Segment Information

6 Months Ended

Jun. 30, 2012

Segment Information

Segment Information

Note 12.  Segment Information

As of June 30, 2012, we owned 48 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 Chicago, IL, Metro Philadelphia, PA, Oahu, HI, 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 and six months ended June 30, 2012 and 2011 is as follows:

	As of June 30, 2012				As of June 30, 2011
	CBD	Suburban	Industrial &		CBD	Suburban	Industrial &
	Office	Office	Other	Totals	Office	Office	Other	Totals
Property square feet (in thousands):
Metro Chicago, IL	3,592	1,164	104	4,860	1,072	1,164	103	2,339
Metro Philadelphia, PA	4,596	462	—	5,058	4,592	462	—	5,054
Oahu, HI	—	—	17,876	17,876	—	—	17,914	17,914
Metro Denver, CO	672	789	553	2,014	672	789	553	2,014
Metro Washington, DC	428	1,221	—	1,649	428	1,216	—	1,644
Other Markets	10,586	18,966	13,744	43,296	7,780	18,534	13,765	40,079
Totals	19,874	22,602	32,277	74,753	14,544	22,165	32,335	69,044

	Three Months Ended June 30, 2012								Three Months Ended June 30, 2011
	CBD		Suburban		Industrial &				CBD		Suburban			Industrial &
	Office		Office		Other		Totals		Office		Office			Other		Totals
Property rental income:
Metro Chicago, IL	$	26,472	$	6,748	$	111	$	33,331	$	4,226	$	7,134		$	110	$	11,470
Metro Philadelphia, PA	29,287		1,206		—		30,493		28,637		1,222			—		29,859
Oahu, HI	—		—		18,298		18,298		—		—			18,117		18,117
Metro Denver, CO	4,815		2,883		2,357		10,055		5,679		3,459			2,166		11,304
Metro Washington, DC	3,646		6,763		—		10,409		3,384		6,356			—		9,740
Other Markets	62,041		71,366		19,381		152,788		48,103		69,761			19,584		137,448
Totals	$	126,261	$	88,966	$	40,147	$	255,374	$	90,029	$	87,932		$	39,977	$	217,938
Property net operating income (loss):
Metro Chicago, IL	$	13,909	$	3,660	$	103	$	17,672	$	2,181	$	4,415		$	103	$	6,699
Metro Philadelphia, PA	16,193		128		—		16,321		14,809		(19		)	—		14,790
Oahu, HI	—		—		14,171		14,171		—		—			13,825		13,825
Metro Denver, CO	3,066		2,168		1,454		6,688		3,819		2,786			1,272		7,877
Metro Washington, DC	2,431		4,194		—		6,625		2,318		3,878			—		6,196
Other Markets	31,663		40,178		13,963		85,804		25,277		39,885			12,766		77,928
Totals	$	67,262	$	50,328	$	29,691	$	147,281	$	48,404	$	50,945		$	27,966	$	127,315

	Six Months Ended June 30, 2012								Six Months Ended June 30, 2011
	CBD		Suburban		Industrial &				CBD		Suburban		Industrial &
	Office		Office		Other		Totals		Office		Office		Other		Totals
Property rental income:
Metro Chicago, IL	$	51,047	$	12,611	$	222	$	63,880	$	4,226	$	14,927	$	236	$	19,389
Metro Philadelphia, PA	58,587		2,310		—		60,897		56,910		2,579		—		59,489
Oahu, HI	—		—		38,193		38,193		—		—		36,713		36,713
Metro Denver, CO	10,369		6,381		4,452		21,202		11,042		6,949		4,350		22,341
Metro Washington, DC	7,665		13,630		—		21,295		6,840		12,281		—		19,121
Other Markets	119,814		142,335		39,004		301,153		92,990		140,015		38,553		271,558
Totals	$	247,482	$	177,267	$	81,871	$	506,620	$	172,008	$	176,751	$	79,852	$	428,611
Property net operating income:
Metro Chicago, IL	$	26,287	$	6,623	$	207	$	33,117	$	2,181	$	9,104	$	213	$	11,498
Metro Philadelphia, PA	31,777		231		—		32,008		29,065		137		—		29,202
Oahu, HI	—		—		29,685		29,685		—		—		27,246		27,246
Metro Denver, CO	6,829		5,261		2,696		14,786		7,319		5,554		2,480		15,353
Metro Washington, DC	5,592		8,709		—		14,301		4,927		7,421		—		12,348
Other Markets	63,714		80,021		26,805		170,540		49,362		78,068		24,514		151,944
Totals	$	134,199	$	100,845	$	59,393	$	294,437	$	92,854	$	100,284	$	54,453	$	247,591

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 we do.  A reconciliation of NOI to net income for the three and six months ended June 30, 2012 and 2011 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Rental income	$	255,374		$	217,938		$	506,620		$	428,611
Operating expenses	(108,093		)	(90,623		)	(212,183		)	(181,020		)
Property net operating income (NOI)	$	147,281		$	127,315		$	294,437		$	247,591
Property NOI	$	147,281		$	127,315		$	294,437		$	247,591
Depreciation and amortization	(63,552		)	(50,394		)	(124,903		)	(102,683		)
General and administrative	(13,364		)	(11,624		)	(25,674		)	(22,583		)
Acquisition related costs	(1,434		)	(2,358		)	(3,936		)	(4,917		)
Operating income	68,931			62,939			139,924			117,408
Interest and other income	413			367			701			1,075
Interest expense	(50,237		)	(48,200		)	(99,343		)	(95,614		)
Loss on early extinguishment of debt	(1,608		)	—			(1,675		)	—
Equity in earnings of investees	2,829			2,910			5,787			5,622
Income from continuing operations before income tax expense	20,328			18,016			45,394			28,491
Income tax expense	(92		)	(90		)	(584		)	(436		)
Income from continuing operations	20,236			17,926			44,810			28,055
Income from discontinued operations	—			2,038			—			3,949
Net gain on sale of properties from discontinued operations	—			—			—			34,572
Income before gain on sale of properties	20,236			19,964			44,810			66,576
Gain on sale of properties	350			—			350			—
Net income	$	20,586		$	19,964		$	45,160		$	66,576