UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017March 31, 2018
 
or
 
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to                     
 
Commission file number: 001-35908
 
ARMADA HOFFLER PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Maryland46-1214914
(State of Organization)
(IRS Employer
Identification No.)
  
222 Central Park Avenue, Suite 2100
Virginia Beach, Virginia
23462
(Address of Principal Executive Offices)(Zip Code)
 
(757) 366-4000
(Registrant’s Telephone Number, Including Area Code)
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ◻  No
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    x  Yes     ◻  No
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): 
Large Accelerated Filer ◻ Accelerated Filerx
    
Non-Accelerated Filer ◻ (Do not check if a smaller reporting company)Smaller Reporting Company ◻ 
  Emerging Growth Company
 x 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
◻ Yes     x  No

 
As of November 1, 2017,May 2, 2018, the Registrant had 44,936,65245,237,043 shares of common stock outstanding.

ARMADA HOFFLER PROPERTIES, INC.
 
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017MARCH 31, 2018
 
Table of Contents
 
 Page
  
Part I. Financial Information 
1
   
Item 1. 
Financial Statements
1
   
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1920
   
Item 3. 
Quantitative and Qualitative Disclosures about Market Risk
36
   
Item 4. 
Controls and Procedures
3736
  
Part II. Other Information 
3736
   
Item 1. 
Legal Proceedings
3736
   
Item 1A. 
Risk Factors
3736
   
Item 2. 
Unregistered Sales of Equity Securities and Use of Proceeds
3736
   
Item 3. 
Defaults Upon Senior Securities
3938
   
Item 4. 
Mine Safety Disclosures
3938
   
Item 5. 
Other Information
3938
   
Item 6. 
Exhibits
39
    
    
  
Signatures 
4044




PART I. Financial Information
 
Item 1.    Financial Statements
 
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Balance Sheets
 
(In thousands, except par value and share data)
 September 30,
2017		 December 31,
2016		 March 31,
2018		 December 31,
2017
 (Unaudited)   (Unaudited)  
ASSETS        
Real estate investments:        
Income producing property $906,225
 $894,078
 $936,579
 $910,686
Held for development 680
 680
 1,473
 680
Construction in progress 62,948
 13,529
 120,850
 83,071
 969,853
 908,287
 1,058,902
 994,437
Accumulated depreciation (157,932) (139,553) (171,205) (164,521)
Net real estate investments 811,921
 768,734
 887,697
 829,916
Cash and cash equivalents 19,721
 21,942
 15,804
 19,959
Restricted cash 3,195
 3,251
 3,502
 2,957
Accounts receivable, net 15,826
 15,052
 16,125
 15,691
Notes receivable 75,522
 59,546
 88,973
 83,058
Construction receivables, including retentions 35,923
 39,433
 21,336
 23,933
Construction contract costs and estimated earnings in excess of billings 110
 110
 315
 245
Equity method investments 11,169
 10,235
 12,821
 11,411
Other assets 57,611
 64,165
 55,216
 55,953
Total Assets $1,030,998
 $982,468
 $1,101,789
 $1,043,123
LIABILITIES AND EQUITY        
Indebtedness, net $488,609
 $522,180
 $589,634
 $517,272
Accounts payable and accrued liabilities 14,383
 10,804
 11,333
 15,180
Construction payables, including retentions 48,160
 51,130
 41,516
 47,445
Billings in excess of construction contract costs and estimated earnings 5,232
 10,167
 2,235
 3,591
Other liabilities 41,181
 39,209
 40,170
 39,352
Total Liabilities $597,565
 $633,490
 684,888
 622,840
        
Redeemable noncontrolling interest 2,000
 —
    
Stockholders’ equity:        
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of September 30, 2017 and December 31, 2016 —
 —
Common stock, $0.01 par value, 500,000,000 shares authorized, 44,936,652 and 37,490,361 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 449
 374
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of March 31, 2018 and December 31, 2017 —
 —
Common stock, $0.01 par value, 500,000,000 shares authorized, 45,205,575 and 44,937,763 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 452
 449
Additional paid-in capital 288,485
 197,114
 289,699
 287,407
Distributions in excess of earnings (56,755) (49,345) (65,190) (61,166)
Total stockholders’ equity 232,179
 148,143
 224,961
 226,690
Noncontrolling interests 199,254
 200,835
 191,940
 193,593
Total Equity 431,433
 348,978
 416,901
 420,283
Total Liabilities and Equity $1,030,998
 $982,468
 $1,101,789
 $1,043,123

See Notes to Condensed Consolidated Financial Statements.

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ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Income 

(In thousands, except per share data)
(Unaudited)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Three Months Ended 
 March 31,
 2017 2016 2017 2016 2018 2017
Revenues            
Rental revenues $27,096
 $25,305
 $81,083
 $72,839
 $28,699
 $27,232
General contracting and real estate services revenues 41,201
 38,552
 161,391
 108,555
 23,050
 63,519
Total revenues 68,297
 63,857
 242,474
 181,394
 51,749
 90,751
            
Expenses            
Rental expenses 6,830
 5,834
 19,069
 16,234
 6,424
 6,068
Real estate taxes 2,693
 2,356
 7,797
 7,087
 2,813
 2,509
General contracting and real estate services expenses 39,377
 37,274
 154,588
 104,336
 22,414
 61,196
Depreciation and amortization 9,239
 8,885
 28,018
 25,636
 9,278
 9,475
General and administrative expenses 2,098
 2,156
 7,762
 6,864
 2,961
 2,986
Acquisition, development and other pursuit costs 61
 345
 477
 1,486
 84
 47
Impairment charges 19
 149
 50
 184
 —
 4
Total expenses 60,317
 56,999
 217,761
 161,827
 43,974
 82,285
Operating income 7,980
 6,858
 24,713
 19,567
 7,775
 8,466
Interest income 1,910
 1,024
 4,966
 1,928
 2,232
 1,398
Interest expense (4,253) (4,124) (13,282) (11,893) (4,373) (4,535)
Loss on extinguishment of debt —
 (82) —
 (82)
Gain on real estate dispositions 4,692
 3,753
 8,087
 30,440
 —
 3,395
Change in fair value of interest rate derivatives 87
 498
 300
 (2,264) 969
 294
Other income 74
 35
 154
 154
 114
 37
Income before taxes 10,490
 7,962
 24,938
 37,850
 6,717
 9,055
Income tax provision (29) (16) (781) (240)
Income tax benefit (provision) 266
 (302)
Net income 10,461
 7,946
 24,157
 37,610
 6,983
 8,753
Net income attributable to noncontrolling interests (2,973) (2,734) (7,262) (12,994) (1,943) (2,817)
Net income attributable to stockholders $7,488
 $5,212
 $16,895
 $24,616
 $5,040
 $5,936
Net income attributable to stockholders per share (basic and diluted) $0.17
 $0.15
 $0.41
 $0.77
 $0.11
 $0.16
Weighted-average common shares outstanding (basic and diluted) 44,934
 33,792
 41,575
 31,913
 45,132
 37,622
Dividends and distributions declared per common share and unit $0.19
 $0.18
 $0.57
 $0.54
 $0.20
 $0.19

See Notes to Condensed Consolidated Financial Statements.

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ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statement of Equity
 
(In thousands, except share data)
(Unaudited)
 
 Shares of common stock Common Stock Additional paid-in capital Distributions in excess of earnings Total stockholders' equity Noncontrolling interests Total Equity Shares of common stock Common Stock Additional paid-in capital Distributions in excess of earnings Total stockholders' equity Noncontrolling interests Total Equity
Balance, January 1, 2017 37,490,361
 $374
 $197,114
 $(49,345) $148,143
 $200,835
 $348,978
Balance, January 1, 2018 44,937,763
 $449
 $287,407
 $(61,166) $226,690
 $193,593
 $420,283
Net income —
 —
 —
 16,895
 16,895
 7,262
 24,157
 —
 —
 —
 5,040
 5,040
 1,943
 6,983
Net proceeds from sales of common stock 7,350,690
 74
 91,307
 —
 91,381
 —
 91,381
Restricted stock awards 116,704
 1
 1,381
 —
 1,382
 —
 1,382
 105,362
 1
 499
 —
 500
 —
 500
Restricted stock award forfeitures (21,103) —
 (289) —
 (289) —
 (289) (550) —
 (4) —
 (4) —
 (4)
Issuance of common units for acquisition of interest in real estate investment —
 —
 (987) —
 (987) 982
 (5)
Issuance of operating partnership units for acquisitions —
 —
 —
 —
 —
 1,696
 1,696
Redemption of operating partnership units —
 —
 (41) —
 (41) (188) (229) 163,000
 2
 1,797
 —
 1,799
 (1,804) (5)
Dividends and distributions declared —
 —
 —
 (24,305) (24,305) (9,637) (33,942) —
 —
 —
 (9,064) (9,064) (3,488) (12,552)
Balance, September 30, 2017 44,936,652
 $449
 $288,485
 $(56,755) $232,179
 $199,254
 $431,433
Balance, March 31, 2018 45,205,575
 $452
 $289,699
 $(65,190) $224,961
 $191,940
 $416,901
 
See Notes to Condensed Consolidated Financial Statements.

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ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months Ended 
 September 30,		 Three Months Ended 
 March 31,
 2017 2016 2018 2017
OPERATING ACTIVITIES        
Net income $24,157
 $37,610
 $6,983
 $8,753
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation of buildings and tenant improvements 19,385
 17,055
 6,773
 6,473
Amortization of leasing costs and in-place lease intangibles 8,633
 8,581
 2,505
 3,002
Accrued straight-line rental revenue (927) (765) (562) (383)
Amortization of leasing incentives and above or below-market rents (140) (61) (56) (47)
Accrued straight-line ground rent expense 401
 291
 84
 138
Bad debt expense 425
 178
 52
 68
Noncash stock compensation 1,047
 864
 549
 411
Impairment charges 50
 184
 —
 4
Noncash interest expense 940
 687
 326
 277
Noncash loss on extinguishment of debt —
 82
Gain on real estate dispositions (8,087) (30,440) —
 (3,395)
Change in the fair value of interest rate derivatives (300) 2,264
 (969) (294)
Changes in operating assets and liabilities:        
Property assets (3,612) (4,938) 1,771
 1,391
Property liabilities 3,209
 3,856
 (3,827) (875)
Construction assets 4,065
 (5,863) 3,482
 (13,137)
Construction liabilities (12,648) 9,197
 (11,183) 5,888
Net cash provided by operating activities 36,598
 38,782
 5,928
 8,274
INVESTING ACTIVITIES        
Development of real estate investments (28,731) (48,671) (26,438) (6,456)
Tenant and building improvements (8,104) (4,399) (2,246) (2,069)
Acquisitions of real estate investments, net of cash received (28,020) (177,865) (33,368) (6,767)
Dispositions of real estate investments 12,557
 96,312
 —
 4,441
Notes receivable issuances (15,754) (42,110) (5,607) (1,413)
Decrease in capital improvement reserves (203) (210)
Leasing costs (149) (1,601) (680) (493)
Leasing incentives (147) (188)
Contributions to equity method investments (934) (8,949) (1,410) (559)
Net cash used for investing activities (69,485) (187,681) (69,749) (13,316)
FINANCING ACTIVITIES        
Proceeds from sales of common stock 96,044
 51,088
 —
 3,523
Offering costs (4,663) (1,183) —
 (161)
Debt issuances, credit facility and construction loan borrowings 124,206
 290,105
 111,498
 44,952
Debt and credit facility repayments, including principal amortization (152,201) (167,659) (39,273) (44,530)
Debt issuance costs (751) (1,791) (201) (471)
Redemption of operating partnership units (229) (58) (5) (50)
Dividends and distributions (31,740) (24,702) (11,808) (9,726)
Net cash provided by financing activities 30,666
 145,800
Net cash provided by (used for) financing activities 60,211
 (6,463)
Net decrease in cash and cash equivalents (2,221) (3,099) (3,610) (11,505)
Cash and cash equivalents, beginning of period 21,942
 26,989
Cash and cash equivalents, end of period $19,721
 $23,890
Cash, cash equivalents, and restricted cash, beginning of period 22,916
 25,193
Cash, cash equivalents, and restricted cash, end of period $19,306
 $13,688
Supplemental Disclosures:        
Noncash transactions:        
Increase in dividends payable $744
 $644
(Decrease) increase in accounts payable and accrued liabilities for capital expenditures $(4,434) $742
Issuance of operating partnership units for acquisitions

 $1,702
 $—
Redeemable noncontrolling interest from development $2,000
 $—
 $—
 $2,000
Deferred payment for land acquisition $600
 $—
 $—
 $600

See Notes to Condensed Consolidated Financial Statements.

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ARMADA HOFFLER PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
 
(Unaudited)
 
1. Business of Organization
 
Armada Hoffler Properties, Inc. (the “Company”) is a full service real estate company with extensive experience developing, building, owning and managing high-quality, institutional-grade office, retail and multifamily properties in attractive markets primarily throughout the Mid-Atlantic and Southeastern United States. The Company is the sole general partner of Armada Hoffler, L.P. (the “Operating Partnership”)., and as of March 31, 2018 owned 72.2% of the economic interest in the Operating Partnership, of which 0.1% is held as general partnership units. The operations of the Company are carried on primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. Both the Company and the Operating Partnership were formed on October 12, 2012 and commenced operations upon completion of the underwritten initial public offering of shares of the Company’s common stock and certain related formation transactions on May 13, 2013.

As of September 30, 2017,March 31, 2018, the Company's operating property portfolio consisted of the following properties:
Property    Segment    Location Ownership Interest
4525 Main Street Office Virginia Beach, Virginia* 100%
Armada Hoffler Tower Office Virginia Beach, Virginia* 100%
One Columbus Office Virginia Beach, Virginia* 100%
Two Columbus Office Virginia Beach, Virginia* 100%
249 Central Park Retail Retail Virginia Beach, Virginia* 100%
Alexander Pointe Retail Salisbury, North Carolina 100%
Bermuda Crossroads Retail Chester, Virginia 100%
Broad Creek Shopping Center Retail Norfolk, Virginia 100%
Broadmoor Plaza Retail South Bend, Indiana 100%
Brooks Crossing(1)
 Retail Newport News, Virginia 65%
Columbus Village Retail Virginia Beach, Virginia* 100%
Columbus Village II Retail Virginia Beach, Virginia* 100%
Commerce Street Retail Retail Virginia Beach, Virginia* 100%
Courthouse 7-Eleven Retail Virginia Beach, Virginia 100%
Dick's at Town Center Retail Virginia Beach, Virginia* 100%
Dimmock Square Retail Colonial Heights, Virginia 100%
Fountain Plaza Retail Retail Virginia Beach, Virginia* 100%
Gainsborough Square Retail Chesapeake, Virginia 100%
Greentree Shopping Center Retail Chesapeake, Virginia 100%
Hanbury Village Retail Chesapeake, Virginia 100%
Harper Hill Commons Retail Winston-Salem, North Carolina 100%
Harrisonburg Regal Retail Harrisonburg, Virginia 100%
Indian Lakes CrossingRetailVirginia Beach, Virginia100%
Lightfoot Marketplace(2)
 Retail Williamsburg, Virginia 70%
North Hampton Market Retail Taylors, South Carolina 100%
North Point Center Retail Durham, North Carolina 100%
Oakland Marketplace Retail Oakland, Tennessee100%
Parkway CentreRetailMoultrie, Georgia 100%
Parkway Marketplace Retail Virginia Beach, Virginia 100%
Patterson Place Retail Durham, North Carolina 100%
Perry Hall Marketplace Retail Perry Hall, Maryland 100%
Providence Plaza Retail Charlotte, North Carolina 100%
Renaissance Square Retail Davidson, North Carolina 100%
Sandbridge CommonsRetailVirginia Beach, Virginia100%

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Property    Segment    Location Ownership Interest
Sandbridge CommonsRetailVirginia Beach, Virginia100%
Socastee Commons Retail Myrtle Beach, South Carolina 100%
Southgate Square Retail Colonial Heights, Virginia 100%
Southshore Shops Retail Chesterfield, Virginia 100%
South Retail Retail Virginia Beach, Virginia* 100%
South Square Retail Durham, North Carolina 100%
Stone House Square Retail Hagerstown, Maryland 100%
Studio 56 Retail Retail Virginia Beach, Virginia* 100%
Tyre Neck Harris Teeter Retail Portsmouth, Virginia 100%
Waynesboro Commons Retail Waynesboro, Virginia 100%
Wendover Village Retail Greensboro, North Carolina 100%
Encore Apartments Multifamily Virginia Beach, Virginia* 100%
Johns Hopkins Village(3)
 Multifamily Baltimore, Maryland 80100%
Liberty Apartments Multifamily Newport News, Virginia 100%
Smith's Landing Multifamily Blacksburg, Virginia 100%
The Cosmopolitan Multifamily Virginia Beach, Virginia* 100%
                                                      
(1)The Company is entitled to a preferred return of 8% on its investment in Brooks Crossing.
(2)The Company is entitled to a preferred return of 9% on its investment in Lightfoot Marketplace.
(3)See discussion of redeemable noncontrolling interest in Note 9 for additional information. The Company is entitled to a preferred return of 9% on its investment in Johns Hopkins Village.
*Located in the Town Center of Virginia Beach
 
As of September 30, 2017,March 31, 2018, the following properties that the Company consolidates for financial statement purposes were under development or construction: 
Property    Segment    Location Ownership Interest 
TownPremier (Town Center Phase VIVI) Mixed-use Virginia Beach, Virginia* 100% 
Harding PlaceGreenside (Harding Place)(1)
 Multifamily Charlotte, North Carolina 80% 
595 King StreetHoffler Place (King Street) Multifamily Charleston, South Carolina 92.5% 
530 Meeting StreetSummit Place (Meeting Street) Multifamily Charleston, South Carolina 90% 
Brooks Crossing office tower (2)
OfficeNewport News, Virginia65%
Lightfoot Outparcel (3)
RetailWilliamsburg, Virginia70%
Market at Mill Creek (4)
RetailMount Pleasant, South Carolina70%
River CityIndustrialChesterfield, Virginia100%
        
(1)    The Company is entitled to a preferred return of 9% on a portion of its investment in Harding Place.
(2)     The Company is entitled to a preferred return of 8% on its investment in Brooks Crossing.
(3)    The Company is entitled to a preferred return of 9% on its investment in Lightfoot Outparcel.
(4)    The Company is entitled to a preferred return of 10% on its investment in Market at Mill Creek.

*Located in the Town Center of Virginia Beach
 
Please see Note 5 for information related to the Company’s investment in Durham City Center II, LLC, which is an unconsolidated subsidiary that the Company accounts for using the equity method of accounting.
 
2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
 

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The condensed consolidated financial statements include the financial position and results of operations of the Company and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
 
In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition and results of operations for the interim periods presented.


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The accompanying condensed consolidated financial statements were prepared in accordance with the requirements for interim financial information. Accordingly, these interim financial statements have not been audited and exclude certain disclosures required for annual financial statements. Also, the operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed. Such estimates are based on management’s historical experience and best judgment after considering past, current and expected events and economic conditions. Actual results could differ significantly from management’s estimates.
 
Significant Accounting Policies

General Contracting and Real Estate Services Revenues

On January 1, 2018, the Company adopted the new accounting standard codified in Accounting Standards Codification 606 - Revenue from Contracts with Customers (see also "Recent Accounting Pronouncements" below). The Company recognizes general contracting revenues as a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. For each construction contract, the Company identifies the performance obligations, which typically include the delivery of a single building constructed according to the specifications of the contract. The Company estimates the total transaction price, which generally includes a fixed contract price and may also include variable components such as early completion bonuses, liquidated damages, or cost savings to be shared with the customer. Variable components of the contract price are included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur. The Company recognizes the estimated transaction price as revenue as it satisfies its performance obligations, and the Company estimates its progress in satisfying performance obligations for each contract using the percentage-of-completion method, based on the proportion of incurred costs to total estimated construction costs at completion. Construction contract costs include all direct material, direct labor, subcontract costs, and overhead costs directly related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, are all significant judgments that may result in revisions to costs and income and are recognized in the period in which they are determined. Provisions for estimated losses on uncompleted contracts are recognized immediately in the period in which such losses are determined. The Company defers pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable.
 
The accompanying condensed consolidated financial statements were preparedCompany recognizes real estate services revenues from property development and management services as it satisfies its performance obligations under these service arrangements.

The Company assesses whether multiple contracts with a single counterparty should be combined into a single contract for revenue recognition purposes based on factors such as the basistiming of the accounting principles describednegotiation and execution of the contracts and whether the economic substance of the contracts was contemplated separately or in tandem.

See the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.2017 for a description of other accounting principles upon which basis the accompanying consolidated financial statements were prepared.

Recent Accounting Pronouncements
 
On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued a new standard that provides a single, comprehensive model for recognizing revenue from contracts with customers. TheWhile the new standard requires additional disclosures about does not supersede

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the Company's revenue recognition and could changeguidance on accounting for leases, it changes the way the Company recognizes revenue from construction and development contracts with third party customers. Management is currently reviewing the Company's existing construction contracts to assess the potential impacts of the new standard. A substantial portion of the Company's revenue consists of rental revenues from leasing arrangements, such as base rent, which is specifically excluded from the revenue guidance. Non-lease components, such as tenant reimbursements for common area maintenance, will be subject to the revenue guidance. The Company does not expect the newadopted this standard to have a material impact on the measure and recognition of gains and losses on the sale of properties. The new standard will be effective for the Company on January 1, 2018. The Company plans to adopt the new standard2018 using the fullmodified retrospective method.method, applying this standard to all contracts not yet completed as of that date. In applying the standard to the Company’s future construction contracts, certain pre-contract costs incurred by the Company are now deferred and amortized over the period during which construction obligations are fulfilled. Previously, these costs were immediately recorded as general contracting expenses upon commencement of construction, with the corresponding general contracting revenue also recorded. Applying the standard to the Company’s uncompleted contracts as of January 1, 2018 did not result in material differences to these contracts in aggregate, and no cumulative adjustment to distributions in excess of earnings was recorded as of January 1, 2018.
 
On February 25, 2016, the FASB issued a new lease standard that requires lessees to recognize most leases in their balance sheets as lease liabilities with corresponding right-of-use assets. The new standard also makes targeted changes to lessor accounting. The new standard will be effective for the Company on January 1, 2019 and requires a modified retrospective transition approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented, with an option to use certain transition relief. Management is currently evaluating the potential impact of the new standard on the Company’s consolidated financial statements. The Company is the lessee on certain ground leases and equipment leases, which represents a majority of the Company's current operating lease payments, and expects to record right-of-use assets and lease liabilities for these leases under the new standard.
  
On March 30, 2016, the FASB issued new guidance that changed the accounting for certain aspects of share-based payments to employees. Entities are required to recognize the income tax effects of awards in the income statement when the awards vest or are settled, and the Company is allowed to account for forfeitures as they occur. The Company adopted the guidance on January 1, 2017 and it did not have a material impact on the Company’s consolidated financial statements.

On August 26,In 2016, the FASB issued new guidance that addresses eight classification issues related to the statement of cash flows and requires the presentation of total changes in cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. Early adoption is permitted, including adoption in an interim period. ThisThe Company adopted this new guidance should be appliedeffective December 31, 2017, applying it retrospectively to each period presented. ThisThe new guidance willrequires that the statement of cash flows show changes in restricted cash in addition to changes in cash and cash equivalents. No additional changes were required to be effectivemade to the Company's consolidated statements of cash flows. The following table sets forth the items from the Company's consolidated balance sheets that are included in cash, cash equivalents, and restricted cash in the consolidated statements of cash flows (in thousands):

 Balance as of
 March 31, 2018 December 31, 2017 March 31, 2017 December 31, 2016
Cash and cash equivalents$15,804
 $19,959
 $10,039
 $21,942
Restricted cash3,502
 2,957
 3,649
 3,251
Cash, cash equivalents, and restricted cash$19,306
 $22,916
 $13,688
 $25,193

The following table summarizes the changes made to net cash provided by operating activities and net cash used in investing activities in the consolidated statement of cash flows for the Companythree months ended March 31, 2017 on January 1, 2018. Management is currently evaluating the potential impact of the new guidance on the Company’s consolidated financial statements.a retrospective basis (in thousands, no changes were made to net cash provided by (used in) financing activities):

 Three months ended
 March 31, 2017
Operating activities as originally presented$7,907
Adjustments367
Operating activities after adjustments$8,274
  
Investing activities as originally presented$(13,347)
Adjustments$31
Investing activities after adjustments$(13,316)

On February 22, 2017, the FASB issued new guidance that clarifies the scope and application of guidance on sales or transfers of nonfinancial assets and in substance nonfinancial assets to customers, including partial sales. The new guidance applies to all nonfinancial assets, including real estate, and defines an in substance nonfinancial asset. The Company adopted the new guidance will be effective for the Company on January 1, 2018, with early adoption permitted. Management is currently evaluating the potentialand it did not have a material impact of the new standard on the Company’s consolidated financial statements.

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On August 28, 2017, the FASB issued new guidance that simplifies some of the requirements relating to accounting for derivatives and hedging. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness for a highly effective hedge and also simplifies certain documentation and assessment requirements relating

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to the determination of hedge effectiveness. The new guidance will be effective for the Company on January 1, 2019, with early adoption permitted. The Company does not currently have any derivatives designated as hedging instruments for accounting purposes.purposes but may designate new derivative contracts as hedging instruments in the future. The application of this guidance to future hedging relationships could reduce or eliminate the gains and losses that would otherwise be recorded for these derivative instruments.

3. 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,March 31, 2018 and 2017 and 2016 was as follows (in thousands): 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Three Months Ended 
 March 31,
 2017 2016 2017 2016 2018 2017
 (Unaudited) (Unaudited)
Office real estate            
Rental revenues $4,762
 $5,277
 $14,427
 $16,097
 $5,100
 $4,906
Rental expenses 1,447
 1,553
 4,138
 4,307
 1,446
 1,325
Real estate taxes 481
 485
 1,381
 1,550
 502
 450
Segment net operating income 2,834
 3,239
 8,908
 10,240
 3,152
 3,131
Retail real estate            
Rental revenues 15,880
 14,340
 47,089
 41,485
 16,711
 15,631
Rental expenses 2,699
 2,264
 7,698
 6,820
 2,657
 2,520
Real estate taxes 1,588
 1,339
 4,557
 3,953
 1,683
 1,450
Segment net operating income 11,593
 10,737
 34,834
 30,712
 12,371
 11,661
Multifamily residential real estate            
Rental revenues 6,454
 5,688
 19,567
 15,257
 6,888
 6,695
Rental expenses 2,684
 2,017
 7,233
 5,107
 2,321
 2,223
Real estate taxes 624
 532
 1,859
 1,584
 628
 609
Segment net operating income 3,146
 3,139
 10,475
 8,566
 3,939
 3,863
General contracting and real estate services            
Segment revenues 41,201
 38,552
 161,391
 108,555
 23,050
 63,519
Segment expenses 39,377
 37,274
 154,588
 104,336
 22,414
 61,196
Segment gross profit 1,824
 1,278
 6,803
 4,219
 636
 2,323
Net operating income $19,397
 $18,393
 $61,020
 $53,737
 $20,098
 $20,978
 
General contracting and real estate services revenues for the three months ended September 30,March 31, 2018 and 2017 and 2016 exclude revenue related to intercompany construction contracts of $13.9$25.9 million and $7.9 million, respectively. General contracting services revenues for the nine months ended September 30, 2017 and 2016 exclude revenue related to intercompany construction contracts of $31.3 million and $40.7$5.9 million, respectively.

General contracting and real estate services expenses for the three months ended September 30,March 31, 2018 and 2017 and 2016 exclude expenses related to intercompany construction contracts of $13.7$25.6 million and $7.7$5.7 million, respectively. General contracting and real estate services expenses for the nine months ended September 30, 2017 and 2016 exclude expenses related to intercompany construction contracts


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General contracting and real estate services expenses for the three months ended September 30,March 31, 2018 and 2017 and 2016 include noncash stock compensation expense of less than $0.1$0.3 million and $0.1$0.2 million, respectively. General contracting and real

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estate services expenses for the nine months ended September 30, 2017 and 2016 include noncash stock compensation expense of $0.2 million and $0.4 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,March 31, 2018 and 2017 and 2016 (in thousands): 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		 Three Months Ended 
 March 31,
 2017 2016 2017 2016 2018 2017
 (Unaudited) (Unaudited)
Net operating income $19,397
 $18,393
 $61,020
 $53,737
 $20,098
 $20,978
Depreciation and amortization (9,239) (8,885) (28,018) (25,636) (9,278) (9,475)
General and administrative expenses (2,098) (2,156) (7,762) (6,864) (2,961) (2,986)
Acquisition, development and other pursuit costs (61) (345) (477) (1,486) (84) (47)
Impairment charges (19) (149) (50) (184) —
 (4)
Interest income 1,910
 1,024
 4,966
 1,928
 2,232
 1,398
Interest expense (4,253) (4,124) (13,282) (11,893) (4,373) (4,535)
Loss on extinguishment of debt —
 (82) —
 (82)
Gain on real estate dispositions 4,692
 3,753
 8,087
 30,440
 —
 3,395
Change in fair value of interest rate derivatives 87
 498
 300
 (2,264) 969
 294
Other income 74
 35
 154
 154
 114
 37
Income tax provision (29) (16) (781) (240)
Income tax (provision) benefit 266
 (302)
Net income $10,461
 $7,946
 $24,157
 $37,610
 $6,983
 $8,753
 
General and administrative expenses for the three months ended September 30,March 31, 2018 and 2017 and 2016 include noncash stock compensation expense of $0.2 million and $0.1 million, respectively. General and administrative expenses for the nine months ended September 30, 2017 and 2016 include noncash stock compensation expense of $0.8 million and $0.6$0.4 million, respectively.

4. Real Estate Investment
 
Property Acquisitions
 
On January 4, 2017,9, 2018, the Company acquired undeveloped landIndian Lakes Crossing, a Harris Teeter-anchored shopping center in Charleston, South CarolinaVirginia Beach, Virginia, for a contract price of $7.1$14.7 million plus capitalized acquisition costs of $0.2 million. The Company intends to use the land for the future development of the 595 King Street property.

On July 11,January 29, 2018, the Company acquired Parkway Centre, a newly developed Publix-anchored shopping center in Moultrie, Georgia for total consideration of $11.3 million (comprised of $9.6 million in cash and $1.7 million in the form of Class A units of limited partnership interest in the Operating Partnership ("Class A Units")) plus capitalized acquisition costs of $0.3 million.

The following table summarizes the purchase price allocation (including acquisition costs) based on relative fair value of the assets acquired and liabilities assumed for the two operating properties purchased during the three months ended March 31, 2018 (in thousands):
  Indian Lakes Crossing Parkway Centre
Land $10,926
 $1,372
Site improvements 531
 696
Building and improvements 1,913
 7,168
In-place leases 1,648
 2,346
Above-market leases 11
 —
Below-market leases (175) (10)
Net assets acquired $14,854
 $11,572

On November 30, 2017, the Company entered into a lease agreement with Bottling Group, LLC for a new distribution facility that the Company will develop and construct for expected delivery in the fourth quarter of 2018. On January 29,

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2018, the Company acquired undeveloped land in Charleston, South CarolinaChesterfield, Virginia, a portion of which will serve as the site for this facility, for a contract price of $6.7$2.4 million plus capitalized acquisition costs of $0.1 million.

On January 18, 2018, the Company entered into an operating agreement with a partner to develop a Lowes Foods-anchored shopping center in Mount Pleasant, South Carolina. The Company has a 70% ownership interest in the partnership. The partnership, Market at Mill Creek Partners, LLC acquired undeveloped land on February 16, 2018 for a contract price of $2.9 million plus capitalized acquisition costs of $0.1 million. The Company intendsis responsible for funding the equity requirements of this development. Management has concluded that this entity is a variable interest entity ("VIE") as it lacks sufficient equity to usefund its operations without additional financial support. The Company is the land for the future developmentdeveloper of the 530 Meeting Street property.

On July 25, 2017,shopping center and has the Company acquiredpower to direct the outparcel phase of Wendover Village in Greensboro, North Carolina for a contract price of $14.3 million plus capitalized acquisition costs of $0.1 million. The following table summarizes the purchase price allocation, including acquisition costs, for this property (in thousands):
Land $5,550
Site improvements 232
Building and improvements 6,975
In-place leases 1,382
Above-market leases 327
Below-market leases (50)
Net assets acquired $14,416

Property Dispositions

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On January 20, 2017, the Company completed the saleactivities of the Wawa outparcel at Greentree Shopping Center. Net proceeds after transaction costs were $4.4 million. The gain onproject that most significantly impact its performance and is the disposition was $3.4 million.

On July 13, 2017, the Company completed the sale of two office properties leased by the Commonwealth of Virginia in Chesapeake, Virginia and Virginia Beach, Virginia. Aggregate net proceeds from the dispositions of the properties after transaction costs and repayment of the loanparty most closely associated with the Chesapeake, Virginia property were $7.9 million, and the aggregate gain on the dispositions was $4.2 million.

On August 10, 2017,project. Therefore, the Company completedis the sale of a land outparcel at Sandbridge Commons. Net proceeds after transaction costsproject's primary beneficiary and a partial loan paydown were $0.3 million. The gain onconsolidates the disposition was $0.5 million.project in its consolidated financial statements.

5. Equity Method Investment

City Center

On February 25, 2016, the Company acquired a 37% interest in Durham City Center II, LLC (“City Center”) for purposes of developing a 22-story mixed use tower in Durham, North Carolina. During the three months ended March 31, 2018, the Company invested an additional $1.3 million in City Center. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company hashad invested $11.2$12.2 million and $10.3$10.9 million, respectively, in City Center.Center, and the carrying value of the Company's investment was $12.8 million and $11.4 million, respectively. The Company has agreed to guarantee 37% of the construction loan for City Center; however, the loan is collateralized by 100% of the assets of City Center. As of September 30,March 31, 2018 and December 31, 2017, $18.7$33.0 million hasand $29.2 million, respectively, had been drawn against the construction loan, of which $7.8$12.3 million isand $11.2 million, respectively, was attributable to the Company's portion of the loan.
 
As of September 30, 2017 and December 31, 2016, the difference between the carrying value of the Company’s initial investment in City Center and the amount of underlying equity was immaterial. For the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, City Center did not have any operating activity, and therefore the Company did not receive any dividendsdistributions or allocated income. 
 
Based on the terms of City Center’s operating agreement, the Company has concluded that City Center is a variable interest entity ("VIE"),VIE and that the Company holds a variable interest. The Company does not have the power to direct the activities of the project that most significantly impact its performance. Accordingly, the Company is not the project’s primary beneficiary and, therefore, does not consolidate City Center in its consolidated financial statements.

6. Notes Receivable

Point Street Apartments

On October 15, 2015, the Company agreed to invest up to $28.2 million in the Point Street Apartments project in the Harbor Point area of Baltimore, Maryland. Point Street Apartments is an estimated $92$98.0 million development project with plans for a 17-story building comprised of 289 residential units and 18,000 square feet of street-level retail space. Beatty Development Group (“BDG”) is the developer of the project and has engaged the Company to serve as construction general contractor. Portions of Point Street Apartments isopened during the first quarter of 2018, and the remaining portions are scheduled to open induring the firstsecond quarter of 2018; however, management can provide no assurances that the remaining portions of Point Street Apartments will open on the anticipated timeline or be completed at the anticipated cost.
 
BDG secured a senior construction loan of up to $67.0 million to fund the development and construction of Point Street Apartments on November 10, 2016. The Company has agreed to guarantee $25.0 million of the senior construction loan in exchange for the option to purchase up to an 88% controlling interest in Point Street Apartments upon completion of the project as follows: (i) an option to purchase a 79% indirect interest in Point Street Apartments for $27.3 million, exercisable within one year from the project’s completion (the “First Option”) and (ii) provided that the Company has exercised the First Option, an option to purchase an additional 9% indirect interest in Point Street Apartments for $3.1 million, exercisable within 27 months from the project’s completion (the “Second Option”). The Company currently has a $2.1 million letter of credit for the guarantee of the senior construction loan.
 
The Company’s investment in the Point Street Apartments project is in the form of a loan pursuant to which BDG may borrow up to $28.2 million (the “BDG loan”). Interest on the BDG loan accrues at 8.0% per annum and matures on the earliest of: (i) November 1, 2018, which may be extended by BDG under two one-year extension options, (ii) the maturity

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date or earlier termination of the senior construction loan, or (iii) the date the Company exercises the Second Option as described further below.
 

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In the event the Company exercises the First Option, BDG is required to pay down the outstanding BDG loan in full, with the difference between the BDG loan and $28.2 million applied to the senior construction loan. In the event the Company exercises the Second Option, BDG is required to simultaneously repay any remaining amounts outstanding under the BDG loan, with any excess proceeds received from the exercise of the Second Option applied against the senior construction loan. In the event the Company does not exercise either the First Option or the Second Option, the interest rate on the BDG loan will automatically be reduced to the interest rate on the senior construction loan for the remaining term of the BDG loan.
 
As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company had funded $22.0$23.2 million and $20.7$22.4 million, respectively, under the BDG loan. During the three months ended September 30,March 31, 2018 and 2017, and 2016, the Company recognized $0.4$0.5 million and $0.4 million, respectively, of interest income on the BDG loan. DuringNo portion of the nine months ended September 30, 2017note receivable balance is past due, and 2016, the Company recognized $1.3 million and $0.8 million, respectively, of interest incomehas not recorded an impairment balance on the BDG loan. BDG is current on the BDG loan.note.

Management has concluded that this entity is a VIE. Because BDG is the developer of Point Street Apartments, the Company does not have the power to direct the activities of the project that most significantly impact its performance, nor is the Company the party most closely associated with the project. Therefore, the Company is not the project's primary beneficiary and does not consolidate the project in its consolidated financial statements.

Annapolis Junction

On April 21, 2016, the Company entered into a note receivable with a maximum balance of $48.1 million in connection with the Annapolis Junction Apartments project in Maryland ("Annapolis Junction"). Annapolis Junction Apartments is an estimated $102.0$106.0 million development project with plans for 416 residential units. It is part of a mixed-use development project that is also planned to have 17,000 square feet of retail space and a 150-room hotel. Annapolis Junction Apartments Owner, LLC (“AJAO”) is the developer of the residential component and has engaged the Company to serve as construction general contractor for the residential component. PortionsThe final portions of Annapolis Junction opened during the thirdfirst quarter of 2017, and the remaining portions are scheduled to open during the fourth quarter of 2017; however, management can provide no assurances that the remaining portions of Annapolis Junction will open on the anticipated timeline or at the anticipated cost.2018.
 
AJAO secured a senior construction loan of up to $60.0 million to fund the development and construction of Annapolis Junction's residential component on September 30, 2016. The Company has agreed to guarantee up to $25.0 million of the senior construction loan in exchange for the option to purchase up to an 88% controlling interest in Annapolis Junction upon completion of the project as follows: (i) an option to purchase an 80% indirect interest in Annapolis Junction's residential component for the lesser of the seller’s budgeted or actual cost, exercisable within one year from the project’s completionuntil December 19, 2018 (the “First Option”) and (ii) provided that the Company has exercised the First Option, an option to purchase an additional 8% indirect interest in Annapolis Junction for the lesser of the seller’s actual or budgeted cost, exercisable within 27 months from the project’s completionuntil March 2019 (the “Second Option”).
 
The Company’s investment in the Annapolis Junction project is in the form of a loan under which AJAO may borrow up to $48.1 million, including a $6.0 million interest reserve (the “AJAO loan”). Interest on the AJAO loan accrues at 10.0% per annum and matures on the earliest of: (i) December 21, 2020, which may be extended by AJAO under two one-year extension options, (ii) the maturity date or earlier termination of the senior construction loan, or (iii) the date the Company exercises the Second Option as described further below. In the event that the Company exercises the First Option, AJAO is required to simultaneously pay down both the senior construction loan and the AJAO loan by 80%, at which time the interest rate on the AJAO loan will automatically be reduced to the interest rate on the senior construction loan. In the event the Company exercises the Second Option, AJAO is required to simultaneously repay any remaining amounts outstanding under the AJAO loan, with any excess proceeds received from the exercise of the Second Option applied against the remaining balance of the senior construction loan. In the event that the Company does not exercise either the First Option or the Second Option, the interest rate on the AJAO loan will automatically be reduced to the interest rate on the senior construction loan for the remaining term of the AJAO loan. 

AsThe balance on the Annapolis Junction note was $44.1 million and $43.0 million as of September 30, 2017March 31, 2018 and December 31, 2016, the Company had funded $41.9 million and $38.9 million, respectively, on the AJAO loan.2017, respectively. During the three months ended September 30,March 31, 2018 and 2017, and 2016, the Company recognized $1.1 million and $0.7$1.0 million, respectively, of interest income on the AJAO loan. During the nine months ended September 30, 2017 and 2016, the Company recognized $3.1 million and $1.1 million, respectively, of interest income on the AJAO loan. AJAO is current on the AJAO loan.


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note.

Management has concluded that this entity is a VIE. Because AJAO is the developer of Annapolis Junction, the Company does not have the power to direct the activities of the project that most significantly impact its performance, nor is the

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Company the party most closely associated with the project. Therefore, the Company is not the project's primary beneficiary and does not consolidate the project in its consolidated financial statements.

North Decatur Square

On May 15, 2017, the Company invested inentered into a note receivable with a maximum principal balance of $21.8 million for the development of a $34an estimated $37.0 million Whole Foods anchoredFoods-anchored center located in Decatur, Georgia. On January 31, 2018, the note was amended to increase the maximum amount of the note to $25.7 million. The Company's investmentborrower of the note and developer of the shopping center is in the form of a mezzanine loan of up to $21.8 million to the developer, North Decatur Square Holdings, LLC ("NDSH"). The mezzanine loan bears interest at an annual rate of 15%. The note matures on the earliest of (i) May 15, 2022, (ii) the maturity of the senior construction loan, (iii) the sale of NDSH, or (iv) the sale of the center. NDSH is current on this loan.

As of September 30,March 31, 2018 and December 31, 2017, the Company had funded $11.4$14.6 million and $11.8 million, respectively, on this loan.note. During the three and nine months ended September 30, 2017,March 31, 2018, the Company recognized $0.4$0.5 million and $0.6 million, respectively, of interest income on this loan.note. No portion of the note receivable balance is past due, and the Company has not recorded an impairment balance on the note.

SubsequentManagement has concluded that this entity is a VIE. Because NDSH is the developer of North Decatur Square, the Company does not have the power to September 30, 2017direct the activities of the project that most significantly impact its performance. Therefore, the Company is not the project's primary beneficiary and does not consolidate the project in its consolidated financial statements.

Delray Plaza

On October 27, 2017, the Company invested inentered into a note receivable with a maximum principal balance of $13.1 million for the development of a $20.0 million Whole Foods anchoredFoods-anchored center located in Delray Beach, Florida. The Company's investmentborrower of the note and developer of the shopping center is in the form of a mezzanine loan of up to $13.1 million to the developer, Delray Plaza Holdings, LLC ("DPH"). The mezzanine loan bears interest at an annual rate of 15%. The note matures on the earliest of (i) October 27, 2020, (ii) the date of any sale or refinance of the development project, or (iii) the disposition or change in control of the development project. The

As of March 31, 2018 and December 31, 2017, the Company had funded $6.3 million and $5.4 million, respectively, on this note. During the three months ended March 31, 2018, the Company recognized $0.2 million of interest income on this note. No portion of the note receivable balance is past due, and the Company has funded $5.9 millionnot recorded an impairment balance on the note.

Management has concluded that this entity is a VIE. Because DPH is the developer of this loan.Delray Plaza, the Company does not have the power to direct the activities of the project that most significantly impact its performance. Therefore, the Company is not the project's primary beneficiary and does not consolidate the project in its consolidated financial statements.

7. Construction Contracts

Construction contract costs and estimated earnings in excess of billings represent reimbursable costs and amounts earned under contracts in progress as of the balance sheet date. Such amounts become billable according to contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project. The Company expects to bill and collect substantially all construction contract costs and estimated earnings in excess of billings as of March 31, 2018 during the next twelve months.  
Billings in excess of construction contract costs and estimated earnings represent billings or collections on contracts made in advance of revenue recognized.


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The following table summarizes the changes to the balances in the Company’s construction contract costs and estimated earnings in excess of billings account and the billings in excess of construction contract costs and estimated earnings account for the three months ended March 31, 2018 (in thousands):

  Construction contract costs and estimated earnings in excess of billings Billings in excess of construction contract costs and estimated earnings
Balance as of January 1, 2018 $245
 $3,591
Revenue recognized that was included in the balance at the beginning of the period —
 (3,591)
Increases due to new billings, excluding amounts recognized as revenue during the period —
 2,313
Transferred to receivables (245) —
Construction contract costs and estimated earnings not billed during the period 315
 —
Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion —
 (78)
Balance as of March 31, 2018 $315
 $2,235

The Company defers pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable. Pre-contract costs of $0.5 million and $0.3 million were deferred as of March 31, 2018 and December 31, 2017, respectively.
Construction receivables and payables include retentions--amounts that are generally withheld until the completion of the contract or the satisfaction of certain restrictive conditions such as fulfillment guarantees. As of March 31, 2018 and December 31, 2017, construction receivables included retentions of $9.4 million and $12.9 million, respectively. The Company expects to collect substantially all construction receivables as of March 31, 2018 during the next twelve months. As of March 31, 2018 and December 31, 2017, construction payables included retentions of $16.8 million and $16.3 million, respectively. The Company expects to pay substantially all construction payables as of March 31, 2018 during the next twelve months.

The Company’s net position on uncompleted construction contracts comprised the following as of March 31, 2018 and December 31, 2017 (in thousands):

 March 31,
2018		 December 31,
2017
Costs incurred on uncompleted construction contracts$542,790
 $520,368
Estimated earnings18,673
 18,070
Billings(563,383) (541,784)
Net position$(1,920) $(3,346)

 March 31,
2018		 December 31,
2017
Construction contract costs and estimated earnings in excess of billings$315
 $245
Billings in excess of construction contract costs and estimated earnings(2,235) (3,591)
Net position$(1,920) $(3,346)


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The Company’s balances and changes in construction contract price allocated to unsatisfied performance obligations (backlog) as of March 31, 2018 and December 31, 2017 were as follows (in thousands):

  Three Months Ended March 31,
  2018 2017
Beginning backlog $49,167
 $217,718
New contracts/change orders 4,569
 3,441
Work performed (23,003) (63,437)
Ending backlog $30,733
 $157,722

The Company expects to complete a majority of the uncompleted contracts as of March 31, 2018 during the next 12 to 18 months.
8. Indebtedness
 
Credit Facility
 
On February 20, 2015,October 26, 2017, the Operating Partnership as borrower, and the Company, as parent guarantor, entered into an amended and restated credit agreement (the “credit agreement”), which provides for a $200.0$300.0 million senior unsecured credit facility (the "credit facility") that includedcomprised of a $150.0 million senior unsecured revolving credit facility (the "revolving credit facility") and a $50.0$150.0 million senior unsecured term loan facility. During 2016,facility (the "term loan facility" and, together with the Companyrevolving credit facility, the "credit facility"), with a syndicate of banks.
The credit facility includes an accordion feature that allows the total commitments to be increased to $450.0 million, subject to certain conditions, including obtaining commitments from any one or more lenders. The revolving credit facility has a scheduled maturity date of October 26, 2021, with two six-month extension options, subject to certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of October 26, 2022.
On March 28, 2018, the Operating Partnership increased the borrowing capacitymaximum commitments under the credit facility to $330.0 million using the accordion feature, with an increase of the term loan facility to $100.0$180.0 million. During the first quarter of 2017, the Company increased the borrowing capacity under the term loan facility to $125.0 million, increasing the total capacity of the credit facility to $275.0 million pursuant to the accordion feature.

Depending on the Operating Partnership’s total leverage, theThe revolving credit facility borebears interest at LIBOR (the London Inter-Bank Offered Rate) plus a margin ranging from 1.40% to 2.00% and the term loan facility borebears interest at LIBOR plus a margin ranging from 1.35% to 1.95%, in each case depending on the Company's total leverage as definedleverage. The Company is also obligated to pay an unused commitment fee of 15 or 25 basis points on the unused portions of the commitments under the revolving credit facility, depending on the amount of borrowings under the credit agreement. facility.

As of September 30,March 31, 2018 and December 31, 2017, the outstanding balance on the revolving credit facility was $108.0 million and $66.0 million, respectively, and the outstanding balance on the term loan facility was $180.0 million and $150.0 million, respectively. As of March 31, 2018, the effective interest rates on the revolving credit facility and the term loan facility were 2.78%3.43% and 2.74%3.38%, respectively. As of September 30, 2017, the revolving credit facility had a scheduled maturity date of February 20, 2019, with a one-year extension option, subject to certain conditions, and the term loan facility had a scheduled maturity date of February 20, 2020. The Operating PartnershipCompany may, at any time, voluntarily prepay any loan under the credit facility in whole or in part without premium or penalty.

As of September 30, 2017,The Operating Partnership is the outstanding balances onborrower under the revolving credit facility, and its obligations under the term loancredit facility were $58.0 millionare guaranteed by the Company and $125.0 million, respectively.certain of its subsidiaries that are not otherwise prohibited from providing such guaranty. The credit agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Company's ability to borrow under the credit facility is subject to ongoing compliance with a number of financial covenants, affirmative covenants and other restrictions. The credit agreement includes customary events of default, in certain cases subject to customary cure periods. The occurrence of an event of default, if not cured within the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the credit facility to be immediately due and payable.

The Company is currently in compliance with all covenants under the credit agreement.

Subsequent to September 30, 2017

On October 26, 2017, the Company amended and restated the credit facility (the "amended credit facility") to (i) extend the maturity date of the revolving credit facility to October 2021 (with options to extend up to October 2022, subject to certain conditions) and (ii) extend the maturity date of the term loan facility to October 2022. The borrowing capacity under the term loan facility was increased to $150.0 million, increasing the total capacity of the amended credit facility to $300.0 million. The determination of interest rates charged under the amended credit facility remained unchanged.


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March 31, 2018

In October 2017,April 2018, the Company increased its borrowings under the revolving credit facility by $8.0 million and, in conjunction with the closing$19.0 million.


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Table of the amended credit facility, increased its borrowings under the term loan facility by $25.0 million.Contents

Other Financing Activity
 
On February 1, 2017,January 22, 2018, the Company extended the Sandbridge Commons note. The note bears interest at a rate of LIBOR plus a spread of 1.75% and will mature on January 17, 2023.

On March 27, 2018, the Company paid off the North Point CenterColumbus Village Note 51 and Columbus Village Note 2 in full for $0.6an aggregate amount of $8.3 million.

On February 24, 2017, the Company secured a $29.8 million construction loan for the Harding Place project in Charlotte, North Carolina.

On April 7, 2017, the Company paid off the Harrisonburg Regal note in full for $3.2 million.

On April 19, 2017, the Company entered into a second amendment to the credit agreement for the Lightfoot Marketplace loan, which amended certain definitions and covenant requirements.

On June 29, 2017, the Company secured a $27.9 million construction loan for the Town Center Phase VI project in Virginia Beach, Virginia.

On July 13, 2017, the Company paid off the remaining balance of $4.9 million for the note secured by the Commonwealth of Virginia building in Chesapeake, Virginia in conjunction with the sale of this property.

On August 9, 2017, the Company refinanced the Hanbury Village note. The new note matures in August 2022 and has a fixed annual interest rate of 3.78%.

On August 10, 2017, the Company paid off $0.7 million of the Sandbridge Commons note in conjunction with the sale of a land outparcel at this property.

On September 1, 2017, the Company entered into a modification of The Cosmopolitan note, which reduced the interest rate from 3.75% to 3.35%.

During the ninethree months ended September 30, 2017,March 31, 2018, the Company borrowed $3.6$9.5 million under its construction loans to fund new development and construction.

Subsequent to September 30, 2017

On October 13, 2017, the Company paid off $5.0 million of the Liberty Apartments note.

8.9. Derivative Financial Instruments
 
The Company may enter into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of interest rate derivatives in the condensed consolidated statements of income. For derivatives that qualify as cash flow hedges, the effective portion of the gain or loss is reported as a component of other comprehensive loss and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.

On February 1, 2017, the North Point Center Note 5 was paid in full, which terminated the interest rate swap agreement associated with the note. The loss on the interest rate swap agreement was not significant.

On FebruaryMarch 7, 2017, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of
$50.0 million at a strike rate of 1.50% for a premium of less than $0.2 million. The interest rate cap agreement expires on March 1, 2019.

On June 23, 2017,2018, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 1.50%2.25% for a premium of less than $0.2$0.3 million. The interest rate cap agreement expires on JulyApril 1, 2019.

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On September 18, 2017, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 1.50% for a premium of less than $0.2 million. The interest rate cap agreement expires on October 1, 2019.2020.
 
The Company’s derivatives were comprised of the following as of September 30, 2017March 31, 2018 and December 31, 20162017 (in thousands): 
 September 30, 2017 December 31, 2016 March 31, 2018 December 31, 2017
 (Unaudited)       (Unaudited)      
 
Notional
Amount
 Fair Value 
Notional
Amount
 Fair Value 
Notional
Amount
 Fair Value 
Notional
Amount
 Fair Value
   Asset Liability   Asset Liability   Asset Liability   Asset Liability
Interest rate swaps $56,124
 $10
 $(447) $56,901
 $—
 $(829) $56,033
 $289
 $—
 $56,079
 $10
 $(69)
Interest rate caps 370,000
 707
 —
 270,000
 259
 —
 320,000
 2,446
 —
 345,000
 1,515
 —
Total $426,124
 $717
 $(447) $326,901
 $259
 $(829) $376,033
 $2,735
 $—
 $401,079
 $1,525
 $(69)

The changes in the fair value of the Company’s derivatives during the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 were comprised of the following (in thousands): 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016 Three Months Ended 
 March 31,
 (Unaudited) 2018 2017
Interest rate swaps $124
 $481
 $392
 $(2,007) $348
 $261
Interest rate caps (37) 17
 (92) (257) 621
 33
Total change in fair value of interest rate derivatives $87
 $498
 $300
 $(2,264) $969
 $294

The Company has not designated any of its current derivatives as hedging instruments under GAAP.

Subsequent to March 31, 2018

On April 23, 2018, the Operating Partnership entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of 2.783%, an effective date of May 1, 2018, and a maturity date of May 1, 2023.

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10. Equity
 
Stockholders’ Equity
 
On May 4, 2016,February 26, 2018, the Company commenced an at-the-market continuous equity offering program (the “ATM Program”) through which the Company could,may, from time to time, issue and sell shares of its common stock having an aggregate offering price of up to $75.0$125.0 million. During the ninethree months ended September 30, 2017,March 31, 2018, the Company issued and sold an aggregate of 450,690did not issue any shares of common stock at a weighted average price of $14.08 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $6.2 million.

On May 12, 2017, the Company completed an underwritten public offering of 6.9 million shares of common stock at a public offering price of $13.00 per share, which resulted in net proceeds after offering costs and commissions of $85.3 million.Program.

As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s authorized capital was 500 million shares of common stock and 100 million shares of preferred stock. The Company had 44,936,65245,205,575 and 37,490,36144,937,763 shares of common stock issued and outstanding as of September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively. No shares of preferred stock were issued and outstanding as of September 30, 2017March 31, 2018 or December 31, 2016.

Redeemable Noncontrolling Interests

The noncontrolling interest holder of Johns Hopkins Village has the option to redeem the 20% noncontrolling interest in that entity (the "Put Option"). Currently, the Put Option may be redeemed for $2.0 million in cash or the equivalent amount in Class A units of limited partnership interest in the Operating Partnership ("Class A Units"), which is in the holder's control. Beginning in August 2018, the Put Option may be settled for the fair value of the 20% noncontrolling interest in Johns Hopkins Village, as determined by appraised value. Because the method of the Put Option's redemption is outside of the Company's control, it has been included in temporary equity. If the Put Option is exercised for redemption in the form of Class A Units, the noncontrolling interest will be reclassified into permanent equity.2017.
 

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Noncontrolling Interests
 
As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company held a 71.6%72.2% and 68.1%72.0% interest, respectively, in the Operating Partnership. The Company is the primary beneficiary of the Operating Partnership as it has the power to direct the activities of the Operating Partnership and the rights to absorb 71.6%72.2% of the net income of the Operating Partnership. As the primary beneficiary, the Company consolidates the financial position and results of operations of the Operating Partnership. Noncontrolling interests in the Company represent units of limited partnership interest in the Operating Partnership not held by the Company. As of March 31, 2018, there were 17,440,861 Class A Units not held by the Company. The Company's financial position and results of operations are the same as those of the Operating Partnership. The noncontrolling interest for the consolidated entities under development or construction (see Note 1) was zero as of September 30, 2017March 31, 2018 and December 31, 2016.2017.
 
AsOn January 2, 2018, due to the holders of September 30, 2017, there were 17,570,512 Class A Units not heldtendering an aggregate of 163,000 Class A Units for redemption by the Company.Operating Partnership, the Company elected to satisfy the redemption request through the issuance of an equal number of shares of common stock.

As partial consideration for the acquisition of Columbus Village, the Operating Partnership issued 1,000,000 class B units of limited partnership interest in the Operating Partnership ("Class B UnitsUnits") on July 10, 2015 and issued 275,000 class C units of limited partnership interest in the Operating Partnership ("Class C UnitsUnits") on January 10, 2017. The Class B Units were automatically converted to Class A Units on July 10, 2017. Subject to the occurrence of certain events, theThe Class C Units will not earn or accrue distributions until January 10, 2018, at which time theywere automatically will convertconverted into Class A Units.Units on January 10, 2018.

On January 10, 2017,As partial consideration for the acquisition of Parkway Centre, the Operating Partnership issued 68,691117,228 Class A Units to acquire the remaining 20% interest in the Town Center Phase VI project.on January 29, 2018.

Common Stock Dividends and Class A Unit Distributions
 
On January 5, 2017,4, 2018, the Company paid cash dividends of $6.7 million to common stockholders and the Operating Partnership paid cash distributions of $3.0 million to holders of Class A Units.

On April 6, 2017, the Company paid cash dividends of $7.2 million to common stockholders and the Operating Partnership paid cash distributions of $3.2 million to holders of Class A Units.

On July 6, 2017, the Company paid dividends of $8.6 million to common stockholders and the Operating Partnership paid cash distributions of $3.1 million to holders of Class A Units.

On August 4, 2017, the Board of Directors declared a cash dividend and distribution of $0.19 per share and unit payable on October 5, 2017 to stockholders and unitholders of record on September 27, 2017.

Subsequent to September 30, 2017

On October 2, 2017, due to the request of holders of Class A Units to tender an aggregate of 358,879 units for redemption by the Operating Partnership, the Company elected to satisfy the redemption requests with an aggregate cash payment of $4.9 million.

On October 5, 2017, the Company paid dividends of $8.5 million to common stockholders and the Operating Partnership paid cash distributions of $3.3 million to holders of Class A Units.

On February 22, 2018, the Board of Directors declared a cash dividend and distribution of $0.20 per share and unit payable on April 5, 2018 to stockholders and unitholders of record on March 28, 2018.

Subsequent to March 31, 2018

On April 2, 2018, due to the holders of Class A Units tendering an aggregate of 187,142 Class A Units for redemption by the Operating Partnership, the Company elected to satisfy the redemption request with an aggregate cash payment of $2.5 million.

On April 5, 2018, the Company paid cash dividends of $9.0 million to common stockholders and the Operating Partnership paid cash distributions of $3.5 million to holders of Class A Units.

On April 17, 2018, the Operating Partnership issued 36,684 Class A Units to the former noncontrolling interest holder of John Hopkins Village due to the satisfaction of a contingent event that was part of the redemption of its redeemable noncontrolling interest in Johns Hopkins Village in December 2017.

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During April 2018, the Company issued and sold an aggregate of 31,468 shares of common stock at a weighted average price of $13.79 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $0.4 million.

10.11. Stock-Based Compensation
 
On June 14, 2017, the Company's stockholders approved the Company's Amended and Restated 2013 Equity Incentive Plan (the "Amended Plan"), which, among other things, increased the number of shares of the Company's common stock reserved for issuance under the Amended Plan by 1,000,000 shares, from 700,000 shares to 1,700,000 shares. As of September 30, 2017,March 31, 2018, there were 1,084,9421,050,269 shares available for issuance under the Amended Plan.

During the ninethree months ended September 30, 2017,March 31, 2018, the Company granted an aggregate of 117,201131,065 shares of restricted stock to employees and non-employee directors with a weighted average grant date fair value of $14.03$13.35 per share. Employee restricted stock awards generally vest over a period of two years: one-third immediately on the grant date and the remaining two-thirds in equal amounts on the first two anniversaries following the grant date, subject to continued service to the Company. Non-employee director restricted stock awards vest either immediately upon grant or over a period of one year, subject to continued service to the Company.
 

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During the ninethree months ended September 30, 2017,March 31, 2018, the Company issued performance-based awards in the form of restricted stock units to certain employees. The performance period for these awards is three years, with a required two-year service period immediately following the expiration of the performance period.period in order to fully vest. The compensation expense and the effect on the Company’s weighted average diluted shares calculation were immaterial.

During the three months ended September 30,March 31, 2018 and 2017, and 2016, the Company recognized $0.3$0.8 million and $0.3 million, respectively, of stock-based compensation expense. During the nine months ended September 30, 2017 and 2016, the Company recognized $1.4 million and $1.2$0.7 million, respectively, of stock-based compensation expense. As of September 30, 2017,March 31, 2018, there were 112,838135,484 nonvested restricted shares outstanding; the total unrecognized compensation expense related to nonvested restricted shares was $0.8$1.3 million, which the Company expects to recognize over the next 2324 months.
 
11.12. Fair Value of Financial Instruments
 
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows: 
Level 1—quoted prices in active markets for identical assets or liabilities 
Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities 
Level 3—unobservable inputs 
Except as disclosed below, the carrying amounts of the Company’s financial instruments approximate their fair value. Financial assets and liabilities whose fair values are measured on a recurring basis using Level 2 inputs consist of interest rate swaps and caps. The Company measures the fair values of these assets and liabilities based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The fair value of the Company’s long term debt is sensitive to fluctuations in interest rates. Discounted cash flow analysis based on Level 2 inputs is generally used to estimate the fair value of the Company’s long term debt. Considerable judgment is used to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.
The carrying amounts and fair values of the Company’s financial instruments, all of which are based on Level 2 inputs, as of September 30, 2017March 31, 2018 and December 31, 2016,2017, were as follows (in thousands): 
 September 30, 2017 December 31, 2016 March 31, 2018 December 31, 2017
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 (Unaudited)  
  
 (Unaudited)  
  
Indebtedness $488,609
 $491,026
 $522,180
 $527,414
 $589,634
 $586,717
 $517,272
 $518,417
Interest rate swap liabilities 447
 447
 829
 829
 —
 —
 69
 69
Interest rate swap assets 10
 10
 —
 —
Interest rate cap assets 707
 707
 259
 259
Interest rate swap and cap assets 2,735
 2,735
 1,525
 1,525
 
12.13. Related Party Transactions
 
The Company provides general contracting and real estate services to certain related party entities that are not included in these condensed consolidated financial statements. Revenue from construction contracts with related party entities of the Company for the three months ended September 30,March 31, 2018 and 2017 and 2016 was less than $0.1$1.2 million and $6.8$6.6 million, respectively, and gross profit from such contracts for the three months ended September 30,March 31, 2018 and 2017 and 2016 was less than $0.1$0.2 million and $0.3 million, respectively. Revenue from construction contracts with related party entities of the Company for the nine months ended September 30, 2017 and 2016 was $7.4 million and $21.7 million, respectively, and gross profit from such contracts for the nine months ended September 30, 2017 and 2016 was $0.4 million and $0.8 million, respectively.


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each period.

Real estate services fees from affiliated entities of the Company were not significant for the three and nine months ended September 30, 2017March 31, 2018 or 2016.2017. In addition, affiliated entities also reimburse the Company for monthly maintenance and facilities management services provided to the properties. Cost reimbursements earned by the Company from affiliated entities were not significant for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017. 
 

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The Operating Partnership entered into tax protection agreements that indemnify certain directors and executive officers of the Company from their tax liabilities resulting from the potential future sale of certain of the Company’s properties within seven (or, in a limited number of cases, ten) years of the completion of the Company’s initial public offering and formation transactions completed on May 13, 2013. In addition, the tax protection agreements provide that the Operating Partnership will offer certain of the original contributors, including certain of the Company’s directors and executive officers, the opportunity to guarantee debt, or, alternatively, to enter into a deficit restoration obligation, for ten years from the closing of the Company’s initial public offering in a manner intended to provide an allocation of Operating Partnership liabilities to the partner for U.S. federal income tax purposes. Pursuant to these tax protection agreements, certain of the Company’s executive officers have guaranteed approximately $0.3 million of the Operating Partnership’s outstanding debt as of September 30, 2017.

The loan for the City Center joint venture is underwritten by a syndicate which includes Park Sterling Bank. The Chief Executive Officer of Park Sterling Bank is the Chairman of the Company’s Audit Committee.March 31, 2018.
 
13.14. Commitments and Contingencies
 
Legal Proceedings
 
The Company is from time to time involved in various disputes, lawsuits, warranty claims, environmental and other matters arising in the ordinary course of business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.
 
The Company currently is a party to various legal proceedings. Management accrues a liability for litigation if an unfavorable outcome is determined to be probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is determined to be probable and a range of loss can be reasonably estimated, management accrues the best estimate within the range; however, if no amount within the range is a better estimate than any other, the minimum amount within the range is accrued. Legal fees related to litigation are expensed as incurred. Management does not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on the Company’s financial position or results of operations; however, litigation is subject to inherent uncertainties.
 
Under the Company’s leases, tenants are typically obligated to indemnify the Company from and against all liabilities, costs and expenses imposed upon or asserted against it as owner of the properties due to certain matters relating to the operation of the properties by the tenant.
 
Commitments
 
The Company has a bonding line of credit for its general contracting construction business and is contingently liable under performance and payment bonds, bonds for cancellation of mechanics liens and defect bonds. Such bonds collectively totaled $44.9$43.8 million and $40.5$44.9 million as of September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.
 
The Operating Partnership has entered into standby letters of credit using the available capacity under the senior unsecured credit facility. Letters of credit generally are available for draw down in the event the Company does not perform. As of September 30, 2017both March 31, 2018 and December 31, 2016,2017, the Operating Partnership had total outstanding letters of credit of $4.1 million and $4.1 million, respectively.$2.1 million. The amounts outstanding at September 30, 2017March 31, 2018 and December 31, 2016 include $2.0 million relating to construction projects and2017 were comprised of a $2.1 million letter of credit related to the guarantee on the Point Street Apartments senior construction loan.

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Review Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Armada Hoffler Properties, Inc.
We have reviewed the condensed consolidated balance sheet of Armada Hoffler Properties, Inc. as of September 30, 2017, and the related condensed consolidated statements of income for the three and nine-month periods ended September 30, 2017 and 2016, the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016 and the condensed consolidated statement of equity for the nine-month period ended September 30, 2017. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Armada Hoffler Properties, Inc. as of December 31, 2016, and the related consolidated statements of comprehensive income, equity, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 1, 2017. In our opinion, the accompanying condensed consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Tysons, Virginia
November 1, 2017

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
References to “we,” “our,” “us,” and “our company” refer to Armada Hoffler Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Armada Hoffler, L.P., a Virginia limited partnership (the “Operating Partnership”), of which we are the sole general partner. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
 
Forward-Looking Statements
 
This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
 
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
 
adverse economic or real estate developments, either nationally or in the markets in which our properties are located; 
our failure to develop the properties in our development pipeline successfully, on the anticipated timeline, or at the anticipated costs; 
our failure to generate sufficient cash flows to service our outstanding indebtedness; 
defaults on, early terminations of, or non-renewal of leases by tenants, including significant tenants; 
bankruptcy or insolvency of a significant tenant or a substantial number of smaller tenants; 
difficulties in identifying or completing development, acquisition, or disposition opportunities; 
our failure to successfully operate developed and acquired properties; 
our failure to generate income in our general contracting and real estate services segment in amounts that we anticipate; 
fluctuations in interest rates and increased operating costs;
our failure to obtain necessary outside financing on favorable terms or at all; 
our inability to extend the maturity of or refinance existing debt or comply with the financial covenants in the agreements that govern our existing debt; 
financial market fluctuations; 
risks that affect the general retail environment or the market for office properties or multifamily units; 
the competitive environment in which we operate; 
decreased rental rates or increased vacancy rates; 
conflicts of interests with our officers and directors; 
lack or insufficient amounts of insurance; 

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environmental uncertainties and risks related to adverse weather conditions and natural disasters; 
other factors affecting the real estate industry generally; 
our failure to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes; 
limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification as a REIT for U.S. federal income tax purposes; and 
changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates and taxation of REITs.REITs; and
potential negative impacts from the recent changes to the U.S. tax laws.
 
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. We caution investors not to place undue reliance on these forward-looking statements and urge investors to carefully review the disclosures we make concerning risks and uncertainties in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q and identified in other documents that we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”).
 
Business Description
 
We are a full-service real estate company with extensive experience developing, building, owning and managing high-quality, institutional-grade office, retail and multifamily properties in attractive markets primarily throughout the Mid-Atlantic and Southeastern United States. As of September 30, 2017,March 31, 2018, our operating property portfolio consisted of the following properties:
Property    Segment    Location Ownership Interest
4525 Main Street Office Virginia Beach, Virginia* 100%
Armada Hoffler Tower Office Virginia Beach, Virginia* 100%
One Columbus Office Virginia Beach, Virginia* 100%
Two Columbus Office Virginia Beach, Virginia* 100%
249 Central Park Retail Retail Virginia Beach, Virginia* 100%
Alexander Pointe Retail Salisbury, North Carolina 100%
Bermuda Crossroads Retail Chester, Virginia 100%
Broad Creek Shopping Center Retail Norfolk, Virginia 100%
Broadmoor Plaza Retail South Bend, Indiana 100%
Brooks Crossing(1)
 Retail Newport News, Virginia 65%
Columbus Village Retail Virginia Beach, Virginia* 100%
Columbus Village II Retail Virginia Beach, Virginia* 100%
Commerce Street Retail Retail Virginia Beach, Virginia* 100%
Courthouse 7-Eleven Retail Virginia Beach, Virginia 100%
Dick's at Town Center Retail Virginia Beach, Virginia* 100%
Dimmock Square Retail Colonial Heights, Virginia 100%
Fountain Plaza Retail Retail Virginia Beach, Virginia* 100%
Gainsborough Square Retail Chesapeake, Virginia 100%
Greentree Shopping Center Retail Chesapeake, Virginia 100%
Hanbury Village Retail Chesapeake, Virginia 100%
Harper Hill Commons Retail Winston-Salem, North Carolina 100%
Harrisonburg Regal Retail Harrisonburg, Virginia 100%
Lightfoot Marketplace(2)
Indian Lakes Crossing		 Retail Williamsburg,Virginia Beach, Virginia 70100%

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Property    Segment    Location Ownership Interest
Lightfoot Marketplace(2)
RetailWilliamsburg, Virginia70%
North Hampton Market Retail Taylors, South Carolina 100%
North Point Center Retail Durham, North Carolina 100%
Oakland Marketplace Retail Oakland, Tennessee100%
Parkway CentreRetailMoultrie, Georgia 100%
Parkway Marketplace Retail Virginia Beach, Virginia 100%
Patterson Place Retail Durham, North Carolina 100%
Perry Hall Marketplace Retail Perry Hall, Maryland 100%
Providence Plaza Retail Charlotte, North Carolina 100%
Renaissance Square Retail Davidson, North Carolina 100%
Sandbridge Commons Retail Virginia Beach, Virginia 100%
Socastee Commons Retail Myrtle Beach, South Carolina 100%
Southgate Square Retail Colonial Heights, Virginia 100%
Southshore Shops Retail Chesterfield, Virginia 100%
South Retail Retail Virginia Beach, Virginia* 100%
South Square Retail Durham, North Carolina 100%
Stone House Square Retail Hagerstown, Maryland 100%
Studio 56 Retail Retail Virginia Beach, Virginia* 100%
Tyre Neck Harris Teeter Retail Portsmouth, Virginia 100%
Waynesboro Commons Retail Waynesboro, Virginia 100%
Wendover Village Retail Greensboro, North Carolina 100%
Encore Apartments Multifamily Virginia Beach, Virginia* 100%
Johns Hopkins Village(3)
 Multifamily Baltimore, Maryland 80100%
Liberty Apartments Multifamily Newport News, Virginia 100%
Smith's Landing Multifamily Blacksburg, Virginia 100%
The Cosmopolitan Multifamily Virginia Beach, Virginia* 100%
                                                      
(1)We are entitled to a preferred return of 8% on our investment in Brooks Crossing.
(2)We are entitled to a preferred return of 9% on our investment in Lightfoot Marketplace.
(3)See discussion of redeemable noncontrolling interest in Note 9 for additional information. We are entitled to a preferred return of 9% on our investment in Johns Hopkins Village.
*Located in the Town Center of Virginia Beach

As of September 30, 2017,March 31, 2018, the following properties that we consolidate for financial reporting purposes were either under development or construction: 
Property    Segment    LocationOwnership Interest
TownPremier (Town Center Phase VIVI) Mixed-use Virginia Beach, Virginia*100%
Harding PlaceGreenside (Harding Place)(1)
 Multifamily Charlotte, North Carolina80%
595 King StreetHoffler Place (King Street) Multifamily Charleston, South Carolina92.5%
530 Meeting StreetSummit Place (Meeting Street) Multifamily Charleston, South Carolina90%
Brooks Crossing office tower (2)
 OfficeNewport News, Virginia65%
Lightfoot Outparcel (3)
RetailWilliamsburg, Virginia70%
Market at Mill Creek (4)
RetailMount Pleasant, South Carolina70%
River CityIndustrialChesterfield, Virginia100%
       
(1) We are entitled to a preferred return of 9% on a portion of our investment in Harding Place.
(2) We are entitled to a preferred return of 8% on our investment in Brooks Crossing.
(3) We are entitled to a preferred return of 9% on our investment in Lightfoot Outparcel.
(4) We are entitled to a preferred return of 10% on our investment in Market at Mill Creek.


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*Located in the Town Center of Virginia Beach
 
Please see Note 5 to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for information related to our investment in Durham City Center II, LLC, which is an unconsolidated subsidiary that we account for under the equity method of accounting.

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Acquisitions and Dispositions

On January 4, 2017,9, 2018, we acquired undeveloped landIndian Lakes Crossing, a Harris Teeter-anchored shopping center in Charleston, South CarolinaVirginia Beach, Virginia, for a contract price of $7.1$14.7 million plus capitalized acquisition costs of $0.2 million. We intend to use the land for the future development of the 595 King Street property.

On January 20, 2017,29, 2018, we completedacquired Parkway Centre, a newly developed Publix-anchored shopping center in Moultrie, Georgia for total consideration of $11.3 million ($9.6 million in cash and $1.7 million in the saleform of the Wawa outparcel at Greentree Shopping Center. Net proceeds after transactionclass A units of limited partnership interest in our Operating Partnership ("Class A Units") plus capitalized acquisition costs were $4.4 million. The gain on the disposition was $3.4of $0.3 million.

On July 11,November 30, 2017, we entered into a lease agreement with Bottling Group, LLC for a new distribution facility that we will develop and construct for expected delivery in the fourth quarter of 2018. On January 29, 2018, we acquired undeveloped land in Charleston, South CarolinaChesterfield, Virginia, a portion of which will serve as the site for this facility, for a contract price of $6.7 million plus capitalized acquisition costs of $0.1 million. We intend to use the land for the future development of the 530 Meeting Street property.

On July 13, 2017, we completed the sale of two office properties leased by the Commonwealth of Virginia in Chesapeake, Virginia and Virginia Beach, Virginia. Aggregate net proceeds from the dispositions of the properties after transaction costs and repayment of the loan associated with the Chesapeake, Virginia property were $7.9 million, and the aggregate gain on the dispositions was $4.2 million.

On July 25, 2017, we acquired the outparcel phase of Wendover Village in Greensboro, North Carolina for a contract price of $14.3$2.4 million plus capitalized acquisition costs of $0.1 million.

On August 10, 2017,January 18, 2018, we completed the saleentered into an operating agreement with a partner to develop a Lowes Foods-anchored shopping center in Mount Pleasant, South Carolina. The partnership, Market at Mill Creek Partners, LLC acquired undeveloped land on February 16, 2018 for a contract price of a land outparcel at Sandbridge Commons. Net proceeds after transaction$2.9 million plus capitalized acquisition costs and a partial loan paydown were $0.3 million. The gain on the disposition was $0.5of $0.1 million.

ThirdFirst Quarter 20172018 Highlights
 
The following highlights our results of operations and significant transactions for the three months ended September 30, 2017:March 31, 2018:
 
•Net income of $10.5$7.0 million, or $0.17$0.11 per diluted share, compared to $7.9$8.8 million, or $0.15$0.16 per diluted share, for the three months ended September 30, 2016.March 31, 2017. 
•Funds from operations ("FFO") of $15.5$16.3 million, or $0.25$0.26 per diluted share, compared to $13.1$14.8 million, or $0.25$0.27 per diluted share, for the three months ended September 30, 2016.March 31, 2017. See “Non-GAAP Financial Measures.” 
•Normalized funds from operations (“Normalized FFO”) of $15.5$15.4 million, or $0.25 per diluted share, compared to $13.2$14.6 million, or $0.26 per diluted share, for the three months ended September 30, 2016.March 31, 2017. See “Non-GAAP Financial Measures.”
•Core operating property portfolio occupancy at 94.7%95.6% as of September 30, 2017March 31, 2018 compared to 94.2% as of June 30,December 31, 2017.
•Property segment net operating income (“NOI”)The Board of $17.6 million compared to $17.1 millionDirectors declared a cash dividend of $0.20 per common share for the three months ended September 30, 2016: 
Office NOIfirst quarter of $2.8 million compared to $3.2 million 
Retail NOI of $11.6 million compared to $10.7 million
Multifamily NOI of $3.1 million compared to $3.1 million 
•Same store NOI of $13.8 million compared to $14.5 million for2018. This represents a 5.3% increase over the three months ended September 30, 2016: 
Office same store NOI of $1.9 million compared to $2.2 million
Retail same store NOI of $9.4 million compared to $9.6 million 
Multifamily same store NOI of $2.4 million compared to $2.7 million 
•General contractingprior quarter's cash dividend and real estate services segment gross profit of $1.8 million compared to $1.3 million for the three months ended September 30, 2016. fourth increase in four years, totaling 25% dividend growth during that period.
•Third party construction backlogAdded approximately 132,000 square feet of $76.7 million asretail space through the acquisitions of September 30, 2017. 
•Declared cash dividends of $0.19 per shareIndian Lakes Crossing, a Harris Teeter-anchored center in Virginia Beach, Virginia and Class A unit.Parkway Centre, a Publix-anchored center in Moultrie, Georgia.


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Segment Results of Operations
 
As of September 30, 2017,March 31, 2018, we operated our business in four segments: (i) office real estate, (ii) retail real estate, (iii) multifamily residential real estate and (iv) general contracting and real estate services, which are conducted through our taxable REIT subsidiaries (“TRS”). Net operating income (segment revenues minus segment expenses), or “NOI”, ("NOI") is the measure used by management to assess segment performance and allocate our resources among our segments. NOI is not a measure of operating income or cash flows from operating activities as measured by accounting principles generally accepted in the United States (“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. We consider NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses. See Note 3 to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of NOI to net income.
 
We define same store properties as those properties that we owned and operated and that were stabilized for the entirety of both periods presented. Same store properties exclude those that were in lease-up during either of the periods presented. We generally consider a property to be in lease-upstabilized upon until the earlier of: (i) the quarter after the property reaches 80% occupancy or (ii) the thirteenth quarter after the property receives its certificate of occupancy. Additionally, any property that is fully or partially taken out of service for the purpose of redevelopment is no longer considered stabilized until the redevelopment activities are complete and the assets are placed back into service.

Beginning with the three months ended March 31, 2017, our calculation of core occupancy included, and in future periods will include, the square footage from ground leases where we are the lessor.  We did not retrospectively apply this new calculation methodology to prior periods. If we were to exclude these ground leases in the calculation of core occupancy, our core occupancy as of September 30, 2017 would have been 94.3%.
Office Segment Data 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Rental revenues $4,762
 $5,277
 $(515) $14,427
 $16,097
 $(1,670) $5,100
 $4,906
 $194
Property expenses 1,928
 2,038
 (110) 5,519
 5,857
 (338) 1,948
 1,775
 173
Segment NOI $2,834
 $3,239
 $(405) $8,908
 $10,240
 $(1,332) $3,152
 $3,131
 $21
 
Office segment NOI for the three and nine months ended September 30, 2017 decreased $0.4 million and $1.3 million, respectively,March 31, 2018 increased slightly compared to the corresponding periodsthree months ended March 31, 2017. The increase in 2016. The decreases arerevenues and expenses relate primarily to a new tenant at 4525 Main Street that moved in during December 2017. In addition, real estate tax expense and other expenses increased across the office portfolio and were not entirely recovered due to decreased occupancy at Armada Hoffler Tower and property dispositions.new full service office tenants who are still in their base years. The Richmond Tower office building, which was sold inincreases were partially offset by the first quarterdisposition of 2016, and the Oyster Point office building, which was sold in the third quarter of 2016, contributed $0.2 million and $0.9 million, respectively, in office segment NOI for the three and nine months ended September 30, 2016. The Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings, which contributed an aggregate of $0.2 million and $0.8$0.3 million in office segment NOI for the three and nine months ended September 30, 2016, respectively, were sold in the third quarter ofMarch 31, 2017.

Office Same Store Results
 
Office same store results for the three and nine months ended September 30, 2017March 31, 2018 exclude new real estate development – 4525 Main Street – as well as the Richmond Tower and Oyster Point office buildings, which we sold in the first quarter of 2016 and the third quarter of 2016, respectively, and the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings, which were both sold in the third quarter of 2017.
 

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Office same store rental revenues, property expenses and NOI for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 were as follows: 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Rental revenues $3,378
 $3,595
 $(217) $10,258
 $10,805
 $(547) $3,454
 $3,514
 $(60)
Property expenses 1,451
 1,407
 44
 4,085
 3,986
 99
 1,345
 1,232
 113
Same Store NOI $1,927
 $2,188
 $(261) $6,173
 $6,819
 $(646) $2,109
 $2,282
 $(173)
Non-Same Store NOI 907
 1,051
 (144) 2,735
 3,421
 (686) 1,043
 849
 194
Segment NOI $2,834
 $3,239
 $(405) $8,908
 $10,240
 $(1,332) $3,152
 $3,131
 $21
 
Office same store NOI for the three and nine months ended September 30, 2017March 31, 2018 decreased 11.9% and 9.5%, respectively,7.6% compared to the corresponding periods in 2016three months ended March 31, 2017 due to the expansion and relocation of a tenant from One Columbus to 4525 Main Street during the three months ended December 31, 2016 and the expansion and relocation of another tenant from Two Columbus to 4525 Main Street during the three months ended September 30, 2017. For the three and nine months ended September 30, 2017,March 31, 2018, the NOI from these tenantsthis tenant that relocated to 4525 Main Street arewas included in Non-Same Store NOI. In addition, decreased occupancy atreal estate tax expense and other expenses increased across the Armada Hoffler Tower contributedoffice portfolio and were not entirely recovered due to the period-over-period decreasesnew full service office tenants that are still in office same store NOI.their base years.

Retail Segment Data

 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Rental revenues $15,880
 $14,340
 $1,540
 $47,089
 $41,485
 $5,604
 $16,711
 $15,631
 $1,080
Property expenses 4,287
 3,603
 684
 12,255
 10,773
 1,482
 4,340
 3,970
 370
Segment NOI $11,593
 $10,737
 $856
 $34,834
 $30,712
 $4,122
 $12,371
 $11,661
 $710
 
Retail segment NOI for the three and nine months ended September 30, 2017March 31, 2018 increased $0.9$0.7 million and $4.1 million, respectively, compared to the corresponding periods in 2016.three months ended March 31, 2017. The increases areincrease was a result of the acquisitions of Southgate Square, Southshore Shops, Columbus Village II, Renaissance Square,Indian Lakes Crossing and Parkway Centre during the three months ended March 31, 2018, as well as the acquisition of the outparcel phase of Wendover Village and the 11-property retail portfolio, together with the completion of the Lightfoot Marketplace and Brooks Crossing developments.development subsequent to March 31, 2017.
  
Retail Same Store Results
 
Retail same store results for the three months ended September 30, 2017March 31, 2018 exclude the remaining nine properties of the 11-property retail portfolio, as well as Southgate Square, Lightfoot Marketplace, Southshore Shops, Brooks Crossing, Columbus Village II, Renaissance Square, and the outparcel phase of Wendover Village.Village, Indian Lakes Crossing, and Parkway Centre.

Retail same store rental revenues, property expenses and NOI for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 were as follows:
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Rental revenues $13,166
 $12,989
 $177
 $28,297
 $27,846
 $451
 $15,424
 $15,222
 $202
Property expenses 3,721
 3,359
 362
 8,107
 7,717
 390
 3,807
 3,579
 228
Same Store NOI $9,445
 $9,630
 $(185) $20,190
 $20,129
 $61
 $11,617
 $11,643
 $(26)
Non-Same Store NOI 2,148
 1,107
 1,041
 14,644
 10,583
 4,061
 754
 18
 736
Segment NOI $11,593
 $10,737
 $856
 $34,834
 $30,712
 $4,122
 $12,371
 $11,661
 $710
 
Retail same store NOI decreased 0.2% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. This was a result of increases in real estate tax expense and snow removal expense.


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Retail same storeMultifamily Segment Data
  Three Months Ended March 31,  
  2018 2017 Change
Rental revenues $6,888
 $6,695
 $193
Property expenses 2,949
 2,832
 117
Segment NOI $3,939
 $3,863
 $76
Multifamily segment NOI decreased 1.9% and increased 0.3%, respectively, for the three and nine months ended September 30, 2017 compared to the corresponding periods in 2016. The decreaseslightly for the three months ended September 30, 2017 wasMarch 31, 2018 compared to the result of higher administrative expense, maintenance and repair expense, and bad debt expense. The increase for the ninethree months ended September 30, 2017 was the result of higher occupancy across the same store portfolio.

Multifamily Segment Data
  Three Months Ended September 30,   Nine Months Ended September 30,  
  2017 2016 Change 2017 2016 Change
  (unaudited, $ in thousands)
Rental revenues $6,454
 $5,688
 $766
 $19,567
 $15,257
 $4,310
Property expenses 3,308
 2,549
 759
 9,092
 6,691
 2,401
Segment NOI $3,146
 $3,139
 $7
 $10,475
 $8,566
 $1,909
Multifamily segment NOI did not change materiallyMarch 31, 2017. The increase for the three months ended September 30, 2017 and increased $1.9 million for the nine months ended September 30, 2017 compared to the corresponding periods in 2016. The increase for the nine months ended September 30, 2017March 31, 2018 was primarily a result of activity for Johns Hopkins Village, which was placed into service inexperienced higher occupancy during the third quarter of 2016.three months ended March 31, 2018 compared to the three months ended March 31, 2017.
 
Multifamily Same Store Results
 
Multifamily same store results exclude new real estate development –- specifically Johns Hopkins Village, which was placed into service in the third quarter of 2016. Multifamily same store results also exclude The Cosmopolitan, which is undergoing a redevelopment project that began on March 1, 2018.

 
Multifamily same store rental revenues, property expenses and NOI for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 were as follows: 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Rental revenues $4,793
 $4,872
 $(79) $14,230
 $14,354
 $(124) $2,854
 $2,837
 $17
Property expenses 2,356
 2,206
 150
 6,595
 6,342
 253
 1,157
 1,151
 6
Same Store NOI $2,437
 $2,666
 $(229) $7,635
 $8,012
 $(377) $1,697
 $1,686
 $11
Non-Same Store NOI 709
 473
 236
 2,840
 554
 2,286
 2,242
 2,177
 65
Segment NOI $3,146
 $3,139
 $7
 $10,475
 $8,566
 $1,909
 $3,939
 $3,863
 $76
 
Multifamily same store NOI for the three and nine months ended September 30, 2017 decreased 8.6% and 4.7%, respectively,March 31, 2018 increased 0.7% compared to the corresponding periods in 2016.three months ended March 31, 2017. The decreases areincrease is primarily due to decreased occupancythe result of increased rental rates at The Cosmopolitan attributed to construction activitiesSmith’s Landing offset by higher real estate tax expense at an adjacent property and the loss of retail tenants at that property.Liberty Apartments.

General Contracting and Real Estate Services Segment Data
 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Segment revenues $41,201
 $38,552
 $2,649
 $161,391
 $108,555
 $52,836
 $23,050
 $63,519
 $(40,469)
Segment expenses 39,377
 37,274
 2,103
 154,588
 104,336
 50,252
 22,414
 61,196
 (38,782)
Segment gross profit $1,824
 $1,278
 $546
 $6,803
 $4,219
 $2,584
 $636
 $2,323
 $(1,687)
Operating margin 4.4% 3.3% 1.2% 4.2% 3.9% 0.3% 2.8% 3.7% (0.8)%
 

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SegmentGeneral contracting and real estate services segment profit for the three and nine months ended September 30, 2017 increased $0.5March 31, 2018 decreased $1.7 million and $2.6 million, respectively,or 72.6% compared to the corresponding periodsthree months ended March 31, 2017 as there were no significant new third-party contracts in 2016 because of several new large projects started subsequent tolate 2017 or in the first quarter of 20162018.

 The changes in third party construction backlog for the three months ended March 31, 2018 and 2017 were as well as higher margins in this segment.
follows: 

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The changes in third party construction backlog for the three and nine months ended September 30, 2017 and 2016 were as follows: 
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016Three Months Ended March 31,
(unaudited, $ in thousands)2018 2017
Beginning backlog$116,657
 $252,318
 $217,718
 $83,433
$49,167
 $217,718
New contracts/change orders1,251
 32,498
 20,211
 271,288
4,569
 3,441
Work performed(41,165) (38,384) (161,186) (108,289)(23,003) (63,437)
Ending backlog$76,743
 $246,432
 $76,743
 $246,432
$30,733
 $157,722
 
As of September 30, 2017,March 31, 2018, we had $26.2$11.6 million in backlog on the City Center project $19.0 million in backlog on the Point Street Apartments project, and $17.9$9.9 million in backlog on the Dinwiddie Municipal Complex project.
   
Consolidated Results of Operations
 
The following table summarizes the results of operations for the three and nine months ended September 30, 2017March 31, 2018 and 2016:2017: 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Revenues  
  
  
  
  
  
  
  
  
Rental revenues $27,096
 $25,305
 $1,791
 $81,083
 $72,839
 $8,244
 $28,699
 $27,232
 $1,467
General contracting and real estate services revenues 41,201
 38,552
 2,649
 161,391
 108,555
 52,836
 23,050
 63,519
 (40,469)
Total revenues 68,297
 63,857
 4,440
 242,474
 181,394
 61,080
 51,749
 90,751
 (39,002)
Expenses  
  
  
  
  
  
  
  
  
Rental expenses 6,830
 5,834
 996
 19,069
 16,234
 2,835
 6,424
 6,068
 356
Real estate taxes 2,693
 2,356
 337
 7,797
 7,087
 710
 2,813
 2,509
 304
General contracting and real estate services expenses 39,377
 37,274
 2,103
 154,588
 104,336
 50,252
 22,414
 61,196
 (38,782)
Depreciation and amortization 9,239
 8,885
 354
 28,018
 25,636
 2,382
 9,278
 9,475
 (197)
General and administrative expenses 2,098
 2,156
 (58) 7,762
 6,864
 898
 2,961
 2,986
 (25)
Acquisition, development and other pursuit costs 61
 345
 (284) 477
 1,486
 (1,009) 84
 47
 37
Impairment charges 19
 149
 (130) 50
 184
 (134) —
 4
 (4)
Total expenses 60,317
 56,999
 3,318
 217,761
 161,827
 55,934
 43,974
 82,285
 (38,311)
Operating income 7,980
 6,858
 1,122
 24,713
 19,567
 5,146
 7,775
 8,466
 (691)
Interest income 1,910
 1,024
 886
 4,966
 1,928
 3,038
 2,232
 1,398
 834
Interest expense (4,253) (4,124) (129) (13,282) (11,893) (1,389) (4,373) (4,535) 162
Loss on extinguishment of debt —
 (82) 82
 —
 (82) 82
Gain on real estate dispositions 4,692
 3,753
 939
 8,087
 30,440
 (22,353)
(Loss) gain on real estate dispositions —
 3,395
 (3,395)
Change in fair value of interest rate derivatives 87
 498
 (411) 300
 (2,264) 2,564
 969
 294
 675
Other income 74
 35
 39
 154
 154
 —
 114
 37
 77
Income before taxes 10,490
 7,962
 2,528
 24,938
 37,850
 (12,912) 6,717
 9,055
 (2,338)
Income tax provision (29) (16) (13) (781) (240) (541)
Income tax benefit (provision) 266
 (302) 568
Net income $10,461
 $7,946
 $2,515
 $24,157
 $37,610
 $(13,453) $6,983
 $8,753
 $(1,770)
 

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Rental revenues for the three and nine months ended September 30, 2017March 31, 2018 increased $1.8$1.5 million and $8.2 million, respectively, compared to the corresponding periods in 2016,three months ended March 31, 2017, as follows: 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Office $4,762
 $5,277
 $(515) $14,427
 $16,097
 $(1,670) $5,100
 $4,906
 $194
Retail 15,880
 14,340
 1,540
 47,089
 41,485
 5,604
 16,711
 15,631
 1,080
Multifamily 6,454
 5,688
 766
 19,567
 15,257
 4,310
 6,888
 6,695
 193
 $27,096
 $25,305
 $1,791
 $81,083
 $72,839
 $8,244
 $28,699
 $27,232
 $1,467
 
Office rental revenues for the three and nine months ended September 30, 2017 decreased 9.8% and 10.4%, respectively,March 31, 2018 increased 4.0% compared to the corresponding periods in 2016three months ended March 31, 2017 primarily as a result of decreased occupancya new tenant at Armada Hoffler Tower and as a result4525 Main Street that moved in during December 2017. The increase was partially offset by the disposition of the sales of the Richmond Tower, Oyster Point, Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings, which contributed an aggregate of $0.4 million and $1.4$0.3 million in office rental revenues for the three and nine months ended September 30, 2016, respectively.  March 31, 2017.
 
Retail rental revenues for the three and nine months ended September 30, 2017March 31, 2018 increased 10.7% and 13.5%, respectively,6.9% compared to the corresponding periods in 2016three months ended March 31, 2017 as a result of property acquisitions. Thethe acquisitions of Indian Lakes and Parkway Centre during the remaining nine propertiesthree months ended March 31, 2018, as well as the acquisition of the 11-property retail portfolio, Southgate Square, Southshore Shops, Columbus Village II, Renaissance Square, and the outparcel phase of Wendover Village together withand the completion of Brooks Crossing andthe Lightfoot Marketplace developments, contributed an aggregate of $1.5 million and $4.7 million in increased retail rental revenues for the three and nine months ended September 30, 2017, respectively, which was partially offset by dispositions.development during 2017.

Multifamily rental revenues for the three and nine months ended September 30, 2017March 31, 2018 increased 13.5% and 28.2%, respectively,2.9% compared to the corresponding periods in 2016three months ended March 31, 2017 as a result of the completion of theactivity for Johns Hopkins Village, development, which was placed into service in the third quarter of 2016 and experienced higher occupancy at Encore Apartments and Smith's Landing.during the three months ended March 31, 2018 compared to the three months ended March 31, 2017.
 
General contracting and real estate services revenues for the three and nine months ended September 30, 2017 increased 6.9% and 48.7%, respectively,March 31, 2018 decreased 63.7% compared to the corresponding periodsthree months ended March 31, 2017 as there were no significant new third-party contracts in 2016 because of several new large projects started subsequent tolate 2017 or in the first quarter of 2016.2018.
 
Rental expenses for the three and nine months ended September 30, 2017March 31, 2018 increased $1.0$0.4 million and $2.8 million, respectively, compared to the corresponding periods in 2016,three months ended March 31, 2017 as follows: 
 Three Months Ended September 30,  Nine Months Ended September 30,  
 2017 2016 Change2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Office $1,447
 $1,553
 $(106)$4,138
 $4,307
 $(169) $1,446
 $1,325
 $121
Retail 2,699
 2,264
 435
7,698
 6,820
 878
 2,657
 2,520
 137
Multifamily 2,684
 2,017
 667
7,233
 5,107
 2,126
 2,321
 2,223
 98
 $6,830
 $5,834
 $996
$19,069
 $16,234
 $2,835
 $6,424
 $6,068
 $356
 
Office rental expenses for the three and nine months ended September 30, 2017 decreased 6.8% and 3.9%, respectively,March 31, 2018 increased 9.1% compared to the corresponding periods in 2016 due tothree months ended March 31, 2017 as a result of higher occupancy at 4525 Main Street and increased operating expenses across the sales of the Richmond Tower, Oyster Point, Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings.portfolio. Retail rental expenses for the three and nine months ended September 30, 2017March 31, 2018 increased 19.2% and 12.9%5.4% compared to the respective periods in 2016three months ended March 31, 2017 as a result of property acquisitions and the completion of development projects that were placed into service subsequent to the first quarter of 2016 as well as increased bad debt expenses.acquisitions. Multifamily rental expenses for the three and nine months ended September 30, 2017March 31, 2018 increased 33.1% and 41.6%4.4% compared to the respective periods in 2016three months ended March 31, 2017 primarily due to placinghigher occupancy at Johns Hopkins Village into service.Village.
 

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Real estate taxes for the three and nine months ended September 30, 2017March 31, 2018 increased $0.3 million and $0.7 million, respectively, compared to the corresponding periods in 2016,three months ended March 31, 2017 as follows: 
 Three Months Ended September 30,   Nine Months Ended September 30,  
 2017 2016 Change 2017 2016 Change Three Months Ended March 31,  
 (unaudited, $ in thousands) 2018 2017 Change
Office $481
 $485
 $(4) $1,381
 $1,550
 $(169) $502
 $450
 $52
Retail 1,588
 1,339
 249
 4,557
 3,953
 604
 1,683
 1,450
 233
Multifamily 624
 532
 92
 1,859
 1,584
 275
 628
 609
 19
 $2,693
 $2,356
 $337
 $7,797
 $7,087
 $710
 $2,813
 $2,509
 $304
 
Office real estate taxes for the three and nine months ended September 30, 2017 decreased 0.8% and 10.9%March 31, 2018 increased 11.6% compared to the respective periods in 2016three months ended March 31, 2017 due to increased assessments across the salesoffice portfolio partially offset by the sale of the Richmond Tower, Oyster Point, Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings. Retail and multifamily real estate taxes for the three and nine months ended September 30, 2017March 31, 2018 increased compared to the corresponding periods in 2016three months ended March 31, 2017 as a result of acquisitions completion of development projects that were placed into service subsequent to the first quarter of 2016 and increases from new tax assessments.
 
General contracting and real estate services expenses for the three and nine months ended September 30, 2017 increased 5.6% and 48.2%, respectively,March 31, 2018 decreased 63.4% compared to the corresponding periodsthree months ended March 31, 2017 as there were no significant new third-party contracts in 2016 as a result of several new large projects started subsequent tolate 2017 or in the first quarter of 2016.2018.
 
Depreciation and amortization for the three and nine months ended September 30, 2017 increased 4.0% and 9.3%, respectively,March 31, 2018 decreased 2.1% compared to the corresponding periods in 2016three months ended March 31, 2017 as a result of in-place leases associated with previously acquired properties that became fully amortized subsequent to March 31, 2017, partially offset by property acquisitions and completion of development projects that were placed into serviceoccurred subsequent to the first quarter of 2016.March 31, 2017.
 
General and administrative expenses for the three months ended September 30, 2017 decreased 2.7%March 31, 2018 remained largely consistent compared to the three months ended September 30, 2016 due to a reduction in franchise fees. General and administrative expenses for the nine months ended September 30, 2017 increased 13.1% compared to the nine months ended September 30, 2016 as a result of higher regulatory and compliance costs and higher compensation and benefit costs from increased employee headcount.March 31, 2017.
 
Acquisition, development and other pursuit costs for the three and nine months ended September 30, 2017 decreasedMarch 31, 2018 increased slightly compared to the corresponding periods in 2016.three months ended March 31, 2017. The costs incurred in the ninethree months ended September 30, 2016March 31, 2018 were primarily related to thea potential acquisition of the 11-property retail portfolio in January 2016.that was abandoned.
Impairment charges for the three and nine months ended September 30, 2017 and 2016 were primarily due to lease terminations.

Interest income for the three and nine months ended September 30, 2017March 31, 2018 increased 59.7% compared to the corresponding periods in 2016three months ended March 31, 2017 due to higher notes receivable balances, including the North Decatur Square mezzanine loan originated in May 2017 and the Delray Plaza mezzanine loan originated in October 2017.

Interest expense for the three and nine months ended September 30, 2017 increased 3.1% and 11.7%, respectively,March 31, 2018 decreased 3.6% compared to the corresponding periods in 2016three months ended March 31, 2017 primarily as a result of higherrefinancing activities that lowered the interest rates. 
The lossrates on extinguishment of debt for the three and nine months ended September 30, 2016 was due to unamortized debt issuance costs associated with repaid mortgages as well as costs associated with modifying our credit facility.certain loans. 

During the ninethree months ended September 30,March 31, 2017, we recognized a gain of $3.4 million on our sale of the Greentree Wawa outparcel, a gain of $4.2 million on our sale of the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings and a gain of $0.5 million on our sale of the land outparcel at Sandbridge Commons. During the nine months ended September 30, 2016, we recognized gains of $30.4 million on our sales of the Richmond Tower office building and the Newport News Economic Authority building.outparcel.

The change in fair value of interest rate derivatives for the three months ended September 30, 2017 was an increase of $0.1March 31, 2018 increased by $0.7 million compared to an increase of $0.5 million for the corresponding period in 2016three months ended March 31, 2017 due to less dramaticsignificant changes in forward LIBOR (the London Inter-Bank Offered Rate). The change in fair value of interest rate derivatives for the nine months

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ended September 30, 2017 was an increase of $0.3 million compared to a decrease of $2.3 million for the corresponding period in 2016. The expense for the nine months ended September 30, 2016 was due to dedesignation of our hedge accounting. 

Income tax provisionsbenefit and provision that we recognized during the three and nine months ended September 30,March 31, 2018 and 2017, and 2016respectively, were attributable to the taxable profits and losses of our development and construction businesses that we operate through our TRS.
 

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Liquidity and Capital Resources
 
Overview
 
We believe our primary short-term liquidity requirements consist of general contractor expenses, operating expenses and other expenditures associated with our properties, including tenant improvements, leasing commissions and leasing incentives, dividend payments to our stockholders required to maintain our REIT qualification, debt service, capital expenditures, new real estate development projects and strategic acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash, borrowings under construction loans to fund new real estate development and construction, borrowings available under our senior unsecured credit facility, and net proceeds from the sale of common stock.stock through our at-the-market continuous equity offering program (the "ATM Program"), which is discussed below.
 
Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at or prior to maturity, general contracting expenses, property development and acquisitions, tenant improvements and capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness, and the issuance of equity and debt securities. We also may fund property development and acquisitions and capital improvements using our senior unsecured credit facility pending long-term financing.
 
As of September 30, 2017,March 31, 2018, we had unrestricted cash and cash equivalents of $19.7$15.8 million available for both current liquidity needs as well as development activities. We also had restricted cash of $3.2$3.5 million available for property improvements and required maintenance. As of September 30, 2017,March 31, 2018, we had $92.0$39.9 million of available borrowings under our credit facility to meet our short-term liquidity requirements.requirements and $112.6 million of available borrowings under our construction loans to fund our development projects.

During the three months ended March 31, 2018, we began to address the five loans originally scheduled to mature during 2018. Both of the Columbus Village loans were paid off, and the Sandbridge Commons loan was extended for five years.
 
ATM Program

On February 26, 2018, we commenced our ATM Program through which we may, from time to time, issue and sell shares of our common stock having an aggregate offering price of up to $125.0 million. We did not issue or sell any shares of common stock during the three months ended March 31, 2018. During April 2018, we issued and sold an aggregate of 31,468 shares of common stock at a weighted average price of $13.79 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $0.4 million.

Credit Facility
 
On October 26, 2017, we entered into an amended and restated credit agreement (the “amended credit“credit agreement”), which provides for a $300.0 million credit facility comprised of a $150.0 million senior unsecured revolving credit facility (the “revolving credit facility”) and a $150.0 million senior unsecured term loan facility (the “term loan facility” and, together with the revolving credit facility, the “credit facility”), with Banka syndicate of America, N.A., as administrative agent, swing line lender and L/C issuer, Regions Bank and PNC Bank, National Association, as syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Regions Capital Markets and PNC Capital Markets LLC, as joint lead arrangers, Merrill Lynch, Pierce, Fenner & Smith Incorporated as sole bookrunner and the other lenders party thereto.banks. The amended credit facility replacesreplaced our prior $150.0 million revolving credit facility, which was scheduled to mature on February 20, 2019, and our prior $125.0 million term loan facility, which was scheduled to mature on February 20, 2021. We intend to use future borrowings under the credit facility for general corporate purposes, including funding acquisitions and development and redevelopment of properties in our portfolio and for working capital.

The credit facility includes an accordion feature that allows the total commitments to be increased to $450.0 million, subject to certain conditions, including obtaining commitments from any one or more lenders. On March 28, 2018, our Operating Partnership increased the maximum commitments of the credit facility to $330.0 million using the accordion feature, with an increase of the term loan facility to $180.0 million. The revolving credit facility has a scheduled maturity date of October 26, 2021, with two six-month extension options, subject to certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of October 26, 2022.

The revolving credit facility bears interest at LIBOR plus a margin ranging from 1.40% to 2.00% and the term loan facility bears interest at LIBOR plus a margin ranging from 1.35% to 1.95%, in each case depending on our total leverage. We are also obligated to pay an unused commitment fee of 15 or 25 basis points on the unused portions of the commitments under the revolving credit facility, depending on the amount of borrowings under the credit facility. If we attain investment grade

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credit ratings from S&P and Moody’s, we may elect to have borrowings become subject to interest rates based on our credit ratings.

The Operating Partnership is the borrower under the credit facility, and its obligations under the credit facility are guaranteed by us and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty.

The credit agreement contains customary representations and warranties and financial and other affirmative and negative covenants. Our ability to borrow under the credit facility is subject to our ongoing compliance with a number of financial covenants, affirmative covenants and other restrictions, including the following:

Total leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition that is equal to or greater than 10% of our total asset value (as defined in the credit agreement), but only up to two times during the term of the credit facility);

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Ratio of adjusted EBITDA (as defined in the credit agreement) to fixed charges of not less than 1.50 to 1.0;
Tangible net worth of not less than the sum of 75% of tangible net worth (as defined in the credit agreement) as of September 30, 2017 and 75% of the net equity proceeds received after June 30, 2017;
Ratio of secured indebtedness to total asset value of not more than 40%;
Ratio of secured recourse debt to total asset value of not more than 20%;
Total unsecured leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition that is equal to or greater than 10% of our total asset value, but only up to two times during the term of the credit facility);
Unencumbered interest coverage ratio (as defined in the credit agreement) of not less than 1.75 to 1.0;
Ratio of unencumbered NOI (as defined in the credit agreement) to all unsecured debt of not less than 12%;
Maintenance of a minimum of at least 15 unencumbered properties (as defined in the credit agreement) with an unencumbered asset value (as defined in the credit agreement) of not less than $300.0 million at any time; and
Minimum occupancy rate (as defined in the credit agreement) for all unencumbered properties of not less than 80% at any time.

The credit facility limits our ability to pay cash dividends. However, so long as no default or event of default exists, the credit agreement allows us to pay cash dividends with respect to any 12-month period in an amount not to exceed the greater of: (i) 95% of adjusted funds from operations (as defined in the credit agreement) or (ii) the amount required for us (a) to maintain our status as a REIT and (b) to avoid income or excise tax under the Internal Revenue Code of 1986, as amended.Code. If certain defaults or events of default exist, we may pay cash dividends with respect to any 12-month period to the extent necessary to maintain our status as a REIT. The credit facility also restricts the amount of capital that we can invest in specific categories of assets, such as unimproved land holdings, development properties, notes receivable, mortgages, mezzanine loans and unconsolidated affiliates, and restricts the amount of stock and OP units that we may repurchase during the term of the credit facility.

We may, at any time, voluntarily prepay any loan under the credit facility in whole or in part without premium or penalty.

The credit agreement includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the credit facility to be immediately due and payable.

We are currently in compliance with all covenants under the credit facility.agreement.

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Consolidated Indebtedness
 
The following table sets forth our consolidated indebtedness as of September 30, 2017March 31, 2018 ($ in thousands): 
 Amount Outstanding    Interest Rate(a) Effective Rate for Variable
Debt		    Maturity Date Balance at Maturity Amount Outstanding    Interest Rate(a) Effective Rate for Variable
Debt		    Maturity Date Balance at Maturity
Secured Debt                
Johns Hopkins Village $46,698
 LIBOR+1.90%
 3.78% July 30, 2018 $46,698
Lightfoot Marketplace $12,894
 LIBOR+1.90%
 3.13% November 14, 2017 $12,894
 10,500
 LIBOR+1.75%
 3.63% November 14, 2018 10,500
Sandbridge Commons 8,530
 LIBOR+1.85%
 3.08% January 17, 2018 8,045
Columbus Village Note 1 6,124
 LIBOR+2.00%
 3.05%(b)  April 5, 2018 6,033
Columbus Village Note 2 2,232
 LIBOR+2.00%
 3.23% April 5, 2018 2,108
Johns Hopkins Village 46,698
 LIBOR+1.90%
 3.13% July 30, 2018 46,698
North Point Note 1 9,623
 6.45%  
 February 5, 2019 9,333
 9,517
 6.45%  
 February 5, 2019 9,333
Harding Place 8,251
 LIBOR+2.95%
 4.83% February 24, 2020 8,251
Town Center Phase VI 6,626
 LIBOR+3.50%
 5.38% June 29, 2020 6,626
Southgate Square 20,871
 LIBOR+2.00%
 3.23% April 29, 2021 18,925
 20,559
 LIBOR+2.00%
 3.88% April 29, 2021 18,857
249 Central Park Retail 16,910
(c)LIBOR+1.95%
 3.18% August 8, 2021 15,959
 16,793
(b)LIBOR+1.95%
 3.83% August 10, 2021 15,909
South Retail 7,420
(c)LIBOR+1.95%
 3.18% August 8, 2021 7,002
 7,368
(b)LIBOR+1.95%
 3.83% August 10, 2021 6,980
Fountain Plaza Retail 10,180
(c)LIBOR+1.95%
 3.18% August 8, 2021 9,608
 10,110
(b)LIBOR+1.95%
 3.83% August 10, 2021 9,578
4525 Main Street 32,034
(d)3.25%   September 10, 2021 30,774
 32,034
(c)3.25%   September 10, 2021 30,774
Encore Apartments 24,966
(d)3.25%   September 10, 2021 24,006
 24,966
(c)3.25%   September 10, 2021 24,006
Hanbury Village 19,622
 3.78%   August 15, 2022 17,109
 19,381
 3.78%   August 15, 2022 17,109
Socastee Commons 4,796
(e)  4.57%  
 January 6, 2023 4,223
 4,746
(d)  4.57%  
 January 6, 2023 4,223
Sandbridge Commons 8,429
 LIBOR+1.75%
 3.63% January 17, 2023 7,247
North Point Note 2 2,486
 7.25%  
 September 15, 2025 1,344
 2,432
 7.25%  
 September 15, 2025 1,344
Smith's Landing 19,954
 4.05%  
 June 1, 2035 —
 19,570
 4.05%  
 June 1, 2035 —
Liberty Apartments 19,763
(e)  5.66%  
 November 1, 2043 —
 14,631
(d)  5.66%  
 November 1, 2043 —
The Cosmopolitan 45,390
 3.35%  
 July 1, 2051 —
 45,026
 3.35%  
 July 1, 2051 —
Harding Place —
 LIBOR+2.95%
   February 24, 2020 —
Town Center Phase VI —
 LIBOR+3.50%
   June 29, 2020 —
Total secured debt $310,493
  
  
   $214,061
 $307,637
  
  
   $217,435
Unsecured Debt  
  
  
    
  
  
  
    
Senior unsecured revolving credit facility 58,000
 LIBOR+1.40% to 2.00%
 2.78% February 20, 2019(f)58,000
 108,000
 LIBOR+1.40% to 2.00%
 3.43% October 26, 2021 108,000
Senior unsecured term loan 75,000
 LIBOR+1.35% to 1.95%
 2.73% February 20, 2020(f)75,000
 130,000
 LIBOR+1.35% to 1.95%
 3.38% October 26, 2022 130,000
Senior unsecured term loan 50,000
 LIBOR+1.35% to 1.95%
 3.50%(b)  February 20, 2020(f)50,000
 50,000
 LIBOR+1.35% to 1.95%
 3.50%(e)  October 26, 2022 50,000
Total unsecured debt $183,000
  
  
   $183,000
 $288,000
  
  
   $288,000
Total principal balances 493,493
     397,061
 595,637
     505,435
Unamortized GAAP adjustments (4,884)  
  
   —
 (6,003)  
  
   —
Indebtedness, net $488,609
  
  
   $397,061
 $589,634
  
  
   $505,435
                
(a)    LIBOR rate is determined by individual lenders.
(b)    Cross collateralized.
(c)    Cross collateralized.
(d)    Principal balance excluding fair value adjustments.
(e)    Subject to an interest rate swap agreement.
(c)    Cross collateralized.
(d)    Cross collateralized.
(e)    Principal balance excluding fair value adjustments.
(f)As described above, following an amendment and restatement of the credit agreement on October 26, 2017, the revolving credit facility has a scheduled maturity date of October 26, 2021, with a one-year extension option, subject to certain conditions, and the term loan facility has a scheduled maturity date of October 26, 2022.

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We are currently in compliance with all covenants on our outstanding indebtedness.


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As of September 30, 2017,March 31, 2018, our principal payments during the following years are as follows ($ in thousands): 
Year(1)
Year(1)
 
Amount Due 
 
Percentage of Total 
Year(1)
 
Amount Due 
 
Percentage of Total 
2017 $13,948
 3%
20182018 67,263
 14%2018 $60,161
 10%
20192019 71,376
 15%2019 13,526
 2%
20202020 130,057
 26%2020 20,085
 3%
20212021 110,458
 22%2021 218,495
 37%
20222022 200,060
 34%
ThereafterThereafter 100,391
 20%Thereafter 83,310
 14%
  $493,493
 100%  $595,637
 100%
        
(1)    Does not reflect the effect of any maturity extension options.

On February 1, 2017,January 22, 2018, we extended the maturity date of our Sandbridge Commons mortgage. The loan bears interest at a rate of LIBOR plus a spread of 1.75% and will mature on January 17, 2023.

On March 27, 2018, we paid off the North Point CenterColumbus Village Note 51 and Columbus Village Note 2 in full for $0.6an aggregate amount of $8.3 million.

On April 7, 2017, we paid off the Harrisonburg Regal note in full for $3.2 million.

On April 19, 2017, we entered into a second amendment to the credit agreement for the Lightfoot Marketplace loan, which amended certain definitions and covenant requirements.

On July 13, 2017, we paid off the remaining balance of $4.9 million for the note secured by the Commonwealth of Virginia building in Chesapeake, Virginia in conjunction with the sale of this property.

On August 9, 2017, we refinanced the Hanbury Village note. The new note matures in August 2022 and has a fixed annual interest rate of 3.78%.

On August 10, 2017, we paid off $0.7 million of the Sandbridge Commons note in conjunction with the sale of a land outparcel at this property.

On September 1, 2017, we entered into a modification of The Cosmopolitan note, which reduced the annual interest rate from 3.75% to 3.35%.

On October 13, 2017, we paid off $5.0 million of the Liberty Apartments note.

Interest Rate Derivatives
 
On February 20, 2015, we entered into a $50.0 million floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments. The $50.0 million interest rate swap has a fixed rate of 2.00%, an effective date of March 1, 2016 and a maturity date of February 20, 2020. We entered into this interest rate swap agreement in connection with the $50.0 million senior unsecured term loan facility that bears interest at LIBOR plus 1.35% to 1.95%, depending on our total leverage.
 
On July 13, 2015, we entered into a $6.5 million floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments. The $6.5 million interest rate swap has a fixed rate of 3.05%, an effective date of July 13, 2015 and a maturity date of April 5, 2018.

On FebruaryMarch 7, 2017, we2018, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 1.50%2.25% for a premium of less than $0.2$0.3 million. The interest rate cap agreement expires on MarchApril 1, 2019.2020.

On JuneApril 23, 2017,2018, we entered into a LIBORfloating-to-fixed interest rate cap agreement onswap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million at a strike rate of 1.50% for a premium of less than $0.2 million. The interest rate cap agreement expires on July 1, 2019.
On September 18, 2017, we entered intoswap has a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strikefixed rate of 1.50% for2.783%, an effective date of May 1, 2018, and a premiummaturity date of less than $0.2 million. The interest rate cap agreement expires on OctoberMay 1, 2019.2023.

As of September 30, 2017,March 31, 2018, we were party to the following LIBOR interest rate cap agreements ($ in thousands): 

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Effective Date Maturity Date Strike Rate Notional Amount Maturity Date Strike Rate Notional Amount
October 26, 2015 October 15, 2017 1.25% 75,000
February 25, 2016 March 1, 2018 1.50% 75,000
June 17, 2016 June 17, 2018 1.00% 70,000
 June 17, 2018 1.00% 70,000
February 7, 2017 March 1, 2019 1.50% 50,000
 March 1, 2019 1.50% 50,000
June 23, 2017 July 1, 2019 1.50% 50,000
 July 1, 2019 1.50% 50,000
September 18, 2017 October 1, 2019 1.50% 50,000
 October 1, 2019 1.50% 50,000
November 28, 2017 December 1, 2019 1.50% 50,000
March 7, 2018 April 1, 2020 2.25% 50,000
Total     $370,000
     $320,000
 
Off-Balance Sheet Arrangements
 
We have entered into standby letters of credit using the available capacity under the credit facility. Letters of credit generally are available for draw down in the event we do not perform. As of September 30, 2017,March 31, 2018, we had aggregate outstanding standby letters of credit totaling $4.1$2.1 million that expire during 2017.2018. However, any of our standby letters of credit may be renewed for additional periods until completion of the related construction contracts. The amounts outstanding at September 30, 2017 include $2.0 million relating to construction projects andMarch 31, 2018 were comprised of a $2.1 million letter of credit related to the guarantee on the Point Street Apartments senior construction loan.
 

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Cash Flows
 Nine Months Ended September 30,   Three Months Ended March 31,  
 2017 2016 Change 2018 2017 Change
 ($ in thousands) ($ in thousands)
Operating Activities $36,598
 $38,782
 $(2,184) $5,928
 $8,274
 $(2,346)
Investing Activities (69,485) (187,681) 118,196
 (69,749) (13,316) (56,433)
Financing Activities 30,666
 145,800
 (115,134) 60,211
 (6,463) 66,674
Net Increase (Decrease) $(2,221) $(3,099) $878
 $(3,610) $(11,505) $7,895
Cash and Cash Equivalents, Beginning of Period $21,942
 $26,989
  
Cash and Cash Equivalents, End of Period $19,721
 $23,890
  
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period $22,916
 $25,193
  
Cash, Cash Equivalents, and Restricted Cash, End of Period $19,306
 $13,688
  
 
Net cash provided by operating activities during the ninethree months ended September 30, 2017March 31, 2018 decreased 5.6%28.4% compared to the ninethree months ended September 30, 2016,March 31, 2017, primarily as a result of timing differences in operating assets and liabilities.
 
During the ninethree months ended September 30, 2017,March 31, 2018, we invested 63.0% less$56.4 million more in cash compared to the ninethree months ended September 30, 2016. The primary component ofMarch 31, 2017 due to increased development activity and the 2016 investments was our acquisition of the 11-property retail portfolio.two operating properties.
 
Net cash provided by financing activities during the ninethree months ended September 30, 2017 decreased 79.0%March 31, 2018 increased to $60.2 million compared to $6.5 million used in financing activities for the ninethree months ended September 30, 2016,March 31, 2017 primarily as a result of debt andincreased borrowings under the credit facility repayments during the 2017 period, partially offset by increased net proceeds from equity issuances.facility.
 
Non-GAAP Financial Measures
 
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”). NAREITNareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures.
 
FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

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However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the NAREITNareit definition as we do, and, accordingly, our calculation of FFO may not be comparable to such other REITs’ calculation of FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

We also believe that the computation of FFO in accordance with NAREIT’sNareit’s definition includes certain items that are not indicative of the results provided by our operating property portfolio and affect the comparability of our year-over-year performance. Accordingly, management believes that Normalized FFO is a more useful performance measure that excludes certain items, including but not limited to, debt extinguishment losses and prepayment penalties, property acquisition, development and other pursuit costs, mark-to-market adjustments for interest rate derivatives and other non-comparable items.
 

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The following table sets forth a reconciliation of FFO and Normalized FFO for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 to net income, the most directly comparable GAAP measure: 
 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
 2017 2016 2017 2016 2018 2017
 (unaudited, $ in thousands) (in thousands, except per share and unit amounts)
Net income $10,461
 $7,946
 $24,157
 $37,610
 $6,983
 $8,753
Depreciation and amortization 9,239
 8,885
 28,018
 25,636
 9,278
 9,475
Gain on operating real estate dispositions (4,200) (3,753) (7,595) (30,010)
(Gain) loss on operating real estate dispositions —
 (3,395)
Funds from operations $15,500
 $13,078
 $44,580
 $33,236
 $16,261
 $14,833
Acquisition, development and other pursuit costs 61
 345
 477
 1,486
 84
 47
Impairment charges 19
 149
 50
 184
 —
 4
Loss on extinguishment of debt —
 82
 —
 82
Change in fair value of interest rate derivatives (87) (498) (300) 2,264
 (969) (294)
Normalized funds from operations $15,493
 $13,156
 $44,807
 $37,252
 $15,376
 $14,590
Net income per diluted share and unit $0.17
 $0.15
 $0.41
 $0.77
 $0.11
 $0.16
FFO per diluted share and unit $0.25
 $0.25
 $0.75
 $0.68
 $0.26
 $0.27
Normalized FFO per diluted share and unit $0.25
 $0.26
 $0.75
 $0.76
 $0.25
 $0.26
Weighted average common shares and units - diluted 62,779
 51,512
 59,423
 48,869
 62,538
 55,475
 
The adjustment for gain on operating real estate dispositions excludes the gain recognized in the three months ended March 31, 2016 on the Newport News Economic Authority building because this building was sold before being placed in service. Additionally, the adjustment for gain on operating real estate dispositions excludes the gain recognized in the three months ended September 30, 2017 on the land outparcel at Sandbridge Commons because this was a non-operating parcel.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires us to exercise our best judgment in making estimates that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis, based upon then-currently available information. Actual results could differ from these estimates. We discuss the accounting policies and estimates that are most critical to understanding our reported financial results in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.

On January 1, 2018, we adopted the new accounting standard codified in Accounting Standards Codification 606 - Revenue from Contracts with Customers. We recognize general contracting revenues as a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For each construction contract, we identify the performance obligations, which typically include the delivery of a single building constructed according to the specifications of the contract. We estimate the total transaction price, which generally includes a fixed contract price and may also include variable components such as early completion bonuses, liquidated damages, or cost savings to be shared with the customer. Variable components of the contract price are included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur. We recognize the estimated transaction price as revenue as we satisfy our performance obligations; we estimate our progress in satisfying performance obligations for each contract using the percentage-of-completion method, based on the proportion of incurred costs to total estimated construction costs at completion. Construction contract costs include all direct material, direct labor, subcontract costs, and overhead costs directly related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, are all significant judgments that may result in revisions to costs and income and are recognized in the period in which they are determined. Provisions for estimated losses on uncompleted contracts are recognized immediately in the period in which such losses are determined. We defer pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable.
 
We recognize real estate services revenues from property development and management as we satisfy our performance obligations under these service arrangements.

We assess whether multiple contracts with a single counterparty should be combined into a single contract for the revenue recognition purposes based on factors such as the timing of the negotiation and execution of the contracts and whether the economic substance of the contracts was contemplated separately or in tandem.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk
 
The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis, we

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also use derivative financial instruments to manage interest rate risk. We do not use these derivatives for trading or other speculative purposes.
 
At September 30, 2017,March 31, 2018, approximately $234.8$222.3 million, or 47.6%37.3%, of our debt had fixed interest rates and approximately $258.7$373.3 million, or 52.4%62.7%, had variable interest rates. At September 30, 2017,March 31, 2018, LIBOR was approximately 123188 basis points. Assuming no increase in the level of our variable rate debt, if LIBOR increased by 100 basis points, our cash flow would increasedecrease by approximately $0.5less than $0.1 million per year as a result of the interest rate caps. Assuming no increase in the level of our variable rate debt, if LIBOR decreased by 100 basis points, our cash flow would increase by approximately $2.4$2.3 million per year.

Item 4.    Controls and Procedures
 
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
We have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures as of September 30, 2017,March 31, 2018, the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded, as of September 30, 2017,March 31, 2018, that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports filed or submitted under the Exchange Act: (i) is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
 
There have been no changes to our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information
 
Item  1.    Legal Proceedings
 
We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to us. We may be subject to ongoing litigation relating to our portfolio and the properties comprising our portfolio, and we expect to otherwise be party from time to time to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business.
 
Item  1A.    Risk Factors
 
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016.2017. 
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
Unregistered Sales of Equity Securities
 
None.

Issuer Purchases of Equity Securities
None.

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Issuer Purchases of Equity Securities
During the three months ended March 31, 2018, certain of our employees surrendered shares of common stock owned by them to satisfy their minimum statutory federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our Amended and Restated 2013 Equity Incentive Plan (the "Amended Plan"). The following table summarizes all of these repurchases during the three months ended March 31, 2018.  
      Total Number of  
      Shares Purchased Maximum Number of
      as Part of Publicly Shares that May Yet be
  Total Number of Average Price Announced Plans Purchased Under the
Period 
Shares Purchased(1)
 
Paid for Shares(1)
 or Programs Plans or Programs
January 1, 2018 through January 31, 2018 —
 $—
 N/A N/A
February 1, 2018 through February 28, 2018 —
 —
 N/A N/A
March 1, 2018 through March 31, 2018 25,703
 13.35
 N/A N/A
Total 25,703
 13.35
    

(1)The number of shares purchased represents shares of common stock surrendered by certain of our employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under the Amended Plan. With respect to these shares, the price paid per share is based on the fair value at the time of surrender.


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Item  3.    Defaults on Senior Securities
 
None.
 
Item 4.    Mine Safety Disclosures
 
Not applicable.

Item 5.    Other Information
 
The description of the credit facility under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Credit Facility" is incorporated by reference in this Item 5.
 

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Item 6.    Exhibits
 
The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference (as applicable) as part of this Quarterly Report on Form 10-Q.

Exhibit Index
Exhibit No.
Number
    Description
3.1
10.1Articles of Amendment and Restatement of Armada Hoffler Properties, Inc. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3, filed on June 2, 2014)
4.1
Form of Certificate of Common Stock of Armada Hoffler Properties, Inc. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.1
Amended and Restated Agreement of Limited Partnership of Armada Hoffler, L.P. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on November 12, 2013)
10.2†
Armada Hoffler Properties, Inc. Amended and Restated 2013 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8, filed on June 15, 2017)
10.3†
Form of Restricted Stock Award Agreement (Time Vesting) (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.4
Indemnification Agreement between Armada Hoffler Properties, Inc. and each of the Directors and Officers listed on Schedule A thereto (Incorporated by Reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed on March 2, 2016)
10.5
Tax Protection Agreement by and among Armada Hoffler Properties, Inc. and the persons listed on the signature page thereto (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on November 12, 2013)
10.6†
Armada Hoffler, L.P. Executive Severance Benefit Plan with the participants listed on Schedule A thereto (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form10-Q, filed on November 12, 2013)
10.7
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc. and Daniel A. Hoffler, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.8
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc. and A. Russell Kirk, dated February 12, 2013 (Incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.9
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc. and Louis S. Haddad, dated as of February 11, 2013 (Incorporated by reference a to Exhibit 10.10 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.10
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc. and Anthony P. Nero, dated as of February 12, 2013 (Incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.11
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Eric E. Apperson, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.12

Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Michael P. O’Hara, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.13
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and John C. Davis, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)

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Exhibit
Number
Description
10.14
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Alan R. Hunt, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)

10.15
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Shelly R. Hampton, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)

10.16
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and William Christopher Harvey, dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.17
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Eric L. Smith, dated as of February 12, 2013 (Incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.18
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and John E. Babb, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.19
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Rickard E. Burnell, dated as of February 12, 2013 (Incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.20
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and A/H TWA Associates, L.L.C., dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.21
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and RMJ Kirk Fortune Bay, L.L.C., dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.22
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Kirk Gainsborough, L.L.C., dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.23
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Chris A. Sanders, dated as of January 25, 2013 (Incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.24
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Allen O. Keene, dated as of January 21, 2013 (Incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.25
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Bruce G. Ford, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.26
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and DIAN, LLC, dated as of January 28, 2013 (Incorporated by reference to Exhibit 10.27 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.27
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Compson of Richmond, L.C., Thomas Comparato and Lindsey Smith Comparato, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.28 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.28
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Bruce Smith Enterprises, LLC and Bruce B. Smith, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.29 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.29
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Steyn, LLC, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.30
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and D&F Beach, L.L.C., dated as of February 1, 2013 (Incorporated by reference to Exhibit 10.31 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)

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Exhibit
Number
Description
10.31
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and DF Smith’s Landing, LLC, dated as of January 31, 2013 (Incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.32
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Spratley Family Holdings, L.L.C., dated as of January 22, 2013 (Incorporated by reference to Exhibit 10.33 to the Company’s Registration Statement on Form S-11/A, filed on April 12, 2013)
10.33
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc., and Columbus One, LLC, DP Columbus Two, LLC, City Center Associates, LLC, TC Block 7 Partners LLC, TC Block 12 Partners LLC, TC Block 3 Partners LLC, TC Block 6 Partners LLC, TC Block 8 Partners LLC, TC Block 11 Partners LLC and TC Apartment Partners, LLC, dated as of February 1, 2013 (Incorporated by reference to Exhibit 10.34 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.34
Contribution Agreement for the Apprentice School Apartment property by and among Armada Hoffler, L.P., Washington Avenue Associates, L.L.C. and Washington Avenue Apartments, L.L.C., and dated as of May 1, 2013 (Incorporated by reference to Exhibit 10.37 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.35
Land Option Agreement by and between and Armada Hoffler, L.P. and Courthouse Marketplace Parcel 7, L.L.C., dated as of May 1, 2013 (Incorporated by reference to Exhibit 10.38 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.36
Land Option Agreement by and between and Armada Hoffler, L.P. and Courthouse Marketplace Outparcels, L.L.C., dated as of May, 1 2013 (Incorporated by reference to Exhibit 10.39 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.37
Land Option Agreement by and between and Armada Hoffler, L.P. and Hanbury Village, LLC, dated as of May 1, 2013 (Incorporated by reference to Exhibit 10.40 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.38
Land Option Agreement by and between and Armada Hoffler, L.P. and Lake View AH-VNG, LLC, dated as of May 1, 2013 (Incorporated by to Exhibit 10.41 reference to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.39
Land Option Agreement by and between and Armada Hoffler, L.P. and Oyster Point Hotel Associates, L.L.C., dated as of May 1, 2013 (Incorporated by reference to Exhibit 10.42 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.40
Contribution Agreement by and among Armada Hoffler, L.P., Armada Hoffler Properties, Inc. and Oyster Point Investors, L.P., dated as of February 11, 2013 (Incorporated by reference to Exhibit 10.43 to the Company’s Registration Statement on Form S-11/A, filed on April 26, 2013)
10.41†
Form of Restricted Stock Award Agreement for Directors (Incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.42
Option Agreement dated May 1, 2013 by and between Armada/Hoffler Properties, L.L.C. and Armada Hoffler, L.P. (Incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-11/A, filed on May 2, 2013)
10.43
Option Transfer Agreement by and among Town Center Associates, L.L.C. Armada/Hoffler Properties, L.L.C., City Center Associates, L.L.C. and Armada Hoffler, L.P., dated as of May 10, 2013 (Incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q, filed on August 14, 2013)
10.44
Amendment No. 1, dated as of March 19, 2014, to the First Amended and Restated Agreement of Limited Partnership of Armada Hoffler, L.P., dated as of May 13, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed on May 15, 2014)
10.45†
Armada Hoffler Properties, Inc. Short-Term Incentive Program (Incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed on March 16, 2015)

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Exhibit
Number
Description
10.46
Amendment No. 2, dated as of July 10, 2015, to the First Amended and Restated Agreement of Limited Partnership of Armada Hoffler, L.P., dated as of May 13, 2013 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 16, 2015)
10.47
Construction Loan Agreement, dated as of July 30, 2015, by and among Hopkins Village, LLC, as Borrower, Bank of America, N.A., and the other financial institutions party thereto (Incorporated by reference to Exhibit 10.1 the Company’s Current Report on Form 8-K, filed on August 5, 2015)
10.48
Agreement of Sale and Purchase, dated as of November 2, 2015, by and between AH Richmond Tower I, LLC and Kireland Management, LLC (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 13, 2016)
10.49
First Amendment to Agreement of Sale and Purchase, dated as of November 10, 2015, by and between AH Richmond Tower I, LLC and Kireland Management, LLC (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on January 13, 2016)
10.50
Purchase and Sale Agreement, dated as of December 3, 2015, by and between DDR-SAU South Square, L.L.C., DDR-SAU Durham Patterson, L.L.C., DDR-SAU Wendover Phase II, L.L.C., DDR-SAU Salisbury Alexander, L.L.C., DDR-SAU Winston-Salem Harper Hill, L.L.C., DDR-SAU Greer North Hampton Market, L.L.C., DDR-SAU Nashville Willowbrook, L.L.C., DDR-SAU South Bend Broadmoor, L.L.C., DDR-SAU Oakland, L.L.C., DDR-SAU Waynesboro, L.L.C., DDR-SAU Pasadena Red Bluff Limited Partnership and AHP Acquisitions, LLC (Incorporated by reference to Exhibit 10.55 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed on March 2, 2016)
10.51
First Amendment to Purchase and Sale Agreement, dated as of December 14, 2015, by and between DDR-SAU South Square, L.L.C., DDR-SAU Durham Patterson, L.L.C., DDR-SAU Wendover Phase II, L.L.C., DDR-SAU Salisbury Alexander, L.L.C., DDR-SAU Winston-Salem Harper Hill, L.L.C., DDR-SAU Greer North Hampton Market, L.L.C., DDR-SAU Nashville Willowbrook, L.L.C., DDR-SAU South Bend Broadmoor, L.L.C., DDR-SAU Oakland, L.L.C., DDR-SAU Waynesboro, L.L.C., DDR-SAU Pasadena Red Bluff Limited Partnership and AHP Acquisitions, LLC (Incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed on March 2, 2016)
10.52
Form of Performance Unit Award Agreement (Incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K, filed March 1, 2017)
10.53 
Amended and Restated Credit Agreement, dated as of October 26, 2017, among Armada Hoffler, L.P., as Borrower, Armada Hoffler Properties, Inc., as Parent, Bank of America, N.A., as Administrative Agent, and the other agents and Lenders party thereto.thereto (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed November 1, 2017)
   
10.2
10.54		 
Amended and Restated Guaranty Agreement, dated as of October 26, 2017, among certain subsidiaries of Armada Hoffler, L.P. named therein for the benefit of the Administrative Agent and the Lenders named in the Amended and Restated Credit Agreement.Agreement (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed November 1, 2017)
   
15.110.55 
Acknowledgment of ErnstATM Equity Offering Sales Agreement, dated February 26, 2018, by and among Armada Hoffler Properties, Inc., Armada Hoffler, L.P. and Merrill Lynch, Pierce, Fenner & Young LLP, Independent Registered Public Accounting FirmSmith Incorporated (Incorporated by reference to Exhibit 1.1 to the Company's Current Report on Form 8-K, filed on February 26, 2018)
   
10.56
31.1ATM Equity Offering Sales Agreement, dated February 26, 2018, by and among Armada Hoffler Properties, Inc., Armada Hoffler, L.P. and Robert W. Baird & Co. Incorporated (Incorporated by reference to Exhibit 1.2 to the Company's Current Report on Form 8-K, filed on February 26, 2018)
10.57
ATM Equity Offering Sales Agreement, dated February 26, 2018, by and among Armada Hoffler Properties, Inc., Armada Hoffler, L.P. and Jeffries LLC (Incorporated by reference to Exhibit 1.3 to the Company's Current Report on Form 8-K, filed on February 26, 2018)


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Exhibit No.Description
31.1 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF XBRL Definition Linkbase
†Management contract or compensatory plan or arrangement

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Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  
 ARMADA HOFFLER PROPERTIES, INC.
  
Date: November 1, 2017May 2, 2018/s/ LOUIS S. HADDAD
 Louis S. Haddad
 President and Chief Executive Officer
 (Principal Executive Officer)
  
Date: November 1, 2017May 2, 2018/s/ MICHAEL P. O’HARA
 Michael P. O’Hara
 Chief Financial Officer and Treasurer
 (Principal Accounting and Financial Officer)

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