13. 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, 2018, 2017 and 2016.

Boston Properties, Inc.



	Year ended December 31,
	2018			2017		2016
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	572,347		$	451,939	$	502,285
Add:
Preferred dividends	10,500			10,500		10,500
Noncontrolling interest—common units of the Operating Partnership	66,807			52,210		59,260
Noncontrolling interests in property partnerships	62,909			47,832		(2,068		)
Losses from interest rate contracts	—			—		140
Interest expense	378,168			374,481		412,849
Impairment losses	11,812			—		1,783
Depreciation and amortization expense	645,649			617,547		694,403
Transaction costs	1,604			668		2,387
Payroll and related costs from management services contracts	9,590			—		—
General and administrative expense	121,722			113,715		105,229
Less:
Gains (losses) from early extinguishments of debt	(16,490		)	496		(371		)
Gains (losses) from investments in securities	(1,865		)	3,678		2,273
Interest and other income	10,823			5,783		7,230
Gains on sales of real estate	182,356			7,663		80,606
Gain on sale of investment in unconsolidated joint venture	—			—		59,370
Income from unconsolidated joint ventures	2,222			11,232		8,074
Direct reimbursements of payroll and related costs from management services contracts	9,590			—		—
Development and management services revenue	45,158			34,605		28,284
Net Operating Income	$	1,649,314		$	1,605,435	$	1,601,302

Boston Properties Limited Partnership



	Year ended December 31,
		2018			2017		2016
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	656,903		$	512,866	$	575,341
Add:
Preferred distributions		10,500			10,500		10,500
Noncontrolling interests in property partnerships		62,909			47,832		(2,068		)
Losses from interest rate contracts		—			—		140
Interest expense		378,168			374,481		412,849
Impairment losses		10,181			—		1,783
Depreciation and amortization expense		637,891			609,407		682,776
Transaction costs		1,604			668		2,387
Payroll and related costs from management services contracts		9,590			—		—
General and administrative expense		121,722			113,715		105,229
Less:
Gains (losses) from early extinguishments of debt		(16,490		)	496		(371		)
Gains (losses) from investments in securities		(1,865		)	3,678		2,273
Interest and other income		10,823			5,783		7,230
Gains on sales of real estate		190,716			8,240		82,775
Gain on sale of investment in unconsolidated joint venture		—			—		59,370
Income from unconsolidated joint ventures		2,222			11,232		8,074
Direct reimbursements of payroll and related costs from management services contracts		9,590			—		—
Development and management services revenue		45,158			34,605		28,284
Net Operating Income		$	1,649,314		$	1,605,435	$	1,601,302

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, losses from interest rate contracts, interest expense, impairment losses, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, interest and other income, gains on sales of real estate, gain on sale of investment in unconsolidated joint venture, 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 its 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 noncontrolling interests, losses from interest rate contracts, interest expense, impairment losses, depreciation and amortization expense, transactions costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, gains on sales of real estate, interest and other income, gain on sale of investment in unconsolidated joint venture, 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 year ended December 31, 2018:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	838,341		$	959,050		$	397,180		$	396,088		$	2,590,659
Residential	6,694			—			—			15,857			22,551
Hotel	49,118			—			—			—			49,118
Total	894,153			959,050			397,180			411,945			2,662,328
% of Grand Totals	33.59		%	36.02		%	14.92		%	15.47		%	100.00		%
Rental Expenses:
Office	315,653			377,992			130,016			142,886			966,547
Residential	3,632			—			—			8,972			12,604
Hotel	33,863			—			—			—			33,863
Total	353,148			377,992			130,016			151,858			1,013,014
% of Grand Totals	34.86		%	37.32		%	12.83		%	14.99		%	100.00		%
Net operating income	$	541,005		$	581,058		$	267,164		$	260,087		$	1,649,314
% of Grand Totals	32.80		%	35.23		%	16.20		%	15.77		%	100.00		%

For the year ended December 31, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	776,279		$	969,371		$	345,519		$	414,103		$	2,505,272
Residential	4,745			—			—			11,851			16,596
Hotel	45,603			—			—			—			45,603
Total	826,627			969,371			345,519			425,954			2,567,471
% of Grand Totals	32.20		%	37.75		%	13.46		%	16.59		%	100.00		%
Rental Expenses:
Office	301,097			372,810			105,253			144,515			923,675
Residential	2,044			—			—			4,258			6,302
Hotel	32,059			—			—			—			32,059
Total	335,200			372,810			105,253			148,773			962,036
% of Grand Totals	34.84		%	38.76		%	10.94		%	15.46		%	100.00		%
Net operating income	$	491,427		$	596,561		$	240,266		$	277,181		$	1,605,435
% of Grand Totals	30.61		%	37.15		%	14.97		%	17.27		%	100.00		%

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		%