Segment Information | 12. Segment Information The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the three and six months ended June 30, 2017 and 2016 . Boston Properties, Inc. Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 133,709 $ 96,597 $ 230,764 $ 278,323 Add: Preferred dividends 2,625 2,589 5,250 5,207 Noncontrolling interest—common units of Boston Properties Limited Partnership 15,473 11,357 26,933 32,771 Noncontrolling interests in property partnerships 15,203 6,814 19,627 17,278 Interest expense 95,143 105,003 190,677 210,312 Depreciation and amortization expense 151,919 153,175 311,124 312,623 Transaction costs 299 913 333 938 General and administrative expense 27,141 25,418 58,527 54,771 Less: Gains on sales of real estate 3,767 — 3,900 67,623 Gains from early extinguishments of debt 14,354 — 14,354 — Gains from investments in securities 730 478 1,772 737 Interest and other income 1,504 1,524 2,118 3,029 Income from unconsolidated joint ventures 3,108 2,234 6,192 4,025 Development and management services revenue 7,365 5,533 13,837 12,222 Net Operating Income $ 410,684 $ 392,097 $ 801,062 $ 824,587 Boston Properties Limited Partnership Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 151,844 $ 109,938 $ 262,506 $ 317,234 Add: Preferred distributions 2,625 2,589 5,250 5,207 Noncontrolling interests in property partnerships 15,203 6,814 19,627 17,278 Interest expense 95,143 105,003 190,677 210,312 Depreciation and amortization expense 149,834 151,191 306,892 308,652 Transaction costs 299 913 333 938 General and administrative expense 27,141 25,418 58,527 54,771 Less: Gains on sales of real estate 4,344 — 4,477 69,792 Gains from early extinguishments of debt 14,354 — 14,354 — Gains from investments in securities 730 478 1,772 737 Interest and other income 1,504 1,524 2,118 3,029 Income from unconsolidated joint ventures 3,108 2,234 6,192 4,025 Development and management services revenue 7,365 5,533 13,837 12,222 Net Operating Income $ 410,684 $ 392,097 $ 801,062 $ 824,587 Net operating income (“NOI”) is a non-GAAP financial measure equal to net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, noncontrolling interests, interest expense, depreciation and amortization expense, transaction costs and general and administrative expense less (2) gains on sales of real estate, gains from early extinguishments of debt, gains from investments in securities, interest and other income, income from unconsolidated joint ventures and development and management services revenue. The Company believes NOI is useful to investors as a performance measure and believes it provides useful information to investors regarding its financial condition and results of operations because, when compared across periods, it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspective not immediately apparent from net income attributable to Boston Properties, Inc. common shareholders or net income attributable to Boston Properties Limited Partnership common unitholders. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., for other investment activity). In addition, because of historical cost accounting and useful life estimates, depreciation and amortization may distort operating performance measures at the property level. NOI presented by the Company may not be comparable to NOI reported by other REITs or real estate companies that define NOI differently. Asset information by segment is not reported because the Company does not use this measure to assess performance. Therefore, depreciation and amortization expense is not allocated among segments. Preferred dividends/distributions, noncontrolling interests, gains on sales of real estate, interest expense, gains from early extinguishments of debt, gains from investments in securities, interest and other income, income from unconsolidated joint ventures, depreciation and amortization expense, transaction costs, general and administrative expenses and development and management services revenue are not included in Net Operating Income as internal reporting addresses these items on a corporate level. The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by both geographic area and property type. The Company’s segments by geographic area are Boston, New York, San Francisco and Washington, DC. Segments by property type include: Office, Residential and Hotel. Information by geographic area and property type (dollars in thousands): For the three months ended June 30, 2017 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 191,760 $ 251,844 $ 85,483 $ 102,870 $ 631,957 Residential 1,153 — — 3,057 4,210 Hotel 13,375 — — — 13,375 Total 206,288 251,844 85,483 105,927 649,542 % of Grand Totals 31.76 % 38.77 % 13.16 % 16.31 % 100.00 % Rental Expenses: Office 74,160 93,110 25,938 35,611 228,819 Residential 545 — — 1,090 1,635 Hotel 8,404 — — — 8,404 Total 83,109 93,110 25,938 36,701 238,858 % of Grand Totals 34.79 % 38.98 % 10.86 % 15.37 % 100.00 % Net operating income $ 123,179 $ 158,734 $ 59,545 $ 69,226 $ 410,684 % of Grand Totals 29.99 % 38.65 % 14.50 % 16.86 % 100.00 % For the three months ended June 30, 2016 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 179,048 $ 243,957 $ 78,524 $ 99,588 $ 601,117 Residential 1,180 — — 2,908 4,088 Hotel 12,808 — — — 12,808 Total 193,036 243,957 78,524 102,496 618,013 % of Grand Totals 31.24 % 39.47 % 12.71 % 16.58 % 100.00 % Rental Expenses: Office 68,754 88,749 25,470 33,359 216,332 Residential 513 — — 1,093 1,606 Hotel 7,978 — — — 7,978 Total 77,245 88,749 25,470 34,452 225,916 % of Grand Totals 34.19 % 39.29 % 11.27 % 15.25 % 100.00 % Net operating income $ 115,791 $ 155,208 $ 53,054 $ 68,044 $ 392,097 % of Grand Totals 29.53 % 39.59 % 13.53 % 17.35 % 100.00 % For the six months ended June 30, 2017 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 377,196 $ 493,414 $ 170,124 $ 205,603 $ 1,246,337 Residential 2,292 — — 5,874 8,166 Hotel 20,795 — — — 20,795 Total 400,283 493,414 170,124 211,477 1,275,298 % of Grand Totals 31.39 % 38.69 % 13.34 % 16.58 % 100.00 % Rental Expenses: Office 149,416 184,794 50,412 70,933 455,555 Residential 1,040 — — 2,146 3,186 Hotel 15,495 — — — 15,495 Total 165,951 184,794 50,412 73,079 474,236 % of Grand Totals 34.99 % 38.97 % 10.63 % 15.41 % 100.00 % Net operating income $ 234,332 $ 308,620 $ 119,712 $ 138,398 $ 801,062 % of Grand Totals 29.25 % 38.53 % 14.94 % 17.28 % 100.00 % For the six months ended June 30, 2016 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 356,875 $ 535,815 $ 154,841 $ 200,076 $ 1,247,607 Residential 2,351 — — 5,786 8,137 Hotel 21,565 — — — 21,565 Total 380,791 535,815 154,841 205,862 1,277,309 % of Grand Totals 29.81 % 41.95 % 12.12 % 16.12 % 100.00 % Rental Expenses: Office 139,441 177,547 49,375 67,541 433,904 Residential 1,033 — — 2,173 3,206 Hotel 15,612 — — — 15,612 Total 156,086 177,547 49,375 69,714 452,722 % of Grand Totals 34.47 % 39.22 % 10.91 % 15.40 % 100.00 % Net operating income $ 224,705 $ 358,268 $ 105,466 $ 136,148 $ 824,587 % of Grand Totals 27.25 % 43.45 % 12.79 % 16.51 % 100.00 % |