Quarterly report pursuant to Section 13 or 15(d)

Information by Business Segment

v3.5.0.2
Information by Business Segment
 6 Months Ended
Jun. 30, 2016
Segment Reporting [Abstract]  
Information by Business Segment
Information by Business Segment

Our 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); 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
 
Data Center Shells
 
Total Defense/IT Locations
 
Regional Office
 
Operating
Wholesale
Data Center
 
Other
 
Total
Three Months Ended June 30, 2016
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
60,912

 
$
12,057

 
$
11,651

 
$
6,998

 
$
3,191

 
$
7,288

 
$
102,097

 
$
23,283

 
$
6,804

 
$
1,740

 
$
133,924

Property operating expenses
20,378

 
4,307

 
6,844

 
2,675

 
960

 
826

 
35,990

 
8,721

 
2,651

 
779

 
48,141

NOI from real estate operations
$
40,534

 
$
7,750

 
$
4,807

 
$
4,323

 
$
2,231

 
$
6,462

 
$
66,107

 
$
14,562

 
$
4,153

 
$
961

 
$
85,783

Additions to long-lived assets
$
7,096

 
$
3,059

 
$
—

 
$
2,233

 
$
301

 
$
—

 
$
12,689

 
$
2,180

 
$
—

 
$
153

 
$
15,022

Transfers from non-operating properties
$
768

 
$
27,944

 
$
231

 
$
—

 
$
4

 
$
29,857

 
$
58,804

 
$
26

 
$
(482
)
 
$
—

 
$
58,348

Three Months Ended June 30, 2015
 

 
 

 
 

 
—

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
60,007

 
$
13,462

 
$
9,743

 
$
7,186

 
$
2,658

 
$
5,037

 
$
98,093

 
$
24,400

 
$
3,820

 
$
1,882

 
$
128,195

Property operating expenses
19,480

 
5,354

 
5,349

 
3,390

 
888

 
499

 
34,960

 
8,406

 
2,221

 
820

 
46,407

NOI from real estate operations
$
40,527

 
$
8,108

 
$
4,394

 
$
3,796

 
$
1,770

 
$
4,538

 
$
63,133

 
$
15,994

 
$
1,599

 
$
1,062

 
$
81,788

Additions to long-lived assets
$
5,141

 
$
83,913

 
$
—

 
$
1,769

 
$
208

 
$
—

 
$
91,031

 
$
3,396

 
$
78

 
$
210

 
$
94,715

Transfers from non-operating properties
$
6,098

 
$
7,735

 
$
468

 
$
—

 
$
8,980

 
$
911

 
$
24,192

 
$
5,218

 
$
15,202

 
$
12

 
$
44,624

Six Months Ended June 30, 2016
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
123,421

 
$
24,173

 
$
21,876

 
$
13,932

 
$
6,307

 
$
13,618

 
$
203,327

 
$
46,785

 
$
13,297

 
$
3,602

 
$
267,011

Property operating expenses
43,624

 
8,848

 
12,264

 
6,199

 
1,938

 
1,636

 
74,509

 
18,552

 
5,312

 
1,643

 
100,016

NOI from real estate operations
$
79,797

 
$
15,325

 
$
9,612

 
$
7,733

 
$
4,369

 
$
11,982

 
$
128,818

 
$
28,233

 
$
7,985

 
$
1,959

 
$
166,995

Additions to long-lived assets
$
13,615

 
$
6,137

 
$
—

 
$
3,503

 
$
919

 
$
—

 
$
24,174

 
$
4,939

 
$
—

 
$
310

 
$
29,423

Transfers from non-operating properties
$
36,519

 
$
27,850

 
$
237

 
$
—

 
$
215

 
$
55,954

 
$
120,775

 
$
108

 
$
(431
)
 
$
(11
)
 
$
120,441

Segment assets at June 30, 2016
$
1,305,769

 
$
424,441

 
$
133,359

 
$
195,195

 
$
106,810

 
$
256,276

 
$
2,421,850

 
$
594,750

 
$
237,226

 
$
35,291

 
$
3,289,117

Six Months Ended June 30, 2015
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
121,191

 
$
24,508

 
$
18,408

 
$
14,451

 
$
5,104

 
$
10,151

 
$
193,813

 
$
46,360

 
$
6,855

 
$
3,877

 
$
250,905

Property operating expenses
42,996

 
10,970

 
10,112

 
6,788

 
1,717

 
1,194

 
73,777

 
17,154

 
4,433

 
1,729

 
97,093

NOI from real estate operations
$
78,195

 
$
13,538

 
$
8,296

 
$
7,663

 
$
3,387

 
$
8,957

 
$
120,036

 
$
29,206

 
$
2,422

 
$
2,148

 
$
153,812

Additions to long-lived assets
$
8,586

 
$
84,700

 
$
—

 
$
3,362

 
$
291

 
$
—

 
$
96,939

 
$
69,330

 
$
108

 
$
309

 
$
166,686

Transfers from non-operating properties
$
19,028

 
$
51,208

 
$
31,559

 
$
—

 
$
11,977

 
$
16,008

 
$
129,780

 
$
16,725

 
$
15,379

 
$
12

 
$
161,896

Segment assets at June 30, 2015
$
1,266,632

 
$
499,601

 
$
134,127

 
$
194,764

 
$
107,677

 
$
170,006

 
$
2,372,807

 
$
598,030

 
$
175,563

 
$
72,257

 
$
3,218,657

The following table reconciles our segment revenues to total revenues as reported on our consolidated statements of operations (in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Segment revenues from real estate operations
$
133,924

 
$
128,195

 
$
267,011

 
$
250,905

Construction contract and other service revenues
12,003

 
42,172

 
23,223

 
80,496

Less: Revenues from discontinued operations
—

 
(4
)
 
—

 
(4
)
Total revenues
$
145,927

 
$
170,363

 
$
290,234

 
$
331,397


 
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 Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Segment property operating expenses
$
48,141

 
$
46,407

 
$
100,016

 
$
97,093

Less: Property operating expenses from discontinued operations
—

 
11

 
—

 
6

Total property operating expenses
$
48,141

 
$
46,418

 
$
100,016

 
$
97,099


 
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 Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Construction contract and other service revenues
$
12,003

 
$
42,172

 
$
23,223

 
$
80,496

Construction contract and other service expenses
(11,478
)
 
(41,293
)
 
(22,172
)
 
(78,791
)
NOI from service operations
$
525

 
$
879

 
$
1,051

 
$
1,705



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 Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
NOI from real estate operations
$
85,783

 
$
81,788

 
$
166,995

 
$
153,812

NOI from service operations
525

 
879

 
1,051

 
1,705

Interest and other income
1,330

 
1,242

 
2,486

 
2,525

Equity in income of unconsolidated entities
10

 
9

 
20

 
34

Income tax (expense) benefit
(1
)
 
(50
)
 
7

 
(105
)
Other adjustments:
—

 
 

 
—

 
 

Depreciation and other amortization associated with real estate operations
(33,248
)
 
(33,786
)
 
(67,775
)
 
(65,385
)
Impairment losses
(69,692
)
 
(1,238
)
 
(72,138
)
 
(1,238
)
General, administrative and leasing expenses
(8,026
)
 
(7,534
)
 
(19,909
)
 
(15,425
)
Business development expenses and land carry costs
(2,363
)
 
(2,623
)
 
(4,781
)
 
(5,413
)
Interest expense
(22,639
)
 
(21,768
)
 
(46,198
)
 
(42,606
)
NOI from discontinued operations
—

 
(15
)
 
—

 
(10
)
Gain (loss) on early extinguishment of debt
5

 
(65
)
 
22

 
(68
)
(Loss) income from continuing operations
$
(48,316
)
 
$
16,839

 
$
(40,220
)
 
$
27,826


 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
June 30,
2016
 
June 30,
2015
Segment assets
$
3,289,117

 
$
3,218,657

Non-operating property assets
413,597

 
527,742

Other assets
138,978

 
157,660

Total COPT consolidated assets
$
3,841,692

 
$
3,904,059


 
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, gain (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, administrative and leasing 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.