13. Segment Information

The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the three and nine months ended September 30, 2016 and 2015.

Boston Properties, Inc.



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016		2015
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	76,753		$	184,082		$	355,114	$	434,702
Add:
Preferred dividends	2,589			2,647			7,796		7,854
Noncontrolling interest—common units of the Operating Partnership	9,387			21,302			42,120		50,906
Noncontrolling interest—redeemable preferred units of the Operating Partnership	—			—			—		6
Noncontrolling interests in property partnerships	(17,225		)	115,240			53		139,712
Losses from interest rate contracts	140			—			140		—
Losses from early extinguishments of debt	371			—			371		—
Interest expense	104,641			108,727			314,953		326,018
Depreciation and amortization expense	203,748			153,015			516,371		475,082
Impairment loss	1,783			—			1,783		—
Transaction costs	249			254			1,187		789
General and administrative expense	25,165			20,944			79,936		72,019
Less:
Gains on sales of real estate	12,983			199,479			80,606		294,563
Gains (losses) from investments in securities	976			(1,515		)	1,713		(1,146		)
Interest and other income	3,628			3,637			6,657		6,337
Income from unconsolidated joint ventures	1,464			2,647			5,489		20,559
Development and management services income	6,364			5,912			18,586		16,102
Net Operating Income	$	382,186		$	396,051		$	1,206,773	$	1,170,673

Boston Properties Limited Partnership



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016		2015
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	91,306			207,626			408,540		491,847
Add:
Preferred distributions	2,589			2,647			7,796		7,854
Noncontrolling interest—redeemable preferred units	—			—			—		6
Noncontrolling interests in property partnerships	(17,225		)	115,240			53		139,712
Losses from interest rate contracts	140			—			140		—
Losses from early extinguishments of debt	371			—			371		—
Interest expense	104,641			108,727			314,953		326,018
Depreciation and amortization expense	198,582			151,017			507,234		469,087
Impairment loss	1,783			—			1,783		—
Transaction costs	249			254			1,187		789
General and administrative expense	25,165			20,944			79,936		72,019
Less:
Gains on sales of real estate	12,983			199,723			82,775		294,807
Gains (losses) from investments in securities	976			(1,515		)	1,713		(1,146		)
Interest and other income	3,628			3,637			6,657		6,337
Income from unconsolidated joint ventures	1,464			2,647			5,489		20,559
Development and management services income	6,364			5,912			18,586		16,102
Net Operating Income	$	382,186		$	396,051		$	1,206,773	$	1,170,673

Net Operating Income is not a measure of operating results or cash flows from operating activities as measured by GAAP, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate Net Operating Income in the same manner. The Company considers Net Operating Income to be an appropriate supplemental performance measure to net income because it helps both investors and management to understand the core operations of the Company’s properties. The Company’s management also uses Net Operating Income to evaluate regional property level performance and to make decisions about resource allocations. Further, the Company believes Net Operating Income is useful to investors as a performance measure because, when compared across periods, Net Operating Income reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspectives not immediately apparent from net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders.

Asset information by segment is not reported because the Company does not use this measure to assess performance. Therefore, depreciation and amortization expense is not allocated among segments. Preferred dividends/distributions, noncontrolling interests, gains on sales of real estate, losses from interest rate contracts, losses from early extinguishments of debt, interest expense, gains (losses) from investments in securities, interest and other income, income from unconsolidated joint ventures, depreciation and amortization expense, impairment loss, transaction costs, general and administrative expenses and development and management services income are not included in Net Operating Income as internal reporting addresses these items on a corporate level.

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by both geographic area and property type. The Company’s segments by geographic area are Boston, New York, San Francisco and Washington, DC. Segments by property type include: Office, Residential and Hotel.

Beginning on January 1, 2016, the properties that were historically included in the Company’s Office/Technical segment are now included in the Office segment to align with its method of internal reporting, which shifted after the disposition of 415 Main Street in Cambridge, Massachusetts. As such, the amounts previously included in Office/Technical are now included in Office for all periods presented.

Information by geographic area and property type (dollars in thousands):

For the three months ended September 30, 2016:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	183,975		$	237,262		$	80,235		$	100,666		$	602,138
Residential	1,227			—			—			3,145			4,372
Hotel	12,354			—			—			—			12,354
Total	197,556			237,262			80,235			103,811			618,864
% of Grand Totals	31.92		%	38.34		%	12.96		%	16.78		%	100.00		%
Rental Expenses:
Office	71,254			95,073			26,037			33,973			226,337
Residential	1,141			—			—			1,082			2,223
Hotel	8,118			—			—			—			8,118
Total	80,513			95,073			26,037			35,055			236,678
% of Grand Totals	34.02		%	40.17		%	11.00		%	14.81		%	100.00		%
Net operating income	$	117,043		$	142,189		$	54,198		$	68,756		$	382,186
% of Grand Totals	30.62		%	37.21		%	14.18		%	17.99		%	100.00		%

For the three months ended September 30, 2015:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	179,278		$	253,612		$	77,315		$	97,037		$	607,242
Residential	1,275			—			—			2,836			4,111
Hotel	12,619			—			—			—			12,619
Total	193,172			253,612			77,315			99,873			623,972
% of Grand Totals	30.96		%	40.64		%	12.39		%	16.01		%	100.00		%
Rental Expenses:
Office	71,898			88,496			25,883			31,985			218,262
Residential	485			—			—			1,049			1,534
Hotel	8,125			—			—			—			8,125
Total	80,508			88,496			25,883			33,034			227,921
% of Grand Totals	35.32		%	38.83		%	11.36		%	14.49		%	100.00		%
Net operating income	$	112,664		$	165,116		$	51,432		$	66,839		$	396,051
% of Grand Totals	28.45		%	41.69		%	12.98		%	16.88		%	100.00		%

For the nine months ended September 30, 2016:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	540,850		$	773,077		$	235,076		$	300,742		$	1,849,745
Residential	3,578			—			—			8,931			12,509
Hotel	33,919			—			—			—			33,919
Total	578,347			773,077			235,076			309,673			1,896,173
% of Grand Totals	30.50		%	40.77		%	12.40		%	16.33		%	100.00		%
Rental Expenses:
Office	210,695			272,620			75,412			101,514			660,241
Residential	2,174			—			—			3,255			5,429
Hotel	23,730			—			—			—			23,730
Total	236,599			272,620			75,412			104,769			689,400
% of Grand Totals	34.32		%	39.54		%	10.94		%	15.20		%	100.00		%
Net operating income	$	341,748		$	500,457		$	159,664		$	204,904		$	1,206,773
% of Grand Totals	28.32		%	41.47		%	13.23		%	16.98		%	100.00		%

For the nine months ended September 30, 2015:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	536,241		$	753,142		$	223,561		$	287,652		$	1,800,596
Residential	3,584			—			—			11,192			14,776
Hotel	35,107			—			—			—			35,107
Total	574,932			753,142			223,561			298,844			1,850,479
% of Grand Totals	31.07		%	40.70		%	12.08		%	16.15		%	100.00		%
Rental Expenses:
Office	218,002			259,218			73,119			98,660			648,999
Residential	1,505			—			—			5,106			6,611
Hotel	24,196			—			—			—			24,196
Total	243,703			259,218			73,119			103,766			679,806
% of Grand Totals	35.85		%	38.13		%	10.76		%	15.26		%	100.00		%
Net operating income	$	331,229		$	493,924		$	150,442		$	195,078		$	1,170,673
% of Grand Totals	28.29		%	42.19		%	12.85		%	16.67		%	100.00		%