group is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions. Land held for development and construction in progress is transferred to operating properties by region upon completion of the associated construction or project.

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, 2019		December 31, 2018
Philadelphia CBD	$	1,716,466	$	1,670,388
Pennsylvania Suburbs	1,005,332		1,002,937
Austin, Texas	719,441		667,698
Metropolitan Washington, D.C.	467,117		524,190
Other	86,872		86,506
	$	3,995,228	$	3,951,719

Right of use asset - operating leases, net (a)	$	21,828	$	—

Corporate
Construction-in-progress	$	151,232	$	150,263
Land held for development (b)	$	92,189	$	86,401
Prepaid leasehold interests in land held for development, net (c)	$	39,694	$	39,999


(a)	On January 1, 2019, as a result of the adoption of Topic 842, Leases, the Company recognized operating ground leases for which it is a lessee on its consolidated balance sheets. See Note 2, “Basis of Presentation,” for further information.

(b)

As of September 30, 2019, the Company categorized 35.2 acres of land held for development, located in the Other segment, as held for sale in accordance with applicable accounting standards for long lived assets. As of December 31, 2018, the Company categorized 37.9 acres of land held for development, comprised of 2.7 acres and 35.2 acres, located in the Pennsylvania Suburbs segment and Other segment, respectively, as held for sale in accordance with applicable accounting standards for long lived assets. See Note 3, “Real Estate Investments,” for further information.


(c)	As of September 30, 2019 and December 31, 2018, this caption comprised leasehold interests in prepaid 99-year ground leases at 3025 and 3001-3003 JFK Boulevard, in Philadelphia, Pennsylvania.

Net operating income (in thousands):



	Three Months Ended September 30,
	2019								2018
	Total revenue		Operating expenses (a)			Net operating income (loss)			Total revenue		Operating expenses (a)			Net operating income (loss)
Philadelphia CBD	$	66,105	$	(24,773	)	$	41,332		$	64,352	$	(24,427	)	$	39,925
Pennsylvania Suburbs	34,818		(11,667		)	23,151			34,745		(11,956		)	22,789
Austin, Texas (b)	26,280		(9,302		)	16,978			8,641		(3,894		)	4,747
Metropolitan Washington, D.C. (c)	13,179		(5,999		)	7,180			22,754		(8,548		)	14,206
Other	3,706		(2,691		)	1,015			3,707		(2,436		)	1,271
Corporate	1,243		(1,642		)	(399		)	799		(1,636		)	(837		)
Operating properties	$	145,331	$	(56,074	)	$	89,257		$	134,998	$	(52,897	)	$	82,101



	Nine Months Ended September 30,
	2019								2018
	Total revenue		Operating expenses (a)			Net operating income (loss)			Total revenue		Operating expenses (a)			Net operating income (loss)
Philadelphia CBD	$	196,859	$	(75,311	)	$	121,548		$	190,478	$	(73,559	)	116,919
Pennsylvania Suburbs	104,744		(36,466		)	68,278			103,960		(37,075		)	66,885
Austin, Texas (b)	77,234		(28,182		)	49,052			25,474		(10,812		)	14,662
Metropolitan Washington, D.C. (c)	40,372		(18,542		)	21,830			69,012		(25,699		)	43,313
Other	10,352		(7,226		)	3,126			13,187		(9,601		)	3,586
Corporate	3,817		(4,969		)	(1,152		)	3,031		(5,240		)	(2,209		)
Operating properties	$	433,378	$	(170,696	)	$	262,682		$	405,142	$	(161,986	)	$	243,156


(a)	Includes property operating expenses, real estate taxes and third party management expense.


(b)	On December 11, 2018, the Company acquired from DRA Advisors, an unaffiliated third party, DRA’s 50% ownership interest in the G&I Austin Office LLC real estate venture. The DRA Austin Venture owned twelve office properties containing an aggregate 1,570,123 square feet, located in Austin, Texas. As a result of the acquisition, the Company acquired complete ownership of the Austin properties.


(c)	On December 20, 2018, the Company contributed a portfolio of eight properties containing an aggregate of 1,293,197 square feet, located in its Metropolitan Washington, D.C. segment, known as the Rockpoint Portfolio, to the Herndon Innovation Center Venture. The Company and its partner own 15% and 85% interests in the Herndon Innovation Center Venture, respectively.



Unconsolidated real estate ventures (in thousands):
	Investment in real estate ventures				Equity in income (loss) of real estate venture
	As of				Three Months Ended September 30,						Nine Months Ended September 30,
	September 30, 2019		December 31, 2018		2019			2018			2019			2018
Philadelphia CBD	$	18,114	$	19,897	$	55		$	(36	)	$	217		$	(183	)
Metropolitan Washington, D.C. (a) (b)	106,111		136,142		(528		)	(31		)	(963		)	(431		)
MAP Venture (c)	1,620		11,173		(1,602		)	(444		)	(4,414		)	(2,011		)
Other	1,914		1,888		110			89			346			287
Austin, Texas (d)	—		—		—			423			—			1,156
Total	$	127,759	$	169,100	$	(1,965	)	$	1		$	(4,814	)	$	(1,182	)


(a)	On December 20, 2018, the Company formed the Herndon Innovation Center Venture. See footnote (c) to the “Net operating income” table above for further information regarding this transaction.


(b)	On August 29, 2019, BDN – AI Venture transferred an office building to the lender in full satisfaction of the outstanding mortgage loan. Refer to Note 4, “Investment in Unconsolidated Real Estate Ventures” for further information.


(c)	Represents a joint venture formed on February 4, 2016 between the Company and MAP Ground Lease Holdings LLC, an affiliate of Och-Ziff Capital Management Group, LLC. The 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 Company’s investment in MAP Venture is separately presented. All other unconsolidated real estate ventures are managed consistently with the Company’s regional segments.


(d)	On December 11, 2018, the Company acquired from DRA Advisors, an unaffiliated third party, DRA’s 50% ownership interest in the G&I Austin Office LLC real estate venture. The DRA Austin Venture owned twelve office properties containing an aggregate 1,570,123 square feet, located in Austin, Texas. As a result of the acquisition, the Company acquired complete ownership of the Austin properties.

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 and management fees. 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’s management to evaluate the operating performance of the Company’s 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 Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019			2018
Net income (loss)	$	6,820	$	(43,522	)	$	17,655		$	13,799
Plus:
Interest expense	20,400		19,257			61,273			58,091
Interest expense - amortization of deferred financing costs	694		618			2,026			1,872
Depreciation and amortization	55,627		44,141			158,738			131,631
General and administrative expenses	6,974		5,963			25,217			22,209
Equity in loss (income) of Real Estate Ventures	1,965		(1		)	4,814			1,182
Provision for impairment	—		56,865			—			56,865

Less:
Interest income	558		1,220			1,636			2,564
Income tax provision	—		—			(46		)	(158		)
Net gain (loss) on disposition of real estate	356		—			356			(35		)
Net gain on sale of undepreciated real estate	250		—			1,501			2,859
Net gain on real estate venture transactions	2,059		—			3,594			37,263
Consolidated net operating income	$	89,257	$	82,101		$	262,682		$	243,156