Derivative Financial Instruments

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

6. Derivative Financial Instruments

Armada Hoffler may enter into interest rate derivatives to manage exposure to interest rate risks. Armada Hoffler does not use derivative financial instruments for trading or speculative purposes and has not designated any of its derivatives as hedges for accounting purposes. As a result, changes in the fair value of derivatives are recognized currently within other income in the consolidated and combined statements of operations.

On September 1, 2013, Armada Hoffler executed three interest rate cap agreements with a total notional amount of approximately $103.0 million, strike prices ranging from 1.50% to 3.50% and terms ending on March 1, 2016. The total premium paid to execute the three interest rate cap agreements was approximately $0.2 million.

Armada Hoffler’s derivatives comprised the following as of September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013							December 31, 2012
			(Unaudited)
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Gain		Loss					Gain		Loss
Pay fixed interest rate swaps	$	710	$	—	$	(18	)	$	11,721	$	—	$	(239	)
Interest rate caps		112,232		97		—			9,356		9		—
Total	$	112,942	$	97	$	(18	)	$	21,077	$	9	$	(239	)

The changes in the fair value of Armada Hoffler’s derivatives during the three and nine months ended September 30, 2013 and 2012 comprised the following (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Unaudited)
Pay fixed interest rate swaps	$	(2	)	$	122		$	150		$	343
Interest rate caps		(113	)		(5	)		(109	)		(5	)
Other (expense) income	$	(115	)	$	117		$	41		$	338