XML 39 R24.htm IDEA: XBRL DOCUMENT

Segment Information

3 Months Ended

Mar. 31, 2019

13. SEGMENT INFORMATION

As of March 31, 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:
	March 31, 2019		December 31, 2018
Philadelphia CBD	$	1,683,406	$	1,670,388
Pennsylvania Suburbs		1,008,066		1,004,537
Austin, Texas		713,189		667,698
Metropolitan Washington, D.C.		524,385		524,190
Other		86,833		86,506
	$	4,015,879	$	3,953,319

Right of use asset - operating leases (a)	$	22,175	$	-

Corporate
Construction-in-progress	$	112,176	$	150,263
Land held for development (b)	$	88,047	$	86,401
Prepaid leasehold interests in land held for development, net (c)	$	39,897	$	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 for the period ended March 31, 2019. See Note 2, “Basis of Presentation,” for further information.

(b)

As of March 31, 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 March 31, 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-month periods ended
	March 31,
	2019								2018
	Total revenue		Operating expenses (a)			Net operating income (loss)			Total revenue		Operating expenses (a)			Net operating income (loss)
Philadelphia CBD	$	65,798	$	(25,185	)	$	40,613		$	62,602	$	(24,327	)	$	38,275
Pennsylvania Suburbs		35,627		(12,972	)		22,655			34,882		(12,964	)		21,918
Austin, Texas (b)		24,766		(9,076	)		15,690			8,364		(3,523	)		4,841
Metropolitan Washington, D.C. (c)		13,520		(6,204	)		7,316			23,059		(8,759	)		14,300
Other		3,182		(2,145	)		1,037			6,141		(4,965	)		1,176
Corporate		1,003		(1,799	)		(796	)		1,310		(1,966	)		(656	)
Operating properties	$	143,896	$	(57,381	)	$	86,515		$	136,358	$	(56,504	)	$	79,854

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

(b)

On December 11, 2018, the Company acquired from DRA Advisors its 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, at equity				Equity in income (loss) of real estate venture
	As of				Three-month periods ended March 31,
	March 31, 2019		December 31, 2018		2019			2018
Philadelphia CBD	$	19,325	$	19,897	$	78		$	(236	)
Metropolitan Washington, D.C. (a)		135,149		136,142		(175	)		(37	)
MAP Venture (b)		5,101		11,173		(1,367	)		(736	)
Other		1,993		1,888		106			104
Austin, Texas (c)		-		-		-			80
Total	$	161,568	$	169,100	$	(1,358	)	$	(825	)

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

(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.

(c)

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-month periods ended March 31,
	2019			2018

Net income	$	4,066		$	44,705
Plus:
Interest expense		20,357			19,533
Interest expense - amortization of deferred financing costs		666			627
Depreciation and amortization		51,980			43,291
General and administrative expenses		9,844			8,723
Equity in loss of Real Estate Ventures		1,358			825

Less:
Interest income		525			703
Income tax provision		(29	)		(138	)
Net gain on sale of undepreciated real estate		1,001			22
Net gain on real estate venture transactions		259			37,263
Consolidated net operating income	$	86,515		$	79,854