Segment Information | 11. 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, 2018 and 2017 . Boston Properties, Inc. Three months ended June 30, Six months ended June 30, 2018 2017 2018 2017 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 128,681 $ 133,709 $ 304,682 $ 230,764 Add: Preferred dividends 2,625 2,625 5,250 5,250 Noncontrolling interest—common units of Boston Properties Limited Partnership 14,859 15,473 35,311 26,933 Noncontrolling interests in property partnerships 14,400 15,203 31,634 19,627 Interest expense 92,204 95,143 182,424 190,677 Depreciation and amortization expense 156,417 151,919 322,214 311,124 Transaction costs 474 299 495 333 Payroll and related costs from management services contracts 1,970 — 4,855 — General and administrative expense 28,468 27,141 64,362 58,527 Less: Gains on sales of real estate 18,292 3,767 114,689 3,900 Gains from early extinguishments of debt — 14,354 — 14,354 Gains from investments in securities 505 730 379 1,772 Interest and other income 2,579 1,504 4,227 2,118 Income from unconsolidated joint ventures 769 3,108 1,230 6,192 Direct reimbursements of payroll and related costs from management services contracts 1,970 — 4,855 — Development and management services revenue 9,305 7,365 17,710 13,837 Net Operating Income $ 406,678 $ 410,684 $ 808,137 $ 801,062 Boston Properties Limited Partnership Three months ended June 30, Six months ended June 30, 2018 2017 2018 2017 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 145,961 $ 151,844 $ 346,868 $ 262,506 Add: Preferred distributions 2,625 2,625 5,250 5,250 Noncontrolling interests in property partnerships 14,400 15,203 31,634 19,627 Interest expense 92,204 95,143 182,424 190,677 Depreciation and amortization expense 154,474 149,834 318,327 306,892 Transaction costs 474 299 495 333 Payroll and related costs from management services contracts 1,970 — 4,855 — General and administrative expense 28,468 27,141 64,362 58,527 Less: Gains on sales of real estate 18,770 4,344 117,677 4,477 Gains from early extinguishments of debt — 14,354 — 14,354 Gains from investments in securities 505 730 379 1,772 Interest and other income 2,579 1,504 4,227 2,118 Income from unconsolidated joint ventures 769 3,108 1,230 6,192 Direct reimbursements of payroll and related costs from management services contracts 1,970 — 4,855 — Development and management services revenue 9,305 7,365 17,710 13,837 Net Operating Income $ 406,678 $ 410,684 $ 808,137 $ 801,062 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, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate 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, direct reimbursements of payroll and related costs from management services contracts 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 the Company's results of operations and financial condition 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 and 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., used for other investment activity). In addition, depreciation and amortization expense, because of historical cost accounting and useful life estimates, 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, net income attributable to noncontrolling interests, interest expense, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, 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, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI 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, 2018 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 207,810 $ 234,006 $ 93,482 $ 98,505 $ 633,803 Residential 1,195 — — 3,604 4,799 Hotel 14,607 — — — 14,607 Total 223,612 234,006 93,482 102,109 653,209 % of Grand Totals 34.23 % 35.83 % 14.31 % 15.63 % 100.00 % Rental Expenses: Office 77,147 91,838 31,214 34,678 234,877 Residential 706 — — 2,207 2,913 Hotel 8,741 — — — 8,741 Total 86,594 91,838 31,214 36,885 246,531 % of Grand Totals 35.12 % 37.26 % 12.66 % 14.96 % 100.00 % Net operating income $ 137,018 $ 142,168 $ 62,268 $ 65,224 $ 406,678 % of Grand Totals 33.69 % 34.96 % 15.31 % 16.04 % 100.00 % 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 six months ended June 30, 2018 : Boston New York San Francisco Washington, DC Total Rental Revenue: Office $ 412,807 $ 476,404 $ 183,375 $ 197,817 $ 1,270,403 Residential 2,347 — — 6,611 8,958 Hotel 23,709 — — — 23,709 Total 438,863 476,404 183,375 204,428 1,303,070 % of Grand Totals 33.68 % 36.56 % 14.07 % 15.69 % 100.00 % Rental Expenses: Office 157,471 185,600 58,842 71,021 472,934 Residential 1,220 — — 3,965 5,185 Hotel 16,814 — — — 16,814 Total 175,505 185,600 58,842 74,986 494,933 % of Grand Totals 35.46 % 37.50 % 11.89 % 15.15 % 100.00 % Net operating income $ 263,358 $ 290,804 $ 124,533 $ 129,442 $ 808,137 % of Grand Totals 32.59 % 35.98 % 15.41 % 16.02 % 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 % |