UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
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)
| | | | | | | | | | | | | | |
Maryland | 46-1214914 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. 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)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | AHH | | New York Stock Exchange |
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | | AHHPrA | | New York Stock Exchange |
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. ☒ Yes ☐ No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒ 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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
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. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No
As of November 4, 2022,3, 2023, the registrant had 67,729,83967,401,128 shares of common stock, $0.01 par value per share, outstanding. In addition, as of November 4, 2022,3, 2023, Armada Hoffler, L.P., the registrant's operating partnership subsidiary, had 20,611,19021,553,062 units of limited partnership interest ("OP Units") outstanding (other than OP Units held by the registrant).
ARMADA HOFFLER PROPERTIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 20222023
Table of Contents
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, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| | | (Unaudited) | | | | | (Unaudited) | | |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Real estate investments: | Real estate investments: | | | | | Real estate investments: | | | | |
Income producing property | Income producing property | | $ | 1,797,547 | | | $ | 1,658,609 | | Income producing property | | $ | 2,089,170 | | | $ | 1,884,214 | |
Held for development | Held for development | | 6,294 | | | 6,294 | | Held for development | | 6,294 | | | 6,294 | |
Construction in progress | Construction in progress | | 92,357 | | | 72,535 | | Construction in progress | | 91,127 | | | 53,067 | |
| | | 1,896,198 | | | 1,737,438 | | | | 2,186,591 | | | 1,943,575 | |
Accumulated depreciation | Accumulated depreciation | | (316,189) | | | (285,814) | | Accumulated depreciation | | (376,449) | | | (329,963) | |
Net real estate investments | Net real estate investments | | 1,580,009 | | | 1,451,624 | | Net real estate investments | | 1,810,142 | | | 1,613,612 | |
Real estate investments held for sale | | — | | | 80,751 | | |
| Cash and cash equivalents | Cash and cash equivalents | | 54,700 | | | 35,247 | | Cash and cash equivalents | | 32,662 | | | 48,139 | |
Restricted cash | Restricted cash | | 4,865 | | | 5,196 | | Restricted cash | | 2,343 | | | 3,726 | |
Accounts receivable, net | Accounts receivable, net | | 35,400 | | | 29,576 | | Accounts receivable, net | | 43,800 | | | 39,186 | |
Notes receivable, net | Notes receivable, net | | 141,816 | | | 126,429 | | Notes receivable, net | | 83,713 | | | 136,039 | |
Construction receivables, including retentions, net | Construction receivables, including retentions, net | | 47,865 | | | 17,865 | | Construction receivables, including retentions, net | | 87,295 | | | 70,822 | |
Construction contract costs and estimated earnings in excess of billings | Construction contract costs and estimated earnings in excess of billings | | 232 | | | 243 | | Construction contract costs and estimated earnings in excess of billings | | 440 | | | 342 | |
Equity method investments | Equity method investments | | 64,470 | | | 12,685 | | Equity method investments | | 125,672 | | | 71,983 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 23,416 | | | 23,493 | | Operating lease right-of-use assets | | 23,152 | | | 23,350 | |
Finance lease right-of-use assets | Finance lease right-of-use assets | | 46,155 | | | 46,989 | | Finance lease right-of-use assets | | 92,570 | | | 45,878 | |
Acquired lease intangible assets | Acquired lease intangible assets | | 103,297 | | | 62,038 | | Acquired lease intangible assets | | 127,020 | | | 103,870 | |
Other assets | Other assets | | 85,346 | | | 45,927 | | Other assets | | 104,275 | | | 85,363 | |
Total Assets | Total Assets | | $ | 2,187,571 | | | $ | 1,938,063 | | Total Assets | | $ | 2,533,084 | | | $ | 2,242,310 | |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
Indebtedness, net | Indebtedness, net | | $ | 1,041,576 | | | $ | 917,556 | | Indebtedness, net | | $ | 1,321,792 | | | $ | 1,068,261 | |
Liabilities related to assets held for sale | | — | | | 41,364 | | |
| Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | | 24,301 | | | 29,589 | | Accounts payable and accrued liabilities | | 31,604 | | | 26,839 | |
Construction payables, including retentions | Construction payables, including retentions | | 63,376 | | | 31,166 | | Construction payables, including retentions | | 108,107 | | | 93,472 | |
Billings in excess of construction contract costs and estimated earnings | Billings in excess of construction contract costs and estimated earnings | | 15,736 | | | 4,881 | | Billings in excess of construction contract costs and estimated earnings | | 23,127 | | | 17,515 | |
Operating lease liabilities | Operating lease liabilities | | 31,708 | | | 31,648 | | Operating lease liabilities | | 31,573 | | | 31,677 | |
Finance lease liabilities | Finance lease liabilities | | 46,409 | | | 46,160 | | Finance lease liabilities | | 93,419 | | | 46,477 | |
Other liabilities | Other liabilities | | 53,551 | | | 55,876 | | Other liabilities | | 56,818 | | | 54,055 | |
Total Liabilities | Total Liabilities | | 1,276,657 | | | 1,158,240 | | Total Liabilities | | 1,666,440 | | | 1,338,296 | |
| Stockholders’ equity: | Stockholders’ equity: | | | | | Stockholders’ equity: | | | | |
Preferred stock, $0.01 par value, 100,000,000 shares authorized: 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, 9,980,000 shares authorized; 6,843,418 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | | 171,085 | | | 171,085 | | |
Common stock, $0.01 par value, 500,000,000 shares authorized; 67,730,053 and 63,011,700 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | | 677 | | | 630 | | |
Preferred stock, $0.01 par value, 100,000,000 shares authorized: 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, 9,980,000 shares authorized; 6,843,418 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | | Preferred stock, $0.01 par value, 100,000,000 shares authorized: 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, 9,980,000 shares authorized; 6,843,418 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | | 171,085 | | | 171,085 | |
Common stock, $0.01 par value, 500,000,000 shares authorized; 67,885,390 and 67,729,854 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | | Common stock, $0.01 par value, 500,000,000 shares authorized; 67,885,390 and 67,729,854 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | | 679 | | | 677 | |
Additional paid-in capital | Additional paid-in capital | | 588,707 | | | 525,030 | | Additional paid-in capital | | 589,291 | | | 587,884 | |
Distributions in excess of earnings | Distributions in excess of earnings | | (122,838) | | | (141,360) | | Distributions in excess of earnings | | (151,534) | | | (126,875) | |
Accumulated other comprehensive gain (loss) | | 15,202 | | | (33) | | |
Accumulated other comprehensive income | | Accumulated other comprehensive income | | 11,433 | | | 14,679 | |
Total stockholders’ equity | Total stockholders’ equity | | 652,833 | | | 555,352 | | Total stockholders’ equity | | 620,954 | | | 647,450 | |
Noncontrolling interests in investment entities | Noncontrolling interests in investment entities | | 24,187 | | | 629 | | Noncontrolling interests in investment entities | | 10,441 | | | 24,055 | |
Noncontrolling interests in Operating Partnership | Noncontrolling interests in Operating Partnership | | 233,894 | | | 223,842 | | Noncontrolling interests in Operating Partnership | | 235,249 | | | 232,509 | |
Total Equity | Total Equity | | 910,914 | | | 779,823 | | Total Equity | | 866,644 | | | 904,014 | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 2,187,571 | | | $ | 1,938,063 | | Total Liabilities and Equity | | $ | 2,533,084 | | | $ | 2,242,310 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited) | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues | Revenues | | | | | | | | | Revenues | | | | | | | | |
Rental revenues | Rental revenues | | $ | 53,743 | | | $ | 49,560 | | | $ | 163,602 | | | $ | 142,679 | | Rental revenues | | $ | 62,913 | | | $ | 53,743 | | | $ | 179,082 | | | $ | 163,602 | |
General contracting and real estate services revenues | General contracting and real estate services revenues | | 69,024 | | | 17,502 | | | 138,947 | | | 71,473 | | General contracting and real estate services revenues | | 99,408 | | | 69,024 | | | 286,220 | | | 138,947 | |
Interest income | | Interest income | | 3,690 | | | 3,490 | | | 10,823 | | | 10,410 | |
Total revenues | Total revenues | | 122,767 | | | 67,062 | | | 302,549 | | | 214,152 | | Total revenues | | 166,011 | | | 126,257 | | | 476,125 | | | 312,959 | |
| Expenses | Expenses | | | | | | | | | Expenses | | | | | | | | |
Rental expenses | Rental expenses | | 12,747 | | | 12,717 | | | 38,101 | | | 34,841 | | Rental expenses | | 14,756 | | | 12,747 | | | 41,392 | | | 38,101 | |
Real estate taxes | Real estate taxes | | 5,454 | | | 5,543 | | | 16,695 | | | 16,314 | | Real estate taxes | | 5,867 | | | 5,454 | | | 16,910 | | | 16,695 | |
General contracting and real estate services expenses | General contracting and real estate services expenses | | 66,252 | | | 15,944 | | | 133,491 | | | 68,350 | | General contracting and real estate services expenses | | 96,095 | | | 66,252 | | | 276,336 | | | 133,491 | |
Depreciation and amortization | Depreciation and amortization | | 17,527 | | | 16,886 | | | 54,865 | | | 52,237 | | Depreciation and amortization | | 22,462 | | | 17,527 | | | 60,808 | | | 54,865 | |
Amortization of right-of-use assets - finance leases | Amortization of right-of-use assets - finance leases | | 278 | | | 278 | | | 833 | | | 745 | | Amortization of right-of-use assets - finance leases | | 425 | | | 278 | | | 1,049 | | | 833 | |
General and administrative expenses | General and administrative expenses | | 3,854 | | | 3,449 | | | 12,179 | | | 10,957 | | General and administrative expenses | | 4,286 | | | 3,854 | | | 13,786 | | | 12,179 | |
Acquisition, development and other pursuit costs | | — | | | 8 | | | 37 | | | 111 | | |
Acquisition, development, and other pursuit costs | | Acquisition, development, and other pursuit costs | | — | | | — | | | 18 | | | 37 | |
Impairment charges | Impairment charges | | — | | | — | | | 333 | | | 3,122 | | Impairment charges | | 5 | | | — | | | 107 | | | 333 | |
Total expenses | Total expenses | | 106,112 | | | 54,825 | | | 256,534 | | | 186,677 | | Total expenses | | 143,896 | | | 106,112 | | | 410,406 | | | 256,534 | |
Gain (loss) on real estate dispositions, net | | 33,931 | | | (113) | | | 53,424 | | | 3,604 | | |
Gain on real estate dispositions, net | | Gain on real estate dispositions, net | | 227 | | | 33,931 | | | 738 | | | 53,424 | |
Operating income | Operating income | | 50,586 | | | 12,124 | | | 99,439 | | | 31,079 | | Operating income | | 22,342 | | | 54,076 | | | 66,457 | | | 109,849 | |
Interest income | | 3,490 | | | 3,766 | | | 10,410 | | | 14,628 | | |
Interest expense | Interest expense | | (10,345) | | | (8,827) | | | (28,747) | | | (25,220) | | Interest expense | | (15,444) | | | (10,345) | | | (41,375) | | | (28,747) | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | | (2,123) | | | (120) | | | (2,899) | | | (120) | | Loss on extinguishment of debt | | — | | | (2,123) | | | — | | | (2,899) | |
Change in fair value of derivatives and other | Change in fair value of derivatives and other | | 782 | | | 131 | | | 7,512 | | | 838 | | Change in fair value of derivatives and other | | 2,466 | | | 782 | | | 5,024 | | | 7,512 | |
Unrealized credit loss release (provision) | | 42 | | | 617 | | | (858) | | | 284 | | |
Unrealized credit loss (provision) release | | Unrealized credit loss (provision) release | | (694) | | | 42 | | | (871) | | | (858) | |
Other income (expense), net | Other income (expense), net | | 118 | | | 15 | | | 415 | | | 201 | | Other income (expense), net | | 63 | | | 118 | | | 324 | | | 415 | |
Income before taxes | Income before taxes | | 42,550 | | | 7,706 | | | 85,272 | | | 21,690 | | Income before taxes | | 8,733 | | | 42,550 | | | 29,559 | | | 85,272 | |
Income tax (provision) benefit | Income tax (provision) benefit | | (181) | | | 42 | | | 140 | | | 522 | | Income tax (provision) benefit | | (310) | | | (181) | | | (834) | | | 140 | |
Net income | Net income | | 42,369 | | | 7,748 | | | 85,412 | | | 22,212 | | Net income | | 8,423 | | | 42,369 | | | 28,725 | | | 85,412 | |
Net income attributable to noncontrolling interests: | Net income attributable to noncontrolling interests: | | Net income attributable to noncontrolling interests: | |
Investment entities | Investment entities | | (5,583) | | | — | | | (5,811) | | | — | | Investment entities | | (193) | | | (5,583) | | | (616) | | | (5,811) | |
Operating Partnership | Operating Partnership | | (7,909) | | | (1,237) | | | (16,571) | | | (3,477) | | Operating Partnership | | (1,290) | | | (7,909) | | | (4,597) | | | (16,571) | |
Net income attributable to Armada Hoffler Properties, Inc. | Net income attributable to Armada Hoffler Properties, Inc. | | 28,877 | | | 6,511 | | | 63,030 | | | 18,735 | | Net income attributable to Armada Hoffler Properties, Inc. | | 6,940 | | | 28,877 | | | 23,512 | | | 63,030 | |
Preferred stock dividends | Preferred stock dividends | | (2,887) | | | (2,887) | | | (8,661) | | | (8,661) | | Preferred stock dividends | | (2,887) | | | (2,887) | | | (8,661) | | | (8,661) | |
Net income attributable to common stockholders | Net income attributable to common stockholders | | $ | 25,990 | | | $ | 3,624 | | | $ | 54,369 | | | $ | 10,074 | | Net income attributable to common stockholders | | $ | 4,053 | | | $ | 25,990 | | | $ | 14,851 | | | $ | 54,369 | |
Net income attributable to common stockholders per share (basic and diluted) | Net income attributable to common stockholders per share (basic and diluted) | | $ | 0.38 | | | $ | 0.06 | | | $ | 0.81 | | | $ | 0.17 | | Net income attributable to common stockholders per share (basic and diluted) | | $ | 0.06 | | | $ | 0.38 | | | $ | 0.22 | | | $ | 0.81 | |
Weighted-average common shares outstanding (basic and diluted) | Weighted-average common shares outstanding (basic and diluted) | | 67,729 | | | 61,083 | | | 67,525 | | | 60,310 | | Weighted-average common shares outstanding (basic and diluted) | | 67,945 | | | 67,729 | | | 67,878 | | | 67,525 | |
| | Comprehensive income: | Comprehensive income: | | | | | | | | | Comprehensive income: | | | | | | | | |
Net income | Net income | | $ | 42,369 | | | $ | 7,748 | | | $ | 85,412 | | | $ | 22,212 | | Net income | | $ | 8,423 | | | $ | 42,369 | | | $ | 28,725 | | | $ | 85,412 | |
Unrealized cash flow hedge gains (losses) | | 7,108 | | | (460) | | | 18,780 | | | 1,347 | | |
Unrealized cash flow hedge gains | | Unrealized cash flow hedge gains | | 3,488 | | | 7,108 | | | 9,868 | | | 18,780 | |
Realized cash flow hedge (gains) losses reclassified to net income | Realized cash flow hedge (gains) losses reclassified to net income | | (366) | | | 1,123 | | | 1,287 | | | 3,304 | | Realized cash flow hedge (gains) losses reclassified to net income | | (6,315) | | | (366) | | | (14,292) | | | 1,287 | |
Comprehensive income | Comprehensive income | | 49,111 | | | 8,411 | | | 105,479 | | | 26,863 | | Comprehensive income | | 5,596 | | | 49,111 | | | 24,301 | | | 105,479 | |
Comprehensive income attributable to noncontrolling interests: | Comprehensive income attributable to noncontrolling interests: | | Comprehensive income attributable to noncontrolling interests: | |
Investment entities | Investment entities | | (5,659) | | | — | | | (5,987) | | | — | | Investment entities | | (89) | | | (5,659) | | | (452) | | | (5,987) | |
Operating Partnership | Operating Partnership | | (9,465) | | | (1,406) | | | (21,227) | | | (4,680) | | Operating Partnership | | (633) | | | (9,465) | | | (3,584) | | | (21,227) | |
Comprehensive income attributable to Armada Hoffler Properties, Inc. | Comprehensive income attributable to Armada Hoffler Properties, Inc. | | $ | 33,987 | | | $ | 7,005 | | | $ | 78,265 | | | $ | 22,183 | | Comprehensive income attributable to Armada Hoffler Properties, Inc. | | $ | 4,874 | | | $ | 33,987 | | | $ | 20,265 | | | $ | 78,265 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive gain (loss) | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity |
Balance, December 31, 2021 | | $ | 171,085 | | | $ | 630 | | | $ | 525,030 | | | $ | (141,360) | | | $ | (33) | | | $ | 555,352 | | | $ | 629 | | | $ | 223,842 | | | $ | 779,823 | |
| | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 9,993 | | | — | | | 9,993 | | | 100 | | | 2,183 | | | 12,276 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,907 | | | 5,907 | | | — | | | 1,815 | | | 7,722 | |
Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | — | | | 602 | | | 602 | | | — | | | 185 | | | 787 | |
Net proceeds from issuance of common stock | | — | | | 45 | | | 65,149 | | | — | | | — | | | 65,194 | | | — | | | — | | | 65,194 | |
Noncontrolling interest in acquired real estate entity | | — | | | — | | | — | | | — | | | — | | | — | | | 23,065 | | | — | | | 23,065 | |
Restricted stock awards, net | | — | | | — | | | 1,064 | | | — | | | — | | | 1,064 | | | — | | | — | | | 1,064 | |
| | | | | | | | | | | | | | | | | | |
Acquisitions of noncontrolling interests | | — | | | — | | | (3,901) | | | — | | | — | | | (3,901) | | | — | | | — | | | (3,901) | |
Redemption of operating partnership units | | — | | | — | | | 132 | | | — | | | — | | | 132 | | | — | | | (132) | | | — | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | — | | | — | | | — | | | (11,433) | | | — | | | (11,433) | | | — | | | (3,506) | | | (14,939) | |
Balance, March 31, 2022 | | 171,085 | | | 675 | | | 587,474 | | | (145,687) | | | 6,476 | | | 620,023 | | | 23,794 | | | 224,387 | | | 868,204 | |
Net income | | — | | | — | | | — | | | 24,160 | | | — | | | 24,160 | | | 128 | | | 6,479 | | | 30,767 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 2,986 | | | 2,986 | | | 55 | | | 909 | | | 3,950 | |
Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | 1 | | | 629 | | | 630 | | | 45 | | | 191 | | | 866 | |
| | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | — | | | — | | | (35) | | | — | | | — | | | (35) | | | — | | | — | | | (35) | |
Restricted stock awards, net | | — | | | 2 | | | 573 | | | — | | | — | | | 575 | | | — | | | — | | | 575 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (84) | | | — | | | (84) | |
Contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 14 | | | — | | | 14 | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | — | | | — | | | — | | | (11,529) | | | — | | | (11,529) | | | — | | | (3,505) | | | (15,034) | |
Balance, June 30, 2022 | | 171,085 | | | 677 | | | 588,012 | | | (135,942) | | | 10,091 | | | 633,923 | | | 23,952 | | | 228,461 | | | 886,336 | |
Net income | | — | | | — | | | — | | | 28,877 | | | — | | | 28,877 | | | 5,583 | | | 7,909 | | | 42,369 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,393 | | | 5,393 | | | 74 | | | 1,641 | | | 7,108 | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (282) | | | (282) | | | 1 | | | (85) | | | (366) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | — | | | 713 | | | — | | | — | | | 713 | | | — | | | — | | | 713 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Redemption of operating partnership units | | — | | | — | | | (18) | | | — | | | — | | | (18) | | | — | | | (112) | | | (130) | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (5,423) | | | — | | | (5,423) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.19 per share and unit) | | — | | | — | | | — | | | (12,886) | | | — | | | (12,886) | | | — | | | (3,920) | | | (16,806) | |
Balance, September 30, 2022 | | $ | 171,085 | | | $ | 677 | | | $ | 588,707 | | | $ | (122,838) | | | $ | 15,202 | | | $ | 652,833 | | | $ | 24,187 | | | $ | 233,894 | | | $ | 910,914 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive income | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity |
Balance, December 31, 2022 | | $ | 171,085 | | | $ | 677 | | | $ | 587,884 | | | $ | (126,875) | | | $ | 14,679 | | | $ | 647,450 | | | $ | 24,055 | | | $ | 232,509 | | | $ | 904,014 | |
| | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | 4,709 | | | — | | | 4,709 | | | 154 | | | 554 | | | 5,417 | |
Unrealized cash flow hedge (losses) gains | | — | | | — | | | — | | | — | | | (328) | | | (328) | | | 2 | | | (100) | | | (426) | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (2,211) | | | (2,211) | | | (39) | | | (672) | | | (2,922) | |
Net proceeds from issuance of common stock | | — | | | — | | | (149) | | | — | | | — | | | (149) | | | — | | | — | | | (149) | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | 2 | | | 977 | | | — | | | — | | | 979 | | | — | | | — | | | 979 | |
| | | | | | | | | | | | | | | | | | |
Acquisitions of noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (12,834) | | | — | | | (12,834) | |
| | | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (506) | | | — | | | (506) | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.19 per share and unit) | | — | | | — | | | — | | | (12,908) | | | — | | | (12,908) | | | — | | | (3,916) | | | (16,824) | |
Balance, March 31, 2023 | | 171,085 | | | 679 | | | 588,712 | | | (137,961) | | | 12,140 | | | 634,655 | | | 10,832 | | | 228,375 | | | 873,862 | |
Net income | | — | | | — | | | — | | | 11,863 | | | — | | | 11,863 | | | 269 | | | 2,753 | | | 14,885 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,093 | | | 5,093 | | | 151 | | | 1,562 | | | 6,806 | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (3,735) | | | (3,735) | | | (174) | | | (1,146) | | | (5,055) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Restricted stock awards, net | | — | | | — | | | 337 | | | — | | | — | | | 337 | | | — | | | — | | | 337 | |
| | | | | | | | | | | | | | | | | | |
Issuance of operating partnership units for acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,194 | | | 12,194 | |
Redemption of operating partnership units | | — | | | — | | | (19) | | | — | | | — | | | (19) | | | — | | | (564) | | | (583) | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (427) | | | — | | | (427) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.195 per share and unit) | | — | | | — | | | — | | | (13,248) | | | — | | | (13,248) | | | — | | | (4,222) | | | (17,470) | |
Balance, June 30, 2023 | | 171,085 | | | 679 | | | 589,030 | | | (142,233) | | | 13,498 | | | 632,059 | | | 10,651 | | | 238,952 | | | 881,662 | |
Net income | | — | | | — | | | — | | | 6,940 | | | — | | | 6,940 | | | 193 | | | 1,290 | | | 8,423 | |
Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 2,580 | | | 2,580 | | | 86 | | | 822 | | | 3,488 | |
Realized cash flow hedge gains reclassified to net income | | — | | | — | | | — | | | — | | | (4,645) | | | (4,645) | | | (191) | | | (1,479) | | | (6,315) | |
| | | | | | | | | | | | | | | | | | |
Net proceeds from issuance of common stock | | — | | | — | | | (55) | | | — | | | — | | | (55) | | | — | | | — | | | (55) | |
Retirement of common stock | | — | | | (1) | | | (540) | | | (102) | | | — | | | (643) | | | — | | | — | | | (643) | |
Restricted stock awards, net | | — | | | 1 | | | 866 | | | — | | | — | | | 867 | | | — | | | — | | | 867 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Redemption of operating partnership units | | — | | | — | | | (10) | | | — | | | — | | | (10) | | | — | | | (112) | | | (122) | |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (298) | | | — | | | (298) | |
| | | | | | | | | | | | | | | | | | |
Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.195 per share and unit) | | — | | | — | | | — | | | (13,252) | | | — | | | (13,252) | | | — | | | (4,224) | | | (17,476) | |
Balance, September 30, 2023 | | $ | 171,085 | | | $ | 679 | | | $ | 589,291 | | | $ | (151,534) | | | $ | 11,433 | | | $ | 620,954 | | | $ | 10,441 | | | $ | 235,249 | | | $ | 866,644 | |
| | | | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive loss | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity | | | Preferred stock | | Common stock | | Additional paid-in capital | | Distributions in excess of earnings | | Accumulated other comprehensive income | | Total stockholders' equity | | Noncontrolling interests in investment entities | | Noncontrolling interests in Operating Partnership | | Total equity |
Balance, December 31, 2020 | | $ | 171,085 | | | $ | 591 | | | $ | 472,747 | | | $ | (112,356) | | | $ | (8,868) | | | $ | 523,199 | | | $ | 488 | | | $ | 233,115 | | | $ | 756,802 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | 171,085 | | | $ | 630 | | | $ | 525,030 | | | $ | (141,360) | | | $ | (33) | | | $ | 555,352 | | | $ | 629 | | | $ | 223,842 | | | $ | 779,823 | |
| Net income | Net income | | — | | | — | | | — | | | 5,198 | | | — | | | 5,198 | | | — | | | 811 | | | 6,009 | | Net income | | — | | | — | | | — | | | 9,993 | | | — | | | 9,993 | | | 100 | | | 2,183 | | | 12,276 | |
Unrealized cash flow hedge gains | Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 1,685 | | | 1,685 | | | — | | | 591 | | | 2,276 | | Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,907 | | | 5,907 | | | — | | | 1,815 | | | 7,722 | |
Realized cash flow hedge losses reclassified to net income | Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | — | | | 798 | | | 798 | | | — | | | 280 | | | 1,078 | | Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | — | | | 602 | | | 602 | | | — | | | 185 | | | 787 | |
Net proceeds from issuance of common stock | Net proceeds from issuance of common stock | | — | | | 7 | | | 8,974 | | | — | | | — | | | 8,981 | | | — | | | — | | | 8,981 | | Net proceeds from issuance of common stock | | — | | | 45 | | | 65,149 | | | — | | | — | | | 65,194 | | | — | | | — | | | 65,194 | |
Noncontrolling interest in acquired real estate entity | | Noncontrolling interest in acquired real estate entity | | — | | | — | | | — | | | — | | | — | | | — | | | 23,065 | | | — | | | 23,065 | |
Restricted stock awards, net | Restricted stock awards, net | | — | | | 1 | | | 631 | | | — | | | — | | | 632 | | | — | | | — | | | 632 | | Restricted stock awards, net | | — | | | — | | | 1,064 | | | — | | | — | | | 1,064 | | | — | | | — | | | 1,064 | |
| Acquisitions of noncontrolling interests | | Acquisitions of noncontrolling interests | | — | | | — | | | (3,901) | | | — | | | — | | | (3,901) | | | — | | | — | | | (3,901) | |
Redemption of operating partnership units | Redemption of operating partnership units | | — | | | — | | | 131 | | | — | | | — | | | 131 | | | — | | | (134) | | | (3) | | Redemption of operating partnership units | | — | | | — | | | 132 | | | — | | | — | | | 132 | | | — | | | (132) | | | — | |
Dividends declared on preferred stock | Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | | Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.15 per share and unit) | | — | | | — | | | — | | | (9,008) | | | — | | | (9,008) | | | — | | | (3,128) | | | (12,136) | | |
Balance, March 31, 2021 | | 171,085 | | | 599 | | | 482,483 | | | (119,053) | | | (6,385) | | | 528,729 | | | 488 | | | 231,535 | | | 760,752 | | |
Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | — | | | — | | | — | | | (11,433) | | | — | | | (11,433) | | | — | | | (3,506) | | | (14,939) | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | | 171,085 | | | 675 | | | 587,474 | | | (145,687) | | | 6,476 | | | 620,023 | | | 23,794 | | | 224,387 | | | 868,204 | |
Net income | Net income | | — | | | — | | | — | | | 7,026 | | | — | | | 7,026 | | | — | | | 1,429 | | | 8,455 | | Net income | | — | | | — | | | — | | | 24,160 | | | — | | | 24,160 | | | 128 | | | 6,479 | | | 30,767 | |
Unrealized cash flow hedge losses | | — | | | — | | | — | | | — | | | (349) | | | (349) | | | — | | | (120) | | | (469) | | |
Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | — | | | 820 | | | 820 | | | — | | | 283 | | | 1,103 | | |
| Net proceeds from issuance of common stock | | — | | | 11 | | | 14,105 | | | — | | | — | | | 14,116 | | | — | | | — | | | 14,116 | | |
Restricted stock awards, net | | — | | | — | | | 473 | | | — | | | — | | | 473 | | | — | | | — | | | 473 | | |
Acquisition of noncontrolling interest in real estate entity | | — | | | — | | | (950) | | | — | | | — | | | (950) | | | 146 | | | — | | | (804) | | |
| Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | | |
Dividends and distributions declared on common shares and units ($0.16 per share and unit) | | — | | | — | | | — | | | (9,783) | | | — | | | (9,783) | | | — | | | (3,337) | | | (13,120) | | |
Balance, June 30, 2021 | | 171,085 | | | 610 | | | 496,111 | | | (124,697) | | | (5,914) | | | 537,195 | | | 634 | | | 229,790 | | | 767,619 | | |
Net income | | — | | | — | | | — | | | 6,511 | | | — | | | 6,511 | | | — | | | 1,237 | | | 7,748 | | |
Unrealized cash flow hedge losses | | — | | | — | | | — | | | — | | | (343) | | | (343) | | | — | | | (117) | | | (460) | | |
Unrealized cash flow hedge gains | | Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 2,986 | | | 2,986 | | | 55 | | | 909 | | | 3,950 | |
Realized cash flow hedge losses reclassified to net income | Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | — | | | 837 | | | 837 | | | — | | | 286 | | | 1,123 | | Realized cash flow hedge losses reclassified to net income | | — | | | — | | | — | | | 1 | | | 629 | | | 630 | | | 45 | | | 191 | | | 866 | |
| Net proceeds from issuance of common stock | Net proceeds from issuance of common stock | | — | | | 3 | | | 4,328 | | | — | | | — | | | 4,331 | | | — | | | — | | | 4,331 | | Net proceeds from issuance of common stock | | — | | | — | | | (35) | | | — | | | — | | | (35) | | | — | | | — | | | (35) | |
Restricted stock awards, net | Restricted stock awards, net | | — | | | — | | | 450 | | | — | | | — | | | 450 | | | — | | | — | | | 450 | | Restricted stock awards, net | | — | | | 2 | | | 573 | | | — | | | — | | | 575 | | | — | | | — | | | 575 | |
| | Contributions from noncontrolling interests | | Contributions from noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | 14 | | | — | | | 14 | |
Distributions to noncontrolling interests | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (84) | | | — | | | (84) | |
Dividends declared on preferred stock | Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | | Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.16 per share and unit) | | — | | | — | | | — | | | (9,831) | | | — | | | (9,831) | | | — | | | (3,337) | | | (13,168) | | |
Balance, September 30, 2021 | | $ | 171,085 | | | $ | 613 | | | $ | 500,889 | | | $ | (130,904) | | | $ | (5,420) | | | $ | 536,263 | | | $ | 634 | | | $ | 227,859 | | | $ | 764,756 | | |
Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | Dividends and distributions declared on common shares and units ($0.17 per share and unit) | | — | | | — | | | — | | | (11,529) | | | — | | | (11,529) | | | — | | | (3,505) | | | (15,034) | |
Balance, June 30, 2022 | | Balance, June 30, 2022 | | 171,085 | | | 677 | | | 588,012 | | | (135,942) | | | 10,091 | | | 633,923 | | | 23,952 | | | 228,461 | | | 886,336 | |
Net income | | Net income | | — | | | — | | | — | | | 28,877 | | | — | | | 28,877 | | | 5,583 | | | 7,909 | | | 42,369 | |
Unrealized cash flow hedge gains | | Unrealized cash flow hedge gains | | — | | | — | | | — | | | — | | | 5,393 | | | 5,393 | | | 74 | | | 1,641 | | | 7,108 | |
Realized cash flow hedge (gains) losses reclassified to net income | | Realized cash flow hedge (gains) losses reclassified to net income | | — | | | — | | | — | | | — | | | (282) | | | (282) | | | 1 | | | (85) | | | (366) | |
| Restricted stock awards, net | | Restricted stock awards, net | | — | | | — | | | 713 | | | — | | | — | | | 713 | | | — | | | — | | | 713 | |
| Redemption of operating partnership units | | Redemption of operating partnership units | | — | | | — | | | (18) | | | — | | | — | | | (18) | | | — | | | (112) | | | (130) | |
Distributions to noncontrolling interests | | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (5,423) | | | — | | | (5,423) | |
Dividends declared on preferred stock | | Dividends declared on preferred stock | | — | | | — | | | — | | | (2,887) | | | — | | | (2,887) | | | — | | | — | | | (2,887) | |
Dividends and distributions declared on common shares and units ($0.19 per share and unit) | | Dividends and distributions declared on common shares and units ($0.19 per share and unit) | | — | | | — | | | — | | | (12,886) | | | — | | | (12,886) | | | — | | | (3,920) | | | (16,806) | |
Balance, September 30, 2022 | | Balance, September 30, 2022 | | $ | 171,085 | | | $ | 677 | | | $ | 588,707 | | | $ | (122,838) | | | $ | 15,202 | | | $ | 652,833 | | | $ | 24,187 | | | $ | 233,894 | | | $ | 910,914 | |
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)(Unaudited) | | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | | OPERATING ACTIVITIES | | | | |
Net income | Net income | | $ | 85,412 | | | $ | 22,212 | | Net income | | $ | 28,725 | | | $ | 85,412 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation of buildings and tenant improvements | Depreciation of buildings and tenant improvements | | 40,770 | | | 38,521 | | Depreciation of buildings and tenant improvements | | 46,742 | | | 40,770 | |
Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases | Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases | | 14,094 | | | 13,716 | | Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases | | 14,066 | | | 14,094 | |
Accrued straight-line rental revenue | Accrued straight-line rental revenue | | (4,542) | | | (4,209) | | Accrued straight-line rental revenue | | (4,748) | | | (4,542) | |
Amortization of leasing incentives and above or below-market rents | Amortization of leasing incentives and above or below-market rents | | (779) | | | (794) | | Amortization of leasing incentives and above or below-market rents | | (1,749) | | | (779) | |
Amortization of right-of-use assets - finance leases | Amortization of right-of-use assets - finance leases | | 833 | | | 745 | | Amortization of right-of-use assets - finance leases | | 1,049 | | | 833 | |
Accrued straight-line ground rent expense | Accrued straight-line ground rent expense | | 97 | | | 157 | | Accrued straight-line ground rent expense | | 55 | | | 97 | |
Unrealized credit loss provision (release) | | 858 | | | (284) | | |
Unrealized credit loss provision | | Unrealized credit loss provision | | 871 | | | 858 | |
Adjustment for uncollectable lease accounts | Adjustment for uncollectable lease accounts | | 441 | | | 683 | | Adjustment for uncollectable lease accounts | | 1,251 | | | 441 | |
Noncash stock compensation | Noncash stock compensation | | 2,712 | | | 1,830 | | Noncash stock compensation | | 2,951 | | | 2,712 | |
Impairment charges | Impairment charges | | 333 | | | 3,122 | | Impairment charges | | 107 | | | 333 | |
Noncash interest expense | Noncash interest expense | | 4,360 | | | 2,058 | | Noncash interest expense | | 5,721 | | | 4,360 | |
Noncash loss on extinguishment of debt | Noncash loss on extinguishment of debt | | 2,899 | | | 120 | | Noncash loss on extinguishment of debt | | — | | | 2,899 | |
Gain on real estate dispositions, net | Gain on real estate dispositions, net | | (53,424) | | | (3,604) | | Gain on real estate dispositions, net | | (738) | | | (53,424) | |
| Change in fair value of derivatives and other | Change in fair value of derivatives and other | | (7,512) | | | (838) | | Change in fair value of derivatives and other | | (1,974) | | | (7,512) | |
Adjustment for receipts on off-market interest rate derivatives | | Adjustment for receipts on off-market interest rate derivatives | | (3,155) | | | — | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | | | Changes in operating assets and liabilities: | | | | |
Property assets | Property assets | | (13,430) | | | (1,303) | | Property assets | | (4,439) | | | (13,430) | |
Property liabilities | Property liabilities | | 3,189 | | | 4,555 | | Property liabilities | | 5,113 | | | 3,189 | |
Construction assets | Construction assets | | (34,971) | | | 25,329 | | Construction assets | | (23,531) | | | (34,971) | |
Construction liabilities | Construction liabilities | | 42,051 | | | (34,181) | | Construction liabilities | | 21,770 | | | 42,051 | |
Interest receivable | Interest receivable | | (5,124) | | | 1,387 | | Interest receivable | | (9,797) | | | (5,124) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 78,267 | | | 69,222 | | Net cash provided by operating activities | | 78,290 | | | 78,267 | |
INVESTING ACTIVITIES | INVESTING ACTIVITIES | | | | | INVESTING ACTIVITIES | | | | |
Development of real estate investments | Development of real estate investments | | (62,388) | | | (38,659) | | Development of real estate investments | | (40,538) | | | (62,388) | |
Tenant and building improvements | Tenant and building improvements | | (11,743) | | | (6,621) | | Tenant and building improvements | | (16,004) | | | (11,743) | |
Acquisitions of real estate investments, net of cash received | Acquisitions of real estate investments, net of cash received | | (93,389) | | | (73,569) | | Acquisitions of real estate investments, net of cash received | | (8,394) | | | (93,389) | |
Dispositions of real estate investments, net of selling costs | Dispositions of real estate investments, net of selling costs | | 251,492 | | | 12,583 | | Dispositions of real estate investments, net of selling costs | | 246 | | | 251,492 | |
Notes receivable issuances | Notes receivable issuances | | (24,235) | | | (26,230) | | Notes receivable issuances | | (42,010) | | | (24,235) | |
Notes receivable paydowns | Notes receivable paydowns | | 13,239 | | | 42,301 | | Notes receivable paydowns | | — | | | 13,239 | |
Payments to purchase off-market interest rate derivatives | | Payments to purchase off-market interest rate derivatives | | (16,856) | | | — | |
Receipts on off-market interest rate derivatives | | Receipts on off-market interest rate derivatives | | 3,155 | | | — | |
Leasing costs | Leasing costs | | (3,814) | | | (2,595) | | Leasing costs | | (3,217) | | | (3,814) | |
Leasing incentives | Leasing incentives | | (51) | | | (467) | | Leasing incentives | | (20) | | | (51) | |
Contributions to equity method investments | Contributions to equity method investments | | (51,565) | | | (8,096) | | Contributions to equity method investments | | (53,689) | | | (51,565) | |
Net cash provided by (used for) investing activities | | 17,546 | | | (101,353) | | |
Net cash (used for) provided by investing activities | | Net cash (used for) provided by investing activities | | (177,327) | | | 17,546 | |
FINANCING ACTIVITIES | FINANCING ACTIVITIES | | | | | FINANCING ACTIVITIES | | | | |
| Proceeds from issuance of common stock, net | | 65,159 | | | 27,428 | | |
Proceeds from issuance of common stock, net of issuance cost | | Proceeds from issuance of common stock, net of issuance cost | | (204) | | | 65,159 | |
Common shares tendered for tax withholding | Common shares tendered for tax withholding | | (774) | | | (553) | | Common shares tendered for tax withholding | | (1,111) | | | (774) | |
Debt issuances, credit facility and construction loan borrowings | | 491,514 | | | 59,942 | | |
| Debt issuances, credit facility, and construction loan borrowings | | Debt issuances, credit facility, and construction loan borrowings | | 310,402 | | | 491,514 | |
Debt and credit facility repayments, including principal amortization | Debt and credit facility repayments, including principal amortization | | (563,435) | | | (25,734) | | Debt and credit facility repayments, including principal amortization | | (162,393) | | | (563,435) | |
Debt issuance costs | Debt issuance costs | | (6,727) | | | (2,463) | | Debt issuance costs | | (2,839) | | | (6,727) | |
| Acquisition of NCI in consolidated RE investments | Acquisition of NCI in consolidated RE investments | | (3,901) | | | (804) | | Acquisition of NCI in consolidated RE investments | | — | | | (3,901) | |
Redemption of operating partnership units | Redemption of operating partnership units | | (130) | | | — | | Redemption of operating partnership units | | (705) | | | (130) | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | | (5,507) | | | — | | Distributions to noncontrolling interests | | (1,231) | | | (5,507) | |
Contributions from noncontrolling interests | Contributions from noncontrolling interests | | 14 | | | — | | Contributions from noncontrolling interests | | — | | | 14 | |
Dividends and distributions | Dividends and distributions | | (52,904) | | | (42,662) | | Dividends and distributions | | (59,742) | | | (52,904) | |
Net cash (used for) provided by financing activities | | (76,691) | | | 15,154 | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | 19,122 | | | (16,977) | | |
Net cash provided by (used for) financing activities | | Net cash provided by (used for) financing activities | | 82,177 | | | (76,691) | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | Net (decrease) increase in cash, cash equivalents, and restricted cash | | (16,860) | | | 19,122 | |
Cash, cash equivalents, and restricted cash, beginning of period | Cash, cash equivalents, and restricted cash, beginning of period | | 40,443 | | | 50,430 | | Cash, cash equivalents, and restricted cash, beginning of period | | 51,865 | | | 40,443 | |
Cash, cash equivalents, and restricted cash, end of period (1) | Cash, cash equivalents, and restricted cash, end of period (1) | | $ | 59,565 | | | $ | 33,453 | | Cash, cash equivalents, and restricted cash, end of period (1) | | $ | 35,005 | | | $ | 59,565 | |
|
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)(Unaudited)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Supplemental Disclosures (noncash transactions): | Supplemental Disclosures (noncash transactions): | | | | | Supplemental Disclosures (noncash transactions): | | | | |
Increase in dividends and distributions payable | Increase in dividends and distributions payable | | $ | 2,536 | | | $ | 4,423 | | Increase in dividends and distributions payable | | $ | 683 | | | $ | 2,536 | |
Increase (decrease) in accrued capital improvements and development costs | Increase (decrease) in accrued capital improvements and development costs | | (5,139) | | | 5,804 | | Increase (decrease) in accrued capital improvements and development costs | | 2,033 | | | (5,139) | |
Increase in settlement liability for the repurchase of common stock | | Increase in settlement liability for the repurchase of common stock | | 643 | | | — | |
| Issuance of operating partnership units for acquisitions | | Issuance of operating partnership units for acquisitions | | 12,194 | | | — | |
Operating Partnership units redeemed for common shares | Operating Partnership units redeemed for common shares | | 132 | | | 131 | | Operating Partnership units redeemed for common shares | | — | | | 132 | |
| Debt assumed at fair value in conjunction with real estate purchases | Debt assumed at fair value in conjunction with real estate purchases | | 156,071 | | | 19,989 | | Debt assumed at fair value in conjunction with real estate purchases | | 105,584 | | | 156,071 | |
| Note receivable redeemed in conjunction with real estate purchase | | Note receivable redeemed in conjunction with real estate purchase | | 90,232 | | | — | |
| Acquisitions of noncontrolling interests | | Acquisitions of noncontrolling interests | | 12,834 | | | — | |
Noncontrolling interest in acquired real estate entity | Noncontrolling interest in acquired real estate entity | | 23,065 | | | — | | Noncontrolling interest in acquired real estate entity | | — | | | 23,065 | |
Other liability satisfied in connection with a real estate disposal | | Other liability satisfied in connection with a real estate disposal | | 750 | | | — | |
Recognition of operating lease right-of-use assets | Recognition of operating lease right-of-use assets | | 110 | | | — | | Recognition of operating lease right-of-use assets | | — | | | 110 | |
Recognition of operating lease liabilities | Recognition of operating lease liabilities | | 110 | | | — | | Recognition of operating lease liabilities | | — | | | 110 | |
Recognition of finance lease right-of-use assets | Recognition of finance lease right-of-use assets | | — | | | 24,466 | | Recognition of finance lease right-of-use assets | | 47,742 | | | — | |
Recognition of finance lease liabilities | Recognition of finance lease liabilities | | — | | | 27,940 | | Recognition of finance lease liabilities | | 46,616 | | | — | |
|
(1) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):
| | | | September 30, 2022 | | September 30, 2021 | | | | September 30, 2023 | | September 30, 2022 | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 54,700 | | | $ | 28,038 | | | Cash and cash equivalents | | $ | 32,662 | | | $ | 54,700 | | |
Restricted cash (a) | Restricted cash (a) | | 4,865 | | | 5,415 | | | Restricted cash (a) | | 2,343 | | | 4,865 | | |
Cash, cash equivalents, and restricted cash | Cash, cash equivalents, and restricted cash | | $ | 59,565 | | | $ | 33,453 | | | Cash, cash equivalents, and restricted cash | | $ | 35,005 | | | $ | 59,565 | | |
(a) Restricted cash represents amounts held by lenders for real estate taxes, insurance, and reserves for capital improvements.
See Notes to Condensed Consolidated Financial Statements.
ARMADA HOFFLER PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business of Organization
Armada Hoffler Properties, Inc. (the "Company") is a full-servicevertically integrated, self-managed real estate companyinvestment trust ("REIT") with extensiveover four decades of experience developing, building, owning,acquiring, and managing high-quality institutional-graderetail, office, retail, and multifamily properties in attractive marketslocated primarily throughoutin the Mid-Atlantic and Southeastern United States. The Company also provides general construction and development services to third-party clients, in addition to developing and building properties to be placed in their stabilized portfolio.
The Company is a real estate investment trust ("REIT"), the sole general partner of Armada Hoffler, L.P. (the "Operating Partnership") and, as of September 30, 2022,2023, owned 76.7%75.8% 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 thereof.
As of September 30, 2022,2023, the Company's property portfolio consisted of 5659 stabilized operating properties and two properties under development.development or not stabilized.
Refer to Note 5 for information related to the Company's recent acquisitions and dispositions of properties.
2. Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP").
The condensed consolidated financial statements include the financial position and results of operations of the Company and its consolidatedsubsidiaries. The Company’s subsidiaries includinginclude the Operating Partnership its wholly-ownedand the subsidiaries and any intereststhat are wholly owned or in variablewhich the Company has a controlling interest, entities ("VIEs")including where the Company has been determined to be a primary beneficiary of a variable interest entity ("VIE") in accordance with the primary beneficiary.consolidation guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). 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.
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, 2021.2022.
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.
Reclassifications
Certain items have been reclassified from their prior year classifications to conform to the current year presentation. Effective for the nine months ended September 30, 2023, the Company has changed the presentation of its condensed consolidated statements of comprehensive income. For the three and nine months ended September 30, 2022, the Company reclassified interest income of $3.5 million and $10.4 million, respectively, from non-operating income to operating income. As a result, total revenues and operating income increased by $3.5 million and $10.4 million, respectively, compared to previous reporting. These reclassifications had no effect on net income or stockholders'stockholder's equity as previously reported.
Recent Accounting Pronouncements
Accounting Standards Adopted in 2022
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") 2020-04 Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848), which became effective on March 12, 2020 and generally can be applied through December 31, 2022.2020. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. This Accounting Standards Update ("ASU")ASU also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional and only available in certain situations. In January 2021, FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848). The amendments in this standard are elective and principally apply to entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Similar to ASU No. 2020-04, provisions of this ASU are effective upon issuance and generally can be applied throughissuance. In December 2022, FASB issued ASU 2022-06 Deferral of the Sunset Date of Topic 848 which became effective immediately upon issuance. ASU 2022-06 deferred the sunset date of Topic 848 to December 31, 2022.2024. During the nine months ended September 30, 2022,2023, the Company elected to apply the practical expedients to modifications of qualifying contracts as continuations of the existing contracts rather than as new contracts. The adoption of the new guidance did not have a material impact on the consolidated financial statements. Management will continue to evaluate the impacts of reference rate reform.
Earnings Per ShareDerivative Financial Instruments
In August 2020, FASB issued ASU 2020-06, an updateThe Company may enter into interest rate derivatives to ASC Topic 470manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. The Company recognizes derivative financial instruments at fair value and ASC Topic 815, which became effective January 1, 2022. ASU 2020-06 simplifiespresents them within other assets and liabilities in the accounting for convertible instrumentscondensed consolidated balance sheets. Gains and removes certain settlement conditionslosses from derivatives that are required for equity contracts toneither designated nor qualify foras hedging instruments are recognized within the change in fair value of derivatives and other caption in the condensed consolidated statements of comprehensive income. For derivatives that qualify as cash flow hedges, the gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
For interest rate caps that qualify as cash flow hedges, the premium paid by the Company at inception represents the time value of the instrument and is excluded from the hedge effectiveness assessment. The excluded component is amortized over the life of the derivative scope exception. This ASU also simplifies diluted earnings per share calculationinstrument and presented within interest expense in certain areas and provides updated disclosure requirements. The Company adopted ASU 2020-06 effective January 1, 2022 and the adoption did not have a material impactcondensed consolidated statements of comprehensive income.
Cash flows for derivative financial instruments are classified as cash flows from operating activities within the condensed consolidated statements of cash flows, unless there is an other-than-insignificant financing element present at inception of the derivative. For derivatives with an other-than-insignificant financing element at inception due to off-market terms, cash flows are classified as cash flows from investing or financing activities within the condensed consolidated statements of cash flows depending on the consolidated financial statements.derivative's off-market nature at inception.
Other Accounting Policies
See the Company's Annual Report on Form 10-K for the year ended December 31, 20212022 for a description of other accounting principles upon which basis the accompanying consolidated financial statements were prepared.
3. Segments
The Company operates its business in five reportable segments: (i) retail real estate, (ii) office real estate, (iii) multifamily real estate, (iv) general contracting and real estate services, and (v) real estate financing. Refer to Note 1 of the Company's Form 10-K for the composition of properties within each property segment. Since the Company's Annual Report on Form 10-K for the year ended December 31, 2022, the Company introduced real estate financing as a reportable segment. The real estate financing segment includes the Company's mezzanine loans and preferred equity investments on development projects. The change in segmental presentation is a result of the chief operating decision-maker now separately reviewing the results of the real estate financing investments, which are no longer considered to be ad hoc investments, but an evolving portfolio.
Net operating income (segment revenues minus segment expenses)("NOI") is the primary measure used by the Company’s chief operating decision-maker to assess segment performance. Net operatingNOI is calculated as segment revenues less segment expenses. Segment revenues include rental revenues for the property segments, general contracting and real estate services revenues for the general contracting and real estate services segment, and interest income for the real estate financing segment. Segment expenses include rental expenses and real estate taxes for the property segments, general contracting and real estate services expenses for the general contracting and real estate services segment, and interest expense for the real estate financing segment. Segment NOI for the general contracting and real estate services and real estate financing segments is also referred to as segment gross profit as illustrated in the table below. NOI is not a measure of operating income or cash flows from operating activities as measured by GAAP and is not indicative of cash available to fund cash needs. As a result, net operating incomeNOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate net operating incomeNOI in the same manner. The Company considers net operating incomeNOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate, construction, and constructionreal estate financing businesses.
Net operating income ofThe following table presents NOI for the Company’sCompany's five reportable segments for the three and nine months ended September 30, 20222023 and 2021 was as follows2022 (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Retail real estate | | Retail real estate | |
Rental revenues | | Rental revenues | | $ | 25,858 | | | $ | 21,223 | | | $ | 73,004 | | | $ | 64,197 | |
Rental expenses | | Rental expenses | | 4,125 | | | 3,420 | | | 11,715 | | | 10,254 | |
Real estate taxes | | Real estate taxes | | 2,312 | | | 2,206 | | | 6,789 | | | 6,715 | |
Segment net operating income | | Segment net operating income | | 19,421 | | | 15,597 | | | 54,500 | | | 47,228 | |
Office real estate | Office real estate | | | | | | | | | Office real estate | | | | | | | | |
Rental revenues | Rental revenues | | $ | 18,687 | | | $ | 11,933 | | | $ | 54,024 | | | $ | 35,324 | | Rental revenues | | 22,077 | | | 18,687 | | | 62,156 | | | 54,024 | |
Rental expenses | Rental expenses | | 4,886 | | | 3,409 | | | 13,626 | | | 9,222 | | Rental expenses | | 5,925 | | | 4,886 | | | 16,282 | | | 13,626 | |
Real estate taxes | Real estate taxes | | 2,044 | | | 1,547 | | | 5,583 | | | 4,318 | | Real estate taxes | | 2,262 | | | 2,044 | | | 6,524 | | | 5,583 | |
Segment net operating income | Segment net operating income | | 11,757 | | | 6,977 | | | 34,815 | | | 21,784 | | Segment net operating income | | 13,890 | | | 11,757 | | | 39,350 | | | 34,815 | |
Retail real estate | | | | | | | | | |
Rental revenues | | 21,223 | | | 20,223 | | | 64,197 | | | 57,682 | | |
Rental expenses | | 3,420 | | | 3,270 | | | 10,254 | | | 9,119 | | |
Real estate taxes | | 2,206 | | | 2,100 | | | 6,715 | | | 6,307 | | |
Segment net operating income | | 15,597 | | | 14,853 | | | 47,228 | | | 42,256 | | |
Multifamily residential real estate | | | | | | | | | |
Multifamily real estate | | Multifamily real estate | | | | | | | | |
Rental revenues | Rental revenues | | 13,833 | | | 17,404 | | | 45,381 | | | 49,673 | | Rental revenues | | 14,978 | | | 13,833 | | | 43,922 | | | 45,381 | |
Rental expenses | Rental expenses | | 4,441 | | | 6,038 | | | 14,221 | | | 16,500 | | Rental expenses | | 4,706 | | | 4,441 | | | 13,395 | | | 14,221 | |
Real estate taxes | Real estate taxes | | 1,204 | | | 1,896 | | | 4,397 | | | 5,689 | | Real estate taxes | | 1,293 | | | 1,204 | | | 3,597 | | | 4,397 | |
Segment net operating income | Segment net operating income | | 8,188 | | | 9,470 | | | 26,763 | | | 27,484 | | Segment net operating income | | 8,979 | | | 8,188 | | | 26,930 | | | 26,763 | |
General contracting and real estate services | General contracting and real estate services | | | | | | | | | General contracting and real estate services | |
Segment revenues | | 69,024 | | | 17,502 | | | 138,947 | | | 71,473 | | |
Segment expenses | | 66,252 | | | 15,944 | | | 133,491 | | | 68,350 | | |
General contracting and real estate services revenues | | General contracting and real estate services revenues | | 99,408 | | | 69,024 | | | 286,220 | | | 138,947 | |
General contracting and real estate services expenses | | General contracting and real estate services expenses | | 96,095 | | | 66,252 | | | 276,336 | | | 133,491 | |
Segment gross profit | | Segment gross profit | | 3,313 | | | 2,772 | | | 9,884 | | | 5,456 | |
Real estate financing | | Real estate financing | | | | | | | | |
Interest income | | Interest income | | 3,496 | | | 3,372 | | | 10,257 | | | 10,070 | |
Interest expense(a) | | Interest expense(a) | | 728 | | | 840 | | | 2,634 | | | 2,482 | |
Segment gross profit | Segment gross profit | | 2,772 | | | 1,558 | | | 5,456 | | | 3,123 | | Segment gross profit | | 2,768 | | | 2,532 | | | 7,623 | | | 7,588 | |
Net operating income | Net operating income | | $ | 38,314 | | | $ | 32,858 | | | $ | 114,262 | | | $ | 94,647 | | Net operating income | | $ | 48,371 | | | $ | 40,846 | | | $ | 138,287 | | | $ | 121,850 | |
(a) Interest expense within the real estate financing segment is allocated based on the average outstanding principal of notes receivable in the real estate financing portfolio, and the effective interest rate on the credit facility, as defined in Note 8.
The following table reconciles NOI to net income, the most directly comparable GAAP measure, for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net operating income | | $ | 48,371 | | | $ | 40,846 | | | $ | 138,287 | | | $ | 121,850 | |
Interest income(a) | | 194 | | | 118 | | | 566 | | | 340 | |
Depreciation and amortization | | (22,462) | | | (17,527) | | | (60,808) | | | (54,865) | |
Amortization of right-of-use assets - finance leases | | (425) | | | (278) | | | (1,049) | | | (833) | |
General and administrative expenses | | (4,286) | | | (3,854) | | | (13,786) | | | (12,179) | |
Acquisition, development, and other pursuit costs | | — | | | — | | | (18) | | | (37) | |
Impairment charges | | (5) | | | — | | | (107) | | | (333) | |
Gain on real estate dispositions, net | | 227 | | | 33,931 | | | 738 | | | 53,424 | |
Interest expense(b) | | (14,716) | | | (9,505) | | | (38,741) | | | (26,265) | |
| | | | | | | | |
Loss on extinguishment of debt | | — | | | (2,123) | | | — | | | (2,899) | |
Change in fair value of derivatives and other | | 2,466 | | | 782 | | | 5,024 | | | 7,512 | |
Unrealized credit loss (provision) release | | (694) | | | 42 | | | (871) | | | (858) | |
Other income (expense), net | | 63 | | | 118 | | | 324 | | | 415 | |
Income tax (provision) benefit | | (310) | | | (181) | | | (834) | | | 140 | |
Net income | | $ | 8,423 | | | $ | 42,369 | | | $ | 28,725 | | | $ | 85,412 | |
(a) Excludes real estate financing segment interest income of $3.5 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively, and$10.3 million and $10.1 million for the nine months ended September 30, 2023 and 2022, respectively.
(b) Excludes real estate financing segment interest expense of $0.7 million and $0.8 million for the three months ended September 30, 2023 and 2022, respectively, and $2.6 million and $2.5 million for the nine months ended September 30, 2023 and 2022, respectively.
Rental expenses represent costs directly associated with the operation and management of the Company’s real estate properties. Rental expenses include asset management expenses, property management fees, repairs and maintenance, insurance, and utilities.
General contracting and real estate services revenues for the three months ended September 30, 2023 and 2022 and 2021 exclude revenuerevenues related to intercompany construction contracts of $13.4 million and $20.8 million, and $8.6 million, respectively, as it iswhich are eliminated in consolidation. General contracting and real estate services revenues for the nine months ended September 30, 2023 and 2022 and 2021 exclude revenuerevenues related to intercompany construction contracts of $40.0 million and $43.6 million, and $16.0 million, respectively, as it is eliminated in consolidation.respectively.
General contracting and real estate services expenses for the three months ended September 30, 20222023 and 20212022 exclude expenses related to intercompany construction contracts of $13.3 million and $20.6 million, and $8.6 million, respectively.respectively, which are eliminated in consolidation. General contracting and real estate services expenses for the nine months ended September 30, 20222023 and 20212022 exclude expenses related to intercompany construction contracts of $39.6 million and $43.1 million, respectively.
Depreciation and $16.0 million, respectively, as it is eliminated in consolidation.
The following table reconciles net operating income to net income, the most directly comparable GAAP measure,amortization expense for the three months ended September 30, 2023 was $9.9 million, $8.1 million, and $4.3 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the three months ended September 30, 2022 was $6.9 million, $6.7 million, and $3.8 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the nine months ended September 30, 2023 was $25.0 million, $22.6 million, and $12.8 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the nine months ended September 30, 2022 was $21.1 million, $20.2 million, and 2021 (in thousands): $13.3 million for the retail, office, and multifamily real estate segments, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net operating income | | $ | 38,314 | | | $ | 32,858 | | | $ | 114,262 | | | $ | 94,647 | |
Depreciation and amortization | | (17,527) | | | (16,886) | | | (54,865) | | | (52,237) | |
Amortization of right-of-use assets - finance leases | | (278) | | | (278) | | | (833) | | | (745) | |
General and administrative expenses | | (3,854) | | | (3,449) | | | (12,179) | | | (10,957) | |
Acquisition, development and other pursuit costs | | — | | | (8) | | | (37) | | | (111) | |
Impairment charges | | — | | | — | | | (333) | | | (3,122) | |
Gain (loss) on real estate dispositions, net | | 33,931 | | | (113) | | | 53,424 | | | 3,604 | |
Interest income | | 3,490 | | | 3,766 | | | 10,410 | | | 14,628 | |
Interest expense | | (10,345) | | | (8,827) | | | (28,747) | | | (25,220) | |
| | | | | | | | |
Loss on extinguishment of debt | | (2,123) | | | (120) | | | (2,899) | | | (120) | |
Change in fair value of derivatives and other | | 782 | | | 131 | | | 7,512 | | | 838 | |
Unrealized credit loss release (provision) | | 42 | | | 617 | | | (858) | | | 284 | |
Other income (expense), net | | 118 | | | 15 | | | 415 | | | 201 | |
Income tax (provision) benefit | | (181) | | | 42 | | | 140 | | | 522 | |
Net income | | $ | 42,369 | | | $ | 7,748 | | | $ | 85,412 | | | $ | 22,212 | |
General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties, and general contracting and real estate services, and real estate financing businesses. These costs include corporate office personnel compensation and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.
Interest expense on secured property debt for the three months ended September 30, 2023 was $2.4 million, $2.8 million, and $2.9 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the three months ended September 30, 2022 was $2.2 million, $3.1 million, and $3.6 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the nine months ended September 30, 2023 was $6.9 million, $7.5 million, and $8.1 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the nine months ended September 30, 2022 was $6.1 million, $7.9 million, and $10.1 million for the retail, office, and multifamily real estate segments, respectively.
Assets included in each property segment are presented in Schedule III of the financial statements accompanying the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which have only materially changed as of September 30, 2023 in respect to the acquisition of The Interlock. Refer to Note 5 for the allocation of The Interlock's assets by property segment. Assets attributable to the general contracting and real estate services segment are presented in Note 7 of these financial statements. Assets of the real estate financing segment are presented in Note 6 of these financial statements.
4. Leases
Lessee Disclosures
As a lessee, the Company has eightnine ground leases on sevennine properties. These ground leases have maximum lease terms (including renewal options) that expire between 2074 and 2117. The exercise of lease renewal options is at the Company's sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Five of these leases have been classified as operating leases and threefour of these leases have been classified as finance leases. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.
Lessor Disclosures
As a lessor, the Company leases its properties under operating leases and recognizes base rents on a straight-line basis over the lease term. The Company also recognizes revenue from tenant recoveries, through which tenants reimburse the Company on an accrual basis for certain expenses such as utilities, janitorial services, repairs and maintenance, security and alarms, parking lot and ground maintenance, administrative services, management fees, insurance, and real estate taxes. Rental revenues are reduced by the amount of any leasing incentives amortized on a straight-line basis over the term of the applicable lease. In addition, the Company recognizes contingent rental revenue (e.g., percentage rents based on tenant sales thresholds) when the sales thresholds are met. Many tenant leases include one or more options to renew, with renewal terms that can extend the lease term from one to 25 years, or more. The exercise of lease renewal options is at the tenant's sole discretion. The Company includes a renewal period in the lease term only if it appears at lease inception that the renewal is reasonably assured.
Rental revenue for the three and nine months ended September 30, 20222023 and 20212022 comprised the following (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Base rent and tenant charges | Base rent and tenant charges | | $ | 51,978 | | | $ | 48,391 | | | $ | 158,281 | | | $ | 137,675 | | Base rent and tenant charges | | $ | 61,021 | | | $ | 51,978 | | | $ | 172,585 | | | $ | 158,281 | |
Accrued straight-line rental adjustment | Accrued straight-line rental adjustment | | 1,506 | | | 883 | | | 4,542 | | | 4,210 | | Accrued straight-line rental adjustment | | 1,505 | | | 1,506 | | | 4,748 | | | 4,542 | |
Lease incentive amortization | Lease incentive amortization | | (171) | | | (167) | | | (517) | | | (485) | | Lease incentive amortization | | (123) | | | (171) | | | (438) | | | (517) | |
Above/below market lease amortization | | 430 | | | 453 | | | 1,296 | | | 1,279 | | |
(Above) below market lease amortization, net | | (Above) below market lease amortization, net | | 510 | | | 430 | | | 2,187 | | | 1,296 | |
Total rental revenue | Total rental revenue | | $ | 53,743 | | | $ | 49,560 | | | $ | 163,602 | | | $ | 142,679 | | Total rental revenue | | $ | 62,913 | | | $ | 53,743 | | | $ | 179,082 | | | $ | 163,602 | |
5. Real Estate Investment
Property Acquisitions
Constellation Energy Building
On January 14, 2022,2023, the Company acquired a 79% membership interest and an additional 11% economicmembership interest in the partnership that owns the Constellation Energy Building, (previously referredincreasing its ownership interest to 90%, in exchange for full satisfaction of the $12.8 million loan that was extended to the seller upon the acquisition of the property in January 2022.
The Interlock
On May 19, 2023, the Company acquired The Interlock, a 311,000 square foot Class A commercial mixed-use asset in West Midtown Atlanta anchored by Georgia Tech. The Interlock consists of office and retail space as well as structured parking. For segment reporting purposes, management has separated office and retail components of The Interlock into two operating properties respectively presented in the "Exelon Building")office and retail real estate segments. The Company acquired the asset for a purchase pricetotal consideration of approximately $92.2$214.1 million plus capitalized acquisition costs of $1.2 million. As part of this acquisition, the Company paid $6.1 million in cash, and aredeemed its outstanding $90.2 million mezzanine loan, issued $12.2 million of Class A units of limited partnership interest in the Operating Partnership ("Class A Units") to the seller, and assumed the asset's senior construction loan of $12.8 million. The Constellation Energy Building is a mixed-use structure located in Baltimore's Harbor Point and is comprised of an office building, the Constellation Office,$105.6 million, that serves as the headquarters for Constellation Energy Corp., which was spun-off from Exelon, a Fortune 100 energy company, in February 2022, as well as a multifamily component, 1305 Dock Street. The Constellation Office includes a parking garage and retail space. The Constellation Energy Building was subject to a $156.1 million loan, which the Company immediately refinanced followingpaid off on the acquisition with a new $175.0 million loan. The new loan bears interest at a ratedate using the proceeds of the Bloomberg Short-Term Bank Yield Index ("BSBY") plus a spread of 1.50%TD term loan facility and will mature on November 1, 2026. This loan is hedgedan increase in borrowings under the revolving credit facility, both defined in Note 8. The Company also assumed the leasehold interest in the underlying land owned by Georgia Tech. The ground lease has an interest rate cap corridor of 1.00% and 3.00% as well as an interest rate cap of 4.00%. See Note 9 for further details.expiration in 2117 after considering renewal options.
The following table summarizes the purchase price allocation (including acquisition costs) based on the relative fair value of the assets acquired for the two operating propertiesproperty purchased during the nine months ended September 30, 20222023 (in thousands):
| | | | | | | | | | | | |
| | Constellation Energy BuildingThe Interlock(1) | | | | |
Land | | $ | 23,317 | | | | | |
Site improvements | | 141 | | | | | |
Building | | 194,916$ | 183,907 | | | | | |
| | | | | | |
| | | | | | |
In-place leases | | 53,70535,234 | | | | | |
Above-market leases | | 306 62 | | | | | |
Below-market leases | | (3,931) | | | | | |
| | | | | | |
Finance lease right-of-use assets(2) | | 46,616 | | | | | |
Finance lease liabilities | | (46,616) | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net assets acquired | | $ | 272,385215,272 | | | | | |
(1) The net assets acquired attributable to the office and retail real estate segments were $134.6 million and $80.6 million, respectively.
Ten Tryon
On January 14, 2022,(2) Excludes $1.1 million of rent for the Company acquiredfinance lease, which was prepaid on the remaining 20% ownership interest inacquisition date. The total finance lease right-of-use asset recognized on the entity that is developing the Ten Tryon project in Charlotte, North Carolina for a cash payment of $3.9 million. The Company recorded the amount as an adjustment to additional paid-in-capital.
The Residences at Annapolis Junction
On April 11, 2022, the Company exercised its option to acquire an additional 16% of the partnership that owns The Residences at Annapolis Junction, increasing its ownership to 95%. In exchange for this increased partnership interest, the terms of the partnership waterfall calculation in the event of a capital event were modified.
Property Dispositions
On April 1, 2022, the Company completed the sale of Hoffler Place for a sale price of $43.1 million. The loss recognized upon saleacquisition date was $0.8$47.7 million.
Property Disposition
Market at Mill Creek
On April 25, 2022,11, 2023, the Company completed the sale of Summit Placea non-operating outparcel at Market at Mill Creek in full satisfaction of the outstanding consideration payable for a sale pricethe acquisition of $37.8 million.the noncontrolling interest in the property completed on December 31, 2022. The loss recognized upon salegain recorded on this disposition was $0.5 million.
In addition to the losses recognized on the sales of the Hoffler Place and Summit Place student-housing properties during the three months ended September 30, 2022 described above, the Company recognized impairment of real estate of $18.3 million to record these properties at their fair values during the three months ended December 31, 2021.Brooks Crossing Retail Outparcel
On June 29, 2022,September 20, 2023, the Company completedexercised its option to purchase an outparcel adjacent to Brooks Crossing Retail and subsequently sold the sale of the Home Depot and Costco outparcels at North Pointe for a sale price of $23.9 million.outparcel. The gain recorded on this disposition was $20.9 million.
On July 22, 2022, the Company completed the sale of The Residences at Annapolis Junction for a sale price of $150.0 million. The gain recognized on disposition was $31.5 million, $5.4 million of which was allocated to the Company's noncontrolling interest partner.
On July 26, 2022, the Company completed the sale of the AutoZone and Valvoline outparcels at Sandbridge Commons for a sale price of $3.5 million. The gain recognized on disposition was $2.4$0.2 million.
Equity Method Investments
Harbor Point Parcel 3
The Company owns a 50% interest in Harbor Point Parcel 3, a joint venture with Beatty Development Group, for purposes of developing T. Rowe Price's new global headquarters office building in Baltimore, Maryland. The Company is a noncontrolling partner in the joint venture and will serve as the project's general contractor. During the nine months ended September 30, 2022,2023, the Company invested $29.4$0.5 million in Harbor Point Parcel 3. The Company has an estimated equity commitment of up to $38.6$45.6 million relating to this project. As of September 30, 20222023 and December 31, 2021,2022, the carrying value of the Company's investment in Harbor Point Parcel 3 was $42.1$40.3 million and $12.7$39.8 million, respectively.respectively, which excludes $1.8 million and $0.9 million, respectively, of intra-entity profits eliminated in consolidation. For the nine months ended September 30, 2023 and 2022, Harbor Point Parcel 3 had no operating activity, andactivity; therefore, the Company received no allocated income.
Based on the terms of the operating agreement, the Company has concluded that Harbor Point Parcel 3 is a VIE and that the Company holds a variable interest. The Company has significant influence over the project due to its 50% ownership;ownership interest; however, the Company does not have the power to direct the activities of the project that most significantly impact its performance. This includes activity as the managing member of the entity, which is a power that is retained by the Company's joint venture partner. Accordingly, the Company is not the project's primary beneficiary and, therefore, does not consolidate Harbor Point Parcel 3 in its consolidated financial statements. The Company's investment in the project is recorded as an equity method investment in the consolidated balance sheets.
Harbor Point Parcel 4
On April 1, 2022, the Company acquired a 78% interest in Harbor Point Parcel 4, a real estate venture with Beatty Development Group, for purposes of developing a mixed-use project ("Allied | Harbor Point"), which is planned to include multifamily units, retail space, and a parking garage. The Company holds an option to increase its ownership to 90%. The Company is a noncontrolling partner in the real estate venture and will serve as the project's general contractor. During the nine months ended September 30, 2022,2023, the Company invested $22.9$53.2 million in Harbor Point Parcel 4. The Company has an estimated equity commitment of up to $99.7$108.9 million relating to this project. As of September 30, 2023 and December 31, 2022, the carrying value of the Company's investment in Harbor Point Parcel 4 was $22.9 million.$85.4 million and $32.2 million, respectively, which excludes $0.6 million and $0.2 million, respectively, of intra-entity profits eliminated in consolidation. For the nine months ended September 30, 2022,2023, Harbor Point Parcel 4 had no operating activity, andactivity; therefore, the Company received no allocated income.
Based on the terms of the operating agreement, the Company has concluded that Harbor Point Parcel 4 is a VIE and that the Company holds a variable interest. The Company has significant influence over the project due to its 78% ownership;ownership interest; however, the Company does not have the power to direct the activities of the project that most significantly impact its performance. This includes activity as the managing member of the entity, which is a power that is retained by the Company's partner. Accordingly, the Company is not the project's primary beneficiary and, therefore, does not consolidate Harbor Point Parcel 4 in its consolidated financial statements. The Company's investment in the project is recorded as an equity method investment in the consolidated balance sheets.
6. Notes Receivable and Current Expected Credit Losses
Notes Receivable
The Company had the following notes receivable outstanding as of September 30, 20222023 and December 31, 20212022 ($ in thousands):
| | | Outstanding loan amount (a) | | | Interest compounding | | Outstanding loan amount | | | Interest compounding |
Development Project | Development Project | | September 30, 2022 | | December 31, 2021 | | Maximum loan commitment | | Interest rate | Development Project | | September 30, 2023 | | December 31, 2022 | | Maximum principal commitment | | Interest rate |
City Park 2 | | $ | 11,749 | | | $ | — | | | $ | 20,594 | | | 13.0 | % | | Annually | |
Interlock Commercial | | 84,615 | | | 95,379 | | | 107,000 | | (b) | 15.0 | % | | None | |
Nexton Multifamily | | 25,532 | | | 23,567 | | | 22,315 | | | 11.0 | % | | Annually | |
Solis City Park II | | Solis City Park II | | $ | 23,567 | | (a) | $ | 19,062 | | (a) | $ | 20,594 | | | 13.0 | % | | Annually |
Solis Gainesville II | | Solis Gainesville II | | 21,471 | | (a) | 6,638 | | (a) | 19,595 | | | 14.0 | % | (b) | Annually |
Solis Kennesaw | | Solis Kennesaw | | 11,003 | | (a) | — | | | 37,870 | | | 14.0 | % | (b) | Annually |
Solis Peachtree Corners | | Solis Peachtree Corners | | 7,798 | | (a) | — | | | 28,440 | | | 15.0 | % | (b) | Annually |
The Allure at Edinburgh | | The Allure at Edinburgh | | 9,485 | | (a) | — | | | 9,228 | | | 15.0 | % | (c) | None |
The Interlock(d) | | The Interlock(d) | | — | | | 86,584 | | (a) | 107,000 | | (e) | 15.0 | % | | None |
Total mezzanine & preferred equity | Total mezzanine & preferred equity | | 121,896 | | | 118,946 | | | $ | 149,909 | | | Total mezzanine & preferred equity | | 73,324 | | | 112,284 | | | $ | 222,727 | | |
Constellation Energy Building note receivable | Constellation Energy Building note receivable | | 12,834 | | | — | | | | | Constellation Energy Building note receivable | | — | | | 12,834 | | | | |
Other notes receivable | Other notes receivable | | 7,570 | | | 7,234 | | | Other notes receivable | | 12,033 | | (a) | 11,512 | | (a) | |
Notes receivable guarantee premium | Notes receivable guarantee premium | | 1,024 | | | 1,243 | | | Notes receivable guarantee premium | | — | | | 701 | | |
Allowance for credit losses | | (1,508) | | (c) | (994) | | | |
Allowance for credit losses(f) | | Allowance for credit losses(f) | | (1,644) | |
| (1,292) | | |
| Total notes receivable | Total notes receivable | | $ | 141,816 | | | $ | 126,429 | | | Total notes receivable | | $ | 83,713 | | | $ | 136,039 | | |
(a) Outstanding loan amounts include any accrued and unpaid interest, and accrued exit fees, as applicable.
(b) The interest rate varies over the life of the loans, and the Company also earns an unused commitment fee. Refer below under “Solis Gainesville II,” “Solis Kennesaw,” and “Solis Peachtree Corners” for further details.
(c) The interest rate varies over the life of the loan. Refer below under “The Allure at Edinburgh” for further details.
(d) This note receivable was redeemed on May 19, 2023 in connection with the Company’s acquisition of The Interlock. Refer below under “The Interlock” for further details.
(e) This amount includes interest reserves.
(c)(f) The amount excludes $0.4amounts as of September 30, 2023 and December 31, 2022 exclude $0.9 million and $0.3 million of Current Expected Credit Losses ("CECL"(“CECL”) allowance that relates to the unfunded commitments, which waswere recorded as a liability under Otherother liabilities in the consolidated balance sheet.sheets.
Interest on the notes receivable is accrued and funded utilizing the interest reserves for each loan, which are components of the respective maximum loan commitments, and such accrued interest is generally added to the loan receivable balances. The Company recognized interest income for the three and nine months ended September 30, 20222023 and 20212022 as follows (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
Development Project | Development Project | | 2022 | | 2021 | | 2022 | | 2021 | | Development Project | | 2023 | | 2022 | | 2023 | | 2022 | |
| City Park 2 | | $ | 329 | | (a) | $ | — | | | $ | 554 | | (a) | $ | — | | | |
Interlock Commercial | | 2,363 | | (a) | 3,260 | | (a) | 7,550 | | (a) | 9,644 | | (a) | |
Nexton Multifamily | Nexton Multifamily | | 680 | | | 397 | | | 1,966 | | | 658 | | | Nexton Multifamily | | $ | — | | | $ | 680 | | | $ | — | | | $ | 1,966 | | |
Solis Apartments at Interlock | | — | | | — | | | — | | | 4,005 | | (b) | |
Total mezzanine | | 3,372 | | | 3,657 | | | 10,070 | | | 14,307 | | | |
Solis City Park II | | Solis City Park II | | 740 | | (a) | 329 | | (a) | 2,142 | | (a) | 554 | | (a) |
Solis Gainesville II | | Solis Gainesville II | | 717 | | (a)(b) | — | | | 1,964 | | (a)(b) | — | | |
Solis Kennesaw | | Solis Kennesaw | | 1,164 | | (a)(b) | — | | | 1,629 | | (a)(b) | — | | |
Solis Peachtree Corners | | Solis Peachtree Corners | | 617 | | (a)(b) | — | | | 617 | | (a)(b) | — | | |
The Allure at Edinburgh | | The Allure at Edinburgh | | 258 | | | — | | | 258 | | | — | | |
The Interlock | | The Interlock | | — | | | 2,363 | | (a) | 3,647 | | (a) | 7,550 | | (a) |
Total mezzanine & preferred equity | | Total mezzanine & preferred equity | | 3,496 | | | 3,372 | | | 10,257 | | | 10,070 | | |
Other interest income | Other interest income | | 118 | | | 109 | | | 340 | | | 321 | | | Other interest income | | 194 | | | 118 | | | 566 | | | 340 | | |
Total interest income | Total interest income | | $ | 3,490 | | | $ | 3,766 | | | $ | 10,410 | | | $ | 14,628 | | | Total interest income | | $ | 3,690 | | | $ | 3,490 | | | $ | 10,823 | | | $ | 10,410 | | |
(a) Includes recognition of interest income related to fee amortization.
(b) Includes prepayment premiumrecognition of $2.4 million from early payoff of the loan.unused commitment fees.
City Park 2Solis Gainesville II
On March 23, 2022,29, 2023, the Solis Gainesville II preferred equity investment agreement was modified to adjust the interest rate. The interest rate of 14% remains effective through the first 24 months of the investment. Beginning on October 3, 2024, the investment will bear interest at a rate of 10% for 12 months. On October 3, 2025, the investment will again bear interest at a rate of 14% per annum through maturity. Additionally, the amendment introduced an unused commitment fee of 10% on the unfunded portion of the investment's maximum loan commitment, which is effective January 1, 2023. Both the interest and unused commitment fee compound annually.
The Interlock
On May 19, 2023, the Company acquired The Interlock. The consideration for such acquisition included the redemption of the Company's outstanding $90.2 million mezzanine loan on the project. Refer to Note5for further information regarding the acquisition.
Solis Kennesaw
On May 25, 2023, the Company entered into a $20.6$37.9 million preferred equity investment for the development of a multifamily property located in Charlotte, North Carolina.Marietta, Georgia ("Solis Kennesaw"). The investment has economic terms consistent with a note receivable, including a mandatory redemption or maturity on April 28, 2026,May 25, 2027, and it is accounted for as a note receivable. The Company's investment bears interest at a rate of 13%, compounded14.0% for the first 24 months. Beginning on May 25, 2025, the investment will bear interest at a rate of 9.0% for 12 months. On May 25, 2026, the investment will again bear interest at a rate of 14.0% through maturity. The interest compounds annually. The Company also earns an unused commitment fee of 11.0% on the unfunded portion of the investment's maximum loan commitment, which does not compound, and an equity fee on its commitment of $0.6 million to be amortized through redemption. The preferred equity investment is subject to a minimum interest guarantee of $13.1 million over the life of the investment.
Management has concluded that this entity is a VIE. Because the other investor in the project TP City Park 2 LLC, is the developer and managing member of City Park 2 Multifamily,Solis Kennesaw, 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 does not consolidate the project in its consolidated financial statements.
Solis Peachtree Corners
On July 26, 2023, the Company entered into a $28.4 million preferred equity investment for the development of a multifamily property located in Peachtree Corners, Georgia ("Solis Peachtree Corners"). The preferred equity investment has economic and other terms consistent with a note receivable, including a mandatory redemption feature effective on October 27, 2027. The Company's investment bears interest at a rate of 15.0% for the first 27 months. Beginning on November 1, 2025, the investment will bear interest at a rate of 9.0% for 12 months. On November 1, 2026, the investment will again bear interest at a rate of 15.0% through maturity. The interest compounds annually. The Company also earns an unused commitment fee of 10.0% on the unfunded portion of the investment's maximum loan commitment, which also compounds annually, and an equity fee on its commitment of $0.4 million to be amortized through redemption. The preferred equity investment is subject to a minimum interest guarantee of $12.0 million over the life of the investment.
Management has concluded that this entity is a VIE. Because the other investor in the project is the developer and managing member of Solis Peachtree Corners, 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 does not consolidate the project in its consolidated financial statements.
The Allure at Edinburgh
Interlock CommercialOn July 26, 2023, the Company entered into a $9.2 million preferred equity investment for the development of a multifamily property located in Chesapeake, Virginia ("The Allure at Edinburgh"). The preferred equity investment has economic and other terms consistent with a note receivable, including a mandatory redemption feature effective on January 16, 2028. The Company's investment bears interest at a rate of 15.0%, which does not compound. Upon The Allure at Edinburgh obtaining a certificate of occupancy, the investment will bear interest at a rate of 10.0%. The common equity partner in the development property holds an option to sell the property to the Company at a predetermined amount if certain conditions are met. The Company also holds an option to purchase the property at any time prior to maturity of the preferred equity investment, and at the same predetermined amount as the common equity partner's option to sell.
During February 2022,Management has concluded that this entity is a VIE. Because the other investor in the project is the developer and managing member of The Allure at Edinburgh, the Company received $13.5 million as a partial repaymentdoes not have the power to direct the activities of the Interlock Commercial mezzanine loan, which consisted of $11.1 million of principal and $2.4 million of interest. During September 2022,project that most significantly impact its performance. Accordingly, the Company received $2.7 million as an additional repayment, which consisted of $1.0 million of principalis not the project's primary beneficiary and $1.7 million of interest.does not consolidate the project in its consolidated financial statements.
Allowance for Loan Losses
The Company is exposed to credit losses primarily through its mezzanine lending activities and preferred equityreal estate financing investments. As of September 30, 2022,2023, the Company had three mezzanine loans (including the Nexton Multifamily and City Park 2 preferred equityfive real estate financing investments, that are accounted for as notes receivable), each of which are financing development projects in various stages of completion or lease-up. Each of these projects is subject to a loan that is senior to the Company’s mezzanine loan. Interest on these loans is paid in kind and is generally not expected to be paid until a sale of the project after completion of the development.
The Company's management performs a quarterly analysis of the loan portfolio to determine the risk of credit loss based on
the progress of development activities, including leasing activities, projected development costs, and current and projected mezzanine
subordinated and senior construction loan balances. The Company estimates future losses on its notes receivable using risk
ratings that correspond to probabilities of default and loss given default. The Company's risk ratings are as follows:
•Pass: loans in this category are adequately collateralized by a development project with conditions materially consistent with the Company's underwriting assumptions.
•Special Mention: loans in this category show signs that the economic performance of the project may suffer as a result of slower-than-expected leasing activity or an extended development or marketing timeline. Loans in this category warrant increased monitoring by management.
•Substandard: loans in this category may not be fully collected by the Company unless remediation actions are taken. Remediation actions may include obtaining additional collateral or assisting the borrower with asset management activities to prepare the project for sale. The Company will also consider placing the loan on nonaccrualnon-accrual status if it does not believe that additional interest accruals will ultimately be collected.
On a quarterly basis, the Company compares the risk inherent in its loans to industry loan loss data experienced during past business cycles. The Company updated the risk ratings for each of its notes receivable as of September 30, 20222023 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of September 30, 20222023 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $2.5 million as of September 30, 2023. An allowance related to unfunded commitments of approximately $0.9 million as of September 30, 2023 was recorded as Other liabilities on the consolidated balance sheet.
At December 31, 2021,September 30, 2023, the Company reported $126.4$83.7 million of notes receivable, net of allowances of $1.0$1.6 million. At September 30,December 31, 2022, the Company reported $141.8$136.0 million of notes receivable, net of allowances of $1.5$1.3 million. Changes in the allowance for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Beginning balance | | $ | 1,894 | | | $ | 2,129 | | | $ | 994 | | | $ | 2,584 | |
| | | | | | | | |
Unrealized credit loss provision (release) | | (42) | | | (617) | | | 858 | | | (284) | |
Extinguishment due to acquisition | | — | | | — | | | — | | | (788) | |
| | | | | | | | |
| | | | | | | | |
Ending balance (a) | | $ | 1,852 | | | $ | 1,512 | | | $ | 1,852 | | | $ | 1,512 | |
(a) The amounts as of September 30, 2022 and 2021 include $0.4 million and $0.1 million, respectively, of allowance related to the unfunded commitments, which were recorded as Other liabilities on the consolidated balance sheet. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| | Funded | | Unfunded | | Total | | Funded | | Unfunded | | Total |
Beginning balance | | $ | 1,292 | | | $ | 338 | | | $ | 1,630 | | | $ | 994 | | | $ | 10 | | | $ | 1,004 | |
| | | | | | | | | | | | |
Unrealized credit loss provision (release) | | 817 | | | 519 | | | 1,336 | | | 514 | | | 344 | | | 858 | |
Release due to redemption | | (465) | | | — | | | (465) | | | — | | | — | | | — | |
| | | | | | | | | | | | |
Ending balance | | $ | 1,644 | | | $ | 857 | | | $ | 2,501 | | | $ | 1,508 | | | $ | 354 | | | $ | 1,862 | |
The Company places loans on non-accrual status when the loan balance, together with the balance of any senior loan, approximately equals the estimated realizable value of the underlying development project. As of September 30,December 31, 2022, the Company had the Constellation Energy Building note, which bearsbore interest at 3% per annum, on non-accrual status. The principal balance of the note receivable iswas adequately secured by the seller's partnership interest. On January 14, 2023,
the Company acquired an additional 11% membership interest in the Constellation Energy Building, increasing its ownership interest to 90%, in exchange for full satisfaction of the note. As of September 30, 2022 and December 31, 2021,2023, there were no other loans on non-accrual status.
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 September 30, 20222023 during the next twelve12 to 24 months.
Billings in excess of construction contract costs and estimated earnings represent billings or collections on contracts made in advance of revenue recognized.
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 nine months ended September 30, 20222023 and 20212022 (in thousands):
| | | Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
| | Construction contract costs and estimated earnings in excess of billings | | Billings in excess of construction contract costs and estimated earnings | | Construction contract costs and estimated earnings in excess of billings | | Billings in excess of construction contract costs and estimated earnings | | Construction contract costs and estimated earnings in excess of billings | | Billings in excess of construction contract costs and estimated earnings | | Construction contract costs and estimated earnings in excess of billings | | Billings in excess of construction contract costs and estimated earnings |
Beginning balance | Beginning balance | | $ | 243 | | | $ | 4,881 | | | $ | 138 | | | $ | 6,088 | | Beginning balance | | $ | 342 | | | $ | 17,515 | | | $ | 243 | | | $ | 4,881 | |
Revenue recognized that was included in the balance at the beginning of the period | Revenue recognized that was included in the balance at the beginning of the period | | — | | | (4,881) | | | — | | | (6,088) | | Revenue recognized that was included in the balance at the beginning of the period | | — | | | (17,515) | | | — | | | (4,881) | |
Increases due to new billings, excluding amounts recognized as revenue during the period | Increases due to new billings, excluding amounts recognized as revenue during the period | | — | | | 16,312 | | | — | | | 3,791 | | Increases due to new billings, excluding amounts recognized as revenue during the period | | — | | | 24,570 | | | — | | | 16,312 | |
Transferred to receivables | Transferred to receivables | | (478) | | | — | | | (665) | | | — | | Transferred to receivables | | (342) | | | — | | | (478) | | | — | |
Construction contract costs and estimated earnings not billed during the period | Construction contract costs and estimated earnings not billed during the period | | 232 | | | — | | | 370 | | | — | | Construction contract costs and estimated earnings not billed during the period | | 440 | | | — | | | 232 | | | — | |
Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | | 235 | | | (576) | | | 527 | | | (1,117) | | Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | | — | | | (1,443) | | | 235 | | | (576) | |
Ending balance | Ending balance | | $ | 232 | | | $ | 15,736 | | | $ | 370 | | | $ | 2,674 | | Ending balance | | $ | 440 | | | $ | 23,127 | | | $ | 232 | | | $ | 15,736 | |
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 $1.3$1.9 million and $2.2$1.3 million were deferred as of September 30, 20222023 and December 31, 2021,2022, respectively. Amortization of pre-contract costs for the nine months ended September 30, 2023 and 2022 and 2021 was $0.8$0.3 million and $0.2$0.8 million, respectively.
Construction receivables and payables include retentions, which are amounts that are generally withheld until the completion of the contract or the satisfaction of certain restrictive conditions such as fulfillment guarantees. As of September 30, 20222023 and December 31, 2021,2022, construction receivables included retentions of $8.2$25.4 million and $3.1$8.3 million, respectively. The Company expects to collect substantially all construction receivables outstanding as of September 30, 20222023 during the next twelve12 to 24 months. As of September 30, 20222023 and December 31, 2021,2022, construction payables included retentions of $16.2$33.5 million and $4.2$24.7 million, respectively. The Company expects to pay substantially all construction payables outstanding as of September 30, 20222023 during the next twelve12 to 24 months.
The Company’s net position on uncompleted construction contracts comprised the following as of September 30, 20222023 and December 31, 20212022 (in thousands):
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Costs incurred on uncompleted construction contracts | Costs incurred on uncompleted construction contracts | $ | 477,799 | | | $ | 379,993 | | Costs incurred on uncompleted construction contracts | $ | 595,195 | | | $ | 571,465 | |
Estimated earnings | Estimated earnings | 19,423 | | | 15,115 | | Estimated earnings | 21,997 | | | 22,162 | |
Billings | Billings | (512,726) | | | (399,746) | | Billings | (639,879) | | | (610,800) | |
Net position | Net position | $ | (15,504) | | | $ | (4,638) | | Net position | $ | (22,687) | | | $ | (17,173) | |
| Construction contract costs and estimated earnings in excess of billings | Construction contract costs and estimated earnings in excess of billings | $ | 232 | | | $ | 243 | | Construction contract costs and estimated earnings in excess of billings | $ | 440 | | | $ | 342 | |
Billings in excess of construction contract costs and estimated earnings | Billings in excess of construction contract costs and estimated earnings | (15,736) | | | (4,881) | | Billings in excess of construction contract costs and estimated earnings | (23,127) | | | (17,515) | |
Net position | Net position | $ | (15,504) | | | $ | (4,638) | | Net position | $ | (22,687) | | | $ | (17,173) | |
The above table reflects the net effect of projects closed as of September 30, 20222023 and December 31, 2021,2022, respectively.
The Company’s balances and changes in construction contract price allocated to unsatisfied performance obligations (backlog) as of September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Beginning backlog | Beginning backlog | | $ | 541,214 | | | $ | 70,219 | | | $ | 215,518 | | | $ | 71,258 | | Beginning backlog | | $ | 592,787 | | | $ | 541,214 | | | $ | 665,564 | | | $ | 215,518 | |
New contracts/change orders | New contracts/change orders | | 53,966 | | | 53,590 | | | 449,712 | | | 106,992 | | New contracts/change orders | | 20,646 | | | 53,966 | | | 135,414 | | | 449,712 | |
Work performed | Work performed | | (69,251) | | | (16,944) | | | (139,301) | | | (71,385) | | Work performed | | (99,855) | | | (69,251) | | | (287,400) | | | (139,301) | |
Ending backlog | Ending backlog | | $ | 525,929 | | | $ | 106,865 | | | $ | 525,929 | | | $ | 106,865 | | Ending backlog | | $ | 513,578 | | | $ | 525,929 | | | $ | 513,578 | | | $ | 525,929 | |
The Company expects to complete a majority of the uncompleted contracts in place as of September 30, 20222023 during the next 12 to 24 months.
8. Indebtedness
Amended Credit Facility
On August 23, 2022, the Company as parent guarantor, and the Operating Partnership as borrower, entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $550.0 million credit facility comprised of a $250.0 million senior unsecured revolving credit facility (the "revolving credit facility") and a $300.0 million senior unsecured term loan facility (the "term loan facility" and, together with the revolving credit facility, the "amended credit"credit facility"), with a syndicate of banks. The amended credit facility replaces the prior $150.0 million revolving credit facility, which was scheduled to mature on January 24, 2024, and the prior $205.0 million term loan facility, which was scheduled to mature on January 24, 2025.
The amended credit facility includes an accordion feature that allows the total commitments to be increased to $1.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The revolving credit facility has a scheduled maturity date of January 22, 2027, with two six-month extension options, subject to ourthe Company's satisfaction of certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of January 21, 2028.
On August 29, 2023, the Company increased the capacity of the revolving credit facility by $105.0 million by exercising the accordion feature in part, bringing the revolving credit facility capacity to $355.0 million and the total credit facility capacity to $655.0 million.
The revolving credit facility bears interest at Secured Overnight Financing Rate ("SOFR") plus a margin ranging from 1.30% to 1.85% and a credit spread adjustment of 0.10%, and the term loan facility bears interest at SOFR plus a margin ranging from 1.25% to 1.80% and a credit spread adjustment of 0.10%, in each case depending on the Company's total leverage. 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 revolving credit facility. If the Company or the Operating Partnership attains investment grade credit ratings from both S&P Global Ratings and Moody’sMoody's Investors Service, Inc., the Operating Partnership may elect to have borrowings become subject to interest rates based on such credit ratings.
As of September 30, 20222023 and December 31, 2021,2022, the outstanding balance on the revolving credit facility was $36.0$200.0 million and $5.0$61.0 million, respectively. The outstanding balance on the term loan facility was $300.0 million and $205.0 million as of both September 30, 20222023 and December 31, 2021, respectively.2022. As of September 30, 2022,2023, the effective
interest rates on the revolving credit facility and the term loan facility, before giving effect to interest rate caps and swaps, were 4.54%6.82% and 4.49%6.72%, respectively. After giving effect to interest rate caps and swaps, the effective interest rates on the revolving credit facility and the term loan facility were 4.40% and 3.02%, respectively, as of September 30, 2023. The Operating Partnership may, at any time, voluntarily prepay any loan under the amended credit facility in whole or in part without premium or penalty.
The Operating Partnership is the borrower, and its obligations under the amended credit facility are guaranteed by the Company 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. The Company's ability to borrow under the amended 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 amended credit facility to be immediately due and payable.
M&T Term Loan Facility
On December 6, 2022, the Company, as parent guarantor, and the Operating Partnership, as borrower, entered into a term loan agreement (the "M&T term loan agreement") with Manufacturers and Traders Trust Company, as lender and administrative agent, which provides a $100.0 million senior unsecured term loan facility (the "M&T term loan facility"), with the option to increase the total capacity to $200.0 million, subject to the Company's satisfaction of certain conditions. The proceeds from the M&T term loan facility were used to repay the loans secured by the Wills Wharf, 249 Central Park Retail, Fountain Plaza Retail, and South Retail properties. The M&T term loan facility has a scheduled maturity date of March 8, 2027, with a one-year extension option, subject to the Company's satisfaction of certain conditions, including payment of a 0.075% extension fee.
The M&T term loan facility bears interest at a rate elected by the Operating Partnership based on term SOFR, Daily Simple SOFR, or the Base Rate (as defined below), and in each case plus a margin. A term SOFR or Daily Simple SOFR loan is also subject to a credit spread adjustment of 0.10%. The margin under each interest rate election depends on the Company's total leverage. The "Base Rate" is equal to the highest of: (a) the rate of interest in effect for such day as publicly announced from time to time by M&T Bank as its “prime rate” for such day, (b) the Federal Funds Rate for such day, plus 0.50%, (c) one month term SOFR for such day plus 100 basis points and (d) 1.00%. The Operating Partnership has elected for the loan to bear interest at term SOFR plus margin. If the Company or the Operating Partnership attains investment grade credit ratings from both S&P Global Ratings and Moody's Investor Service, Inc., the Operating Partnership may elect to have borrowings become subject to interest rates based on such credit ratings.
As of each of September 30, 2023 and December 31, 2022, the outstanding balance on the M&T term loan facility was $100.0 million. As of September 30, 2023, the effective interest rate on the M&T term loan facility, before giving effect to interest rate swaps, was 6.72%. After giving effect to interest rate swaps, the effective interest rate on the M&T term loan facility was 4.90% as of September 30, 2023. The Operating Partnership may, at any time, voluntarily prepay the M&T term loan facility in whole or in part without premium or penalty, provided certain conditions are met.
The Operating Partnership is the borrower under the M&T term loan facility, and its obligations under the M&T term loan facility are guaranteed by the Company and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty. The M&T term loan agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Company's ability to borrow under the M&T term loan facility is subject to ongoing compliance with a number of financial covenants, affirmative covenants, and other restrictions. The term loan 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 M&T term loan facility to be immediately due and payable.
TD Term Loan Facility
On May 19, 2023, the Company, as parent guarantor, and the Operating Partnership, as borrower, entered into a term loan agreement (the "TD term loan agreement") with Toronto Dominion (Texas) LLC, as administrative agent, and TD Bank, N.A. as lender, which provides a $75.0 million senior unsecured term loan facility (the "TD term loan facility"), with the option to increase the total capacity to $150.0 million, subject to the Company's satisfaction of certain conditions. The proceeds from the TD term loan facility were used in connection with the acquisition of The Interlock, which is detailed in Note 5. The TD term loan facility has a scheduled maturity date of May 19, 2025, with a one-year extension option, subject to the Company's satisfaction of certain conditions, including payment of a 0.15% extension fee.
The TD term loan facility bears interest at a rate elected by the Operating Partnership based on term SOFR, Daily Simple SOFR, or the Base Rate (as defined below), and in each case plus a margin. A term SOFR or Daily Simple SOFR loan is also subject to a credit spread adjustment of 0.10%. The margin under each interest rate election depends on the Company's total leverage. The "Base Rate" is equal to the highest of: (a) the Federal Funds Rate for such day, plus 0.50% (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate” for such day, (c) one month term SOFR for such day plus 100 basis points and (d) 1.00%. The Operating Partnership has elected for the loan to bear interest at term SOFR plus margin. If the Company or the Operating Partnership attains investment grade credit ratings from both S&P Global Ratings and Moody's Investor Service, Inc., the Operating Partnership may elect to have borrowings become subject to interest rates based on such credit ratings.
On June 29, 2023, the TD term loan facility commitment increased to $95.0 million as a result of the addition of a second lender to the facility.
As of September 30, 2023, the outstanding balance on the TD term loan facility was $95.0 million. As of September 30, 2023, the effective interest rate on the TD term loan facility, before giving effect to interest rate swaps, was 6.82%. After giving effect to interest rate swaps, the effective interest rate on the TD term loan facility was 4.70% as of September 30, 2023. The Operating Partnership may, at any time, voluntarily prepay the TD term loan facility in whole or in part without premium or penalty, provided certain conditions are met.
The Operating Partnership is the borrower under the TD term loan facility, and its obligations under the TD term loan facility are guaranteed by the Company and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty. The TD term loan agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Company's ability to borrow under the TD term loan facility is subject to ongoing compliance with a number of financial covenants, affirmative covenants, and other restrictions. The TD term loan 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 TD term loan facility to be immediately due and payable.
The Company is currently in compliance with all covenants governingunder the amended credit facility.Credit Agreement, the M&T term loan agreement, and TD term loan agreement, all of which are substantially similar.
Other 20222023 Financing Activity
On January 5, 2022,Effective April 3, 2023, the Company contributed $2.6 million totransitioned the Harbor Point Parcel 3 joint venture in order to meet the lender's equity funding requirement since a $15.0 million standby letter of credit, which was available for draw down on the revolving credit facility in the event the Company did not meet its equity requirement, expired on January 4, 2022.
On January 14, 2022, the Company acquired a 79% membership interest and an additional 11% economic interest in the partnership that owns the mixed-use property known as the Constellation Energy Building. The property was subject to a $156.1 million loan, which the Company immediately refinanced following the acquisition with a new $175.0 million loan. The new loan bears interest at a rate of BSBY plus a spread of 1.50% and will mature on November 1, 2026.
On January 19, 2022, the Company paid off the $14.1 million balance of the loan secured by the Delray Beach Plaza shopping center.
On March 3, 2022, the Company paid off the $10.3 million balance of the loan secured by the Red Mill West Commons shopping center.
On April 25, 2022, Harbor Point Parcel 3, a joint venture to which the Company is party, entered into a construction loan agreement for $161.5 million.
On April 25, 2022, Harbor Point Parcel 4, a real estate venture to which the Company is party, entered into a construction loan agreement for $109.7 million.
On June 29, 2022, the Company paid off the $1.9 million loan balance associated with North Pointe Phase II in conjunction with the sale of the property leased and occupied by Costco.
On June 30, 2022, the Company refinanced the $20.1$69.0 million loan secured by Nexton Square.Thames Street Wharf to SOFR, previously indexed to the Bloomberg Short-Term Yield Index (BSBY). The new $22.5 millionmodified loan bears interest at a rate of SOFR plus a spread of 1.95% (SOFR has1.30% and a 0.30% floor) and will mature on June 30, 2027.credit spread adjustment of 0.10%.
On July 22, 2022,Effective April 3, 2023, the Company paid offtransitioned the $84.4$175.0 million loan secured by the Constellation Energy Building to SOFR, previously indexed to BSBY. The Residences at Annapolis Junction in conjunction with the sale of the property.
On August 15, 2022, the Company paid off the $9.4 million balance of the loan secured by the Marketplace at Hilltop shopping center.
On August 25, 2022, the Company paid off the $51.8 million, $14.6 million, and $23.6 million balances of the loans secured by the 1405 Point, Brooks Crossing Office, and One City Center properties, respectively.
On August 25, 2022, the Company entered into a $73.6 million construction loan agreement for the Southern Post development project. The loan bears interest at a rate of SOFR plus a spread of 2.25%. The loan matures on August 25, 2026 and has two 12-month extension options. There was no balance outstanding on the loan as of September 30, 2022.
On September 27, 2022, the Company refinanced the $13.4 million loan secured by Liberty Apartments. The new $21.0 millionmodified loan bears interest at a rate of SOFR plus a spread of 1.50% and will mature on September 27, 2027.
During the nine months ended September 30, 2022,2023, the Company borrowed $34.5$27.7 million under its existing construction loans to fund new development and construction.
9. Derivative Financial Instruments
The Company enters into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and other liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of interest rate derivatives and other in the condensed consolidated statements of comprehensive income. For derivatives that qualify as cash flow hedges, the gain or loss is reported as a component of other comprehensive income (loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
As of September 30, 2022,2023, the Company had the following London Inter-Bank Offered Rate (“LIBOR"), SOFR and BSBY interest rate caps ($ in thousands):
| Effective Date | Effective Date | | Maturity Date | | Notional Amount | | Strike Rate | | Premium Paid | | Effective Date | | Maturity Date | | Notional Amount | | Strike Rate | | Premium Paid | |
11/1/2020 | 11/1/2020 | | 11/1/2023 | | $ | 84,375 | | (a) | 1.84% (SOFR) | | $ | 91 | | | 11/1/2020 | | 11/1/2023 | | $ | 84,375 | | (a) | 1.84 | % | | $ | 91 | | |
2/2/2021 | | 2/1/2023 | | 100,000 | | | 0.50% (LIBOR) | | 45 | | | |
3/4/2021 | | 4/1/2023 | | 14,479 | | | 2.50% (LIBOR) | | 4 | | | |
1/11/2022 | | 2/1/2024 | | 175,000 | | | 4.00% (BSBY) | | 154 | | | |
4/7/2022 | | 2/1/2024 | | 175,000 | | (a) | 1.00%-3.00% (BSBY) | (b) | 3,595 | | | |
7/1/2022 | | 3/1/2024 | | 200,000 | | (a) | 1.00%-3.00% (SOFR) | (b) | 352 | | (c) | |
7/5/2022 | | 1/1/2024 | | 50,000 | | (a) | 1.00%-3.00% (SOFR) | (b) | 143 | | (c) | |
7/5/2022 | 7/5/2022 | | 1/1/2024 | | 35,100 | | (a) | 1.00%-3.00% (SOFR) | (b) | 120 | | (c) | 7/5/2022 | | 1/1/2024 | | 35,100 | | (a) | 1.00%-3.00% | (b) | 120 | | (c) |
9/1/2022 | 9/1/2022 | | 9/1/2024 | | 73,562 | | (a)(d) | 1.00%-3.00% (SOFR) | (b) | 1,370 | | | 9/1/2022 | | 9/1/2024 | | 57,089 | | (a)(d) | 1.00%-3.00% | (b) | 1,370 | | |
Total | Total | | $ | 907,516 | | | $ | 5,874 | | | Total | | $ | 176,564 | | | $ | 1,581 | | |
(a) Designated as a cash flow hedge.
(b) The Company purchased interest rate caps at 1.00% and sold interest rate caps at 3.00%, resulting in interest rate cap corridors of 1.00% and 3.00%. The intended goal of these corridors is to provide a level of protection from the effect of rising interest rates and reduce the all-in cost of the derivative instrument.
(c) This amount represents the sum of the premiums paid on the original instruments. The caps were blended and extended for a net zero premium during the three monthsyear ended September 30,December 31, 2022.
(d) TheRepresents the notional amount represents the maximum notional amount that will eventually be in effect.as of September 30, 2023. The notional amount is scheduled to increase over the term of the corridor in accordance with projected borrowings on the associated loan. The maximum notional amount that will eventually be in effect is $73.6 million.
As of September 30, 2022,2023, the Company held the following floating-to-fixed interest rate swaps ($ in thousands):
| Related Debt | Related Debt | | Notional Amount | | Index | | Swap Fixed Rate | | Debt effective rate | | Effective Date | | Expiration Date | Related Debt | | Notional Amount | | Index | | Swap Fixed Rate | | Debt effective rate | | Effective Date | | Expiration Date | |
Senior unsecured term loan | Senior unsecured term loan | | $ | 50,000 | | (a) | | 1-month LIBOR | | 2.26 | % | | 3.71 | % | | 4/1/2019 | | 10/26/2022 | Senior unsecured term loan | | $ | 10,500 | | (a) | | 1-month SOFR | (b) | 2.94 | % | | 4.34 | % | | 10/12/2018 | | 10/12/2023 | |
Senior unsecured term loan | | 50,000 | | | 1-month LIBOR | | 2.78 | % | | 4.23 | % | | 5/1/2018 | | 5/1/2023 | |
249 Central Park Retail, South Retail, and Fountain Plaza Retail | | 32,979 | | (a) | | 1-month LIBOR | | 2.25 | % | | 3.85 | % | | 4/1/2019 | | 8/10/2023 | |
Floating rate pool of loans | | Floating rate pool of loans | | 50,000 | | (a)(c) | | 1-month SOFR | | 3.40 | % | | 4.91 | % | | 7/5/2023 | | 1/1/2024 | |
Constellation Energy Building | | Constellation Energy Building | | 175,000 | | (a)(d) | | 1-month SOFR | | 1.84 | % | | 3.46 | % | | 4/1/2023 | | 2/1/2024 | |
Floating rate pool of loans | | Floating rate pool of loans | | 200,000 | | (a)(e) | | 1-month SOFR | | 3.39 | % | | 4.90 | % | | 7/1/2023 | | 3/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 10,500 | | (a) | | 1-month LIBOR | | 3.02 | % | | 4.47 | % | | 10/12/2018 | | 10/12/2023 | Senior unsecured term loan | | 25,000 | | (a) | | 1-month SOFR | (b) | 0.42 | % | | 1.82 | % | | 4/1/2020 | | 4/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | (a) | | 1-month LIBOR | | 0.50 | % | | 1.95 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 25,000 | | (a) | | 1-month SOFR | (b) | 0.33 | % | | 1.73 | % | | 4/1/2020 | | 4/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | (a) | | 1-month LIBOR | | 0.50 | % | | 1.95 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 25,000 | | (a) | | Daily SOFR | (b) | 0.44 | % | | 1.84 | % | | 4/1/2020 | | 4/1/2024 | |
Harbor Point Parcel 3 senior construction loan | | Harbor Point Parcel 3 senior construction loan | | 90,000 | | (f) | | 1-month SOFR | | 2.75 | % | | 4.82 | % | | 10/2/2023 | | 10/1/2025 | |
Floating rate pool of loans | | Floating rate pool of loans | | 330,000 | | (g) | | 1-month SOFR | | 2.75 | % | | 4.26 | % | | 10/1/2023 | | 10/1/2025 | |
Revolving credit facility and TD unsecured term loan | | Revolving credit facility and TD unsecured term loan | | 100,000 | | | Daily SOFR | | 3.20 | % | | 4.70 | % | | 5/19/2023 | | 5/19/2026 | (h) |
Thames Street Wharf | | Thames Street Wharf | | 68,253 | | (a) | | Daily SOFR | (b) | 0.93 | % | | 2.33 | % | | 9/30/2021 | | 9/30/2026 | |
M&T unsecured term loan | | M&T unsecured term loan | | 100,000 | | (a) | | 1-month SOFR | | 3.50 | % | | 4.90 | % | | 12/6/2022 | | 12/6/2027 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | (a) | | 1-month LIBOR | | 0.55 | % | | 2.00 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 100,000 | | | 1-month SOFR | | 3.43 | % | | 4.83 | % | | 12/13/2022 | | 1/21/2028 | |
Thames Street Wharf | | 69,686 | | (a) | | 1-month BSBY | | 1.05 | % | | 2.35 | % | | 9/30/2021 | | 9/30/2026 | |
Total | Total | | $ | 288,165 | | | Total | | $ | 1,298,753 | | |
|
(a) Designated as a cash flow hedge.
(b) Transitioned to SOFR during the nine months ended September 30, 2023.
(c) On July 6, 2023, the Company terminated a SOFR corridor of 1.00%-3.00% with a notional amount of $50.0 million, and entered into this interest rate swap agreement. The Company paid a net zero premium for this transaction.
(d) Effective April 4, 2023, the Company terminated its 4.00% BSBY interest rate cap with a notional amount of $175.0 million and its BSBY corridor of 1.00%-3.00% with a notional amount of $175.0 million and, effective April 3, 2023, entered into this interest rate swap agreement. The Company paid a net zero premium for this transaction.
(e) On July 5, 2023, the Company terminated a SOFR corridor of 1.00%-3.00% with a notional amount of $200.0 million, and entered into this interest rate swap agreement. The Company paid a net zero premium for this transaction.
(f) This interest rate swap agreement reduces the Company's interest rate exposure on the $180.4 million senior construction loan secured by the Company's Harbor Point Parcel 3 equity method investment as described in Note 5. As such, the loan is not reflected on the Company's consolidated balance sheets. The Company also paid $3.6 million to reduce the swap fixed rate. This interest rate swap agreement was executed in September 2023, but was not effective until October 2, 2023.
(g) The Company paid $13.3 million to reduce the swap fixed rate. This interest rate swap agreement was executed in September 2023, but was not effective until October 1, 2023.
(h) Subject to cancellation by the counterparty beginning on May 1, 2025 and the first day of each month thereafter.
For the interest rate swaps and caps designated as cash flow hedges, realized gains and losses are reclassified out of accumulated other comprehensive lossincome to interest expense in the condensed consolidated statements of comprehensive income due to payments madereceived from and paid to the swap counterparty. During the next 12 months, the Company anticipates recognizing approximately $10.4$11.6 million of net hedging gains as reductions to interest expense. These amounts will be reclassified from accumulated other comprehensive gainincome into earnings to offset the variability of the hedged items during this period.
The Company’s derivatives were comprised of the following as of September 30, 20222023 and December 31, 20212022 (in thousands):
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value | | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | Asset | | Liability | | | | Asset | | Liability | | | | Asset | | Liability | | | | Asset | | Liability |
Derivatives not designated as accounting hedges | Derivatives not designated as accounting hedges | | | | | | | | | Derivatives not designated as accounting hedges | | | | | | | | |
Interest rate swaps | Interest rate swaps | | $ | 50,000 | | | $ | 390 | | | $ | — | | | $ | 50,000 | | | $ | — | | | $ | (1,454) | | Interest rate swaps | | $ | 620,000 | | | $ | 22,465 | | | $ | — | | | $ | 250,000 | | | $ | 2,201 | | | $ | — | |
Interest rate caps | Interest rate caps | | 289,479 | | | 2,726 | | | — | | | 399,579 | | | 1,019 | | | — | | Interest rate caps | | — | | | — | | | — | | | 289,479 | | | 2,102 | | | — | |
Total derivatives not designated as accounting hedges | Total derivatives not designated as accounting hedges | | 339,479 | | | 3,116 | | | — | | | 449,579 | | | 1,019 | | | (1,454) | | Total derivatives not designated as accounting hedges | | 620,000 | | | 22,465 | | | — | | | 539,479 | | | 4,303 | | | — | |
Derivatives designated as accounting hedges | Derivatives designated as accounting hedges | | Derivatives designated as accounting hedges | |
Interest rate swaps | Interest rate swaps | | 238,165 | | | 11,960 | | | — | | | 239,633 | | | 1,317 | | | (2,013) | | Interest rate swaps | | 678,753 | | | 15,777 | | | — | | | 187,670 | | | 11,247 | | | — | |
Interest rate caps | Interest rate caps | | 545,572 | | | 15,354 | | | — | | | 384,375 | | | 590 | | | — | | Interest rate caps | | 176,564 | | | 1,680 | | | — | | | 561,200 | | | 13,565 | | | — | |
Total derivatives | Total derivatives | | $ | 1,123,216 | | | $ | 30,430 | | | $ | — | | | $ | 1,073,587 | | | $ | 2,926 | | | $ | (3,467) | | Total derivatives | | $ | 1,475,317 | | | $ | 39,922 | | | $ | — | | | $ | 1,288,349 | | | $ | 29,115 | | | $ | — | |
The changes in the fair value of the Company’s derivatives during the three and nine months ended September 30, 20222023 and 20212022 were comprised of the following (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Interest rate swaps | Interest rate swaps | | $ | 4,330 | | | $ | (60) | | | $ | 13,894 | | | $ | 2,315 | | Interest rate swaps | | $ | 4,952 | | | $ | 4,330 | | | $ | 12,188 | | | $ | 13,894 | |
Interest rate caps | Interest rate caps | | 3,587 | | | (234) | | | 12,586 | | | (27) | | Interest rate caps | | 20 | | | 3,587 | | | (346) | | | 12,586 | |
Total change in fair value of interest rate derivatives | Total change in fair value of interest rate derivatives | | $ | 7,917 | | | $ | (294) | | | $ | 26,480 | | | $ | 2,288 | | Total change in fair value of interest rate derivatives | | $ | 4,972 | | | $ | 7,917 | | | $ | 11,842 | | | $ | 26,480 | |
Comprehensive income statement presentation: | Comprehensive income statement presentation: | | | | | | | | | Comprehensive income statement presentation: | | | | | | | | |
Change in fair value of derivatives and other | Change in fair value of derivatives and other | | $ | 809 | | | $ | 166 | | | $ | 7,700 | | | $ | 941 | | Change in fair value of derivatives and other | | $ | 1,484 | | | $ | 809 | | | $ | 1,974 | | | $ | 7,700 | |
Unrealized cash flow hedge gains (losses) | | 7,108 | | | (460) | | | 18,780 | | | 1,347 | | |
Unrealized cash flow hedge gains | | Unrealized cash flow hedge gains | | 3,488 | | | 7,108 | | | 9,868 | | | 18,780 | |
Total change in fair value of interest rate derivatives | Total change in fair value of interest rate derivatives | | $ | 7,917 | | | $ | (294) | | | $ | 26,480 | | | $ | 2,288 | | Total change in fair value of interest rate derivatives | | $ | 4,972 | | | $ | 7,917 | | | $ | 11,842 | | | $ | 26,480 | |
10. Equity
Stockholders’ Equity
On March 10, 2020, the Company commenced an at-the-market continuous equity offering program (the "ATM Program") through which the Company may, from time to time, issue and sell shares of its common stock and shares of its 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock (the "Series A Preferred Stock") having an aggregate offering price of up to $300.0 million, to or through its sales agents and, with respect to shares of its common stock, may enter into separate forward sales agreements to or through the forward purchaser.
During the nine months ended September 30, 2022, the Company issued and sold 475,074 shares of common stock at a weighted average price of $15.21 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $7.1 million. During the nine months ended September 30, 2022,2023, the Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program. Shares having an aggregate offering price of $205.0 million remained unsold under the ATM Program as of November 4, 2022.3, 2023.
On January 11, 2022,April 3, 2023, in connection with the tender by a holder of Class A Units of 51,000 Class A Units for redemption by the Operating Partnership, the Company completed an underwritten public offeringelected to satisfy the redemption request with a cash payment of 4,025,000 shares of common stock,
which were pre-purchased fromClass A Units of 10,146 Class A Units for redemption by the Operating Partnership, the Company byelected to satisfy the underwriter atredemption request with a purchase pricecash payment of $14.45 per share of common stock including fees, resulting in net proceeds after offering costs of $58.0$0.1 million.
Noncontrolling Interests
As of September 30, 20222023 and December 31, 2021,2022, the Company held a 75.8% and 76.7% and 75.3% commoneconomic interest in the Operating Partnership, respectively. As of September 30, 2022,2023, the Company also held a preferred interest in the Operating Partnership in the form of preferred units with a liquidation preference of $171.1 million. 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 76.7%75.8% 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 Operating Partnership represent units of limited partnership interest in the Operating Partnership not held by the Company. As of September 30, 2022,2023, there were 20,611,19021,603,062 Class A units of limited partnership interestUnits and 39,694 LTIP Units in the Operating Partnership ("Class ALTIP Units") not held by the Company. The Company's financial position and results of operations are the same as those of the Operating Partnership.
Additionally, the Operating Partnership owns a majority interest in certain non-wholly-ownednon-wholly owned operating and development properties. The noncontrolling interest for investment entities of $24.2 million relates to the minority partners' interest in certain joint venture entities as of September 30, 2022, including $23.5 million for minority partners’ interest in the Constellation Energy Building. The noncontrolling interest for consolidated real estate entities was $0.6$10.4 million and $24.1 million as of September 30, 2023 and December 31, 2021.2022, respectively, which represents the minority partners' interest in certain joint venture entities.
Share Repurchase Program
On January 1, 2022, due to holders of Class A Units tendering an aggregate of 12,149 Class A Units for redemption by the Operating Partnership,June 15, 2023, the Company electedadopted a $50.0 million share repurchase program (the "Share Repurchase Program"). Under the Share Repurchase Program, the Company may repurchase shares of common stock and Series A Preferred Stock from time to satisfytime in the redemption requestsopen market, in block purchases, through privately negotiated transactions, the issuanceuse of an equaltrading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or other means. The Share Repurchase Program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of common stock.time. The Share Repurchase Program may be suspended or discontinued at any time by the Company and does not have an expiration date.
On July 1, 2022, in connection withDuring the tender by a limited partner in the Operating Partnership of 10,146 Class A Units for redemption by the Operating Partnership,nine months ended September 30, 2023, the Company elected to satisfyrepurchased 62,293 shares of common stock. During the redemption request with a cash paymentnine months ended September 30, 2023, the Company did not repurchase any shares of $0.1 million.Series A Preferred Stock. As of September 30, 2023, $49.4 million remained available for repurchases under the Share Repurchase Program.
Dividends and Distributions
During the nine months ended September 30, 2022,2023, the following dividends/distributions were declared or paid:
| Equity type | Equity type | | Declaration Date | | Record Date | | Payment Date | | Dividends per Share/Unit | | Aggregate Dividends/Distributions on Stock and Units (in thousands) | Equity type | | Declaration Date | | Record Date | | Payment Date | | Dividends per Share/Unit | | Aggregate Dividends/Distributions on Stock and Units (in thousands) |
Common Stock/Class A Units | Common Stock/Class A Units | | 10/25/2021 | | 12/29/2021 | | 01/06/2022 | | $ | 0.17 | | | $ | 14,209 | | Common Stock/Class A Units | | 11/04/2022 | | 12/28/2023 | | 01/05/2023 | | $ | 0.190 | | | $ | 16,785 | |
Common Stock/Class A Units | Common Stock/Class A Units | | 02/23/2022 | | 03/30/2022 | | 04/07/2022 | | 0.17 | | | 15,014 | | Common Stock/Class A Units | | 02/28/2023 | | 03/29/2023 | | 04/06/2023 | | 0.190 | | | 16,825 | |
Common Stock/Class A Units | Common Stock/Class A Units | | 05/12/2022 | | 06/29/2022 | | 07/07/2022 | | 0.17 | | | 15,020 | | Common Stock/Class A Units | | 05/08/2023 | | 06/28/2023 | | 07/06/2023 | | 0.195 | | | 17,471 | |
Common Stock/Class A Units | Common Stock/Class A Units | | 07/28/2022 | | 09/28/2022 | | 10/06/2022 | | 0.19 | | | 16,785 | | Common Stock/Class A Units | | 09/15/2023 | | 09/27/2023 | | 10/05/2023 | | 0.195 | | | 17,476 | |
Series A Preferred Stock | Series A Preferred Stock | | 10/25/2021 | | 01/03/2022 | | 01/14/2022 | | 0.421875 | | | 2,887 | | Series A Preferred Stock | | 11/04/2022 | | 01/03/2023 | | 01/13/2023 | | 0.421875 | | | 2,887 | |
Series A Preferred Stock | Series A Preferred Stock | | 02/23/2022 | | 04/01/2022 | | 04/15/2022 | | 0.421875 | | | 2,887 | | Series A Preferred Stock | | 02/28/2023 | | 04/03/2023 | | 04/14/2023 | | 0.421875 | | | 2,887 | |
Series A Preferred Stock | Series A Preferred Stock | | 05/12/2022 | | 07/01/2022 | | 07/15/2022 | | 0.421875 | | | 2,887 | | Series A Preferred Stock | | 05/08/2023 | | 07/03/2023 | | 07/14/2023 | | 0.421875 | | | 2,887 | |
Series A Preferred Stock | Series A Preferred Stock | | 07/28/2022 | | 10/03/2022 | | 10/14/2022 | | 0.421875 | | | 2,887 | | Series A Preferred Stock | | 09/15/2023 | | 10/02/2023 | | 10/13/2023 | | 0.421875 | | | 2,887 | |
11. Stock-Based Compensation
The Company’s Amended and Restated 2013 Equity Incentive Plan, as amended June 14, 2023 (the "Equity Plan"), permits the grant of restricted stock awards, stock options, stock appreciation rights, performance units, LTIP Units and other equity-based awards up to an aggregate of 1,700,0003,400,000 shares of common stock. As of September 30, 2022,2023, there were 397,9041,567,039 shares available for issuance under the Equity Plan.
During the nine months ended September 30, 2022,2023, the Company granted an aggregate of 264,693432,605 shares of restricted stock and LTIP Units to employees and non-employee directors with a weighted average grant date fair value of $14.61$12.47 per share.share or LTIP Unit. Of those shares, 52,08887,986 were surrendered by the employees for income tax withholdings.withholdings and 2,800 were forfeited in accordance with service conditions of grants (excluding items noted below). 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. Beginning with grants made in 2021, executiveExecutive officers' restricted shares generally vest over a period of three years: two-fifths immediately on the grant date and the remaining three-fifths in equal amounts on the first three anniversaries following the grant date, subject to continued service to the Company. Non-employee director restricted stock awards or LTIP Units may vest either immediately upon grant or over a period of one year, subject to continued service to the Company. Unvested restricted stock awards and LTIP Units are entitled to receive dividendsdistributions from their grant date.
During the three months ended September 30, 20222023 and 2021,2022, the Company recognized $0.7$0.9 million and $0.5$0.7 million, respectively, of stock-based compensation cost. During the nine months ended September 30, 20222023 and 2021,2022, the Company recognized $3.1$3.3 million and $2.1$3.1 million, respectively, of stock-based compensation cost. As of September 30, 2022,2023, there were 220,847 nonvested312,233 non-vested restricted shares and LTIP Units outstanding; the total unrecognized compensation expense related to nonvestednon-vested restricted shares and LTIP Units was $1.7$2.4 million, which the Company expects to recognize over the next 30 months.
As a result of the Company inadvertently issuing more shares of common stock than were available for issuance under the Equity Plan, on May 9, 2023, the Company's Chief Executive Officer and the Company's Chief Financial Officer forfeited 75,321 and 8,975 restricted shares of common stock, respectively. Following approval by the Company’s board of directors and stockholders of an amendment to the Equity Plan to increase the number of shares available for issuance thereunder, on June 20, 2023, 75,321 and 8,975 restricted shares of common stock were granted to the Company's Chief Executive Officer and the Company's Chief Financial Officer, respectively, one-third of which will vest on March 3, 2024, one-third of which will vest on March 3, 2025, and one-third of which will vest on March 3, 2026, subject to the executives' continued employment on such dates.
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 values. 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.
Financial assets and liabilities whose fair values are not measured at fair value but for which the fair value is disclosed include the Company's notes receivable and indebtedness. The fair value is estimated by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity, credit characteristics, and other terms of the arrangements, which are Level 3 inputs under the fair value hierarchy.
In certain cases, the inputs used to estimate the 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.
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 as of September 30, 20222023 and December 31, 20212022 were as follows (in thousands):
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Indebtedness, net(a) | Indebtedness, net(a) | | $ | 1,041,576 | | | $ | 1,023,994 | | | $ | 958,910 | | | $ | 976,520 | | Indebtedness, net(a) | | $ | 1,333,114 | | | $ | 1,307,552 | | | $ | 1,079,233 | | | $ | 1,058,530 | |
Notes receivable, net | Notes receivable, net | | 141,816 | | | 141,816 | | | 126,429 | | | 126,429 | | Notes receivable, net | | 83,713 | | | 83,713 | | | 136,039 | | | 136,039 | |
Interest rate swap liabilities | | — | | | — | | | 3,467 | | | 3,467 | | |
| Interest rate swap and cap assets | Interest rate swap and cap assets | | 30,430 | | | 30,430 | | | 2,926 | | | 2,926 | | Interest rate swap and cap assets | | 39,922 | | | 39,922 | | | 29,115 | | | 29,115 | |
(a) The valuesExcludes $11.3 million and $11.0 million of deferred financing costs as of September 30, 2023 and December 31, 2021 include loans reclassified to liabilities related to assets held for sale.2022, respectively.
13. Related Party Transactions
The Company provides general contracting services to certain related party entities that are included in these condensed consolidated financial statements. Revenue and gross profit from construction contracts with these entities for the three months ended September 30, 2021 were $4.1 million and $0.8 million, respectively. Revenue and gross profit from construction contracts with these entities for the nine months ended September 30, 2021 were $22.8 million and $1.5 million, respectively. Revenue and gross profit from construction contracts with these entities for the three and nine months ended September 30, 2023 and 2022 were immaterial.nominal. There were no outstanding construction receivables due from related parties as of September 30, 2022 compared to $4.1 million outstanding at2023 and December 31, 2021.
The general contracting services described above include contracts with an aggregate price of $81.6 million with the developer of a mixed-use project, including an apartment building, retail space, and a parking garage located in Virginia Beach, Virginia. The developer is owned in part by certain executives of the Company, not including the Chief Executive Officer and Chief Financial Officer. These contracts were executed in 2019 and were substantially complete as of September 10, 2021. Aggregate gross profit was projected at $3.9 million to the Company, representing a gross profit margin of 5.1% as of September 30, 2022. As part of these contracts and per the requirements of the lender for this project, the Company issued a letter of credit for $9.5 million to secure certain performances of the Company's subsidiary construction company under the contracts, of which $1.9 million remains outstanding as of September 30, 2022.
The Company provides general contracting services to the Harbor Point Parcel 3 and Harbor Point Parcel 4 ventures. See Note 5 for more information. During the three and nine months ended September 30, 2023, the Company recognized gross profit of $0.3 million and $1.0 million, respectively, relating to these construction contracts. During the three and nine months ended September 30, 2022, the Company recognized gross profit of $0.2 million and $0.4 million, respectively, relating to these construction contracts.
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 prior to May 13, 2023.
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, none of which management expects will have a material adverse effect on the Company’s financial position, results of operations, or liquidity. 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.
Guarantees
In connection with certain of the Company's mezzanine lendingreal estate financing activities and equity method investments, the Company has made guarantees to pay portions of certain senior loans of third parties associated with the development projects. The following table summarizes the outstanding guarantees made by the Company as of September 30, 2022 (in thousands):
| | | | | | | | | | | | | | |
Development project | | Payment guarantee amount | | Guarantee liability |
Interlock Commercial | | $ | 37,450 | | | $ | 1,024 | |
Harbor Point Parcel 4 (a) | | 32,910 | | | 220 | |
Total | | $ | 70,360 | | | $ | 1,244 | |
(a) As of September 30, 2022,2023, the Company had an outstanding guarantee liability of $0.1 million related to the $32.9 million senior loan on the Harbor Point Parcel 4. As of September 30, 2023, no amounts have been funded on this senior loan.
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 $2.5$7.7 million and $2.1$8.5 million as of September 30, 20222023 and December 31, 2021,2022, respectively. In addition, as of September 30, 2022, the Company has an outstanding letter of credit for $1.9 million to secure certain performances of the Company's subsidiary construction company under a related party project.
Unfunded Loan Commitments
The Company has certain commitments related to its notes receivable investments that it may be required to fund in the future. The Company is generally obligated to fund these commitments at the request of the borrower or upon the occurrence of events outside of the Company's direct control. As of September 30, 2022,2023, the Company had threesix notes receivable with a total of $15.9$52.1 million of unfunded commitments. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments. As of September 30, 2022,2023, the Company has recorded a $0.4$0.9 million CECL allowance that relates to the unfunded commitments, which was recorded as a liability in Otherother liabilities in the consolidated balance sheet. See Note 6 for more information.
15. Subsequent Events
The Company has evaluated subsequent events through the date on which this Quarterly Report on Form 10-Q was filed, the date on which these financial statements were issued, and identified the items below for discussion.
Real Estate
In October 2022, the Company acquired the remaining 5% ownership interest in the entity that developed Gainesville Apartments. During 2022, the Company made earn-out payments totaling $4.2 million to its development partner in addition to development cost savings of $0.8 million paid to the partner.
On November 4, 2022, the Company acquired a 124,000 square foot grocery-anchored shopping center in Virginia Beach, Virginia for a purchase price of $26.5 million in cash.
Equity Method Investments
In October 2022, Harbor Point Parcel 3 modified its construction loan, which was increased from $161.7 million to $180.4 million as a result of an increase in the scope of the project. As a result, the Company received $3.5 million representing a return of excess equity contributions to the project. In accordance with a preexisting promissory note secured by the development partner's ownership interest in Harbor Point Parcel 4, the Company advanced $3.8 million to the Harbor Point Parcel 3 development partner to satisfy its additional equity contribution required under the Harbor Point Parcel 3 operating agreement.
Notes Receivable
On October 3, 2022, the Company entered into a $19.6 million preferred equity investment for the development of a multifamily property located in Gainesville, Georgia (Gainesville II). This project is located nearby the Company's recently completed multifamily development project in Gainesville. The preferred equity investment has economic and other terms consistent with a note receivable, including a mandatory redemption feature, and it will be accounted for as a note receivable. The Company's investment bears interest at a rate of 14.0%, compounded annually, with minimum interest of $5.9 million over the life of the investment..
Indebtedness
InFrom October 2022,1, 2023 through November 3, 2023, the Company had net borrowings of $37.0$49.0 million on the revolving credit facility.
EquityDerivative Financial Instruments
On November 4, 2022,October 11, 2023, the Company announced that its boardentered into an interest rate swap agreement with a notional amount of directors declared$100.0 million and a cash dividendSOFR rate of $0.19 per2.75%. The interest rate swap is effective November 1, 2023 and will expire on November 1, 2025. The Company paid a $3.9 million premium for this transaction.
Equity
From October 2, 2023 through October 9, 2023, the Company repurchased 533,699 shares of common sharestock under the Share Repurchase Program for $5.5 million. As of November 3, 2023, the fourth quarter of 2022. The fourth quarter dividend will be payable in cash on January 5, 2023 to stockholders of record on December 28, 2022.Company had approximately $43.8 million remaining available for repurchases under the program.
On November 4, 2022,October 2, 2023, in connection with the tender by a holder of Class A Units of 50,000 Class A Units for redemption by the Operating Partnership, the Company announced that its boardelected to satisfy the redemption requests through the issuance of directors declared a cash dividendan equal number of $0.421875 per shareshares of Series A Preferred Stock for the fourth quarter of 2022. The dividend will be payable in cash on January 13, 2023 to stockholders of record on January 3, 2023.common stock.
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, including as a result of the COVID-19 pandemic;
▪our ability to commence or continue construction and development projects on the timeframes and terms currently anticipated;located;
•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;
•the inability of one or more mezzanine loan borrowers to repay mezzanine loans in accordance with their contractual terms;
•difficulties in identifying or completing development, acquisition, or disposition opportunities;
•our ability to commence or continue construction and development projects on the timeframes and terms currently anticipated;
•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;rates;
•the impact of inflation, including 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;
•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;
•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; and
•potential negative impacts from changes to U.S. tax laws.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. 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 other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").
Business Description
We are a vertically-integrated, self-managed REIT with over four decades of experience developing, building, acquiring, and managing high-quality retail, office, retail and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. We also provide general construction and development services to third-party clients, in addition to developing and building properties to be placed ininto our stabilized portfolio. As of September 30, 2022,2023, our operating property portfolio consisted of the following properties:
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Property | | Segment | | Location | | Ownership Interest | |
4525 Main Street | | Office | | Virginia Beach, Virginia* | | 100 | % | |
Armada Hoffler Tower | | Office | | Virginia Beach, Virginia* | | 100 | % | |
Brooks Crossing Office | | Office | | Newport News, Virginia | | 100 | % | |
Constellation Office | | Office | | Baltimore, Maryland** | | 79 | % | (1) |
One City Center | | Office | | Durham, North Carolina | | 100 | % | |
One Columbus | | Office | | Virginia Beach, Virginia* | | 100 | % | |
Thames Street Wharf | | Office | | Baltimore, Maryland** | | 100 | % | |
Two Columbus | | Office | | Virginia Beach, Virginia* | | 100 | % | |
Wills Wharf | | Office | | Baltimore, Maryland** | | 100 | % | |
249 Central Park Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Apex Entertainment | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Broad Creek Shopping Center | | Retail | | Norfolk, Virginia | | 100 | % | |
Broadmoor Plaza | | Retail | | South Bend, Indiana | | 100 | % | |
Brooks Crossing Retail | | Retail | | Newport News, Virginia | | 65 | % | (2) |
Columbus Village | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Columbus Village II | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Commerce Street Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Delray Beach Plaza | | Retail | | Delray Beach, Florida | | 100 | % | |
Dimmock Square | | Retail | | Colonial Heights, Virginia | | 100 | % | |
Fountain Plaza Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
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Property | | | | Location | | Ownership Interest | |
Retail | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
249 Central Park Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Apex Entertainment* | | | | Virginia Beach, Virginia | | 100 | % | |
Columbus Village* | | | | Virginia Beach, Virginia | | 100 | % | |
Columbus Village II(1)* | | | | Virginia Beach, Virginia | | 100 | % | |
Commerce Street Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Fountain Plaza Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Pembroke Square* | | | | Virginia Beach, Virginia | | 100 | % | |
Premier Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
South Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Studio 56 Retail* | | | | Virginia Beach, Virginia | | 100 | % | |
Grocery Anchored | | | | | | | |
Broad Creek Shopping Center | | | | Norfolk, Virginia | | 100 | % | |
Broadmoor Plaza | | | | South Bend, Indiana | | 100 | % | |
Brooks Crossing Retail* | | | | Newport News, Virginia | | 65 | % | (2) |
Delray Beach Plaza* | | | | Delray Beach, Florida | | 100 | % | |
Greenbrier Square | | | | Chesapeake, Virginia | | 100 | % | |
Greentree Shopping Center | | | | Chesapeake, Virginia | | 100 | % | |
Hanbury Village | | | | Chesapeake, Virginia | | 100 | % | |
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Property | | Segment | | Location | | Ownership Interest | |
Greenbrier Square | | Retail | | Chesapeake, Virginia | | 100 | % | |
Greentree Shopping Center | | Retail | | Chesapeake, Virginia | | 100 | % | |
Hanbury Village | | Retail | | Chesapeake, Virginia | | 100 | % | |
Harrisonburg Regal | | Retail | | Harrisonburg, Virginia | | 100 | % | |
Lexington Square | | Retail | | Lexington, South Carolina | | 100 | % | |
Market at Mill Creek | | Retail | | Mount Pleasant, South Carolina | | 70 | % | (2) |
Marketplace at Hilltop | | Retail | | Virginia Beach, Virginia | | 100 | % | |
Nexton Square | | Retail | | Summerville, South Carolina | | 100 | % | |
North Hampton Market | | Retail | | Taylors, South Carolina | | 100 | % | |
North Pointe Center | | Retail | | Durham, North Carolina | | 100 | % | |
Overlook Village | | Retail | | Asheville, North Carolina | | 100 | % | |
Parkway Centre | | Retail | | Moultrie, Georgia | | 100 | % | |
Parkway Marketplace | | Retail | | Virginia Beach, Virginia | | 100 | % | |
Patterson Place | | Retail | | Durham, North Carolina | | 100 | % | |
Perry Hall Marketplace | | Retail | | Perry Hall, Maryland | | 100 | % | |
Premier Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Providence Plaza | | Retail | | Charlotte, North Carolina | | 100 | % | |
Red Mill Commons | | Retail | | Virginia Beach, Virginia | | 100 | % | |
Sandbridge Commons | | Retail | | Virginia Beach, Virginia | | 100 | % | |
South Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
South Square | | Retail | | Durham, North Carolina | | 100 | % | |
Southgate Square | | Retail | | Colonial Heights, Virginia | | 100 | % | |
Southshore Shops | | Retail | | Chesterfield, Virginia | | 100 | % | |
Studio 56 Retail | | Retail | | Virginia Beach, Virginia* | | 100 | % | |
Tyre Neck Harris Teeter | | Retail | | Portsmouth, Virginia | | 100 | % | |
Wendover Village | | Retail | | Greensboro, North Carolina | | 100 | % | |
1305 Dock Street | | Multifamily | | Baltimore, Maryland** | | 79 | % | (1) |
1405 Point | | Multifamily | | Baltimore, Maryland** | | 100 | % | |
Edison Apartments | | Multifamily | | Richmond, Virginia | | 100 | % | |
Encore Apartments | | Multifamily | | Virginia Beach, Virginia* | | 100 | % | |
Gainesville Apartments | | Multifamily | | Gainesville, Georgia | | 95 | % | (3) |
Greenside Apartments | | Multifamily | | Charlotte, North Carolina | | 100 | % | |
Liberty Apartments | | Multifamily | | Newport News, Virginia | | 100 | % | |
Premier Apartments | | Multifamily | | Virginia Beach, Virginia* | | 100 | % | |
Smith's Landing | | Multifamily | | Blacksburg, Virginia | | 100 | % | |
The Cosmopolitan | | Multifamily | | Virginia Beach, Virginia* | | 100 | % | |
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Lexington Square | | | | Lexington, South Carolina | | 100 | % | |
Market at Mill Creek | | | | Mount Pleasant, South Carolina | | 100 | % | |
North Pointe Center | | | | Durham, North Carolina | | 100 | % | |
Parkway Centre | | | | Moultrie, Georgia | | 100 | % | |
Parkway Marketplace | | | | Virginia Beach, Virginia | | 100 | % | |
Perry Hall Marketplace | | | | Perry Hall, Maryland | | 100 | % | |
Sandbridge Commons | | | | Virginia Beach, Virginia | | 100 | % | |
Tyre Neck Harris Teeter | | | | Portsmouth, Virginia | | 100 | % | |
Southeast Sunbelt | | | | | | | |
Nexton Square* | | | | Summerville, South Carolina | | 100 | % | |
North Hampton Market | | | | Taylors, South Carolina | | 100 | % | |
Overlook Village | | | | Asheville, North Carolina | | 100 | % | |
Patterson Place | | | | Durham, North Carolina | | 100 | % | |
Providence Plaza* | | | | Charlotte, North Carolina | | 100 | % | |
South Square | | | | Durham, North Carolina | | 100 | % | |
The Interlock Retail* | | | | Atlanta, Georgia | | 100 | % | |
Wendover Village | | | | Greensboro, North Carolina | | 100 | % | |
Mid-Atlantic | | | | | | | |
Dimmock Square | | | | Colonial Heights, Virginia | | 100 | % | |
Harrisonburg Regal | | | | Harrisonburg, Virginia | | 100 | % | |
Marketplace at Hilltop | | | | Virginia Beach, Virginia | | 100 | % | |
Red Mill Commons | | | | Virginia Beach, Virginia | | 100 | % | |
Southgate Square | | | | Colonial Heights, Virginia | | 100 | % | |
Southshore Shops | | | | Chesterfield, Virginia | | 100 | % | |
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Office | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
4525 Main Street* | | | | Virginia Beach, Virginia | | 100 | % | |
Armada Hoffler Tower* | | | | Virginia Beach, Virginia | | 100 | % | |
One Columbus* | | | | Virginia Beach, Virginia | | 100 | % | |
Two Columbus* | | | | Virginia Beach, Virginia | | 100 | % | |
Harbor Point - Baltimore Waterfront | | | | | | | |
Constellation Office* | | | | Baltimore, Maryland | | 90 | % | |
Thames Street Wharf* | | | | Baltimore, Maryland | | 100 | % | |
Wills Wharf* | | | | Baltimore, Maryland | | 100 | % | |
Southeast Sunbelt | | | | | | | |
One City Center* | | | | Durham, North Carolina | | 100 | % | |
The Interlock Office* | | | | Atlanta, Georgia | | 100 | % | |
Mid-Atlantic | | | | | | | |
Brooks Crossing Office* | | | | Newport News, Virginia | | 100 | % | |
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Multifamily | | | | | | | |
Town Center of Virginia Beach | | | | | | | |
Encore Apartments* | | | | Virginia Beach, Virginia | | 100 | % | |
Premier Apartments* | | | | Virginia Beach, Virginia | | 100 | % | |
The Cosmopolitan* | | | | Virginia Beach, Virginia | | 100 | % | |
Harbor Point - Baltimore Waterfront | | | | | | | |
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1305 Dock Street* | | | | Baltimore, Maryland | | 90 | % | |
1405 Point* | | | | Baltimore, Maryland | | 100 | % | |
Southeast Sunbelt | | | | | | | |
Chronicle Mill* | | | | Belmont, North Carolina | | 85 | % | (2) |
Greenside Apartments | | | | Charlotte, North Carolina | | 100 | % | |
The Everly(3)* | | | | Gainesville, Georgia | | 100 | % | |
Mid-Atlantic | | | | | | | |
The Edison* | | | | Richmond, Virginia | | 100 | % | |
Liberty Apartments* | | | | Newport News, Virginia | | 100 | % | |
Smith's Landing | | | | Blacksburg, Virginia | | 100 | % | |
*Located in the Town Center of Virginia Beach
**Located at Harbor Point in Baltimorea mixed-use development.
(1) We own a 90% economic interest in this property, including an 11% economic interest through a note receivable.Not stabilized due to redevelopment.
(2) We are entitled to a preferred return on our investment in this property.
(3) We were required to purchase our partner's ownership interest after completion of the project, contingent upon obtaining a certificate of occupancy and achieving certain thresholds of net operating income. On April 11, 2022, we paid a $1.1 million earn-out to our development partner in connection with our receipt of the certificate of occupancy. The remaining earn-out of $3.1 million was paid in October 2022, resulting in our obtaining the remaining 5% ownership interest. Additionally, we shared in the economic benefit of cost savings, paying $0.8 million to our development partner.Formerly known as Gainesville Apartments.
As of September 30, 2022,2023, the following properties thatproperty, which we consolidate for financial reporting purposes, werewas under development:
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Property | | Segment | | Location | | Ownership Interest | |
Chronicle Mill | | Multifamily | | Belmont, North Carolina | | 85 | % | (1) |
Southern Post | | Mixed-use | | Roswell, Georgia | | 100 | % | |
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(1) We are entitled to a preferred return on our investment in this property. | | | | | | | | | | | | | | | | | | | | | | | |
Property | | Segment | | Location | | Ownership Interest | |
Southern Post | | Mixed-use | | Roswell, Georgia | | 100 | % | |
Acquisitions
On January 14, 2022,2023, we acquired a 79% membership interest and an additional 11% economicmembership interest in the partnership that owns the Constellation Energy Building, (previously referredincreasing our ownership interest to as90%, in exchange for full satisfaction of the "Exelon Building") for a purchase price of approximately $92.2$12.8 million in cash and a loan that was extended to the seller of $12.8 million. The Constellation Energy Building is a mixed-use structure located in Baltimore's Harbor Point and is comprised of an office building, the Constellation Office, that serves as the headquarters for Constellation Energy Corp., which was spun-off from Exelon, a Fortune 100 energy company, in February 2022, as well as a multifamily component, 1305 Dock Street. The Constellation Office also includes a parking garage and retail space. The Constellation Energy Building was subject to a $156.1 million loan, which we immediately refinanced followingupon the acquisition with a new $175.0 million loan. The new loan bears interest at a rate of the Bloomberg Short-Term Bank Yield Index ("BSBY") plus a spread of 1.50% and will mature on November 1, 2026. This loan is hedged by an interest rate cap corridor of 1.00% and 3.00% as well as an interest rate cap of 4.00%.property in January 2022.
On January 14, 2022,May 19, 2023, we acquired The Interlock, a 311,000 square foot Class A commercial mixed-use asset in West Midtown Atlanta anchored by Georgia Tech. The Interlock consists of office and retail space as well as structured parking. For segment reporting purposes, we separated the remaining 20% ownershipoffice and retail components of The Interlock into two operating properties respectively presented in the office and retail real estate segments. We acquired the asset for total consideration of $214.1 million plus capitalized acquisition costs of $1.2 million. As part of this acquisition, we paid $6.1 million in cash, redeemed our outstanding $90.2 million mezzanine loan, issued $12.2 million of Class A units of limited partnership interest in the partnershipOperating Partnership to the seller, and assumed the asset's senior construction loan of $105.6 million, that is developingwas paid off on the Ten Tryon projectacquisition date using the proceeds of the TD term loan facility and an increase in Charlotte, North Carolina for a cash payment of $3.9 million.borrowings under the revolving credit facility (each as defined below). We also assumed the leasehold interest in the underlying land owned by Georgia Tech. The ground lease has an expiration in 2117 after considering renewal options.
Dispositions
On April 11, 2022,2023, we completed the sale of a non-operating outparcel at Market at Mill Creek in full satisfaction of the outstanding consideration payable for the acquisition of the noncontrolling interest in the property completed on December 31, 2022. The gain recorded on this disposition was $0.5 million.
On September 20, 2023, we exercised our option to acquirepurchase an additional 16% ofoutparcel adjacent to Brooks Crossing Retail and subsequently sold the partnership that ownsoutparcel. The Residences at Annapolis Junction, increasing our ownership to 95%.
In October 2022, we acquired the remaining 5% ownership interest in the entity that developed Gainesville Apartments. During 2022, we made earn-out payments totaling $4.2 million to our development partner in addition to development cost savings of $0.8 million paid to our development partner.
On November 4, 2022, we acquired a 124,000 square foot grocery-anchored shopping center in Virginia Beach, Virginia for a purchase price of $26.5 million in cash.
Equity Method Investments
On April 1, 2022, we acquired a 78% interest in Harbor Point Parcel 4, a real estate venture with Beatty Development Group, for purposes of developing a mixed-use project, which is planned to include multifamily units, retail space, and a parking garage. We hold an option to increase our ownership to 90%. We have a projected equity commitment of $99.7 million relating togain recorded on this project, of which we had funded $22.9 million as of September 30, 2022.disposition was $0.2 million.
Preferred Equity Investments
Solis Gainesville II
On March 29, 2023, the Solis Gainesville II preferred equity investment was modified to adjust the interest rate. The interest rate of 14% remains effective through the first 24 months of the investment. Beginning on October 3, 2024, the
investment will bear interest at a rate of 10% for 12 months. On October 3, 2022,2025, the investment will again bear interest at a rate of 14% through maturity. Additionally, the amendment introduced an unused commitment fee of 10% on the unfunded portion of the investment's maximum loan commitment, which is effective January 1, 2023. Both the interest and unused commitment fee compound annually. The preferred equity investment remains subject to minimum interest guarantee of $5.9 million over the life of the investment, which represents approximately 24 months of interest.
Solis Kennesaw
On May 25, 2023, we madeentered into a $19.6$37.9 million preferred equity investment for the development of a multifamily property located in Gainesville,Marietta, Georgia. The investment has economic terms consistent with a note receivable, including a mandatory redemption or maturity on May 25, 2027, and it is accounted for as a note receivable. Our investment bears interest at a rate of 14.0% for the first 24 months. Beginning on May 25, 2025, the investment will bear interest at a rate of 9.0% for the following twelve months. On May 25, 2026, the investment will again bear interest at a rate of 14.0% through maturity. The interest compounds annually. We also earn an unused commitment fee of 11.0%, which does not compound, and an equity fee on our commitment of $0.6 million to be amortized through redemption. The preferred equity investment is subject to a minimum interest guarantee of $13.1 million over the life of the investment, which represents approximately 27 months of interest.
Solis Peachtree Corners
On July 26, 2023, we entered into a $28.4 million preferred equity investment for the development of a multifamily property located in Peachtree Corners, Georgia (Gainesville II)("Solis Peachtree Corners"). This project is located nearby our recently completed multifamily development project in Gainesville. The preferred equity investment has economic and other terms consistent with a note receivable, including a mandatory redemption feature and it will be accounted for as a note receivable.effective on October 27, 2027. Our investment bears interest at a rate of 14.0%, compounded15.0% for the first 27 months. Beginning on November 1, 2025, the investment will bear interest at a rate of 9.0% for 12 months. On November 1, 2026, the investment will again bear interest at a rate of 15.0% through maturity. The interest compounds annually. We also earn an unused commitment fee of 10.0% on the unfunded portion of the investment's maximum loan commitment, which also compounds annually, withand an equity fee on our commitment of $0.4 million to be amortized through redemption. The preferred equity investment is subject to a minimum preferred returninterest guarantee of $5.9 million.$12.0 million over the life of the investment, which represents approximately 30 months of interest.
Dispositions
On April 1, 2022, we completed the sale of the Hoffler Place for a sale price of $43.1 million. The loss recognized upon sale was $0.8 million.
On April 25, 2022, we completed the sale of the Summit Place for a sale price of $37.8 million. The loss recognized upon sale was $0.5 million.
In addition to the losses recognized on the sales of the Hoffler Place and Summit Place student-housing properties during the nine months ended September 30, 2022, we recognized impairment of real estate of $18.3 million to record these propertiesAllure at their fair values during the three months ended December 31, 2021.
On June 29, 2022, we completed the sale of the Home Depot and Costco outparcels at North Pointe for a sale price of $23.9 million. The gain on disposition was $20.9 million.
On July 22, 2022, we sold The Residences at Annapolis Junction for a sale price of $150.0 million. The gain on disposition was $31.5 million, $5.4 million of which was allocated to our investment partner.Edinburgh
On July 26, 2022,2023, we soldentered into a $9.2 million preferred equity investment for the AutoZonedevelopment of a multifamily property located in Chesapeake, Virginia ("The Allure at Edinburgh"). The preferred equity investment has economic and Valvoline outparcelsother terms consistent with a note receivable, including a mandatory redemption feature effective on January 16, 2028. Our investment bears interest at Sandbridge Commons for a sale pricerate of $3.5 million.15.0%, which does not compound. Upon The gain on disposition was $2.4 million.Allure at Edinburgh obtaining a certificate of occupancy, the investment will bear interest at a rate of 10.0%. The common equity partner in the development property holds an option to sell the property to us at a predetermined amount if certain conditions are met. We also hold an option to purchase the property at any time prior to maturity of the preferred equity investment, and at the same predetermined amount as the common equity partner's option to sell.
Third Quarter 20222023 and Recent Highlights
The following highlights our results of operations and significant transactions for the three months ended September 30, 20222023 and other recent developments:
•Net income attributable to common stockholders and holders ("OP Unitholders") of units of limited partnership interest in the Operating Partnership ("OP Unitholders"Units") of $33.9$5.3 million, or $0.38$0.06 per diluted share, compared to $4.9$33.9 million, or $0.06$0.38 per diluted share, for the three months ended September 30, 2021.2022.
•Funds from operations attributable to common stockholders and OP Unitholders ("FFO") of $22.7$27.6 million, or $0.26$0.31 per diluted share, compared to $21.9$22.7 million, or $0.27$0.26 per diluted share, for the three months ended September 30, 2021.2022. See "Non-GAAP Financial Measures."
•Normalized funds from operations availableattributable to common stockholders and OP Unitholders ("Normalized FFO") of $25.8$27.7 million, or $0.29$0.31 per diluted share, compared to $21.6$25.8 million, or $0.26$0.29 per diluted share, for the three months ended September 30, 2021.2022. See "Non-GAAP Financial Measures."
•Portfolio wideMaintained a 97% weighted average portfolio occupancy exceeded 97% for the third consecutive quarter.as of September 30, 2023. Retail occupancy reached an all-time high ofwas 98%, office occupancy was 96%, and multifamily occupancy was 96%.
•Executed a new 60,000 square footThird quarter commercial lease with Franklin Templeton at Wills Wharf, bringing the building to 91% leased.
•Executed a new 18,000 square foot office lease with Old Dominion University (“ODU”) at the Town Center of Virginia Beach for ODU’s Institute of Data Science and Coastal Virginia Center for Cyber Innovation.
•Subsequent to the end of the third quarter, executed a new 46,000 square foot lease with Morgan Stanley at Thames Street Wharf that expands the tenant’s space to over 240,000 square feet and extends its lease term to 2035.
•Same Store net operating income ("NOI")renewal spreads increased 3.0% on a GAAP basis and 2.7% on a cash basis compared to the quarter ended September 30, 2021.
◦Commercial same store NOI increased 2.0% on a GAAP basis.
◦Multifamily same store NOI increased 6.5%14.5% on a GAAP basis.
•PositiveSame Store NOI increased 4.4% on a GAAP releasing spreads duringbasis compared to the third quarter of 10.7% for retail lease renewals and 3.3% for office lease renewals.ended September 30, 2022:
◦Retail Same Store NOI increased 6.6% on a GAAP basis.
◦Office Same Store NOI increased 2.3% on a GAAP basis.
◦Multifamily Same Store NOI increased 3.1% on a GAAP basis.
•Multifamily lease rates increased 7.6% duringThird-party construction backlog as of September 30, 2023 was $513.6 million and construction gross profit for the third quarter of 2022. Rental rates on new lease trade outs increased 8.8% and rental rates on lease renewals increased 6.3%.
•Amended and restated the existing $355 million unsecured credit facility, increased the borrowing capacity of our unsecured credit facility to $550 million, with an option to expand to $1.0 billion (subject to certain conditions), and extended the maturity date of the revolving line of credit and term loan components to 2027 and 2028, respectively.
•Closed on the sale of The Residences at Annapolis Junction in Baltimore for $150was $3.3 million.
Segment Results of Operations
As of September 30, 2022,2023, we operated our business in fourfive segments: (i) officeretail real estate, (ii) retailoffice real estate, (iii) multifamily residential real estate, and (iv) general contracting and real estate services, which areand (v) real estate financing. Our general contracting and real estate services segment is conducted through our taxable REIT subsidiariessubsidiary ("TRS"). Net operating income (segment revenues minus segment expenses) ("NOI") is the primary measure used by managementour chief operating decision-maker to assess segment performance and allocate our resources among our segments. We calculate NOI as segment revenues less segment expenses. Segment revenues include rental revenues for our property segments, general contracting and real estate services revenues for our general contracting and real estate services segment, and interest income for our real estate financing segment. Segment expenses include rental expenses and real estate taxes for our property segments, general contracting and real estate services expenses for our general contracting and real estate services segment, and interest expense for our real estate financing segment. 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, the most directly comparable GAAP measure.
We define same store properties as those properties that we owned and operated and that were stabilized for the entirety of both periods presented. We generally consider a property to be stabilized upon 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, the asset is placed back into service, and the occupancy criterion above is again met. A property may also be fully or partially taken out of service as a result of a partial disposition, depending on the significance of the portion of the property disposed. Finally, any property classified as held for sale is taken out of service for the purpose of computing same store operating results.
Retail Segment Data
Retail rental revenues, property expenses, and NOI for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | | $ | 25,858 | | | $ | 21,223 | | | $ | 4,635 | | | $ | 73,004 | | | $ | 64,197 | | | $ | 8,807 | |
Property expenses | | 6,437 | | | 5,626 | | | 811 | | | 18,504 | | | 16,969 | | | 1,535 | |
Segment NOI | | $ | 19,421 | | | $ | 15,597 | | | $ | 3,824 | | | $ | 54,500 | | | $ | 47,228 | | | $ | 7,272 | |
Retail segment NOI for the three and nine months ended September 30, 2023 increased 24.5% and 15.4%, respectively, compared to the three and nine months ended September 30, 2022, primarily due to the acquisition of The Interlock Retail in May 2023 and Pembroke Square in November 2022.
Retail Same Store Results
Retail same store results for the three and nine months ended September 30, 2023 and 2022 exclude Pembroke Square and The Interlock Retail, as well as Columbus Village II due to redevelopment.
Retail same store rental revenues, property expenses, and NOI for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | | $ | 21,970 | | | $ | 20,942 | | | $ | 1,028 | | | $ | 65,471 | | | $ | 62,682 | | | $ | 2,789 | |
Property expenses | | 5,247 | | | 5,255 | | | (8) | | | 15,870 | | | 15,776 | | | 94 | |
Same Store NOI | | $ | 16,723 | | | $ | 15,687 | | | $ | 1,036 | | | $ | 49,601 | | | $ | 46,906 | | | $ | 2,695 | |
Non-Same Store NOI | | 2,698 | | | (90) | | | 2,788 | | | 4,899 | | | 322 | | | 4,577 | |
Segment NOI | | $ | 19,421 | | | $ | 15,597 | | | $ | 3,824 | | | $ | 54,500 | | | $ | 47,228 | | | $ | 7,272 | |
Retail same store NOI for the three and nine months ended September 30, 2023 increased 6.6% and 5.7%, respectively, compared to the three and nine months ended September 30, 2022, primarily due to higher occupancy throughout the portfolio as well as bad debt recoveries received at various properties.
Office Segment Data
Office rental revenues, property expenses, and NOI for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | Rental revenues | | $ | 18,687 | | | $ | 11,933 | | | $ | 6,754 | | | $ | 54,024 | | | $ | 35,324 | | | $ | 18,700 | | Rental revenues | | $ | 22,077 | | | $ | 18,687 | | | $ | 3,390 | | | $ | 62,156 | | | $ | 54,024 | | | $ | 8,132 | |
Property expenses | Property expenses | | 6,930 | | | 4,956 | | | 1,974 | | | 19,209 | | | 13,540 | | | 5,669 | | Property expenses | | 8,187 | | | 6,930 | | | 1,257 | | | 22,806 | | | 19,209 | | | 3,597 | |
Segment NOI | Segment NOI | | $ | 11,757 | | | $ | 6,977 | | | $ | 4,780 | | | $ | 34,815 | | | $ | 21,784 | | | $ | 13,031 | | Segment NOI | | $ | 13,890 | | | $ | 11,757 | | | $ | 2,133 | | | $ | 39,350 | | | $ | 34,815 | | | $ | 4,535 | |
Office segment NOI for the three and nine months ended September 30, 20222023 increased 68.5%18.1% and 59.8%13.0%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to the acquisition of the ConstellationThe Interlock Office in January 2022.May 2023 as well as increased occupancy at Wills Wharf.
Office Same Store Results
Office same store results for the three and nine months ended September 30, 2023 and 2022 exclude The Interlock Office. Office same store results for the nine months ended September 30, 2023 and 20212022 also exclude Wills Wharf and the Constellation Office.
Office same store rental revenues, property expenses, and NOI for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | Rental revenues | | $ | 10,315 | | | $ | 10,252 | | | $ | 63 | | | $ | 30,861 | | | $ | 30,752 | | | $ | 109 | | Rental revenues | | $ | 19,515 | | | $ | 18,687 | | | $ | 828 | | | $ | 31,240 | | | $ | 30,861 | | | $ | 379 | |
Property expenses | Property expenses | | 3,960 | | | 3,825 | | | 135 | | | 11,219 | | | 10,837 | | | 382 | | Property expenses | | 7,242 | | | 6,687 | | | 555 | | | 12,057 | | | 11,219 | | | 838 | |
Same Store NOI | Same Store NOI | | $ | 6,355 | | | $ | 6,427 | | | $ | (72) | | | $ | 19,642 | | | $ | 19,915 | | | $ | (273) | | Same Store NOI | | $ | 12,273 | | | $ | 12,000 | | | $ | 273 | | | $ | 19,183 | | | $ | 19,642 | | | $ | (459) | |
Non-Same Store NOI | Non-Same Store NOI | | 5,402 | | | 550 | | | 4,852 | | | 15,173 | | | 1,869 | | | 13,304 | | Non-Same Store NOI | | 1,617 | | | (243) | | | 1,860 | | | 20,167 | | | 15,173 | | | 4,994 | |
Segment NOI | Segment NOI | | $ | 11,757 | | | $ | 6,977 | | | $ | 4,780 | | | $ | 34,815 | | | $ | 21,784 | | | $ | 13,031 | | Segment NOI | | $ | 13,890 | | | $ | 11,757 | | | $ | 2,133 | | | $ | 39,350 | | | $ | 34,815 | | | $ | 4,535 | |
Office same store NOI for the three and nine months ended September 30, 20222023 was materially consistent with the three and nine months ended September 30, 2021.
Retail Segment Data
Retail rental revenues, property expenses, and NOI for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Rental revenues | | $ | 21,223 | | | $ | 20,223 | | | $ | 1,000 | | | $ | 64,197 | | | $ | 57,682 | | | $ | 6,515 | |
Property expenses | | 5,626 | | | 5,370 | | | 256 | | | 16,969 | | | 15,426 | | | 1,543 | |
Segment NOI | | $ | 15,597 | | | $ | 14,853 | | | $ | 744 | | | $ | 47,228 | | | $ | 42,256 | | | $ | 4,972 | |
Retail segment NOI for the three and nine months ended September 30, 2022 increased 5.0% and 11.8%, respectively, compared to the three and nine months ended September 30, 2021 primarily due to the acquisitions of Delray Beach Plaza, Greenbrier Square, and Overlook Village, as well as increased occupancy in the same store portfolio. The increase was partially offset by the disposition of the Home Depot and Costco outparcels at North Pointe and the AutoZone and Valvoline outparcels at Sandbridge Commons.
Retail Same Store Results
Retail same store results for the three months ended September 30, 2022 and 2021 exclude Greenbrier Square, Overlook Village, and properties that were disposed in 2021 and 2022. Retail same store results for the nine months ended September 30, 2022 and 2021 also exclude Delray Beach Plaza and Premier Retail.
Retail same store rental revenues, property expenses, and NOI for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Rental revenues | | $ | 19,718 | | | $ | 19,062 | | | $ | 656 | | | $ | 54,650 | | | $ | 51,628 | | | $ | 3,022 | |
Property expenses | | 5,061 | | | 4,886 | | | 175 | | | 13,828 | | | 13,223 | | | 605 | |
Same Store NOI | | $ | 14,657 | | | $ | 14,176 | | | $ | 481 | | | $ | 40,822 | | | $ | 38,405 | | | $ | 2,417 | |
Non-Same Store NOI | | 940 | | | 677 | | | 263 | | | 6,406 | | | 3,851 | | | 2,555 | |
Segment NOI | | $ | 15,597 | | | $ | 14,853 | | | $ | 744 | | | $ | 47,228 | | | $ | 42,256 | | | $ | 4,972 | |
Retail same store NOI for the three and nine months ended September 30, 2022 increased 3.4% and 6.3%, respectively, compared to the three and nine months ended September 30, 2021, primarily due to increased occupancy throughout the portfolio.
Multifamily Segment Data
Multifamily rental revenues, property expenses, and NOI for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | Rental revenues | | $ | 13,833 | | | $ | 17,404 | | | $ | (3,571) | | | $ | 45,381 | | | $ | 49,673 | | | $ | (4,292) | | Rental revenues | | $ | 14,978 | | | $ | 13,833 | | | $ | 1,145 | | | $ | 43,922 | | | $ | 45,381 | | | $ | (1,459) | |
Property expenses | Property expenses | | 5,645 | | | 7,934 | | | (2,289) | | | 18,618 | | | 22,189 | | | (3,571) | | Property expenses | | 5,999 | | | 5,645 | | | 354 | | | 16,992 | | | 18,618 | | | (1,626) | |
Segment NOI | Segment NOI | | $ | 8,188 | | | $ | 9,470 | | | $ | (1,282) | | | $ | 26,763 | | | $ | 27,484 | | | $ | (721) | | Segment NOI | | $ | 8,979 | | | $ | 8,188 | | | $ | 791 | | | $ | 26,930 | | | $ | 26,763 | | | $ | 167 | |
Multifamily segment NOI for the three and nine months ended September 30, 2022 decreased 13.5%2023 increased 9.7% and 0.6%, respectively, compared to the three months ended September 30, 2021 primarily due to the disposition of The Residences at Annapolis Junction. Multifamily segment NOI for theand nine months ended September 30, 2022 decreased 2.6% compared to the nine months ended September 30, 2021 primarily due to the dispositionscommencement of The Residencesoperations at Annapolis Junction, Johns Hopkins Village, Hoffler Place, and Summit Place. The decrease was partially offset by the acquisition of 1305 Dock Street, Gainesville Apartments beginning operations, and increased rental rates across multiple properties.Chronicle Mill.
Multifamily Same Store Results
Multifamily same store results for the three and nine months ended September 30, 2023 and 2022 exclude Chronicle Mill, as well as The Residences of Annapolis Junction, Hoffler Place, and 2021Summit Place, which were disposed in 2022. Multifamily same store results for the nine months ended September 30, 2023 and 2022 also exclude 1305 Dock Street and Gainesville Apartments as well as properties that were disposed in 2021 and 2022.The Everly.
Multifamily same store rental revenues, property expenses and NOI for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental revenues | Rental revenues | | $ | 11,222 | | | $ | 10,624 | | | $ | 598 | | | $ | 32,901 | | | $ | 30,399 | | | $ | 2,502 | | Rental revenues | | $ | 13,728 | | | $ | 13,154 | | | $ | 574 | | | $ | 34,594 | | | $ | 32,901 | | | $ | 1,693 | |
Property expenses | Property expenses | | 4,516 | | | 4,327 | | | 189 | | | 12,624 | | | 12,274 | | | 350 | | Property expenses | | 5,456 | | | 5,133 | | | 323 | | | 13,413 | | | 12,624 | | | 789 | |
Same Store NOI | Same Store NOI | | $ | 6,706 | | | $ | 6,297 | | | $ | 409 | | | $ | 20,277 | | | $ | 18,125 | | | $ | 2,152 | | Same Store NOI | | $ | 8,272 | | | $ | 8,021 | | | $ | 251 | | | $ | 21,181 | | | $ | 20,277 | | | $ | 904 | |
Non-Same Store NOI | Non-Same Store NOI | | 1,482 | | | 3,173 | | | (1,691) | | | 6,486 | | | 9,359 | | | (2,873) | | Non-Same Store NOI | | 707 | | | 167 | | | 540 | | | 5,749 | | | 6,486 | | | (737) | |
Segment NOI | Segment NOI | | $ | 8,188 | | | $ | 9,470 | | | $ | (1,282) | | | $ | 26,763 | | | $ | 27,484 | | | $ | (721) | | Segment NOI | | $ | 8,979 | | | $ | 8,188 | | | $ | 791 | | | $ | 26,930 | | | $ | 26,763 | | | $ | 167 | |
Multifamily same store NOI for the three and nine months ended September 30, 20222023 increased 6.5%3.1% and 11.9%4.5%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to increased rental rates.rates across multiple properties.
General Contracting and Real Estate Services Segment Data
General contracting and real estate services revenues, expenses, and gross profit for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Segment revenues | | $ | 69,024 | | | $ | 17,502 | | | $ | 51,522 | | | $ | 138,947 | | | $ | 71,473 | | | $ | 67,474 | | |
Segment expenses | | 66,252 | | | 15,944 | | | 50,308 | | | 133,491 | | | 68,350 | | | 65,141 | | |
General contracting and real estate services revenues | | General contracting and real estate services revenues | | $ | 99,408 | | | $ | 69,024 | | | $ | 30,384 | | | $ | 286,220 | | | $ | 138,947 | | | $ | 147,273 | |
General contracting and real estate services expenses | | General contracting and real estate services expenses | | 96,095 | | | 66,252 | | | 29,843 | | | 276,336 | | | 133,491 | | | 142,845 | |
Segment gross profit | Segment gross profit | | $ | 2,772 | | | $ | 1,558 | | | $ | 1,214 | | | $ | 5,456 | | | $ | 3,123 | | | $ | 2,333 | | Segment gross profit | | $ | 3,313 | | | $ | 2,772 | | | $ | 541 | | | $ | 9,884 | | | $ | 5,456 | | | $ | 4,428 | |
Operating margin | Operating margin | | 4.0 | % | | 8.9 | % | | (4.9) | % | | 3.9 | % | | 4.4 | % | | (0.4) | % | Operating margin | | 3.3 | % | | 4.0 | % | | (0.7) | % | | 3.5 | % | | 3.9 | % | | (0.5) | % |
General contracting and real estate services segment gross profit for the three and nine months ended September 30, 20222023 increased 77.9%$0.5 million and 74.7%,$4.4 million, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to the increase in contract volume experienced in 2023, partially as a greater numberresult of third party contracts undertaken in 2022.work deferred to the current period as a result of COVID-19.
The changes in third party construction backlog for the three and nine months ended September 30, 20222023 and 20212022 were as follows (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Beginning backlog | Beginning backlog | $ | 541,214 | | | $ | 70,219 | | | $ | 215,518 | | | $ | 71,258 | | Beginning backlog | $ | 592,787 | | | $ | 541,214 | | | $ | 665,564 | | | $ | 215,518 | |
New contracts/change orders | New contracts/change orders | 53,966 | | | 53,590 | | | 449,712 | | | 106,992 | | New contracts/change orders | 20,646 | | | 53,966 | | | 135,414 | | | 449,712 | |
Work performed | Work performed | (69,251) | | | (16,944) | | | (139,301) | | | (71,385) | | Work performed | (99,855) | | | (69,251) | | | (287,400) | | | (139,301) | |
Ending backlog | Ending backlog | $ | 525,929 | | | $ | 106,865 | | | $ | 525,929 | | | $ | 106,865 | | Ending backlog | $ | 513,578 | | | $ | 525,929 | | | $ | 513,578 | | | $ | 525,929 | |
As of September 30, 2022,2023, we had $85.6$270.3 million in the backlog relating to the Harbor Point Parcel 4 project, $142.1 million in the backlog on the Harbor Point Parcel 3 project, and $71.9 million in the backlog on the Lake Point Apartments project. The amounts relating to our Harbor Point Parcel 3 and Harbor Point Parcel 4 projects pertaindevelopments in Baltimore.
Real Estate Financing Segment Data
During the first quarter of 2023, we updated our reportable segments to include real estate financing. This segment includes our mezzanine loans and preferred equity method investments for whichon development projects. The addition of the real estate financing segment is consistent with how we view our operating performance and how the chief operational decision maker allocates our resources. The change in segmental presentation is a portionresult of our profit margin willcontinued investment in development projects through financing, which we no longer consider to be eliminatedad hoc investments, but an evolving portfolio. We also believe this change in segmental presentation further assists stockholders in assessing pertinent information about our operating performance. Our goal is to target approximately $80.0 million in outstanding principal of real estate financing investments. We underwrite these investments from a position of potential ownership. The real estate financing portfolio thereby serves as a development pipeline, particularly for growth in our operating results.multifamily real estate segment.
Real estate financing interest income, interest expense, and gross profit for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Interest income | | $ | 3,496 | | | $ | 3,372 | | | $ | 124 | | | $ | 10,257 | | | $ | 10,070 | | | $ | 187 | |
Interest expense | | 728 | | | 840 | | | (112) | | | 2,634 | | | 2,482 | | | 152 | |
Segment gross profit | | $ | 2,768 | | | $ | 2,532 | | | $ | 236 | | | $ | 7,623 | | | $ | 7,588 | | | $ | 35 | |
Operating margin | | 79.2 | % | | 75.1 | % | | 4.1 | % | | 74.3 | % | | 75.4 | % | | (1.0) | % |
Real estate financing gross profit for the three months ended September 30, 2023 increased 9.3% compared to the three months ended September 30, 2022, primarily due to higher interest income rates on outstanding real estate financing investments in 2023, partially offset by rising interest rates on debt used to fund our investments. Real estate financing gross profit for the nine months ended September 30, 2023 was materially consistent with the nine months ended September 30, 2022.
Consolidated Results of Operations
The following table summarizes the results of operations for the three and nine months ended September 30, 2023 and 2022 and 2021 (in(unaudited, in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | (unaudited) | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Revenues | Revenues | | | | | | | | | | | | | Revenues | | | | | | | | | | | | |
Rental revenues | Rental revenues | | $ | 53,743 | | | $ | 49,560 | | | $ | 4,183 | | | $ | 163,602 | | | $ | 142,679 | | | $ | 20,923 | | Rental revenues | | $ | 62,913 | | | $ | 53,743 | | | $ | 9,170 | | | $ | 179,082 | | | $ | 163,602 | | | $ | 15,480 | |
General contracting and real estate services revenues | General contracting and real estate services revenues | | 69,024 | | | 17,502 | | | 51,522 | | | 138,947 | | | 71,473 | | | 67,474 | | General contracting and real estate services revenues | | 99,408 | | | 69,024 | | | 30,384 | | | 286,220 | | | 138,947 | | | 147,273 | |
Interest income | | Interest income | | 3,690 | | | 3,490 | | | 200 | | | 10,823 | | | 10,410 | | | 413 | |
Total revenues | Total revenues | | 122,767 | | | 67,062 | | | 55,705 | | | 302,549 | | | 214,152 | | | 88,397 | | Total revenues | | 166,011 | | | 126,257 | | | 39,754 | | | 476,125 | | | 312,959 | | | 163,166 | |
| Expenses | Expenses | | | | | | | | | | | | | Expenses | | | | | | | | | | | | |
Rental expenses | Rental expenses | | 12,747 | | | 12,717 | | | 30 | | | 38,101 | | | 34,841 | | | 3,260 | | Rental expenses | | 14,756 | | | 12,747 | | | 2,009 | | | 41,392 | | | 38,101 | | | 3,291 | |
Real estate taxes | Real estate taxes | | 5,454 | | | 5,543 | | | (89) | | | 16,695 | | | 16,314 | | | 381 | | Real estate taxes | | 5,867 | | | 5,454 | | | 413 | | | 16,910 | | | 16,695 | | | 215 | |
General contracting and real estate services expenses | General contracting and real estate services expenses | | 66,252 | | | 15,944 | | | 50,308 | | | 133,491 | | | 68,350 | | | 65,141 | | General contracting and real estate services expenses | | 96,095 | | | 66,252 | | | 29,843 | | | 276,336 | | | 133,491 | | | 142,845 | |
Depreciation and amortization | Depreciation and amortization | | 17,527 | | | 16,886 | | | 641 | | | 54,865 | | | 52,237 | | | 2,628 | | Depreciation and amortization | | 22,462 | | | 17,527 | | | 4,935 | | | 60,808 | | | 54,865 | | | 5,943 | |
Amortization of right-of-use assets - finance leases | Amortization of right-of-use assets - finance leases | | 278 | | | 278 | | | — | | | 833 | | | 745 | | | 88 | | Amortization of right-of-use assets - finance leases | | 425 | | | 278 | | | 147 | | | 1,049 | | | 833 | | | 216 | |
General and administrative expenses | General and administrative expenses | | 3,854 | | | 3,449 | | | 405 | | | 12,179 | | | 10,957 | | | 1,222 | | General and administrative expenses | | 4,286 | | | 3,854 | | | 432 | | | 13,786 | | | 12,179 | | | 1,607 | |
Acquisition, development and other pursuit costs | | — | | | 8 | | | (8) | | | 37 | | | 111 | | | (74) | | |
Acquisition, development, and other pursuit costs | | Acquisition, development, and other pursuit costs | | — | | | — | | | — | | | 18 | | | 37 | | | (19) | |
Impairment charges | Impairment charges | | — | | | — | | | — | | | 333 | | | 3,122 | | | (2,789) | | Impairment charges | | 5 | | | — | | | 5 | | | 107 | | | 333 | | | (226) | |
Total expenses | Total expenses | | 106,112 | | | 54,825 | | | 51,287 | | | 256,534 | | | 186,677 | | | 69,857 | | Total expenses | | 143,896 | | | 106,112 | | | 37,784 | | | 410,406 | | | 256,534 | | | 153,872 | |
Gain (loss) on real estate dispositions, net | | 33,931 | | | (113) | | | 34,044 | | | 53,424 | | | 3,604 | | | 49,820 | | |
Gain on real estate dispositions, net | | Gain on real estate dispositions, net | | 227 | | | 33,931 | | | (33,704) | | | 738 | | | 53,424 | | | (52,686) | |
Operating income | Operating income | | 50,586 | | | 12,124 | | | 38,462 | | | 99,439 | | | 31,079 | | | 68,360 | | Operating income | | 22,342 | | | 54,076 | | | (31,734) | | | 66,457 | | | 109,849 | | | (43,392) | |
Interest income | | 3,490 | | | 3,766 | | | (276) | | | 10,410 | | | 14,628 | | | (4,218) | | |
Interest expense | Interest expense | | (10,345) | | | (8,827) | | | (1,518) | | | (28,747) | | | (25,220) | | | (3,527) | | Interest expense | | (15,444) | | | (10,345) | | | (5,099) | | | (41,375) | | | (28,747) | | | (12,628) | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | | (2,123) | | | (120) | | | (2,003) | | | (2,899) | | | (120) | | | (2,779) | | Loss on extinguishment of debt | | — | | | (2,123) | | | 2,123 | | | — | | | (2,899) | | | 2,899 | |
Change in fair value of derivatives and other | Change in fair value of derivatives and other | | 782 | | | 131 | | | 651 | | | 7,512 | | | 838 | | | 6,674 | | Change in fair value of derivatives and other | | 2,466 | | | 782 | | | 1,684 | | | 5,024 | | | 7,512 | | | (2,488) | |
Unrealized credit loss release (provision) | | 42 | | | 617 | | | (575) | | | (858) | | | 284 | | | (1,142) | | |
Unrealized credit loss (provision) release | | Unrealized credit loss (provision) release | | (694) | | | 42 | | | (736) | | | (871) | | | (858) | | | (13) | |
Other income (expense), net | Other income (expense), net | | 118 | | | 15 | | | 103 | | | 415 | | | 201 | | | 214 | | Other income (expense), net | | 63 | | | 118 | | | (55) | | | 324 | | | 415 | | | (91) | |
Income before taxes | Income before taxes | | 42,550 | | | 7,706 | | | 34,844 | | | 85,272 | | | 21,690 | | | 63,582 | | Income before taxes | | 8,733 | | | 42,550 | | | (33,817) | | | 29,559 | | | 85,272 | | | (55,713) | |
Income tax (provision) benefit | Income tax (provision) benefit | | (181) | | | 42 | | | (223) | | | 140 | | | 522 | | | (382) | | Income tax (provision) benefit | | (310) | | | (181) | | | (129) | | | (834) | | | 140 | | | (974) | |
Net income | Net income | | 42,369 | | | 7,748 | | | 34,621 | | | 85,412 | | | 22,212 | | | 63,200 | | Net income | | 8,423 | | | 42,369 | | | (33,946) | | | 28,725 | | | 85,412 | | | (56,687) | |
Net income attributable to noncontrolling interests in investment entities | Net income attributable to noncontrolling interests in investment entities | | (5,583) | | | — | | | (5,583) | | | (5,811) | | | — | | | (5,811) | | Net income attributable to noncontrolling interests in investment entities | | (193) | | | (5,583) | | | 5,390 | | | (616) | | | (5,811) | | | 5,195 | |
Preferred stock dividends | Preferred stock dividends | | (2,887) | | | (2,887) | | | — | | | (8,661) | | | (8,661) | | | — | | Preferred stock dividends | | (2,887) | | | (2,887) | | | — | | | (8,661) | | | (8,661) | | | — | |
Net income attributable to common stockholders and OP Unitholders | Net income attributable to common stockholders and OP Unitholders | | $ | 33,899 | | | $ | 4,861 | | | $ | 29,038 | | | $ | 70,940 | | | $ | 13,551 | | | $ | 57,389 | | Net income attributable to common stockholders and OP Unitholders | | $ | 5,343 | | | $ | 33,899 | | | $ | (28,556) | | | $ | 19,448 | | | $ | 70,940 | | | $ | (51,492) | |
Rental revenues for the three and nine months ended September 30, 20222023 increased 8.4%17.1% and 14.7%9.5%, respectively, compared to the three and nine months ended September 30, 20212022 as follows (in thousands):
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Retail | | Retail | | $ | 25,858 | | | $ | 21,223 | | | $ | 4,635 | | | $ | 73,004 | | | $ | 64,197 | | | $ | 8,807 | |
Office | Office | | $ | 18,687 | | | $ | 11,933 | | | $ | 6,754 | | | $ | 54,024 | | | $ | 35,324 | | | $ | 18,700 | | Office | | 22,077 | | | 18,687 | | | 3,390 | | | 62,156 | | | 54,024 | | | 8,132 | |
Retail | | 21,223 | | | 20,223 | | | 1,000 | | | 64,197 | | | 57,682 | | | 6,515 | | |
Multifamily | Multifamily | | 13,833 | | | 17,404 | | | (3,571) | | | 45,381 | | | 49,673 | | | (4,292) | | Multifamily | | 14,978 | | | 13,833 | | | 1,145 | | | 43,922 | | | 45,381 | | | (1,459) | |
| | | $ | 53,743 | | | $ | 49,560 | | | $ | 4,183 | | | $ | 163,602 | | | $ | 142,679 | | | $ | 20,923 | | | | $ | 62,913 | | | $ | 53,743 | | | $ | 9,170 | | | $ | 179,082 | | | $ | 163,602 | | | $ | 15,480 | |
Retail rental revenues for the three and nine months ended September 30, 2023 increased 21.8% and 13.7%, respectively, compared to the three and nine months ended September 30, 2022, primarily as a result of the acquisition of The Interlock Retail in May 2023 and Pembroke Square in November 2022.
Office rental revenues for the three and nine months ended September 30, 20222023 increased 56.6%18.1% and 52.9%15.1%, respectively, compared to the three and nine months ended September 30, 20212022, primarily as a result of the acquisition of the ConstellationThe Interlock Office and an increase in rental expense recoveries at Wills Wharf due to higher occupancy.
Retail rental revenues for the three and nine months ended September 30, 2022 increased 4.9% and 11.3%, respectively, compared to the three and nine months ended September 30, 2021 primarily as a result of the acquisitions of Delray Beach Plaza, Greenbrier Square and Overlook Village,May 2023, as well as higher occupancy at multiple properties. The increase was partially offset by the dispositions of Oakland Marketplace, Socastee Commons, the Home Depot and Costco outparcels at North Pointe, and the AutoZone and Valvoline outparcels at Sandbridge Commons.Wills Wharf.
Multifamily rental revenues for the three andmonths ended September 30, 2023 increased 8.3% compared to the three months ended September 30, 2022, primarily as a result of the commencement of operations at Chronicle Mill. Multifamily rental revenues for the nine months ended September 30, 2023 decreased 3.2% compared to the nine months ended September 30, 2022, decreased 20.5% and 8.6%, respectively, compared to the three and nine months ended September 30, 2021 primarily as a result of the dispositionsdisposition of The Residences at Annapolis Junction Johns Hopkins Village, Hoffler Place, and Summit Place. The decrease was partially offset by the acquisition of 1305 Dock Street, the beginning of operations at Gainesville Apartments, and higher occupancy and rental rates at multiple properties.in July 2022.
General contracting and real estate services revenues for the three and nine months ended September 30, 2023 increased $30.4 million and $147.3 million, respectively, compared to the three and nine months ended September 30, 2022 due to the timing of commencement of new third-party construction projects in 2023 and higher contract volume.
Interest income for the three and nine months ended September 30, 2023 increased 294.4%5.7% and 94.4%4.0%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to new real estate financing investments in 2023, partially offset by the timingrepayment of commencement of new third party construction projectsthe Nexton Multifamily real estate financing investment in December 2022 and the completionredemption of other projects.The Interlock real estate financing investment in May 2023.
Rental expenses for the three and nine months ended September 30, 20222023 increased 0.2%15.8% and 9.4%8.6%, respectively, compared to the three and nine months ended September 30, 20212022 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Office | | $ | 4,886 | | | $ | 3,409 | | | $ | 1,477 | | | $ | 13,626 | | | $ | 9,222 | | | $ | 4,404 | |
Retail | | 3,420 | | | 3,270 | | | 150 | | | 10,254 | | | 9,119 | | | 1,135 | |
Multifamily | | 4,441 | | | 6,038 | | | (1,597) | | | 14,221 | | | 16,500 | | | (2,279) | |
| | $ | 12,747 | | | $ | 12,717 | | | $ | 30 | | | $ | 38,101 | | | $ | 34,841 | | | $ | 3,260 | |
Office rental expenses for the three and nine months ended September 30, 2022 increased 43.3% and 47.8%, respectively, compared to the three and nine months ended September 30, 2021 primarily due to the acquisition of the Constellation Office and the addition of new tenants at Wills Wharf. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Retail | | $ | 4,125 | | | $ | 3,420 | | | $ | 705 | | | $ | 11,715 | | | $ | 10,254 | | | $ | 1,461 | |
Office | | 5,925 | | | 4,886 | | | 1,039 | | | 16,282 | | | 13,626 | | | 2,656 | |
Multifamily | | 4,706 | | | 4,441 | | | 265 | | | 13,395 | | | 14,221 | | | (826) | |
| | $ | 14,756 | | | $ | 12,747 | | | $ | 2,009 | | | $ | 41,392 | | | $ | 38,101 | | | $ | 3,291 | |
Retail rental expenses for the three and nine months ended September 30, 20222023 increased 4.6%20.6% and 12.4%14.2%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to the acquisitions of Greenbrier Square and Overlook Village. The increase in retail rental expenses for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was further due to the acquisition of Delray Beach PlazaThe Interlock Retail in February 2021, which was partially offset by the dispositions of the Home Depot and Costco outparcels at North Pointe, Oakland Marketplace, Socastee Commons,May 2023 and the AutoZone and Valvoline outparcels at Sandbridge Commons.Constellation Office in January 2022.
MultifamilyOffice rental expenses for the three and nine months ended September 30, 2022 decreased 26.4%2023 increased 21.3% and 13.8%19.5%, respectively, compared to the three and nine months ended September 30, 20212022, primarily as a result of the acquisition of The Interlock Office in May 2023.
Multifamily rental expenses for the three months ended September 30, 2023 increased 6.0% compared to the three months ended September 30, 2022 primarily due to the dispositionscommencement of operations at Chronicle Mill, which was partially offset by the disposition of Annapolis Junction in July 2022. Multifamily rental expenses for the nine months ended September 30, 2023 decreased 5.8% compared to the nine months ended September 30, 2022, primarily due to the disposition of The Residences at Annapolis Junction Johns Hopkins Village, Hoffler Place, and Summit Place. The decreasein July 2022, which was partially offset by the acquisition of 1305 Dock Street, the beginningcommencement of operations at Gainesville Apartments and a decrease in expense on a per unit basis due to management efficiencies.Chronicle Mill.
Real estate taxes for the three and nine months ended September 30, 2022 decreased 1.6%2023 increased 7.6% and increased 2.3%1.3%, respectively, compared to the three and nine months ended September 30, 20212022 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Office | | $ | 2,044 | | | $ | 1,547 | | | $ | 497 | | | $ | 5,583 | | | $ | 4,318 | | | $ | 1,265 | |
Retail | | 2,206 | | | 2,100 | | | 106 | | | 6,715 | | | 6,307 | | | 408 | |
Multifamily | | 1,204 | | | 1,896 | | | (692) | | | 4,397 | | | 5,689 | | | (1,292) | |
| | $ | 5,454 | | | $ | 5,543 | | | $ | (89) | | | $ | 16,695 | | | $ | 16,314 | | | $ | 381 | |
Office real estate taxes for the three and nine months ended September 30, 2022 increased 32.1% and 29.3%, respectively, compared to the three and nine months ended September 30, 2021 primarily due to the acquisition of the Constellation Office. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Retail | | $ | 2,312 | | | $ | 2,206 | | | $ | 106 | | | $ | 6,789 | | | $ | 6,715 | | | $ | 74 | |
Office | | 2,262 | | | 2,044 | | | 218 | | | 6,524 | | | 5,583 | | | 941 | |
Multifamily | | 1,293 | | | 1,204 | | | 89 | | | 3,597 | | | 4,397 | | | (800) | |
| | $ | 5,867 | | | $ | 5,454 | | | $ | 413 | | | $ | 16,910 | | | $ | 16,695 | | | $ | 215 | |
Retail real estate taxes for the three and nine months ended September 30, 20222023 increased 5.0%4.8% and 6.5%1.1%, respectively, compared to the three and nine months ended September 30, 20212022, primarily as a result of the acquisitions of Greenbrier Square and Overlook Village. The increase in retail real estate taxes for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was further due to the acquisition of Delray Beach PlazaThe Interlock Retail in February 2021, which was partially offset by the dispositions of the Home DepotMay 2023 and Costco outparcels at North Pointe, Oakland Marketplace, Socastee Commons, and the AutoZone and Valvoline outparcels at Sandbridge Commons.Pembroke Square in November 2022.
MultifamilyOffice real estate taxes for the three and nine months ended September 30, 2022 decreased 36.5%2023 increased 10.7% and 22.7%16.9%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to the acquisition of The Interlock Office in May 2023 as well as increases in property tax assessments.
Multifamily real estate taxes for the three months ended September 30, 2023 increased 7.4% compared to the three months ended September 30, 2022, primarily due to increases in property tax assessments. Multifamily real estate taxes for the nine months ended September 30, 2023 decreased 18.2% compared to the nine September 30, 2022 primarily due to the dispositions of The Residences atof Annapolis Junction Johns Hopkins Village,in July 2022, Hoffler Place in April 2022, and Summit Place. The decrease was partially offset by the acquisition of 1305 Dock Street and the beginning of operations at Gainesville Apartments.Place in April 2022.
General contracting and real estate services expenses for the three and nine months ended September 30, 20222023 increased $50.3$29.8 million and $65.1$142.8 million, respectively, compared to the three and nine months ended September 30, 20212022 due to new third partythird-party contracts undertaken in 2022.2023.
Depreciation and amortization for the three and nine months ended September 30, 20222023 increased 3.8%28.2% and 5.0%10.8%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to property acquisitionsthe acquisition of The Interlock in May 2023 and development deliveries. The increases were partially offset by dispositionsPembroke Square in 2021 and 2022 and certain assets that became fully depreciated.November 2022.
Amortization of right-of-use assets - finance leases for the three and nine months ended September 30, 2022 was materially consistent with2023 increased 52.9% and 25.9%, respectively, compared to the three months ended September 30, 2021. Amortization of right-of-use assets - finance leases for theand nine months ended September 30, 2022, increased 11.8% compared to the nine months ended September 30, 2021 primarily due to the ground lease assumed in conjunction with the acquisition of Delray Beach Plaza, which was partially amortized during the nine months ended September 30, 2021 compared to a full period of amortization recognized in the nine months ended September 30, 2022.The Interlock.
General and administrative expenses for the three and nine months ended September 30, 20222023 increased 11.7%11.2% and 11.2%13.2%, respectively, compared to the three and nine months ended September 30, 20212022, primarily due to increased resources,employee headcount as well as higher compensation, benefits, and training and development costs resulting from increased investment in human capitalcapital. The increase is further explained by an increase in professional services expenses in connection with debt and sustainability initiatives.equity transactions.
Acquisition, development and other pursuit costs for the three months ended September 30, 2022 decreased insignificantly compared to the three months ended September 30, 2021. Acquisition, development and other pursuit costs for the nine months ended September 30, 2022 decreased 66.7%, compared to2023 were materially consistent with the three and nine months ended September 30, 2021 as a result of a lower write off of costs for the nine months ended September 30, 2022 relating to certain development projects and acquisitions that are no longer probable.2022.
Impairment charges for the nine months ended September 30, 2022 were not material. Impairment charges for the nine months ended September 30, 2021 relate to the impairment recognized on Socastee Commons.
Gain on real estate dispositions for the nine months ended September 30, 2022 relates to the disposition of The Residences at Annapolis Junction, the AutoZone and Valvoline outparcels at Sandbridge Commons, the 7-Eleven at Hanbury Village, Oakland Marketplace, and easement rights at a non-operating land parcel. Gain on real estate dispositions during the nine months ended September 30, 2021 relates to the sale of the 7-Eleven at Hanbury, Oakland Marketplace, and easement rights at a non-operating land parcel. The gain for the nine month ended September 30, 2021 was partially offset by the loss recognized upon the disposition of Socastee Commons.
Interest income for the three and nine months ended September 30, 2023 and September 30, 2022 decreased 7.3%were immaterial.
Interest expense for the three and 28.8%nine months ended September 30, 2023 increased 49.3% and 43.9%, respectively, compared to the three and nine months ended September 30, 2021,2022, primarily as a result of the lower notes receivable balance in the current period due to higher levels of indebtedness in connection with the repaymentfunding of portionsdevelopment projects, real estate financing investments, and acquisitions and the amortization of our mezzanine loans during 2021 and 2022. This wasadditional debt financing costs, partially offset by increased funding for the Nexton Multifamily and City Park 2 preferred equity investments. This trenddebt paid off in connection with dispositions. The increase is in line with management's plansalso attributable to reduce income from mezzanine loans and preferred equity investments over time.rising interest rates, largely offset by hedging interest rate derivatives.
Interest expensedebt for the three and nine months ended September 30, 2022 increased 17.2% and 14.0%, respectively, compared to the three and nine months ended September 30, 2021, primarily due to the loans obtained and assumed in connection with acquisitions, partially offset by those paid off in connection with dispositions.
2023. Loss on extinguishment of debt of $2.1 million and $2.9 million for the three and nine months ended September 30, 2022, respectively, primarily relates to the loan payoffs of Marketplace at Hilltop, Brooks Crossing Office, One City Center, 1405 Point, Red Mill
West and Delray Beach Plaza, the refinance of Liberty Apartments and Nexton Square, and the loan payoffs associated with the dispositions of Hoffler Place, Summit Place, and the Costco outparcel at North Pointe. Loss on extinguishment of debt of $0.1 million for the three and nine months ended September 30, 2021 primarily relates to the loan payoff of Thames Street Wharf.
The change in fair value of derivatives and other for the three and nine months ended September 30, 20222023 includes fair value increases for our derivative instruments due to increases in forward SOFR (the Secured Overnight Financing Rate). The change in fair value of derivatives and other for the nine months ended September 30, 2023 includes fair value increases for our derivative instruments due to increases in forward SOFR, LIBOR (the London Inter-Bank Offered Rate), the Secured Overnight Financing Rate (SOFR), and BSBY.BSBY (the Bloomberg Short-Term Yield Index).
Changes in Unrealizedunrealized credit loss (provision) release (provision) for the three and ninemonths ended September 30, 2023 compared to the three months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 were primarily the result of increased loanincreases in note receivable balances from 2021 to 2022 as well as a partial release of loan loss reserves for the Interlock mezzanine loan due to the completion of the projectSolis Peachtree Corners and the achievement of leasing milestones.The Allure at Edinburgh real estate financing investments.
Other income (expense), net for the three and nine months ended September 30, 2022 was materially consistent with2023 decreased compared to the three and nine months ended September 30, 2021.2022. The decreases were immaterial.
The income tax provision and benefits that we recognized during the three and nine months ended September 30, 20222023 and 20212022 were attributable to the taxable profits and losses of our development and construction businesses that we operate through our TRS.
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, mezzanine loan funding requirements, 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 credit facility, and net proceeds from the opportunistic sale of common stock through our 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, the issuance of equity and debt securities, and the opportunistic disposition of non-core properties. We also may fund property development and acquisitions and capital improvements using our credit facility pending long-term financing.
As of September 30, 2022,2023, we had unrestricted cash and cash equivalents of $54.7$32.7 million available for both current liquidity needs as well as development and redevelopment activities. We also had restricted cash in escrow of $4.9$2.3 million, some of which is available for capital expenditures and certain operating expenses at our operating properties. As of September 30, 2022,2023, we had $214.0$155.0 million of available borrowings under our revolving credit facility to meet our short-term liquidity requirements and $99.3$53.4 million of available borrowings under our construction loans to fund development activities. During the three months ended September 30, 2023, we increased outstanding borrowings on our revolving credit facility by $46.0 million, which were largely used to fund our Solis Peachtree Corners and The Allure at Edinburgh real estate financing investments, as well as our Harbor Point Parcel 4 mixed-use development project.
During the year ended December 31, 2022, we began to implement a strategic transformation of the composition of borrowings by refinancing secured property debt with unsecured property debt in order to increase the flexibility of our financing cash flows. We continue to implement this transformation in the current fiscal year. As of September 30, 2023, unsecured debt represented 52.4% of our total borrowings compared to 32.2% as of September 30, 2022.
We have no loans scheduled to mature during the remainder of 2022. We plan to obtain an additional term loan totaling $125 million, and intend to use the proceeds to pay off loans maturing in 2023 and early 2024. However, there can be no assurances regarding the timing or terms or the additional term loan or that we will obtain the additional term loan at all.2023.
ATM Program
On March 10, 2020, we commenced an at-the-market continuous equity offering program (the "ATM Program") through which we may, from time to time, issue and sell shares of our common stock and shares of our 6.75% Series A
Cumulative Redeemable Perpetual Preferred Stock (the "Series A Preferred Stock") having an aggregate offering price of up to $300.0 million, to or through our sales agents and, with respect to shares of our common stock, may enter into separate forward sales agreements to or through the forward purchaser.
During the nine months ended September 30, 2022, we issued and sold 475,074 shares of common stock at a weighted average price of $15.21 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $7.1 million. During the nine months ended September 30, 2022,2023, we did not issue any shares of common stock or Series A Preferred Stock under the ATM Program. Shares having an aggregate offering price of $205.0 million remained unsold under the ATM Program as of November 4, 2022.3, 2023.
Common Stock IssuanceShare Repurchase Program
On January 11, 2022,June 15, 2023, we completedadopted a $50.0 million share repurchase program (the "Share Repurchase Program"). Under the Share Repurchase Program, we may repurchase shares of our common stock and Series A Preferred Stock from time to time in the open market, in block purchases, through privately negotiated transactions, the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other means permitted. The Share Repurchase Program does not obligate us to acquire any specific number of shares or acquire shares over any specific period of time. The Share Repurchase Program may be suspended or discontinued at any time by us and does not have an underwritten public offering of 4,025,000expiration date.
During the nine months ended September 30, 2023, we repurchased 62,293 shares of common stock, which were pre-purchased from us bystock. During the underwriter at a purchase pricenine months ended September 30, 2023, we did not repurchase any shares of $14.45 per share including fees, resulting in net proceeds after offering costsSeries A Preferred Stock. As of $58.0 million.September 30, 2023, $49.4 million remained available for repurchases under the Share Repurchase Program.
Amended Credit Facility
On August 23, 2022, we entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $550.0 million credit facility comprised of a $250.0 million senior unsecured revolving credit facility (the "revolving credit facility") and a $300.0 million senior unsecured term loan facility (the "term loan facility" and, together with the revolving credit facility, the "amended credit"credit facility"), with a syndicate of banks. The amended credit facility replaces the prior $150.0 million revolving credit facility, which was scheduled to mature on January 24, 2024, and the prior $205.0 million term loan facility, which was scheduled to mature on January 24, 2025. The additional borrowings under the term loan facility were used to pay off the loans secured by 1405 Point, Brooks Crossing Office, and One City Center. Subject to available borrowing capacity, we intend to use future borrowings under the amended credit facility for general corporate purposes, including funding acquisitions, mezzanine lending, and development and redevelopment of properties in our portfolio, and for working capital.
The amended credit facility includes an accordion feature that allows the total commitments to be increased to $1.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The revolving credit facility has a scheduled maturity date of January 22, 2027, 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 January 21, 2028.
On August 29, 2023, we increased the capacity of the revolving credit facility by $105.0 million by exercising the accordion feature in part, bringing the revolving credit facility capacity to $355.0 million and the total credit facility capacity to $655.0 million.
The revolving credit facility bears interest at SOFR plus a margin ranging from 1.30% to 1.85% and a credit spread adjustment of 0.10%, and the term loan facility bears interest at SOFR plus a margin ranging from 1.25% to 1.80% and a credit spread adjustment of 0.10%, in each case depending on our total leverage. These interest rates approximate the terms of the previous credit facility despite current market pressures. We also are 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 revolving credit facility. If the Company or the Operating Partnership attains investment grade credit ratings from both S&P Global Ratings and Moody’s Investors Service, Inc., we may elect to have borrowings become subject to interest rates based on such credit ratings. Our unencumbered borrowing pool will support revolving borrowings of up to $250$335.8 million, as of September 30, 2022. In October 2022, we repaid $37.0 million, net of borrowings, under the revolving credit facility.2023.
The Operating Partnership is the borrower under the amended credit facility, and its obligations under the amended credit facility are guaranteed by us and certain of our 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 amended 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 with a purchase price of at least $100.0 million, but only up to two times during the term of the amended credit facility);
•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 (i) $825.2 million and (ii) an amount equal to 75% of the net equity proceeds received by us after June 30, 2022;
•Ratio of secured indebtedness (excluding the amended credit facility if it becomes secured indebtedness) to total asset value of not more than 40%;
•Ratio of secured recourse debt (excluding the amended credit facility if it becomes secured indebtedness) 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 with a purchase price of at least $100.0 million, 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;
•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 $500.0 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 Agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The Credit Agreement 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 our ability to repurchase stock and units of limited partnership interest in the Operating PartnershipOP Units during the term of the amended credit facility.
We may, at any time, voluntarily prepay any loan under the amended credit facility in whole or in part without significant premium or penalty, except for those portions subject to an interest rate swap agreement.
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 amended credit facility to be immediately due and payable.
We are currently in compliance with all covenants governingunder the Credit Agreement.
M&T Term Loan Facility
On December 6, 2022, we entered into a term loan agreement (the "M&T term loan agreement") with Manufacturers and Traders Trust Company, which provides a $100.0 million senior unsecured term loan facility (the "M&T term loan facility"), with the option to increase the total capacity to $200.0 million, subject to our satisfaction of certain conditions. The M&T term loan facility has a scheduled maturity date of March 8, 2027, with a one-year extension option, subject to our satisfaction of certain conditions, including payment of a 0.075% extension fee.
The M&T term loan facility bears interest at a rate elected by us based on term SOFR, Daily Simple SOFR, or the Base Rate (as defined below), and in each case plus a margin. A term SOFR or Daily Simple SOFR loan is also subject to a credit spread adjustment of 0.10%. The margin under each interest rate election depends on our total leverage. The "Base Rate" is equal to the highest of: (a) the rate of interest in effect for such day as publicly announced from time to time by M&T Bank as its “prime rate” for such day, (b) the Federal Funds Rate for such day, plus 0.50%, (c) one month term SOFR for such day plus 100 basis points and (d) 1.00%. We have elected for the loan to bear interest at term SOFR plus margin. If we attain investment grade credit ratings from both S&P Global Ratings and Moody's Investor Service, Inc., we may elect to have borrowings become subject to interest rates based on such credit ratings.
The Operating Partnership is the borrower under the M&T term loan facility, and its obligations under the M&T term loan facility are guaranteed by us and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty.
The M&T term loan agreement contains customary representations and warranties and financial and other affirmative and negative covenants. Our ability to borrow under the M&T term loan facility is subject to 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 with a purchase price of at least $100.0 million, but only up to two times during the term of the M&T term loan facility);
•Ratio of adjusted EBITDA (as defined in the M&T term loan agreement) to fixed charges of not less than 1.50 to 1.0;
•Tangible net worth of not less than the sum of (i) $825.2 million and (ii) an amount equal to 75% of the net equity proceeds received by us after June 30, 2022;
•Ratio of secured indebtedness (excluding the M&T term loan facility if it becomes secured indebtedness) to total asset value of not more than 40%;
•Ratio of secured recourse debt (excluding the M&T term loan facility if it becomes secured indebtedness) 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 with a purchase price of at least $100.0 million, but only up to two times during the term of the M&T term loan facility);
•Unencumbered interest coverage ratio (as defined in the M&T term loan agreement) of not less than 1.75 to 1.0;
•Maintenance of a minimum of at least 15 unencumbered properties (as defined in the M&T term loan agreement) with an unencumbered asset value (as defined in the M&T term loan agreement) of not less than $500.0 million at any time; and
•Minimum occupancy rate (as defined in the M&T term loan agreement) for all unencumbered properties of not less than 80% at any time.
The M&T term loan agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The M&T term loan agreement 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 our ability to repurchase stock and OP Units during the term of the M&T term loan facility.
We may, at any time, voluntarily prepay the M&T term loan facility in whole or in part without premium or penalty, provided certain conditions are met.
The M&T term loan 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 M&T term loan facility to be immediately due and payable. A default under the Credit Agreement would also constitute a default under the M&T term loan agreement.
We are currently in compliance with all covenants under the M&T term loan agreement.
TD Term Loan Facility
On May 19, 2023, we entered into a term loan agreement (the "TD term loan agreement") with Toronto Dominion (Texas) LLC, as administrative agent, and TD Bank, N.A. as lender, which provides a $75.0 million senior unsecured term loan facility (the "TD term loan facility"), with the option to increase the total capacity to $150.0 million, subject to our satisfaction of certain conditions. The TD term loan facility has a scheduled maturity date of May 19, 2025, with a one-year extension option, subject to our satisfaction of certain conditions, including an extension fee payment of 0.15% of the outstanding amount of the loan as of such date.
The TD term loan facility bears interest at a rate elected by us based on term SOFR, Daily Simple SOFR, or the Base Rate (as defined below), and in each case plus a margin. A term SOFR or Daily Simple SOFR loan is also subject to a credit spread adjustment of 0.10%. The margin under each interest rate election depends on our total leverage. The "Base Rate" is equal to the highest of: (a) the Federal Funds Rate for such day, plus 0.50% (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its “prime rate” for such day, (c) one month term SOFR for such day plus 100 basis points and (d) 1.00%. We have elected for the loan to bear interest at term SOFR plus margin. If we attain investment grade credit ratings from both S&P Global Ratings and Moody's Investor Service, Inc., we may elect to have borrowings become subject to interest rates based on such credit ratings.
On June 29, 2023, the TD term loan facility commitment increased to $95.0 million as a result of the addition of a second lender to the facility.
The Operating Partnership is the borrower under the TD term loan facility, and its obligations under the TD term loan
facility are guaranteed by us and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty.
The TD term loan agreement contains customary representations and warranties and financial and other affirmative and negative covenants. Our ability to borrow under the TD term loan facility is subject to 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 with a purchase price of at least $100.0 million, but only up to two times during the term of the TD term loan facility);
•Ratio of adjusted EBITDA (as defined in the TD term loan agreement) to fixed charges of not less than 1.50 to 1.0;
•Tangible net worth of not less than the sum of (i) $825.2 million and (ii) an amount equal to 75% of the net equity proceeds received by us after June 30, 2022;
•Ratio of secured indebtedness (excluding the TD term loan facility if it becomes secured indebtedness) to total asset value of not more than 40%;
•Ratio of secured recourse debt (excluding the TD term loan facility if it becomes secured indebtedness) 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 with a purchase price of at least $100.0 million, but only up to two times during the term of the TD term loan facility);
•Unencumbered interest coverage ratio (as defined in the TD term loan agreement) of not less than 1.75 to 1.0;
•Maintenance of a minimum of at least 15 unencumbered properties (as defined in the TD term loan agreement) with an unencumbered asset value (as defined in the TD term loan agreement) of not less than $500.0 million at any time; and
•Minimum occupancy rate (as defined in the TD term loan agreement) for all unencumbered properties of not less than 80% at any time.
The TD term loan agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The TD term loan agreement also restricts the amount of capital that we can invest in specific categories of assets, such as unimproved land holdings, development properties, notes receivable, mortgages, mezzanine loans and unconsolidated affiliates, and restricts our ability to repurchase stock and OP Units during the term of the TD term loan facility.
We may, at any time, voluntarily prepay the TD term loan facility in whole or in part without premium or penalty, provided certain conditions are met.
The TD term loan agreement includes customary events of default, in certain cases subject to customary cure periods. The occurrence of an event of default, if not cured within the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest, and all other amounts payable under the TD term loan facility to be immediately due and payable. A default under the Credit Agreement would also constitute a default under the TD term loan agreement.
We are currently in compliance with all covenants under the TD term loan agreement.
Consolidated Indebtedness
The following table sets forth our consolidated indebtedness as of September 30, 20222023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount Outstanding | | Interest Rate (a) | | Effective Rate for Variable Debt | | Maturity Date | | Balance at Maturity | | |
Secured Debt | | | | | | | | | | | | | |
Wills Wharf | | $ | 64,288 | | | LIBOR+ | 2.25 | % | | 5.39 | % | | June 26, 2023 | | $ | 64,288 | | | |
249 Central Park Retail(b) | | 16,160 | | | LIBOR+ | 1.60 | % | | 3.85 | % | (c) | August 10, 2023 | | 15,935 | | | |
Fountain Plaza Retail(b) | | 9,724 | | | LIBOR+ | 1.60 | % | | 3.85 | % | (c) | August 10, 2023 | | 9,589 | | | |
South Retail(b) | | 7,094 | | | LIBOR+ | 1.60 | % | | 3.85 | % | (c) | August 10, 2023 | | 6,996 | | | |
Chronicle Mill | | 22,251 | | | LIBOR+ | 3.00 | % | | 4.04 | % | | May 5, 2024 | | 22,251 | | | |
Red Mill Central | | 2,057 | | | | 4.80 | % | | | | June 17, 2024 | | 1,765 | | | |
Gainesville Apartments | | 30,328 | | | LIBOR+ | 3.00 | % | | 6.14 | % | | August 31, 2024 | | 30,327 | | | |
Premier Apartments(d) | | 16,326 | | | LIBOR+ | 1.55 | % | | 4.69 | % | | October 31, 2024 | | 15,830 | | | |
Premier Retail(d) | | 8,041 | | | LIBOR+ | 1.55 | % | | 4.69 | % | | October 31, 2024 | | 7,797 | | | |
Red Mill South | | 5,274 | | | | 3.57 | % | | | | May 1, 2025 | | 4,383 | | | |
Market at Mill Creek | | 12,656 | | | LIBOR+ | 1.55% | | 4.69 | % | | July 12, 2025 | | 10,876 | | | |
Encore Apartments(e) | | 24,117 | | | | 2.93 | % | | | | February 10, 2026 | | 22,212 | | | |
4525 Main Street(e) | | 30,959 | | | | 2.93 | % | | | | February 10, 2026 | | 28,514 | | | |
Southern Post (f) | | — | | SOFR+ | 2.25 | % | | 3.29 | % | | August 25, 2026 | | — | | |
Thames Street Wharf | | 69,685 | | | BSBY+ | 1.30 | % | | 2.35 | % | (c) | September 30, 2026 | | 60,839 | | | |
Constellation Energy Building | | 175,000 | | | BSBY+ | 1.50 | % | | 2.59 | % | (g) | November 1, 2026 | | 175,000 | | | |
Southgate Square | | 26,599 | | | LIBOR+ | 1.90 | % | | 5.04 | % | | December 21, 2026 | | 26,431 | | | |
Nexton Square | | 22,395 | | | SOFR+ | 1.95 | % | | 4.99 | % | | June 30, 2027 | | 21,224 | | | |
Greenbrier Square | | 20,000 | | | | 3.74% | | | | October 10, 2027 | | 18,049 | | | |
Liberty Apartments | | 21,001 | | | SOFR+ | 1.50 | % | | 4.54 | % | | October 27, 2027 | | 19,136 | | | |
Lexington Square | | 13,963 | | | | 4.50 | % | | | | September 1, 2028 | | 12,044 | | | |
Red Mill North | | 4,107 | | | | 4.73 | % | | | | December 31, 2028 | | 3,295 | | | |
Greenside Apartments | | 32,049 | | | | 3.17 | % | | | | December 15, 2029 | | 26,095 | | | |
Smith's Landing | | 15,768 | | | | 4.05 | % | | | | June 1, 2035 | | 384 | | | |
Edison Apartments | | 15,656 | | | | 5.30 | % | | | | December 1, 2044 | | 100 | | | |
The Cosmopolitan | | 41,457 | | | | 3.35 | % | | | | July 1, 2051 | | 187 | | | |
Total secured debt | | $ | 706,955 | | | | | | | | | | $ | 603,547 | | | |
Unsecured debt | | | | | | | | | | | | | |
Senior unsecured revolving credit facility | | $ | 36,000 | | | SOFR+ | 1.30%-1.85% | | 4.54 | % | | January 22, 2027 | | $ | 36,000 | | | |
Senior unsecured term loan | | 114,500 | | | SOFR+ | 1.25%-1.80% | | 4.49 | % | | January 21, 2028 | | 114,500 | | | |
Senior unsecured term loan | | 185,500 | | | SOFR+ | 1.25%-1.80% | | 1.95%-4.47% | (c) | January 21, 2028 | | 185,500 | | | |
Total unsecured debt | | 336,000 | | | | | | | | | | 336,000 | | | |
Total principal balances | | $ | 1,042,955 | | | | |
| | | | | $ | 939,547 | | | |
Other notes payable(h) | | 9,231 | | | | | | | | | | | | |
Unamortized GAAP adjustments | | (10,610) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Indebtedness, net | | $ | 1,041,576 | | | | | | | | | | | | |
_______________________________________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount Outstanding | | Interest Rate (a) | | Effective Rate for Variable-Rate Debt | | Maturity Date (b) | | Balance at Maturity |
Secured Debt | | | | | | | | | | | |
Chronicle Mill | | $ | 34,300 | | | SOFR+ | 3.00 | % | | 6.43 | % | | May 5, 2024 | | $ | 34,300 | |
Red Mill Central | | 1,881 | | | 4.80 | % | | | | June 17, 2024 | | 1,765 |
Premier Apartments(c) | | 16,094 | | SOFR+ | 1.55 | % | | 6.98 | % | | October 31, 2024 | | 15,830 |
Premier Retail(c) | | 7,937 | | SOFR+ | 1.55 | % | | 6.98 | % | | October 31, 2024 | | 7,797 |
Red Mill South | | 4,939 | | | 3.57 | % | | | | May 1, 2025 | | 4,383 |
Market at Mill Creek | | 11,509 | | SOFR+ | 1.55% | | 6.98 | % | | July 12, 2025 | | 10,376 |
The Everly | | 30,000 | | SOFR+ | 1.50 | % | | 6.82 | % | | December 20, 2025 | | 30,000 |
Encore Apartments(d) | | 23,563 | | | 2.93 | % | | | | February 10, 2026 | | 22,211 |
4525 Main Street(d) | | 30,253 | | | 2.93 | % | | | | February 10, 2026 | | 28,515 |
Southern Post | | 20,993 | | SOFR+ | 2.25 | % | | 5.57 | % | | August 25, 2026 | | 20,993 |
Thames Street Wharf | | 68,253 | | SOFR+ | 1.30 | % | | 2.33 | % | (e) | September 30, 2026 | | 60,839 |
Constellation Energy Building | | 175,000 | | SOFR+ | 1.50 | % | | 3.46 | % | (e) | November 1, 2026 | | 175,000 |
Southgate Square | | 25,547 | | SOFR+ | 1.90 | % | | 7.32 | % | | December 21, 2026 | | 22,811 |
Nexton Square | | 21,734 | | SOFR+ | 1.95 | % | | 7.27 | % | | June 30, 2027 | | 19,487 |
Liberty Apartments | | 20,673 | | SOFR+ | 1.50 | % | | 6.82 | % | | September 27, 2027 | | 19,230 |
Greenbrier Square | | 19,663 | | | 3.74% | | | | October 10, 2027 | | 18,049 |
Lexington Square | | 13,673 | | | 4.50 | % | | | | September 1, 2028 | | 12,044 |
Red Mill North | | 3,992 | | | 4.73 | % | | | | December 31, 2028 | | 3,295 |
Greenside Apartments | | 31,297 | | | 3.17 | % | | | | December 15, 2029 | | 26,095 |
Smith's Landing | | 14,821 | | | 4.05 | % | | | | June 1, 2035 | | 384 |
The Edison | | 15,276 | | | 5.30 | % | | | | December 1, 2044 | | 100 |
The Cosmopolitan | | 40,589 | | | 3.35 | % | | | | July 1, 2051 | | 187 |
Total secured debt | | $ | 631,987 | | | | | | | | | | $ | 533,691 | |
Unsecured debt | | | | | | | | | | | |
TD unsecured term loan | | $ | 95,000 | | | SOFR+ | 1.35%-1.90% | | 4.70 | % | (e) | May 19, 2025 | | $ | 95,000 | |
Senior unsecured revolving credit facility | | 195,000 | | | SOFR+ | 1.30%-1.85% | | 6.82 | % | | January 22, 2027 | | 195,000 | |
Senior unsecured revolving credit facility (fixed) | | 5,000 | | | SOFR+ | 1.30%-1.85% | | 4.70 | % | (e) | January 22, 2027 | | 5,000 | |
M&T unsecured term loan | | 100,000 | | SOFR+ | 1.25%-1.80% | | 4.90 | % | (e) | March 8, 2027 | | 100,000 |
Senior unsecured term loan | | 114,500 | | SOFR+ | 1.25%-1.80% | | 6.72 | % | | January 21, 2028 | | 114,500 |
Senior unsecured term loan (fixed) | | 185,500 | | SOFR+ | 1.25%-1.80% | | 1.73%-4.83% | (e) | January 21, 2028 | | 185,500 |
Total unsecured debt | | 695,000 | | | | | | | | | 695,000 |
Total principal balances | | $ | 1,326,987 | | | | | | | | | | $ | 1,228,691 | |
Other notes payable(f) | | 6,127 | | | | | | | | | |
Unamortized GAAP adjustments | | (11,322) | | | | | | | | | |
| | | | | | | | | | | |
Indebtedness, net | | $ | 1,321,792 | | | | | | | | | | |
(a) LIBOR, SOFR and BSBY areis determined by individual lenders.
(b) Does not reflect the effect of any maturity extension options.
(c) Cross collateralized.
(c)(d) Cross collateralized.
(e) Includes debt subject to interest rate swap locks.
(d) Cross collateralized.
(e) Cross collateralized.
(f) On August 25, 2022, we entered into a $73.6 million construction loan agreement for the Southern Post development project. There was no balance outstanding on the loan as of September 30, 2022.
(g) Includes debt subject to designated interest rate caps.
(h) Represents the fair value of additional ground lease payments at 1405 Point over the approximately 42-year40-year remaining lease term and an earn-out liability for the Gainesville development project. This earn-out payment was made in October 2022.term.
As of September 30, 2022,2023, we arewere in compliance with all loan covenants on our outstanding indebtedness.
As of September 30, 2022,2023, our scheduled principal payments and maturities during each of the followingnext five years and thereafter are as follows ($ in thousands):
| Year(1)(2) | Year(1)(2) | | Amount Due | | Percentage of Total | Year(1)(2) | | Amount Due | | Percentage of Total |
2022 (excluding nine months ended September 30, 2022) | | $ | 2,218 | | | * | |
2023 | | 105,717 | | | 10 | % | |
2023 (excluding nine months ended September 30, 2023) | | 2023 (excluding nine months ended September 30, 2023) | | $ | 2,476 | | | * |
2024 | 2024 | | 87,166 | | | 8 | % | 2024 | | 70,068 | | | 5 | % |
2025 | 2025 | | 24,836 | | | 2 | % | 2025 | | 150,495 | | | 11 | % |
2026 | 2026 | | 320,069 | | | 31 | % | 2026 | | 338,519 | | | 26 | % |
2027 | | 2027 | | 361,561 | | | 27 | % |
Thereafter | Thereafter | | 502,949 | | | 49 | % | Thereafter | | 403,868 | | | 31 | % |
Total | Total | | $ | 1,042,955 | | | 100 | % | Total | | $ | 1,326,987 | | | 100 | % |
(1) Does not reflect the effect of any maturity extension options.
(2) Includes debt incurred in connection with the development of properties.
* Less than one percent
Interest Rate Derivatives
As of September 30, 2022,2023, we were party to the following LIBOR (to be transitioned to SOFR and BSBY), SOFR, and BSBY interest rate cap agreements ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
Effective Date | | Maturity Date | | Strike Rate | | Notional Amount | | | |
11/1/2020 | | 11/1/2023 | | 1.84% (SOFR) | | $ | 84,375 | | | | |
2/2/2021 | | 2/1/2023 | | 0.50% (LIBOR) | | 100,000 | | | | |
3/4/2021 | | 4/1/2023 | | 2.50% (LIBOR) | | 14,479 | | | | |
1/11/2022 | | 2/1/2024 | | 4.00% (BSBY) | | 175,000 | | | | |
4/7/2022 | | 2/1/2024 | | 1.00%-3.00% (BSBY) | (a) | 175,000 | | | | |
7/1/2022 | | 3/1/2024 | | 1.00%-3.00% (SOFR) | (a) | 200,000 | | | | |
7/5/2022 | | 1/1/2024 | | 1.00%-3.00% (SOFR) | (a) | 50,000 | | | | |
7/5/2022 | | 1/1/2024 | | 1.00%-3.00% (SOFR) | (a) | 35,100 | | | | |
9/1/2022 | | 9/1/2024 | | 1.00%-3.00% (SOFR) | (a) | 73,562 | | (b) | | |
Total | | | | | | $ | 907,516 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Effective Date | | Maturity Date | | Strike Rate | | Notional Amount | | | |
11/1/2020 | | 11/1/2023 | | 1.84 | % | | $ | 84,375 | | | | |
7/5/2022 | | 1/1/2024 | | 1.00%-3.00% | (a) | 35,100 | | | | |
9/1/2022 | | 9/1/2024 | | 1.00%-3.00% | (a) | 57,089 | | (b) | | |
Total | | | | | | $ | 176,564 | | | | |
(a) We purchased interest rate caps at 1.00% and sold interest rate caps at 3.00%, resulting in interest rate cap corridors of 1.00% and 3.00%. The intended goal of these corridors is to provide a level of protection from the effect of rising interest rates and reduce the all-in cost of the derivative instrument.
(b) TheRepresents the notional amount represents the maximum notional amount that will eventually be in effect.as of September 30, 2023. The notional amount is scheduled to increase over the term of the corridor in accordance with projected borrowings on the associated loan. The maximum notional amount that will eventually be in effect is $73.6 million.
As of September 30, 2022,2023, we held the following interest rate swap agreements ($ in thousands):
| Related Debt | Related Debt | | Notional Amount | | | Index | | Swap Fixed Rate | | Debt effective rate | | Effective Date | | Expiration Date | Related Debt | | Notional Amount | | | Index | | Swap Fixed Rate | | Debt effective rate | | Effective Date | | Expiration Date | |
Senior unsecured term loan | Senior unsecured term loan | | $ | 50,000 | | | | 1-month LIBOR | | 2.26 | % | | 3.71 | % | | 4/1/2019 | | 10/26/2022 | Senior unsecured term loan | | $ | 10,500 | | | | 1-month SOFR | (a) | 2.94 | % | | 4.34 | % | | 10/12/2018 | | 10/12/2023 | |
Senior unsecured term loan | | 50,000 | | | | 1-month LIBOR | | 2.78 | % | | 4.23 | % | | 5/1/2018 | | 5/1/2023 | |
249 Central Park Retail, South Retail, and Fountain Plaza Retail | | 32,979 | | | | 1-month LIBOR | | 2.25 | % | | 3.85 | % | | 4/1/2019 | | 8/10/2023 | |
Floating rate pool of loans | | Floating rate pool of loans | | 50,000 | | | | 1-month SOFR | (b) | 3.40 | % | | 4.91 | % | | 7/5/2023 | | 1/1/2024 | |
Constellation Energy Building | | Constellation Energy Building | | 175,000 | | | | 1-month SOFR | (c) | 1.84 | % | | 3.46 | % | | 4/1/2023 | | 2/1/2024 | |
Floating rate pool of loans | | Floating rate pool of loans | | 200,000 | | | | 1-month SOFR | (d) | 3.39 | % | | 4.90 | % | | 7/1/2023 | | 3/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 10,500 | | | | 1-month LIBOR | | 3.02 | % | | 4.47 | % | | 10/12/2018 | | 10/12/2023 | Senior unsecured term loan | | 25,000 | | | | 1-month SOFR | (a) | 0.42 | % | | 1.82 | % | | 4/1/2020 | | 4/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | | | 1-month LIBOR | | 0.50 | % | | 1.95 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 25,000 | | | | 1-month SOFR | (a) | 0.33 | % | | 1.73 | % | | 4/1/2020 | | 4/1/2024 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | | | 1-month LIBOR | | 0.50 | % | | 1.95 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 25,000 | | | | Daily SOFR | (a) | 0.44 | % | | 1.84 | % | | 4/1/2020 | | 4/1/2024 | |
Harbor Point Parcel 3 senior construction loan | | Harbor Point Parcel 3 senior construction loan | | 90,000 | | | | 1-month SOFR | (e) | 2.75 | % | | 4.82 | % | | 10/2/2023 | | 10/1/2025 | |
Floating rate pool of loans | | Floating rate pool of loans | | 330,000 | | | | 1-month SOFR | (f) | 2.75 | % | | 4.26 | % | | 10/1/2023 | | 10/1/2025 | |
Revolving credit facility and TD unsecured term loan | | Revolving credit facility and TD unsecured term loan | | 100,000 | | | | Daily SOFR | | 3.20 | % | | 4.70 | % | | 05/19/2023 | | 5/19/2026 | (g) |
Thames Street Wharf | | Thames Street Wharf | | 68,253 | | | | Daily SOFR | (a) | 0.93 | % | | 2.33 | % | | 09/30/2021 | | 9/30/2026 | |
M&T unsecured term loan | | M&T unsecured term loan | | 100,000 | | | | 1-month SOFR | | 3.50 | % | | 4.90 | % | | 12/06/2022 | | 12/06/2027 | |
Senior unsecured term loan | Senior unsecured term loan | | 25,000 | | | | 1-month LIBOR | | 0.55 | % | | 2.00 | % | | 4/1/2020 | | 4/1/2024 | Senior unsecured term loan | | 100,000 | | | | 1-month SOFR | | 3.43 | % | | 4.83 | % | | 12/13/2022 | | 1/21/2028 | |
Thames Street Wharf | | 69,686 | | | | 1-month BSBY | | 1.05 | % | | 2.35 | % | | 9/30/2021 | | 9/30/2026 | |
Total | Total | | $ | 288,165 | | | | Total | | $ | 1,298,753 | | | |
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(a) Transitioned to SOFR during the nine months ended September 30, 2023.
(b) On July 6, 2023, we terminated a SOFR corridor of 1.00%-3.00% with a notional amount of $50.0 million and entered into this interest rate swap agreement. We paid a net zero premium for this transaction.
(c) Effective April 4, 2023, we terminated our 4.00% BSBY interest rate cap with a notional amount of $175.0 million and our BSBY corridor of 1.00%-3.00% with a notional amount of $175.0 million and, effective April 3, 2023, entered into this interest rate swap agreement. We paid a net zero premium for this transaction.
(d) On July 5, 2023, we terminated a SOFR corridor of 1.00%-3.00% with a notional amount of $200.0 million, and entered into this interest rate swap agreement. We paid a net zero premium for this transaction.
(e) This interest rate swap agreement reduces our interest rate exposure on the $180.4 million senior construction loan secured by our Harbor Point Parcel 3 equity method investment. As such, the loan is not reflected on our consolidated balance sheets. We also paid $3.6 million to reduce the swap fixed rate. This interest rate swap agreement was executed in September 2023, but was not effective until October 2, 2023.
(f) We paid $13.3 million to reduce the swap fixed rate. This interest rate swap agreement was executed in September 2023, but was not effective until October 1, 2023.
(g) Subject to cancellation by the counterparty beginning on May 1, 2025 and the first day of each month thereafter.
Off-Balance Sheet Arrangements
In connection with certain of our mezzanine lendingreal estate financing activities and equity method investments, we have made guarantees to pay portions of certain senior loans of third parties associated with the development projects. The following table summarizes the guarantees made by us as of September 30, 2022 (in thousands):
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Development project | | Payment guarantee amount | | Guarantee liability |
Interlock Commercial | | $ | 37,450 | | | $ | 1,024 | |
Harbor Point Parcel 4 (a) | | 32,910 | | | 220 | |
Total | | $ | 70,360 | | | $ | 1,244 | |
(a) As of September 30, 2022,2023, we had an outstanding guarantee liability of $0.1 million related to the $32.9 million senior loan on the Harbor Point Parcel 4. As of September 30, 2023, no amounts have been funded on this senior loan.
In connection with our Harbor Point Parcel 3 unconsolidated joint venture, we are responsible for providing a completion guarantee to the lender for this project.
Unfunded Loan Commitments
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our borrowers. These commitments are not reflected on the consolidated balance sheet. As of September 30, 2022,2023, our off-balance sheet arrangements consisted of $15.9$52.1 million of unfunded commitments of our notes receivable. We have recorded a $0.4$0.9 million credit loss reserve in conjunction with the total unfunded commitments. Such commitments are subject to our borrowers’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The commitments may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring.
Cash Flows
| | | | Nine Months Ended September 30, | | | | | Nine Months Ended September 30, | | |
| | | 2022 | | 2021 | | Change | | | 2023 | | 2022 | | Change |
| | | (in thousands) | | | | | (in thousands) | | |
Operating Activities | Operating Activities | | $ | 78,267 | | | $ | 69,222 | | | $ | 9,045 | | Operating Activities | | $ | 78,290 | | | $ | 78,267 | | | $ | 23 | |
Investing Activities | Investing Activities | | 17,546 | | | (101,353) | | | 118,899 | | Investing Activities | | (177,327) | | | 17,546 | | | (194,873) | |
Financing Activities | Financing Activities | | (76,691) | | | 15,154 | | | (91,845) | | Financing Activities | | 82,177 | | | (76,691) | | | 158,868 | |
Net Increase (decrease) | Net Increase (decrease) | | $ | 19,122 | | | $ | (16,977) | | | $ | 36,099 | | Net Increase (decrease) | | $ | (16,860) | | | $ | 19,122 | | | $ | (35,982) | |
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period | Cash, Cash Equivalents, and Restricted Cash, Beginning of Period | | $ | 40,443 | | | $ | 50,430 | | | | Cash, Cash Equivalents, and Restricted Cash, Beginning of Period | | $ | 51,865 | | | $ | 40,443 | | | |
Cash, Cash Equivalents, and Restricted Cash, End of Period | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 59,565 | | | $ | 33,453 | | | | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 35,005 | | | $ | 59,565 | | | |
Net cash provided by operating activities during the nine months ended September 30, 20222023 was materially consistent with the nine months ended September 30, 2022.
During the nine months ended September 30, 2023, net cash used in investing activities increased $9.0$194.9 million compared to the nine months ended September 30, 20212022 primarily as a resultbecause of timing differencesproceeds received for dispositions in operating assets and liabilities2022, as well as increased net operating income from the property portfolio.
During the nine months ended September 30, 2022, net cash provided by investing activities increased $118.9 million compared to the nine months ended September 30, 2021 primarily due to the disposition of operating properties, including The Residences at Annapolis Junction. This was partially offset by higher acquisition activity, including the Constellation Energy Building, as well as increased development expenditures.increases in real estate financing note receivable issuances.
During the nine months ended September 30, 2022,2023, net cash provided by financing activities decreased $91.8increased $158.9 million
compared to the nine months ended September 30, 20212022 primarily due to lowerhigher net borrowings in 2023 partially offset by the absence of equity issuances during the 2022 period and increased dividends and distributions.nine months ended September 30, 2023 compared to equity issuances of $65.2 million during the nine months ended September 30, 2022.
Non-GAAP Financial Measures
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("Nareit"). Nareit 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 amortizationrelated to real estate, gains or losses from the sales of
deferred financing costs), impairment ofcertain real estate assets and after adjustments for unconsolidated partnerships and joint ventures.investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
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,period-over-period, 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.
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 Nareit definition as we do, and, accordingly, our calculation of FFO may not be comparable to such other REITs’ calculations 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’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-yearperiod-over-period 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, impairment and accelerated amortization of intangible assets and liabilities, property acquisition, development, and other pursuit costs, mark-to-market adjustments for interest rate derivatives not designated as cash flow hedges, certain costs foramortization of payments made to purchase interest rate caps and swaps designated as cash flow hedges, provision for unrealized non-cash credit losses, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items. Other equity REITs may not calculate Normalized FFO in the same manner as we do, and, accordingly, our Normalized FFO may not be comparable to such other REITs' Normalized FFO.
The following table sets forth a reconciliation of FFO and Normalized FFO for the three and nine months ended September 30, 20222023 and 20212022 to net income, the most directly comparable GAAP measure:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
| | | (in thousands, except per share and unit amounts) | | | (in thousands, except per share and unit amounts) |
Net income attributable to common stockholders and OP Unitholders | Net income attributable to common stockholders and OP Unitholders | | $ | 33,899 | | | $ | 4,861 | | | $ | 70,940 | | | $ | 13,551 | | Net income attributable to common stockholders and OP Unitholders | | $ | 5,343 | | | $ | 33,899 | | | $ | 19,448 | | | $ | 70,940 | |
Depreciation and amortization (1) | Depreciation and amortization (1) | | 17,290 | | | 16,886 | | | 54,084 | | | 52,237 | | Depreciation and amortization (1) | | 22,239 | | | 17,290 | | | 60,139 | | | 54,084 | |
Loss (gain) on operating real estate dispositions, net (2) | | (28,502) | | | 113 | | | (47,995) | | | (3,351) | | |
Gain on operating real estate dispositions, net (2) | | Gain on operating real estate dispositions, net (2) | | — | | | (28,502) | | | — | | | (47,995) | |
Impairment of real estate assets | Impairment of real estate assets | | — | | | — | | | 201 | | | 3,039 | | Impairment of real estate assets | | — | | | — | | | — | | | 201 | |
FFO attributable to common stockholders and OP Unitholders | FFO attributable to common stockholders and OP Unitholders | | 22,687 | | | 21,860 | | | 77,230 | | | 65,476 | | FFO attributable to common stockholders and OP Unitholders | | 27,582 | | | 22,687 | | | 79,587 | | | 77,230 | |
Acquisition, development and other pursuit costs | Acquisition, development and other pursuit costs | | — | | | 8 | | | 37 | | | 111 | | Acquisition, development and other pursuit costs | | — | | | — | | | 18 | | | 37 | |
Impairment of intangible assets and liabilities | | — | | | — | | | 132 | | | 83 | | |
Accelerated amortization of intangible assets and liabilities | | Accelerated amortization of intangible assets and liabilities | | 5 | | | — | | | (615) | | | 132 | |
Loss on extinguishment of debt | Loss on extinguishment of debt | | 2,123 | | | 120 | | | 2,899 | | | 120 | | Loss on extinguishment of debt | | — | | | 2,123 | | | — | | | 2,899 | |
Unrealized credit loss provision (release) | Unrealized credit loss provision (release) | | (42) | | | (617) | | | 858 | | | (284) | | Unrealized credit loss provision (release) | | 694 | | | (42) | | | 871 | | | 858 | |
Amortization of right-of-use assets - finance leases | Amortization of right-of-use assets - finance leases | | 278 | | | 278 | | | 833 | | | 745 | | Amortization of right-of-use assets - finance leases | | 425 | | | 278 | | | 1,049 | | | 833 | |
Change in fair value of derivatives not designated as cash flow hedges and other | | (782) | | | (131) | | | (7,512) | | | (838) | | |
Amortization of interest rate cap premiums on designated cash flow hedges | | 1,525 | | | 59 | | | 2,048 | | | 176 | |
Increase in fair value of derivatives not designated as cash flow hedges | | Increase in fair value of derivatives not designated as cash flow hedges | | (1,484) | | | (782) | | | (1,974) | | | (7,512) | |
Amortization of interest rate derivatives on designated cash flow hedges | | Amortization of interest rate derivatives on designated cash flow hedges | | 513 | | | 1,525 | | | 3,598 | | | 2,048 | |
| Normalized FFO available to common stockholders and OP Unitholders | Normalized FFO available to common stockholders and OP Unitholders | | $ | 25,789 | | | $ | 21,577 | | | $ | 76,525 | | | $ | 65,589 | | Normalized FFO available to common stockholders and OP Unitholders | | $ | 27,735 | | | $ | 25,789 | | | $ | 82,534 | | | $ | 76,525 | |
Net income attributable to common stockholders and OP Unitholders per diluted share and unit | Net income attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.38 | | | $ | 0.06 | | | $ | 0.80 | | | $ | 0.17 | | Net income attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.06 | | | $ | 0.38 | | | $ | 0.22 | | | $ | 0.80 | |
FFO attributable to common stockholders and OP Unitholders per diluted share and unit | FFO attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.26 | | | $ | 0.27 | | | $ | 0.88 | | | $ | 0.81 | | FFO attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.31 | | | $ | 0.26 | | | $ | 0.90 | | | $ | 0.88 | |
Normalized FFO attributable to common stockholders and OP Unitholders per diluted share and unit | Normalized FFO attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.29 | | | $ | 0.26 | | | $ | 0.87 | | | $ | 0.81 | | Normalized FFO attributable to common stockholders and OP Unitholders per diluted share and unit | | $ | 0.31 | | | $ | 0.29 | | | $ | 0.93 | | | $ | 0.87 | |
Weighted average common shares and units - diluted | Weighted average common shares and units - diluted | | 88,341 | | | 81,936 | | | 88,143 | | | 81,164 | | Weighted average common shares and units - diluted | | 89,589 | | | 88,341 | | | 88,908 | | | 88,143 | |
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(1) The adjustment for depreciation and amortization for the three and nine months ended September 30, 2023 excludes $0.2 million and $0.7 million, respectively, of depreciation attributable to our partners. The adjustment for depreciation and amortization for the three and nine months ended September 30, 2022 excludes $0.2 million and $0.8 million, respectively, of depreciation attributable to our joint venture partners. |
(2) The adjustment for gain on operating real estate dispositions for the three and nine months ended September 30, 2023 excludes $0.2 million for the gain on the disposition of a non-operating parcel adjacent to Brooks Crossing Retail. The adjustment for gain on operating real estate dispositions for the nine months ended September 30, 2023 also excludes $0.5 million for the gain on the disposition of a non-operating parcel at Market at Mill Creek. The adjustment for gain on operating real estate dispositions for the three and nine months ended September 30, 2022 excludes $5.4 million of the gain on The Residences at Annapolis Junction that was allocated to our joint venture partner. Additionally, the adjustment for gain on operating real estate dispositions for the nine months ended September 30, 2021 excludes the gain on sale of easement rights on 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, 2021.2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the Company's market risk since December 31, 2021.2022. For a discussion of the Company's exposure to market risk, refer to the Company's market risk disclosure set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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"))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, 2022,2023, 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, 2022,2023, 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 quarter ended September 30, 20222023 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, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.On June 15, 2023, we adopted the $50.0 million Share Repurchase Program. Under the Share Repurchase Program, we may repurchase shares of common stock and Series A Preferred Stock from time to time in the open market, in block purchases, through privately negotiated transactions, the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, or other means permitted. The Share Repurchase Program does not obligate us to acquire any specific number of shares or acquire shares over any specific period of time. The Share Repurchase Program may be suspended or discontinued at any time and does not have an expiration date.
The following table summarizes our common stock repurchase activity under the Share Repurchase Program for the three months ended September 30, 2023:
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)(a) |
July 1, 2023 through July 31, 2023 | | — | | | $ | — | | | — | | | $ | 50,000 | |
August 1, 2023 through August 31, 2023 | | — | | | — | | | — | | | 50,000 | |
September 1, 2023 through September 30, 2023 | | 62,293 | | | 10.32 | | | 62,293 | | | 49,357 | |
Total | | 62,293 | | | $ | 10.32 | | | 62,293 | | | |
(a) Reflects the dollar value of shares that may yet be repurchased under the Share Repurchase Program announced on June 15, 2023. The Board of Directors authorized the repurchase of an aggregate of $50.0 million of shares of common stock and Series A Preferred Stock pursuant to the Share Repurchase Program.
The following table summarizes our Series A Preferred Stock repurchase activity under the Share Repurchase Program for the three months ended September 30, 2023:
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Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)(a) |
July 1, 2023 through July 31, 2023 | | — | | | $ | — | | | — | | | $ | 50,000 | |
August 1, 2023 through August 31, 2023 | | — | | | — | | | — | | | 50,000 | |
September 1, 2023 through September 30, 2023 | | — | | | — | | | — | | | 49,357 | |
Total | | — | | | $ | — | | | — | | | |
(a) Reflects the dollar value of shares that may yet be repurchased under the Share Repurchase Program announced on June 15, 2023. The Board of Directors authorized the repurchase of an aggregate of $50.0 million of shares of common stock and Series A Preferred Stock pursuant to the Share Repurchase Program.
Item 3. Defaults on Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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.
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| | Third Amended and Restated Credit Agreement, dated August 23, 2022, 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 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 6, 2022). |
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101* | | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022,2023, were formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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104* | | Cover page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL. |
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* | | Filed herewith |
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** | | Furnished herewith |
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.
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| ARMADA HOFFLER PROPERTIES, INC. |
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Date: November 8, 20226, 2023 | /s/ Louis S. Haddad |
| Louis S. Haddad |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
Date: November 8, 20226, 2023 | /s/ Matthew T. Barnes-Smith |
| Matthew T. Barnes-Smith |
| Chief Financial Officer, Treasurer and Corporate Secretary |
| (Principal Accounting and Financial Officer) |