Segment Information | 12. Segment Information The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to the Company’s share of Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to the Company’s share of Net Operating Income for the three and six months ended June 30, 2019 and 2018 . Boston Properties, Inc. Three months ended June 30, Six months ended June 30, 2019 2018 2019 2018 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 164,318 $ 128,681 $ 262,431 $ 304,682 Add: Preferred dividends 2,625 2,625 5,250 5,250 Noncontrolling interest—common units of Boston Properties Limited Partnership 19,036 14,859 30,627 35,311 Noncontrolling interests in property partnerships 17,482 14,400 36,312 31,634 Interest expense 102,357 92,204 203,366 182,424 Impairment loss — — 24,038 — Net operating income from unconsolidated joint ventures 24,715 16,227 50,064 32,287 Depreciation and amortization expense 177,411 156,417 342,005 322,214 Transaction costs 417 474 877 495 Payroll and related costs from management services contracts 2,403 1,970 5,798 4,855 General and administrative expense 35,071 28,468 76,833 64,362 Less: Net operating income attributable to noncontrolling interests in property partnerships 45,562 43,049 92,647 88,958 Gains from investments in securities 1,165 505 4,134 379 Interest and other income 3,615 2,579 7,368 4,227 Gains on sales of real estate 1,686 18,292 781 114,689 Income from unconsolidated joint ventures 47,964 769 48,177 1,230 Direct reimbursements of payroll and related costs from management services contracts 2,403 1,970 5,798 4,855 Development and management services revenue 9,986 9,305 19,263 17,710 Company’s share of Net Operating Income $ 433,454 $ 379,856 $ 859,433 $ 751,466 Boston Properties Limited Partnership Three months ended June 30, Six months ended June 30, 2019 2018 2019 2018 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 185,715 $ 145,961 $ 299,097 $ 346,868 Add: Preferred distributions 2,625 2,625 5,250 5,250 Noncontrolling interests in property partnerships 17,482 14,400 36,312 31,634 Interest expense 102,357 92,204 203,366 182,424 Impairment loss — — 22,272 — Net operating income from unconsolidated joint ventures 24,715 16,227 50,064 32,287 Depreciation and amortization expense 175,199 154,474 337,881 318,327 Transaction costs 417 474 877 495 Payroll and related costs from management services contracts 2,403 1,970 5,798 4,855 General and administrative expense 35,071 28,468 76,833 64,362 Less: Net operating income attributable to noncontrolling interests in property partnerships 45,562 43,049 92,647 88,958 Gains from investments in securities 1,165 505 4,134 379 Interest and other income 3,615 2,579 7,368 4,227 Gains on sales of real estate 1,835 18,770 930 117,677 Income from unconsolidated joint ventures 47,964 769 48,177 1,230 Direct reimbursements of payroll and related costs from management services contracts 2,403 1,970 5,798 4,855 Development and management services revenue 9,986 9,305 19,263 17,710 Company’s share of Net Operating Income $ 433,454 $ 379,856 $ 859,433 $ 751,466 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, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains from investments in securities, interest and other income, gains on sales of real estate, 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. The Company’s internal reporting utilizes its share of NOI, which includes its share of NOI from consolidated and unconsolidated joint ventures, which is a non-GAAP financial measure that is calculated as the consolidated amount, plus the Company’s share of the amount from the Company’s unconsolidated joint ventures (calculated based upon the Company’s percentage ownership interest and, in some cases, after priority allocations), minus the Company’s partners’ share of the amount from the Company’s consolidated joint ventures (calculated based upon the partners’ percentage ownership interests and, in some cases, after priority allocations, income allocation to private REIT shareholders and their share of fees due to the Company). The Company’s share of NOI from unconsolidated joint ventures does not include its share of gains on sale of real estate from unconsolidated joint ventures which is included within income from unconsolidated joint ventures in the Company’s Consolidated Statements of Operations. Management utilizes its share of NOI in assessing its performance as the Company has several significant joint ventures and, in some cases, the Company exercises significant influence over, but does not control, the joint venture, in which case GAAP requires that the Company account for the joint venture entity using the equity method of accounting and the Company does not consolidate it for financial reporting purposes. In other cases, GAAP requires that the Company consolidate the venture even though the Company’s partner(s) owns a significant percentage interest. As a result, the presentations of the Company’s share of NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company’s financial information presented in accordance with GAAP. 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, interest expense, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains from investments in securities, interest and other income, gains on sales of real estate, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI and are provided as reconciling items to the Company’s reconciliations of its share of NOI to net income attributable to common shareholders/unitholders. The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by geographic area. The Company’s segments by geographic area are Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company also presents information for each segment by property type including Office, Residential and Hotel. Beginning in 2019, the Company modified the presentation of its geographic area classification for all periods presented to include the Los Angeles geographic area to align with its method of internal reporting. The Company expanded its presence in the Los Angeles geographic area with its equity method investment in Santa Monica Business Park located in Santa Monica, California. As of June 30, 2019, the Company has equity interests in a portfolio of 27 office and retail properties in the Los Angeles geographic area aggregating approximately 2.3 million net rentable square feet, all of which are owned through investments in unconsolidated joint ventures. The Company is presenting the Los Angeles geographic area as a reportable segment to align with its method of internal reporting given the increased significance as a result of commencing a full reporting period of ownership of the Santa Monica Business Park portfolio. The inclusion of the Los Angeles geographic area has also resulted in a change in the reported measure of segment profit or loss from NOI to the Company’s share of NOI. This change has been reflected in all periods presented and the impact of the change can been seen within the tables below. The Company has not presented rental revenue and rental expenses for properties owned through investments in unconsolidated joint ventures, including those in the Los Angeles geographic area, as the Company accounts for these properties using the equity method of accounting. Information by geographic area (dollars in thousands): For the three months ended June 30, 2019 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 217,961 $ — $ 251,556 $ 131,506 $ 96,486 $ 697,509 Residential 3,222 — — — 5,777 8,999 Hotel 14,844 — — — — 14,844 Total 236,027 — 251,556 131,506 102,263 721,352 % of Grand Totals 32.72 % — % 34.87 % 18.23 % 14.18 % 100.00 % Rental Expenses: Office 77,660 — 96,809 43,708 35,672 253,849 Residential 1,279 — — — 2,843 4,122 Hotel 9,080 — — — — 9,080 Total 88,019 — 96,809 43,708 38,515 267,051 % of Grand Totals 32.96 % — % 36.25 % 16.37 % 14.42 % 100.00 % Net operating income $ 148,008 $ — $ 154,747 $ 87,798 $ 63,748 $ 454,301 % of Grand Totals 32.58 % — % 34.06 % 19.33 % 14.03 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (10,031 ) — (35,531 ) — — (45,562 ) Add: Company’s share of net operating income from unconsolidated joint ventures 818 15,454 1,696 — 6,747 24,715 Company’s share of net operating income $ 138,795 $ 15,454 $ 120,912 $ 87,798 $ 70,495 $ 433,454 % of Grand Totals 32.01 % 3.57 % 27.90 % 20.26 % 16.26 % 100.00 % _______________ (1) Rental Revenue is equal to Total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations. For the three months ended June 30, 2018 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) 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 % Less: Net operating income attributable to noncontrolling interests in property partnerships (8,418 ) — (34,751 ) 120 — (43,049 ) Add: Company’s share of net operating income from unconsolidated joint ventures 781 6,902 1,706 — 6,838 16,227 Company’s share of net operating income $ 129,381 $ 6,902 $ 109,123 $ 62,388 $ 72,062 $ 379,856 % of Grand Totals 34.06 % 1.82 % 28.73 % 16.42 % 18.97 % 100.00 % _______________ (1) Rental Revenue is equal to Total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations. For the six months ended June 30, 2019 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 435,372 $ — $ 510,187 $ 255,561 $ 192,831 $ 1,393,951 Residential 5,923 — — — 10,791 16,714 Hotel 23,782 — — — — 23,782 Total 465,077 — 510,187 255,561 203,622 1,434,447 % of Grand Totals 32.42 % — % 35.56 % 17.82 % 14.20 % 100.00 % Rental Expenses: Office 157,160 — 193,780 84,833 71,819 507,592 Residential 2,485 — — — 5,411 7,896 Hotel 16,943 — — — — 16,943 Total 176,588 — 193,780 84,833 77,230 532,431 % of Grand Totals 33.17 % — % 36.39 % 15.93 % 14.51 % 100.00 % Net operating income $ 288,489 $ — $ 316,407 $ 170,728 $ 126,392 $ 902,016 % of Grand Totals 31.98 % — % 35.08 % 18.93 % 14.01 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (19,404 ) — (72,795 ) (448 ) — (92,647 ) Add: Company’s share of net operating income from unconsolidated joint ventures 1,590 31,162 3,482 — 13,830 50,064 Company’s share of net operating income $ 270,675 $ 31,162 $ 247,094 $ 170,280 $ 140,222 $ 859,433 % of Grand Totals 31.49 % 3.63 % 28.75 % 19.81 % 16.32 % 100.00 % _______________ (1) Rental Revenue is equal to total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations. For the six months ended June 30, 2018 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) 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 % Less: Net operating income attributable to noncontrolling interests in property partnerships (16,547 ) — (72,697 ) 286 — (88,958 ) Add: Company’s share of net operating income from unconsolidated joint ventures 1,315 13,976 3,367 — 13,629 32,287 Company’s share of net operating income $ 248,126 $ 13,976 $ 221,474 $ 124,819 $ 143,071 $ 751,466 % of Grand Totals 33.02 % 1.86 % 29.47 % 16.61 % 19.04 % 100.00 % _______________ (1) Rental Revenue is equal to total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations. |