Segment Information

12 Months Ended

Dec. 31, 2019

Segment Reporting Disclosure [Text Block]

13. 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 years ended December 31, 2019, 2018 and 2017.

Boston Properties, Inc.



	Year ended December 31,
	2019		2018			2017
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	511,034	$	572,347		$	451,939
Add:
Preferred dividends	10,500		10,500			10,500
Noncontrolling interest—common units of the Operating Partnership	59,345		66,807			52,210
Noncontrolling interests in property partnerships	71,120		62,909			47,832
Interest expense	412,717		378,168			374,481
Losses (gains) from early extinguishments of debt	29,540		16,490			(496		)
Impairment losses	24,038		11,812			—
Net operating income from unconsolidated joint ventures	97,716		79,893			64,008
Depreciation and amortization expense	677,764		645,649			617,547
Transaction costs	1,984		1,604			668
Payroll and related costs from management services contracts	10,386		9,590			—
General and administrative expense	140,777		121,722			113,715
Less:
Net operating income attributable to noncontrolling interests in property partnerships	183,989		177,365			174,245
Gains (losses) from investments in securities	6,417		(1,865		)	3,678
Interest and other income	18,939		10,823			5,783
Gains on sales of real estate	709		182,356			7,663
Income from unconsolidated joint ventures	46,592		2,222			11,232
Direct reimbursements of payroll and related costs from management services contracts	10,386		9,590			—
Development and management services revenue	40,039		45,158			34,605
Company’s share of Net Operating Income	$	1,739,850	$	1,551,842		$	1,495,198

Boston Properties Limited Partnership



	Year ended December 31,
		2019		2018			2017
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	580,102	$	656,903		$	512,866
Add:
Preferred distributions		10,500		10,500			10,500
Noncontrolling interests in property partnerships		71,120		62,909			47,832
Interest expense		412,717		378,168			374,481
Losses (gains) from early extinguishments of debt		29,540		16,490			(496		)
Impairment losses		22,272		10,181			—
Net operating income from unconsolidated joint ventures		97,716		79,893			64,008
Depreciation and amortization expense		669,956		637,891			609,407
Transaction costs		1,984		1,604			668
Payroll and related costs from management services contracts		10,386		9,590			—
General and administrative expense		140,777		121,722			113,715
Less:
Net operating income attributable to noncontrolling interests in property partnerships		183,989		177,365			174,245
Gains (losses) from investments in securities		6,417		(1,865		)	3,678
Interest and other income		18,939		10,823			5,783
Gains on sales of real estate		858		190,716			8,240
Income from unconsolidated joint ventures		46,592		2,222			11,232
Direct reimbursements of payroll and related costs from management services contracts		10,386		9,590			—
Development and management services revenue		40,039		45,158			34,605
Company’s share of Net Operating Income		$	1,739,850	$	1,551,842		$	1,495,198

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 early extinguishments of debt, 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 investments in securities, interest and other income, 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 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, interest expense, losses (gains) from early extinguishments of debt, impairment losses, 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, 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.

Beginning in 2019, the Company 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 expanded its presence in the Los Angeles geographic area with its equity method investment in Santa Monica Business Park located in Santa Monica, California. As of December 31, 2019, the Company 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 began 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 and property type (dollars in thousands):

For the year ended December 31, 2019:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	895,098		$	—		$	1,011,912		$	533,189		$	384,435		$	2,824,634
Residential	13,786			—			—			—			23,128			36,914
Hotel	48,589			—			—			—			—			48,589
Total	957,473			—			1,011,912			533,189			407,563			2,910,137
% of Grand Totals	32.90		%	—		%	34.78		%	18.32		%	14.00		%	100.00		%
Rental Expenses:
Office	322,282			—			389,532			177,994			144,217			1,034,025
Residential	5,071			—			—			—			10,914			15,985
Hotel	34,004			—			—			—			—			34,004
Total	361,357			—			389,532			177,994			155,131			1,084,014
% of Grand Totals	33.34		%	—		%	35.93		%	16.42		%	14.31		%	100.00		%
Net operating income	$	596,116		$	—		$	622,380		$	355,195		$	252,432		$	1,826,123
% of Grand Totals	32.64		%	—		%	34.09		%	19.45		%	13.82		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(40,109		)	—			(143,432		)	(448		)	—			(183,989		)
Add: Company’s share of net operating income from unconsolidated joint ventures	5,494			61,338			4,174			—			26,710			97,716
Company’s share of net operating income	$	561,501		$	61,338		$	483,122		$	354,747		$	279,142		$	1,739,850
% of Grand Totals	32.27		%	3.53		%	27.77		%	20.39		%	16.04		%	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 year ended December 31, 2018:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
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		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(33,862		)	—			(143,562		)	59			—			(177,365		)
Add: Company’s share of net operating income from unconsolidated joint ventures	2,866			42,750			6,590			—			27,687			79,893
Company’s share of net operating income	$	510,009		$	42,750		$	444,086		$	267,223		$	287,774		$	1,551,842
% of Grand Totals	32.86		%	2.75		%	28.63		%	17.22		%	18.54		%	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 year ended December 31, 2017:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
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		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(31,857		)	—			(142,916		)	528			—			(174,245		)
Add: Company’s share of net operating income from unconsolidated joint ventures	1,962			26,816			8,832			—			26,398			64,008
Company’s share of net operating income	$	461,532		$	26,816		$	462,477		$	240,794		$	303,579		$	1,495,198
% of Grand Totals	30.87		%	1.79		%	30.94		%	16.10		%	20.30		%	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.