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 and six months ended June 30, 2016 and 2015 was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(Unaudited)
Office real estate
Rental revenues	$	5,299	$	8,052	$	10,820	$	15,755
Rental expenses	1,298		1,704		2,754		3,458
Real estate taxes	526		803		1,065		1,494
Segment net operating income	3,475		5,545		7,001		10,803
Retail real estate
Rental revenues	14,113		7,567		27,145		14,192
Rental expenses	2,220		1,346		4,556		2,745
Real estate taxes	1,330		704		2,614		1,270
Segment net operating income	10,563		5,517		19,975		10,177
Multifamily residential real estate
Rental revenues	4,839		4,289		9,569		8,151
Rental expenses	1,553		1,581		3,090		3,188
Real estate taxes	526		452		1,052		852
Segment net operating income	2,760		2,256		5,427		4,111
General contracting and real estate services
Segment revenues	33,200		47,066		70,003		76,137
Segment expenses	32,025		45,283		67,062		73,425
Segment gross profit	1,175		1,783		2,941		2,712
Net operating income	$	17,973	$	15,101	$	35,344	$	27,803

General contracting and real estate services revenues for the three and six months ended June 30, 2016 exclude revenue related to intercompany construction contracts of $17.9 million and $32.9 million, respectively. General contracting and real estate services expenses for the three and six months ended June 30, 2016 exclude expenses related to intercompany construction contracts of $17.8 million and $32.6 million, respectively. General contracting and real estate services expenses for the three and six months ended June 30, 2016 include noncash stock compensation expense of less than $0.1 million and $0.3 million, respectively.

General contracting and real estate services revenues for the three and six months ended June 30, 2015 exclude revenue from intercompany construction contracts of $8.0 million and $16.5 million, respectively. General contracting and real estate services expenses for the three and six months ended June 30, 2015 exclude expenses for intercompany construction contracts of $8.0 million and $16.4 million, respectively. General contracting and real estate services expenses for the three and six months ended June 30, 2015 include noncash stock compensation expense of less than $0.1 million and $0.1 million, respectively.

The following table reconciles net operating income to net income for the three and six months ended June 30, 2016 and 2015 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Unaudited)
Net operating income	$	17,973		$	15,101		$	35,344		$	27,803
Depreciation and amortization	(8,602		)	(5,766		)	(16,751		)	(10,674		)
General and administrative expenses	(2,224		)	(2,096		)	(4,708		)	(4,424		)
Acquisition, development and other pursuit costs	(437		)	(591		)	(1,141		)	(762		)
Impairment charges	—			(23		)	(35		)	(23		)
Interest income	722			—			904			—
Interest expense	(3,978		)	(3,358		)	(7,769		)	(6,404		)
Loss on extinguishment of debt	—			(180		)	—			(407		)
Gain on real estate dispositions and acquisitions	13			7,210			26,687			13,407
Change in fair value of interest rate derivatives	(373		)	—			(2,762		)	—
Other (expense) income	43			(16		)	119			(148		)
Income tax benefit (provision)	(6		)	4			(224		)	35
Net income	$	3,131		$	10,285		$	29,664		$	18,403

General and administrative expenses for the three and six months ended June 30, 2016 include noncash stock compensation expense of $0.2 million and $0.5 million, respectively. General and administrative expenses for the three and six months ended June 30, 2015 include noncash stock compensation expense of $0.2 million and $0.4 million, respectively.