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, 2016 and 2015 was as follows (in thousands):


	Three Months Ended March 31,
	2016		2015
	(Unaudited)
Office real estate
Rental revenues	$	5,521	$	7,703
Rental expenses		1,456		1,754
Real estate taxes		539		691
Segment net operating income		3,526		5,258
Retail real estate
Rental revenues		13,032		6,625
Rental expenses		2,336		1,399
Real estate taxes		1,284		566
Segment net operating income		9,412		4,660
Multifamily residential real estate
Rental revenues		4,730		3,862
Rental expenses		1,537		1,607
Real estate taxes		526		400
Segment net operating income		2,667		1,855
General contracting and real estate services
Segment revenues		36,803		29,071
Segment expenses		35,037		28,142
Segment gross profit		1,766		929
Net operating income	$	17,371	$	12,702

General contracting and real estate services revenues for the three months ended March 31, 2016 exclude revenue related to intercompany construction contracts of $15.0 million. General contracting and real estate services expenses for the three months ended March 31, 2016 exclude expenses related to intercompany construction contracts of $14.8 million. General contracting and real estate services expenses for the three months ended March 31, 2016 include noncash stock compensation expense of less than $0.2 million.

General contracting and real estate services revenues for the three months ended March 31, 2015 exclude revenue from intercompany construction contracts of $8.5 million. General contracting and real estate services expenses for the three months ended March 31, 2015 exclude expenses for intercompany construction contracts of $8.4 million. General contracting and real estate services expenses for the three months ended March 31, 2015 include noncash stock compensation expense of less than $0.1 million.

The following table reconciles net operating income to net income for the three months ended March 31, 2016 and 2015 (in thousands):


	Three Months Ended March 31,
	2016		2015
	(Unaudited)
Net operating income	$	17,371	$	12,702
Depreciation and amortization		(8,149)		(4,908)
General and administrative expenses		(2,484)		(2,328)
Acquisition, development and other pursuit costs		(704)		(171)
Impairment charges		(35)		—
Interest income		182		—
Interest expense		(3,791)		(3,046)
Loss on extinguishment of debt		—		(227)
Gain on real estate dispositions and acquisitions		26,674		6,197
Change in fair value of interest rate derivatives		(2,389)		(147)
Other (expense) income		76		15
Income tax benefit (provision)		(218)		31
Net income	$	26,533	$	8,118

General and administrative expenses for the three months ended March 31, 2016 include noncash stock compensation expense of $0.3 million. General and administrative expenses for the three months ended March 31, 2015 include noncash stock compensation expense of $0.3 million.