Segments

9 Months Ended

Sep. 30, 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 and nine months ended September 30, 2022 and 2021 was as follows (in thousands): 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Office real estate
Rental revenues	$	18,687	$	11,933	$	54,024	$	35,324
Rental expenses	4,886		3,409		13,626		9,222
Real estate taxes	2,044		1,547		5,583		4,318
Segment net operating income	11,757		6,977		34,815		21,784
Retail real estate
Rental revenues	21,223		20,223		64,197		57,682
Rental expenses	3,420		3,270		10,254		9,119
Real estate taxes	2,206		2,100		6,715		6,307
Segment net operating income	15,597		14,853		47,228		42,256
Multifamily residential real estate
Rental revenues	13,833		17,404		45,381		49,673
Rental expenses	4,441		6,038		14,221		16,500
Real estate taxes	1,204		1,896		4,397		5,689
Segment net operating income	8,188		9,470		26,763		27,484
General contracting and real estate services
Segment revenues	69,024		17,502		138,947		71,473
Segment expenses	66,252		15,944		133,491		68,350
Segment gross profit	2,772		1,558		5,456		3,123
Net operating income	$	38,314	$	32,858	$	114,262	$	94,647

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, 2022 and 2021 exclude revenue related to intercompany construction contracts of $20.8 million and $8.6 million, respectively, as it is eliminated in consolidation. General contracting and real estate services revenues for the nine months ended September 30, 2022 and 2021 exclude revenue related to intercompany construction contracts of $43.6 million and $16.0 million, respectively, as it is eliminated in consolidation.

General contracting and real estate services expenses for the three months ended September 30, 2022 and 2021 exclude expenses related to intercompany construction contracts of $20.6 million and $8.6 million, respectively. General contracting and real estate services expenses for the nine months ended September 30, 2022 and 2021 exclude expenses related to intercompany construction contracts of $43.1 million and $16.0 million, respectively, as it is eliminated in consolidation.

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, 2022 and 2021 (in thousands): 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net operating income	$	38,314	$	32,858	$	114,262	$	94,647
Depreciation and amortization	(17,527)		(16,886)		(54,865)		(52,237)
Amortization of right-of-use assets - finance leases	(278)		(278)		(833)		(745)
General and administrative expenses	(3,854)		(3,449)		(12,179)		(10,957)
Acquisition, development and other pursuit costs	—		(8)		(37)		(111)
Impairment charges	—		—		(333)		(3,122)
Gain (loss) on real estate dispositions, net	33,931		(113)		53,424		3,604
Interest income	3,490		3,766		10,410		14,628
Interest expense	(10,345)		(8,827)		(28,747)		(25,220)
Loss on extinguishment of debt	(2,123)		(120)		(2,899)		(120)
Change in fair value of derivatives and other	782		131		7,512		838
Unrealized credit loss release (provision)	42		617		(858)		284
Other income (expense), net	118		15		415		201
Income tax (provision) benefit	(181)		42		140		522
Net income	$	42,369	$	7,748	$	85,412	$	22,212

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. These costs include corporate office personnel compensation and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.