Segment Reporting

The Company's reportable operating segments include Established Communities, Other Stabilized Communities and Development/Redevelopment Communities. Annually as of January 1, the Company determines which of its communities fall into each of these categories and generally maintains that classification throughout the year for the purpose of reporting segment operations, unless disposition or redevelopment plans regarding a community change.

•

Established Communities (also known as Same Store Communities) are consolidated communities where a comparison of operating results from the prior year to the current year is meaningful, as these communities were owned and had stabilized occupancy as of the beginning of the prior year. The Established Communities for the year ended December 31, 2016, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2015, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the current year. A community is considered to have stabilized occupancy at the earlier of (i) attainment of 95% physical occupancy or (ii) the one-year anniversary of completion of development or redevelopment.


•	Other Stabilized Communities includes all other consolidated completed communities that have stabilized occupancy, as defined above. Other Stabilized Communities do not include communities that are conducting or planning to conduct substantial redevelopment activities within the current year.


•	Development/Redevelopment Communities consists of consolidated communities that are under construction and have not received a certificate of occupancy for the entire community, and where substantial redevelopment is in progress or is planned to begin during the current year and communities under lease-up that had not reached stabilized occupancy, as defined above, as of January 1, 2016.

In addition, the Company owns land for future development and has other corporate assets that are not allocated to an operating segment.

The Company's segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing each segment's performance. The Company's chief operating decision maker is comprised of several members of its executive management team who use net operating income (“NOI”) as the primary financial measure for Established Communities and Other Stabilized Communities. NOI is defined by the Company as total property revenue less direct property operating expenses (including property taxes), and excluding corporate-level income (including management, development and other fees), corporate-level property management and other indirect operating expenses, investments and investment management expenses, expensed acquisition, development and other pursuit costs, net of recoveries, interest expense, net, loss (gain) on extinguishment of debt, net, general and administrative expense, equity in income of unconsolidated real estate entities, depreciation expense, corporate income tax expense, casualty and impairment (gain) loss, net, gain on sale of real estate assets, gain on sale of discontinued operations, income from discontinued operations and net operating income from real estate assets sold or held for sale, not classified as discontinued operations. Although the Company considers NOI a useful measure of a community's or communities' operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities, as determined in accordance with GAAP. NOI excludes a number of income and expense categories as detailed in the reconciliation of NOI to net income.

A reconciliation of NOI to net income for years ended December 31, 2016, 2015 and 2014 is as follows (dollars in thousands):



	For the year ended
	12/31/16			12/31/15			12/31/14
Net income	$	1,033,708		$	741,733		$	697,327
Indirect operating expenses, net of corporate income	61,403			56,973			49,055
Investments and investment management expense	4,822			4,370			4,485
Expensed acquisition, development and other pursuit costs, net of recoveries	9,922			6,822			(3,717		)
Interest expense, net (1)	187,510			175,615			180,618
Loss (gain) on extinguishment of debt, net	7,075			(26,736		)	412
General and administrative expense	45,771			42,774			41,425
Equity in income of unconsolidated real estate entities	(64,962		)	(70,018		)	(148,766		)
Depreciation expense (1)	531,434			477,923			442,682
Income tax expense	305			1,483			9,368
Casualty and impairment (gain) loss, net	(3,935		)	(10,542		)	—
Gain on sale of real estate assets	(384,847		)	(125,272		)	(85,415		)
Gain on sale of discontinued operations	—			—			(37,869		)
Income from discontinued operations	—			—			(310		)
Net operating income from real estate assets sold or held for sale, not classified as discontinued operations (2)	(17,509		)	(34,133		)	(49,708		)
Net operating income	$	1,410,697		$	1,240,992		$	1,099,587

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(1)	Includes amounts associated with assets sold or held for sale, not classified as discontinued operations.


(2)	Represents NOI from real estate assets sold or held for sale as of December 31, 2016 that are not classified as discontinued operations.

The following is a summary of NOI from real estate assets sold or held for sale, not classified as discontinued operations, for the periods presented (dollars in thousands):



	For the year ended
	12/31/2016			12/31/2015			12/31/2014

Rental income from real estate assets sold or held for sale, not classified as discontinued operations	$	28,430		$	55,674		$	80,704
Operating expenses from real estate assets sold or held for sale, not classified as discontinued operations	(10,921		)	(21,541		)	(30,996		)
Net operating income from real estate assets sold or held for sale, not classified as discontinued operations	$	17,509		$	34,133		$	49,708

The primary performance measure for communities under development or redevelopment depends on the stage of completion. While under development, management monitors actual construction costs against budgeted costs as well as lease-up pace and rent levels compared to budget.

The following table provides details of the Company's segment information as of the dates specified (dollars in thousands). The segments are classified based on the individual community's status at the beginning of the given calendar year. Therefore, each year the composition of communities within each business segment is adjusted. Accordingly, the amounts between years are not directly comparable. Segment information for total revenue and NOI the years ended December 31, 2016, 2015 and 2014 have been adjusted to exclude the real estate assets that were sold from January 1, 2014 through December 31, 2016, or otherwise qualify as held for sale and/or discontinued operations as of December 31, 2016, as described in Note 6, “Real Estate Disposition Activities.” Segment information for gross real estate as of December 31, 2015 and 2014 has not been adjusted to exclude real estate assets that were sold or otherwise qualified as held for sale subsequent to December 31, 2015.



	Total revenue		NOI		% NOI change from prior year		Gross real estate (1)
For the year ended December 31, 2016
Established
New England	$	239,201	$	153,669	4.9	%	$	1,888,524
Metro NY/NJ	379,151		258,950		1.4	%	3,212,220
Mid-Atlantic	233,711		162,243		1.3	%	2,339,395
Pacific Northwest	79,684		57,494		6.5	%	737,289
Northern California	319,121		244,458		7.0	%	2,661,258
Southern California	291,567		207,537		9.1	%	2,672,691
Total Established (2)	1,542,435		1,084,351		4.8	%	13,511,377

Other Stabilized (3)	235,360		165,530		N/A		2,330,503
Development / Redevelopment	233,431		160,816		N/A		4,755,315
Land Held for Future Development	N/A		N/A		N/A		84,293
Non-allocated (4)	5,599		N/A		N/A		74,292
Total	$	2,016,825	$	1,410,697	13.7	%	$	20,755,780

For the year ended December 31, 2015
Established
New England	$	182,366	$	114,717	2.7	%	$	1,460,746
Metro NY/NJ	361,902		256,907		3.4	%	3,152,361
Mid-Atlantic	209,013		145,497		0.2	%	2,177,823
Pacific Northwest	67,900		48,833		8.5	%	721,040
Northern California	273,432		210,226		11.9	%	2,414,184
Southern California	252,530		173,919		9.4	%	2,465,432
Total Established (2)	1,347,143		950,099		5.9	%	12,391,586

Other Stabilized	221,042		145,263		N/A		2,040,269
Development / Redevelopment	222,222		145,630		N/A		4,238,967
Land Held for Future Development	N/A		N/A		N/A		484,377
Non-allocated (4)	9,947		N/A		N/A		73,372
Total	$	1,800,354	$	1,240,992	12.9	%	$	19,228,571

For the year ended December 31, 2014 (5)
Established
New England	$	164,181	$	104,674	0.8	%	$	1,333,854
Metro NY/NJ	285,641		203,522		3.3	%	2,251,697
Mid-Atlantic	98,590		69,498		(2.5	)%	647,374
Pacific Northwest	46,041		32,012		6.8	%	500,247
Northern California	174,527		132,899		8.2	%	1,402,444
Southern California	139,841		95,626		5.2	%	1,225,328
Total Established (2)	908,821		638,231		3.6	%	7,360,944

Other Stabilized	497,634		343,477		N/A		6,057,783
Development / Redevelopment	186,852		117,879		N/A		3,972,180
Land Held for Future Development	N/A		N/A		N/A		180,516
Non-allocated (4)	11,050		N/A		N/A		32,444
Total	$	1,604,357	$	1,099,587	16.5	%	$	17,603,867

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(1)	Does not include gross real estate assets held for sale of $20,846, $39,528 and $245,449 as of December 31, 2016, 2015 and 2014, respectively.


(2)	Gross real estate for the Company's Established Communities includes capitalized additions of approximately $85,676, $74,982 and $52,635 in 2016, 2015 and 2014, respectively.


(3)	Total revenue and NOI for the year ended December 31, 2016 includes $20,306 in business interruption insurance proceeds related to the Edgewater casualty loss.


(4)	Revenue represents third-party management, accounting, and developer fees and miscellaneous income which are not allocated to a reportable segment.


(5)	Results for the year ended December 31, 2014 reflect the operating segments determined as of January 1, 2014, which include stabilized communities acquired as part of the Archstone Acquisition in the Other Stabilized segment.