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, 2017, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2016, 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, 2017.

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 loss (gain), net, gain on sale of communities, loss (gain) on other real estate transactions and net operating income from real estate assets sold or held for sale. 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, 2017, 2016 and 2015 is as follows (dollars in thousands):



	For the year ended
	12/31/17			12/31/16			12/31/15
Net income	$	876,660		$	1,033,708		$	741,733
Indirect operating expenses, net of corporate income	65,398			61,403			56,973
Investments and investment management expense	5,936			4,822			4,370
Expensed acquisition, development and other pursuit costs, net of recoveries	2,736			9,922			6,822
Interest expense, net	199,661			187,510			175,615
Loss (gain) on extinguishment of debt, net	25,472			7,075			(26,736		)
General and administrative expense	50,673			45,771			42,774
Equity in income of unconsolidated real estate entities	(70,744		)	(64,962		)	(70,018		)
Depreciation expense	584,150			531,434			477,923
Income tax expense	141			305			1,483
Casualty and impairment loss (gain), net	6,250			(3,935		)	(10,542		)
Gain on sale of communities	(252,599		)	(374,623		)	(115,625		)
Loss (gain) on other real estate transactions	10,907			(10,224		)	(9,647		)
Net operating income from real estate assets sold or held for sale	(14,573		)	(44,263		)	(59,383		)
Net operating income	$	1,490,068		$	1,383,943		$	1,215,742

The following is a summary of NOI from real estate assets sold or held for sale for the periods presented (dollars in thousands):



	For the year ended
	12/31/2017			12/31/2016			12/31/2015

Rental income from real estate assets sold or held for sale	$	23,457		$	70,273		$	96,297
Operating expenses from real estate assets sold or held for sale	(8,884		)	(26,010		)	(36,914		)
Net operating income from real estate assets sold or held for sale	$	14,573		$	44,263		$	59,383

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, 2017, 2016 and 2015 has been adjusted to exclude the real estate assets that were sold from January 1, 2015 through December 31, 2017, or otherwise qualify as held for sale as of December 31, 2017, as described in Note 6, “Real Estate Disposition Activities.” Segment information for gross real estate as of December 31, 2017, 2016 and 2015 has not been adjusted to exclude real estate assets that were sold or otherwise qualified as held for sale subsequent to their respective balance sheet dates.



	Total revenue		NOI		% NOI change from prior year		Gross real estate (1)
For the year ended December 31, 2017
Established
New England	$	233,091	$	150,253	2.1	%	$	1,852,676
Metro NY/NJ	362,273		247,720		2.1	%	3,069,690
Mid-Atlantic	221,064		153,750		1.5	%	2,056,066
Pacific Northwest	84,189		61,527		6.3	%	738,532
Northern California	336,767		257,673		1.6	%	2,830,963
Southern California	337,876		241,549		3.9	%	3,017,836
Total Established (2)	1,575,260		1,112,472		2.5	%	13,565,763

Other Stabilized	278,868		196,733		N/A		3,189,393
Development / Redevelopment (3)	276,896		180,863		N/A		5,015,094
Land Held for Future Development	N/A		N/A		N/A		68,364
Non-allocated (4)	4,147		N/A		N/A		97,322
Total	$	2,135,171	$	1,490,068	7.7	%	$	21,935,936

For the year ended December 31, 2016
Established
New England	$	226,727	$	145,671	4.8	%	$	1,888,524
Metro NY/NJ	359,373		245,654		1.2	%	3,212,220
Mid-Atlantic	233,711		162,243		1.3	%	2,339,395
Pacific Northwest	72,475		52,434		7.4	%	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)	1,502,974		1,057,997		4.8	%	13,511,377

Other Stabilized (5)	232,977		165,130		N/A		2,330,503
Development / Redevelopment	233,432		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	$	1,974,982	$	1,383,943	13.8	%	$	20,755,780

For the year ended December 31, 2015
Established
New England	$	170,287	$	107,189	3.0	%	$	1,460,746
Metro NY/NJ	342,768		244,280		3.6	%	3,152,361
Mid-Atlantic	209,012		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)	1,315,929		929,944		6.0	%	12,391,586

Other Stabilized	211,633		140,167		N/A		2,040,269
Development / Redevelopment	222,222		145,631		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	$	1,759,731	$	1,215,742	13.0	%	$	19,228,571

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


(2)	Gross real estate for the Company's Established Communities includes capitalized additions of approximately $78,241, $85,676 and $74,982 in 2017, 2016 and 2015, respectively.


(3)	Total revenue and NOI for the year ended December 31, 2017 includes $3,495 in business interruption insurance proceeds related to the Maplewood casualty loss.


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


(5)	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.