Call Start: 8:30 January 1, 0000 9:14 AM ET Armada Hoffler Properties, Inc. (NYSE:AHH) Q4 2024 Earnings Conference Call February 20, 2025 8:30 AM ET Company Participants Chelsea Forrest - Vice President of Investor Relations Shawn Tibbetts - President and CEO Matthew Barnes-Smith - CFO Conference Call Participants Robert Stevenson - Janney Montgomery Viktor Fediv - Scotia Bank Andrew Berger - Bank of America Operator Good morning, ladies and gentlemen, welcome to the Armada Hoffler Fourth Quarter Earning ...

Financial Data and Key Metrics Changes - The company reported a normalized FFO of $0.27 per diluted share and an FFO of $0.29 per diluted share for Q4 2024, with a full-year FFO of $1.02 and normalized FFO of $1.29 per diluted share [10][37] - The overall portfolio occupancy at the end of Q4 stood at 96%, slightly increasing compared to the prior quarter [42] - The company provided a normalized FFO guidance range of $1 to $1.10 per diluted share for 2025, reflecting challenges such as construction delivery delays and increased interest expenses [46] Business Line Data and Key Metrics Changes - The retail segment achieved an 11.1% GAAP spread, while the office segment achieved an 18.7% GAAP spread, with all three segments posting positive releasing spreads [39] - The multi-family portfolio reported a combined trade-out spread of negative 0.8% for Q4, but year-to-date stabilized trade-outs have shown improvements with a combined trade-out of positive 0.6% [40] - The construction management segment posted $2.1 million of gross profit, with expectations for this segment's performance to return closer to historical levels in the short term [42] Market Data and Key Metrics Changes - The office assets in mixed-use environments are commanding around a 15% premium above competing central business districts in the region [22] - The retail portfolio had a strong performance with 95% occupancy, executing new leases covering approximately 195,000 square feet [27] - The multi-family portfolio continues to operate well at 95.3% occupancy, with rent growth in markets such as Baltimore and Virginia Beach [33] Company Strategy and Development Direction - The company remains committed to improving income streams and balance sheet quality, focusing on sustainable growth while maintaining financial strength [9] - The strategy includes recycling stabilized assets where value has been maximized and capitalizing on better long-term opportunities [14] - The company is focused on strengthening its balance sheet by reducing leverage and enhancing financial flexibility [18] Management's Comments on Operating Environment and Future Outlook - Management expects 2025 to be the trough year for earnings, with anticipated growth in 2026 and beyond as developments stabilize [90] - The company is committed to refining its business model and pursuing redevelopment opportunities that add significant value [35] - Management acknowledges challenges in the current cost of capital but remains confident in the long-term value of the portfolio [44] Other Important Information - The company disposed of two non-core retail assets at a blended cap rate in the low 6% range, achieving an aggregate sales price of $82 million, representing more than a 20% profit spread over cost [15] - The T. Rowe Price global headquarters is nearing completion, expected to bring 2,500 employees to the community [16] Q&A Session Summary Question: What does the market look like going forward on the Mez side? - Management is receiving inquiries about financing deals and is monitoring the lending market closely, but is not prepared to execute new investments at this time [52][54] Question: Can you comment on the dilution from recent equity raises and asset sales? - The equity raise in September resulted in roughly 5 cents worth of dilution per share after debt repayment [62][65] Question: How is the releasing process going for Southgate First with declining occupancy? - Management is actively negotiating with potential backfill tenants for closed stores and anticipates positive releasing activity [73][75] Question: Are there any active properties being marketed for capital recycling? - Management has received unsolicited interest in retail properties and is evaluating potential disposals based on quality and strategic alignment [80][84] Question: Can you provide details on the trajectory of FFO throughout 2025? - Management expects 2025 to be the trough year, with growth anticipated in 2026 as developments stabilize and operational efficiencies improve [90][92]

FINANCIAL PACKAGE SUPPLEMENTAL CORPORATE PROFILE Armada Hoffler (NYSE: AHH) is a vertically integrated, self-managed real estate investment trust ("REIT") with over four decades of experience developing, building, acquiring, and managing high-quality retail, office, and multifamily properties located primarily in the Mid-Atlantic and Southeastern United States. The Company also provides general construction and development services to third-party clients, in addition to developing and building properties to ...

Financial Performance - Armada Hoffler Properties reported quarterly funds from operations (FFO) of $0.27 per share, matching the Zacks Consensus Estimate, but down from $0.31 per share a year ago [1] - The company posted revenues of $62.95 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 2.67%, compared to $59.84 million in the same quarter last year [2] - Over the last four quarters, Armada Hoffler Properties has surpassed consensus FFO estimates three times and topped consensus revenue estimates three times [2][1] Stock Performance and Outlook - Armada Hoffler Properties shares have declined approximately 8.4% since the beginning of the year, while the S&P 500 has gained 4.2% [3] - The company's FFO outlook is crucial for assessing future stock performance, with current consensus FFO estimates at $0.24 for the coming quarter and $1.09 for the current fiscal year [4][7] - The estimate revisions trend for Armada Hoffler Properties is currently unfavorable, resulting in a Zacks Rank 4 (Sell), indicating expected underperformance in the near future [6] Industry Context - The REIT and Equity Trust - Residential industry, to which Armada Hoffler Properties belongs, is currently in the bottom 32% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in estimate revisions, which could impact investor sentiment [5]

Core Insights - Armada Hoffler Properties, Inc. reported a GAAP net income of $26.1 million, or $0.26 per diluted share, for the fourth quarter of 2024, a significant recovery from a net loss of $23.9 million, or $0.27 per diluted share, in the same quarter of 2023 [3][4][30] - The company achieved a normalized FFO of $27.8 million, or $0.27 per diluted share, for the fourth quarter, slightly down from $27.9 million, or $0.31 per diluted share, in the prior year [5][30] - For the full year 2024, net income attributable to common stockholders was $30.9 million compared to a net loss of $4.5 million in 2023, while FFO increased to $99.8 million from $90.7 million [6][30] Financial Performance - The company reported a total revenue of $142.6 million for the fourth quarter, compared to $191.0 million in the same period of 2023, with rental revenues increasing to $62.9 million from $59.8 million [28] - The office same-store NOI grew by 12.3% on a GAAP basis compared to the fourth quarter of 2023, indicating strong performance in the office segment [3][7] - Positive renewal spreads were noted across all segments, with retail at 11.1% (GAAP), office at 18.7% (GAAP), and multifamily at 4.7% (GAAP) [3][7] Leasing and Occupancy - The company executed 21 lease renewals and 23 new leases during the fourth quarter, totaling approximately 315,000 net rentable square feet [3][7] - As of December 31, 2024, the weighted average stabilized portfolio occupancy was 96.0%, with retail occupancy at 95.3%, office at 97.2%, and multifamily at 95.3% [3][7] Guidance and Outlook - Armada Hoffler introduced its 2025 full-year normalized FFO guidance range of $1.00 to $1.10 per diluted share [10][11] - The company anticipates portfolio NOI for 2025 to be between $171.2 million and $175.8 million, with construction segment gross profit expected to range from $6.8 million to $8.6 million [11][10] Management and Strategic Direction - The company is focused on improving income streams and balance sheet quality, with a strategy aimed at sustainable growth while maintaining financial strength [3][4] - A succession plan was executed with Shawn Tibbetts appointed as CEO effective January 1, 2025, following Louis S. Haddad's resignation [8]

Financial Performance - GAAP net income for Q4 2024 was $26.1 million, or $0.26 per diluted share, compared to a net loss of $23.9 million, or $0.27 per diluted share in Q4 2023[4]. - Net income attributable to common stockholders for the three months ended December 31, 2024, was $26,140,000, compared to a loss of $23,938,000 in the same period of 2023[30]. - Net income for Q4 2024 was $29,036, compared to a net loss of $21,062 in Q4 2023, marking a significant turnaround[34]. - Normalized FFO for Q4 2024 was $27.8 million, or $0.27 per diluted share, slightly down from $27.9 million, or $0.31 per diluted share in Q4 2023[6]. - Normalized FFO for the year ended December 31, 2024, was $118,893,000, an increase from $110,467,000 in 2023, reflecting a growth of about 7.3%[32]. - Operating income for the year ended December 31, 2024, was $106,543,000, compared to $73,587,000 in 2023, indicating an increase of about 44.8%[30]. - Cash and cash equivalents increased significantly to $70,642,000 as of December 31, 2024, compared to $27,920,000 in 2023, marking a growth of approximately 153%[27]. - Total revenues for the year ended December 31, 2024, increased to $708,470,000, up from $667,158,000 in 2023, representing a growth of approximately 6.2%[29]. Debt and Assets - Total debt outstanding as of December 31, 2024, was $1,297.5 million, with 94% fixed or economically hedged[11]. - Indebtedness, net, decreased to $1,295,559,000 in 2024 from $1,396,965,000 in 2023, representing a reduction of approximately 7.2%[27]. - Total assets decreased to $2,512,863,000 as of December 31, 2024, from $2,562,898,000 in 2023, indicating a decline of about 2%[28]. Revenue and NOI Growth - Rental revenues for the year ended December 31, 2024, were $256,697,000, up from $238,924,000 in 2023, reflecting an increase of about 7.4%[29]. - General contracting and real estate services revenues for the year ended December 31, 2024, rose to $433,177,000, compared to $413,131,000 in 2023, a growth of approximately 4.9%[29]. - Office same store NOI growth was 12.3% on a GAAP basis compared to Q4 2023[7]. - Total Property NOI for the year ended December 31, 2024, was $170,979, an increase of 6.0% compared to $160,063 in 2023[34]. - Retail Same Store NOI on a cash basis for Q4 2024 was $16,344, up 1.8% from $16,050 in Q4 2023[34]. - Office Same Store NOI for Q4 2024 was $13,896, reflecting a 12.3% increase from $12,369 in Q4 2023[34]. - Multifamily Same Store NOI for the year ended December 31, 2024, was $31,355, a decrease of 1.6% from $31,864 in 2023[34]. Leasing and Dispositions - The company executed 21 lease renewals and 23 new leases, totaling approximately 315,000 net rentable square feet in Q4 2024[4]. - The company completed the disposition of retail properties for gross proceeds of $82.0 million, resulting in a net gain of $21.3 million[7]. - The company reported a gain on real estate dispositions of $21,305,000 for the year ended December 31, 2024, compared to a gain of $738,000 in 2023[30]. - Positive retail renewal spreads were 11.1% (GAAP) and 2.9% (Cash), while office renewal spreads were 18.7% (GAAP) and 3.5% (Cash)[4]. Guidance and Future Outlook - The company introduced 2025 full-year Normalized FFO guidance in the range of $1.00 to $1.10 per diluted share[12]. - The company reported a construction backlog of $123.8 million as of December 31, 2024[9]. Interest Income and Expense - Interest income from real estate financing investments was $4.0 million for Q4 2024[10]. - Interest income for the year increased to $2,519, compared to $927 in 2023[34]. - Interest expense for the year was $72,377, an increase from $54,144 in 2023[34]. - General contracting and real estate services gross profit for the year was $13,875, up from $13,418 in 2023[34].

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Core Insights - Armada Hoffler has secured a significant lease with The Gathering Spot, which will occupy 38,000 square feet on the rooftop and an additional 20,000 square feet of office space at The Interlock in Atlanta [1][2] - The Interlock is a mixed-use development that includes 203,000 square feet of office space, 108,000 square feet of retail space, and a boutique hotel, highlighting the demand for well-located, amenity-rich real estate [2] - The Gathering Spot, founded in 2016, is a private club that has expanded to multiple cities and has approximately 12,000 members, making it the largest Black-owned community in the U.S. [3] Company Overview - Armada Hoffler is a self-managed real estate investment trust (REIT) with over 40 years of experience in developing, building, acquiring, and managing high-quality properties primarily in the Mid-Atlantic and Southeastern U.S. [5] - The company also provides development and general contracting services to third-party clients, showcasing its integrated business model [5] The Gathering Spot's Vision - The Gathering Spot aims to create a dynamic environment for business meetings and networking, while also providing spaces for relaxation and wellness experiences [4] - The new location will feature membership perks such as full-service restaurants, flexible workspaces, and skill workshops, enhancing the overall member experience [4]

Core Viewpoint - Armada Hoffler Properties, Inc. announced the income tax treatment of its 2024 dividend distributions for common and preferred stockholders, detailing the classification of dividends for tax reporting purposes [1][2]. Common Stock Dividends - Total Ordinary Dividends: 36.62% - Total Capital Gain Distribution: 36.80% - Unrecaptured Section 1250 Gain: 25.45% - Section 897 Ordinary Dividend: 2.89% - Section 897 Capital Gain: 36.80% - Non-Dividend Distributions: 26.58% - Section 199A Dividends: 36.62% - Total Return of Capital: 26.58% - Total classified as Capital Gain is Section 1231 gain for IRC Section 1061 [3][4]. Preferred Series A Dividends - Total Ordinary Dividends: 49.88% - Total Capital Gain Distribution: 50.12% - Unrecaptured Section 1250 Gain: 34.66% - Section 897 Ordinary Dividend: 3.94% - Section 897 Capital Gain: 50.12% - Section 199A Dividends: 49.88% [3][4]. Company Overview - Armada Hoffler Properties, Inc. is a vertically-integrated, self-managed real estate investment trust (REIT) with over 40 years of experience in developing, building, acquiring, and managing high-quality properties primarily in the Mid-Atlantic and Southeastern United States [6]. - The company provides development and general contracting services to third-party clients and has been elected to be taxed as a REIT for U.S. federal income tax purposes [6].

Core Viewpoint - Armada Hoffler is taking strategic steps to reduce exposure to variable rate debt as part of its balance sheet management strategy, aiming for prudent financial management and risk mitigation [1]. Group 1: Financial Management Initiatives - The company executed a $150 million floating-to-fixed rate swap effective January 2, 2025, with a fixed rate of 2.5% and a total cost of $4.6 million, achieving 100% hedging on its variable rate debt exposure [3]. - Armada Hoffler repaid $45.6 million of secured variable-rate debt with a weighted average effective interest rate of 6.80% [3]. - The refinancing of its Premier mixed-use property resulted in a new $29.4 million agency loan fixed at 5.53% interest-only through December 2029, replacing a previous variable-rate loan with an effective rate of 6.4% [3]. - The company paid down its SOFR referenced revolving credit facility by $19.0 million through December 31, 2024 [3]. Group 2: Company Overview - Armada Hoffler is a vertically integrated, self-managed real estate investment trust (REIT) with over 40 years of experience in developing, building, acquiring, and managing high-quality office, retail, and multifamily properties primarily in the Mid-Atlantic and Southeastern United States [2]. - The company also provides general construction and development services to third-party clients, in addition to developing properties for its stabilized portfolio [2].