AH Realty Trust, Inc. (AHRT) FY 2022 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 throughout the Mid-Atlantic and Southeastern United States. As of December 31, 2022, our stabilized operating property portfolio was comprised of 38 retail

42

Table of Contents

properties, 9 office properties, and 10 multifamily properties. In addition to our operating property portfolio, we had one mixed-use property and one multifamily property in various stages of predevelopment, development, redevelopment, or stabilization as of December 31, 2022. We also provide general contracting services to third parties and invest in development projects through mezzanine lending arrangements and equity investments.

Substantially all of our assets are held by, and all of our operations are conducted through, our Operating Partnership. We are the sole general partner of our Operating Partnership and, as of December 31, 2022, we owned, through a combination of direct and indirect interests, 76.7% of the outstanding OP units in our Operating Partnership.

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2013.

Our principal executive office is located at 222 Central Park Avenue, Suite 2100, Virginia Beach, Virginia 23462 in the Armada Hoffler Tower at the Virginia Beach Town Center. In addition, we have a construction office located at 1300 Thames Street, Suite 30, Baltimore, Maryland 21231 in Thames Street Wharf at Harbor Point. The telephone number for our principal executive office is (757) 366-4000. We maintain a website at ArmadaHoffler.com. The information on, or accessible through, our website is not incorporated into and does not constitute a part of this report.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements that have been prepared in accordance with GAAP. The Company's accounting policies are more fully described in Note 2 of our consolidated financial statements in Item 8 of this Annual Report on Form 10-K. As disclosed in Note 2, the preparation of these financial statements requires us to exercise our best judgment in making estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis, based upon current available information. Actual results could differ from these estimates.

We believe the following accounting policies and estimates are the most critical to understanding our reported financial results as their effect on our financial condition and results of operations is material.

Rental Revenues

We lease our properties under operating leases and recognize base rents on a straight-line basis over the lease term. We also recognize revenue from tenant recoveries, through which tenants reimburse us for expenses paid by us such as utilities, janitorial, repairs and maintenance, security and alarm, parking lot and grounds, general and administrative, management fees, insurance, and real estate taxes on an accrual basis. Our rental revenues are reduced by the amount of any leasing incentives on a straight-line basis over the term of the applicable lease. We include a renewal period in the lease term only if it appears at lease inception that the renewal is reasonably certain. We begin recognizing rental revenue when the tenant has the right to take possession of or controls the physical use of the property under lease.

Rental revenue is recognized subject to management’s evaluation of tenant credit risk. The extended collection period for accrued straight-line rental revenue along with our evaluation of tenant credit risk may result in the nonrecognition of all or a portion of straight-line rental revenue until the collection of substantially all such revenue for a tenant is probable.

General Contracting and Real Estate Services Revenues

We recognize general contracting revenues as a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For each construction contract, we identify the performance obligations, which typically include the delivery of a single building constructed according to the specifications of the contract. We estimate the total transaction price, which generally includes a fixed contract price and may also include variable components such as early completion bonuses, liquidated damages, or cost savings to be shared with the customer. Variable components of the contract price are included in the transaction price to the extent that it is probable that a significant reversal of revenue will not occur. We recognize the estimated transaction price as revenue as we satisfy our performance obligations; we estimate our progress in satisfying performance obligations for each contract using the input method, based on the proportion of incurred costs relative to total estimated construction costs at completion. Construction contract costs include all direct material, direct labor, subcontract costs, and overhead costs directly related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, are all significant judgments that may result in revisions to costs and income

43

Table of Contents

and are recognized in the period in which they are determined. Additionally, the estimated costs at completion are affected by management’s forecasts of anticipated costs to be incurred and contingency reserves for exposures related to unknown costs, such as design deficiencies and subcontractor defaults. The estimated variable consideration is also affected by claims and unapproved change orders, which may result from changes in the scope of the contract. Provisions for estimated losses on uncompleted contracts are recognized immediately in the period in which such losses are determined.

We recognize real estate services revenues from property development and management as we satisfy our performance obligations under these service arrangements.

We assess whether multiple contracts with a single counterparty may be combined into a single contract for the revenue recognition purposes based on factors such as the timing of the negotiation and execution of the contracts and whether the economic substance of the contracts was contemplated separately or in tandem.

Operating Property Acquisitions

Acquisitions of operating properties have been and will generally be accounted for as acquisitions of a group of assets, with costs incurred to effect an acquisition, including title, legal, accounting, brokerage commissions, and other related costs being capitalized as part of the cost of the assets acquired. In connection with operating property acquisitions, we identify and recognize all assets acquired and liabilities assumed at their relative fair values as of the acquisition date. The purchase price allocations to tangible assets, such as land, site improvements, and buildings and improvements, are presented within income producing property in the consolidated balance sheets and depreciated over their estimated useful lives. Acquired lease intangible assets are presented as a separate component of assets on the consolidated balance sheets. Acquired lease intangible liabilities are presented within other liabilities in the consolidated balance sheets. We amortize in-place lease assets as depreciation and amortization expense on a straight-line basis over the remaining term of the related leases. We amortize above-market lease assets as reductions to rental revenues on a straight-line basis over the remaining term of the related leases. We amortize below-market lease liabilities as increases to rental revenues on a straight-line basis over the remaining term of the related leases. We amortize above and below-market ground lease assets as amortization of right-of-use assets – finance leases on a straight-line basis over the remaining term of the related leases. We capitalize the costs related to operating property acquisitions that do not meet the definition of a business.

We value land based on a market approach, looking to recent sales of similar properties, adjusting for differences due to location, the state of entitlement, and the shape and size of the parcel. Improvements to land are valued using a replacement cost approach. The approach applies industry standard replacement costs adjusted for geographic specific considerations and reduced by estimated depreciation. The value of buildings acquired is estimated using the replacement cost approach, assuming the buildings were vacant at acquisition. The replacement cost approach considers the composition of the structures acquired, adjusted for an estimate of depreciation. The estimate of depreciation is made considering industry standard information and the expected useful lives of the assets. The value of acquired lease intangible assets and liabilities considers the estimated cost of leasing the properties as if the acquired buildings were vacant, as well as the value of the current leases relative to market-rate leases. The in-place lease value is determined using an estimated total lease-up time and lost rental revenues during such time. The value of current leases relative to market-rate leases is based on market rents obtained for comparable leases. Given the significance of unobservable inputs used in the valuation of acquired real estate assets, we classify them as Level 3 inputs in the fair value hierarchy.

We value debt assumed in connection with operating property acquisitions based on a discounted cash flow analysis of the expected cash flows of the debt. Such analysis considers the contractual terms of the debt, including the period to maturity, credit characteristics, and other terms of the arrangements, which are Level 3 inputs in the fair value hierarchy (as described in Note 12 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K).

Real Estate Impairment

We evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If such an evaluation is necessary, we compare the carrying amount of any such real estate asset with the undiscounted expected future cash flows that are directly associated with, and that are expected to arise as a direct result of, its use and eventual disposition. Our estimate of the expected future cash flows attributable to a real estate asset is based upon, among other things, our estimates regarding future market conditions, rental rates, occupancy levels, tenant improvements, leasing commissions, tenant concessions, and assumptions regarding the residual value of our properties. If the carrying amount of a real estate asset exceeds its associated undiscounted expected future cash flows, we recognize an impairment loss to reduce the carrying amount of the real estate asset to its fair value based on marketplace participant assumptions.

44

Table of Contents

Interest Income

Interest income on notes receivable is accrued based on the contractual terms of the loans and when, in the opinion of management, it is deemed collectible. Many loans provide for accrual of interest that will not be paid until maturity of the loan. Interest is recognized on these loans at the accrual rate subject to management's determination that accrued interest is ultimately collectible, based on the underlying collateral and the status of development activities, as applicable. If management cannot make this determination, recognition of interest income may be fully or partially deferred until it is ultimately paid.

Expected Credit Losses

We evaluate the collectability of both the interest on and principal of each of our notes receivable based primarily upon the value of the underlying development project. We consider factors such as the progress of development activities, including leasing activities, projected development costs, current and projected loan balances. We also consider historical industry data, such as loan defaults and losses experienced on loans secured by other development projects, and current economic conditions that may affect the collectability of the remaining cash flows. We measure expected credit losses to be incurred over the remaining contractual term based on the risk rating of each loan. See Note 2 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for details on risk rating determination. If a loan is rated as substandard, we then estimate expected credit losses as the difference between the amortized cost basis of the outstanding loan and the estimated projected sales proceeds of the underlying collateral.

Recent Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see Note 2 to our consolidated financial statements included in Item 8 of this Form 10-K.

Segment Results of Operations

As of December 31, 2022, 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 that are conducted through our TRSs. NOI (segment revenues minus segment expenses) 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 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 consolidated financial statements in Item 8 of this Annual Report on Form 10-K for a reconciliation of NOI to net income, the most directly comparable GAAP measure.

We define same store properties as those that we owned and operated and that were stabilized for the entirety of both periods compared. 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 substantially 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 stabilization criteria above are 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.

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

45

Table of Contents

Office Segment Data

Office rental revenues, property expenses, and NOI for the years ended December 31, 2022, 2021, and 2020 were as follows ($ in thousands):

________________________________________

(1)Stabilized properties as of the end of the periods presented.

Rental revenues for the year ended December 31, 2022 increased $26.7 million, or 56.3%, compared to the year ended December 31, 2021. NOI for the year ended December 31, 2022 increased $18.9 million, or 65.4%, compared to the year ended December 31, 2021. The increases in rental revenues and NOI resulted primarily due to the acquisition of the Constellation Office in January 2022.

Office Same Store Results

Office same store rental revenues, property expenses, and NOI for the comparative years ended December 31, 2022 and 2021 and December 31, 2021, and 2020 were as follows (in thousands):

________________________________________

(1)Same store excludes Wills Wharf and the Constellation Office.

(2)Same store excludes Wills Wharf.

Same store rental revenues for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 due to increased occupancy at Thames Street Wharf and Armada Hoffler Tower. Same store NOI for the year ended December 31, 2022 was materially consistent with the year ended December 31, 2021.

Retail Segment Data

Retail rental revenues, property expenses, and NOI for the years ended December 31, 2022, 2021 and 2020 were as follows ($ in thousands):

________________________________________

46

Table of Contents

(1)Stabilized properties as of the end of the periods presented.

Rental revenues for the year ended December 31, 2022 increased $7.8 million, or 9.9%, compared to the year ended December 31, 2021. NOI for the year ended December 31, 2022 increased $6.1 million, or 10.5%, compared to the year ended December 31, 2021. The increases in rental revenues and NOI resulted primarily due to the acquisitions of Delray Beach Plaza, Greenbrier Square, Overlook Village in 2021 and Pembroke Square in 2022 as well as increased occupancy in the same store portfolio. The increases were partially offset by the 2022 dispositions of the Home Depot and Costco outparcels at North Pointe, as well as the 2021 dispositions of Socastee Commons and Courthouse 7-Eleven for which revenue was earned prior to disposition in the year ended December 31, 2021.

Retail Same Store Results

Retail same store rental revenues, property expenses, and NOI for the comparative years ended December 31, 2022 and 2021 and December 31, 2021 and 2020 were as follows (in thousands):

________________________________________

(1)Same store excludes Greenbrier Square, Overlook Village, Delray Beach Plaza, Premier Retail, and Pembroke Square.

(2)Same store excludes Apex Entertainment, Delray Beach Plaza, Greenbrier Square, Nexton Square, Overlook Village, and Premier Retail. In addition, same store excludes the seven-property retail portfolio that was disposed in May 2020 (Alexander Pointe, Bermuda Crossroads, Gainsborough Square, Harper Hill Commons, Indian Lakes Crossing, Renaissance Square, and Stone House Square) as well as Oakland Marketplace, Socastee Commons, and Courthouse 7-Eleven, each of which were disposed in 2021.

Same store rental revenues and NOI for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 primarily as a result of increased occupancy in the same store portfolio.

Multifamily Segment Data

Multifamily rental revenues, property expenses, and NOI for the years ended December 31, 2022, 2021, and 2020 were as follows ($ in thousands):

Rental revenues for the year ended December 31, 2022 decreased $7.3 million, or 11.0%, compared to the year ended December 31, 2021. NOI decreased $2.2 million, or 5.9%, compared to the year ended December 31, 2021. The decreases in rental revenues and NOI resulted primarily from the dispositions of The Residences at Annapolis Junction, John Hopkins Village, Hoffler Place, and Summit Place. The decreases were partially offset by the acquisition of 1305 Dock Street and commencement of operations at Gainesville Apartments and Chronicle Mill.

Multifamily Same Store Results

Multifamily same store rental revenues, property expenses, and NOI for the comparative years ended December 31, 2022 and 2021 and December 31, 2021 and 2020 were as follows (in thousands):

47

Table of Contents

________________________________________

(1)Same store excludes 1305 Dock Street, Chronicle Mill, and Gainesville Apartments as well as properties that were disposed in 2022.

(2)Same store excludes The Residences at Annapolis Junction, Edison Apartments, Hoffler Place, Summit Place, Johns Hopkins Village, and The Cosmopolitan.

Same store rental revenues and NOI for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 primarily as a result of increased rental rates across multiple properties.

General Contracting and Real Estate Services Segment Data

General contracting and real estate services revenues, expenses, and gross profit for the years ended December 31, 2022, 2021, and 2020 were as follows ($ in thousands):

Segment revenues for the year ended December 31, 2022 increased $142.9 million compared to the year ended December 31, 2021. Gross profit for the year ended December 31, 2022 increased $3.9 million compared to the year ended December 31, 2021. The increase in segment revenues and gross profit resulted primarily from the execution and commencement of new projects in 2022 including the Harbor Point development with Beatty Development Group, as well as four new projects with Dominion Realty Partners, a southeast multifamily developer.

The changes in construction backlog for each of the years ended December 31, 2022, 2021, and 2020 were as follows (in thousands):

During the year ended December 31, 2022, we executed new contracts with Beatty Development Group related to the Harbor Point development in Baltimore totaling $423.8 million in addition to $246.9 million of new contracts with Dominion Realty Partners. Ending backlog as of December 31, 2022 included $353.7 million in contracts with Beatty Development Group and $292.9 million in contracts with Dominion Realty Partners.

During the year ended December 31, 2021, we executed $181.6 million of new contracts with Dominion Realty Partners and $16.1 million in contracts with Beatty Development Group. Ending backlog as of December 31, 2021 included $15.2 million in contracts with Beatty Development Group and $173.3 million in contracts with Dominion Realty Partners.

48

Table of Contents

Consolidated Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands):

Rental revenues. Rental revenues by segment for the years ended December 31, 2022, 2021, and 2020 were as follows (in thousands):

49

Table of Contents

Rental revenues increased $27.2 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase in office rental revenues resulted primarily from the acquisition of the Constellation Energy Building and increased occupancy at Wills Wharf, Thames Street Wharf, and Armada Hoffler Tower. The increase in retail rental revenues resulted primarily from the acquisitions of Greenbrier Square, Overlook Village, Delray Beach Plaza and Pembroke Square, as well as increased occupancy across the retail portfolio. The decrease in multifamily rental revenues resulted primarily from the dispositions of John Hopkins Village, The Residences at Annapolis Junction, Summit Place and Hoffler Place. The decrease was partially offset by the acquisition of 1305 Dock Street and the commencement of operations at Gainesville Apartments and Chronicle Mill, as well as increased rental rates across the portfolio.

General contracting and real estate services revenues. General contracting and real estate services revenues increased $142.9 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase resulted primarily from the commencement of new projects in 2022, including Harbor Point Parcels 3 and 4 with Beatty Development Group as well as four new projects with Dominion Realty Partners.

Rental expenses. Rental expenses by segment for each of the three years ended December 31, 2022 were as follows (in thousands):

Rental expenses increased $4.2 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. Office rental expenses increased primarily as a result of the acquisition of the Constellation Office and increased occupancy at Wills Wharf. Retail rental expenses increased primarily as a result of the acquisitions of Greenbrier Square, Overlook Village, and Delray Beach Plaza. Multifamily rental expenses decreased primarily as a result of the dispositions of John Hopkins Village, Summit Place, Hoffler Place, and The Residences at Annapolis Junction, partially offset by the acquisition of 1305 Dock Street and the commencement of operations at Gainesville Apartments and Chronicle Mill.

Real estate taxes. Real estate taxes by segment for the years ended December 31, 2022, 2021, and 2020 were as follows (in thousands):

Real estate taxes increased $0.2 million during the year ended December 31, 2022 compared to the year ended December 31, 2021. Office real estate taxes increased primarily as a result of the acquisition of the Constellation Office. Retail real estate taxes increased primarily as a result of the acquisitions of Greenbrier Square and Delray Beach Plaza, in addition to an increased assessment at Wendover Village. Multifamily real estate taxes decreased primarily as a result of the dispositions of John Hopkins Village, The Residences at Annapolis Junction, Summit Place and Hoffler Place, partially offset by the acquisition of 1305 Dock Street and the commencement of operations at Gainesville Apartments.

General contracting and real estate services expenses for the year ended December 31, 2022 increased $139.1 million compared to the year ended December 31, 2021. The increase resulted primarily from the commencement of new projects in 2022 including Harbor Point Parcels 3 and 4 with Beatty Development Group as well as four new projects with Dominion Realty Partners.

Depreciation and amortization for the year ended December 31, 2022 increased $4.1 million compared to the year ended December 31, 2021. The increase was attributable to property acquisitions and development deliveries. The increase was partially offset by dispositions in 2022.

50

Table of Contents

Amortization of right-of-use assets - finance leases for the years ended December 31, 2022 and 2021 were materially consistent.

General and administrative expenses for the year ended December 31, 2022 increased $1.1 million compared to the year ended December 31, 2021. The increase resulted primarily from higher compensation costs due to increased investment in human capital and legal fees associated with 2022 transactions.

Acquisition, development and other pursuit costs for the years ended December 31, 2022 and 2021 was materially consistent.

Impairment charges during the year ended December 31, 2022 totaled $0.4 million and primarily related to impairment charges recognized on acquired lease intangibles of certain properties.

Gain on real estate dispositions for the year ended December 31, 2022 totaled $53.5 million and related primarily to the disposition of The Residences at Annapolis Junction, the AutoZone and Valvoline outparcels at Sandbridge Commons, and the Home Depot and Costco parcels at North Pointe. During the year ended December 31, 2021, we recognized gains on real estate dispositions of $19.0 million, related to the dispositions of Hanbury 7-Eleven, Oakland Marketplace, Courthouse 7-Eleven, and Johns Hopkins Village.

Interest income for the year ended December 31, 2022 decreased $1.5 million compared to the year ended December 31, 2021, as a result of lower loan balances from principal repayments on the Interlock Commercial loan, partially offset by the prepayment premium received from the repayment of the Nexton Multifamily loan and funding of the City Park 2 and Solis Gainesville II loans. As of December 31, 2022 and 2021, our outstanding mezzanine loan balances were $112.3 million and $118.9 million, respectively.

Interest expense for the year ended December 31, 2022 increased $5.8 million compared to the year ended December 31, 2021 primarily due to loans obtained and assumed in connection with acquisitions and increased amortization of interest rate cap premiums.

Loss on extinguishment of debt decreased $0.4 million compared to the year ended December 31, 2021 primarily due to less loss recognized on the loan payoffs and refinances in 2022, compared to the loss recognized in 2021 in conjunction with the disposition of John Hopkins Village and the termination of the related interest rate swap.

Change in fair value of derivatives and other for the year ended December 31, 2022 was a gain of $8.7 million, which arose from increases in forward LIBOR, SOFR and BSBY. During the year ended December 31, 2021, we recognized gain on changes in fair value of interest rate derivatives of $2.2 million due to significant increases in forward LIBOR during 2021.

Unrealized credit loss provision for the year ended December 31, 2022 relates to the reserves recorded for the City Park 2 and Solis Gainesville II investments, offset by a release in the allowance for the Nexton Multifamily preferred equity investment.

Other income (expense), net for the years ended December 31, 2022 and 2021 was materially consistent.

The income tax benefit recognized during the years ended December 31, 2022 and 2021 is attributable to the taxable profits and losses of our development and construction businesses that we operate through our TRS.

Liquidity and Capital Resources

Overview

We believe our primary short-term liquidity requirements consist of general contractor expenses, operating expenses, and other expenditures associated with our properties, including tenant improvements, leasing commissions and leasing incentives, dividend payments to our stockholders required to maintain our REIT qualification, debt service, capital expenditures, new real estate development projects, mezzanine loan funding requirements, and strategic acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash, borrowings under construction loans to fund new real estate development and construction, borrowings available under our credit facility, and net proceeds from the sale of common stock through our at-the-market continuous equity offering program (the "ATM Program"), which is discussed below.

51

Table of Contents

Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at or prior to maturity, general contracting expenses, property development and acquisitions, tenant improvements, and capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness, and the issuance of equity and debt securities. We also may fund property development and acquisitions and capital improvements using our credit facility pending long-term financing.

As of December 31, 2022, we had unrestricted cash and cash equivalents of $48.1 million available for both current liquidity needs as well as development activities. As of December 31, 2022, we also had restricted cash in escrow of $3.7 million, some of which is available for capital expenditures at our operating properties. As of December 31, 2022, we had $233.5 million available under our credit facility to meet our short-term liquidity requirements and $81.1 million available under construction loans to fund development activities.

ATM Program

On March 10, 2020, we commenced the ATM Program through which we may, from time to time, issue and sell shares of our common stock and shares of our Series A Preferred Stock having an aggregate offering price of up to $300.0 million, to or through our sales agents and, with respect to shares of our common stock, may enter into separate forward sales agreements to or through the forward purchaser.

During the year ended December 31, 2022, we issued and sold 475,074 shares of common stock at a weighted average price of $15.21 per share under the ATM Program, receiving net proceeds, after offering costs and commissions, of $7.1 million. During the year ended December 31, 2022, we did not issue any shares of Series A Preferred Stock under the ATM Program.

As of December 31, 2022, we had $205.0 million in availability under the ATM Program.

Common Stock Issuance

On January 11, 2022, we completed an underwritten public offering of 4,025,000 shares of common stock, which were purchased from us at a purchase price of $14.45 per share of common stock, which resulted in net proceeds after offering costs of $58.0 million.

Amended Credit Facility

On August 23, 2022, we entered into an amended and restated credit agreement (the "Credit Agreement"), which provides for a $550.0 million credit facility comprised of a $250.0 million senior unsecured revolving credit facility (the "revolving credit facility") and a $300.0 million senior unsecured term loan facility (the "term loan facility" and, together with the revolving credit facility, the "amended credit facility"), with a syndicate of banks. The amended credit facility replaces the prior $150.0 million revolving credit facility, which was scheduled to mature on January 24, 2024, and the prior $205.0 million term loan facility, which was scheduled to mature on January 24, 2025. The additional borrowings under the term loan facility were used to pay off the loans secured by 1405 Point, Brooks Crossing Office, and One City Center. Subject to available borrowing capacity, we intend to use future borrowings under the amended credit facility for general corporate purposes, including funding acquisitions, mezzanine lending, and development and redevelopment of properties in our portfolio, and for working capital.

The amended credit facility includes an accordion feature that allows the total commitments to be increased to $1.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The revolving credit facility has a scheduled maturity date of January 22, 2027, with two six-month extension options, subject to certain conditions, including payment of a 0.075% extension fee at each extension. The term loan facility has a scheduled maturity date of January 21, 2028.

The revolving credit facility bears interest at SOFR plus a margin ranging from 1.30% to 1.85%, and the term loan facility bears interest at SOFR plus a margin ranging from 1.25% to 1.80%, in each case depending on our total leverage. These interest rates approximate the terms of the previous credit facility despite market pressures at the time the Credit Agreement was executed. We also are obligated to pay an unused commitment fee of 15 or 25 basis points on the unused portions of the commitments under the revolving credit facility, depending on the amount of borrowings under the revolving credit facility. If the Company or the Operating Partnership attains investment grade credit ratings from both S&P Global Ratings and Moody’s Investors Service, Inc., we may elect to have borrowings become subject to interest rates based on such credit ratings. We may, at any time, voluntarily prepay any loan under the amended credit facility in whole or in part without premium or penalty. Our unencumbered borrowing pool will support revolving borrowings of up to $250.0 million as of December 31, 2022.

52

Table of Contents

The Operating Partnership is the borrower under the amended credit facility, and its obligations under the amended credit facility are guaranteed by us and certain of our subsidiaries that are not otherwise prohibited from providing such guaranty.

The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. Our ability to borrow under the amended credit facility is subject to our ongoing compliance with a number of financial covenants, affirmative covenants and other restrictions, including the following:

•Total leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition with a purchase price of at least $100.0 million, but only up to two times during the term of the amended credit facility);

•Ratio of adjusted EBITDA (as defined in the Credit Agreement) to fixed charges of not less than 1.50 to 1.0;

•Tangible net worth of not less than the sum of (i) $825.2 million and (ii) an amount equal to 75% of the net equity proceeds received by us after June 30, 2022;

•Ratio of secured indebtedness (excluding the amended credit facility if it becomes secured indebtedness) to total asset value of not more than 40%;

•Ratio of secured recourse debt (excluding the amended credit facility if it becomes secured indebtedness) to total asset value of not more than 20%;

•Total unsecured leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition with a purchase price of at least $100.0 million, but only up to two times during the term of the credit facility);

•Unencumbered interest coverage ratio (as defined in the Credit Agreement) of not less than 1.75 to 1.0;

•Maintenance of a minimum of at least 15 unencumbered properties (as defined in the Credit Agreement) with an unencumbered asset value (as defined in the Credit Agreement) of not less than $500.0 million at any time; and

•Minimum occupancy rate (as defined in the Credit Agreement) for all unencumbered properties of not less than 80% at any time.

The Credit Agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The Credit Agreement also restricts the amount of capital that we can invest in specific categories of assets, such as unimproved land holdings, development properties, notes receivable, mortgages, mezzanine loans and unconsolidated affiliates, and restricts our ability to repurchase stock and units of limited partnership interest in the Operating Partnership during the term of the amended credit facility.

We may, at any time, voluntarily prepay any loan under the amended credit facility in whole or in part without significant premium or penalty, except for those portions subject to an interest rate swap agreement.

The Credit Agreement includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the amended credit facility to be immediately due and payable.

We are currently in compliance with all covenants under the Credit Agreement.

M&T Term Loan Facility

On December 6, 2022, we entered into a term loan agreement (the "M&T term loan agreement") with Manufacturers and Traders Trust Company, which provides a $100.0 million senior unsecured term loan facility (the "M&T term loan facility"), with the option to increase the total capacity to $200.0 million, subject to our satisfaction of certain conditions. The proceeds from the M&T term loan facility were used to repay the loans secured by the Wills Wharf, 249 Central Park Retail, Fountain Plaza Retail, and South Retail properties. The M&T term loan facility has a scheduled maturity date of March 8, 2027, with a one-year extension option, subject to our satisfaction of certain conditions, including payment of a 0.075% extension fee.

The M&T term loan facility bears interest at a rate elected by us based on term SOFR, Daily Simple SOFR, or the Base Rate (as defined below), and in each case plus a margin. The margin under each interest rate election depends on our total leverage. The "Base Rate" is equal to the highest of: (a) the rate of interest in effect for such day as publicly announced from time to time by M&T Bank as its “prime rate” for such day, (b) the Federal Funds Rate for such day, plus 0.50%, (c) one month term SOFR for such day plus 100 basis points and (d) 1.00%. For the year ended December 31, 2022, we have elected for the loan to bear interest at term SOFR plus margin. If we attain investment grade credit ratings from both S&P Global Ratings and

53

Table of Contents

Moody's Investor Service, Inc., we may elect to have borrowings become subject to interest rates based on such credit ratings.

The Operating Partnership is the borrower under the M&T term loan facility, and its obligations under the M&T term loan facility are guaranteed by us and certain of its subsidiaries that are not otherwise prohibited from providing such guaranty.

The M&T term loan agreement contains customary representations and warranties and financial and other affirmative and negative covenants. Our ability to borrow under the M&T term loan facility is subject to ongoing compliance with a number of financial covenants, affirmative covenants, and other restrictions, including the following:

•Total leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition with a purchase price of at least $100.0 million, but only up to two times during the term of the M&T term loan facility);

•Ratio of adjusted EBITDA (as defined in the M&T term loan agreement) to fixed charges of not less than 1.50 to 1.0;

•Tangible net worth of not less than the sum of (i) $825.2 million and (ii) an amount equal to 75% of the net equity proceeds received by us after June 30, 2022;

•Ratio of secured indebtedness (excluding the M&T term loan facility if it becomes secured indebtedness) to total asset value of not more than 40%;

•Ratio of secured recourse debt (excluding the M&T term loan facility if it becomes secured indebtedness) to total asset value of not more than 20%;

•Total unsecured leverage ratio of not more than 60% (or 65% for the two consecutive quarters following any acquisition with a purchase price of at least $100.0 million, but only up to two times during the term of the M&T term loan facility);

•Unencumbered interest coverage ratio (as defined in the M&T term loan agreement) of not less than 1.75 to 1.0;

•Maintenance of a minimum of at least 15 unencumbered properties (as defined in the M&T term loan agreement) with an unencumbered asset value (as defined in the M&T term loan agreement) of not less than $500.0 million at any time; and

•Minimum occupancy rate (as defined in the M&T term loan agreement) for all unencumbered properties of not less than 80% at any time.

The M&T term loan agreement limits our ability to pay cash dividends if a default has occurred and is continuing or would result therefrom. However, if certain defaults or events of default exist, we may pay cash dividends to the extent necessary to (i) maintain our status as a REIT and (ii) avoid federal or state income excise taxes. The M&T term loan agreement also restricts the amount of capital that we can invest in specific categories of assets, such as unimproved land holdings, development properties, notes receivable, mortgages, mezzanine loans and unconsolidated affiliates, and restricts our ability to repurchase stock and units of limited partnership interest in the Operating Partnership during the term of the M&T term loan facility.

We may, at any time, voluntarily prepay the M&T term loan facility in whole or in part without premium or penalty, provided certain conditions are met.

The term loan agreement includes customary events of default, in certain cases subject to customary cure periods. The occurrence of an event of default, if not cured within the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest, and all other amounts payable under the M&T term loan facility to be immediately due and payable.

We are currently in compliance with all covenants under the M&T term loan agreement.

54

Table of Contents

Consolidated Indebtedness

The following table sets forth our consolidated indebtedness as of December 31, 2022 ($ in thousands):

_______________________________________

(a) LIBOR, SOFR, and BSBY rates are determined by individual lenders.

(b) Cross collateralized.

(c) Cross collateralized.

(d) No funding on the construction loan as of December 31, 2022.

(e) Includes debt subject to interest rate swap agreements.

(f) Represents the fair value of additional ground lease payments at 1405 Point over the approximately 40-year remaining lease term.

Certain loans require us to comply with various financial and other covenants, including the maintenance of minimum debt coverage ratios. As of December 31, 2022, we were in compliance with all loan covenants.

55

Table of Contents

As of December 31, 2022, our scheduled principal repayments and maturities during each of the next five years and thereafter were as follows ($ in thousands):

________________________________________

(1) Does not reflect the exercise of any maturity extension options.

Interest Rate Derivatives

As of December 31, 2022, we were party to the following LIBOR, SOFR, and BSBY interest rate cap agreements ($ in thousands):

________________________________________

(a) We purchased interest rate caps at 1.00% and sold interest rate caps at 3.00%, resulting in interest rate cap corridors of 1.00% and 3.00%. The intended goal of these corridors is to provide a level of protection from the effect of rising interest rates and reduce the all-in cost of the derivative instrument.

(b) The notional amount represents the maximum notional amount that will eventually be in effect. The notional amount is scheduled to increase over the term of the corridor in accordance with projected borrowings on the associated loan.

As of December 31, 2022, the Company held the following floating-to-fixed interest rate swaps ($ in thousands):

56

Table of Contents

Contractual Obligations

The following table summarizes the future payments for known contractual obligations as of December 31, 2022 (in thousands):

________________________________________

(1)For long-term debt that bears interest at variable rates, we estimated future interest payments using forward curves of the respective indexed rates as of December 31, 2022. As of December 31, 2022, LIBOR, SOFR, and BSBY were 439, 436, and 436 basis points, respectively.

(2)Assumes the $61.0 million revolving credit facility balance outstanding as of December 31, 2022 remains constant through maturity of the facility. Amounts also include unused credit facility fees assuming the balance outstanding as of December 31, 2022 remains constant through maturity of our revolving credit facility.

(3)Contractual obligations above do not include funding obligations to non-wholly owned development projects as well as unfunded mezzanine loan and preferred equity investment commitments due to the uncertainty of the timing and amounts of certain of these obligations. Refer to "Item 1. Business" for information about our development projects, mezzanine loans and preferred equity investments.

(4)Contractual Obligations above exclude increased ground lease payments at 1405 Point which is classified as a note payable in the consolidated balance sheets.

Off-Balance Sheet Arrangements

In connection with our mezzanine lending activities, we have guaranteed payment of portions of certain senior loans of third parties associated with the development projects. The following table summarizes the guarantees made by us as of December 31, 2022 (in thousands):

_______________________________________

(a) As of December 31, 2022, no amounts have been funded on this senior loan.

In connection with our Harbor Point Parcel 3 unconsolidated joint venture, we will be responsible for providing a completion guarantee to the lender for this project when a construction loan is obtained.

Unfunded Loan Commitments

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our borrowers. These commitments are not reflected on the consolidated balance sheet. As of December 31, 2022, our off-balance sheet arrangements consisted of $18.2 million of unfunded commitments of our notes receivable. We have recorded a $0.3 million credit loss reserve in conjunction with the total unfunded commitments. Such commitments are subject to our borrowers’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The commitments may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring.

57

Table of Contents

Cash Flows

Net cash provided by operating activities for the year ended December 31, 2022 increased by $25.7 million compared to the year ended December 31, 2021 primarily as a result of increased net operating income from the property portfolio and an increase in gross profit from general contracting and real estate services, slightly offset by timing differences in operating assets and liabilities.

Net cash used for investing activities for the year ended December 31, 2022 decreased by $24.4 million compared to the year ended December 31, 2021 primarily due to the sale of The Residences at Annapolis Junction, which was partially offset by acquisition activity.

Net cash used for financing activities during the year ended December 31, 2022 increased by $28.7 million compared to the year ended December 31, 2021 primarily as a result of the increased debt repayments and increased dividend and distribution payments during the year.

Non-GAAP Financial Measures

FFO and Normalized FFO

We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("Nareit"). Nareit defines FFO as net income (loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sales of certain real estate assets, gains or losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

FFO is a supplemental non-GAAP financial measure. Management uses FFO as a supplemental performance measure because it believes that FFO is beneficial to investors as a starting point in measuring our operational performance. Specifically, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, which do not relate to or are not indicative of operating performance, FFO provides a performance measure that, when compared period-over-period, captures trends in occupancy rates, rental rates, and operating costs. Other equity REITs may not calculate FFO in accordance with the Nareit definition as we do, and, accordingly, our FFO may not be comparable to such other REITs' FFO.

58

Table of Contents

However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other equity REITs may not calculate FFO in accordance with the Nareit definition as we do, and, accordingly, our calculation of FFO may not be comparable to such other REITs’ calculation of FFO. Accordingly, FFO should be considered only as a supplement to net income as a measure of our performance. FFO should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or service indebtedness. Also, FFO should not be used as a supplement to or substitute for cash flow from operating activities computed in accordance with GAAP.

We also believe that the computation of FFO in accordance with Nareit’s definition includes certain items that are not indicative of the results provided by our operating property portfolio and affect the comparability of our year-over-year performance. Accordingly, management believes that Normalized FFO is a more useful performance measure that excludes certain items, including but not limited to, debt extinguishment losses and prepayment penalties, impairment of intangible assets and liabilities, property acquisition, development and other pursuit costs, mark-to-market adjustments for interest rate derivatives not designated as cash flow hedges, certain costs for interest rate caps designated as cash flow hedges, provision for unrealized non-cash credit losses, amortization of right-of-use assets attributable to finance leases, severance related costs, and other non-comparable items. Other equity REITs may not calculate Normalized FFO in the same manner as we do, and, accordingly, our Normalized FFO may not be comparable to such other REITs' Normalized FFO.

The following table sets forth a reconciliation of FFO and Normalized FFO for each of the years ended December 31, 2022, 2021 and 2020 to net income, the most directly comparable GAAP measure:

________________________________________

Inflation

59

Table of Contents

Substantially all of our office and retail leases provide for the recovery of increases in real estate taxes and operating expenses. In addition, substantially all of the leases provide for annual rent increases. We believe that inflationary increases may be offset in part by the contractual rent increases and expense escalations previously described. In addition, our multifamily leases generally have lease terms ranging from 7 to 15 months with a majority having 12-month lease terms allowing negotiation of rental rates at term end, which we believe reduces our exposure to the effects of inflation, although

an extreme and sustained escalation in costs could have a negative impact on our residents and their ability to absorb rent increases.