Segment Information

3 Months Ended

Mar. 31, 2020

Segment Reporting Disclosure [Text Block]

11. Segment Information

The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to the Company’s share of Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to the Company’s share of Net Operating Income for the three months ended March 31, 2020 and 2019.

Boston Properties, Inc.



	Three months ended March 31,
	2020			2019
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	497,496		$	98,105
Add:
Preferred dividends	2,625			2,625
Noncontrolling interest—common units of the Operating Partnership	57,539			11,599
Noncontrolling interests in property partnerships	19,486			18,830
Interest expense	101,591			101,009
Impairment loss	—			24,038
Net operating income from unconsolidated joint ventures	28,758			25,349
Depreciation and amortization expense	171,094			164,594
Transaction costs	615			460
Payroll and related costs from management services contracts	3,237			3,395
General and administrative expense	36,454			41,762
Less:
Net operating income attributable to noncontrolling interests in property partnerships	47,661			47,085
Gains (losses) from investments in securities	(5,445		)	2,969
Interest and other income	3,017			3,753
Gains (losses) on sales of real estate	410,165			(905		)
Income (loss) from unconsolidated joint ventures	(369		)	213
Direct reimbursements of payroll and related costs from management services contracts	3,237			3,395
Development and management services revenue	7,879			9,277
Company’s share of Net Operating Income	$	452,750		$	425,979

Boston Properties Limited Partnership



	Three months ended March 31,
	2020			2019
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	566,333		$	113,382
Add:
Preferred distributions	2,625			2,625
Noncontrolling interests in property partnerships	19,486			18,830
Interest expense	101,591			101,009
Impairment loss	—			22,272
Net operating income from unconsolidated joint ventures	28,758			25,349
Depreciation and amortization expense	169,285			162,682
Transaction costs	615			460
Payroll and related costs from management services contracts	3,237			3,395
General and administrative expense	36,454			41,762
Less:
Net operating income attributable to noncontrolling interests in property partnerships	47,661			47,085
Gains (losses) from investments in securities	(5,445		)	2,969
Interest and other income	3,017			3,753
Gains (losses) on sales of real estate	419,654			(905		)
Income (loss) from unconsolidated joint ventures	(369		)	213
Direct reimbursements of payroll and related costs from management services contracts	3,237			3,395
Development and management services revenue	7,879			9,277
Company’s share of Net Operating Income	$	452,750		$	425,979

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, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains (losses) from investments in securities, interest and other income, gains (losses) on sales of real estate, income (loss) 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 its 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.

The Company’s internal reporting utilizes its share of NOI, which includes its share of NOI from consolidated and unconsolidated joint ventures, which is a non-GAAP financial measure that is calculated as the consolidated

amount, plus the Company’s share of the amount from the Company’s unconsolidated joint ventures (calculated based upon the Company’s economic percentage ownership interest and, in some cases, after priority allocations), minus the Company’s partners’ share of the amount from the Company’s consolidated joint ventures (calculated based upon the partners’ economic percentage ownership interests and, in some cases, after priority allocations, income allocation to private REIT shareholders and their share of fees due to the Company). The Company’s share of NOI from unconsolidated joint ventures does not include its share of gains on sale of real estate from unconsolidated joint ventures, which is included within Income (Loss) From Unconsolidated Joint Ventures in the Company’s Consolidated Statements of Operations. Management utilizes its share of NOI in assessing its performance as the Company has several significant joint ventures and, in some cases, the Company exercises significant influence over, but does not control, the joint venture, in which case GAAP requires that the Company account for the joint venture entity using the equity method of accounting and the Company does not consolidate it for financial reporting purposes. In other cases, GAAP requires that the Company consolidate the venture even though the Company’s partner(s) owns a significant percentage interest. As a result, the presentations of the Company’s share of NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company’s financial information presented in accordance with GAAP.

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, interest expense, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains (losses) from investments in securities, interest and other income, gains (losses) on sales of real estate, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI and are provided as reconciling items to the Company’s reconciliations of its share of NOI to net income attributable to common shareholders/unitholders.

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by geographic area. The Company’s segments by geographic area are Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company also presents information for each segment by property type, including Office, Residential and Hotel.

Included within the Office property type are commercial office and retail leases, as well as parking revenue. Upon the adoption of ASC 842, any write-off for bad debt, including accrued rent, will be shown as a reduction to lease revenue. The degree to which our commercial and retail tenants’ and parking operators’ businesses are or will continue to be negatively impacted by the ongoing COVID-19 pandemic by measures intended to reduce its spread, such as mandatory business closures and “stay-at-home” orders, could result in a reduction in the Company’s cash flows or require that the Company write-off a tenant’s accrued rent balance, and this could have a material adverse effect on lease revenue and thus the results of the Company’s Office property type.

In addition, as a result of COVID-19, the Boston Marriott Cambridge was closed in March 2020. The Company is uncertain as to when the hotel will re-open, and the continued closure is expected to have a material impact on the hotel’s operations and thus the results of the Company’s Hotel property type. See Item 1A: “Risk Factors” for additional details.

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

For the three months ended March 31, 2020:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	239,498		$	—		$	255,286		$	136,739		$	93,136		$	724,659
Residential	4,068			—			—			—			5,888			9,956
Hotel	6,825			—			—			—			—			6,825
Total	250,391			—			255,286			136,739			99,024			741,440
% of Grand Totals	33.77		%	—		%	34.43		%	18.44		%	13.36		%	100.00		%
Rental Expenses:
Office	82,545			—			99,140			42,569			34,648			258,902
Residential	1,340			—			—			—			2,724			4,064
Hotel	6,821			—			—			—			—			6,821
Total	90,706			—			99,140			42,569			37,372			269,787
% of Grand Totals	33.62		%	—		%	36.75		%	15.78		%	13.85		%	100.00		%
Net operating income	$	159,685		$	—		$	156,146		$	94,170		$	61,652		$	471,653
% of Grand Totals	33.85		%	—		%	33.11		%	19.97		%	13.07		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(10,663		)	—			(36,998		)	—			—			(47,661		)
Add: Company’s share of net operating income from unconsolidated joint ventures	3,099			15,930			756			3,159			5,814			28,758
Company’s share of net operating income	$	152,121		$	15,930		$	119,904		$	97,329		$	67,466		$	452,750
% of Grand Totals	33.60		%	3.52		%	26.48		%	21.50		%	14.90		%	100.00		%

_______________


(1)	Rental Revenue is equal to Total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.

For the three months ended March 31, 2019:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	217,411		$	—		$	258,631		$	124,055		$	96,345		$	696,442
Residential	2,701			—			—			—			5,014			7,715
Hotel	8,938			—			—			—			—			8,938
Total	229,050			—			258,631			124,055			101,359			713,095
% of Grand Totals	32.12		%	—		%	36.27		%	17.40		%	14.21		%	100.00		%
Rental Expenses:
Office	79,500			—			96,971			41,125			36,147			253,743
Residential	1,206			—			—			—			2,568			3,774
Hotel	7,863			—			—			—			—			7,863
Total	88,569			—			96,971			41,125			38,715			265,380
% of Grand Totals	33.37		%	—		%	36.54		%	15.50		%	14.59		%	100.00		%
Net operating income	$	140,481		$	—		$	161,660		$	82,930		$	62,644		$	447,715
% of Grand Totals	31.38		%	—		%	36.11		%	18.52		%	13.99		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(9,373		)	—			(37,264		)	(448		)	—			(47,085		)
Add: Company’s share of net operating income from unconsolidated joint ventures	772			15,708			1,786			—			7,083			25,349
Company’s share of net operating income	$	131,880		$	15,708		$	126,182		$	82,482		$	69,727		$	425,979
% of Grand Totals	30.96		%	3.69		%	29.62		%	19.36		%	16.37		%	100.00		%

_______________

(1)

Rental Revenue is equal to total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.