11. Segment Information

The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to the Company's share of Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to the Company's share of Net Operating Income for the three months ended March 31, 2019 and 2018.

Boston Properties, Inc.



	Three months ended March 31,
	2019			2018
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	98,105		$	176,021
Add:
Preferred dividends	2,625			2,625
Noncontrolling interest—common units of Boston Properties Limited Partnership	11,599			20,432
Noncontrolling interests in property partnerships	18,830			17,234
Interest expense	101,009			90,220
Impairment loss	24,038			—
Net operating income from unconsolidated joint ventures	25,349			16,060
Depreciation and amortization expense	164,594			165,797
Transaction costs	460			21
Payroll and related costs from management services contracts	3,395			2,885
General and administrative expense	41,762			35,894
Less:
Net operating income attributable to noncontrolling interests in property partnerships	47,085			45,909
Gains (losses) from investments in securities	2,969			(126		)
Interest and other income	3,753			1,648
(Losses) gains on sales of real estate	(905		)	96,397
Income from unconsolidated joint ventures	213			461
Direct reimbursements of payroll and related costs from management services contracts	3,395			2,885
Development and management services revenue	9,277			8,405
Company's share of Net Operating Income	$	425,979		$	371,610

Boston Properties Limited Partnership



	Three months ended March 31,
	2019			2018
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	113,382		$	200,907
Add:
Preferred distributions	2,625			2,625
Noncontrolling interests in property partnerships	18,830			17,234
Interest expense	101,009			90,220
Impairment loss	22,272			—
Net operating income from unconsolidated joint ventures	25,349			16,060
Depreciation and amortization expense	162,682			163,853
Transaction costs	460			21
Payroll and related costs from management services contracts	3,395			2,885
General and administrative expense	41,762			35,894
Less:
Net operating income attributable to noncontrolling interests in property partnerships	47,085			45,909
Gains (losses) from investments in securities	2,969			(126		)
Interest and other income	3,753			1,648
(Losses) gains on sales of real estate	(905		)	98,907
Income from unconsolidated joint ventures	213			461
Direct reimbursements of payroll and related costs from management services contracts	3,395			2,885
Development and management services revenue	9,277			8,405
Company's share of Net Operating Income	$	425,979		$	371,610

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, impairment loss, 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 investments in securities, interest and other income, (losses) gains on sales of real estate, 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.

The Company's internal reporting utilizes its share of NOI, which includes its share of NOI from consolidated and unconsolidated joint ventures, which is a non-GAAP financial measure that is calculated as the consolidated amount, plus the Company's share of the amount from the Company's unconsolidated joint ventures (calculated based upon the Company’s percentage ownership interest and, in some cases, after priority allocations), minus the Company’s partners’ share of the amount from the Company's consolidated joint ventures (calculated based upon the partners’ percentage ownership interests and, in some cases, after priority allocations and their share of fees due to the Company). Management utilizes its share of NOI in assessing its performance as the Company has several significant joint ventures and in some cases, the Company exercises significant influence over, but does not control, the joint venture, in which case GAAP requires that the Company account for the joint venture entity using the equity method of accounting and the Company does not consolidate it for financial reporting purposes. In other cases, GAAP requires that the Company consolidate the venture even though the Company's partner(s) owns a significant percentage interest. As a result, the presentations of the Company’s share of NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company's financial information presented in accordance with GAAP.

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, interest expense, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains (losses) from investments in securities, interest and other income, (losses) gains on sales of real estate, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI and are provided as reconciling items to the Company's reconciliations of its share of NOI to net income attributable to common shareholders/unitholders.

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by geographic area. The Company’s segments by geographic area are Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company also presents information for each segment by property type including Office, Residential and Hotel.

The Company has modified the presentation of its geographic area classification for all periods presented to include the Los Angeles geographic area to align with its method of internal reporting. The Company has expanded its presence in the Los Angeles geographic area with its equity method investment in Santa Monica Business Park located in Santa Monica, California. The Company now has equity interests in a portfolio of 27 office and retail properties in the Los Angeles geographic area aggregating approximately 2.3 million net rentable square feet, all of which are owned through investments in unconsolidated joint ventures. The Company is now presenting the Los Angeles geographic area as a reportable segment to align with its method of internal reporting given the increased significance as a result of commencing a full reporting period of ownership of the Santa Monica Business Park portfolio. The inclusion of the Los Angeles geographic area has also resulted in a change in the reported measure of segment profit or loss from NOI to the Company's share of NOI. This change has been reflected in all periods presented and the impact of the change can been seen within the tables below. The Company has not presented rental revenue and rental expenses for properties owned through investments in unconsolidated joint ventures, including those in the Los Angeles geographic area, as the Company accounts for these properties using the equity method of accounting.

Information by geographic area (dollars in thousands):

For the three months ended March 31, 2019:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	217,411		$	—		$	258,631		$	124,055		$	96,345		$	696,442
Residential	2,701			—			—			—			5,014			7,715
Hotel	8,938			—			—			—			—			8,938
Total	229,050			—			258,631			124,055			101,359			713,095
% of Grand Totals	32.12		%	—		%	36.27		%	17.40		%	14.21		%	100.00		%
Rental Expenses:
Office	79,500			—			96,971			41,125			36,147			253,743
Residential	1,206			—			—			—			2,568			3,774
Hotel	7,863			—			—			—			—			7,863
Total	88,569			—			96,971			41,125			38,715			265,380
% of Grand Totals	33.37		%	—		%	36.54		%	15.50		%	14.59		%	100.00		%
Net operating income	$	140,481		$	—		$	161,660		$	82,930		$	62,644		$	447,715
% of Grand Totals	31.38		%	—		%	36.11		%	18.52		%	13.99		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(9,373		)	—			(37,264		)	(448		)	—			(47,085		)
Add: Company's share of net operating income from unconsolidated joint ventures	772			15,708			1,786			—			7,083			25,349
Company's share of net operating income	$	131,880		$	15,708		$	126,182		$	82,482		$	69,727		$	425,979
% of Grand Totals	30.96		%	3.69		%	29.62		%	19.36		%	16.37		%	100.00		%

_______________


(1)	Rental Revenue is equal to total Revenue per the Company's Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.

For the three months ended March 31, 2018:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
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		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(8,129		)	—			(37,946		)	166			—			(45,909		)
Add: Company's share of net operating income from unconsolidated joint ventures	534			7,074			1,661			—			6,791			16,060
Company's share of net operating income	$	118,745		$	7,074		$	112,351		$	62,431		$	71,009		$	371,610
% of Grand Totals	31.96		%	1.90		%	30.23		%	16.80		%	19.11		%	100.00		%

_______________


(1)	Rental Revenue is equal to total Revenue per the Company's Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.