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Real Estate Investments and Equity Method Investments

12 Months Ended

Dec. 31, 2019

Real Estate Investments and Equity Method Investments

The Company’s real estate investments comprised the following as of December 31, 2019 and 2018 (in thousands):



	December 31, 2019
	Income producing property		Held for development		Construction in progress		Total
Land	$	263,258	$	5,000	$	7,265	$	275,523
Land improvements	58,636		—		—		58,636
Buildings and improvements	1,138,829		—		—		1,138,829
Development and construction costs	—		—		133,336		133,336
Real estate investments	$	1,460,723	$	5,000	$	140,601	$	1,606,324



	December 31, 2018
	Income producing property		Held for development		Construction in progress		Total
Land	$	192,677	$	2,994	$	17,961	$	213,632
Land improvements	53,521		—		—		53,521
Buildings and improvements	791,719		—		—		791,719
Development and construction costs	—		—		117,714		117,714
Real estate investments	$	1,037,917	$	2,994	$	135,675	$	1,176,586

2019 Operating Property Acquisitions

On February 6, 2019, the Company acquired an additional outparcel phase of Wendover Village in Greensboro, North Carolina for a contract price of $2.7 million plus capitalized acquisition costs of $0.1 million. This phase is leased by a single tenant.

On March 14, 2019, the Company acquired the office and retail portions of the One City Center project in Durham, North Carolina in exchange for a redemption of its 37% equity ownership in the joint venture with Austin Lawrence Partners, which totaled $23.0 million as of the acquisition date, and a cash payment of $23.2 million. The Company also incurred capitalized acquisition costs of $0.1 million.

On April 24, 2019, the Company exercised its option to purchase 79% of the interests in the partnership that owns 1405 Point in exchange for extinguishing the Company's $31.3 million note receivable on the project, making a cash payment of $0.3 million, and assuming a loan payable of $64.9 million, which was recorded at its fair value of $65.8 million. The Company also incurred capitalized acquisition costs of $0.1 million.

On May 23, 2019, the Company acquired Red Mill Commons and Marketplace at Hilltop from Venture Realty Group for consideration comprised of 4.1 million Class A units of limited partnership interest in the Operating Partnership

("Class A Units" or "OP Units"), the assumption of $35.7 million of mortgage debt principal, and $4.5 million in cash. The negotiated price was $105.0 million, which contemplated the price of the Company's common stock of $15.55 per share when the purchase and sale agreement was executed. The aggregate acquisition cost was $109.3 million, which consisted of 4.1 million Class A Units valued at $68.1 million (using the price of the Company's common stock of $16.50 on the date of the acquisition), mortgage debt valued at $35.6 million, cash consideration of $4.5 million, and capitalized acquisition costs of $1.1 million. In connection with the acquisition, the Company and the Operating Partnership entered into a tax protection agreement with the contributors pursuant to which the Company and the Operating Partnership agreed, 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 allocate to the contributors for taxation purposes minimum levels of Operating Partnership liabilities.

On June 26, 2019, the Company acquired Thames Street Wharf, a Class A office building located in the Harbor Point development of Baltimore, Maryland, for $101.0 million in cash and $0.3 million of capitalized acquisition costs.

The following table summarizes the purchase price allocation (including acquisition costs) based on the relative fair value of the assets acquired and intangible liabilities assumed for the six operating properties acquired during the year ended December 31, 2019 (in thousands):



	Wendover Village additional outparcel		One City Center		1405 Point				Red Mill Commons			Marketplace at Hilltop				Thames Street Wharf
Land	$	1,633	$	2,678	$	—		^(a)	$	44,252		$	2,023		^(b)	$	15,861
Site improvements	50		163		298				2,558			691				150
Building and improvements	888		28,039		92,866				27,790			19,195				64,539
Furniture and fixtures	—		—		2,302				—			—				—
In-place leases	101		15,140		3,371				9,973			4,565				24,385
Above-market leases	111		—		—				1,463			599				—
Below-market leases	—		—		—				(6,221		)	(1,136		)		(3,636		)
Finance lease liabilities	—		—		(8,671		)		—			(9,200		)		—
Finance lease right-of-use assets	—		—		11,730			^(a)	—			12,770			^(b)	—
Net assets acquired	$	2,783	$	46,020	$	101,896			$	79,815		$	29,507			$	101,299

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(a) Land is subject to a ground lease.

(b) Portion of land is subject to a ground lease.

2018 Operating Property Acquisitions

On January 9, 2018, the Company acquired Indian Lakes Crossing, a Harris Teeter-anchored shopping center in Virginia Beach, Virginia, for a contract price of $14.7 million plus capitalized acquisition costs of $0.2 million.

On January 29, 2018, the Company acquired Parkway Centre, a newly developed Publix-anchored shopping center in Moultrie, Georgia, for total consideration of $11.3 million (comprised of $9.6 million in cash and $1.7 million in the form of Class A Units) plus capitalized acquisition costs of $0.3 million.

On August 28, 2018, the Company acquired Lexington Square, a newly developed Lowes Foods-anchored shopping center in Lexington, South Carolina, for a purchase price of $27.0 million, consisting of cash consideration of $24.2 million and $2.8 million of additional consideration in the form of Class A Units issued during 2019. As part of this transaction, the Company also capitalized acquisition costs of $0.4 million.

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 operating properties purchased during the year ended December 31, 2018 (in thousands):



	Indian Lakes Crossing			Parkway Centre			Lexington Square
Land	$	10,926		$	1,372		$	3,036
Site improvements	531			696			7,396
Building and improvements	1,913			7,168			10,387
In-place leases	1,648			2,346			4,113
Above-market leases	11			—			89
Below-market leases	(175		)	(10		)	(447		)
Net assets acquired	$	14,854		$	11,572		$	24,574

2017 Operating Property Acquisitions

On July 25, 2017, the Company acquired an outparcel phase of Wendover Village in Greensboro, North Carolina for a contract price of $14.3 million plus capitalized acquisition costs of $0.1 million. The following table summarizes the purchase price allocation, including acquisition costs, for this property (in thousands):



Land	$	5,550
Site improvements	232
Building and improvements	6,977
In-place leases	1,382
Above-market leases	327
Below-market leases	(50		)
Net assets acquired	$	14,418

Other 2019 Real Estate Transactions

On April 1, 2019, the Company sold Waynesboro Commons for a sale price of $1.1 million. There was no gain or loss recognized on the disposition.

On August 15, 2019, the Company sold Lightfoot Marketplace for a sale price of $30.3 million. The gain on disposition was $4.5 million. In conjunction with this sale, the Company paid off the $17.9 million note payable secured by this property. The Company retained the interest rate swap associated with the note payable.

On October 15, 2019, the Company entered into an operating agreement with a partner to develop a mixed-use project in Roswell, Georgia. The Company has an 80% interest in the partnership. On October 25, 2019, the partnership, 1023 Roswell, LLC, purchased land for a purchase price of $5.0 million in cash for this project. The Company is responsible for funding the equity requirements of this development, including the $5.0 million purchase of the land. Management has concluded that this entity is a VIE as it lacks sufficient equity to fund its operations without additional financial support. The Company is the developer of the project 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.

Subsequent to December 31, 2019

On January 10, 2020, the Company purchased land in Charlotte, North Carolina for a purchase price of $6.3 million for the development of a mixed-use property.

Other 2018 Real Estate Transactions

On November 30, 2017, the Company entered into a lease agreement with Bottling Group, LLC for a new distribution facility that the Company developed and constructed. On January 29, 2018, the Company acquired undeveloped land in Chesterfield, Virginia, a portion of which serves as the site for this facility, for a contract price of $2.4 million plus capitalized acquisition costs of $0.1 million. On December 20, 2018, the Company sold the completed facility for $25.9 million, resulting in a gain of $3.4 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. Management has concluded that this entity is a VIE as it lacks sufficient equity to fund its operations without additional financial support. The Company was 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 was used in the development of the Brooks Crossing Office property.

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.

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.

On December 31, 2018, the Company sold the leasehold interest in the building previously leased by Home Depot at Broad Creek Shopping Center for $2.4 million, resulting in a gain on sale of $0.8 million.

Other 2017 Real Estate Transactions

On January 4, 2017, the Company acquired undeveloped land in Charleston, South Carolina for a contract price of $7.1 million plus capitalized acquisition costs of $0.2 million. The Company used the land for the development of the Hoffler Place property.

On January 20, 2017, the Company completed the sale of the Wawa outparcel at Greentree Shopping Center. Net proceeds after transaction costs were $4.4 million. The gain on the disposition was $3.4 million.

On July 11, 2017, the Company acquired undeveloped land in Charleston, South Carolina for a contract price of $7.2 million plus capitalized acquisition costs of $0.1 million. The Company is using the land for the development of the Summit Place property.

On July 13, 2017, the Company completed the sale of two office properties leased by the Commonwealth of Virginia in Chesapeake, Virginia and Virginia Beach, Virginia. Aggregate net proceeds from the dispositions of the properties after transaction costs and repayment of the loan associated with the Chesapeake, Virginia property were $7.9 million, and the aggregate gain on the dispositions was $4.2 million.

On August 10, 2017, the Company completed the sale of a land outparcel at Sandbridge Commons. Net proceeds after transaction costs and a partial loan paydown were $0.3 million. The gain on the disposition was $0.5 million.

Equity Method Investments

One City Center

On February 25, 2016, the Company acquired a 37% interest in One City Center, a joint venture with Austin Lawrence Partners, for purposes of developing a 22-story mixed-use tower in Durham, North Carolina. The Company was a minority partner in the joint venture and served as the project's general contractor. During the years ended

December 31, 2019, 2018 and 2017, the Company invested $0.5 million, $7.3 million and $11.2 million, respectively, in One City Center.

For the period from January 1, 2019 to March 13, 2019, One City Center had operating income of $0.3 million allocated to the Company. For the year ended December 31, 2018, One City Center had operating income of $0.4 million allocated to the Company. For the year ended December 31, 2017, One City Center had no operating activity, and therefore the Company received no allocated income.

On March 14, 2019, the Company acquired the office and retail portions of One City Center in exchange for its 37% equity ownership in the joint venture and a cash payment of $23.2 million.