14. 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 years ended December 31, 2017, 2016 and 2015.

Boston Properties, Inc.



	Year ended December 31,
	2017		2016			2015
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	451,939	$	502,285		$	572,606
Add:
Preferred dividends	10,500		10,500			10,500
Noncontrolling interest—common units of the Operating Partnership	52,210		59,260			66,951
Noncontrolling interest—redeemable preferred units of the Operating Partnership	—		—			6
Noncontrolling interest in property partnerships	47,832		(2,068		)	149,855
Losses from interest rate contracts	—		140			—
Interest expense	374,481		412,849			432,196
Depreciation and amortization expense	617,547		694,403			639,542
Impairment loss	—		1,783			—
Transaction costs	668		2,387			1,259
General and administrative expense	113,715		105,229			96,319
Less:
Gains on sales of real estate	7,663		80,606			375,895
Gains (losses) from early extinguishments of debt	496		(371		)	(22,040		)
Gains (losses) from investments in securities	3,678		2,273			(653		)
Interest and other income	5,783		7,230			6,777
Gain on sale of investment in unconsolidated joint venture	—		59,370			—
Income from unconsolidated joint ventures	11,232		8,074			22,770
Development and management services income	34,605		28,284			22,554
Net Operating Income	$	1,605,435	$	1,601,302		$	1,563,931

Boston Properties Limited Partnership



	Year ended December 31,
		2017		2016			2015
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	512,866	$	575,341		$	648,748
Add:
Preferred distributions		10,500		10,500			10,500
Noncontrolling interest—redeemable preferred units		—		—			6
Noncontrolling interest in property partnerships		47,832		(2,068		)	149,855
Losses from interest rate contracts		—		140			—
Interest expense		374,481		412,849			432,196
Depreciation and amortization expense		609,407		682,776			631,549
Impairment loss		—		1,783			—
Transaction costs		668		2,387			1,259
General and administrative expense		113,715		105,229			96,319
Less:
Gains on sales of real estate		8,240		82,775			377,093
Gains (losses) from early extinguishments of debt		496		(371		)	(22,040		)
Gains (losses) from investments in securities		3,678		2,273			(653		)
Interest and other income		5,783		7,230			6,777
Gain on sale of investment in unconsolidated joint venture		—		59,370			—
Income from unconsolidated joint ventures		11,232		8,074			22,770
Development and management services income		34,605		28,284			22,554
Net Operating Income		$	1,605,435	$	1,601,302		$	1,563,931

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, losses from interest rate contracts, interest expense, depreciation and amortization, impairment loss, transaction costs and general and administrative expense less (2) gains on sales of real estate, gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures 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.

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, losses from interest rate contracts, interest expense, depreciation and amortization expense, impairment loss, transactions costs, general and administrative expense, gains on sales of real estate, gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures and development and management services income 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.

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 year ended December 31, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	776,279		$	969,371		$	345,519		$	414,103		$	2,505,272
Residential	4,745			—			—			11,851			16,596
Hotel	45,603			—			—			—			45,603
Total	826,627			969,371			345,519			425,954			2,567,471
% of Grand Totals	32.20		%	37.75		%	13.46		%	16.59		%	100.00		%
Rental Expenses:
Office	301,097			372,810			105,253			144,515			923,675
Residential	2,044			—			—			4,258			6,302
Hotel	32,059			—			—			—			32,059
Total	335,200			372,810			105,253			148,773			962,036
% of Grand Totals	34.84		%	38.76		%	10.94		%	15.46		%	100.00		%
Net operating income	$	491,427		$	596,561		$	240,266		$	277,181		$	1,605,435
% of Grand Totals	30.61		%	37.15		%	14.97		%	17.27		%	100.00		%

For the year ended December 31, 2016:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	727,265		$	1,012,518		$	318,609		$	402,561		$	2,460,953
Residential	4,812			—			—			11,887			16,699
Hotel	44,884			—			—			—			44,884
Total	776,961			1,012,518			318,609			414,448			2,522,536
% of Grand Totals	30.80		%	40.14		%	12.63		%	16.43		%	100.00		%
Rental Expenses:
Office	282,827			363,188			100,787			135,890			882,692
Residential	2,708			—			—			4,368			7,076
Hotel	31,466			—			—			—			31,466
Total	317,001			363,188			100,787			140,258			921,234
% of Grand Totals	34.41		%	39.42		%	10.94		%	15.23		%	100.00		%
Net operating income	$	459,960		$	649,330		$	217,822		$	274,190		$	1,601,302
% of Grand Totals	28.73		%	40.55		%	13.60		%	17.12		%	100.00		%

For the year ended December 31, 2015:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	716,246		$	1,000,030		$	302,434		$	384,628		$	2,403,338
Residential	4,801			—			—			14,082			18,883
Hotel	46,046			—			—			—			46,046
Total	767,093			1,000,030			302,434			398,710			2,468,267
% of Grand Totals	31.08		%	40.52		%	12.25		%	16.15		%	100.00		%
Rental Expenses:
Office	287,341			346,897			98,206			131,581			864,025
Residential	2,006			—			—			6,221			8,227
Hotel	32,084			—			—			—			32,084
Total	321,431			346,897			98,206			137,802			904,336
% of Grand Totals	35.54		%	38.36		%	10.86		%	15.24		%	100.00		%
Net operating income	$	445,662		$	653,133		$	204,228		$	260,908		$	1,563,931
% of Grand Totals	28.50		%	41.76		%	13.06		%	16.68		%	100.00		%