Segment Reporting

Reportable Segments

During the year ended December 31, 2017, we substantially completed the Medical Office Portfolio Disposition, which resulted in all of our in-service medical office properties being classified within discontinued operations with the exception of a property that did not meet the criteria for classification as held for sale at December 31, 2017 (see Note 6). As a result of this transaction, our medical office properties are no longer presented as a separate reportable segment at December 31, 2017, with substantially all current and prior period operating results being classified within discontinued operations. The remaining medical office property included in continuing operations no longer meets the quantitative thresholds for separate presentation, and is classified as part of our Non-Reportable Rental Operations. Properties that are not included in our reportable segments, because they do not by themselves meet the quantitative thresholds for separate presentation as a reportable segment, are generally referred to as Non-Reportable Rental Operations. Our Non-Reportable Rental Operations primarily include our remaining office properties and medical office property at December 31, 2017.

As of December 31, 2017, after consideration of the Medical Office Portfolio Disposition, we had two reportable operating segments, the first consisting of the ownership and rental of industrial real estate investments. Our ongoing investments in new real estate investments are determined largely upon anticipated geographic trends in supply and demand for industrial buildings, as well as the real estate needs of our major tenants that operate on a national level. Our strategic initiatives and our allocation of resources have been historically based upon allocation among product types, which was consistent with our designation of reportable segments, and after having sold nearly all of our office and medical office properties we intend to increase our investment in industrial properties and treat them as a single operating and reportable segment. The operations of our industrial properties, as well as our few properties that are not of the industrial product type (“Non-Reportable Rental Operations”), are collectively referred to as "Rental Operations."

Our second reportable operating segment consists of various real estate services such as property management, asset management, maintenance, leasing, development, general contracting and construction management to third-party property owners and joint ventures, and is collectively referred to as "Service Operations." The Service Operations segment is identified as one single operating segment because the lowest level of financial results reviewed by our chief operating decision maker are the result for the Service Operations segment in total. Further, our reportable segments are managed separately because each segment requires different operating strategies and management expertise.

Revenues by Reportable Segment

The following table shows the revenues for each of the reportable segments, as well as a reconciliation to consolidated revenues, for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
Revenues
Rental Operations:
Industrial	$	661,226	$	583,019	$	556,903
Non-Reportable Rental Operations	24,101		50,684		94,417
Service Operations	94,420		88,810		133,367
Total segment revenues	779,747		722,513		784,687
Other revenue	1,187		7,998		7,489
Consolidated revenue from continuing operations	780,934		730,511		792,176
Discontinued operations	87,185		172,716		189,805
Consolidated revenue	$	868,119	$	903,227	$	981,981

Supplemental Performance Measure

PNOI is the non-GAAP supplemental performance measure that we use to evaluate the performance of, and to allocate resources among, the real estate investments in the reportable and operating segments that comprise our Rental Operations. PNOI for our Rental Operations segments is comprised of rental revenues from continuing operations less rental expenses and real estate taxes from continuing operations, along with certain other adjusting items (collectively referred to as "Rental Operations revenues and expenses excluded from PNOI," as shown in the following table). Additionally, we do not allocate interest expense, depreciation expense and certain other non-property specific revenues and expenses (collectively referred to as "Non-Segment Items," as shown in the following table) to our individual operating segments.

We evaluate the performance of our Service Operations reportable segment using net income or loss, as allocated to that segment ("Earnings from Service Operations").

The following table shows a reconciliation of our segment-level measures of profitability to consolidated income from continuing operations before income taxes, for the years ended December 31, 2017, 2016 and 2015 (in thousands and excluding discontinued operations):



	2017			2016			2015
PNOI
Industrial	$	482,025		$	423,924		$	380,213
Non-Reportable Rental Operations	5,031			5,934			9,282
PNOI, excluding all sold/held for sale properties	487,056			429,858			389,495
PNOI from sold/held-for-sale properties included in continuing operations	6,537			37,679			77,150
PNOI, continuing operations	493,593			467,537			466,645

Earnings from Service Operations	4,963			8,343			14,197

Rental Operations revenues and expenses excluded from PNOI:
Straight-line rental income and expense, net	13,585			7,897			14,595
Revenues related to lease buyouts	10,816			1,725			1,567
Amortization of lease concessions and above and below market rents	(1,732		)	(2,126		)	(6,113		)
Intercompany rents and other adjusting items	(304		)	(2,640		)	(3,947		)
Non-Segment Items:
Equity in earnings (loss) of unconsolidated joint ventures	63,310			47,403			(3,304		)
Gain on dissolution of unconsolidated joint venture	—			30,697			—
Promote income	20,007			26,299			—
Interest expense	(87,003		)	(112,757		)	(138,258		)
Depreciation and amortization expense	(273,561		)	(242,557		)	(245,764		)
Gain on sale of properties	113,669			162,093			229,702
Impairment charges	(4,481		)	(18,018		)	(22,932		)
Interest and other income, net	14,721			4,035			4,667
General and administrative expenses	(54,944		)	(55,389		)	(58,565		)
Gain on land sales	9,244			9,865			35,054
Other operating expenses	(2,554		)	(3,864		)	(5,947		)
Loss on extinguishment of debt	(26,104		)	(33,934		)	(85,713		)
Acquisition-related activity	—			7,176			(8,499		)
Other non-segment revenues and expenses, net	(2,990		)	(3,953		)	(3,065		)
Income from continuing operations before income taxes	$	290,235		$	297,832		$	184,320

The most comparable GAAP measure to PNOI is income from continuing operations before income taxes. PNOI excludes expenses that materially impact our overall results of operations and, therefore, should not be considered as a substitute for income from continuing operations before income taxes or any other measures derived in accordance with GAAP. Furthermore, PNOI may not be comparable to other similarly titled measures of other companies.

Assets by Reportable Segment

The assets for each of the reportable segments at December 31, 2017 and 2016 were as follows (in thousands):



	December 31, 2017		December 31, 2016
Assets
Rental Operations:
Industrial	$	6,312,777	$	4,828,984
Non-Reportable Rental Operations	136,927		1,501,737
Service Operations	142,603		127,154
Total segment assets	6,592,307		6,457,875
Non-segment assets	795,889		314,127
Consolidated assets	$	7,388,196	$	6,772,002

Tenant improvements and leasing costs to re-let rental space that we previously leased to tenants are referred to as second generation expenditures. Building improvements that are not specific to any tenant but serve to improve integral components of our real estate properties are also second generation expenditures. In addition to revenues and PNOI, we also review our second generation capital expenditures in measuring the performance of our individual Rental Operations segments. We review these expenditures to determine the costs associated with re-leasing vacant space and maintaining the condition of our properties. Our second generation capital expenditures by segment are summarized as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
Second Generation Capital Expenditures
Industrial	$	50,721	$	51,785	$	45,716
Non-Reportable Rental Operations	1,833		7,564		16,184
Total	$	52,554	$	59,349	$	61,900

Both our first and second generation expenditures vary significantly between leases on a per square foot basis, dependent upon several factors including the product type, the nature of a tenant's operations, the specific physical characteristics of each individual property as well as the market in which the property is located.