13. SEGMENT INFORMATION

During the year ended December 31, 2015, the Company managed its portfolio within seven segments: (1) Pennsylvania Suburbs, (2) Philadelphia Central Business District (CBD), (3) Metropolitan Washington, D.C., (4) New Jersey/Delaware, (5) Richmond, Virginia, (6) Austin, Texas and (7) California. As a result of the Och-Ziff Sale that occurred on February 4, 2016, the Company has narrowed its segments to five segments located in: (1) Pennsylvania Suburbs, (2) Philadelphia Central Business District (“CBD”), (3) Metropolitan Washington, D.C. and (4) Austin, Texas. The Och-Ziff Sale disposed of the entire Richmond, Virginia segment. Subsequent to the Och-Ziff Sale, the segments previously defined as New Jersey/Delaware and California are now being managed as a consolidated segment entitled (5) “Other,” as these geographies no longer provide a significant revenue contribution. The Pennsylvania Suburbs segment includes properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The Philadelphia CBD segment includes properties located in the City of Philadelphia in Pennsylvania. 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 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 are 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:
	March 31, 2016		December 31, 2015
Philadelphia CBD (a)	$	1,172,188	$	1,157,667
Pennsylvania Suburbs (b)		1,017,947		1,019,280
Metropolitan Washington, D.C. (b)		1,124,662		1,129,206
Austin, Texas		165,413		164,518
Other (b), (c)		222,983		222,329
	$	3,703,193	$	3,693,000
Assets held for sale (a), (b)		-		794,588
Operating Properties	$	3,703,193	$	4,487,588

Corporate
Construction-in-progress	$	319,656	$	268,983
Land held for development	$	132,747	$	130,479

(a)

As of December 31, 2015, the office property located at 2970 Market Street in Philadelphia, Pennsylvania commonly known as 30^th Street Main Post Office (“Cira Square”) was classified as held for sale on the consolidated balance sheets. The Company disposed of its interests in the property on February 5, 2016. See Note 3, "Real Estate Investments," for further information. The sale is not classified as a significant disposition under the accounting guidance for discontinued operations.

(b)

As of December 31, 2015, the 58 properties associated with the series of related transactions with Och-Ziff Real Estate were classified as held for sale on the consolidated balance sheets. On February 4, 2016, the Company completed the series of transactions, resulting in the disposition of the properties. See Note 3, “Real Estate Investments,” for further information regarding the disposition. The sale is not classified as a significant disposition under the accounting guidance for discontinued operations.

(c)

As a result of the Och-Ziff Sale that occurred on February 4, 2016, the Company narrowed its segments to five segments located in: (1) Pennsylvania Suburbs, (2) Philadelphia Central Business District (“CBD”), (3) Metropolitan Washington, D.C. and (4) Austin, Texas. The Och-Ziff Sale disposed of the entire Richmond, Virginia segment. Subsequent to the Och-Ziff Sale, the segments previously defined as New Jersey/Delaware and California are now being managed as a consolidated segment entitled (5) “Other,” as these geographies no longer provide a significant revenue contribution. Accordingly, the chief operating decision maker revised the management structure, reallocated resources, and is assessing business operations of the five segments as of January 1, 2016.

Net operating income (in thousands):

	Three-month periods ended
	March 31,
	2016							2015
	Total revenue		Operating expenses (a)			Net operating income		Total revenue		Operating expenses (a)			Net operating income
Philadelphia CBD	$	49,670	$	(19,256	)	$	30,414	$	52,973	$	(18,390	)	$	34,583
Pennsylvania Suburbs		37,106		(13,155	)		23,951		39,890		(14,585	)		25,305
Metropolitan Washington, D.C.		27,339		(10,899	)		16,440		27,406		(11,860	)		15,546
Austin, Texas (b)		8,547		(3,255	)		5,292		934		(870	)		64
Other (c)		12,740		(7,602	)		5,138		27,781		(14,578	)		13,203
Corporate		1,100		(608	)		492		1,422		(415	)		1,007
Operating Properties	$	136,502	$	(54,775	)	$	81,727	$	150,406	$	(60,698	)	$	89,708

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

(b)

On June 22, 2015 the Company acquired the remaining 50.0% interest in Broadmoor Austin Associates. As such, the Company has seven wholly owned properties in its Austin, Texas business segment at March 31, 2016. In addition, net operating income for the three months ended March 31, 2016 and 2015 includes management fees and related expenses for services provided by the Company to the Austin Venture.

(c)	See footnote (c) at the “Real estate investments, at cost” table above for further information regarding this segment.

Unconsolidated real estate ventures (in thousands):
	Investment in real estate ventures, at equity				Equity in income (loss) of real estate ventures
	As of				Three Months Ended March 31,
	March 31, 2016		December 31, 2015		2016			2015
Philadelphia CBD (a)	$	57,477	$	44,089	$	455		$	(300	)
Pennsylvania Suburbs		16,737		16,408		265			(6	)
Metropolitan Washington, D.C.		119,713		118,422		(448	)		(50	)
MAP Venture (b)		24,554		-		(556	)		-
Other (c)		1,551		1,657		161			134
Austin, Texas (d)		58,627		60,428		(280	)		353
Total	$	278,659	$	241,004	$	(403	)	$	131

(a)

Investment in real estate ventures increased by $12.8 million as a result of the Company’s cash payment to evo at Cira to purchase Campus Crest’s entire 30% interest in evo at Cira and, as a result, each of the Company and HSRE owns a 50% interest in evo at Cira. See Note 4, “Investment in Unconsolidated Real Estate Ventures,” for further information.

(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. See Note 4 “Investment in Unconsolidated Real Estate Ventures,” to our consolidated financial statements for further information. The MAP Venture’s business operations, including properties in Richmond, Virginia; 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.

(c)	See footnote (c) at the “Real estate investments, at cost” table above for further information regarding this segment.

(d)

Investment in real estate ventures does not include the $1.1 million negative investment balance in one real estate venture as of December 31, 2015, which is included in other liabilities. The Company disposed of its interest in this venture during the first quarter of 2016. See Note 4, "Investment in Unconsolidated Real Estate Ventures," for further information.

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. Segment NOI includes revenue, real estate taxes and property operating expenses directly related to operation and management of the properties owned and managed within the respective geographical region. Segment NOI excludes property level depreciation and amortization, revenue and expenses directly associated with third party real estate management services, expenses associated with corporate administrative support services, and inter-company eliminations. NOI also does not reflect general and administrative expenses, interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs. Trends in development and construction activities that could materially impact the Company’s results from operations are also not reflected in NOI. 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 also believes that NOI provides useful information to investors regarding its financial condition and results of operations because it reflects only those income and expenses recorded at the property level. The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. The following is a reconciliation of consolidated NOI to consolidated net income, as defined by GAAP (in thousands):

	Three Months Ended March 31,
	2016			2015

Consolidated net operating income	$	81,727		$	89,708
Less:
Interest expense		(23,691	)		(28,176	)
Interest expense - amortization of deferred financing costs		(774	)		(1,079	)
Interest expense - financing obligation		(281	)		(286	)
Depreciation and amortization		(48,873	)		(51,111	)
General and administrative expenses		(9,120	)		(8,636	)
Equity in income (loss) of real estate ventures		(403	)		131
Provision for impairment		(7,390	)		(1,726	)
Loss on early extinguishment of debt		(66,590	)		-
Plus:
Interest income		320			750
Net gain on disposition of real estate		115,456			9,019
Net gain on real estate venture transactions		5,929			-
Net income	$	46,310		$	8,594