23.

Commitments and Contingencies

Legal Proceedings

Armada Hoffler is from time to time involved in various disputes, lawsuits, warranty claims, environmental and other matters arising in the ordinary course of its business. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters.

Armada Hoffler currently is a party to various legal proceedings, none of which management expects will have a material adverse effect on Armada Hoffler’s financial position, results of operations or liquidity. Armada Hoffler accrues a liability for litigation if an unfavorable outcome is determined by management to be probable and the amount of loss can be reasonably estimated. If an unfavorable outcome is determined by management to be probable and a range of loss can be reasonably estimated, Armada Hoffler accrues the best estimate within the range; however, if no amount within the range is a better estimate than any other, the minimum amount within the range is accrued. Legal fees related to litigation are expensed as incurred. Armada Hoffler does not believe that the ultimate outcome of these matters, either individually or in the aggregate, could have a material adverse effect on its financial position or results of operations; however, litigation is subject to inherent uncertainties.

Under Armada Hoffler’s leases, tenants are typically obligated to indemnify Armada Hoffler from and against all liabilities, costs and expenses imposed upon or asserted against it as owner of the properties due to certain matters relating to the operation of the properties by the tenant.

Commitments

Armada Hoffler has a bonding line of credit for its general contracting construction business and is contingently liable under performance and payment bonds, bonds for cancellation of mechanics liens and defect bonds. Such bonds collectively totaled $35.8 million and $34.0 million as of December 31, 2013 and 2012, respectively.

The Operating Partnership has entered into standby letters of credit using the available capacity under the credit facility. The letters of credit relate to the guarantee of future performance on certain of the Company’s construction contracts. Letters of credit generally are available for draw down in the event the Company does not perform. As of December 31, 2013, the Operating Partnership had total outstanding letters of credit of $3.0 million.

Armada Hoffler has four ground leases on three properties with initial terms that range from twenty to fifty years and options to extend up to an additional 40 years in certain cases. Armada Hoffler also leases automobiles and equipment.

Future minimum rental payments during each of the next five years and thereafter are as follows (in thousands):


2014	$	1,535
2015		1,495
2016		1,445
2017		1,430
2018		1,453
Thereafter		62,021

Total	$	69,379

Ground rent expense for the years ended December 31, 2013, 2012 and 2011 was $1.5 million, $1.5 million and $1.3 million, respectively.

Concentrations of Credit Risk

The majority of Armada Hoffler’s income producing properties are located in Hampton Roads, Virginia. During each of the three years ended December 31, 2013, rental revenues from Hampton Roads properties represented 70%, 75% and 76%, respectively, of Armada Hoffler’s rental revenues. Ten of Armada Hoffler’s income producing properties are located in the Town Center of Virginia Beach. During each of the three years ended December 31, 2013, rental revenues from Town Center properties represented 48%, 51% and 52%, respectively, of Armada Hoffler’s rental revenues.

Revenues from Richmond Tower individually represented 15%, 16% and 16% of Armada Hoffler’s rental revenues during each of the three years ended December 31, 2013, respectively. A single tenant—Williams Mullen, a prominent Mid-Atlantic law firm—occupies over 80% of Richmond Tower. Williams Mullen also leases office space at Armada Hoffler Tower. Base rents from Williams Mullen represented 16%, 17% and 17% of Armada Hoffler’s rental revenues during each of the three years ended December 31, 2013, respectively.

As of December 31, 2013 and 2012, Armada Hoffler Tower, Richmond Tower and The Cosmopolitan each individually represented more than 10% of Armada Hoffler’s total assets.

Construction contracts with three customers collectively represented 50% of Armada Hoffler’s general contracting and real estate services revenues for the year ended December 31, 2013. These same three customers also collectively accounted for 69% of construction receivables as of December 31, 2013. Construction contracts with two customers collectively represented 37% and 83% of Armada Hoffler’s general contracting and real estate services revenues for the years ended December 31, 2012 and 2011, respectively. These same two customers also collectively accounted for 18% of construction receivables as of December 31, 2012.