Segments

3 Months Ended

Mar. 31, 2022

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, 2022 and 2021 was as follows (in thousands): 

	Three Months Ended March 31,
	2022		2021
Office real estate
Rental revenues	$	17,023	$	11,635
Rental expenses	4,140		2,875
Real estate taxes	1,504		1,358
Segment net operating income	11,379		7,402
Retail real estate
Rental revenues	21,430		18,255
Rental expenses	3,501		2,836
Real estate taxes	2,238		2,027
Segment net operating income	15,691		13,392
Multifamily residential real estate
Rental revenues	16,182		15,851
Rental expenses	5,028		5,121
Real estate taxes	1,662		1,921
Segment net operating income	9,492		8,809
General contracting and real estate services
Segment revenues	24,650		35,563
Segment expenses	23,821		34,275
Segment gross profit	829		1,288
Net operating income	$	37,391	$	30,891

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, 2022 and 2021 exclude revenue related to intercompany construction contracts of $8.6 million and $2.0 million, respectively, as it is eliminated in consolidation. General contracting and real estate services expenses for the three months ended March 31, 2022 and 2021 exclude expenses related to intercompany construction contracts of $8.5 million and $2.0 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, 2022 and 2021 (in thousands): 

	Three Months Ended March 31,
	2022		2021
Net operating income	$	37,391	$	30,891
Depreciation and amortization	(18,557)		(18,066)
Amortization of right-of-use assets - finance leases	(278)		(189)
General and administrative expenses	(4,708)		(4,021)
Acquisition, development and other pursuit costs	(11)		(71)
Impairment charges	(47)		(3,039)
Gain on real estate dispositions, net	—		3,717
Interest income	3,568		4,116
Interest expense	(9,031)		(7,975)
Loss on extinguishment of debt	(158)		—
Change in fair value of derivatives and other	4,182		393
Unrealized credit loss (provision) release	(605)		55
Other income (expense), net	229		179
Income tax benefit	301		19
Net income	$	12,276	$	6,009

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 compensation and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.