Segment Reporting

6 Months Ended

Jun. 30, 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. 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 ("CODM") 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 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 communities, (gain) loss on other real estate transactions, net 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 the three and six months ended June 30, 2019 and 2018 is as follows (dollars in thousands):



	For the three months ended						For the six months ended
	6/30/2019			6/30/2018			6/30/2019			6/30/2018
Net income	$	168,305		$	254,543		$	338,723		$	396,133
Indirect operating expenses, net of corporate income	23,018			19,677			42,740			38,636
Expensed transaction, development and other pursuit costs, net of recoveries	2,711			1,047			3,806			1,847
Interest expense, net	50,010			56,585			97,902			111,698
Loss on extinguishment of debt, net	229			642			509			1,039
General and administrative expense	18,965			15,209			32,671			29,640
Equity in (income) loss of unconsolidated real estate entities	(197		)	(789		)	863			(2,529		)
Depreciation expense	162,693			156,685			324,749			315,743
Income tax expense (refund)	—			58			(6		)	58
Casualty and impairment gain, net	—			—			—			(58		)
Gain on sale of communities	(20,530		)	(105,201		)	(35,365		)	(105,201		)
Gain on other real estate transactions, net	(34		)	(370		)	(300		)	(323		)
Net operating income from real estate assets sold or held for sale	(1,495		)	(19,680		)	(4,077		)	(40,377		)
Net operating income	$	403,675		$	378,406		$	802,215		$	746,306

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 three months ended						For the six months ended
	6/30/2019			6/30/2018			6/30/2019			6/30/2018
Rental income from real estate assets sold or held for sale	$	2,591		$	30,024		$	7,193		$	61,857
Operating expenses from real estate assets sold or held for sale	(1,096		)	(10,344		)	(3,116		)	(21,480		)
Net operating income from real estate assets sold or held for sale	$	1,495		$	19,680		$	4,077		$	40,377

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. Segment information for the three and six months ended June 30, 2019 and 2018 has been adjusted to exclude the real estate assets that were sold from January 1, 2018 through June 30, 2019, or otherwise qualify as held for sale as of June 30, 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 three and six months ended June 30, 2019, including it as an adjustment to revenue and not as a component of operating expenses, as it is presented for prior periods on the accompanying Condensed Consolidated Statement 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 all periods presented in the following table. Total revenue for the three and six months ended June 30, 2018 as presented in the following table includes $3,576,000 and $7,611,000, respectively, of charges for uncollectible lease revenue.



	For the three months ended				For the six months ended
	Total revenue		NOI		Total revenue		NOI		Gross real estate (1)
For the period ended June 30, 2019
Established
New England	$	63,819	$	41,907	$	127,092	$	83,715	$	2,118,237
Metro NY/NJ	103,073		73,212		204,276		145,055		3,531,694
Mid-Atlantic	73,094		51,073		145,103		102,125		2,674,020
Pacific Northwest	28,224		20,605		56,026		40,815		987,121
Northern California	88,301		67,384		175,661		135,622		2,776,718
Southern California	101,288		72,593		201,829		145,288		3,589,188
Total Established	457,799		326,774		909,987		652,620		15,676,978

Other Stabilized	75,696		50,813		148,371		100,024		3,327,804
Development / Redevelopment	40,063		26,088		75,643		49,571		3,719,999
Land Held for Development	N/A		N/A		N/A		N/A		18,606
Non-allocated (2)	1,114		N/A		2,252		N/A		98,492

Total	$	574,672	$	403,675	$	1,136,253	$	802,215	$	22,841,879

For the period ended June 30, 2018
Established
New England	$	62,110	$	40,750	$	123,318	$	80,441	$	2,109,273
Metro NY/NJ	99,745		70,412		197,774		139,429		3,518,123
Mid-Atlantic	71,099		49,917		140,868		98,772		2,662,775
Pacific Northwest	26,894		19,142		53,381		37,766		984,029
Northern California	85,559		66,133		169,983		130,946		2,764,856
Southern California	98,179		71,482		195,094		141,082		3,561,270
Total Established	443,586		317,836		880,418		628,436		15,600,326

Other Stabilized	59,134		38,776		114,894		75,000		2,764,061
Development / Redevelopment	31,965		21,794		63,411		42,870		2,618,434
Land Held for Development	N/A		N/A		N/A		N/A		130,802
Non-allocated (2)	954		N/A		1,841		N/A		79,703

Total	$	535,639	$	378,406	$	1,060,564	$	746,306	$	21,193,326

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(1)	Does not include gross real estate assets held for sale of $77,030 as of June 30, 2019 and gross real estate either sold or classified as held for sale subsequent to June 30, 2018 of $1,153,352.

(2)

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