Segment Information (Tables)

6 Months Ended

Jun. 30, 2016

Real Estate Investments, Net Operating Income and Unconsolidated Real Estate Ventures of Reportable Segments

The following tables provide selected asset information and results of operations of the Company's reportable segments (in thousands):

Real estate investments, at cost:
	June 30, 2016		December 31, 2015
Philadelphia CBD (a)	$	1,274,818	$	1,157,667
Pennsylvania Suburbs		1,022,239		1,019,280
Metropolitan Washington, D.C. (b)		1,068,170		1,129,206
Austin, Texas (c)		147,157		164,518
Other (d), (e)		209,021		222,329
	$	3,721,405	$	3,693,000
Assets held for sale (f), (g)		17,622		794,588
Operating Properties	$	3,739,027	$	4,487,588

Corporate
Construction-in-progress	$	254,188	$	268,983
Land held for development	$	131,015	$	130,479

(a)	The increase primarily relates to the office component of the FMC Tower at Cira Centre South being placed into service during the three-month period ended June 30, 2016.

(b)	The decrease primarily relates to the sale of Herndon Metro Plaza I & II. 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.

(c)	The decrease primarily relates to a building from the Broadmoor Austin portfolio being placed into redevelopment during the three-month period ended June 30, 2016.

(d)

The decrease primarily relates to the office property at 1120 Executive Boulevard in Mount Laurel, New Jersey and Oakland Lot B in Oakland, California being classified as held for sale at June 30, 2016. See Note 3, "Real Estate Investments," for further information. These sales are not classified as significant dispositions under the accounting guidance for discontinued operations.

(e)

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.

(f)

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.

(g)

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 a 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. Additionally, as of June 30, 2016, the Company categorized one office property located at 1120 Executive Boulevard in Mt. Laurel, New Jersey and one property located in Oakland, California known as Oakland Lot B as held for sale in accordance with applicable accounting standards for long lived assets. The sale is not classified as a significant disposition under the accounting guidance for discontinued operations.

Net operating income (in thousands):

	Three-month periods ended
	June 30,
	2016							2015
	Total revenue		Operating expenses (a)			Net operating income		Total revenue		Operating expenses (a)			Net operating income
Philadelphia CBD	$	48,082	$	(19,775	)	$	28,307	$	52,420	$	(19,448	)	$	32,972
Pennsylvania Suburbs		35,102		(12,580	)		22,522		39,010		(12,856	)		26,154
Metropolitan Washington, D.C.		25,291		(8,768	)		16,523		26,953		(10,544	)		16,409
Austin, Texas (b)		7,850		(2,911	)		4,939		2,533		(1,498	)		1,035
Other (c)		9,062		(5,074	)		3,988		24,074		(11,407	)		12,667
Corporate		1,794		(1,113	)		681		658		(596	)		62
Operating Properties	$	127,181	$	(50,221	)	$	76,960	$	145,648	$	(56,349	)	$	89,299

	Six-month periods ended
	June 30,
	2016							2015
	Total revenue		Operating expenses (a)			Net operating income		Total revenue		Operating expenses (a)			Net operating income
Philadelphia CBD	$	97,752	$	(39,031	)	$	58,721	$	105,393	$	(37,838	)	$	67,555
Pennsylvania Suburbs		72,208		(25,735	)		46,473		78,900		(27,441	)		51,459
Metropolitan Washington, D.C.		52,630		(19,667	)		32,963		54,359		(22,404	)		31,955
Austin, Texas (b)		16,397		(6,166	)		10,231		3,467		(2,369	)		1,098
Other (c)		21,802		(12,676	)		9,126		51,853		(25,985	)		25,868
Corporate		2,894		(1,721	)		1,173		2,082		(1,010	)		1,072
Operating Properties	$	263,683	$	(104,996	)	$	158,687	$	296,054	$	(117,047	)	$	179,007

(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 June 30, 2016. In addition, net operating income for the three and six months ended June 30, 2016 and 2015 includes management fees and related expenses for services provided by the Company to the Austin Venture.

(c)	See footnote (e) to 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-month periods ended June 30,						Six-month periods ended June 30,
	June 30, 2016		December 31, 2015		2016			2015			2016			2015
Philadelphia CBD (a)	$	50,542	$	44,089	$	(475	)	$	(150	)	$	(20	)	$	(450	)
Pennsylvania Suburbs		20,199		16,408		315			(17	)		580			(22	)
Metropolitan Washington, D.C.		120,656		118,422		(332	)		(179	)		(781	)		(229	)
MAP Venture (b)		23,513		-		(1,042	)		-			(1,598	)		-
Other (c)		1,570		1,657		327			362			488			495
Austin, Texas (d)		55,668		60,428		(459	)		(889	)		(738	)		(536	)
Total	$	272,148	$	241,004	$	(1,666	)	$	(873	)	$	(2,069	)	$	(742	)

(a)	Net increase of investment of $6.5 million primary relates to the evo at Cira real estate venture. 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; 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.

(c)	See footnote (e) to 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 three-month period ended March 31, 2016. See Note 4, "Investment in Unconsolidated Real Estate Ventures," for further information. The decrease primarily relates to distributions from the DRA-Austin real estate venture.

Reconciliation of Consolidated NOI to Consolidated Net Income (Loss)

The following is a reconciliation of consolidated NOI to consolidated net income (loss), as defined by GAAP (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015

Consolidated net operating income	$	76,960		$	89,299		$	158,687		$	179,007
Less:
Interest expense		(19,829	)		(27,895	)		(43,520	)		(56,071	)
Interest expense - amortization of deferred financing costs		(644	)		(1,288	)		(1,418	)		(2,367	)
Interest expense - financing obligation		(242	)		(324	)		(523	)		(610	)
Depreciation and amortization		(46,907	)		(50,930	)		(95,780	)		(102,041	)
General and administrative expenses		(6,076	)		(6,791	)		(15,196	)		(15,427	)
Equity in loss of real estate ventures		(1,666	)		(873	)		(2,069	)		(742	)
Provision for impairment		(5,679	)		(782	)		(13,069	)		(2,508	)
Loss on early extinguishment of debt		-			-			(66,590	)		-
Plus:
Interest income		359			313			679			1,063
Net gain (loss) on disposition of real estate		(727	)		1,571			114,729			10,590
Net gain from remeasurement of investment in a real estate venture		-			758			-			758
Net gain on Real Estate Venture transactions		3,128			-			9,057			-
Net income (loss)	$	(1,323	)	$	3,058		$	44,987		$	11,652