AH Realty Trust, Inc 10-Q for FY2024 Q1
AH Realty Trust, Inc. (AHRT)
10-Q
2024-05-10
For: 2024-03-31
View Original
Added on
April 05, 2026
About this 10-Q
AH Realty Trust, Inc filed this 10-Q on May 10, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $193.48M
- up 34.2% from $144.18M a year earlier
- Net income
- $14.07M
- up 198.9% from net income of $4.71M a year earlier
- Diluted EPS
- $0.17
- up 466.7% from $0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM | |||||
For the quarterly period ended March 31, 2024
or
For the transition period from to
Commission File Number: 001-35908
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| , | ||||||||||||||
| , | ||||||||||||||
| (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 | ||||||||||||
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.
☒ | 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 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 | $ | $ | ||||||||||||
| Held for development | ||||||||||||||
| Construction in progress | ||||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| Net real estate investments | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Notes receivable, net | ||||||||||||||
| Construction receivables, including retentions, net | ||||||||||||||
| Construction contract costs and estimated earnings in excess of billings | ||||||||||||||
| Equity method investments | ||||||||||||||
| Operating lease right-of-use assets | ||||||||||||||
| Finance lease right-of-use assets | ||||||||||||||
| Acquired lease intangible assets | ||||||||||||||
| Other assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Indebtedness, net | $ | $ | ||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Construction payables, including retentions | ||||||||||||||
| Billings in excess of construction contract costs and estimated earnings | ||||||||||||||
| Operating lease liabilities | ||||||||||||||
| Finance lease liabilities | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total Liabilities | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Preferred stock, $ December 31, 2023 | ||||||||||||||
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 | ||||||||||||||
| Total Liabilities and Equity | $ | $ | ||||||||||||
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, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Rental revenues | $ | $ | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||
| Rental expenses | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| General contracting and real estate services expenses | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Amortization of right-of-use assets - finance leases | ||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||
| Impairment charges | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Change in fair value of derivatives and other | ( | |||||||||||||||||||||||||
| Unrealized credit loss provision | ( | ( | ||||||||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||||
| Income before taxes | ||||||||||||||||||||||||||
| Income tax provision | ( | ( | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests: | ||||||||||||||||||||||||||
| Investment entities | ( | ( | ||||||||||||||||||||||||
| Operating Partnership | ( | ( | ||||||||||||||||||||||||
| Net income attributable to Armada Hoffler Properties, Inc. | ||||||||||||||||||||||||||
| Preferred stock dividends | ( | ( | ||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | ||||||||||||||||||||||||
| Net income attributable to common stockholders per share (basic and diluted) | $ | $ | ||||||||||||||||||||||||
| Weighted-average common shares outstanding (basic and diluted) | ||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Unrealized cash flow hedge gains (losses) | ( | |||||||||||||||||||||||||
| Realized cash flow hedge gains reclassified to net income | ( | ( | ||||||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests: | ||||||||||||||||||||||||||
| Investment entities | ( | |||||||||||||||||||||||||
| Operating Partnership | ( | |||||||||||||||||||||||||
| Comprehensive income attributable to Armada Hoffler Properties, Inc. | $ | $ | ||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
2
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 income | Total stockholders' equity | Noncontrolling interests in investment entities | Noncontrolling interests in Operating Partnership | Total equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized cash flow hedge gains | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Realized cash flow hedge gains reclassified to net income | — | — | — | — | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net proceeds from issuance of common stock | — | — | ( | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of operating partnership units | — | — | ( | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on preferred stock | — | — | — | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends and distributions declared on common shares and units ($ | — | — | — | ( | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
3
| 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 | $ | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized cash flow hedge (losses) gains | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Realized cash flow hedge gains reclassified to net income | — | — | — | — | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net proceeds from issuance of common stock | — | — | ( | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards, net | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions of noncontrolling interests | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to joint venture partner | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on preferred stock | — | — | — | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends and distributions declared on common shares and units ($ | — | — | — | ( | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
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, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation of buildings and tenant improvements | ||||||||||||||
| Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases | ||||||||||||||
| Accrued straight-line rental revenue | ( | ( | ||||||||||||
| Amortization of leasing incentives and above or below-market rents | ( | ( | ||||||||||||
| Amortization of right-of-use assets - finance leases | ||||||||||||||
| Accrued straight-line ground rent expense | ||||||||||||||
| Unrealized credit loss provision | ||||||||||||||
| Adjustment for uncollectable lease accounts | ||||||||||||||
| Noncash stock compensation | ||||||||||||||
| Impairment charges | ||||||||||||||
| Noncash interest expense | ||||||||||||||
| Change in fair value of derivatives and other | ( | |||||||||||||
| Adjustment for receipts on off-market interest rate derivatives | ( | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Property assets | ||||||||||||||
| Property liabilities | ( | |||||||||||||
| Construction assets | ||||||||||||||
| Construction liabilities | ( | |||||||||||||
| Interest receivable | ( | ( | ||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Development of real estate investments | ( | ( | ||||||||||||
| Tenant and building improvements | ( | ( | ||||||||||||
| Notes receivable issuances | ( | ( | ||||||||||||
| Receipts on off-market interest rate derivatives | ||||||||||||||
| Leasing costs | ( | ( | ||||||||||||
| Leasing incentives | ( | |||||||||||||
| Contributions to equity method investments | ( | ( | ||||||||||||
| Net cash used for investing activities | ( | ( | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from issuance of common stock, net of issuance cost | ( | ( | ||||||||||||
| Common shares tendered for tax withholding | ( | ( | ||||||||||||
| Debt issuances, credit facility, and construction loan borrowings | ||||||||||||||
| Debt and credit facility repayments, including principal amortization | ( | ( | ||||||||||||
| Debt issuance costs | ( | |||||||||||||
| Redemption of operating partnership units | ( | |||||||||||||
| Distributions to noncontrolling interests | ( | ( | ||||||||||||
| Dividends and distributions | ( | ( | ||||||||||||
| Net cash provided by financing activities | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | |||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | ||||||||||||||
Cash, cash equivalents, and restricted cash, end of period (1) | $ | $ | ||||||||||||
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, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Supplemental Disclosures (noncash transactions): | ||||||||||||||
| Increase in dividends and distributions payable | $ | $ | ||||||||||||
| Decrease in accrued capital improvements and development costs | ( | ( | ||||||||||||
| Operating Partnership units redeemed for common shares | ( | |||||||||||||
| Acquisitions of noncontrolling interests | ||||||||||||||
(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, 2024 | March 31, 2023 | |||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||
Restricted cash (a) | ||||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | ||||||||||||||||||
(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:
| Property | Location | Ownership Interest | |||||||||||||||||||||
| Retail | |||||||||||||||||||||||
| Town Center of Virginia Beach | |||||||||||||||||||||||
| 249 Central Park Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
4525 Main Street Retail* (1) | Virginia Beach, Virginia | % | |||||||||||||||||||||
4621 Columbus Retail* (2) | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Columbus Village* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Commerce Street Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Fountain Plaza Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Pembroke Square* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Premier Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| South Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Studio 56 Retail* | Virginia Beach, Virginia | % | |||||||||||||||||||||
The Cosmopolitan Retail* (3) | Virginia Beach, Virginia | % | |||||||||||||||||||||
Two Columbus Retail* (1) | Virginia Beach, Virginia | % | |||||||||||||||||||||
West Retail* (1) | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Grocery Anchored | |||||||||||||||||||||||
| Broad Creek Shopping Center | Norfolk, Virginia | % | |||||||||||||||||||||
| Broadmoor Plaza | South Bend, Indiana | % | |||||||||||||||||||||
| Brooks Crossing Retail* | Newport News, Virginia | % | (4) | ||||||||||||||||||||
| Delray Beach Plaza* | Delray Beach, Florida | % | |||||||||||||||||||||
| Greenbrier Square | Chesapeake, Virginia | % | |||||||||||||||||||||
| Greentree Shopping Center | Chesapeake, Virginia | % | |||||||||||||||||||||
| Hanbury Village | Chesapeake, Virginia | % | |||||||||||||||||||||
| Lexington Square | Lexington, South Carolina | % | |||||||||||||||||||||
| Market at Mill Creek | Mount Pleasant, South Carolina | % | |||||||||||||||||||||
| North Pointe Center | Durham, North Carolina | % | |||||||||||||||||||||
| Parkway Centre | Moultrie, Georgia | % | |||||||||||||||||||||
7
| Parkway Marketplace | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Perry Hall Marketplace | Perry Hall, Maryland | % | |||||||||||||||||||||
| Sandbridge Commons | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Tyre Neck Harris Teeter | Portsmouth, Virginia | % | |||||||||||||||||||||
| Harbor Point - Baltimore Waterfront | |||||||||||||||||||||||
Constellation Retail* (1) | Baltimore, Maryland | % | |||||||||||||||||||||
Point Street Retail* (3) | Baltimore, Maryland | % | |||||||||||||||||||||
| Southeast Sunbelt | |||||||||||||||||||||||
Chronicle Mill Retail* (3) | Belmont, North Carolina | % | (4) | ||||||||||||||||||||
| Nexton Square* | Summerville, South Carolina | % | |||||||||||||||||||||
| North Hampton Market | Taylors, South Carolina | % | |||||||||||||||||||||
One City Center Retail* (1) | Durham, North Carolina | % | |||||||||||||||||||||
| Overlook Village | Asheville, North Carolina | % | |||||||||||||||||||||
| Patterson Place | Durham, North Carolina | % | |||||||||||||||||||||
| Providence Plaza Retail* | Charlotte, North Carolina | % | |||||||||||||||||||||
| South Square | Durham, North Carolina | % | |||||||||||||||||||||
| The Interlock Retail* | Atlanta, Georgia | % | |||||||||||||||||||||
| Wendover Village | Greensboro, North Carolina | % | |||||||||||||||||||||
| Mid-Atlantic | |||||||||||||||||||||||
| Dimmock Square | Colonial Heights, Virginia | % | |||||||||||||||||||||
| Harrisonburg Regal | Harrisonburg, Virginia | % | |||||||||||||||||||||
Liberty Retail* (3) | Newport News, Virginia | % | |||||||||||||||||||||
| Marketplace at Hilltop | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Red Mill Commons | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Southgate Square | Colonial Heights, Virginia | % | |||||||||||||||||||||
| Southshore Shops | Chesterfield, Virginia | % | |||||||||||||||||||||
The Edison Retail* (3) | Richmond, Virginia | % | |||||||||||||||||||||
| Office | |||||||||||||||||||||||
| Town Center of Virginia Beach | |||||||||||||||||||||||
249 Central Park Office* (5) | Virginia Beach, Virginia | % | |||||||||||||||||||||
| 4525 Main Street* | Virginia Beach, Virginia | % | |||||||||||||||||||||
4605 Columbus Office* (5) | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Armada Hoffler Tower* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| One Columbus* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Two Columbus Office* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Harbor Point - Baltimore Waterfront | |||||||||||||||||||||||
| Constellation Office* | Baltimore, Maryland | % | |||||||||||||||||||||
| Thames Street Wharf* | Baltimore, Maryland | % | |||||||||||||||||||||
| Wills Wharf* | Baltimore, Maryland | % | |||||||||||||||||||||
| Southeast Sunbelt | |||||||||||||||||||||||
Chronicle Mill Office* (3) | Belmont, North Carolina | % | (4) | ||||||||||||||||||||
| One City Center Office* | Durham, North Carolina | % | |||||||||||||||||||||
Providence Plaza Office* (5) | Charlotte, North Carolina | % | |||||||||||||||||||||
| The Interlock Office* | Atlanta, Georgia | % | |||||||||||||||||||||
| Mid-Atlantic | |||||||||||||||||||||||
Brooks Crossing Office* (5) | Newport News, Virginia | % | (4) | ||||||||||||||||||||
8
| Multifamily | |||||||||||||||||||||||
| Town Center of Virginia Beach | |||||||||||||||||||||||
| Encore Apartments* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Premier Apartments* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| The Cosmopolitan* | Virginia Beach, Virginia | % | |||||||||||||||||||||
| Harbor Point - Baltimore Waterfront | |||||||||||||||||||||||
| 1305 Dock Street* | Baltimore, Maryland | % | |||||||||||||||||||||
| 1405 Point* | Baltimore, Maryland | % | |||||||||||||||||||||
| Southeast Sunbelt | |||||||||||||||||||||||
| Chronicle Mill* | Belmont, North Carolina | % | (4) | ||||||||||||||||||||
| Greenside Apartments | Charlotte, North Carolina | % | |||||||||||||||||||||
The Everly* | Gainesville, Georgia | % | |||||||||||||||||||||
| Mid-Atlantic | |||||||||||||||||||||||
| The Edison* | Richmond, Virginia | % | |||||||||||||||||||||
| Liberty Apartments* | Newport News, Virginia | % | |||||||||||||||||||||
| Smith's Landing | Blacksburg, Virginia | % | |||||||||||||||||||||
________________________________________
*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 | Segment | Location | Ownership Interest | ||||||||||||||||||||
| Southern Post | Mixed-use | Roswell, Georgia | % | ||||||||||||||||||||
| Redevelopment | Segment | Location | Ownership Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Columbus Village II | Retail | Virginia Beach, VA | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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.
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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, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Retail real estate | ||||||||||||||||||||||||||
| Rental revenues | $ | $ | ||||||||||||||||||||||||
| Rental expenses | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| Segment net operating income | ||||||||||||||||||||||||||
| Office real estate | ||||||||||||||||||||||||||
| Rental revenues | ||||||||||||||||||||||||||
| Rental expenses | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| Segment net operating income | ||||||||||||||||||||||||||
| Multifamily real estate | ||||||||||||||||||||||||||
| Rental revenues | ||||||||||||||||||||||||||
| Rental expenses | ||||||||||||||||||||||||||
| Real estate taxes | ||||||||||||||||||||||||||
| Segment net operating income | ||||||||||||||||||||||||||
| General contracting and real estate services | ||||||||||||||||||||||||||
| General contracting and real estate services revenues | ||||||||||||||||||||||||||
| General contracting and real estate services expenses | ||||||||||||||||||||||||||
| Segment gross profit | ||||||||||||||||||||||||||
| Real estate financing | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
Interest expense(a) | ||||||||||||||||||||||||||
| Segment gross profit | ||||||||||||||||||||||||||
| Net operating income | $ | $ | ||||||||||||||||||||||||
________________________________________
(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.
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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, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Net operating income | $ | $ | ||||||||||||||||||||||||
Interest income(a) | ||||||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ||||||||||||||||||||||||
| Amortization of right-of-use assets - finance leases | ( | ( | ||||||||||||||||||||||||
| General and administrative expenses | ( | ( | ||||||||||||||||||||||||
| Impairment charges | ( | |||||||||||||||||||||||||
Interest expense(b) | ( | ( | ||||||||||||||||||||||||
| Change in fair value of derivatives and other | ( | |||||||||||||||||||||||||
| Unrealized credit loss provision | ( | ( | ||||||||||||||||||||||||
| Other income (expense), net | ||||||||||||||||||||||||||
| Income tax provision | ( | ( | ||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
________________________________________
(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.
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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 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, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Base rent and tenant charges | $ | $ | ||||||||||||||||||||||||
| Accrued straight-line rental adjustment | ||||||||||||||||||||||||||
| Lease incentive amortization | ( | ( | ||||||||||||||||||||||||
| (Above) below market lease amortization, net | ||||||||||||||||||||||||||
| Total rental revenue | $ | $ | ||||||||||||||||||||||||
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 amount | Interest compounding | |||||||||||||||||||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||
Real Estate Financing Project | Principal | Accrued interest and fees | Total loan amount | Total loan amount | Maximum principal commitment | Interest rate | ||||||||||||||||||||||||||||||||||||||
| Solis City Park II | $ | $ | $ | (a) | $ | (a) | $ | % | Annually | |||||||||||||||||||||||||||||||||||
| Solis Gainesville II | (a) | (a) | % | (b) | Annually | |||||||||||||||||||||||||||||||||||||||
| Solis Kennesaw | (a) | (a) | % | (b) | Annually | |||||||||||||||||||||||||||||||||||||||
| Solis Peachtree Corners | (a) | (a) | % | (b) | Annually | |||||||||||||||||||||||||||||||||||||||
| The Allure at Edinburgh | (a) | (a) | % | (c) | None | |||||||||||||||||||||||||||||||||||||||
| Total mezzanine & preferred equity | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| Other notes receivable | (a) | (a) | ||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses(d) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Total notes receivable | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
________________________________________
(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.
14
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 | 2024 | 2023 | |||||||||||||||||||||||||||
| Solis City Park II | (a) | (a) | |||||||||||||||||||||||||||
| Solis Gainesville II | (a)(b) | (a)(b) | |||||||||||||||||||||||||||
| Solis Kennesaw | (a)(b) | ||||||||||||||||||||||||||||
| Solis Peachtree Corners | (a)(b) | ||||||||||||||||||||||||||||
| The Allure at Edinburgh | |||||||||||||||||||||||||||||
The Interlock(c) | (a) | ||||||||||||||||||||||||||||
| Total mezzanine & preferred equity | |||||||||||||||||||||||||||||
| Other interest income | |||||||||||||||||||||||||||||
| Total interest income | $ | $ | |||||||||||||||||||||||||||
________________________________________
(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.
15
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, 2024 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Funded | Unfunded | Total | Funded | Unfunded | Total | |||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Unrealized credit loss provision (release) | ( | ( | ||||||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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 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 | $ | $ | $ | $ | ||||||||||||||||||||||
| Revenue recognized that was included in the balance at the beginning of the period | — | ( | — | ( | ||||||||||||||||||||||
| Increases due to new billings, excluding amounts recognized as revenue during the period | — | — | ||||||||||||||||||||||||
| Transferred to receivables | ( | — | ( | — | ||||||||||||||||||||||
| Construction contract costs and estimated earnings not billed during the period | — | — | ||||||||||||||||||||||||
| Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | ( | ( | ||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||||||||||||
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, 2024 | December 31, 2023 | ||||||||||
| Costs incurred on uncompleted construction contracts | $ | $ | |||||||||
| Estimated earnings | |||||||||||
| Billings | ( | ( | |||||||||
| Net position | $ | ( | $ | ( | |||||||
| Construction contract costs and estimated earnings in excess of billings | $ | $ | |||||||||
| Billings in excess of construction contract costs and estimated earnings | ( | ( | |||||||||
| Net position | $ | ( | $ | ( | |||||||
The above table reflects the net effect of projects closed as of March 31, 2024 and December 31, 2023, as applicable.
The Company’s balances and changes in construction contract price allocated to unsatisfied performance obligations (backlog) as of March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Beginning backlog | $ | $ | ||||||||||||||||||||||||
| New contracts/change orders | ( | |||||||||||||||||||||||||
| Work performed | ( | ( | ||||||||||||||||||||||||
| Ending backlog | $ | $ | ||||||||||||||||||||||||
The Company expects to complete a majority of the uncompleted contracts in place as of March 31, 2024 during the next 12 to 24 months.
9. Indebtedness
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 "credit facility"), with a syndicate of banks.
The 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 the 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 the 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
17
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., the Operating Partnership may elect to have borrowings become subject to interest rates based on such credit ratings.
As of March 31, 2024 and December 31, 2023, the outstanding balance on the revolving credit facility was $289.0 million and $267.0 million, respectively. The outstanding balance on the term loan facility was $300.0 6.93 % and 6.88 %, 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 4.10 % and 4.05 %, respectively, as of March 31, 2024. The Operating Partnership may, at any time, voluntarily prepay any loan under the credit facility in whole or in part without premium or penalty.
The Operating Partnership is the borrower, and its obligations under the 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 credit facility is subject to ongoing compliance with a number of financial covenants, affirmative covenants, and other restrictions. The Credit Agreement includes customary events of default, in certain cases subject to customary cure periods. The occurrence of an event of default, if not cured within the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest, and all other amounts payable under the credit facility to be immediately due and payable.
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 March 31, 2024 and December 31, 2023, the outstanding balance on the M&T term loan facility was $100.0 6.88 %. After giving effect to interest rate swaps, the effective interest rate on the M&T term loan facility was 5.05 % as of March 31, 2024. 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.
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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 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 each of March 31, 2024 and December 31, 2023, the outstanding balance on the TD term loan facility was $95.0 6.98 %. After giving effect to interest rate swaps, the effective interest rate on the TD term loan facility was 4.85 % as of March 31, 2024. 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 under the Credit Agreement, the M&T term loan agreement, and TD term loan agreement, all of which are substantially similar.
Other 2024 Financing Activity
During the three months ended March 31, 2024, the Company borrowed $10.9 million under its existing construction loans to fund ongoing development and construction.
10. 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 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.
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As of March 31, 2024, the Company held one interest rate cap corridor. The Company purchased a SOFR interest rate cap at 1.00 % and sold a SOFR interest rate cap at 3.00 %, resulting in a SOFR interest rate cap corridor of 1.00 % to 3.00 %, effective on September 1, 2022. This corridor is designated as a cash flow hedge. The intended goal of this corridor is to provide a level of protection from the effect of rising interest rates and reduce the all-in-cost of the derivative instrument. The Company paid a premium of $1.4 million to purchase the corridor. As of March 31, 2024, the notional amount was $73.6 million, which is the maximum notional amount. The corridor is scheduled to mature on September 1, 2024.
As of March 31, 2024, the Company held the following floating-to-fixed interest rate swaps ($ in thousands):
| Related Debt | Notional Amount | Index | Swap Fixed Rate | Debt effective rate | Effective Date | Expiration Date | |||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | $ | (a) | 1-month SOFR | % | % | 4/1/2020 | 4/1/2024 | ||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | (a) | 1-month SOFR | % | % | 4/1/2020 | 4/1/2024 | |||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | (a) | Daily SOFR | % | % | 4/1/2020 | 4/1/2024 | |||||||||||||||||||||||||||||||||||
| Harbor Point Parcel 3 senior construction loan | (b) | 1-month SOFR | % | % | 10/2/2023 | 10/1/2025 | |||||||||||||||||||||||||||||||||||
| Floating rate pool of loans | (c) | 1-month SOFR | % | % | 10/1/2023 | 10/1/2025 | |||||||||||||||||||||||||||||||||||
| Harbor Point Parcel 4 senior construction loan | (d) | 1-month SOFR | % | % | 11/1/2023 | 11/1/2025 | |||||||||||||||||||||||||||||||||||
| Floating rate pool of loans | (e) | 1-month SOFR | % | % | 12/1/2023 | 12/1/2025 | |||||||||||||||||||||||||||||||||||
Revolving credit facility and TD unsecured term loan | Daily SOFR | % | % | 5/19/2023 | 5/19/2026 | (f) | |||||||||||||||||||||||||||||||||||
| Thames Street Wharf | (a) | Daily SOFR | % | % | 9/30/2021 | 9/30/2026 | |||||||||||||||||||||||||||||||||||
| M&T unsecured term loan | (a) | 1-month SOFR | % | % | 12/6/2022 | 12/6/2027 | |||||||||||||||||||||||||||||||||||
Liberty Retail & Apartments | (g) | 1-month SOFR | % | % | 12/13/2022 | 1/21/2028 | |||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | (g) | 1-month SOFR | % | % | 12/13/2022 | 1/21/2028 | |||||||||||||||||||||||||||||||||||
| Total | $ | ||||||||||||||||||||||||||||||||||||||||
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(a) Designated as a cash flow hedge.
(b) 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 6. 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.
(c) The Company paid $13.3 million to reduce the swap fixed rate.
(d) This interest rate swap agreement reduces the Company's interest rate exposure on the $109.7 million senior construction loan secured by the Company's Harbor Point Parcel 4 equity method investment as described in Note 6. As such, the loan is not reflected on the Company's consolidated balance sheets. The Company also paid $3.9 million to reduce the swap fixed rate.
(e) The Company paid $10.5 million to reduce the swap fixed rate.
(f) Subject to cancellation by the counterparty beginning on May 1, 2025 and the first day of each month thereafter.
(g) The Company novated the existing 3.43 % fixed rate swap with a $100.0 million notional amount and assigned $21.0 million to the loan secured by Liberty Retail & Apartments, effective February 1, 2024.
For the interest rate swaps and caps designated as cash flow hedges, realized gains and losses are reclassified out of accumulated other comprehensive income to interest expense in the condensed consolidated statements of comprehensive income due to payments received from and paid to the counterparty. During the next 12 months, the Company anticipates recognizing approximately $4.2 million of net hedging gains as reductions to interest expense. These amounts will be reclassified from accumulated other comprehensive income into earnings to offset the variability of the hedged items during this period.
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The Company’s derivatives were comprised of the following as of March 31, 2024 and December 31, 2023 (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||||||||||||||||||||||||
| Asset | Liability | Asset | Liability | |||||||||||||||||||||||||||||||||||
| Derivatives not designated as accounting hedges | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Interest rate caps | ||||||||||||||||||||||||||||||||||||||
| Total derivatives not designated as accounting hedges | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as accounting hedges | ||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | ||||||||||||||||||||||||||||||||||||||
| Interest rate caps | ||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
The unrealized changes in the fair value of the Company’s derivatives during the three months ended March 31, 2024 and 2023 were comprised of the following (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| Interest rate swaps | $ | $ | ( | |||||||||||||||||||||||
| Interest rate caps | ( | |||||||||||||||||||||||||
Total unrealized change in fair value of interest rate derivatives | $ | $ | ( | |||||||||||||||||||||||
| Comprehensive income statement presentation: | ||||||||||||||||||||||||||
| Change in fair value of derivatives and other | $ | $ | ( | |||||||||||||||||||||||
| Unrealized cash flow hedge gains | ( | |||||||||||||||||||||||||
Total unrealized change in fair value of interest rate derivatives | $ | $ | ( | |||||||||||||||||||||||
11. 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 three months ended March 31, 2024, 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 May 6, 2024.
On January 2, 2024, in connection with the tender by a holder of Class A Units of 9,286 Class A Units for redemption by the Operating Partnership, the Company elected to satisfy the redemption request with a cash payment of $0.1 million.
Noncontrolling Interests
As of March 31, 2024 and December 31, 2023, the Company held a 75.5 % and 75.6 % economic interest in the Operating Partnership, respectively. As of March 31, 2024, 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 75.5 % 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
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represent units of limited partnership interest in the Operating Partnership not held by the Company. As of March 31, 2024, there were 21,543,776 Class A Units and 165,523 LTIP Units in the Operating Partnership ("LTIP 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 owned operating and development properties. The noncontrolling interest for consolidated real estate entities was $9.6 million and $10.0 million as of March 31, 2024 and December 31, 2023, respectively, which represents the minority partners' interest in certain joint venture entities.
Share Repurchase Program
On June 15, 2023, the Company adopted 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 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, 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 time. The Share Repurchase Program may be suspended or discontinued at any time by the Company and does not have an expiration date.
During the three months ended March 31, 2024, the Company did not repurchase any shares of common stock or Series A Preferred Stock. As of March 31, 2024, $37.4 million remained available for repurchases under the Share Repurchase Program.
Dividends and Distributions
During the three months ended March 31, 2024, the following dividends/distributions were declared or paid:
| 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 | 12/14/2023 | 12/27/2023 | 01/04/2024 | $ | $ | |||||||||||||||||||||||||||
| Common Stock/Class A Units | 02/20/2024 | 03/27/2024 | 04/04/2024 | |||||||||||||||||||||||||||||
| Series A Preferred Stock | 12/14/2023 | 01/02/2024 | 01/12/2024 | |||||||||||||||||||||||||||||
| Series A Preferred Stock | 02/20/2024 | 04/01/2024 | 04/15/2024 | |||||||||||||||||||||||||||||
12. 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 3,400,000 shares of common stock. As of March 31, 2024, there were 1,155,595 shares available for issuance under the Equity Plan.
During the three months ended March 31, 2024, the Company granted an aggregate of 415,142 shares of restricted stock, performance units, and LTIP Units to employees and non-employee directors with a weighted average grant date fair value of $10.38 per share, performance unit, and LTIP unit. During the three months ended March 31, 2024, employees surrendered 91,623 shares of restricted stock for income tax withholdings and 4,150 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. Executive officers' restricted shares or LTIP Units 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. Employee performance units generally vest over a period of six years : two-fifths on the last day of a three year performance period, and the remaining three-fifths in equal amounts on the first three anniversaries following the end of the three year performance period, subject to continued service to the Company and certain market conditions. Unvested restricted stock awards, performance units and LTIP Units are entitled to receive distributions from their grant date.
During the three months ended March 31, 2024 and 2023, the Company recognized $2.4 million and $2.1 million, respectively, of stock-based compensation cost. As of March 31, 2024, there were 434,222 non-vested restricted shares, performance units, and LTIP Units outstanding; the total unrecognized compensation expense related to non-vested
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restricted shares, performance units, and LTIP Units was $4.6 million, which the Company expects to recognize over the next 69 months.
13. 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 March 31, 2024 and December 31, 2023 were as follows (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||
Indebtedness, net(a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Notes receivable, net | ||||||||||||||||||||||||||
| Interest rate swap and cap assets | ||||||||||||||||||||||||||
________________________________________
(a) Excludes $9.4 million and $10.4 million of deferred financing costs as of March 31, 2024 and December 31, 2023, respectively.
14. 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 March 31, 2024 and 2023 were nominal. There were no
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 months ended March 31, 2024 and 2023, the Company recognized gross profit of $0.2 million and $0.3 million, respectively, relating to these construction contracts.
15. 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
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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 real 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. As of March 31, 2024, 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 March 31, 2024, 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 $6.7 million and $6.5 million as of March 31, 2024 and December 31, 2023, respectively.
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 March 31, 2024, the Company had six notes receivable with a total of $35.1 million of unfunded commitments. If commitments are funded in the future, interest will be charged at rates consistent with the existing investments. As of March 31, 2024, the Company has recorded a $0.6 million CECL allowance that relates to the unfunded commitments, which was recorded as a liability in other liabilities in the consolidated balance sheet. See Note 7 for more information.
16. 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.
Indebtedness
From April 1, 2024 to May 6, 2024, the Company had net borrowings of $15.0 million on the revolving credit facility.
From April 1, 2024 to May 6, 2024, the Company borrowed $6.0 million on its construction loans to fund development activities.
The Company exercised its option to extend the maturity date on the loan secured by Chronicle Mill by one year, which will now mature on May 5, 2025. The Company paid a nominal extension fee. The Company also holds an additional one-year extension option that may extend the maturity date to May 5, 2026, subject to the Company's satisfaction of certain conditions.
Equity
In April 2024, the Company issued and sold 87,392 shares of common stock at a weighted average price of $10.45 per share under the ATM program, receiving net proceeds, after offering costs and commissions, of $0.9 million.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to "we," "our," "us," and "our company" refer to Armada Hoffler Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Armada Hoffler, L.P., a Virginia limited partnership (the "Operating Partnership"), of which we are the sole general partner. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result," and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•adverse economic or real estate developments, either nationally or in the markets in which our properties are located;
•our failure to 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 or similar investments 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;
•the impact of inflation, including increases in 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;
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•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, and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. In addition to the ownership of our operating property portfolio, we develop and build properties for our own account and through joint ventures between us and unaffiliated partners and also invest in development projects through real estate financing arrangements. We also provide general construction and development services to third-party clients. Our 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.
Refer to Note 1 to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for the composition of properties in our operating property portfolio, as well as properties under development or redevelopment.
Real Estate Financing Investments
Solis City Park II
On March 23, 2022, we entered into a $20.6 million preferred equity investment for the development of a multifamily property located in Charlotte, North Carolina. The investment has economic terms consistent with a note receivable, including a mandatory redemption or maturity on April 28, 2026, and it is accounted for as a note receivable. Our investment bears interest at a rate of 13%, compounded annually, with a minimum preferred return of $5.7 million, which represents approximately 24 months of interest. Our investment also earns an equity fee on our commitment of $0.2 million, which is amortized through the date of redemption.
The balance on the Solis City Park II note was $25.1 million as of March 31, 2024, which includes $4.6 million of cumulative accrued interest and a discount of $0.1 million due to unamortized equity fees. During the three months ended March 31, 2024, we recognized $0.7 million of interest income on the note. As of March 31, 2024, this note was fully funded and the development property was approximately 73% leased.
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Solis Gainesville II
On October 3, 2022, we entered into a $19.6 million preferred equity investment for the development of a multifamily property located in Gainesville, Georgia (Solis Gainesville II). This project is located nearby our recently completed multifamily development project in Gainesville, The Everly. The preferred equity investment has economic and other terms consistent with a note receivable, including a mandatory redemption or maturity on October 3, 2026, and it is accounted for as a note receivable. Our investment bears interest at a rate of 14% 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% through maturity. Additionally, the investment earns an unused commitment fee of 10% on the unfunded portion of the investment's maximum loan commitment, effective January 1, 2023, and an equity fee on our commitment of $0.3 million, which is amortized through the date of redemption. Both the interest and unused commitment fee compound annually. The preferred equity investment is subject to a minimum interest guarantee of $5.9 million over the life of the investment, which represents approximately 24 months of interest.
The balance on the Solis Gainesville II note was $23.1 million as of March 31, 2024, which includes $3.6 million of cumulative accrued interest and unused commitment fees as well as a discount of $0.2 million due to unamortized equity fees. During the three months ended March 31, 2024, we recognized $0.8 million of interest income on the note. As of March 31, 2024, this note was fully funded.
Solis Kennesaw
On May 25, 2023, we entered into a $37.9 million preferred equity investment for the development of a multifamily property located in 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% on the unfunded portion of the investment's maximum commitment, which does not compound, and an equity fee on our commitment of $0.6 million which is amortized through the date of 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.
The balance on the Solis Kennesaw note was $26.5 million as of March 31, 2024, which includes $3.9 million of cumulative accrued interest and unused commitment fees as well as a discount of $0.4 million due to unamortized equity fees. During the three months ended March 31, 2024, we recognized $1.2 million of interest income on the note.
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 ("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. Our 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. 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, and an equity fee on our commitment of $0.4 million which is amortized through the date of redemption. The preferred equity investment is subject to a minimum interest guarantee of $12.0 million over the life of the investment, which represents approximately 30 months of interest.
The balance on the Solis Peachtree Corners note was $13.8 million as of March 31, 2024, which includes $2.3 million of cumulative accrued interest and unused commitment fees as well as a discount of $0.4 million due to unamortized equity fees. During the three months ended March 31, 2024, we recognized $0.9 million of interest income on the note.
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The Allure at Edinburgh
On July 26, 2023, we 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. Our 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 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.
The balance on The Allure at Edinburgh note was $10.2 million as of March 31, 2024, which includes $0.9 million of cumulative accrued interest. During the three months ended March 31, 2024, we recognized $0.3 million of interest income on the note. As of March 31, 2024, this note was fully funded.
First Quarter 2024 and Recent Highlights
The following highlights our results of operations and significant transactions for the three months ended March 31, 2024 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 Units") of $14.8 million, or $0.17 per diluted share, compared to $2.4 million, or $0.03 per diluted share, for the three months ended March 31, 2023.
•Funds from operations attributable to common stockholders and OP Unitholders ("FFO") of $35.0 million, or $0.40 per diluted share, compared to $20.6 million, or $0.23 per diluted share, for the three months ended March 31, 2023. See "Non-GAAP Financial Measures."
•Normalized funds from operations attributable to common stockholders and OP Unitholders ("Normalized FFO") of $29.4 million, or $0.33 per diluted share, compared to $26.5 million, or $0.30 per diluted share, for the three months ended March 31, 2023. See "Non-GAAP Financial Measures."
•As of March 31, 2024, weighted average portfolio occupancy was 94.7%. Retail occupancy was 95.4%, office occupancy was 93.6%, and multifamily occupancy was 95.1%.
•First quarter commercial lease renewal spreads increased 11.5% on a GAAP basis.
•Executed 21 lease renewals and 3 new leases during the first quarter for an aggregate of 115,549 of net rentable square feet.
•Same Store NOI increased 0.4% on a GAAP basis compared to the quarter ended March 31, 2023.
•Third-party construction backlog as of March 31, 2024 was $343.4 million and construction gross profit for the first quarter was $4.1 million.
•Announced the appointment of F. Blair Wimbush to the Company’s Board of Directors.
•During the first quarter of 2024, unrealized gains on non-designated interest rate derivatives that positively affected FFO were $6.5 million. As of March 31, 2024, the value of the Company’s entire interest rate derivative portfolio, net of unrealized gains, was $35.0 million. These gains are excluded from normalized FFO.
Segment Results of Operations
As of March 31, 2024, we operated our business in five 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. Our general contracting and real estate services segment is conducted through our taxable REIT subsidiary ("TRS"). Net operating income ("NOI") is the primary measure used by our 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
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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.
Since our Annual Report on Form 10-K for the year ended December 31, 2023, we 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.
Retail Segment Data
Retail rental revenues, property expenses, and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 25,651 | $ | 22,959 | $ | 2,692 | ||||||||||||||||||||||||||||||||
| Property expenses | 6,626 | 5,912 | 714 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 19,025 | $ | 17,047 | $ | 1,978 | ||||||||||||||||||||||||||||||||
Retail segment NOI for the three months ended March 31, 2024 increased 11.6% compared to the three months ended March 31, 2023, primarily due to the acquisition of The Interlock Retail in May 2023.
Retail Same Store Results
Retail same store results for the three months ended March 31, 2024 and 2023 exclude The Interlock Retail and Chronicle Mill Retail, as well as Columbus Village II due to redevelopment.
Retail same store rental revenues, property expenses, and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 23,099 | $ | 22,678 | $ | 421 | ||||||||||||||||||||||||||||||||
| Property expenses | 5,717 | 5,459 | 258 | |||||||||||||||||||||||||||||||||||
| Same Store NOI | $ | 17,382 | $ | 17,219 | $ | 163 | ||||||||||||||||||||||||||||||||
| Non-Same Store NOI | 1,643 | (172) | 1,815 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 19,025 | $ | 17,047 | $ | 1,978 | ||||||||||||||||||||||||||||||||
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Retail same store NOI for the three months ended March 31, 2024 was materially consistent compared to the three months ended March 31, 2023.
Office Segment Data
Office rental revenues, property expenses, and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 21,878 | $ | 19,657 | $ | 2,221 | ||||||||||||||||||||||||||||||||
| Property expenses | 8,338 | 7,244 | 1,094 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 13,540 | $ | 12,413 | $ | 1,127 | ||||||||||||||||||||||||||||||||
Office segment NOI for the three months ended March 31, 2024 increased 9.1% compared to the three months ended March 31, 2023, primarily due to the acquisition of The Interlock Office in May 2023, increased occupancy at Wills Wharf, and increased parking income at the Constellation Office, which was partially offset by decreased occupancy at Thames Street.
Office Same Store Results
Office same store results for the three months ended March 31, 2024 and 2023 exclude The Interlock Office and Chronicle Mill Office.
Office same store rental revenues, property expenses, and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 19,717 | $ | 19,650 | $ | 67 | ||||||||||||||||||||||||||||||||
| Property expenses | 7,234 | 6,966 | 268 | |||||||||||||||||||||||||||||||||||
| Same Store NOI | $ | 12,483 | $ | 12,684 | $ | (201) | ||||||||||||||||||||||||||||||||
| Non-Same Store NOI | 1,057 | (271) | 1,328 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 13,540 | $ | 12,413 | $ | 1,127 | ||||||||||||||||||||||||||||||||
Office same store NOI for the three months ended March 31, 2024 was materially consistent with the three months ended March 31, 2023.
Multifamily Segment Data
Multifamily rental revenues, property expenses, and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 14,352 | $ | 13,602 | $ | 750 | ||||||||||||||||||||||||||||||||
| Property expenses | 5,566 | 5,216 | 350 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 8,786 | $ | 8,386 | $ | 400 | ||||||||||||||||||||||||||||||||
Multifamily segment NOI for the three months ended March 31, 2024 increased 4.8% compared to the three months ended March 31, 2023 primarily due to higher occupancy and higher rental rates at Chronicle Mill Apartments.
Multifamily Same Store Results
Multifamily same store results for the three months ended March 31, 2024 and 2023 exclude Chronicle Mill Apartments.
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Multifamily same store rental revenues, property expenses and NOI for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 13,144 | $ | 12,638 | $ | 506 | ||||||||||||||||||||||||||||||||
| Property expenses | 4,998 | 4,695 | 303 | |||||||||||||||||||||||||||||||||||
| Same Store NOI | $ | 8,146 | $ | 7,943 | $ | 203 | ||||||||||||||||||||||||||||||||
| Non-Same Store NOI | 640 | 443 | 197 | |||||||||||||||||||||||||||||||||||
| Segment NOI | $ | 8,786 | $ | 8,386 | $ | 400 | ||||||||||||||||||||||||||||||||
Multifamily same store NOI for the three months ended March 31, 2024 was materially consistent compared to the three months ended March 31, 2023.
General Contracting and Real Estate Services Segment Data
General contracting and real estate services revenues, expenses, and gross profit for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| General contracting and real estate services revenues | $ | 126,975 | $ | 84,238 | $ | 42,737 | ||||||||||||||||||||||||||||||||
| General contracting and real estate services expenses | 122,898 | 81,170 | 41,728 | |||||||||||||||||||||||||||||||||||
| Segment gross profit | $ | 4,077 | $ | 3,068 | $ | 1,009 | ||||||||||||||||||||||||||||||||
Operating margin (1) | 3.2 | % | 3.6 | % | (0.4) | % | ||||||||||||||||||||||||||||||||
________________________________________
(1)50% and 90% of gross profit attributable to our T. Rowe Price Global HQ and Allied | Harbor Point development projects, respectively, is not reflected within general contracting and real estate services revenues due to elimination. The Company is still entitled to receive cash proceeds in relation to the eliminated amounts. Prior to any gross profit eliminations attributable to these projects, operating margin for the three months ended March 31, 2024 and 2023 was 3.5% and 4.0%, respectively.
General contracting and real estate services segment gross profit for the three months ended March 31, 2024 increased $1.0 million compared to the three months ended March 31, 2023, primarily due to an increase in work performed in the execution of our backlog and the recognition of savings from unused contingencies for certain contracts.
The changes in third party construction backlog for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Beginning backlog | $ | 472,169 | $ | 665,564 | |||||||||||||||||||
| New contracts/change orders | (1,404) | 70,792 | |||||||||||||||||||||
| Work performed | (127,359) | (84,516) | |||||||||||||||||||||
| Ending backlog | $ | 343,406 | $ | 651,840 | |||||||||||||||||||
As of March 31, 2024, we had $153.4 million in the backlog relating to the Harbor Point Parcel 3 and Harbor Point Parcel 4 developments in Baltimore.
Real Estate Financing Segment Data
Real estate financing interest income, interest expense, and gross profit for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
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| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Interest income | $ | 4,000 | $ | 3,536 | $ | 464 | ||||||||||||||||||||||||||||||||
| Interest expense | 1,332 | 1,097 | 235 | |||||||||||||||||||||||||||||||||||
| Segment gross profit | $ | 2,668 | $ | 2,439 | $ | 229 | ||||||||||||||||||||||||||||||||
| Operating margin | 66.7 | % | 69.0 | % | (2.3) | % | ||||||||||||||||||||||||||||||||
Real estate financing gross profit for the three months ended March 31, 2024 increased 9.4% compared to the three months ended March 31, 2023, primarily due to interest earned on unused commitments.
Consolidated Results of Operations
The following table summarizes the results of operations for the three months ended March 31, 2024 and 2023 (unaudited, in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||
| Rental revenues | $ | 61,881 | $ | 56,218 | $ | 5,663 | ||||||||||||||||||||||||||||||||
| General contracting and real estate services revenues | 126,975 | 84,238 | 42,737 | |||||||||||||||||||||||||||||||||||
| Interest income | 4,626 | 3,719 | 907 | |||||||||||||||||||||||||||||||||||
| Total revenues | 193,482 | 144,175 | 49,307 | |||||||||||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||||||||
| Rental expenses | 14,605 | 12,960 | 1,645 | |||||||||||||||||||||||||||||||||||
| Real estate taxes | 5,925 | 5,412 | 513 | |||||||||||||||||||||||||||||||||||
| General contracting and real estate services expenses | 122,898 | 81,170 | 41,728 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 20,435 | 18,468 | 1,967 | |||||||||||||||||||||||||||||||||||
| Amortization of right-of-use assets - finance leases | 395 | 277 | 118 | |||||||||||||||||||||||||||||||||||
| General and administrative expenses | 5,874 | 5,448 | 426 | |||||||||||||||||||||||||||||||||||
| Impairment charges | — | 102 | (102) | |||||||||||||||||||||||||||||||||||
| Total expenses | 170,132 | 123,837 | 46,295 | |||||||||||||||||||||||||||||||||||
| Operating income | 23,350 | 20,338 | 3,012 | |||||||||||||||||||||||||||||||||||
| Interest expense | (17,975) | (12,302) | (5,673) | |||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and other | 12,888 | (2,447) | 15,335 | |||||||||||||||||||||||||||||||||||
| Unrealized credit loss provision | (83) | (77) | (6) | |||||||||||||||||||||||||||||||||||
| Other income (expense), net | 79 | 93 | (14) | |||||||||||||||||||||||||||||||||||
| Income before taxes | 18,259 | 5,605 | 12,654 | |||||||||||||||||||||||||||||||||||
| Income tax provision | (534) | (188) | (346) | |||||||||||||||||||||||||||||||||||
| Net income | 17,725 | 5,417 | 12,308 | |||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests in investment entities | (34) | (154) | 120 | |||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (2,887) | (2,887) | — | |||||||||||||||||||||||||||||||||||
| Net income attributable to common stockholders and OP Unitholders | $ | 14,804 | $ | 2,376 | $ | 12,428 | ||||||||||||||||||||||||||||||||
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Rental revenues for the three months ended March 31, 2024 increased 10.1% compared to the three months ended March 31, 2023 as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Retail | $ | 25,651 | $ | 22,959 | $ | 2,692 | ||||||||||||||||||||||||||||||||
| Office | 21,878 | 19,657 | 2,221 | |||||||||||||||||||||||||||||||||||
| Multifamily | 14,352 | 13,602 | 750 | |||||||||||||||||||||||||||||||||||
| $ | 61,881 | $ | 56,218 | $ | 5,663 | |||||||||||||||||||||||||||||||||
Retail rental revenues for the three months ended March 31, 2024 increased 11.7% compared to the three months ended March 31, 2023, primarily as a result of the acquisition of The Interlock Retail in May 2023.
Office rental revenues for the three months ended March 31, 2024 increased 11.3% compared to the three months ended March 31, 2023, primarily as a result of the acquisition of The Interlock Office in May 2023, increased occupancy at Wills Wharf, and increased parking income at the Constellation Office, which was partially offset by decreased occupancy at Thames Street.
Multifamily rental revenues for the three months ended March 31, 2024 increased 5.5% compared to the three months ended March 31, 2023, primarily as a result of higher occupancy and higher rental rates at Chronicle Mill Apartments.
General contracting and real estate services revenues for the three months ended March 31, 2024 increased $42.7 million compared to the three months ended March 31, 2023 due to an increase in work performed in the execution of our backlog and the recognition of savings from unused contingencies for certain contracts.
Interest income for the three months ended March 31, 2024 increased 24.4% compared to the three months ended March 31, 2023, primarily due to interest earned on unused commitments on real estate financing investments and higher interest bearing cash deposits.
Rental expenses for the three months ended March 31, 2024 increased 12.7% compared to the three months ended March 31, 2023 as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Retail | $ | 4,211 | $ | 3,644 | $ | 567 | ||||||||||||||||||||||||||||||||
| Office | 6,123 | 5,159 | 964 | |||||||||||||||||||||||||||||||||||
| Multifamily | 4,271 | 4,157 | 114 | |||||||||||||||||||||||||||||||||||
| $ | 14,605 | $ | 12,960 | $ | 1,645 | |||||||||||||||||||||||||||||||||
Retail rental expenses for the three months ended March 31, 2024 increased 15.6% compared to the three months ended March 31, 2023, primarily due to the acquisition of The Interlock Retail in May 2023.
Office rental expenses for the three months ended March 31, 2024 increased 18.7% compared to the three months ended March 31, 2023, primarily as a result of the acquisition of The Interlock Office in May 2023.
Multifamily rental expenses for the three months ended March 31, 2024 were materially consistent compared to the three months ended March 31, 2023.
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Real estate taxes for the three months ended March 31, 2024 increased 9.5% compared to the three months ended March 31, 2023 as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||
| Retail | $ | 2,415 | $ | 2,268 | $ | 147 | ||||||||||||||||||||||||||||||||
| Office | 2,215 | 2,085 | 130 | |||||||||||||||||||||||||||||||||||
| Multifamily | 1,295 | 1,059 | 236 | |||||||||||||||||||||||||||||||||||
| $ | 5,925 | $ | 5,412 | $ | 513 | |||||||||||||||||||||||||||||||||
Retail real estate taxes for the three months ended March 31, 2024 were materially consistent compared to the three months ended March 31, 2023.
Office real estate taxes for the three months ended March 31, 2024 were materially consistent compared to the three months ended March 31, 2023.
Multifamily real estate taxes for the three months ended March 31, 2024 increased 22.3% compared to the three months ended March 31, 2023, primarily due to increased tax assessments across the multifamily portfolio.
General contracting and real estate services expenses for the three months ended March 31, 2024 increased $41.7 million compared to the three months ended March 31, 2023 due to an increase in work performed in the execution of our backlog.
Depreciation and amortization for the three months ended March 31, 2024 increased 10.7% compared to the three months ended March 31, 2023, primarily due to the acquisition of The Interlock in May 2023.
Amortization of right-of-use assets - finance leases for the three months ended March 31, 2024 increased 42.6% compared to the three months ended March 31, 2023, primarily due to the ground lease assumed in connection with the acquisition of The Interlock in May 2023.
General and administrative expenses for the three months ended March 31, 2024 increased 7.8% compared to the three months ended March 31, 2023, primarily due to increased compensation costs, including severance.
Impairment charges for the three months ended March 31, 2024 and March 31, 2023 were immaterial.
Interest expense for the three months ended March 31, 2024 increased 46.1% compared to the three months ended March 31, 2023, primarily due to higher levels of indebtedness in connection with the funding of development projects, real estate financing investments, and acquisitions, as well as the expiration of derivatives designated as cash flow hedges.
The change in fair value of derivatives and other for the three months ended March 31, 2024 includes higher interest receipts due to a larger portfolio of derivatives not designated as cash flow hedges and fair value increases for our derivative instruments due to increases in forward SOFR (the Secured Overnight Financing Rate).
Changes in unrealized credit loss (provision) release for the three months ended March 31, 2024 were primarily the result of primarily the result of increases in note receivable balances for the Solis Kennesaw and Solis Peachtree Corners real estate financing investments.
Other income (expense), net for the three months ended March 31, 2024 was materially consistent compared to the three months ended March 31, 2023.
The income tax provision and benefits that we recognized during the three months ended March 31, 2024 and 2023 were attributable to the taxable profits and losses of our development and construction businesses that we operate through our TRS.
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Liquidity and Capital Resources
Overview
We believe our primary short-term liquidity requirements consist of general contractor expenses, operating expenses, and other expenditures associated with our properties, including tenant improvements, leasing commissions and leasing incentives, dividend payments to our stockholders required to maintain our REIT qualification, debt service, capital expenditures, new real estate development projects, 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 March 31, 2024, we had unrestricted cash and cash equivalents of $41.9 million available for both current liquidity needs as well as development and redevelopment activities. We also had restricted cash in escrow of $1.9 million, some of which is available for capital expenditures and certain operating expenses at our operating properties. As of March 31, 2024, we had $66.0 million of available borrowings under our revolving credit facility to meet our short-term liquidity requirements and $32.8 million of available borrowings under our construction loans to fund development activities. During the three months ended March 31, 2024, we increased outstanding borrowings on our revolving credit facility by $22.0 million, which were largely used to fund our Solis Kennesaw and Solis Peachtree Corners 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 March 31, 2024, unsecured debt represented 54.8% of our total borrowings compared to 45.2% as of March 31, 2023.
As of March 31, 2024, we had $60.3 million in loans that will mature during the remainder of 2024 for which we plan to repay with borrowings under our outstanding credit facility (as defined below) or to extend the maturity through available extension options.
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 three months ended March 31, 2024, 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 204.1 million remained unsold under the ATM Program as of May 6, 2024.
Share Repurchase Program
On June 15, 2023, we adopted 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 expiration date.
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During the three months ended March 31, 2024, we did not repurchase any shares of common stock or Series A Preferred Stock. As of March 31, 2024, $37.4 million remained available for repurchases under the Share Repurchase Program.
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 "credit facility"), with a syndicate of banks. Subject to available borrowing capacity, we intend to use future borrowings under the 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 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. 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 $344.9 million, as of March 31, 2024.
The Operating Partnership is the borrower under the credit facility, and its obligations under the 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 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 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 credit facility if it becomes secured indebtedness) to total asset value of not more than 40%;
•Ratio of secured recourse debt (excluding the 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,
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notes receivable, mortgages, mezzanine loans, and unconsolidated affiliates, and restricts our ability to repurchase stock and OP Units during the term of the credit facility.
We may, at any time, voluntarily prepay any loan under the credit facility in whole or in part without 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 credit facility to be immediately due and payable.
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
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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.
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 $500.0 million at any time; and
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•Minimum occupancy rate (as defined in the TD term loan agreement) for all unencumbered properties of not less than 80% at any time.
The TD term loan agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The TD term loan agreement also restricts the amount of capital that we can invest in specific categories of assets, such as unimproved land holdings, development properties, notes receivable, mortgages, mezzanine loans and unconsolidated affiliates, and restricts our ability to repurchase stock and OP Units during the term of the TD term loan facility.
We may, at any time, voluntarily prepay the TD term loan facility in whole or in part without premium or penalty, provided certain conditions are met.
The TD term loan agreement includes customary events of default, in certain cases subject to customary cure periods. The occurrence of an event of default, if not cured within the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest, and all other amounts payable under the TD term loan facility to be immediately due and payable. A default under the Credit Agreement would also constitute a default under the TD term loan agreement.
We are currently in compliance with all covenants under the Credit Agreement, the M&T term loan agreement, and the TD term loan agreement.
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Consolidated Indebtedness
The following table sets forth our consolidated indebtedness as of March 31, 2024 ($ in thousands):
| Amount Outstanding | Interest Rate (a) | Effective Rate for Variable-Rate Debt | Maturity Date (b) | Balance at Maturity | |||||||||||||||||||||||||||||||
| Secured Debt | |||||||||||||||||||||||||||||||||||
Chronicle Mill | $ | 34,700 | SOFR+ | 3.00 | % | 8.33 | % | May 5, 2024 | $ | 34,700 | |||||||||||||||||||||||||
| Red Mill Central | 1,794 | 4.80 | % | June 17, 2024 | 1,765 | ||||||||||||||||||||||||||||||
Premier | 23,850 | SOFR+ | 1.55 | % | 6.99 | % | October 31, 2024 | 23,648 | |||||||||||||||||||||||||||
| Red Mill South | 4,767 | 3.57 | % | May 1, 2025 | 4,383 | ||||||||||||||||||||||||||||||
Market at Mill Creek | 11,185 | SOFR+ | 1.55% | 6.99 | % | July 12, 2025 | 10,376 | ||||||||||||||||||||||||||||
| The Everly | 30,000 | SOFR+ | 1.50 | % | 6.83 | % | December 20, 2025 | 30,000 | |||||||||||||||||||||||||||
4525 Main Street & Encore Apartments | 53,172 | 2.93 | % | February 10, 2026 | 50,726 | ||||||||||||||||||||||||||||||
| Southern Post | 41,170 | SOFR+ | 2.25 | % | 5.58 | % | August 25, 2026 | 41,170 | |||||||||||||||||||||||||||
| Thames Street Wharf | 67,536 | SOFR+ | 1.30 | % | 2.33 | % | (c) | September 30, 2026 | 60,839 | ||||||||||||||||||||||||||
| Constellation Energy Building | 175,000 | SOFR+ | 1.50 | % | 6.94 | % | (c) | November 1, 2026 | 175,000 | ||||||||||||||||||||||||||
| Southgate Square | 25,115 | SOFR+ | 1.90 | % | 7.33 | % | December 21, 2026 | 22,811 | |||||||||||||||||||||||||||
| Nexton Square | 21,428 | SOFR+ | 1.95 | % | 7.28 | % | June 30, 2027 | 19,487 | |||||||||||||||||||||||||||
| Liberty | 20,501 | SOFR+ | 1.50 | % | 4.93 | % | September 27, 2027 | 19,230 | |||||||||||||||||||||||||||
| Greenbrier Square | 19,474 | 3.74% | October 10, 2027 | 18,049 | |||||||||||||||||||||||||||||||
| Lexington Square | 13,524 | 4.50 | % | September 1, 2028 | 12,044 | ||||||||||||||||||||||||||||||
| Red Mill North | 3,933 | 4.73 | % | December 31, 2028 | 3,295 | ||||||||||||||||||||||||||||||
| Greenside Apartments | 30,909 | 3.17 | % | December 15, 2029 | 26,095 | ||||||||||||||||||||||||||||||
| Smith's Landing | 14,333 | 4.05 | % | June 1, 2035 | 384 | ||||||||||||||||||||||||||||||
| The Edison | 15,079 | 5.30 | % | December 1, 2044 | 100 | ||||||||||||||||||||||||||||||
| The Cosmopolitan | 40,144 | 3.35 | % | July 1, 2051 | 187 | ||||||||||||||||||||||||||||||
| Total secured debt | $ | 647,614 | $ | 554,289 | |||||||||||||||||||||||||||||||
| Unsecured debt | |||||||||||||||||||||||||||||||||||
| TD unsecured term loan | $ | 95,000 | SOFR+ | 1.35%-1.90% | 4.85 | % | (e) | May 19, 2025 | $ | 95,000 | |||||||||||||||||||||||||
| Senior unsecured revolving credit facility | 284,000 | SOFR+ | 1.30%-1.85% | 6.93 | % | January 22, 2027 | 284,000 | ||||||||||||||||||||||||||||
| Senior unsecured revolving credit facility (fixed) | 5,000 | SOFR+ | 1.30%-1.85% | 4.80 | % | (e) | January 22, 2027 | 5,000 | |||||||||||||||||||||||||||
| M&T unsecured term loan | 100,000 | SOFR+ | 1.25%-1.80% | 5.05 | % | (e) | March 8, 2027 | 100,000 | |||||||||||||||||||||||||||
| Senior unsecured term loan | 146,000 | SOFR+ | 1.25%-1.80% | 6.88 | % | January 21, 2028 | 146,000 | ||||||||||||||||||||||||||||
| Senior unsecured term loan (fixed) | 154,000 | SOFR+ | 1.25%-1.80% | 1.88%-4.98% | (e) | January 21, 2028 | 154,000 | ||||||||||||||||||||||||||||
| Total unsecured debt | 784,000 | 784,000 | |||||||||||||||||||||||||||||||||
| Total principal balances | $ | 1,431,614 | $ | 1,338,289 | |||||||||||||||||||||||||||||||
Other notes payable(d) | 6,124 | ||||||||||||||||||||||||||||||||||
| Unamortized GAAP adjustments | (9,420) | ||||||||||||||||||||||||||||||||||
| Indebtedness, net | $ | 1,428,318 | |||||||||||||||||||||||||||||||||
_______________________________________
(a) SOFR is determined by individual lenders.
(b) Does not reflect the effect of any maturity extension options.
(c) Includes debt subject to interest rate swap locks.
(d) Represents the fair value of additional ground lease payments at 1405 Point over the approximately 39-year remaining lease term.
As of March 31, 2024, we were in compliance with all loan covenants on our outstanding indebtedness.
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As of March 31, 2024, our scheduled principal payments and maturities during each of the next five years and thereafter are as follows ($ in thousands):
Year(1)(2) | Amount Due | Percentage of Total | |||||||||||||||
2024 (excluding the three months ended March 31, 2024) | $ | 67,993 | 5 | % | |||||||||||||
| 2025 | 150,495 | 11 | % | ||||||||||||||
| 2026 | 358,696 | 25 | % | ||||||||||||||
| 2027 | 450,561 | 31 | % | ||||||||||||||
| 2028 | 319,322 | 22 | % | ||||||||||||||
| Thereafter | 84,547 | 6 | % | ||||||||||||||
| Total | $ | 1,431,614 | 100 | % | |||||||||||||
________________________________________
(1) Does not reflect the effect of any maturity extension options.
(2) Includes debt incurred in connection with the development of properties.
Interest Rate Derivatives
As of March 31, 2024, we held one interest rate cap corridor. We purchased a SOFR interest rate cap at 1.00% and sold a SOFR interest rate cap at 3.00%, resulting in a SOFR interest rate cap corridor of 1.00% to 3.00%, effective on September 1, 2022. This corridor is designated as a cash flow hedge. The intended goal of this corridor is to provide a level of protection from the effect of rising interest rates and reduce the all-in-cost of the derivative instrument. We paid a premium of $1.4 million to purchase the corridor. As of March 31, 2024, the notional amount was $73.6 million, which is the maximum notional amount. The corridor is scheduled to mature on September 1, 2024.
As of March 31, 2024, we held the following interest rate swap agreements ($ in thousands):
| Related Debt | Notional Amount | Index | Swap Fixed Rate | Debt effective rate | Effective Date | Expiration Date | ||||||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | $ | 25,000 | 1-month SOFR | 0.42 | % | 1.97 | % | 4/1/2020 | 4/1/2024 | |||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | 25,000 | 1-month SOFR | 0.33 | % | 1.88 | % | 4/1/2020 | 4/1/2024 | ||||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | 25,000 | Daily SOFR | 0.44 | % | 1.99 | % | 4/1/2020 | 4/1/2024 | ||||||||||||||||||||||||||||||||||||
| Harbor Point Parcel 3 senior construction loan | 90,000 | 1-month SOFR | (a) | 2.75 | % | 4.82 | % | 10/2/2023 | 10/1/2025 | |||||||||||||||||||||||||||||||||||
| Floating rate pool of loans | 330,000 | 1-month SOFR | (b) | 2.75 | % | 4.42 | % | 10/1/2023 | 10/1/2025 | |||||||||||||||||||||||||||||||||||
| Harbor Point Parcel 4 senior construction loan | 100,000 | 1-month SOFR | (c) | 2.75 | % | 5.12 | % | 11/01/2023 | 11/01/2025 | |||||||||||||||||||||||||||||||||||
| Floating rate pool of loans | 300,000 | 1-month SOFR | (d) | 2.75 | % | 4.42 | % | 12/01/2023 | 12/01/2025 | |||||||||||||||||||||||||||||||||||
Revolving credit facility and TD unsecured term loan | 100,000 | Daily SOFR | 3.20 | % | 4.84 | % | 05/19/2023 | 5/19/2026 | (e) | |||||||||||||||||||||||||||||||||||
| Thames Street Wharf | 67,536 | Daily SOFR | 0.93 | % | 2.33 | % | 09/30/2021 | 9/30/2026 | ||||||||||||||||||||||||||||||||||||
| M&T unsecured term loan | 100,000 | 1-month SOFR | 3.50 | % | 5.05 | % | 12/06/2022 | 12/06/2027 | ||||||||||||||||||||||||||||||||||||
Liberty Retail & Apartments | 21,000 | 1-month SOFR | (f) | 3.43 | % | 4.93 | % | 12/13/2022 | 1/21/2028 | |||||||||||||||||||||||||||||||||||
| Senior unsecured term loan | 79,000 | 1-month SOFR | (f) | 3.43 | % | 4.98 | % | 12/13/2022 | 1/21/2028 | |||||||||||||||||||||||||||||||||||
| Total | $ | 1,262,536 | ||||||||||||||||||||||||||||||||||||||||||
________________________________________
(a) 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.
(b) We paid $13.3 million to reduce the swap fixed rate.
(c) This interest rate swap agreement reduces our interest rate exposure on the $109.7 million senior construction loan secured by our Harbor Point Parcel 4 equity method investment. As such, the loan is not reflected on our consolidated balance sheets. We also paid $3.9 million to reduce the swap fixed rate.
(d) We paid $10.5 million to reduce the swap fixed rate.
(e) Subject to cancellation by the counterparty beginning on May 1, 2025 and the first day of each month thereafter.
(f) We novated the existing 3.43% fixed rate swap with a $100.0 million notional amount and assigned $21.0 million to the loan secured by Liberty Retail & Apartments, effective February 1, 2024.
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Off-Balance Sheet Arrangements
In connection with certain of our real 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. As of March 31, 2024, 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 March 31, 2024, 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 March 31, 2024, our off-balance sheet arrangements consisted of $35.1 million of unfunded commitments of our notes receivable. We have recorded a $0.6 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
| Three Months Ended March 31, | ||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Operating Activities | $ | 46,486 | $ | 13,055 | $ | 33,431 | ||||||||||||||
| Investing Activities | (40,946) | (51,344) | 10,398 | |||||||||||||||||
| Financing Activities | 8,155 | 22,860 | (14,705) | |||||||||||||||||
| Net Increase (decrease) | $ | 13,695 | $ | (15,429) | $ | 29,124 | ||||||||||||||
| Cash, Cash Equivalents, and Restricted Cash, Beginning of Period | $ | 30,166 | $ | 51,865 | ||||||||||||||||
| Cash, Cash Equivalents, and Restricted Cash, End of Period | $ | 43,861 | $ | 36,436 | ||||||||||||||||
During the three months ended March 31, 2024, net cash provided by operating activities increased $33.4 million compared to the three months ended March 31, 2023 primarily due to net changes in operating assets and liabilities and the acquisition of The Interlock in May 2023.
During the three months ended March 31, 2024, net cash used in investing activities decreased $10.4 million compared to the three months ended March 31, 2023 primarily because of less investment in development, including our equity method investments, and receipts on off-market interest rate derivatives, partially offset by higher investments in tenant and building improvements and increased funding in our real estate financing investments.
During the three months ended March 31, 2024, net cash provided by financing activities decreased $14.7 million compared to the three months ended March 31, 2023 primarily due to lower net borrowings on our credit facility.
Non-GAAP Financial Measures
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("Nareit"). Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sales of certain real estate assets, gains or losses from change in control, and impairment write-downs of certain real estate assets and 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,
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which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared period-over-period, captures trends in occupancy rates, rental rates, and operating costs.
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 period-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, amortization 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 months ended March 31, 2024 and 2023 to net income, the most directly comparable GAAP measure:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
(in thousands, except per share and unit amounts) | ||||||||||||||||||||||||||
| Net income attributable to common stockholders and OP Unitholders | $ | 14,804 | $ | 2,376 | ||||||||||||||||||||||
Depreciation and amortization (1) | 20,215 | 18,245 | ||||||||||||||||||||||||
| FFO attributable to common stockholders and OP Unitholders | 35,019 | 20,621 | ||||||||||||||||||||||||
| Accelerated amortization of intangible assets and liabilities | — | 102 | ||||||||||||||||||||||||
| Unrealized credit loss provision | 83 | 77 | ||||||||||||||||||||||||
| Amortization of right-of-use assets - finance leases | 395 | 277 | ||||||||||||||||||||||||
| (Increase) Decrease in fair value of derivatives not designated as cash flow hedges | (6,510) | 3,807 | ||||||||||||||||||||||||
| Amortization of interest rate derivatives on designated cash flow hedges | 260 | 1,614 | ||||||||||||||||||||||||
| Severance related costs | 167 | — | ||||||||||||||||||||||||
| Normalized FFO available to common stockholders and OP Unitholders | $ | 29,414 | $ | 26,498 | ||||||||||||||||||||||
| Net income attributable to common stockholders and OP Unitholders per diluted share and unit | $ | 0.17 | $ | 0.03 | ||||||||||||||||||||||
| FFO attributable to common stockholders and OP Unitholders per diluted share and unit | $ | 0.40 | $ | 0.23 | ||||||||||||||||||||||
| Normalized FFO attributable to common stockholders and OP Unitholders per diluted share and unit | $ | 0.33 | $ | 0.30 | ||||||||||||||||||||||
| Weighted average common shares and units - diluted | 88,451 | 88,398 | ||||||||||||||||||||||||
________________________________________
(1) The adjustment for depreciation and amortization for each of the three months ended March 31, 2024 and 2023 excludes $0.2 million of depreciation attributable to our partners. | ||
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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, 2023.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the Company's market risk since December 31, 2023. 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, 2023.
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 Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures as of March 31, 2024, 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 March 31, 2024, 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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
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.
We did not repurchase any common stock or Series A Preferred Stock under the Share Repurchase Program for the three months ended March 31, 2024. As of March 31, 2024, $37.4 million remained available for repurchases under the Share Repurchase Program.
Item 3. Defaults on Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended March 31, 2024, no director or officer of the Company adopted terminated
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Item 6. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference (as applicable) as part of this Quarterly Report on Form 10-Q.
| Exhibit No. | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 3.7 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101* | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, 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. | |||||||
| 104* | Cover page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL. | |||||||
| * | Filed herewith | |||||||
| ** | Furnished herewith | |||||||
46
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ARMADA HOFFLER PROPERTIES, INC. | |||||
| Date: May 9, 2024 | /s/ Louis S. Haddad | ||||
| Louis S. Haddad | |||||
Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: May 9, 2024 | /s/ Matthew T. Barnes-Smith | ||||
| Matthew T. Barnes-Smith | |||||
| Chief Financial Officer, Treasurer and Corporate Secretary | |||||
| (Principal Accounting and Financial Officer) | |||||
47
Exhibit 31.1
CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Louis S. Haddad, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Armada Hoffler Properties, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 9, 2024 | /s/ Louis S. Haddad | |||||||
| Louis S. Haddad | ||||||||
Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew T. Barnes-Smith, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Armada Hoffler Properties, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 9, 2024 | /s/ Matthew T. Barnes-Smith | |||||||
| Matthew T. Barnes-Smith | ||||||||
| Chief Financial Officer, Treasurer and Corporate Secretary | ||||||||
Exhibit 32.1
CERTIFICATION
The undersigned, Louis S. Haddad, the President and Chief Executive Officer of Armada Hoffler Properties, Inc. (the “Company”), pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of his knowledge:
1. the Quarterly Report for the period ended March 31, 2024 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 9, 2024 | /s/ Louis S. Haddad | |||||||
| Louis S. Haddad | ||||||||
Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION
The undersigned, Matthew T. Barnes-Smith, the Chief Financial Officer and Treasurer of Armada Hoffler Properties, Inc. (the “Company”), pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of his knowledge:
1. the Quarterly Report for the period ended March 31, 2024 of the Company (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 9, 2024 | /s/ Matthew T. Barnes-Smith | |||||||
| Matthew T. Barnes-Smith | ||||||||
| Chief Financial Officer, Treasurer and Corporate Secretary | ||||||||