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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM
10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2024  
or 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from                      to                      
Commission File Number: 001-35908
ARMADA HOFFLER PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland46-1214914
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
222 Central Park Avenue,Suite 2100
Virginia Beach,Virginia23462
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareAHHNew York Stock Exchange
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per shareAHHPrANew 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," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large Accelerated Filer
Accelerated Filer
Non-Accelerated FilerSmaller 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 May 6, 2024, the registrant had 67,073,451 shares of common stock, $0.01 par value per share, outstanding. In addition, as of May 6, 2024, Armada Hoffler, L.P., the registrant's operating partnership subsidiary, had 21,709,299 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 MARCH 31, 2024
 
Table of Contents
 
 Page
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. Financial Information
 
Item 1.    Financial Statements
 
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value and share data)
 March 31,
2024
December 31,
2023
 (Unaudited) 
ASSETS  
Real estate investments:  
Income producing property$2,099,051 $2,093,032 
Held for development11,978 11,978 
Construction in progress117,921 102,277 
 2,228,950 2,207,287 
Accumulated depreciation(408,917)(393,169)
Net real estate investments1,820,033 1,814,118 
Cash and cash equivalents41,934 27,920 
Restricted cash1,927 2,246 
Accounts receivable, net43,147 45,529 
Notes receivable, net109,282 94,172 
Construction receivables, including retentions, net121,042 126,443 
Construction contract costs and estimated earnings in excess of billings26 104 
Equity method investments152,190 142,031 
Operating lease right-of-use assets23,018 23,085 
Finance lease right-of-use assets90,171 90,565 
Acquired lease intangible assets105,175 109,137 
Other assets93,199 87,548 
Total Assets$2,601,144 $2,562,898 
LIABILITIES AND EQUITY  
Indebtedness, net$1,428,318 $1,396,965 
Accounts payable and accrued liabilities33,252 31,041 
Construction payables, including retentions136,329 128,290 
Billings in excess of construction contract costs and estimated earnings21,728 21,414 
Operating lease liabilities31,483 31,528 
Finance lease liabilities92,062 91,869 
Other liabilities55,295 56,613 
Total Liabilities1,798,467 1,757,720 
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 March 31, 2024 and
December 31, 2023
171,085 171,085 
Common stock, $0.01 par value, 500,000,000 shares authorized; 66,986,834 and 66,793,294 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
670 668 
Additional paid-in capital582,049 580,687 
Distributions in excess of earnings(187,271)(184,724)
Accumulated other comprehensive income4,870 4,906 
Total stockholders’ equity571,403 572,622 
Noncontrolling interests in investment entities9,645 9,986 
Noncontrolling interests in Operating Partnership221,629 222,570 
Total Equity802,677 805,178 
Total Liabilities and Equity$2,601,144 $2,562,898 

See Notes to Condensed Consolidated Financial Statements.
1


ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Comprehensive Income 
(In thousands, except per share data)
(Unaudited)
 Three Months Ended 
March 31,
 20242023
Revenues  
Rental revenues$61,881 $56,218 
General contracting and real estate services revenues126,975 84,238 
Interest income4,626 3,719 
Total revenues193,482 144,175 
Expenses  
Rental expenses14,605 12,960 
Real estate taxes5,925 5,412 
General contracting and real estate services expenses122,898 81,170 
Depreciation and amortization20,435 18,468 
Amortization of right-of-use assets - finance leases395 277 
General and administrative expenses5,874 5,448 
Impairment charges 102 
Total expenses170,132 123,837 
Operating income23,350 20,338 
Interest expense (17,975)(12,302)
Change in fair value of derivatives and other12,888 (2,447)
Unrealized credit loss provision(83)(77)
Other income (expense), net79 93 
Income before taxes18,259 5,605 
Income tax provision(534)(188)
Net income17,725 5,417 
Net income attributable to noncontrolling interests:
Investment entities(34)(154)
Operating Partnership(3,618)(554)
Net income attributable to Armada Hoffler Properties, Inc.14,073 4,709 
Preferred stock dividends(2,887)(2,887)
Net income attributable to common stockholders$11,186 $1,822 
Net income attributable to common stockholders per share (basic and diluted)$0.17 $0.03 
Weighted-average common shares outstanding (basic and diluted)66,838 67,787 
Comprehensive income:  
Net income$17,725 $5,417 
Unrealized cash flow hedge gains (losses)3,554 (426)
Realized cash flow hedge gains reclassified to net income(3,642)(2,922)
Comprehensive income17,637 2,069 
Comprehensive income attributable to noncontrolling interests:
Investment entities5 (118)
Operating Partnership(3,606)218 
Comprehensive income attributable to Armada Hoffler Properties, Inc.$14,036 $2,169 

See Notes to Condensed Consolidated Financial Statements.
2


ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
 Preferred stockCommon stockAdditional paid-in capitalDistributions in excess of earnings Accumulated other comprehensive incomeTotal stockholders' equityNoncontrolling interests in investment entitiesNoncontrolling interests in Operating PartnershipTotal equity
Balance, December 31, 2023$171,085 $668 $580,687 $(184,724)$4,906 $572,622 $9,986 $222,570 $805,178 
Net income— — — 14,073 — 14,073 34 3,618 17,725 
Unrealized cash flow hedge gains— — — — 2,664 2,664 29 861 3,554 
Realized cash flow hedge gains reclassified to net income— — — — (2,700)(2,700)(68)(874)(3,642)
Net proceeds from issuance of common stock— — (10)— — (10)— — (10)
Restricted stock awards, net— 2 1,394 — — 1,396 — — 1,396 
Redemption of operating partnership units— — (22)— — (22)— (96)(118)
Distributions to noncontrolling interests— — — — — — (336)— (336)
Dividends declared on preferred stock— — — (2,887)— (2,887)— — (2,887)
Dividends and distributions declared on common shares and units ($0.205 per share and unit)
— — — (13,733)— (13,733)— (4,450)(18,183)
Balance, March 31, 2024$171,085 $670 $582,049 $(187,271)$4,870 $571,403 $9,645 $221,629 $802,677 
3


 Preferred stockCommon stockAdditional paid-in capitalDistributions in excess of earnings Accumulated other comprehensive incomeTotal stockholders' equityNoncontrolling interests in investment entitiesNoncontrolling interests in Operating PartnershipTotal 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)
Distribution to joint venture partner— — — — — — (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 
See Notes to Condensed Consolidated Financial Statements.
4


ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)(Unaudited)
 Three Months Ended 
March 31,
 20242023
OPERATING ACTIVITIES  
Net income$17,725 $5,417 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation of buildings and tenant improvements15,748 14,114 
Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases4,687 4,354 
Accrued straight-line rental revenue(1,252)(1,455)
Amortization of leasing incentives and above or below-market rents(397)(292)
Amortization of right-of-use assets - finance leases395 277 
Accrued straight-line ground rent expense8 20 
Unrealized credit loss provision83 77 
Adjustment for uncollectable lease accounts758 252 
Noncash stock compensation2,192 1,846 
Impairment charges 102 
Noncash interest expense1,048 2,261 
Change in fair value of derivatives and other(6,510)3,807 
Adjustment for receipts on off-market interest rate derivatives(7,500) 
Changes in operating assets and liabilities:  
Property assets6,554 4,167 
Property liabilities2,398 (3,817)
Construction assets3,960 2,493 
Construction liabilities10,777 (16,859)
Interest receivable(4,188)(3,709)
Net cash provided by operating activities46,486 13,055 
INVESTING ACTIVITIES  
Development of real estate investments(11,955)(15,264)
Tenant and building improvements(11,546)(7,314)
Notes receivable issuances(11,175)(6,699)
Receipts on off-market interest rate derivatives7,500  
Leasing costs(3,611)(950)
Leasing incentives (20)
Contributions to equity method investments(10,159)(21,097)
Net cash used for investing activities(40,946)(51,344)
FINANCING ACTIVITIES  
Proceeds from issuance of common stock, net of issuance cost(10)(149)
Common shares tendered for tax withholding(980)(1,105)
Debt issuances, credit facility, and construction loan borrowings42,208 46,710 
Debt and credit facility repayments, including principal amortization(12,480)(2,417)
Debt issuance costs(8) 
Redemption of operating partnership units(118) 
Distributions to noncontrolling interests(336)(506)
Dividends and distributions(20,121)(19,673)
Net cash provided by financing activities8,155 22,860 
Net increase (decrease) in cash, cash equivalents, and restricted cash13,695 (15,429)
Cash, cash equivalents, and restricted cash, beginning of period30,166 51,865 
Cash, cash equivalents, and restricted cash, end of period (1)
$43,861 $36,436 
See Notes to Condensed Consolidated Financial Statements.
5


ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)(Unaudited)
Three Months Ended 
March 31,
20242023
Supplemental Disclosures (noncash transactions):
Increase in dividends and distributions payable$949 $38 
Decrease in accrued capital improvements and development costs(2,876)(3,683)
Operating Partnership units redeemed for common shares(22) 
Acquisitions of noncontrolling interests 12,834 

(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):
 March 31, 2024March 31, 2023
Cash and cash equivalents$41,934 $33,817 
Restricted cash (a)
1,927 2,619 
Cash, cash equivalents, and restricted cash$43,861 $36,436 
(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.

6


ARMADA HOFFLER PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 
1. Business of Organization
 
Armada Hoffler Properties, Inc. (the "Company") is a vertically integrated, self-managed real estate investment trust ("REIT") with over four decades of experience developing, building, acquiring, and managing high-quality retail, office, and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. In addition to the ownership of the Company's operating property portfolio, the Company develops and builds properties for its own account and through joint ventures between the Company and unaffiliated partners and also invests in development projects through real estate financing arrangements. The Company also provides general construction and development services to third-party clients. The Company's construction and development experience includes mid- and high-rise office buildings, retail strip malls, retail power centers, multifamily apartment communities, hotels and conference centers, single- and multi-tenant industrial, distribution, and manufacturing facilities, educational, medical, and special purpose facilities, government projects, parking garages, and mixed-use town centers.

The Company is the sole general partner of Armada Hoffler, L.P. (the "Operating Partnership") and, as of March 31, 2024, owned 75.5% of the economic interest in the Operating Partnership, of which 0.1% is held as general partnership units. The operations of the Company are conducted primarily through the Operating Partnership and the wholly owned subsidiaries thereof.
 
As of March 31, 2024, the Company's operating portfolio consisted of the following properties:
PropertyLocationOwnership Interest
Retail
Town Center of Virginia Beach
249 Central Park Retail*Virginia Beach, Virginia100 %
4525 Main Street Retail* (1)
Virginia Beach, Virginia100 %
4621 Columbus Retail* (2)
Virginia Beach, Virginia100 %
Columbus Village*Virginia Beach, Virginia100 %
Commerce Street Retail*Virginia Beach, Virginia100 %
Fountain Plaza Retail*Virginia Beach, Virginia100 %
Pembroke Square*Virginia Beach, Virginia100 %
Premier Retail*Virginia Beach, Virginia100 %
South Retail*Virginia Beach, Virginia100 %
Studio 56 Retail*Virginia Beach, Virginia100 %
The Cosmopolitan Retail* (3)
Virginia Beach, Virginia100 %
Two Columbus Retail* (1)
Virginia Beach, Virginia100 %
West Retail* (1)
Virginia Beach, Virginia100 %
Grocery Anchored
Broad Creek Shopping CenterNorfolk, Virginia100 %
Broadmoor PlazaSouth Bend, Indiana100 %
Brooks Crossing Retail*Newport News, Virginia65 %
(4)
Delray Beach Plaza*Delray Beach, Florida100 %
Greenbrier SquareChesapeake, Virginia100 %
Greentree Shopping CenterChesapeake, Virginia100 %
Hanbury VillageChesapeake, Virginia100 %
Lexington SquareLexington, South Carolina100 %
Market at Mill CreekMount Pleasant, South Carolina100 %
North Pointe CenterDurham, North Carolina100 %
Parkway CentreMoultrie, Georgia100 %
7


Parkway MarketplaceVirginia Beach, Virginia100 %
Perry Hall MarketplacePerry Hall, Maryland100 %
Sandbridge CommonsVirginia Beach, Virginia100 %
Tyre Neck Harris TeeterPortsmouth, Virginia100 %
Harbor Point - Baltimore Waterfront
Constellation Retail* (1)
Baltimore, Maryland90 %
Point Street Retail* (3)
Baltimore, Maryland100 %
Southeast Sunbelt
Chronicle Mill Retail* (3)
Belmont, North Carolina85 %
(4)
Nexton Square*Summerville, South Carolina100 %
North Hampton MarketTaylors, South Carolina100 %
One City Center Retail* (1)
Durham, North Carolina100 %
Overlook VillageAsheville, North Carolina100 %
Patterson PlaceDurham, North Carolina100 %
Providence Plaza Retail*Charlotte, North Carolina100 %
South SquareDurham, North Carolina100 %
The Interlock Retail*Atlanta, Georgia100 %
Wendover VillageGreensboro, North Carolina100 %
Mid-Atlantic
Dimmock SquareColonial Heights, Virginia100 %
Harrisonburg RegalHarrisonburg, Virginia100 %
Liberty Retail* (3)
Newport News, Virginia100 %
Marketplace at HilltopVirginia Beach, Virginia100 %
Red Mill CommonsVirginia Beach, Virginia100 %
Southgate SquareColonial Heights, Virginia100 %
Southshore ShopsChesterfield, Virginia100 %
The Edison Retail* (3)
Richmond, Virginia100 %
Office
Town Center of Virginia Beach
249 Central Park Office* (5)
Virginia Beach, Virginia100 %
4525 Main Street*Virginia Beach, Virginia100 %
4605 Columbus Office* (5)
Virginia Beach, Virginia100 %
Armada Hoffler Tower*Virginia Beach, Virginia100 %
One Columbus*Virginia Beach, Virginia100 %
Two Columbus Office*Virginia Beach, Virginia100 %
Harbor Point - Baltimore Waterfront
Constellation Office*Baltimore, Maryland90 %
Thames Street Wharf*Baltimore, Maryland100 %
Wills Wharf*Baltimore, Maryland100 %
Southeast Sunbelt
Chronicle Mill Office* (3)
Belmont, North Carolina85 %
(4)
One City Center Office*Durham, North Carolina100 %
Providence Plaza Office* (5)
Charlotte, North Carolina100 %
The Interlock Office*Atlanta, Georgia100 %
Mid-Atlantic
Brooks Crossing Office* (5)
Newport News, Virginia65 %
(4)
8


Multifamily
Town Center of Virginia Beach
Encore Apartments*Virginia Beach, Virginia100 %
Premier Apartments*Virginia Beach, Virginia100 %
The Cosmopolitan*Virginia Beach, Virginia100 %
Harbor Point - Baltimore Waterfront
1305 Dock Street*Baltimore, Maryland90 %
1405 Point*Baltimore, Maryland100 %
Southeast Sunbelt
Chronicle Mill*Belmont, North Carolina85 %
(4)
Greenside ApartmentsCharlotte, North Carolina100 %
The Everly*
Gainesville, Georgia100 %
Mid-Atlantic
The Edison*Richmond, Virginia100 %
Liberty Apartments*Newport News, Virginia100 %
Smith's LandingBlacksburg, Virginia100 %
________________________________________
*Located in a mixed-use development.
(1) Formerly reported in the office real estate segment. Refer to Note 3 for further information.
(2) Formerly known as Apex Entertainment.
(3) Formerly reported in the multifamily real estate segment. Refer to Note 3 for further information.
(4) We are entitled to a preferred return on our investment in this property.
(5) Formerly reported in the retail real estate segment. Refer to Note 3 for further information.

As of March 31, 2024, the following properties were under development or redevelopment: 
Development, Not Delivered SegmentLocationOwnership Interest
Southern PostMixed-useRoswell, Georgia100 %
Redevelopment
Segment
Location
Ownership Interest
Columbus Village IIRetailVirginia Beach, VA100 %


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 subsidiaries. The Company’s subsidiaries include the Operating Partnership and the subsidiaries that are wholly owned or in which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity ("VIE") in accordance with the 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.

9


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, 2023.
 
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.

Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted:

Segment Reporting

In November 2023, the FASB issued ASU 2023-07 as an update to ASC Topic 280, which will be effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 requires an entity to disclose significant segment expenses regularly provided to the chief operating decision maker, a description of "other segment items," and the title and position of the chief operating decision maker, and allows for more than one measure of a segment's profit or loss if used by the chief operating decision maker. The update also enhances interim disclosure requirements and requirements for entities with a single reportable segment. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements.

Income Taxes

In December 2023, the FASB issued ASU 2023-09 as an update to ASC Topic 740, which will become effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 enhances the disclosures surrounding income taxes, specifically in relation to the rate reconciliation table and income taxes paid. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.

Other Accounting Policies

See the Company's Annual Report on Form 10-K for the year ended December 31, 2023 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 for the composition of properties within each property segment.

Net operating income ("NOI") is the primary measure used by the Company’s chief operating decision-maker to assess segment performance. NOI 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, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. The Company considers NOI 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 real estate financing businesses.
10



Since the Company's Annual Report on Form 10-K for the year ended December 31, 2023, the Company retrospectively reclassified certain components of mixed-use properties between the retail, office, and multifamily real estate segments in order to align the components of those properties with their tenant composition. As a result, NOI for the three months ended March 31, 2023 increased $0.4 million and less than $0.1 million for the retail and office real estate segments, respectively, and decreased $0.4 million for the multifamily real estate segment. These reclassifications had no effect on total property NOI as previously reported. These reclassifications also had no impact on our general contracting and real estate services or real estate financing segments.

The following table presents NOI for the Company's five reportable segments for the three months ended March 31, 2024 and 2023 (in thousands):
Three Months Ended March 31,
20242023
Retail real estate
Rental revenues$25,651 $22,959 
Rental expenses4,211 3,644 
Real estate taxes2,415 2,268 
Segment net operating income19,025 17,047 
Office real estate
Rental revenues21,878 19,657 
Rental expenses6,123 5,159 
Real estate taxes2,215 2,085 
Segment net operating income13,540 12,413 
Multifamily real estate
Rental revenues14,352 13,602 
Rental expenses4,271 4,157 
Real estate taxes1,295 1,059 
Segment net operating income8,786 8,386 
General contracting and real estate services
General contracting and real estate services revenues126,975 84,238 
General contracting and real estate services expenses122,898 81,170 
Segment gross profit4,077 3,068 
Real estate financing
Interest income4,000 3,536 
Interest expense(a)
1,332 1,097 
Segment gross profit2,668 2,439 
Net operating income$48,096 $43,353 
________________________________________
(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 rates on the credit facility, the M&T term loan facility, and the TD term loan facility, each as defined in Note 9.

11


The following table reconciles NOI to net income, the most directly comparable GAAP measure, for the three months ended March 31, 2024 and 2023 (in thousands):
Three Months Ended March 31,
20242023
Net operating income$48,096 $43,353 
Interest income(a)
626 183 
Depreciation and amortization(20,435)(18,468)
Amortization of right-of-use assets - finance leases(395)(277)
General and administrative expenses(5,874)(5,448)
Impairment charges (102)
Interest expense(b)
(16,643)(11,205)
Change in fair value of derivatives and other12,888 (2,447)
Unrealized credit loss provision(83)(77)
Other income (expense), net79 93 
Income tax provision(534)(188)
Net income$17,725 $5,417 
________________________________________
(a) Excludes real estate financing segment interest income of $4.0 million and $3.5 million for the three months ended March 31, 2024 and 2023, respectively.
(b) Excludes real estate financing segment interest expense of $1.3 million and $1.1 million for the three months ended March 31, 2024 and 2023, 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 and expenses for the three months ended March 31, 2024 exclude revenues and expenses related to intercompany construction contracts of $8.4 million and $8.3 million, respectively, which are eliminated in consolidation. General contracting and real estate services expenses for the three months ended March 31, 2023 exclude revenues and expenses related to intercompany construction contracts of $13.7 million and $13.5 million, respectively, which are eliminated in consolidation.
 
Depreciation and amortization expense for the three months ended March 31, 2024 was $8.5 million, $8.0 million, and $3.7 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the three months ended March 31, 2023 was $8.2 million, $7.0 million, and $3.2 million for the retail, office, and multifamily real estate segments, respectively.

General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties, 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 March 31, 2024 was $2.8 million, $3.2 million, and $3.6 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the three months ended March 31, 2023 was $2.4 million, $2.2 million, and $2.4 million for the retail, office, and multifamily real estate segments, respectively.

As of March 31, 2024, the net carrying amount of consolidated real estate investments was $685.7 million, $625.9 million, and $394.4 million for the retail, office, and multifamily real estate segments, respectively, which excludes $102.1 million attributable to our mixed-use development project, Southern Post. Assets attributable to the general contracting and real estate services segment are presented in Note 8 of these financial statements. Assets attributable to the real estate financing segment are presented in Note 7 of these financial statements.

12


4. Leases

Lessee Disclosures

As a lessee, the Company has nine ground leases on nine 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 four 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 months ended March 31, 2024 and 2023 comprised the following (in thousands):
Three Months Ended March 31,
 20242023
Base rent and tenant charges$60,183 $54,471 
Accrued straight-line rental adjustment1,300 1,455 
Lease incentive amortization(119)(165)
(Above) below market lease amortization, net517 457 
Total rental revenue$61,881 $56,218 

5. Real Estate Investments

The Company did not acquire or dispose of any properties during the three months ended March 31, 2024.

6. 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 three months ended March 31, 2024, the Company invested $0.7 million in Harbor Point Parcel 3. The Company has an estimated equity commitment of up to $47.0 million relating to this project. As of March 31, 2024 and December 31, 2023, the carrying value of the Company's investment in Harbor Point Parcel 3 was $41.4 million and $40.7 million, respectively, which excludes $2.3 million and $2.2 million, respectively, of intra-entity profits eliminated in consolidation. For the three months ended March 31, 2024 and 2023, Harbor Point Parcel 3 had no operating activity; 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 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
13


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 three months ended March 31, 2024, the Company invested $9.5 million in Harbor Point Parcel 4. The Company has an estimated equity commitment of up to $113.3 million relating to this project. As of March 31, 2024 and December 31, 2023, the carrying value of the Company's investment in Harbor Point Parcel 4 was $110.7 million and $101.3 million, respectively, which excludes $1.0 million and $0.8 million, respectively, of intra-entity profits eliminated in consolidation. For the three months ended March 31, 2024, Harbor Point Parcel 4 had no operating activity; 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 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.


7. Notes Receivable and Current Expected Credit Losses

Notes Receivable

The Company had the following notes receivable outstanding as of March 31, 2024 and December 31, 2023 ($ in thousands):
Outstanding loan amountInterest compounding
March 31,
2024
December 31,
2023
Real Estate Financing Project
Principal
Accrued interest and fees
Total loan amount
Total loan amount
Maximum principal commitmentInterest rate
Solis City Park II$20,594 $4,466 $25,060 
(a)
$24,313 
(a)
$20,594 13.0 %Annually
Solis Gainesville II19,595 3,460 23,055 
(a)
22,268 
(a)
19,595 14.0 %
(b)
Annually
Solis Kennesaw23,067 3,478 26,545 
(a)
15,922 
(a)
37,870 14.0 %
(b)
Annually
Solis Peachtree Corners11,832 1,936 13,768 
(a)
11,092 
(a)
28,440 15.0 %
(b)
Annually
The Allure at Edinburgh9,228 947 10,175 
(a)
9,830 
(a)
9,228 15.0 %
(c)
None
Total mezzanine & preferred equity$84,316 $14,287 98,603 83,425 $115,727 
Other notes receivable12,404 
(a)
12,219 
(a)
Allowance for credit losses(d)
(1,725)

(1,472)
Total notes receivable$109,282 $94,172 
________________________________________
(a) Outstanding loan amounts include any accrued and unpaid interest, and accrued fees, as applicable.
(b) The interest rate varies over the life of the loans and the Company also earns an unused commitment fee on amounts not drawn on the loans.
(c) The interest rate varies over the life of the loan.
(d) The amounts as of March 31, 2024 and December 31, 2023 exclude $0.6 million and $0.7 million, respectively, of Current Expected Credit Losses (“CECL”) allowance that relates to the unfunded commitments, which were recorded as a liability under other liabilities in the consolidated balance sheets.

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Interest on the notes receivable is accrued and funded utilizing the interest reserves for each loan and such accrued interest is generally added to the loan receivable balances. The Company recognized interest income for the three months ended March 31, 2024 and 2023 as follows (in thousands):
Three Months Ended March 31,
Real Estate Financing Project
20242023
Solis City Park II747 
(a)
670 
(a)
Solis Gainesville II786 
(a)(b)
593 
(a)(b)
Solis Kennesaw1,236 
(a)(b)
 
Solis Peachtree Corners887 
(a)(b)
 
The Allure at Edinburgh344  
The Interlock(c)
 2,273 
(a)
Total mezzanine & preferred equity4,000 3,536 
Other interest income626 183 
Total interest income$4,626 $3,719 
________________________________________
(a) Includes recognition of interest income related to fee amortization.
(b) Includes recognition of unused commitment fees.
(c) This note receivable was redeemed on May 19, 2023 in connection with the Company’s acquisition of The Interlock.

Allowance for Loan Losses

The Company is exposed to credit losses primarily through its real estate financing investments. As of March 31, 2024, the Company had five real estate financing investments, 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 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
subordinated and senior 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 non-accrual status if it does not believe that additional interest accruals will ultimately be collected.

The Company updated the risk ratings for each of its notes receivable as of March 31, 2024 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of March 31, 2024 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $2.3 million as of March 31, 2024, of which an allowance related to unfunded commitments of approximately $0.6 million as of March 31, 2024 was recorded as Other liabilities on the consolidated balance sheet.
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At March 31, 2024, the Company reported $109.3 million of notes receivable, net of allowances of $1.7 million. At December 31, 2023, the Company reported $94.2 million of notes receivable, net of allowances of $1.5 million. Changes in the allowance for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
Three Months Ended March 31, 2024Three Months Ended March 31, 2023
 FundedUnfundedTotalFundedUnfundedTotal
Beginning balance $1,472 $732 $2,204 $1,292 $338 $1,630 
Unrealized credit loss provision (release)253 (170)83 203 (140)63 
Ending balance$1,725 $562 $2,287 $1,495 $198 $1,693 

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 March 31, 2024, there were no loans on non-accrual status.

8. Construction Contracts

Construction contract costs and estimated earnings in excess of billings represent reimbursable costs and amounts earned under contracts in progress as of the balance sheet date. Such amounts become billable according to contract terms, which usually consider the passage of time, achievement of certain milestones, or completion of the project. The Company expects to bill and collect substantially all construction contract costs and estimated earnings in excess of billings as of March 31, 2024 during the next 12 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 three months ended March 31, 2024 and 2023 (in thousands):
Three Months Ended 
March 31, 2024
Three Months Ended 
March 31, 2023
Construction contract costs and estimated earnings in excess of billingsBillings in excess of construction contract costs and estimated earningsConstruction contract costs and estimated earnings in excess of billingsBillings in excess of construction contract costs and estimated earnings
Beginning balance$104 $21,414 $342 $17,515 
Revenue recognized that was included in the balance at the beginning of the period— (21,414)— (17,515)
Increases due to new billings, excluding amounts recognized as revenue during the period— 22,493 — 17,150 
Transferred to receivables(107)— (347)— 
Construction contract costs and estimated earnings not billed during the period26 — 1,206 — 
Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion3 (765)5 (414)
Ending balance$26 $21,728 $1,206 $16,736 

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 $2.1 million and $1.9 million were deferred as of March 31, 2024 and December 31, 2023, respectively. Amortization of pre-contract costs for the three months ended March 31, 2024 and 2023 was $0.2 million and $0.3 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 March 31, 2024 and December 31, 2023, construction receivables included retentions of $31.1 million and $28.7 million, respectively. The Company expects to collect substantially all construction receivables outstanding as of March 31, 2024 during the next 12 to 24 months. As of March 31, 2024 and December 31, 2023, construction payables included
16


retentions of $40.7 million and $38.2 million, respectively. The Company expects to pay substantially all construction payables outstanding as of March 31, 2024 during the next 12 to 24 months.

The Company’s net position on uncompleted construction contracts comprised the following as of March 31, 2024 and December 31, 2023 (in thousands):
 March 31, 2024December 31, 2023
Costs incurred on uncompleted construction contracts$707,665 $718,571 
Es