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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 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)
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 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
 
  Page
 
1
 
1
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2
3
6
8
 
 
 
 
 
 
 
 
 
 
 





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.
1


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 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.
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 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 —  8,974  —  —  8,981  —  —  8,981 
Restricted stock awards, net —  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 —  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 
3


  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 —  1,348  —  —  1,349  —  —  1,349 
Restricted stock awards, net —  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 —  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 —  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 —  8,523  —  —  8,530  —  (8,530) — 
Dividends declared on preferred stock —  —  —  (2,220) —  (2,220) —  —  (2,220)
4


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.
5


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.
6


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.

7


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
8


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.

9


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.


10


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.

11


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 
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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.

13


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  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.
14



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.
15



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
16


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
17


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.
18



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)
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.
19



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  — 
Total derivatives not designated as accounting hedges 449,579  217  (2,030) 200,000  (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 $