| 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 nine months ended September 30, 2019 and 2018 . Boston Properties, Inc. Three months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 107,771 $ 119,118 $ 370,200 $ 423,835 Add: Preferred dividends 2,625 2,625 7,875 7,875 Noncontrolling interest—common units of Boston Properties Limited Partnership 12,504 13,852 43,133 49,128 Noncontrolling interests in property partnerships 18,470 14,850 54,782 46,484 Interest expense 106,471 95,366 309,837 277,790 Loss from early extinguishment of debt 28,010 — 28,010 — Impairment loss — — 24,038 — Net operating income from unconsolidated joint ventures 23,065 22,511 73,129 54,798 Depreciation and amortization expense 165,862 157,996 507,867 480,210 Transaction costs 538 914 1,415 1,409 Payroll and related costs from management services contracts 2,429 2,516 8,227 7,371 General and administrative expense 31,147 29,677 107,980 94,039 Less: Net operating income attributable to noncontrolling interests in property partnerships 46,249 43,068 138,896 132,026 Gains from investments in securities 106 1,075 4,240 1,454 Interest and other income 7,178 2,822 14,546 7,049 Gains (losses) on sales of real estate (15 ) 7,863 766 122,552 Income (loss) from unconsolidated joint ventures (649 ) (4,313 ) 47,528 (3,083 ) Direct reimbursements of payroll and related costs from management services contracts 2,429 2,516 8,227 7,371 Development and management services revenue 10,303 15,253 29,566 32,963 Company’s share of Net Operating Income $ 433,291 $ 391,141 $ 1,292,724 $ 1,142,607 Boston Properties Limited Partnership Three months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 122,117 $ 136,201 $ 421,214 $ 483,069 Add: Preferred distributions 2,625 2,625 7,875 7,875 Noncontrolling interests in property partnerships 18,470 14,850 54,782 46,484 Interest expense 106,471 95,366 309,837 277,790 Loss from early extinguishment of debt 28,010 — 28,010 — Impairment loss — — 22,272 — Net operating income from unconsolidated joint ventures 23,065 22,511 73,129 54,798 Depreciation and amortization expense 164,020 156,056 501,901 474,383 Transaction costs 538 914 1,415 1,409 Payroll and related costs from management services contracts 2,429 2,516 8,227 7,371 General and administrative expense 31,147 29,677 107,980 94,039 Less: Net operating income attributable to noncontrolling interests in property partnerships 46,249 43,068 138,896 132,026 Gains from investments in securities 106 1,075 4,240 1,454 Interest and other income 7,178 2,822 14,546 7,049 Gains (losses) on sales of real estate (15 ) 9,154 915 126,831 Income (loss) from unconsolidated joint ventures (649 ) (4,313 ) 47,528 (3,083 ) Direct reimbursements of payroll and related costs from management services contracts 2,429 2,516 8,227 7,371 Development and management services revenue 10,303 15,253 29,566 32,963 Company’s share of Net Operating Income $ 433,291 $ 391,141 $ 1,292,724 $ 1,142,607 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, loss from early extinguishment of debt, 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 (losses) on sales of real estate, income (loss) 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 (loss) 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, loss from early extinguishment of debt, 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 September 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 September 30, 2019 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 224,345 $ — $ 251,806 $ 136,290 $ 95,370 $ 707,811 Residential 3,809 — — — 6,187 9,996 Hotel 13,014 — — — — 13,014 Total 241,168 — 251,806 136,290 101,557 730,821 % of Grand Totals 33.00 % — % 34.45 % 18.65 % 13.90 % 100.00 % Rental Expenses: Office 81,278 — 98,698 45,900 35,716 261,592 Residential 1,244 — — — 2,767 4,011 Hotel 8,743 — — — — 8,743 Total 91,265 — 98,698 45,900 38,483 274,346 % of Grand Totals 33.27 % — % 35.97 % 16.73 % 14.03 % 100.00 % Net operating income $ 149,903 $ — $ 153,108 $ 90,390 $ 63,074 $ 456,475 % of Grand Totals 32.84 % — % 33.54 % 19.80 % 13.82 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (10,379 ) — (35,870 ) — — (46,249 ) Add: Company’s share of net operating income from unconsolidated joint ventures 1,686 14,702 (27 ) — 6,704 23,065 Company’s share of net operating income $ 141,210 $ 14,702 $ 117,211 $ 90,390 $ 69,778 $ 433,291 % of Grand Totals 32.60 % 3.39 % 27.05 % 20.86 % 16.10 % 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 September 30, 2018 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 210,277 $ — $ 237,944 $ 102,035 $ 98,275 $ 648,531 Residential 1,905 — — — 4,415 6,320 Hotel 13,664 — — — — 13,664 Total 225,846 — 237,944 102,035 102,690 668,515 % of Grand Totals 33.78 % — % 35.60 % 15.26 % 15.36 % 100.00 % Rental Expenses: Office 78,089 — 96,795 34,016 35,365 244,265 Residential 1,159 — — — 2,565 3,724 Hotel 8,828 — — — — 8,828 Total 88,076 — 96,795 34,016 37,930 256,817 % of Grand Totals 34.30 % — % 37.68 % 13.25 % 14.77 % 100.00 % Net operating income $ 137,770 $ — $ 141,149 $ 68,019 $ 64,760 $ 411,698 % of Grand Totals 33.46 % — % 34.29 % 16.52 % 15.73 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (8,332 ) — (34,723 ) (13 ) — (43,068 ) Add: Company’s share of net operating income from unconsolidated joint ventures 781 13,246 1,698 — 6,786 22,511 Company’s share of net operating income $ 130,219 $ 13,246 $ 108,124 $ 68,006 $ 71,546 $ 391,141 % of Grand Totals 33.29 % 3.39 % 27.64 % 17.39 % 18.29 % 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 nine months ended September 30, 2019 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 659,717 $ — $ 761,993 $ 391,851 $ 288,201 $ 2,101,762 Residential 9,732 — — — 16,978 26,710 Hotel 36,796 — — — — 36,796 Total 706,245 — 761,993 391,851 305,179 2,165,268 % of Grand Totals 32.62 % — % 35.19 % 18.10 % 14.09 % 100.00 % Rental Expenses: Office 238,438 — 292,478 130,733 107,535 769,184 Residential 3,729 — — — 8,178 11,907 Hotel 25,686 — — — — 25,686 Total 267,853 — 292,478 130,733 115,713 806,777 % of Grand Totals 33.20 % — % 36.26 % 16.20 % 14.34 % 100.00 % Net operating income $ 438,392 $ — $ 469,515 $ 261,118 $ 189,466 $ 1,358,491 % of Grand Totals 32.27 % — % 34.56 % 19.22 % 13.95 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (29,783 ) — (108,665 ) (448 ) — (138,896 ) Add: Company’s share of net operating income from unconsolidated joint ventures 3,276 45,864 3,455 — 20,534 73,129 Company’s share of net operating income $ 411,885 $ 45,864 $ 364,305 $ 260,670 $ 210,000 $ 1,292,724 % of Grand Totals 31.87 % 3.55 % 28.18 % 20.16 % 16.24 % 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 nine months ended September 30, 2018 : Boston Los Angeles New York San Francisco Washington, DC Total Rental Revenue: (1) Office $ 623,084 $ — $ 714,348 $ 285,410 $ 296,092 $ 1,918,934 Residential 4,252 — — — 11,026 15,278 Hotel 37,373 — — — — 37,373 Total 664,709 — 714,348 285,410 307,118 1,971,585 % of Grand Totals 33.71 % — % 36.23 % 14.48 % 15.58 % 100.00 % Rental Expenses: Office 235,560 — 282,395 92,858 106,386 717,199 Residential 2,379 — — — 6,530 8,909 Hotel 25,642 — — — — 25,642 Total 263,581 — 282,395 92,858 112,916 751,750 % of Grand Totals 35.06 % — % 37.57 % 12.35 % 15.02 % 100.00 % Net operating income $ 401,128 $ — $ 431,953 $ 192,552 $ 194,202 $ 1,219,835 % of Grand Totals 32.88 % — % 35.41 % 15.79 % 15.92 % 100.00 % Less: Net operating income attributable to noncontrolling interests in property partnerships (24,879 ) — (107,420 ) 273 — (132,026 ) Add: Company’s share of net operating income from unconsolidated joint ventures 2,096 27,222 5,065 — 20,415 54,798 Company’s share of net operating income $ 378,345 $ 27,222 $ 329,598 $ 192,825 $ 214,617 $ 1,142,607 % of Grand Totals 33.11 % 2.38 % 28.85 % 16.88 % 18.78 % 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. |
