3.	*Segments*

Net operating income (segment revenues minus segment expenses) is the measure used by the Company’s chief operating decision-maker to assess segment performance. Net operating income is not a measure of operating income or cash flows from operating activities as measured by GAAP and is not indicative of cash available to fund cash needs. As a result, net operating income should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate net operating income in the same manner. The Company considers net operating income to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate and construction businesses.

Net operating income of the Company’s reportable segments for the three months ended March 31, 2015 and 2014 was as follows (in thousands):


	Three Months Ended March 31,
	2015		2014
	(Unaudited)
Office real estate
Rental revenues	$	7,703	$	6,549
Rental expenses		1,754		1,587
Real estate taxes		691		544

Segment net operating income		5,258		4,418

Retail real estate
Rental revenues		6,625		5,770
Rental expenses		1,399		1,322
Real estate taxes		566		503

Segment net operating income		4,660		3,945

Multifamily residential real estate
Rental revenues		3,862		2,874
Rental expenses		1,607		1,067
Real estate taxes		400		296

Segment net operating income		1,855		1,511

General contracting and real estate services
Segment revenues		29,071		19,234
Segment expenses		28,142		17,985

Segment net operating income		929		1,249

Net operating income	$	12,702	$	11,123

General contracting and real estate services revenues for the three months ended March 31, 2015 and 2014 exclude revenue related to intercompany construction contracts of $8.5 million and $18.7 million, respectively. General contracting and real estate services expenses for the three months ended March 31, 2015 and 2014 exclude expenses related to intercompany construction contracts of $8.4 million and $18.5 million, respectively. General contracting and real estate services expenses for both the three months ended March 31, 2015 and 2014 include noncash stock compensation of $0.1 million.

The following table reconciles net operating income to net income for the three months ended March 31, 2015 and 2014 (in thousands):


	Three Months Ended March 31,
	2015			2014
	(Unaudited)
Net operating income	$	12,702		$	11,123
Depreciation and amortization		(4,908	)		(3,969	)
General and administrative expenses		(2,328	)		(2,046	)
Acquisition, development and other pursuit costs		(171	)		—
Interest expense		(3,046	)		(2,565	)
Loss on extinguishment of debt		(227	)		—
Gain on real estate dispositions		6,197			—
Other (loss) income		(132	)		112
Income tax benefit (provision)		31			(149	)

Net income	$	8,118		$	2,506

General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties and general contracting and real estate services businesses. General and administrative expenses include office personnel salaries and benefits, bank fees, accounting fees, legal fees and other corporate office expenses. General and administrative expenses for the three months ended March 31, 2015 and 2014 include noncash stock compensation of $0.3 million and $0.2 million, respectively.