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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2021
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)
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Maryland |
46-1214914 |
(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer Identification No.) |
222 Central Park Avenue |
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Suite 2100 |
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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:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, $0.01 par value per share |
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AHH |
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New York Stock Exchange |
6.75% Series A Cumulative Redeemable Perpetual Preferred Stock,
$0.01 par value per share |
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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
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 November 2, 2021, the registrant had 61,505,432 shares
of common stock, $0.01 par value per share, outstanding. In
addition, as of November 2, 2021, Armada Hoffler, L.P., the
registrant's operating partnership subsidiary, had 20,633,485 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, 2021
Table of Contents
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,
2021 |
|
December 31,
2020 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Real estate investments: |
|
|
|
|
Income producing property |
|
$ |
1,744,124 |
|
|
$ |
1,680,943 |
|
Held for development |
|
11,294 |
|
|
13,607 |
|
Construction in progress |
|
54,871 |
|
|
63,367 |
|
|
|
1,810,289 |
|
|
1,757,917 |
|
Accumulated depreciation |
|
(278,218) |
|
|
(253,965) |
|
Net real estate investments |
|
1,532,071 |
|
|
1,503,952 |
|
Real estate investments held for sale |
|
68,762 |
|
|
1,165 |
|
Cash and cash equivalents |
|
28,038 |
|
|
40,998 |
|
Restricted cash |
|
5,415 |
|
|
9,432 |
|
Accounts receivable, net |
|
30,576 |
|
|
28,259 |
|
Notes receivable, net |
|
118,164 |
|
|
135,432 |
|
Construction receivables, including retentions, net |
|
13,753 |
|
|
38,735 |
|
Construction contract costs and estimated earnings in excess of
billings |
|
370 |
|
|
138 |
|
Equity method investment |
|
9,174 |
|
|
1,078 |
|
Operating lease right-of-use assets |
|
23,547 |
|
|
32,760 |
|
Finance lease right-of-use assets |
|
47,266 |
|
|
23,544 |
|
Acquired lease intangible assets |
|
65,197 |
|
|
58,154 |
|
Other assets |
|
42,051 |
|
|
43,324 |
|
Total Assets |
|
$ |
1,984,384 |
|
|
$ |
1,916,971 |
|
LIABILITIES AND EQUITY |
|
|
|
|
Indebtedness, net |
|
$ |
968,424 |
|
|
$ |
963,845 |
|
Liabilities related to assets held for sale |
|
60,021 |
|
|
— |
|
Accounts payable and accrued liabilities |
|
26,549 |
|
|
23,900 |
|
Construction payables, including retentions |
|
22,078 |
|
|
49,821 |
|
Billings in excess of construction contract costs and estimated
earnings |
|
2,674 |
|
|
6,088 |
|
Operating lease liabilities |
|
31,607 |
|
|
41,659 |
|
Finance lease liabilities |
|
46,078 |
|
|
17,954 |
|
Other liabilities |
|
62,197 |
|
|
56,902 |
|
Total Liabilities |
|
1,219,628 |
|
|
1,160,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2021 and December 31,
2020
|
|
171,085 |
|
|
171,085 |
|
Common stock, $0.01 par value, 500,000,000 shares authorized;
61,324,232 and 59,073,220 shares issued and outstanding as of
September 30, 2021 and December 31, 2020,
respectively
|
|
613 |
|
|
591 |
|
Additional paid-in capital |
|
500,889 |
|
|
472,747 |
|
Distributions in excess of earnings |
|
(130,904) |
|
|
(112,356) |
|
Accumulated other comprehensive loss |
|
(5,420) |
|
|
(8,868) |
|
Total stockholders’ equity |
|
536,263 |
|
|
523,199 |
|
Noncontrolling interests in investment entities |
|
634 |
|
|
488 |
|
Noncontrolling interests in Operating Partnership |
|
227,859 |
|
|
233,115 |
|
Total Equity |
|
764,756 |
|
|
756,802 |
|
Total Liabilities and Equity |
|
$ |
1,984,384 |
|
|
$ |
1,916,971 |
|
See Notes to Condensed Consolidated Financial
Statements.
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, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Revenues |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
49,560 |
|
|
$ |
39,636 |
|
|
$ |
142,679 |
|
|
$ |
121,840 |
|
General contracting and real estate services
revenues |
|
17,502 |
|
|
58,617 |
|
|
71,473 |
|
|
163,283 |
|
Total revenues |
|
67,062 |
|
|
98,253 |
|
|
214,152 |
|
|
285,123 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Rental expenses |
|
12,717 |
|
|
10,223 |
|
|
34,841 |
|
|
27,907 |
|
Real estate taxes |
|
5,543 |
|
|
4,760 |
|
|
16,314 |
|
|
13,326 |
|
General contracting and real estate services expenses |
|
15,944 |
|
|
56,509 |
|
|
68,350 |
|
|
157,401 |
|
Depreciation and amortization |
|
16,886 |
|
|
14,176 |
|
|
52,237 |
|
|
42,232 |
|
Amortization of right-of-use assets - finance leases |
|
278 |
|
|
147 |
|
|
745 |
|
|
440 |
|
General and administrative expenses |
|
3,449 |
|
|
2,601 |
|
|
10,957 |
|
|
9,382 |
|
Acquisition, development and other pursuit costs |
|
8 |
|
|
26 |
|
|
111 |
|
|
555 |
|
Impairment charges |
|
— |
|
|
47 |
|
|
3,122 |
|
|
205 |
|
Total expenses |
|
54,825 |
|
|
88,489 |
|
|
186,677 |
|
|
251,448 |
|
Gain (loss) on real estate dispositions, net |
|
(113) |
|
|
3,612 |
|
|
3,604 |
|
|
6,388 |
|
Operating income |
|
12,124 |
|
|
13,376 |
|
|
31,079 |
|
|
40,063 |
|
Interest income |
|
3,766 |
|
|
4,417 |
|
|
14,628 |
|
|
16,055 |
|
Interest expense |
|
(8,827) |
|
|
(7,523) |
|
|
(25,220) |
|
|
(22,938) |
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives and other |
|
131 |
|
|
318 |
|
|
838 |
|
|
(1,424) |
|
Unrealized credit loss release (provision) |
|
617 |
|
|
33 |
|
|
284 |
|
|
(227) |
|
Other income (expense), net |
|
(105) |
|
|
177 |
|
|
81 |
|
|
521 |
|
Income before taxes |
|
7,706 |
|
|
10,798 |
|
|
21,690 |
|
|
32,050 |
|
Income tax benefit |
|
42 |
|
|
28 |
|
|
522 |
|
|
220 |
|
Net income |
|
7,748 |
|
|
10,826 |
|
|
22,212 |
|
|
32,270 |
|
Net (income) loss attributable to noncontrolling
interests: |
|
|
|
|
|
|
|
|
Investment entities |
|
— |
|
|
45 |
|
|
— |
|
|
181 |
|
Operating Partnership |
|
(1,237) |
|
|
(2,262) |
|
|
(3,477) |
|
|
(7,548) |
|
Net income attributable to Armada Hoffler Properties,
Inc. |
|
6,511 |
|
|
8,609 |
|
|
18,735 |
|
|
24,903 |
|
Preferred stock dividends |
|
(2,887) |
|
|
(2,220) |
|
|
(8,661) |
|
|
(4,462) |
|
Net income attributable to common stockholders |
|
$ |
3,624 |
|
|
$ |
6,389 |
|
|
$ |
10,074 |
|
|
$ |
20,441 |
|
Net income attributable to common stockholders per share (basic and
diluted) |
|
$ |
0.06 |
|
|
$ |
0.11 |
|
|
$ |
0.17 |
|
|
$ |
0.36 |
|
Weighted-average common shares outstanding (basic and
diluted) |
|
61,083 |
|
|
57,923 |
|
|
60,310 |
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,748 |
|
|
$ |
10,826 |
|
|
$ |
22,212 |
|
|
$ |
32,270 |
|
Unrealized cash flow hedge gains (losses) |
|
(460) |
|
|
(118) |
|
|
1,347 |
|
|
(9,886) |
|
Realized cash flow hedge losses reclassified to net
income |
|
1,123 |
|
|
1,070 |
|
|
3,304 |
|
|
2,260 |
|
Comprehensive income |
|
8,411 |
|
|
11,778 |
|
|
26,863 |
|
|
24,644 |
|
Comprehensive (income) loss attributable to noncontrolling
interests: |
|
|
|
|
|
|
|
|
Investment entities |
|
— |
|
|
45 |
|
|
— |
|
|
181 |
|
Operating Partnership |
|
(1,406) |
|
|
(2,512) |
|
|
(4,680) |
|
|
(5,449) |
|
Comprehensive income attributable to Armada Hoffler Properties,
Inc. |
|
$ |
7,005 |
|
|
$ |
9,311 |
|
|
$ |
22,183 |
|
|
$ |
19,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
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 loss |
|
Total stockholders' equity |
|
Noncontrolling interests in investment entities |
|
Noncontrolling interests in Operating Partnership |
|
Total equity |
Balance, December 31, 2020 |
|
$ |
171,085 |
|
|
$ |
591 |
|
|
$ |
472,747 |
|
|
$ |
(112,356) |
|
|
$ |
(8,868) |
|
|
$ |
523,199 |
|
|
$ |
488 |
|
|
$ |
233,115 |
|
|
$ |
756,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
5,198 |
|
|
— |
|
|
5,198 |
|
|
— |
|
|
811 |
|
|
6,009 |
|
Unrealized cash flow hedge gains |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,685 |
|
|
1,685 |
|
|
— |
|
|
591 |
|
|
2,276 |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
798 |
|
|
798 |
|
|
— |
|
|
280 |
|
|
1,078 |
|
Net proceeds from issuance of common stock |
|
— |
|
|
7 |
|
|
8,974 |
|
|
— |
|
|
— |
|
|
8,981 |
|
|
— |
|
|
— |
|
|
8,981 |
|
Restricted stock awards, net |
|
— |
|
|
1 |
|
|
631 |
|
|
— |
|
|
— |
|
|
632 |
|
|
— |
|
|
— |
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of operating partnership units |
|
— |
|
|
— |
|
|
131 |
|
|
— |
|
|
— |
|
|
131 |
|
|
— |
|
|
(134) |
|
|
(3) |
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
— |
|
|
(2,887) |
|
Dividends and distributions declared on common shares and units
($0.15 per share and unit)
|
|
— |
|
|
— |
|
|
— |
|
|
(9,008) |
|
|
— |
|
|
(9,008) |
|
|
— |
|
|
(3,128) |
|
|
(12,136) |
|
Balance, March 31, 2021 |
|
171,085 |
|
|
599 |
|
|
482,483 |
|
|
(119,053) |
|
|
(6,385) |
|
|
528,729 |
|
|
488 |
|
|
231,535 |
|
|
760,752 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
7,026 |
|
|
— |
|
|
7,026 |
|
|
— |
|
|
1,429 |
|
|
8,455 |
|
Unrealized cash flow hedge losses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(349) |
|
|
(349) |
|
|
— |
|
|
(120) |
|
|
(469) |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
820 |
|
|
820 |
|
|
— |
|
|
283 |
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
— |
|
|
11 |
|
|
14,105 |
|
|
— |
|
|
— |
|
|
14,116 |
|
|
— |
|
|
— |
|
|
14,116 |
|
Restricted stock awards, net |
|
— |
|
|
— |
|
|
473 |
|
|
— |
|
|
— |
|
|
473 |
|
|
— |
|
|
— |
|
|
473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of noncontrolling interest in real estate
entity |
|
— |
|
|
— |
|
|
(950) |
|
|
— |
|
|
— |
|
|
(950) |
|
|
146 |
|
|
— |
|
|
(804) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
— |
|
|
(2,887) |
|
Dividends and distributions declared on common shares and units
($0.16 per share and unit)
|
|
— |
|
|
— |
|
|
— |
|
|
(9,783) |
|
|
— |
|
|
(9,783) |
|
|
— |
|
|
(3,337) |
|
|
(13,120) |
|
Balance, June 30, 2021 |
|
171,085 |
|
|
610 |
|
|
496,111 |
|
|
(124,697) |
|
|
(5,914) |
|
|
537,195 |
|
|
634 |
|
|
229,790 |
|
|
767,619 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
6,511 |
|
|
— |
|
|
6,511 |
|
|
— |
|
|
1,237 |
|
|
7,748 |
|
Unrealized cash flow hedge losses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(343) |
|
|
(343) |
|
|
— |
|
|
(117) |
|
|
(460) |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
837 |
|
|
837 |
|
|
— |
|
|
286 |
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock |
|
— |
|
|
3 |
|
|
4,328 |
|
|
— |
|
|
— |
|
|
4,331 |
|
|
— |
|
|
— |
|
|
4,331 |
|
Restricted stock awards, net |
|
— |
|
|
— |
|
|
450 |
|
|
— |
|
|
— |
|
|
450 |
|
|
— |
|
|
— |
|
|
450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
(2,887) |
|
|
— |
|
|
— |
|
|
(2,887) |
|
Dividends and distributions declared on common shares and units
($0.16 per share and unit)
|
|
— |
|
|
— |
|
|
— |
|
|
(9,831) |
|
|
— |
|
|
(9,831) |
|
|
— |
|
|
(3,337) |
|
|
(13,168) |
|
Balance, September 30, 2021 |
|
$ |
171,085 |
|
|
$ |
613 |
|
|
$ |
500,889 |
|
|
$ |
(130,904) |
|
|
$ |
(5,420) |
|
|
$ |
536,263 |
|
|
$ |
634 |
|
|
$ |
227,859 |
|
|
$ |
764,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
Common stock |
|
Additional paid-in capital |
|
Distributions in excess of earnings |
|
Accumulated other comprehensive loss |
|
Total stockholders' equity |
|
Noncontrolling interests in investment entities |
|
Noncontrolling interests in Operating Partnership |
|
Total equity |
Balance, December 31, 2019 |
|
$ |
63,250 |
|
|
$ |
563 |
|
|
$ |
455,680 |
|
|
$ |
(106,676) |
|
|
$ |
(4,240) |
|
|
$ |
408,577 |
|
|
$ |
4,462 |
|
|
$ |
242,408 |
|
|
$ |
655,447 |
|
Cumulative effect of accounting change(1)
|
|
— |
|
|
— |
|
|
— |
|
|
(2,185) |
|
|
— |
|
|
(2,185) |
|
|
— |
|
|
(824) |
|
|
(3,009) |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
6,992 |
|
|
— |
|
|
6,992 |
|
|
(92) |
|
|
2,235 |
|
|
9,135 |
|
Unrealized cash flow hedge losses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,438) |
|
|
(5,438) |
|
|
— |
|
|
(2,051) |
|
|
(7,489) |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
285 |
|
|
285 |
|
|
— |
|
|
107 |
|
|
392 |
|
Net proceeds from issuance of common stock |
|
— |
|
|
1 |
|
|
1,348 |
|
|
— |
|
|
— |
|
|
1,349 |
|
|
— |
|
|
— |
|
|
1,349 |
|
Restricted stock awards, net |
|
— |
|
|
1 |
|
|
776 |
|
|
— |
|
|
— |
|
|
777 |
|
|
— |
|
|
— |
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(1,067) |
|
|
— |
|
|
(1,067) |
|
|
— |
|
|
— |
|
|
(1,067) |
|
Dividends and distributions declared on common shares and units
($0.22 per share and unit)
|
|
— |
|
|
— |
|
|
— |
|
|
(12,454) |
|
|
— |
|
|
(12,454) |
|
|
— |
|
|
(4,680) |
|
|
(17,134) |
|
Balance, March 31, 2020 |
|
63,250 |
|
|
565 |
|
|
457,804 |
|
|
(115,390) |
|
|
(9,393) |
|
|
396,836 |
|
|
4,370 |
|
|
237,195 |
|
|
638,401 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
9,302 |
|
|
— |
|
|
9,302 |
|
|
(44) |
|
|
3,051 |
|
|
12,309 |
|
Unrealized cash flow hedge losses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,657) |
|
|
(1,657) |
|
|
— |
|
|
(622) |
|
|
(2,279) |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
580 |
|
|
580 |
|
|
— |
|
|
218 |
|
|
798 |
|
Net proceeds from issuance of cumulative redeemable perpetual
preferred stock |
|
96 |
|
|
— |
|
|
(5) |
|
|
— |
|
|
— |
|
|
91 |
|
|
— |
|
|
— |
|
|
91 |
|
Net proceeds from issuance of common stock |
|
— |
|
|
5 |
|
|
4,411 |
|
|
— |
|
|
— |
|
|
4,416 |
|
|
— |
|
|
— |
|
|
4,416 |
|
Restricted stock awards, net |
|
— |
|
|
— |
|
|
515 |
|
|
— |
|
|
— |
|
|
515 |
|
|
— |
|
|
— |
|
|
515 |
|
Acquisition of noncontrolling interest in real estate
entity |
|
— |
|
|
— |
|
|
(2,386) |
|
|
— |
|
|
— |
|
|
(2,386) |
|
|
(3,744) |
|
|
— |
|
|
(6,130) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(1,175) |
|
|
— |
|
|
(1,175) |
|
|
— |
|
|
— |
|
|
(1,175) |
|
Balance, June 30, 2020 |
|
63,346 |
|
|
570 |
|
|
460,339 |
|
|
(107,263) |
|
|
(10,470) |
|
|
406,522 |
|
|
582 |
|
|
239,842 |
|
|
646,946 |
|
Net income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
8,609 |
|
|
— |
|
|
8,609 |
|
|
(45) |
|
|
2,262 |
|
|
10,826 |
|
Unrealized cash flow hedge losses |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(87) |
|
|
(87) |
|
|
— |
|
|
(31) |
|
|
(118) |
|
Realized cash flow hedge losses reclassified to net
income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
790 |
|
|
790 |
|
|
— |
|
|
280 |
|
|
1,070 |
|
Net proceeds from issuance of cumulative redeemable perpetual
preferred stock |
|
107,739 |
|
|
— |
|
|
(6,370) |
|
|
— |
|
|
— |
|
|
101,369 |
|
|
— |
|
|
— |
|
|
101,369 |
|
Net proceeds from issuance of common stock |
|
— |
|
|
2 |
|
|
1,620 |
|
|
— |
|
|
— |
|
|
1,622 |
|
|
— |
|
|
— |
|
|
1,622 |
|
Restricted stock awards, net |
|
— |
|
|
— |
|
|
520 |
|
|
— |
|
|
— |
|
|
520 |
|
|
— |
|
|
— |
|
|
520 |
|
Issuance of operating partnership units for
acquisitions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
67 |
|
|
67 |
|
Redemption of operating partnership units |
|
— |
|
|
7 |
|
|
8,523 |
|
|
— |
|
|
— |
|
|
8,530 |
|
|
— |
|
|
(8,530) |
|
|
— |
|
Dividends declared on preferred stock |
|
— |
|
|
— |
|
|
— |
|
|
(2,220) |
|
|
— |
|
|
(2,220) |
|
|
— |
|
|
— |
|
|
(2,220) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and distributions declared on common shares and units
($0.11 per share and unit)
|
|
— |
|
|
— |
|
|
— |
|
|
(6,388) |
|
|
— |
|
|
(6,388) |
|
|
— |
|
|
(2,257) |
|
|
(8,645) |
|
Balance, September 30, 2020 |
|
$ |
171,085 |
|
|
$ |
579 |
|
|
$ |
464,632 |
|
|
$ |
(107,262) |
|
|
$ |
(9,767) |
|
|
$ |
519,267 |
|
|
$ |
537 |
|
|
$ |
231,633 |
|
|
$ |
751,437 |
|
(1) The Company recorded cumulative effect adjustments related to
the new Current Expected Credit Losses ("CECL") standard in the
first quarter of 2020.
See Notes to Condensed Consolidated Financial
Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
2021 |
|
2020 |
OPERATING ACTIVITIES |
|
|
|
|
Net income |
|
$ |
22,212 |
|
|
$ |
32,270 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation of buildings and tenant improvements |
|
38,521 |
|
|
31,565 |
|
Amortization of leasing costs, in-place lease intangibles and below
market ground rents - operating leases |
|
13,716 |
|
|
10,667 |
|
Accrued straight-line rental revenue |
|
(4,209) |
|
|
(3,434) |
|
Amortization of leasing incentives and above or below-market
rents |
|
(794) |
|
|
(593) |
|
Amortization of right-of-use assets - finance leases |
|
745 |
|
|
440 |
|
Accrued straight-line ground rent expense |
|
157 |
|
|
54 |
|
Unrealized credit loss provision (release) |
|
(284) |
|
|
227 |
|
Adjustment for uncollectable lease accounts |
|
683 |
|
|
3,195 |
|
Noncash stock compensation |
|
1,830 |
|
|
1,907 |
|
Impairment charges |
|
3,122 |
|
|
205 |
|
Noncash interest expense |
|
2,178 |
|
|
1,499 |
|
|
|
|
|
|
Gain on real estate dispositions, net |
|
(3,604) |
|
|
(6,388) |
|
|
|
|
|
|
Change in fair value of derivatives and other |
|
(838) |
|
|
1,424 |
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Property assets |
|
(1,303) |
|
|
(6,642) |
|
Property liabilities |
|
4,555 |
|
|
4,042 |
|
Construction assets |
|
25,329 |
|
|
(8,328) |
|
Construction liabilities |
|
(34,181) |
|
|
18,824 |
|
Interest receivable |
|
1,387 |
|
|
(13,167) |
|
Net cash provided by operating activities |
|
69,222 |
|
|
67,767 |
|
INVESTING ACTIVITIES |
|
|
|
|
Development of real estate investments |
|
(38,659) |
|
|
(52,157) |
|
Tenant and building improvements |
|
(6,621) |
|
|
(8,195) |
|
Acquisitions of real estate investments, net of cash
received |
|
(73,569) |
|
|
(34,785) |
|
Dispositions of real estate investments, net of selling
costs |
|
12,583 |
|
|
96,458 |
|
Notes receivable issuances |
|
(26,230) |
|
|
(17,687) |
|
Notes receivable paydowns |
|
42,301 |
|
|
16,220 |
|
Leasing costs |
|
(2,595) |
|
|
(2,438) |
|
Leasing incentives |
|
(467) |
|
|
(1,289) |
|
Contributions to equity method investments |
|
(8,096) |
|
|
— |
|
Net cash used for investing activities |
|
(101,353) |
|
|
(3,873) |
|
FINANCING ACTIVITIES |
|
|
|
|
Proceeds from issuance of cumulative redeemable perpetual preferred
stock, net |
|
— |
|
|
101,460 |
|
Proceeds from issuance of common stock, net |
|
27,428 |
|
|
7,387 |
|
Common shares tendered for tax withholding |
|
(553) |
|
|
(534) |
|
Debt issuances, credit facility and construction loan
borrowings |
|
59,942 |
|
|
81,004 |
|
Debt and credit facility repayments, including principal
amortization |
|
(25,734) |
|
|
(181,182) |
|
Debt issuance costs |
|
(2,463) |
|
|
(326) |
|
Acquisition of NCI in consolidated RE investments |
|
(804) |
|
|
— |
|
|
|
|
|
|
Dividends and distributions |
|
(42,662) |
|
|
(36,058) |
|
Net cash provided by (used for) financing activities |
|
15,154 |
|
|
(28,249) |
|
Net (decrease) increase in cash, cash equivalents, and restricted
cash |
|
(16,977) |
|
|
35,645 |
|
Cash, cash equivalents, and restricted cash, beginning of
period |
|
50,430 |
|
|
43,579 |
|
Cash, cash equivalents, and restricted cash, end of period
(1)
|
|
$ |
33,453 |
|
|
$ |
79,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial
Statements.
ARMADA HOFFLER PROPERTIES, INC.
Condensed Consolidated Statements of Cash Flows
(Continued)
(In thousands)(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
2021 |
|
2020 |
Supplemental Disclosures (noncash transactions): |
|
|
|
|
Increase (decrease) in dividends and distributions
payable |
|
$ |
4,423 |
|
|
$ |
(5,817) |
|
Increase (decrease) in accrued capital improvements and development
costs |
|
5,804 |
|
|
(12,564) |
|
Note payable issued in acquisition of noncontrolling interest in
real estate investment |
|
— |
|
|
6,130 |
|
Issuance of operating partnership units for
acquisitions |
|
— |
|
|
67 |
|
Operating Partnership units redeemed for common shares |
|
131 |
|
|
8,530 |
|
Note payable recorded for mandatorily redeemable partnership
interest |
|
— |
|
|
3,829 |
|
Debt assumed at fair value in conjunction with real estate
purchases |
|
19,989 |
|
|
22,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of finance lease right-of-use assets |
|
24,466 |
|
|
— |
|
Recognition of finance lease liabilities |
|
27,940 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
September 30, 2020 |
|
|
Cash and cash equivalents |
|
$ |
28,038 |
|
|
$ |
73,579 |
|
|
|
Restricted cash
(a)
|
|
5,415 |
|
|
5,645 |
|
|
|
Cash, cash equivalents, and restricted cash |
|
$ |
33,453 |
|
|
$ |
79,224 |
|
|
|
(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.
ARMADA HOFFLER PROPERTIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Business of Organization
Armada Hoffler Properties, Inc. (the "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") and, as of September 30, 2021, owned 74.6% 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 thereof.
As of September 30, 2021, the Company's property portfolio
consisted of 57 stabilized operating properties and three
properties either under development or not yet
stabilized.
Refer to Note 5 for information related to the Company's recent
acquisitions and dispositions of properties.
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
consolidated 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, particularly in light of the novel coronavirus ("COVID-19")
pandemic and its effects on the domestic and global economies
during interim periods in 2020 and 2021. The pandemic has led to
continuous changes in operational restrictions imposed by
governments and other authorities around the world, including
federal, state, and local authorities in the United States
instituting restrictions on freedom of movement and business
operations such as travel bans, border closings, business closures,
quarantines, and shelter-in-place orders, causing many of the
Company’s tenants, particularly in the Company’s retail portfolio,
to suspend or limit operations for certain periods of time. While
operations in many areas have been allowed to fully or partially
re-open, no assurance can be given that such closures or
restrictions will not be reinstituted in the future. The extent of
the COVID-19 pandemic’s effect on our business activity will depend
on future developments, including the duration and intensity of the
pandemic, the timing and effectiveness of COVID-19 vaccines
(including against COVID-19 variant strains), the duration of, or
the reinstatement of, government measures to mitigate the pandemic
or address its effects, and the timing and effectiveness of vaccine
administration, all of which are uncertain and difficult to
predict. Due to the uncertainty surrounding the COVID-19 pandemic,
we are not able at this time to estimate the full effect of these
factors on our business. 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,
2020.
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
Certain items have been reclassified from their prior year
classifications to conform to the current year presentation. The
amounts previously classified as Interest expense on indebtedness
and Interest expense on finance leases for the three and nine
months ended September 30, 2020 in the Condensed Consolidated
Statement of Comprehensive Income are now included in a single line
item as Interest expense. These reclassifications had no effect on
net income or stockholders' equity as previously
reported.
Recent Accounting Pronouncements
Recently Issued Accounting Standards Not Yet Adopted:
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB")
issued ASU 2020-04
Reference Rate Reform - Facilitation of the Effects of Reference
Rate Reform on Financial Reporting
(Topic 848), which became effective on March 12, 2020 and generally
can be applied through December 31, 2022. ASU 2020-04 contains
practical expedients for reference rate reform related activities
that impact debt, leases, derivatives and other contracts. The
guidance in ASU 2020-04 is optional and may be elected over time as
reference rate reform activities occur. The Company is currently
evaluating the effect that adopting this standard may have on its
Consolidated Financial Statements.
Earnings Per Share
In August 2020, the FASB issued ASU 2020-06 an update to ASC Topic
470 and ASC Topic 815, which will be effective beginning January 1,
2022. ASU 2020-06 simplifies the accounting for convertible
instruments and removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope
exception. This ASU also simplifies diluted earnings per share
calculation in certain areas and provides updated disclosure
requirements. The Company is currently evaluating the impact of ASU
2020-06 on its consolidated financial statements.
Other Accounting Policies
See the Company's Annual Report on Form 10-K for the year ended
December 31, 2020 for a description of other accounting
principles upon which basis the 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 and construction
businesses.
Net operating income of the Company’s reportable segments for the
three and nine months ended September 30, 2021 and 2020 was as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Office real estate |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
11,933 |
|
|
$ |
11,456 |
|
|
$ |
35,324 |
|
|
$ |
32,142 |
|
Rental expenses |
|
3,409 |
|
|
3,042 |
|
|
9,222 |
|
|
7,879 |
|
Real estate taxes |
|
1,547 |
|
|
1,375 |
|
|
4,318 |
|
|
3,749 |
|
Segment net operating income |
|
6,977 |
|
|
7,039 |
|
|
21,784 |
|
|
20,514 |
|
Retail real estate |
|
|
|
|
|
|
|
|
Rental revenues |
|
20,223 |
|
|
15,669 |
|
|
57,682 |
|
|
54,794 |
|
Rental expenses |
|
3,270 |
|
|
2,618 |
|
|
9,119 |
|
|
8,096 |
|
Real estate taxes |
|
2,100 |
|
|
1,808 |
|
|
6,307 |
|
|
5,981 |
|
Segment net operating income |
|
14,853 |
|
|
11,243 |
|
|
42,256 |
|
|
40,717 |
|
Multifamily residential real estate |
|
|
|
|
|
|
|
|
Rental revenues |
|
17,404 |
|
|
12,511 |
|
|
49,673 |
|
|
34,904 |
|
Rental expenses |
|
6,038 |
|
|
4,563 |
|
|
16,500 |
|
|
11,932 |
|
Real estate taxes |
|
1,896 |
|
|
1,577 |
|
|
5,689 |
|
|
3,596 |
|
Segment net operating income |
|
9,470 |
|
|
6,371 |
|
|
27,484 |
|
|
19,376 |
|
General contracting and real estate services |
|
|
|
|
|
|
|
|
Segment revenues |
|
17,502 |
|
|
58,617 |
|
|
71,473 |
|
|
163,283 |
|
Segment expenses |
|
15,944 |
|
|
56,509 |
|
|
68,350 |
|
|
157,401 |
|
Segment gross profit |
|
1,558 |
|
|
2,108 |
|
|
3,123 |
|
|
5,882 |
|
Net operating income |
|
$ |
32,858 |
|
|
$ |
26,761 |
|
|
$ |
94,647 |
|
|
$ |
86,489 |
|
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 for the three
months ended September 30, 2021 and 2020 exclude revenue related to
intercompany construction contracts of $8.6 million and $3.2
million, respectively, as it is eliminated in consolidation.
General contracting and real estate services revenues for the nine
months ended September 30, 2021 and 2020 exclude revenue related to
intercompany construction contracts of $16.0 million and $24.7
million, respectively.
General contracting and real estate services expenses for the three
months ended September 30, 2021 and 2020 exclude expenses related
to intercompany construction contracts of $8.6 million and $3.2
million, respectively. General contracting and real estate services
expenses for the nine months ended September 30, 2021 and 2020
exclude expenses related to intercompany construction contracts of
$16.0 million and $24.5 million, respectively.
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, 2021 and 2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net operating income |
|
$ |
32,858 |
|
|
$ |
26,761 |
|
|
$ |
94,647 |
|
|
$ |
86,489 |
|
Depreciation and amortization |
|
(16,886) |
|
|
(14,176) |
|
|
(52,237) |
|
|
(42,232) |
|
Amortization of right-of-use assets - finance leases |
|
(278) |
|
|
(147) |
|
|
(745) |
|
|
(440) |
|
General and administrative expenses |
|
(3,449) |
|
|
(2,601) |
|
|
(10,957) |
|
|
(9,382) |
|
Acquisition, development and other pursuit costs |
|
(8) |
|
|
(26) |
|
|
(111) |
|
|
(555) |
|
Impairment charges |
|
— |
|
|
(47) |
|
|
(3,122) |
|
|
(205) |
|
Gain (loss) on real estate dispositions, net |
|
(113) |
|
|
3,612 |
|
|
3,604 |
|
|
6,388 |
|
Interest income |
|
3,766 |
|
|
4,417 |
|
|
14,628 |
|
|
16,055 |
|
Interest expense |
|
(8,827) |
|
|
(7,523) |
|
|
(25,220) |
|
|
(22,938) |
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives and other |
|
131 |
|
|
318 |
|
|
838 |
|
|
(1,424) |
|
Unrealized credit loss release (provision) |
|
617 |
|
|
33 |
|
|
284 |
|
|
(227) |
|
Other income (expense), net |
|
(105) |
|
|
177 |
|
|
81 |
|
|
521 |
|
Income tax benefit |
|
42 |
|
|
28 |
|
|
522 |
|
|
220 |
|
Net income |
|
$ |
7,748 |
|
|
$ |
10,826 |
|
|
$ |
22,212 |
|
|
$ |
32,270 |
|
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, including corporate office personnel salaries and
benefits, bank fees, accounting fees, legal fees, and other
corporate office expenses.
4. Leases
Lessee Disclosures
As a lessee, the Company has nine ground leases on eight
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. Six of these leases have been
classified as operating leases and three 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 15 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 and nine months ended
September 30, 2021 and 2020 comprised the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Base rent and tenant charges |
|
$ |
48,391 |
|
|
$ |
37,532 |
|
|
$ |
137,675 |
|
|
$ |
117,812 |
|
Accrued straight-line rental adjustment |
|
883 |
|
|
1,925 |
|
|
4,210 |
|
|
3,435 |
|
Lease incentive amortization |
|
(167) |
|
|
(164) |
|
|
(485) |
|
|
(497) |
|
Above/below market lease amortization |
|
453 |
|
|
343 |
|
|
1,279 |
|
|
1,090 |
|
Total rental revenue |
|
$ |
49,560 |
|
|
$ |
39,636 |
|
|
$ |
142,679 |
|
|
$ |
121,840 |
|
5. Real Estate Investment
Property Acquisitions
Delray Beach Plaza
On February 26, 2021, the Company acquired Delray Beach Plaza, a
Whole Foods-anchored retail property located in Delray Beach,
Florida, for a contract price of $27.6 million plus capitalized
transaction costs of $0.2 million. The developer of this property
repaid the Company's mezzanine note receivable of $14.3 million at
the time of the acquisition.
Hoffler Place
On June 28, 2021, the Company purchased the remaining 7.5%
ownership interest in Hoffler Place for a cash payment of
$0.3 million.
Summit Place
On June 28, 2021, the Company purchased the remaining 10% ownership
interest in Summit Place for a cash payment of
$0.5 million.
Overlook Village
On July 28, 2021, the Company acquired Overlook Village, a retail
center in Asheville, North Carolina, for a contract price of
$28.3 million plus capitalized acquisition costs of
$0.1 million.
Greenbrier Square
On August 24, 2021, the Company acquired Greenbrier Square, a
Kroger-anchored retail center in Chesapeake, Virginia, for total
consideration of $36.5 million plus capitalized acquisition
costs of $0.3 million. As a part of this acquisition, the
Company assumed a note payable of $20.0 million.
The following table summarizes the purchase price allocation
(including acquisition costs) based on relative fair value of the
assets acquired and intangible liabilities assumed for the three
operating properties purchased during the nine months ended
September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delray Beach Plaza |
|
Overlook Village |
|
Greenbrier Square |
Land |
|
$ |
— |
|
|
$ |
6,328 |
|
|
$ |
8,549 |
|
Site improvements |
|
4,607 |
|
|
1,727 |
|
|
1,974 |
|
Building and improvements |
|
22,544 |
|
|
18,375 |
|
|
19,196 |
|
|
|
|
|
|
|
|
In-place leases |
|
7,209 |
|
|
3,997 |
|
|
6,659 |
|
Above-market leases |
|
— |
|
|
81 |
|
|
1,753 |
|
Below-market leases |
|
(3,121) |
|
|
(2,146) |
|
|
(1,365) |
|
Finance lease liabilities |
|
(27,940) |
|
|
— |
|
|
— |
|
Finance lease right-of-use assets |
|
24,466 |
|
|
— |
|
|
— |
|
Fair value adjustment on acquired debt |
|
— |
|
|
— |
|
|
11 |
|
Net assets acquired |
|
$ |
27,765 |
|
|
$ |
28,362 |
|
|
$ |
36,777 |
|
Property Dispositions
On January 4, 2021, the Company completed the sale of the 7-Eleven
outparcel at Hanbury Village for a sales price of
$2.9 million. The gain on disposition was
$2.4 million.
On January 14, 2021, the Company completed the sale of a land
outparcel at Nexton Square for a sale price of $0.9 million.
There was no gain or loss on the disposition. In conjunction with
the sale, the Company paid down the Nexton Square loan by
$0.8 million.
On March 16, 2021, the Company completed the sale of Oakland
Marketplace for a sale price of $5.5 million. The gain on
disposition was $1.1 million.
On March 18, 2021, the Company completed the sale of easement
rights at Courthouse 7-Eleven for a sale price of
$0.3 million. The gain on disposition was
$0.2 million.
Impairment and Disposal of Real Estate
During the three months ended March 31, 2021, the Company
recognized impairment of real estate of $3.0 million related
to the Socastee Commons shopping center in Myrtle Beach, South
Carolina. The Company anticipated a decline in cash flows due to
the expiration of the anchor tenant lease. The Company had not
re-leased the anchor tenant space and had determined that it was
not probable that this space would be leased at rates sufficient to
recover the Company’s investment in the property. The Company
recorded an impairment loss equal to the excess of the book value
of the property’s assets over the estimated fair value of the
property during the first quarter of 2021. On August 25, 2021, the
Company completed the sale of Socastee Commons for a price of
$3.8 million. The loss on disposition was
$0.1 million.
Real Estate Investments Held for Sale
During the three months ended
September 30, 2021, the Company classified the Johns Hopkins
Village multifamily property in real estate investments held for
sale. The transaction is subject to customary closing conditions
and is expected to close in the fourth quarter of
2021.
Equity Method Investment
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 nine months ended September 30, 2021, the Company
invested $8.1 million in Harbor Point Parcel 3. The Company
has an estimated equity commitment of up to $30.0 million
relating to this project. As of September 30, 2021 and
December 31, 2020, the carrying value of the Company's investment
in Harbor Point Parcel 3 was $9.2 million and
$1.1 million, respectively. For the nine months ended
September 30, 2021, Harbor Point Parcel 3 had no operating
activity, and therefore the Company received no allocated
income.
Based on the terms of the operating agreement, the Company has
concluded that Harbor Point Parcel 3 is a VIE and that the Company
holds a variable interest. The Company does not have the power to
direct the activities of the project that most significantly impact
its performance. Accordingly, the Company is not the project's
primary beneficiary and, therefore, does not consolidate Harbor
Point Parcel 3 in its consolidated financial statements. The
Company has significant influence over the project due to its 50%
ownership as well as certain rights and responsibilities relating
to the development project. The Company's investment in the project
is recorded as an equity method investment in the consolidated
balance sheets.
6. Notes Receivable and Current Expected Credit Losses
Notes Receivable
The Company had the following notes receivable outstanding as of
September 30, 2021 and December 31, 2020 ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding loan amount |
|
|
|
|
|
Interest compounding |
Development Project |
|
September 30,
2021 |
|
December 31,
2020 |
|
Maximum loan commitment |
|
Interest rate |
|
|
|
|
|
|
|
|
|
|
|
Delray Beach Plaza |
|
$ |
— |
|
|
$ |
14,289 |
|
|
$ |
17,000 |
|
|
15.0 |
% |
(a)
|
Annually |
|
|
|
|
|
|
|
|
|
|
|
Interlock Commercial |
|
92,254 |
|
|
85,318 |
|
|
107,000 |
|
|
15.0 |
% |
(b)
|
None |
Nexton Multifamily |
|
18,549 |
|
|
— |
|
|
22,315 |
|
|
11.0 |
% |
|
Annually |
Solis Apartments at Interlock |
|
— |
|
|
28,969 |
|
|
41,100 |
|
|
13.0 |
% |
|
Annually |
Total mezzanine |
|
110,803 |
|
|
128,576 |
|
|
$ |
187,415 |
|
|
|
|
|
Other notes receivable |
|
7,124 |
|
|
6,809 |
|
|
|
|
|
|
|
Notes receivable guarantee premium |
|
1,631 |
|
|
2,631 |
|
|
|
|
|
|
|
Allowance for credit losses |
|
(1,394) |
|
(c)
|
(2,584) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes receivable |
|
$ |
118,164 |
|
|
$ |
135,432 |
|
|
|
|
|
|
|
________________________________________
(a) Loan was placed on nonaccrual status effective April 1,
2020.
(b) $3.0 million of this loan is subject to an interest rate
of 18%.
(c) The amount excludes $0.1 million of CECL allowance that
relates to the unfunded commitments, which was recorded as a
liability under Other Liabilities in our consolidated balance
sheet.
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
generally added to the loan receivable balances. The Company
recognized interest income for the three and nine months ended
September 30, 2021 and 2020 as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Development Project |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Residences at Annapolis Junction |
|
$ |
— |
|
|
$ |
— |
|
(a)
|
$ |
— |
|
|
$ |
2,468 |
|
(a)(b)
|
Delray Beach Plaza |
|
— |
|
|
— |
|
(a)
|
— |
|
(a)
|
489 |
|
(a)
|
Nexton Multifamily |
|
397 |
|
|
— |
|
|
658 |
|
|
— |
|
|
Nexton Square |
|
— |
|
|
380 |
|
|
— |
|
|
1,177 |
|
|
Interlock Commercial |
|
3,260 |
|
(b)
|
3,189 |
|
(b)
|
9,644 |
|
(b)
|
9,364 |
|
(b)
|
Solis Apartments at Interlock |
|
— |
|
|
847 |
|
|
4,005 |
|
(c)
|
2,522 |
|
|
Total mezzanine |
|
3,657 |
|
|
4,416 |
|
|
14,307 |
|
|
16,020 |
|
|
Other interest income |
|
109 |
|
|
1 |
|
|
321 |
|
|
35 |
|
|
Total interest income |
|
$ |
3,766 |
|
|
$ |
4,417 |
|
|
$ |
14,628 |
|
|
$ |
16,055 |
|
|
________________________________________
(a) Loan was placed on nonaccrual status effective April 1,
2020.
(b) Includes recognition of interest income related to an exit fee
that is due upon repayment of the loan.
(c) Includes prepayment premium of $2.4 million from early
payoff of the loan.
Delray Beach Plaza
On February 26, 2021, the Company acquired Delray Beach Plaza, a
Whole Foods-anchored retail property located in Delray Beach,
Florida for a contract price of $27.6 million plus capitalized
transaction costs of $0.2 million. The developer of this property
repaid the Company's mezzanine note receivable of $14.3 million at
the time of the acquisition, which consisted of $12.3 million
of principal and $2.0 million of accrued
interest.
Interlock Commercial
In March 2021, the Company loaned an additional $7.5 million
as part of the Interlock Commercial loan to fund project costs due
to an additional equity requirement to reduce the senior loan. In
September 2021, the loan was modified to increase the maximum loan
commitment to $107.0 million and to modify and clarify certain
rights and responsibilities under the loan.
During the three months ended September 30, 2021, the borrower
repaid $5.0 million, comprised of $3.8 million of
principal and $1.2 million of accrued interest. During the
nine months ended September 30, 2021, the borrower repaid
$11.0 million of this loan, comprised of $6.8 million of
principal and $4.2 million of accrued interest.
Nexton Multifamily
On April 1, 2021, the Company entered into a $22.3 million
preferred equity investment for the development of a multifamily
property located in Summerville, South Carolina, adjacent to the
Company's Nexton Square property. The investment has economic terms
consistent with a note receivable, including a mandatory redemption
or maturity on October 1, 2026, and it is accounted for as a note
receivable. The Company's investment bears interest at a rate of
11%, compounded annually.
Management has concluded that this entity is a VIE. Because the
other investor in the project, TP Nexton LLC, is the developer of
Nexton Multifamily, 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 does not consolidate the project in its
consolidated financial statements.
Solis Apartments at Interlock
On June 7, 2021 the borrower paid off the Solis Apartments at
Interlock note receivable in full. The Company received a total of
$33.0 million, which consisted of $23.2 million
outstanding principal, $7.4 million of accrued interest, and a
prepayment premium of $2.4 million that resulted from the
early payoff of the loan.
Allowance for Loan Losses
The Company is exposed to credit losses primarily through its
mezzanine lending activities. As of September 30, 2021, the
Company had two mezzanine loans, both of 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 mezzanine 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 mezzanine
and senior construction 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 nonaccrual
status if it does not believe that additional interest accruals
will ultimately be collected.
On a quarterly basis, the Company compares the risk inherent in its
loans to industry loan loss data experienced during past business
cycles. The Company updated the risk ratings for each of its notes
receivable as of September 30, 2021 and obtained industry loan
loss data relative to these risk ratings. Each of the outstanding
loans as of September 30, 2021 was Pass-rated.
At December 31, 2020, the Company reported $135.4 million
of notes receivable, net of allowances of $2.6 million. At
September 30, 2021, the Company reported $118.2 million of
notes receivable, net of allowances of $1.4 million. Changes
in the allowance for the three and nine months ended
September 30, 2021 and 2020 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Beginning balance |
|
$ |
2,129 |
|
|
$ |
3,085 |
|
|
$ |
2,584 |
|
|
$ |
— |
|
Cumulative effect of accounting change |
|
— |
|
|
— |
|
|
— |
|
|
2,825 |
|
Unrealized credit loss provision (release) |
|
(617) |
|
|
(33) |
|
|
(284) |
|
|
227 |
Extinguishment due to acquisition |
|
— |
|
|
— |
|
|
(788) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
(a)
|
|
$ |
1,512 |
|
|
$ |
3,052 |
|
|
$ |
1,512 |
|
|
$ |
3,052 |
|
________________________________________
(a) The amount as of September 30, 2021 includes $0.1 million
of allowance related to the unfunded commitments, which was
recorded as Other liabilities on the Consolidated Balance
Sheet.
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 December 31, 2020, the
Company had one loan with non-accrual status with an amortized cost
basis of $13.6 million. As of September 30, 2021, there
were no loans on non-accrual status.
7. 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,
2021 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.
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 months ended September 30, 2021 and 2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2021 |
|
Nine Months Ended
September 30, 2020 |
|
|
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 |
|
$ |
138 |
|
|
$ |
6,088 |
|
|
$ |
249 |
|
|
$ |
5,306 |
|
Revenue recognized that was included in the balance at the
beginning of the period |
|
— |
|
|
(6,088) |
|
|
— |
|
|
(5,306) |
|
Increases due to new billings, excluding amounts recognized as
revenue during the period |
|
— |
|
|
3,791 |
|
|
— |
|
|
7,237 |
|
Transferred to receivables |
|
(665) |
|
|
— |
|
|
(468) |
|
|
— |
|
Construction contract costs and estimated earnings not billed
during the period |
|
370 |
|
|
— |
|
|
215 |
|
|
— |
|
Changes due to cumulative catch-up adjustment arising from changes
in the estimate of the stage of completion |
|
527 |
|
|
(1,117) |
|
|
219 |
|
|
(152) |
|
Ending balance |
|
$ |
370 |
|
|
$ |
2,674 |
|
|
$ |
215 |
|
|
$ |
7,085 |
|
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 $2.6
million and $1.7 million were deferred as
of September 30, 2021 and
December 31, 2020, respectively. Amortization of pre-contract
costs for the nine months ended September 30, 2021 and 2020 was
$0.2 million and $0.7 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 September 30, 2021 and
December 31, 2020, construction receivables included
retentions of $7.1 million and $17.1 million,
respectively. The Company expects to collect substantially all
construction receivables outstanding as of September 30,
2021 during the next twelve months. As
of September 30, 2021 and December 31, 2020,
construction payables included retentions of $6.5 million
and $17.7 million, respectively. The Company expects to pay
substantially all construction payables outstanding as
of September 30, 2021 during the next twelve
months.
The Company’s net position on uncompleted construction contracts
comprised the following as of September 30, 2021 and
December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
Costs incurred on uncompleted construction contracts |
$ |
360,247 |
|
|
$ |
461,725 |
|
Estimated earnings |
14,427 |
|
|
13,205 |
|
Billings |
(376,978) |
|
|
(480,880) |
|
Net position |
$ |
(2,304) |
|
|
$ |
(5,950) |
|
|
|
|
|
Construction contract costs and estimated earnings in excess of
billings |
$ |
370 |
|
|
$ |
138 |
|
Billings in excess of construction contract costs and estimated
earnings |
(2,674) |
|
|
(6,088) |
|
Net position |
$ |
(2,304) |
|
|
$ |
(5,950) |
|
The above table reflects the net effect of projects closed as of
September 30, 2021 and December 31, 2020,
respectively.
The Company’s balances and changes in construction contract price
allocated to unsatisfied performance obligations (backlog) as of
September 30, 2021 and 2020 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Beginning backlog |
|
$ |
70,219 |
|
|
$ |
193,742 |
|
|
$ |
71,258 |
|
|
$ |
242,622 |
|
New contracts/change orders |
|
53,590 |
|
|
(12,461) |
|
|
106,992 |
|
|
43,469 |
|
Work performed |
|
(16,944) |
|
|
(58,590) |
|
|
(71,385) |
|
|
(163,400) |
|
Ending backlog |
|
$ |
106,865 |
|
|
$ |
122,691 |
|
|
$ |
106,865 |
|
|
$ |
122,691 |
|
The Company expects to complete a majority of the uncompleted
contracts in place as of September 30, 2021 during
the next 12 to 18 months.
8. Indebtedness
Credit Facility
The Company has a senior credit facility that was amended and
restated on October 3, 2019, which provides for a $355.0 million
credit facility comprised of a $150.0 million senior unsecured
revolving credit facility (the "revolving credit facility") and a
$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 $700.0 million,
subject to certain conditions, including obtaining commitments from
any one or more lenders. The revolving credit facility has a
scheduled maturity date of January 24, 2024, with two
six-month extension options, subject to certain conditions,
including payment of a 0.075% extension fee at each extension. The
term loan facility has a scheduled maturity date of
January 24, 2025.
The revolving credit facility bears interest at LIBOR (the London
Inter-Bank Offered Rate) plus a margin ranging from 1.30% to 1.85%
and the term loan facility bears interest at LIBOR plus a margin
ranging from 1.25% to 1.80%, 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, 2021 and December 31, 2020, the
outstanding balance on the revolving credit facility was $30.0
million and $10.0 million, respectively. The outstanding balance on
the term loan facility was $205.0 million as of both dates. As
of September 30, 2021, the effective interest rates on the
revolving credit facility and the term loan facility were 1.58% and
1.53%, respectively. The Company may, at any time, voluntarily
prepay any loan under the credit facility in whole or in part
without premium or penalty. The Company's unencumbered borrowing
pool will support revolving borrowings of up to $134 million
as of September 30, 2021.
The Operating Partnership is the borrower, and its obligations
under the credit facility are guaranteed by the Company and certain
of its subsidiaries that are not otherwise prohibited from
providing such guaranty. The credit agreement contains customary
representations and warranties and financial and other affirmative
and negative covenants. The Company's ability to borrow under the
credit facility is subject to ongoing compliance with a number of
financial covenants, affirmative covenants, and other restrictions.
The credit agreement includes customary events of default, in
certain cases subject to customary cure periods. The occurrence of
an event of default, if not cured within the applicable cure
period, would permit the lenders to, among other things, declare
the unpaid principal, accrued and unpaid interest, and all other
amounts payable under the credit facility to be immediately due and
payable.
On January 7, 2021, the Operating Partnership entered into a
$15.0 million standby letter of credit using the available
capacity under the credit facility to guarantee the funding of its
investment in the Harbor Point Parcel 3 joint venture, which is the
developer of T. Rowe Price's new global headquarters. This letter
of credit is available for draw down on the revolving credit
facility in the event the Company does not meet its equity
requirement.
The Company is currently in compliance with all covenants governing
the credit facility.
Other 2021 Financing Activity
On January 15, 2021, the Company refinanced the loan secured by
4525 Main Street and Encore Apartments. The Company increased the
balance by $1.5 million, bringing the total balance of the
loan to $57.0 million. The new loan bears interest at a rate
of 2.93% and will mature on February 10, 2026.
On January 28, 2021, the Company refinanced the Nexton Square loan
and paid the balance down by $2.0 million, bringing the
balance to $20.1 million. The loan bears interest at a rate of
LIBOR plus a spread of 2.25% (LIBOR has a 0.25% floor) and will
mature on February 1, 2023.
On March 8, 2021, the Company obtained a loan secured by Delray
Beach Plaza in the amount of $14.5 million. The loan bears
interest at a rate of LIBOR plus a spread of 3.00% and will mature
on March 8, 2026.
On April 15, 2021, the Company refinanced the $19.5 million
Southgate Square loan. The loan bears interest at a rate of LIBOR
plus a spread of 2.25% (LIBOR has a 0.75% floor) and will mature on
April 29, 2024. The loan term may be extended for an additional two
years under the satisfaction of certain criteria.
On May 5, 2021, the Company entered into a $35.1 million
construction loan agreement for the Chronicle Mill development
project. The loan bears interest rate at LIBOR plus a spread of
3.00% (LIBOR has a 0.25% floor). The loan matures on May 5, 2024
and has two 12-month extension options.
On August 24, 2021, as a part of the Greenbrier Square acquisition,
the Company assumed a note payable of $20.0 million. The loan
bears interest at a fixed rate of 3.74% and will mature on October
10, 2027.
In September 2021, the loan covenants for the syndicated loan
secured by Wills Wharf were modified to extend the deadline for the
Company to meet a lease-up requirement included in the loan
agreement from October 1, 2021 to February 1, 2022.
On September 30, 2021, the Company refinanced the loan secured by
Thames Street Wharf. The new $71.0 million loan bears interest
at a rate of Bloomberg Short-Term Bank Yield Index ("BSBY") plus a
spread of 1.30% and will mature on September 30, 2026. The Company
simultaneously entered into an interest rate swap agreement that
effectively fixes the interest rate at 2.35% for the term of the
loan.
During the nine months ended September 30, 2021, the Company
borrowed $13.3 million under its existing construction loans to
fund new development and construction.
9. Derivative Financial Instruments
The Company enters into interest rate derivative contracts to
manage exposure to interest rate risks. The Company does not use
derivative financial instruments for trading or speculative
purposes. Derivative financial instruments are recognized at fair
value and presented within other assets and other liabilities in
the condensed consolidated balance sheets. Gains and losses
resulting from changes in the fair value of derivatives that are
neither designated nor qualify as hedging instruments are
recognized within the change in fair value of interest rate
derivatives in the condensed consolidated statements of
comprehensive income. For derivatives that qualify as cash flow
hedges, the gain or loss is reported as a component of other
comprehensive income (loss) and reclassified into earnings in the
periods during which the hedged forecasted transaction affects
earnings.
As of September 30, 2021, the Company had the following LIBOR
and Secured Overnight Financing Rate ("SOFR") interest rate caps ($
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Date |
|
Maturity Date |
|
Notional Amount |
|
Strike Rate |
|
|
|
Premium Paid |
|
|
|
|
|
|
|
|
|
|
|
5/15/2019 |
|
6/1/2022 |
|
$ |
100,000 |
|
|
2.50% (LIBOR)
|
|
|
|
$ |
288 |
|
1/10/2020 |
|
2/1/2022 |
|
50,000 |
|
(a)
|
1.75% (LIBOR)
|
|
|
|
87 |
|
1/28/2020 |
|
2/1/2022 |
|
50,000 |
|
(a)
|
1.75% (LIBOR)
|
|
|
|
62 |
|
3/2/2020 |
|
3/1/2022 |
|
100,000 |
|
(a)
|
1.50% (LIBOR)
|
|
|
|
111 |
|
7/1/2020 |
|
7/1/2023 |
|
100,000 |
|
(a)
|
0.50% (LIBOR)
|
|
|
|
232 |
|
11/1/2020 |
|
11/1/2023 |
|
84,375 |
|
(a)
|
1.84% (SOFR)
|
|
|
(b)
|
91 |
|
2/2/2021 |
|
2/1/2023 |
|
100,000 |
|
|
0.50% (LIBOR)
|
|
|
|
45 |
|
3/4/2021 |
|
4/1/2023 |
|
14,479 |
|
|
2.50% (LIBOR)
|
|
|
|
4 |
|
5/5/2021 |
|
5/1/2023 |
|
50,000 |
|
|
0.50% (LIBOR)
|
|
|
|
75 |
|
5/5/2021 |
|
5/1/2023 |
|
35,100 |
|
|
0.50% (LIBOR)
|
|
|
|
55 |
|
6/16/2021 |
|
7/1/2023 |
|
100,000 |
|
|
0.50% (LIBOR)
|
|
|
|
120 |
|
Total |
|
|
|
$ |
783,954 |
|
|
|
|
|
|
$ |
1,170 |
|
________________________________________
(a) Designated as a cash flow hedge.
(b) This interest rate cap is subject to SOFR, which has been
identified as the alternative to LIBOR. LIBOR will be phased out
beginning December 31, 2021.
As of September 30, 2021, the Company held the following
floating-to-fixed interest rate swaps ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Debt |
|
Notional Amount |
|
|
Index |
|
Swap Fixed Rate |
|
Debt effective rate |
|
Effective Date |
|
Expiration Date |
Senior unsecured term loan |
|
$ |
50,000 |
|
|
|
1-month LIBOR |
|
2.78 |
% |
|
4.23 |
% |
|
5/1/2018 |
|
5/1/2023 |
John Hopkins Village |
|
50,123 |
|
(a)
|
|
1-month LIBOR |
|
2.94 |
% |
|
4.19 |
% |
|
8/7/2018 |
|
8/7/2025 |
Senior unsecured term loan |
|
10,500 |
|
(a)
|
|
1-month LIBOR |
|
3.02 |
% |
|
4.47 |
% |
|
10/12/2018 |
|
10/12/2023 |
249 Central Park Retail, South Retail, and Fountain Plaza
Retail |
|
33,501 |
|
(a)
|
|
1-month LIBOR |
|
2.25 |
% |
|
3.85 |
% |
|
4/1/2019 |
|
8/10/2023 |
Senior unsecured term loan |
|
50,000 |
|
(a)
|
|
1-month LIBOR |
|
2.26 |
% |
|
3.71 |
% |
|
4/1/2019 |
|
10/26/2022 |
Senior unsecured term loan |
|
25,000 |
|
(a)
|
|
1-month LIBOR |
|
0.50 |
% |
|
1.95 |
% |
|
4/1/2020 |
|
4/1/2024 |
Senior unsecured term loan |
|
25,000 |
|
(a)
|
|
1-month LIBOR |
|
0.50 |
% |
|
1.95 |
% |
|
4/1/2020 |
|
4/1/2024 |
Senior unsecured term loan |
|
25,000 |
|
(a)
|
|
1-month LIBOR |
|
0.55 |
% |
|
2.00 |
% |
|
4/1/2020 |
|
4/1/2024 |
Thames Street Wharf |
|
71,000 |
|
(a)
|
|
1-month BSBY |
(b)
|
1.05 |
% |
|
2.35 |
% |
|
9/30/2021 |
|
9/30/2026 |
Total |
|
$ |
340,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________________________
(a) Designated as a cash flow hedge.
(b) This interest rate swap is subject to BSBY, which has been
identified as an alternative to LIBOR. LIBOR will be phased out
beginning December 31, 2021.
For the interest rate swaps and caps designated as cash flow
hedges, realized losses are reclassified out of accumulated other
comprehensive loss to interest expense in the Condensed
Consolidated Statements of Comprehensive Income due to payments
made to the swap counterparty. During the next 12 months, the
Company anticipates reclassifying approximately $4.6 million
of net hedging losses from accumulated other comprehensive loss
into earnings to offset the variability of the hedged items during
this period.
The Company’s derivatives were comprised of the following as of
September 30, 2021 and December 31, 2020 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
|
Notional
Amount |
|
Fair Value |
|
Notional
Amount |
|
Fair Value |
|
|
|
|
Asset |
|
Liability |
|
|
|
Asset |
|
Liability |
Derivatives not designated as accounting hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
50,000 |
|
|
$ |
— |
|
|
$ |
(2,030) |
|
|
$ |
50,000 |
|
|
$ |
— |
|
|
$ |
(3,056) |
|
Interest rate caps |
|
399,579 |
|
|
217 |
|
|
— |
|
|
150,000 |
|
|
4 |
|
|
— |
|
Total derivatives not designated as accounting hedges |
|
449,579 |
|
|
217 |
|
|
(2,030) |
|
|
200,000 |
|
|
4 |
|
|
(3,056) |
|
Derivatives designated as accounting hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
290,124 |
|
|
— |
|
|
(7,380) |
|
|
290,231 |
|
|
— |
|
|
(11,797) |
|
Interest rate caps |
|
384,375 |
|
|
144 |
|
|
— |
|
|
384,375 |
|
|
86 |
|
|
— |
|
Total derivatives |
|
$ |
1,124,078 |
|
|
$ |
361 |
|
|
$ |
(9,410) |
|
|
$ |
874,606 |
|
|
$ |
90 |
|
|
$ |
(14,853) |
|
The changes in the fair value of the Company’s derivatives during
the three and nine months ended September 30, 2021 and 2020
were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Interest rate swaps |
|
$ |
(60) |
|
|
$ |
323 |
|
|
$ |
2,315 |
|
|
$ |
(10,907) |
|
Interest rate caps |
|
(234) |
|
|
(111) |
|
|
(27) |
|
|
(391) |
|
Total change in fair value of interest rate derivatives |
|
$ |
(294) |
|
|
$ |
212 |
|
|
$ |
2,288 |
|
|
$ |
(11,298) |
|
Comprehensive income statement presentation: |
|
|
|
|
|
|
|
|
Change in fair value of derivatives and other |
|
$ |
166 |
|
|
$ |
330 |
|
|
$ |
941 |
|
|
$ |
(1,412) |
|
Unrealized cash flow hedge gains (losses) |
|
(460) |
|
|
(118) |
|
|
1,347 |
|
|
(9,886) |
|
Total change in fair value of interest rate derivatives |
|
$ |
(294) |
|
|
$ |
212 |
|
|
$ |
2,288 |
|