Segment Reporting

3 Months Ended

Mar. 31, 2014

Segment Reporting

Segment Reporting

8.  Segment Reporting

The Company’s reportable operating segments include Established Communities, Other Stabilized Communities, and Development/Redevelopment Communities.  Annually as of January 1st, 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.  The Company expects to update its operating segments on April 1, 2014, primarily to include communities acquired as part of the Archstone Acquisition, as described in Note 5, “Archstone Acquisition,” in its Established Community portfolio.

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 revenue less direct property operating expenses.  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 the three months ended March 31, 2014 and 2013 is as follows (dollars in thousands):

	For the three months ended
	3-31-14			3-31-13
Net income	$	141,599		$	75,469
Indirect operating expenses, net of corporate income	10,818			9,041
Investments and investment management expense	979			1,015
Expensed acquisition, development and other pursuit costs	715			40,059
Interest expense, net	42,533			38,174
General and administrative expense	9,236			10,039
Equity in loss (income) of unconsolidated entities	(5,223		)	18,564
Depreciation expense	106,367			105,559
Gain on sale of real estate assets	(37,869		)	(84,491		)
Income from discontinued operations	(310		)	(5,746		)
Net operating income	$	268,845		$	207,683

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 as of 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 the three months ended March 31, 2014 and 2013 has been adjusted for the real estate assets that were both sold between January 1, 2013 and March 31, 2014, and qualified as discontinued operations as of December 31, 2013, as described in Note 7, “Real Estate Disposition Activities.”

	For the three months ended
	Total				% NOI change		Gross
	revenue		NOI		from prior year		real estate (1)
For the period ended March 31, 2014
Established
New England	$	48,630	$	29,904	(2.0	)%	$	1,489,948
Metro NY/NJ	72,354		50,019		1.3	%	2,187,554
Mid-Atlantic	24,647		17,455		(3.0	)%	644,657
Pacific Northwest	13,129		9,134		3.2	%	498,710
Northern California	42,219		32,834		11.4	%	1,400,087
Southern California	34,149		23,352		4.2	%	1,217,764
Total Established	235,128		162,698		2.6	%	7,438,720
Other Stabilized	132,320		90,071		N/A		6,543,948
Development / Redevelopment	29,550		16,076		N/A		2,786,334
Land Held for Future Development	N/A		N/A		N/A		250,204
Non-allocated (2)	3,077		N/A		N/A		41,327
Total	$	400,075	$	268,845	29.3	%	$	17,060,533
For the period ended March 31, 2013
Established
New England	$	43,350	$	27,712	1.7	%	$	1,360,858
Metro NY/NJ	61,244		42,439		5.5	%	1,915,890
Mid-Atlantic	25,035		18,188		1.6	%	631,207
Pacific Northwest	11,376		7,850		10.5	%	443,564
Northern California	34,064		25,609		11.4	%	1,231,893
Southern California	26,910		18,463		5.9	%	987,209
Total Established	201,979		140,261		5.5	%	6,570,621
Other Stabilized	73,932		51,433		N/A		6,733,024
Development / Redevelopment	23,174		15,989		N/A		1,915,146
Land Held for Future Development	N/A		N/A		N/A		359,029
Non-allocated (2)	2,272		N/A		N/A		69,318
Total	$	301,357	$	207,683	29.1	%	$	15,647,138

(1) Does not include gross real estate assets held for sale of $510,623 as of March 31, 2013.

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