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Segment Information (Tables)

6 Months Ended

Jun. 30, 2019

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, 2019		December 31, 2018
Philadelphia CBD	$	1,695,495	$	1,670,388
Pennsylvania Suburbs		1,007,981		1,002,937
Austin, Texas		716,212		667,698
Metropolitan Washington, D.C.		524,008		524,190
Other		86,909		86,506
	$	4,030,605	$	3,951,719

Right of use asset - operating leases, net (a)	$	22,001	$	-

Corporate
Construction-in-progress	$	120,785	$	150,263
Land held for development (b)	$	89,219	$	86,401
Prepaid leasehold interests in land held for development, net (c)	$	39,795	$	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 June 30, 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 June 30, 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 Months Ended June 30,
	2019							2018
	Total revenue		Operating expenses (a)			Net operating income		Total revenue		Operating expenses (a)			Net operating income (loss)
Philadelphia CBD	$	64,956	$	(25,353	)	$	39,603	$	63,524	$	(24,581	)	$	38,943
Pennsylvania Suburbs		34,299		(11,808	)		22,491		34,333		(11,997	)		22,336
Austin, Texas (b)		26,188		(9,804	)		16,384		8,469		(3,395	)		5,074
Metropolitan Washington, D.C. (c)		13,673		(6,339	)		7,334		23,199		(8,392	)		14,807
Other		3,464		(2,390	)		1,074		3,339		(2,200	)		1,139
Corporate		1,571		(1,528	)		43		922		(2,001	)		(1,079	)
Operating properties	$	144,151	$	(57,222	)	$	86,929	$	133,786	$	(52,566	)	$	81,220

	Six Months Ended June 30,
	2019								2018
	Total revenue		Operating expenses (a)			Net operating income (loss)			Total revenue		Operating expenses (a)			Net operating income (loss)
Philadelphia CBD	$	130,754	$	(50,538	)	$	80,216		$	126,126	$	(48,908	)		77,218
Pennsylvania Suburbs		69,926		(24,799	)		45,127			69,215		(24,980	)		44,235
Austin, Texas (b)		50,954		(18,880	)		32,074			16,833		(6,918	)		9,915
Metropolitan Washington, D.C. (c)		27,193		(12,543	)		14,650			46,258		(17,151	)		29,107
Other		6,646		(4,535	)		2,111			9,480		(7,165	)		2,315
Corporate		2,574		(3,327	)		(753	)		2,232		(3,967	)		(1,735	)
Operating properties	$	288,047	$	(114,622	)	$	173,425		$	270,144	$	(109,089	)	$	161,055

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

(b)

On December 11, 2018, the Company acquired from DRA Advisors, an unaffiliated third party, DRA’s 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				Equity in income (loss) of real estate venture
	As of				Three Months Ended June 30,						Six Months Ended June 30,
	June 30, 2019		December 31, 2018		2019			2018			2019			2018
Philadelphia CBD	$	18,759	$	19,897	$	84		$	89		$	162		$	(147	)
Metropolitan Washington, D.C. (a)		104,384		136,142		(260	)		(363	)		(435	)		(400	)
MAP Venture (b)		3,242		11,173		(1,445	)		(830	)		(2,812	)		(1,567	)
Other		1,804		1,888		130			93			236			197
Austin, Texas (c)		-		-		-			653			-			734
Total	$	128,189	$	169,100	$	(1,491	)	$	(358	)	$	(2,849	)	$	(1,183	)

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

(b)

Formed on February 4, 2016, represents a joint venture between the Company and MAP Ground Lease Holdings LLC, an affiliate of Och-Ziff Capital Management Group, LLC, on February 4, 2016. The 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 Company’s investment in MAP Venture is separately presented. All other unconsolidated real estate ventures are managed consistently with the Company’s regional segments.

(c)

Reconciliation of Consolidated Net Income to Consolidated NOI

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018

Net income	$	6,252		$	12,876		$	10,835		$	57,321
Plus:
Interest expense		20,516			19,301			40,873			38,834
Interest expense - amortization of deferred financing costs		666			627			1,332			1,254
Depreciation and amortization		51,667			43,958			103,111			87,490
General and administrative expenses		8,399			7,523			18,243			16,246
Equity in loss of Real Estate Ventures		1,491			358			2,849			1,183

Less:
Interest income		553			641			1,078			1,344
Income tax provision		(17	)		(20	)		(46	)		(158	)
Net loss on disposition of real estate		-			(35	)		-			(35	)
Net gain on sale of undepreciated real estate		250			2,837			1,251			2,859
Net gain on real estate venture transactions		1,276			-			1,535			37,263
Consolidated net operating income	$	86,929		$	81,220		$	173,425		$	161,055