UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

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

For the quarterly period ended March 31, 2024  

or 

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

For the transition period from                      to                      

Commission File Number: 001-35908

ARMADA HOFFLER PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Maryland				46-1214914
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
222 Central Park Avenue		,	Suite 2100
Virginia Beach	,	Virginia		23462
(Address of principal executive offices)				(Zip Code)

 

(757) 366-4000

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	AHH	New York Stock Exchange
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share	AHHPrA	New York Stock Exchange

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    ☒  Yes     ☐  No 

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

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

 

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

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

☐ Yes     ☒  No

As of May 6, 2024, the registrant had 67,073,451 shares of common stock, $0.01 par value per share, outstanding. In addition, as of May 6, 2024, Armada Hoffler, L.P., the registrant's operating partnership subsidiary, had 21,709,299 units of limited partnership interest ("OP Units") outstanding (other than OP Units held by the registrant).

ARMADA HOFFLER PROPERTIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2024

Table of Contents

		Page
Part I. Financial Information		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	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
Part II. Other Information		45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
Signatures		47

PART I. Financial Information

Item 1.    Financial Statements

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value and share data)

	March 31, 2024		December 31, 2023
	(Unaudited)
ASSETS
Real estate investments:
Income producing property	$	2,099,051	$	2,093,032
Held for development	11,978		11,978
Construction in progress	117,921		102,277
	2,228,950		2,207,287
Accumulated depreciation	(408,917)		(393,169)
Net real estate investments	1,820,033		1,814,118
Cash and cash equivalents	41,934		27,920
Restricted cash	1,927		2,246
Accounts receivable, net	43,147		45,529
Notes receivable, net	109,282		94,172
Construction receivables, including retentions, net	121,042		126,443
Construction contract costs and estimated earnings in excess of billings	26		104
Equity method investments	152,190		142,031
Operating lease right-of-use assets	23,018		23,085
Finance lease right-of-use assets	90,171		90,565
Acquired lease intangible assets	105,175		109,137
Other assets	93,199		87,548
Total Assets	$	2,601,144	$	2,562,898
LIABILITIES AND EQUITY
Indebtedness, net	$	1,428,318	$	1,396,965
Accounts payable and accrued liabilities	33,252		31,041
Construction payables, including retentions	136,329		128,290
Billings in excess of construction contract costs and estimated earnings	21,728		21,414
Operating lease liabilities	31,483		31,528
Finance lease liabilities	92,062		91,869
Other liabilities	55,295		56,613
Total Liabilities	1,798,467		1,757,720
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized: 6.75% Series A Cumulative Redeemable Perpetual Preferred Stock, 9,980,000 shares authorized; 6,843,418 shares issued and outstanding as of March 31, 2024 and December 31, 2023	171,085		171,085
Common stock, $0.01 par value, 500,000,000 shares authorized; 66,986,834 and 66,793,294 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively	670		668
Additional paid-in capital	582,049		580,687
Distributions in excess of earnings	(187,271)		(184,724)
Accumulated other comprehensive income	4,870		4,906
Total stockholders’ equity	571,403		572,622
Noncontrolling interests in investment entities	9,645		9,986
Noncontrolling interests in Operating Partnership	221,629		222,570
Total Equity	802,677		805,178
Total Liabilities and Equity	$	2,601,144	$	2,562,898

See Notes to Condensed Consolidated Financial Statements.

1

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Comprehensive Income 

(In thousands, except per share data)

(Unaudited)

	Three Months Ended  March 31,
	2024		2023
Revenues
Rental revenues	$	61,881	$	56,218
General contracting and real estate services revenues	126,975		84,238
Interest income	4,626		3,719
Total revenues	193,482		144,175
Expenses
Rental expenses	14,605		12,960
Real estate taxes	5,925		5,412
General contracting and real estate services expenses	122,898		81,170
Depreciation and amortization	20,435		18,468
Amortization of right-of-use assets - finance leases	395		277
General and administrative expenses	5,874		5,448
Impairment charges	—		102
Total expenses	170,132		123,837
Operating income	23,350		20,338
Interest expense	(17,975)		(12,302)
Change in fair value of derivatives and other	12,888		(2,447)
Unrealized credit loss provision	(83)		(77)
Other income (expense), net	79		93
Income before taxes	18,259		5,605
Income tax provision	(534)		(188)
Net income	17,725		5,417
Net income attributable to noncontrolling interests:
Investment entities	(34)		(154)
Operating Partnership	(3,618)		(554)
Net income attributable to Armada Hoffler Properties, Inc.	14,073		4,709
Preferred stock dividends	(2,887)		(2,887)
Net income attributable to common stockholders	$	11,186	$	1,822
Net income attributable to common stockholders per share (basic and diluted)	$	0.17	$	0.03
Weighted-average common shares outstanding (basic and diluted)	66,838		67,787
Comprehensive income:
Net income	$	17,725	$	5,417
Unrealized cash flow hedge gains (losses)	3,554		(426)
Realized cash flow hedge gains reclassified to net income	(3,642)		(2,922)
Comprehensive income	17,637		2,069
Comprehensive income attributable to noncontrolling interests:
Investment entities	5		(118)
Operating Partnership	(3,606)		218
Comprehensive income attributable to Armada Hoffler Properties, Inc.	$	14,036	$	2,169

See Notes to Condensed Consolidated Financial Statements.

2

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Equity

(In thousands, except share data)

(Unaudited)

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

3

	Preferred stock		Common stock		Additional paid-in capital		Distributions in excess of earnings		Accumulated other comprehensive income		Total stockholders' equity		Noncontrolling interests in investment entities		Noncontrolling interests in Operating Partnership		Total equity
Balance, December 31, 2022	$	171,085	$	677	$	587,884	$	(126,875)	$	14,679	$	647,450	$	24,055	$	232,509	$	904,014
Net income	—		—		—		4,709		—		4,709		154		554		5,417
Unrealized cash flow hedge (losses) gains	—		—		—		—		(328)		(328)		2		(100)		(426)
Realized cash flow hedge gains reclassified to net income	—		—		—		—		(2,211)		(2,211)		(39)		(672)		(2,922)
Net proceeds from issuance of common stock	—		—		(149)		—		—		(149)		—		—		(149)
Restricted stock awards, net	—		2		977		—		—		979		—		—		979
Acquisitions of noncontrolling interests	—		—		—		—		—		—		(12,834)		—		(12,834)
Distribution to joint venture partner	—		—		—		—		—		—		(506)				(506)
Dividends declared on preferred stock	—		—		—		(2,887)		—		(2,887)		—		—		(2,887)
Dividends and distributions declared on common shares and units ($0.19 per share and unit)	—		—		—		(12,908)		—		(12,908)		—		(3,916)		(16,824)
Balance, March 31, 2023	$	171,085	$	679	$	588,712	$	(137,961)	$	12,140	$	634,655	$	10,832	$	228,375	$	873,862

See Notes to Condensed Consolidated Financial Statements.

4

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)(Unaudited)

	Three Months Ended  March 31,
	2024		2023
OPERATING ACTIVITIES
Net income	$	17,725	$	5,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of buildings and tenant improvements	15,748		14,114
Amortization of leasing costs, in-place lease intangibles and below market ground rents - operating leases	4,687		4,354
Accrued straight-line rental revenue	(1,252)		(1,455)
Amortization of leasing incentives and above or below-market rents	(397)		(292)
Amortization of right-of-use assets - finance leases	395		277
Accrued straight-line ground rent expense	8		20
Unrealized credit loss provision	83		77
Adjustment for uncollectable lease accounts	758		252
Noncash stock compensation	2,192		1,846
Impairment charges	—		102
Noncash interest expense	1,048		2,261
Change in fair value of derivatives and other	(6,510)		3,807
Adjustment for receipts on off-market interest rate derivatives	(7,500)		—
Changes in operating assets and liabilities:
Property assets	6,554		4,167
Property liabilities	2,398		(3,817)
Construction assets	3,960		2,493
Construction liabilities	10,777		(16,859)
Interest receivable	(4,188)		(3,709)
Net cash provided by operating activities	46,486		13,055
INVESTING ACTIVITIES
Development of real estate investments	(11,955)		(15,264)
Tenant and building improvements	(11,546)		(7,314)
Notes receivable issuances	(11,175)		(6,699)
Receipts on off-market interest rate derivatives	7,500		—
Leasing costs	(3,611)		(950)
Leasing incentives	—		(20)
Contributions to equity method investments	(10,159)		(21,097)
Net cash used for investing activities	(40,946)		(51,344)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance cost	(10)		(149)
Common shares tendered for tax withholding	(980)		(1,105)
Debt issuances, credit facility, and construction loan borrowings	42,208		46,710
Debt and credit facility repayments, including principal amortization	(12,480)		(2,417)
Debt issuance costs	(8)		—
Redemption of operating partnership units	(118)		—
Distributions to noncontrolling interests	(336)		(506)
Dividends and distributions	(20,121)		(19,673)
Net cash provided by financing activities	8,155		22,860
Net increase (decrease) in cash, cash equivalents, and restricted cash	13,695		(15,429)
Cash, cash equivalents, and restricted cash, beginning of period	30,166		51,865
Cash, cash equivalents, and restricted cash, end of period (1)	$	43,861	$	36,436

See Notes to Condensed Consolidated Financial Statements.

5

ARMADA HOFFLER PROPERTIES, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(In thousands)(Unaudited)

	Three Months Ended  March 31,
	2024		2023
Supplemental Disclosures (noncash transactions):
Increase in dividends and distributions payable	$	949	$	38
Decrease in accrued capital improvements and development costs	(2,876)		(3,683)
Operating Partnership units redeemed for common shares	(22)		—
Acquisitions of noncontrolling interests	—		12,834

(1) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

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

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

See Notes to Condensed Consolidated Financial Statements.

6

ARMADA HOFFLER PROPERTIES, INC.

Notes to Condensed Consolidated Financial Statements

 (Unaudited)

1. Business of Organization

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

The Company is the sole general partner of Armada Hoffler, L.P. (the "Operating Partnership") and, as of March 31, 2024, owned 75.5% of the economic interest in the Operating Partnership, of which 0.1% is held as general partnership units. The operations of the Company are conducted primarily through the Operating Partnership and the wholly owned subsidiaries thereof.

As of March 31, 2024, the Company's operating portfolio consisted of the following properties:

Property	Location	Ownership Interest
Retail
Town Center of Virginia Beach
249 Central Park Retail*	Virginia Beach, Virginia	100	%
4525 Main Street Retail* (1)	Virginia Beach, Virginia	100	%
4621 Columbus Retail* (2)	Virginia Beach, Virginia	100	%
Columbus Village*	Virginia Beach, Virginia	100	%
Commerce Street Retail*	Virginia Beach, Virginia	100	%
Fountain Plaza Retail*	Virginia Beach, Virginia	100	%
Pembroke Square*	Virginia Beach, Virginia	100	%
Premier Retail*	Virginia Beach, Virginia	100	%
South Retail*	Virginia Beach, Virginia	100	%
Studio 56 Retail*	Virginia Beach, Virginia	100	%
The Cosmopolitan Retail* (3)	Virginia Beach, Virginia	100	%
Two Columbus Retail* (1)	Virginia Beach, Virginia	100	%
West Retail* (1)	Virginia Beach, Virginia	100	%
Grocery Anchored
Broad Creek Shopping Center	Norfolk, Virginia	100	%
Broadmoor Plaza	South Bend, Indiana	100	%
Brooks Crossing Retail*	Newport News, Virginia	65	%	(4)
Delray Beach Plaza*	Delray Beach, Florida	100	%
Greenbrier Square	Chesapeake, Virginia	100	%
Greentree Shopping Center	Chesapeake, Virginia	100	%
Hanbury Village	Chesapeake, Virginia	100	%
Lexington Square	Lexington, South Carolina	100	%
Market at Mill Creek	Mount Pleasant, South Carolina	100	%
North Pointe Center	Durham, North Carolina	100	%
Parkway Centre	Moultrie, Georgia	100	%

7

Parkway Marketplace	Virginia Beach, Virginia	100	%
Perry Hall Marketplace	Perry Hall, Maryland	100	%
Sandbridge Commons	Virginia Beach, Virginia	100	%
Tyre Neck Harris Teeter	Portsmouth, Virginia	100	%
Harbor Point - Baltimore Waterfront
Constellation Retail* (1)	Baltimore, Maryland	90	%
Point Street Retail* (3)	Baltimore, Maryland	100	%
Southeast Sunbelt
Chronicle Mill Retail* (3)	Belmont, North Carolina	85	%	(4)
Nexton Square*	Summerville, South Carolina	100	%
North Hampton Market	Taylors, South Carolina	100	%
One City Center Retail* (1)	Durham, North Carolina	100	%
Overlook Village	Asheville, North Carolina	100	%
Patterson Place	Durham, North Carolina	100	%
Providence Plaza Retail*	Charlotte, North Carolina	100	%
South Square	Durham, North Carolina	100	%
The Interlock Retail*	Atlanta, Georgia	100	%
Wendover Village	Greensboro, North Carolina	100	%
Mid-Atlantic
Dimmock Square	Colonial Heights, Virginia	100	%
Harrisonburg Regal	Harrisonburg, Virginia	100	%
Liberty Retail* (3)	Newport News, Virginia	100	%
Marketplace at Hilltop	Virginia Beach, Virginia	100	%
Red Mill Commons	Virginia Beach, Virginia	100	%
Southgate Square	Colonial Heights, Virginia	100	%
Southshore Shops	Chesterfield, Virginia	100	%
The Edison Retail* (3)	Richmond, Virginia	100	%
Office
Town Center of Virginia Beach
249 Central Park Office* (5)	Virginia Beach, Virginia	100	%
4525 Main Street*	Virginia Beach, Virginia	100	%
4605 Columbus Office* (5)	Virginia Beach, Virginia	100	%
Armada Hoffler Tower*	Virginia Beach, Virginia	100	%
One Columbus*	Virginia Beach, Virginia	100	%
Two Columbus Office*	Virginia Beach, Virginia	100	%
Harbor Point - Baltimore Waterfront
Constellation Office*	Baltimore, Maryland	90	%
Thames Street Wharf*	Baltimore, Maryland	100	%
Wills Wharf*	Baltimore, Maryland	100	%
Southeast Sunbelt
Chronicle Mill Office* (3)	Belmont, North Carolina	85	%	(4)
One City Center Office*	Durham, North Carolina	100	%
Providence Plaza Office* (5)	Charlotte, North Carolina	100	%
The Interlock Office*	Atlanta, Georgia	100	%
Mid-Atlantic
Brooks Crossing Office* (5)	Newport News, Virginia	65	%	(4)

8

Multifamily
Town Center of Virginia Beach
Encore Apartments*	Virginia Beach, Virginia	100	%
Premier Apartments*	Virginia Beach, Virginia	100	%
The Cosmopolitan*	Virginia Beach, Virginia	100	%
Harbor Point - Baltimore Waterfront
1305 Dock Street*	Baltimore, Maryland	90	%
1405 Point*	Baltimore, Maryland	100	%
Southeast Sunbelt
Chronicle Mill*	Belmont, North Carolina	85	%	(4)
Greenside Apartments	Charlotte, North Carolina	100	%
The Everly*	Gainesville, Georgia	100	%
Mid-Atlantic
The Edison*	Richmond, Virginia	100	%
Liberty Apartments*	Newport News, Virginia	100	%
Smith's Landing	Blacksburg, Virginia	100	%

________________________________________

*Located in a mixed-use development.

(1) Formerly reported in the office real estate segment. Refer to Note 3 for further information.

(2) Formerly known as Apex Entertainment.

(3) Formerly reported in the multifamily real estate segment. Refer to Note 3 for further information.

(4) We are entitled to a preferred return on our investment in this property.

(5) Formerly reported in the retail real estate segment. Refer to Note 3 for further information.

As of March 31, 2024, the following properties were under development or redevelopment: 

Development, Not Delivered	Segment	Location	Ownership Interest
Southern Post	Mixed-use	Roswell, Georgia	100	%

Redevelopment	Segment	Location	Ownership Interest
Columbus Village II	Retail	Virginia Beach, VA	100	%

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP").

The condensed consolidated financial statements include the financial position and results of operations of the Company and its subsidiaries. The Company’s subsidiaries include the Operating Partnership and the subsidiaries that are wholly owned or in which the Company has a controlling interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity ("VIE") in accordance with the consolidation guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"). All significant intercompany transactions and balances have been eliminated in consolidation.

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

9

The accompanying condensed consolidated financial statements were prepared in accordance with the requirements for interim financial information. Accordingly, these interim financial statements have not been audited and exclude certain disclosures required for annual financial statements. Also, the operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

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

Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted:

Segment Reporting

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

Income Taxes

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

Other Accounting Policies

See the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for a description of other accounting principles upon which basis the accompanying consolidated financial statements were prepared.

3. Segments

The Company operates its business in five reportable segments: (i) retail real estate, (ii) office real estate, (iii) multifamily real estate, (iv) general contracting and real estate services, and (v) real estate financing. Refer to Note 1 for the composition of properties within each property segment.

Net operating income ("NOI") is the primary measure used by the Company’s chief operating decision-maker to assess segment performance. NOI is calculated as segment revenues less segment expenses. Segment revenues include rental revenues for the property segments, general contracting and real estate services revenues for the general contracting and real estate services segment, and interest income for the real estate financing segment. Segment expenses include rental expenses and real estate taxes for the property segments, general contracting and real estate services expenses for the general contracting and real estate services segment, and interest expense for the real estate financing segment. Segment NOI for the general contracting and real estate services and real estate financing segments is also referred to as segment gross profit as illustrated in the table below. NOI is not a measure of operating income or cash flows from operating activities as measured by GAAP and is not indicative of cash available to fund cash needs. As a result, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. The Company considers NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of the Company’s real estate, construction, and real estate financing businesses.

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

The following table presents NOI for the Company's five reportable segments for the three months ended March 31, 2024 and 2023 (in thousands):

	Three Months Ended March 31,
	2024		2023
Retail real estate
Rental revenues	$	25,651	$	22,959
Rental expenses	4,211		3,644
Real estate taxes	2,415		2,268
Segment net operating income	19,025		17,047
Office real estate
Rental revenues	21,878		19,657
Rental expenses	6,123		5,159
Real estate taxes	2,215		2,085
Segment net operating income	13,540		12,413
Multifamily real estate
Rental revenues	14,352		13,602
Rental expenses	4,271		4,157
Real estate taxes	1,295		1,059
Segment net operating income	8,786		8,386
General contracting and real estate services
General contracting and real estate services revenues	126,975		84,238
General contracting and real estate services expenses	122,898		81,170
Segment gross profit	4,077		3,068
Real estate financing
Interest income	4,000		3,536
Interest expense(a)	1,332		1,097
Segment gross profit	2,668		2,439
Net operating income	$	48,096	$	43,353

________________________________________

(a) Interest expense within the real estate financing segment is allocated based on the average outstanding principal of notes receivable in the real estate financing portfolio and the effective interest rates on the credit facility, the M&T term loan facility, and the TD term loan facility, each as defined in Note 9.

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The following table reconciles NOI to net income, the most directly comparable GAAP measure, for the three months ended March 31, 2024 and 2023 (in thousands):

	Three Months Ended March 31,
	2024		2023
Net operating income	$	48,096	$	43,353
Interest income(a)	626		183
Depreciation and amortization	(20,435)		(18,468)
Amortization of right-of-use assets - finance leases	(395)		(277)
General and administrative expenses	(5,874)		(5,448)
Impairment charges	—		(102)
Interest expense(b)	(16,643)		(11,205)
Change in fair value of derivatives and other	12,888		(2,447)
Unrealized credit loss provision	(83)		(77)
Other income (expense), net	79		93
Income tax provision	(534)		(188)
Net income	$	17,725	$	5,417

________________________________________

(a) Excludes real estate financing segment interest income of $4.0 million and $3.5 million for the three months ended March 31, 2024 and 2023, respectively.

(b) Excludes real estate financing segment interest expense of $1.3 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

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

General contracting and real estate services revenues and expenses for the three months ended March 31, 2024 exclude revenues and expenses related to intercompany construction contracts of $8.4 million and $8.3 million, respectively, which are eliminated in consolidation. General contracting and real estate services expenses for the three months ended March 31, 2023 exclude revenues and expenses related to intercompany construction contracts of $13.7 million and $13.5 million, respectively, which are eliminated in consolidation.

Depreciation and amortization expense for the three months ended March 31, 2024 was $8.5 million, $8.0 million, and $3.7 million for the retail, office, and multifamily real estate segments, respectively. Depreciation and amortization expense for the three months ended March 31, 2023 was $8.2 million, $7.0 million, and $3.2 million for the retail, office, and multifamily real estate segments, respectively.

General and administrative expenses represent costs not directly associated with the operation and management of the Company’s real estate properties, general contracting and real estate services, and real estate financing businesses. These costs include corporate office personnel compensation and benefits, bank fees, accounting fees, legal fees, and other corporate office expenses.

Interest expense on secured property debt for the three months ended March 31, 2024 was $2.8 million, $3.2 million, and $3.6 million for the retail, office, and multifamily real estate segments, respectively. Interest expense on secured property debt for the three months ended March 31, 2023 was $2.4 million, $2.2 million, and $2.4 million for the retail, office, and multifamily real estate segments, respectively.

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

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4. Leases

Lessee Disclosures

As a lessee, the Company has nine ground leases on nine properties. These ground leases have maximum lease terms (including renewal options) that expire between 2074 and 2117. The exercise of lease renewal options is at the Company's sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Five of these leases have been classified as operating leases and four of these leases have been classified as finance leases. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.

Lessor Disclosures

As a lessor, the Company leases its properties under operating leases and recognizes base rents on a straight-line basis over the lease term. The Company also recognizes revenue from tenant recoveries, through which tenants reimburse the Company on an accrual basis for certain expenses such as utilities, janitorial services, repairs and maintenance, security and alarms, parking lot and ground maintenance, administrative services, management fees, insurance, and real estate taxes. Rental revenues are reduced by the amount of any leasing incentives amortized on a straight-line basis over the term of the applicable lease. In addition, the Company recognizes contingent rental revenue (e.g., percentage rents based on tenant sales thresholds) when the sales thresholds are met. Many tenant leases include one or more options to renew, with renewal terms that can extend the lease term from one to 25 years, or more. The exercise of lease renewal options is at the tenant's sole discretion. The Company includes a renewal period in the lease term only if it appears at lease inception that the renewal is reasonably assured.

Rental revenue for the three months ended March 31, 2024 and 2023 comprised the following (in thousands):

	Three Months Ended March 31,
	2024		2023
Base rent and tenant charges	$	60,183	$	54,471
Accrued straight-line rental adjustment	1,300		1,455
Lease incentive amortization	(119)		(165)
(Above) below market lease amortization, net	517		457
Total rental revenue	$	61,881	$	56,218

5. Real Estate Investments

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

6. Equity Method Investments

Harbor Point Parcel 3

The Company owns a 50% interest in Harbor Point Parcel 3, a joint venture with Beatty Development Group, for purposes of developing T. Rowe Price's new global headquarters office building in Baltimore, Maryland. The Company is a noncontrolling partner in the joint venture and will serve as the project's general contractor. During the three months ended March 31, 2024, the Company invested $0.7 million in Harbor Point Parcel 3. The Company has an estimated equity commitment of up to $47.0 million relating to this project. As of March 31, 2024 and December 31, 2023, the carrying value of the Company's investment in Harbor Point Parcel 3 was $41.4 million and $40.7 million, respectively, which excludes $2.3 million and $2.2 million, respectively, of intra-entity profits eliminated in consolidation. For the three months ended March 31, 2024 and 2023, Harbor Point Parcel 3 had no operating activity; therefore, the Company received no allocated income.

Based on the terms of the operating agreement, the Company has concluded that Harbor Point Parcel 3 is a VIE and that the Company holds a variable interest. The Company has significant influence over the project due to its 50% ownership interest; however, the Company does not have the power to direct the activities of the project that most significantly impact its performance. This includes activity as the managing member of the entity, which is a power that is retained by the Company's joint venture partner. Accordingly, the Company is not the project's primary beneficiary and, therefore, does

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not consolidate Harbor Point Parcel 3 in its consolidated financial statements. The Company's investment in the project is recorded as an equity method investment in the consolidated balance sheets.

Harbor Point Parcel 4

On April 1, 2022, the Company acquired a 78% interest in Harbor Point Parcel 4, a real estate venture with Beatty Development Group, for purposes of developing a mixed-use project ("Allied | Harbor Point"), which is planned to include multifamily units, retail space, and a parking garage. The Company holds an option to increase its ownership to 90%. The Company is a noncontrolling partner in the real estate venture and will serve as the project's general contractor. During the three months ended March 31, 2024, the Company invested $9.5 million in Harbor Point Parcel 4. The Company has an estimated equity commitment of up to $113.3 million relating to this project. As of March 31, 2024 and December 31, 2023, the carrying value of the Company's investment in Harbor Point Parcel 4 was $110.7 million and $101.3 million, respectively, which excludes $1.0 million and $0.8 million, respectively, of intra-entity profits eliminated in consolidation. For the three months ended March 31, 2024, Harbor Point Parcel 4 had no operating activity; therefore, the Company received no allocated income.

Based on the terms of the operating agreement, the Company has concluded that Harbor Point Parcel 4 is a VIE and that the Company holds a variable interest. The Company has significant influence over the project due to its 78% ownership interest; however, the Company does not have the power to direct the activities of the project that most significantly impact its performance. This includes activity as the managing member of the entity, which is a power that is retained by the Company's partner. Accordingly, the Company is not the project's primary beneficiary and, therefore, does not consolidate Harbor Point Parcel 4 in its consolidated financial statements. The Company's investment in the project is recorded as an equity method investment in the consolidated balance sheets.

7. Notes Receivable and Current Expected Credit Losses

Notes Receivable

The Company had the following notes receivable outstanding as of March 31, 2024 and December 31, 2023 ($ in thousands):

	Outstanding loan amount															Interest compounding
	March 31, 2024							December 31, 2023
Real Estate Financing Project	Principal		Accrued interest and fees		Total loan amount			Total loan amount			Maximum principal commitment		Interest rate
Solis City Park II	$	20,594	$	4,466	$	25,060	(a)	$	24,313	(a)	$	20,594	13.0	%		Annually
Solis Gainesville II	19,595		3,460		23,055		(a)	22,268		(a)	19,595		14.0	%	(b)	Annually
Solis Kennesaw	23,067		3,478		26,545		(a)	15,922		(a)	37,870		14.0	%	(b)	Annually
Solis Peachtree Corners	11,832		1,936		13,768		(a)	11,092		(a)	28,440		15.0	%	(b)	Annually
The Allure at Edinburgh	9,228		947		10,175		(a)	9,830		(a)	9,228		15.0	%	(c)	None
Total mezzanine & preferred equity	$	84,316	$	14,287	98,603			83,425			$	115,727
Other notes receivable					12,404		(a)	12,219		(a)
Allowance for credit losses(d)					(1,725)			(1,472)
Total notes receivable					$	109,282		$	94,172

________________________________________

(a) Outstanding loan amounts include any accrued and unpaid interest, and accrued fees, as applicable.

(b) The interest rate varies over the life of the loans and the Company also earns an unused commitment fee on amounts not drawn on the loans.

(c) The interest rate varies over the life of the loan.

(d) The amounts as of March 31, 2024 and December 31, 2023 exclude $0.6 million and $0.7 million, respectively, of Current Expected Credit Losses (“CECL”) allowance that relates to the unfunded commitments, which were recorded as a liability under other liabilities in the consolidated balance sheets.

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Interest on the notes receivable is accrued and funded utilizing the interest reserves for each loan and such accrued interest is generally added to the loan receivable balances. The Company recognized interest income for the three months ended March 31, 2024 and 2023 as follows (in thousands):

	Three Months Ended March 31,
Real Estate Financing Project	2024			2023
Solis City Park II	747		(a)	670		(a)
Solis Gainesville II	786		(a)(b)	593		(a)(b)
Solis Kennesaw	1,236		(a)(b)	—
Solis Peachtree Corners	887		(a)(b)	—
The Allure at Edinburgh	344			—
The Interlock(c)	—			2,273		(a)
Total mezzanine & preferred equity	4,000			3,536
Other interest income	626			183
Total interest income	$	4,626		$	3,719

________________________________________

(a) Includes recognition of interest income related to fee amortization.

(b) Includes recognition of unused commitment fees.

(c) This note receivable was redeemed on May 19, 2023 in connection with the Company’s acquisition of The Interlock.

Allowance for Loan Losses

The Company is exposed to credit losses primarily through its real estate financing investments. As of March 31, 2024, the Company had five real estate financing investments, which are financing development projects in various stages of completion or lease-up. Each of these projects is subject to a loan that is senior to the Company’s loan. Interest on these loans is paid in kind and is generally not expected to be paid until a sale of the project after completion of the development.

The Company's management performs a quarterly analysis of the loan portfolio to determine the risk of credit loss based on

the progress of development activities, including leasing activities, projected development costs, and current and projected

subordinated and senior loan balances. The Company estimates future losses on its notes receivable using risk

ratings that correspond to probabilities of default and loss given default. The Company's risk ratings are as follows:

•Pass: loans in this category are adequately collateralized by a development project with conditions materially consistent with the Company's underwriting assumptions.

•Special Mention: loans in this category show signs that the economic performance of the project may suffer as a result of slower-than-expected leasing activity or an extended development or marketing timeline. Loans in this category warrant increased monitoring by management.

•Substandard: loans in this category may not be fully collected by the Company unless remediation actions are taken. Remediation actions may include obtaining additional collateral or assisting the borrower with asset management activities to prepare the project for sale. The Company will also consider placing the loan on non-accrual status if it does not believe that additional interest accruals will ultimately be collected.

The Company updated the risk ratings for each of its notes receivable as of March 31, 2024 and obtained industry loan loss data relative to these risk ratings. Each of the outstanding loans as of March 31, 2024 was "Pass" rated. The Company's analysis resulted in an allowance for loan losses of approximately $2.3 million as of March 31, 2024, of which an allowance related to unfunded commitments of approximately $0.6 million as of March 31, 2024 was recorded as Other liabilities on the consolidated balance sheet.

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At March 31, 2024, the Company reported $109.3 million of notes receivable, net of allowances of $1.7 million. At December 31, 2023, the Company reported $94.2 million of notes receivable, net of allowances of $1.5 million. Changes in the allowance for the three months ended March 31, 2024 and 2023 were as follows (in thousands):

	Three Months Ended March 31, 2024						Three Months Ended March 31, 2023
	Funded		Unfunded		Total		Funded		Unfunded		Total
Beginning balance	$	1,472	$	732	$	2,204	$	1,292	$	338	$	1,630
Unrealized credit loss provision (release)	253		(170)		83		203		(140)		63
Ending balance	$	1,725	$	562	$	2,287	$	1,495	$	198	$	1,693

The Company places loans on non-accrual status when the loan balance, together with the balance of any senior loan, approximately equals the estimated realizable value of the underlying development project. As of March 31, 2024, there were no loans on non-accrual status.

8. Construction Contracts

Construction contract costs and estimated earnings in excess of billings represent reimbursable costs and amounts earned under contracts in progress as of the balance sheet date. Such amounts become billable according to contract terms, which usually consider the passage of time, achievement of certain milestones, or completion of the project. The Company expects to bill and collect substantially all construction contract costs and estimated earnings in excess of billings as of March 31, 2024 during the next 12 to 24 months.  

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

The following table summarizes the changes to the balances in the Company’s construction contract costs and estimated earnings in excess of billings account and the billings in excess of construction contract costs and estimated earnings account for the three months ended March 31, 2024 and 2023 (in thousands):

	Three Months Ended  March 31, 2024				Three Months Ended  March 31, 2023
	Construction contract costs and estimated earnings in excess of 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	$	104	$	21,414	$	342	$	17,515
Revenue recognized that was included in the balance at the beginning of the period	—		(21,414)		—		(17,515)
Increases due to new billings, excluding amounts recognized as revenue during the period	—		22,493		—		17,150
Transferred to receivables	(107)		—		(347)		—
Construction contract costs and estimated earnings not billed during the period	26		—		1,206		—
Changes due to cumulative catch-up adjustment arising from changes in the estimate of the stage of completion	3		(765)		5		(414)
Ending balance	$	26	$	21,728	$	1,206	$	16,736

The Company defers pre-contract costs when such costs are directly associated with specific anticipated contracts and their recovery is probable. Pre-contract costs of $2.1 million and $1.9 million were deferred as of March 31, 2024 and December 31, 2023, respectively. Amortization of pre-contract costs for the three months ended March 31, 2024 and 2023 was $0.2 million and $0.3 million, respectively.

Construction receivables and payables include retentions, which are amounts that are generally withheld until the completion of the contract or the satisfaction of certain restrictive conditions such as fulfillment guarantees. As of March 31, 2024 and December 31, 2023, construction receivables included retentions of $31.1 million and $28.7 million, respectively. The Company expects to collect substantially all construction receivables outstanding as of March 31, 2024 during the next 12 to 24 months. As of March 31, 2024 and December 31, 2023, construction payables included

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

The Company’s net position on uncompleted construction contracts comprised the following as of March 31, 2024 and December 31, 2023 (in thousands):

	March 31, 2024		December 31, 2023
Costs incurred on uncompleted construction contracts	$	707,665	$	718,571
Estimated earnings	25,318		26,089
Billings	(754,685)		(765,970)
Net position	$	(21,702)	$	(21,310)
Construction contract costs and estimated earnings in excess of billings	$	26	$	104
Billings in excess of construction contract costs and estimated earnings	(21,728)		(21,414)
Net position	$	(21,702)	$	(21,310)

The above table reflects the net effect of projects closed as of March 31, 2024 and December 31, 2023, as applicable.

The Company’s balances and changes in construction contract price allocated to unsatisfied performance obligations (backlog) as of March 31, 2024 and 2023 were as follows (in thousands):

	Three Months Ended March 31,
	2024		2023
Beginning backlog	$	472,169	$	665,564
New contracts/change orders	(1,404)		70,792
Work performed	(127,359)		(84,516)
Ending backlog	$	343,406	$	651,840

The Company expects to complete a majority of the uncompleted contracts in place as of March 31, 2024 during the next 12 to 24 months.