Segment Reporting

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

We have four reportable operating segments at December 31, 2014, the first three of which consist of the ownership and rental of (i) industrial, (ii) office and (iii) medical office real estate investments. The operations of our industrial, office and medical office properties, along with our retail properties, are collectively referred to as "Rental Operations." Our retail properties, as well as any other properties not included in our reportable segments, do not by themselves meet the quantitative thresholds for separate presentation as a reportable segment and are referred to as non-reportable Rental Operations. The fourth reportable segment consists of various real estate services such as property management, asset management, maintenance, leasing, development, general contracting and construction management to third-party property owners and joint ventures, and is collectively referred to as "Service Operations." Our reportable segments offer different products or services and are managed separately because each segment requires different operating strategies and management expertise.

Revenues by Reportable Segment

The following table shows the revenues for each of the reportable segments, as well as a reconciliation to consolidated revenues, for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	2014		2013		2012
Revenues
Rental Operations:
Industrial	$	532,025	$	481,903	$	429,660
Office	246,694		251,269		242,719
Medical Office	146,530		127,475		82,962
Non-reportable Rental Operations	8,814		7,206		7,246
Service Operations	224,500		206,596		275,071
Total segment revenues	1,158,563		1,074,449		1,037,658
Other revenue	6,141		5,564		7,421
Consolidated revenue from continuing operations	1,164,704		1,080,013		1,045,079
Discontinued operations	3,031		47,843		72,645
Consolidated revenue	$	1,167,735	$	1,127,856	$	1,117,724

Supplemental Performance Measure

Prior to 2014, we evaluated the profitability of our reportable segments using net earnings excluding depreciation and other items that were not allocated to our operating segments. As the result of a shift in the focus of our executive management team on the metrics used to evaluate the performance of, and to allocate resources among, our reportable segments, we elected to change our segment measurement of profitability beginning with the period ended March 31, 2014. We have also revised prior period information in order to provide period-over-period comparability.

Property level net operating income, on a cash basis ("PNOI") is the non-GAAP supplemental performance measure that we now use to evaluate the performance of, and to allocate resources among, the real estate investments in the reportable and operating segments that comprise our Rental Operations. PNOI for our Rental Operations segments is comprised of rental revenues from continuing operations less rental expenses and real estate taxes from continuing operations, along with certain other adjusting items (collectively referred to as "Rental Operations revenues and expenses excluded from PNOI," as shown in the table below). Additionally, we do not allocate interest expense, depreciation expense and certain other non-property specific revenues and expenses (collectively referred to as "Non-Segment Items," as shown in the table below) to our individual operating segments.

We evaluate the performance of our Service Operations reportable segment using net income or loss, as allocated to that segment ("Earnings from Service Operations").

The following table shows a reconciliation of our segment-level measures of profitability to consolidated income from continuing operations before income taxes, for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	2014			2013			2012
PNOI
Industrial	$	385,578		$	349,197		$	311,241
Office	130,284			122,412			116,850
Medical Office	91,301			71,248			40,027
Non-reportable Rental Operations	670			564			790
PNOI, excluding all sold/held for sale properties	607,833			543,421			468,908
PNOI from sold/held-for-sale properties included in continuing operations	19,435			41,336			41,479
PNOI, continuing operations	627,268			584,757			510,387
Earnings from Service Operations	24,469			22,763			20,201
Rental Operations revenues and expenses excluded from PNOI:
Straight-line rental income and expense, net	20,474			12,749			17,899
Revenues related to lease buyouts	5,246			11,151			6,926
Amortization of lease concessions and above and below market rents	(5,345		)	(8,323		)	(7,928		)
Intercompany rents and other adjusting items	(4,219		)	(4,462		)	(4,704		)
Non-Segment Items:
Equity in earnings of unconsolidated companies	94,317			54,116			4,674
Interest expense	(219,613		)	(228,324		)	(229,417		)
Depreciation expense	(384,412		)	(392,627		)	(348,268		)
Gain on sale of properties	162,715			59,179			344
Impairment charges	(49,106		)	(3,777		)	—
Interest and other income, net	1,246			1,887			514
Other operating expenses	(229		)	470			(633		)
General and administrative expenses	(49,362		)	(42,673		)	(46,424		)
Gain on land sales	10,441			9,547			—
Undeveloped land carrying costs	(6,962		)	(8,614		)	(8,829		)
Loss on extinguishment of debt	(283		)	(9,433		)	—
Acquisition-related activity	(1,099		)	(3,093		)	(4,192		)
Other non-segment revenues and expenses, net	(421		)	1,027			3,728
Income (loss) from continuing operations before income taxes	$	225,125		$	56,320		$	(85,722	)

The assets for each of the reportable segments at December 31, 2014 and 2013 were as follows (in thousands):

	December 31, 2014		December 31, 2013
Assets
Rental Operations:
Industrial	$	4,677,047	$	4,414,740
Office	1,252,627		1,524,501
Medical Office	1,229,632		1,170,420
Non-reportable Rental Operations	71,741		81,056
Service Operations	158,762		145,222
Total segment assets	7,389,809		7,335,939
Non-segment assets	365,030		416,675
Consolidated assets	$	7,754,839	$	7,752,614

Tenant improvements and leasing costs to re-let rental space that we previously leased to tenants are referred to as second generation expenditures. Building improvements that are not specific to any tenant but serve to improve integral components of our real estate properties are also second generation expenditures. In addition to revenues and FFO, we also review our second generation capital expenditures in measuring the performance of our individual Rental Operations segments. We review these expenditures to determine the costs associated with re-leasing vacant space and maintaining the condition of our properties. Our second generation capital expenditures by segment are summarized as follows for the years ended December 31, 2014, 2013 and 2012 (in thousands):

	2014		2013		2012
Second Generation Capital Expenditures
Industrial	$	53,840	$	41,971	$	33,095
Office	41,124		46,600		30,092
Medical Office	3,131		3,106		641
Non-reportable Rental Operations segments	726		121		56
Total	$	98,821	$	91,798	$	63,884

Both our first and second generation expenditures vary significantly between leases on a per square foot basis, dependent upon several factors including the product type, the nature of a tenant's operations, the specific physical characteristics of each individual property as well as the market in which the property is located.