Segment Reporting

12 Months Ended

Dec. 31, 2019

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.

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Established Communities (also known as Same Store Communities) are consolidated communities where the Company has a significant presence (New England, New York/New Jersey, Mid-Atlantic, Pacific Northwest, and Northern and Southern California) and 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, 2019, are communities that are consolidated for financial reporting purposes, had stabilized occupancy as of January 1, 2018, are not conducting or planning to conduct substantial redevelopment activities and are not held for sale or planned for disposition within the fiscal 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.

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Other Stabilized Communities includes all other completed consolidated communities that have stabilized occupancy, as defined above, as January 1, 2019, or which were acquired during the years ended December 31, 2019 or 2018. Other Stabilized Communities includes stabilized operating communities in our expansion markets of Denver, Colorado, and Southeast Florida, but excludes communities that are conducting or planning to conduct substantial redevelopment activities within the fiscal year.

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Development/Redevelopment Communities consists of (i) consolidated communities that are either currently under construction, or were under construction during the fiscal year, which may be partially or fully complete and operating, (ii) consolidated communities where substantial redevelopment is in progress or is planned to begin during the fiscal year and (iii) communities under lease-up that have been complete for less than one year and have not reached stabilized occupancy, as defined above, as of January 1, 2019.

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, expensed transaction, 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 (benefit) expense, casualty and impairment loss (gain), net, gain on sale of communities, loss (gain) on other real estate transactions, net, for-sale condominium marketing and administrative costs 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, 2019, 2018 and 2017 is as follows (dollars in thousands):



	For the year ended
	12/31/19			12/31/18			12/31/17
Net income	$	786,103		$	974,175		$	876,660
Indirect operating expenses, net of corporate income	83,008			80,227			68,312
Expensed acquisition, development and other pursuit costs, net of recoveries	4,991			3,265			2,736
Interest expense, net	203,585			220,974			199,661
Loss on extinguishment of debt, net	602			17,492			25,472
General and administrative expense	58,042			60,369			53,695
Equity in income of unconsolidated real estate entities	(8,652		)	(15,270		)	(70,744		)
Depreciation expense	661,578			631,196			584,150
Income tax expense (benefit)	13,003			(160		)	141
Casualty and impairment loss, net	—			215			6,250
Gain on sale of communities	(166,105		)	(374,976		)	(252,599		)
(Gain) loss on other real estate transactions	(439		)	(345		)	10,907
For-sale condominium marketing and administrative costs	3,812			1,044			—
Net operating income from real estate assets sold or held for sale	(12,318		)	(79,372		)	(105,663		)
Net operating income	$	1,627,210		$	1,518,834		$	1,398,978

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
	12/31/2019			12/31/2018			12/31/2017

Rental income from real estate assets sold or held for sale	$	21,441		$	124,373		$	170,172
Operating expenses from real estate assets sold or held for sale	(9,123		)	(45,001		)	(64,509		)
Net operating income from real estate assets sold or held for sale	$	12,318		$	79,372		$	105,663

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 January 1, 2019 for the years ended December 31, 2019 and 2018 and at January 1, 2018, for the year ended December 31, 2017. Segment information for the years ended December 31, 2019, 2018 and 2017 has been adjusted to exclude the real estate assets that were sold from January 1, 2017 through December 31, 2019, or otherwise qualify as held for sale as of December 31, 2019, as described in Note 6, “Real Estate Disposition Activities.”

In addition to NOI, the Company's CODM considers total revenue in assessing each segment's performance. As discussed in Note 1, "Organization, Basis of Presentation and Significant Accounting Policies," the Company changed its presentation of charges

for uncollectible lease revenue beginning with the year ended December 31, 2019, including it as an adjustment to revenue and not as a component of operating expenses, as it is presented for prior year periods on the accompanying Consolidated Statements of Comprehensive Income. Consistent with how the Company's CODM evaluates total revenue, and to provide comparability between periods presented in the Company's segment reporting, the Company has included charges for uncollectible lease revenue for its segment results as a component of revenue for the year ended December 31, 2018, the comparable period presented in the following table. Total revenue for the year ended December 31, 2018 as presented in the following table includes $14,072,000 of charges for uncollectible lease revenue.



	Total revenue		NOI		Gross real estate (1)
For the year ended December 31, 2019
Established
New England	$	249,301	$	164,977	$	2,065,954
Metro NY/NJ	411,115		291,662		3,545,753
Mid-Atlantic	292,943		207,091		2,685,052
Pacific Northwest	113,021		82,186		990,563
Northern California	363,910		280,216		2,850,491
Southern California	406,049		291,340		3,609,595
Total Established (2)	1,836,339		1,317,472		15,747,408

Other Stabilized	298,415		202,445		3,551,512
Development / Redevelopment	163,471		107,293		3,702,194
Land Held for Future Development	N/A		N/A		—
Non-allocated (3)	4,960		N/A		557,346
Total	$	2,303,185	$	1,627,210	$	23,558,460

For the year ended December 31, 2018
Established
New England	$	241,793	$	159,394	$	2,050,131
Metro NY/NJ	400,422		284,344		3,527,098
Mid-Atlantic	284,381		200,381		2,669,040
Pacific Northwest	108,861		78,313		985,102
Northern California	353,136		272,096		2,832,026
Southern California	394,519		283,795		3,573,953
Total Established (2)	1,783,112		1,278,323		15,637,350

Other Stabilized	238,584		159,745		3,063,669
Development / Redevelopment	120,822		80,766		2,652,967
Land Held for Future Development	N/A		N/A		84,712
Non-allocated (3)	3,572		N/A		504,229
Total	$	2,146,090	$	1,518,834	$	21,942,927

For the year ended December 31, 2017
Established
New England	$	215,133	$	141,342	$	1,845,692
Metro NY/NJ	354,444		251,760		3,071,563
Mid-Atlantic	232,987		161,546		2,216,292
Pacific Northwest	84,313		61,705		724,751
Northern California	357,209		273,940		2,972,311
Southern California	330,024		237,796		2,905,512
Total Established (2)	1,574,110		1,128,089		13,736,121

Other Stabilized	174,933		117,837		2,392,244
Development / Redevelopment (4)	235,266		153,052		4,104,956
Land Held for Future Development	N/A		N/A		68,364
Non-allocated (3)	4,147		N/A		78,864
Total	$	1,988,456	$	1,398,978	$	20,380,549

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(1)	Does not include gross real estate assets held for sale of $48,412 as of December 31, 2019 and gross real estate either sold or classified as held for sale subsequent to December 31, 2018 and 2017 of $334,242 and $1,555,387, respectively.


(2)	Gross real estate for the Company's Established Communities includes capitalized additions of approximately $128,324, $78,469 and $78,241 in 2019, 2018 and 2017, respectively.


(3)	Revenue represents third-party management, accounting, and developer fees and miscellaneous income which are not allocated to a reportable segment. Gross real estate includes the for-sale residential condominiums at The Park Loggia, as discussed in Note 6, "Real Estate Disposition Activities."

(4)

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.