Segment Information

9 Months Ended

Sep. 30, 2012

Segment Information

Segment Information

Note 12.  Segment Information

As of September 30, 2012, we owned 50 Central Business District, or CBD, office properties, 275 suburban office properties and 201 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 rental income 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 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 nine months ended September 30, 2012 and 2011 is as follows:

	As of September 30, 2012				As of September 30, 2011
	CBD	Suburban	Industrial &		CBD	Suburban	Industrial &
	Office	Office	Other	Totals	Office	Office	Other	Totals
Property square feet (in thousands):
Metro Chicago, IL	3,600	1,164	104	4,868	2,582	1,164	104	3,850
Metro Philadelphia, PA	4,596	462	—	5,058	4,591	462	—	5,053
Oahu, HI	—	—	17,844	17,844	—	—	17,896	17,896
Metro Denver, CO	672	929	553	2,154	672	789	553	2,014
Metro Washington, DC	428	1,210	—	1,638	428	1,216	—	1,644
Other Markets	11,064	18,918	15,288	45,270	9,547	18,516	13,767	41,830
Totals	20,360	22,683	33,789	76,832	17,820	22,147	32,320	72,287

	Three Months Ended September 30, 2012								Three Months Ended September 30, 2011
	CBD		Suburban		Industrial &				CBD		Suburban		Industrial &
	Office		Office		Other		Totals		Office		Office		Other		Totals
Property rental income:
Metro Chicago, IL	$	26,900	$	7,005	$	111	$	34,016	$	14,510	$	6,783	$	110	$	21,403
Metro Philadelphia, PA	29,134		1,073		—		30,207		29,363		1,378		—		30,741
Oahu, HI	—		—		18,318		18,318		—		—		18,238		18,238
Metro Denver, CO	4,800		3,685		2,404		10,889		4,998		4,005		2,324		11,327
Metro Washington, DC	3,073		6,099		—		9,172		4,756		8,811		—		13,567
Other Markets	63,552		73,881		21,626		159,059		52,463		73,536		20,510		146,509
Totals	$	127,459	$	91,743	$	42,459	$	261,661	$	106,090	$	94,513	$	41,182	$	241,785
Property net operating income:
Metro Chicago, IL	$	14,858	$	3,854	$	103	$	18,815	$	8,044	$	3,683	$	104	$	11,831
Metro Philadelphia, PA	14,829		116		—		14,945		14,854		247		—		15,101
Oahu, HI	—		—		14,294		14,294		—		—		13,637		13,637
Metro Denver, CO	3,022		2,746		1,227		6,995		3,136		3,086		1,191		7,413
Metro Washington, DC	2,370		3,319		—		5,689		3,942		5,957		—		9,899
Other Markets	32,149		41,447		14,750		88,346		26,701		39,319		13,201		79,221
Totals	$	67,228	$	51,482	$	30,374	$	149,084	$	56,677	$	52,292	$	28,133	$	137,102

	Nine Months Ended September 30, 2012								Nine Months Ended September 30, 2011
	CBD		Suburban		Industrial &				CBD		Suburban		Industrial &
	Office		Office		Other		Totals		Office		Office		Other		Totals
Property rental income:
Metro Chicago, IL	$	77,947	$	19,616	$	333	$	97,896	$	18,736	$	21,710	$	346	$	40,792
Metro Philadelphia, PA	87,721		3,383		—		91,104		86,273		3,957		—		90,230
Oahu, HI	—		—		56,511		56,511		—		—		54,951		54,951
Metro Denver, CO	15,169		10,162		6,856		32,187		16,040		10,954		6,674		33,668
Metro Washington, DC	10,738		19,729		—		30,467		11,596		21,092		—		32,688
Other Markets	183,366		216,120		60,630		460,116		145,453		213,551		59,063		418,067
Totals	$	374,941	$	269,010	$	124,330	$	768,281	$	278,098	$	271,264	$	121,034	$	670,396
Property net operating income:
Metro Chicago, IL	$	41,145	$	10,477	$	310	$	51,932	$	10,225	$	12,787	$	317	$	23,329
Metro Philadelphia, PA	46,606		347		—		46,953		43,919		384		—		44,303
Oahu, HI	—		—		43,979		43,979		—		—		40,883		40,883
Metro Denver, CO	9,851		8,075		3,923		21,849		10,455		8,640		3,671		22,766
Metro Washington, DC	7,962		12,028		—		19,990		8,869		13,378		—		22,247
Other Markets	95,863		121,400		41,555		258,818		76,063		117,387		37,715		231,165
Totals	$	201,427	$	152,327	$	89,767	$	443,521	$	149,531	$	152,576	$	82,586	$	384,693

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 nine months ended September 30, 2012 and 2011 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Rental income	$	261,661		$	241,785		$	768,281		$	670,396
Operating expenses	(112,577		)	(104,683		)	(324,760		)	(285,703		)
Property net operating income (NOI)	$	149,084		$	137,102		$	443,521		$	384,693
Property NOI	$	149,084		$	137,102		$	443,521		$	384,693
Depreciation and amortization	(63,437		)	(56,389		)	(188,340		)	(159,072		)
General and administrative	(14,592		)	(11,692		)	(40,266		)	(34,275		)
Loss on asset impairment	—			(9,247		)	—			(9,247		)
Acquisition related costs	(1,066		)	(4,805		)	(5,002		)	(9,722		)
Operating income	69,989			54,969			209,913			172,377
Interest and other income	399			320			1,100			1,395
Interest expense	(51,138		)	(49,423		)	(150,481		)	(145,037		)
(Loss) gain on early extinguishment of debt	(220		)	310			(1,895		)	310
Equity in earnings of investees	2,868			2,768			8,655			8,390
Gain on issuance of shares by an equity investee	—			11,177			—			11,177
Income from continuing operations before income tax expense	21,898			20,121			67,292			48,612
Income tax expense	(1,322		)	(307		)	(1,906		)	(743		)
Income from continuing operations	20,576			19,814			65,386			47,869
Income from discontinued operations	—			1,720			—			5,669
Net gain on sale of properties from discontinued operations	—			7,001			—			41,573
Income before gain on sale of properties	20,576			28,535			65,386			95,111
Gain on sale of properties	1,689			—			2,039			—
Net income	$	22,265		$	28,535		$	67,425		$	95,111