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, 2017 and 2016 was as follows (in thousands):



		Three Months Ended March 31,
		2017		2016
	(Unaudited)
Office real estate
Rental revenues		$	4,906	$	5,521
Rental expenses		1,325		1,456
Real estate taxes		450		539
Segment net operating income		3,131		3,526
Retail real estate
Rental revenues		15,631		13,032
Rental expenses		2,520		2,336
Real estate taxes		1,450		1,284
Segment net operating income		11,661		9,412
Multifamily residential real estate
Rental revenues		6,695		4,730
Rental expenses		2,223		1,537
Real estate taxes		609		526
Segment net operating income		3,863		2,667
General contracting and real estate services
Segment revenues		63,519		36,803
Segment expenses		61,196		35,037
Segment gross profit		2,323		1,766
Net operating income		$	20,978	$	17,371

General contracting and real estate services revenues for the three months ended March 31, 2017 exclude revenue related to intercompany construction contracts of $5.9 million. General contracting and real estate services expenses for the three months ended March 31, 2017 exclude expenses related to intercompany construction contracts of $5.7 million. General contracting and real estate services expenses for the three months ended March 31, 2017 include noncash stock compensation expense of less than $0.3 million.

General contracting and real estate services revenues for the three months ended March 31, 2016 exclude revenue from intercompany construction contracts of $15.0 million. General contracting and real estate services expenses for the three months ended March 31, 2016 exclude expenses for 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.

The following table reconciles net operating income to net income for the three months ended March 31, 2017 and 2016 (in thousands):



		Three Months Ended March 31,
		2017			2016
	(Unaudited)
Net operating income		$	20,978		$	17,371
Depreciation and amortization		(9,475		)	(8,149		)
General and administrative expenses		(2,986		)	(2,484		)
Acquisition, development and other pursuit costs		(47		)	(704		)
Impairment charges		(4		)	(35		)
Interest income		1,398			182
Interest expense		(4,535		)	(3,791		)
Gain on real estate dispositions		3,395			26,674
Change in fair value of interest rate derivatives		294			(2,389		)
Other income		37			76
Income tax provision		(302		)	(218		)
Net income		$	8,753		$	26,533

General and administrative expenses for the three months ended March 31, 2017 include noncash stock compensation expense of $0.4 million. General and administrative expenses for the three months ended March 31, 2016 include noncash stock compensation expense of $0.3 million.