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 nine months ended September 30, 2018 and 2017 . Boston Properties, Inc. Three months ended September 30, Nine months ended September 30, 2018 2017 2018 2017 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 119,118 $ 117,337 $ 423,835 $ 348,086 Add: Preferred dividends 2,625 2,625 7,875 7,875 Noncontrolling interest—common units of Boston Properties Limited Partnership 13,852 13,402 49,128 40,350 Noncontrolling interests in property partnerships 14,850 14,340 46,484 33,967 Interest expense 95,366 92,032 277,790 282,709 Depreciation and amortization expense 157,996 152,164 480,210 463,288 Transaction costs 914 239 1,409 572 Payroll and related costs from management services contracts 2,516 — 7,371 — General and administrative expense 29,677 25,792 94,039 84,319 Less: Gains from early extinguishments of debt — — — 14,354 Gains from investments in securities 1,075 944 1,454 2,716 Interest and other income 2,822 1,329 7,049 3,447 Gains on sales of real estate 7,863 2,891 122,552 6,791 Income (loss) from unconsolidated joint ventures (4,313 ) 843 (3,083 ) 7,035 Direct reimbursements of payroll and related costs from management services contracts 2,516 — 7,371 — Development and management services revenue 15,253 10,811 32,963 24,648 Net Operating Income $ 411,698 $ 401,113 $ 1,219,835 $ 1,202,175 Boston Properties Limited Partnership Three months ended September 30, Nine months ended September 30, 2018 2017 2018 2017 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 136,201 $ 132,693 $ 483,069 $ 395,199 Add: Preferred distributions 2,625 2,625 7,875 7,875 Noncontrolling interests in property partnerships 14,850 14,340 46,484 33,967 Interest expense 95,366 92,032 277,790 282,709 Depreciation and amortization expense 156,056 150,210 474,383 457,102 Transaction costs 914 239 1,409 572 Payroll and related costs from management services contracts 2,516 — 7,371 — General and administrative expense 29,677 25,792 94,039 84,319 Less: Gains from early extinguishments of debt — — — 14,354 Gains from investments in securities 1,075 944 1,454 2,716 Interest and other income 2,822 1,329 7,049 3,447 Gains on sales of real estate 9,154 2,891 126,831 7,368 Income (loss) from unconsolidated joint ventures (4,313 ) 843 (3,083 ) 7,035 Direct reimbursements of payroll and related costs from management services contracts 2,516 — 7,371 — Development and management services revenue 15,253 10,811 32,963 24,648 Net Operating Income $ 411,698 $ 401,113 $ 1,219,835 $ 1,202,175 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 from early extinguishments of debt, gains from investments in securities, interest and other income, gains 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. 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 from early extinguishments of debt, gains from investments in securities, interest and other income, gains 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 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 September 30, 2018 : Boston New York San Francisco Washington, DC Total Rental Revenue: 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 % 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 nine months ended September 30, 2018 : Boston New York San Francisco Washington, DC Total Rental Revenue: 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 % 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 % |