Annual report pursuant to Section 13 and 15(d)

Information by Business Segment

v3.3.1.900
Information by Business Segment
 12 Months Ended
Dec. 31, 2015
Segment Reporting [Abstract]  
Information by Business Segment
Information by Business Segment

Effective in the quarter ended December 31, 2015, we changed the reportable segments that we use to review operating results and make decisions regarding segment performance and resource allocation. Given the changes in our portfolio resulting from development, acquisition and disposition activities, we made this change to better align our segments with our business strategy by contemplating the market characteristics of our properties. Our new segment reporting includes the following segments: Defense/IT Locations; Regional Office; our operating wholesale data center; and other. Our segment reporting also includes reporting for Defense/IT Locations sub-segments, which include the following: Fort George G. Meade and the Baltimore/Washington Corridor (referred to herein as “Fort Meade/BW Corridor”); Northern Virginia Defense/IT Locations; Lackland Air Force Base (in San Antonio); locations serving the U.S. Navy ( “Navy Support Locations”), which included properties proximate to the Washington Navy Yard, the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia); Redstone Arsenal (in Huntsville); Colorado Defense/IT Locations; and data center shells (properties leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure). The table below reports segment financial information for our reportable segments (in thousands).  We measure the performance of our segments through the measure we define as NOI from real estate operations, which is derived by subtracting property operating expenses from revenues from real estate operations.
 
Operating Office Property Segments
 
 
 
 
 
 
 
Defense/Information Technology Locations
 
 
 
 
 
 
 
 
 
Fort Meade/BW Corridor
 
Northern Virginia Defense/IT
 
Lackland Air Force Base
 
Navy Support Locations
 
Redstone Arsenal
 
Colorado Defense/IT
 
Data Center Shells
 
Total Defense/IT Locations
 
Regional Office
 
Operating
Wholesale
Data Center
 
Other
 
Total
Year Ended December 31, 2015
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
244,274

 
$
49,199

 
$
39,659

 
$
28,177

 
$
11,228

 
$
—

 
$
21,746

 
$
394,283

 
$
98,165

 
$
19,032

 
$
7,588

 
$
519,068

Property operating expenses
83,309

 
20,107

 
22,004

 
13,229

 
3,497

 
—

 
2,298

 
144,444

 
36,165

 
10,402

 
3,477

 
194,488

NOI from real estate operations
$
160,965

 
$
29,092

 
$
17,655

 
$
14,948

 
$
7,731

 
$
—

 
$
19,448

 
$
249,839

 
$
62,000

 
$
8,630

 
$
4,111

 
$
324,580

Additions to long-lived assets
$
31,883

 
$
90,248

 
$
—

 
$
7,656

 
$
883

 
$
—

 
$
—

 
$
130,670

 
$
204,139

 
$
132

 
$
328

 
$
335,269

Transfers from non-operating properties
$
45,560

 
$
50,690

 
$
32,307

 
$
1,408

 
$
13,190

 
$
—

 
$
51,492

 
$
194,647

 
$
22,313

 
$
89,745

 
$
415

 
$
307,120

Segment assets at December 31, 2015
$
1,290,028

 
$
411,196

 
$
134,381

 
$
196,090

 
$
108,038

 
$
—

 
$
203,013

 
$
2,342,746

 
$
608,471

 
$
243,338

 
$
70,914

 
$
3,265,469

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
233,764

 
$
48,313

 
$
34,463

 
$
31,335

 
$
10,446

 
$
—

 
$
18,421

 
$
376,742

 
$
85,025

 
$
10,430

 
$
7,514

 
$
479,711

Property operating expenses
80,824

 
19,071

 
19,677

 
12,576

 
3,066

 
—

 
2,272

 
137,486

 
31,427

 
7,286

 
3,600

 
179,799

NOI from real estate operations
$
152,940

 
$
29,242

 
$
14,786

 
$
18,759

 
$
7,380

 
$
—

 
$
16,149

 
$
239,256

 
$
53,598

 
$
3,144

 
$
3,914

 
$
299,912

Additions to long-lived assets
$
24,173

 
$
7,119

 
$
—

 
$
10,010

 
$
4,077

 
$
—

 
$
—

 
$
45,379

 
$
19,290

 
$
22

 
$
(90
)
 
$
64,601

Transfers from non-operating properties
$
56,699

 
$
360

 
$
—

 
$
—

 
$
21,014

 
$
—

 
$
43,154

 
$
121,227

 
$
17,942

 
$
1,108

 
$
1,622

 
$
141,899

Segment assets at December 31, 2014
$
1,264,353

 
$
372,041

 
$
102,232

 
$
195,972

 
$
97,209

 
$
—

 
$
156,214

 
$
2,188,021

 
$
526,988

 
$
163,177

 
$
73,309

 
$
2,951,495

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2013
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
234,857

 
$
56,524

 
$
31,252

 
$
33,431

 
$
5,050

 
$
12,229

 
$
12,520

 
$
385,863

 
$
98,487

 
$
7,271

 
$
7,012

 
$
498,633

Property operating expenses
80,149

 
19,718

 
16,784

 
12,872

 
1,282

 
3,797

 
1,304

 
135,906

 
35,488

 
6,360

 
2,950

 
180,704

NOI from real estate operations
$
154,708

 
$
36,806

 
$
14,468

 
$
20,559

 
$
3,768

 
$
8,432

 
$
11,216

 
$
249,957

 
$
62,999

 
$
911

 
$
4,062

 
$
317,929

Additions to long-lived assets
$
28,009

 
$
5,522

 
$
5

 
$
4,945

 
$
3,563

 
$
200

 
$
—

 
$
42,244

 
$
13,244

 
$
598

 
$
791

 
$
56,877

Transfers from non-operating properties
$
50,067

 
$
37,234

 
$
—

 
$
14

 
$
48,799

 
$
987

 
$
24,200

 
$
161,301

 
$
32,692

 
$
70,106

 
$
191

 
$
264,290

Segment assets at December 31, 2013
$
1,229,192

 
$
385,061

 
$
103,650

 
$
195,105

 
$
77,773

 
$
—

 
$
117,012

 
$
2,107,793

 
$
556,718

 
$
166,790

 
$
74,329

 
$
2,905,630

The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
Segment revenues from real estate operations
 
$
519,068

 
$
479,711

 
$
498,633

Construction contract and other service revenues
 
106,402

 
106,748

 
62,363

Less: Revenues from discontinued operations (Note 18)
 
(4
)
 
14

 
(37,636
)
Total revenues
 
$
625,466

 
$
586,473

 
$
523,360


 
The following table reconciles our segment property operating expenses to property operating expenses as reported on our consolidated statements of operations (in thousands):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
Segment property operating expenses
 
$
194,488

 
$
179,799

 
$
180,704

Less: Property operating expenses from discontinued operations (Note 18)
 
6

 
135

 
(13,505
)
Total property operating expenses
 
$
194,494

 
$
179,934

 
$
167,199


 
As previously discussed, we provide real estate services such as property management and construction and development services primarily for our properties but also for third parties.  The primary manner in which we evaluate the operating performance of our service activities is through a measure we define as net operating income from service operations (“NOI from service operations”), which is based on the net of revenues and expenses from these activities.  Construction contract and other service revenues and expenses consist primarily of subcontracted costs that are reimbursed to us by the customer along with a management fee. The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations. The table below sets forth the computation of our NOI from service operations (in thousands):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
Construction contract and other service revenues
 
$
106,402

 
$
106,748

 
$
62,363

Construction contract and other service expenses
 
(102,696
)
 
(100,058
)
 
(58,875
)
NOI from service operations
 
$
3,706

 
$
6,690

 
$
3,488



The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from continuing operations as reported on our consolidated statements of operations (in thousands):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
NOI from real estate operations
 
$
324,580

 
$
299,912

 
$
317,929

NOI from service operations
 
3,706

 
6,690

 
3,488

Interest and other income
 
4,517

 
4,923

 
3,834

Equity in income of unconsolidated entities
 
62

 
229

 
2,110

Income tax expense
 
(199
)
 
(310
)
 
(1,978
)
Other adjustments:
 
—

 
 

 
 
Depreciation and other amortization associated with real estate operations
 
(140,025
)
 
(136,086
)
 
(113,214
)
Impairment losses
 
(23,289
)
 
(1,416
)
 
(5,857
)
General, administrative and leasing expenses
 
(31,361
)
 
(31,794
)
 
(30,869
)
Business development expenses and land carry costs
 
(13,507
)
 
(5,573
)
 
(5,436
)
Interest expense on continuing operations
 
(89,074
)
 
(92,393
)
 
(82,010
)
NOI from discontinued operations
 
(10
)
 
(121
)
 
(24,131
)
Gain (loss) on early extinguishment of debt
 
85,275

 
(9,552
)
 
(27,030
)
COPT consolidated income from continuing operations
 
$
120,675

 
$
34,509

 
$
36,836



The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
As of December 31,
 
2015
 
2014
Segment assets
$
3,265,469

 
$
2,951,495

Non-operating property assets
450,679

 
567,586

Other assets
193,164

 
145,155

Total COPT consolidated assets
$
3,909,312

 
$
3,664,236


 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations are not presented separately for segment purposes.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment losses, loss on early extinguishment of debt and gain on sales of real estate to our real estate segments since they are not included in the measure of segment profit reviewed by management.  We also did not allocate general and administrative expenses, business development expenses and land carry costs, interest and other income, equity in income of unconsolidated entities, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.