Quarterly report pursuant to Section 13 or 15(d)

Information by Business Segment

v3.20.2
Information by Business Segment
6 Months Ended
Jun. 30, 2020
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 (“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, right-of-use assets, net of related lease liabilities, 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
 
Wholesale
Data Center
 
Other
 
Total
Three Months Ended June 30, 2020
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
62,698

 
$
14,447

 
$
13,257

 
$
8,119

 
$
4,647

 
$
7,076

 
$
110,244

 
$
15,162

 
$
6,455

 
$
677

 
$
132,538

Property operating expenses
(20,859
)
 
(5,335
)
 
(7,785
)
 
(3,171
)
 
(1,612
)
 
(789
)
 
(39,551
)
 
(6,888
)
 
(3,463
)
 
(302
)
 
(50,204
)
UJV NOI allocable to COPT

 

 

 

 

 
1,725

 
1,725

 

 

 

 
1,725

NOI from real estate operations
$
41,839

 
$
9,112

 
$
5,472

 
$
4,948

 
$
3,035

 
$
8,012

 
$
72,418

 
$
8,274

 
$
2,992

 
$
375

 
$
84,059

Additions to long-lived assets
$
6,958

 
$
3,204

 
$

 
$
2,110

 
$
146

 
$

 
$
12,418

 
$
4,445

 
$
7,904

 
$
103

 
$
24,870

Transfers from non-operating properties
$
3,975

 
$
524

 
$
145

 
$

 
$
29,171

 
$
49,964

 
$
83,779

 
$

 
$

 
$

 
$
83,779

Three Months Ended June 30, 2019
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
61,659

 
$
13,912

 
$
12,104

 
$
8,185

 
$
3,968

 
$
8,624

 
$
108,452

 
$
15,018

 
$
8,560

 
$
741

 
$
132,771

Property operating expenses
(19,344
)
 
(4,694
)
 
(6,648
)
 
(3,286
)
 
(1,599
)
 
(759
)
 
(36,330
)
 
(7,590
)
 
(3,618
)
 
(348
)
 
(47,886
)
UJV NOI allocable to COPT

 

 

 

 

 
1,251

 
1,251

 

 

 

 
1,251

NOI from real estate operations
$
42,315

 
$
9,218

 
$
5,456

 
$
4,899

 
$
2,369

 
$
9,116

 
$
73,373

 
$
7,428

 
$
4,942

 
$
393

 
$
86,136

Additions to long-lived assets
$
7,499

 
$
1,703

 
$

 
$
928

 
$
536

 
$

 
$
10,666

 
$
4,870

 
$
95

 
$
34

 
$
15,665

Transfers from non-operating properties
$
1,338

 
$
20

 
$
1,833

 
$

 
$
5,576

 
$
92,844

 
$
101,611

 
$

 
$

 
$

 
$
101,611

Six Months Ended June 30, 2020
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
127,136

 
$
28,125

 
$
25,333

 
$
16,460

 
$
9,323

 
$
12,653

 
$
219,030

 
$
30,622

 
$
13,627

 
$
1,375

 
$
264,654

Property operating expenses
(42,081
)
 
(10,520
)
 
(14,580
)
 
(6,456
)
 
(3,459
)
 
(1,446
)
 
(78,542
)
 
(14,425
)
 
(6,696
)
 
(540
)
 
(100,203
)
UJV NOI allocable to COPT

 

 

 

 

 
3,438

 
3,438

 

 

 

 
3,438

NOI from real estate operations
$
85,055

 
$
17,605

 
$
10,753

 
$
10,004

 
$
5,864

 
$
14,645

 
$
143,926

 
$
16,197

 
$
6,931

 
$
835

 
$
167,889

Additions to long-lived assets
$
14,633

 
$
5,895

 
$

 
$
3,868

 
$
316

 
$

 
$
24,712

 
$
7,802

 
$
8,782

 
$
168

 
$
41,464

Transfers from non-operating properties
$
4,513

 
$
780

 
$
160

 
$

 
$
30,307

 
$
106,196

 
$
141,956

 
$

 
$

 
$

 
$
141,956

Segment assets at June 30, 2020
$
1,271,790

 
$
394,363

 
$
144,253

 
$
181,744

 
$
167,161

 
$
382,749

 
$
2,542,060

 
$
389,058

 
$
205,711

 
$
3,710

 
$
3,140,539

Six Months Ended June 30, 2019
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 

 
 

Revenues from real estate operations
$
124,342

 
$
28,743

 
$
23,665

 
$
16,340

 
$
7,907

 
$
15,978

 
$
216,975

 
$
29,851

 
$
16,431

 
$
1,504

 
$
264,761

Property operating expenses
(41,679
)
 
(9,986
)
 
(12,607
)
 
(6,690
)
 
(3,138
)
 
(1,112
)
 
(75,212
)
 
(15,006
)
 
(6,456
)
 
(657
)
 
(97,331
)
UJV NOI allocable to COPT

 

 

 

 

 
2,470

 
2,470

 

 

 

 
2,470

NOI from real estate operations
$
82,663

 
$
18,757

 
$
11,058

 
$
9,650

 
$
4,769

 
$
17,336

 
$
144,233

 
$
14,845

 
$
9,975

 
$
847

 
$
169,900

Additions to long-lived assets
$
11,434

 
$
3,150

 
$

 
$
5,945

 
$
836

 
$

 
$
21,365

 
$
8,859

 
$
251

 
$
44

 
$
30,519

Transfers from non-operating properties
$
6,378

 
$
4,529

 
$
8,336

 
$

 
$
9,211

 
$
112,632

 
$
141,086

 
$

 
$

 
$

 
$
141,086

Segment assets at June 30, 2019
$
1,274,336

 
$
398,586

 
$
146,475

 
$
187,172

 
$
115,222

 
$
307,676

 
$
2,429,467

 
$
393,110

 
$
209,787

 
$
3,776

 
$
3,036,140


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,
 
2020
 
2019
 
2020
 
2019
Segment revenues from real estate operations
$
132,538

 
$
132,771

 
$
264,654

 
$
264,761

Construction contract and other service revenues
12,236

 
42,299

 
25,917

 
59,249

Total revenues
$
144,774

 
$
175,070

 
$
290,571

 
$
324,010


 
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 June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
UJV NOI allocable to COPT
$
1,725

 
$
1,251

 
$
3,438

 
$
2,470

Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
(1,270
)
 
(830
)
 
(2,540
)
 
(1,657
)
Add: Equity in loss of unconsolidated non-real estate entities
(1
)
 
(1
)
 
(3
)
 
(2
)
Equity in income of unconsolidated entities
$
454

 
$
420

 
$
895

 
$
811


 
As previously discussed, we provide real estate services such as property management, development and construction 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,
 
2020
 
2019
 
2020
 
2019
Construction contract and other service revenues
$
12,236

 
$
42,299

 
$
25,917

 
$
59,249

Construction contract and other service expenses
(11,711
)
 
(41,002
)
 
(24,832
)
 
(57,328
)
NOI from service operations
$
525

 
$
1,297

 
$
1,085

 
$
1,921



The following table reconciles our NOI from real estate operations for reportable segments and NOI from service operations to net income as reported on our consolidated statements of operations (in thousands):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
NOI from real estate operations
$
84,059

 
$
86,136

 
$
167,889

 
$
169,900

NOI from service operations
525

 
1,297

 
1,085

 
1,921

Interest and other income
2,282

 
1,849

 
3,487

 
4,135

Credit loss expense
(615
)
 

 
(1,304
)
 

Gain on sales of real estate

 
84,469

 
5

 
84,469

Equity in income of unconsolidated entities
454

 
420

 
895

 
811

Income tax (expense) benefit
(30
)
 
176

 
(79
)
 
(18
)
Depreciation and other amortization associated with real estate operations
(33,612
)
 
(34,802
)
 
(66,208
)
 
(69,598
)
General, administrative and leasing expenses
(8,158
)
 
(9,386
)
 
(15,644
)
 
(18,137
)
Business development expenses and land carry costs
(1,262
)
 
(870
)
 
(2,380
)
 
(1,983
)
Interest expense
(16,797
)
 
(18,475
)
 
(33,637
)
 
(37,149
)
Less: UJV NOI allocable to COPT included in equity in income of unconsolidated entities
(1,725
)
 
(1,251
)
 
(3,438
)
 
(2,470
)
Net income
$
25,121

 
$
109,563

 
$
50,671

 
$
131,881


 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
 
June 30,
2020
 
June 30,
2019
Segment assets
$
3,140,539

 
$
3,036,140

Operating properties lease liabilities included in segment assets
19,073

 
16,502

Non-operating property assets
679,207

 
523,801

Other assets
172,506

 
227,026

Total COPT consolidated assets
$
4,011,325

 
$
3,803,469


 
The accounting policies of the segments are the same as those used to prepare our consolidated financial statements.  In the segment reporting presented above, we did not allocate interest expense, depreciation and amortization, 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, credit loss expense, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.