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 nine months ended September 30, 2017 and 2016 . Boston Properties, Inc. Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 117,337 $ 76,753 $ 348,086 $ 355,114 Add: Preferred dividends 2,625 2,589 7,875 7,796 Noncontrolling interest—common units of Boston Properties Limited Partnership 13,402 9,387 40,350 42,120 Noncontrolling interests in property partnerships 14,340 (17,225 ) 33,967 53 Interest expense 92,032 104,641 282,709 314,953 Losses from interest rate contracts — 140 — 140 Depreciation and amortization expense 152,164 203,748 463,288 516,371 Impairment loss — 1,783 — 1,783 Transaction costs 239 249 572 1,187 General and administrative expense 25,792 25,165 84,319 79,936 Less: Gains on sales of real estate 2,891 12,983 6,791 80,606 Gains (losses) from early extinguishments of debt — (371 ) 14,354 (371 ) Gains from investments in securities 944 976 2,716 1,713 Interest and other income 1,329 3,628 3,447 6,657 Income from unconsolidated joint ventures 843 1,464 7,035 5,489 Development and management services revenue 10,811 6,364 24,648 18,586 Net Operating Income $ 401,113 $ 382,186 $ 1,202,175 $ 1,206,773 Boston Properties Limited Partnership Three months ended September 30, Nine months ended September 30, 2017 2016 2017 2016 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 132,693 $ 91,306 $ 395,199 $ 408,540 Add: Preferred distributions 2,625 2,589 7,875 7,796 Noncontrolling interests in property partnerships 14,340 (17,225 ) 33,967 53 Interest expense 92,032 104,641 282,709 314,953 Losses from interest rate contracts — 140 — 140 Depreciation and amortization expense 150,210 198,582 457,102 507,234 Impairment loss — 1,783 — 1,783 Transaction costs 239 249 572 1,187 General and administrative expense 25,792 25,165 84,319 79,936 Less: Gains on sales of real estate 2,891 12,983 7,368 82,775 Gains (losses) from early extinguishments of debt — (371 ) 14,354 (371 ) Gains from investments in securities 944 976 2,716 1,713 Interest and other income 1,329 3,628 3,447 6,657 Income from unconsolidated joint ventures 843 1,464 7,035 5,489 Development and management services revenue 10,811 6,364 24,648 18,586 Net Operating Income $ 401,113 $ 382,186 $ 1,202,175 $ 1,206,773 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, losses from interest rate contracts, depreciation and amortization expense, impairment loss, transaction costs and general and administrative expense less (2) gains on sales of real estate, gains (losses) 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, losses from interest rate contracts, gains (losses) from early extinguishments of debt, gains from investments in securities, interest and other income, income from unconsolidated joint ventures, depreciation and amortization expense, impairment loss, 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 September 30, 2017 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 196,687 $ 242,071 $ 87,162 $ 103,622 $ 629,542 Residential 1,228 — — 3,067 4,295 Hotel 13,064 — — — 13,064 Total 210,979 242,071 87,162 106,689 646,901 % of Grand Totals 32.61 % 37.43 % 13.47 % 16.49 % 100.00 % Rental Expenses: Office 76,086 95,775 26,792 37,111 235,764 Residential 512 — — 1,065 1,577 Hotel 8,447 — — — 8,447 Total 85,045 95,775 26,792 38,176 245,788 % of Grand Totals 34.60 % 38.97 % 10.90 % 15.53 % 100.00 % Net operating income $ 125,934 $ 146,296 $ 60,370 $ 68,513 $ 401,113 % of Grand Totals 31.40 % 36.47 % 15.05 % 17.08 % 100.00 % For the three months ended September 30, 2016 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 183,975 $ 237,262 $ 80,235 $ 100,666 $ 602,138 Residential 1,227 — — 3,145 4,372 Hotel 12,354 — — — 12,354 Total 197,556 237,262 80,235 103,811 618,864 % of Grand Totals 31.92 % 38.34 % 12.96 % 16.78 % 100.00 % Rental Expenses: Office 71,254 95,073 26,037 33,973 226,337 Residential 1,141 — — 1,082 2,223 Hotel 8,118 — — — 8,118 Total 80,513 95,073 26,037 35,055 236,678 % of Grand Totals 34.02 % 40.17 % 11.00 % 14.81 % 100.00 % Net operating income $ 117,043 $ 142,189 $ 54,198 $ 68,756 $ 382,186 % of Grand Totals 30.62 % 37.21 % 14.18 % 17.99 % 100.00 % For the nine months ended September 30, 2017 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 573,883 $ 735,485 $ 257,286 $ 309,225 $ 1,875,879 Residential 3,520 — — 8,941 12,461 Hotel 33,859 — — — 33,859 Total 611,262 735,485 257,286 318,166 1,922,199 % of Grand Totals 31.80 % 38.27 % 13.38 % 16.55 % 100.00 % Rental Expenses: Office 225,502 280,569 77,204 108,044 691,319 Residential 1,552 — — 3,211 4,763 Hotel 23,942 — — — 23,942 Total 250,996 280,569 77,204 111,255 720,024 % of Grand Totals 34.86 % 38.97 % 10.72 % 15.45 % 100.00 % Net operating income $ 360,266 $ 454,916 $ 180,082 $ 206,911 $ 1,202,175 % of Grand Totals 29.97 % 37.84 % 14.98 % 17.21 % 100.00 % For the nine months ended September 30, 2016 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 540,850 $ 773,077 $ 235,076 $ 300,742 $ 1,849,745 Residential 3,578 — — 8,931 12,509 Hotel 33,919 — — — 33,919 Total 578,347 773,077 235,076 309,673 1,896,173 % of Grand Totals 30.50 % 40.77 % 12.40 % 16.33 % 100.00 % Rental Expenses: Office 210,695 272,620 75,412 101,514 660,241 Residential 2,174 — — 3,255 5,429 Hotel 23,730 — — — 23,730 Total 236,599 272,620 75,412 104,769 689,400 % of Grand Totals 34.32 % 39.54 % 10.94 % 15.20 % 100.00 % Net operating income $ 341,748 $ 500,457 $ 159,664 $ 204,904 $ 1,206,773 % of Grand Totals 28.32 % 41.47 % 13.23 % 16.98 % 100.00 % |