Quarterly report pursuant to Section 13 or 15(d)

Information by Business Segment

v3.20.2
Information by Business Segment
 9 Months Ended
Sep. 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 September 30, 2020
                  
Revenues from real estate operations $ 63,328  $ 14,699  $ 12,602  $ 8,006  $ 6,079  $ 7,995  $ 112,709  $ 14,913  $ 6,068  $ 753  $ 134,443 
Property operating expenses (21,537) (5,245) (7,116) (3,044) (2,029) (861) (39,832) (7,782) (3,642) (296) (51,552)
UJV NOI allocable to COPT
 —  —  —  —  —  1,752  1,752  —  —  —  1,752 
NOI from real estate operations $ 41,791  $ 9,454  $ 5,486  $ 4,962  $ 4,050  $ 8,886  $ 74,629  $ 7,131  $ 2,426  $ 457  $ 84,643 
Additions to long-lived assets $ 7,511  $ 2,219  $ —  $ 1,650  $ 6,382  $ —  $ 17,762  $ 5,303  $ 1,917  $ (3) $ 24,979 
Transfers from non-operating properties
 $ (209) $ 58  $ 221  $ —  $ 61,520  $ 65,269  $ 126,859  $ —  $ —  $ —  $ 126,859 
Three Months Ended September 30, 2019
                    
Revenues from real estate operations $ 63,436  $ 13,551  $ 12,703  $ 8,183  $ 4,171  $ 5,913  $ 107,957  $ 15,508  $ 6,565  $ 704  $ 130,734 
Property operating expenses (20,743) (4,965) (7,149) (3,581) (1,717) (518) (38,673) (7,343) (3,374) (324) (49,714)
UJV NOI allocable to COPT
 —  —  —  —  —  1,601  1,601  —  —  —  1,601 
NOI from real estate operations $ 42,693  $ 8,586  $ 5,554  $ 4,602  $ 2,454  $ 6,996  $ 70,885  $ 8,165  $ 3,191  $ 380  $ 82,621 
Additions to long-lived assets $ 10,770  $ 2,922  $ —  $ 2,003  $ 446  $ —  $ 16,141  $ 6,339  $ 61  $ 19  $ 22,560 
Transfers from non-operating properties
 $ 1,381  $ 118  $ 2,120  $ —  $ 4,152  $ 9,483  $ 17,254  $ —  $ (1,012) $ —  $ 16,242 
Nine Months Ended September 30, 2020
                  
Revenues from real estate operations $ 190,464  $ 42,824  $ 37,935  $ 24,466  $ 15,402  $ 20,648  $ 331,739  $ 45,535  $ 19,695  $ 2,128  $ 399,097 
Property operating expenses (63,618) (15,765) (21,696) (9,500) (5,488) (2,307) (118,374) (22,207) (10,338) (836) (151,755)
UJV NOI allocable to COPT
 —  —  —  —  —  5,190  5,190  —  —  —  5,190 
NOI from real estate operations $ 126,846  $ 27,059  $ 16,239  $ 14,966  $ 9,914  $ 23,531  $ 218,555  $ 23,328  $ 9,357  $ 1,292  $ 252,532 
Additions to long-lived assets $ 22,144  $ 8,114  $ —  $ 5,518  $ 6,698  $ —  $ 42,474  $ 13,105  $ 10,699  $ 165  $ 66,443 
Transfers from non-operating properties
 $ 4,304  $ 838  $ 381  $ —  $ 91,827  $ 171,465  $ 268,815  $ —  $ —  $ —  $ 268,815 
Segment assets at September 30, 2020
 $ 1,264,547  $ 392,226  $ 143,206  $ 180,337  $ 234,355  $ 446,530  $ 2,661,201  $ 387,290  $ 204,834  $ 3,643  $ 3,256,968 
Nine Months Ended September 30, 2019
                  
Revenues from real estate operations $ 187,778  $ 42,294  $ 36,368  $ 24,523  $ 12,078  $ 21,891  $ 324,932  $ 45,359  $ 22,996  $ 2,208  $ 395,495 
Property operating expenses (62,422) (14,951) (19,756) (10,271) (4,855) (1,630) (113,885) (22,349) (9,830) (981) (147,045)
UJV NOI allocable to COPT
 —  —  —  —  —  4,071  4,071  —  —  —  4,071 
NOI from real estate operations $ 125,356  $ 27,343  $ 16,612  $ 14,252  $ 7,223  $ 24,332  $ 215,118  $ 23,010  $ 13,166  $ 1,227  $ 252,521 
Additions to long-lived assets $ 22,204  $ 6,072  $ —  $ 7,948  $ 1,282  $ —  $ 37,506  $ 15,198  $ 312  $ 63  $ 53,079 
Transfers from non-operating properties
 $ 7,759  $ 4,647  $ 10,456  $ —  $ 13,363  $ 122,115  $ 158,340  $ —  $ (1,012) $ —  $ 157,328 
Segment assets at September 30, 2019
 $ 1,271,668  $ 398,137  $ 147,505  $ 186,243  $ 118,839  $ 298,675  $ 2,421,067  $ 393,747  $ 205,550  $ 3,708  $ 3,024,072 
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,
  2020 2019 2020 2019
Segment revenues from real estate operations $ 134,443  $ 130,734  $ 399,097  $ 395,495 
Construction contract and other service revenues 20,323  28,697  46,240  87,946 
Total revenues $ 154,766  $ 159,431  $ 445,337  $ 483,441 
 
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,
  2020 2019 2020 2019
UJV NOI allocable to COPT
 $ 1,752  $ 1,601  $ 5,190  $ 4,071 
Less: Income from UJV allocable to COPT attributable to depreciation and amortization expense and interest expense
 (1,274) (1,202) (3,814) (2,859)
Add: Equity in loss of unconsolidated non-real estate entities (1) (3) (4) (5)
Equity in income of unconsolidated entities
 $ 477  $ 396  $ 1,372  $ 1,207 
 
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 September 30, For the Nine Months Ended September 30,
  2020 2019 2020 2019
Construction contract and other service revenues $ 20,323  $ 28,697  $ 46,240  $ 87,946 
Construction contract and other service expenses (19,220) (27,802) (44,052) (85,130)
NOI from service operations $ 1,103  $ 895  $ 2,188  $ 2,816 
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 September 30, For the Nine Months Ended September 30,
  2020 2019 2020 2019
NOI from real estate operations $ 84,643  $ 82,621  $ 252,532  $ 252,521 
NOI from service operations 1,103  895  2,188  2,816 
Interest and other income 1,746  1,842  5,233  5,977 
Credit loss recoveries 1,465  —  161  — 
Gain on sales of real estate —  —  5  84,469 
Equity in income of unconsolidated entities 477  396  1,372  1,207 
Income tax (expense) benefit (16) 131  (95) 113 
Depreciation and other amortization associated with real estate operations (35,332) (34,692) (101,540) (104,290)
Impairment losses (1,530) (327) (1,530) (327)
General, administrative and leasing expenses (7,467) (7,929) (23,111) (26,066)
Business development expenses and land carry costs (1,094) (964) (3,474) (2,947)
Interest expense (17,152) (17,126) (50,789) (54,275)
UJV NOI allocable to COPT included in equity in income of unconsolidated entities (1,752) (1,601) (5,190) (4,071)
Loss on early extinguishment of debt (3,237) —  (3,237) — 
Loss on interest rate derivatives (53,196) —  (53,196) — 
Net (loss) income $ (31,342) $ 23,246  $ 19,329  $ 155,127 
 
The following table reconciles our segment assets to the consolidated total assets of COPT and subsidiaries (in thousands):
 
September 30,
2020		 September 30,
2019
Segment assets $ 3,256,968  $ 3,024,072 
Operating properties lease liabilities included in segment assets 26,054  16,645 
Non-operating property assets 642,182  597,301 
Other assets 194,985  217,351 
Total COPT consolidated assets $ 4,120,189  $ 3,855,369 
 
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, impairment losses, 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 recoveries (expense), loss on early extinguishment of debt, loss on interest rate derivatives, income taxes and noncontrolling interests because these items represent general corporate or non-operating property items not attributable to segments.