1.	*Business and Organization*

Armada Hoffler Properties, Inc. (the “Company”) is a full service real estate company with extensive experience developing, building, owning and managing high-quality, institutional-grade office, retail and multifamily properties in attractive markets throughout the Mid-Atlantic United States.

The Company is the sole general partner of Armada Hoffler, L.P. (the “Operating Partnership”). The operations of the Company are carried on primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. Both the Company and the Operating Partnership were formed on October 12, 2012 and commenced operations upon completion of the underwritten initial public offering of shares of the Company’s common stock (the “IPO”) and certain related formation transactions (the “Formation Transactions”) on May 13, 2013.

Armada Hoffler Properties, Inc. Predecessor (the “Predecessor”) was not a single legal entity, but rather a combination of real estate and construction entities. The entities comprising the Predecessor included: (i) the property development and asset management businesses of Armada Hoffler Holding Company, Inc. (“AH Holding”), (ii) the general commercial construction businesses of Armada Hoffler Construction Company and Armada Hoffler Construction Company of Virginia (collectively, “AH Construction”), (iii) controlling interests in entities that owned 22 properties (seven office, 14 retail and one multifamily), (iv) controlling interests in entities that undertook the development of six properties (two office, two retail and two multifamily, collectively, the “Development Pipeline”) and (v) noncontrolling interests in entities that owned one retail property and one multifamily property (collectively, the “Noncontrolled Entities”). AH Holding, AH Construction, the controlling interests in the 22 real estate properties and the controlling interests in the Development Pipeline are referred to as the Controlled Entities. The Controlled Entities were under common ownership by their individual partners, members and stockholders and under common control of Daniel A. Hoffler prior to the IPO and the Formation Transactions. Mr. Hoffler had the ability to control each of the Controlled Entities as the primary beneficiary, the majority vote holder or through his interest as a general partner or managing member. The financial position and results of operations of the Controlled Entities have been combined in the Predecessor financial statements for the periods prior to the completion of the IPO and the Formation Transactions. The Predecessor accounted for its investments in the Noncontrolled Entities under the equity method of accounting.

Controlled Entities (Combined by the Predecessor)


Office Properties		Location
Armada Hoffler Tower		Virginia Beach, VA
Richmond Tower		Richmond, VA
One Columbus		Virginia Beach, VA
Two Columbus		Virginia Beach, VA
Oyster Point		Newport News, VA
Virginia Natural Gas		Virginia Beach, VA
Sentara Williamsburg		Williamsburg, VA

Retail Properties		Location
249 Central Park Retail		Virginia Beach, VA
South Retail		Virginia Beach, VA
Studio 56 Retail		Virginia Beach, VA
Commerce Street Retail		Virginia Beach, VA
Fountain Plaza Retail		Virginia Beach, VA
Dick’s at Town Center		Virginia Beach, VA
Broad Creek Shopping Center		Norfolk, VA
North Point Center		Durham, NC
Hanbury Village		Chesapeake, VA
Gainsborough Square		Chesapeake, VA
Parkway Marketplace		Virginia Beach, VA
Harrisonburg Regal		Harrisonburg, VA
Courthouse 7-Eleven		Virginia Beach, VA
Tyre Neck Harris Teeter		Portsmouth, VA

Multifamily Property		Location
The Cosmopolitan		Virginia Beach, VA

Development Pipeline		Location
4525 Main Street⁽¹⁾		Virginia Beach, VA
Encore Apartments⁽²⁾		Virginia Beach, VA
Whetstone Apartments⁽³⁾		Durham, NC
Sandbridge Commons		Virginia Beach, VA
Brooks Crossing		Newport News, VA
Greentree Shopping Center		Chesapeake, VA

(1)	Previously referred to as Main Street Office.

(2)	Previously referred to as Main Street Apartments.

(3)	Previously referred to as Jackson Street Apartments.


General Contracting and Real Estate Services
AH Holding		AH Construction

Noncontrolled Entities (Equity method accounting by the Predecessor)



Retail Property		Location
Bermuda Crossroads		Chester, VA

Multifamily Property		Location
Smith’s Landing		Blacksburg, VA

Initial Public Offering and Formation Transactions

On May 13, 2013, the Company completed the IPO of 16,525,000 shares of common stock priced at $11.50 per share. On May 22, 2013, the underwriters of the IPO exercised their overallotment option in full to purchase an additional 2,478,750 shares at the IPO price of $11.50 per share. Proceeds from the IPO to the Company after deducting the underwriting discount and related offering costs were $192.0 million. The common stock is listed on the New York Stock Exchange under the symbol “AHH” and began trading on May 8, 2013. The Company contributed the net proceeds from the IPO to the Operating Partnership in exchange for common units in the Operating Partnership. The Operating Partnership repaid $150.0 million of outstanding indebtedness with net proceeds from the IPO and paid $47.6 million as partial consideration to prior investors in connection with the Formation Transactions.

On May 13, 2013, the Operating Partnership, as borrower, and the Company, as parent guarantor, entered into a $100.0 million senior secured revolving credit facility. Upon completion of the IPO, the Operating Partnership borrowed $40.0 million under the revolving credit facility to fund a portion of the consideration payable in connection with the completion of the Formation Transactions, repay existing lines of credit and certain debt relating to the projects in the Development Pipeline and repay existing indebtedness relating to certain properties acquired in connection with the Formation Transactions.

Pursuant to the Formation Transactions, the Operating Partnership: (i) acquired 100% of the interests in the Controlled Entities and the Noncontrolled Entities, (ii) succeeded to the ongoing construction and development businesses of AH Holding and AH Construction, (iii) assumed asset management of certain of the properties acquired from the Predecessor, (iv) succeeded to the third party asset management business of AH Holding, (v) succeeded to the projects in the Development Pipeline, (vi) received options to acquire nine parcels of developable land from the Predecessor and (vii) entered into a contribution agreement to acquire Liberty Apartments, a 197-unit multifamily property located in Newport News, Virginia, upon satisfaction of certain conditions and transferability restrictions including completion of the project’s construction by AH Construction. The Operating Partnership completed the acquisition of Liberty Apartments on January 17, 2014.

The Company accounted for the contribution or acquisition of interests in the Controlled Entities as transactions among entities under common control because Mr. Hoffler had the ability to control each of the Controlled Entities as previously described. As a result, the contribution or acquisition of interests in each of the Controlled Entities was accounted for at the Predecessor’s historical cost. The acquisitions of interests in the Noncontrolled Entities were accounted for as purchases at fair value under the acquisition method of accounting.

Because of the timing of the IPO and the Formation Transactions, the financial condition as of December 31, 2012 and results of operations for the years ended December 31, 2012 and 2011 reflect those of the Predecessor. The results of operations for the year ended December 31, 2013 reflect those of the Predecessor together with the Company, while the financial condition as of December 31, 2013 reflects solely that of the Company. References to “Armada Hoffler” in these notes to consolidated and combined financial statements signify the Company for the period after the completion of the IPO and the Formation Transactions on May 13, 2013 and the Predecessor for all prior periods.