14. 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 years ended December 31, 2016, 2015 and 2014.

Boston Properties, Inc.



	Year ended December 31,
	2016			2015			2014
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	502,285		$	572,606		$	433,111
Add:
Preferred dividends	10,500			10,500			10,500
Noncontrolling interest—common units of the Operating Partnership	59,260			66,951			50,862
Noncontrolling interest—redeemable preferred units of the Operating Partnership	—			6			1,023
Noncontrolling interest in property partnerships	(2,068		)	149,855			30,561
Losses from interest rate contracts	140			—			—
Losses from early extinguishments of debt	371			22,040			10,633
Interest expense	412,849			432,196			455,743
Depreciation and amortization expense	694,403			639,542			628,573
Impairment loss	1,783			—			—
Transaction costs	2,387			1,259			3,140
General and administrative expense	105,229			96,319			98,937
Less:
Gains on sales of real estate	80,606			375,895			168,039
Gains (losses) from investments in securities	2,273			(653		)	1,038
Interest and other income	7,230			6,777			8,765
Gain on sale of investment in unconsolidated joint venture	59,370			—			—
Income from unconsolidated joint ventures	8,074			22,770			12,769
Development and management services income	28,284			22,554			25,316
Net Operating Income	$	1,601,302		$	1,563,931		$	1,507,156

Boston Properties Limited Partnership



	Year ended December 31,
		2016			2015			2014
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	575,341		$	648,748		$	499,129
Add:
Preferred distributions		10,500			10,500			10,500
Noncontrolling interest—redeemable preferred units		—			6			1,023
Noncontrolling interest in property partnerships		(2,068		)	149,855			30,561
Losses from interest rate contracts		140			—			—
Losses from early extinguishments of debt		371			22,040			10,633
Interest expense		412,849			432,196			455,743
Depreciation and amortization expense		682,776			631,549			620,064
Impairment loss		1,783			—			—
Transaction costs		2,387			1,259			3,140
General and administrative expense		105,229			96,319			98,937
Less:
Gains on sales of real estate		82,775			377,093			174,686
Gains (losses) from investments in securities		2,273			(653		)	1,038
Interest and other income		7,230			6,777			8,765
Gain on sale of investment in unconsolidated joint venture		59,370			—			—
Income from unconsolidated joint ventures		8,074			22,770			12,769
Development and management services income		28,284			22,554			25,316
Net Operating Income		$	1,601,302		$	1,563,931		$	1,507,156

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, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, noncontrolling interests, losses from interest rate contracts, losses from early extinguishments of debt, interest expense, depreciation and amortization, impairment loss, transaction costs and general and administrative expense less (2) gains on sales of real estate, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures and development and management services income. The Company believes NOI is useful to investors as a performance measure and believes it provides useful information to investors regarding its financial condition and results of operations 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., for other investment activity). In addition, because of historical cost accounting and useful life estimates, depreciation and amortization 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, noncontrolling interests, losses from interest rate contracts, losses from early extinguishments of debt, interest expense, depreciation and amortization expense, impairment loss, transactions costs, general and administrative expenses, gains on sales of real estate, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures and development and management services income 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.

Beginning on January 1, 2016, the properties that were historically included in the Company’s Office/Technical segment are now included in the Office segment to align with its method of internal reporting, which shifted after the disposition of 415 Main Street in Cambridge, Massachusetts. As such, the amounts previously included in Office/Technical are now included in Office for all periods presented.

Information by geographic area and property type (dollars in thousands):

For the year ended December 31, 2016:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	727,265		$	1,012,518		$	318,609		$	402,561		$	2,460,953
Residential	4,812			—			—			11,887			16,699
Hotel	44,884			—			—			—			44,884
Total	776,961			1,012,518			318,609			414,448			2,522,536
% of Grand Totals	30.80		%	40.14		%	12.63		%	16.43		%	100.00		%
Rental Expenses:
Office	282,827			363,188			100,787			135,890			882,692
Residential	2,708			—			—			4,368			7,076
Hotel	31,466			—			—			—			31,466
Total	317,001			363,188			100,787			140,258			921,234
% of Grand Totals	34.41		%	39.42		%	10.94		%	15.23		%	100.00		%
Net operating income	$	459,960		$	649,330		$	217,822		$	274,190		$	1,601,302
% of Grand Totals	28.73		%	40.55		%	13.60		%	17.12		%	100.00		%

For the year ended December 31, 2015:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	716,246		$	1,000,030		$	302,434		$	384,628		$	2,403,338
Residential	4,801			—			—			14,082			18,883
Hotel	46,046			—			—			—			46,046
Total	767,093			1,000,030			302,434			398,710			2,468,267
% of Grand Totals	31.08		%	40.52		%	12.25		%	16.15		%	100.00		%
Rental Expenses:
Office	287,341			346,897			98,206			131,581			864,025
Residential	2,006			—			—			6,221			8,227
Hotel	32,084			—			—			—			32,084
Total	321,431			346,897			98,206			137,802			904,336
% of Grand Totals	35.54		%	38.36		%	10.86		%	15.24		%	100.00		%
Net operating income	$	445,662		$	653,133		$	204,228		$	260,908		$	1,563,931
% of Grand Totals	28.50		%	41.76		%	13.06		%	16.68		%	100.00		%

For the year ended December 31, 2014:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	715,917		$	928,692		$	261,221		$	396,274		$	2,302,104
Residential	4,528			—			—			21,665			26,193
Hotel	43,385			—			—			—			43,385
Total	763,830			928,692			261,221			417,939			2,371,682
% of Grand Totals	32.21		%	39.16		%	11.01		%	17.62		%	100.00		%
Rental Expenses:
Office	278,120			315,330			90,133			135,785			819,368
Residential	1,957			—			—			13,965			15,922
Hotel	29,236			—			—			—			29,236
Total	309,313			315,330			90,133			149,750			864,526
% of Grand Totals	35.78		%	36.47		%	10.43		%	17.32		%	100.00		%
Net operating income	$	454,517		$	613,362		$	171,088		$	268,189		$	1,507,156
% of Grand Totals	30.16		%	40.70		%	11.35		%	17.79		%	100.00		%