Segment Information

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

12. 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 and nine months ended September 30, 2020 and 2019.

Boston Properties, Inc.

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	89,854	$	107,771	$	854,541	$	370,200
Add:
Preferred dividends	2,625		2,625		7,875		7,875
Noncontrolling interest—common units of the Operating Partnership	10,020		12,504		97,090		43,133
Noncontrolling interests in property partnerships	15,561		18,470		34,280		54,782
Interest expense	110,993		106,471		319,726		309,837
Loss from early extinguishment of debt	—		28,010		—		28,010
Impairment loss	—		—		—		24,038
Net operating income from unconsolidated joint ventures	24,938		23,065		81,607		73,129
Depreciation and amortization expense	166,456		165,862		515,738		507,867
Transaction costs	307		538		1,254		1,415
Payroll and related costs from management services contracts	2,896		2,429		8,617		8,227
General and administrative expense	27,862		31,147		102,059		107,980
Less:
Net operating income attributable to noncontrolling interests in property partnerships	42,160		46,249		122,248		138,896
Gains from investments in securities	1,858		106		965		4,240
Interest and other income (loss)	(45)		7,178		4,277		14,546
Gains (losses) on sales of real estate	(209)		(15)		613,723		766
Income (loss) from unconsolidated joint ventures	(6,873)		(649)		(5,410)		47,528
Direct reimbursements of payroll and related costs from management services contracts	2,896		2,429		8,617		8,227
Development and management services revenue	7,281		10,303		23,285		29,566
Company’s share of Net Operating Income	$	404,444	$	433,291	$	1,255,082	$	1,292,724

Boston Properties Limited Partnership

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	101,624	$	122,117	$	969,932	$	421,214
Add:
Preferred distributions	2,625		2,625		7,875		7,875
Noncontrolling interests in property partnerships	15,561		18,470		34,280		54,782
Interest expense	110,993		106,471		319,726		309,837
Loss from early extinguishment of debt	—		28,010		—		28,010
Impairment loss	—		—		—		22,272
Net operating income from unconsolidated joint ventures	24,938		23,065		81,607		73,129
Depreciation and amortization expense	164,706		164,020		510,400		501,901
Transaction costs	307		538		1,254		1,415
Payroll and related costs from management services contracts	2,896		2,429		8,617		8,227
General and administrative expense	27,862		31,147		102,059		107,980
Less:
Net operating income attributable to noncontrolling interests in property partnerships	42,160		46,249		122,248		138,896
Gains from investments in securities	1,858		106		965		4,240
Interest and other income (loss)	(45)		7,178		4,277		14,546
Gains (losses) on sales of real estate	(209)		(15)		626,686		915
Income (loss) from unconsolidated joint ventures	(6,873)		(649)		(5,410)		47,528
Direct reimbursements of payroll and related costs from management services contracts	2,896		2,429		8,617		8,227
Development and management services revenue	7,281		10,303		23,285		29,566
Company’s share of Net Operating Income	$	404,444	$	433,291	$	1,255,082	$	1,292,724

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, loss from early extinguishment of debt, 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 from investments in securities, interest and other income (loss), 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 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, loss from early extinguishment of debt, impairment loss, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains from investments in securities, interest and other income (loss), 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 recorded as a reduction to lease revenue. As a result of COVID-19, during the three and nine months ended September 30, 2020, the Company wrote off approximately $4.1 million and $41.5 million, respectively, related to accrued rent balances and approximately $3.4 million and $22.3 million, respectively, related to accounts receivable balances. The write-offs were for tenants, primarily in the retail sector, that either terminated their leases or that the Company considered their accrued rent and/or accounts receivable balances no longer probable of collection.

In addition, parking and other revenue for the three and nine months ended September 30, 2020 decreased by approximately $9.3 million and $22.0 million, respectively, compared to 2019. These decreases were primarily in transient and monthly parking revenue.

The degree to which the Company’s commercial and retail tenants’ and parking operators’ businesses are, or will continue to be, negatively impacted by COVID-19, including 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 additional accrued rent and/or accounts receivable balances, and this could have a material adverse effect on lease revenue and thus the results of the Company’s Office property type.

The Boston Marriott Cambridge closed in March 2020 due to COVID-19 and did not re-open until October 2, 2020. The hotel is operating at a monthly deficit. The closing of the hotel for more than two fiscal quarters, weak demand and low occupancy since its re-opening, have had, and are expected to continue to have, a material adverse effect on the hotel’s operations and thus the results of the Company’s Hotel property type.

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

For the three months ended September 30, 2020:

	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	225,652		$	—		$	239,535		$	128,165		$	79,931		$	673,283
Residential	3,043			—			—			23			6,652			9,718
Hotel	90			—			—			—			—			90
Total	228,785			—			239,535			128,188			86,583			683,091
% of Grand Totals	33.48		%	—		%	35.07		%	18.77		%	12.68		%	100.00		%
Rental Expenses:
Office	81,890			—			97,904			41,518			31,994			253,306
Residential	1,350			—			—			740			2,865			4,955
Hotel	3,164			—			—			—			—			3,164
Total	86,404			—			97,904			42,258			34,859			261,425
% of Grand Totals	33.05		%	—		%	37.46		%	16.16		%	13.33		%	100.00		%
Net operating income	$	142,381		$	—		$	141,631		$	85,930		$	51,724		$	421,666
% of Grand Totals	33.77		%	—		%	33.58		%	20.38		%	12.27		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(10,228)			—			(31,932)			—			—			(42,160)
Add: Company’s share of net operating income from unconsolidated joint ventures	2,764			11,953			539			4,098			5,584			24,938
Company’s share of net operating income	$	134,917		$	11,953		$	110,238		$	90,028		$	57,308		$	404,444
% of Grand Totals	33.35		%	2.96		%	27.26		%	22.26		%	14.17		%	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 September 30, 2019:

	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	224,345		$	—		$	251,806		$	136,290		$	95,370		$	707,811
Residential	3,809			—			—			—			6,187			9,996
Hotel	13,014			—			—			—			—			13,014
Total	241,168			—			251,806			136,290			101,557			730,821
% of Grand Totals	33.00		%	—		%	34.45		%	18.65		%	13.90		%	100.00		%
Rental Expenses:
Office	81,278			—			98,698			45,900			35,716			261,592
Residential	1,244			—			—			—			2,767			4,011
Hotel	8,743			—			—			—			—			8,743
Total	91,265			—			98,698			45,900			38,483			274,346
% of Grand Totals	33.27		%	—		%	35.97		%	16.73		%	14.03		%	100.00		%
Net operating income	$	149,903		$	—		$	153,108		$	90,390		$	63,074		$	456,475
% of Grand Totals	32.84		%	—		%	33.54		%	19.80		%	13.82		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(10,379)			—			(35,870)			—			—			(46,249)
Add: Company’s share of net operating income from unconsolidated joint ventures	1,686			14,702			(27)			—			6,704			23,065
Company’s share of net operating income	$	141,210		$	14,702		$	117,211		$	90,390		$	69,778		$	433,291
% of Grand Totals	32.60		%	3.39		%	27.05		%	20.86		%	16.10		%	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 nine months ended September 30, 2020:

	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	683,501		$	—		$	699,063		$	393,137		$	256,904		$	2,032,605
Residential	10,512			—			—			23			18,541			29,076
Hotel	7,014			—			—			—			—			7,014
Total	701,027			—			699,063			393,160			275,445			2,068,695
% of Grand Totals	33.89		%	—		%	33.79		%	19.01		%	13.31		%	100.00		%
Rental Expenses:
Office	240,129			—			285,411			123,168			99,322			748,030
Residential	3,925			—			—			740			8,319			12,984
Hotel	11,958			—			—			—			—			11,958
Total	256,012			—			285,411			123,908			107,641			772,972
% of Grand Totals	33.12		%	—		%	36.92		%	16.03		%	13.93		%	100.00		%
Net operating income	$	445,015		$	—		$	413,652		$	269,252		$	167,804		$	1,295,723
% of Grand Totals	34.35		%	—		%	31.92		%	20.78		%	12.95		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(31,467)			—			(90,781)			—			—			(122,248)
Add: Company’s share of net operating income from unconsolidated joint ventures	8,490			42,909			2,110			11,384			16,714			81,607
Company’s share of net operating income	$	422,038		$	42,909		$	324,981		$	280,636		$	184,518		$	1,255,082
% of Grand Totals	33.63		%	3.42		%	25.89		%	22.36		%	14.70		%	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 nine months ended September 30, 2019:

	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	659,717		$	—		$	761,993		$	391,851		$	288,201		$	2,101,762
Residential	9,732			—			—			—			16,978			26,710
Hotel	36,796			—			—			—			—			36,796
Total	706,245			—			761,993			391,851			305,179			2,165,268
% of Grand Totals	32.62		%	—		%	35.19		%	18.10		%	14.09		%	100.00		%
Rental Expenses:
Office	238,438			—			292,478			130,733			107,535			769,184
Residential	3,729			—			—			—			8,178			11,907
Hotel	25,686			—			—			—			—			25,686
Total	267,853			—			292,478			130,733			115,713			806,777
% of Grand Totals	33.20		%	—		%	36.26		%	16.20		%	14.34		%	100.00		%
Net operating income	$	438,392		$	—		$	469,515		$	261,118		$	189,466		$	1,358,491
% of Grand Totals	32.27		%	—		%	34.56		%	19.22		%	13.95		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(29,783)			—			(108,665)			(448)			—			(138,896)
Add: Company’s share of net operating income from unconsolidated joint ventures	3,276			45,864			3,455			—			20,534			73,129
Company’s share of net operating income	$	411,885		$	45,864		$	364,305		$	260,670		$	210,000		$	1,292,724
% of Grand Totals	31.87		%	3.55		%	28.18		%	20.16		%	16.24		%	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.