UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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) |
(IRS Employer Identification No.) |
|
|
222 Central Park Avenue, Suite 2100 |
|
Virginia Beach, Virginia |
23462 |
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code (757) 366-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
|
Name Of Each Exchange On Which Registered |
Common Stock, $0.01 par value per share |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ☒
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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
◻ |
Accelerated filer |
☒ |
Non-accelerated filer |
◻ (Do not check if a smaller reporting company) |
Smaller reporting company |
◻ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻ No ☒
As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $253.6 million, based on the closing sales price of $9.99 per share as reported on the New York Stock Exchange. (For purposes of this calculation all of the registrant’s directors and executive officers are deemed affiliates of the registrant.)
As of February 29, 2016, the registrant had 30,076,359 shares of common stock outstanding.
Documents Incorporated by Reference
Portions of the registrant’s Definitive Proxy Statement relating to its 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. The registrant expects to file its Definitive Proxy Statement with the Securities and Exchange Commission within 120 days after December 31, 2015.
Armada Hoffler Properties, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2015
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. 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 management’s 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:
· |
adverse economic or real estate developments, either nationally or in the markets in which our properties are located; |
· |
our failure to develop the properties in our development pipeline successfully, on the anticipated timeline or at the anticipated costs; |
· |
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; |
· |
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; |
· |
financial market fluctuations; |
· |
risks that affect the general retail environment or the market for office properties or multifamily units; |
ii
· |
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; and |
· |
changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates and taxation of REITs. |
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Annual Report on Form 10-K, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the risk factors described in Item 1A herein and in other documents that we file from time to time with the Securities and Exchange Commission (the “SEC”).
iii
Our Company
References to “we,” “our,” “us” and “our company” refer to Armada Hoffler Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Armada Hoffler, L.P., a Virginia limited partnership (the “Operating Partnership”), of which we are the sole general partner.
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 throughout the Mid-Atlantic United States. In addition to the ownership of our operating property portfolio, we develop and build properties for our own account and through joint ventures between us and unaffiliated partners. We also provide general contracting services to third parties. Our construction and development experience includes mid- and high-rise office buildings, retail strip malls and retail power centers, multifamily apartment communities, hotels and conference centers, single- and multi-tenant industrial, distribution and manufacturing facilities, educational, medical and special purpose facilities, government projects, parking garages and mixed-use town centers. Our third-party construction contracts have included signature properties across the Mid-Atlantic region, such as the Inner Harbor East development in Baltimore, Maryland, including the Four Seasons Hotel and Legg Mason office tower, the Mandarin Oriental Hotel in Washington, D.C., and a $50 million proton therapy institute for Hampton University in Hampton, Virginia. Our construction company historically has been ranked among the “Top 400 General Contractors” nationwide by Engineering News Record and has been ranked among the “Top 50 Retail Contractors” by Shopping Center World.
We were formed on October 12, 2012 under the laws of the State of Maryland and are headquartered in Virginia Beach, Virginia. We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2013. Substantially all of our assets are held by, and all of our operations are conducted through, our Operating Partnership. As of December 31, 2015, we owned, through a combination of direct and indirect interests, 65.6% of the units of limited partnership interest in our Operating Partnership (“OP Units”).
2015 Highlights
The following highlights our results of operations and significant transactions for the year ended December 31, 2015:
· |
Net income of $31.2 million, or $0.75 per diluted share, compared to $12.8 million, or $0.36 per diluted share, for the year ended December 31, 2014. |
· |
Funds from operations (“FFO”) of $35.9 million, or $0.87 per diluted share, compared to $28.1 million, or $0.80 per diluted share, for the year ended December 31, 2014. |
· |
Normalized FFO of $38.7 million, or $0.93 per diluted share, compared to $28.6 million, or $0.82 per diluted share, for the year ended December 31, 2014. |
· |
Property segment net operating income (“NOI”) of $54.2 million compared to $42.3 million for the year ended December 31, 2014: |
· |
Office NOI of $21.6 million compared to $19.1 million |
· |
Retail NOI of $23.2 million compared to $16.8 million |
· |
Multifamily NOI of $9.3 million compared to $6.4 million |
· |
Same store NOI of $40.2 million compared to $39.0 million for the year ended December 31, 2014: |
· |
Office same store NOI of $16.5 million compared to $16.5 million |
1
· |
Retail same store NOI of $16.8 million compared to $16.0 million |
· |
Multifamily same store NOI of $6.9 million compared to $6.5 million |
· |
Core stabilized portfolio occupancy by segment as of December 31, 2015 compared to December 31, 2014: |
· |
Office occupancy at 95.8% compared to 95.2% |
· |
Retail occupancy at 95.5% compared to 96.4% |
· |
Multifamily occupancy at 94.2% compared to 95.7% |
· |
Delivered four new development projects in Hampton Roads, Virginia – two office buildings for the Commonwealth of Virginia, the Oceaneering International build-to-suit building and Sandbridge Commons shopping center. |
· |
Completed the dispositions of: |
· |
the Sentara Williamsburg medical office building for $15.4 million at a gain of $6.2 million |
· |
Whetstone Apartments for $35.6 million at a gain of $7.2 million |
· |
the Oceaneering International building for $30.0 million at a gain of $5.0 million |
· |
Agreed to sell the Richmond Tower office building for $78.0 million, which closed on January 8, 2016. |
· |
Completed the acquisitions of: |
· |
Perry Hall Marketplace in Perry Hall, Maryland and Stone House Square in Hagerstown, Maryland for total consideration of $39.8 million |
· |
Socastee Commons in Myrtle Beach, South Carolina for total consideration of $8.7 million |
· |
Columbus Village in Virginia Beach, Virginia for total consideration of $19.2 million |
· |
Providence Plaza in Charlotte, North Carolina for $26.2 million of cash |
· |
Agreed to acquire a $170.5 million retail portfolio totaling 1.1 million square feet across 11 properties, which closed on January 14, 2016. |
· |
Agreed to invest up to $23.0 million in the new Point Street Apartments project in the Harbor Point area of Baltimore, Maryland with options to acquire a controlling interest upon the project’s completion. |
· |
General contracting and real estate services segment gross profit of $5.9 million compared to $4.6 million for the year ended December 31, 2014. |
· |
Executed $95.4 million of new third-party construction contract work. |
· |
Third-party construction backlog of $83.4 million as of December 31, 2015. |
· |
Closed on a new $200.0 million senior unsecured credit facility, comprised of a $150.0 million revolving credit facility and a $50.0 million term loan. |
· |
Raised $35.1 million of net proceeds through an underwritten public offering of common stock at $10.70 per share on December 9, 2015. |
2
· |
Raised $10.9 million of net proceeds at a weighted average price of $10.26 per share under our at-the-market continuous equity offering program. |
· |
Cash from operating activities of $33.1 million, or $0.80 per diluted share, compared to $31.4 million, or $0.89 per diluted share, for the year ended December 31, 2014. |
· |
Declared cash dividends of $0.68 per share compared to $0.64 per share for the year ended December 31, 2014. |
For definitions and discussion of FFO, NOI and same store NOI, see the sections below entitled “Item 6. Selected Financial Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our Competitive Strengths
We believe that we distinguish ourselves from other REITs through the following competitive strengths:
· |
High-Quality, Diversified Portfolio. Our portfolio consists of institutional-grade, premier office, retail and multifamily properties located primarily in Virginia, Maryland, North Carolina and South Carolina. Our properties are generally in the top tier of commercial properties in their markets and offer Class-A amenities and finishes. |
· |
Seasoned, Committed and Aligned Senior Management Team with a Proven Track Record. Our senior management team has extensive experience developing, constructing, owning, operating, renovating and financing institutional-grade office, retail, multifamily and hotel properties in the Mid-Atlantic region. As of December 31, 2015, our executive officers and directors collectively owned approximately 21% of our company on a fully diluted basis, which we believe aligns their interests with those of our stockholders. |
· |
Strategic Focus on Attractive Mid-Atlantic and Southeastern Markets. We focus our activities in our target markets in the Mid-Atlantic and Southeastern regions of the United States that demonstrate attractive fundamentals driven by favorable supply and demand characteristics and limited competition from other large, well-capitalized operators. We believe that our longstanding presence in our target markets provides us with significant advantages in sourcing and executing development opportunities, identifying and mitigating potential risks and negotiating attractive pricing. |
· |
Extensive Experience with Construction and Development. Our platform consists of development, construction and asset management capabilities, which comprise an integrated delivery system for every project that we build for our own account or for third-party clients. This integrated approach provides a single source of accountability for design and construction, simplifies coordination and communication among the relevant stakeholders in each project and provides us valuable insight from an operational perspective. We believe that being regularly engaged in construction and development projects provides us significant and distinct advantages, including enhanced market intelligence, greater insight into best practices, enhanced operating leverage and “first look” access to development and ownership opportunities in our target markets. |
· |
Longstanding Public and Private Relationships. We have extensive experience with public/private real estate development projects dating back to 1984, having worked with the Commonwealth of Virginia, the State of Georgia and the Kingdom of Sweden, as well as various municipalities. Through our experience and longstanding relationships with governmental entities such as these, we have learned to successfully navigate the often complex and time-consuming government approval process, which has given us the ability to capture opportunities that we believe many of our competitors are unable to pursue. |
Our Business and Growth Strategies
Our primary business objectives are to: (i) continue to develop, build and own institutional-grade office, retail and multifamily properties in our target markets, (ii) finance and operate our portfolio in a manner that increases cash flow and property values, (iii) execute new third-party construction work with consistent operating margins and (iv) pursue
3
selective acquisition opportunities, particularly when the acquisition involves a significant redevelopment aspect. We will seek to achieve our objectives through the following strategies:
· |
Pursue a Disciplined, Opportunistic Development and Acquisition Strategy Focused on Office, Retail and Multifamily Properties. We intend to grow our asset base through continued strategic development of office, retail and multifamily properties, and the selective acquisition of high-quality properties that are well-located in their submarkets. Furthermore, we believe our construction and development expertise provides a high level of quality control while ensuring that the projects we construct and develop are completed more quickly and at a lower cost than if we engaged a third-party general contractor. |
· |
Pursue New, and Expand Existing, Public/Private Relationships. We intend to leverage our extensive experience in completing large, complex, mixed-use, public/private projects to establish relationships with new public partners while expanding our relationships with existing public partners. |
· |
Leverage our Construction and Development Platform to Attract Additional Third-Party Clients. We believe that we have a unique advantage over many of our competitors due to our integrated construction and development business that provides expertise, oversight and a broad array of client-focused services. We intend to continue to conduct and grow our construction business and other third-party services by pursuing new clients and expanding our relationships with existing clients. |
· |
Engage in Disciplined Capital Recycling. We intend to opportunistically divest properties when we believe returns have been maximized and to redeploy the capital into new development, acquisition, repositioning or redevelopment projects that are expected to generate higher potential risk-adjusted returns. |
4
Our Properties
As of December 31, 2015, our operating property portfolio comprised the following:
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Net Rentable |
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ABR per |
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Property |
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Location |
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Year Built |
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Square Feet(1) |
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Occupancy(2) |
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ABR(3) |
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Leased SF(3) |
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||
Office Properties |
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4525 Main Street |
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Virginia Beach, VA |
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2014 |
|
237,893 |
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57.8 |
% |
$ |
3,833,278 |
|
$ |
27.90 |
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Armada Hoffler Tower(4) |
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Virginia Beach, VA |
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2002 |
|
323,970 |
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97.6 |
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8,742,774 |
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|
27.65 |
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Commonwealth of Virginia – Chesapeake |
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Chesapeake, VA |
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2015 |
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36,227 |
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100.0 |
|
|
645,927 |
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|
17.83 |
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Commonwealth of Virginia – Virginia Beach |
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Virginia Beach, VA |
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2015 |
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11,139 |
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100.0 |
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245,058 |
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22.00 |
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One Columbus |
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Virginia Beach, VA |
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1984 |
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129,424 |
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93.2 |
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2,898,551 |
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24.04 |
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Oyster Point |
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Newport News, VA |
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1989 |
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100,139 |
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83.8 |
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1,734,946 |
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20.67 |
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Richmond Tower(5) |
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Richmond, VA |
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2010 |
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206,969 |
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98.6 |
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7,885,208 |
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38.64 |
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Two Columbus |
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Virginia Beach, VA |
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2009 |
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108,448 |
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97.5 |
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2,830,859 |
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26.77 |
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Total / Weighted Average |
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1,154,209 |
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88.0 |
% |
$ |
28,816,601 |
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$ |
28.38 |
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Retail Properties |
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249 Central Park Retail(6) |
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Virginia Beach, VA |
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2004 |
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91,366 |
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89.7 |
% |
$ |
2,291,649 |
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$ |
27.98 |
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Bermuda Crossroads |
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Chester, VA |
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2001 |
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111,566 |
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91.3 |
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1,450,214 |
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14.23 |
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Broad Creek Shopping Center |
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Norfolk, VA |
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1997-2001 |
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227,659 |
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98.8 |
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3,169,973 |
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14.09 |
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Columbus Village |
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Virginia Beach, VA |
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1985 |
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66,594 |
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93.5 |
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1,200,454 |
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19.27 |
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Commerce Street Retail(7) |
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Virginia Beach, VA |
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2008 |
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19,173 |
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100.0 |
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788,234 |
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41.11 |
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Courthouse 7-Eleven |
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Virginia Beach, VA |
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2011 |
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3,177 |
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100.0 |
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125,015 |
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39.35 |
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Dick’s at Town Center |
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Virginia Beach, VA |
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2002 |
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103,335 |
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100.0 |
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1,221,866 |
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11.82 |
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Dimmock Square |
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Colonial Heights, VA |
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1998 |
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106,166 |
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97.2 |
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1,723,682 |
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16.71 |
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Fountain Plaza Retail |
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Virginia Beach, VA |
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2004 |
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35,961 |
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100.0 |
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1,031,983 |
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28.70 |
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Gainsborough Square |
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Chesapeake, VA |
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1999 |
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88,862 |
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87.8 |
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1,183,308 |
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15.16 |
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Greentree Shopping Center |
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Chesapeake, VA |
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2014 |
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15,751 |
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85.7 |
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283,246 |
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20.97 |
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Hanbury Village |
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Chesapeake, VA |
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2009 |
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61,049 |
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92.8 |
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1,347,642 |
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23.78 |
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Harrisonburg Regal |
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Harrisonburg, VA |
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1999 |
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49,000 |
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100.0 |
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683,550 |
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13.95 |
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North Point Center |
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Durham, NC |
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1998 |
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215,690 |
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95.9 |
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2,526,028 |
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12.21 |
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Parkway Marketplace |
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Virginia Beach, VA |
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1998 |
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37,804 |
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100.0 |
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751,484 |
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19.88 |
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Perry Hall Marketplace |
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Perry Hall, MD |
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2001 |
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74,256 |
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98.0 |
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1,166,761 |
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16.04 |
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Providence Plaza |
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Charlotte, NC |
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2008 |
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103,118 |
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97.4 |
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2,491,308 |
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24.79 |
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Sandbridge Commons |
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Virginia Beach, VA |
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2015 |
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16,156 |
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79.3 |
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259,150 |
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20.24 |
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Socastee Commons |
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Myrtle Beach, SC |
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2000 |
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57,573 |
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100.0 |
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661,896 |
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11.50 |
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South Retail |
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Virginia Beach, VA |
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2002 |
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38,515 |
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100.0 |
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936,020 |
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24.30 |
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Stone House Square |
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Hagerstown, MD |
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2008 |
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108,693 |
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90.4 |
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1,560,983 |
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15.89 |
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Studio 56 Retail |
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Virginia Beach, VA |
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2007 |
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11,594 |
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100.0 |
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373,360 |
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32.20 |
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Total / Weighted Average |
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1,643,058 |
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95.5 |
% |
$ |
27,227,808 |
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$ |
17.35 |
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Retail Properties Subject to Ground Lease |
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Bermuda Crossroads(8) |
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Chester, VA |
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2001 |
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11,000 |
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100.0 |
% |
$ |
163,350 |
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$ |
14.85 |
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Broad Creek Shopping Center(9) |
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Norfolk, VA |
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1997-2001 |
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24,818 |
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100.0 |
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597,564 |
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24.08 |
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Greentree Shopping Center |
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Chesapeake, VA |
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2014 |
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5,088 |
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100.0 |
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230,004 |
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45.21 |
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Hanbury Village(8) |
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Chesapeake, VA |
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2009 |
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55,586 |
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100.0 |
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1,067,598 |
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19.21 |
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North Point Center(8) |
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Durham, NC |
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1998 |
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280,556 |
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100.0 |
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1,083,666 |
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3.86 |
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Sandbridge Commons |
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Virginia Beach, VA |
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2015 |
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53,288 |
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100.0 |
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583,000 |
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10.94 |
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Stone House Square |
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Hagerstown, MD |
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2008 |
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3,650 |
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100.0 |
|
|
165,000 |
|
|
45.21 |
|
Tyre Neck Harris Teeter(9) |
|
Portsmouth, VA |
|
2011 |
|
48,859 |
|
100.0 |
|
|
508,134 |
|
|
10.40 |
|
Total / Weighted Average |
|
|
|
|
|
482,845 |
|
100.0 |
% |
$ |
4,398,316 |
|
$ |
9.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABR per |
|
|
|
|
|
|
|
|
Units |
|
Occupancy(2) |
|
ABR(10) |
|
Occupied SF(11) |
|
||
Multifamily Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Encore Apartments |
|
Virginia Beach, VA |
|
2014 |
|
286 |
|
87.4 |
% |
$ |
3,707,184 |
|
$ |
1.74 |
|
Liberty Apartments(12) |
|
Newport News, VA |
|
2013 |
|
197 |
|
94.2 |
|
|
2,131,824 |
|
|
1.32 |
|
Smith’s Landing(13) |
|
Blacksburg, VA |
|
2009 |
|
284 |
|
98.6 |
|
|
3,539,076 |
|
|
1.11 |
|
The Cosmopolitan(12) |
|
Virginia Beach, VA |
|
2006 |
|
342 |
|
96.2 |
|
|
6,230,016 |
|
|
1.64 |
|
Total / Weighted Average |
|
|
|
|
|
1,109 |
|
94.2 |
% |
$ |
15,608,100 |
|
$ |
1.45 |
|
5
(1) |
The net rentable square footage for each of our office properties is the sum of (a) the square footage of existing leases, plus (b) for available space, management’s estimate of net rentable square footage based, in part, on past leases. The net rentable square footage included in office leases is generally consistent with the Building Owners and Managers Association, or BOMA, 1996 measurement guidelines. The net rentable square footage for each of our retail properties is the sum of (a) the square footage of existing leases, plus (b) for available space, the field verified square footage. |
(2) |
Occupancy for each of our office and retail properties is calculated as (a) square footage under executed leases as of December 31, 2015 divided by (b) net rentable square feet, expressed as a percentage. Occupancy for our multifamily properties is calculated as (a) total units occupied as of December 31, 2015 divided by (b) total units available, expressed as a percentage. |
(3) |
For the properties in our office and retail portfolios, annualized base rent, or ABR, is calculated by multiplying (a) base rental payments for executed leases as of December 31, 2015 (defined as cash base rents (before abatements) excluding tenant reimbursements for expenses paid by the landlord) by (b) 12. ABR per leased square foot is calculated by dividing (a) ABR by (b) square footage under executed leases as of December 31, 2015. In the case of triple net or modified gross leases, ABR does not include tenant reimbursements for real estate taxes, insurance, common area or other operating expenses. |
(4) |
As of December 31, 2015, the Company occupied 18,984 square feet at this property at an ABR of $559,294, or $29.46 per leased square foot, which amounts are reflected in the occupancy, ABR and ABR per leased square foot columns in the table. The rent paid by us is eliminated from our revenues in consolidation in accordance with GAAP. In addition, effective March 1, 2013, the Company subleases approximately 5,000 square feet of space from a tenant at this property. |
(5) |
Sold on January 8, 2016. |
(6) |
As of December 31, 2015, the Company occupied 8,995 square feet at this property at an ABR of $295,900, or $32.90 per leased square foot, which amounts are reflected in the occupancy, ABR and ABR per leased square foot columns in the table. The rent paid by us is eliminated from our revenues in consolidation in accordance with GAAP. |
(7) |
Includes $32,760 of ABR pursuant to a rooftop lease. |
(8) |
The Company owns the land and the tenant owns the improvements thereto. The Company will succeed to the ownership of the improvements to the land upon the termination of the ground lease. |
(9) |
The Company leases the land underlying this property from the owner of the land pursuant to a ground lease. The Company re-leases the land to our tenant under a separate ground lease pursuant to which our tenant owns the improvements on the land. |
(10) |
For the properties in our multifamily portfolio, ABR is calculated by multiplying (a) base rental payments for the month ended December 31, 2015 by (b) 12. |
(11) |
ABR per occupied rentable square foot is calculated by dividing (a) ABR by (b) net rentable square footage of occupied units as of December 31, 2015. |
(12) |
ABR for Liberty Apartments and The Cosmopolitan excludes $206,000 and $912,000 of ABR from ground floor retail leases, respectively. |
(13) |
The Company leases the land underlying this property from the owner of the land pursuant to a ground lease. |
6
The following tables summarize the scheduled expirations of leases in our office and retail operating property portfolios as of December 31, 2015. The information in the following tables does not assume the exercise of any renewal options.
Office Lease Expirations
|
|
|
|
Square |
|
|
|
|
|
|
% of Office |
|
|
|
|
|
|
Number of |
|
Footage of |
|
% Portfolio |
|
|
|
|
Portfolio |
|
Annualized Base |
|
|
|
|
Leases |
|
Leases |
|
Net Rentable |
|
Annualized |
|
Annualized |
|
Rent per Leased |
|
||
Year of Lease Expiration |
|
Expiring |
|
Expiring |
|
Square Feet |
|
Base Rent |
|
Base Rent |
|
Square Foot |
|
||
Available |
|
— |
|
138,936 |
|
12.0 |
% |
$ |
— |
|
— |
% |
$ |
— |
|
2016 |
|
15 |
|
20,204 |
|
1.8 |
|
|
542,980 |
|
1.9 |
|
|
26.87 |
|
2017 |
|
8 |
|
70,966 |
|
6.1 |
|
|
1,715,975 |
|
6.0 |
|
|
24.18 |
|
2018 |
|
20 |
|
160,652 |
|
13.9 |
|
|
4,492,140 |
|
15.6 |
|
|
27.96 |
|
2019 |
|
16 |
|
103,761 |
|
9.0 |
|
|
2,484,581 |
|
8.6 |
|
|
23.95 |
|
2020 |
|
4 |
|
52,028 |
|
4.5 |
|
|
1,337,775 |
|
4.6 |
|
|
25.71 |
|
2021 |
|
6 |
|
52,009 |
|
4.5 |
|
|
1,257,492 |
|
4.4 |
|
|
24.18 |
|
2022 |
|
3 |
|
48,117 |
|
4.2 |
|
|
1,326,903 |
|
4.6 |
|
|
27.58 |
|
2023 |
|
5 |
|
53,560 |
|
4.6 |
|
|
1,284,542 |
|
4.5 |
|
|
23.98 |
|
2024 |
|
3 |
|
60,751 |
|
5.3 |
|
|
1,659,613 |
|
5.8 |
|
|
27.32 |
|
2025 |
|
4 |
|
43,292 |
|
3.8 |
|
|
1,264,013 |
|
4.4 |
|
|
29.20 |
|
2026 |
|
3 |
|
16,822 |
|
1.5 |
|
|
399,883 |
|
1.4 |
|
|
23.77 |
|
Thereafter |
|
9 |
|
333,111 |
|
28.9 |
|
|
11,050,704 |
|
38.3 |
|
|
33.17 |
|
Total / Weighted Average |
|
96 |
|
1,154,209 |
|
100.0 |
% |
$ |
28,816,601 |
|
100.0 |
% |
$ |
28.38 |
|
Retail Lease Expirations
|
|
|
|
Square |
|
|
|
|
|
|
% of Retail |
|
|
|
|
|
|
Number of |
|
Footage of |
|
% Portfolio |
|
|
|
|
Portfolio |
|
Annualized Base |
|
|
|
|
Leases |
|
Leases |
|
Net Rentable |
|
Annualized |
|
Annualized |
|
Rent per Leased |
|
||
Year of Lease Expiration |
|
Expiring |
|
Expiring |
|
Square Feet |
|
Base Rent |
|
Base Rent |
|
Square Foot |
|
||
Available |
|
— |
|
73,318 |
|
4.5 |
% |
$ |
— |
|
— |
% |
$ |
— |
|
2016 |
|
35 |
|
80,932 |
|
4.9 |
|
|
1,801,982 |
|
6.6 |
|
|
22.27 |
|
2017 |
|
27 |
|
136,361 |
|
8.3 |
|
|
2,010,077 |
|
7.4 |
|
|
14.74 |
|
2018 |
|
45 |
|
232,282 |
|
14.1 |
|
|
4,186,759 |
|
15.4 |
|
|
18.02 |
|
2019 |
|
32 |
|
352,718 |
|
21.5 |
|
|
5,311,612 |
|
19.5 |
|
|
15.06 |
|
2020 |
|
32 |
|
225,792 |
|
13.7 |
|
|
3,352,617 |
|
12.3 |
|
|
14.85 |
|
2021 |
|
13 |
|
145,268 |
|
8.8 |
|
|
2,329,277 |
|
8.6 |
|
|
16.03 |
|
2022 |
|
11 |
|
112,092 |
|
6.8 |
|
|
1,722,131 |
|
6.3 |
|
|
15.36 |
|
2023 |
|
8 |
|
70,386 |
|
4.3 |
|
|
1,798,522 |
|
6.6 |
|
|
25.55 |
|
2024 |
|
7 |
|
54,779 |
|
3.3 |
|
|
1,241,686 |
|
4.6 |
|
|
22.67 |
|
2025 |
|
11 |
|
48,178 |
|
2.9 |
|
|
1,363,419 |
|
5.0 |
|
|
28.30 |
|
2026 |
|
5 |
|
20,151 |
|
1.2 |
|
|
476,553 |
|
1.8 |
|
|
23.65 |
|
Thereafter |
|
6 |
|
90,801 |
|
5.5 |
|
|
1,633,172 |
|
6.0 |
|
|
17.99 |
|
Total / Weighted Average |
|
232 |
|
1,643,058 |
|
100.0 |
% |
$ |
27,227,808 |
|
100.0 |
% |
$ |
17.35 |
|
7
Tenant Diversification
The following tables list the 10 tenants in each of our office and retail operating property portfolios with the greatest annualized base rent as of December 31, 2015 ($ in thousands):
|
|
|
|
|
% of |
|
% of |
|
|
|
|
|
|
Office |
|
Total |
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
|
|
Annualized |
|
Annualized |
|
Annualized |
|
|
Office Tenant |
|
Base Rent |
|
Base Rent |
|
Base Rent |
|
|
Williams Mullen(1) |
|
$ |
8,857 |
|
30.7 |
% |
11.6 |
% |
Clark Nexsen |
|
|
2,438 |
|
8.5 |
|
3.2 |
|
Cherry Bekaert |
|
|
977 |
|
3.4 |
|
1.3 |
|
Hampton University |
|
|
973 |
|
3.4 |
|
1.3 |
|
Commonwealth of Virginia |
|
|
891 |
|
3.1 |
|
1.2 |
|
General Services Administration |
|
|
855 |
|
3.0 |
|
1.1 |
|
Pender & Coward |
|
|
819 |
|
2.8 |
|
1.1 |
|
Troutman Sanders |
|
|
806 |
|
2.8 |
|
1.1 |
|
The Art Institute |
|
|
803 |
|
2.8 |
|
1.1 |
|
Kimley-Horn |
|
|
703 |
|
2.4 |
|
0.9 |
|
Top 10 Total |
|
$ |
18,121 |
|
62.9 |
% |
23.8 |
% |
(1) |
Includes $7.4 million of annualized base rent from the Richmond Tower office building that we sold on January 8, 2016. |
|
|
|
|
|
% of |
|
% of |
|
|
|
|
|
|
Retail |
|
Total |
|
|
|
|
|
|
Portfolio |
|
Portfolio |
|
|
|
Annualized |
|
Annualized |
|
Annualized |
|
|
Retail Tenant |
|
Base Rent |
|
Base Rent |
|
Base Rent |
|
|
Home Depot |
|
$ |
2,190 |
|
6.9 |
% |
2.9 |
% |
Harris Teeter |
|
|
1,505 |
|
4.8 |
|
2.0 |
|
Food Lion |
|
|
1,283 |
|
4.1 |
|
1.7 |
|
Dick’s Sporting Goods |
|
|
840 |
|
2.7 |
|
1.1 |
|
Weis Markets |
|
|
802 |
|
2.5 |
|
1.1 |
|
Safeway |
|
|
798 |
|
2.5 |
|
1.0 |
|
Regal Cinemas |
|
|
684 |
|
2.2 |
|
0.9 |
|
PetSmart |
|
|
649 |
|
2.1 |
|
0.9 |
|
Kroger |
|
|
553 |
|
1.7 |
|
0.7 |
|
Yard House |
|
|
538 |
|
1.7 |
|
0.7 |
|
Top 10 Total |
|
$ |
9,842 |
|
31.1 |
% |
12.9 |
% |
8
Development Pipeline
In addition to the properties in our operating property portfolio as of December 31, 2015, we had the following properties in various stages of development and stabilization. We generally consider a property to be stabilized when it reaches 80% occupancy or three years after acquisition or completion.
Pending Delivery |
|
|
|
|
|
($ in '000s) |
|
Schedule(1) |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stabilized |
|
|
|
|
|
|
|
|
|
Estimated |
|
Estimated |
|
Incurred |
|
|
|
Initial |
|
Operation |
|
AHH |
|
|
|
||
Property |
|
Location |
|
Size(1) |
|
Cost(1) |
|
Cost |
|
Start |
|
Occupancy |
|
(2) |
|
Ownership % |
|
Property Type |
|
||
Johns Hopkins Village |
|
Baltimore, MD |
|
157 units |
|
$ |
68,000 |
|
$ |
30,000 |
|
1Q15 |
|
3Q16 |
|
3Q16 |
|
80 % (3) |
|
Multifamily |
|
Brooks Crossing |
|
Newport News, VA |
|
50,000 |
sf |
|
10,000 |
|
|
1,000 |
|
3Q15 |
|
3Q16 |
|
3Q17 |
|
65 % (3) |
|
Office/Retail |
|
Lightfoot Marketplace |
|
Williamsburg, VA |
|
109,000 |
sf(4) |
|
24,000 |
|
|
16,000 |
|
3Q14 |
|
3Q16 |
|
2Q17 |
|
60 % (3) |
|
Retail |
|
|
|
|
|
|
|
$ |
102,000 |
|
$ |
47,000 |
|
|
|
|
|
|
|
|
|
|
|
Delivered Not Stabilized |
|
|
|
|
|
($ in '000s) |
|
Schedule |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stabilized |
|
|
|
|
|
|
|
|
|
Estimated |
|
Estimated |
|
Incurred |
|
|
|
Initial |
|
Operation |
|
AHH |
|
|
|
||
Property |
|
Location |
|
Size(1) |
|
Cost(1) |
|
Cost |
|
Start |
|
Occupancy |
|
(1)(2) |
|
Ownership % |
|
Property Type |
|
||
4525 Main Street |
|
Virginia Beach, VA |
|
239,000 |
sf |
$ |
51,000 |
|
$ |
45,000 |
|
1Q13 |
|
3Q14 |
|
2Q17 |
|
100% |
|
Office |
|
Total |
|
|
|
|
|
$ |
153,000 |
|
$ |
92,000 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents estimates that may change as the development process proceeds. |
(2) |
Estimated first full quarter of stabilized operations. |
(3) |
We are entitled to a preferred return on our equity prior to any distributions to minority partners. |
(4) |
Includes space subject to ground lease. |
Our execution on all of the projects identified in the preceding table are subject to, among other factors, regulatory approvals, financing availability and suitable market conditions.
Johns Hopkins Village will include student housing, retail space and parking located adjacent to Johns Hopkins University’s Homewood campus in Baltimore, Maryland. This mixed-use development is designed to complement both the Homewood campus and nearby Charles Village neighborhood and provide a catalyst for future development in the area. CVS has agreed to lease 10,500 square feet of ground floor retail space. We have agreed to a 65-year ground lease for the site and commenced construction during the first quarter of 2015. Approximately 55% of the apartment units were pre-leased as of December 31, 2015.
Brooks Crossing is our public-private partnership with the City of Newport News, Virginia designed to revitalize the east end of the city. We are currently projecting 50,000 square feet of mixed-use space and are in negotiations with a Fortune 500 office tenant to anchor the project.
Lightfoot Marketplace will be a grocery-anchored shopping center in Williamsburg, Virginia. Harris Teeter has signed a 20-year ground lease for a new 53,000 square foot store. Lightfoot Marketplace will include an additional 34,000 square feet of shops and restaurants as well as a 22,000 square foot build-to-suit building for Children’s Hospital of the King’s Daughters.
4525 Main Street is our most recent addition to the Town Center of Virginia Beach and is located at the intersection of Main Street and Town Center Drive across from The Cosmopolitan, One Columbus and Armada Hoffler Tower. This 15-story office tower is anchored by Clark Nexsen, an international architecture and engineering firm, to whom we delivered approximately 85,000 square feet of office space in July 2014. Additionally, we delivered to the City of Virginia Beach Development Authority approximately 23,000 square feet of office space in June 2014. 4525 Main Street also features approximately 26,000 square feet of ground floor retail space anchored by Anthropologie, West Elm and Tupelo Honey Cafe.
Point Street Apartments
On October 15, 2015, we agreed to invest up to $23.0 million in the Point Street Apartments project in the Harbor Point area of Baltimore, Maryland. Point Street Apartments is an estimated $93.0 million development project with plans for a 17-story building comprised of 289 residential units and 18,000 square feet of street-level retail space. Beatty Development Group (“BDG”) is the developer of the project and has engaged us to serve as construction general contractor. Point Street Apartments is scheduled to open in 2017; however, we can provide no assurances that Point Street Apartments will open on the anticipated timeline or at the anticipated cost.
9
BDG is responsible for securing a senior construction loan of up to $70.0 million to fund the development and construction of Point Street Apartments. We have agreed to guarantee up to $25.0 million of the senior construction loan in exchange for the option to purchase up to an 88% controlling interest in Point Street Apartments upon completion of the project as follows: (i) an option to purchase a 79% indirect interest in Point Street Apartments for $27.3 million, exercisable within one year from the project’s completion (the “First Option”) and (ii) provided that we have exercised the First Option, an option to purchase an additional 9% indirect interest in Point Street Apartments for $3.1 million, exercisable within 27 months from the project’s completion (the “Second Option”).
Our investment in the Point Street Apartments project is in the form of a loan under which BDG may borrow up to $23.0 million (the “BDG loan”). Interest on the BDG loan accrues at 8.0% per annum and matures on the earlier of: (i) November 1, 2018, which may be extended by BDG under two one-year extension options, (ii) the maturity date or earlier termination of the senior construction loan or (iii) the date we exercise the Second Option as described further below.
In the event we exercise the First Option, BDG is required to simultaneously pay down the senior construction loan by $7.4 million and the BDG loan by $19.9 million, at which time the interest rate on the BDG loan will automatically be reduced to the interest rate on the senior construction loan plus 200 basis points. In the event we exercise the Second Option, BDG is required to simultaneously repay any remaining amounts outstanding under the BDG loan, with any excess proceeds received from the exercise of the Second Option applied against the senior construction loan. In the event we do not exercise either the First Option or the Second Option, the interest rate on the BDG loan will automatically be reduced to the interest rate on the senior construction loan for the remaining term of the BDG loan. In the event BDG is unable to secure a senior construction loan on or before June 30, 2016, the interest rate on the BDG loan will be reduced to one-month LIBOR plus 200 basis points.
As of December 31, 2015, we had funded $7.8 million under the BDG loan and for the year ended December 31, 2015, we had earned $0.1 million of interest income on the BDG loan.
One City Center
On February 25, 2016, we announced our joint venture with Austin Lawrence Partners to develop and construct One City Center in Durham, North Carolina. One City Center is a planned 27-story mixed-use project that is expected to include 130,000 square feet of office space, anchored by a 55,000 square foot lease with Duke University, along with 22,000 square feet of street-level retail space and 139 residential units. We are a minority partner in the joint venture and will serve as the project's general contractor. Our anticipated equity investment in the joint venture is approximately $8.6 million. The project is scheduled to be completed in mid-2018.
Acquisitions and Dispositions
On January 5, 2015, we sold the Sentara Williamsburg medical office building for $15.4 million in cash and used the net proceeds to partially fund our acquisition of Stone House Square. On April 8, 2015, we acquired Perry Hall Marketplace and Stone House Square, two grocery store anchored retail centers in Maryland, for $35.4 million of cash and 415,500 shares of common stock.
On February 13, 2015, we agreed to the future sale of the Oyster Point office property for $6.5 million in cash. We intend to complete the sale on January 15, 2017, subject to customary closing conditions.
On May 20, 2015, we sold Whetstone Apartments for $35.6 million and used the net proceeds to partially fund our acquisitions of Socastee Commons and Providence Plaza. On July 1, 2015, we acquired Socastee Commons, a 57,000 square foot grocery store anchored retail center in Myrtle Beach, South Carolina for $8.7 million, including the assumption of $5.0 million of debt. On September 1, 2015, we acquired Providence Plaza, a mixed-use 103,000 square foot property in Charlotte, North Carolina for $26.2 million of cash.
On July 10, 2015, we acquired Columbus Village, a 65,000 square foot retail center adjacent to the Town Center of Virginia Beach, Virginia in exchange for the assumption of $8.8 million of debt, the issuance of 1,000,000 Class B units of limited partnership interest in the Operating Partnership (“Class B Units”) and the agreement to issue 275,000 Class C units of limited partnership interest in the Operating Partnership (Class C Units) on January 10, 2017. See Note
10
5 and Note 10 to our consolidated and combined financial statements for additional information regarding the Class B Units and Class C Units.
On October 30, 2015, we sold the Oceaneering International build-to-suit building for $30.0 million and on January 8, 2016, we sold the Richmond Tower office building for $78.0 million. We used the net proceeds from the Oceaneering and Richmond Tower sales to partially fund our acquisition of a $170.5 million retail portfolio totaling 1.1 million square feet across 11 assets located in the Mid-Atlantic and South-Central United States. We completed the retail portfolio acquisition on January 14, 2016. The name, location, size, occupancy and anchor tenants of each of the properties in the acquired retail portfolio as of the acquisition date were as follows:
Property |
|
Location |
|
Square Feet |
|
Occupancy |
|
Anchor Tenants |
|
Patterson Place |
|
Durham, NC |
|
160,942 |
|
99 |
% |
Bed Bath & Beyond, PetSmart, Total Wine & More, A.C. Moore |
|
South Square |
|
Durham, NC |
|
109,590 |
|
100 |
% |
Ross Dress for Less, Petco, Office Depot |
|
Wendover Village |
|
Greensboro, NC |
|
135,758 |
|
100 |
% |
Bed Bath & Beyond, Golfsmith, T.J. Maxx, Petco, Five Below |
|
Alexander Pointe |
|
Salisbury, NC |
|
57,710 |
|
100 |
% |
Harris Teeter |
|
Harper Hill Commons |
|
Winston-Salem, NC |
|
96,914 |
|
79 |
% |
Harris Teeter |
|
North Hampton Market |
|
Taylors, SC |
|
114,935 |
|
94 |
% |
PetSmart, Hobby Lobby, Dollar Tree |
|
Waynesboro Commons |
|
Waynesboro, VA |
|
52,415 |
|
100 |
% |
Kroger |
|
Willowbrook Commons |
|
Nashville, TN |
|
93,600 |
|
88 |
% |
Kroger |
|
Oakland Marketplace |
|
Oakland, TN |
|
64,600 |
|
96 |
% |
Kroger |
|
Broadmoor Plaza |
|
South Bend, IN |
|
115,059 |
|
94 |
% |
Kroger, Staples, Jo-Ann Fabrics |
|
Kroger Junction |
|
Pasadena, TX |
|
81,158 |
|
78 |
% |
Kroger |
|
Total |
|
|
|
1,082,681 |
|
94 |
% |
|
|
Additional information regarding our real estate acquisition and disposition activity is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 5 to our consolidated and combined financial statements in Item 8 of this Annual Report on Form 10-K.
Segments
As of December 31, 2015, we operated in four business segments: (i) office real estate, (ii) retail real estate, (iii) multifamily residential real estate and (iv) general contracting and real estate services. Additional information regarding our four operating segments is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 3 to our consolidated and combined financial statements in Item 8 of this Annual Report on Form 10-K.
Tax Status
We have elected and qualified to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2013. Our continued qualification as a REIT will depend upon our ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and that our manner of operation will enab