Segment information

9 Months Ended

Sep. 30, 2020

The Company's Chief Operating Decision Maker, or CODM, evaluates the performance of the Company's business operations and allocates financial and other resources by assessing the financial results and outlook for future performance across four distinct segments: residential properties, real estate related financing, New Market Properties and Preferred Office Properties.

Residential Properties - consists of the Company's portfolio of residential multifamily communities and student housing properties. Multifamily Communities and Student Housing Properties were previously presented as separate reporting segments. The Company has combined these two segments into the Residential Properties reportable segment.

Financing - consists of the Company's portfolio of real estate loans, bridge loans, and other instruments deployed by the Company to partially finance the development, construction, and prestabilization carrying costs of new multifamily communities and other real estate and real estate related assets. Excluded from the financing segment are consolidated assets of VIEs and financial results of the Company's Dawson Marketplace grocery-anchored shopping center real estate loan, which are included in the New Market Properties segment.

New Market Properties - consists of the Company's portfolio of grocery-anchored shopping centers, which are owned by New Market Properties, LLC, a subsidiary of the Company, as well as the financial results from the Company's Dawson Marketplace real estate loan, that was repaid and extinguished on February 3, 2020.

Preferred Office Properties - consists of the Company's portfolio of office buildings, which are owned by Preferred Office Properties, LLC, a wholly-owned subsidiary of the Company.

The CODM monitors net operating income (“NOI”) on a segment and a consolidated basis as a key performance measure for its operating segments. NOI is a non-GAAP measure that is defined as rental and other property revenue from real estate assets plus interest income from its loan portfolio less total property operating and maintenance expenses, property management fees, real estate taxes, property insurance, and general and administrative expenses. The CODM uses NOI as a measure of operating performance because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs, acquisition expenses, and other expenses generally incurred at the corporate level.

The following tables present the Company's assets, revenues, and NOI results by reportable segment, as well as a reconciliation from NOI to net income (loss). The assets attributable to 'Other' primarily consist of deferred offering costs recorded but not yet reclassified as reductions of stockholders' equity and cash balances at the Company and Operating Partnership levels.


(In thousands)	September 30, 2020		December 31, 2019

Assets:
Residential properties	$	2,146,061	$	2,047,905
Financing	354,130		409,226
New Market Properties	1,074,584		1,125,230
Preferred Office Properties	1,130,962		1,123,212
Other	25,325		64,987
Consolidated assets	$	4,731,062	$	4,770,560

Total capitalized expenditures (inclusive of additions to construction in progress, but exclusive of the purchase price of acquisitions) for the three-month and nine-month periods ended September 30, 2020 and 2019 were as follows:


(In thousands)	Three-month periods ended September 30,				Nine-month periods ended September 30,
	2020		2019		2020		2019

Capitalized expenditures:
Residential properties	$	4,348	$	4,709	$	10,938	$	11,377
New Market Properties	2,017		2,699		4,557		5,703
Preferred Office Properties	5,779		3,265		22,458		12,040
Total	$	12,144	$	10,673	$	37,953	$	29,120

Second-generation capital expenditures exclude those expenditures made in our office building portfolio (i) to lease space to "first generation" tenants (i.e. leasing capital for existing vacancies and known move-outs at the time of acquisition), (ii) to bring recently acquired properties up to our Class A ownership standards (and which amounts were underwritten into the total investment at the time of acquisition), (iii) for property redevelopments and repositionings (iv) to newly leased space which had been vacant for more than one year and (v) for building improvements that are recoverable from future operating cost savings.

Total revenues by reportable segment of the Company were:


(In thousands)	Three-month periods ended September 30,				Nine-month periods ended September 30,
	2020		2019		2020		2019
Revenues

Rental and other property revenues:
Residential properties	$	60,643	$	56,008	$	180,325	$	162,669
New Market Properties	26,707		25,270		80,815		70,211
Preferred Office Properties (1)	27,810		24,215		81,009		68,006
Total rental and other property revenues	115,160		105,493		342,149		300,886

Financing revenues	11,271		14,710		38,115		44,675
Miscellaneous revenues	266		—		812		—
Consolidated revenues	$	126,697	$	120,203	$	381,076	$	345,561

(1) Included in rental revenues for our Preferred Office Properties segment is the amortization of deferred revenue for tenant-funded leasehold improvements from a major tenant in our Three Ravinia and Westridge office buildings. As of September 30, 2020, the Company has recorded deferred revenue in an aggregate amount of $47.0 million in connection with such improvements. The remaining balance to be recognized is approximately $36.9 million which is included in the deferred revenues line on the consolidated balance sheets at September 30, 2020. These total costs will be amortized over the lesser of the useful lives of the improvements or the individual lease terms. The Company recorded non-cash revenue of approximately $2.8 million and $2.8 million for the nine-month periods ended September 30, 2020 and 2019, respectively.

The Company expects that negative impacts from the COVID-19 pandemic affecting its in-line retail tenants within its New Market Properties segment may continue throughout 2020. Of our over 900 retail tenants, the Company has 11 leases with six companies that have entered bankruptcy proceedings and in the aggregate this constitutes approximately 1% of the total recurring rental revenue for the New Market Properties segment.

The chief operating decision maker utilizes segment net operating income, or Segment NOI, in evaluating the performance of its operating segments. Segment NOI represents total property revenues less total property operating expenses, excluding depreciation and amortization, for all properties held during the period. Segment NOI for the Company's financing segment consists of interest revenues from the Company's real estate loan investments and notes and lines of credit receivable, as well as revenues from terminated property purchase options. Management believes that Segment NOI is a helpful tool in evaluating the operating performance of the segments because it measures the core operations of property performance by excluding corporate level expenses and other items not directly related to property operating performance.

Segment NOI for each reportable segment for the three-month and nine-month periods ended September 30, 2020 and 2019 were as follows:


	Three-month periods ended September 30,				Nine-month periods ended September 30,
(In thousands)	2020		2019		2020		2019
Segment net operating income (Segment NOI)

Residential Properties	$	33,267	$	30,191	$	103,414	$	90,825
Financing	11,245		14,710		38,089		44,675
New Market Properties	19,235		18,211		57,381		50,441
Preferred Office Properties	20,291		17,236		59,363		48,745
Miscellaneous revenues	266		—		812		—

Consolidated segment net operating income	84,304		80,348		259,059		234,686

Interest expense:
Residential Properties	15,739		16,108		46,537		46,729
New Market Properties	6,539		6,422		19,876		18,123
Preferred Office Properties	6,699		5,909		20,256		16,617
Financing	902		360		3,939		1,697
Depreciation and amortization:
Residential Properties	26,516		23,869		77,745		74,304
New Market Properties	12,688		11,677		39,410		32,644
Preferred Office Properties	12,590		10,693		35,941		30,243
Equity compensation to directors and executives	582		305		1,058		922
Management fees, net of waived fees	—		5,530		1,963		16,144
Management Internalization	577		818		179,828		1,143
Provision for expected credit losses	(152)		—		5,463		—
Change in net assets of consolidated VIE	—		(591)		—		(1,316)
(Gain) / loss on sale of real estate	(3,261)		—		(3,261)		—
(Gain) / loss on trading investment, net	—		—		—		(4)
(Gain) / loss on sale of real estate loan investment	—		—		—		(747)
(Gain) / loss from land condemnation, net	(49)		—		(528)		—
(Gain) / loss on extinguishment of debt	518		15		6,674		84
Loss from unconsolidated joint venture	120		—		120		—
Corporate G&A and Other	7,898		1,370		23,113		4,197

Net income (loss)	$	(3,602)	$	(2,137)	$	(199,075)	$	(6,094)