Segments

3 Months Ended

Mar. 31, 2024

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 for the composition of properties within each property segment.

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.

Since the Company's Annual Report on Form 10-K for the year ended December 31, 2023, the Company retrospectively reclassified certain components of mixed-use properties between the retail, office, and multifamily real estate segments in order to align the components of those properties with their tenant composition. As a result, NOI for the three months ended March 31, 2023 increased $0.4 million and less than $0.1 million for the retail and office real estate segments, respectively, and decreased $0.4 million for the multifamily real estate segment. These reclassifications had no effect on total property NOI as previously reported. These reclassifications also had no impact on our general contracting and real estate services or real estate financing segments.

The following table presents NOI for the Company's five reportable segments for the three months ended March 31, 2024 and 2023 (in thousands):

	Three Months Ended March 31,
	2024		2023
Retail real estate
Rental revenues	$	25,651	$	22,959
Rental expenses	4,211		3,644
Real estate taxes	2,415		2,268
Segment net operating income	19,025		17,047
Office real estate
Rental revenues	21,878		19,657
Rental expenses	6,123		5,159
Real estate taxes	2,215		2,085
Segment net operating income	13,540		12,413
Multifamily real estate
Rental revenues	14,352		13,602
Rental expenses	4,271		4,157
Real estate taxes	1,295		1,059
Segment net operating income	8,786		8,386
General contracting and real estate services
General contracting and real estate services revenues	126,975		84,238
General contracting and real estate services expenses	122,898		81,170
Segment gross profit	4,077		3,068
Real estate financing
Interest income	4,000		3,536
Interest expense(a)	1,332		1,097
Segment gross profit	2,668		2,439
Net operating income	$	48,096	$	43,353

________________________________________

(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 rates on the credit facility, the M&T term loan facility, and the TD term loan facility, each as defined in Note 9.

The following table reconciles NOI to net income, the most directly comparable GAAP measure, for the three months ended March 31, 2024 and 2023 (in thousands):

	Three Months Ended March 31,
	2024		2023
Net operating income	$	48,096	$	43,353
Interest income(a)	626		183
Depreciation and amortization	(20,435)		(18,468)
Amortization of right-of-use assets - finance leases	(395)		(277)
General and administrative expenses	(5,874)		(5,448)
Impairment charges	—		(102)
Interest expense(b)	(16,643)		(11,205)
Change in fair value of derivatives and other	12,888		(2,447)
Unrealized credit loss provision	(83)		(77)
Other income (expense), net	79		93
Income tax provision	(534)		(188)
Net income	$	17,725	$	5,417

________________________________________

(a) Excludes real estate financing segment interest income of $4.0 million and $3.5 million for the three months ended March 31, 2024 and 2023, respectively.

(b) Excludes real estate financing segment interest expense of $1.3 million and $1.1 million for the three months ended March 31, 2024 and 2023, 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 and expenses for the three months ended March 31, 2024 exclude revenues and expenses related to intercompany construction contracts of $8.4 million and $8.3 million, respectively, which are eliminated in consolidation. General contracting and real estate services expenses for the three months ended March 31, 2023 exclude revenues and expenses related to intercompany construction contracts of $13.7 million and $13.5 million, respectively, which are eliminated in consolidation.

Depreciation and amortization expense for the three months ended March 31, 2024 was $8.5 million, $8.0 million, and $3.7 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the three months ended March 31, 2023 was $8.2 million, $7.0 million, and $3.2 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 March 31, 2024 was $2.8 million, $3.2 million, and $3.6 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the three months ended March 31, 2023 was $2.4 million, $2.2 million, and $2.4 million for the retail, office, and multifamily real estate segments, respectively.

As of March 31, 2024, the net carrying amount of consolidated real estate investments was $685.7 million, $625.9 million, and $394.4 million for the retail, office, and multifamily real estate segments, respectively, which excludes $102.1 million attributable to our mixed-use development project, Southern Post. Assets attributable to the general contracting and real estate services segment are presented in Note 8 of these financial statements. Assets attributable to the real estate financing segment are presented in Note 7 of these financial statements.