Segment Reporting

9 Months Ended

Sep. 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, 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 the three and nine months ended September 30, 2019 and 2018 is as follows (dollars in thousands):



	For the three months ended						For the nine months ended
	9/30/2019			9/30/2018			9/30/2019			9/30/2018
Net income	$	279,709		$	192,407		$	618,432		$	588,540
Indirect operating expenses, net of corporate income	20,195			19,742			62,935			58,377
Expensed transaction, development and other pursuit costs, net of recoveries	175			523			2,562			2,212
Interest expense, net	51,493			54,097			149,395			165,795
Loss on extinguishment of debt, net	93			1,678			602			2,717
General and administrative expense	12,769			14,744			45,440			44,384
Equity in income of unconsolidated real estate entities	(1,643		)	(10,031		)	(780		)	(12,560		)
Depreciation expense	165,463			156,538			490,213			472,282
Income tax expense	11,184			29			11,178			87
Casualty and impairment gain, net	—			(554		)	—			(612		)
Gain on sale of communities	(130,484		)	(27,243		)	(165,849		)	(132,444		)
Gain on other real estate transactions, net	(73		)	(12		)	(374		)	(335		)
For-sale condominium marketing and administrative costs	1,108			339			2,526			497
Net operating income from real estate assets sold or held for sale	(880		)	(17,876		)	(8,600		)	(61,623		)
Net operating income	$	409,109		$	384,381		$	1,207,680		$	1,127,317

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 nine months ended
	9/30/2019			9/30/2018			9/30/2019			9/30/2018
Rental income from real estate assets sold or held for sale	$	1,972		$	28,135		$	15,837		$	96,517
Operating expenses from real estate assets sold or held for sale	(1,092		)	(10,259		)	(7,237		)	(34,894		)
Net operating income from real estate assets sold or held for sale	$	880		$	17,876		$	8,600		$	61,623

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 nine months ended September 30, 2019 and 2018 has been adjusted to exclude the real estate assets that were sold from January 1, 2018 through September 30, 2019, or otherwise qualify as held for sale as of September 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 nine months ended September 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 nine months ended September 30, 2018 as presented in the following table includes $3,212,000 and $10,822,000, respectively, of charges for uncollectible lease revenue.



	For the three months ended				For the nine months ended
	Total revenue		NOI		Total revenue		NOI		Gross real estate (1)
For the period ended September 30, 2019
Established
New England	$	64,608	$	42,651	$	190,009	$	125,362	$	2,103,731
Metro NY/NJ	103,471		72,476		307,746		217,531		3,539,251
Mid-Atlantic	73,906		51,474		219,008		153,599		2,678,892
Pacific Northwest	28,589		20,683		84,615		61,498		988,952
Northern California	88,914		68,000		264,575		203,623		2,782,426
Southern California	101,745		71,741		303,573		217,029		3,599,266
Total Established	461,233		327,025		1,369,526		978,642		15,692,518

Other Stabilized	76,727		51,187		220,120		148,570		3,372,470
Development / Redevelopment	46,450		30,897		122,093		80,468		3,485,596
Land Held for Development	N/A		N/A		N/A		N/A		20,095
Non-allocated (2)	1,231		N/A		3,484		N/A		552,179

Total	$	585,641	$	409,109	$	1,715,223	$	1,207,680	$	23,122,858

For the period ended September 30, 2018
Established
New England	$	62,705	$	41,591	$	184,377	$	121,028	$	2,090,871
Metro NY/NJ	101,285		72,131		299,058		211,560		3,520,938
Mid-Atlantic	71,715		50,067		212,584		148,838		2,666,241
Pacific Northwest	27,723		19,679		81,104		57,445		983,942
Northern California	86,369		66,362		256,351		197,308		2,768,192
Southern California	99,255		70,392		294,350		211,474		3,567,619
Total Established	449,052		320,222		1,327,824		947,653		15,597,803

Other Stabilized	61,448		41,537		171,466		114,171		2,791,565
Development / Redevelopment	33,223		22,622		96,633		65,493		2,460,076
Land Held for Development	N/A		N/A		N/A		N/A		116,582
Non-allocated (2)	912		N/A		2,752		N/A		473,928

Total	$	544,635	$	384,381	$	1,598,675	$	1,127,317	$	21,439,954

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(1)	Does not include gross real estate either sold or classified as held for sale subsequent to September 30, 2018 of $1,103,809.

(2)

Revenue represents third-party management, asset management 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 development, as discussed in Note 5, "Investments in Real Estate."