Business Segments

3 Months Ended

Mar. 31, 2019

NOTE 11. BUSINESS SEGMENTS

Our current business strategy includes two operating segments: Real Estate Operations and Strategic Capital. We generate revenues, earnings, net operating income and cash flows through our segments, as follows:

•

Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenues and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer relationships. Land we own and lease to customers under ground leases, along with land we lease, is also included in this segment.

•

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset management and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as reconciling items.

The following reconciliations are presented in thousands:

	Three Months Ended March 31,
		2019			2018
Revenues:
Real estate operations segment:
U.S.	$	651,869		$	499,257
Other Americas		23,865			30,431
Europe		8,557			17,202
Asia		13,956			13,805
Total real estate operations segment		698,247			560,695
Strategic capital segment:
U.S.		20,268			16,069
Other Americas		7,900			6,153
Europe		28,838			38,817
Asia		16,799			71,922
Total strategic capital segment		73,805			132,961

Total revenues		772,052			693,656

Segment net operating income:
Real estate operations segment:
U.S. (1)		471,076			369,364
Other Americas		19,053			22,923
Europe		5,544			12,459
Asia		10,672			9,769
Total real estate operations segment		506,345			414,515
Strategic capital segment:
U.S. (1)		3,327			(4,236	)
Other Americas		5,422			2,907
Europe		19,151			27,663
Asia		7,847			62,767
Total strategic capital segment		35,747			89,101

Total segment net operating income		542,092			503,616

Reconciling items:
General and administrative expenses		(69,701	)		(62,428	)
Depreciation and amortization expenses		(284,009	)		(204,081	)
Gains on real estate transactions, net		188,208			195,111
Operating income		376,590			432,218
Earnings from unconsolidated entities, net		56,666			62,656
Interest expense		(60,507	)		(47,245	)
Interest and other income, net		7,910			1,976
Foreign currency and derivative gains (losses), net		8,734			(41,094	)
Losses on early extinguishment of debt, net		(2,116	)		-
Earnings before income taxes	$	387,277		$	408,511

	March 31, 2019		December 31, 2018
Segment assets:
Real estate operations segment:
U.S.	$	28,113,087	$	27,666,200
Other Americas		1,185,389		1,712,862
Europe		1,158,984		1,040,061
Asia		763,531		1,012,253
Total real estate operations segment		31,220,991		31,431,376
Strategic capital segment (2):
U.S.		15,483		15,802
Europe		25,280		25,280
Asia		368		455
Total strategic capital segment		41,131		41,537
Total segment assets		31,262,122		31,472,913

Reconciling items:
Investments in and advances to unconsolidated entities		5,613,060		5,745,294
Assets held for sale or contribution		899,976		622,288
Lease right-of-use assets		116,012		-
Cash and cash equivalents		251,030		343,856
Other assets		249,912		233,313
Total reconciling items		7,129,990		6,944,751
Total assets	$	38,392,112	$	38,417,664

(1)	This includes compensation and personnel costs for employees who were located in the U.S. but also support other regions.

(2)	Represents management contracts and goodwill recorded in connection with business combinations associated with the Strategic Capital segment. Goodwill was $25.3 million at March 31, 2019 and December 31, 2018.