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,” for further information. 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 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:
	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 six office properties in its Pennsylvania Suburbs segment as held for sale in accordance with applicable accounting standards for long lived assets. See Note 3, “Real Estate Investments,” for further information.

(b)

Real estate investments related to assets held for sale above represents gross real estate assets and does not include accumulated depreciation, land held for development or other assets on the balance sheet of the property held for sale. 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
	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