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Segments
 9 Months Ended
Sep. 30, 2020
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 nine months ended September 30, 2020 and 2019 was as follows (in thousands): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2020
 
2019
 
2020
 
2019
Office real estate
 
 
 
 
 
 
 
 
Rental revenues
 
$
11,456

 
$
10,283

 
$
32,142

 
$
23,221

Rental expenses
 
3,042

 
2,753

 
7,879

 
6,092

Real estate taxes
 
1,375

 
1,141

 
3,749

 
2,320

Segment net operating income
 
7,039

 
6,389

 
20,514

 
14,809

Retail real estate
 
 
 
 
 
 
 
 
Rental revenues
 
15,669

 
20,780

 
54,794

 
57,272

Rental expenses
 
2,618

 
3,096

 
8,096

 
8,556

Real estate taxes
 
1,808

 
2,219

 
5,981

 
5,923

Segment net operating income
 
11,243

 
15,465

 
40,717

 
42,793

Multifamily residential real estate
 
 
 
 
 
 
 
 
Rental revenues
 
12,511

 
11,157

 
34,904

 
29,014

Rental expenses
 
4,563

 
4,024

 
11,932

 
9,865

Real estate taxes
 
1,577

 
820

 
3,596

 
2,516

Segment net operating income
 
6,371

 
6,313

 
19,376

 
16,633

General contracting and real estate services
 
 
 
 
 
 
 
 
Segment revenues
 
58,617

 
27,638

 
163,283

 
66,118

Segment expenses
 
56,509

 
26,446

 
157,401

 
62,855

Segment gross profit
 
2,108

 
1,192

 
5,882

 
3,263

Net operating income
 
$
26,761

 
$
29,359

 
$
86,489

 
$
77,498


 
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, 2020 and 2019 exclude revenue related to intercompany construction contracts of $3.2 million and $22.4 million, respectively, as it is eliminated in consolidation. General contracting and real estate services revenues for the nine months ended September 30, 2020 and 2019 exclude revenue related to intercompany construction contracts of $24.7 million and $82.6 million, respectively.

General contracting and real estate services expenses for the three months ended September 30, 2020 and 2019 exclude expenses related to intercompany construction contracts of $3.2 million and $22.2 million, respectively. General contracting and real estate services expenses for the nine months ended September 30, 2020 and 2019 exclude expenses related to intercompany construction contracts of $24.5 million and $81.8 million, respectively.


The following table reconciles net operating income to net income, the most directly comparable GAAP measure, for the three and nine months ended September 30, 2020 and 2019 (in thousands): 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2020
 
2019
 
2020
 
2019
Net operating income
 
$
26,761

 
$
29,359

 
$
86,489

 
$
77,498

Depreciation and amortization
 
(14,176
)
 
(15,465
)
 
(42,232
)
 
(38,874
)
Amortization of right-of-use assets - finance leases
 
(147
)
 
(145
)
 
(440
)
 
(230
)
General and administrative expenses
 
(2,601
)
 
(2,977
)
 
(9,382
)
 
(9,329
)
Acquisition, development and other pursuit costs
 
(26
)
 
(93
)
 
(555
)
 
(550
)
Impairment charges
 
(47
)
 
—

 
(205
)
 
—

Gain on real estate dispositions
 
3,612

 
4,699

 
6,388

 
4,699

Interest income
 
4,417

 
5,710

 
16,055

 
16,622

Interest expense on indebtedness
 
(7,294
)
 
(8,828
)
 
(22,252
)
 
(22,205
)
Interest expense on finance leases
 
(229
)
 
(228
)
 
(686
)
 
(340
)
Equity in income of unconsolidated real estate entities
 
—

 
—

 
—

 
273

Change in fair value of derivatives and other
 
318

 
(530
)
 
(1,424
)
 
(3,926
)
Unrealized credit loss release (provision)
 
33

 
—

 
(227
)
 
—

Other income (expense), net
 
177

 
362

 
521

 
426

Income tax benefit
 
28

 
199

 
220

 
339

Net income
 
$
10,826

 
$
12,063

 
$
32,270

 
$
24,403


 
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.