Segment Information

6 Months Ended

Jun. 30, 2011

16. SEGMENT INFORMATION

As of June 30, 2011, the Company was managing its portfolio within seven segments: (1) Pennsylvania, (2) Philadelphia Central Business District (CBD), (3) Metropolitan Washington D.C, (4) New Jersey/Delaware, (5) Richmond, Virginia, (6) Austin, Texas and (7) California. The Pennsylvania segment includes properties in Chester, Delaware, and Montgomery counties in the Philadelphia suburbs. The Philadelphia CBD segment includes properties located in the City of Philadelphia in Pennsylvania. The Metropolitan Washington, D.C. segment includes properties in Northern Virginia and suburban Maryland. The New Jersey/Delaware segment includes properties in Burlington, Camden and Mercer counties and in New Castle county in the state of Delaware. The Richmond, Virginia segment includes properties primarily in Albemarle, Chesterfield, Goochland and Henrico counties and Durham, North Carolina. The Austin, Texas segment includes properties in Austin. The California segment includes properties in Oakland, Concord, Carlsbad and Rancho Bernardo. The corporate group is responsible for cash and investment management, development of certain real estate properties during the construction period, and certain other general support functions. Land held for development and construction in progress are transferred to operating properties by region upon completion of the associated construction or project.

As a result of the acquisition of Three Logan Square and the placement in service of the IRS Philadelphia Campus and the Cira South Garage, the Company added the Philadelphia CBD segment in the third quarter of 2010. The Philadelphia CBD includes Three Logan Square, the IRS Philadelphia Campus, the Cira South Garage and certain other properties in Philadelphia, PA that were previously included in the Pennsylvania segment. The prior period results have been restated to conform to the current period presentation.

Segment information is as follows (in thousands):


	Pennsylvania		Philadelphia				New Jersey		Richmond,
	Suburbs		CBD		Metropolitan, D.C.		/Delaware		Virginia		Austin, Texas		California		Corporate			Total
As of June 30, 2011:
Real estate investments, at cost:
Operating properties	$	1,210,274	$	928,880	$	1,366,282	$	568,992	$	306,243	$	254,920	$	249,450	$	—		$	4,885,041
Construction-in-progress		—		—		—		—		—		—		—		33,314			33,314
Land inventory		—		—		—		—		—		—		—		120,245			120,245

As of December 31, 2010:
Real estate investments, at cost:
Operating properties	$	1,199,957	$	911,354	$	1,359,776	$	568,413	$	294,406	$	254,019	$	246,186	$	—		$	4,834,111
Construction-in-progress		—		—		—		—		—		—		—		33,322			33,322
Land inventory		—		—		—		—		—		—		—		110,055			110,055

For the three-months ended June 30, 2011:
Total revenue	$	39,137	$	30,573	$	32,616	$	21,098	$	9,277	$	7,637	$	5,382	$	(313	)	$	145,407
Property operating expenses, real estate taxes and third party management expenses		13,572		11,220		12,190		10,004		3,623		3,420		2,821		(275	)		56,575

Net operating income	$	25,565	$	19,353	$	20,426	$	11,094	$	5,654	$	4,217	$	2,561	$	(38	)	$	88,832


For the three-months ended June 30, 2010:
Total revenue	$	37,332	$	18,412	$	34,661	$	22,647	$	8,769	$	7,966	$	5,967	$	(257	)	$	135,497
Property operating expenses, real estate taxes and third party management expenses		12,866		7,956		11,996		10,543		3,165		3,441		2,956		(29	)		52,894

Net operating income	$	24,466	$	10,456	$	22,665	$	12,104	$	5,604	$	4,525	$	3,011	$	(228	)	$	82,603


For the six-months ended June 30, 2011:
Total revenue	$	79,431	$	62,423	$	65,258	$	42,429	$	18,076	$	15,750	$	10,791	$	(547	)	$	293,611
Property operating expenses, real estate taxes and third party management expenses		30,366		23,439		24,514		21,751		7,011		6,514		5,515		(609	)		118,501

Net operating income	$	49,065	$	38,984	$	40,744	$	20,678	$	11,065	$	9,236	$	5,276	$	62		$	175,110


For the six-months ended June 30, 2010:
Total revenue	$	76,814	$	36,962	$	69,403	$	47,940	$	18,168	$	15,965	$	11,871	$	(626	)	$	276,497
Property operating expenses, real estate taxes and third party management expenses		29,622		15,793		24,370		22,787		6,824		6,762		5,684		(480	)		111,362

Net operating income	$	47,192	$	21,169	$	45,033	$	25,153	$	11,344	$	9,203	$	6,187	$	(146	)	$	165,135

Net operating income (“NOI”) is defined as total revenue less property operating expenses, real estate taxes and third party management expenses. Segment NOI includes revenue, real estate taxes and property operating expenses directly related to operation and management of the properties owned and managed within the respective geographical region. Segment NOI excludes property level depreciation and amortization, revenue and expenses directly associated with third party real estate management services, expenses associated with corporate administrative support services, and inter-company eliminations. NOI is the measure that is used by the Company to evaluate the operating performance of its real estate assets by segment. The Company also believes that NOI provides useful information to investors regarding its financial condition and results of operations because it reflects only those income and expenses recorded at the property level. NOI does not also reflect general and administrative expenses, interest expenses, real estate impairment losses, depreciation and amortization costs, capital expenditures and leasing costs, or trends in development and construction activities that could materially impact the Company’s results from operations. All companies may not also calculate NOI in the same manner. The Company believes that net income, as defined by GAAP, is the most appropriate earnings measure. Below is a reconciliation of consolidated net operating income to consolidated income from continuing operations:


	Three-month periods						Six-month periods
	ended June 30,						ended June 30,
	2011			2010			2011			2010
	(amounts in thousands)						(amounts in thousands)
Consolidated net operating income	$	88,832		$	82,603		$	175,110		$	165,135
Less:
Interest expense		(34,738	)		(31,210	)		(67,131	)		(62,734	)
Deferred financing costs		(1,070	)		(862	)		(1,998	)		(1,873	)
Depreciation and amortization		(58,014	)		(51,289	)		(109,688	)		(103,318	)
Administrative expenses		(5,890	)		(6,653	)		(12,134	)		(12,745	)
Plus:
Interest income		421			963			862			1,828
Equity in income of real estate ventures		1,088			1,025			2,321			2,321
Net gain on sales of interests in real estate		—			—			2,791			—
Loss on early extinguishment of debt		(756	)		(445	)		(756	)		(1,637	)

Loss from continuing operations		(10,127	)		(5,868	)		(10,623	)		(13,023	)
Income from discontinued operations		3,893			268			3,899			7,024

Net loss	$	(6,234	)	$	(5,600	)	$	(6,724	)	$	(5,999	)