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Segments
 6 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
Segments 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, 2019 and 2018 was as follows (in thousands): 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
Office real estate
 
 
 
 
 
 
 
 
Rental revenues
 
$
7,382

 
$
5,288

 
$
12,938

 
$
10,388

Rental expenses
 
1,853

 
1,430

 
3,339

 
2,876

Real estate taxes
 
653

 
502

 
1,179

 
1,004

Segment net operating income
 
4,876

 
3,356

 
8,420

 
6,508

Retail real estate
 
 
 
 
 
 
 
 
Rental revenues
 
19,235

 
16,608

 
36,492

 
33,319

Rental expenses
 
2,893

 
2,563

 
5,493

 
5,220

Real estate taxes
 
1,893

 
1,656

 
3,704

 
3,339

Segment net operating income
 
14,449

 
12,389

 
27,295

 
24,760

Multifamily residential real estate
 
 
 
 
 
 
 
 
Rental revenues
 
9,761

 
6,702

 
17,857

 
13,590

Rental expenses
 
3,281

 
2,529

 
5,920

 
4,850

Real estate taxes
 
905

 
577

 
1,696

 
1,205

Segment net operating income
 
5,575

 
3,596

 
10,241

 
7,535

General contracting and real estate services
 
 
 
 
 
 
 
 
Segment revenues
 
21,444

 
20,654

 
38,480

 
43,704

Segment expenses
 
20,123

 
20,087

 
36,409

 
42,501

Segment gross profit
 
1,321

 
567

 
2,071

 
1,203

Net operating income
 
$
26,221

 
$
19,908

 
$
48,027

 
$
40,006


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

General contracting and real estate services revenues for the three months ended June 30, 2019 and 2018 exclude revenue related to intercompany construction contracts of $30.0 million and $34.2 million, respectively. General contracting and
real estate services revenues for the six months ended June 30, 2019 and 2018 exclude revenue related to intercompany construction contracts of $60.2 million and $60.1 million, respectively.

General contracting and real estate services expenses for the three months ended June 30, 2019 and 2018 exclude expenses related to intercompany construction contracts of $29.7 million and $33.9 million, respectively. General contracting and real estate services expenses for the six months ended June 30, 2019 and 2018 exclude expenses related to intercompany construction contracts of $59.6 million and $59.5 million, respectively.

The following table reconciles net operating income to net income, the most directly comparable GAAP measure, for the three and six months ended June 30, 2019 and 2018 (in thousands): 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
Net operating income
 
$
26,221

 
$
19,908

 
$
48,027

 
$
40,006

Depreciation and amortization
 
(13,478
)
 
(9,179
)
 
(23,382
)
 
(18,457
)
General and administrative expenses
 
(2,951
)
 
(2,764
)
 
(6,352
)
 
(5,725
)
Acquisition, development, and other pursuit costs
 
(57
)
 
(9
)
 
(457
)
 
(93
)
Impairment charges
 
—

 
(98
)
 
—

 
(98
)
Interest income
 
5,593

 
2,375

 
10,912

 
4,607

Interest expense
 
(7,603
)
 
(4,497
)
 
(13,489
)
 
(8,870
)
Equity in income of unconsolidated real estate entities
 
—

 
—

 
273

 
—

Change in fair value of interest rate derivatives
 
(1,933
)
 
(11
)
 
(3,396
)
 
958

Other income
 
4

 
54

 
64

 
168

Income tax benefit
 
30

 
166

 
140

 
432

Net income
 
$
5,826

 
$
5,945

 
$
12,340

 
$
12,928


 
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, including corporate office personnel salaries and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.