Segment Information

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

SEGMENT INFORMATION

13. SEGMENT INFORMATION

As of March 31, 2017, the Company managed its portfolio 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 New Jersey/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,” for further information. 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, 2017		December 31, 2016
Philadelphia CBD	$	1,471,258	$	1,320,974
Pennsylvania Suburbs		1,006,780		1,005,446
Metropolitan Washington, D.C.		974,838		975,987
Austin, Texas		146,858		146,794
Other		102,470		137,094
	$	3,702,204	$	3,586,295
Assets held for sale (a)		5,576		73,591
Operating Properties	$	3,707,780	$	3,659,886
Corporate
Construction-in-progress	$	166,372	$	297,462
Land held for development	$	153,268	$	150,970

(a)  As of March 31, 2017, the Company categorized a retail property located in the Other segment as held for sale in accordance with applicable accounting standards for long lived assets. See Note 3, “Real Estate Investments,” for further information.

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
	March 31,
	2017							2016
	Total revenue		Operating expenses (a)			Net operating income		Total revenue		Operating expenses (a)			Net operating income
Philadelphia CBD	$	54,449	$	(20,837	)	$	33,612	$	49,670	$	(19,256	)	$	30,414
Pennsylvania Suburbs		35,655		(12,584	)		23,071		37,106		(13,155	)		23,951
Metropolitan Washington, D.C.		23,362		(9,383	)		13,979		27,339		(10,899	)		16,440
Austin, Texas		9,123		(3,573	)		5,550		8,547		(3,255	)		5,292
Other		6,362		(3,856	)		2,506		12,740		(7,602	)		5,138
Corporate		1,969		(848	)		1,121		1,100		(608	)		492
Operating Properties	$	130,920	$	(51,081	)	$	79,839	$	136,502	$	(54,775	)	$	81,727

(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 loss of real estate ventures
	As of				Three-month periods ended March 31,
	March 31, 2017		December 31, 2016		2017			2016
Philadelphia CBD	$	44,618	$	48,691	$	(67	)	$	455
Pennsylvania Suburbs		3,147		15,421		276			265
Metropolitan Washington, D.C.		143,591		141,786		467			(448	)
MAP Venture (a)		17,776		20,893		(1,117	)		(556	)
Other		1,713		1,654		58			161
Austin, Texas		54,096		52,886		(365	)		(280	)
Total	$	264,941	$	281,331	$	(748	)	$	(403	)

(a) 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, 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-month periods ended March 31,
	2017			2016
Consolidated net operating income	$	79,839		$	81,727
Less:
Interest expense		(21,437	)		(23,691	)
Interest expense - amortization of deferred financing costs		(634	)		(774	)
Interest expense - financing obligation		-			(281	)
Depreciation and amortization		(45,892	)		(48,873	)
General and administrative expenses		(9,425	)		(9,120	)
Equity in loss of Real Estate Ventures		(748	)		(403	)
Provision for impairment		(2,730	)		(7,390	)
Loss on early extinguishment of debt		-			(66,590	)
Plus:
Interest income		393			320
Net gain on disposition of real estate		7,323			115,456
Net gain on Real Estate Venture transactions		14,582			5,929
Net income	$	21,271		$	46,310