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, 2018 and 2017 was as follows (in thousands):



	Three Months Ended March 31,
	2018		2017
	(Unaudited)
Office real estate
Rental revenues	$	5,100	$	4,906
Rental expenses	1,446		1,325
Real estate taxes	502		450
Segment net operating income	3,152		3,131
Retail real estate
Rental revenues	16,711		15,631
Rental expenses	2,657		2,520
Real estate taxes	1,683		1,450
Segment net operating income	12,371		11,661
Multifamily residential real estate
Rental revenues	6,888		6,695
Rental expenses	2,321		2,223
Real estate taxes	628		609
Segment net operating income	3,939		3,863
General contracting and real estate services
Segment revenues	23,050		63,519
Segment expenses	22,414		61,196
Segment gross profit	636		2,323
Net operating income	$	20,098	$	20,978

General contracting and real estate services revenues for the three months ended March 31, 2018 and 2017 exclude revenue related to intercompany construction contracts of $25.9 million and $5.9 million, respectively.

General contracting and real estate services expenses for the three months ended March 31, 2018 and 2017 exclude expenses related to intercompany construction contracts of $25.6 million and $5.7 million, respectively.

General contracting and real estate services expenses for the three months ended March 31, 2018 and 2017 include noncash stock compensation expense of $0.3 million and $0.2 million, respectively.

The following table reconciles net operating income to net income, the most directly comparable GAAP measure, for the three months ended March 31, 2018 and 2017 (in thousands):



	Three Months Ended March 31,
	2018			2017
	(Unaudited)
Net operating income	$	20,098		$	20,978
Depreciation and amortization	(9,278		)	(9,475		)
General and administrative expenses	(2,961		)	(2,986		)
Acquisition, development and other pursuit costs	(84		)	(47		)
Impairment charges	—			(4		)
Interest income	2,232			1,398
Interest expense	(4,373		)	(4,535		)
Gain on real estate dispositions	—			3,395
Change in fair value of interest rate derivatives	969			294
Other income	114			37
Income tax (provision) benefit	266			(302		)
Net income	$	6,983		$	8,753

General and administrative expenses for the three months ended March 31, 2018 and 2017 include noncash stock compensation expense of $0.8 million and $0.4 million, respectively.