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Segments
 9 Months Ended
Sep. 30, 2023
Segment Reporting [Abstract]  
Segments Segments
 
The Company operates its business in five reportable segments: (i) retail real estate, (ii) office real estate, (iii) multifamily real estate, (iv) general contracting and real estate services, and (v) real estate financing. Refer to Note 1 of the Company's Form 10-K for the composition of properties within each property segment. Since the Company's Annual Report on Form 10-K for the year ended December 31, 2022, the Company introduced real estate financing as a reportable segment. The real estate financing segment includes the Company's mezzanine loans and preferred equity investments on development projects. The change in segmental presentation is a result of the chief operating decision-maker now separately reviewing the results of the real estate financing investments, which are no longer considered to be ad hoc investments, but an evolving portfolio.

Net operating income ("NOI") is the primary measure used by the Company’s chief operating decision-maker to assess segment performance. NOI is calculated as segment revenues less segment expenses. Segment revenues include rental revenues for the property segments, general contracting and real estate services revenues for the general contracting and real estate services segment, and interest income for the real estate financing segment. Segment expenses include rental expenses and real estate taxes for the property segments, general contracting and real estate services expenses for the general contracting and real estate services segment, and interest expense for the real estate financing segment. Segment NOI for the general contracting and real estate services and real estate financing segments is also referred to as segment gross profit as illustrated in the table below. NOI 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, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. The Company considers NOI 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, construction, and real estate financing businesses.
The following table presents NOI for the Company's five reportable segments for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Retail real estate
Rental revenues$25,858 $21,223 $73,004 $64,197 
Rental expenses4,125 3,420 11,715 10,254 
Real estate taxes2,312 2,206 6,789 6,715 
Segment net operating income19,421 15,597 54,500 47,228 
Office real estate
Rental revenues22,077 18,687 62,156 54,024 
Rental expenses5,925 4,886 16,282 13,626 
Real estate taxes2,262 2,044 6,524 5,583 
Segment net operating income13,890 11,757 39,350 34,815 
Multifamily real estate
Rental revenues14,978 13,833 43,922 45,381 
Rental expenses4,706 4,441 13,395 14,221 
Real estate taxes1,293 1,204 3,597 4,397 
Segment net operating income8,979 8,188 26,930 26,763 
General contracting and real estate services
General contracting and real estate services revenues99,408 69,024 286,220 138,947 
General contracting and real estate services expenses96,095 66,252 276,336 133,491 
Segment gross profit3,313 2,772 9,884 5,456 
Real estate financing
Interest income3,496 3,372 10,257 10,070 
Interest expense(a)
728 840 2,634 2,482 
Segment gross profit2,768 2,532 7,623 7,588 
Net operating income$48,371 $40,846 $138,287 $121,850 
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(a) Interest expense within the real estate financing segment is allocated based on the average outstanding principal of notes receivable in the real estate financing portfolio, and the effective interest rate on the credit facility, as defined in Note 8.
The following table reconciles NOI to net income, the most directly comparable GAAP measure, for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net operating income$48,371 $40,846 $138,287 $121,850 
Interest income(a)
194 118 566 340 
Depreciation and amortization(22,462)(17,527)(60,808)(54,865)
Amortization of right-of-use assets - finance leases(425)(278)(1,049)(833)
General and administrative expenses(4,286)(3,854)(13,786)(12,179)
Acquisition, development, and other pursuit costs— — (18)(37)
Impairment charges(5)— (107)(333)
Gain on real estate dispositions, net227 33,931 738 53,424 
Interest expense(b)
(14,716)(9,505)(38,741)(26,265)
Loss on extinguishment of debt— (2,123)— (2,899)
Change in fair value of derivatives and other2,466 782 5,024 7,512 
Unrealized credit loss (provision) release(694)42 (871)(858)
Other income (expense), net63 118 324 415 
Income tax (provision) benefit(310)(181)(834)140 
Net income$8,423 $42,369 $28,725 $85,412 
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(a) Excludes real estate financing segment interest income of $3.5 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively, and $10.3 million and $10.1 million for the nine months ended September 30, 2023 and 2022, respectively.
(b) Excludes real estate financing segment interest expense of $0.7 million and $0.8 million for the three months ended September 30, 2023 and 2022, respectively, and $2.6 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively.
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 September 30, 2023 and 2022 exclude revenues related to intercompany construction contracts of $13.4 million and $20.8 million, respectively, which are eliminated in consolidation. General contracting and real estate services revenues for the nine months ended September 30, 2023 and 2022 exclude revenues related to intercompany construction contracts of $40.0 million and $43.6 million, respectively.

General contracting and real estate services expenses for the three months ended September 30, 2023 and 2022 exclude expenses related to intercompany construction contracts of $13.3 million and $20.6 million, respectively, which are eliminated in consolidation. General contracting and real estate services expenses for the nine months ended September 30, 2023 and 2022 exclude expenses related to intercompany construction contracts of $39.6 million and $43.1 million, respectively.
 
Depreciation and amortization expense for the three months ended September 30, 2023 was $9.9 million, $8.1 million, and $4.3 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the three months ended September 30, 2022 was $6.9 million, $6.7 million, and $3.8 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the nine months ended September 30, 2023 was $25.0 million, $22.6 million, and $12.8 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the nine months ended September 30, 2022 was $21.1 million, $20.2 million, and $13.3 million for the retail, office, and multifamily real estate segments, respectively.

General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties, general contracting and real estate services, and real estate financing businesses. These costs include corporate office personnel compensation and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.
Interest expense on secured property debt for the three months ended September 30, 2023 was $2.4 million, $2.8 million, and $2.9 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the three months ended September 30, 2022 was $2.2 million, $3.1 million, and $3.6 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the nine months ended September 30, 2023 was $6.9 million, $7.5 million, and $8.1 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the nine months ended September 30, 2022 was $6.1 million, $7.9 million, and $10.1 million for the retail, office, and multifamily real estate segments, respectively.Assets included in each property segment are presented in Schedule III of the financial statements accompanying the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which have only materially changed as of September 30, 2023 in respect to the acquisition of The Interlock. Refer to Note 5 for the allocation of The Interlock's assets by property segment. Assets attributable to the general contracting and real estate services segment are presented in Note 7 of these financial statements. Assets of the real estate financing segment are presented in Note 6 of these financial statements.