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Segments
 12 Months Ended
Dec. 31, 2015
Segment Reporting  
Segments

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 each of the three years ended December 31, 2015 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31, 

 

 

 

2015

 

2014

 

2013

 

Office real estate

 

 

    

    

 

    

    

 

    

 

Rental revenues

 

$
31,534

 

$
27,827

 

$
25,794

 

Rental expenses

 

 
6,938

 

 
6,395

 

 
5,721

 

Real estate taxes

 

 
2,950

 

 
2,315

 

 
2,171

 

Segment net operating income

 

 
21,646

 

 
19,117

 

 
17,902

 

Retail real estate

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 
32,064

 

 
23,956

 

 
21,755

 

Rental expenses

 

 
5,915

 

 
5,011

 

 
4,808

 

Real estate taxes

 

 
2,928

 

 
2,097

 

 
1,971

 

Segment net operating income

 

 
23,221

 

 
16,848

 

 
14,976

 

Multifamily residential real estate

 

 

 

 

 

 

 

 

 

 

Rental revenues

 

 
17,574

 

 
12,963

 

 
9,971

 

Rental expenses

 

 
6,351

 

 
5,261

 

 
3,496

 

Real estate taxes

 

 
1,904

 

 
1,331

 

 
982

 

Segment net operating income

 

 
9,319

 

 
6,371

 

 
5,493

 

General contracting and real estate services

 

 

 

 

 

 

 

 

 

 

Segment revenues

 

 
171,268

 

 
103,321

 

 
82,516

 

Segment expenses

 

 
165,344

 

 
98,754

 

 
78,813

 

Segment gross profit

 

 
5,924

 

 
4,567

 

 
3,703

 

Net operating income

 

$
60,110

 

$
46,903

 

$
42,074

 

 

Rental expenses represent costs directly associated with the operation and management of the Company’s real estate properties. Rental expenses include asset management fees, property management fees, repairs and maintenance, insurance and utilities.

 

General contracting and real estate services revenues for each of the three years ended December 31, 2015 exclude revenue related to intercompany construction contracts of $43.1 million, $85.4 million and $35.7 million, respectively. General contracting and real estate services expenses for each of the three years ended December 31, 2015 exclude expenses related to intercompany construction contracts of $42.8 million, $84.6 million and $35.4 million, respectively. General contracting and real estate services expenses for both of the years ended December 31, 2015 and 2014 include noncash stock compensation expense of $0.2 million.

 

The following table reconciles net operating income to net income for each of the three years ended December 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31, 

 

 

 

2015

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income

 

$
60,110

    

$
46,903

    

$
42,074

 

Depreciation and amortization

 

 
(23,153)

 

 
(17,569)

 

 
(14,898)

 

General and administrative expenses

 

 
(8,397)

 

 
(7,711)

 

 
(6,937)

 

Acquisition, development and other pursuit costs

 

 
(1,935)

 

 
(229)

 

 

—

 

Impairment charges

 

 
(41)

 

 
(15)

 

 
(580)

 

Interest income

 

 
126

 

 

 —

 

 

 —

 

Interest expense

 

 
(13,333)

 

 
(10,648)

 

 
(12,303)

 

Loss on extinguishment of debt

 

 
(512)

 

 

—

 

 
(2,387)

 

Gain on real estate dispositions and acquisitions

 

 
18,394

 

 
2,211

 

 
9,460

 

Other (expense) income

 

 
(110)

 

 
(113)

 

 
297

 

Income tax benefit (provision)

 

 
34

 

 
(70)

 

 
(273)

 

Net income

 

$
31,183

 

$
12,759

 

$
14,453

 

 

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 each of the three years ended December 31, 2015 include noncash stock compensation expense of $0.7 million,  $0.7 million and $1.2 million, respectively.

 

Impairment charges recognized during each of the three years ended December 31, 2015 represent unamortized leasing or acquired intangible assets related to vacated tenants.