Note 13. Segment Information

Our primary business is the ownership and operation of a nationwide portfolio of commercial properties. We account for each of our individual properties as separate operating segments. We have aggregated our separate operating segments into three reportable segments based on our primary method of internal reporting: Central Business District, or CBD, office properties, suburban office properties and industrial & other properties. Each of our reportable segments includes properties with similar operating and economic characteristics that are subject to unique supply and demand conditions. Our operating segments (i.e., our individual properties) are managed and operated consistently in accordance with our standard operating procedures, and our management responsibilities do not vary significantly from location to location based on the size of the property or geographic location within each primary reporting segment. In addition to our three reportable segments, we aggregate our operating segments into geographic regions for financial reporting purposes. We define these individual geographic regions as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, annualized rental income or property net operating income, or NOI, which we define as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs.

As of December 31, 2012, we owned 51 CBD office properties, 244 suburban office properties and 145 industrial & other properties, excluding properties classified as held for sale. Our geographic regions include Metro Philadelphia, PA, Oahu, HI, Metro Chicago, IL and Other Markets, which includes properties located elsewhere throughout the United States and Australia. Prior periods have been restated to reflect 40 office properties and 57 industrial properties reclassified to discontinued operations from continuing operations as of December 31, 2012.

The following items are accounted for on a corporate level and are not allocated among our segments: depreciation and amortization expense, general and administrative expense, loss on asset impairment, acquisition related costs, interest and other income and expense, loss on early extinguishment of debt, equity in earnings of investees, gain on issuance of shares by an equity investee, gain on asset acquisition, income tax expense, income from discontinued operations and gain on sale of properties. The accounting policies of our segments are the same as the accounting policies described in our summary of significant accounting policies.

As of December 31, 2012, we owned 295 office properties and 145 industrial & other properties, excluding properties classified as held for sale. Property level information by geographic region and property type is as follows:

As of and for the year ended December 31, 2012:

	As of December 31, 2012

	CBD Office		Suburban Office		Industrial & Other		Totals
Property square feet (in thousands):
Metro Philadelphia, PA		4,596		255		—		4,851
Oahu, HI		—		—		17,894		17,894
Metro Chicago, IL		3,600		1,164		104		4,868
Other Markets		13,057		18,932		12,299		44,288

Totals		21,253		20,351		30,297		71,901

	Year Ended December 31, 2012

	CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	118,046	$	3,629	$	—	$	121,675
Oahu, HI		—		—		75,968		75,968
Metro Chicago, IL		104,713		25,393		445		130,551
Other Markets		287,112		311,065		86,721		684,898

Totals	$	509,871	$	340,087	$	163,134	$	1,013,092

Property net operating income:
Metro Philadelphia, PA	$	63,239	$	972	$	—	$	64,211
Oahu, HI		—		—		58,852		58,852
Metro Chicago, IL		51,616		13,100		462		65,178
Other Markets		155,511		187,749		61,910		405,170

Totals	$	270,366	$	201,821	$	121,224	$	593,411

As of December 31, 2012, our investments in CBD office properties, suburban office properties and in industrial & other properties, net of accumulated depreciation, excluding properties classified as held for sale, were $2,952,995, $2,552,884 and $1,315,924, respectively, including $168,220 of CBD office properties and $104,010 of industrial properties located in Australia.

As of and for the year ended December 31, 2011:

	As of December 31, 2011

	CBD Office		Suburban Office		Industrial & Other		Totals
Property square feet (in thousands):
Metro Philadelphia, PA		4,591		255		—		4,846
Oahu, HI		—		—		17,896		17,896
Metro Chicago, IL		2,581		1,164		104		3,849
Other Markets		10,482		17,482		10,756		38,720

Totals		17,654		18,901		28,756		65,311

	Year Ended December 31, 2011

	CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	114,640	$	3,874	$	—	$	118,514
Oahu, HI		—		—		73,413		73,413
Metro Chicago, IL		38,256		27,837		469		66,562
Other Markets		237,295		297,568		80,880		615,743

Totals	$	390,191	$	329,279	$	154,762	$	874,232

Property net operating income:
Metro Philadelphia, PA	$	58,917	$	710	$	—	$	59,627
Oahu, HI		—		—		55,039		55,039
Metro Chicago, IL		21,170		15,710		431		37,311
Other Markets		130,823		171,462		56,506		358,791

Totals	$	210,910	$	187,882	$	111,976	$	510,768

As of December 31, 2011, our investments in CBD office properties, suburban office properties and in industrial & other properties, net of accumulated depreciation were $2,447,541, $2,541,616 and $1,320,905, respectively, including $169,399 of CBD office properties and $100,588 of industrial properties located in Australia.

As of and for the year ended December 31, 2010:

	As of December 31, 2010

	CBD Office		Suburban Office		Industrial & Other		Totals
Property square feet (in thousands):
Metro Philadelphia, PA		4,592		255		—		4,847
Oahu, HI		—		—		17,914		17,914
Metro Chicago, IL		—		1,164		104		1,268
Other Markets		7,821		16,299		10,587		34,707

Totals		12,413		17,718		28,605		58,736

	Year Ended December 31, 2010

	CBD Office		Suburban Office		Industrial & Other		Totals
Property rental income:
Metro Philadelphia, PA	$	112,676	$	4,085	$	—	$	116,761
Oahu, HI		—		—		74,150		74,150
Metro Chicago, IL		—		15,966		489		16,455
Other Markets		192,812		255,497		65,072		513,381

Totals	$	305,488	$	275,548	$	139,711	$	720,747

Property net operating income:
Metro Philadelphia, PA	$	58,272	$	633	$	—	$	58,905
Oahu, HI		—		—		55,702		55,702
Metro Chicago, IL		—		10,840		404		11,244
Other Markets		100,281		144,967		46,747		291,995

Totals	$	158,553	$	156,440	$	102,853	$	417,846

The following table includes the reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported in our consolidated financial statements. We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. We consider NOI to be an appropriate supplemental measure to net (loss) income because it may help both investors and management to understand the operations of our properties. We use NOI internally to evaluate individual, regional and company wide property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods. The calculation of NOI excludes certain components of net (loss) income in order to provide results that are more closely related to our properties' results of operations. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs. We believe that NOI may facilitate an understanding of our consolidated historical operating results. This measure should be considered in conjunction with net (loss) income, net (loss) income attributable to CommonWealth REIT, net (loss) income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our consolidated statements of operations, consolidated statements of comprehensive (loss) income and consolidated statements of cash flows. Other REITs and real estate companies may calculate NOI differently than we do. A reconciliation of NOI to net income for the years ended December 31, 2012, 2011 and 2010 is as follows:

	Year Ended December 31,

	2012			2011			2010
Rental income	$	1,013,092		$	874,232		$	720,747
Operating expenses		(419,681	)		(363,464	)		(302,901	)

Property net operating income (NOI)	$	593,411		$	510,768		$	417,846

Property NOI	$	593,411		$	510,768		$	417,846
Depreciation and amortization		(245,729	)		(206,697	)		(187,680	)
General and administrative		(51,697	)		(43,682	)		(36,672	)
Loss on asset impairment		—			(3,036	)		(29,949	)
Acquisition related costs		(5,648	)		(10,073	)		(21,553	)

Operating income		290,337			247,280			141,992
Interest and other income		1,428			1,662			2,171
Interest expense		(204,244	)		(195,024	)		(179,642	)
Loss on early extinguishment of debt		(1,895	)		(35	)		(796	)
Equity in earnings of investees		11,420			11,377			8,464
Gain on issuance of shares by an equity investee		7,246			11,177			34,808
Gain on asset acquisition		—			—			20,392

Income from continuing operations before income tax expense		104,292			76,437			27,389
Income tax expense		(3,207	)		(1,347	)		(550	)

Income from continuing operations		101,085			75,090			26,839
(Loss) income from discontinued operations		(14,337	)		(539	)		36,029
Loss on asset impairment from discontinued operations		(168,632	)		(7,319	)		(99,315	)
Loss on early extinguishment of debt from discontinued operations		—			—			(248	)
Net gain on sale of properties from discontinued operations		2,039			42,752			137,768

(Loss) income before gain on sale of properties		(79,845	)		109,984			101,073
Gain on sale of properties		—			—			34,336

Net (loss) income	$	(79,845	)	$	109,984		$	135,409