5.	*Real Estate Investments*

The Company’s real estate investments comprised the following as of December 31, 2014 and 2013 (in thousands):


	December 31, 2014
	Income producing property		Held for development		Construction in progress		Total
Land	$	40,898	$	—	$	15,260	$	56,158
Land improvements		16,279		—		—		16,279
Buildings and improvements		456,741		—		—		456,741
Development and construction costs		—		—		65,822		65,822

Real estate investments	$	513,918	$	—	$	81,082	$	595,000


	December 31, 2013
	Income producing property		Held for development		Construction in progress		Total
Land	$	27,736	$	—	$	13,577	$	41,313
Land improvements		12,562		—		—		12,562
Buildings and improvements		365,941		—		—		365,941
Development and construction costs		—		—		43,160		43,160

Real estate investments	$	406,239	$	—	$	56,737	$	462,976

Acquisition of Liberty Apartments

As discussed in Note 1, the Company completed the acquisition of Liberty Apartments from affiliates of the Predecessor on January 17, 2014. The fair value of the total consideration transferred at the acquisition date to acquire Liberty Apartments was $26.7 million, consisting of 695,652 common units of limited partnership interest in the Operating Partnership (“OP Units”), $3.0 million in cash and the assumption of $17.0 million of debt. The fair value adjustment to the assumed debt of Liberty Apartments was a $1.5 million discount. The outstanding principal balance of the assumed debt of Liberty Apartments at the acquisition date was $18.5 million.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):


	Liberty Apartments
Land	$	3,580
Site improvements		280
Building and improvements		23,214
In-place leases		340
Indebtedness		(16,966	)
Net working capital		(679	)


Net assets acquired	$	9,769

Liberty Apartments did not have significant operations during the year ended December 31, 2013. Rental revenues and net loss from Liberty Apartments for the period from the acquisition date to December 31, 2014 included in the consolidated statement of income was $1.0 million and $(2.1) million, respectively.

Acquisition of Dimmock Square

On August 15, 2014, the Company completed the acquisition of Dimmock Square, a 106,166 square foot retail center located in Colonial Heights, Virginia. The fair value of the total consideration transferred at the acquisition date to acquire Dimmock Square was $19.7 million, consisting of 990,952 OP Units and $10.1 million of cash that was used to immediately defease the loan secured by Dimmock Square upon its contribution to the Operating Partnership.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):


	Dimmock Square
Land	$	5,100
Site improvements		600
Building and improvements		12,526
In-place leases		1,880
Above and below-market leases		(390	)


Net assets acquired	$	19,716

Rental revenues and net loss from Dimmock Square for the period from the acquisition date to December 31, 2014 included in the consolidated statement of income was $0.8 million and less than $(0.1) million, respectively.

During the year ended December 31, 2014, the Company recognized $0.2 million of acquisition, development and other pursuit costs primarily related to the acquisition of Dimmock Square.

Acquisitions of Bermuda Crossroads and Smith’s Landing

Substantially concurrent with the completion of the IPO on May 13, 2013 and in connection with the Formation Transactions, the Operating Partnership acquired 100% of the interests in Bermuda Crossroads and Smith’s Landing. Prior to the acquisition date, the Predecessor accounted for its 50% interest in Bermuda Crossroads and 40% interest in Smith’s Landing as equity method investments.

The acquisitions of controlling interests in Bermuda Crossroads and Smith’s Landing were accounted for as purchases at fair value under the acquisition method of accounting. Total consideration in the form of cash and OP Units paid for the 50% interest in Bermuda Crossroads was $3.2 million. Total consideration in the form of cash and OP Units paid for the 60% interest in Smith’s Landing was $7.5 million.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):


	Bermuda Crossroads			Smith’s Landing
Land	$	5,450		$	—
Site improvements		540			450
Building and improvements		10,101			34,655
Intangible assets		2,860			2,420
Net working capital		237			14
Indebtedness		(11,053	)		(24,995	)
Below-market leases		(1,750	)		—

Net assets acquired	$	6,385		$	12,544

The identified intangible assets for Bermuda Crossroads are primarily in-place leases. The identified intangible assets for Smith’s Landing include $1.9 million assigned to a below-market ground lease and $0.5 million assigned to in-place leases. The fair value adjustment to the assumed debt of Bermuda Crossroads was a $0.2 million premium. The fair value adjustment to the assumed debt of Smith’s Landing was not significant.

The acquisition-date fair values of the previous equity interests in Bermuda Crossroads and Smith’s Landing were $3.2 million and $5.0 million, respectively. The Company recognized a gain of $9.5 million as a result of remeasuring the Predecessor’s prior equity interests in Bermuda Crossroads and Smith’s Landing held before the acquisitions.

Rental revenues and net income of both Bermuda Crossroads and Smith’s Landing for the period from the acquisition date to December 31, 2013 included in the consolidated and combined statements of income were $3.8 million and $0.2 million, respectively.

Pro Forma Financial Information (Unaudited)

The following table summarizes the consolidated and combined results of operations of Armada Hoffler on a pro forma basis, as if Dimmock Square had been acquired as of January 1, 2013 and both Bermuda Crossroads and Smith’s Landing had been acquired as of January 1, 2012 (in thousands):


	Years Ended December 31,
	2014		2013		2012
Rental revenues	$	66,000	$	61,555	$	60,075
Net income		13,361		5,676		18,520

The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if these acquisitions had taken place on January 1, 2013 and 2012. The pro forma financial information includes adjustments to rental revenue and rental expenses for above and below-market leases, adjustments to depreciation and amortization expense for acquired property and in-place lease assets and adjustments to interest expense for fair value adjustments to assumed debt.

Pro forma net income for the year ended December 31, 2012 includes the nonrecurring $9.5 million gain as a result of remeasuring the Predecessor’s prior equity interests in Bermuda Crossroads and Smith’s Landing held before the acquisitions.

Other Real Estate Transactions

On April 16, 2014, the Company purchased land in Williamsburg, Virginia for $7.6 million for the development and construction of Lightfoot Marketplace.

On May 1, 2014, the Company purchased land in Chesapeake, Virginia for $0.3 million for the development and construction of a new administrative building for the Commonwealth of Virginia.

On September 29, 2014, the Company purchased land in Virginia Beach, Virginia for $0.2 million for the development and construction of a new administrative building for the Commonwealth of Virginia.

On November 20, 2014, the Company completed the sale of the Virginia Natural Gas office property for $8.9 million in cash. Net proceeds to the Company after transaction costs and tax protection payments were $7.4 million. The gain on the disposition of the Virginia Natural Gas office property was $2.2 million.

Subsequent to December 31, 2014

On January 5, 2015, the Company completed the sale of the Sentara Williamsburg office property for $15.4 million in cash. Net proceeds to the Company after transaction costs were $15.2 million. The gain on the disposition of the Sentara Williamsburg office property was $6.2 million. The Company intends to use the net proceeds from the Sentara Williamsburg sale in combination with the issuance of common stock to acquire two grocery store anchored retail centers in Maryland for a combined purchase price of $39.1 million. Both transactions are subject to customary closing conditions and are expected to close by the end of the first quarter of 2015.

On January 9, 2015, the Company entered into an agreement to purchase a 57,000 square foot grocery store anchored retail center in Myrtle Beach, South Carolina for $8.7 million, including the assumption of approximately $5.1 million of debt. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2015.

On February 13, 2015, the Company agreed to the future sale of the Oyster Point office property for $6.5 million in cash. The Company intends to complete the sale on January 15, 2017.

On February 26, 2015, the Company entered into a definitive agreement to sell Whetstone Apartments for $35.6 million. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2015.