ARMADA HOFFLER PROPERTIES, INC. References to "we," "our," "us," and "our company" refer toArmada Hoffler Properties, Inc. , aMaryland corporation, together with our consolidated subsidiaries, includingArmada Hoffler, L.P. , aVirginia limited partnership (the "Operating Partnership"), of which we are the sole general partner. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on beliefs and assumptions made by, and information currently available to, management. When used, the words "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result," and similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
• the continuing impacts of the novel coronavirus ("COVID-19") pandemic,
including a possible resurgence, and measures intended to prevent or
mitigate its spread, and our ability to accurately assess and predict
such impacts on our results of operations, financial condition,
acquisition and disposition activities, and growth opportunities;
? our ability to commence or continue construction and development
projects on the timeframes and terms currently anticipated;
? our ability and the ability of our tenants to access funding under
government programs designed to provide financial relief for U.S.
businesses in light of the COVID-19 pandemic;
• continuing adverse economic or real estate developments, either
nationally or in the markets in which our properties are located,
including as a result of the COVID-19 pandemic;
• our failure to generate sufficient cash flows to service our outstanding
indebtedness;
• defaults on, early terminations of, or non-renewal of leases by tenants,
including significant tenants;
• bankruptcy or insolvency of a significant tenant or a substantial number
of smaller tenants;
• the inability of one or more mezzanine loan borrowers to repay mezzanine
loans in accordance with their contractual terms;
• difficulties in identifying or completing development, acquisition, or
disposition opportunities;
• our failure to successfully operate developed and acquired properties;
• our failure to generate income in our general contracting and real
estate services segment in amounts that we anticipate;
• fluctuations in interest rates and increased operating costs;
• our failure to obtain necessary outside financing on favorable terms or
at all;
• our inability to extend the maturity of or refinance existing debt or
comply with the financial covenants in the agreements that govern our
existing debt;
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• financial market fluctuations;
• risks that affect the general retail environment or the market for
office properties or multifamily units;
• the competitive environment in which we operate;
• decreased rental rates or increased vacancy rates;
• conflicts of interests with our officers and directors;
• lack or insufficient amounts of insurance;
• environmental uncertainties and risks related to adverse weather
conditions and natural disasters;
• other factors affecting the real estate industry generally;
• our failure to maintain our qualification as a real estate investment
trust ("REIT") for U.S. federal income tax purposes;
• limitations imposed on our business and our ability to satisfy complex
rules in order for us to maintain our qualification as a REIT for U.S.
federal income tax purposes;
• changes in governmental regulations or interpretations thereof, such asreal estate and zoning laws and increases in real property tax rates and
taxation of REITs; and
• potential negative impacts from the recent changes to the
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We caution investors not to place undue reliance on these forward-looking statements and urge investors to carefully review the disclosures we make concerning risks and uncertainties in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K, and in our Quarterly Reports on Form 10-Q for the three months endedMarch 31, 2020 andJune 30, 2020 , as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q, and other documents that we file from time to time with theSecurities and Exchange Commission (the "SEC").
Business Description
We are 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 andSoutheastern United States . As ofSeptember 30, 2020 , our operating property portfolio consisted of the following properties: Property Segment Location Ownership Interest 4525 Main Street Office Virginia Beach, Virginia* 100 % Armada Hoffler Tower Office Virginia Beach, Virginia* 100 % Brooks Crossing Office Office Newport News, Virginia 100 % One City Center Office Durham, North Carolina 100 % One Columbus Office Virginia Beach, Virginia* 100 % Thames Street Wharf Office Baltimore, Maryland 100 % Two Columbus Office Virginia Beach, Virginia* 100 % 249 Central Park Retail Retail Virginia Beach, Virginia* 100 % Apex Entertainment Retail Virginia Beach, Virginia* 100 % Broad Creek Shopping Center Retail Norfolk, Virginia 100 % Broadmoor Plaza Retail South Bend, Indiana 100 % Brooks Crossing Retail (1) Retail Newport News, Virginia 65 % Columbus Village Retail Virginia Beach, Virginia* 100 % Columbus Village II Retail Virginia Beach, Virginia* 100 % Commerce Street Retail Retail Virginia Beach, Virginia* 100 % Courthouse 7-Eleven Retail Virginia Beach, Virginia 100 % 28
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Property Segment Location Ownership Interest
Colonial Heights,
Dimmock Square Retail Virginia 100 %
Virginia Beach,
Fountain Plaza Retail Retail Virginia* 100 %
Greentree Shopping Center Retail Chesapeake, Virginia 100 %
Hanbury Village Retail Chesapeake, Virginia 100 %
Harrisonburg Regal Retail Harrisonburg, Virginia 100 %
Lexington, South
Lexington Square Retail Carolina 100 %
Mount Pleasant, South
Market at Mill Creek (1) Retail Carolina 70 %
Virginia Beach,
Marketplace at Hilltop Retail Virginia 100 %
Summerville, South
Nexton Square Retail Carolina 100 %
Taylors, South
North Hampton Market Retail Carolina 100 %
North Point Center Retail Durham, North Carolina 100 %
Oakland Marketplace Retail Oakland, Tennessee 100 %
Parkway Centre Retail Moultrie, Georgia 100 %
Virginia Beach,
Parkway Marketplace Retail Virginia 100 %
Patterson Place Retail Durham, North Carolina 100 %
Perry Hall Marketplace Retail Perry Hall, Maryland 100 %
Charlotte, North
Providence Plaza Retail Carolina 100 %
Virginia Beach,
Red Mill Commons Retail Virginia 100 %
Virginia Beach,
Sandbridge Commons Retail Virginia 100 %
Myrtle Beach, South
Socastee Commons Retail Carolina 100 %
Virginia Beach,
South Retail Retail Virginia* 100 %
South Square Retail Durham, North Carolina 100 %
Colonial Heights,
Southgate Square Retail Virginia 100 %
Southshore Shops Retail Chesterfield, Virginia 100 %
Virginia Beach,
Studio 56 Retail Retail Virginia* 100 %
Tyre Neck Harris Teeter Retail Portsmouth, Virginia 100 %
Greensboro, North
Wendover Village Retail Carolina 100 %
1405 Point Multifamily Baltimore, Maryland 100 %
Virginia Beach,
Encore Apartments Multifamily Virginia* 100 %
Charlotte, North
Greenside Apartments Multifamily Carolina 100 %
Charleston, South
Hoffler Place Multifamily Carolina 93 %
Johns Hopkins Village Multifamily Baltimore, Maryland 100 %
Liberty Apartments Multifamily Newport News, Virginia 100 %
Virginia Beach,
Premier Apartments Multifamily Virginia* 100 %
Smith's Landing Multifamily Blacksburg, Virginia 100 %
Virginia Beach,
The Cosmopolitan Multifamily Virginia* 100 %
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*Located in the
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As ofSeptember 30, 2020 , the following properties that we consolidate for financial reporting purposes were either under development or not yet stabilized: Property Segment Location Ownership Interest Wills Wharf Office Baltimore, Maryland 100 % Premier Retail Retail Virginia Beach, Virginia* 100 % Summit Place Multifamily Charleston, South Carolina 90 % Solis Gainesville Multifamily Gainesville, Georgia 95 %
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*Located in the
Acquisitions
On
On
On
OnSeptember 22, 2020 , we exercised our option to purchaseNexton Square for$17.9 million cash and the assumption of a note payable of$22.9 million . The developer of this property repaid our mezzanine note receivable of$16.4 million at the time of the acquisition. OnOctober 2, 2020 , we acquiredEdison Apartments , a multifamily building located in downtownRichmond, Virginia , for consideration comprised of 633,734 Class A Units, the assumption of a$16.4 million loan payable, and the assumption of$1.8 million in other assets and liabilities. The seller of the property was a partnership that includes several members from our management team and board of directors.
On
Dispositions
OnMay 29, 2020 , we sold a portfolio of seven retail properties for$90.0 million . The portfolio consisted ofAlexander Pointe , Bermuda Crossroads,Gainsborough Square ,Harper Hill Commons ,Indian Lakes Crossing ,Renaissance Square , andStone House Square . The gain on sale was$2.8 million . In connection with the sale of this portfolio, we repaid$61.9 million on the revolving credit facility, resulting in net proceeds of$25.9 million .
On
Impact of COVID-19 on our Business
Overview
In light of the changing nature of the COVID-19 pandemic and uncertainty regarding the duration, severity, and possible resurgence of the pandemic in future periods, the impact that the COVID-19 pandemic will have on our business is currently unknown and unquantifiable. While the full extent of the COVID-19 pandemic's impact on theU.S. economy and theU.S. real estate industry remains to be seen, the pandemic has already presented significant challenges for us and many of our tenants. In the near-term, we and many of our tenants are focusing on implementing contingency plans to manage business disruptions caused by the pandemic and related actions intended to mitigate its spread. In the long-term, REITs and other real estate companies might need to re-assess and consider modifying their operating models, underwriting criteria, and liquidity position to mitigate the impacts of future economic downturns, including as a result of the potential resurgence of the COVID-19 pandemic in future months, the timing, severity, and duration of which cannot be predicted. 30
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We anticipate the global health crisis caused by COVID-19 and the related actions intended to mitigate its spread will continue to adversely affect business activity, particularly relating to our retail tenants, across the markets in which we operate. We have observed the impact of COVID-19 manifest in the form of business closures or significantly limited operations at certain times in our retail portfolio, with the exception of tenants operating in certain "essential" businesses, which has resulted, and may in the future result in, a decline in on-time rental payments, increased requests from tenants for temporary rental relief, and potentially permanent closure of certain businesses. We expect these conditions to continue in varying duration and severity until such time when the COVID-19 pandemic is effectively contained. When COVID-19 is contained, depending on the rate and effectiveness of the containment efforts deployed by various national, state, and local governments, we anticipate a rebound in economic activity, although we are unable to predict the nature, timing, and sustainability of an economic recovery. In an effort to protect the health and safety of our employees, we took proactive, aggressive actions to adopt social distancing policies at our offices, properties, and construction jobsites, including: transitioning our office employees to a remote work environment during certain periods of time, which was greatly assisted by recent enhancements to our IT systems; limiting the number of employees attending in-person meetings; implementing limitations on travel; and ensuring all construction jobsites continue to comply with state and local social distancing and other health and safety protocols implemented by the Company. To further strengthen our financial flexibility and efficiently manage through the uncertainty caused by COVID-19, our Board of Directors temporarily suspended the payment of quarterly cash dividends on shares of our common stock and Class A common units for the second quarter of 2020. As a result of improvement in general economic conditions and the Company's operating performance, our Board of Directors reinstated quarterly cash dividends on shares of our common stock and Class A common units with a cash dividend of$0.11 per share and unit, for the third quarter of 2020, which was paid onOctober 8, 2020 to stockholders and OP unitholders of record onSeptember 30, 2020 . In addition,Lou Haddad , our President and Chief Executive Officer, voluntarily elected to reduce his base compensation by 25%, and each of our directors, includingDan Hoffler andRuss Kirk , voluntarily elected to reduce their cash retainers and annual equity awards by 25%, in each case effective as ofMay 1, 2020 . From an operational perspective, we have remained in regular communication with our tenants, property managers, and vendors, and, where appropriate, have provided guidance relating to the availability of government relief programs that could support our tenants' businesses. In response to the market and industry trends, we also have pursued, and expect to continue to pursue, cost-saving initiatives to align our overall cost structure, including proactively deferring previously announced development activity at several of our projects, postponing certain acquisition activity, slowing down redevelopment activity at The Cosmopolitan, and suspending non-essential capital expenditures. Although we believe these measures and other measures we may implement in the future will help mitigate the financial impacts of the pandemic on our business, there can be no assurances that we will accurately forecast the impact of adverse economic conditions on our business or that we will effectively align our cost structure, capital investments, and other expenditures with our revenue and spending levels in the future. To evaluate market trends affecting public REITs across asset classes and to assess our response to COVID-19 relative to our peers, we have been monitoring information that has been released by public REITs, summary data released by theNational Association of Real Estate Investment Trusts ("Nareit") and other publicly available sources, and information obtained during our regular discussions with tenants. While we view information gathered from publicly available sources as helpful in assessing broader trends affecting the commercial real estate industry, we can provide no assurances that the estimates and assumptions used in preparing this third-party information are applicable to our business or ultimately will prove to be accurate. In addition, our asset management team, together with the rest of senior management, has dedicated significant resources to monitoring detailed portfolio performance on a real-time basis, including rent collections, requests for rent relief and uncollected payments, as well as negotiating rent deferments and other relief with certain of our tenants. We will continue to actively monitor the implications of the COVID-19 pandemic on our and our tenants' businesses and may take further actions to alter our business practices if we determine that such changes are in the best interests of our employees, tenants, residents, stockholders, and third-party construction customers, or as required by federal, state, or local authorities. It is not clear what the potential effects of such alterations or modifications, if any, may have on our business, including the effects on our tenants and residents and the corresponding impact on our results of operations and financial condition for the remainder of fiscal 2020 and thereafter. The Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was enacted onMarch 27, 2020 inthe United States . We continue to assess the potential impacts of this and subsequent legislation, including our eligibility and our 31
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tenants for funding under programs designed to provide financial assistance toU.S. businesses. We have availed ourselves of the option to defer payment of the employer share ofSocial Security payroll taxes that would otherwise have been owed from the date of enactment of the CARES Act throughDecember 31, 2020 . We believe the diversification of our business across multiple asset classes (i.e., office, retail and multifamily), together with our third-party construction business, will help to mitigate the impact of the pandemic on our business to a greater extent than if our business were concentrated in a single asset class. However, as discussed in greater detail below, we expect the impact of the pandemic to continue to have a particularly adverse effect on many of our retail tenants, which will continue to adversely affect our results of operations even if the performance of our office and multifamily assets and our construction business remain close to historical levels. Furthermore, if the impacts of the pandemic continue for an extended period of time, we expect that certain office tenants and multifamily residents will experience greater financial distress, which could result in late payments, requests for rental relief, business closures, decreases in occupancy, reductions in rent, or increases in rent concessions or other accommodations, as applicable.
Operating Property Portfolio
Office Tenants
As ofOctober 27, 2020 , we had collected 100% of office tenant rent due for the third quarter of 2020 and 100% of office tenant rent forOctober 2020 . Data reported corresponds to tenant type and does not correspond to the reporting segment classification of the properties as a whole. InJune 2020 , following discussion withWeWork , we agreed to terminate the lease of the top two office floors ofWills Wharf inHarbor Point , prior to our funding any tenant improvements. We received a termination fee of$1.3 million , including a$1.0 million reimbursement of legal and leasing fees.
Retail Tenants
In an effort to contain COVID-19 or slow its spread, state and local governments have enacted various measures at various times, including orders to close all businesses not deemed essential, isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. These government-imposed measures, coupled with customers reducing their in-person purchasing activity in light of health concerns or personal financial distress, have resulted in significant disruptions to retail businesses around the country, including in the markets in which we own retail assets. InOctober 2020 , we terminated the leases for Regal Cinemas inColumbus Village II (part of theTown Center of Virginia Beach ) andHarrisonburg, Virginia . We are evaluating potential uses for the existing buildings as well as potential redevelopment concepts at each location. We wrote off the accounts receivable for this tenant as an adjustment to rental revenue totaling$1.1 million for the three months endedSeptember 30, 2020 . As ofOctober 27, 2020 , we had collected 93% of retail tenant rent due for the third quarter of 2020 and 94% of retail tenant rent due forOctober 2020 . The October collections exclude rent due from the two subsequently terminated leases with Regal Cinemas. In addition to the amounts recorded for Regal Cinemas, the company recorded$0.4 million in bad debt charges for the three months endedSeptember 30, 2020 , which is recorded as an adjustment to rental revenues and was primarily the result of retail tenant delinquencies resulting from the COVID-19 pandemic. As ofSeptember 30, 2020 , we had the following significant known lease terminations: ABR per Leased Tenant Property Effective Date SF Impact ABR Impact SF Bed, Bath, & Beyond North Point Center 1/31/2021 30,000$ 300,000 $ 10.00 Bed, Bath, & Beyond Wendover Village 1/31/2021 33,696 404,352 12.00 Regal Cinemas (a) Columbus Village II 10/20/2020 51,545 995,334 19.31 Regal Cinemas (a) Harrisonburg Regal 10/25/2020 49,000 717,850 14.65 Bi-Lo (a) Socastee Commons 1/31/2021 46,673 492,400 10.55 Total/Weighted Average 210,914$ 2,909,936 $ 13.80
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(a) Vacancy allows the Company to consider redevelopment of this property.
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Table of Contents Multifamily Tenants As ofOctober 27, 2020 , we had collected 98% of multifamily tenant rent due for the third quarter of 2020 and 97% of multifamily tenant rent due forOctober 2020 . Data reported corresponds to tenant type and does not correspond to the reporting segment classification of the properties as a whole. Due to actions taken by state governments and limited working capacity for government courts and agencies, certain properties in our multifamily portfolio were subject to increased restrictions that limited our ability to evict tenants or charge late fees throughSeptember 30, 2020 . At this time, certain restrictions previously in place have been lifted and many government courts and agencies have re-opened; however, there may be similar restrictions and limited working capacity for government courts and agencies in the future. OnSeptember 4, 2020 , theCenters for Disease Control and Prevention (the "CDC") issued an order to temporarily halt residential evictions to prevent the further spread of COVID-19 that effectively prohibits evictions for nonpayment throughDecember 31, 2020 nationwide for residential tenants who submit a signed copy of a declaration form to their landlords. The specific declaration form to be used was prepared by theCDC and attached to the order. The order does not, on its own, prevent landlords from filing suits, obtaining judgments, or filing writs. It only prevents landlords from carrying out evictions if the tenant submits the signed declaration form to the landlord. If the tenant does not provide the declaration, the tenant can be evicted. The order does not apply to evictions that are for reasons other than nonpayment rent. The penalties for an organization that violates the order include fines of up to$200,000.00 per event ($500,000.00 if the eviction results in death). The order does not relieve any individual of any obligation to pay rent or comply with any other obligation under a lease, nor does it preclude the charging or collecting of fees, penalties, or interest as a result of the failure to pay rent under the terms of a lease. The order does not apply to commercial tenants.
State and local restrictions that remain in place for 1405 Point and
• City restrictions in place which prohibit rent increases, notices of
increases, or assessment of late fees during the
emergency. These restrictions will be in place until the governor's
state of emergency is lifted and for ninety (90) days thereafter.
• State restrictions in place which prohibit evictions of tenants
affected by COVID-19. Evictions cannot be processed until the state of
emergency is terminated and the catastrophic health emergency is
rescinded. The governor's state of emergency order was renewed again on
July 31, 2020 .
On October 30, 2020 , the Company acquired 79% of the partnership that owns the
Residences at Annapolis Junction . The same restrictions listed above for our
properties in Baltimore, Maryland also apply to this property.
Furthermore, the restriction on evictions in the
Construction and Development Business
As of the date of this quarterly report on Form 10-Q, all of our construction jobsites remain open and operational, and we intend to continue third-party construction work unless government-imposed restrictions are implemented that prohibit or significantly restrict the continuation of construction work. As ofSeptember 30, 2020 , we had a third-party construction backlog of approximately$122.7 million . With respect to our development pipeline, we proactively deferred theChronicle Mill ,Southern Post , and Ten Tryon development projects in order to provide additional balance sheet flexibility until economic conditions stabilize, each of which had previously been scheduled to commence during the second quarter of 2020.The Summit Place project was completed inJune 2020 , and portions of theWills Wharf project were completed during the second quarter of 2020.The Wills Wharf project has sufficient construction loan commitments to fund the remaining estimated costs to complete; however, the disruption in global supply chains and our desire to prioritize the health and safety of our workforce may cause delays.
Mezzanine Lending Program
We continue to monitor the development projects securing our five mezzanine loans:
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Delray Plaza : EffectiveApril 1, 2020 , we stopped recognizing interest on this loan for accounting purposes since collection of additional interest accruals was less certain. We are negotiating a purchase of the property from the developer.
Solis Apartments at Interlock: This project is estimated to be completed during the second quarter of 2021. Current estimates of future operating results and projected sales proceeds from this project continue to support the full collection of our principal and interest upon sale of the project. Interlock Commercial: This project is estimated to be completed during the second quarter of 2021. InMay 2020 , we modified the mezzanine loan to allow for an additional$8.0 million of loan funding for purposes of building townhome units as an additional phase of this development project. Current estimates of future operating results and projected sales proceeds from this project continue to support the full collection of our principal and interest upon sale of the project. OnOctober 2, 2020 , we modified the loan to decrease the exit fee upon satisfaction of certain conditions that reduce our risk as a lender. There are no remaining funding commitments for the outstanding mezzanine loans. We continue to monitor leasing activity at these projects, as applicable, and will monitor the impact of COVID-19 on leasing activity and development activity at each of these projects.
Third Quarter 2020 and Recent Highlights
The following highlights our results of operations and significant transactions
for the three months ended
• Net income attributable to common stockholders and OP Unit holders of
million, or $0.11 per diluted share, compared to $9.9 million , or $0.13
per diluted share, for the three months ended September 30, 2019 .
• Funds from operations attributable to common stockholders and OP Unit
holders ("FFO") of
• Normalized funds from operations available to common stockholders and OP
Unit holders ("Normalized FFO") of
share, compared to
three months ended
• Recaptured two prime redevelopment sites - 3 acres in the Town Center of
Harrisonburg, Virginia - after terminating leases with Regal Cinemas upon tenant default.
• Core operating property portfolio occupancy at 95.4% as of
2020 compared to 93.6% as of
2020 occupancy includes office at 96.7%, retail at 94.2%, and multifamily
at 95.9%.
• Collected 96% of portfolio rents for the third quarter, including 100% of
office tenant rents, 98% of multifamily tenant rents, and 93% of retail
tenant rents.
• Collected 96% of October portfolio rents, including 100% of office tenant
rents, 97% of multifamily tenant rents, and 94% of retail tenant rents.
• Announced a new development project, Solis Gainesville, a $52 million
223-unit multifamily project in downtown Gainesville, Georgia .
• Ended the third quarter with
backlog.
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•
Summerville, South Carolina in an off-market transaction.
• Acquired partner's 20% ownership interest of the
Roswell, Georgia resulting in 100% ownership of the partnership.
• Raised
underwritten public offering of 3,600,000 shares of 6.75% Series A
Cumulative Redeemable Perpetual Preferred Stock at a public offering price
of $24.75 per share.
• Completed the acquisition of the
Virginia in an off-market, OP Unit transaction.
• Completed the off-market acquisition of
Junction, a 416-unit, Class A, LEED Gold certified mid-rise apartment
community in
Segment Results of Operations
As ofSeptember 30, 2020 , we operated our business in four segments: (i) office real estate, (ii) retail real estate, (iii) multifamily residential real estate, and (iv) general contracting and real estate services, which are conducted through our taxable REIT subsidiaries ("TRS"). Net operating income (segment revenues minus segment expenses) ("NOI") is the measure used by management to assess segment performance and allocate our resources among our segments. NOI is not a measure of operating income or cash flows from operating activities as measured by accounting principles generally accepted inthe United States ("GAAP") and is not indicative of cash available to fund cash needs. As a result, NOI should not be considered an alternative to cash flows as a measure of liquidity. Not all companies calculate NOI in the same manner. We consider NOI to be an appropriate supplemental measure to net income because it assists both investors and management in understanding the core operations of our real estate and construction businesses. See Note 3 to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of NOI to net income. We define same store properties as those properties that we owned and operated and that were stabilized for the entirety of both periods presented. We generally consider a property to be stabilized upon the earlier of: (i) the quarter after the property reaches 80% occupancy or (ii) the thirteenth quarter after the property receives its certificate of occupancy. Additionally, any property that is fully or partially taken out of service for the purpose of redevelopment is no longer considered stabilized until the redevelopment activities are complete, the asset is placed back into service, and the occupancy criterion above is again met. A property may also be fully or partially taken out of service as a result of a partial disposition, depending on the significance of the portion of the property disposed. Finally, any property classified as held for sale is taken out of service for the purpose of computing same store operating results.
Office Segment Data
Office rental revenues, property expenses, and NOI for the three and nine months
ended
Three Months Ended September 30 ,
Nine Months Ended
2020 2019 Change 2020 2019 Change
Rental revenues $ 11,456 $ 10,283 $ 1,173 $ 32,142 $ 23,221 $ 8,921
Property expenses 4,417 3,894 523 11,628 8,412 3,216
Segment NOI $ 7,039 $ 6,389 $ 650 $ 20,514 $ 14,809 $ 5,705
Office segment NOI for the three and nine months ended September 30, 2020
increased 10.2% and 38.5%, respectively, compared to the corresponding periods
in 2019. The increase for the three months ended September 30, 2020 relates
primarily to the commencement of operations at a portion of Wills Wharf in June
2020 . In addition, the acquisition of One City Center in March 2019 , the
commencement of operations at Brooks Crossing Office in April 2019 , and the
acquisition of Thames Street Wharf in June 2019 contributed to the increase for
the nine months ended September 30, 2020 .
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Table of Contents Office Same Store Results Office same store results for the three and nine months endedSeptember 30, 2020 and 2019 excludeWills Wharf (placed in service inJune 2020 ). In addition, office same store results for the nine months endedSeptember 30, 2020 and 2019 exclude Brooks Crossing Office,Thames Street Wharf , andOne City Center (acquired inMarch 2019 ).
Office same store rental revenues, property expenses, and NOI for the three and
nine months ended
Three Months Ended September 30 , Nine
Months Ended
2020 2019 Change 2020 2019 Change
Rental
revenues $ 10,232 $ 10,283 $ (51 ) $ 15,812 $ 16,148 $ (336 )
Property
expenses 3,648 3,739 (91 ) 5,810 5,798 12
Same Store
NOI $ 6,584 $ 6,544 $ 40 $ 10,002 $ 10,350 $ (348 )
Non-Same
Store NOI 455 (155 ) 610 10,512 4,459 6,053
Segment NOI $ 7,039 $ 6,389 $ 650 $ 20,514 $ 14,809 $ 5,705
Office same store NOI for the three months ended September 30, 2020 increased
0.6% compared to the three months ended September 30, 2019 . The increase relates
primarily to increased occupancy across the same store portfolio. Office same
store NOI for the nine months ended September 30, 2020 decreased 3.4% compared
to the nine months ended September 30, 2019 . The decrease relates primarily to
the relocation of the Company's construction division to space within Armada
Hoffler Tower which became vacant after a tenant chose to downsize. The
Company's construction division previously occupied space at an adjacent
property that is classified as retail for segment reporting purposes. Rental
revenue from the Company's construction division is eliminated for consolidation
purposes. This decrease was partially offset by increased occupancy across the
rest of the same store portfolio.
Retail Segment Data
Retail rental revenues, property expenses, and NOI for the three and nine months
ended
Three Months Ended September 30 ,
Nine Months Ended
2020 2019 Change 2020 2019 Change
Rental revenues $ 15,669 $ 20,780 $ (5,111 ) $ 54,794 $ 57,272 $ (2,478 )
Property expenses 4,426 5,315 (889 ) 14,077 14,479 (402 )
Segment NOI $ 11,243 $ 15,465 $ (4,222 ) $ 40,717 $ 42,793 $ (2,076 )
Retail segment NOI for the three and nine months ended September 30, 2020
decreased 27.3% and 4.9%, respectively, compared to the corresponding periods in
2019. The decreases relate primarily to the disposition of the seven-property
retail portfolio in May 2020 and our decision to terminate the leases for Regal
Cinemas in Columbus Village II (part of the Town Center of Virginia Beach ) and
Harrisonburg . The Company has written off the accounts receivable for this
tenant as an adjustment to rental revenue totaling $1.1 million . The Company is
evaluating potential uses for the existing buildings as well as potential
redevelopment concepts at each location and will assess the recoverability of
its investment in each of the buildings as part of this evaluation. In addition
to the amounts recorded for Regal Cinemas, the Company recognized a $0.4 million
and $1.3 million increase in the allowance for bad debt (recorded as an
adjustment to rental revenues) as a result of the COVID-19 pandemic for the
three and nine months ended September 30, 2020 , respectively, compared to the
corresponding periods in 2019. The decrease for the nine months ended
September 30, 2020 was partially offset by the commencement of operations at
Market at Mill Creek in April 2019 and the acquisition of Red Mill Commons and
marketplace at Hilltop in May 2019 .
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Table of Contents Retail Same Store Results Retail same store results for the three and nine months endedSeptember 30, 2020 and 2019 excludeApex Entertainment (formerly Dick's at Town Center) due to redevelopment, Brooks Crossing Retail, Premier Retail,Columbus Village (due to redevelopment),Lightfoot Marketplace (disposed inAugust 2019 ),Nexton Square (acquired inSeptember 2020 ), and the seven-property retail portfolio that was disposed inMay 2020 (Alexander Pointe , Bermuda Crossroads,Gainsborough Square ,Harper Hill Commons ,Indian Lakes Crossing ,Renaissance Square , andStone House Square ). In addition, retail same store results for the nine months endedSeptember 30, 2020 and 2019 exclude Market atMill Creek , Marketplace at Hilltop andRed Mill Commons (acquired inMay 2019 ),Waynesboro Commons (disposed inApril 2019 ), and the additional outparcel phase ofWendover Village .
Retail same store rental revenues, property expenses, and NOI for the three and
nine months ended
Three Months Ended September 30 , Nine
Months Ended
2020 2019 Change 2020 2019 Change
Rental
revenues $ 14,530 $ 16,686 $ (2,156 ) $ 36,656 $ 39,019 $ (2,363 )
Property
expenses 3,930 4,057 (127 ) 9,231 9,450 (219 )
Same Store
NOI $ 10,600 $ 12,629 $ (2,029 ) $ 27,425 $ 29,569 $ (2,144 )
Non-Same
Store NOI 643 2,836 (2,193 ) 13,292 13,224 68
Segment NOI $ 11,243 $ 15,465 $ (4,222 ) $ 40,717 $ 42,793 $ (2,076 )
Retail same store NOI for the three and nine months ended September 30, 2020
decreased 16.1% and 7.3%, respectively, compared to the corresponding periods in
2019. The decreases were primarily the result of our decision to terminate the
leases for Regal Cinemas in Columbus Village II (part of the Town Center of
Virginia Beach ) and Harrisonburg . In addition to the amounts recorded for Regal
Cinemas, the Company recognized a $0.4 million and $1.2 million increase in the
allowance for bad debt (recorded as an adjustment to rental revenues) as a
result of the COVID-19 pandemic for the three and nine months ended September
30, 2020 , respectively, compared to the corresponding periods in 2019.
Multifamily Segment Data
Multifamily rental revenues, property expenses, and NOI for the three and nine
months ended
Three Months Ended September 30 ,
Nine Months Ended
2020 2019 Change 2020 2019 Change
Rental revenues $ 12,511 $ 11,157 $ 1,354 $ 34,904 $ 29,014 $ 5,890
Property expenses 6,140 4,844 1,296 15,528 12,381 3,147
Segment NOI $ 6,371 $ 6,313 $ 58 $ 19,376 $ 16,633 $ 2,743
Multifamily segment NOI for the three and nine months ended September 30, 2020
increased 0.9% and 16.5%, respectively, compared to the corresponding periods in
2019. The increases were primarily a result of higher occupancy at Greenside
Apartments , which was in lease-up during 2019, higher occupancy at the
Cosmopolitan, the commencement of operations at Summit Place in August 2020 , and
the commencement of operations at Hoffler Place in August 2019 . In addition, the
acquisition of 1405 Point in April 2019 contributed to the increase for the nine
months ended September 30, 2020 .
Multifamily Same Store Results
Multifamily same store results for the three and nine months endedSeptember 30, 2020 and 2019 excludeHoffler Place ,Summit Place , and The Cosmopolitan (due to redevelopment). In addition, multifamily same store results for the nine months endedSeptember 30, 2020 and 2019 excludeGreenside Apartments , 1405 Point, andPremier Apartments . 37
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Multifamily same store rental revenues, property expenses and NOI for the three
and nine months ended
Three Months Ended September 30 , Nine
Months Ended
2020 2019 Change 2020 2019 Change
Rental
revenues $ 9,152 $ 8,836 $ 316 $ 16,157 $ 16,299 $ (142 )
Property
expenses 4,075 3,627 448 6,666 6,412 254
Same Store
NOI $ 5,077 $ 5,209 $ (132 ) $ 9,491 $ 9,887 $ (396 )
Non-Same
Store NOI 1,294 1,104 190 9,885 6,746 3,139
Segment NOI $ 6,371 $ 6,313 $ 58 $ 19,376 $ 16,633 $ 2,743
Multifamily same store NOI for the three and nine months ended September 30,
2020 decreased 2.5% and 4.0%, respectively, compared to the corresponding
periods in 2019. The decreases were primarily the result of decreased occupancy
at Johns Hopkins Village and increased real estate taxes at Johns Hopkins
Village and Greenside Apartments .
General contracting and real estate services revenues, expenses, and gross
profit for the three and nine months ended
Three Months Ended September 30 ,
Nine Months Ended
2020 2019 Change 2020 2019 Change
Segment
revenues $ 58,617 $ 27,638 $ 30,979 $ 163,283 $ 66,118 $ 97,165
Segment
expenses 56,509 26,446 30,063 157,401 62,855 94,546
Segment
gross profit $ 2,108 $ 1,192 $ 916 $ 5,882 $ 3,263 $ 2,619
Operating
margin 3.6 % 4.3 % (0.7 )% 3.6 % 4.9 % (1.3 )%
General contracting and real estate services segment profit for the three and
nine months ended September 30, 2020 increased 76.8% and 80.3%, respectively,
compared to the corresponding periods in 2019. The increases were primarily
attributable to the high backlog at December 31, 2019 resulting in increased
activity during the nine months of 2020.
The changes in third party construction backlog for the three and nine months
ended
Three Months Ended September 30 ,
Nine Months Ended
2020 2019 2020 2019
Beginning backlog $ 193,742 $ 178,632 $ 242,622 $ 165,863
New contracts/change orders (12,461 ) 22,054 43,469 73,250
Work performed (58,590 ) (27,594 ) (163,400 ) (66,021 )
Ending backlog $ 122,691 $ 173,092 $ 122,691 $ 173,092 As of
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