UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON,~~Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018~~March 31, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission ~~file number:~~File Number: 001-35908

ARMADA HOFFLER PROPERTIES, INC.

(Exact ~~Name~~name of ~~Registrant~~registrant as ~~Specified~~specified in its ~~Charter)~~charter)



Maryland	46-1214914
(State or other jurisdiction of ~~Organization)~~incorporation or organization)	(~~IRS~~I.R.S. Employer Identification No.)

222 Central Park Avenue, Suite 2100 Virginia Beach, Virginia	23462
(Address of ~~Principal Executive Offices)~~principal executive offices)	(Zip Code)

(757) 366-4000

(Registrant’s ~~Telephone Number, Including Area Code)~~

telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ◻¨ No

Indicate by check mark whether the Registrant has submitted electronically 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). x Yes ◻¨ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting ~~company”~~company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	◻ x	Accelerated Filer	x
			¨
Non-Accelerated Filer	◻¨	Smaller Reporting Company	◻ ¨
		Emerging Growth Company	x¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

◻¨ Yes x No

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	AHH	New York Stock Exchange

As of ~~October 30, 2018,~~May 6, 2019, the ~~Registrant~~registrant had ~~49,627,792~~52,418,695 shares of common stock, $0.01 par value per share, outstanding. In addition, as of May 6, 2019, Armada Hoffler, L.P., the registrant's operating partnership subsidiary, had 16,991,933 units of limited partnership interest ("OP Units") outstanding (other than OP Units held by the registrant).

ARMADA HOFFLER PROPERTIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2018~~MARCH 31, 2019

Table of Contents



		Page

Part I. Financial Information		1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Comprehensive Income	2

	Condensed Consolidated Statements of Equity	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3840

Item 4.	Controls and Procedures	3840

Part II. Other Information		4041

Item 1.	Legal Proceedings	4041

Item 1A.	Risk Factors	4041

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4041

Item 3.	Defaults Upon Senior Securities	4041

Item 4.	Mine Safety Disclosures	4041

Item 5.	Other Information	4041

Item 6.	Exhibits	4142



Signatures		4243

PART I. Financial Information

Item 1. Financial Statements

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value and share data)


	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Real estate investments:
Income producing property	$	1,023,658		$	910,686		$	1,102,803		$	1,037,917
Held for development	2,979			680			2,994			2,994
Construction in progress	139,450			83,071			145,366			135,675
	1,166,087			994,437			1,251,163			1,176,586
Accumulated depreciation	(185,831		)	(164,521		)	(196,518		)	(188,775		)
Net real estate investments	980,256			829,916			1,054,645			987,811
Real estate investments held for sale							929			929
Cash and cash equivalents	17,732			19,959			15,577			21,254
Restricted cash	2,916			2,957			3,382			2,797
Accounts receivable, net	18,224			15,691			18,297			19,016
Notes receivable	100,486			83,058			152,172			138,683
Construction receivables, including retentions	21,959			23,933			17,784			16,154
Construction contract costs and estimated earnings in excess of billings	727			245			317			1,358
Equity method investments	16,811			11,411			—			22,203
Lease right-of-use assets							32,242			—
Other assets	58,747			55,953			63,909			55,177
Total Assets	$	1,217,858		$	1,043,123		$	1,359,254		$	1,265,382
LIABILITIES AND EQUITY
Indebtedness, net	$	653,750		$	517,272		$	737,621		$	694,239
Accounts payable and accrued liabilities	15,752			15,180			15,904			15,217
Construction payables, including retentions	45,541			47,445			42,293			50,796
Billings in excess of construction contract costs and estimated earnings	1,767			3,591			3,622			3,037
Lease liabilities							41,697			—
Other liabilities	40,912			39,352			40,431			46,203
Total Liabilities	757,722			622,840			881,568			809,492

Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of September 30, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value, 500,000,000 shares authorized, 49,576,222 and 44,937,763 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively	496			449
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued and outstanding as of March 31, 2019 and December 31, 2018, respectively							—			—
Common stock, $0.01 par value, 500,000,000 shares authorized, 52,326,803 and 50,013,731 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively							523			500
Additional paid-in capital	350,849			287,407			389,547			357,353
Distributions in excess of earnings	(76,386		)	(61,166		)	(88,949		)	(82,699		)
Accumulated other comprehensive loss	(47		)	—			(1,981		)	(1,283		)
Total stockholders’ equity	274,912			226,690			299,140			273,871
Noncontrolling interests	185,224			193,593			178,546			182,019
Total Equity	460,136			420,283			477,686			455,890
Total Liabilities and Equity	$	1,217,858		$	1,043,123		$	1,359,254		$	1,265,382

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues
Rental revenues	$	28,930		$	27,096		$	86,227		$	81,083		$	30,909		$	28,699
General contracting and real estate services revenues	19,950			41,201			63,654			161,391			17,036			23,050
Total revenues	48,880			68,297			149,881			242,474			47,945			51,749

Expenses
Rental expenses	7,103			6,830			20,049			19,069			6,725			6,424
Real estate taxes	2,840			2,693			8,388			7,797			3,128			2,813
General contracting and real estate services expenses	18,973			39,377			61,474			154,588			16,286			22,414
Depreciation and amortization	10,196			9,239			28,653			28,018			9,904			9,278
General and administrative expenses	2,367			2,098			8,092			7,762			3,401			2,961
Acquisition, development and other pursuit costs	69			61			162			477			400			84
Impairment charges	3			19			101			50
Total expenses	41,551			60,317			126,919			217,761			39,844			43,974
Operating income	7,329			7,980			22,962			24,713			8,101			7,775
Interest income	2,545			1,910			7,152			4,966			5,319			2,232
Interest expense	(4,677		)	(4,253		)	(13,547		)	(13,282		)	(5,886		)	(4,373		)
Loss on extinguishment of debt	(11		)	—			(11		)	—
Gain on real estate dispositions	—			4,692			—			8,087
Equity in income of unconsolidated real estate entities													273			—
Change in fair value of interest rate derivatives	298			87			1,256			300			(1,463		)	969
Other income	65			74			233			154			60			114
Income before taxes	5,549			10,490			18,045			24,938			6,404			6,717
Income tax benefit (provision)	120			(29		)	552			(781		)
Income tax benefit													110			266
Net income	5,669			10,461			18,597			24,157			6,514			6,983
Net income attributable to noncontrolling interests	(1,467		)	(2,973		)	(5,036		)	(7,262		)	(1,630		)	(1,943		)
Net income attributable to stockholders	$	4,202		$	7,488		$	13,561		$	16,895		$	4,884		$	5,040
Net income attributable to stockholders per share (basic and diluted)	$	0.09		$	0.17		$	0.29		$	0.41		$	0.10		$	0.11
Weighted-average common shares outstanding (basic and diluted)	49,194			44,934			46,766			41,575			50,926			45,132
Dividends and distributions declared per common share and unit	$	0.20		$	0.19		$	0.60		$	0.57
Comprehensive income:
Net income	$	5,669		$	10,461		$	18,597		$	24,157		$	6,514		$	6,983
Unrealized cash flow hedge losses	(130		)	—			(130		)	—			(1,003		)	—
Realized cash flow hedge losses reclassified to net income	67			—			67			—			72			—
Comprehensive income	5,606			10,461			18,534			24,157			5,583			6,983
Comprehensive income attributable to noncontrolling interests	(1,450		)	(2,973		)	(5,019		)	(7,262		)	(1,397		)	(1,943		)
Comprehensive income attributable to stockholders	$	4,156		$	7,488		$	13,515		$	16,895		$	4,186		$	5,040

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated ~~Statement~~Statements of Equity

(In thousands, except share data)

(Unaudited)


	Shares of common stock		Common Stock		Additional paid-in capital			Distributions in excess of earnings			Accumulated other comprehensive loss			Total stockholders' equity			Noncontrolling interests			Total Equity			Shares of common stock		Common Stock		Additional paid-in capital			Distributions in excess of earnings			Accumulated other comprehensive loss			Total stockholders' equity			Noncontrolling interests			Total Equity
Balance, January 1, 2018	44,937,763		$	449	$	287,407		$	(61,166	)	$	—		$	226,690		$	193,593		$	420,283
Balance, December 31, 2018																							50,013,731		$	500	$	357,353		$	(82,699	)	$	(1,283	)	$	273,871		$	182,019		$	455,890
Cumulative effect of accounting change⁽¹⁾																							—		—		—			(125		)	—			(125		)	(42		)	(167		)
Net income	—		—		—			13,561			—			13,561			5,036			18,597			—		—		—			4,884			—			4,884			1,630			6,514
Unrealized cash flow hedge losses	—		—		—			—			(97		)	(97		)	(33		)	(130		)	—		—		—			—			(752		)	(752		)	(251		)	(1,003		)
Realized cash flow hedge losses reclassified to net income	—		—		—			—			50			50			17			67			—		—		—			—			54			54			18			72
Net proceeds from sales of common stock	4,227,978		42		59,487			—			—			59,529			—			59,529			2,071,000		21		30,185			—			—			30,206			—			30,206
Restricted stock awards, net of tax withholding	127,275		2		1,309			—			—			1,311			—			1,311			124,013		1		754			—			—			755			—			755
Restricted stock award forfeitures	(3,298	)	—		(26		)	—			—			(26		)	—			(26		)	(412	)	—		(4		)	—			—			(4		)	—			(4		)
Issuance of operating partnership units for acquisitions	—		—		(5		)	—			—			(5		)	2,201			2,196
Redemption of operating partnership units	286,504		3		2,677			—			—			2,680			(5,211		)	(2,531		)	118,471		1		1,259			—			—			1,260			(1,260		)	—
Dividends and distributions declared	—		—		—			(28,781		)	—			(28,781		)	(10,379		)	(39,160		)
Balance, September 30, 2018	49,576,222		$	496	$	350,849		$	(76,386	)	$	(47	)	$	274,912		$	185,224		$	460,136
Dividends and distributions declared ($0.21 per share and unit)																							—		—		—			(11,009		)	—			(11,009		)	(3,568		)	(14,577		)
Balance, March 31, 2019																							52,326,803		$	523	$	389,547		$	(88,949	)	$	(1,981	)	$	299,140		$	178,546		$	477,686

(1) Company recorded cumulative effect adjustments related to the new lease standard in the first quarter of 2019. See "Financial Statements — Note 2 — Significant Accounting Policies — Recent Accounting Pronouncements” for additional information.



	Shares of common stock		Common Stock		Additional paid-in capital			Distributions in excess of earnings			Accumulated other comprehensive loss		Total stockholders' equity			Noncontrolling interests			Total Equity
Balance, December 31, 2017	44,937,763		$	449	$	287,407		$	(61,166	)	$	—	$	226,690		$	193,593		$	420,283
Net income	—		—		—			5,040			—		5,040			1,943			6,983
Restricted stock awards, net of tax withholding	105,362		1		499			—			—		500			—			500
Restricted stock award forfeitures	(550	)	—		(4		)	—			—		(4		)	—			(4		)
Issuance of operating partnership units for acquisitions	—		—		—			—			—		—			1,696			1,696
Redemption of operating partnership units	163,000		2		1,797			—			—		1,799			(1,804		)	(5		)
Dividends and distributions declared ($0.20 per share and unit)	—		—		—			(9,064		)	—		(9,064		)	(3,488		)	(12,552		)
Balance, March 31, 2018	45,205,575		$	452	$	289,699		$	(65,190	)	$	—	$	224,961		$	191,940		$	416,901

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)(Unaudited)

Nine Months Ended
September 30,
2018 2017
OPERATING ACTIVITIES
Net income $ 18,597
$ 24,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements 21,404
19,385
Amortization of leasing costs and in-place lease intangibles 7,249
8,633
Accrued straight-line rental revenue (1,789 ) (927 )
Amortization of leasing incentives and above or below-market rents (211 ) (140 )
Accrued straight-line ground rent expense 187
401
Bad debt expense 245
425
Noncash stock compensation 1,072
1,047
Impairment charges 101
50
Noncash interest expense 827
940
Loss on extinguishment of debt 11
—
Gain on real estate dispositions —
(8,087 )
Change in the fair value of interest rate derivatives (1,256 ) (300 )
Changes in operating assets and liabilities:
Property assets (3,610 ) (3,871 )
Property liabilities 2,031
3,498
Construction assets 3,044
4,065
Construction liabilities (13,558 ) (12,648 )
Interest receivable (7,147 ) (4,962 )
Net cash provided by operating activities 27,197
31,666
INVESTING ACTIVITIES
Development of real estate investments (102,183 ) (28,731 )
Tenant and building improvements (8,281 ) (8,104 )
Acquisitions of real estate investments, net of cash received (57,541 ) (28,020 )
Dispositions of real estate investments, net of selling costs 4,271
12,557
Notes receivable issuances (10,281 ) (10,792 )
Leasing costs (4,048 ) (149 )
Leasing incentives (95 ) (147 )
Contributions to equity method investments (5,400 ) (934 )
Net cash used for investing activities (183,558 ) (64,320 )
FINANCING ACTIVITIES
Proceeds from sales of common stock 60,439
96,044
Offering costs (910 ) (4,663 )
Common shares tendered for tax withholding (343 ) (289 )
Debt issuances, credit facility and construction loan borrowings 274,427
124,206
Debt and credit facility repayments, including principal amortization (138,122 ) (152,201 )
Debt issuance costs (1,317 ) (751 )
Redemption of operating partnership units (2,531 ) (229 )
Dividends and distributions (37,550 ) (31,740 )
Net cash provided by financing activities 154,093
30,377
Net decrease in cash and cash equivalents (2,268 ) (2,277 )
Cash, cash equivalents, and restricted cash, beginning of period 22,916
25,193
Cash, cash equivalents, and restricted cash, end of period $ 20,648
$ 22,916
Supplemental Disclosures (noncash transactions):
Increase in dividends payable $ 1,610
$ 2,214
Increase (decrease) in accounts payable and accrued liabilities for capital expenditures $ 10,103
$ (5,874 )
Issuance of operating partnership units for acquisitions

$ 1,702
$ 982
Operating Partnership units redeemed for common shares $ 3,151
$ —
Redeemable noncontrolling interest from development $ —
$ 2,000
Deferred payment for land acquisition $ —
$ 600



	Three Months Ended March 31,
	2019			2018
OPERATING ACTIVITIES
Net income	$	6,514		$	6,983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements	7,743			6,773
Amortization of leasing costs and in-place lease intangibles	2,161			2,505
Accrued straight-line rental revenue	(837		)	(562		)
Amortization of leasing incentives and above or below-market rents	(35		)	(56		)
Accrued straight-line ground rent expense	(3		)	84
Adjustment for uncollectable accounts	128			52
Noncash stock compensation	689			549
Noncash interest expense	304			326
Adjustment for Annapolis Junction purchase option ₍₁₎	(1,118		)	—
Change in fair value of interest rate derivatives	1,463			(969		)
Equity in income of unconsolidated real estate entities	(273		)	—
Changes in operating assets and liabilities:
Property assets	2,591			1,771
Property liabilities	(139		)	(3,484		)
Construction assets	(502		)	3,482
Construction liabilities	579			(11,183		)
Interest receivable	(3,186		)	(2,221		)
Net cash provided by operating activities	16,079			4,050
INVESTING ACTIVITIES
Development of real estate investments	(41,296		)	(26,438		)
Tenant and building improvements	(3,629		)	(2,246		)
Acquisitions of real estate investments, net of cash received	(25,792		)	(33,368		)
Notes receivable issuances	(9,668		)	(3,386		)
Notes receivable paydowns	1,692			—
Leasing costs	(575		)	(680		)
Contributions to equity method investments	(535		)	(1,410		)
Net cash used for investing activities	(79,803		)	(67,528		)
FINANCING ACTIVITIES
Proceeds from sales of common stock	30,609			—
Offering costs	(403		)	—
Common shares tendered for tax withholding	(344		)	(343		)
Debt issuances, credit facility and construction loan borrowings	100,327			111,498
Debt and credit facility repayments, including principal amortization	(57,690		)	(39,273		)
Debt issuance costs	(420		)	(201		)
Redemption of operating partnership units	—			(5		)
Dividends and distributions	(13,447		)	(11,808		)
Net cash provided by financing activities	58,632			59,868
Net decrease in cash and cash equivalents	(5,092		)	(3,610		)
Cash, cash equivalents, and restricted cash, beginning of period	24,051			22,916
Cash, cash equivalents, and restricted cash, end of period₍₂₎	$	18,959		$	19,306

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)(Unaudited)



	Three Months Ended March 31,
	2019			2018
Supplemental Disclosures (noncash transactions):
Increase in dividends payable	$	1,130		$	744
Decrease in accrued capital improvements and development costs	(7,609		)	(4,434		)
Issuance of operating partnership units for acquisitions	—			1,702
Operating Partnership units redeemed for common shares	1,260			1,804
Equity method investment redeemed for real estate acquisition	23,011			—

(1) See 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, 2018. Borrower paid $5.0 million in exchange for the Company's purchase option. Recognition of income was initially deferrred and is being recognized as additional interest income on the note receivable over the one-year remaining term.

(2) 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, 2019		March 31, 2018
Cash and cash equivalents	$	15,577	$	15,804
Restricted cash ₍₃₎	3,382		3,502
Cash, cash equivalents, and restricted cash	$	18,959	$	19,306

(3) Restricted cash represents amounts held by lenders for real estate taxes, insurance, and reserves for capital improvements.

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ARMADA HOFFLER PROPERTIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Business of Organization

Armada Hoffler Properties, Inc. (the ~~“Company”~~"Company") is a full service real estate company with extensive experience developing, building, owning, and managing high-quality, institutional-grade office, retail, and multifamily properties in attractive markets primarily throughout the Mid-Atlantic and Southeastern United States.

The Company is a real estate investment trust ("REIT"), the sole general partner of Armada Hoffler, L.P. (the ~~“Operating Partnership”~~"Operating Partnership") and, as of ~~September 30, 2018,~~March 31, 2019, owned ~~74.3%~~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 carried on primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership.

As of ~~September 30, 2018,~~March 31, 2019, the Company's property portfolio consisted of 5048 operating properties and 1011 properties either under development ~~properties.~~or not yet stabilized.

Refer to Note 45 for information related to the Company's recent acquisitions and dispositions of operating properties.

Refer to Note 5 for information related to the Company’s investment in Durham City Center II, LLC, which is an unconsolidated subsidiary that the Company accounts for using the equity method of accounting.

2. ~~Summary of~~ Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ~~generally accepted in the United States (“GAAP”~~("GAAP").

The condensed consolidated financial statements include the financial position and results of operations of the Company and its consolidated ~~subsidiaries.~~subsidiaries, including the Operating Partnership, its wholly-owned subsidiaries, and any interests in variable interest entities ("VIEs") where the Company has been determined to be the primary beneficiary. All significant intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition and results of operations for the interim periods presented.

The accompanying condensed consolidated financial statements were prepared in accordance with the requirements for interim financial information. Accordingly, these interim financial statements have not been audited and exclude certain disclosures required for annual financial statements. Also, the operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed. Such estimates are based on management’s historical experience and best judgment after considering past, current, and expected events and economic conditions. Actual results could differ significantly from management’s estimates.

Reclassifications

As discussed below, certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period's presentation.

During the second quarter of 2018, the Company identified certain immaterial classification errors on the Company's Consolidated Statements of Cash Flows and determined that, in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 and future periodic reports, the Company ~~will~~would correct these classification errors. One classification error ~~will be~~

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was corrected by including within the changes in operating assets and liabilities in the operating activities section a new line item for "Interest receivable." A corresponding adjustment ~~will be~~was recorded to reduce the amount of "Notes receivable

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issuances" within investing activities on the ~~consolidated statement~~Consolidated Statement of ~~cash flows.~~Cash Flows. These reclassifications totaled ~~$7.1 million, $3.2 million, and $0.1 million during the years ended December 31, 2017, 2016, and 2015, respectively and $5.0~~$2.2 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. These reclassifications ~~will decrease~~decreased "Net cash provided by operating activities" and "Net cash used for investing activities" by an equal and offsetting amount. These reclassifications ~~will~~did not have any impact on the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated ~~Statement~~Statements of Equity, or any other operating measure for the periods affected.

These amounts were previously presented as "Notes receivable issuances," a component of net cash used for investing activities on the Consolidated Statements of Cash Flows, resulting in overstatements in cash provided by operating activities and overstatements of cash used in investing activities. These amounts represent interest earned on mezzanine loans that were funded by additional borrowings as provided for in the mezzanine loan agreements. These amounts are now classified as changes in interest receivable, a non-cash adjustment to calculate net cash provided by operating activities.

The second classification error ~~will be~~was corrected by including within financing activities on the Consolidated Statements of Cash Flows a new line item for ~~“Common~~"Common shares tendered for tax withholding.”" A corresponding adjustment ~~will be~~was recorded to the "Changes in operating assets and liabilities: Property liabilities" within operating activities on the Consolidated Statements of Cash Flows. This reclassification totaled $0.3 million ~~$0.2 million, and $0.3 million during the years ended December 31, 2017, 2016, and 2015, respectively and $0.3 million~~ for the ~~nine~~three months ended ~~September 30, 2017. These reclassifications will increase “Net~~March 31, 2018. This reclassification increased "Net cash provided by operating ~~activities”~~activities" and ~~decrease “Net~~decreased "Net cash provided by financing ~~activities”~~activities" by an equal and offsetting amount.

~~Significant~~Recent Accounting ~~Policies~~Pronouncements

~~General Contracting and Real Estate Services Revenues~~Leases

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

~~The Company recognizes real estate services revenues from property development and management services as it satisfies its performance obligations under these service arrangements.~~

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

See the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for a description of other accounting principles upon which basis the accompanying consolidated financial statements were prepared.

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~~Recent Accounting Pronouncements~~

~~On May 28, 2014,~~February 25, 2016, the Financial Accounting Standards Board ("FASB") issued a new standard that provides a single, comprehensive model for recognizing revenue from contracts with customers. While the new standard does not supersede the guidance on accounting for leases, it changes the way the Company recognizes revenue from construction and development contracts with third party customers. The Company adopted this standard on January 1, 2018 using the modified retrospective method, applying this standard to all contracts not yet completed as of that date. In applying the standard to the Company’s future construction contracts, certain pre-contract costs incurred by the Company are now deferred and amortized over the period during which construction obligations are fulfilled. Previously, these costs were immediately recorded as general contracting expenses upon commencement of construction, with the corresponding general contracting revenue also recorded. Applying the standard to the Company’s uncompleted contracts as of January 1, 2018 did not result in material differences to these contracts in aggregate, and no cumulative adjustment to distributions in excess of earnings was recorded as of January 1, 2018.

~~On February 25, 2016, the FASB issued a new lease standard~~an Accounting Standards Update ("ASU") that requires lessees to recognize most leases inon their balance sheets as lease liabilities with corresponding right-of-use ~~assets.~~assets (ASU 2016-02—Leases (Topic 842)). The new standard also makes targeted changes to lessor accounting. The Company adopted the new standard ~~will be effective for the Company~~ on January 1, 2019, ~~and requires a~~using the modified retrospective ~~transition~~ approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented ~~with an option~~as permitted in Accounting Standards Codification ("ASC") Topic 842.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to ~~use certain transition relief. Management is currently evaluating~~not reassess whether any expired or existing contracts are or contain leases, not reassess the ~~potential impact~~lease classification for any expired or existing leases, and not reassess initial direct costs for existing leases. As of March 31, 2019, Company does not have any leases classified as finance leases. The Company also elected a practical expedient that allowed it to not separate non-lease components from lease components and instead to account for each lease and non-lease component as a single lease component. The adoption of the new standard as of January 1, 2019 did not impact the Company's consolidated results of operations and had no impact on cash flows.

As a lessee, the ~~Company’s consolidated financial statements.~~Company has six ground leases on five properties with initial terms that range from 20 to 65 years and options to extend up to an additional 70 years in certain cases. 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. The Company isrecognizes lease expense on a straight-line basis over the ~~lessee on certain~~lease term. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.

The long-term ground leases ~~which represents~~represent a majority of the Company's current operating lease ~~payments, and expects to record~~payments. The Company recorded right-of-use assets totaling $32.2 million and lease liabilities ~~for these leases under the new standard.~~totaling $41.4 million upon adopting this standard on January 1, 2019. The Company ~~anticipates utilizing certain transition relief under the new standard that will allow~~utilized a weighted average discount rate of 5.4% to measure its lease liabilities upon adoption.

As a lessor, the Company ~~not to apply~~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 ~~aspects~~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 ~~new standard~~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 ~~its existing leases.~~

In 2016, the FASB issued new guidance that addresses eight classification issues related to the statement of cash flows and requires the presentation of total changes in cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. The Company adopted this new guidance on December 31, 2017, applying it retrospectively to each period presented. The new guidance requires that the statement of cash flows show changes in restricted cash in addition to changes in cash and cash equivalents. No additional changes were required to be made to the Company's consolidated statements of cash flows as a result of the new guidance. The following table sets forth the items from the Company's consolidated balance sheets that are included in cash, cash equivalents, and restricted cash in the consolidated statements of cash flows (in thousands):

Balance as of
September 30, 2018 December 31, 2017 September 30, 2017 December 31, 2016
Cash and cash equivalents $ 17,732
$ 19,959
$ 19,721
$ 21,942
Restricted cash 2,916
2,957
3,195
3,251
Cash, cash equivalents, and restricted cash $ 20,648
$ 22,916
$ 22,916
$ 25,193

renew, with

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renewal terms that can extend the lease term from one to 15 years or more. The ~~following table summarizes~~exercise of lease renewal options is at the ~~changes made to net cash provided by operating activities, net cash used for investing activities, and net cash provided by financing activities~~tenant's sole discretion. The Company includes a renewal period in the ~~consolidated statement~~lease term only if it appears at lease inception that the renewal is reasonably assured.

The new standard includes new considerations regarding the recognition of ~~cash flows~~rental revenue when collection is not probable. The Company changed its presentation and measurement of charges for uncollectable lease revenue associated with its office, retail, and residential leasing activity, reflecting those amounts as a component of rental income on the accompanying Condensed Consolidated Statement of Comprehensive Income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019. However, in accordance with its prospective adoption of the standard, the Company did not adjust the prior year period presentation of charges for uncollectable lease revenue associated with its office, retail, and residential leasing activity as a component of operating expenses, excluding property taxes, on the accompanying Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2018. Instead, the Company recorded a combined adjustment of $0.2 million to the opening balances for distributions in excess of earnings and noncontrolling interest relating to receivables where collection of substantially all operating lease payments was not probable as of January 1, 2019.

Nine months ended
September 30, 2017
Operating activities as originally presented $ 36,598
Adjustment relating to restricted cash (259 )
Adjustment for shares tendered for tax withholding 289
Adjustment relating to interest income presentation (4,962 )
Operating activities after adjustments $ 31,666

Investing activities as originally presented $ (69,485 )
Adjustment relating to restricted cash 203
Adjustment relating to interest income presentation 4,962
Investing activities after adjustments $ (64,320 )

Financing activities as originally presented $ 30,666
Adjustment for shares tendered for tax withholding (289 )
Financing activities after adjustments $ 30,377
or cash collected.

~~On February 22, 2017,~~Credit losses

In June 2016, the FASB issued ~~new guidance that clarifies the scope and application~~ASU 2016-13, Financial Instruments - Credit Losses - Measurement of ~~guidance~~Credit Losses on ~~sales or transfers of nonfinancial~~Financial Instruments (Topic 326). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will replace the "incurred loss" approach under existing guidance with an "expected loss" model for instruments measured at amortized cost such as our notes receivable. The guidance is effective for fiscal years beginning after December 15, 2019 and is to be adopted through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in ~~substance nonfinancial assets to customers, including partial sales. The new~~which the guidance ~~applies to all nonfinancial assets, including real estate, and defines an in substance nonfinancial asset. The~~is effective. While the Company ~~adopted~~is currently evaluating the ~~new guidance on January 1, 2018, and it did not~~impact ASU 2016-13 will have ~~a material impact~~ on the ~~Company’s~~ consolidated financial ~~statements.~~statements, the Company expects that the adoption could result in earlier recognition of a provision for loan losses on its notes receivable.

~~On August 28, 2017,~~Other Accounting Policies

See the ~~FASB issued new guidance that simplifies some of~~Company's Annual Report on Form 10-K for the ~~requirements relating to accounting for derivatives and hedging. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness~~year ended December 31, 2018 for a ~~highly effective hedge and also simplifies certain documentation and assessment requirements relating to~~description of other accounting principles upon which basis the determination of hedge effectiveness. The Company adopted this guidance effective July 1, 2018. The application of this guidance to hedging relationships could reduce or eliminate the gains and losses that would otherwise be recorded in net income for these derivative instruments.accompanying consolidated financial statements were prepared.

3. Segments

Net operating income (segment revenues minus segment expenses) is the measure used by the Company’s chief operating decision-maker to assess segment performance. Net operating income is not a measure of operating income or cash flows from operating activities as measured by GAAP and is not indicative of cash available to fund cash needs. As a result, net operating income should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate net operating income in the same manner. The Company considers net operating income to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate, construction, and ~~construction~~lending businesses.

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Net operating income of the Company’s reportable segments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
	(Unaudited)								(Unaudited)
Office real estate
Rental revenues	$	5,149	$	4,762	$	15,537	$	14,427	$	5,556	$	5,100
Rental expenses	1,551		1,447		4,435		4,138		1,486		1,446
Real estate taxes	515		481		1,519		1,381		526		502
Segment net operating income	3,083		2,834		9,583		8,908		3,544		3,152
Retail real estate
Rental revenues	16,932		15,880		50,251		47,089		17,257		16,711
Rental expenses	2,761		2,699		7,974		7,698		2,600		2,657
Real estate taxes	1,703		1,588		5,041		4,557		1,811		1,683
Segment net operating income	12,468		11,593		37,236		34,834		12,846		12,371
Multifamily residential real estate
Rental revenues	6,849		6,454		20,439		19,567		8,096		6,888
Rental expenses	2,791		2,684		7,640		7,233		2,639		2,321
Real estate taxes	622		624		1,828		1,859		791		628
Segment net operating income	3,436		3,146		10,971		10,475		4,666		3,939
General contracting and real estate services
Segment revenues	19,950		41,201		63,654		161,391		17,036		23,050
Segment expenses	18,973		39,377		61,474		154,588		16,286		22,414
Segment gross profit	977		1,824		2,180		6,803		750		636
Net operating income	$	19,964	$	19,397	$	59,970	$	61,020	$	21,806	$	20,098

Rental expenses represent costs directly associated with the operation and management of the Company’s real estate properties. Rental expenses include asset management fees, property management fees, repairs and maintenance, insurance, and utilities.

General contracting and real estate services revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ exclude revenue related to intercompany construction contracts of ~~$38.5~~$30.2 million and $13.9 million, respectively. General contracting and real estate services revenues for the nine months ended September 30, 2018 and 2017 exclude revenue related to intercompany construction contracts of $98.6 million and $31.3$25.9 million, respectively.

General contracting and real estate services expenses for the three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ exclude expenses related to intercompany construction contracts of ~~$38.2~~$29.9 million and $13.7 million, respectively. General contracting and real estate services expenses for the nine months ended September 30, 2018 and 2017 exclude expenses related to intercompany construction contracts of $97.7 million and $31.0$25.6 million, respectively.

General contracting and real estate services expenses for the three months ended ~~September 30,~~March 31, 2019 and 2018 and 2017 include noncash stock compensation expense of less than $0.1 million for each period. General contracting and real estate services expenses for the nine months ended September 30, 2018 and 2017 include noncash stock compensation expense of $0.2 million ~~for each period.~~and $0.1 million, respectively.

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The following table reconciles net operating income to net income, the most directly comparable GAAP measure, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(Unaudited)												(Unaudited)
Net operating income	$	19,964		$	19,397		$	59,970		$	61,020		$	21,806		$	20,098
Depreciation and amortization	(10,196		)	(9,239		)	(28,653		)	(28,018		)	(9,904		)	(9,278		)
General and administrative expenses	(2,367		)	(2,098		)	(8,092		)	(7,762		)	(3,401		)	(2,961		)
Acquisition, development and other pursuit costs	(69		)	(61		)	(162		)	(477		)
Impairment charges	(3		)	(19		)	(101		)	(50		)
Acquisition, development, and other pursuit costs													(400		)	(84		)
Interest income	2,545			1,910			7,152			4,966			5,319			2,232
Interest expense	(4,677		)	(4,253		)	(13,547		)	(13,282		)	(5,886		)	(4,373		)
Loss on extinguishment of debt	(11		)	—			(11		)	—
Gain on real estate dispositions	—			4,692			—			8,087
Equity in income of unconsolidated real estate entities													273			—
Change in fair value of interest rate derivatives	298			87			1,256			300			(1,463		)	969
Other income	65			74			233			154			60			114
Income tax benefit (provision)	120			(29		)	552			(781		)
Income tax benefit													110			266
Net income	$	5,669		$	10,461		$	18,597		$	24,157		$	6,514		$	6,983

General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties and general contracting and real estate services businesses. General and administrative expenses include corporate office personnel salaries and benefits, bank fees, accounting fees, legal fees and other corporate office expenses. General and administrative expenses for the three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ include noncash stock compensation expense of ~~$0.2 million for each period. General and administrative expenses for the nine months ended September 30, 2018 and 2017 include noncash stock compensation expense of $0.9~~$0.5 million and ~~$0.8~~$0.5 million, respectively.

4. Leases

Lessee Disclosures

Operating lease cost and cash flow for the Company's operating leases for the three months ended March 31, 2019 and 2018 were as follows (in thousands):



	Three Months Ended March 31, 2019
	(Unaudited)
Operating lease cost	$	563
Cash paid for amounts included in the measurement of lease liabilities (operating cash flow)	500

Additional information related to leases as of March 31, 2019 and December 31, 2018 were as follows (in thousands):



	March 31, 2019
	(Unaudited)
Operating Leases
Lease right-of-use assets	$	32,242
Lease liabilities	41,697

Weighted Average Remaining Lease Term (years)
Operating leases	45.90
Weighted Average Discount Rate
Operating leases	5.4		%

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Maturities of lease liabilities as of March 31, 2019 were as follows (in thousands):



Year Ending December 31,	Operating Leases
2019 (excluding three months ended March 31, 2019)	$	1,580
2020	2,287
2021	2,296
2022	2,361
2023	2,400
Thereafter	105,961
Total lease liabilities	$	116,885
Less imputed interest	(75,188		)
Present value of lease liabilities	$	41,697

Lessor Disclosures

Rental revenue for the three months ended March 31, 2019 and 2018 comprised the following (in thousands):



	Three Months Ended March 31, 2019
	(Unaudited)
Base rent and tenant charges	$	29,925
Accrued straight-line rental adjustment	961
Lease incentive amortization	(184		)
Above/below market lease amortization	207
Total rental revenue	$	30,909

The Company's commercial tenant leases provide for minimum rental payments during each of the next five years and thereafter as follows (in thousands):



Year Ending December 31,	Operating Leases
2019 (excluding three months ended March 31, 2019)	$	82,018
2020	76,045
2021	69,142
2022	62,498
2023	54,208
Thereafter	255,791
Total	$	599,702

5. Real Estate Investment

Property Acquisitions

On ~~January 9, 2018,~~February 6, 2019, the Company acquired ~~Indian Lakes Crossing, a Harris Teeter-anchored shopping center~~an additional outparcel phase of Wendover Village in ~~Virginia Beach, Virginia,~~Greensboro, North Carolina for a contract price of ~~$14.7~~$2.7 million plus capitalized acquisition costs of ~~$0.2~~$0.1 million. This phase is leased by a single tenant.

On ~~January 29, 2018,~~March 14, 2019, the Company acquired ~~Parkway Centre,~~the office and retail portions of the One City Center project in exchange for a ~~newly developed Publix-anchored shopping center in Moultrie, Georgia, for total consideration~~redemption of ~~$11.3 million (comprised of $9.6 million in cash and $1.7 million~~its 37% equity ownership in the ~~form~~joint venture with Austin Lawrence Partners, which totaled $23.0 million as of ~~Class A units~~the acquisition date, and a cash payment of ~~limited partnership interest in the Operating Partnership ("Class A Units")) plus~~$22.9 million. The Company also incurred capitalized acquisition costs of ~~$0.3~~$0.1 million.

~~On August 28, 2018, the~~ The Company ~~acquired Lexington Square,~~obtained a newly developed Lowes Foods-anchored shopping center in Lexington, South Carolina, for a purchase price of $26.8 million, consisting of cash consideration of $24.2 million and $2.6 million of additional considerationnew loan in the ~~form~~amount of ~~Class A Units issuable~~$25.6 million in ~~increments~~conjunction with this acquisition, which may be increased to ~~the seller upon the fulfillment of~~$27.6 million subject to certain occupancy thresholds within the first 18 months of the Company's ownership. No Class A Units have been issued as of September 30, 2018 for this acquisition. As part of this transaction, the Company also capitalized acquisition costs of $0.4 million.conditions.

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The following table summarizes the purchase price allocation (including acquisition costs) based on relative fair value of the assets acquired and liabilities assumed for the ~~three~~two operating properties purchased during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 (in thousands):


	Indian Lakes Crossing			Parkway Centre			Lexington Square			Wendover Village additional outparcel		One City Center
Land	$	10,926		$	1,372		$	3,036		$	1,633	$	2,678
Site improvements	531			696			7,396			50		163
Building and improvements	1,913			7,168			10,387			888		28,039
In-place leases	1,648			2,346			4,113			101		15,140
Above-market leases	11			—			89			111		—
Below-market leases	(175		)	(10		)	(447		)
Net assets acquired	$	14,854		$	11,572		$	24,574		$	2,783	$	46,020

Subsequent to March 31, 2019

On ~~November 30, 2017,~~April 1, 2019, the Company sold Waynesboro Commons for a sale price of $1.1 million. This property was classified as held for sale as of March 31, 2019.

On April 25, 2019, the Company exercised its option to purchase 79% of the partnership that owns 1405 Point in exchange for extinguishing its note receivable on the project and making a cash payment of $0.3 million. The project is subject to a loan payable of $64.9 million. The Company has also guaranteed payment on a portion of the loan payable. See Note 15 for additional discussion.

On April 29, 2019, the Company entered into contribution agreements with Venture Realty Group to acquire Red Mill Commons and Marketplace at Hilltop for consideration comprised of 4.1 million Class A Units (as defined below), the assumption of $36.0 million of mortgage debt, and $5.0 million in cash. The consideration to be paid was determined based on an estimated transaction price of $105.0 million. In connection with the acquisition, the Company and the Operating Partnership expect to enter into a ~~lease~~tax protection agreement with ~~Bottling Group, LLC~~the contributors pursuant to which such parties will agree, subject to certain exceptions, to indemnify the contributors for up to 10 years against certain tax liabilities incurred by them, if such liabilities result from a ~~new distribution facility that~~transaction involving a direct or indirect taxable disposition of either or both of these properties or if the ~~Company will develop~~Operating Partnership fails to maintain and ~~construct~~allocate to the sellers for ~~expected delivery in the fourth quarter~~taxation purposes minimum levels of 2018. On January 29, 2018, the Company acquired undeveloped land in Chesterfield, Virginia, a portion of which currently serves as the site for this facility, for a contract price of $2.4 million plus capitalized acquisition costs of $0.1 million.

On January 18, 2018, the Company entered into an operating agreement with a partner to develop a Lowes Foods-anchored shopping center in Mount Pleasant, South Carolina. The Company has a 70% ownership interest in the partnership. The partnership, Market at Mill Creek Partners, LLC, acquired undeveloped land on February 16, 2018 for a contract price of $2.9 million plus capitalized acquisition costs of $0.1 million. The Company is responsible for funding the equity requirements of this development. As of September 30, 2018, the book value of the Company's investment in the project totaled $14.2 million. Management has concluded that this entity is a variable interest entity ("VIE") as it lacks sufficient equity to fund its operations without additional financial support. The Company is the developer of the shopping center and has the power to direct the activities of the project that most significantly impact its performance and is the party most closely associated with the project. Therefore, the Company is the project's primary beneficiary and consolidates the project in its consolidated financial statements.

~~On April 2, 2018, the Company acquired undeveloped land in Newport News, Virginia for less than $0.1 million. This land parcel is being used in the development of the Brooks Crossing office property.~~

On July 2, 2018, the Company executed a ground lease for the site of a new mixed-use development project at Wills Wharf, a site in the Harbor Point area of Baltimore, Maryland. The lease has an initial term of five years and includes ten extension options of seven years each.

~~Property Disposition~~

~~On May 24, 2018, the Company completed the sale of the Wawa outparcel at Indian Lakes Crossing for a contract price of $4.4 million. There was no gain or loss on the disposition.~~Operating Partnership liabilities.

5.6. Equity Method Investment

One City Center

On February 25, 2016, the Company acquired a 37% interest in ~~Durham~~One City Center, ~~II, LLC (“City Center”)~~a joint venture with Austin Lawrence Partners, for purposes of developing a 22-story mixed use tower in Durham, North Carolina. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company invested an additional ~~$5.1~~$0.5 million in One City Center. As

For the period from January 1, 2019 to March 13, 2019, One City Center had operating income of ~~September 30,~~$0.3 million allocated to the Company. For the three months ended March 31, 2018, One City Center had no operating activity, and ~~December 31, 2017,~~therefore the Company ~~had invested $15.9 million~~received no allocated income.

On March 14, 2019, the Company acquired the office and ~~$10.9 million, respectively, in~~retail portions of the One City Center project in exchange for its 37% equity ownership in the joint venture and ~~the carrying value~~a cash payment of ~~the Company's investment was $16.8 million and $11.4 million, respectively. The Company has agreed to guarantee 37% of the construction loan~~$22.9 million. See Note 5 for City Center; however, the loan is collateralized by 100% of the assets of City Center. As of September 30, 2018 and December 31, 2017, $44.2 million and $29.2 million, respectively, had been drawn against the construction loan, of which $16.3 million and $11.2 million, respectively, was attributable to the Company's portion of the loan.additional discussion.

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~~For the three and nine months ended September 30, 2018 and 2017, City Center did not have any operating activity, and therefore the Company did not receive any distributions or allocated income.~~

Based on the terms of City Center’s operating agreement, the Company has concluded that City Center is a VIE and that the Company holds a variable interest. The Company does not have the power to direct the activities of the project that most significantly impact its performance. Accordingly, the Company is not the project’s primary beneficiary and, therefore, does not consolidate City Center in its consolidated financial statements.

6.7. Notes Receivable

The Company had the following ~~mezzanine loans~~notes receivable outstanding as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017 (in~~2018 ($ in thousands):


	Outstanding loan amount				Maximum loan commitment		Interest rate		Outstanding loan amount						Maximum loan commitment		Interest rate		Interest compounding
Development Project	September 30, 2018		December 31, 2017		Maximum loan commitment		Interest rate		March 31, 2019			December 31, 2018			Maximum loan commitment		Interest rate		Interest compounding
1405 Point	$	28,133	$	22,444	$	28,232	8.0	%	$	30,939		$	30,238		$	31,032	8.0	%	Monthly
The Residences at Annapolis Junction	46,396		43,021		48,105		10.0	%	36,667			36,361			48,105		10.0	%	Monthly
North Decatur Square	15,703		11,790		29,673		15.0	%	19,159			18,521			29,673		15.0	%	Annually
Delray Plaza	6,779		5,379		13,123		15.0	%	10,417			7,032			15,000		15.0	%	Annually
Nexton Square	2,219		—		2,314		10.0	%	13,644			14,855			17,000		15.0	%	Monthly
Total	$	99,230	$	82,634	$	121,447
Interlock Commercial									23,790			18,269			95,000		15.0	%	None
Solis Apartments at Interlock									15,624			13,821			41,100		13.0	%	Annually
Total mezzanine									150,240			139,097			$	276,910
Other notes receivable									1,294			1,275
Notes receivable guarantee premium									4,009			2,800
Notes receivable discount, net ^(a)									(3,371		)	(4,489		)
Total notes receivable									$	152,172		$	138,683

(a) Represents the remaining unamortized portion of the $5.0 million option purchase fee for The Residences at Annapolis Junction paid by the borrower in November 2018.

Interest on the mezzanine loans is accrued and funded utilizing the interest reserves for each loan, which are components of the respective maximum loan commitments, and such accrued interest is added to the loan receivable balances. The Company recognized interest income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 as follows (in thousands):



	Three Months Ended March 31,
Development Project	2019		2018
1405 Point	$	610	$	453
The Residences at Annapolis Junction	2,024		1,084		(a)
North Decatur Square	638		461
Delray Plaza	310		223
Nexton Square	510		—
Interlock Commercial	743		—
Solis Apartments at Interlock	463		—
Total mezzanine	5,298		2,221
Other interest income	21		11
Total interest income	$	5,319	$	2,232

(a) Includes amortization of the $5.0 million option purchase fee paid by the borrower in November 2018.

As of March 31, 2019 and ~~2017 as follows:~~December 31, 2018, there was no allowance for loan losses. During the three months ended March 31, 2019 and 2018, there was no provision for loan losses recorded for any of the Company's notes receivable. The Company's management performs a quarterly analysis of the loan portfolio to determine if an impairment has occurred based on the progress of development activities, including leasing activities, projected development costs, and current and projected loan balances.

Delray Plaza

On January 8, 2019, the Delray Plaza loan was modified to increase the maximum amount of the loan to $15.0 million and increase the payment guarantee amount to $5.2 million.

Three Months Ended
September 30, Nine Months Ended
September 30,
Development Project 2018 2017 2018 2017
1405 Point $ 547
$ 443
$ 1,483
$ 1,288
The Residences at Annapolis Junction 1,166
1,054
3,374
3,051
North Decatur Square 569
412
1,561
623
Delray Plaza 228
—
676
—
Nexton Square 19
—
19
—
Total $ 2,529
$ 1,909
$ 7,113
$ 4,962

~~1405 Point~~

~~1405 Point (also known as Point Street Apartments) opened during the first quarter of 2018.~~

The developer of 1405 Point secured a senior construction loan of up to $67.0 million to fund the development and construction of 1405 Point on November 10, 2016. The Company has agreed to guarantee $25.0 million of the senior construction loan in exchange for the option to purchase up to an 88% controlling interest in 1405 Point upon completion of the project. The Company currently has a $2.1 million letter of credit for the guarantee of the senior construction loan.

~~The Residences at Annapolis Junction~~

The developer of The Residences at Annapolis Junction secured a senior construction loan of up to $60.0 million to fund the development and construction of Annapolis Junction's residential component on September 30, 2016. The Company agreed to guarantee up to $25.0 million of the senior construction loan in exchange for the option to purchase up to an 88% controlling interest in Annapolis Junction.

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Nexton Square

On ~~August 31, 2018, the Company financed a $2.2 million bridge loan to~~February 8, 2019, the developer of Nexton Square closed on a ~~shopping center development project located~~senior construction loan with a maximum borrowing capacity of $25.2 million. The developer used proceeds from its original draw in ~~Summerville, South Carolina. The bridge loan bears interest at a rate of 10%. All principal and accrued interest will be due upon the earlier of (i) February 28, 2019 or (ii) any refinancing~~part to repay $2.1 million of the ~~project. This~~mezzanine loan. Upon the closing of this senior construction loan, ~~has been personally guaranteed by the developer. The Company does not have any option to purchase this project.~~

~~North Decatur Square~~

~~On September 18, 2018,~~ the Company ~~increased~~entered into a payment guarantee for $12.6 million of the ~~maximum commitment for the North Decatur Square mezzanine loan to $29.7 million.~~senior loan.

Subsequent to ~~September 30, 2018~~

~~The Interlock~~March 31, 2019

On ~~October 2, 2018,~~April 25, 2019, the Company financed a $3.0 million bridge loan to S.J. Collins, the developer of the office and retail components of The Interlock, a new mixed-use public-private partnership with Georgia Tech in West Midtown Atlanta. The bridge loan bears interest at a rate of 15% and matures on January 1, 2019. This loan has been personally guaranteed by the developer. The Company does not have anexercised its option to purchase ~~this project. On October 23, 2018, the Company increased the maximum commitment for this loan to $4.0 million and advanced an additional $0.7 million.~~

~~North Decatur Square~~

~~On October 2, 2018, the Company advanced an additional $2.2 million on this mezzanine loan.~~

~~The Residences at Annapolis Junction~~

~~On October 4, 2018, the Company entered into an agreement to sell its purchase option for $5.0 million upon the developer's refinancing~~79% of the ~~senior construction loan. Upon this refinancing,~~partnership that owns 1405 Point in exchange for extinguishing its note receivable on the ~~maturity~~project and a cash payment of $0.3 million. The project is subject to a loan payable of $64.9 million. The Company has also guaranteed payment on a portion of the ~~remaining outstanding mezzanine~~ loan ~~will coincide with the maturity of the new senior loan, which is 12 months from origination with an option to extend~~payable. See Note 15 for an additional ~~12 months, subject to certain conditions.~~information.

7.8. 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 ~~September 30, 2018~~March 31, 2019 during the next twelve months.

Billings in excess of construction contract costs and estimated earnings represent billings or collections on contracts made in advance of revenue recognized.

~~Table of Contents~~

The following table summarizes the changes to the balances in the Company’s construction contract costs and estimated earnings in excess of billings account and the billings in excess of construction contract costs and estimated earnings account for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 (in thousands):


	Construction contract costs and estimated earnings in excess of billings			Billings in excess of construction contract costs and estimated earnings			Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
Balance as of January 1, 2018	$	245		$	3,591
							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							$	1,358		$	3,037		$	245		$	3,591
Revenue recognized that was included in the balance at the beginning of the period	—			(3,591		)	—			(3,037		)	—			(3,591		)
Increases due to new billings, excluding amounts recognized as revenue during the period	—			2,400			—			3,859			—			2,313
Transferred to receivables	(245		)	—			(1,358		)	—			(245		)	—
Construction contract costs and estimated earnings not billed during the period	576			—			17			—			315			—
Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion	151			(633		)	300			(237		)	—			(78		)
Balance as of September 30, 2018	$	727		$	1,767
Ending balance							$	317		$	3,622		$	315		$	2,235

The Company defers pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable. Pre-contract costs of ~~$0.7~~$1.5 million and ~~$0.6~~$1.4 million were deferred as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. Amortization of pre-contract costs for the three months ended March 31, 2019 and 2018 totaled less than $0.1 million.

Construction receivables and payables include retentions, amounts that are generally withheld until the completion of the contract or the satisfaction of certain restrictive conditions such as fulfillment guarantees. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, construction receivables included retentions of ~~$8.6~~$3.4 million and ~~$9.9~~$8.5 million, respectively. The Company expects to collect substantially all construction receivables as of ~~September 30, 2018~~March 31, 2019 during the next twelve months.

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As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, construction payables included retentions of ~~$20.1~~$18.0 million and ~~$17.4~~$21.6 million, respectively. The Company expects to pay substantially all construction payables as of ~~September 30, 2018~~March 31, 2019 during the next twelve months.

The Company’s net position on uncompleted construction contracts comprised the following as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (in thousands):

September 30,
2018 December 31,
2017
Costs incurred on uncompleted construction contracts $ 581,852
$ 520,368
Estimated earnings 20,137
18,070
Billings (603,029 ) (541,784 )
Net position $ (1,040 ) $ (3,346 )

September 30,
2018 December 31,
2017
Construction contract costs and estimated earnings in excess of billings $ 727
$ 245
Billings in excess of construction contract costs and estimated earnings (1,767 ) (3,591 )
Net position $ (1,040 ) $ (3,346 )

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	March 31, 2019			December 31, 2018
Costs incurred on uncompleted construction contracts	$	610,292		$	594,006
Estimated earnings	21,100			20,375
Billings	(634,697		)	(616,060		)
Net position	$	(3,305	)	$	(1,679	)

Construction contract costs and estimated earnings in excess of billings	$	317		$	1,358
Billings in excess of construction contract costs and estimated earnings	(3,622		)	(3,037		)
Net position	$	(3,305	)	$	(1,679	)

The Company’s balances and changes in construction contract price allocated to unsatisfied performance obligations (backlog) as of ~~September 30,~~March 31, 2019 and 2018 ~~and December 31, 2017~~ were as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Beginning backlog	$	37,921		$	116,657		$	49,167		$	217,718		$	165,863		$	49,167
New contracts/change orders	7,138			1,251			39,514			20,211			12,019			4,569
Work performed	(19,879		)	(41,165		)	(63,501		)	(161,186		)	(17,011		)	(23,003		)
Ending backlog	$	25,180		$	76,743		$	25,180		$	76,743		$	160,871		$	30,733

The Company expects to complete a majority of the uncompleted contracts as of ~~September 30, 2018~~March 31, 2019 during the next 12 to 18 months.

8.9. Indebtedness

Credit Facility

~~On October 26, 2017, the Operating Partnership entered into an amended and restated credit agreement (the “credit agreement”), which provides for~~The Company has a ~~$300.0 million~~ senior credit facility that was modified on January 31, 2019 using the accordion feature to increase the maximum total commitments to $355.0 million, comprised of a $150.0 million senior unsecured revolving credit facility (the "revolving credit facility") and a ~~$150.0~~$205.0 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 further increased to $450.0 million, subject to certain conditions, including obtaining commitments from any one or more lenders. The revolving credit facility has a scheduled maturity date of October 26, 2021, with two six-month extension options, subject to certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of October 26, 2022.

On March 28, 2018, the Operating Partnership increased the maximum commitments under the credit facility to $330.0 million using the accordion feature, with an increase of the term loan facility to $180.0 million.

The revolving credit facility bears interest at LIBOR (the London Inter-Bank Offered Rate) plus a margin ranging from 1.40% to 2.00% and the term loan facility bears interest at LIBOR plus a margin ranging from 1.35% to 1.95%, in each case depending on 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 credit facility.

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the outstanding balance on the revolving credit facility was ~~$102.0~~$91.0 million and ~~$66.0~~$126.0 million, respectively, and the outstanding balance on the term loan facility was ~~$180.0~~$205.0 million and ~~$150.0~~$180.0 million, respectively. As of ~~September 30, 2018,~~March 31, 2019, the effective interest rates on the revolving credit facility and the term loan facility were ~~3.81%~~4.04% and ~~3.76%~~3.99%, respectively. The Company may, at any time, voluntarily prepay any loan under the credit facility in whole or in part without premium or penalty.

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The Operating Partnership is the borrower under the credit facility, 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.

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

~~Table of Contents~~

Subsequent to March 31, 2019

~~Subsequent to September 30, 2018~~

~~In October 2018, the Company increased its~~On May 6, 2019, borrowings under the revolving credit facility ~~by $16.0~~totaled $116.3 million.

Other 2019 Financing Activity

On January ~~22, 2018,~~31, 2019, the Company ~~extended and modified the Sandbridge Commons note. The note bears interest at a rate of LIBOR plus a spread of 1.75% and will mature on January 17, 2023.~~paid off North Point Center Note 1.

On March ~~27, 2018,~~11, 2019, the Company ~~paid off Columbus Village Note 1 and Columbus Village Note 2 in full for an aggregate amount~~received $7.4 million of ~~$8.3 million.~~additional funding on the loan secured by Lightfoot Marketplace.

On ~~May 31, 2018,~~March 14, 2019, the Company ~~modified~~obtained a loan secured by One City Center in the ~~Southgate Square note. The principal~~ amount of $25.6 million in conjunction with the ~~note was~~acquisition of this property. This loan may be increased to ~~$22~~$27.6 million ~~and the note now bears interest at a rate of LIBOR plus a spread of 1.60%. This note will still mature on April 29, 2021.~~subject to certain conditions.

~~On June 1, 2018, the Company entered into a $16.3 million construction loan for the River City industrial development project in Chesterfield, Virginia.~~ The loan bears interest at a rate of LIBOR plus a spread of ~~1.50%~~1.85% and will mature on ~~May 31, 2019.~~

On June 14, 2018, the Company extended and modified the note secured by 249 Central Park Retail, Fountain Plaza Retail, and South Retail. The principal amount of the note was increased to $35.0 million. The note bears interest at a rate of LIBOR plus a spread of 1.60% and will mature on August 10, 2023.

On June 29, 2018, the Company entered into a $15.6 million construction loan for the Brooks Crossing office development project. The loan bears interest at a rate of LIBOR plus a spread of 1.60% and will mature on JulyApril 1, ~~2025.~~

On July 12, 2018, the Company entered into a $16.2 million construction loan for the Market at Mill Creek development project in Mt. Pleasant, South Carolina. The loan bears interest at a rate of LIBOR plus a spread of 1.55% and will mature on July 12, 2025.

On July 27, 2018, the Company paid off the Johns Hopkins Village note and entered into a new loan. The principal amount of the new note is $53.0 million. The note bears interest at a rate of LIBOR plus a spread of 1.25% and will mature on August 7, 2025. The Company simultaneously entered into an interest rate swap agreement that effectively fixes the interest rate at 4.19% for the term of the loan.

On August 28, 2018, the Company entered into a $15.0 million note secured by the newly acquired Lexington Square shopping center. The note bears interest at a rate of 4.50% and will mature on September 1, 2028.2024.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company borrowed ~~$59.0~~$31.1 million under its existing construction loans to fund new development and construction.

Subsequent to ~~September 30, 2018~~March 31, 2019

On ~~October 12, 2018,~~April 25, 2019, the Company ~~extended~~exercised its option to purchase 79% of the partnership that owns 1405 Point in exchange for extinguishing its note receivable on the project and ~~modified the note secured by Lightfoot Marketplace. Under the modified note, the Company may borrow up~~a cash payment of $0.3 million. The project is subject to ~~$17.9~~a loan payable of $64.9 million. The Company has also guaranteed payment on a portion of the loan payable. See Note 15 for additional discussion.

In April 2019, the Company borrowed ~~an initial tranche of $10.5~~$5.4 million on ~~this note, which bears interest at a rate of LIBOR plus a spread of 1.75% until stabilization of the property, whereupon the spread will be reduced~~its construction loans to 1.60%. The note matures on October 12, 2023. The Company simultaneously entered into an interest rate swap agreement that effectively fixes the interest rate of this initial tranche at 4.77% until stabilization and 4.62% thereafter.fund development activities.

9.10. Derivative Financial Instruments

The Company may enter into interest rate derivative contracts to manage exposure to interest rate risks. The Company does not use derivative financial instruments for trading or speculative purposes. Derivative financial instruments are recognized at fair value and presented within other assets and other liabilities in the condensed consolidated balance sheets. Gains and losses resulting from changes in the fair value of derivatives that are neither designated nor qualify as hedging instruments are recognized within the change in fair value of interest rate derivatives 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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During the three months ended March ~~7, 2018,~~31, 2019, the ~~Operating Partnership entered into a~~Company had the following LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 2.25% for a premium of $0.3 million. The interest rate cap expires on April 1, 2020. This interest rate cap has not been designated as a hedge for accounting purposes.caps ($ in thousands):



Origination Date	Expiration Date	Notional Amount		Strike Rate		Premium Paid
2/7/2017	3/1/2019	$	50,000	1.50	%	$	187
6/23/2017	7/1/2019	50,000		1.50	%	154
9/18/2017	10/1/2019	50,000		1.50	%	199
11/28/2017	12/1/2019	50,000		1.50	%	359
3/7/2018	4/1/2020	50,000		2.25	%	310
7/16/2018	8/1/2020	50,000		2.50	%	319
12/11/2018	1/1/2021	50,000		2.75	%	210

On April 23, 2018, the ~~Operating Partnership~~Company entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of ~~2.783%~~2.78%, an effective date of May 1, 2018, and a maturity date of May 1, 2023. This interest rate swap has not been designated as a hedge for accounting purposes.

On July 16, 2018, the Operating Partnership entered into a LIBOR interest rate cap agreement on a notional amount of $50.0 million at a strike rate of 2.50% for a premium of $0.3 million. The interest rate cap expires on August 1, 2020. This interest rate cap has not been designated as a hedge for accounting purposes.

On July 27, 2018, the Company entered into a LIBOR interest rate swap agreement that effectively fixes the interest rate of the new Johns Hopkins Village note payable at 4.19% with a maturity date of August 7, 2025. The Company designated the interest rate swap as a hedge for accounting purposes. During the three months ended September 30, 2018, unrealized losses of $130,000 were recorded to other comprehensive loss, and $67,000 of realized losses were reclassified out of accumulated other comprehensive loss to interest expense due to payments made to the swap counterparty during the three months ended September 30, 2018. During the next 12 months, the Company anticipates reclassifying approximately $173,000 of net hedging losses from accumulated other comprehensive loss into earnings to offset the variability of the hedged item during this period.

~~Table of Contents~~

~~The Company’s derivatives were comprised of the following as of September 30, 2018 and December 31, 2017 (in thousands):~~

September 30, 2018 December 31, 2017
(Unaudited)

Notional
Amount
Fair Value
Notional
Amount
Fair Value
Derivatives not designated as accounting hedges Asset Liability Asset Liability
Interest rate swaps $ 100,000
$ 744
$ —
$ 56,079
$ 10
$ (69 )
Interest rate caps 300,000
2,597
—
345,000
1,515
—
Total derivatives not designated as accounting hedges 400,000
3,341
—
401,079
1,525
(69 )
Interest rate swap designated as accounting hedge 52,930
—
(63 ) —
—
—
Total derivatives $ 452,930
$ 3,341
$ (63 ) $ 401,079
$ 1,525
$ (69 )

~~The changes in the fair value of the Company’s derivatives during the three and nine months ended September 30, 2018 and 2017 were comprised of the following (in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Interest rate swaps $ 319
$ 124
$ 673
$ 392
Interest rate caps (151 ) (37 ) 453
(92 )
Total change in fair value of interest rate derivatives $ 168
$ 87
$ 1,126
$ 300
Comprehensive income statement presentation:
Change in fair value of interest rate derivatives $ 298
$ 87
$ 1,256
$ 300
Unrealized cash flow hedge gains losses (130 ) $ —
$ (130 ) $ —
Total change in fair value of interest rate derivatives $ 168
$ 87
$ 1,126
$ 300

~~Subsequent to September 30, 2018~~

On October 12, 2018, the Company entered into a LIBOR interest rate swap agreement that effectively fixes the variable component on the interest rate of the initial $10.5 million tranche of new Lightfoot Marketplace note ~~payable.~~payable at 4.77% per annum until stabilization and 4.62% per annum thereafter. The swap matures on October 12, 2023. The Company designated the interest rate swap as a hedge for accounting purposes.

During the three months ended March 31, 2019, unrealized losses of $1.0 million were recorded to other comprehensive loss, and $0.1 million of realized losses were reclassified out of accumulated other comprehensive loss to interest expense due to payments made to the swap counterparty during the three months ended March 31, 2019. During the next 12 months, the Company anticipates reclassifying approximately $0.4 million of net hedging losses from accumulated other comprehensive loss into earnings to offset the variability of the hedged item during this period.

The Company’s derivatives were comprised of the following as of March 31, 2019 and December 31, 2018 (in thousands):



	March 31, 2019							December 31, 2018
	(Unaudited)
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Asset		Liability					Asset		Liability
Derivatives not designated as accounting hedges
Interest rate swaps	$	100,000	$	175	$	(1,271	)	$	100,000	$	303	$	(749	)
Interest rate caps	300,000		977		—			350,000		1,790		—
Total derivatives not designated as accounting hedges	400,000		1,152		(1,271		)	450,000		2,093		(749		)
Derivatives designated as accounting hedges
Interest rate swaps	62,977		—		(2,656		)	63,208		—		(1,725		)
Total derivatives	$	462,977	$	1,152	$	(3,927	)	$	513,208	$	2,093	$	(2,474	)

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The changes in the fair value of the Company’s derivatives during the three months ended March 31, 2019 and 2018 were comprised of the following (in thousands):



	Three Months Ended March 31,
	2019			2018
Interest rate swaps	$	(1,652	)	$	348
Interest rate caps	(814		)	621
Total change in fair value of interest rate derivatives	$	(2,466	)	$	969
Comprehensive income statement presentation:
Change in fair value of interest rate derivatives	$	(1,463	)	$	969
Unrealized cash flow hedge gains losses	(1,003		)	—
Total change in fair value of interest rate derivatives	$	(2,466	)	$	969

Subsequent to March 31, 2019

On April 4, 2019, the Company entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of 2.26%, an effective date of April 1, 2019, and a maturity date of October 22, 2022.

On April 4, 2019, the Company entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with an initial notional amount of $34.6 million. The interest rate swap has a fixed rate of 2.25%, an effective date of April 1, 2019, and a maturity date of August 10, 2023.

~~10.~~11. Equity

Stockholders’ Equity

As of March 31, 2019 and December 31, 2018, the Company’s authorized capital was 500 million shares of common stock and 100 million shares of preferred stock. The Company had 52,326,803 and 50,013,731 shares of common stock issued and outstanding as of March 31, 2019 and December 31, 2018, respectively. No shares of preferred stock were issued and outstanding as of March 31, 2019 or December 31, 2018.

On February 26, 2018, the Company commenced an at-the-market continuous equity offering program (the ~~“ATM Program”~~"ATM Program") through which the Company may, from time to time, issue and sell shares of its common stock having an aggregate offering price of up to $125.0 million. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company sold an aggregate of ~~4,227,978~~2,071,000 shares of common stock at a weighted average price of ~~$14.33~~$14.78 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of ~~$59.7~~$30.2 million.

As of September 30, 2018 and December 31, 2017, the Company’s authorized capital was 500 million shares of common stock and 100 million shares of preferred stock. The Company had 49,576,222 and 44,937,763 shares of common stock issued and outstanding as of September 30, 2018 and December 31, 2017, respectively. No shares of preferred stock were issued and outstanding as of September 30, 2018 or December 31, 2017.

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Noncontrolling Interests

As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company held a ~~74.3%~~75.5% and ~~72.0%~~74.5% interest, respectively, in the Operating Partnership. The Company is the primary beneficiary of the Operating Partnership as it has the power to direct the activities of the Operating Partnership and the rights to absorb ~~74.3%~~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 Company represent units of limited partnership interest in the Operating Partnership not held by the Company. As of ~~September 30, 2018,~~March 31, 2019, there were ~~17,166,899~~16,991,933 Class A ~~Units~~units of limited partnership interest in the Operating Partnership ("Class A Units") not held by the Company. The Company's financial position and results of operations are the same as those of the Operating Partnership.

Additionally, the Operating Partnership owns a majority interest in certain non-wholly-owned operating and development properties. The noncontrolling interest for ~~the~~these consolidated real estate entities ~~under development or construction (see Note 1)~~ was zero as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

On January 2, ~~2018,~~2019, due to the holders of Class A Units tendering an aggregate of ~~163,000 Class A Units for redemption by the Operating Partnership, the Company elected to satisfy the redemption request through the issuance of an equal number of shares of common stock.~~

As partial consideration for the acquisition of Columbus Village, the Operating Partnership issued 1,000,000 class B units of limited partnership interest in the Operating Partnership ("Class B Units") on July 10, 2015 and issued 275,000 class C units of limited partnership interest in the Operating Partnership ("Class C Units") on January 10, 2017. The Class B Units were automatically converted to Class A Units on July 10, 2017. The Class C Units were automatically converted into Class A Units on January 10, 2018.

~~As partial consideration for the acquisition of Parkway Centre, the Operating Partnership issued 117,228 Class A Units on January 29, 2018.~~

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

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

~~On July 2, 2018, due to the holders of Class A Units tendering an aggregate of 123,504~~118,471 Class A Units for redemption by the Operating Partnership, the Company elected to satisfy the redemption requests through the issuance of an equal number of shares of common stock.

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Common Stock Dividends and Class A Unit Distributions

On January ~~4, 2018,~~3, 2019, the Company paid cash dividends of ~~$8.5 million to common stockholders and the Operating Partnership paid cash distributions of $3.3 million to holders of Class A Units.~~

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

~~On July 5, 2018, the Company paid cash dividends of $9.7 million to common stockholders and the Operating Partnership paid cash distributions of $3.5 million to holders of Class A Units.~~

On August 2, 2018, the Board of Directors declared a cash dividend and distribution of $0.20 per share and Class A Unit payable on October 4, 2018 to stockholders and unitholders of record on September 26, 2018.

~~Subsequent to September 30, 2018~~

On October 1, 2018, due to the holders of Class A Units tendering an aggregate of 56,495 Class A Units for redemption by the Operating Partnership, the Company elected to satisfy the redemption requests through the issuance of 52,200 shares of common stock and a cash payment of $0.1 million.

~~On October 4, 2018, the Company paid cash dividends of $9.9~~$10.0 million to common stockholders and the Operating Partnership paid cash distributions of $3.4 million to holders of Class A Units.

18On February 21, 2019, the Board of Directors declared a cash dividend and distribution of $0.21 per share and Class A Unit payable on April 4, 2019 to stockholders and unitholders of record on March 27, 2019.

Subsequent to March 31, 2019

~~Table~~On April 4, 2019, the Company paid cash dividends of ~~Contents~~

$11.0 million to common stockholders and the Operating Partnership paid cash distributions of $3.6 million to holders of Class A Units.

In April 2019, the Company sold an aggregate of 91,924 shares of common stock at a weighted average price of $15.72 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $1.4 million.

On May 7, 2019, the Board of Directors declared a cash dividend and distribution of $0.21 per share and unit payable on July 3, 2019 to stockholders and unitholders of record on June 26, 2019.

~~11.~~12. Stock-Based Compensation

~~On June 14, 2017, the Company's stockholders approved the Company's~~The Company’s Amended and Restated 2013 Equity Incentive Plan (the ~~"Amended~~"Equity Plan")~~, which, among~~ permits the grant of restricted stock awards, stock options, stock appreciation rights, performance units, and other ~~things, increased the number~~equity-based awards up to an aggregate of 1,700,000 shares of ~~the Company's~~ common ~~stock reserved for issuance under the Amended Plan by 1,000,000 shares, from 700,000 shares to 1,700,000 shares.~~stock. As of ~~September 30, 2018,~~March 31, 2019, there were ~~1,032,329~~911,625 shares available for issuance under the ~~Amended~~Equity Plan.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company granted an aggregate of ~~153,069~~135,849 shares of restricted stock to employees and non-employee directors with a weighted average grant date fair value of ~~$13.54~~$15.20 per share. Employee restricted stock awards generally vest over a period of two years: one-third immediately on the grant date and the remaining two-thirds in equal amounts on the first two anniversaries following the grant date, subject to continued service to the Company. Non-employee director restricted stock awards vest either immediately upon grant or over a period of one year, subject to continued service to the Company. Unvested restricted stock awards are entitled to receive dividends from their grant date.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company issued performance-based awards in the form of restricted stock units to certain employees. The performance period for these awards is three years, with a required two-year service period immediately following the expiration of the performance period in order to fully vest. The compensation expense and the effect on the Company’s weighted average diluted shares calculation were immaterial. During the three months ended March 31, 2019, 10,755 shares were issued with a grant date fair value of $15.42 per share due to the partial vesting of performance units awarded to certain employees in 2016.

During the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company recognized $1.1 million and $0.9 million, respectively, of stock-based compensation cost, of which $0.4 million and $0.3 million, respectively, was capitalized as part of ~~stock-based compensation expense. During~~ the ~~nine months ended September 30, 2018 and 2017, the Company recognized $1.6 million and $1.4 million, respectively, of stock-based compensation expense.~~Company's development projects. As of ~~September 30, 2018,~~March 31, 2019, there were ~~136,301~~147,961 nonvested restricted shares outstanding; the total unrecognized compensation expense related to nonvested restricted shares was ~~$0.9~~$1.6 million, which the Company expects to recognize over the next 18 months.

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~~12.~~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—1 — quoted prices in active markets for identical assets or liabilities

Level 2—2 — observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3—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

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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 ~~measure~~estimate the fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Considerable judgment is used to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments.

The carrying amounts and fair values of the Company’s financial instruments as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows (in thousands):


	September 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
	(Unaudited)								(Unaudited)
Indebtedness	$	653,750	$	647,311	$	517,272	$	518,417	$	737,621	$	737,340	$	694,239	$	688,437
Notes receivable	$	100,486	$	100,486	$	83,058	$	83,058	152,172		151,534		138,683		138,683
Interest rate swap liabilities	63		63		69		69		3,927		3,927		2,474		2,474
Interest rate swap and cap assets	3,341		3,341		1,525		1,525		1,152		1,152		2,093		2,093

~~13.~~14. Related Party Transactions

The Company provides general contracting and real estate services to certain related party entities that are included in these condensed consolidated financial statements. Revenue from construction contracts with these entities for the three months ended ~~September 30,~~March 31, 2018 ~~and 2017~~ was ~~less than $0.1~~$1.2 million, ~~for each period,~~ and gross profit from these contracts was $0.2 million. There was no such ~~contracts~~revenue or gross profit for the three months ended September 30, 2018 and 2017 was less than $0.1 million for each period. Revenue from construction contracts with related party entities of the Company for the nine months ended September 30, 2018 and 2017 was $1.5 million and $7.4 million, respectively, and gross profit from such contracts for the nine months ended September 30, 2018 and 2017 was $0.3 million and $0.4 million, respectively.March 31, 2019.

Real estate services fees from affiliated entities of the Company were not significant for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 or ~~2017.~~2018. In addition, affiliated entities also reimburse the Company for monthly maintenance and facilities management services provided to the properties. Cost reimbursements earned by the Company from affiliated entities were not significant for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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

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~~executive officers previously guaranteed approximately $0.3 million of the Operating Partnership’s outstanding debt. In September 2018, these officers were released from these guaranty obligations.~~

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~~14.~~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 and amount of any potential loss relating to these matters.

The Company currently is a party to various legal ~~proceedings.~~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

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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 the Company's mezzanine lending activities, the Company has made guarantees to pay portions of certain senior loans of third parties associated with the development projects. The following table summarizes the guarantees made by the Company as of March 31, 2019 (in thousands):



Development project	Payment guarantee amount
1405 Point	$	25,000	(a)
The Residences at Annapolis Junction	8,300
Delray Plaza	5,180
Nexton Square	12,600
Interlock Commercial	—		(b)
Total	$	51,080

(a) On April 25, 2019, the Company exercised its option to purchase 79% of the partnership that owns 1405 Point.

(b) As of March 31, 2019, this $30.7 million payment guarantee was not yet effective because the senior construction loan had not yet been executed. On April 19, 2019, the senior construction loan was executed, and the payment guarantee became effective. The Company now also guarantees completion of the development project to the senior lender. The Company has also guaranteed completion of the development project to Georgia Tech, the ground lessor.

There is no payment guarantee for the senior construction loan for the Solis Apartments at Interlock project. The Company has guaranteed completion of the development project to the senior lender contingent upon senior loan funding.

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 ~~$33.4~~$29.5 million and ~~$44.9~~$34.8 million as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

The ~~Operating Partnership~~Company has entered into standby letters of credit using the available capacity under the credit facility. The letters of credit relate to the guarantee of future performance on certain of the Company’s construction contracts. Letters of credit generally are available for draw down in the event the Company does not perform. As of ~~both September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Operating Partnership had total outstanding letters of credit of $2.4 million and $2.1 ~~million.~~million, respectively. The ~~amounts~~letters of credit outstanding at ~~September 30, 2018 and December~~March 31, ~~2017 were comprised of~~2019 included a $2.1 million letter of credit ~~related~~relating to the guarantee on the 1405 Point senior construction loan. This letter of credit was released on April 25, 2019.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to ~~“we,” “our,” “us,”~~"we," "our," "us," and ~~“our company”~~"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”~~"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,”~~"anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result," and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

adverse economic or real estate developments, either nationally or in the markets in which our properties are located;

our failure to develop the properties in our development pipeline successfully, on the anticipated ~~timeline,~~timelines, or at the anticipated costs;

our failure to generate sufficient cash flows to service our outstanding indebtedness;

defaults on, early terminations of, or non-renewal of leases by tenants, including significant tenants;

bankruptcy or insolvency of a significant tenant or a substantial number of smaller tenants;

the inability of one or more mezzanine loan borrowers to repay mezzanine loans ~~according to~~in accordance with their contractual terms;

difficulties in identifying or completing development, acquisition, or disposition opportunities;

our failure to successfully operate developed and acquired properties;

our failure to generate income in our general contracting and real estate services segment in amounts that we anticipate;

fluctuations in interest rates and increased operating costs;

our failure to obtain necessary outside financing on favorable terms or at all;

our inability to extend the maturity of or refinance existing debt or comply with the financial covenants in the agreements that govern our existing debt;

financial market fluctuations;

risks that affect the general retail environment or the market for office properties or multifamily units;

the competitive environment in which we operate;

decreased rental rates or increased vacancy rates;

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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”~~("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 the recent changes to the U.S. tax laws.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. We caution investors not to place undue reliance on these forward-looking statements and urge investors to carefully review the disclosures we make concerning risks and uncertainties in the sections entitled ~~“Risk Factors”~~"Risk Factors" and ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our most recent Annual Report on Form 10-K, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q and identified in other documents that we file from time to time with the ~~U.S.~~ Securities and Exchange Commission (the ~~“SEC”~~"SEC").

Business Description

We are a full-service real estate company with extensive experience developing, building, owning and managing high-quality, institutional-grade office, retail and multifamily properties in attractive markets primarily throughout the Mid-Atlantic and Southeastern United States. As of ~~September 30, 2018,~~March 31, 2019, our operating property portfolio consisted of the following properties:



Property	Segment	Location	Ownership Interest
4525 Main Street	Office	Virginia Beach, Virginia*	100	%
Armada Hoffler Tower	Office	Virginia Beach, Virginia*	100	%
One Columbus	Office	Virginia Beach, Virginia*	100	%
Two Columbus	Office	Virginia Beach, Virginia*	100	%
249 Central Park Retail	Retail	Virginia Beach, Virginia*	100	%
Alexander Pointe	Retail	Salisbury, North Carolina	100	%
Bermuda Crossroads	Retail	Chester, Virginia	100	%
Broad Creek Shopping Center	Retail	Norfolk, Virginia	100	%
Broadmoor Plaza	Retail	South Bend, Indiana	100	%
~~Brooks Crossing~~⁽¹⁾	~~Retail~~	~~Newport News, Virginia~~	65	%
Columbus Village	Retail	Virginia Beach, Virginia*	100	%
Columbus Village II	Retail	Virginia Beach, Virginia*	100	%
Commerce Street Retail	Retail	Virginia Beach, Virginia*	100	%
Courthouse 7-Eleven	Retail	Virginia Beach, Virginia	100	%
~~Dick's~~Dick’s at Town Center	Retail	Virginia Beach, Virginia*	100	%
Dimmock Square	Retail	Colonial Heights, Virginia	100	%
Fountain Plaza Retail	Retail	Virginia Beach, Virginia*	100	%
Gainsborough Square	Retail	Chesapeake, Virginia	100	%
Greentree Shopping Center	Retail	Chesapeake, Virginia	100	%
Hanbury Village	Retail	Chesapeake, Virginia	100	%
Harper Hill Commons	Retail	Winston-Salem, North Carolina	100	%

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Property	Segment	Location	Ownership Interest
~~Harper Hill Commons~~	~~Retail~~	~~Winston-Salem, North Carolina~~	~~100~~	%
Harrisonburg Regal	Retail	Harrisonburg, Virginia	100	%
Indian Lakes Crossing	Retail	Virginia Beach, Virginia	100	%
Lexington Square	Retail	Lexington, South Carolina	100	%
Lightfoot Marketplace⁽²⁾⁽¹⁾	Retail	Williamsburg, Virginia	70	%
North Hampton Market	Retail	Taylors, South Carolina	100	%
North Point Center	Retail	Durham, North Carolina	100	%
Oakland Marketplace	Retail	Oakland, Tennessee	100	%
Parkway Centre	Retail	Moultrie, Georgia	100	%
Parkway Marketplace	Retail	Virginia Beach, Virginia	100	%
Patterson Place	Retail	Durham, North Carolina	100	%
Perry Hall Marketplace	Retail	Perry Hall, Maryland	100	%
Providence Plaza	Retail	Charlotte, North Carolina	100	%
Renaissance Square	Retail	Davidson, North Carolina	100	%
Sandbridge Commons	Retail	Virginia Beach, Virginia	100	%
Socastee Commons	Retail	Myrtle Beach, South Carolina	100	%
Southgate Square	Retail	Colonial Heights, Virginia	100	%
Southshore Shops	Retail	Chesterfield, Virginia	100	%
South Retail	Retail	Virginia Beach, Virginia*	100	%
South Square	Retail	Durham, North Carolina	100	%
Stone House Square	Retail	Hagerstown, Maryland	100	%
Studio 56 Retail	Retail	Virginia Beach, Virginia*	100	%
Tyre Neck Harris Teeter	Retail	Portsmouth, Virginia	100	%
~~Waynesboro Commons~~	~~Retail~~	~~Waynesboro, Virginia~~	~~100~~	%
Wendover Village	Retail	Greensboro, North Carolina	100	%
Encore Apartments	Multifamily	Virginia Beach, Virginia*	100	%
Johns Hopkins Village	Multifamily	Baltimore, Maryland	100	%
Liberty Apartments	Multifamily	Newport News, Virginia	100	%
~~Smith's~~Smith’s Landing	Multifamily	Blacksburg, Virginia	100	%
The Cosmopolitan	Multifamily	Virginia Beach, Virginia*	100	%


(1)	~~We are entitled to a preferred return of 8% on our investment in Brooks Crossing.~~


~~(2)~~	We are entitled to a preferred return of 9% on our investment in Lightfoot Marketplace.

*Located in the Town Center of Virginia Beach

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As of ~~September 30, 2018,~~March 31, 2019, the following properties that we consolidate for financial reporting purposes were either under development or not yet stabilized:



Property	Segment	Location	Ownership Interest
~~Premier Apartments (Town Center Phase VI)~~ Brooks Crossing Office ⁽¹⁾	~~Multifamily~~Office	Newport News, Virginia Beach, Virginia*	65	%
One City Center	Office	Durham, North Carolina	100	%
Wills Wharf	Office	Baltimore, Maryland	100	%
Brooks Crossing Retail ⁽¹⁾	Retail	Newport News, Virginia	65	%
Lightfoot Outparcel ⁽²⁾	Retail	Williamsburg, Virginia	70	%
Market at Mill Creek ⁽³⁾	Retail	Mount Pleasant, South Carolina	70	%
Premier Retail (Town Center Phase VI)	Retail	Virginia Beach, Virginia*	100	%
Greenside (Harding Place)⁽¹⁾⁽⁴⁾	Multifamily	Charlotte, North Carolina	80	%
Hoffler Place (King Street)	Multifamily	Charleston, South Carolina	92.5	%
Premier Apartments (Town Center Phase VI)	Multifamily	Virginia Beach, Virginia*	100	%
Summit Place (Meeting Street)	Multifamily	Charleston, South Carolina	90	%
~~Brooks Crossing office~~⁽²⁾	~~Office~~	~~Newport News, Virginia~~	65	%
~~Lightfoot Outparcel~~⁽³⁾	~~Retail~~	~~Williamsburg, Virginia~~	70	%
~~Market at Mill Creek~~⁽⁴⁾	~~Retail~~	~~Mount Pleasant, South Carolina~~	70	%
~~River City~~	~~Industrial~~	~~Chesterfield, Virginia~~	~~100~~	%
~~Wills Wharf~~	~~Mixed-use~~	~~Baltimore, Maryland~~	~~100~~	%

(1) We are entitled to a preferred return of 8% on our investment in Brooks Crossing.

(2) We are entitled to a preferred return of 9% on our investment in Lightfoot Outparcel.

(3) We are entitled to a preferred return of up to 10% on our investment in Market at Mill Creek.

(4) We are entitled to a preferred return of 9% on a portion of our investment in Harding Place.

~~(2) We are entitled to a preferred return of 8% on our investment in Brooks Crossing.~~

~~(3) We are entitled to a preferred return of 9% on our investment in Lightfoot Outparcel.~~

~~(4) We are entitled to a preferred return of 10% on our investment in Market at Mill Creek.~~

*Located in the Town Center of Virginia Beach

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

Acquisitions

On ~~January 9, 2018,~~February 6, 2019, we acquired ~~Indian Lakes Crossing, a Harris Teeter-anchored shopping center~~an additional outparcel phase of Wendover Village in ~~Virginia Beach, Virginia,~~Greensboro, North Carolina for a contract price of ~~$14.7~~$2.7 million. This phase is leased by a single tenant.

On March 14, 2019, we acquired the office and retail portions of the One City Center project in exchange for a redemption of its 37% equity ownership in the joint venture with Austin Lawrence Partners, which totaled $23.0 million ~~plus capitalized~~as of the acquisition ~~costs~~date, and a cash payment of ~~$0.2~~$22.9 million. We obtained a new loan in the amount of $25.6 million in conjunction with this acquisition, which may be increased to $27.6 million subject to certain conditions.

On April 25, 2019, we purchased a 79% controlling interest in 1405 Point, a 17-story luxury high-rise apartment building located in the emerging Harbor Point area of the Baltimore waterfront in exchange for extinguishing our note receivable on the project and a cash payment of $0.3 million. The project is subject to a loan payable of $64.9 million.

On ~~January~~April 29, ~~2018,~~2019, we ~~acquired Parkway Centre, a newly developed Publix-anchored shopping center in Moultrie, Georgia,~~entered into contribution agreements with Venture Realty Group to acquire Red Mill Commons and Marketplace at Hilltop with Venture Realty Group for ~~total~~aggregate consideration of ~~$11.3~~$105.0 million, ~~($9.6~~comprised of 4.1 million ~~in cash and $1.7 million in the form of class~~Class A units of limited partnership interest in ~~our Operating Partnership~~the operating partnership ("Class A Units")~~) plus capitalized~~ valued at $15.55 per unit, the assumption of $36.0 million of mortgage debt, and $5.0 million in cash. In connection with the acquisition, ~~costs of $0.3 million.~~

~~On November 30, 2017,~~ we ~~entered~~expect to enter into a ~~lease~~tax protection agreement with ~~Bottling Group, LLC for a new distribution facility that~~the contributors pursuant to which the we will ~~develop~~agree, subject to certain exceptions, to indemnify the contributors for up to 10 years against certain tax liabilities incurred by them, if such liabilities result from a transaction involving a direct or indirect taxable disposition of either or both of these properties or if the Operating Partnership fails to maintain and construct for expected delivery in the fourth quarter of 2018. On January 29, 2018, we acquired undeveloped land in Chesterfield, Virginia, a portion of which currently serves as the site for this facility, for a contract price of $2.4 million plus capitalized acquisition costs of $0.1 million.

On January 18, 2018, we entered into an operating agreement with a partner to develop a Lowes Foods-anchored shopping center in Mount Pleasant, South Carolina. The partnership, Market at Mill Creek Partners, LLC, acquired undeveloped land on February 16, 2018 for a contract price of $2.9 million plus capitalized acquisition costs of $0.1 million.

~~On April 2, 2018, we acquired undeveloped land in Newport News, Virginia for less than $0.1 million. This land parcel is being used in the development of the Brooks Crossing office property.~~

On August 28, 2018, we acquired Lexington Square, a newly developed Lowes Foods-anchored shopping center in Lexington, South Carolina, for a purchase price of $26.8 million, consisting of cash consideration of $24.2 million and $2.6 million of additional consideration in the form of Class A Units issuable in incrementsallocate to the ~~seller upon the fulfillment~~sellers for taxation purposes minimum levels of ~~certain occupancy thresholds within the first 18 months of the Company's ownership. As part of this transaction, we also capitalized acquisition costs of $0.4 million.~~Operating Partnership liabilities.

Dispositions

On ~~May 24, 2018,~~April 1, 2019, we ~~completed the sale of the Wawa outparcel at Indian Lakes Crossing~~sold Waynesboro Commons for a ~~contract~~sale price of ~~$4.4~~$1.1 million. ~~There was no gain or loss on the sale of the parcel.~~

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~~Third~~First Quarter ~~2018~~2019 and Recent Highlights

The following highlights our results of operations and significant transactions for the three months ended ~~September 30, 2018~~March 31, 2019 and other recent developments:

Net income of ~~$5.7~~$6.5 million, or ~~$0.09~~$0.10 per diluted share, compared to ~~$10.5~~$7.0 million, or ~~$0.17~~$0.11 per diluted share, for the three months ended ~~September 30, 2017.~~March 31, 2018.

Funds from operations ("FFO") of ~~$15.9~~$16.6 million, or ~~$0.24~~$0.25 per diluted share, compared to ~~$15.5~~$16.3 million, or $0.26 per diluted share, for the three months ended March 31, 2018. See "Non-GAAP Financial Measures."

Normalized funds from operations ("Normalized FFO") of $18.5 million, or $0.27 per diluted share, compared to $15.4 million, or $0.25 per diluted share, for the three months ended ~~September 30, 2017.~~March 31, 2018. See ~~“Non-GAAP~~"Non-GAAP Financial Measures.” "

~~Normalized funds from operations (“Normalized FFO”)~~Increased the first quarter 2019 cash dividend by 5% over the prior quarter's cash dividend to $0.21 per common share. This marks the fifth increase in five years and represents cumulative dividend growth of ~~$15.7 million, or $0.24 per diluted share, compared to $15.5 million, or $0.25 per diluted share, for the three months ended September 30, 2017. See “Non-GAAP Financial Measures.”~~over 31%.

~~In October 2018,~~Completed the ~~Company reached an agreement to sell its at-cost~~acquisition and refinancing of the commercial office and retail components of our One City Center development project in downtown Durham, North Carolina from the joint venture partnership.

Exercised our purchase option to acquire a 79% controlling interest in 1405 Point, the ~~developer~~17-story luxury high-rise apartment building located in the Harbor Point area of ~~The Residences at Annapolis Junction~~the Baltimore waterfront, in exchange for ~~$5.0 million. The Company also agreed to extend~~ the ~~maturity of its~~Company's mezzanine loan investment and ~~allow~~ the ~~developer~~assumption of existing debt.

Agreed to ~~refinance~~acquire Red Mill Commons and Marketplace at Hilltop in exchange for 4.1 million Class A Units valued at $15.55 per unit, the ~~project in order to realize the full potential value upon expected stabilization in 2019. The Company expects the developer to close on these transactions in the fourth quarter~~assumption of ~~2018, at which time the Company anticipates repayment~~$36.0 million of ~~approximately $12.0 million on its mezzanine loan in addition to the~~debt, and $5.0 million ~~of option sale proceeds.~~in cash.

In October 2018, the Company announced its investment in Nexton Square, a new $45.0 million lifestyle center in the greater Charleston, South Carolina MSA. The Company will provide mezzanine financing and construction management/development services for the project. The Company will also have a below market option to purchase the project upon completion.

During the quarter ended September 30, 2018, the Company completed the acquisition of Lexington Square, a new 85,000 square foot Lowes Foods-anchored retail center near Columbia, South Carolina for $26.7 million of total consideration, a portion of which will be paid in Operating Partnership units.

~~During the quarter ended September 30, 2018, the Company raised approximately $10.6~~Raised $30.6 million of gross proceeds through ~~its~~our at-the-market equity offering program at an average price of ~~$15.66~~$14.78 per ~~share.~~share during the quarter ended March 31, 2019.

Segment Results of Operations

As of ~~September 30, 2018,~~March 31, 2019, we operated our business in four segments: (i) office real estate, (ii) retail real estate, (iii) multifamily residential real estate, and (iv) general contracting and real estate services, which are conducted through our taxable REIT subsidiaries ~~(“TRS”~~("TRS"). Net operating income (segment revenues minus segment expenses) ("NOI") is the measure used by management to assess segment performance and allocate our resources among our segments. NOI is not a measure of operating income or cash flows from operating activities as measured by accounting principles generally accepted in the United States ~~(“GAAP”~~("GAAP") and is not indicative of cash available to fund cash needs. As a result, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. We consider NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses. See Note 3 to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of NOI to net income.

We define same store properties as those properties that we owned and operated and that were stabilized for the entirety of both periods presented. 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, ~~and~~ the asset is placed back into ~~service.~~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.

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Office Segment Data

Office rental revenues, property expenses, and NOI for the three months ended March 31, 2019 and 2018 were as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018		2017		Change		2018		2017		Change		2019		2018		Change
	(unaudited, $ in thousands)												(Unaudited)
Rental revenues	$	5,149	$	4,762	$	387	$	15,537	$	14,427	$	1,110	$	5,556	$	5,100	$	456
Property expenses	2,066		1,928		138		5,954		5,519		435		2,012		1,948		64
Segment NOI	$	3,083	$	2,834	$	249	$	9,583	$	8,908	$	675	$	3,544	$	3,152	$	392

Office segment NOI for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~8.8% and 7.6%, respectively,~~12.4% compared to the ~~corresponding periods in 2017.~~three months ended March 31, 2018. The ~~increases relate~~increase relates primarily to ~~a new tenant at 4525 Main Street that moved in during December 2017. The increase was partially offset by~~ the ~~disposition~~acquisition of One City Center and higher occupancy across the rest of the ~~Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach~~ office ~~buildings, which contributed an aggregate of $0.1 million and $0.6 million in office segment NOI for the three and nine months ended September 30, 2017, respectively.~~portfolio.

Office Same Store Results

Office same store results for the three months ended ~~September 30,~~March 31, 2019 and 2018 exclude the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings, which were both sold in the third quarter of 2017. Office same store results for the nine months ended September 30, 2018 exclude 4525 Main Street as well as the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings.

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One City Center.

Office same store rental revenues, property expenses and NOI for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:


	Three Months Ended September 30,									Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			Change			2018		2017		Change		2019		2018			Change
	(unaudited, $ in thousands)															(Unaudited)
Rental revenues	$	5,149		$	4,673		$	476		$	10,624	$	10,258	$	366	$	5,326	$	5,100		$	226
Property expenses	1,972			1,833			139			4,175		3,903		272		1,859		1,859			—
Same Store NOI	$	3,177		$	2,840		$	337		$	6,449	$	6,355	$	94	$	3,467	$	3,241		$	226
Non-Same Store NOI	(94		)	(6		)	(88		)	3,134		2,553		581		77		(89		)	166
Segment NOI	$	3,083		$	2,834		$	249		$	9,583	$	8,908	$	675	$	3,544	$	3,152		$	392

Office same store NOI for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~11.9% and 1.5%, respectively,~~7.0% compared to ~~the corresponding periods in 2017. The increase for~~ the three months ended ~~September 30,~~March 31, 2018 ~~relates~~ primarily due to ~~a new tenant at 4525 Main Street that moved in during December 2017. The increase for~~higher occupancy across the ~~nine months ended September 30, 2018 relates primarily to new tenants and renewals at the Armada Hoffler Tower and One Columbus.~~same store office portfolio.

Retail Segment Data

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change
(unaudited, $ in thousands)
Rental revenues $ 16,932
$ 15,880
$ 1,052
$ 50,251
$ 47,089
$ 3,162
Property expenses 4,464
4,287
177
13,015
12,255
760
Segment NOI $ 12,468
$ 11,593
$ 875
$ 37,236
$ 34,834
$ 2,402

Retail segment NOI for the three and nine months ended September 30, 2018 increased 7.5% and 6.9%, respectively, compared to the corresponding periods in 2017. The increases were a result of the acquisitions of Indian Lakes Crossing, Parkway Centre, and Lexington Square during 2018, as well as the acquisition of the outparcel phase of Wendover Village and the completion of the Lightfoot Marketplace development subsequent to June 30, 2017.

~~Retail Same Store Results~~

Retail same store results for the three and nine months ended September 30, 2018 exclude Lightfoot Marketplace, Brooks Crossing, the outparcel phase of Wendover Village, Indian Lakes Crossing, Parkway Centre, Premier Retail (part of Town Center Phase VI), a portion of which was placed into service in the third quarter of 2018, and Lexington Square.

~~Retail same store~~ rental revenues, property expenses, and NOI for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as ~~follows:~~follows (in thousands):


	Three Months Ended September 30,							Nine Months Ended September 30,						Three Months Ended March 31,
	2018		2017		Change			2018		2017		Change		2019		2018		Change
	(unaudited, $ in thousands)													(Unaudited)
Rental revenues	$	15,261	$	15,264	$	(3	)	$	45,978	$	45,685	$	293	$	17,257	$	16,711	$	546
Property expenses	3,836		3,892		(56		)	11,293		11,091		202		4,411		4,340		71
Same Store NOI	$	11,425	$	11,372	$	53		$	34,685	$	34,594	$	91
Non-Same Store NOI	1,043		221		822			2,551		240		2,311
Segment NOI	$	12,468	$	11,593	$	875		$	37,236	$	34,834	$	2,402	$	12,846	$	12,371	$	475

Retail ~~same store~~segment NOI ~~was generally consistent~~ for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased 3.8% compared to the ~~corresponding periods~~three months ended March 31, 2018. The increase was a result of the acquisition of the additional outparcel phase of Wendover Village in ~~2017.~~February 2019, the three property acquisitions completed during 2018, and the commencement of operations at Premier Retail (Part of Towncenter Phase IV) during the third quarter of 2018. These increases were partially offset by the disposal of the leasehold interest in the building previously leased by Home Depot at Broad Creek Shopping Center.

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~~Multifamily Segment Data~~Retail Same Store Results

Retail same store results for the three months ended March 31, 2019 and 2018 exclude Lightfoot Marketplace, Broad Creek Shopping Center, Brooks Crossing, Indian Lakes Crossing, Parkway Centre, Premier Retail (part of Town Center Phase VI), Lexington Square, the additional outparcel phase of Wendover Village (acquired in February 2019), and Waynesboro Commons.

Retail same store rental revenues, property expenses, and NOI for the three months ended March 31, 2019 and 2018 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018		2017		Change		2018		2017		Change		2019		2018		Change
	(unaudited, $ in thousands)												(Unaudited)
Rental revenues	$	6,849	$	6,454	$	395	$	20,439	$	19,567	$	872	$	14,604	$	14,568	$	36
Property expenses	3,413		3,308		105		9,468		9,092		376		3,406		3,327		79
Same Store NOI													$	11,198	$	11,241	$	(43	)
Non-Same Store NOI													1,648		1,130		518
Segment NOI	$	3,436	$	3,146	$	290	$	10,971	$	10,475	$	496	$	12,846	$	12,371	$	475

~~Multifamily segment~~Retail same store NOI ~~increased slightly~~was generally consistent for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 compared to the corresponding periods in ~~2017.~~2018.

Multifamily Segment Data

Multifamily rental revenues, property expenses, and NOI for the three months ended March 31, 2019 and 2018 were as follows (in thousands):



	Three Months Ended March 31,
	2019		2018		Change
	(Unaudited)
Rental revenues	$	8,096	$	6,888	$	1,208
Property expenses	3,430		2,949		481
Segment NOI	$	4,666	$	3,939	$	727

Multifamily segment NOI for the three months ended March 31, 2019 increased 18.5% compared to the three months ended March 31, 2018. The increase was primarily a result of ~~activity for~~the commencement of operations at Greenside and Premier Apartments (Part of Town Center Phase IV) during the third quarter of 2018 as well as higher rental rates across the rest of the multifamily portfolio, especially at Johns Hopkins Village ~~which experienced higher occupancy during the three~~ and ~~nine months ended September 30, 2018 compared to the corresponding periods in 2017, as well as increased rental rates at~~ Smith's Landing.

Multifamily Same Store Results

Multifamily same store results for the three months ended March 31, 2019 and 2018 exclude ~~new real estate developments - specifically Johns Hopkins Village, which was placed into service in the third quarter of 2016,~~ Greenside, Premier Apartments ~~a portion of which was placed into service in the third quarter of 2018, and Premier~~ (part of Town Center Phase VI), ~~a portion of which was placed into service in the third quarter of 2018. Multifamily same store results also exclude~~and The Cosmopolitan ~~which is undergoing a redevelopment project that began on March 1, 2018.~~

~~Multifamily same store rental revenues, property expenses and NOI for the three and nine months ended September 30, 2018 and 2017 were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change
(unaudited, $ in thousands)
Rental revenues $ 3,027
$ 2,922
$ 105
$ 8,800
$ 8,619
$ 181
Property expenses 1,321
1,263
58
3,704
3,621
83
Same Store NOI $ 1,706
$ 1,659
$ 47
$ 5,096
$ 4,998
$ 98
Non-Same Store NOI 1,730
1,487
243
5,875
5,477
398
Segment NOI $ 3,436
$ 3,146
$ 290
$ 10,971
$ 10,475
$ 496

~~Multifamily same store NOI for the three and nine months ended September 30, 2018 increased slightly compared~~(due to ~~the corresponding periods in 2017. The increase is primarily the result of increased rental rates at Smith’s Landing.~~

~~General Contracting and Real Estate Services Segment Data~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change
(unaudited, $ in thousands)
Segment revenues $ 19,950
$ 41,201
$ (21,251 ) $ 63,654
$ 161,391
$ (97,737 )
Segment expenses 18,973
39,377
(20,404 ) 61,474
154,588
(93,114 )
Segment gross profit $ 977
$ 1,824
$ (847 ) $ 2,180
$ 6,803
$ (4,623 )
Operating margin 4.9 % 4.4 % 0.5 % 3.4 % 4.2 % (0.8 )%

General contracting and real estate services segment profit for the three and nine months ended September 30, 2018 decreased 46.4% and 68.0% compared to the corresponding periods in 2017 as there were no significant new third-party contracts during the nine months ended September 30, 2018.redevelopment).

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Multifamily same store rental revenues, property expenses and NOI for the three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
	2019		2018		Change
	(Unaudited)
Rental revenues	$	5,449	$	5,035	$	414
Property expenses	2,086		1,951		135
Same Store NOI	$	3,363	$	3,084	$	279
Non-Same Store NOI	1,303		855		448
Segment NOI	$	4,666	$	3,939	$	727

Multifamily same store NOI for the three months ended March 31, 2019 increased 9.0% compared to the three months ended March 31, 2018. The increase is primarily the result of higher rental rates across the same store multifamily portfolio, especially at Johns Hopkins Village and Smith's Landing.

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, 2019 and 2018 were as follows (in thousands):



	Three Months Ended March 31,
	2019			2018			Change
	(Unaudited)
Segment revenues	$	17,036		$	23,050		$	(6,014	)
Segment expenses	16,286			22,414			(6,128		)
Segment gross profit	$	750		$	636		$	114
Operating margin	4.4		%	2.8		%	1.6		%

General contracting and real estate services segment profit for the three months ended March 31, 2019 increased 17.9% compared to the three months ended March 31, 2018 due to higher profit margins, which was partially offset by lower revenue in this segment. While backlog was higher as of March 31, 2019 as compared to March 31, 2018, the projects currently included in backlog are in the early project stages, which generally result in less revenue than projects in late stages.

The changes in third party construction backlog for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(unaudited, $ in thousands)												(unaudited, in thousands)
Beginning backlog	$	37,921		$	116,657		$	49,167		$	217,718		$	165,863		$	49,167
New contracts/change orders	7,138			1,251			39,514			20,211			12,019			4,569
Work performed	(19,879		)	(41,165		)	(63,501		)	(161,186		)	(17,011		)	(23,003		)
Ending backlog	$	25,180		$	76,743		$	25,180		$	76,743		$	160,871		$	30,733

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$6.4~~$80.0 million in backlog on the ~~Sumitomo Warehouse~~Interlock Commercial project, ~~$4.3~~$62.1 million in backlog on the ~~City Center~~Solis Apartments project, and ~~$2.7~~$9.2 million in backlog on the ~~Dinwiddie Municipal Complex~~Hopkins Streetscape project.

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Consolidated Results of Operations

The following table summarizes the results of operations for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
	2018			2017			Change			2018			2017			Change			2019			2018			Change
	(unaudited, $ in thousands)																		(unaudited, in thousands)
Revenues
Rental revenues	$	28,930		$	27,096		$	1,834		$	86,227		$	81,083		$	5,144		$	30,909		$	28,699		$	2,210
General contracting and real estate services revenues	19,950			41,201			(21,251		)	63,654			161,391			(97,737		)	17,036			23,050			(6,014		)
Total revenues	48,880			68,297			(19,417		)	149,881			242,474			(92,593		)	47,945			51,749			(3,804		)

Expenses
Rental expenses	7,103			6,830			273			20,049			19,069			980			6,725			6,424			301
Real estate taxes	2,840			2,693			147			8,388			7,797			591			3,128			2,813			315
General contracting and real estate services expenses	18,973			39,377			(20,404		)	61,474			154,588			(93,114		)	16,286			22,414			(6,128		)
Depreciation and amortization	10,196			9,239			957			28,653			28,018			635			9,904			9,278			626
General and administrative expenses	2,367			2,098			269			8,092			7,762			330			3,401			2,961			440
Acquisition, development and other pursuit costs	69			61			8			162			477			(315		)	400			84			316
Impairment charges	3			19			(16		)	101			50			51
Total expenses	41,551			60,317			(18,766		)	126,919			217,761			(90,842		)	39,844			43,974			(4,130		)
Operating income	7,329			7,980			(651		)	22,962			24,713			(1,751		)	8,101			7,775			326
Interest income	2,545			1,910			635			7,152			4,966			2,186			5,319			2,232			3,087
Interest expense	(4,677		)	(4,253		)	(424		)	(13,547		)	(13,282		)	(265		)	(5,886		)	(4,373		)	(1,513		)
Loss on extinguishment of debt	(11		)	—			(11		)	(11		)	—			(11		)
Gain on real estate dispositions	—			4,692			(4,692		)	—			8,087			(8,087		)
Equity in income of unconsolidated real estate entities																			273			—			273
Change in fair value of interest rate derivatives	298			87			211			1,256			300			956			(1,463		)	969			(2,432		)
Other income	65			74			(9		)	233			154			79			60			114			(54		)
Income before taxes	5,549			10,490			(4,941		)	18,045			24,938			(6,893		)	6,404			6,717			(313		)
Income tax benefit (provision)	120			(29		)	149			552			(781		)	1,333
Income tax benefit																			110			266			(156		)
Net income	$	5,669		$	10,461		$	(4,792	)	$	18,597		$	24,157		$	(5,560	)	$	6,514		$	6,983		$	(469	)

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Rental revenues for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~$1.8~~$2.2 million ~~and $5.1 million, respectively,~~ compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018		2017		Change		2018		2017		Change		2019		2018		Change
	(unaudited, $ in thousands)												(unaudited, in thousands)
Office	$	5,149	$	4,762	$	387	$	15,537	$	14,427	$	1,110	$	5,556	$	5,100	$	456
Retail	16,932		15,880		1,052		50,251		47,089		3,162		17,257		16,711		546
Multifamily	6,849		6,454		395		20,439		19,567		872		8,096		6,888		1,208
	$	28,930	$	27,096	$	1,834	$	86,227	$	81,083	$	5,144	$	30,909	$	28,699	$	2,210

Office rental revenues for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~8.1% and 7.7%, respectively,~~8.9% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018, primarily as a result of ~~a new tenant at 4525 Main Street that moved in during December 2017. The increase was partially offset by~~ the ~~disposition~~acquisition of One City Center and higher occupancy across the rest of the ~~Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach~~ office ~~buildings, which contributed an aggregate of $0.1 million and $0.6 million in office rental revenues for the three and nine months ended September 30, 2017, respectively.~~portfolio.

Retail rental revenues for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~6.6% and 6.7%, respectively,~~3.3% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018, as a result of the ~~acquisitions of Indian Lakes, Parkway Centre, and Lexington Square during the nine months ended September 30, 2018, as well as the~~ acquisition of the additional outparcel phase of Wendover Village ~~and the completion of the Lightfoot Marketplace development during the third quarter of 2017.~~

~~Multifamily rental revenues for~~in February 2019, the three ~~and nine months ended September 30,~~property acquisitions completed during 2018, ~~increased 6.1%~~ and 4.5%, respectively, compared to the corresponding periods in 2017 primarily as a result of activity for Johns Hopkins Village, which was placed into service in the third quarter of 2016 and experienced higher occupancy during the three and nine months ended September 30, 2018 compared to the corresponding periods in 2017. Increased rental rates at Smith's Landing also contributed to the increase in rental revenues.

General contracting and real estate services revenues for the three and nine months ended September 30, 2018 decreased 51.6% and 60.6%, respectively, compared to the corresponding periods in 2017 as there were no significant new third-party contracts during the nine months ended September 30, 2018.

~~Rental expenses for the three and nine months ended September 30, 2018 increased $0.3 million and $1.0 million, respectively, compared to the corresponding periods in 2017 as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change 2018 2017 Change
(unaudited, $ in thousands)
Office $ 1,551
$ 1,447
$ 104
$ 4,435
$ 4,138
$ 297
Retail 2,761
2,699
62
7,974
7,698
276
Multifamily 2,791
2,684
107
7,640
7,233
407
$ 7,103
$ 6,830
$ 273
$ 20,049
$ 19,069
$ 980

Office rental expenses for the three and nine months ended September 30, 2018 increased 7.2% as compared to each of the corresponding periods in 2017 as a result of higher occupancy at 4525 Main Street and increased operating expenses across the office portfolio. Retail rental expenses for the three and nine months ended September 30, 2018 increased 2.3% and 3.6%, respectively, compared to the corresponding periods in 2017 as a result of property acquisitions. Multifamily rental expenses for the three and nine months ended September 30, 2018 increased 4.0% and 5.6%, respectively, compared to the corresponding periods in 2017 primarily due to higher occupancy at Johns Hopkins Village as well as the commencement of operations at Premier ~~Apartments and Greenside Apartments, portions~~Retail (Part of ~~which were placed into service during~~Town Center Phase IV) in the third quarter of 2018. These increases were partially offset by the disposal of the leasehold interest in the building previously leased by Home Depot at Broad Creek Shopping Center.

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Multifamily rental revenues for the three months ended March 31, 2019 increased 17.5% compared to the three month ended March 31, 2018, primarily as a result of the commencement of operations at Greenside and Premier Apartments (Part of Town Center Phase IV) during 2018 as well as higher rental rates across the rest of the multifamily portfolio, especially at Johns Hopkins Village and Smith's Landing.

General contracting and real estate services revenues for the three months ended March 31, 2019 decreased 26.1% compared to the three months ended March 31, 2018. While we have significant backlog, particularly with regards to the Interlock Commercial and Solis Apartments projects, these projects were in the early stages during the first quarter of 2019. During the 2018 period, we recognized higher revenues primarily relating to One City Center, Point Street, and Dinwiddie Municipal.

Rental expenses for the three months ended March 31, 2019 increased $0.3 million compared to the three months ended March 31, 2018 as follows:



	Three Months Ended March 31,
	2019		2018		Change
	(unaudited, in thousands)
Office	$	1,486	$	1,446	$	40
Retail	2,600		2,657		(57		)
Multifamily	2,639		2,321		318
	$	6,725	$	6,424	$	301

Office rental expenses for the three months ended March 31, 2019 increased 2.8% compared to the three months ended March 31, 2018, primarily as a result of the acquisition of One City Center.

Retail rental expenses for the three months ended March 31, 2019 decreased 2.1% compared to the three months ended March 31, 2018, primarily as a result of lower ground rent expense related to the disposal of the leasehold interest in the building previously leased by Home Depot at Broad Creek Shopping Center, which more than offset the increases from the acquisition of the additional outparcel phase of Wendover Village in February 2019, the three property acquisitions completed during 2018, and the commencement of operations at Premier Retail (Part of Town Center Phase IV) in the third quarter of 2018.

Multifamily rental expenses for the three months ended March 31, 2019 increased 13.7% compared to the three months ended March 31, 2018, primarily as a result of the commencement of operations at Greenside and Premier Apartments (Part of Town Center Phase IV) during 2018. The increase was partially offset by lower ground rent expense at Johns Hopkins Village as a result of reduced rent pursuant to the amendment to the ground lease executed in March 2018.

Real estate taxes for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~$0.1~~$0.3 million ~~and $0.6 million, respectively,~~ compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 as follows:


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2018		2017		Change			2018		2017		Change			2019		2018		Change
	(unaudited, $ in thousands)														(unaudited, in thousands)
Office	$	515	$	481	$	34		$	1,519	$	1,381	$	138		$	526	$	502	$	24
Retail	1,703		1,588		115			5,041		4,557		484			1,811		1,683		128
Multifamily	622		624		(2		)	1,828		1,859		(31		)	791		628		163
	$	2,840	$	2,693	$	147		$	8,388	$	7,797	$	591		$	3,128	$	2,813	$	315

Office real estate taxes for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~7.1% and 10.0%, respectively,~~4.8% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 due to ~~increased assessments across~~ the ~~office portfolio partially offset by the sale~~acquisition of ~~the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings.~~ One City Center.

Retail real estate taxes for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~7.2% and 10.6%, respectively,~~7.6% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018, primarily as a result of the three property acquisitions completed during 2018 and the commencement of operations at Premier Retail (Part of Town Center Phase IV) in the third quarter of 2018. These increases ~~from new tax assessments.~~ were partially

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offset by the disposal of the leasehold interest in the building previously leased by Home Depot at Broad Creek Shopping Center.

Multifamily real estate taxes for the three ~~and nine~~ months ended ~~September 30, 2018 decreased 0.3% and 1.7%, respectively,~~March 31, 2019 increased 26.0% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018, as a result of ~~lower assessments~~the commencement of operations at ~~Liberty~~Greenside and Premier Apartments ~~and The Cosmopolitan.~~(Part of Town Center Phase IV) during 2018.

General contracting and real estate services expenses for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 decreased ~~51.8% and 60.2%, respectively,~~27.3% compared to the ~~corresponding periods~~three months ended March 31, 2018. While we have significant backlog, particularly with regards to the Interlock Commercial and Solis Apartments projects, these projects were in ~~2017 as there were no significant new third-party contracts~~the early stages during the ~~nine months ended September 30, 2018.~~first quarter of 2019. During the 2018 period, we recognized higher expenses primarily relating to One City Center, Point Street, and Dinwiddie Municipal.

Depreciation and amortization for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~10.4% and 2.3%, respectively,~~6.7% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 as a result of ~~property~~development properties placed in service and acquisitions ~~that occurred subsequent to June 30, 2017.~~of operating properties.

General and administrative expenses for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~12.8% and 4.3%, respectively,~~14.9% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 primarily as a result of ~~increased~~higher salaries, benefits, and ~~compensation.~~professional fees.

Acquisition, development and other pursuit costs for the three months ended ~~September 30, 2018 remained largely consistent~~March 31, 2019 increased $0.3 million compared to the three months ended ~~September 30, 2017. Acquisition, development and other pursuit costs for the nine months ended September 30,~~March 31, 2018 ~~decreased significantly compared~~primarily due to the ~~nine months ended September 30, 2017. The~~write off of costs ~~incurred in the nine months ended September 30, 2017 were primarily related~~relating to a potential ~~acquisition~~development that was ~~abandoned.~~

~~Interest income for~~abandoned during the three ~~and nine~~ months ended September 30, 2018 increased 33.2% and 44.0%, respectively, compared to the corresponding periods in 2017 due to higher notes receivable balances, including the North Decatur Square mezzanine loan originated in May 2017 and the Delray Plaza mezzanine loan originated in October 2017.March 31, 2019.

Interest expense for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased ~~10.0% and 2.0%, respectively,~~34.6% compared to the ~~corresponding periods in 2017~~three months ended March 31, 2018 primarily as a result of the increase in interest rates between periods as well as increased ~~debt balances~~borrowings on the corporate credit facility, increased borrowings on construction loans, and ~~rising rates.~~

~~During the nine months ended September 30, 2017, we recognized a gain of $3.4 million~~additional borrowings on our sale of the Greentree Wawa outparcel, a gain of $4.2 million on our sale of the Commonwealth of Virginia-Chesapeake and Commonwealth of Virginia-Virginia Beach office buildings, and a gain of $0.5 million on our sale of the land outparcel at Sandbridge Commons. There were no gains on sale recognized during the nine months ended September 30, 2018.operating property loans.

The change in fair value of interest rate derivatives for the three ~~and nine~~ months ended ~~September 30, 2018 increased $0.2 million and $1.0 million, respectively, compared to the corresponding periods in 2017~~March 31, 2019 was negative due to ~~significant changes~~a downward shift in forward LIBOR ~~(the London Inter-Bank Offered Rate).~~ rates, particularly as it relates to projected rates two years from now and beyond. The change in fair value of interest rate derivatives for the three months ended March 31, 2018 was positive based on market expectations at that time that floating interest rates would continue to rise.

Income tax benefit ~~(provision)~~ that we recognized during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, 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 sale of common stock through our at-the-market continuous equity offering program (the "ATM Program"), which is discussed below.

Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at or prior to maturity, general contracting expenses, property development and acquisitions, tenant improvements, capital improvements, and ~~capital improvements.~~mezzanine loan funding requirements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness, and the issuance of equity and debt securities. We also may fund property development and acquisitions and capital improvements using our credit facility pending long-term financing.

As of ~~September 30, 2018,~~March 31, 2019, we had unrestricted cash and cash equivalents of ~~$17.7~~$15.6 million available for both current liquidity needs as well as development activities. We also had restricted cash in escrow of ~~$2.9~~$3.4 million, some of which is available for capital expenditures at our operating properties. As of March 31, 2019, we had $56.6 million available ~~for property improvements and required maintenance. As of September 30, 2018, we had $45.9 million of available borrowings~~ under our credit facility to meet our short-term liquidity requirements and ~~$108.0~~$40.2 million of available ~~borrowings~~ under our construction loans to fund ~~our~~ development ~~projects.~~activities.

We ~~addressed the five~~have no loans ~~originally~~ scheduled to mature during ~~2018. Both~~the remainder of the Columbus Village loans were paid off, and the Sandbridge Commons loan was extended for five years. On July 27, 2018, the Johns Hopkins Village loan was refinanced with a new loan that matures on August 7, 2025. Additionally, on October 12, 2018, the Lightfoot Marketplace loan was refinanced with a new loan that matures on October 12, 2023.2019.

ATM Program

On February 26, 2018, we commenced our ATM Program through which we ~~may,~~are able to, from time to time, issue and sell shares of our common stock having an aggregate offering price of up to $125.0 million. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we issued and sold an aggregate of ~~4,227,978~~2,071,000 shares of common stock at an average price of ~~$14.33~~$14.78 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of ~~$59.7~~$30.2 million. As of April 30, 2019, we had $26.5 million in remaining availability under the 2018 ATM Program.

Credit Facility

~~On October 26, 2017, we entered into an amended and restated credit agreement (the “credit agreement”), which provides for~~We have a ~~$300.0 million~~senior credit facility that was modified on January 31, 2019 to increase the maximum total commitments to $355.0 million, comprised of a $150.0 million senior unsecured revolving credit facility (the ~~“revolving~~"revolving credit ~~facility”~~facility") and a ~~$150.0~~$205.0 million senior unsecured term loan facility (the ~~“term~~"term loan ~~facility”~~facility" and, together with the revolving credit facility, the ~~“credit facility”)~~"credit facility), with a syndicate of banks. The credit facility replaced our prior $150.0 million revolving credit facility, which was scheduled to mature on February 20, 2019, and our prior $125.0 million term loan facility, which was scheduled to mature on February 20, 2021. We intend to use future borrowings under the credit facility for general corporate purposes, including funding acquisitions, 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 further increased to $450.0 million, subject to certain conditions, including obtaining commitments from any one or more lenders. On March 28, 2018, our Operating Partnership increased the maximum commitments of the credit facility to $330.0 million using the accordion feature, with an increase of the term loan facility to $180.0 million. The revolving credit facility has a scheduled maturity date of October 26, 2021, with two six-month extension options, subject to certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of October 26, 2022.

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

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

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

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

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

Ratio of adjusted EBITDA (as defined in the credit agreement) to fixed charges of not less than 1.50 to 1.0;

Tangible net worth of not less than the sum of 75% of tangible net worth (as defined in the credit agreement) as of September 30, 2017 and 75% of the net equity proceeds received after June 30, 2017;

Ratio of secured indebtedness to total asset value of not more than 40%;

Ratio of secured recourse debt to total asset value of not more than 20%;

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

Unencumbered interest coverage ratio (as defined in the credit agreement) of not less than 1.75 to 1.0;

Ratio of unencumbered NOI (as defined in the credit agreement) to all unsecured debt of not less than 12%;

Maintenance of a minimum of at least 15 unencumbered properties (as defined in the credit agreement) with an unencumbered asset value (as defined in the credit agreement) of not less than $300.0 million at any time; and

Minimum occupancy rate (as defined in the credit agreement) for all unencumbered properties of not less than 80% at any time.

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

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

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

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Consolidated Indebtedness

The following table sets forth our consolidated indebtedness as of ~~September 30, 2018~~March 31, 2019 ($ in thousands):


	Amount Outstanding				Interest Rate (a)		Effective Rate for Variable Debt			Maturity Date	Balance at Maturity		Amount Outstanding			Interest Rate (a)		Effective Rate for Variable Debt			Maturity Date	Balance at Maturity
Secured Debt
Lightfoot Marketplace	$	10,500		(b)	LIBOR+1.75%		4.01	%		November 14, 2018	$	10,500
North Point Center Note 1	9,408				6.45	%				February 5, 2019	9,333
River City	5,587				LIBOR+1.50%		3.76	%		May 31, 2019	5,587
Greenside (Harding Place)	23,371				LIBOR+2.95%		5.21	%		February 24, 2020	23,371		$	27,409		LIBOR + 2.95%		5.44	%		February 24, 2020	$	27,409
Premier (Town Center Phase VI)	16,669				LIBOR+3.50%		5.76	%		June 29, 2020	16,669		21,830			LIBOR + 2.75%		5.24	%		June 29, 2020	21,830
Hoffler Place (King Street)	5,797				LIBOR+3.24%		5.50	%		January 1, 2021	5,797		19,337			LIBOR + 3.24%		5.73	%		January 1, 2021	19,337
Summit Place (Meeting Street)	6,259				LIBOR+3.24%		5.50	%		January 1, 2021	6,259		19,529			LIBOR + 3.24%		5.73	%		January 1, 2021	19,529
Southgate Square	21,662				LIBOR+1.60%		3.86	%		April 29, 2021	19,462		21,222			LIBOR + 1.60%		4.09	%		April 29, 2021	19,462
4525 Main Street	32,034			(c)	3.25	%				September 10, 2021	30,774
Encore Apartments	24,966			(c)	3.25	%				September 10, 2021	24,006
4525 Main Street (b)													32,034			3.25	%	3.25	%		September 10, 2021	30,774
Encore Apartments (b)													24,966			3.25	%	3.25	%		September 10, 2021	24,006
Hanbury Village	19,142				3.78	%				August 15, 2022	17,109		18,892			3.78	%	3.78	%		August 15, 2022	17,121
Socastee Commons	4,697			(d)	4.57	%				January 6, 2023	4,223		4,645			4.57	%	4.57	%		January 6, 2023	4,223
Sandbridge Commons	8,315				LIBOR+1.75%		4.01	%		January 17, 2023	7,247		8,199			LIBOR + 1.75%		4.24	%		January 17, 2023	7,248
249 Central Park Retail	17,097			(e)	LIBOR+1.60%		3.86	%		August 10, 2023	15,935
South Retail	7,506			(e)	LIBOR+1.60%		3.86	%		August 10, 2023	6,992
Fountain Plaza Retail	10,289			(e)	LIBOR+1.60%		3.86	%		August 10, 2023	9,594
249 Central Park Retail (c)													16,992			LIBOR + 1.60%		3.85	%	(d)	August 10, 2023	15,935
South Retail (c)													7,460			LIBOR + 1.60%		3.85	%	(d)	August 10, 2023	6,996
Fountain Plaza Retail (c)													10,226			LIBOR + 1.60%		3.85	%	(d)	August 10, 2023	9,589
Lightfoot Marketplace													17,900			LIBOR + 1.75%		4.77	%	(e)	October 12, 2023	17,900
One City Center													25,625			LIBOR + 1.85%		4.34	%		April 1, 2024	22,559
Brooks Crossing Office	2,706				LIBOR+1.60%		3.86	%		July 1, 2025	2,706		11,222			LIBOR + 1.60%		4.09	%		July 1, 2025	11,222
Market at Mill Creek	3,976				LIBOR+1.55%		3.81	%		July 12, 2025	3,976		13,549			LIBOR + 1.55%		4.04	%		July 12, 2025	13,549
Johns Hopkins Village	52,930				LIBOR+1.25%		4.19	%	(f)	August 7, 2025	45,967		52,477			LIBOR + 1.25%		4.19	%	(f)	August 7, 2025	45,967
North Point Center Note 2	2,375				7.25	%				September 15, 2025	1,344		2,317			7.25	%	7.25	%		September 15, 2025	1,344
Lexington Square	14,980				4.50	%				September 1, 2028	12,044		14,860			4.50	%	4.50	%		September 1, 2028	12,044
Smith's Landing	19,184				4.05	%				June 1, 2035	—		18,783			4.05	%	4.05	%		June 1, 2035	—
Liberty Apartments	14,502			(d)	5.66	%				November 1, 2043	—		14,370			5.66	%	5.66	%		November 1, 2043	—
The Cosmopolitan	44,656				3.35	%				July 1, 2051	—		44,279			3.35	%	3.35	%		July 1, 2051	—
Total secured debt	$	378,608									$	278,895	$	448,123								$	348,044
Unsecured Debt
Senior unsecured revolving credit facility	102,000				LIBOR+1.40% to 2.00%		3.81	%		October 26, 2021	102,000		91,000			LIBOR+1.40%-2.00%		4.04	%		October 26, 2021	91,000
Senior unsecured term loan	80,000				LIBOR+1.35% to 1.95%		3.76	%		October 26, 2022	80,000		55,000			LIBOR+1.35%-1.95%		3.99	%		October 26, 2022	55,000
Senior unsecured term loan	50,000				LIBOR+1.35% to 1.95%		3.50	%	(f)	October 26, 2022	50,000		150,000			LIBOR+1.35%-1.95%		3.50% - 4.28%		(d)(f)	October 26, 2022	150,000
Senior unsecured term loan	50,000				LIBOR+1.35% to 1.95%		4.28	%	(f)	October 26, 2022	50,000
Total unsecured debt	$	282,000									$	282,000	$	296,000								$	296,000
Total principal balances	660,608										560,895		$	744,123								$	644,044
Unamortized GAAP adjustments	(6,858		)								—		(6,502		)							—
Indebtedness, net	$	653,750									$	560,895	$	737,621								$	644,044

(a) LIBOR rate is determined by individual lenders.

(b) ~~Loan refinanced on October 12, 2018.~~Cross collateralized.

(d) ~~Principal balance excluding fair value adjustments.~~

~~(e) Cross collateralized.~~

~~(f) Subject~~Includes debt subject to an interest rate swap ~~agreement.~~locks, established April 4, 2019.

(e) Includes $10.5 million of debt subject to interest rate swap locks.

(f) Includes debt subject to interest rate swap locks.

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

As of ~~September 30, 2018,~~March 31, 2019, our principal payments during the following years are as follows ($ in thousands):


Year⁽¹⁾	Year⁽¹⁾	Amount Due		Percentage of Total		Year⁽¹⁾	Amount Due		Percentage of Total
2018		$	11,950	2	%
2019	2019	20,513		3	%	2019	$	4,588	1	%
2020	2020	46,666		7	%	2020	56,454		7	%
2021	2021	194,119		29	%	2021	210,570		28	%
2022	2022	201,901		31	%	2022	227,595		31	%
2023						2023	66,617		9	%
Thereafter	Thereafter	185,459		28	%	Thereafter	178,299		24	%
		$	660,608	100	%		$	744,123	100	%

(1) Does not reflect the effect of any maturity extension options.

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

~~On March 27, 2018, we paid off Columbus Village Note 1 and Columbus Village Note 2 in full for an aggregate amount of $8.3 million.~~

On May 31, 2018, we modified the Southgate Square note. The principal amount of the note was increased to $22 million, and the note now bears interest at a rate of LIBOR plus a spread of 1.60%. This note will still mature on April 29, 2021.

On June 1, 2018, we entered into a $16.3 million construction loan for the River City industrial development project in Chesterfield, Virginia. The loan bears interest at a rate of LIBOR plus a spread of 1.50% and will mature on May 31, 2019.

On June 14, 2018, we extended and modified the note secured by 249 Central Park Retail, Fountain Plaza Retail, and South Retail. The principal amount of the note was increased to $35.0 million and bears interest at a rate of LIBOR plus a spread of 1.60%. The note will mature on August 10, 2023.

On June 29, 2018, we entered into a $15.6 million construction loan for the Brooks Crossing office development project. The loan bears interest at a rate of LIBOR plus a spread of 1.60% and will mature on July 1, 2025.

On July 12, 2018, we entered into a $16.2 million construction loan for the Market at Mill Creek development project in Mt. Pleasant, South Carolina. The loan bears interest at a rate of LIBOR plus a spread of 1.55% and will mature on July 12, 2025.

On July 27, 2018, we extended and modified the Johns Hopkins Village note. The principal amount of the note was increased to $53.0 million. The note bears interest at a rate of LIBOR plus a spread of 1.25% and will mature on August 7, 2025. We simultaneously entered into an interest rate swap agreement that effectively fixes the interest rate at 4.19% for the term of the loan.

On August 28, 2018, we entered into a $15.0 million note secured by the newly acquired Lexington Square shopping center. The note bears interest at a rate of 4.50% and will mature on September 1, 2028.

On October 12, 2018, we extended and modified the note secured by Lightfoot Marketplace. Under the modified note, we may borrow up to $17.9 million. We have borrowed an initial tranche of $10.5 million on this note, which bears interest at a rate of LIBOR plus a spread of 1.75% until stabilization of the property, whereupon the spread will be reduced to 1.60%. The note matures on October 12, 2023. We simultaneously entered into an interest rate swap agreement that effectively fixes the interest rate of this initial tranche at 4.77% until project stabilization and 4.62% thereafter.

~~Table of Contents~~

Interest Rate Derivatives

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

On ~~March 7,~~April 23, 2018, ~~the Operating Partnership~~we entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR-indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of 2.78%, an effective date of May 1, 2018, and a maturity date of May 1, 2023.

On July 27, 2018, we entered into a LIBOR interest rate ~~cap~~swap agreement ~~on a notional amount of $50.0 million at a strike~~that effectively fixes the interest rate of ~~2.25%~~the new Johns Hopkins Village note payable at 4.19% per annum with a maturity date of August 7, 2025. We designated the interest rate swap as a cash flow hedge for accounting purposes.

On October 12, 2018, we entered into a ~~premium~~LIBOR interest rate swap agreement that effectively fixes the interest rate of ~~$0.3 million.~~the initial $10.5 million tranche of the new Lightfoot Marketplace note payable at 4.77% per annum until stabilization and 4.62% per annum thereafter. The swap matures on October 12, 2023. We designated the interest rate swap as a cash flow hedge for accounting purposes.

As of March 31, 2019, we were party to the following LIBOR interest rate cap ~~expires on April 1, 2020.~~agreements ($ in thousands):



Effective Date	Maturity Date	Strike Rate		Notional Amount
June 23, 2017	July 1, 2019	1.50	%	$	50,000
September 18, 2017	October 1, 2019	1.50	%	50,000
November 28, 2017	December 1, 2019	1.50	%	50,000
March 7, 2018	April 1, 2020	2.25	%	50,000
July 16, 2018	August 1, 2020	2.50	%	50,000
December 11, 2018	January 1, 2021	2.75	%	50,000
Total				$	300,000

On April ~~23, 2018,~~4, 2019, we entered into a floating-to-fixed interest rate swap attributable to one-month LIBOR indexed interest payments with a notional amount of $50.0 million. The interest rate swap has a fixed rate of ~~2.783%~~2.26%, an effective date of ~~May~~April 1, ~~2018,~~2019, and a maturity date of ~~May 1, 2023.~~October 22, 2022.

~~On July 27, 2018,~~April 4, 2019, we entered into a floating-to-fixed interest rate swap ~~agreement~~ attributable to one-month LIBOR ~~that effectively fixes the~~indexed interest ~~rate~~payments with an initial notional amount of ~~the new Johns Hopkins Village note payable at 4.19%~~$34.6 million (amortizing).

~~On October 12, 2018, we entered into an~~ The interest rate swap ~~agreement that effectively fixes the interest~~has a fixed rate of ~~the initial tranche~~2.25%, an effective date of ~~the Lightfoot note at 4.77% until project stabilization~~April 1, 2019, and ~~4.62% thereafter.~~a maturity date of August 10, 2023.

Table of ~~September 30, 2018, we were party to the following LIBOR interest rate cap agreements ($ in thousands):~~

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Effective Date Maturity Date Strike Rate Notional Amount
February 7, 2017 March 1, 2019 1.50 % 50,000
June 23, 2017 July 1, 2019 1.50 % 50,000
September 18, 2017 October 1, 2019 1.50 % 50,000
November 28, 2017 December 1, 2019 1.50 % 50,000
March 7, 2018 April 1, 2020 2.25 % 50,000
July 16, 2018 August 1, 2020 2.50 % 50,000
Total $ 300,000

Off-Balance Sheet Arrangements

We have entered into standby letters of credit using the available capacity under the credit facility. Letters of credit generally are available for draw down in the event we do not perform. As of ~~September 30, 2018,~~March 31, 2019, we had an outstanding standby ~~letter~~letters of credit for ~~$2.1~~$2.4 million that ~~expires~~expire during ~~2018.~~2019. However, our standby letters of credit may be renewed for additional periods until ~~completion of the related construction contracts.~~required conditions are satisfied. The ~~letter~~letters of credit outstanding at ~~September 30, 2018~~March 31, 2019 related primarily to the guarantee on the 1405 Point senior construction loan.

This letter of credit was released on April 25, 2019.

In connection with the our mezzanine lending activities, we have guaranteed payment of portions of certain senior loans of third parties associated with the development projects. The following table summarizes the guarantees we made as of March 31, 2019 (in thousands):



Development project	Payment guarantee amount
1405 Point	$	25,000	(a)
The Residences at Annapolis Junction	8,300
Delray Plaza	5,180
Nexton Square	12,600
Interlock Commercial	—		(b)
Total	$	51,080

(a) On April 25, 2019, we exercised our option to purchase 79% of the partnership that owns 1405 Point.

(b) As of March 31, 2019, this $30.7 million payment guarantee was not yet effective because the senior construction loan had not yet been executed. On April 19, 2019, the senior construction loan was executed, and the payment guarantee became effective. We now also guarantee completion of the development project to the senior lender. We have also guaranteed completion of the development project to Georgia Tech, the ground lessor.

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Cash Flows


	Nine Months Ended September 30,									Three Months Ended March 31,
	2018			2017			Change			2019			2018			Change
	($ in thousands)									(in thousands)
Operating Activities	$	27,197		$	31,666		$	(4,469	)	$	16,079		$	4,050		$	12,029
Investing Activities	(183,558		)	(64,320		)	(119,238		)	(79,803		)	(67,528		)	(12,275		)
Financing Activities	154,093			30,377			123,716			58,632			59,868			(1,236		)
Net Increase (Decrease)	$	(2,268	)	$	(2,277	)	$	9
Net Decrease										$	(5,092	)	$	(3,610	)	$	(1,482	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period	$	22,916		$	25,193					$	24,051		$	22,916
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	20,648		$	22,916					$	18,959		$	19,306

Net cash provided by operating activities during the ~~nine~~three months ended ~~September 30, 2018 decreased 14.1%~~March 31, 2019 increased $12.0 million compared to the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018 primarily as a result of timing differences in operating assets and ~~liabilities.~~liabilities as well as increased net operating income from the property portfolio.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we invested ~~$119.2~~$12.3 million more in cash compared to the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 due to increased development activity, ~~and~~which was partially offset by less cash invested in the acquisition of ~~three~~ operating properties.

Net cash provided by financing activities during the ~~nine~~three months ended ~~September 30, 2018 increased $123.7 million as compared to the nine~~March 31, 2019 was relatively consistent with that for three months ended ~~September 30, 2017, primarily as a result of increased borrowings under the credit facility.~~March 31, 2018.

Non-GAAP Financial Measures

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ~~(“Nareit”~~("Nareit"). Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, real estate related depreciation and amortization (excluding amortization of

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deferred financing costs), impairment of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures.

FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because we believe that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared year-over-year, captures trends in occupancy rates, rental rates and operating costs. We also believe that, as a widely recognized measure of the performance of REITs, FFO will be used by investors as a basis to compare our operating performance with that of other REITs.

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’ calculation of FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

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

~~Table of Contents~~

The following table sets forth a reconciliation of FFO and Normalized FFO for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ to net income, the most directly comparable GAAP measure:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019		2018
	(in thousands, except per share and unit amounts)												(in thousands, except per share and unit amounts)
Net income	$	5,669		$	10,461		$	18,597		$	24,157		$	6,514	$	6,983
Depreciation and amortization(1)	10,196			9,239			28,653			28,018			10,129		9,278
Gain on operating real estate dispositions	—			(4,200		)	—			(7,595		)
Funds from operations	$	15,865		$	15,500		$	47,250		$	44,580		$	16,643	$	16,261
Acquisition, development and other pursuit costs	69			61			162			477			400		84
Impairment charges	3			19			101			50
Loss on extinguishment of debt	11			—			11			—
Change in fair value of interest rate derivatives	(298		)	(87		)	(1,256		)	(300		)	1,463		(969		)
Normalized funds from operations	$	15,650		$	15,493		$	46,268		$	44,807		$	18,506	$	15,376
Net income per diluted share and unit	$	0.09		$	0.17		$	0.29		$	0.41		$	0.10	$	0.11
FFO per diluted share and unit	$	0.24		$	0.25		$	0.74		$	0.75		$	0.25	$	0.26
Normalized FFO per diluted share and unit	$	0.24		$	0.25		$	0.72		$	0.75		$	0.27	$	0.25
Weighted average common shares and units - diluted	66,362			62,779			64,052			59,423			67,919		62,538

(1) The adjustment for ~~gain on operating~~depreciation and amortization includes $0.2 million of depreciation attributable to the Company's investment in One City Center from January 1, 2019 to March 14, 2019, which was an unconsolidated real estate ~~dispositions excludes the gain recognized in the three months ended September 30, 2017 on the land outparcel at Sandbridge Commons because~~investment during this ~~was a non-operating parcel.~~period.

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

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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, ~~2017.~~2018.

On ~~January 1, 2018, we~~February 25, 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") that requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets (ASU 2016-02—Leases (Topic 842)). The new standard also makes targeted changes to lessor accounting. We adopted the new ~~accounting~~ standard ~~codified~~on January 1, 2019, using the modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented as permitted in Accounting Standards Codification ~~606 -~~("ASC") Topic 842. ~~Revenue~~

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for existing leases. As of March 31, 2019, we do not have any leases classified as finance leases. We also elected a practical expedient that allowed us to not separate non-lease components from ~~Contracts~~lease components and instead to account for each lease and non-lease component as a single lease component. The adoption of the new standard as of January 1, 2019 did not impact our consolidated results of operations and had no impact on cash flows.

As a lessee we have six ground leases on five properties with ~~Customers~~.initial terms that range from 20 to 65 years and options to extend up to an additional 70 years in certain cases. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. We recognize ~~general contracting~~lease expense on a straight-line basis over the lease term. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

The long-term ground leases, represent a majority of our current operating lease payments. We recorded right-of-use assets totaling $32.2 million and lease liabilities totaling $41.4 million upon adopting this standard on January 1, 2019. We utilized a weighted average discount rate of 5.4% to measure our lease liabilities upon adoption.

As a lessor we lease our properties under operating leases and recognize base rents on a straight-line basis over the lease term. We also recognize revenue from tenant recoveries, through which tenants reimburse us 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, we recognize contingent rental revenue (e.g., percentage rents based on tenant sales thresholds) when the sales thresholds are met. Many tenant leases include one or more options to renew, with renewal terms that can extend the lease term from one to 15 years or more. The exercise of lease renewal options is at the tenant's sole discretion. We include a renewal period in the lease term only if it appears at lease inception that the renewal is reasonably assured.

The new standard includes new considerations regarding the recognition of rental revenue when collection is not probable. We changed our presentation and measurement of charges for uncollectable lease revenue associated with office, retail, and residential leasing activity, reflecting those amounts as a ~~customer obtains control~~component of ~~promised goods or services~~rental income on the Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2019. However, in ~~an amount that reflects~~accordance with our prospective adoption of the ~~consideration~~standard, we ~~expect to receive in exchange~~did not adjust the prior year period presentation of charges for ~~those goods or services. For each construction contract,~~uncollectable lease revenue associated with its office, retail, and residential leasing activity as a component of operating expenses, excluding property taxes, on the Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2018. Instead, we ~~identify the performance obligations, which typically include the delivery~~recorded a combined adjustment of ~~a single building constructed according~~$0.2 million to the ~~specifications~~opening balances for distributions in excess of earnings and noncontrolling interest relating to receivables where collection of substantially all operating lease payments was not probable as of January 1, 2019.

Lease-related receivables, which include contractual amounts accrued and unpaid from tenants and accrued straight-line rents receivable, are reduced for credit losses. Such amounts are recognized as a reduction to real estate rental revenues. We evaluate the collectability of lease receivables using several factors, including a lessee’s creditworthiness. We recognize a credit loss on lease-related receivables when, in the opinion of management, collection of substantially all lease payments is not probable. When collectability is determined not probable, any lease income subsequent to recognizing the credit loss is limited to the lesser of the ~~contract. We estimate the total transaction price, which generally includes~~lease income reflected on a ~~fixed contract price and may also include variable components such as early completion bonuses, liquidated damages,~~straight-line basis or cost savings to be shared with the customer. Variable components of the contract price are included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur. We recognize the estimated transaction price as revenue as we satisfy our performance obligations; we estimate our progress in satisfying performance obligations for each contract using the percentage-of-completion method, based on the proportion of incurred costs to total estimated construction costs at completion. Construction contract costs include all direct material, direct labor, subcontract costs, and overhead costs directly related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, are all significant judgments that may result in revisions to costs and income and are recognized in the period in which they are determined. Provisions for estimated losses on uncompleted contracts are recognized immediately in the period in which such losses are determined. We defer pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable.

~~We recognize real estate services revenues from property development and management as we satisfy our performance obligations under these service arrangements.~~cash collected.

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. On a limited basis, we also use derivative financial instruments to manage interest rate risk. We do not use these derivatives for trading or other speculative purposes.

At ~~September 30, 2018,~~March 31, 2019 and excluding unamortized GAAP adjustments, approximately ~~$338.9~~$422.8 million, or ~~51.3%~~56.8%, of our debt had fixed interest rates and approximately ~~$321.7~~$321.3 million, or ~~48.7%~~43.2%, had variable interest rates. At ~~September 30, 2018,~~March 31, 2019, LIBOR was approximately ~~226~~249 basis points. Assuming no increase in the level of our variable rate debt, if LIBOR increased by 100 basis points, our cash flow would decrease by only ~~$0.3~~$0.7 million per year as a result of the interest rate caps. Assuming no increase in the level of our variable rate debt, if LIBOR decreased by 100 basis points, our cash flow would increase by ~~$1.7~~$1.6 million per year.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures as of ~~September 30, 2018,~~March 31, 2019, the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded, as of ~~September 30, 2018,~~March 31, 2019, 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.

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There have been no changes to our internal control over financial reporting during the ~~period covered by this report~~quarter ended March 31, 2019 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, ~~2017.~~2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Subject to the satisfaction of certain conditions, holders of Class A Units in the Operating Partnership may tender their units for redemption by the Operating Partnership in exchange for cash equal to the market price of shares of the Company’s common stock at the time of redemption or, at the Company’s option and sole discretion, for shares of common stock on a one-for-one basis. During the three months ended ~~September 30, 2018,~~March 31, 2019, the Company elected to satisfy certain redemption requests by issuing a total of ~~123,504~~117,505 shares of common stock in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

~~None.~~During the three months ended March 31, 2019, certain of our employees surrendered shares of common stock owned by them to satisfy their minimum statutory federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our Amended and Restated 2013 Equity Incentive Plan (the "Amended Plan"). The following table summarizes all of these repurchases during the three months ended March 31, 2019.



Period	Total Number of Shares Purchased(1)	Average Price Paid for Shares(1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2019 through January 31, 2019	—	$	—	N/A	N/A
February 1, 2019 through February 28, 2019	—	—		N/A	N/A
March 1, 2019 through March 31, 2019	19,245	15.20		N/A	N/A
Total	19,245	$	15.20


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

Item 3. Defaults on Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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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
~~31.1~~ 3.1		Articles of Amendment and Restatement of Armada Hoffler Properties, Inc. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3, filed on June 2, 2014)

3.2		Amended and Restated Bylaws of Armada Hoffler Properties, Inc. (Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed on February 23, 2018)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~31.2~~ 31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~32.1~~ 32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~32.2~~ 32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase

*		Filed herewith

**		Furnished herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	ARMADA HOFFLER PROPERTIES, INC.

Date: ~~October 31, 2018~~May 8, 2019	/s/ ~~LOUIS~~Louis S. ~~HADDAD~~Haddad
	Louis S. Haddad
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: ~~October 31, 2018~~May 8, 2019	/s/ ~~MICHAEL~~Michael P. ~~O’HARA~~O’Hara
	Michael P. O’Hara
	Chief Financial Officer, Treasurer and ~~Treasurer~~Secretary
	(Principal Accounting and Financial Officer)

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	Balance as of
	September 30, 2018		December 31, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents	$	17,732	$	19,959	$	19,721	$	21,942
Restricted cash	2,916		2,957		3,195		3,251
Cash, cash equivalents, and restricted cash	$	20,648	$	22,916	$	22,916	$	25,193



	Nine months ended
	September 30, 2017
Operating activities as originally presented	$	36,598
Adjustment relating to restricted cash	(259		)
Adjustment for shares tendered for tax withholding	289
Adjustment relating to interest income presentation	(4,962		)
Operating activities after adjustments	$	31,666

Investing activities as originally presented	$	(69,485	)
Adjustment relating to restricted cash	203
Adjustment relating to interest income presentation	4,962
Investing activities after adjustments	$	(64,320	)

Financing activities as originally presented	$	30,666
Adjustment for shares tendered for tax withholding	(289		)
Financing activities after adjustments	$	30,377