Quarterly report pursuant to Section 13 or 15(d)

Information by Business Segment

v3.8.0.1
Information by Business Segment
 9 Months Ended
Sep. 30, 2017
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). 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; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“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, 2017
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
61,254

 
$
12,190

 
$
11,024

 
$
7,494

 
$
3,532

 
$
6,676

 
$
102,170

 
$
16,656

 
$
7,398

 
$
1,007

 
$
127,231

Property operating expenses
(19,708
)
 
(4,343
)
 
(6,193
)
 
(3,157
)
 
(1,432
)
 
(637
)
 
(35,470
)
 
(7,406
)
 
(3,175
)
 
(317
)
 
(46,368
)
UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
1,297

 
1,297

 
—

 
—

 
—

 
1,297

NOI from real estate operations
$
41,546

 
$
7,847

 
$
4,831

 
$
4,337

 
$
2,100

 
$
7,336

 
$
67,997

 
$
9,250

 
$
4,223

 
$
690

 
$
82,160

Additions to long-lived assets
$
5,810

 
$
2,587

 
$
55

 
$
1,910

 
$
843

 
$
—

 
$
11,205

 
$
5,338

 
$
9

 
$
76

 
$
16,628

Transfers from non-operating properties
$
5,519

 
$
45,554

 
$
—

 
$
8

 
$
(62
)
 
$
29,803

 
$
80,822

 
$
25

 
$
—

 
$
—

 
$
80,847

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

Nine Months Ended September 30, 2017
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
183,393

 
$
34,992

 
$
35,687

 
$
21,953

 
$
10,616

 
$
17,998

 
$
304,639

 
$
52,394

 
$
21,201

 
$
4,061

 
$
382,295

Property operating expenses
(60,357
)
 
(13,014
)
 
(21,125
)
 
(9,391
)
 
(4,294
)
 
(1,873
)
 
(110,054
)
 
(21,974
)
 
(10,041
)
 
(1,446
)
 
(143,515
)
UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
3,889

 
3,889

 
—

 
—

 
—

 
3,889

NOI from real estate operations
$
123,036

 
$
21,978

 
$
14,562

 
$
12,562

 
$
6,322

 
$
20,014

 
$
198,474

 
$
30,420

 
$
11,160

 
$
2,615

 
$
242,669

Additions to long-lived assets
$
15,085

 
$
6,032

 
$
71

 
$
6,309

 
$
1,059

 
$
—

 
$
28,556

 
$
16,476

 
$
3,588

 
$
203

 
$
48,823

Transfers from non-operating properties
$
37,094

 
$
45,994

 
$
—

 
$
474

 
$
1,643

 
$
55,003

 
$
140,208

 
$
—

 
$
8

 
$
18

 
$
140,234

Segment assets at September 30, 2017
$
1,265,569

 
$
400,855

 
$
129,657

 
$
194,801

 
$
108,884

 
$
258,611

 
$
2,358,377

 
$
398,579

 
$
226,909

 
$
13,347

 
$
2,997,212

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

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,
 
2017
 
2016
 
2017
 
2016
Segment revenues from real estate operations
$
127,231

 
$
130,954

 
$
382,295

 
$
397,965

Construction contract and other service revenues
29,786

 
11,149

 
65,958

 
34,372

Total revenues
$
157,017

 
$
142,103

 
$
448,253

 
$
432,337


 
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,
 
2017
 
2016
 
2017
 
2016
UJV NOI allocable to COPT
$
1,297

 
$
1,008

 
$
3,889

 
$
1,008

Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
(577
)
 
(415
)
 
(1,724
)
 
(415
)
Add: Equity in (loss) income of unconsolidated non-real estate entities
(1
)
 
1

 
(3
)
 
21

Equity in income of unconsolidated entities
$
719

 
$
594

 
$
2,162

 
$
614


 
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,
 
2017
 
2016
 
2017
 
2016
Construction contract and other service revenues
$
29,786

 
$
11,149

 
$
65,958

 
$
34,372

Construction contract and other service expenses
(28,788
)
 
(10,341
)
 
(63,589
)
 
(32,513
)
NOI from service operations
$
998

 
$
808

 
$
2,369

 
$
1,859



The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to income from before gain on sales of real estate as reported on our consolidated statements of operations (in thousands):
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
NOI from real estate operations
$
82,160

 
$
82,010

 
$
242,669

 
$
249,005

NOI from service operations
998

 
808

 
2,369

 
1,859

Interest and other income
1,508

 
1,391

 
4,817

 
3,877

Equity in income of unconsolidated entities
719

 
594

 
2,162

 
614

Income tax (expense) benefit
(57
)
 
21

 
(145
)
 
28

Depreciation and other amortization associated with real estate operations
(34,438
)
 
(32,015
)
 
(100,290
)
 
(99,790
)
Impairment recoveries (losses)
161

 
(27,699
)
 
(1,464
)
 
(99,837
)
General, administrative and leasing expenses
(7,368
)
 
(8,855
)
 
(23,838
)
 
(28,764
)
Business development expenses and land carry costs
(1,277
)
 
(1,716
)
 
(4,567
)
 
(6,497
)
Interest expense
(19,615
)
 
(18,301
)
 
(57,772
)
 
(64,499
)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities
(1,297
)
 
(1,008
)
 
(3,889
)
 
(1,008
)
Loss on early extinguishment of debt
—

 
(59
)
 
(513
)
 
(37
)
Income (loss) before gain on sales of real estate
$
21,494

 
$
(4,829
)
 
$
59,539

 
$
(45,049
)

 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
September 30,
2017
 
September 30,
2016
Segment assets
$
2,997,212

 
$
3,027,125

Non-operating property assets
413,255

 
421,364

Other assets
149,305

 
185,705

Total COPT consolidated assets
$
3,559,772

 
$
3,634,194


 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements, except that discontinued operations and UJV NOI allocable to COPT are not presented separately for segment purposes.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, impairment (recoveries) losses, loss 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.