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 months ended March 31, 2018 and 2017.

Boston Properties, Inc.



	Three months ended March 31,
	2018		2017
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	176,021	$	97,083
Add:
Preferred dividends	2,625		2,625
Noncontrolling interest—common units of Boston Properties Limited Partnership	20,432		11,432
Noncontrolling interests in property partnerships	17,234		4,424
Interest expense	90,220		95,534
Losses (gains) from investments in securities	126		(1,042		)
Depreciation and amortization expense	165,797		159,205
Transaction costs	21		34
Payroll and related costs from management services contracts	2,885		—
General and administrative expense	35,894		31,386
Less:
Gains on sales of real estate	96,397		133
Interest and other income	1,648		614
Income from unconsolidated joint ventures	461		3,084
Direct reimbursements of payroll and related costs from management services contracts	2,885		—
Development and management services revenue	8,405		6,472
Net Operating Income	$	401,459	$	390,378

Boston Properties Limited Partnership



	Three months ended March 31,
	2018		2017
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	200,907	$	110,662
Add:
Preferred distributions	2,625		2,625
Noncontrolling interests in property partnerships	17,234		4,424
Interest expense	90,220		95,534
Losses (gains) from investments in securities	126		(1,042		)
Depreciation and amortization expense	163,853		157,058
Transaction costs	21		34
Payroll and related costs from management services contracts	2,885		—
General and administrative expense	35,894		31,386
Less:
Gains on sales of real estate	98,907		133
Interest and other income	1,648		614
Income from unconsolidated joint ventures	461		3,084
Direct reimbursements of payroll and related costs from management services contracts	2,885		—
Development and management services revenue	8,405		6,472
Net Operating Income	$	401,459	$	390,378

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, losses (gains) from investments in securities, depreciation and amortization expense, transaction costs, payroll and related costs from management service contracts and corporate general and administrative expense less (2) gains on sales of real estate, interest and other income, income 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, losses (gains) from investments in securities, depreciation and amortization expense, transactions costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains on sales of real estate, interest and other income, income 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 March 31, 2018:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	204,997		$	242,398		$	89,893		$	99,312		$	636,600
Residential	1,152			—			—			3,007			4,159
Hotel	9,102			—			—			—			9,102
Total	215,251			242,398			89,893			102,319			649,861
% of Grand Totals	33.12		%	37.31		%	13.83		%	15.74		%	100.00		%
Rental Expenses:
Office	80,324			93,762			27,628			36,343			238,057
Residential	514			—			—			1,758			2,272
Hotel	8,073			—			—			—			8,073
Total	88,911			93,762			27,628			38,101			248,402
% of Grand Totals	35.79		%	37.75		%	11.12		%	15.34		%	100.00		%
Net operating income	$	126,340		$	148,636		$	62,265		$	64,218		$	401,459
% of Grand Totals	31.47		%	37.02		%	15.51		%	16.00		%	100.00		%

For the three months ended March 31, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	185,436		$	241,570		$	84,641		$	102,733		$	614,380
Residential	1,139			—			—			2,817			3,956
Hotel	7,420			—			—			—			7,420
Total	193,995			241,570			84,641			105,550			625,756
% of Grand Totals	31.00		%	38.60		%	13.53		%	16.87		%	100.00		%
Rental Expenses:
Office	75,256			91,684			24,474			35,322			226,736
Residential	495			—			—			1,056			1,551
Hotel	7,091			—			—			—			7,091
Total	82,842			91,684			24,474			36,378			235,378
% of Grand Totals	35.19		%	38.95		%	10.40		%	15.46		%	100.00		%
Net operating income	$	111,153		$	149,886		$	60,167		$	69,172		$	390,378
% of Grand Totals	28.47		%	38.40		%	15.41		%	17.72		%	100.00		%