Segment Reporting

12 Months Ended

Dec. 31, 2019

Reportable Segments

During the year ended December 31, 2017, we completed the Medical Office Portfolio Disposition, which resulted in all of our in-service medical office properties being classified within discontinued operations, with the exception of a property that did not meet the criteria for classification as held-for-sale at December 31, 2019. As a result of this transaction, beginning the second quarter of 2017, our medical office properties were no longer presented as a separate reportable segment, with substantially all such operating results being classified within discontinued operations. The remaining medical office property included in continuing operations no longer meets the quantitative thresholds for separate presentation, and is classified as part of our Non-Reportable Rental Operations. Properties that are not included in our reportable segments, because they 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 December 31, 2019.

As of December 31, 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. 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. Our Service Operations segment also includes our taxable REIT subsidiary, a legal entity through which certain of the segment's aforementioned operations are conducted.

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, 2019, 2018 and 2017 (in thousands):



	2019		2018		2017
Revenues
Rental Operations:
Industrial	$	848,806	$	775,713	$	661,226
Non-Reportable Rental Operations	5,794		7,862		24,101
Service Operations	117,926		162,551		94,420
Total segment revenues	972,526		946,126		779,747
Other revenue	1,233		1,744		1,187
Consolidated revenue from continuing operations	973,759		947,870		780,934
Discontinued operations	—		117		87,185
Consolidated revenue	$	973,759	$	947,987	$	868,119

Supplemental Performance Measure

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 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, 2019, 2018 and 2017 (in thousands and excluding discontinued operations):



	2019			2018			2017
PNOI
Industrial	$	599,416		$	526,627		$	439,404
Non-Reportable Rental Operations	3,811			5,276			4,887
PNOI, excluding all sold properties	603,227			531,903			444,291
PNOI from sold properties included in continuing operations	14,894			32,453			49,652
PNOI, continuing operations	618,121			564,356			493,943

Earnings from Service Operations	6,360			8,642			4,963

Rental Operations revenues and expenses excluded from PNOI:
Straight-line rental income and expense, net	21,573			24,604			15,520
Revenues related to lease buyouts	1,235			23			10,816
Amortization of lease concessions and above and below market rents	7,802			2,332			(3,667		)
Intercompany rents and other adjusting items	1,012			1,271			1,004
Non-Segment Items:
Equity in earnings of unconsolidated joint ventures	31,406			21,444			63,310
Promote income	—			—			20,007
Interest expense	(89,756		)	(85,006		)	(87,003		)
Depreciation and amortization expense	(327,223		)	(312,217		)	(273,561		)
Gain on sale of properties	234,653			204,988			113,669
Impairment charges	—			—			(4,481		)
Interest and other income, net	9,941			17,234			14,721
General and administrative expenses	(60,889		)	(56,218		)	(54,944		)
Gain on land sales	7,445			10,334			9,244
Other operating expenses	(5,318		)	(5,231		)	(4,212		)
Loss on extinguishment of debt	(6,320		)	(388		)	(26,104		)
Gain on involuntary conversion	2,259			—			—
Non-incremental costs related to successful leases	(12,402		)	—			—
Other non-segment revenues and expenses, net	986			(3,972		)	(2,990		)
Income from continuing operations before income taxes	$	440,885		$	392,196		$	290,235

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.

Assets by Reportable Segment

The assets for each of the reportable segments at December 31, 2019 and 2018 were as follows (in thousands):



	December 31, 2019		December 31, 2018
Assets
Rental Operations:
Industrial	$	7,843,302	$	7,155,505
Non-Reportable Rental Operations	39,700		43,496
Service Operations	150,882		132,483
Total segment assets	8,033,884		7,331,484
Non-segment assets	386,678		472,540
Consolidated assets	$	8,420,562	$	7,804,024

In addition to revenues and PNOI, 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 are included within "second generation tenant improvements, leasing costs and building improvements" in our consolidated statements of Cash Flows and are primarily attributable to the industrial segment for the years ended December 31, 2019, 2018 and 2017.