Segment Reporting

9 Months Ended

Sep. 30, 2019

Reportable Segments

As of September 30, 2019, we had two reportable operating segments, the first consisting of the ownership and rental of industrial real estate investments. Our ongoing investments in new real estate investments are determined largely upon anticipated geographic trends in supply and demand for industrial buildings, as well as the real estate needs of our major tenants that operate on a national level. Our strategic initiatives and our allocation of resources have been historically based upon allocation among product types, which was consistent with our designation of reportable segments, and after having sold nearly all of our office and medical office properties we intend to increase our investment in industrial properties and treat them as a single operating and reportable segment. Properties not included in our reportable segments, because they are not industrial properties and do not by themselves meet the quantitative thresholds for separate presentation as a reportable segment, are generally referred to as non-reportable Rental Operations. Our non-reportable Rental Operations primarily include our remaining office properties and medical office property at September 30, 2019. The operations of our industrial properties, as well as our non-reportable Rental Operations, are collectively referred to as "Rental Operations."

Our second 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." The Service Operations segment is identified as one single operating segment because the lowest level of financial results reviewed by our chief operating decision maker are the results for the Service Operations segment in total. Further, our reportable segments 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 (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenues
Rental Operations:
Industrial	$	213,819	$	194,922	$	633,226	$	574,866
Non-reportable Rental Operations	1,471		1,481		4,401		6,300
Service Operations	25,955		34,986		104,838		94,552
Total segment revenues	241,245		231,389		742,465		675,718
Other revenue	84		509		819		1,295
Consolidated revenue from continuing operations	241,329		231,898		743,284		677,013
Discontinued operations	—		85		—		117
Consolidated revenue	$	241,329	$	231,983	$	743,284	$	677,130

Supplemental Performance Measure

Property-level net operating income on a cash basis ("PNOI") is the non-GAAP supplemental performance measure that we 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 following table). 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 following table) 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 most comparable GAAP measure to PNOI is income from continuing operations before income taxes. PNOI excludes expenses that materially impact our overall results of operations and, therefore, should not be considered as a substitute for income from continuing operations before income taxes or any other measures derived in accordance with GAAP. Furthermore, PNOI may not be comparable to other similarly titled measures of other companies.

The following table shows a reconciliation of our segment-level measures of profitability to consolidated income from continuing operations before income taxes (in thousands and excluding discontinued operations):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
PNOI
Industrial	$	151,906		$	136,456		$	446,446		$	391,645
Non-reportable Rental Operations	883			1,312			2,623			4,029
PNOI, excluding all sold properties	152,789			137,768			449,069			395,674
PNOI from sold properties included in continuing operations	3,119			5,546			12,774			24,668
PNOI, continuing operations	$	155,908		$	143,314		$	461,843		$	420,342

Earnings from Service Operations	2,315			1,256			5,423			5,160

Rental Operations revenues and expenses excluded from PNOI:
Straight-line rental income and expense, net	5,537			5,832			16,003			16,763
Revenues related to lease buyouts	1,089			—			1,108			23
Amortization of lease concessions and above and below market rents	1,741			593			4,545			1,599
Intercompany rents and other adjusting items	77			48			180			206
Non-Segment Items:
Equity in earnings of unconsolidated joint ventures	3,736			5,552			12,594			15,521
Interest expense	(22,604		)	(21,462		)	(68,246		)	(62,137		)
Depreciation and amortization expense	(83,924		)	(78,855		)	(242,920		)	(232,216		)
Gain on sale of properties	173,646			(107		)	204,075			194,741
Interest and other income, net	2,085			4,129			7,377			13,319
General and administrative expenses	(13,720		)	(8,959		)	(49,123		)	(43,441		)
Gain on land sales	3,869			3,915			6,569			7,221
Other operating expenses	(874		)	(1,104		)	(4,515		)	(3,902		)
Loss on extinguishment of debt	—			(89		)	(13		)	(240		)
Gain on involuntary conversion	—			—			2,259			—
Non-incremental costs related to successful leases	(1,123		)	—			(6,726		)	—
Other non-segment revenues and expenses, net	125			(1,658		)	788			(3,887		)
Income from continuing operations before income taxes	$	227,883		$	52,405		$	351,221		$	329,072