Annual report pursuant to Section 13 and 15(d)

Information by Business Segment

v3.8.0.1
Information by Business Segment
 12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Information by Business Segment
Information by Business Segment

We have the following reportable segments: Defense/IT Locations; Regional Office; 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). As of December 31, 2017, our Regional Office segment included properties located in select urban/urban-like submarkets in the Greater Washington, DC/Baltimore region with durable Class-A office fundamentals and characteristics; in prior reporting periods, this segment also included suburban properties that did not meet these characteristics (that were since disposed).

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 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 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
Year Ended December 31, 2017
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
245,613

 
$
47,118

 
$
47,209

 
$
29,540

 
$
14,322

 
$
24,320

 
$
408,122

 
$
68,262

 
$
28,875

 
$
4,721

 
$
509,980

Property operating expenses
(80,697
)
 
(16,938
)
 
(27,812
)
 
(12,619
)
 
(5,783
)
 
(2,709
)
 
(146,558
)
 
(28,982
)
 
(13,551
)
 
(1,873
)
 
(190,964
)
UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
5,188

 
5,188

 
—

 
—

 
—

 
5,188

NOI from real estate operations
$
164,916

 
$
30,180

 
$
19,397

 
$
16,921

 
$
8,539

 
$
26,799

 
$
266,752

 
$
39,280

 
$
15,324

 
$
2,848

 
$
324,204

Additions to long-lived assets
$
26,659

 
$
8,115

 
$
71

 
$
8,451

 
$
1,056

 
$
—

 
$
44,352

 
$
25,299

 
$
3,580

 
$
110

 
$
73,341

Transfers from non-operating properties
$
43,370

 
$
48,328

 
$
—

 
$
474

 
$
2,159

 
$
107,854

 
$
202,185

 
$
—

 
$
8

 
$
18

 
$
202,211

Segment assets at December 31, 2017
$
1,263,567

 
$
402,076

 
$
128,755

 
$
194,476

 
$
108,119

 
$
285,275

 
$
2,382,268

 
$
400,512

 
$
224,422

 
$
4,082

 
$
3,011,284

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
245,354

 
$
48,964

 
$
46,803

 
$
28,197

 
$
13,056

 
$
23,836

 
$
406,210

 
$
85,805

 
$
26,869

 
$
7,080

 
$
525,964

Property operating expenses
(83,684
)
 
(17,824
)
 
(27,357
)
 
(12,690
)
 
(4,476
)
 
(2,674
)
 
(148,705
)
 
(34,095
)
 
(11,512
)
 
(3,218
)
 
(197,530
)
UJV NOI allocable to COPT
—

 
—

 
—

 
—

 
—

 
2,305

 
2,305

 
—

 
—

 
—

 
2,305

NOI from real estate operations
$
161,670

 
$
31,140

 
$
19,446

 
$
15,507

 
$
8,580

 
$
23,467

 
$
259,810

 
$
51,710

 
$
15,357

 
$
3,862

 
$
330,739

Additions to long-lived assets
$
26,267

 
$
17,344

 
$
—

 
$
9,168

 
$
4,352

 
$
—

 
$
57,131

 
$
12,559

 
$
299

 
$
335

 
$
70,324

Transfers from non-operating properties
$
49,937

 
$
28,230

 
$
240

 
$
—

 
$
3,169

 
$
103,367

 
$
184,943

 
$
82

 
$
(377
)
 
$
(8
)
 
$
184,640

Segment assets at December 31, 2016
$
1,255,230

 
$
404,438

 
$
131,957

 
$
196,486

 
$
110,395

 
$
209,683

 
$
2,308,189

 
$
442,811

 
$
231,954

 
$
21,293

 
$
3,004,247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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,
 
 
2017
 
2016
 
2015
Segment revenues from real estate operations
 
$
509,980

 
$
525,964

 
$
519,068

Construction contract and other service revenues
 
102,840

 
48,364

 
106,402

Less: Revenues from discontinued operations
 
—

 
—

 
(4
)
Total revenues
 
$
612,820

 
$
574,328

 
$
625,466


 
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,
 
 
2017
 
2016
 
2015
Segment property operating expenses
 
$
190,964

 
$
197,530

 
$
194,488

Less: Property operating expenses from discontinued operations
 
—

 
—

 
6

Total property operating expenses
 
$
190,964

 
$
197,530

 
$
194,494


 
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 Years Ended December 31,
 
 
2017
 
2016
 
2015
UJV NOI allocable to COPT
 
$
5,188

 
$
2,305

 
$
—

Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
 
(2,301
)
 
(993
)
 
—

Add: Equity in (loss) income of unconsolidated non-real estate entities
 
(5
)
 
20

 
62

Equity in income of unconsolidated entities
 
$
2,882

 
$
1,332

 
$
62



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,
 
 
2017
 
2016
 
2015
Construction contract and other service revenues
 
$
102,840

 
$
48,364

 
$
106,402

Construction contract and other service expenses
 
(99,618
)
 
(45,481
)
 
(102,696
)
NOI from service operations
 
$
3,222

 
$
2,883

 
$
3,706



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,
 
 
2017
 
2016
 
2015
NOI from real estate operations
 
$
324,204

 
$
330,739

 
$
324,580

NOI from service operations
 
3,222

 
2,883

 
3,706

Interest and other income
 
6,318

 
5,444

 
4,517

Equity in income of unconsolidated entities
 
2,882

 
1,332

 
62

Income tax expense
 
(1,098
)
 
(244
)
 
(199
)
Depreciation and other amortization associated with real estate operations
 
(134,228
)
 
(132,719
)
 
(140,025
)
Impairment losses
 
(15,123
)
 
(101,391
)
 
(23,289
)
General, administrative and leasing expenses
 
(30,837
)
 
(36,553
)
 
(31,361
)
Business development expenses and land carry costs
 
(6,213
)
 
(8,244
)
 
(13,507
)
Interest expense
 
(76,983
)
 
(83,163
)
 
(89,074
)
NOI from discontinued operations
 
—

 
—

 
(10
)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities
 
(5,188
)
 
(2,305
)
 
—

(Loss) gain on early extinguishment of debt
 
(513
)
 
(1,110
)
 
85,275

COPT consolidated income (loss) from continuing operations
 
$
66,443

 
$
(25,331
)
 
$
120,675



The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
As of December 31,
 
2017
 
2016
Segment assets
$
3,011,284

 
$
3,004,247

Non-operating property assets
411,041

 
418,171

Other assets
156,159

 
358,467

Total COPT consolidated assets
$
3,578,484

 
$
3,780,885


 
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 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.