Segment Information

3 Months Ended

Mar. 31, 2012

Segment Information

Segment Information

Note 11.  Segment Information

As of March 31, 2012, we owned 47 Central Business District, or CBD, office properties, 272 suburban office properties and 199 industrial & other properties.  We account for all of these properties in geographic operating segments for financial reporting purposes based on our method of internal reporting.  We account for our properties by property type (i.e. CBD office, suburban office and industrial & other) and by geographic regions.  We define these individual geographic segments as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, annualized revenues or property net operating income, or NOI, which we define as rental income less operating expenses.  Our geographic segments include Metro Philadelphia, PA, Oahu, HI, Metro Chicago, IL, Metro Denver, CO, Metro Washington, DC and Other Markets, which includes properties located elsewhere throughout the United States and Australia.  Prior periods have been restated to reflect 12 office properties and one industrial property reclassified to discontinued operations from continuing operations during the third quarter of 2011, which were sold in 2011, and seven office properties and 20 industrial properties reclassified to continuing operations from discontinued operations during the fourth quarter of 2011.  Property level information by geographic segment and property type as of and for the three months ended March 31, 2012 and 2011 is as follows:

	As of March 31, 2012				As of March 31, 2011
	CBD	Suburban	Industrial &		CBD	Suburban	Industrial &
	Office	Office	Other	Totals	Office	Office	Other	Totals
Property square feet (in thousands):
Metro Philadelphia, PA	4,591	462	—	5,053	4,592	462	—	5,054
Oahu, HI	—	—	17,876	17,876	—	—	17,914	17,914
Metro Chicago, IL	3,591	1,164	104	4,859	—	1,163	104	1,267
Metro Denver, CO	672	789	553	2,014	672	788	553	2,013
Metro Washington, DC	428	1,220	—	1,648	428	1,067	—	1,495
Other Markets	10,416	18,515	13,744	42,675	7,781	18,265	13,761	39,807
Totals	19,698	22,150	32,277	74,125	13,473	21,745	32,332	67,550

	Three Months Ended March 31, 2012								Three Months Ended March 31, 2011
	CBD		Suburban		Industrial &				CBD		Suburban		Industrial &
	Office		Office		Other		Totals		Office		Office		Other		Totals
Property rental income:
Metro Philadelphia, PA	$	29,300	$	1,104	$	—	$	30,404	$	28,273	$	1,357	$	—	$	29,630
Oahu, HI	—		—		19,895		19,895		—		—		18,596		18,596
Metro Chicago, IL	24,575		5,863		111		30,549		—		7,793		126		7,919
Metro Denver, CO	5,554		3,498		2,095		11,147		5,363		3,490		2,184		11,037
Metro Washington, DC	4,019		6,867		—		10,886		3,456		5,925		—		9,381
Other Markets	57,773		70,969		19,623		148,365		44,887		70,254		18,969		134,110
Totals	$	121,221	$	88,301	$	41,724	$	251,246	$	81,979	$	88,819	$	39,875	$	210,673
Property net operating income:
Metro Philadelphia, PA	$	15,584	$	103	$	—	$	15,687	$	14,256	$	156	$	—	$	14,412
Oahu, HI	—		—		15,514		15,514		—		—		13,421		13,421
Metro Chicago, IL	12,378		2,963		104		15,445		—		4,689		110		4,799
Metro Denver, CO	3,763		3,093		1,242		8,098		3,500		2,768		1,208		7,476
Metro Washington, DC	3,161		4,515		—		7,676		2,609		3,543		—		6,152
Other Markets	32,051		39,843		12,842		84,736		24,085		38,183		11,748		74,016
Totals	$	66,937	$	50,517	$	29,702	$	147,156	$	44,450	$	49,339	$	26,487	$	120,276

The following table reconciles our calculation of NOI to net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements.  We define NOI as rental income from real estate including lease termination fees received from tenants less our property operating expenses including property marketing costs.  NOI excludes capitalized tenant improvement costs and leasing commissions.  We consider NOI to be appropriate supplemental information to net 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 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 income in order to provide results that are more closely related to our properties’ results of operations.  This measure does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income attributable to CommonWealth REIT, net 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 this data may facilitate an understanding of our consolidated historical operating results.  This measure should be considered in conjunction with net income, net income attributable to CommonWealth REIT, net income available for CommonWealth REIT common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate NOI differently than us.  A reconciliation of NOI to net income for the three months ended March 31, 2012 and 2011 is as follows:

	Three Months Ended March 31,
	2012			2011
Rental income	$	251,246		$	210,673
Operating expenses	(104,090		)	(90,397		)
Property net operating income (NOI)	$	147,156		$	120,276
Property NOI	$	147,156		$	120,276
Depreciation and amortization	(61,351		)	(52,289		)
General and administrative	(12,310		)	(10,959		)
Acquisition related costs	(2,502		)	(2,559		)
Operating income	70,993			54,469
Interest and other income	288			708
Interest expense	(49,106		)	(47,414		)
Loss on early extinguishment of debt	(67		)	—
Equity in earnings of investees	2,958			2,712
Income from continuing operations before income tax expense	25,066			10,475
Income tax expense	(492		)	(346		)
Income from continuing operations	24,574			10,129
Income from discontinued operations	—			1,911
Net gain on sale of properties from discontinued operations	—			34,572
Net income	$	24,574		$	46,612