Quarterly report pursuant to Section 13 or 15(d)

Information by Business Segment

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

We have the following reportable segments: Defense/IT Locations; Regional Office; our operating wholesale data center; and other. We also report on 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). Effective in the quarter ended September 30, 2016, we changed our segment reporting measures to include certain amounts discussed below pertaining to investments in unconsolidated real estate joint ventures (“UJVs”); this change did not affect prior periods reported herein as we did not own any investments in UJVs during such periods prior to July 21, 2016 (see Note 5).

We measure the performance of our segments through the measure we define as net operating income from real estate operations (“NOI from real estate operations”), which includes: real estate revenues and property operating expenses from continuing and discontinued operations; and the net of revenues and property operating expenses of real estate operations owned through UJVs that is allocable to COPT’s ownership interest (“UJV NOI allocable to COPT”). Amounts reported for segment assets represent long-lived assets associated with consolidated operating properties (including the carrying value of properties, intangible assets, deferred leasing costs, deferred rents receivable and lease incentives) and the carrying value of investments in UJVs owning operating properties. Amounts reported as additions to long-lived assets represent additions to existing consolidated operating properties, excluding transfers from non-operating properties, which we report separately.

The table below reports segment financial information for our reportable segments (in thousands). 
 
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 September 30, 2016
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
61,460

 
$
12,231

 
$
12,532

 
$
7,232

 
$
3,189

 
$
5,175

 
$
101,819

 
$
20,499

 
$
6,809

 
$
1,827

 
$
130,954

Property operating expenses
20,598

 
4,462

 
7,599

 
3,374

 
1,112

 
528

 
37,673

 
8,155

 
3,317

 
807

 
49,952

UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
1,008

 
1,008

 
—

 
—

 
—

 
1,008

NOI from real estate operations
$
40,862

 
$
7,769

 
$
4,933

 
$
3,858

 
$
2,077

 
$
5,655

 
$
65,154

 
$
12,344

 
$
3,492

 
$
1,020

 
$
82,010

Additions to long-lived assets
$
5,901

 
$
7,153

 
$
—

 
$
2,207

 
$
2,642

 
$
—

 
$
17,903

 
$
4,168

 
$
108

 
$
53

 
$
22,232

Transfers from non-operating properties
$
5,331

 
$
308

 
$
3

 
$
—

 
$
3,100

 
$
25,513

 
$
34,255

 
$
(4
)
 
$
40

 
$
—

 
$
34,291

Three Months Ended September 30, 2015
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
61,400

 
$
12,875

 
$
9,018

 
$
6,886

 
$
3,061

 
$
5,665

 
$
98,905

 
$
26,782

 
$
6,078

 
$
1,921

 
$
133,686

Property operating expenses
20,106

 
5,150

 
4,553

 
3,287

 
888

 
532

 
34,516

 
9,596

 
4,008

 
777

 
48,897

UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

NOI from real estate operations
$
41,294

 
$
7,725

 
$
4,465

 
$
3,599

 
$
2,173

 
$
5,133

 
$
64,389

 
$
17,186

 
$
2,070

 
$
1,144

 
$
84,789

Additions to long-lived assets
$
7,943

 
$
1,603

 
$
—

 
$
2,084

 
$
175

 
$
—

 
$
11,805

 
$
129,259

 
$
—

 
$
(27
)
 
$
141,037

Transfers from non-operating properties
$
25,184

 
$
(91
)
 
$
591

 
$
1,408

 
$
1,207

 
$
34,287

 
$
62,586

 
$
5,505

 
$
73,804

 
$
315

 
$
142,210

Nine Months Ended September 30, 2016
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
184,881

 
$
36,404

 
$
34,408

 
$
21,164

 
$
9,496

 
$
18,793

 
$
305,146

 
$
67,284

 
$
20,106

 
$
5,429

 
$
397,965

Property operating expenses
64,222

 
13,310

 
19,863

 
9,573

 
3,050

 
2,164

 
112,182

 
26,707

 
8,629

 
2,450

 
149,968

UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
1,008

 
1,008

 
—

 
—

 
—

 
1,008

NOI from real estate operations
$
120,659

 
$
23,094

 
$
14,545

 
$
11,591

 
$
6,446

 
$
17,637

 
$
193,972

 
$
40,577

 
$
11,477

 
$
2,979

 
$
249,005

Additions to long-lived assets
$
19,516

 
$
13,290

 
$
—

 
$
5,710

 
$
3,561

 
$
—

 
$
42,077

 
$
9,107

 
$
108

 
$
363

 
$
51,655

Transfers from non-operating properties
$
41,850

 
$
28,158

 
$
240

 
$
—

 
$
3,315

 
$
81,467

 
$
155,030

 
$
104

 
$
(391
)
 
$
(11
)
 
$
154,732

Segment assets at September 30, 2016
$
1,261,337

 
$
416,886

 
$
132,722

 
$
195,244

 
$
111,310

 
$
189,746

 
$
2,307,245

 
$
453,766

 
$
234,551

 
$
31,563

 
$
3,027,125

Nine Months Ended September 30, 2015
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
182,591

 
$
37,383

 
$
27,426

 
$
21,337

 
$
8,165

 
$
15,816

 
$
292,718

 
$
73,142

 
$
12,933

 
$
5,798

 
$
384,591

Property operating expenses
63,102

 
16,120

 
14,665

 
10,075

 
2,605

 
1,726

 
108,293

 
26,750

 
8,441

 
2,506

 
145,990

UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

NOI from real estate operations
$
119,489

 
$
21,263

 
$
12,761

 
$
11,262

 
$
5,560

 
$
14,090

 
$
184,425

 
$
46,392

 
$
4,492

 
$
3,292

 
$
238,601

Additions to long-lived assets
$
16,529

 
$
86,303

 
$
—

 
$
5,446

 
$
466

 
$
—

 
$
108,744

 
$
198,589

 
$
108

 
$
282

 
$
307,723

Transfers from non-operating properties
$
44,212

 
$
51,117

 
$
32,150

 
$
1,408

 
$
13,184

 
$
50,295

 
$
192,366

 
$
22,230

 
$
89,183

 
$
327

 
$
304,106

Segment assets at September 30, 2015
$
1,284,712

 
$
413,321

 
$
134,790

 
$
196,105

 
$
108,541

 
$
203,090

 
$
2,340,559

 
$
695,490

 
$
246,806

 
$
71,907

 
$
3,354,762

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 September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Segment revenues from real estate operations
$
130,954

 
$
133,686

 
$
397,965

 
$
384,591

Construction contract and other service revenues
11,149

 
17,058

 
34,372

 
97,554

Less: Revenues from discontinued operations
—

 
—

 
—

 
(4
)
Total revenues
$
142,103

 
$
150,744

 
$
432,337

 
$
482,141


 
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 September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Segment property operating expenses
$
49,952

 
$
48,897

 
$
149,968

 
$
145,990

Less: Property operating expenses from discontinued operations
—

 
—

 
—

 
6

Total property operating expenses
$
49,952

 
$
48,897

 
$
149,968

 
$
145,996


 
The following table reconciles UJV NOI allocable to COPT to equity in income of unconsolidated entities as reported on our consolidated statements of operations (in thousands):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
UJV NOI allocable to COPT
$
1,008

 
$
—

 
$
1,008

 
$
—

Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
(415
)
 
—

 
(415
)
 
—

Add: Equity in income of unconsolidated non-real estate entities
1

 
18

 
21

 
52

Equity in income of unconsolidated entities
$
594

 
$
18

 
$
614

 
$
52


 
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 September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Construction contract and other service revenues
$
11,149

 
$
17,058

 
$
34,372

 
$
97,554

Construction contract and other service expenses
(10,341
)
 
(16,132
)
 
(32,513
)
 
(94,923
)
NOI from service operations
$
808

 
$
926

 
$
1,859

 
$
2,631



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 September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
NOI from real estate operations
$
82,010

 
$
84,789

 
$
249,005

 
$
238,601

NOI from service operations
808

 
926

 
1,859

 
2,631

Interest and other income
1,391

 
692

 
3,877

 
3,217

Equity in income of unconsolidated entities
594

 
18

 
614

 
52

Income tax (expense) benefit
21

 
(48
)
 
28

 
(153
)
Depreciation and other amortization associated with real estate operations
(32,015
)
 
(38,403
)
 
(99,790
)
 
(103,788
)
Impairment losses
(27,699
)
 
(2,307
)
 
(99,837
)
 
(3,545
)
General, administrative and leasing expenses
(8,855
)
 
(7,439
)
 
(28,764
)
 
(22,864
)
Business development expenses and land carry costs
(1,716
)
 
(5,573
)
 
(6,497
)
 
(10,986
)
Interest expense
(18,301
)
 
(24,121
)
 
(64,499
)
 
(66,727
)
NOI from discontinued operations
—

 
—

 
—

 
(10
)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities
(1,008
)
 
—

 
(1,008
)
 
—

(Loss) gain on early extinguishment of debt
(59
)
 
85,745

 
(37
)
 
85,677

(Loss) income from continuing operations
$
(4,829
)
 
$
94,279

 
$
(45,049
)
 
$
122,105


 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
September 30,
2016
 
September 30,
2015
Segment assets
$
3,027,125

 
$
3,354,762

Non-operating property assets
421,364

 
416,540

Other assets
185,705

 
140,790

Total COPT consolidated assets
$
3,634,194

 
$
3,912,092


 
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) gain on early extinguishment of debt, gain on sales of real estate and equity in income of unconsolidated entities not included in NOI 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, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.