Segments

3 Months Ended

Mar. 31, 2021

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 months ended March 31, 2021 and 2020 was as follows (in thousands): 

	Three Months Ended March 31,
	2021		2020
Office real estate
Rental revenues	$	11,635	$	10,192
Rental expenses	2,875		2,546
Real estate taxes	1,358		1,146
Segment net operating income	7,402		6,500
Retail real estate
Rental revenues	18,255		20,411
Rental expenses	2,836		3,020
Real estate taxes	2,027		2,166
Segment net operating income	13,392		15,225
Multifamily residential real estate
Rental revenues	15,851		11,686
Rental expenses	5,121		3,809
Real estate taxes	1,921		1,021
Segment net operating income	8,809		6,856
General contracting and real estate services
Segment revenues	35,563		47,268
Segment expenses	34,275		45,550
Segment gross profit	1,288		1,718
Net operating income	$	30,891	$	30,299

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 March 31, 2021 and 2020 exclude revenue related to intercompany construction contracts of $2.0 million and $13.1 million, respectively, as it is eliminated in consolidation. General contracting and real estate services expenses for the three months ended March 31, 2021 and 2020 exclude expenses related to intercompany construction contracts of $2.0 million and $13.0 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, 2021 and 2020 (in thousands): 

	Three Months Ended March 31,
	2021		2020
Net operating income	$	30,891	$	30,299
Depreciation and amortization	(18,066)		(14,279)
Amortization of right-of-use assets - finance leases	(189)		(147)
General and administrative expenses	(4,021)		(3,793)
Acquisition, development and other pursuit costs	(71)		(27)
Impairment charges	(3,039)		(158)
Gain on real estate dispositions	3,717		—
Interest income	4,116		7,226
Interest expense on indebtedness	(7,613)		(7,959)
Interest expense on finance leases	(362)		(229)
Change in fair value of derivatives and other	393		(1,736)
Unrealized credit loss release (provision)	55		(377)
Other income (expense), net	179		58
Income tax benefit	19		257
Net income	$	6,009	$	9,135

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.