11. 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 six months ended June 30, 2018 and 2017.

Boston Properties, Inc.



	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	128,681	$	133,709	$	304,682	$	230,764
Add:
Preferred dividends	2,625		2,625		5,250		5,250
Noncontrolling interest—common units of Boston Properties Limited Partnership	14,859		15,473		35,311		26,933
Noncontrolling interests in property partnerships	14,400		15,203		31,634		19,627
Interest expense	92,204		95,143		182,424		190,677
Depreciation and amortization expense	156,417		151,919		322,214		311,124
Transaction costs	474		299		495		333
Payroll and related costs from management services contracts	1,970		—		4,855		—
General and administrative expense	28,468		27,141		64,362		58,527
Less:
Gains on sales of real estate	18,292		3,767		114,689		3,900
Gains from early extinguishments of debt	—		14,354		—		14,354
Gains from investments in securities	505		730		379		1,772
Interest and other income	2,579		1,504		4,227		2,118
Income from unconsolidated joint ventures	769		3,108		1,230		6,192
Direct reimbursements of payroll and related costs from management services contracts	1,970		—		4,855		—
Development and management services revenue	9,305		7,365		17,710		13,837
Net Operating Income	$	406,678	$	410,684	$	808,137	$	801,062

Boston Properties Limited Partnership



	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	145,961	$	151,844	$	346,868	$	262,506
Add:
Preferred distributions	2,625		2,625		5,250		5,250
Noncontrolling interests in property partnerships	14,400		15,203		31,634		19,627
Interest expense	92,204		95,143		182,424		190,677
Depreciation and amortization expense	154,474		149,834		318,327		306,892
Transaction costs	474		299		495		333
Payroll and related costs from management services contracts	1,970		—		4,855		—
General and administrative expense	28,468		27,141		64,362		58,527
Less:
Gains on sales of real estate	18,770		4,344		117,677		4,477
Gains from early extinguishments of debt	—		14,354		—		14,354
Gains from investments in securities	505		730		379		1,772
Interest and other income	2,579		1,504		4,227		2,118
Income from unconsolidated joint ventures	769		3,108		1,230		6,192
Direct reimbursements of payroll and related costs from management services contracts	1,970		—		4,855		—
Development and management services revenue	9,305		7,365		17,710		13,837
Net Operating Income	$	406,678	$	410,684	$	808,137	$	801,062

Net operating income (“NOI”) is a non-GAAP financial measure equal to net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains on sales of real estate, gains from early extinguishments of debt, gains from investments in securities, interest and other income, income from unconsolidated joint ventures, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue. The Company believes NOI is useful to investors as a performance measure and believes it provides useful information to investors regarding the Company's results of operations and financial condition because, when compared across periods, it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspective not immediately apparent from net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., used for other investment activity). In addition, depreciation and amortization expense, because of historical cost accounting and useful life estimates, may distort operating performance measures at the property level. NOI presented by the Company may not be comparable to NOI reported by other REITs or real estate companies that define NOI differently.

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, net income attributable to noncontrolling interests, interest expense, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains on sales of real estate, gains from early extinguishments of debt, gains from investments in securities, interest and other income, income from unconsolidated joint ventures, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI 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.

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

For the three months ended June 30, 2018:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	207,810		$	234,006		$	93,482		$	98,505		$	633,803
Residential	1,195			—			—			3,604			4,799
Hotel	14,607			—			—			—			14,607
Total	223,612			234,006			93,482			102,109			653,209
% of Grand Totals	34.23		%	35.83		%	14.31		%	15.63		%	100.00		%
Rental Expenses:
Office	77,147			91,838			31,214			34,678			234,877
Residential	706			—			—			2,207			2,913
Hotel	8,741			—			—			—			8,741
Total	86,594			91,838			31,214			36,885			246,531
% of Grand Totals	35.12		%	37.26		%	12.66		%	14.96		%	100.00		%
Net operating income	$	137,018		$	142,168		$	62,268		$	65,224		$	406,678
% of Grand Totals	33.69		%	34.96		%	15.31		%	16.04		%	100.00		%

For the three months ended June 30, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	191,760		$	251,844		$	85,483		$	102,870		$	631,957
Residential	1,153			—			—			3,057			4,210
Hotel	13,375			—			—			—			13,375
Total	206,288			251,844			85,483			105,927			649,542
% of Grand Totals	31.76		%	38.77		%	13.16		%	16.31		%	100.00		%
Rental Expenses:
Office	74,160			93,110			25,938			35,611			228,819
Residential	545			—			—			1,090			1,635
Hotel	8,404			—			—			—			8,404
Total	83,109			93,110			25,938			36,701			238,858
% of Grand Totals	34.79		%	38.98		%	10.86		%	15.37		%	100.00		%
Net operating income	$	123,179		$	158,734		$	59,545		$	69,226		$	410,684
% of Grand Totals	29.99		%	38.65		%	14.50		%	16.86		%	100.00		%

For the six months ended June 30, 2018:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	412,807		$	476,404		$	183,375		$	197,817		$	1,270,403
Residential	2,347			—			—			6,611			8,958
Hotel	23,709			—			—			—			23,709
Total	438,863			476,404			183,375			204,428			1,303,070
% of Grand Totals	33.68		%	36.56		%	14.07		%	15.69		%	100.00		%
Rental Expenses:
Office	157,471			185,600			58,842			71,021			472,934
Residential	1,220			—			—			3,965			5,185
Hotel	16,814			—			—			—			16,814
Total	175,505			185,600			58,842			74,986			494,933
% of Grand Totals	35.46		%	37.50		%	11.89		%	15.15		%	100.00		%
Net operating income	$	263,358		$	290,804		$	124,533		$	129,442		$	808,137
% of Grand Totals	32.59		%	35.98		%	15.41		%	16.02		%	100.00		%

For the six months ended June 30, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	377,196		$	493,414		$	170,124		$	205,603		$	1,246,337
Residential	2,292			—			—			5,874			8,166
Hotel	20,795			—			—			—			20,795
Total	400,283			493,414			170,124			211,477			1,275,298
% of Grand Totals	31.39		%	38.69		%	13.34		%	16.58		%	100.00		%
Rental Expenses:
Office	149,416			184,794			50,412			70,933			455,555
Residential	1,040			—			—			2,146			3,186
Hotel	15,495			—			—			—			15,495
Total	165,951			184,794			50,412			73,079			474,236
% of Grand Totals	34.99		%	38.97		%	10.63		%	15.41		%	100.00		%
Net operating income	$	234,332		$	308,620		$	119,712		$	138,398		$	801,062
% of Grand Totals	29.25		%	38.53		%	14.94		%	17.28		%	100.00		%